Services Marketing

Prepared by
Dr. Sahar Nagaty
 Chapter 1

New Perspectives on Marketing in the Service Economy

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Why study services?
• Services dominate the Economy in most Nations (e.g. private service
industries account for more than two-thirds of the value of the gross
domestic product (GDP) of the U.S. economy).
• The size of the service sector is increasing around the world.
• Most New Jobs are generated by Services.
• Understanding Services Offers Personal Competitive Advantage
(Learning about the distinctive characteristics of services and how they
affect both customer behavior and marketing strategy).

Powerful Forces Are transforming Service Markets

Government policies, social changes, business trends, advances in
information technology and internationalization (Figure 1.5) shape Service
markets. Collectively, these forces are reshaping demand, supply, the
competitive landscape, and even customers’ styles of decision-making.
• The Economist argues that the Internet is transferring power from
suppliers to customers, especially in consumer markets.
• The travel industry will never be the same again now that travelers can
easily research alternatives and make their own bookings. Electronic
distribution is changing relationships and roles among suppliers,
intermediaries, and innovative newcomers such as Orbitz, Travelocity,
and Priceline replace customers as traditional channel members (such
as local travel agencies).
• Competition is stimulating innovation, especially through application of
new and improved technologies. Competition occurs not only among
firms within the same industry, but also among firms from other
industries that can offer customers new solutions to their needs
through alternative approaches.
• Customer needs and behavior are evolving, in response to changing
demographics and lifestyles. The implications?
• Managers of service organizations need to focus more sharply on
marketing strategy if they hope to meet — or even anticipate — these
needs with services that customers see as offering value.
• Customers are a vital source of ideas, not only for new products but
also for improvements to existing ones. Even established, traditional
services such as hotels need enhancement. By working with experts in
research and development, and with operations and human resource
managers, marketers may be able to create new service features that
customers will value.
• Research into customer needs and priorities can provide vital insights
into what specific features to emphasize and how much they might be
worth to customers.
Figure 1.5 Factors Stimulating the Transformation of the Service Economy
DEFINITION OF SERVICES
• Services are economic activities offered by one party to another, most
commonly employing time-based performances to bring about desired
results in recipients themselves or in objects or other assets for which
purchasers have responsibility.
• In exchange for their money, time, and effort, service customers
expect to obtain value from access to goods, labor, professional skills,
facilities, networks, and systems; but they do not normally take
ownership of any of the physical elements involved.
From this definition, we exclude:
• Services are defined as economic activities between two parties
• Implying an exchange of value between seller and buyer in the
marketplace
• Services are described as performances that are most commonly
time-based
• Purchasers buy services because they are looking for desired results
• In fact, many firms explicitly market their services as “solutions” to
prospective customers’ needs
Our definition emphasizes that
While customers expect to obtain value from their service purchases in
exchange for their money, time, and effort, this value comes from access
to a variety of value-creating elements rather than from transfer of
ownership.

Service Products Versus Customer Service and After-Sales

Service
• It's important to clarify the distinction between service products and
what is often termed customer service (or customer support). Every
business should have a customer service orientation, but not every
business markets can be categorized as a service product.
• In our study we divide, a firm’s marketing offerings into core product
elements and supplementary service elements - those activities or
amenities that facilitate and enhance use of the core offering.
• We draw a clear distinction between marketing of services—in which a
service itself is the core product (Service Products) —and marketing
through services (Customer Service).
• Great service often helps to sell a physical good and even make it
more useful—and thereby valuable—to the buyer.
• Many firms in manufacturing, agricultural, natural resource, or
construction industries now base their marketing strategies on a
philosophy of serving customers well and adding supplementary
service elements to the core product. However, that core product is still
 a physical good when marketing’s goal is to sell the item and transfer
ownership.
• Supplementary services may include consultation, finance, shipping,
installation, maintenance, upgrades, and, finally, removal and
environmentally responsible disposal.
• These services may be offered “free” (meaning effectively that their
cost is bundled with the price of the initial product purchase) or charged
for separately.
• Many manufacturing firms have transitioned from simply bundling
supplementary services with their physical products to reformulating
and enhancing certain elements so that they can be marketed as
stand-alone services.
• At that point, the firm may target new customers who haven’t
previously purchased its manufactured products—and may even have
no interest in doing so.
• The organization may add new service products that it never offered
before. IBM, once known only as a manufacturer of computers and
business machines, today offers four main groups of services: strategic
outsourcing, business consulting, integrated technology services, and
maintenance.

