6.1: The Importance of Services

6.1.1: The Service Economy

Learning Objective

Define the role of a service economy in developed and developing countries

Key Points

• The growth of the service sector has long been considered as an indicator of a country’s economic progress.
• Services are continually being launched to satisfy our existing needs and to meet needs that we did not even know we had.
• Service organizations can vary in size from large corporations to small, locally owned businesses.

Key Terms

primary

The primary sector of the economy is the sector of an economy making direct use of natural resources.

secondary

The secondary sector of the economy or industrial sector includes those economic sectors that create a finished, tangible product, such as production and construction.

Service

Action or work that is produced, then traded, bought or sold, and then finally consumed.

Example

• The way consumers handle financial transactions with banks, such as Chase Bank in this image has evolved as our needs as a society have evolved. Fifteen years ago, no one would have anticipated the need for online banking and yet today many of us feel we can’t live without it. This is a service that has continually changed to satisfy existing needs.

The Service Economy

The world economy is increasingly characterized as a service economy. This is primarily due to the increasing importance and share of the service sector in the economies of most developed and developing countries. In fact, the growth of the service sector has long been considered as an indicator of a country’s economic progress. Economic history tells us that all developing nations have invariably experienced a shift from agriculture to industry and then to the service sector as the mainstay of the economy. This shift has also brought about a change in the definition of goods and services themselves.

Service organizations vary widely in size. At one end of the scale are huge international corporations operating in such industries as airlines, banking, insurance, telecommunications, and hotels. At the other end of the scale are a vast array of locally owned and operated small businesses, such as restaurants, laundries, optometrists, beauty parlors, and numerous business-to-business services.

The service sector is going through revolutionary change, which dramatically affects the way in which we live and work. New services are continually being launched to satisfy our existing needs and to meet needs that we did not even know we had. Nearly fifty years ago, when the first electronic file sharing system was created, few people likely anticipated the future demand for online banking, website hosting, or email providers. Today, many of us feel we can’t do without them. Similar transformations are occurring in business-to-business markets.

The Role Of the Service Economy In Development

As of 2008, services constituted over 50% of GDP in low income countries. As their economies continue to develop, the importance of the service sector continues to grow. For instance, services accounted for 47% of economic growth in sub-Saharan Africa over the period 2000–2005, while industry only contributed 37% and agriculture only 16% in that same period. This means that recent economic growth in Africa relied as much on services as on natural resources or textiles, despite many of those countries benefiting from trade preferences in primary and secondary goods.

As a result of these changes, people are leaving the agricultural sector to find work in the service economy. This job creation is particularly useful as often it provides employment for unskilled workers in the tourism and retail sectors, which benefits the poor and represents an overall net increase in employment. The service economy in developing countries is most often made up of the following industries: financial services, tourism, distribution, health, and education.

Banking Services

Most financial transactions within a bank can be done online. The service was not available 15 years ago.

A Chase Bank building.

6.1.2: Services as Solutions

Learning Objective

Demonstrate knowledge of the skills required to sell services as solutions to customers and prospects

Key Points

• If you want customers to buy your services, you need offer them a solution that costs less than the problem is costing them.
• No customer will renew a subscription service or buy more consulting services if they don’t see genuine value in these services as it relates to fulfilling their business objectives.
• Selling services as solutions is different from solution selling because instead of defining the solution and then looking for applicable problems, you are tailoring your services to fit your prospective customer’s day-to-day problems.

Key Term

value

a customer’s perception of relative price (the cost to own and use) and performance (quality)

Example

• The use of technological advances in service and product offerings can be very beneficial to a company. For example, Visa has embedded security chips, such as the one displayed in this picture, into their Visa credit cards. This chip will ensure the card cannot be duplicated and provides extra security measures to consumers who use the credit cards and reduces the threat of identity theft. Applying this technology is just one of the many services Visa can implement to protect their consumer product offerings against identity theft. It may not be the only solution, but it is a fairly effective one. Visa was able to change their marketing strategy due to the changing nature of the environment.

Introduction

If you want customers to buy your services, you need offer them a solution that costs less than the problem is costing them. Your solution might:

• Save your customer money;
• Save your customer time: or
• Improve your customer’s productivity.

This is different from solution selling because instead of defining the solution and then looking for applicable problems, you are tailoring your services to fit your prospective customer’s day-to-day problems. In essence, you are in the problem-solving business and if you can prove that you can solve your customer’s present problems, you’ll have a long-term customer who will come back for more and more.

In order to accomplish this task you, and anyone involved in selling your services, need to:

• Have an excellent understanding of the services you’re offering and what can and can’t be tailored to a customer’s requirement;
• Have an solid understanding of the common problems your prospects face and those that your services can solve; and
• Prepare 20-25 questions to identify possible problems and generate credibility and confidence in your company’s abilities.

Selling Services As Solutions

Without genuinely valuable services for your customer, you have no revenue. While “what’s the value proposition? ” is an over-used term, below is a more specific definition of value, particularly as it applies to application software (in contrast with infrastructure software).

Budgets

Services have to be priced fairly in order to attract customers. People aren’t willing to pay for services that are too expensive or that they do not need.

An illustration called “Honoré Daumier” that’s displayed at the Brooklyn Museum. A man is pushing a large bag labeled “budget” up a hill.

It’s about selling a meaningful solution bundle

When selling services rather than technology, the focus should be on people and organizations—listening to and understanding their internal projects, and being considerate of their timelines and budgets. It is important to listen and provide a fair offer for services that genuinely meet a customer’s need. Budgets are much too constrained these days for anyone to buy services they don’t really need. This model can be a good foundation for a company, leading to a sustainable revenue stream that can help to further fund the development of the product.

In other words, create revenue that can sustain and grow the business, to make the product better in the long run, and to enable customers to better deploy the software. This only happens if the software and the services provide real value to an organization.

It’s about customer engagement

Years ago, the Red Hat Network offered a valuable service for those who purchased a software subscription. If you passively wait for the renewal, you can expect that some customers will ask themselves, “Do we use this subscription service or not? Do we really need to continue to pay for it? ” A proactive approach in this scenario is to demonstrate ongoing value by regular customer engagement, showing the customer new features they can access via their subscription, reviewing their current use of the product, and offering add-on services to help them be better trained or better able to use more of the product for more of their organization.

