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The Marketing of Services I. Introduction • 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. • The dominance 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.

• The American Marketing Association has defined services as follows: o 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 inseparable; they usually

involve customer participation in some important way, cannot be sold in the sense of ownership transfer, and have no title.

o 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. • More and more manufacturers are also exploiting their service capabilities as stand-alone

revenue producers. • Figure 12.1 illustrates such a continuum.

II. Important Characteristics of Services • Services possess several unique characteristics that often have a significant impact on

marketing program development. • Some of the more important of these characteristics are intangibility, inseparability,

perishability and fluctuating demand, a client relationship, customer effort, and uniformity. They are presented in Figure 12.2.

A. 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.

• 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.

B. 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 simultaneous production and marketing of most services, the main

concern of the marketer is usually the creation of time and place utility. • The implication of inseparability on issues dealing with the selection of channels of

distribution and service quality is quite important. • However, some industries, through innovative uses of technology, have been able to

overcome or, at least, alleviate challenges associated with the inseparability characteristic.

• In addition to technology, tangible representations of the service can serve to overcome the inseparability problem.

C. 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). • 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 charging different prices during different times or days in order to stimulate demand during slow periods.

• Other organizations are dealing with issues related to peak period demand through the use of technology.

D. 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.

• Professionals face at least two marketing challenges: o First, in many cases, fear or hostility is brought to the transaction because the

customer is uncertain about how genuine the professional’s concern for his or her satisfaction is.

o Second, even high-quality service delivery by the professional can lead to dissatisfied customers.

• It is vitally important that the professional service provider strive to build long-term positive relationships with clients.

E. Customer Effort • Customers are often involved to a relatively great degree in the production of many

types of service. • Obviously, not every service requires the same degree of customer effort.

F. Uniformity • The quality of services can vary more than the quality of goods. • Producers of goods have procedures to prevent, identify and correct defects. • 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. • Many service jobs such as nursing, teaching, and career counseling require a positive

attitude; how employees feel influences their performance. III. Providing Quality Services • In today’s increasingly competitive environment, quality service is critical to

organizational success. • 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 expectations, perceptions, and experiences regarding the encounter between the service provider and consumer. These gaps can be classified as follows: o The gap between consumer expectations and management perceptions of consumer

expectations o The gap between management perceptions of consumer expectations and the firm’s

service quality specifications o The gap between service quality specifications and actual service quality o 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

service 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

determinants of service quality. A brief description of these determinants are as follows: o Tangibles include the physical evidence of the service. o Reliability involves the consistency and dependability of the service performance. o Responsiveness concerns the willingness or readiness of employees or professionals

to provide service. o Assurance refers to the knowledge and competence of service providers and the

ability to convey trust and confidence. o 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. • Relentless 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.

A. Customer Satisfaction Measurement • Service quality and customer satisfaction are of growing concern to business

organizations throughout the world. • Research on these topics generally focuses on two key issues:

o Understanding the expectations and requirements of the customer o Determining how well a company and its major competitors are succeeding in

satisfying these expectations and requirements. • Research on market leaders’ customer satisfaction measurement (CSM) found that they

had the following aspects in common: o Marketing and sales employees were primarily responsible (with customer input)

for designing CSM programs and questionnaires. o Top management and the marketing function championed the programs. o Measurement involved a combination of qualitative and quantitative research

methods that primarily included mail questionnaires, telephone surveys, and focus groups.

o Evaluations included both the company’s and the competitor’s satisfaction performance.

o Results of all research were made available to employees, but not necessarily to customers.

o Research was performed on a continual basis. o Customer satisfaction was incorporated into the strategic focus of the company via

the mission statement. o There was a commitment to increasing service quality and customer satisfaction

from employees at all levels within the organization.

B. The Importance of Internal Marketing • Properly performed customer satisfaction research can yield a wealth of strategic

information about customers, the sponsoring company, and competitors. However, service quality goes beyond the relationship between a customer and a company.

• It is the personal relationship between a customer and the particular employee that the customer happens to be dealing with at the time of the service encounter that ultimately determines service quality.

• The importance of having customer-oriented, front-line people cannot be overstated. • The character and personality of an organization reflects the character and personality of

its top management. • Management must develop programs that will stimulate employee commitment to

customer service. • To be successful, these programs must contain five critical components:

o A careful selection process in hiring front-line employees o A clear, concrete message that conveys a particular service strategy that frontline

people can begin to act on o Significant modeling by managers, that is, managers demonstrating the behavior

that they intend to reward employees for performing o An energetic follow-through process, in which managers provide the training,

support, and incentives necessary to give the employees the capability and willingness to provide quality service.

o An emphasis on teaching employees to have good attitudes • However, organizing and implementing such programs will only lead to temporary

results unless managers practice a strategy of internal marketing. • Internal marketing is the continual process by which managers actively encourage,

stimulate, and support employee commitment to the company, the company’s goods and services, and the company’s customers.

• Emphasis should be placed on the word continual. IV. Overcoming the Obstacles in Service Marketing • The factors of intangibility and inseparability, as well as difficulties in coming up with

objective definitions of acceptable service quality, make comprehension of service marketing difficult.

• The area of service marketing probably offers more opportunities for imagination and creative innovation than does goods marketing.

• Unfortunately, many service firms still lag in the area of creative marketing. Even today, those service firms that have done a relatively good job have been slow in recognizing

opportunities in all aspects of their marketing programs. • Four reasons, connected to past practices, can be given for the lack of innovative marketing

on the part of service marketers: o A limited view of marketing o A lack of strong competition in the past o A lack of creative management o No obsolescence

A. Limited View of Marketing • Because of the nature of their service, many firms depended to a great degree on

population growth to expand sales. • Service firms must meet these changing needs by developing new services and new

channels and altering existing channels to meet the changing composition and needs of the population.

• For many service industries, growth has come as a result of finding new channels of distribution.

B. Limited Competition • Many service industries such as banking, railroads, and public utilities have, throughout

most of their histories, faced very little competition; some have even been regulated monopolies.

• Obviously, in an environment characterized by little competition, there was not likely to be a great deal of innovative marketing. However, two major forces have changed this situation: o First, in the past four decades the banking, financial services, railroad, cable,

airline, telecommunications industries, and utilities have all been deregulated in varying degrees.

o Second, service marketing has taken on an international focus. C. Noncreative Management • For many years, the managements of service industries have been criticized for not

being progressive and creative. • Railroad management has long been criticized for being slow to innovate.

o More recently, however, railroads have become leading innovators in the field of freight transportation introducing such innovations as piggyback service and containerization, and in passenger service, introducing luxury overnight accommodations on trains.

• Some other service industries, however, have been slow to develop new services or to innovate in the marketing of their existing services.

D. No Obsolescence • A great advantage for many service industries is the fact that many services, because of

their intangibility, are less subject to obsolescence than goods. o While this is an obvious advantage, it has also led some service firms to be

sluggish in their approach to marketing. • Since service firms are often not faced with obsolescence, they often failed to recognize

the need for change. • This failure has led to wholesale changes in many industries as new operators who

possessed marketing skills revolutionized the manner in which the service is performed and provided.

V. Implications for Service Marketers • The sum total of the marketing mix elements represents the total impact of the firm’s

marketing strategy. • Services must be made available to prospective users, which implies distribution in the

marketing sense of the word. • Service marketers must stress the role of new service development. • The development of new services paves the way for companies to expand and segment

their markets. With the use of varying service bundles, new technology, and alternative means of distributing the service, companies are now able to practice targeted marketing.