Part 1

FOUNDATIONS
FOR SERVICES
MARKETING

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Chapter
Introduction to Services 1

 What are services?

 Why services marketing?
 Characteristics of Services Compared to
Goods
 Services Marketing Mix
 What are services?
 All economic activities whose output is not a physical
product, is generally consumed at the time it is produced
and provides added value in forms (such as convenience,
amusement, timeliness, comfort or health) that are
essentially intangible concerns of its first purchaser

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Examples of Service Industries
 Health Care
 hospital, medical practice, dentistry, eye care
 Professional Services
 accounting, legal, architectural
 Financial Services
 banking, investment advising, insurance
 Hospitality
 restaurant, hotel/motel, bed & breakfast
 ski resort, rafting
 Travel
 airline, travel agency, theme park
 Others
 hair styling, pest control, plumbing, lawn maintenance, counseling
services, health club, interior design

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Figure 1.2

Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 CosmeticsFast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
Teaching
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Why Services Marketing
 Services based economies
 United States – 80%
 India – 48%
 Traditional marketing course has more focus on
manufacturing and packaged goods (like P&G, Unilever,
General Foods)
 There is a need for Marketing concepts specifically for
Services
 Service initiatives and promoting service quality leads to
competitive advantage and so to profits
 Customer satisfaction index for services is declining
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 1.1

Contributions of Service Industries to

U.A.E. Gross Domestic Product

McGraw-Hill/Irwin Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June
© 2006 The 14, 2004, pCompanies,
McGraw-Hill 86. Inc. All rights reserved.
 Employment in Dubai - 2005

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Table 1.2

Goods versus Services

Source: A. Parasuraman, V.A. Zeithaml, and L. L. Berry, “A Conceptual Model of Service Quality and Its Implications for Future Research,” Journal of
Marketing 49 (Fall 1985), pp. 41–50.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Characteristics of Services
Compared to Goods

Intangibility Heterogeneity

Simultaneous
Production
and Perishability
Consumption

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Implications of Intangibility
 Services cannot be inventoried

 Services cannot be easily patented

 Services cannot be readily displayed or communicated

 Pricing is difficult

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Implications of Heterogeneity
 Service delivery and customer satisfaction depend on
employee and customer actions

 Service quality depends on many uncontrollable factors

 There is no sure knowledge that the service delivered

matches what was planned and promoted

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Implications of Simultaneous Production
and Consumption
 Customers participate in and affect the transaction

 Customers affect each other

 Employees affect the service outcome

 Decentralization may be essential

 Mass production is difficult

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Implications of Perishability
 It is difficult to synchronize supply and demand with
services

 Services cannot be returned or resold

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Traditional Marketing Mix
 All elements within the control of the firm that
communicate the firm’s capabilities and image to
customers or that influence customer satisfaction with the
firm’s product and services:
 Product
 Price
 Place
 Promotion

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Expanded Mix for Services --
The 7 Ps
 Product
 Price
 Place
 Promotion
 People
 All human actors who play a part in service delivery and thus influence the
buyer’s perceptions: namely, the firm’s personnel, the customer, and other
customers in the service environment.
 Physical Evidence
 The environment in which the service is delivered and where the firm and
customer interact, and any tangible components that facilitate performance
or communication of the service.
 Process
 The actual procedures, mechanisms, and flow of activities by which the
service is delivered—the service delivery and operating systems.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Table 1.3

Expanded Marketing Mix for Services

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Chapter
The Gaps Model of Service Quality 2

 The Customer Gap

 The Provider Gaps:
 Gap 1 – not knowing what customers expect
 Gap 2 – not having the right service designs and
standards
 Gap 3 – not delivering to service standards
 Gap 4 – not matching performance to promises
 Putting It All Together: Closing the Gaps
 Figure 2.1

The Customer Gap

Expected
service

Customer Gap

Perceived
service

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Gaps Model of Service Quality
 Customer Gap:
 difference between customer expectations and perceptions
 Provider Gap 1 (The Knowledge Gap):
 not knowing what customers expect
 Provider Gap 2 (The Service Design & Standards Gap):
 not having the right service designs and standards
 Provider Gap 3 (The Service Performance Gap):
 not delivering to service standards
 Provider Gap 4 (The Communication Gap):
 not matching performance to promises

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Key Factors Leading
to the Customer Gap

