204 SERVICES MARKETING

Week 1 and 2
Marketing in the service economy
Customer Behaviour and Service Encounter
 Chapter 1 v

rketing in the service economy

Learning Objectives

1. Define “services”
2. Describe ways of categorizing
services
3. Describe the expanded
“marketing mix” for services
Objective 1

Define “services”
 Services Defined p.6

A service is any act, performance or experience that one

party can offer to another and that is essentially intangible
and does not result in the ownership of anything, but
nonetheless creates value for the recipient. Its production
may or may not be tied to a physical product.

Services are processes (economic activities) that provide

time, place, form, problem solving or experiential value to
the receiver.

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Different types of value
Experience Value
Performance/ Problem Solving Value
 Discussion

Examples of Services
Consumer Services Business Services
Airline Accounting
Services Banking and finance Legal services
Defined Insurance IT consulting
Medical Logistics consulting
Telecommunication Architecture
Restaurant Engineering
Hotel Insurance

Which of the types of services provide (a) Problem solving value or (b)
Experiential value to the customers?
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Services are about value
creation p.8
Can a service offer more than one form of value in the delivery process?
Customers expect to obtain value from their
service purchases in exchange for their money,
time and effort, this value comes from a variety
of value-creating elements rather than a transfer
of ownership. Next slide
Customer value creation means that customers
are more likely to be satisfied, stay loyal and act
as advocates for the firm—thus creating firm and
stakeholder value.
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 • All products are valued for the services
they provide, and that the value derived
Service-dominant logic from a physical good.
(S-D Logic) p.9
• Value is not the good itself but value
- by Stephen Vargo and
created only by value-in-use.
Robert Lusch
• Customers for services and goods are co-
creators of value.

• It is only when customers engage or

participate during production, delivery
and consumption of the service that
customer value is co-created.

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 Discussion

A “service-dominant logic”: focuses on intangible aspect, exchange

process and building customer relationships.

How can companies be “service-dominant logic”?

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Objective 2

Describe ways of categorizing services

1. The degree of tangibility/intangibility of service
processes How can services
2. Who or what is the direct recipient of service be classified? P.17
processes?

3. The place of service delivery

4. Customisation versus standardisation

5. Relationships with customers

6. Discrete versus continuous services

7. High contact versus low contact

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Categorising service processes p.20

Who or what is the Direct Recipient of the Service?

Nature of People Possessions
Service Act
Tangible Tangible actions to Tangible actions to goods
actions people’s bodies (people and other physical
processing) possessions

Intangible Intangible actions Intangible actions directed

actions directed at people’s at intangible assets
minds (mental-stimulus (information processing)
processing)

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Categorizing service processes p.20
Mental-stimulus Information
People Processing Possession Processing
Processing Processing
• Customers need to • The object requiring • Customers must be • Direct involvement
be physically processing must be present mentally with the customer
present throughout present, but the but can be located may not be
service delivery in customer need not either in a specific necessary (at least
order to receive the be. service facility or in in theory) once the
desired benefits of • e.g. Car repair a remote location request for service
such services. connected by has been initiated.
• e.g. Transport, broadcast signals or • e.g. buying shares
massage telecommunication online
links.
• e.g. Theatre
performance

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Objective 3

Describe the expanded

“marketing mix” for services
23
What are the indifferences between the high- and low-contact service at the frontsrtage?
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25
 An expanded marketing mix for services p.25

People: direct, personal interaction between customers

and the firm’s personnel or employees for the service to
be ‘manufactured’ and delivered.

Physical evidence (tangible cues): servicescape— such

as physical layout of the service facility, ambience,
background

Process of service production: required to manufacture and

deliver the service.

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 RECAP

1. Define “services”
2. Explain how services create value for consumers
3. Describe the expanded “marketing mix” for services

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 Chapter 2 v

Customer behaviour and

service encounters
 W1 & 2 Customer Behaviour
Four categories of services & Service Encounter

People processing Physical processing Internal-stimulus processing information processing

Pre-purchase Purchase & Consumption Post-purchase

- The Service Encounter
1. Need arousal 1. Three levels of 1. Customer satisfaction
2. Information search customer contact with service
3. Evaluating 2. Role and script theory experiences
alternatives 3. Control theory 2. Customer delight
4. Perceived risk 4. Understanding 3. Service judgement
5. Risk and uncertainty customers’
aversion psychological needs
6. Strategies for risk and values
reduction
7. Information sources
used to select
business services
Learning Objectives
1.Explain the three-stage model of service
consumption.
2.Explain the relevance of perceived risk.
3.Explain why it is necessary to understand
customers’ intrinsic needs and values.
4.Describe why mood states, role and script
theory and control theory are central to
understanding customer behaviour
Objective 1

Explain the three-stage model

of service consumption.
The three-stage model of service consumption p.39

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Objective 2 Explain the relevance of perceived risk.

