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Chapter 12 The Marketing of Services Over the course of the past 40 years, the fastest-growing segment of the American economy has not been the production of tangibles but the performance of services. Spending on services has increased to such an extent that today it captures more than 50 cents of the consumer’s dollar. In addition, the service sector in the United States produces a balance-of-trade surplus and is expected to be responsible for all net job growth in the forseeable future.1 The domi- nance of the service sector is not limited to the United States. The service sector accounts for more than half the gross national product (GNP) and employs more than half the labor force in most Latin American and Caribbean countries. Over the course of the next decade, the service sector will spawn whole new legions of doctors, nurses, medical technologists, physical thera- pists, home health aids, and social workers to administer to the needs of an aging population, along with armies of food servers, child care providers, and cleaning people to cater to the wants of two-income families. Also rising to the forefront will be a swelling class of technical workers, including computer engineers, systems analysts, and paralegals.

Many marketing textbooks still devote little attention to program development for the marketing of services, especially those in the rapidly changing areas of health care, finance, and travel. This omission is usually based on the assumption that the marketing of products and services is basically the same, and, therefore, the techniques discussed under products apply as well to the marketing of services. Basically, this assumption is true. Whether selling goods or services, the marketer must be concerned with developing a marketing strategy centered on the four controllable decision variables that comprise the marketing mix: the product (or service), the price, the distribution system, and promotion. In addition, the use of marketing research is as valuable to service marketers as it is to product marketers. However, because services possess certain distinguishing characteristics, the task of determining the marketing mix ingredients for a service marketing strategy may raise dif- ferent and more difficult problems than those encountered in marketing products.

The purpose of this chapter is fourfold. First, the reader will become acquainted with the special characteristics of services and their strategy implications. Second, key con- cepts associated with providing quality services will be discussed. Third, obstacles will be described that in the past impeded and still continue to impede development of services marketing. Finally, current trends and strategies of innovation in services marketing will be explored. With this approach, the material in the other chapters of the book can be inte- grated to give a better understanding of the marketing of services.

Before proceeding, some atte ntion must be given to what we refer to when using the term services. Probably the most frustrating aspect of the available literature on services

Part D? M

arketing in Special Fields

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is that the definition of what constitutes a service remains unclear. The fact is that no common definition and boundaries have been developed to delimit the field of services. The American Marketing Association has defined services as follows:2

1. Service products, such as a bank loan or home security, that are intangible, or at least substantially so. If totally intangible, they are exchanged directly from producer to user, cannot be transported or stored, and are almost instantly perishable. Service products are often difficult to identify, since they come into existence at the same time they are bought and consumed. They are composed of intangible elements that are in separable; they usually involve customer participation in some important way, cannot be sold in the sense of ownership transfer, and have no title. Today, however, most products are partly tangible and partly intangible, and the dominant form is used to classify them as either goods or services (all are products). These common, hybrid forms, whatever they are called, may or may not have the attributes just given for totally intangible services.

2. Services, as a term, is also used to describe activities performed by sellers and others that accompany the sale of a product and that aid in its exchange or its utilization (e.g., shoe fitting, financing, an 800 number). Such services are either presale or postsale and supplement the product but do not comprise it.

The first definition includes what can be considered almost pure services, such as insurance, banking, entertainment, airlines, health care, telecommunications, and hotels; the second definition includes such services as wrapping, financing an automobile, pro- viding warranties on computer equipment, and the like because these services exist in connection with the sale of a product or another service. This suggests that marketers of goods are also marketers of services. For example, one could argue that McDonald’s is not in the hamburger business. Its hamburgers are actually not very different from those of the competition. McDonald’s is in the service business.

More and more manufacturers are also exploiting their service capabilities as stand- alone revenue producers. For example, General Motors, Ford, and Chrysler all offer financing services. Ford and General Motors have extended their financial services offer- ings to include a MasterCard, which offers discounts on purchases of their au tomobiles.

