The Fundamentals of Services The Fundamentals of Services MarketingMarketing

Week 2Week 2

Reasons for studying services Reasons for studying services (Previous lecture)(Previous lecture)

Service sector dominates economy in most Service sector dominates economy in most nationsnations

Most new jobs are generated by servicesMost new jobs are generated by services

Powerful forces—government policies, social Powerful forces—government policies, social changes, business trends, IT advances, and changes, business trends, IT advances, and globalisation—are transforming service globalisation—are transforming service marketsmarkets

Defining services Defining services (1)(1)

The historical viewThe historical view

Smith (1776): Services are different from Smith (1776): Services are different from goods because they are goods because they are perishableperishable

Say (1803): As services are Say (1803): As services are immaterial, immaterial, consumption consumption cannot be separatedcannot be separated from from productionproduction

‘‘A service is any activity or A service is any activity or benefitbenefit that one that one party can offer to another which is essentially party can offer to another which is essentially intangibleintangible and does not result in the ownership and does not result in the ownership of anything’. of anything’. Kotler, Armstrong, Wong and Saunders (2008)Kotler, Armstrong, Wong and Saunders (2008)

Defining services Defining services (2)(2)

““Service Service benefits benefits are delivered through an are delivered through an interactive experienceinteractive experience involving the consumer to involving the consumer to a greater or lesser extent” a greater or lesser extent” (Bateson 1999)(Bateson 1999)

‘ ‘ Services are originally intangible and relatively Services are originally intangible and relatively quickly quickly perishableperishable activities whose buying, activities whose buying, which which does not always lead to material does not always lead to material possessionpossession, takes place in an , takes place in an interactive interactive processprocess aimed at creating customer satisfaction’ aimed at creating customer satisfaction’

((Kasper, Helsdingen and Gabbott 2006)Kasper, Helsdingen and Gabbott 2006)

Basic Characteristics of Basic Characteristics of services: The 5 I’s (1)services: The 5 I’s (1)

(In) Tangibility(In) Tangibility InseparabilityInseparability InconsistencyInconsistency InventoryInventory Inability to ownInability to own

Basic characteristics (2)Basic characteristics (2)

(In)tangibility- Service is an

experience, not a thing

- Enhanced perceived risk when a customer buys a service

Categories of service mix

- - Pure tangible good

- Tangible good with accompanying services

- Hybrid- Major service with

accompanying minor goods and services

- Pure service

Basic Characteristics Basic Characteristics (3)(3)

Pure tangible good ?

Tangible good with accompanying

service

Tangible good with accompanying

service

Hybrid

Major service accompanying goods and service

Pure service ?

Marketing implications: provision of tangible Marketing implications: provision of tangible evidence and brand buildingevidence and brand building

- - use of use of appropriateappropriate communication communication

symbols, messages, uniforms symbols, messages, uniforms

McDonald’s arches readily accepted worldwide - standardised McDonald’s arches readily accepted worldwide - standardised approachapproach

Thai Airlines’ uniforms are traditional conveying a Thai experienceThai Airlines’ uniforms are traditional conveying a Thai experience

Basic characteristics (4) - Basic characteristics (4) - InseparabilityInseparability

Production and consumption occurs simultaneously Consumer participation required in production of

service (In some cases) service production can begin in

presence of customer Role performance in service delivery

Invisible

to

customer

Visible

to customer

Marketing implicationsMarketing implications

Recruitment, training and remuneration Recruitment, training and remuneration becomes a significant activity and large becomes a significant activity and large part of the budgetpart of the budget

Staff are part of the visible evidence of the Staff are part of the visible evidence of the company brandcompany brand

Basic characteristics (5) –Basic characteristics (5) – Inconsistency/ variability/heterogeneity

Match service to customer requirementsMatch service to customer requirements Standardisation of service is a challengeStandardisation of service is a challenge- Balance employee control and customer’s

perceived needs- TimeTime spent on service delivery will varyspent on service delivery will vary- AdaptationAdaptation of service blue print of service blue print

Need for applying quality control systemsNeed for applying quality control systems

e.g. using a standardised franchising packagee.g. using a standardised franchising package

Basic characteristics (6) – Inventory (Degree of perishability)

Increased intangibility,lower opportunity to store service, increased perishability

Manage fluctuations in demand

Increase efficiency (reduce costs/increase sales)

Strategies to manage perishability

self service during busy periods

Differential pricing Complementary

services Reservation systems Part-time employees Peak-time efficiency Increased consumer

participation Shared services Facilities for future

expansion

Programmes to Programmes to Compensate for Uneven DemandCompensate for Uneven Demand

IndustryIndustry ProgrammeProgramme

Airlines Night rates, group and tour fares, family discounts, advance purchase super-savers, 24-hour round-trip discounts, and low-season fares

