Comprehensive Notes: Service Marketing

Page 1: Introduction to Service Marketing

What is a Service?

A service is any act, performance, or experience 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.

Examples: A haircut, a flight, a university lecture, a medical consultation, a financial services

plan, a movie screening.

What is Service Marketing?

Service Marketing is a specialized branch of marketing that deals with the unique challenges
and strategies involved in marketing intangible offerings (services) rather than tangible
goods.

Why is Service Marketing Different?

Marketing a product (e.g., a car) is different from marketing a service (e.g., a car rental).

 Products: Customers can see, touch, and test a car before buying. They take
ownership of it. Quality is generally standardized and checked at the factory. It can be
stored.
 Services: Customers often can't see or touch the service before buying. They are
buying a promise. They don't take ownership of anything. Quality can vary widely. It
cannot be stored.

This difference requires a new set of marketing tools and a different mindset.

The Service-Product Continuum

Few offerings are pure goods or pure services. Most fall on a spectrum.

 Goods-Dominant: (e.g., Salt) The product is the main offering.

 Tangible Good with Service: (e.g., A car with a warranty and service plan)
 Hybrid (50/50): (e.g., A restaurant) The meal (product) and the service (ambiance,
waiting staff) are equally important.
 Service with Tangible Good: (e.g., A flight) The service (transport) is the main
purchase, but a tangible good (food, drink) is included.
 Service-Dominant: (e.g., Education, Consulting) The offering is almost pure service.

Page 2: The 4 Unique Characteristics of Services (The

IHIP Framework)
These four characteristics are the primary reason a special approach to service marketing is
needed.

1. Intangibility

This is the most fundamental difference.

 Definition: Services cannot be seen, tasted, felt, heard, or smelled before they are
purchased.
 Marketing Implication: This creates uncertainty for the customer. The marketer's
job is to "tangibilize the intangible."
 Strategies:
o Use Physical Evidence: e.g., A clean, modern dentist's office.
o Use Tangible Cues: e.g., Professional uniforms, high-quality brochures, a
well-designed website.
o Focus on Brand & Reputation: A strong brand acts as a promise of quality.
o Use Testimonials & Case Studies: Let satisfied customers "tangibilize" the
results for new customers.

2. Inseparability (of Production & Consumption)

 Definition: Services are typically produced and consumed at the same time. The
customer is often present and participates in the creation of the service. (e.g., You
can't separate the haircut from the hairdresser).
 Marketing Implication: The service provider (the person) is the service in the
customer's eyes. The customer is also a co-producer of the service.
 Strategies:
o Employee Training: Invest heavily in training employees on technical skills
and customer service skills ("internal marketing").
o Customer Management: Manage customer behavior (e.g., in a classroom,
other students' behavior affects your experience).
o Selection: Hire the right people who can be good brand ambassadors.

3. Heterogeneity (or Variability)

 Definition: The quality of a service can vary widely depending on who provides it,
when it is provided, and where it is provided. It's difficult to ensure 100%
consistency. (e.g., The same barista can make a great coffee at 9 AM and a mediocre
one at 4 PM).
 Marketing Implication: Quality control is a major challenge.
 Strategies:
o Standardization: Create clear service processes, scripts, and procedures (e.g.,
McDonald's).
o Training: Again, heavy investment in training to reduce variability.
o Automation: Use technology to perform tasks that are prone to human error
(e.g., self-check-in kiosks, an ATM).
o Monitoring: Use customer satisfaction surveys (e.g., "How did we do
today?") to catch problems.
4. Perishability

 Definition: Services cannot be stored, saved, resold, or inventoried. An unsold hotel

room, an empty airline seat, or an idle lawyer's hour is lost revenue forever.
 Marketing Implication: You must manage supply and demand.
 Strategies: (See Page 9 for a deep dive)
o Demand Management: Use differential pricing (e.g., off-peak movie tickets),
non-peak promotions (e.g., happy hour), reservation systems.
o Supply Management: Use part-time staff during peak hours, cross-train
employees to be flexible, involve the customer in production (e.g., "bag your
own groceries").

