maketing assignment

Marketing Assignment

1 Business Studies 1 Ben Urquhart (s0822205)

Business Studies 1

To what extent do you think there is a difference between

marketing goods and services? Draw on contemporary

examples to support your argument.

Ben McGregor Urquhart

Anna Ishkova

23/11/2008

List of Figures

Figure One Exchange Process, Alderson (1957)

Figure Two Molecular Diagrams of Market Entities, Shostack (1977)

Figure Three Scale of Market Entities, Shostack (1977)

Figure Four Black Box of Consumption

Figure Five Servuction Model, Bateson (1995)

Word count: 2.134



Introduction

The UK’s service sector accounts for over three quarters of the country’s GDP, with 4 in 5

people working in the sector. Services have therefore come of new and great importance.

Services and goods, although products, have differing characteristics1 which react differently

to marketing approaches. Marketers have developed models to analyse these

characteristics in an attempt to adapt sensitive marketing practices.

Definition of Marketing

Marketing is defined by the American Marketing Association (2005) as:

“…an organisational function and a set of principles for creating, communicating and

delivering value to customers and for managing customer relationships in ways that

benefit the organisation and its stakeholders”

This broad definition of marketing emphasises marketing as a; process (Mises, 1949) –

consumers and organisations coming together; giving customers what they want – gearing

activities towards helping customers to create satisfaction; and benefitting the

organisations profitably. This definition originates from 19602, leading to arguments that

the definition, although revised in 2005, is outdated (Webster, 2005). The AMA definition of

1 Lovelock (1999) proposes the following generic differences; the nature of the product, customers’ involvement in the production process and the troubles when evaluating services 2 The previous AMA marketing definition from 1985 says: Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives.



marketing, in spite of popular usage, is increasingly being criticised for failing to

demonstrate the reality of modern marketing. Christian Grönroos3 suggests a new definition:

“Marketing is a customer focus that permeates organisational functions and

processes and is geared towards making promises through… fulfilling expectations

and support to customers’ value-generating processes, thereby supporting value

creation in the firm’s as well as its customers’ and other stakeholders processes.”

Grönroos’ definition can be likened to that of the AMA, in that it promotes the satisfaction

of consumers but goes further in promising to support the buyer in the value-generating

process (Grönroos suggests value is created every time the product is consumed, not just in

the primary exchange). Furthermore Grönroos argues that marketing is seen less and less as

just a functional area and more as the business in its entirety (Grönroos, 2006). Lastly, it

must be highlighted that marketing is offering an exchange of goods, services and ideas.

The exchange process (Alderson, 1957) is a simple model of “I’ve got something you want,

you’ve got something I want, so let’s do a deal” – alongside the assumption that both

party’s value what the other has to offer.

3 Christian Grönroos, Professor of Service and Relationship management

Consumer Organisation

Stake thirst

Cash

Figure 1: Alderson (1957) Exchange Process



Definition of a Product (goods and services)

Alderson’s exchange process assumes that both party’s value what is being offered;

this comes to the consumer in the form of a product. A product is:

“A bundle of attributes… usually a mix of tangible and intangible forms. A product

may be an idea, a physical entity (a good), or a service, or a combination… It exists

for the purpose of exchange in the satisfaction of individual and organizational

objectives.” (AMA)

A product is more than just the sum of its material characteristics; the term product also

encompasses the intangible (not material) aspects of the product.

Difference between marketing a Good and a Service

Nature of the Product

Products can be split into goods and services. A good is “an object, a device, a thing”

e.g. salt; “a service is a deed, a performance, and effort” e.g. teaching (Berry 1980). When a

good is purchased it can be seen, touched or smelt, making it tangible. A service, when

purchased, has normally nothing to show as it is consumed not possessed, making it

intangible. Services tend to be supported by tangibles, for example a taxi company is a

service but the taxi cab supports the service. Most products tend to have varying levels of

tangibility.

Shostack (1977) argues that a car may be a tangible good but it provides the

intangible service of transportation, or on the other hand that an airline is a service,



therefore intangible but the décor, uniforms, in-flight food all increase the ‘reality’ of the

service in the mind of the customer. He proposes that goods are “a combination of discrete

elements which are linked together in molecular like wholes”.

Figure 2: Molecular Diagram of Market Entities, Shostack (1977)

Shostack compares a car to air travel; they both have the intangible aspect of transport in

common and influence of décor and appearance but they are exact opposites, with cars

having a tangible nuclei and air travel having an intangible nuclei. The molecular model can

be further developed to compare goods and services, helping to describe a selection of

goods along a continuum in accord to their weight in the mix. As is seen below airlines are

ranked as “I-dominant” whereas cars are “T-dominant”.



