CHAPTER 13
Services Marketing
TEACHING RESOURCES QUICK REFERENCE GUIDE
Resource
Location
Purpose and Perspective
IRM, p. 271
Lecture Outline
IRM, p. 272
Discussion Starters
IRM, p. 281
Class Exercises
IRM, p. 283
Chapter Quiz
IRM, p. 285
Semester Project
IRM, p. 286
Answers to Discussion and Review Questions
IRM, p. 287
Answers to Application Questions
IRM, p. 290
Answers to Internet Exercise
IRM, p. 291
Answers to Developing Your Marketing Plan
IRM, p. 292
Comments on the Cases
IRM, p. 293
Case 13.1
IRM, p. 293
Case 13.2
IRM, p. 294
Examination Questions: Essay
Testing CD
Examination Questions: Multiple-Choice
Testing CD
Examination Questions: True-False
Testing CD
PowerPoint Slides
PURPOSE AND PERSPECTIVE
We begin with a discussion of the nature of services, focusing on the growth and importance of service
industries in our economy. We address the unique characteristics of services that differentiate them from
goods—intangibility, inseparability of production and consumption, perishability, heterogeneity, client–
based relationships, and customer contact. We next present issues associated with developing marketing
272 Chapter 13: Services Marketing
LECTURE OUTLINE
1. The Growth and Importance of Services
A. All products are intangible or feature intangible elements to some extent, but services are the
most intangible.
B. A service is an intangible product involving a deed, a performance, or an effort which cannot be
physically possessed.
1. Services are usually provided through the application of human and/or mechanical efforts
directed at people or objects.
D. Services are increasingly important in many nations, and the importance of services in the U.S.
economy has led many people to call the United States the world’s first service economy.
Services represent well over half of the GDP in many developed nations.
1. A practice that has gained popularity among a number of U.S. businesses is homesourcing,
in which customer-contact jobs, especially at call centers, are outsourced into the homes of
workers.
2. Sustained economic growth and lifestyle changes have led to the expansion of the service
2. Characteristics of Services
A. There are six distinguishing characteristics of services that differentiate them from goods.
B. Intangibility
1. Intangibility means a service is not physical and therefore cannot be perceived by the senses.
2. A service cannot be seen, touched, tasted, or smelled.
Chapter 13: Services Marketing 273
C. Inseparability of Production and Consumption
1. Inseparability of production and consumption means the production of a service cannot be
separated from its consumption by customers; production and consumption are simultaneous.
D. Perishability
1. Perishability means that the unused service capacity from one time period cannot be stored
for future use.
E. Heterogeneity
1. Heterogeneity means variation in quality.
2. Quality of manufactured goods is easier to control with standardized procedures and mistakes
are easier to correct than in the service industry.
F. Client-Based Relationships
1. Client-based relationships are interactions that result in satisfied customers who use a
service repeatedly over time.
274 Chapter 13: Services Marketing
4. A concentrated effort to provide quality services builds a relationship in which customers
become very loyal and are unlikely to switch to a competitor.
G. Customer Contact
1. Customer contact is the level of interaction between the provider and the customer needed
to deliver the service.
3. Developing and Managing Marketing Mixes for Services
A. The characteristics of services require marketers to consider additional issues within the four
major marketing-mix variables—product, distribution, promotion, and price.
B. Development of Services
1. A service offered by an organization is generally a package, or bundle, of services consisting
of a core service and one or more supplementary services.
2. Heterogeneity results in variability in service quality and makes it difficult to standardize
service delivery.
a. Heterogeneity provides the advantage to marketers of allowing them to customize
services to match the specific needs of individual customers. Customization is a key
3. Intangibility makes it difficult for customers to evaluate a service prior to purchase.
a. Intangibility requires service marketers to market promises to customers, although they
should be wary of raising customer expectations beyond what they can provide.
Chapter 13: Services Marketing 275
C. Distribution of Services
1. Marketers deliver services in a variety of ways.
2. Marketing channels for services are usually short and direct, meaning the producer delivers
the service directly to the end user, but some services use intermediaries.
3. Warehousing and transportation are not major concerns of service providers. However,
inventory management is very important, especially balancing supply and demand.
4. To make delivery more accessible to customers and to increase the supply of a service as well
as to reduce labor costs, some service providers have decreased the use of contact personnel
and replaced them with equipment. This can result in a lack of personalization.
D. Promotion of Services
2. Promotion of services typically includes tangible cues which symbolize the service.
a. While these symbols have nothing to do with the actual service, they make it easier for
3. Service providers are more likely to promote price, guarantees, performance documentation,
availability, and training and certification of contact personnel than goods marketers.
276 Chapter 13: Services Marketing
4. Contact personnel, through their actions, can be directly or indirectly involved in the personal
selling of a service.
E. Pricing of Services
1. Services should be prices with consumer price sensitivity, the nature of the transaction and its
costs in mind.