Page 3: The Extended Marketing Mix (The 7Ps)

Because of the unique nature of services, the traditional 4Ps of marketing (Product, Price,
Place, Promotion) are insufficient. The 7Ps model adds three new elements.

 1. Product: The core service itself. (e.g., a "checking account").

 2. Price: How the service is priced (e.g., fees, subscriptions, commissions).
 3. Place: Where and when the service is delivered (e.g., a bank branch, online, an
app).
 4. Promotion: How the service is communicated (e.g., advertising, website).

5. People

 Definition: All human actors who play a part in the service delivery and thus
influence the buyer's perceptions. This includes the firm's employees, the customer,
and other customers in the service environment.
 Why it matters: In a high-contact service, the "People" element is the service. A
great teacher is a great education service. A rude waiter is a bad restaurant service.
 Strategy: Internal Marketing (treating employees as the first market), recruitment,
training, empowerment, and uniforms.

6. Process

 Definition: The actual procedures, mechanisms, and flow of activities by which the
service is delivered.
 Why it matters: A bad process can ruin a good service. (e.g., A great restaurant with
a 2-hour wait for food has a bad process). A good process ensures efficiency,
consistency, and a good customer experience.
 Strategy: Service Blueprinting (mapping the entire process from the customer's
view), simplifying steps, adding automation, and identifying "fail points."

7. Physical Evidence (or Servicescape)

 Definition: The environment in which the service is delivered and where the firm and
customer interact, plus any tangible components that facilitate performance or
communication of the service.
  Why it matters: It provides the "tangible cues" that customers use to judge the
service. It's the "stage" on which the service is performed.
 Strategy: Designing the servicescape to be:
o Functional: Is it easy to navigate?
o Aesthetic: Does it look appealing?
o Symbolic: What does the design say about the brand? (e.g., A law firm's
marble floors and wood paneling vs. a tech startup's beanbags and open-plan
office).
o Includes: Website UI/UX, signage, employee uniforms, business cards,
reports, building, furniture.

Page 4: Deep Dive: People & Process

The "People" Element & The Service-Profit Chain

This model, developed at Harvard, shows the link between employee management, customer
loyalty, and profitability.

1. Internal Service Quality: Good training, the right tools to do the job, strong support
from management.
2. ...leads to... Employee Satisfaction: Employees feel valued and are happy at their
jobs.
3. ...leads to... Employee Loyalty & Productivity: Experienced, happy employees stay
longer and work harder.
4. ...leads to... External Service Value: Better service delivery to the customer.
5. ...leads to... Customer Satisfaction: The customer's expectations are met or
exceeded.
6. ...leads to... Customer Loyalty: Customers return, spend more, and give positive
referrals.
7. ...leads to... Profitability & Growth: The ultimate business outcome.

Key Takeaway: Profitable service firms start by investing in their people. This includes:

 Internal Marketing: Treating employees as your "internal customers."

 Empowerment: Giving employees the authority to make decisions to solve customer
problems on the spot.
 Recruitment: Hiring for attitude and service inclination, not just technical skills.

The "Process" Element & Service Blueprinting

A Service Blueprint is a detailed flowchart that maps out a service process. It is the single
most important tool in service design.

Key Components of a Blueprint:

1. Customer Actions: What the customer does (e.G., enters website, clicks "buy," calls
support).
2. 'Onstage' (or Frontstage) Actions: What the customer sees the employee do (e.g.,
greeting from a waiter, a pilot's announcement).
 3. 'Backstage' Actions: What the employee does behind the scenes to support the
onstage action (e.g., the chef cooking the meal, the baggage handler loading the
plane).
4. Support Processes: Internal systems required to support the service (e.g., the credit
card payment system, the reservation software).
5. Physical Evidence: The tangible items associated with each step (e.g., the website,
the menu, the uniform, the plane).