The fundamental principle here is value. No customer will renew a subscription service or buy more consulting services if they don’t see genuine value in these services as it relates to fulfilling their business objectives, whether that be better customer service, better IT responsiveness, or better IT management.

6.1.3: Services as Products

Learning Objective

Describe the characteristics of service products

Key Points

• Services can be products that are both tangible and intangible. Typically, the dominant form will classify the product as a good or as a service.
• Many theorists see a continuum with pure services on one end and pure commodity goods on the other. Most products fall between these two extremes.
• Service products are often difficult to identify, because they come into existence at the same time that they are bought and consumed.

Key Terms

tangible

Touchable; able to be touched or felt; perceptible by the sense of touch; palpable.

intangible

Incapable of being perceived by the senses.

Example

• A taxi service is a service that is tangible. Taxi drivers, such as the one in the image, provide both the good (a car), which provides the means of travel, as well as the act of driving to a place – which is measurable and essentially a service. Therefore a taxi cab driver provides both a good and a service, so he is providing a product.

Services As Products

The increasing importance of the service market in the economy has brought about a change in the definition of goods and services. No longer are goods considered separate from services. Rather, services now increasingly represent an integral part of the product. It is this interconnectedness between goods and services that is represented on a goods-services continuum.

Services can be alternatively defined as products, such as a bank loan or a home security, that are to some extent intangible. If totally intangible, they are exchanged directly from the producer to the user, cannot be transported or stored, and are almost instantly perishable.

Service products are often difficult to identify, because they come into existence at the same time that they are bought and consumed. They comprise intangible elements that are inseparable; they usually involve customer participation in some important way; they cannot be sold in the sense of ownership transfer; and they have no title. Today, however, most products are partly tangible and partly intangible, so the dominant form is to classify them as either goods or services (all are products).

Taxi Services 

A taxi cab driver provides both a good and a service, so he provides a product.

The dichotomy between physical goods and intangible services should not be given too much credence. These are not discrete categories. Most business theorists see a continuum with pure services on one terminal point and pure commodity goods on the other terminal point. Most products fall between these two extremes. For example, a restaurant provides a physical good (the food), but also provides service in the form of ambiance, the cooking and the serving of the food, and the setting and the clearing of the table. And although some utilities actually deliver physical goods — like water utilities which actually deliver water — utilities are usually treated as services.

6.1.4: Service Marketing Management and Metrics

Learning Objective

Explain how marketing management and metrics allow service organizations to implement and measure their marketing strategy

Key Points

• To create an effective, cost-efficient marketing management strategy, firms must possess a detailed, objective understanding of their own business and the market in which they operate.
• After the firm’s strategic objectives have been identified, the target market selected, and the desired positioning for the company, product, service or brand has been determined, marketing managers focus on how to best implement the chosen strategy.
• Marketing management often makes use of various organizational control systems to ensure marketing programs achieve desired objectives, and do so in a cost effective manner.
• It is the responsibility of marketing managers to ensure that the execution of marketing programs achieves the desired objectives in a cost-efficient manner.
• Common service marketing metrics include net sales billed, number of product or design registrations, brand surveys to measure brand awareness, return on the investment, and website hits.

Key Terms

Marketing Management

Marketing management is a business discipline which is focused on the practical application of marketing techniques and the management of a firm’s marketing resources and activities

value-chain

The value chain categorizes the generic value-adding activities of an organization.

marketing strategy

a process that can allow an organization to concentrate its resources on the optimal opportunities with the goals of increasing sales and achieving a sustainable competitive advantage

Service Marketing Management & Metrics

Marketing management is a business discipline which is focused on the practical application of marketing techniques and the management of a firm’s marketing resources and activities. Rapid globalization has led service providers to market beyond the borders of their home countries, making marketing management and metrics and integral part of implementing and measuring an effective marketing strategy.

Service Marketing Management

To create an effective, cost-efficient marketing management strategy, firms must possess a detailed, objective understanding of their own business and the market in which they operate. In analyzing these issues, the discipline of marketing management often overlaps with the related discipline of strategic planning.

After the firm’s strategic objectives have been identified, the target market selected, and the desired positioning for the company, product, service or brand has been determined, marketing managers focus on how to best implement the chosen strategy. Traditionally, this has involved implementation planning across the “4 Ps” of marketing: product (or service) management, pricing , place and Promotion. A new P has been added making it a total of five P’s. The fifth P is politics, which affects service marketing in a significant way.

Part of a service marketing manager’s job is analyzing external influences and current marketing conditions that are directly or indirectly impacting the business. Tasks for marketing management may include conducting a competitor and value chain analysis, putting together a brand audit, and assembling qualitative and quantitative research. This research, along with an assessment of the business’ own strengths and weaknesses, go into a marketing plan used to launch future marketing programs and initiatives. Overseeing the successful development and execution of the marketing plan falls under service marketing management roles.

Marketing Performance Metrics

Marketing management employs a variety of metrics to measure progress against objectives. It is the responsibility of marketing managers–in the marketing department or elsewhere–to ensure that the execution of marketing programs achieves the desired objectives in a cost-efficient manner. Marketing management therefore often makes use of various organizational control systems, such as sales forecasts, sales force and seller incentive programs, sales force management systems, and customer relationship management tools (CRM).

The marketing metrics continuum, shown here , provides a good framework for categorizing metrics. Metrics enable marketing professionals to justify budgets based on returns and to drive organizational growth and innovation. Some common metrics used to measure performance include lead to conversion rate, click-through rate and number of new opportunities (i.e., new business deals). Other elements of measurement include net sales billed, number of product or design registrations, brand surveys to measure brand awareness, the return on the investment, and website hits. Numeric data for these metrics can come from a variety of sources such as the service provider’s website, and industry trade show, or word-of-mouth marketing. Marketers use these metrics and performance measurement as way to prove value and demonstrate the contribution of marketing to the organization.

