Lecture 8

Managing Service Businesses and Product Support Services

The Nature and Classification of Services

Service is any act or performance that one party can offer to another that is essentially intangible
and does not result in the ownership of anything. Its production may or may not be tied to a
physical product.

Types of Service Industry

1. Government sector
2. Private nonprofit sector
3. Business sector
4. Manufacturing sector

Service Offer Categories

1. Pure tangible goods – the offer consists primarily of a tangible good such as soap, toothpaste,
or salt. No services accompany the product.
2. Tangible good with accompanying services – the offer consists of a tangible good
accompanied by one or more services to enhance its consumer appeal.
3. Hybrid – the offer consists of equal parts of goods and services.
4. Major service with accompanying minor goods and services – the offer consists of a major
service along with additional services and/or supporting goods.
5. Pure service – The offer consists primarily of a service.

Nature of Service
1. Services vary as to whether they are equipment based (automated car washes, vending
machine) or people based (window washing, accounting services).
 People-based services vary by whether they are provided by unskilled, skilled, or
professional workers.
2. Some services require the client’s presence.
 If the client must be present, the service provider has to be considerate of his or her needs.
3. Services differ as to whether they meet a personal need (personal services) or a business
need (business services)
 Service providers typically develop different marketing programs for personal and business
market.
4. Service providers differ in their objectives (profit or nonprofit) and ownership (private of public)

Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

AAA’17-‘18
  These two characteristics, when crossed, produce four quite types of service organizations.

Characteristics of Services and their Marketing Implications

1. Intangibility
 Unlike physical products, they cannot be seen, tasted, felt, heard, or smelled before they
are bought.
 To reduce uncertainty, buyers will look for signs or evidence of the service quality.
 They will draw inferences about service quality from the place, people,
equipment, communication materials, symbols, and price that they see.
 Therefore, the service provider’s task is to “manage the evidence”, to
“tangibilize the intangible”.
 Whereas product marketers are challenged to add ideas, service marketers are
challenged to put physical evidence and imagery on their abstract offers.
 “You’re in good hands with Metrobank”.

2. Inseparability
 Services are typically produced and consumed simultaneously.
 Since the client is also present as the service is produced , provider-client interaction
is a special feature of service marketing
 Both the provider and the client affect the service outcome.
 When clients have strong provider preferences, price is raised to ration the preferred
provider’s limited time.
 Service provider can learn to work with larger group.
 The service provider can learn to work faster.
 The service organization can train more service providers and build up client
confidence.

3. Variability
 Because they depend on who provides them and when and where they are provided,
services are highly variable.
 Steps toward quality control
1. Invest in good human resources selection and training.
2. Standardize the service-performance process throughout the organization
(service blueprint).
3. Monitor customer satisfaction through suggestion and complaint systems,
customer surveys, and comparison shopping, so that poor service can be
detected and corrected.

4. Perishability

Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

AAA’17-‘18
  Services cannot be stored.
 The perishability of services is not a problem when demand is steady because it is easy to
staff the services in advance.
 When demand fluctuates, service firms have difficult problems.
 Thus a marketer can play around in formulating strategies on either the demand and
supply side of service:
 Demand side:
 Differentiated pricing will shift demand from peak to off-peak periods.
 Non-peak demand can be cultivated.
 Complementary services can be developed during peak time to provide
alternatives to waiting customers.
 Reservation systems are a way to manage the demand level.

 Supply side:
 Part-time employees can be hired to serve peak demand.
 Peak-time efficiency routines can be introduced
 Increased consumer participation in the task can be encouraged.
 Shared services can be developed.
 Facilities for future expansion can be developed.

Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

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Marketing Strategies for Service Firms

Key Elements in Service Strategy Formulation: The Other 3Ps of the Marketing Mix

 Because most services are provided by people, the selection, training, and motivation of employees
can make a huge difference in customer satisfaction.
 Ideally, employees should exhibit competence, a caring attitude, responsiveness, initiative, problem
solving ability, and goodwill.

 Companies also try to demonstrate their service quality through physical evidence and
presentation.

 Service companies can choose among different processes to deliver their service

People

CUSTOMER

Physical
evidence / Process
structure

Types of Marketing in Service Industries

 External Marketing describes the normal work done by the company to prepare, price, distribute,
and promote the service to customers.

 Internal Marketing describes the work done by the company to train and motivate its employees to
serve customers well.

