Classifying Services to Gain

Strategic Marketing Insights

By Christopher H. Lovelock
Article 1
Presented by Sandra Lamprecht
Objective
To generate greater sophistication within
the realm of service marketing by
segmenting services into clusters that
share certain relevant marketing
characteristics.
Previous Work
Classification of Goods
Hunt (1976)
Emphasized the usefulness of classification schemes
in marketing
Copeland (1923)
Most famous and enduring attempt to classify goods
Classification of convenience, shopping, and specialty
goods
Helped managers to:
Better understand consumer needs and behavior
Provided insight into the management of retail distribution
systems
Classification of Goods
Cont.
Bucklin (1963)
Revised and refined Copelands original
classification
Provided important strategic guidelines for
retailers

Classification of Goods
Cont.
Other Classification schemes:
Durable vs. non-durable goods
Durability is relative to purchase frequency and,
therefore, is important for the development of
distribution and communications strategies
Consumer goods vs. industrial goods
Relates to types of goods purchased and
product evaluation (purchasing procedures and
usage behaviors)
Shostack (1977), Bateson (1979), Berry (1980)
Argued that there are significant distinctions between
services and goods and have proposed several
generalizations for management practices
Enis & Roering (1981)
Believe that the differences that lie between goods and
services have no meaningful strategic implications
Langeard et al. (1981)
Stated the importance of recognizing that the service
sector, escpecially in the US, is becoming increasingly
competitive
Previous Work
Classification of Services
Classification of Services
Cont.
Judd (1964) - classification in accordance with
ownership
1) Rented goods services- right to own and use a
good for a defined time
2) Owned goods services- owned by customer
(repair or improvement of goods, custom creation)
3) Nongoods services- experiential possessions or
personal experiences
1 & 2 are specific in the services they encompass
3 is very broad and ignores select services- banking,
accounting, insurance, legal advice


Classification of Services
Cont.
Rathmell (1874) Getting to know how ones
business operates
1) Type of seller
2) Type of buyer
3) Buying motives
4) Buying practice
5) Degree of regulation
This classification has no specific application to
services and, therefore, could also be used to
classify goods

Classification of Services
Cont.
Shostack (1977), Sasser et al (1978)
recognizing the composition of each product
package




Identified the proportion of physical goods relative to the
amount of intangible services within
Emphasizes that there are few pure goods / services
Physical
Goods
+
Intangible
Services
=

Package

Classification of Services
Cont.
Hill (1977) Emphasizes the nature of
service benefits and, in 5, variations in the
service delivery/consumption environment
1) Services affecting persons vs. those effecting
goods
2) Permanent vs. temporary effects of the service
3) Reversibility vs. nonreversability of those
effects
4) Physical effects vs. mental effects
5) Individual vs. collective services
Classification of Services
Cont.
Thomas (1978) Equipment based vs. People
based, helps to understand product attributes
1) Primarily equipment based:
A) Automated- car wash
B) Monitored by unskilled operators- movie theatre
C) Operated by skilled personnel- airlines
2) Primarily people based:
A) Unskilled labor- lawn care
B) Skilled labor- repair work
C) Professional staff- lawyers, dentists
Operational rather than marketing oriented
Classification of Services
Cont.
Chase (1978) Levels of customer contact
Extent of customer contact required in service
1) High contact- health care, hotels, restaurants
2) Low contact- wholesaling, postal service
Product variability is harder to control in high contact
services because customers exert more influences on
timing of demand and service features due to greater
involvement in the service process
Classification of Services
Cont.
Kotler (1980) Synthesizes previous
work, recognizes difference in purpose of
service organizations
1) People based vs. equipment based
2) Extent to which the clients presence is
necessary
3) Meets personal need vs. business needs
4) Public vs. private , For-profit vs. nonprofit
Classification of Services
Cont.
Lovelock (1980) Synthesizes previous
classifications and adds new schemes
1) Basic demand characteristics:
Object served- personal vs. property
Extent of demand / supply imbalances
Discrete vs. continuous relationship between customers and
providers
2) Service content and benefits:
Extent of physical goods content
Extent of personal service content
Single service vs. bundle service
Timing and duration of benefits
3) Service delivery procedures:
Multi-site vs. single-site delivery
Allocation of capacity- reservations or first come first serve
Independent vs. collective consumption
Time defined vs. task defined transactions
Extent to which customers must be present during service
delivery
Defining objects served = most fundamental
classification scheme
Suggests valuable marketing insights would come
from combining two or more classification schemes
in a matrix