The reader can imagine from his or her own experience that some purchases are very tangible (a coffeemaker) while others are very much intangible (a course in marketing). Others have elements of both (lunch on a flight from New York to Chicago). In other words, in reality there is a goods–service continuum, with many purchases including both tangible goods and intangible services. Figure 12.1 illustrates such a continuum. On the goods side of the continuum, the buyer owns an object after the purchase. On the ser- vices side of the continuum, when the transaction is over, the buyer leaves with an experi- ence and a feeling. When the course in marketing is over or the flight from New York to Chicago is completed, the student or passenger leaves with a feeling.

The examples of services on the right side of Figure 12.1 are mostly or entirely intangible. They do not exist in the physical realm. They cannot appeal to the five senses.

Golf clubs Car Suit Airplane

Green fees with sleeve of balls included Oil change Suit with alterations Air flight with lunch

Tangible

Green fees Taxi ride Alterations Air flight

IntangibleMixed FIGURE 12.1 The Goods–Service Continuum

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IMPORTANT CHARACTERISTICS OF SERVICES

Services possess several unique characteristics that often have a significant impact on marketing program development. These special features of services may cause unique problems and often result in marketing mix decisions that are substantially different from those found in connection with the marke ting of goods. Some of the more impor- tant of these characteristics are intangibility, inseparability, perishability and fluctuat- ing demand, a client relationship, customer effort, and uniformity. They are presented in Figure 12.2.

Intangibility The obvious basic difference between goods and services is the intangibility of services, and many of the problems encountered in the marketing of services are due to intangibility. To illustrate, how does an airline make tangible a trip from Philadelphia to San Francisco? These problems are unique to service marketing.

The fact that many services cannot appeal to a buyer’s sense of touch, taste, smell, sight, or hearing before purchase places a burden on the marketing organization. For example, hotels that promise a good night’s sleep to their customers cannot actually show this ser- vice in a tangible way. Obviously, this burden is most heavily felt in a firm’s promotional program, but, as will be discussed later, it may affect other areas. Depending on the type of service, the intangibility factor may dictate use of direct channels because of the need for personal contact between the buyer and seller. Because a service firm is actually selling an idea or experience, not a product, it must tell the buyer what the service will do because it is often difficult to illustrate, demonstrate, or display the service in use. For example, the hotel must somehow describe to the consumer how a stay at the hotel will leave the cus- tomer feeling well rested and ready to begin a new day.

The preceding discussion alludes to two strategy elements firms should employ when trying to overcome the problems associated with service intangibility. First, tangi- ble aspects associated with the service should be stressed. For example, advertisements for airlines should emphasize (through text and visuals) the newness of the aircraft, the

Intangibility

Inseparability

Perishability

Client relationship

Customer effort

Uniformity

Characteristic Services Goods

The customer owns only memories, out- comes, or feelings such as an airline flight, greater knowledge, or styled hair. Services often cannot be separated from the person providing them. They are often pro- duced and consumed at the same time. Services can be used only at the time they are offered. They cannot be inventoried, stored, or transported. Services often involve a long-term personal relationship between buyer and seller.

Customers are often heavily involved in the production. Because of inseparability and high involve- ment on the part of the buyer, each service may be unique, with the quality likely to vary.

The customer owns objects that can be used, resold, or given to others.

Goods are usually produced and sold by different people.

Goods can be placed in inventory for use at another time.

Goods often involve an impersonal short-term relation- ship although in many instances relationship strength and duration are increasing. Customer’s involvement may be limited to buying the completed product and using it. Variations in quality and variance from standards can be corrected before customers purchase products.

FIGURE 12.2 Unique Characteristics Distinguishing Services from Goods

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roominess of the cabin, and the friendliness of the flight attendants. Second, end benefits resulting from completion of the service encounter should be accentuated. In the case of air travel, an individual’s ability to make an important meeting or arrive home in time for a special occasion could be the derived benefit.

Inseparability In many cases, a service cannot be separated from the person of the seller. In other words, the service must often be produced and marketed simultaneously. Because of the simultane- ous production and marketing of most services, the main concern of the marketer is usually the creation of time and place utility. For example, the bank teller produces the service of receiving a deposit and markets other appropriate bank services at the same time. Many ser- vices, therefore, are tailored and not mass produced. Often, because a company’s employees are “the company” at the point of contact, they must be given wide latitude and assistance in determining how best to tailor a specific service to meet customer needs.