Marketing Metrics Continuum

The Marketing Metrics Continuum provides a framework for categorizing metrics from tactical to strategic. 

The Marketing Metrics Continuum categorizes metrics (activity-based, operational, outcome-based, leading indicators, and predictive) and looks at counting, efficiency, business outcome, and likelihood of outcome.

6.1.5: New Service Development

Learning Objective

Discuss the activities involved in developing new service opportunities

Key Points

• New service development concerns all the activities involved in realizing new service opportunities, including product or service design, business model design, and marketing.
• Service development is mostly seen as growing an enterprise through a number of marketing techniques. The two main questions necessary to this approach are: How do we find, reach, and approach customers? How do we keep these customers satisfied with new possible services?
• Innovative technology provides important opportunities for new service development. For a company to stay competitive, it is important to keep services and processes up to date.

Key Term

Contingency Theory

Contingency theory is a class of behavioral theory that claims that there is no best way to organize a corporation, to lead a company, or to make decisions. Instead, the optimal course of action is contingent upon the internal and external situation.

New service development concerns all the activities involved in realizing new service opportunities, including product or service design, business model design, and marketing.

When splitting service development into two parts, we have “service” and “development. ” The first things that come into mind when looking at service are: economics, finance, managerial activities, competition, prices, and marketing. All of these keywords are related to risk and entrepreneurship and clearly indicate the primary scope of the term “service development. “

Development is very abstract and can be linked with some of the following keywords: technological improvement, cost reduction, general welfare, improved relations, and movement in a positive direction. Service development is mostly seen as growing an enterprise through a number of techniques. The mentioned techniques differ, but in fact all of them are about traditional marketing. The two main questions necessary to this approach are: How do we find, reach, and approach customers? How do we keep these customers satisfied with new possible services?

When supplying a solution, it is important to focus on the total offering you give instead of only focusing on the product or service. An offering is a package consisting of different proportions of a physical product, service, advice, delivery, and the costs.

Drawing on contingency theory, an idea central to new service development is that different service, market, and technology combinations can require different marketing strategies and business models to make them a success. To chart the factors that are involved and create synergy between them, new service development draws heavily upon the fields of technology and business networks. The new service development process involves recognizing chances and opportunities in a fast changing technological environment. For example, car manufacturers should recognize that rising gas prices are an opportunity to create fuel efficient cars .

Economical Transportation

As gas prices increase, we see less cars on the road. People turn to alternate modes of transportation including taxis, public transportation, and bikes.  .

A man and woman ride bicycles in traffic.

Innovative technology provides important opportunities for new service development. For a company to stay competitive, it is important to keep services and processes up to date. Continuous investment in innovation for both services and processes makes it more difficult for others to gain a large technological functionality advantage. Technological development can occur through making decisions about acquiring, exploiting, and managing technologies. These decisions should be made by involving the research and development staff, purchasing staff, and marketers.

6.2: Services versus Products

6.2.1: Intangibility

A defining characteristic of a service is that it is intangible – it is not something physical that you can see, touch, or taste.

Learning Objective

Describe how intangibility differentiates a service from a product.

Key Points

• The intangibility of services is what primarily differentiates a service from a product.
• Intangibility poses a challenge to those marketing a service, as they often need to give tangible proof for the quality of service.
• Buying services are risky for the customer; hence, providing adequate tangible proof of good service ensures repeat customers.

Key Term

intangible

Incapable of being perceived by the senses; not having a physical presence.

Examples

• Teachers provide a service that is intangible. You can’t feel, touch, or taste the service of teaching. However, it is possible to give tangible proof for the quality of service, such as through state test scores and successful students.
• Writers deliver an intangible service that can be measured in both quality and quantity. While distinguishing good from great writing may be subjective, often the proof is in the reading. 

Intangibility

Intangibility is used in marketing to describe the inability to assess the value gained from engaging in an activity using any tangible evidence. It is often used to describe services where there isn’t a tangible product that the customer can purchase, that can be seen, tasted, or touched. This is the most defining characteristic of a service that differentiates it from a product.

When a customer is buying a service, he perceives a risk related to the purchase. It is difficult for a customer to know in advance what they will be getting. To reassure the buyer and build his confidence, marketing strategists need to give tangible proof for the quality of service. Service providers can inspire confidence in the service by having a clean facility that customers can see, an easy-to-navigate website that shows service offerings, and a reliable and courteous staff to help customers. Because of service intangibility, consumers are less likely to switch brands or try new ones.

Given the intangibility of services, marketing them becomes a particularly challenging and yet extremely important task. Due to the increasing homogeneity in product offerings, the attendant services provided are emerging as a key differentiator in the mind of the consumers. For example, in the case of two fast food chains serving a similar product (Pizza Hut and Domino’s), it is the service quality, not the actual product, that distinguishes the two brands from each other. Hence, marketers can leverage the service offering to differentiate themselves from the competition and attract consumers. These services, such as having a polite and friendly staff, can really distinguish one fast food place from another, both of which offer the same kind of food.

Intangible Service

Teachers provide a service that is intangible.

A teacher watches as a student writes on a dry erase board.

6.2.2: Inseparability

Inseparability is a service characteristic that makes it impossible to disconnect the production of the service from its consumption.

Learning Objective

Describe inseparability in services marketing and how it distinguishes services from goods

Key Points

• The inseparability of services makes it difficult to separate a service from the service provider.
• The production and consumption of a service can occur simultaneously, making it impossible to produce and store a service prior to consumption.
• People are a defining factor in a service delivery process, since a service is inseparable from the person providing it.

Key Term

Inseparable

Not able to be separated; bound together permanently.

Example

• A barber is a part of the haircut service that he delivers to his customer. A haircut is delivered to and consumed by a customer simultaneously. In contrast, that same customer may consume a fast food burger a few hours after its purchase.

Inseparability

Inseparability (also known as simultaneity) is used in marketing to describe a key quality of services that distinguishes them from goods.

Inseparability is a service characteristic that renders it impossible to divorce the supply or production of the service from its consumption. In other words, services are generated and consumed within the same time frame. Moreover, it is very difficult to separate a service from the service provider. They are inseparable.