Methodology
Builds on past research by examining
characteristics of services that transcend
industry boundaries and are different in
degree or kind from the categorization
schemes traditionally applied to
manufacturing goods.
Five Classification Schemes were selected
and examined on two dimensions- reflecting
Lovelocks early conclusions
Five Classification Schemes
Services
Nature
of the service
act
Organization / Customer
relations
Level of customization
& judgment for the
service provider
Nature of
demand and
supply
Mode of
delivery
What is the nature of the
service act?
Service= a deed, act or performance
(Berry 1980)
Fundamental issues of services:
At whom, or what, is the act direct?
Is the act tangible or intangible
Who or what is the direct recipient of
the service?
What is the nature
of the service act?
People Things
Tangible Actions Services directed at
peoples bodies
-restaurants,
haircutting, beauty
salons
Services directed at
goods and other
physical
possessions
-freight transport,
laundry/dry cleaning
Intangible Actions Services directed at
peoples mind
-education, theatres
Services direct at
intangible assets
-banking, legal
services
Nature of
Service Act
What type of relationship does
the service organization have
with the customer?
Relationships
Ongoing relationships- customers receive service on a continuing basis
Possible membership relationship- ex) family doctor, phone plans
No formal relationship
Delivery
Continuous basis- ex) public goods (police protection, broadcasts)
Each transaction is recorded and charged separately
Marketers tend to be less informed about their customers-
anonymous consumer
Profitability & customer convenience are central to how a service will be
priced
1) Single periodic charge / Flat rate- simple, usually for services offered on
an ongoing basis. Ex) insurance, public goods
2) Price per service administered- more complex, more fair for the less
frequent customers. Ex) pay phone
3) Base fee + incremental charges

Type of relationship between the
service organization and the customer
Nature of service
delivery
Membership
relationship
No formal
relationship
Continuous
delivery system
Ex) college
enrollment,
insurance, banking
Ex) police
protection, radio
station, public
highway

Discrete
Transactions
Ex) transit pass,
long-distance phone
calls

Ex) pay phone, car
rental, restaurant,
movie theater

Organization / Customer
Relationships
How much room is there for
customization and judgment on the
part of the service provider?
Customer is often involved in the production process allows for tailoring of the
service to meet the needs of the individual customer
Concerns:
The extent to which the characteristics of the service allows them to be
customized
How much judgment customer contact personnel are able to exercise in
defining the nature of the service received by the individual customer
Types of services:
Wide choice of options
Contact personnel is limited- mobile phone providers
Contact personnel has freedom- locus of control shifts from user to
supplier, these people often give advice- professional such as doctors
Standardization
Contact personnel is limited- public transport
Contact personnel has freedom- educators (different teachers teach the
same course different ways)

Extent to which service
characteristics are customized
Extent to which customer
contact personnel
exercise judgment in
meeting individual
customer needs
High Low
High Ex) legal services,
taxi service, real
estate agents,
plumber
Ex) preventative
health programs,
education (large
class)
Low Ex) hotel service,
telephone service
Ex) public
transportation, fast
food restaurants,
movie theaters
Customization vs. Judgment
What is the nature for the
demand and supply for the
service?
Finished services cannot be inventoried
Demand exceeds supply on a particular
day = excess business may be lost
Demand and supply imbalances are not
found in all services
Extent of demand fluctuations over time
Extent to
which supply
is constrained
Wide Narrow

Peak demand
can usually be
met without a
major delay
Could use increases in
demand outside of peak
periods
Ex) electricity, telephone,
natural gas
Must decide whether to seek
cont. growth in demand &
capacity or maintain status
quo
Ex) banking, insurance, legal
services
Peak demand
regularly
exceeds
capacity
Must try to smooth demand
to match capacity- must both
stimulate and discourage
demand
Ex) theatres, hotels/motels,
restaurants
A growing organization that
may need temporary
demarketing until capacity
can be reach to meet current
needs
Ex) services similar to those
in above field but with
insufficient capacity
Nature of Demand
& Supply
How is the service
delivered?
Nature of the interaction between the
customer and the service organization:
Customer goes to service organization
Service organization comes to customer
Customer and service organization transact at
arms length
Availability of service outlets:
Single site
Multiple site
Availability of service outlets
Nature of
interaction between
customer and
service organization
Single Site Multiple Site
Customer goes to
service organization
Ex) theatre,
barbershop
Ex) bus service, fast
food chain
Service
organization comes
to customer
Ex) lawn care
service, pest control
service, taxi
Ex) mail deliver, AAA
emergency repairs
Customer and
service organization
transact at arms
length (mail or e-
communications)
Ex) credit card
company, local t.v.
station
Ex) broadcast
network, telephone
company
Service Delivery