The implication of inseparability on issues dealing with the selection of channels of dis- tribution and service quality is quite important. Inseparable services cannot be inventoried, and thus direct sale is the only feasible channel of distribution. Service quality cannot some- times be completely standardized due to the inability to completely mechanize the service encounter. However, some industries, through innovative uses of technology, have been able to overcome or, at least, alleviate challenges associated with the inseparability characteristic.

For example, in the financial services industry, automated teller machines (ATMs) and home banking, through use of computers and telephones, have contributed greatly to eliminating the need for the customer to directly interact with a bank teller. Further, many banks are developing computer applications to allow tellers and other service representa- tives to think like expert problem solvers. These applications allow for platform banking, a means of enabling bank representatives in any location to bring up on a screen all the information the bank has about the customer. Every face-to-face contact with a customer can mean an opportunity to make a sale and, more importantly, further the relationship with the customer. Of course, the bank representative is still of critical importance as the one who might recognize by the customer’s expression or words that this visit is not the appropriate time to be marketing additional services.

MARKETING INSIGHT What Is an E-Service? 12–1

Source: Hewlett Packard Company. All rights reserved.

Service

Application

Business process

Application

is a (an)

available via

and is hosted bythat

The Net Completes tasks

ISPs/ASPs

Solves problems

Conducts transactions Telcos

CompaniesInformation technology resource

An e-service

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In addition to technology, tangible representations of the service can serve to overcome the inseparability problem. For example, in the insurance industry, a contract serves as the tangible representation of the service. The service itself remains inseparable from the seller (insurance provider), but the buyer has a tangible representation of the service in the form of a policy. This enables the use of intermediaries (agents) in the marketing of insur- ance. Another example is in the use of a credit card—the card itself is a tangible represen- tation of the service that is being produced and consumed each time the card is being used.

Perishability and Fluctuating Demand Services are perishable and markets for most services fluctuate either by season (tourism), days (airlines), or time of day (movie theaters). Unused telephone capacity and electrical power; vacant seats on planes, trains, buses, and in stadiums; and time spent by catalog service representatives waiting for customers to reach them all represent business that is lost forever.

The combination of perishability and fluctuating demand has created many problems for marketers of services. Specifically, in the areas of staffing and distribution, avenues must be found to have the services available for peak periods, and new strategies need to be developed to make use of the service during slack periods. Some organizations are attempting to cope with these problems through the use of pricing strategy. Off-peak pricing consists of charg- ing different prices during different times or days in order to stimulate demand during slow periods. Discounts given for weekend calling, Saturday night stay-overs, early-bird dinners, or winter cruises are all examples of efforts service providers make to redistribute demand.

Other organizations are dealing with issues related to peak period demand through the use of technology. To illustrate, a well-designed voice mail system allows companies and callers to cut down on missed phone calls, eliminates long waits on hold, and delivers clear, consistent messages. In the catalog industry, automated call routing (ACR) is used to route incoming calls to available service representatives in the order in which they were received. Finally, in the utilities industry, many electric utilities no longer have to generate capacity that will meet peak electrical demand. Instead, they rely on buying unused power from other utilities in other regions of the country.

Client Relationship In the marketing of a great many services, a client relationship, as opposed to a customer relationship, exists between the buyer and the seller. In other words, the buyer views the seller as someone who has knowledge that is of value. Examples of this type of rela- tionship are the physician–patient, college professor–student, accountant–small business owner, and broker–investor. The buyer, many times, abides by the advice offered or sug- gestions provided by the seller, and these relationships may be of an ongoing nature. In addition, since many service firms are client-serving organizations, they may approach the marketing function in a more professional manner, as seen in health care, finance, legal, governmental, and educational services.