The Importance Of Service Delivery

Service marketing is comprised of people, processes, and physical evidence, all of which which are unique to the marketing of services.

People are a defining factor in a service delivery process, since a service is inseparable from the person providing it. Thus, a restaurant is known as much for its food as for the service provided by its staff. The same is true of banks and department stores. Consequently, customer service training for staff has become a top priority for many companies today.

The process of service delivery is crucial since it ensures that the same standard of service is repeatedly delivered to the customers. Therefore, most companies have a service blueprint which provides the details of the service delivery process. Such blueprints often even go down to defining the service script and the greeting phrases to be used by the service staff.

The concept of inseparability does not mean that the same service will be delivered to each customer; rather, it means that the same standards of quality will be applied to each service. For instance, no two haircuts will be alike, but each customer can be treated with the same amount of respect.

Haircut

A barber is part of the haircut service that he delivers to his customer. A haircut is delivered to and consumed by a customer simultaneously.

6.2.3: Perishability

Perishability of services implies that service capacity cannot be stored, saved, returned, or resold once rendered to a customer.

Learning Objective

Describe why business services are perishable and how perishability impacts services marketing

Key Points

• Services cannot be stored, saved, returned or resold once they have been used.
• When the service has been completely rendered, this particular service irreversibly vanishes as it has been consumed by the consumer.
• The relevant resources, processes, and systems of a service are assigned for delivery during a definite period in time.
• Perishability can affect company performance as balancing supply and demand is very difficult.

Key Term

perishable

Liable to perish; short lived.

Example

• An airline, such as Delta Airlines shown in, can only sell seats on an airplane prior to departure. This service is only available for that definite time period. An empty seat on a plane never can be utilized and charged after departure. Once the plane has left for its scheduled flight, that service cannot be offered for that particular flight. Unsold seats lose their inherent value.

Perishability

Perishability is used in marketing to describe the way in which a service capacity cannot be stored for sale in the future. Services cannot be stored, saved, returned, or resold once they have been used. Once rendered to a customer, the service is completely consumed and cannot be delivered to another customer.

Services are perishable in two regards. First, the relevant resources, processes, and systems of a service are assigned for delivery during a definite period in time. For example, an airline can only sell seats on an airplane prior to the departure. This service is only available for that definite time period. An empty seat on a plane never can be utilized and charged after departure.

Second, when the service has been completely rendered, this particular service irreversibly vanishes as it has been consumed by the consumer. For example, once a passenger on an airplane has been transported to his destination, he cannot be transported again to this location at this point in time.

Perishability can affect company performance as balancing supply and demand is very difficult. Demand can be difficult to forecast. Demand can vary by season, time of day, or business cycle. As demand fluctuates, it can be very difficult to maintain quality service. For example, to offset high demand during the tourist season, a hotel in Hawaii may hire more employees. However, other time periods are not so easy to predict. During seasons of bad weather, a manager may find himself with too many staff. The opposite problem, that of having too little staff, can be true during an unexpected spike in demand.

Perishable Entity

What an airline ticket entitles a customer to cannot be stored, saved, returned, or resold after the flight. It is a perishable entity.

A Delta airplane.

6.2.4: Heterogeneity

Heterogeneity, also known as variability, describes the uniqueness of service offerings.

Learning Objective

Discuss how heterogeneity relates to service quality and delivery

Key Points

• While products can be homogeneous and mass produced, the same is not true of services.
• Many services regarded as heterogeneous are typically modified for each consumer or situation.
• Despite the heterogeneity of service quality, It is the quality of the service that will essentially set two competing firms with similar products and services apart.

Key Term

heterogeneity

This term describes the uniqueness of service offerings.

Example

• All Big Macs at McDonald’s, such as the one shown here, are almost identical. However, the same is not true of the service rendered by the same counter staff consecutively to two customers.

While products can be homogeneous and mass produced, the same is not true of services. The term heterogeneity describes the uniqueness of service offerings (also known as variability). In other words, services are generated, rendered, and consumed at one time. The service can never be exactly repeated as the same point in time, location, or circumstances, or with the same configurations or resources, even if the same consumer requests the same service.

Many services regarded as heterogeneous are typically modified for each consumer or situation. For example, the taxi service that transports the consumer from his home to the opera is different from the taxi service that transports the same consumer from the opera to his home. Each trip involved a different point in time, another direction, and maybe another route, taxi driver, or car.

McDonald’s Big Mac

Big Macs are mass produced and almost identical, but the same is not true for the services rendered by the staff.

Given that services are heterogeneous, it is essential that each and every customer receive excellent service. Heterogeneity of service quality does not imply that no two customers can receive great service, it just means that no two transactions can be repeated identically. It is the quality of the service that will essentially set two competing firms with similar products and services apart. Marketers can leverage the service offering to differentiate themselves from the competition and attract customers.

When the physical product cannot easily be differentiated, there is scope for customizing the service per customer requirements. Such customization ensures that the actual customer encounter assumes particular significance for them. However, too much customization would compromise the standard delivery of the service and adversely affect its quality. Thus, particular care should be taken in designing the service offering.

6.2.5: Client-Based Relationships

Client-service providers aim to build a level of trust with clients that leads to long lasting buyer-seller relationships.

Learning Objective

Discuss how relationship-building helps retain customers in a competitive marketing environment

Key Points

• Providing customer-oriented services builds long lasting consumer-provider relationships, leading to repeat sales and reduced client turnover.
• Building service-oriented relationships involves carefully listening to the needs of the customer and fulfilling them through appropriate service offerings.
• Customer retention has become increasingly important due to fierce competition between service providers.
• Marketers can leverage service offerings to differentiate themselves from the competition and attract consumers.

Key Terms

Consumer

The consumer is the one who pays to consume the goods and services produced. As such, consumers play a vital role in the economic system of a nation. In the absence of their effective demand, the producers would lack a key motivation to produce, which is to sell to consumers.

customer retention

An assessment of the product or service quality provided by a business that measures how loyal its customers are.

Homogeneous

Of the same kind; alike, similar.