Why use a blueprint?

 To understand the service from the customer's perspective.

 To identify "fail points" (where the service is most likely to go wrong) and build in
fixes.
 To identify "bottlenecks" (where the process gets slow).
 To set clear service standards for each step.

Page 5: Deep Dive: Physical Evidence & The Servicescape

The Servicescape is the physical environment where the service takes place. It's a critical
part of "tangibilizing" the service.

Roles of the Servicescape

1. Package: It "packages" the service, conveying an image and setting expectations

(e.g., a high-end spa looks very different from a budget gym).
2. Facilitator: It aids in the service process (e.g., clear signage in an airport, a well-
designed website).
3. Socializer: It helps facilitate (or prevent) interaction between customers and
employees (e.g., private booths in a restaurant vs. a large communal table).
4. Differentiator: It can be a key point of differentiation from competitors (e.g.,
Starbucks' "third place" concept vs. a simple coffee cart).

Bitner's Servicescape Model

This model shows how the physical environment impacts the behavior of customers and
employees.

1. Environmental Dimensions (The Inputs):

o Ambient Conditions: Background elements like temperature, lighting, noise,
music, and scent. (e.g., a fast-food restaurant playing loud, fast music to
increase turnover; a spa playing calm music).
o Space & Function: The layout, arrangement of furniture, and equipment.
(e.g., ease of navigation, comfort).
o Signs, Symbols & Artifacts: Items that communicate meaning about the
brand (e.g., diplomas on a doctor's wall, a "family-run" sign in a shop,
artwork).
2. Internal Responses (The Black Box):
o These physical elements cause Cognitive (thoughts), Emotional (feelings),
and Physiological (comfort, pain) responses in both employees and customers.
 3. Behaviors (The Outputs):
o These responses lead to Approach behaviors (staying longer, spending more,
interacting) or Avoidance behaviors (leaving, spending less, not returning).

Online Servicescapes

For digital services (e.g., e-commerce, banking apps), the website or app is the servicescape.

 Ambient: Not applicable.

 Space & Function: Replaced by UI/UX design, navigation flow, site speed, and
mobile responsiveness.
 Signs, Symbols: Replaced by high-quality product images, security logos (e.g., "SSL
Secure"), and clear branding.

Page 6: Managing the Customer & The Service Encounter

The "Moment of Truth" (Service Encounter)

A Service Encounter is any interaction between a customer and the service firm. Each
encounter is a "moment of truth" where the customer forms an opinion about the service.

 Example: Making a reservation, the greeting at the door, the order-taking, the food
delivery, the payment, the follow-up email.
 A string of positive moments of truth creates a good service experience. A single bad
one (especially at the end) can ruin the entire perception.

Types of Service Encounters

1. Remote Encounters: No human contact (e.g., using an ATM, a website, an

automated phone menu). Quality is judged on ease of use, speed, and reliability.
2. Phone Encounters: Human-to-human, but not face-to-face (e.g., call centers).
Quality is judged on tone of voice, speed, and problem resolution.
3. Face-to-Face Encounters: Direct human contact (e.g., in-store, consultation). This is
the richest and most complex encounter, where both verbal and non-verbal cues (body
language, appearance) are critical.

Managing Customer Expectations

Customer satisfaction is a simple formula: Satisfaction = Perceived Performance -

Expectations

 If Performance > Expectations = Delighted

 If Performance = Expectations = Satisfied
 If Performance < Expectations = Dissatisfied

Marketers must not only manage performance but also manage expectations.

The Zone of Tolerance

Customers have a Zone of Tolerance for service performance.

 Desired Service: The "ideal" level of service the customer hopes for.
 Adequate Service: The minimum level of service the customer is willing to accept.
 The Zone: The range between "desired" and "adequate."

