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LECTURE CH. 13: SERVICES MARKETING (2012) I. The Growth and Importance of Services A. All products are intangible or feature intangible elements to some extent, but services are the most intangible. B. A service is an intangible product involving a deed, a performance, or an effort which cannot be physically possessed. 1. Services are usually provided through the application of human and/or mechanical efforts directed at people or objects. 2. Although many services entail the use of tangibles such as tools and machinery, the primary difference between a service and a good is that a service is dominated by the intangible portion of the total product. B. Services as products should not be confused with the related topic of customer service, which involves any service activity that adds value to a core product. C. Services are increasingly important in many nations, and the importance of services in the U.S. economy has led many people to call the U.S. the worlds first service economy. Services represent well over half of the GDP in many developed nations. D. Sustained economic growth and lifestyle changes have led to the expansion of the service sector, including consumer and business services, as people can afford to pay others to perform tasks that save them time. Demand for business services has grown more rapidly than for consumer services. E. One way to view services is from a theater framework with production elements, such as actors, audience, a setting, and a performance. Characteristics of Services There are six distinguishing characteristics of services that differentiate them from goods. A. Intangibility Intangibility means a service is not physical and therefore cannot be perceived by the senses. 1. A service cannot be seen, touched, tasted, or smelled. 2. A service cannot be physically possessed. 3. There is a continuum of intangibility ranging from pure goods (tangible) to pure services (intangible); knowing where a product lies on this continuum is important in creating marketing strategies for service-dominant products. B. Inseparability of Production and Consumption Inseparability of production and consumption means the production of a service cannot be separated from its consumption by customers; production and consumption are simultaneous. 1. Although the manufacturer of a tangible good may never see an actual customer, customers often must be present during the production of a service and cannot take the service home. 2. Because of inseparability, customers not only want a specific type of service but expect it to be provided in a specific way by a specific individual. C. Perishability Perishability means that the unused service capacity from one time period cannot be stored for future use. 1. Service providers and marketers cannot handle supply-demand problems through production scheduling and inventory techniques. 2. Service providers can plan for demand which fluctuates according to day of the week, time of day, or season. D. Heterogeneity Heterogeneity means variation in quality. 1. Quality of manufactured goods is easier to control with standardized procedures and mistakes are easier to correct than in the service industry. 2. Maintaining a consistent quality of service delivery can be very difficult for service providers. Variations can occur with services provided by different organizations, the same organization, different people, or the same person and are therefore difficult to control. 3. Heterogeneity usually increases as the degree of labor-intensiveness increases. This is because services are people-based and susceptible to fluctuations in quality. E. Client-Based Relationships Client-based relationships are interactions that result in satisfied customers who use a service repeatedly over time. 1. Some service providers call their customers clients and develop long-term relationships with them. 2. The success of many services depends on creating and maintaining interactions with customers that result in client-based relationships.

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A concentrated effort to provide quality services builds a relationship in which customers become very loyal and are unlikely to switch to a competitor. F. Customer Contact Customer contact is the level of interaction between the provider and the customer needed to deliver the service. 1. Customer contact varies depending on the service. 2. Employees of high-contact service providers are crucial in creating satisfied customers. 3. Satisfied employees lead to satisfied customers. 4. Service organizations must train employees to perform customer-oriented behavior and reward them for success. Developing and Managing Marketing Mixes for Services The characteristics of services require marketers to consider additional issues within the four major marketing-mix variablesproduct, distribution, promotion, and price. A. Development of Services 1. A service offered by an organization is generally a package, or bundle, of services consisting of a core service and one or more supplementary services. a) A core service is the basic service experience or commodity a customer expects to receive. b) A supplementary service is a supportive service related to the core service and is used to differentiate the service bundle from competitors. 2. Heterogeneity results in variability in service quality and makes it difficult to standardize service delivery. 3. Heterogeneity provides the advantage to marketers of allowing them to customize services to match the specific needs of individual customers. Customization is a key element in providing a competitive advantage for the service provider. 4. The expense of some customized services leaves marketers with a dilemma: how to provide service at an acceptable level of quality in an efficient and economic manner and still satisfy individual customer needs. a) Some marketers provide standardized packages to cope with the problem. b) This leads to highly specified actions and activities the service provider provides. 5. Intangibility makes it difficult for customers to evaluate a service prior to purchase. a) Intangibility requires service marketers to market promises to customers, although they should be wary of raising customer expectations beyond what they can provide. b) Customers are forced to place some degree of trust in the service provider to perform the service in a manner which meets or exceeds those promises. c) Marketers also employ tangible cues to help assure customers about the quality of the service, such as well-groomed, professional-appearing contact personnel, and clean, attractive physical facilities. 6. The fact that customers take part in the production of a service means other customers can affect the outcome of a service. B. Distribution of Services Marketers deliver services in a variety of ways. 1. In some instances, customers go to a service providers facility. 2. Some services are provided at the customers home or business. 3. Some services are delivered primarily at arms length, without face-to-face contact. 4. Marketing channels for services are usually short and direct, meaning the producer delivers the service directly to the end user, but some services use intermediaries. 5. Warehousing and transportation are not major concerns of service providers. However, inventory management is very important, especially balancing supply and demand. a) Inseparability and level of customer contact contribute to the challenges of demand management. b) In some instances, appointments and reservations are used to schedule service delivery. c) To increase the supply of a service, marketers use multiple service sites and increase the number of contact service providers at each site. 6. To make delivery more accessible to customers and to increase the supply of a service as well as to reduce labor costs, some service providers have decreased the use of contact personnel and replaced them with equipment. This can result in a lack of personalization. C. Promotion of Services 1. Because it may not be possible to depict the actual performance of a service in an advertisement or display it in a store, explaining a service to customers can be difficult. 2. Promotion of services typically includes tangible cues which symbolize the service. a) While these symbols have nothing to do with the actual service, they make it easier for

