Part 1

FOUNDATIONS FOR SERVICES MARKETING

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Chapter

Introduction to Services
   

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

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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
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Figure 1.2

Tangibility Spectrum
Salt

 Soft Drinks  Detergents  Automobiles  Cosmetics  Fast-food Outlets 

Tangible Dominant

Intangible Dominant

Fast-food Outlets Advertising Agencies Airlines Investment Management Consulting Teaching

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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
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Figure 1.1

Contributions of Service Industries to U.A.E. Gross Domestic Product

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Source: Inside Sams $100 Billion Growth Machine, by David Kirkpatrick, Fortune, The McGraw-HillpCompanies, Inc. All rights reserved. 2006 June 14, 2004, 86.

Employment in Dubai - 2005

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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. 4150.
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Characteristics of Services Compared to Goods

Intangibility

Heterogeneity

Simultaneous Production and Consumption

Perishability

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Implications of Intangibility
 Services cannot be inventoried  Services cannot be easily patented  Services cannot be readily displayed or communicated  Pricing is difficult

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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

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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

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Implications of Perishability
 It is difficult to synchronize supply and demand with services  Services cannot be returned or resold

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Traditional Marketing Mix

 All elements within the control of the firm that communicate the firms capabilities and image to customers or that influence customer satisfaction with the firms product and services:
   

Product Price Place Promotion

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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 buyers perceptions: namely, the firms 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 deliveredthe service delivery and operating systems.
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Table 1.3

Expanded Marketing Mix for Services

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Chapter

The Gaps Model of Service Quality

 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

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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
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Key Factors Leading to the Customer Gap

Customer Gap Customer Expectations

 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
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Figure 2.2

Not knowing what customers expect

Customer Expectations

Gap 1

 Inadequate marketing research orientation

Insufficient marketing research Research not focused on service quality 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

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Figure 2.3

Not selecting the right service designs and standards Customer-Driven Service
Designs and Standards

Gap 2

 Poor service design Unsystemati new servi e devel ment process 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 mee t customer and employee needs Inadequate maintenance and updating of the servicescape

Management Perceptions of Customer Expectations

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Figure 2.4

Not delivering to service standards

Customer-Driven Service Designs and Standards

Gap 3

 Defi iencies in
I P I L ff l ti it i it l -t i t l f

n esource olicies
t l l ti t, fli t j fit i ti t l, t t sponsi iliti s

 Customers
Cust s Customers

o o not fulfill roles

l l ft i l s o negati el impact each other

 Problems

ith service intermedi ries

Channel conflict over objectives and performance Difficult controlling ualit and consistency ension bet een empowerment and control

 Failure to match suppl and demand

Failure to smooth peaks and valleys of demand Inappropriate customer mix Overreliance on price to smooth demand

Service Delivery
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Figure 2.5

Not matching the performance to promises

Service Delivery
 Lack e a e se v ces a ke c ca s Tenden to vie ea h e te nal co unication a independent Not including inte active ma eting in communication plan Ab ence o strong internal marketing program  Ine ec ve ana e ent of c stome ex ectations Absence o customer e pectation management through all forms of communication Lack of adequate education for customers  Ove omising Overpromising in advertising Overpromising in personal selling Overpromising through ph sical evidence cues  Ina e ate horizonta communications Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedures across branches or units

Gap 4

Externa Communications to Customers

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Figure 2.6

Gaps Model of Service Quality

CUSTOMER
Customer Gap

Expected Service

Perceived Service
Service Delivery External Communications to Customers

COMPANY
Gap 3 Gap 1 Gap 2

Gap 4

Customer-Driven Service Designs and Standards Company Perceptions of Consumer Expectations

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

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