Conclusion
Service sector is becoming increasingly
competitive partly due to the partial or complete
deregulation of several major service industries
As competition intensifies within the service
sector, the development of more effective
marketing efforts becomes essential for survival
The 5 matrixes will help managers:
Identify how those factors shape marketing problems
and opportunities and, therefore, how they should
affect the nature of the marketing tasks
Recognize similarities between their industry and
other industries to help them look beyond their
immediate competitors for new ideas as to how to
resolve marketing problems

Limitations
These matrixes can only provide a guideline for
service companies to become more aware of their
customers and the type of service they actually
provide
It does not provide a simple clear outline as to how
to market a specific service effectively
Every service in every market is different and unique,
even services within the same market differ
The customer and market are always changing
Management Implications
Nature of the service act:
Answers questions such as:
A) Does the customer need to be physically present?
1) Throughout the service delivery?
2) Only to initiate / terminate the service transaction?
3) Not at all
Customer satisfaction will be influenced by interactions they have with
personnel, nature of facilities, characteristic of other customers,
questions of location and schedule convenience
B) Does the customer need to be mentally present during service delivery?
If so can it be maintained across physical distance (mail or e-
communications)?
C) In what ways is the target of the service act modified by the receipt of
the service? How does the customer benefit from the modifications?
To develop a better understanding of the nature of the service product and
the core benefits it offers
Managers of service organizations may be able to identify
opportunities for alternative, more convenient forms of service
delivery- ex) Britains Open Universitys use of t.v. and radio broadcasts
Organization / Customer Relations
Membership relationships:
Company knows who its current customers are, their
addresses, their preferences, their opinions on the service
provided,
Valuable for segmentation purposes & targeted marketing
May be offered discount rates in return for continuous
patronage
Usually result in customer loyalty to a particular provider. Ex)
Rewards cards, Costco membership
Helps ensure repeat business
Task= build sales and revenues through membership but
avoid required membership and freezing out customers. Ex)
Best Buy w/ Reward Zone
Allows for better decisions in regard to pricing

Level of Customization & Judgment
Most senior managers have come up through
operations and, therefore, may require executive
education programs to given them the necessary
perspective on marketing to make balanced decisions
Customization is not necessarily important for success
sometimes the image of customization is enough.
Many people share the same experience.
People share the same service facility but still have some
custom treatment. Ex) airlines use your name
Customers like to know in advance what they are
buying
Professional services the professional diagnosis the nature of
the situation- can divide into two segments (diagnosis and
implementation) to easy customer worries
Marketing focus on process of client-provider interactions. Ex)
statement of qualifications

Levitt (1972,1976)






The industrialization of a service in order to take advantage
of the economies of mass production may increase
consumer satisfaction if speed, consistency, and price
savings hold a higher value than service customization
Industrialization > Customization
if
Speed + Consistency + Price Savings > benefits which yield from
the ability to customize

Nature of Demand and Supply
Managing demand in services because
fluctuations can be sharp and there is no
buffer of inventory between supply and
demand
Manage demand
Hire seasonal or part time workers
Renting extra facilities during peak periods


Determining the appropriate strategy:
1) What is the typical cycle period for these demand fluctuations?
Predictable- demand varies by hour of the day, day of week/month,
season of year
Random- no apparent pattern to demand fluctuations
2) What are the underlying causes of these demand fluctuations?
Customer habits or preferences- could marketing change these?
Actions by third parties- employers set working hrs. hence marking
efforts might be directed at those employers
Nonforcestable events- weather conditions, health symptoms
Managers need to know who or what is the target of the service to
effectively choose these strategies.
Smooth out ups and downs of demand:
Decrease demand:
Encourage customers to change their plans voluntarily- Offer discounts
or added product value during times of low demand
Ration demand through reservations or a queuing system
Increase demand:
New business development efforts should be targeted at prospective
customers with a counter cyclical demand pattern. Ex) accounting firm
has lots of business at the end of the year may find new business for the
bulk of the year when it has relatively no business
Mode of delivery
Customer has to come to the service
Convenience is lowest to the customer
Service comes to customer- when target of the service
is immovable
More expensive for the service organization
Transactions at arms length
Ex) 800 numbers
Not all services may be conducted at arms length but certain
portions of that service may be
Ex) make reservations by phone to go eat at a restaurant
If it is possible, it is up to the manager to decide whether a third
party will have the right to participate in the arms length step
sometimes consumers see these middle men as more objective
and knowledgeable and trust their guidance more than the service
provider
Increasing the number of outlets
Increases convenience of access to customers but may raise
issues of quality control (consistency of the service)

Work Cited
Lovelock, Christopher H. (1983). Classifying Services
to Gain Strategic Marketing Insights. Journal of
Marketing (pre-1986), 47(000003), 9. Retrieved
January 31, 2008, from ABI/INFORM
Global database. (Document ID: 66036482).