Objective 3 Explain why it is necessary to

understand customers’ intrinsic needs
and values.

Describe why mood states, role and script

Objective 4 theory and control theory are central to
understanding customer behaviour.
 Stage 1: Pre-purchase decision making (introd) p.39

Need arousal
Information search
Evaluating alternatives
Perceived risk
Risk and uncertainty aversion
Strategies for risk reduction
Information sources used to select business services
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Need arousal
People’s Physical
unconscious conditions
minds

Desired State >

External sources
Actual State

e.g. Retirement
insurance plan

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Information
Search

• Search for information and evoked

set (considers using the service) –
e.g. NTUC Income; AIA; Prudential
• Past experience – relates to
personal encounter in the past
(same or similar experience)
• Use of personal sources – e.g.
people we know personally (e.g.
older-aged friends)
• experience qualities not
communicable through
online/ social media

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Retirement insurance plan

Discussion

Which of the following

personal sources is
more influential? Why?

•Personal friends
•“Virtual friends” from forum/online
reviews/blogs

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 Search attributes – it allows evaluation before
Evaluating purchase
Alternatives • Evaluate attributes prior – e.g. ? Monthly
payment; benefit; yields

Experience attributes
• Evaluation during purchase and consumption
- e.g. Insurance agent; Call centre staff

Credence attributes – any belief attributes; hard

to evaluate even after purchase
• Impossible to evaluate – e.g. NTUC – any
government influence?
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Perceived Risk

• Functional risk: types of protection;

types of coverage
• Financial risk: loss of bonus reward
• Temporal risk: forget to pay the
premium?
• Psychological risk: is this a better
choice than other schemes?
• Social risk: will my friends like this
scheme too?
• Sensory risk: nothing in this case

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Risk and Uncertainty Aversion

1. When the service is highly intangible (a ‘pure

service’) – proportion between tangible and
intangible aspects

2. When the service is relatively new – e.g. a new

retirement plan

3. When the service is complex – e.g. retirement

investment return

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Risk and Uncertainty Aversion

4. When the customer is relatively inexperienced, and thus

lacks knowledge and confidence

5. When service brands are customised rather than

standardised - e.g. Age x number of years of investment

6. When the purchase is important to the customer – e.g. High

opportunity cost
7. Perceived Risk: Intangible, nonstandardized, no guarantee of
return and too technical for an ordinary customer to
understand

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 Risk and Strategies for risk reduction
Uncertainty
Aversion
Seek more information,
especially from Rely on the reputation of
respected personal the firm – e.g.
sources (e.g. friends and Emphasizes “Since 1900”
respected peers) – e.g. – no of years of history
Use reasoning approach in the insurance industry
in communications

Look for guarantees and Ask knowledgeable

warranties – e.g. employees about
guarantee minimum competing services -
return training

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 Risk and Strategies for risk reduction
Uncertainty
Aversion
Look for opportunities Use the World Wide
to try the service – e.g. Web to seek
is it possible in information – e.g.
insurance business? Increase credibility

Look for tangible cues or

other physical evidence
Remain loyal to their
as a means of assessing
current service –
the quality of the
emphasises the success
service – e.g. brochure,
office location

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Refer of the following three types of services, one high in
search attributes (HAS), one high in experience attributes Discussion
(HEA) and one high in credence attributes (HCA). Specify
what product characteristics make them easy or difficult
for consumers to evaluate and suggest specific strategies
that marketers can adopt in each case to facilitate
evaluation and reduce perceived risk.
HSA: Courier HEA: Tour HCA: Surgery

Characteristics: intangible Intangible Highly intangible

Strategies: Search: can check Service – answer Service – explain the

online review queries, taking care of procedure, assure
Service: can check their needs DURING them it s ok
delivery status the session
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Stage 2: Purchase and consumption – The service encounter p.49

Service encounters: three levels of customer contact

Role and script theory

Control theory

Understanding customers’ psychological needs and values

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1. Service encounters: three levels of customer contact

Desired service is a ‘wished

for’ level of service, which is
a combination of what
customers believe can and
should be delivered.

It is the minimum level of

service customers will accept
without being dissatisfied.

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 Service Encounters: Three Levels of Customer Contact

• High-contact services
• Visits service facility & involved with organisation –
e.g. Children’ enrichment classes

• Medium-contact services
• Less face-to-face
• Visits facility but leaves – e.g. Medical services

• Low-contact services
• Little physical contact, electronic channels – e.g. Online
banking 49
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2. Role and Script Theory
Service provision as a drama which creates & maintains a desirable
impression
• It needs careful management of actors & physical settings
• Selection, training, defining the role, creating the
environment, deciding which part to be performed and
which to be prepared
• Customers and employees have roles to play – e.g. fine
dining restaurants (smile strength)
• Script: a coherent sequence of events expected to guide
transactions and specify alternatives
• When customers experience scripts incongruent, they
would be confused and might experience dissatisfaction
• Providers & customers : Mutual understanding is important.