Figure 3: Scale of Market Entities, Shostack (1977), Journal of Marketing, Volume 41, April

pp. 73 - 80

The characteristics of goods and services have led marketers to think about the

process of marketing in differing ways, known as good and service logics. The Nordic School

of service marketing suggests that goods logic is firms making goods as resources available

for customers, leaving them to manage their own processes in a value-creating way, with

suppliers creating all the value. In contrast to this the service model suggests that the

company is a resource which tries hard to interact with the customers, as they create the

value and that resources are only a means of supporting value.



Influence on Consumption

The Nordic School suggest that:

“Interactions between service providers and customers is the core of marketing…

value is created by the customer interactions with the service provider and

supported by the service provider”

This led to the consideration of the “black box of consumption”. The black box theory

suggest that in the case of goods marketers do not enter the consumption process, and

have no idea of what the buyer is doing with the good, thus the black box.

Figure 4: Black Box of Consumption

According to the goods marketing model, goods emerge in a closed process. Alternatively,

services appear in an open process with customers participating in the co-production of the

process, this is due to the nature of a service. Services are provided and consumed

simultaneously (Cowell, 1984).

It is the interactions between the service provider and the consumer during the

simultaneous service production and consumption processes that the Nordic School see as

essential. Grönroos (1978) developed the new perspective known as interactive marketing,

whereby there are an increased number of interactions between the consumer and the

producer during the consumption process, the more successful these are the greater the

PRODUCTION EXCHANGE CONSUMPTION



chance that the exchanges will continue. This follows on from the value-in-use notion

where value is created by the customer, alongside the producer; this is extended over time

allowing for a set of interactions and a relationship to form between the two. This may

include activities such as repairs, maintenance, and documentation on how the good works

or customer training. Grönroos (2004) refers to these episodes of interaction as “touch

points” that should fulfil promises that have been given (by the firm to the customer). The

main objective is to provide customers with value-supporting solutions. If performed well

the interaction process contributes to customer value creation.

The success of these interactions is influenced by two factors: primarily it is the

people4 who are providing the service e.g. the bank teller at RBS that the consumer

associates with the firm – known as part time marketers (Gummesson, 1987). They take on

the role of satisfying the customer’s needs in the “moment of truth” (Normann, 1983);

therefore the service can be dependent on the knowledge, skill and motivation of the part-

time marketer:

“A successful service firm must first sell the job to the employees then it can sell its

services to its customers.” (Berry, 1980)

Berry (1980) also puts forward that view that the design of stores and the use of

architecture also influence the success of the interaction, for example the pleasing

aesthetics of Disneyworld and Starbucks or the comfortable and private layout of a bank.

The Nordic School successfully looks at the perspective of interactive marketing, with

the main influences of the consumer and the producer, but a model developed in France

4 People is an addition to the traditional marketing mix suggested by Booms and Bitner (1982) to suit the marketing of services



suggests there may be further influential factors. The servuction model, a conflation of

‘service’ and ‘production’, emphasises the active role of the customer (A) as a result of co-

operation with a number of factors.

Figure 5: Servuction Model (Bateson, 1995)

The customer interacts with the invisible organisation; this is the relationship with behind

the scenes and can influence issues such as waiting times and reliability of a firm. There is

also a relationship present with the visible firm. This comes in the form of the inanimate

environment (non living, physical conditions) e.g. the décor of hairdressers, and the animate

environment e.g. the contact with the primary provider, the dentist and with the secondary

employees, the receptionist. Lastly, other customers (customer B) also influence the service

experience with differing levels, for example a loud member of a cinema audience or a

football hooligan is likely to lower the quality of customer A’s experience. Thus there are

more influences on the quality of a service than that of a good that the firm can control.



Customer Evaluation and Risk Taking

As can be deduced from the above, the influences on services (intangibility and

influence on consumption) results in consumers hedging a larger risk in the purchasing of a

service than of a good. Service purchasing therefore follows a slightly altered sequence from

the purchasing of a physical good (see Appendix One). From the buyers standpoint there is a

higher risk attached to the purchase of a service than that of a physical product. As a result

of this, consumers are more likely to spend a greater deal of time gathering information and

relying more on others opinions and experiences. We can compare the search for a new

doctor to the search for a new washing machine. One is more likely to be concerned with

the experience and qualifications of the doctor than those of Bosch’s chief design engineer.

