chap01

Services MarketingChapter 01

ByBy

Syed Asim Shah.Syed Asim Shah.

Services Marketing: Integrating Customer Focus Across the Firm

Valarie A. Zeithaml, Mary Jo Bitner

What Are Services?

““Any activity or benefit that one party Any activity or benefit that one party can offer to another that is essentially can offer to another that is essentially intangible and des not result in the intangible and des not result in the ownership of any thing”ownership of any thing”

What Are Services?

Services are deeds, processes, and Services are deeds, processes, and performances.performances.– Nature of product.Nature of product.– Greater involvement of customers in the Greater involvement of customers in the

production process.production process.– People as part of the product.People as part of the product.– Greater difficulties in maintaining quality Greater difficulties in maintaining quality

control standards.control standards.

A Different Context for Services Marketing

Narrow definition of marketing by other Narrow definition of marketing by other managers.managers.

Limited appreciation for marketing skills.Limited appreciation for marketing skills. Different organizational structure.Different organizational structure. A relative lack of competitive data.A relative lack of competitive data. Problems determining costs.Problems determining costs. Constraints and opportunities facing Constraints and opportunities facing

marketers of public and nonprofits.marketers of public and nonprofits.

Examples of Service IndustriesExamples of Service Industries Health CareHealth Care

– hospital, medical practice, dentistry, eye carehospital, medical practice, dentistry, eye care Professional ServicesProfessional Services

– accounting, legal, architecturalaccounting, legal, architectural Financial ServicesFinancial Services

– banking, investment advising, insurancebanking, investment advising, insurance HospitalityHospitality

– restaurant, hotel , bed & breakfast, restaurant, hotel , bed & breakfast,

TravelTravel– airlines, travel agencies, theme parkairlines, travel agencies, theme park

Others:Others:– hair styling , plumbing, lawn maintenance, counseling hair styling , plumbing, lawn maintenance, counseling

services, health clubservices, health club

Figure 1-2 Figure 1-2

Percent of Percent of U.S. Labor Force by IndustryU.S. Labor Force by Industry

0

10

20

30

40

50

60

70

80

1929 1948 1969 1977 1984 1996

Per

cent

of

GD

P

Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

Year

Services Manufacturing Mining & Agriculture

0

10

20

30

40

50

60

70

80

1948 1959 1967 1977 1987 1996

Figure 1-3 Figure 1-3

Percent of U.S. Gross Domestic Percent of U.S. Gross Domestic Product by IndustryProduct by Industry

Perc

ent o

f G

DP

Year

Source: Survey of Current Business, August 1996, Table 11, April 1998, Table B.3; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

Services Manufacturing Mining & Agriculture

Importance of Service Sector

$3.52 trillion of U.S. GDP $3.52 trillion of U.S. GDP 53.2% of U.S. GDP53.2% of U.S. GDP 71% of total employment71% of total employment 91% of new jobs from 1992 to 91% of new jobs from 1992 to

20052005

Services

Fast growing services for the next decadeHealth servicesBusiness servicesFinance, insurance, real estateResidential care

Computer & data processingChild day-careSocial servicesTransportation services

Factors Contributing to Growth

Movement to information ageMovement to information age Shift to industrialized economyShift to industrialized economy Aging populationAging population Longer life expectanciesLonger life expectancies Increase leisure timeIncrease leisure time High per capita incomeHigh per capita income Changing social and cultural Changing social and cultural

valuesvalues Advances in technologyAdvances in technology

Challenges for ServicesChallenges for Services Defining and improving qualityDefining and improving quality Communicating and testing new servicesCommunicating and testing new services Communicating and maintaining a consistent Communicating and maintaining a consistent

imageimage Motivating and sustaining employee Motivating and sustaining employee

commitmentcommitment Coordinating marketing, operations and Coordinating marketing, operations and

human resource effortshuman resource efforts Setting pricesSetting prices Standardization versus personalizationStandardization versus personalization

Differences BetweenDifferences Between Goods and Services Goods and Services

Intangibility

PerishabilitySimultaneous

Productionand

Consumption

Heterogeneity

Figure 1-1Figure 1-1

Tangibility SpectrumTangibility Spectrum

TangibleDominant

IntangibleDominant

SaltSoft Drinks

DetergentsAutomobiles

Cosmetics

AdvertisingAgencies

AirlinesInvestment

ManagementConsulting

Teaching

Fast-foodOutlets

Fast-foodOutlets

Implications of IntangibilityImplications of Intangibility

Services cannot be inventoriedServices cannot be inventoriedServices cannot be patentedServices cannot be patentedServices cannot be readily Services cannot be readily

displayed or communicateddisplayed or communicatedPricing is difficultPricing is difficult