SERVICES POSE DISTINCTIVE MARKETING CHALLENGES

• Are the marketing concepts and practices developed in manufacturing
companies directly transferable to service organizations in which no
transfer of ownership takes place?
• The answer is often “no.” In particular, when customers rent goods
rather than buying them, their expectations and decision criteria are
different—and so will be the nature of their experiences, including how
they interact with the service firm that “loans” them the physical
product.
• As a result, marketing management tasks in the service sector tend to
differ from those in the manufacturing sector in several important
respects.
• It's important to recognize that these differences, though they are
useful generalizations, do not apply equally to all services.
Table 1.1 Marketing Implications of Eight Common Differences
Between Services and Goods
The most common Differences between Services and Goods

1. Most Service Products Cannot Be Inventoried

• Because services involve actions or performances, they are ephemeral
—transitory and perishable—and so can’t usually be stocked as
inventory following production.
• Although facilities, equipment, and labor can be held in readiness to
create the service, each represents productive capacity, not the
product itself.
• If there’s no demand, unused capacity is wasted and the firm loses the
chance to create value from these assets.
• During periods when demand exceeds capacity, customers may be
sent away disappointed or asked to wait until later.
• A key task for service marketers, therefore, is to find ways of
smoothing demand levels to match available capacity through
promotions, reservations, and dynamic pricing strategies.

2. Intangible Elements Usually Dominate Value Creation

• Many services include important physical elements, such as hotel

beds, theater interiors, spare parts installed during repairs, and bank
cards and checkbooks.
• However, often it is the intangible elements—such as processes,
Internet-based transactions, and the expertise and attitudes of service
personnel—that create the most value in service performances.
• Customers can’t taste, smell, or touch these elements, and they may
not be able to see or hear them. That makes it more difficult to assess
important service features in advance of use and to evaluate the quality
of the performance itself.
• Similarly, the lack of easy reference points can make it hard for
customers to distinguish among competing suppliers.
• When there are few physical elements, marketers often employ
physical images and metaphors to highlight service benefits and
demonstrate the firm’s competencies.

3. Services Are Often Difficult to Visualize and Understand

• Many services can be described as “mentally intangible,” meaning

that it’s difficult for customers to visualize the experience in advance of
purchase and to understand what they will be getting. This situation
can make service purchases seem risky.
• Mental intangibility is most likely to present a problem (and thus a
perceived risk) for first-time customers who lack prior exposure to a
particular type of service.
• Frequent users have the advantage of past experiences that can serve
as benchmarks, so they know what clues to look for.
• Well-trained salespeople or customer service representatives can
reduce the perceived risk of purchase by helping prospective
customers to make good choices and by educating them on what to
expect both during and after service delivery.
• Documenting performance, explaining what was done and why, and
offering guarantees are additional ways to reassure customers and
reduce anxiety.
• Confidence can be created in advance by emphasizing the firm’s
experience or the credentials and expertise of individual service
providers.

4. Customers May Be Involved in Co-production

• Some services require customers to participate actively in co-producing

the service product.
• Your involvement takes the form of self-service, often using the
technology of smart machines, telecommunications, and the Internet.
• Access to self-service technologies (SSTs) is important, too, for
customers using B2B and professional services. Key issue for
marketers is how satisfied customers are with the quality of service
delivered by SSTs.
• Poor task execution by customers may hurt productivity, spoil service
experience and curtail the benefits.
• Service marketers therefore should:
• work with specialists from different departments to develop web
sites, equipment, facilities, and systems that are user-friendly.
• They should ensure that customers get the training they need to
use these options well, and they should ensure that operations
personnel can offer real-time support.
• That leads to greater efficiency by customers which may boost the
firm’s productivity, lower its costs, and even enable it to reduce the
price customers pay.

5. People May Be Part of the Service Experience

• The difference between one service supplier and another often lies in
the attitude and skills of their employees.
• Well-managed firms devote special care to selecting, training, and
motivating the people who will be responsible for serving customers
directly.
• In addition to possessing the technical skills required by the job, these
individuals also need to possess good interpersonal skills and to
display positive attitudes.
• Encountering other customers at a service facility, can affect your
satisfaction too.
 • Customer misbehavior presents a marketing problem.
• The marketing implications are clear:
• managing their own employees effectively (recruit, train and
reward them) to ensure good service delivery.
• Target the right customers at the right times (market
segmentation), manage and shape customer behavior.

