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McGraw-Hill McGraw-Hill

2000 The McGraw-Hill Companies

2000 The McGraw-Hill Companies

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Chapter 1

INTRODUCTION

TO
SERVICES
McGraw-Hill McGraw-Hill
2000 The McGraw-Hill Companies

2000 The McGraw-Hill Companies

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A note on the PowerPoint Slides...

These PowerPoint slides contain selected exhibits, figures and tables from the chapters as well as objectives for the chapters. For many chapters, we include extra lecture slides and in-class exercises that we have compiled and used in our classes. The lecture slides are not intended to provide full outlines or complete lectures for the chapters, but rather may be used selectively to enhance class sessions.
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Objectives for Chapter 1: Introduction to Services

Explain what services are and identify service trends Explain the need for special services marketing concepts and practices Outline the basic differences between goods and services and the resulting challenges for service businesses Introduce the service marketing triangle Introduce the expanded services marketing mix Introduce the gaps model of service quality
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Challenges for Services

Defining and improving quality

Communicating and testing new services Communicating and maintaining a consistent image Motivating and sustaining employee commitment Coordinating marketing, operations and human resource efforts Setting prices Standardization versus personalization
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Introduction to Services (Chapter 1)

What are services? Why study services marketing? Goods vs. Services Characteristics of Services Services Marketing Mix

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Marketing Definition

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.
--American Marketing Association

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What are services?

Services include all economic activities whose output is not a physical product or production, is generally consumed at the time it is produced, and provides added value in forms (such as convenience, amusement, timeliness, comfort, or health) that are essentially intangible concerns of its first purchaser.
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Examples of Service Industries

hospital, medical practice, dentistry, eye care

Health Care
Professional Services
accounting, legal, architectural

Financial Services
banking, investment advising, insurance

Hospitality
restaurant, hotel/motel, bed & breakfast, ski resort, rafting

Travel
airlines, travel agencies, theme park

Others:
hair styling, pest control, plumbing, lawn maintenance, counseling services, health club
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Why study services marketing?

service-based economy source of competitive advantage for manufacturing firms deregulation in some service industries new technologies have created new service opportunities

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Percent of GDP

Percent of U.S. Labor Force by Industry

80

70
60 50 40 30 20 10 0

1929 1948 1969 1977 1984 1996

Year
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. McGraw-Hill

Services Manufacturing Mining & Agriculture

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Figure 1-3

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Percent of GDP

Percent of U.S. Gross Domestic Product by Industry

80 70 60 50 40 30 20 10 0 1948 1959 1967 1977 1987 1996 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

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Differences Between Goods and Services

Intangibility

Heterogeneity

Simultaneous Production and Consumption

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Perishability

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Goods

Goods vs. Services

Services
S

Production separate from

consumption

Standardized Tangible

H I

Nonperishable

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Implications of Intangibility

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

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Salt

Tangibility Spectrum - Lynn Shostack

Soft Drinks Detergents Automobiles Cosmetics Fast-food Outlets

Fast-food Outlets

Intangible Dominant

Tangible Dominant

Advertising Agencies Airlines Investment Management Consulting

Teaching

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Implications of Heterogeneity

Service delivery and customer satisfaction depend on employee actions Service quality depends on many uncontrollable factors There is no sure knowledge that the service delivered matches what was planned and promoted

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Implications of Simultaneous Production and Consumption

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

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Implications of Perishability

It is difficult to synchronize supply and demand with services Services cannot be returned or resold

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Goods
Tangible

Table 1-2

Services are Different

Services
Intangible

Resulting Implications
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 on employee actions. Service quality depends on many uncontrollable factors. There is no sure knowledge that the service delivered matches what was planned and promoted. Simultaneous production and consumption Customers participate in and affect the transaction. Customers affect each other. Employees affect the service outcome. Decentralization may be essential. Mass production is difficult. It is difficult to synchronize supply and demand with services. Services cannot be returned or resold.

Production separate from consumption

Nonperishable Perishable

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. McGraw-Hill 2000 The McGraw-Hill Companies

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Figure 1-5

The Services Marketing Triangle

Company (Management)
Internal Marketing External Marketing
setting the promise

enabling the promise

Employees

Interactive Marketing
delivering the promise

Customers

Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
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Services Marketing Triangle Applications Exercise

Focus on a service organization. In the context you are focusing on, who occupies each of the three points of the triangle? How is each type of marketing being carried out currently? Are the three sides of the triangle well aligned? Are there specific challenges or barriers in any of the three areas?

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Ways to Use the Services Marketing Triangle

Specific Service Implementation
What is being promoted and by whom? How will it be delivered and by whom? Are the supporting systems in place to deliver the promised service?
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Overall Strategic Assessment

How is the service organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths?
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The Services Triangle and Technology

Company

Technology

Providers
Source: Adapted from A. Parasuraman
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Customers

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Services Marketing Mix: 7 Ps for Services

Traditional Marketing Mix Expanded Mix for Services: 7 Ps Building Customer Relationships Through People, Processes, and Physical Evidence

Ways to Use the 7 Ps

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Traditional Marketing Mix

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

Place
Promotion
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Expanded Mix for Services -the 7 Ps

Product Price Place Promotion

People Process Physical Evidence

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includes: (1)

Physical Evidence

background characteristics (furnishings, noise, color) spatial layout signs

(2) tangible cues/facilitating goods that facilitate performance or communication of the service
examples:

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Process

the actual procedures, mechanisms, and flow of activities by which the service is delivered includes:

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People

are the firm in the customers eye are a critical part of the product

may be involved in production can facilitate or inhibit service performance

can impact service encounters via their attitude, behavior, or degree of involvement
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Table 1-3

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Expanded Marketing Mix for Services

PLACE PROMOTION PRICE
Promotion blend Salespeople Advertising Flexibility

PRODUCT

Physical good Channel type features Quality level Accessories Packaging Warranties Product lines Branding Exposure Intermediaries

Price level Terms Differentiation Allowances

Outlet location Sales promotion Transportation Publicity Storage

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Table 1-3 (Continued)

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Expanded Marketing Mix for Services

PEOPLE PHYSICAL EVIDENCE
Facility design Equipment Signage Employee dress Other tangibles

PROCESS
Flow of activities Number of steps Level of customer involvement

Employees Customers Communicating culture and values Employee research

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Ways to Use the 7 Ps

Specific Service Implementation
Who is the customer? What is the service? How effectively does the services marketing mix for a service communicate its benefits and quality? What changes/improvements are needed?
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Overall Strategic Assessment

How effective is a firms services marketing mix? Is the mix well-aligned with overall vision and strategy? What are the strengths and weaknesses in terms of the 7 Ps?
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