A service that falls within this zone is acceptable. A service that falls below the "adequate"
level will cause dissatisfaction. The marketer's job is to:

1. Understand what the customer's "adequate" and "desired" levels are.

2. Consistently perform above the "adequate" level.
3. Avoid over-promising in advertising, which can raise the "adequate" level too high
(Gap 4).

Page 7: Service Quality & The Gaps Model (SERVQUAL)

Defining Service Quality

Service Quality is the customer's overall judgment of a service's excellence. Because it's
intangible, it's much harder to measure than product quality.

The Gaps Model of Service Quality (or SERVQUAL model) is the most famous framework
for diagnosing and fixing service quality problems. It identifies five "gaps" that lead to
customer dissatisfaction.

The Customer Gap (Gap 5): This is the main gap: Expected Service vs. Perceived
Service. If what a customer expects is different from what they perceive they got, they are
dissatisfied. This final gap is caused by one or more of the other four "provider gaps."

The Four Provider Gaps

Gap 1: The Knowledge Gap

 What it is: The gap between what customers expect and what management thinks
customers expect.
 Cause: Lack of market research, not listening to customer complaints, poor
communication from frontline staff to management.
 Solution: Better research, employee feedback systems, "management by walking
around."

Gap 2: The Standards Gap (or Design Gap)

 What it is: The gap between management's understanding of customer expectations

and the service standards they actually create.
 Cause: Management believes customer expectations are unrealistic, cost-cutting, or a
simple lack of commitment to quality. No clear processes (blueprints) are made.
 Solution: Set clear, measurable, customer-defined standards (e.g., "all calls answered
within 3 rings"), and design the service process (blueprint) to meet them.
Gap 3: The Delivery Gap (or Performance Gap)

 What it is: The gap between the service standards and the actual service that is
delivered.
 Cause: Poor employee training, bad tools, employee-job mismatch, giving employees
conflicting rules ("be friendly" but also "be fast").
 Solution: This is the "People" problem. Solve it with better hiring, training,
empowerment, and by ensuring tools and systems support the standards.

Gap 4: The Communication Gap

 What it is: The gap between what is delivered and what is promised in external
communications (advertising, sales).
 Cause: Over-promising in advertising ("We're the #1 fastest..."), poor coordination
between marketing and operations.
 Solution: Ensure all marketing is realistic. Show tangible evidence. Let the operations
team preview ads to ensure they are accurate.

The Five Dimensions of Service Quality (RATER): Customers use these 5 dimensions to
judge quality:

1. Reliability: The ability to perform the service dependably and accurately. (This is the
most important one).
2. Assurance: The knowledge and courtesy of employees and their ability to inspire
trust and confidence.
3. Tangibles: The appearance of physical facilities, equipment, personnel, and
communications.
4. Empathy: The caring, individualized attention the firm provides its customers.
5. Responsiveness: The willingness to help customers and provide prompt service.

Page 8: Service Failure & Service Recovery

Service Failure

Despite the best efforts, services will always fail sometimes. A Service Failure is any service
performance that falls below the customer's "adequate" service level.

The Service Recovery Paradox

This is a phenomenon where a customer who experiences a service failure, followed by an

excellent service recovery, may become more loyal to the company than if no failure had
occurred at all.

 Why? The failure gives the company a chance to demonstrate its commitment to the
customer.
 Warning: This is not a strategy. You cannot afford to "create" failures to fix them.
Most failures still lead to angry customers.

Strategies for Effective Service Recovery

A good recovery process is essential.

1. Listen: Let the customer vent. Do not interrupt. Use active listening to understand the
real problem.
2. Apologize & Show Empathy: Offer a sincere, genuine apology (e.g., "I am so sorry
this happened. That must have been very frustrating for you."). Do not blame the
customer.
3. Solve (and make it fast):
o Ask: "What would be a fair solution for you?" (Customers are often
surprisingly reasonable).
o Empower frontline staff to solve the problem immediately without needing a
manager. This is the #1 key to good recovery.
4. Atonement (Compensation): For serious failures, a simple fix isn't enough. Offer
something to atone for the problem (e.g., a free-item voucher, a discount on the next
purchase). The compensation must be perceived as "fair."

