MARKETING MANAGEMENT

12th edition

11
Designing and
Managing
Services

Kotler Keller
Chapter Questions

• How are service defined and classified?

• How are service marketed, and how can service
quality be improved?
• How do service marketers create strong brands?
• How can goods marketers improve customer
support service?

11-2
The Nature of Service
• Service Industries Are Everywhere
➢Government sector. (courts, employment service,
post office, schools)
➢Private nonprofit sector. (museums, hospitals,
churches, mosques)
➢Business sector. (airlines, banks, hotels, insurance,
law firms, consulting firms)
➢Manufacturing sector. (computer operators,
accountants, legal staff)
➢Retail sector. (cashiers, clerks, salespeople,
customer service representatives)
11-3
Service Sectors

Private
Government
nonprofit

Business Retail
Manufacturing

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Service

Any act of performance that one

party can offer 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,
and some service firms are purely online.

11-5
Categories of Service Mix

Pure tangible good

Good w/ accompanying services

Hybrid

Service w/ accompanying goods

Pure service
11-6
Categories of Service Mix
• A company offerings include some services. Five categories
of offerings are:
1. Pure tangible good. The offering is a tangible good such as soap, not
accompanied by services
2. Tangible good with accompanying services. The offering consists of a
tangible good accompanied by one or more service. Toyota for example,
offers repairs, warranty fulfillment, and other services along with its
vehicles.
3. Hybrid. The offering consists of equal parts of goods and services. For
example, people patronize restaurants for both food and service.
4. Major service with accompanying for both food and services. The
offering consists of a major service along with additional service or
supporting goods. For example, airline passengers are buying
transportation service, although they get snacks and drinks as well.
5. Pure service. The offering consists primarily of service, examples include
babysitting and psychotherapy.
11-7
Categories of Service Mix
• Service consumers generally rely on word of
mouth rather than on advertising. They also
rely heavily on price, and personnel to judge
quality, and are highly loyal to service
providers who satisfy them.

11-8
Distinctive Characteristics of Services

Intangibility

Inseparability

Variability

Perishability
11-9
Distinctive Characteristics of Services
• Services have four distinctive characteristics that greatly
affect the design of marketing programs: Intangibility,
Inseparability, Variability, and Perishability.
➢ Intangibility
a) Unlike physical products, services cannot be seen, tasted, felt, heard, or
smelled before they are bought.
b) To reduce uncertainty, buyers will look for evidence of quality. They will
draw inferences about quality from the place, people, equipment,
communication material, symbols, and price that they see.
• Therefore, the service provider’s task is to “manage the evidence,”
to “tangibilize the intangible.”
c) Service companies can try to demonstrate their service quality through
physical evidence and presentation.
d) Service marketers must be able to transform intangible services into
concrete benefits.

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Distinctive Characteristics of Services
➢ Inseparability
a) Services are typically produced and consumed simultaneously.
b) Because the client is also present as the service is produced,
provider-client interaction is a special feature of service marketing.
c) Several strategies exist for getting around this limitation:
1. Work with larger groups.
2. Work faster.
3. Train more service providers .

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Distinctive Characteristics of Services
➢ Variability
a) Because they depend on who provides them and when and
where they are provided, services are highly variable.
b) There are three steps service firms can take to increase
quality control:
1. Invest in good hiring and training procedures.
2. Standardize the service-performance process throughout the
organization.
▪ Prepare a service blueprint that depicts events and processes in
a flowchart, with the objective of recognizing potential fail points.
3. Monitor customer satisfaction.

11-12
Distinctive Characteristics of Services
➢ Perishability
a) Services cannot be stored.
b) Perishability is not a problem when demand is steady.
c) When demand fluctuates service firms have problems.
d) Several strategies can produce a better match between supply and
demand. On the demand side:
1. Differential pricing.
2. Non-peak demand.
3. Complementary services.
4. Reservation systems.
e) On the supply side:
1. Part-time employees.
2. Increased consumer participation.
3. Shared services.
4. Facilities for future expansion.
11-13
Managing Service Quality
• The service quality of a firm is tested at each service encounter. If
service personnel are bored, uninformed, or too busy to wait on
customer, customer will think twice about doing business again with that
seller.
➢ Customer Expectations
a) Customers form service expectations from many sources:
1. Past experiences.
2. Word-of-mouth.
3. Advertising.
b) In general, customers compare the perceived service with the
expected service.
1. If the perceived service falls below the expected service customers are
disappointed.
2. If the perceived service meets or exceeds their expectations they are apt
to use the provider again.
c) Successful companies add benefits to their offering that not only satisfy
customers but also surprise and delight them.
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Managing Service Quality
• Customer Expectations (Cont’d)
➢ A service-quality model that highlights the main requirements for delivering
high service quality that identifies five gaps that cause unsuccessful delivery:
1. Gap between consumer expectations and management perception.
(Management does not always correctly perceive what customers want. Hospital administrators
may think that patients want better food, but patients may be more concerned with nurse
responsiveness)
2. Gap between management perception and service-quality specification.
(Management might correctly perceive the customers’ wants but not set a performance
standard. Hospital administrators may tell the nurses to give fast service without specifying it
quantitatively)
3. Gap between service-quality specifications and service delivery. (Personnel
might be poorly trained, or incapable or unwilling to meet the standard; or they may be held to
conflicting standards, such as taking time to listen to customers and serving them fast.)
4. Gap between service delivery and external communications. (Statements made
by company representatives and ads affect customer expectations. If a hospital brochure
shows an attractive room, but the patient finds an unappealing room, communications have
distorted the customer’s expectations)
5. Gap between perceived service and expected service. (This gap occurs when the
consumer misperceives the service quality. The physician may keep visiting the patient to show
care, but the patient may interpret this as an indication that something really is wrong)
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Service-Quality Model