Example

• When the physical product cannot easily be differentiated, the key to competitive success may lie in adding valued services and improving their quality. Rolls-Royce PLC has ensured its aircraft engines are in high demand by continuously monitoring the health of its 3000 engines for 45 airlines through live satellite feeds. Under its TotalCare program, airlines pay Rolls a fee for every hour an engine in flight, and Rolls assumes the risks and costs of downtime and repairs in return.

Client-Based Relationships

Relationships are a key factor when it comes to the marketing of services. Since the product is intangible, a large part of the customer’s buying decision will depend on the degree to which he or she trusts the seller. Therefore, the service provider should listen to the needs of the customer, fulfill them through the appropriate service offering, and build a long-lasting relationship that will lead to repeat sales and positive word-of-mouth.

Given today’s highly competitive scenario, in which multiple providers are vying for a limited pool of customers, retaining customers is even more important, and more cost-effective, than attracting new ones. Since services are usually generated and consumed at the same time, they actually involve the customer in the service delivery process by taking into consideration his or her requirements and feedback. Thus they offer greater scope for customization according to customer requirements, potentially offering increased satisfaction and leading to higher customer retention.

Building Relationships

Building client-based relationships is also important due to the increasing homogeneity of product offerings. For example, many beauty salons that offer homogeneous, or similar, services such as a haircut, coloring, and styling. Having an unkempt and unsanitary salon will ensure the client will never come back. Something as simple as cleanliness is a good way to increase client confidence, especially since a client does not know how a haircut will turn out until it is done. Due to the increasing number of salons available, it would be very easy for a client to go elsewhere. However, being friendly, professional, and listening to the needs of the client will help ensure that the client will be a repeat customer.

Competitive Success

Rolls Royce PLC maintains a competitive edge in the airplane engine industry by adding valued services to improve the quality of its engine.

A Rolls Royce airplane.

6.3: Marketing Mixes for Services

6.3.1: Product, Placement, Promotion, and Price

Due to the nature of services, the implications of product, place, promotion and price are different than in the traditional marketing mix.

Learning Objective

Describe the 7Ps in the services marketing mix

Key Points

• In terms of product, with services there is scope for customizing the offering as per customer requirements so the customer encounter assumes particular significance.
• Pricing of services is tougher than pricing of goods because in the case of services there are attendant costs–such as labor and overhead costs–that also need to be factored in.
• Since service delivery is concurrent with its production and cannot be stored or transported, the location of the service product assumes importance.
• Since a service offering can be easily replicated, promotion becomes crucial in differentiating a service offering in the mind of the consumer.
• The essential elements of product, promotion, price and place remain in service the service marketing mix, but three additional elements–people, physical evidence and process–are included to the 7Ps mix.

Key Terms

intangible

Incorporeal property that is saleable though not material, such as bank deposits, stocks, bonds, and promissory notes.

marketing mix

A business tool used in marketing products; often crucial when determining a product or brand’s unique selling point. Often synonymous with the four Ps: price, product, promotion, and place.

heterogeneous

Diverse in kind or nature; composed of diverse parts.

noise

data that is not being used to transmit a signal, but is simply produced as an unwanted by-product of other activities

Example

• When it comes to deciding on the location of a service offering (place), a fine dining restaurant is better located in a busy, upscale market as opposed to the outskirts of a city; a holiday resort is better situated in the countryside away from the rush and noise of a city.

Introduction

To understand the services marketing mix framework, it’s necessary to understand the nature of services. According to Wolak, Kalaftis & Harris, the characteristics of services are:

• Intangibility–the service cannot be touched or viewed, so it is difficult for clients to tell in advance what they will be getting.
• Inseparability (simultaneity)–the service is being produced at the same time that the client is receiving it (eg during an online search, or a legal consultation).
• Heterogeneity (variability)–services involve people, and people are all different. There is a strong possibility that the same enquiry would be answered slightly differently by different people (or even by the same person at different times). It is important to minimize the differences in performance (through training, standard-setting and quality assurance).
• Perishability–unused capacity cannot be stored for future use. For example, spare seats on one airplane cannot be transferred to the next flight, and query-free times at the reference desk cannot be saved up until there is a busy period.

Each of these characteristics plays a role in the service marketing mix.

The Services Marketing Mix

Extending the 4Ps

The services marketing mix is an extension of the 4Ps framework. The essential elements of product, promotion, price and place remain but three additional elements – people, physical evidence and process are included to the 7Ps mix. The need for the extension is due to the high degree of direct contact between service providers and its customers, the highly visible nature of the service process, and the simultaneity of the production and consumption. Although it is possible to discuss people, physical evidence and process within the 4P framework (for example, people can be considered part of the product offering), this extension allows for a more thorough analysis of the marketing elements necessary for successful services marketing.

Product

In the case of services, the “product” is intangible, heterogeneous and perishable. Moreover, its production and consumption are inseparable. Hence, there is scope for customizing the offering as per customer requirements, and the actual customer encounter therefore assumes particular significance. However, too much customization would compromise the standard delivery of the service and adversely affect its quality. Therefore, particular care has to be taken in designing the service offering.

Pricing

Pricing of services is tougher than pricing of goods. While the latter can be priced easily by taking into account the raw material costs, in the case of services there are attendant costs–such as labor and overhead costs–that also need to be factored in.

A restaurant not only has to charge for the cost of the food served but also has to calculate a price for the ambiance provided.

Place

Since service delivery is concurrent with its production and cannot be stored or transported, the location of the service product assumes importance. Service providers have to give special thought as to where the service is provided. A fine dining restaurant is better located in a busy, upscale market as opposed to the outskirts of a city. A holiday resort is better situated in the countryside away from the rush and noise of a city.

Promotion

Since a service offering can be easily replicated, promotion becomes crucial in differentiating a service offering in the mind of the consumer. Service providers offering identical services such as airlines or banks and insurance companies invest heavily in advertising their services. This is crucial in attracting customers in a segment where the services providers have nearly identical offerings.

People

People are a defining factor in a service delivery process, since a service is inseparable from the person providing it. A restaurant is known as much for its food as for the service provided by its staff. The same is true of banks and department stores. Consequently, customer service training for staff has become a top priority for many organizations today.