The extra risks occurring in the purchase of services can take numerous forms. A

consequential loss may occur, this happens if a service goes wrong and causes a loss, for

example” a bad court case can cause the loss of one’s liberty” (Blythe, 1998). Purchase price

risk can also haunt consumers if the service doesn’t work e.g. if a meal is cooked in correctly,

restaurant waiters will therefore check during the meal that the service is satisfactory rather

than waiting until the end. Lastly consumers may experience a misunderstanding, whereby

they may acquire something that they did not expect; leading to a strong post-purchase

dissonance (the characteristics and benefits of the product do not meet the expectations of

the consumer).

Services’ intangible nature (Betson, 1977) results in higher risks and lower consumer

confidence – businesses must therefore use price and promotion to encourage sales.

Promotion is used to communicate with customers the benefits of the service. Firms use the

medium of public relations and, as stated before, ‘word-of-mouth’ alongside advertising has



a strong influence over a reputation, with a good local news report on a restaurant

generating sales. Likewise, price can be used to justify a service’s quality to consumers.

Prices are hard to set, again thanks to the intangible nature of services, one cannot compare

like with like and therefore assess their relative worth (Zeithaml, 1981) but firms can use

pricing to inspire confidence in the consumer similar to that of a good. Eiglier and Langeard

(1977) believe that due to the lack to material characteristics:

`“The relative absence of material data with which to appraise services makes price a

potentially important index of quality.”

A higher price may be charged for a “Toni and Guy” haircut compared to that of a high

street barbers. The high price charged for the cut leads to consumer appreciating the

heightened quality of the service, thus encouraging consumers.

Price and promotion are part of the traditional marketing mix alongside product and

place, but Booms & Bitner (1982) added processes (process of giving the service), people

(anyone who comes in contact with the firm) and physical evidence. Physical evidence

comprises of the tangible elements that support a service. This can be seen with the use of a

university’s prospectus – it is the aim of the university to allow the student to go away with

a piece of information, pictures and a general overview of its potential.

Conclusion

Like that of chemistry it is the elements of a product that are compounded to form

its characteristics; it is these features that then react with the marketers approach. Models

such as the black box of consumption, the servuction model and Shostock’s model of market



entities all highlight services as an open process open to a great deal of influences. For this

reason approaches to marketing for a service should involve much more consideration by

the firm to add value after sales, and aid customers in the value generating process, with

the use of Grönroos’ touch points (2004) and interactive marketing (2006b).



Appendix One

Service purchasing sequence compared with physical product purchasing sequence.

(a) Purchasing a good

(b) Purchasing a service

Decision to buy good

Payment for goods

Receipt of goods

Use of goods

Post-purchase

evaluation

Decision to buy service

Commitment to supplier

Delivery and consumption

of service

Evaluation of service

Pay for service



References

Journals

Berry, L (1980) ‘Service Marketing is Different.’ Business Magazine

Grönroos, C (2004a) ‘Adopting a Service Logic for Marketing.’ Marketing Theory (6:4)395-

417

Grönroos, C (2004b) ‘On Redefining Marketing; Finding new Roadmap for Marketing.’

Marketing Theory (6:3)317 – 333

Knisely, G. (1979) ‘Comparing Marketing Management in Packaged Goods and Service

Organisations.’ Advertising Age

Lovelock, C (1981) ‘Why does Marketing Management needs to be different for Services’

Marketing of Services (AMA)

Morgan, M; Watson, P; Hemmington, N (2008) ‘Drama in the Dining Room: Theatrical

Perspectives on the Food Service Encounter’ Journal for Foodservice (19) 111-118

Shostack, G. Lynn (1977) ‘Breaking Free from Product Marketing.’ The Journal of Marketing

Books

Blythe, J (1998) Products, Branding and Packaging Business Studies 1, Volume 1 (3rd Edition)

Great Britain: Pearson 321 – 364

Brassington, F; Pettit, S (2006) Principles of Marketing, 4th edn. Harlow: Prentice Hall



Hill, L; O’Sullivan, T (2004) Foundation Marketing, 3rd edn. Glasgow: Prentice Hall

Graham, C (2007) International Marketing, 13th edn. Singapore: McGraw-Hill

Lancaster, G; Massingham, L (1993) Essential to Marketing: Texts and Cases, 2nd edn.

Maidenhead: McGraw-Hill

Lovelock, C (1984) Service Marketing. New Jersey: Prentice Hall

Woodruffe, H (1995) Services Marketing. London: Pitman

Websites

AMA (2008) Definition of Marketing [online] available from

<http://www.marketingpower.com/_layouts/Dictionary.aspx > [21 November 2008]

CIA (2008) British Economy Overview available from <

https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html.> [21 November

2008]

http://www.marketingpower.com/_layouts/Dictionary.aspx

https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

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