Professionals face at least two marketing challenges. First, in many cases, fear or hostility is brought to the transaction because the customer is uncertain about how genuine the profes- sional’s concern for his or her satisfaction is. For example, many unpleasant reasons exist for consulting doctors, lawyers, bankers, or even visiting a college professor. These could include having surgery, being sued, having to take out a loan, or doing poorly on an exam. Second, even high-quality service delivery by the professional can lead to dissatisfied customers. For a physician, the ability to provide high-quality medical care may be overshadowed by a brusque, unfriendly personality. For a college professor, the demand on students to contact or visit him or her only during office hours, coupled with students’ own hectic work schedules, can diminish the impact of the professor’s classroom presentations. It is vitally important that the professional service provider strive to build long-term positive relationships with clients.

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Customer Effort Customers are often involved to a relatively great degree in the production of many types of service. In some restaurants you clean your table. You may carry your luggage to a cart parked next to a baggage compartment of the plane. If you wish to enjoy an exhibit at a local art museum, you must walk around the facility and pay careful atten- tion to what is on display. If an organization purchases the services of an advertising agency, employees will have to work with the agency, review its ideas, and make the final selections.

Obviously, not every service requires the same degree of customer effort. Your effort with a credit card service may be little beyond taking it from your wallet to make a pur- chase and writing a check once a month to pay the bill.

Uniformity The quality of services can vary more than the quality of goods. Producers of goods have procedures to prevent, identify, and correct defects. If these procedures are work- ing, customers are unlikely to purchase defective products. This is not the case with most services. Because they are often human performances and often customized to the needs of the buyer, quality can vary. Each trip to the bank or airline flight or univer- sity course can be a different experience. Many service jobs such as nursing, teaching, and career counseling require a positive attitude; how employees feel influences their performance.

12–2 MARKETING INSIGHT Customers or Clients, Which One

Will It Be?

Practicing relationship marketing is a challenge for service organizations because there are important differences between “customers” and “clients.” The notion of “client” is critical for relationship marketing to succeed in a service organization.

Customers Clients

1. Customers may be nameless. 1. Clients must have names.

2. Customers are served as part of 2. Clients are served on an individual basis. a large mass of people.

3. Customers are statistics; their needs 3. Clients are individual entities. Specific are reflected in market summaries. ?????? information about them is stored in a For example, the most popular ice ?? ????database. For example, Mr. Smith wants cream for people over 50 in 2018 ?? ????only morning flights, first class seats, was vanilla. ?????????????????????????? vegetarian meals, aisle seats, airport ?? ????????????????????????motels, and mid-size rental cars.

4. Customers are served by the first 4. Clients are served by a trained professional available person. For example, ?????? who has been assigned to them. airline ticket agent, bank teller. ?? ????For example, travel agent, personal banker.

5. Customers have no strong reason to 5. Clients often have a strong relationship feel any loyalty or allegience ?????? with the service provider. to the service provider.

Source: Based on the work of James H. Donnelly Jr., Leonard L Berry, and Thomas W. Thompson.

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PROVIDING QUALITY SERVICES

In today’s increasingly competitive environment, quality service is critical to organiza- tional success. Unlike products in which quality is often measured against standards, ser- vice quality is measured against performance.3 Since services are frequently produced in the presence of a customer, are labor intensive, and are not able to be stored or objectively examined, the definition of what constitutes good service quality can be difficult and, in fact, continually changes in the face of choices.4 Customers determine the value of service quality in relation to available alternatives and their particular needs. In general, problems in the determination of good service quality are attributable to differences in the expecta- tions, perceptions, and experiences regarding the encounter between the service provider and consumer. These gaps can be classified as follows:

1. The gap between consumer expectations and management perceptions of consumer expectations.

2. The gap between management perceptions of consumer expectations and the firm’s service quality specifications.

3. The gap between service quality specifications and actual service quality. 4. The gap between actual service delivery and external communications about the service.

In essence, the customer perceives the level of service quality as being a function of the magnitude and direction of the gap between expected service and perceived service. Management of a company may not even realize that they are delivering poor-quality ser- vice due to differences in the way managers and consumers view acceptable quality levels. To overcome this problem and to avoid losing customers, firms must be aware of the deter- minants of service quality. A brief description of these determinants follows.

1. Tangibles include the physical evidence of the service. For example, employees are always visible in a hotel lobby dusting or otherwise cleaning up. Similarly, clean, shiny, up-to-date medical equipment or aircraft are examples of tangible elements.