Process

The process of service delivery is crucial since it ensures that the same standard of service is repeatedly delivered to the customers. Most companies have a service blue print which provides the details of the service delivery process, often going down to even defining the service script and the greeting phrases to be used by the service staff.

Physical Evidence

Since services are intangible in nature, most service providers strive to incorporate certain tangible elements into their offering to enhance customer experience. Many hair salons have well designed waiting areas, often with magazines and plush sofas for patrons to read and relax while they await their turn. Similarly, restaurants invest heavily in their interior design and decorations to offer a tangible and unique experience to their guests.

Hair Salon

When a business provides intangible services, it might incorporate certain tangible elements to enhance customers’ experience.

6.3.2: SIVA: Solution, Incentive/Information, Value, and Access

A formal approach to customer-focused marketing is known as S.I.V.A. (Solution, Information, Value, Access).

Learning Objective

Describe S.I.V.A. model and its role in the marketing mix

Key Points

• This system is basically the four Ps renamed and reworded to provide a customer focus.
• Instead of placing ads, S.I.V.A. advocates simply giving consumers the information they need to determine whether or not the product or services offered is both valuable and accessible to them.
• Instead of using economic theories to set price, S.I.V.A. advocates setting the price of a good or service based on the value a product offers to the consumers.
• Based on the S.I.V.A. model, consumers access products and services when and where they want it instead of corporations dictating the place.
• Based on the S.I.V.A. model, consumers access products and services when and where they want it instead of corporations dictating the place.

Key Term

marketing mix

A business tool used in marketing products; often crucial when determining a product or brand’s unique selling point. Often synonymous with the four Ps: price, product, promotion, and place.

Example

• The price of services is often based on value and not economic models, as services are intangible products that can’t be priced based on the input of raw materials.

Introduction

A firm in the market economy survives by producing goods and offering services that people are willing and able to buy. Consequently, ascertaining consumer demand is vital for a firm’s future viability and profits.

Many companies today have a customer focus (or market orientation). This implies that the company focuses its activities and products on consumer demands. This is also known as S.I.V.A., or Solution, Information, Value, and Access. Generally, there are three ways of doing this:

• the customer-driven approach;
• the market change identification approach; and
• the product innovation approach.

The Consumer-Driven Approach

In the consumer-driven approach, consumer wants are the drivers of all strategic marketing decisions. No strategy is pursued until it passes the test of consumer research. Every aspect of a market offering, including the nature of the product itself, is driven by the needs of potential consumers. The starting point is always the consumer.

Your Wish Is My Command

In the SIVA model, the consumer rules.

The rationale for this approach is that there is no reason to spend R&D funds developing products that people will not buy. History attests to many products that were commercial failures in spite of being technological breakthroughs.

A formal approach to this customer-focused marketing is known as S.I.V.A (Solution, Information, Value, Access). This system is basically the four Ps renamed and reworded to provide a customer focus.

The SIVA Model

The S.I.V.A. Model provides a demand/customer-centric alternative to the well-known four Ps marketing mix model (product, price, placement, promotion) of marketing management. The idea behind it is to restate the four P’s in a way that reflects today’s marketing environment where the power of building brands has shifted from corporations to communities.

Based on this model:

• Product→Solution;
• Promotion→Information;
• Price→Value; and
• Place (Distribution)→Access.

Product Becomes Solution

Here, what is being sold is driven by what the consumer needs. The community defines the product instead of the corporation. It is marketing’s duty to understand what the consumer wants and explain this to the corporations so that they, in turn, can produce the products that satisfy the needs of the consumer. You aren’t simply providing a product, you are offering a solution that meets your customer’s needs. This is what services do on a daily basis.

Promotion Becomes Information

Instead of placing ads, simply give the consumers the information they need to determine whether or not the product or services offered is both valuable and accessible to them. Many services have always operated on this basis. Customers go for a “fact finding” appointment where they learn about the service offered (by a doctor or lawyer, for example) and its price. Based on this information, they decide whether or not to become patients or clients.

Price Become Value

Instead of using economic theories to set price, S.I.V.A. advocates setting the price of a good or service based on the value a product offers to the consumers. The price of services is often determined in this manner as services are intangible products that can’t be priced based on the input of raw materials.

Place Become Access

The whole idea behind this is giving consumers access to products and services when and where they want it instead of dictating where a consumer has to go to get it. These days even beauticians are willing to come to your home to do your hair. Other service providers provide information and services on the Internet as opposed to making you come to their office.

6.4: Service Quality

6.4.1: Customer Feedback

Successful businesses work proactively to obtain information from their customers to ensure they are meeting their needs.

Learning Objective

Summarize the different methods organizations use to collect consumer feedback

Key Points

• In-person focus groups and one-on-one interviews are helpful tools that provide explanation of a product or consumer-related issues because you are going to the main source directly.
• Technology has made it increasingly easier for companies to obtain feedback from their customers.
• With the explosion of technology in the marketplace and the consumer’s everyday life, many companies are now building their own proprietary online panels of consumers which give them unencumbered access to their target market on an ongoing basis.
• Some surveys can be conducted via phone, which yields a more private conversation exchange between the customer and the service provider.

Key Terms

Virtual Online Communities

A social network of individuals who interact through specific social media, potentially crossing geographical and political boundaries in order to pursue mutual interests or goals.

Service Quality

A term which describes a comparison of a customer’s expectations as it relates to a company’s performance.

Example

• Customer feedback can be collected via direct conversations with consumers, telephone or focus group interviews, surveys, and online communities.

Customer Feedback

Service quality generally refers to a customer’s comparison of service expectations as it relates to a company’s performance. A business with a high level of service quality is likely capable of meeting customer needs while also remaining economically competitive in their respective industry. Successful businesses who remain competitive and relevant in the marketplace work proactively to obtain information from their current or potential customer base so they can ensure they are meeting their needs.

No amount of discussing with professionals, friends, or colleagues will ever replace the information that a company can receive from a real customer.

The following questions are crucial when obtaining customer feedback:

• What does the customer like?
• What do they dislike?
• How can things be improved?
• Are their needs and expectations being met?
• How much will they pay for something?
• Is convenience important?
• Should items be packaged together?
• Is after-sales service critical?