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customers to understand the intangible attributes associated with the service. To add tangibility, ads for services often show pictures of facilities, equipment, and service personnel. 3. Service providers are more likely to promote price, guarantees, performance documentation, availability, and training and certification of contact personnel than goods marketers. a) Use of concrete, specific language makes the services more tangible in the minds of customers. b) Promoters are also careful not to promise too much, because customers expectations may be raised to unattainable levels. 4. Contact personnel, through their actions, can be directly or indirectly involved in the personal selling of a service. 5. Because many services cannot be experienced beforehand, offering some services such as insurance on a trial basis cannot be done. 6. Because of the heterogeneity and intangibility of services, word-of-mouth communication is important in service promotion. D. Pricing of Services 1. Services should be prices with consumer price sensitivity, the nature of the transaction and its costs in mind. 2. Prices of services can be established on several different bases. a) The performance of specific tasks b) Hourly, daily, or some other amount of time rates c) Demand-based pricing; when demand for the service is high, the price is also higher. (1) The perishability of services means when demand is low, the unused capacity cannot be stored and is lost forever. (2) Some services are very time-sensitive in that a significant number of customers desire the service at a particular time. This is the peak demand. (3) Providers of time-sensitive services often use demand-based pricing to manage the problem of balancing supply and demand, charging top prices during peak demand. d) Services offered to customers in bundles leave marketers to decide whether to offer the services at one price, separately priced, or to use a combination of the methods. 3. Because of the intangibility of services, customers rely more heavily on price as an indicator of quality. a) If customers perceive the services in a category as being similar in quality, and if the quality of the services is difficult to judge even after purchase, customers may seek the lowest-priced provider. b) If quality varies, customers may rely on the price-quality association. 4. Under certain conditions, such as when the service is perceived as generic in nature, marketers may be limited with respect to setting prices. a) Market conditions may limit prices for certain services. b) State and local government regulations may reduce price flexibility. Service Quality Service quality is defined as customers perception of how well a service meets or exceeds their expectations; marketers are thus forced to examine quality from the customers point of view. A. Customer Evaluation of Service Quality 1. Service quality is difficult to evaluate because services have few search qualitiestangible attributes that can be evaluated before the purchase (such as color, style, size, feel, or fit). 2. Service quality must instead be judged on a) Experience qualities are attributes that can be judged only during purchase or consumption of a service. b) Credence qualities, or attributes consumers are unable to evaluate even after purchasing and consuming a service because of lack of knowledge or skill. 3. In spite of the difficulties in evaluating quality, service quality may be the only way that customers can choose one service over another. 4. Marketers must learn how customers evaluate service quality. a) Tangible elements, such as the appearance of facilities and employees, are often the only aspects of a service which can be viewed before purchase and consumption. b) One of the most important factors in customer judgments of service quality is service expectations, which are influenced by past experiences with the service, word-of-mouth communication from other customers, and the service companys own advertising. B. Delivering Exceptional Service Quality 1. Providing high-quality service on a consistent basis is very difficult. b)