6. Operational Inputs and Outputs Tend to Vary More Widely

 Unlike many services, manufactured goods can be produced at a

distant factory, under controlled conditions, and checked for
conformance with quality standards long before they reach the
customer.
 When a service is delivered directly and consumed as it’s produced,
final “assembly” must take place in real-time.
 Service execution often differs among employees, between the same
employee and different customers, and even from one time of day to
another.
 Attitudes, transaction speed, and quality of performance can vary
widely, and it’s hard, sometimes even impossible, to shield customers
from the results of service failures.
 These factors can make it difficult for service organizations to improve
productivity, control quality and ensure reliable delivery.
 The best service firms have made significant progress in reducing
variability by:
• adopting standardized procedures based on customer expectations
• implementing rigorous management of service quality
• training employees carefully
• Automating tasks previously performed by human beings.
• They also make sure that employees are well trained in service
recovery procedures in case things do go wrong.

7. The Time Factor Often Assumes Great Importance

• Many services are delivered in real time while customers are physically
present.
• Customers see time as a scarce resource to be spent wisely and see
wasted time as a cost to avoid. They may be willing to pay extra to
save time.
• Customers expect service to be available when it suits them, rather
than when it suits the supplier.
• Another concern of customers is how much time elapses between
making a request for service and receiving the finished output.

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 • Successful service marketers try to understand customers’ time
constraints and priorities:
• They collaborate with operations managers to find new ways to
compete on speed of delivery.
• They strive to minimize customer waiting times.
• They try to offer extended service hours (24/7).

8. Distribution May Take Place Through Nonphysical Channels

 Manufacturers require physical distribution channels to move their

products from the factory to customers, either directly or through
wholesale and retail intermediaries.
 Information-based services can be delivered through electronic
channels such as the Internet or voice telecommunications.
Marketers should:
 Seek to create user-friendly, secure web sites and free access
by telephone.
 Ensure that all information-based service elements can be
downloaded from site.

Marketing Must Be Integrated with Other Management Functions

• Marketers working in a service business can’t expect to operate
successfully in isolation from managers in other functions.
• In fact, three management functions play central and interrelated roles
in meeting the needs of service customers:
– Marketing
– Operations
– and human resources (HR).

A Framework for Developing Effective Service Marketing Strategies

• The framework helps you understand what is involved in developing
marketing strategies that will be appropriate for different types of
services.
• It makes clear that the process of creating a strategy is an iterative
process. Decisions in one area must be consistent with those taken in
another, so that each strategic element will mutually reinforce the
remainder.
• Sound services marketing strategy is based on a solid knowledge of
the market, customers, and the competition.
• It is actionable—that is, the firm possesses the necessary resources
and it sets realistic goals toward which progress can readily be
measured.

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Figure 1.1.1 A Framework for Developing a Services Marketing Strategy

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1. Understanding the Customer
• Our framework begins with—and will continually involve—your ability to
understand customers’ needs and how they behave in service
environment, how they search for information, how they establish
expectations, and how they choose among alternative suppliers .
• You should also be monitoring service encounters, those moments of
truth when customers interact with the firm.
• Are their expectations being met or missed? As a result, are they
satisfied or disappointed?
• And do they plan to use your firm’s services again, or switch to a
competitor?

2. Building the Service Model

 This task requires you and other members of the management team to
create a meaningful value proposition—a specified package of benefits
and solutions, emphasizing key points of difference relative to
competing alternatives and how it proposes to deliver them to target
customers.
 You’ll need to develop a distinctive service concept that responds to
specific customer needs and market opportunities.
 Transforming this concept into a service product means developing a
specific package of core and supplementary product elements.
 Then distributing each element of this package to customers at
appropriate places and times. Depending on the nature of the product,
you may be selecting a variety of both physical and electronic channels
to deliver all the different product elements to customers.
 To ensure that your strategy will be financially viable, you must create
a business model that will allow the costs of creating and delivering the
service (plus a margin for profits) to be recovered through realistic
pricing strategies.
 Customers won’t buy unless they perceive that the benefits obtained
from this value exchange will exceed the financial and other costs they
incur, including their time and effort.
 Your value proposition must be actively promoted through effective
communications and there must be a strategy for educating customers
—especially first-time users—about how to make good choices and
use the service to their best advantage.
 And finally, to ensure that this value proposition will be commercially
viable, your strategy must stake out a distinctive and defensible
position in the market against competing alternatives, so that your
company can attract a sufficient volume of business from the types of
customers that it is targeting.