 Interactive Marketing describes the employees’ skills in serving the client.

The Company

Internal External
Marketing Marketing
Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared
The by Mr. Angelo A. Abejero for class room lecture purposes only.
INDUSTRY AAA’17-‘18

Employees Customers
Interactive
Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

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Service Goals

1. Managing Differentiation
 Aside from price differentiation, service companies develop differentiation on their:
 Offer
 The offer can include innovative features to distinguish it from competitors’
offers.
 What the customer expects is called primary service package, and
to this can be added secondary service features.
 The major challenge in service differentiation is that most service innovations
are easily copied.
 Few of them are preemptive in the long run.
 Still, the service company that regularly researches and introduce service
innovations will gain a succession of temporary advantages over its
competitors.
 And, through earning a reputation for innovation, it may retain customers
who want to go with the best.

 Delivery
 A service company can distinguish its service delivery quality by having more
able and reliable customer-contact people than its competitors.
 It can develop a more attractive physical environment in which service is
delivered.
 It can design a superior delivery process.

 Image
 They can do this through symbols and branding.

2. Managing Service Quality

 One of the major ways to differentiate a service firm is to deliver consistently higher-quality
service than competitors.
 They key is to meet or exceed the target customers’ service quality expectations.
 Customers’ expectations are formed by their past experiences, word of mouth, and service-firm
advertising.
 The customers then compare perceived service with the expected service.

 The Service Quality (SERVQUAL) Model – it is an instrument for measuring Service Quality
based on gaps between Expectations and Perceptions of the five (5) dimensions of service
quality by the participants in the creation and delivery of the service (service value chain
system).

Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

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  Service Gaps
1. Gap between consumer expectation and management perception.
2. Gap between management perception and service-quality specifications.
3. Gap between service-quality specifications and service delivery.
4. Gap between service delivery and external communications.
5. Gap between perceived service and expected service.

 5 Dimensions of the SERVQUAL Model

1. Reliability – the ability to perform the promised service dependably and
accurately. (32 points)
2. Responsiveness – the willingness to help customers and to provide prompt
service. (22 points)
3. Assurance – the knowledge and courtesy of employees and their ability to
convey trust and confidence.
4. Empathy – the provision of caring, individualized attention to customers. (16
points)
5. Tangibles – the appearance of physical facilities, equipment, personnel, and
communication materials. (11 points)

Word-of-mouth Personal needs Past experience

communications

Expected service

GAP 5

Perceived service

Consumer

Marketer
Service delivery
(including pre- External
and post- communications
contracts) to consumers

GAP 4
GAP 3

Translation of
perception into
service-quality
specifications
GAP 1

GAP 2
Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

Management AAA’17-‘18
perceptions of
consumer
expectations
  Various studies have shown that excellently managed service companies share the following
common practices:
 Strategic concept
 History of top-management commitment to quality
 High standards
 Systems for monitoring service performance
 Systems for satisfying customers’ complaints
 Emphasis on employee and satisfaction

 Pillars of Total Quality Management – continuous improvement

 Product
 Process
 Organization
 Leadership
 Commitment

3. Managing Productivity
 Service firms are under great pressure to keep costs down and increase productivity

 7 Approaches to Improving Service Productivity

1. Service providers must work more skillfully.
2. Increase the quantity of service by surrendering some quality.
3. “Industrialize the service” by adding equipment and standardizing production.
4. Reduce or make obsolete the need for a service by investing a product solution.
5. Design a more effective service.
6. Present customers with incentives to substitute their own labor for company labor.

Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

AAA’17-‘18
 7. Harness the power of technology.

Managing Product Support Services

 Product support service is becoming a major battleground for competitive advantages for
manufacturing and industrial sectors.
 Firms that provide high-quality service will undoubtedly outperform their less service-oriented
competitors.
 High-service businesses managed to charge more, grow faster, and make more profits on the strength
of their superior service quality.
 The company must define customer needs carefully in designing both the product and the product
support system.

 Customers are most concerned about service interruption from products they bought:
1. They worry about reliability and failure frequency, how often the product is likely to break down
in a given period.
2. Customers worry about downtime duration. The customer counts on the seller’s service
dependability.
3. Customers worry about out-of-pocket costs of maintenance and repair service.

Culled from Kotler, Philip; Marketing Management, 14th ed.; Prepared by Mr. Angelo A. Abejero for class room lecture purposes only.

AAA’17-‘18