LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. How can services be defined and classified, and how do they differ from goods?
2. What are the new services realities?
3. How can companies achieve excellence in services marketing?
4. How can companies improve service quality?
5. How can goods marketers improve customer-support services?
SUMMARY
1. A service is any act or performance that one party can offer to another that is
2. Services are intangible, inseparable, variable, and perishable. Each characteristic
poses challenges and requires certain strategies. Marketers must find ways to give
3. Marketing of services faces new realities in the 21st century due to customer
4. Achieving excellence in service marketing calls not only for external marketing but
5. Top service companies adopt a strategic concept, have a history of top-management
commitment to quality, commit to high standards, establish profit tiers, and pay attention
6. Superior service delivery requires managing customer expectations and incorporating
7. Even product-based companies must provide postpurchase service. To offer the best
support, a manufacturer must identify the services customers value most and their relative
importance. The service mix includes both presale services (facilitating and value–
C H A P T E R
14
DESIGNING AND
MANAGING SERVICES
augmenting services) and postsale services (customer service departments, repair and
maintenance services).
OPENING THOUGHT
The teaching of “services marketing” can pose a challenge to the instructor by the very
nature of a “service”—its intangibility, inseparability, variability, and perishability.
Challenges to the instructor in teaching this course lies in connecting these concepts to
the students in ways that they will relate to and understand. Students use services
everyday, in their role as a student, it means that they are receiving a service—
instruction.
Students may have some difficulty in conceptualizing the service dimensions of
reliability, responsiveness, assurance, empathy, and tangibles as part of the service
marketing dimensions. The instructor is encouraged to use multiple examples of excellent
service companies, guest speakers, and personal or student real life examples to illustrate
the challenges facing the marketing of services to the public.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long project, those students who have selected a
2. Using the information on marketing research covered in this text, ask the students to
3. Sonic PDA Marketing Plan: All marketers need to develop a service strategy when
preparing their marketing plans. Marketers of intangible products must consider how
to manage customer expectations and satisfaction. Marketers of tangible products
must create suitable support services. You are planning product support services for
Sonic’s PDA. The following questions will help you map your service strategy:
• What support services do buyers of PDA products want and need? Consider what
Sonic’s competitors are doing in this area.
ASSIGNMENTS
As the opening vignette indicated, The Mayo Clinic has been built as one of the most
powerful services brands on its firmly held belief and focus on the experience of the
patient. As one staff member explained, “People don’t come to the hospital alone.” In
small groups, students should review their local hospitals (especially the one on campus)
to see if their local hospital adheres to the tenants’ of a good service provider. A starting
point is an examination of the hospital’s mission statement, beliefs, and patient rights
policies (if available).
Have students read Elisabeth Sullivan, “Happy Endings Lead to Happy Returns,”
Marketing News, October 30, 2009, p. 20. and interview five people about service
failures and how they reacted (e.g., did nothing, told friends, etc.). Ask the students to
analyze the responses, summarize the results, and list the implications for firms.
END-OF-CHAPTER SUPPORT
Marketing Debate: Is Service Marketing Different from Product Marketing?
Some service marketers maintain that service marketing is fundamentally different from
product marketing and relies on different skills. Some traditional product marketers
disagree, saying “good marketing is good marketing.”
Take a position: Product and service marketing are fundamentally different versus
Product and service marketing are highly related.
Suggested Response: Students should recognize the characteristics of services that make
them different from tangible products. However, they should also recognize that services
Pro: Marketing is marketing. Consumers buy a product or use a service to answer a particular
need or want. The customers’ value hierarchy: The customers’ decision–making process and
their own consumption system does not change when purchasing a service versus a product.
How the consumer comes to understand the core benefit, potential product, or the
The inseparability of the service provider from the consumer; the variability of service from
encounter to encounter; and the fact that the service is perishable all create new and different
marketing challenges for the service marketer. The service marketer must make an
Marketing Discussion: Educational Institutions
Colleges, universities, and other educational institutions can be classified as service
organizations. How can you apply the marketing principles developed in this chapter to
your school? Do you have any advice for how it could become a better service marketer?