2. Prices of services can be established on several different bases.
(1) The perishability of services means when demand is low, the unused capacity cannot
be stored and is lost forever.
(2) Some services are very time-sensitive in that a significant number of customers
3. Because of the intangibility of services, customers rely more heavily on price as an indicator
of quality.
4. Under certain conditions, such as when the service is perceived as generic in nature,
marketers may be limited with respect to setting prices.
a. Market conditions may limit prices for certain services.
4. Service Quality
A. Service quality is defined as customers’ perception of how well a service meets or exceeds their
expectations; marketers are thus forced to examine quality from the customer’s point of view.
Chapter 13: Services Marketing 277
C. Customer Evaluation of Service Quality
1. Service quality is difficult to evaluate because services have few search qualities—tangible
attributes that can be evaluated before the purchase (such as color, style, size, feel, or fit).
2. Service quality must instead be judged on experience and credence qualities.
a. Experience qualities are attributes that can be judged only during purchase or
3. In spite of the difficulties in evaluating quality, service quality may be the only way that
customers can choose one service over another.
4. Marketers must learn how customers evaluate service quality.
a. Tangible elements, such as the appearance of facilities and employees, are often the only
D. Delivering Exceptional Service Quality
1. Providing high-quality service on a consistent basis is very difficult.
2. Organizations can take steps to increase the likelihood of providing consistently high-quality
3. Analysis of Customer Expectations
a. By analysis of customer expectations, a service can be designed to meet or exceed those
4. Service Quality Specifications
a. Once an organization understands its customers’ needs, it must establish goals to ensure
5. Employee Performance
a. Employee performance is critical to customer perceptions of service quality.
b. There is a direct relationship between the satisfaction of a company’s contact employees
6. Management of Service Expectations
a. Service companies must set realistic expectations about the services they can provide to
customers.
5. Nonprofit Marketing
A. Nonprofit marketing includes marketing activities conducted by individuals and organizations
to achieve some goal other than ordinary business goals of profit, market share, or return on
investment; it is divided into two categories:
B. How Is Nonprofit Marketing Different?
1. Although the chief beneficiary of the business enterprise is the owner, the beneficiaries of the
nonprofit enterprise include clients, members, and the public at large.
2. Nonprofit marketing offers greater opportunities for creativity than most for-profit business
Chapter 13: Services Marketing 279
C. Nonprofit Marketing Objectives
1. The basic aim of nonprofit organizations is to obtain a desired response from a target market.
D. Developing Nonprofit Marketing Strategies
1. Target Markets
a. The target public is a collective of individuals who have an interest in or concern about
an organization, a product, or a social cause.
2. Developing Marketing Mixes
a. Nonprofit organizations usually deal more with ideas and services than with goods.
(1) Problems may arise if an organization fails to define what is being provided.
b. Distribution decisions in nonprofits relate to how ideas and services will be made
available to clients.
(1) If the product is an idea, selecting the right media to communicate the idea will
facilitate distribution.
c. Promotional decisions may be the first sign that a nonprofit organization is performing
marketing activities. Advertising and publicity are useful in communicating with clients
and the public.
(1) Direct mail is the primary means of fundraising for social services.
280 Chapter 13: Services Marketing
d. Pricing of nonprofit services is very different from other services.
(1) Nonprofits may use a fixed fee for services or variable pricing based on a user’s
ability to pay. When nonprofits accept any donation value, they use variable pricing.
Chapter 13: Services Marketing 281
DISCUSSION STARTERS
Discussion Starter 1: NetJet
ASK: Have you ever stood in a long line at the airport and wished you had a private plane? Can you see
any problems with private plan ownership?
With the increasing number of delays at airports and the crowded conditions on most flights, many
ASK: What type of service can you think of that could solve this problem?
In the last ten years, there has been a remarkable growth in the number of companies offering “fractional
ownership” of airplanes. It is the same concept used for time-share condominiums. The idea is that a user
ASK: Do you feel firms like NetJet should be concerned about the amount of pollution they generate and
the amount of resources they consume, flying private aircraft for a small number of people?
The NetJet website features information about the company’s environmental initiative to reduce carbon
Discussion Starter 2: Making the Most of Intangibility
ASK: How many of you have ever heard of a town called Winslow, Arizona?
ASK: How could Winslow Arizona capitalize on this brush with fame?
Winslow, which is about 100 miles from the Grand Canyon, was located on the main road to California,
282 Chapter 13: Services Marketing
Discussion Starter 3: Pricing the Intangible
ASK: When you are delivering a service which cannot be evaluated during or even immediately after
consumption, how do you set price?
This is a particularly vexing question for service providers, such as psychologists and psychiatrists who
ASK: Why is it important to have price set relative to your competition? How do consumers use price
when purchasing an unknown good?
Since people often rely on the price/quality relationship, many providers avoid the lower end of the