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Finance, Operations, and Marketing

Conflicts in Service Firms

Steven M. Shugan
he insightful observations of V&L should dramati-

T cally influence academic research in marketing and


other disciplines. Vargo and Lusch eloquently and
provocatively detail why the mainstream marketing disci-
pline must react to obvious dramatic changes in the world are equally applicable to data on soap sales or data on
economy. It must be recognized that (1) the service sector surgery.
dominates most developed economies in the world and Third, services (as defined by the U.S. Census Bureau)
employs nearly all marketing students; (2) the systems that possess neither entirely unique nor mutually common prop-
deliver manufactured products (i.e., service) often provide erties. For example, although psychiatric services are intan-
more value-added for the customer than do the delivered gible, setting broken bones is no less tangible than the scent
manufactured products themselves; (3) managing company of manufactured perfumes. Although consulting services
consumer service interactions requires adaptation, dynamic require clients, airplanes fly without passengers. Although
strategies, and learning new competences; and, conse- inventorying empty airline seats after departure is difficult,
quently, (4) marketing research requires reinvention. many manufactured goods are also highly perishable.
The spirit of V&L is undeniable. As service-dominated Although dry-cleaning services require some customer par-
economies replace manufacturing-dominated economies, ticipation, driving manufactured automobiles requires
most transactions involve government, high-end business greater degrees of customer involvement.
services, health care (e.g., Kahn and Luce 2003), legal ser-
vices, transportation services, evolving communications, Is the Marketing Function Important to Service-
multichannel retailing, financial services, and personal Oriented Firms?
services.
Marketing is certainly an essential activity that is worthy of
Three questions emerge, the answers to which might
dictate the station, and perhaps survival, of the marketing serious academic research. However, for service industries,
discipline. Although survival seems a hyperbole, consider other disciplines make compelling claims to greater rele-
the following: First, stagnant consumer packaged-goods vancy. In the airline industry, marketing might take a back-
manufacturers rather than lucrative financial services or seat (no pun intended) to maintenance- and safety-related
rapidly expanding business services predominantly employ functions. For many public utilities (e.g., electricity, water,
marketings best students. Second, although top corporate emergency services), marketing might take a backseat to
officers of consumer packaged-goods firms often have mar- legal concerns and regulatory obligations. Do pilots require
keting pedigrees, other backgrounds (e.g., finance, law, a customer orientation or flight training? Are restaurant
operations) prevail for most service firms (Doyle 2000; servers more important than the quality of meals? Do defi-
Fredman 2003; Pasa and Shugan 1996). Third, although new ciencies in marketing or operations explain the high rate of
marketing faculty members enjoy increased starting salaries bankruptcies among service providers? Was the titanic bat-
this year, their salaries still lag those of hires in information tle between Kmart and Wal-Mart resolved on the operations
systems, operations, accounting, and finance (AACSB battlefield or on the marketing battlefield (Muller 2002)?
20022003 Salary Survey). Fourth, the gap between acade- The fundamental marketing concept of a customer ori-
mic research and the content of basic marketing textbooks is entation can be vague. For example, who is the customer of
growing. Fifth, knowledge of the marketing literature is less a hospital? Is it the patient who receives the service, the
of a competitive advantage for marketing doctoral students insurer who pays for the service, the admitting physician
who face competition from nonmarketing doctoral students. who refers the patient, the government regulator who speci-
fies the service, or the employer who chooses the health-
What Are the Risks of Doing Research with a care provider? Are the customers of colleges the students,
Service Orientation? the parents who pay the tuition, the taxpayers who provide
Many authors (e.g., V&L) justifiably advocate implement- subsidies, the donors who provide funding, the corporations
ing radical new research directions, but nontrivial impedi- who hire the students, the grant providers, the government,
ments and perilous obstacles await researchers. First, much or society at large?
of the marketing discipline concerns itself with developing Despite the significant role of marketing, modesty is
and refining tools for analyzing numeric data, which histor- appropriate. Marketing must coexist with finance and opera-
ically have been cross-sectional survey data. These data tions. Researchers in marketing must recognize and contem-
endowed marketing groups with unique advantages: having plate the impact of marketing activities on operations as well
valuable information not available elsewhere in the organi- as their financial impact. For example, complex or confusing
zation and having homegrown techniques with which to promotions might tax servers, thereby causing a dramatic
analyze it. A shift to longitudinal transaction data makes the detrimental impact on server time per customer. Moreover,
techniques less valuable. Moreover, longitudinal transaction marketing must be accountable to finance and justify mar-
data are well understood by finance, operations (e.g., the air- keting activities by measuring both customer satisfaction and
lines), accounting, information systems, and other business the consumption of precious organizational resources. For
disciplines, which have analyzed the transaction data for example, it must be considered how marketing activities
years and have developed their own decision-making tools affect scarce resources (e.g., server time, space, administra-
that employ that data. The marketing disciplines distinctive tor attention) during times of peak capacity.
competency in this domain is unclear.
Second, generality is a traditional holy grail of academic What Service-Related Research Problems Crave
research. The developers and zealous stewards of existing Attention?
methods and theories will enthusiastically proclaim that new Rather than directly attacking existing views as simply inad-
methods are unnecessary. Their current treasured methods equate (despite justification) or arguing for the universal

Invited Commentaries / 25
dominance of the marketing function, perhaps a more hum- Increasing sales and profits when teams deliver the service;
ble approach is possible. Scholars might focus on overcom- Marketing when third parties pay for the service or evaluate it
ing concrete problems and daily challenges commonly faced (Eliashberg and Shugan 1997);
by particular service industries (Shugan 2003). The primary Using marketing to train effectively and to retain employees;
concern is the implementation of marketing activities, Marketing more effectively information services, entertain-
including their financial impact (e.g., Rust, Moorman, and ment, and services with low marginal costs;
Dickson 2002) and impact on operations (e.g., Evangelist Developing highly profitable ancillary services to comple-
2002). ment low-margin core services (e.g., concessions at movie
theaters);
As extensions of prior work, further research should
explore the following challenges: Balancing self-service and employee-delivered service;
Determining the optimal amount of customization (e.g.,
Implementing marketing strategy in an operations-dominated Anderson, Fornell, and Rust 1997) in a rate-based pricing
environment (e.g., Eliashberg et al. 2001); environment;
Measuring the impact of marketing strategies on short- and Developing internal marketing programs to motivate service
long-term profits (e.g., Leeflang and Wittink 2000); employees;
Managing demand and enhancing profits, given capacity Determining when and how to advance sell services (Moe and
constraints; Fader 2002; Xie and Shugan 2001);
Developing new services in which implementation is more Developing creative pricing ideas for services (e.g., Biyalo-
critical than design; gorsky and Gerstner 2004);
Developing recovery systems for mitigating almost-certain Building network externalities for services (e.g., Basu,
failures in service delivery systems (e.g., Hart, Heskett, and Mazumdar, and Raj 2003); and
Sasser 1990); Measuring the impact of more service on customer welfare
Making personal selling more effective by adding service; (e.g., Liu, Putler, and Weinberg 2004).
Developing marketing strategies for exploiting seasonality
and diminishing its deleterious impact on server capacity
(e.g., Radas and Shugan 1998);

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