11-16
Managing Service Quality
• Best Practices of Service Quality
Management
• well-managed service companies share the
following common practices: a strategic
concept, a history of top-management
commitment to quality, high standards, self-
service technologies, systems for
monitoring service performance and
customer complaints, and an emphasis on
employee satisfaction.
11-17
Managing Service Quality
➢ Strategic Concept
❑ Top service companies are “customer obsessed.” There is a
clear sense of target customers and their needs.
➢ Top-Management Commitment
❑ Companies such as Marriott, Disney, have a thorough
commitment to service quality.
➢ High Standards
❑ The best service providers set high service-quality standards.
a) The standards must be set appropriately high.
b) A service company can differentiate itself by designing a better and
faster delivery system.

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Managing Service Quality
➢ Self-Service Technologies (SSTs)
❑ As with products, consumers value convenience in services.
a) Many person-to-person interactions are being replaced by self-service
technologies.
b) Not all SSTs improve service quality, but they have the potential of making service
transactions more accurate, convenient, and faster for the consumer.
c) While initiating self-service technologies, some companies have found that the
biggest obstacle is not the technology itself, but convincing customers to use it.
➢ Monitoring Systems
❑ Top firms audit service performance, both its own and competitors, on
a regular basis.
a) It collects voice of the customer (VOC) measurements to probe customer
satisfiers and dissatisfiers.
b) They uses a number of measurement devices:
1. Comparison shopping.
2. Ghost shopping.
3. Customer surveys.
4. Suggestion and complaint forms.
5. Service-audit teams.
6. Letters to the president. 11-19
Managing Service Quality
➢ Satisfying Customer Complaints
❑ Studies of customer dissatisfaction show that customers are
dissatisfied with their purchases about 25 percent of the time but that
only about 5 percent complain.
a) Of the 5 percent who complain, only about 50 percent report a satisfactory
problem resolution.
b) Yet the need to resolve a customer problem in a satisfactory manner is critical:
1. On average a satisfied customer tells three people
2. The average dissatisfied customer gripes to 11 people!
c) Customers whose complaints are satisfactorily resolved often become more
company-loyal than customers who were never dissatisfied.
d) Every complaint is a gift if handled well.
e) Companies that encourage disappointed customers to complain, and also
empower employees to remedy the situation on the spot, have been shown to
achieve higher revenues and greater profits than companies that do not have a
systematic approach for addressing service failures.

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Managing Service Quality
➢ Satisfying Employees as Well as Customers
❑ Excellent service companies know that positive employee attitudes will
promote stronger customer loyalty. The product-line manager must
review how the line is positioned against competitors’ lines.
a) Give the importance of positive employee attitudes, service companies must
attract the best employees they can find. The need is to market a career rather
than a job.
b) It is important to audit employee job satisfaction regularly.

11-21
Managing Service Brands
• Some of the world’s strongest brands are services. As with
any brands, service brands must be skillful at differentiating
themselves and developing appropriate brand strategies.
➢ Differentiating Services
• Service marketers frequently complain about the difficulty of
differentiating their services. To the extent that customers view a service
as fairly homogeneous, they care less about the provider than the price.
a) Service offerings, however, can be differentiated in many ways. The offering
can include innovative features.
b) What the customer expects is called the primary service package.
c) The provider can add secondary service features to the package.
d) Service providers can add a human element to their operations.
e) Sometimes the company achieves differentiation through the sheer range of its
service offering and the success of its cross-selling efforts.
1. The major challenge is that most service offerings and innovations are easily copied.
2. Still, the company that regularly introduces innovations will gain a succession of
temporary advantages over competitors.
11-22
Developing Brand Strategies for Services

Choosing
Brand Elements
Establishing Image
Dimensions
Devising Branding
Strategy

11-23
Managing Service Brands
➢ Developing Brand Strategies for Services
▪ Developing brand strategies for a service brand requires special
attention to choosing brand elements, establishing image dimensions,
and devising the branding strategy.
❑ Choosing Brand Elements. The intangibility of services has
implications for the choice of brand elements. Because service
decisions and arrangements are often made away from the actual
service location itself, brand recall becomes critically important.
a) Other brand elements—logos, symbols, characters, and slogans—can also “pick up
the slack” and complement the brand name to build awareness and brand image.
1. These other brand elements often attempt to make the service and some of its key
benefits more tangible, concrete, and real.
b) Because a physical product does not exist, the physical facilities of the service
provider, its primary and secondary signage, environmental design, reception area,
and so on, are especially important.
c) All aspects of the service delivery process can be branded.

11-24
Managing Service Brands
❑ Establishing Image Dimensions. Organizational associations—such as
perceptions about the people who make up the organization and who
provides the service are likely to be particularly important brand
associations that may affect evaluations of service quality directly or
indirectly.
a) One particularly important association is company credibility and perceived:
1. Expertise.
2. Trustworthiness.
3. Likeability.
b) Service firms must therefore design marketing communication and information
programs so that consumers can learn more about the brand than the information it
gets from service encounters alone.
c) These programs may involve marketing communications that may be particularly
effective at helping the firm to develop the proper brand personality.

11-25
Managing Service Brands
❑ Devising Branding Strategy. Finally, services also must consider
developing a brand hierarchy and brand portfolio that permits positioning
and targeting of different market segments.
a) Classes of service can be branded vertically on the basis of price and quality.
b) Vertical extensions often require sub-branding strategies where the corporate name is
combined with an individual brand name or modifier.

11-26