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Organizations can take steps to increase the likelihood of providing consistently high-quality service. They must understand the four factors that affect service quality: analysis of customer expectations, service quality specifications, employee performance, and management of service expectations. 3. Analysis of Customer Expectations By analysis of customer expectations, a service can be designed to meet or exceed those expectations. a) The difference between a desired level of service and an acceptable level of service is a customers zone of tolerance. b) Customer needs and expectations are determined through marketing research, comment cards, and daily interaction. 4. Service Quality Specifications Once an organization understands its customers needs, it must establish goals to ensure good service delivery. These goals are usually set in terms of employee or machine performance. a) The specifications must be tied to needs expressed by customers. b) To successfully provide high-quality service, managers must become role models with a commitment to quality. 5. Employee Performance Employee performance is critical to customer perceptions of service quality. a) Customer-contact employees in most service industries are often the least-trained and lowest-paid members of the organization. b) Employees must be well-trained to ensure high performance. c) Evaluations and compensation systems help ensure customer-contact employees perform their jobs well. 6. Management of Service Expectations Service companies must set realistic expectations about the services they can provide to customers. a) Service expectations are very significant in customer evaluations of service quality. b) Expectations can be set through promises in advertising and external communication. c) Marketers must make sure that advertisements do not promise more than they can deliver. d) Word-of-mouth communications can shape consumer expectations. Providing high quality services is important because customers tell four times as many people about bad service as they do about good service. Nonprofit Marketing A. Nonprofit marketing includes marketing activities conducted by individuals and organizations to achieve some goal other than ordinary business goals of profit, market share, or return on investment; it is divided into two categories: 1. Nonprofit-organization marketing is the use of marketing concepts and techniques by organizations whose goals do not include making profits. 2. Social marketing promotes social causes, such as AIDS research and recycling. B. How Is Nonprofit Marketing Different? 1. Although the chief beneficiary of the business enterprise is the owner, the beneficiaries of the nonprofit enterprise include clients, members, and the public at large. 2. Nonprofit marketing offers greater opportunities for creativity than most for-profit business organizations, although it is more difficult to evaluate the performance of involved professionals. 3. Nonprofit marketing may be controversial. a) The controversial nature of a nonprofit organization may require the marketing manager to make more value judgments about participation. b) Marketing does not attempt to state what an organizations goals should be or to debate the issue of nonprofit versus business goals; marketing attempts only to provide a body of knowledge and concepts to help further the organizations goals. C. Nonprofit Marketing Objectives 1. The basic aim of nonprofit organizations is to obtain a desired response from a target market. 2. Nonprofit marketing objectives should be stated in terms of serving perceived needs and wants of a target public rather than in terms of a product because the product may become obsolete, leaving the organization without an objective or purpose. D. Developing Nonprofit Marketing Strategies 1. Target Markets a) The target public is a collective of individuals who have an interest in or concern about an organization, a product, or a social cause. b) Once an organization is concerned about exchanging values or obtaining a response from the

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public, it is viewing the public as a market. The nonprofit organization target market includes client publics and general publics. (1) The client public is the direct consumer of the product; most of the attention in developing a marketing strategy is directed toward the client public. (2) The general public is the indirect consumer of the product. Developing Marketing Mixes a) Nonprofit organizations usually deal more with ideas and services than with goods. (1) Problems may arise if an organization fails to define what is being provided. (2) The marketing of ideas and concepts is more abstract and much effort is required to present benefits. b) Distribution decisions in nonprofits relate to how ideas and services will be made available to clients. (1) If the product is an idea, selecting the right media to communicate the idea will facilitate distribution. (2) By nature, services consist of assistance, convenience, and availability. Availability is part of the total service. (3) The traditional concept of the marketing channel may need to be revised for nonprofit marketing. A very short channel is the norm, as with all services industries. c) Promotional decisions may be the first sign that a nonprofit organization is performing marketing activities. Advertising and publicity are useful in communicating with clients and the public. (1) Direct mail is the primary means of fundraising for social services. (2) Personal selling is used widely, although it may be called by another name, such as recruiting or fundraising. d) Pricing of nonprofit services is very different from other services. Two types of pricing exist (1) Fixed (2) Variable, when the price varies based on a users ability to pay. e) The financial price, or an exact dollar amount, may or not be charged for a nonprofit product. (1) Opportunity cost is the value of the benefit given up by selecting one alternative over another. (2) Pricing strategies of nonprofit organizations often place the publics and clients welfare before matching costs with revenue. c)

Source: Pride & Ferrell (2012), Marketing, South-Western.

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