2. Reliability involves the consistency and dependability of the service performance. For example, does a bank or phone company always send out accurate customer statements? Similarly, does the plumber always fix the problem on his or her first visit?

3. Responsiveness concerns the willingness or readiness of employees or professionals to provide service. For example, will a physician see patients on the same day they call in to say they are ill? Will a college professor return a student’s call the same day?

4. Assurance refers to the knowledge and competence of service providers and the ability to convey trust and confidence. This determinant encompasses the provider’s name and reputation; possession of necessary skills; and trustworthiness, believability, and hon- esty. For example, a bank will guarantee same-day loan processing; a doctor is highly trained in a particular specialty.

5. Empathy refers to the service provider’s efforts to understand the customer’s needs and then to provide, as best as possible, individualized service delivery. For example, flight attendants on a customer’s regular route learn what type of beverages the customer drinks and what magazines the customer reads.

Each of these determinants plays an important role in how the customer views the service quality of a firm. Turning service quality into a powerful competitive weapon requires con- tinuously striving for service superiority—consistently performing above the adequate ser- vice level and capitalizing on opportunities for exceeding the desired service level. Relentless

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MARKETING INSIGHT Examples of Customer Judgments of Service Quality Dimensions 12–3

efforts to continually improve service performance may well be rewarded by improvements in customer attitudes toward the firm: from customer frustration to customer preference to customer loyalty. What should be obvious is that to be successful, a service firm must have both an effective means to measure customer satisfaction and dedicated employees to pro- vide high-quality service.

Customer Satisfaction Measurement As mentioned earlier, satisfied customers can become loyal customers. Service quality and customer satisfaction are of growing concern to business organizations throughout the

Industry Tangibles Reliability Responsiveness Assurance Empathy

Car repair (consumer)

Repair facility; waiting area; uniforms; equipment

Problem fixed the first time and ready when promised

Accessible; no waiting; responds to requests

Knowledgeable mechanics

Acknowledges customer by name; remembers previous problems and preferences

Airline (consumer)

Aircraft; ticketing counters; baggage area; uniforms

Flights to promised destinations depart and arrive on schedule

Prompt and speedy system for ticketing, in-flight baggage handling

Trusted name; good safety record; compe- tent employees

Understands special individual needs; anticipates customer needs

Medical care (consumer)

Waiting room; exam room; equipment; written materials

Appointments are kept on schedule; diagnoses prove accurate

Accessible; no waiting; willingness to listen

Knowledge; skills; credentials; reputation

Acknowledges patient as a person; remembers previous problems; listens well; has patience

Architecture (business)

Office area; reports; plans themselves; billing statements; dress of employees

Delivers plans when promised and within budget

Returns phone calls; adapts to changes

Credentials; reputation; name in the community; knowledge and skills

Understands client’s industry; acknowledges and adapts to specific client needs; gets to know the client

Information processing (internal)

Internal reports; office area; dress of employees

Provides needed information when requested

Prompt response to requests; not “bureaucratic”; deals with problems promptly

Knowledgeable staff; well trained; credentials

Knows internal customers as individuals; understands individual and departmental needs

Internet brokerage (consumer and business)

Appearance of the website as well as flyers, brochures, and other print materials

Provides correct information and executes customer requests accurately

Quick website with easy access and no downtime

Credible information sources on the site; brand recognition; credentials apparent on site

Responds with human interaction as needed

Source: Adapted from Valarie A. Zeithaml, Mary Jo Bitner, and Dwayne D. Gremler, Service Marketing: Integrating Customer Focus Across the Firm, 7th ed. (New York: McGraw-Hill, 2018), p. 92. Reprinted with permission of McGraw-Hill Education.

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world, and research on these topics generally focuses on two key issues: (1) understand- ing the expectations and requirements of the customer, and (2) determining how well a company and its major competitors are succeeding in satisfying these expectations and requirements.5

As such, an organization’s approach to measuring service quality through customer satisfaction measurement (CSM) and effectively implementing programs derived from results of such studies can spell the difference between success and …

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