Why do this?

 A complaining customer is a gift. Most dissatisfied customers (90%+) don't complain

—they just leave and never come back.
 A customer who has their complaint resolved well is 70-80% likely to return.

Page 9: Managing Demand & Capacity (The Perishability

Problem)
The core challenge of perishability is that service capacity is fixed, but demand fluctuates.
(e.g., A restaurant is empty on a Monday (excess capacity) but has a 2-hour wait on a
Saturday (excess demand)).

The goal is to smooth demand so it better matches your fixed capacity.

Strategies for Managing Fluctuating Demand

 1. Shift Demand with Price:

o Differential Pricing: Charge more for peak times and less for off-peak.
o Examples: "Early-bird" dinner specials, matinee movie tickets, off-season
vacation pricing, higher electricity rates at 5 PM.
 2. Cultivate Non-Peak Demand:
o Use marketing to find new customers for your off-peak times.
o Examples: A bar launching a "business lunch" special, a hotel marketing "mid-
week conference packages."
 3. Use Complementary Services:
o Give waiting customers something to do.
o Examples: A bar in a restaurant, TVs in a waiting room, Wi-Fi on a plane.
This doesn't reduce the wait, but it reduces the perceived wait.
 4. Use Reservation & Queuing Systems:
o Reservations: A formal system to manage demand (e.g., Eventbrite,
OpenTable).
 o Queuing: Manage the line. A "first-come, first-served" line is perceived as the
fairest.

Strategies for Managing Capacity (Supply)

 1. Stretch Existing Capacity:

o Cross-train employees: A check-in agent who can also work at the gate. This
makes the workforce more flexible.
o Use part-time employees: Schedule more staff only during peak hours.
o Use self-service: Get the customer to do part of the work (e.g., self-check-in,
pumping your own gas, self-checkout).
 2. Align Capacity with Demand:
o Share capacity with other firms (e.g., airline code-sharing).
o Rent or share facilities and equipment.
o Outsource non-essential tasks.

Page 10: The Future of Service Marketing

1. Technology, Automation & AI

 Technology is the new "People." AI chatbots, self-service kiosks, and sophisticated

apps are becoming the primary service interface for many firms.
 Challenge: How to be "high-tech" without losing the "high-touch" (empathy) that
customers value.
 Opportunity: Using AI to analyze customer data and empower human employees to
give better, more personalized service.

2. The "Servitization" of Products

 Many manufacturing companies are realizing they can make more money by selling a
service than a product.
 Examples:
o Rolls-Royce: Sells "Power by the Hour" (a service) for its jet engines, not the
engines themselves (a product). They are paid for performance.
o Hilti (Power Tools): Sells a "Tool Fleet Management" service, where
construction firms pay a monthly fee to have a fully managed, always-working
set of tools, rather than buying the tools.
o Software-as-a-Service (SaaS): The original model (e.g., Adobe, Microsoft).

3. The Platform Economy

 Companies like Uber, Airbnb, DoorDash, and eBay are not traditional service
providers. They are service platforms that connect a customer with a (non-employee)
service provider.
 Marketing Challenge: They have two "customers" to market to: the end-user (e.g.,
the rider) and the service provider (e.g., the driver). They must manage the quality of
a service they don't directly control.

4. The Rise of Customer Experience (CX)

  Service marketing is evolving into Customer Experience Management.
 This involves managing the entire end-to-end journey a customer has with a brand,
from the first ad they see to the post-purchase support.
 It breaks down the "silos" between marketing, sales, and operations to create one
seamless, consistent experience.

5. Sustainability in Services

 A growing focus on the social and environmental impact of services.

 Environmental: Reducing the carbon footprint of data centers, sustainable tourism,
ethical supply chains for bank financing.
 Social: Fair labor practices in the "gig economy," data privacy, and ethical use of AI
in service delivery.