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3. Managing the Customer Interface
 Your task continues with development of strategies for managing the
customer interface—embracing all points at which customers interact
with your company.
 It will involve working with your colleagues in operations and HR to
design effective service processes.
 Closely related to the task is the question of how best to balance
demand for the service against the organization’s productive capacity.
 You’ll also have to spend time thinking about design of the physical
environment or servicescape.
 you’ll need to work with your colleagues in HR to develop strategies
for managing employees in ways that will enable them to deliver
outstanding performances to represent a key competitive advantage.

4. Implementing Service Strategies

 Achieving profitability will require creating relationships with customers
from the right market segments and finding ways to build and reinforce
their loyalty.
 When things go wrong, your goal must be to achieve service recovery
and retain customers; an important task will be to obtain customer
feedback to help the firm avoid failures and better meet customers’
needs and expectations in the future.
 Developing strategies for improving service quality and productivity will
provide the necessary leverage for financial success:
 Unless your customers are satisfied with the quality of the
service they receive, the company’s revenues will decline as
these customers take their business to competitors;
 and unless your firm can continually improve productivity, it may
lose control of its costs and fail to create value for its owners.
 Long-term planning requires you to consider how the organization
should evolve in response to emerging customer needs, market
trends, competitive dynamics, and technologies. What needs to
change if your firm is to achieve and maintain service leadership? And
how should the process of change be led and managed?

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SERVICES REQUIRE AN EXPANDED MARKETING MIX
The eight elements, which we refer to as the “8 Ps” of services marketing,
represent the ingredients required to create viable strategies for meeting
customer needs profitably in a competitive marketplace. You can think of
these elements as the eight strategic levers of services marketing.
1. Product Elements
Service products lie at the heart of a firm’s marketing strategy. If a product is
poorly designed, it won’t create meaningful value for customers, even if the
rest of the 8 Ps are well executed. Planning the marketing mix begins with
creating a service concept that will offer value to target customers and satisfy
their needs better than competing alternatives.
2. Place and Time
Delivering product elements to customers involves decisions on where and
when the former are delivered to the latter, as well as the methods and
channels employed. Delivery may involve use of physical or electronic
channels (or both), depending on the nature of the service.
3. Price and Other User Outlays
To calculate whether a particular service is “worth it,” they may go beyond just
money and assess the outlays of their time and effort. Service marketers,
therefore, must not only set prices that target customers are willing and able
to pay, but also understand—and seek to minimize, where possible—other
burdensome outlays that customers incur in using the service.
4. Promotion and Education
In services marketing, much communication is educational in nature,
especially for new customers. Suppliers need to teach these customers about
the benefits of the service, where and when to obtain it, and how to participate
in service processes to get the best results. Promotional activities—which
may include a monetary incentive—are often designed to stimulate immediate
trial purchases or to encourage consumption when demand is low.
5. Process
Creating and delivering product elements requires design and implementation
of effective processes— how a firm does things. Customers are often actively
involved in these processes, especially when acting as co-producers. Badly
designed processes lead to slow, bureaucratic, and ineffective service
delivery wasted time, and a disappointing experience.
6. Physical Environment
The appearance of buildings, landscaping, vehicles, interior furnishing,
equipment, staff members’ uniforms, signs, printed materials, and other visible
cues all provide tangible evidence of a firm’s service quality. Service firms
need to manage physical evidence carefully, because it can have a profound
impact on customers’ impressions.

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7. People
Many services will always require direct interaction between customers and
contact personnel. The nature of these interactions strongly influences how
customers perceive service quality.
8. Productivity and Quality
Though they are often treated separately, productivity and quality should be
seen as two sides of the same coin. No service organization can afford to
address one in isolation from the other. Improving productivity is essential to
any strategy for reducing costs. Improving quality is essential for product
differentiation and for building customer satisfaction and loyalty.

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