Hotels Off-season and group rates, theme weekends, Valentinegetaway, sports packages, family and senior citizens discounts

Telephone Evening, night and weekend rates Barber shops Evening appointments and family rates Automobile repair Specials – tyre balancing, tune-ups and lubrication Dentists Call-back reminders and family discounts Education Weekend classes, adult education and military

programmes Entertainment Matinee specials and midnight ShowTime specials (Movies) Recreation Midday specials, family night, teen night, and all-

night (Bowling) rates Recreation Off-season specials, group and senior citizens rates,

(Parks) family rates, late-night rates, and advance purchase discounts

Basic characteristics (7) Basic characteristics (7) Inability Inability to ownto own

Does not result in transfer of titleDoes not result in transfer of title- A package tour?A package tour?- A services marketing lecture?A services marketing lecture?- Renting a carRenting a car- A life insurance policy: possession of a A life insurance policy: possession of a

policy is not the core service,policy is not the core service,

but the security provided inbut the security provided in

case of illness or a fire at homecase of illness or a fire at home

Criteria for classifying services (1)Criteria for classifying services (1) Strategic in natureStrategic in nature

OwnershipOwnership: rented, : rented, leased or ownedleased or owned (In) Tangibility(In) Tangibility continuum continuum eg. Information boxes in eg. Information boxes in tourist areas, after tourist areas, after sales servicesales service Profit vs not for profitProfit vs not for profit: who : who sets the price or who sets the price or who regulates the service regulates the service offering?offering? Markets and industriesMarkets and industries: use of: use of Standard Industry Codes Standard Industry Codes (SICs) to define service at (SICs) to define service at an industry level such as an industry level such as gas, electricity and watergas, electricity and water supplysupply Service delivery processService delivery process: tailor-made: tailor-made vs. standardised delivery, levelvs. standardised delivery, level of customer participationof customer participation External and internal marketsExternal and internal markets

Operational in natureOperational in nature

Customer’s buying behaviourCustomer’s buying behaviour - speciality or convenience - speciality or convenience servicesservices Relationship between service Relationship between service

provider and customerprovider and customer - subscription-based services - subscription-based services - membership-based services- membership-based services

Service provider’s knowledge/skills & Service provider’s knowledge/skills & capacitycapacity

-- Assets and capabilitiesAssets and capabilities - standardised or customised ser.- standardised or customised ser. - knowledge-based services, - knowledge-based services, property-based services, property-based services, facilitating services, etc facilitating services, etc Physical site of service deliveryPhysical site of service delivery - attending a class at university- attending a class at university - home visit by a doctor- home visit by a doctor

Classifying services (2)Classifying services (2)

low budget

airlinesPizza Hut

Five star resorts, private jetsDoctors, accountants

Marketing services

Marketing services – External Marketing services – External market (Customers)market (Customers)

Managing differentiationManaging differentiation Offering

Primary service package Secondary service features

Faster and Better Delivery Reliability Resilience/flexibility Innovativeness

Image Managing Service QualityManaging Service Quality

Perceived service – management perceptions of

customer expectations Expected service - functions of customer's past experience

personal needs and word of mouth communication by consumers

Managing services – External market Managing services – External market (customers)(customers)

Five gaps that cause unsuccessful delivery Gap between consumer

expectation and management perception

Gap between management perception and service-quality specification

Gap between service-quality specification and service delivery

Gap between service delivery and external communications

Gap between perceived service and expected service

Solutions Customer surveys Vision, commitment

and systems to manage the process

Defining role, clarity in communication about products, customers and service

Keeping promises to customers

Marketing services – Internal Marketing services – Internal Marketing (Employees)Marketing (Employees)

Employees are seen as customersEmployees are seen as customers

- the best possible people need to be - the best possible people need to be

employed and retainedemployed and retained

- they will do the best possible work- they will do the best possible work Satisfied employees a vehicle for staff Satisfied employees a vehicle for staff

acquisition, motivation and retentionacquisition, motivation and retention Satisfied employees a vehicle for Satisfied employees a vehicle for

promotion of customer-oriented behaviourpromotion of customer-oriented behaviour

Empowerment of employees – Empowerment of employees – Interactive marketingInteractive marketing

Level ofProvider discretion

Low

High

Degree of customisation

Low High

Service productionLinee.g. public transportfast food, cinema

Menu Service

e.g. personal bankingSatellite TV

Performance Servicee.g. Large scale education, theatre Performance, healthcare

Professional servicee.g. legal adviceconsultancyspecialist jobs

SummarySummary

Key characteristics of services (5I’s)

Classifying different services

Marketing service to key stakeholders