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 3. Control Theory - Customer

Empowering or giving a degree of control to the customer, thereby ensuring that they
feel confident about what they are doing, so they won’t have second thoughts after
the purchase.

Two forms of control:

1. Behavioural control – Consumers have some actual control

over their environment

2. Cognitive control - customers perceive that they have some

control, or at least that what is happening to them is
predictable—in which case the effects can be the same as if
they had behavioural control.
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 3. Control Theory - Employee

Employees who need control

• Why?
• The service employee behaviour is also influenced by their desire for
perceived control in the service encounter.
• They will be more satisfied, feel less stress and have better
performance

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 Discussion
Apply role theory, script theory, and control theory to
hotel buffet services. What insights can you give that
would be useful to management?

Guidelines for discussion

Role theory Use role description to set the boundary
Script theory A sequence of serving the guests
Control To empower the staff the control the guests
theory

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 4. Understanding Customers’ Psychological Needs and Values

Three types of fundamental needs:

1. Security – e.g. Insurance
Safety needs
2. Respect – e.g. Fine dining
Means-end value concept
3. Esteem needs and ego
involvement – e.g. Weight loss
services
Maintain or enhance self-worth
Customers as individuals

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 4. Understanding Customers’ Psychological Needs and Values

The concept of face:

• The concept of face represents the dignity based on a correct

relationship between a person and the groups to which that person
belongs.
• This concept has profound implications for Asian interpersonal
relationships—high-contact services in particular.

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 4. Understanding Customers’ Psychological Needs and Values

How can a service organization maintain and enhance customers’ self-esteem?

by gaining a thorough understanding of

how customers feel that their self-esteem by recognising and genuinely
is a factor when they use the organisation’s greeting customers
service

by acknowledging to customers, in a by treating customers as competent

variety of ways, their importance to the adults who are able to make
organisation appropriate decisions that will facilitate
service delivery

by not doing anything that might cause a

customer to lose face in front of others.
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 4. Understanding Customers’ Psychological Needs and Values

Fairness or Equity Needs

People’s feelings about how they are treated by others in terms of fairness, justice or equity can
also help explain attitudes and behaviours.

Two components:

1. Distributional fairness – a comparison of the ratio of outputs (benefits) to inputs (sacrifices

including monetary and non-monetary) of both parties to a transaction
a. Psychological contract: what each party gives and gets in a relationship
b. Keeping promises: any violation of a promise by a service provider

2. Procedural fairness – perception of whether the procedures used to arrive at a decision were
fair or equitable – e.g. waiting time; discrimination

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Fairness or Equity Needs Discussion
Services comprise both a core service (‘what’ is delivered) plus acts and
processes (‘how’ it is delivered). As such, service is about procedural
justice. Do you agree?

Consider the following two situations:

1. The inequity of waiting lines

2. Discriminatory (differential) treatment

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 Stage 3: Post-encounter stage p.61

Deep Dissatisfaction Very High Satisfaction

Customer satisfaction with service experiences

• Satisfaction is an attitude-like judgment following a consumption
experience.
• Most research confirms that the confirmation or disconfirmation of
pre-consumption expectations is the essential determinant of
satisfaction. 60
 Stage 3: Post-encounter stage p.61

Customer Delight

Customer delight is a function of three components:

1. Unexpectedly high levels of performance
2. Arousal (e.g. surprise, excitement)
3. Positive affect (e.g. pleasure, joy, or happiness).

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 Stage 3: Post-encounter stage

Service judgement

• During the service encounter, customers experience the service performance (i.e.
service quality) and compare it to their predicted service levels.
• Satisfaction judgments are then formed based on this comparison.
• Four possible outcomes:
1. Positive disconfirmation => Better than expected
2. Negative confirmation => Worse than expected
3. Confirmation => As expected
4. Zone of tolerance => Adequate service

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 W1 & 2 Customer Behaviour
Four categories of services & Service Encounter

People processing Physical processing Internal-stimulus processing information processing

Pre-purchase Purchase & Consumption Post-purchase

- The Service Encounter
1. Need arousal 1. Three levels of 1. Customer satisfaction
2. Information search customer contact with service
3. Evaluating 2. Role and script theory experiences
Asian vs. Western alternatives 3. Control theory 2. Customer delight
Cultural Impact 4. Perceived risk 4. Understanding 3. Service judgement
5. Risk and uncertainty customers’
aversion psychological needs
6. Strategies for risk and values
reduction
7. Information sources
used to select
business services
 RECAP

Explain the three-stage model of service consumption.

Explain the relevance of perceived risk.

Explain why it is necessary to understand customers’ intrinsic needs and values.

Describe why mood states, role and script theory and control theory are central to
understanding customer behaviour

64