Implications of HeterogeneityImplications of Heterogeneity

Service delivery and customer Service delivery and customer satisfaction depend on employee satisfaction depend on employee actionsactions

Service quality depends on many Service quality depends on many uncontrollable factorsuncontrollable factors

There is no sure knowledge that the There is no sure knowledge that the service delivered matches what was service delivered matches what was planned and promotedplanned and promoted

Implications of Simultaneous Implications of Simultaneous Production and ConsumptionProduction and Consumption

Customers participate in and Customers participate in and affect the transactionaffect the transaction

Customers affect each otherCustomers affect each otherEmployees affect the service Employees affect the service

outcomeoutcomeDecentralization may be essentialDecentralization may be essentialMass production is difficultMass production is difficult

Implications of PerishabilityImplications of Perishability

It is difficult to synchronize supply It is difficult to synchronize supply and demand with servicesand demand with services

Services cannot be returned or Services cannot be returned or resoldresold

Table 1-2 Table 1-2

Services are DifferentServices are DifferentGoods Services Resulting ImplicationsTangible Intangible Services cannot be inventoried.

Services cannot be patented.Services cannot be readily displayed or communicated.Pricing is difficult.

Standardized Heterogeneous Service delivery and customer satisfaction depend onemployee actions.Service quality depends on many uncontrollable factors.There is no sure knowledge that the service deliveredmatches what was planned and promoted.

Productionseparate fromconsumption

Simultaneousproduction andconsumption

Customers participate in and affect the transaction.Customers affect each other.Employees affect the service outcome.Decentralization may be essential.Mass production is difficult.

Nonperishable Perishable It is difficult to synchronize supply and demand withservices.Services cannot be returned or resold.

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,” Journal of Marketing 49 (Spring 1985): 33-46.

Figure 1-5Figure 1-5

The Services Marketing TriangleThe Services Marketing Triangle

Internal Marketing

Interactive Marketing

External Marketing

Company(Management)

CustomersEmployees

“enabling thepromise”

“delivering the promise”

“setting thepromise”

Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

Continue……..

Internal marketingInternal marketing: orienting and motivating customer-: orienting and motivating customer-contact employees and the supporting service people to contact employees and the supporting service people to work as a team to provide customer satisfaction . E.g. work as a team to provide customer satisfaction . E.g. Ritz- Carlton orients its employees carefully, instills in Ritz- Carlton orients its employees carefully, instills in them a sense of pride, and motivates them by them a sense of pride, and motivates them by recognizing and rewarding outstanding service deeds.recognizing and rewarding outstanding service deeds.

Interactive marketing: Interactive marketing: training service employees in the training service employees in the fine art of interacting with customer to satisfy their needs fine art of interacting with customer to satisfy their needs . E.g. Ritz Carlton selects only “ . E.g. Ritz Carlton selects only “ people who care about people who care about people” people” or “ or “ high touch “ but also “high tech”high touch “ but also “high tech”

Services Marketing Triangle Services Marketing Triangle Applications Assignment???Applications Assignment???

Focus on a service organization. In the Focus on a service organization. In the context you are focusing on, who occupies context you are focusing on, who occupies each of the three points of the triangle?each of the three points of the triangle?

How is each type of marketing being carried How is each type of marketing being carried out currently?out currently?

Are the three sides of the triangle well Are the three sides of the triangle well aligned?aligned?

Are there specific challenges or barriers in Are there specific challenges or barriers in any of the three areas?any of the three areas?

Ways to Use the Ways to Use the Services Marketing TriangleServices Marketing Triangle

Overall Strategic Overall Strategic AssessmentAssessment

• How is the service How is the service organization doing on organization doing on all three sides of the all three sides of the triangle?triangle?

• Where are the Where are the weaknesses?weaknesses?

• What are the strengths?What are the strengths?

Specific Service Specific Service ImplementationImplementation

• What is being promoted and What is being promoted and by whom?by whom?

• How will it be delivered and How will it be delivered and by whom?by whom?

• Are the supporting systems Are the supporting systems in place to deliver the in place to deliver the promised service?promised service?