Suggested Response: Student responses will vary. The best answers may include the
dimensions of SERVQUAL, mention co-creation, use of technology and customer
empowerment. Some marketing principles developed in the chapter were:
• A service differs from a product in its intangibility, inseparability, variability, and
perishability.
• Service marketing must be done holistically and calls for external, internal, and interactive
marketing.
Marketing Excellence: THE RITZ CARLTON
1. How does The Ritz–Carlton match up to competitive hotels? What are the key differences?
Suggested Answer: The Ritz–Carlton occupies a distinctive “niche” in consumer/customer
expectations and performance—ultimate luxury and unparalleled customer service. The Ritz–
Marketing Excellence: MAYO CLINIC
1. Explain why Mayo Clinic is exceptional at customer service. What are the key
differentiating points from other hospitals or medical facilities?
Suggested Answer: Student answers will vary but good students will cite and refer to the 5
2. Is there a conflict between wanting to make your patient happy and providing the best
medical care possible? Why or why not?
Suggested Answers: Student answers will vary and a strong case can be made for both.
Yes: Patient “happiness” is an emotion that has no definition that is universal to all. If the
DETAILED CHAPTER OUTLINE
Opening vignette: As companies find it harder to differentiate their physical products, they
turn to service differentiation, whether that means on-time delivery, better and faster response
to inquiries, or quicker resolution of complaints. Top service providers know these advantages
well and also how to create memorable customer experiences. It is critical to understand the
special nature of services and what that means to marketers, in this chapter we systematically
analyze services and how to market them most effectively.
I. The Nature of Services (service = any act or performance one party can offer to
another that is essentially intangible and does not result in the ownership of
anything)
A. Service Industries Are Everywhere
i. The government sector, with its courts, employment services,
hospitals, loan agencies, military services, police and fire departments,
B. Categories of Service Mix
i. A pure tangible good such as soap, toothpaste, or salt with no
accompanying services.
ii. A tangible good with accompanying services (typically, the more
technologically advanced the product, the greater the need for high-
quality supporting services).
iii. A hybrid offering of equal parts goods and services.
iv. A major service with accompanying minor goods and services
v. A pure service, primarily an intangible service
vi. Additional distinctions:
1. Services are equipment-based (automated car washes, vending
3. Service companies can choose among different processes to
deliver their service. Some services need the client’s presence.
5. Service providers typically develop different marketing
programs for these markets.
6. Service providers differ in their objectives (profit or nonprofit)
and ownership (private or public).
vii. Customers typically cannot judge the technical quality of some
services even after they have received them.
2. In the middle are goods and services high in experience
qualities—characteristics the buyer can evaluate after purchase
3. Goods and services high in credence qualities—characteristics
4. Because services are generally high in experience and credence
qualities, there is more risk in their purchase, with several
consequences.
a. Service consumers generally rely on word of mouth
rather than advertising.
C. Distinctive Characteristics of Services
i. Intangibility: unlike physical products, services cannot be seen, tasted,
felt, heard, or smelled before they are bought.
1. To reduce uncertainty, buyers will look for evidence of quality
2. The service provider’s task is to “manage the evidence,” to
“tangibilize the intangible” through any number of marketing
tools:
a. Place—The layout of the checkout area and the traffic
flow should be planned carefully. Waiting lines should
not get overly long.
f. Price—The supermarket could advertise a $10 rebate if
customers have to wait in line more than five minutes.
4. All aspects of the service delivery process can be branded
5. Service providers often choose brand elements—logos,
symbols, characters, and slogans—to make the service and its
key benefits more tangible
ii. Inseparability: services are typically produced and consumed
simultaneously.
iii. Variability: quality of services depends on who provides them, when
and where, and to whom; services are highly variable. Here are three
steps service firms can take to increase quality control:
3. Monitor customer satisfaction.
iv. Perishability: services cannot be stored, so their perishability can be a
problem when demand fluctuates
1. The right services must be available to the right customers at
2. On the demand (customer) side:
a. Differential pricing will shift some demand from peak
3. On the supply side:
a. Part-time employees can serve peak demand.
b. Peak-time efficiency routines can allow employees to
perform only essential tasks during peak periods.