Customer
Customer Expectations
Gap

 Provider Gap 1: Not knowing what customers expect

 Provider Gap 2: Not selecting the right service designs and standards

 Provider Gap 3: Not delivering to service standards

 Provider Gap 4: Not matching performance to promises

Customer
Perceptions
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 2.2

Not knowing what customers expect

Customer Expectations

 Inadequate marketing research orientation

Gap Insufficient marketing research
Research not focused on service quality
1 Inadequate use of market research
 Lack of upward communication
Lack of interaction between management and customers
Insufficient communication between contact employees and managers
Too many layers between contact personnel and top management
 Insufficient relationship focus
Lack of market segmentation
Focus on transactions rather than relationships
Focus on new customers rather than relationship customers
 Inadequate service recovery
Lack of encouragement to listen to customer complaints
Failure to make amends when things go wrong
No appropriate recovery mechanisms in place for service failures

Company Perceptions of
Customer Expectations
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 2.3

Not selecting the right service

designs and standards
Customer-Driven Service
Designs and Standards

Gap  Poor service design

Unsystematic new service development process
2 Vague, undefined service designs
Failure to connect service design to service positioning
 Absence of customer-driven standards
Lack of customer-driven service standards
Absence of process management to focus on customer
requirements
Absence of formal process for setting service quality goals
 Inappropriate physical evidence and servicescape
Failure to develop tangibles in line with customer expectations
Servicescape design that does not meet customer and
employee needs
Inadequate maintenance and updating of the servicescape

Management Perceptions of
Customer Expectations
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 2.4

Not delivering to service standards

Customer-Driven Service
Designs and Standards

Gap  Deficiencies in human resource policies

Ineffective recruitment

3
Role ambiguity and role conflict
Poor employee-technology job fit
Inappropriate evaluation and compensation systems
Lack of empowerment, perceived control, and teamwork
 Customers who do not fulfill roles
Customers who lack knowledge of their roles and responsibilities
Customers who negatively impact each other
 Problems with service intermediaries
Channel conflict over objectives and performance
Difficulty controlling quality and consistency
Tension between empowerment and control
 Failure to match supply and demand
Failure to smooth peaks and valleys of demand
Inappropriate customer mix
Overreliance on price to smooth demand

Service Delivery
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 2.5

Not matching the performance to promises

Service Delivery

 Lack of integrated services marketing communications

Gap Tendency to view each external communication as independent
Not including interactive marketing in communications plan

4 Absence of strong internal marketing program

 Ineffective management of customer expectations
Absence of customer expectation management through all forms of
communication
Lack of adequate education for customers
 Overpromising
Overpromising in advertising
Overpromising in personal selling
Overpromising through physical evidence cues
 Inadequate horizontal communications
Insufficient communication between sales and operations
Insufficient communication between advertising and operations
Differences in policies and procedures across branches or units

External Communications to
Customers
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 2.6

Gaps Model of Service Quality

Expected
Service
CUSTOMER
Customer
Gap
Perceived
Service

External
COMPANY Service
Communications
Delivery Gap 4 to Customers
Gap 3
Gap 1 Customer-Driven
Service Designs and
Standards
Gap 2
Company Perceptions
of Consumer
Expectations
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
  The Customer Gap
 Chapter 3 – Consumer Behavior in Services
 Chapter 4 – Customer Expectations of Service
 Chapter 5 – Customer Perceptions of Service
 Gap 1 – Not Knowing What Customers Expect (The Knowledge Gap)
 Chapter 6 – Listening to Customers through Research
 Chapter 7 – Building Customer Relationships
 Chapter 8 – Service Recovery
 Gap 2 – Not Having the Right Service Quality Designs and Standards (The Service Design and
Standards Gap)
 Chapter 9 – Service Development and Design
 Chapter 10 – Customer-Defined Service Standards
 Chapter 11 – Physical Evidence and the Servicescape
 Gap 3 – Not Delivering to Service Standards (The Service Performance Gap)
 Chapter 12 – Employees’ Roles in Service Delivery
 Chapter 13 – Customers’ Roles in Service Delivery
 Chapter 14 – Delivering Service through Intermediaries and Electronic Channels
 Chapter 15 – Managing Demand and Capacity
 Gap 4 – Not Matching Performance to Promises (The Communication Gap)
 Chapter 16 – Integrated Services Marketing Communications
 Chapter 17 – Pricing of Services

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.