Source: Adapted from A. Parasuraman

Company

CustomersProviders

Technology

Figure 1-6 Figure 1-6

The Services Triangle The Services Triangle and Technologyand Technology

The service - profit chain

Successful service Successful service companies focus their companies focus their attention on both their attention on both their customers and their customers and their employeesemployees

They understand the They understand the service profit chain service profit chain which links from profits which links from profits with employees & with employees & customer satisfactioncustomer satisfaction

This chain consists of This chain consists of five linksfive links

Internal service quality: Internal service quality: “superior employee “superior employee selection and training, a selection and training, a quality work quality work environment, and environment, and strong support for those strong support for those dealing with customers dealing with customers which results in…….which results in…….

The service - profit chain ““satisfied and productive satisfied and productive

service employees”: service employees”: more satisfied, loyal, and more satisfied, loyal, and hard working employees, hard working employees, which results in…..which results in…..

““greater service value greater service value employees”; more employees”; more effective and efficient effective and efficient customer value creation customer value creation and service delivery and service delivery which results in…..which results in…..

““satisfied and loyal satisfied and loyal customers”: satisfied customers”: satisfied customers who remain customers who remain loyal, repeat purchase, loyal, repeat purchase, and refer other and refer other customers, which customers, which results in…..results in…..

““healthy service profits healthy service profits and growth”: superior and growth”: superior service firm service firm performanceperformance

Services Marketing Mix:Services Marketing Mix:7 Ps for Services7 Ps for Services

Traditional Marketing MixTraditional Marketing Mix

Expanded Mix for Services: 7 PsExpanded Mix for Services: 7 Ps

Building Customer Relationships Building Customer Relationships Through People, Processes, and Through People, Processes, and Physical EvidencePhysical Evidence

Ways to Use the 7 PsWays to Use the 7 Ps

Traditional Marketing MixTraditional Marketing Mix

All elements within the control of the firm All elements within the control of the firm that communicate the firm’s capabilities and that communicate the firm’s capabilities and image to customers or that influence customer image to customers or that influence customer satisfaction with the firm’s product and services:satisfaction with the firm’s product and services:

ProductProduct

PricePrice

PlacePlace

PromotionPromotion

Expanded Mix for Services --Expanded Mix for Services --the 7 Psthe 7 Ps

ProductProduct PricePrice PlacePlace PromotionPromotion PeoplePeople ProcessProcess Physical EvidencePhysical Evidence

Table 1-3Table 1-3

Expanded Marketing Mix for Expanded Marketing Mix for ServicesServices

PRODUCT PLACE PROMOTION PRICE

Physical goodfeatures

Channel type Promotionblend

Flexibility

Quality level Exposure Salespeople Price level

Accessories Intermediaries Advertising Terms

Packaging Outlet location Salespromotion

Differentiation

Warranties Transportation Publicity Allowances

Product lines Storage

Branding

PEOPLE PHYSICALEVIDENCE

PROCESS

Employees Facility design Flow of activities

Customers Equipment Number of steps

Communicatingculture and values

Signage Level of customerinvolvement

Employee research Employee dress

Other tangibles

Table 1-3 (Continued)Table 1-3 (Continued)

Expanded Marketing Mix for Expanded Marketing Mix for ServicesServices

Ways to Use the 7 PsWays to Use the 7 PsOverall Strategic Overall Strategic

AssessmentAssessment How effective is a firm’s How effective is a firm’s

services marketing mix?services marketing mix? Is the mix well-aligned Is the mix well-aligned

with overall vision and with overall vision and strategy?strategy?

What are the strengths What are the strengths and weaknesses in and weaknesses in terms of the 7 Ps?terms of the 7 Ps?

Specific Service Specific Service ImplementationImplementation

Who is the customer?Who is the customer? What is the service?What is the service? How effectively does the How effectively does the

services marketing mix for a services marketing mix for a service communicate its service communicate its benefits and quality?benefits and quality?

What What changes/improvements are changes/improvements are needed?needed?

Characteristics of Services Intangibility - Lack of tangible assets which can Intangibility - Lack of tangible assets which can

be seen, touched, or smelled prior to purchase.be seen, touched, or smelled prior to purchase. Perishability - Inability of a service to be Perishability - Inability of a service to be

inventoried or stored.inventoried or stored. Inseparability - Simultaneous production and Inseparability - Simultaneous production and

consumption of a service.consumption of a service. Variability - Unwanted or random levels of Variability - Unwanted or random levels of

service quality customers receive when they service quality customers receive when they patronize a service firm.patronize a service firm.