Customer feedback can be collected by:

• Asking consumers directly: This tactic comes across particularly effective during the point-of-purchase at a retail store because consumers are being probed on their experiences while they are shopping.
• Questionnaires: Distribute one-page questionnaires that ask some key questions and encourage customers to fill them out. These can be mailed out as pre-paid postcards or emailed to consumers who give their permission to be contacted.
• Focus groups: This involves gathering a number of customers, sitting them down, and discussing a range of issues relevant to a company’s business. The advantage of using this method over a questionnaire is that it will yield more detailed information and feedback, rather than “tick the box” style responses from a questionnaire. In-person focus groups and one-on-one interviews are helpful tools that provide explanation of product or consumer-related issues because you are going to the main source directly .
• Telephone: Some surveys can be conducted via phone. These yield a more private conversation exchange between the customer and the service provider.

Telephone Survey

Telephone surveys enable a private conversation to take place between the customer and service provider.

• Virtual online communities or private consumer panels: Technology has made it increasingly easier for companies to obtain feedback from their customers. With the explosion of technology in the marketplace and the consumer’s everyday life, many companies are now building their own proprietary online panels of consumers which give them unencumbered access to their target market on an ongoing basis. In exchange for their honest opinions and feedback, customers are incentivized for their time. Community blogs and forums also enable customers to provide detailed explanations of both negative as well as positive experiences with a company.

Instant feedback

Recently, many organizations have implemented feedback loops that allow them to capture feedback at the point of experience. For example, National Express, one of the UK’s leading travel companies, has invited passengers to send text messages while riding the bus. This has been shown to be useful, as it allows companies to improve their customer service before the customer defects, thus making it far more likely that the customer will return next time.

6.4.2: The Gap Model

Customers compare the service they ‘experience’ with what they ‘expect’ and when it does not match the expectation, a gap arises.

Learning Objective

List the GAP Model’s five contributory factors of unsuccessful customer service

Key Points

• GAP 1: Gap between consumer expectation and management perception: arises when the management or service provider does not correctly perceive what the customers wants or needs.
• GAP 2 : Gap between management perception and service quality specification: this is when the management or service provider might correctly perceive what the customer wants, but may not set a performance standard.
• GAP 3: Gap between service quality specification and service delivery: may arise pertaining to the service personnel. This could arise due to there being poor training, incapability or unwillingness to meet the set service standard.
• GAP 4 : Gap between service delivery and external communication: consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of service delivery.
• GAP 5: Gap between expected service and experienced service: this gap arises when the consumer misinterprets the service quality.

Key Terms

Service Quality

A term which describes a comparison of a customer’s expectations as it relates to a company’s performance.

Service quality model

Highlights the main requirements for delivering high service quality; it identifies five ‘gaps’ that cause unsuccessful delivery.

Example

• An example of GAP #4: the hospital printed on the brochure may have clean and furnished rooms, but in reality, it may be poorly maintained – in this case the patient’s expectations are not met.

The GAP Model

The Service Quality Model, also known as the GAP Model, was developed in 1985. It highlights the main requirements for delivering a high level of service quality by identifying five ‘gaps’ that can lead to unsuccessful delivery of service.

The GAP Model

The GAP Model shows the requirements for delivering quality service.

Customers generally have a tendency to compare the service they ‘experience’ with the service they ‘expect’ to receive; thus, when the experience does not match the expectation, a gap arises.

GAP 1:

Gap between consumer expectation and management perception: This gap arises when the management or service provider does not correctly perceive what the customer wants or needs. For instance – hotel administrators may think guests want better food or in-house restaurant facilities, but guests may be more concerned with the responsiveness of the staff or the cleanliness of their rooms.

Consumer Expectations

Hotel administrators might think that guests want better food or in-house restaurant facilities, but guests might be more concerned with the staff’s responsiveness.

A hotel clerk stands behind the front desk.

Factors that affect the size of the knowledge gap include:

Market
research

• Before introducing a new product or service into the market, a company must conduct market research to understand whether there would be any demand for the product, and what features should be incorporated. The better this process is conducted, the smaller the knowledge gap will be.
• There are methods of ensuring that customer desires are taken on board. These include: comprehensive studies, gauging satisfaction after individual transactions (surveys immediately after a purchase is made), customer panels and interviews, and through customer complaints.

Communication channels

• The fewer the layers between management and customer contact personnel, the more likely that customer preferences will be incorporated into higher-level decision making on the product.

GAP 2 :

Gap between management perception and service quality specification: This is when the management or service provider might correctly perceive what the customer wants, but may not set a performance standard. An example here would be that hospital administrators may tell the nurse to respond to a request ‘fast’, but may not specify ‘how fast’.

GAP 3:

Gap between service quality specification and service delivery: This gap may arise in situations pertaining to the service personnel. It could happen due to poor training, incapability or unwillingness to meet the set service standard. An example would be when a doctor’s office has very specific standards of hygiene communicated but the hired staff may have been poorly trained on the need to follow these strict protocols.

GAP 4 :

Gap between service delivery and external communication: Consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of delivery of the service. For example – a hospital printed on its brochure may have clean and furnished rooms but in reality, it may be poorly maintained – in this case the patient’s expectations are not met.

GAP 5:

Gap between expected service and experienced service: This gap arises when the consumer misinterprets the service quality. The physician may keep visiting the patient to show and ensure care, but the patient may interpret this as an indication that something is really wrong.

6.4.3: Resolving Problems Quickly

The best method of resolving problems – often before they arise – is through the delivery of excellent customer service.

Learning Objective

Describe how automation and tech support tools are used to resolve customer service issues

Key Points

• By ensuring a close relationship with the customer, knowing their wants and needs and avoiding any misunderstandings, a company is able to ensure that problems of a non-technical nature are minimized.
• With automated support, service organizations can make their services available to their customers 24 hours a day and seven days a week, by monitoring alarms, identifying problems at an early stage, and resolving issues before they become problems.
• Technical support services attempt to help the user solve specific problems with a product, rather than providing training, customization, or other support services.