II. The New Services Realities
A. A Shifting Customer Relationship
i. Customers complain about inaccurate information; unresponsive, rude,
or poorly trained workers; and long waits.
ii. Many consumers find their complaints never reach a human ear
because of slow or faulty phone or online reporting systems.
B. Customer Empowerment: Customers are becoming more sophisticated about
buying product-support services, are pressing for “unbundled services” and
the right to select the elements they want, and can give feedback with a mouse
click.
C. Customer Coproduction: Customers do not merely purchase and use a
service; they play an active role in its delivery.
i. Their words and actions affect the quality of their service experiences
and those of others as well as the productivity of frontline employees.
ii. Customers often feel they derive more value, and feel a stronger
connection to the service provider, if they are actively engaged in the
service process.
iii. This coproduction can put stress on employees, however, and reduce
their satisfaction, especially if they differ from customers culturally or
in other ways
D. To avoid service failures:
i. Redesign processes and redefine customer roles to simplify service
encounters.
E. Satisfying Employees as Well as Customers
i. Excellent service companies know that positive employee attitudes
will strengthen customer loyalty
ii. Employees thrive in customer-contact positions when they have an
internal drive to (1) pamper customers, (2) accurately read their needs,
(3) develop a personal relationship with them, and (4) deliver high-
quality service to solve customers’ problems.
III. Achieving Excellence in Services Marketing
A. Marketing excellence in services requires excellence in three broad areas:
external, internal, and interactive marketing
i. External marketing describes the normal work of preparing, pricing,
B. Technology and Service Delivery
i. Technology occasionally has unanticipated benefits.
ii. Companies must avoid pushing technological efficiency so hard,
however, that they reduce perceived quality
iii. Companies must incorporate the proper safeguards and reassure
customers about their efforts.
C. Best Practices of Top Service Companies
i. Strategic Concept: Top service companies have a clear sense of their
target customers and their needs and have developed a distinctive
strategy for satisfying them.
ii. Top-Management Commitment: Managers look monthly not only at
D. Differentiating Services
i. Marketing excellence requires service marketers to continually
differentiate their brands so they are not seen as a commodity.
ii. People and processes add value
iii. Many companies are using the Internet to offer primary or secondary
service features that were never possible before.
E. Innovation is as vital in services as in any industry. Examples of innovative
services include:
i. Online travel
IV. Managing Service Quality
A. Service outcomes and customer loyalty are influenced by a variety of
outcomes.
B. Factors leading to customer switching behavior include:
i. Pricing
ii. Inconvenience
iii. Core Service Failure
iv. Service Encounter Failures
C. Recommendations for improving service quality
i. Listening
ii. Reliability
iii. Basic service
iv. Service design
v. Recovery
vi. Surprising customers
vii. Fair play
viii. Teamwork
ix. Employee research
x. Servant leadership
D. Managing Customer Expectations
i. Customers form service expectations from many sources, such as past
experiences, word of mouth, and advertising.
E. Five gaps that prevent successful delivery:
i. Gap between consumer expectation and management perception
ii. Gap between management perception and service-quality specification
F. Five determinants of service quality, in descending order of importance
i. Reliability—The ability to perform the promised service dependably
and accurately.
ii. Responsiveness—The willingness to help customers and provide
prompt service.
iii. Assurance—The knowledge and courtesy of employees and their
ability to convey trust and confidence.
iv. Empathy—The provision of caring, individualized attention to
customers.
v. Tangibles—The appearance of physical facilities, equipment, staff,
and communication materials.
G. Tests of the dynamic process model reveal that the two different types of
expectations have opposite effects on perceptions of service quality.
H. Incorporating Self-Service Technologies (SSTs): intended to provide
convenience
i. Every company needs to think about improving its service using SSTs.
ii. Successfully integrating technology into the workforce thus requires a
comprehensive reengineering of the front office to identify what
people do best, what machines do best, and how to deploy them
separately and together
iii. Some companies have found the biggest obstacle is not the technology
itself, but convincing customers to use it, especially for the first time.
V. Managing Product-Support Services
A. Identifying and Satisfying Customer Needs: Customers worry about:
i. Reliability and failure frequency
ii. Downtime. The longer the downtime, the higher the cost.
iii. Out-of-pocket costs. How much does the customer have to spend on
regular maintenance and repair costs?