Key Term

automation

The act or process of converting the controlling of a machine or a device to a more automatic system, such as a computer or electronic controls.

Resolving Problems Quickly

Problem Resolution Through Excellent Customer Service

Ultimately, the best method of resolving simple problems – often before they arise – is through the delivery of excellent customer service. By ensuring a close relationship with the customer, knowing their wants and needs and avoiding any misunderstandings, a company is able to ensure that problems of a non-technical nature are minimized, often before they even arise. Any problems that do arise can be resolved with an attentive approach to the customer, ensuring that all will be done to solve the problem as soon as possible. When the customer knows that they are valued in such a way, they tend to be much more forgiving and patient with the company.

Customer Support

Customer support is a range of customer services to assist customers in making cost effective and correct use of a product. It includes assistance in planning, installation, training, troubleshooting, maintenance, upgrading, and disposal of a product. Through effective and attentive customer support, any potential problems that the customer has with a product or service can be resolved quickly and cleanly.

Automation

Customer support automation involves the building of a knowledge base of known issues and their resolutions to support incidents with delivery mechanisms, often by expert systems. A service automation platform includes a suite of support solutions including proactive support, assisted support, and self support. Automation of service organizations aim to achieve, for example, lower mean time to repair (MTTR) . With automated support, service organizations can make their services available to their customers 24 hours a day and seven days a week, by monitoring alarms, identifying problems at an early stage, and resolving issues before they become problems.

Customer Support

AT&T Mobility provides technical support for some of its mobile phones through device support centers.

Automated assisted support enables remote access to sites that need instant problem solving. By automating the collection of information of devices and applications coexisting with the supported application, problems can be quickly detected and fixed.Automated self support, automates the self support process, freeing users from self-help diagnostics and troubleshooting from online libraries or knowledge bases. Support automation solutions can be integrated with customer relationship management (CRM) systems and network management systems (NMS). They can also provide full customer reports to management by tallying problems and incidents that were solved mechanically to ensure compliance with industry regulations.

Tech Support

Tech support refers to a range of services by which companies provide assistance to users of technology products such as mobile phones, televisions, computers, software products, or other electronic or mechanical goods. In general, technical support services attempt to help the user solve specific problems with a product—rather than providing training, customization, or other support services. Most companies offer technical support for the products they sell, generally for free. Others provide a fee for technical support or a fee for premium support services (no waiting in line or talking to a machine, for example).

6.4.4: Delivering Excellent Service Quality

The core task of a business is to ensure that customers come back, which can be done by delivering excellent service quality.

Learning Objective

Give examples of excellence in service quality

Key Points

• Bringing in new customers is great, but won’t keep a business profitable for long if those customers don’t come back for more–and they will only do this if they are happy.
• If repeat customers are happy then they will do your marketing for you, through word-of-mouth: telling their friends, family, and anyone who will listen how great you are.
• Personalized service is a key way to retain customers, because you show them that they are more than just a source of income to you, and that you value their patronage and your relationship with them.

Key Terms

customer service

The act of providing services to customers before, during and after a purchase.

personalized

adapted to the needs of an individual

Example

• Examples of excellence in service quality include personalized service, good return policies, complaints desks and hotlines, being able to speak to a human being when calling for service, and so on.

Delivering Excellent Service Quality

Customer Service

Customer service is at the core of any successful business, as it provides an incentive for customers to come back. Bringing in new customers is great, but won’t keep a business profitable for long if those customers don’t come back for more–and they will only do this if they are happy. If they are happy, they will do your marketing for you, spreading the word and bringing in new customers.

Maintaining a consistently high level of customer service is a challenge for any company. In order to continuously exceed customer expectations, service firms must recognize that every aspect of their business has an impact on customer service in some form, not just those aspects of their business which involve face-to-face customer contact. It comes across in a business and its employees’ attitude, customer treatment, and approach to customer service.

Examples of excellence in service quality include personalized service, good return policies, complaints desks and hotlines, being able to speak to a human being when calling for service, and so on. Customer service should be included as part of an overall approach to systematic improvement, as a customer service experience can change the entire perception a customer has of the organization .

Customer Life Cycle

Marketers should pay attention to the different stages in the customer life cycle.

A diagram that shows the customer life cycle – identify potential customers; persuade first time customers to buy and make repeat customers; transform customers into members, make them advocates, make them partners; retain lost customers.

An Example

A business should want to be known for how it is better than its competitors. If the business offers the best customer service in the local market, then that could form the basis of the customer value proposition.

Take the example of the local Chinese restaurant in the neighborhood. When entering the restaurant, the family is greeted by name and welcomed to their favorite table. Before being handed the standard menu, the owner recommends a dish that is based on the current availability of the freshest ingredients, careful to avoid the customers’ dislikes, and with a good sense of what the customers might prefer on that day, given the time of year, and given the weather. The owner automatically brings a glass of the customers’ favorite drinks and ensures that the water has a fresh slice of lemon just as the family likes. The owner knows that the family has a birthday coming up and suggests that they can have the dinner party at the restaurant or cater the event at their home if they so desire. She spends time talking to the family and knows all the other restaurants that they patronize. She knows how often they dine out.

This kind of personalized service can do much to engage the customer and it is quite conceivable that this business owner has a large share of this customer’s restaurant spending. For higher-end customers, recent surveys show that the accumulation of experiences is more important that the convenience factor of dining out. The customer most likely recommends the restaurant to all her friends. This owner can easily charge a premium to the customer for this level of service and the customer will gladly pay for it. She is able to adjust the menus to meet their requirements and draw more customers.

It is important to divide all customers in groupings that define their profitability. Good customers buy ten plus times more than marginal customers. The business should identify good customers and give them the attention they are due. Some businesses will assign staff to high-value customers. They take the opportunity to develop a deeper relationship with these customers. They will call them to get feedback on their experiences. They will thank them for being good customers. They will collaborate with them to customize the product or service so that it better fits their needs .

Customer Value Proposition

There are benefits and costs regarding the customer value proposition.

A table that shows the customer value proposition – benefits (product, service, image) and costs (price, cost of acquisition, maintenance, disposal).