Marketing of Services

Unit I
Prof. Arun Mishra
arunjimishra@gmail.com
9893686820

Learning Objectives
What are Services?
Why Study Services?
Characteristics of Services
Marketing Implications for Strategic
decision
Goods Vs. Services Marketing
Marketing Mix Required for Services

What are Services?

What Are Services?

The historical view
Smith (1776): Services are different from goods because
they are perishable
Say (1803): As services are immaterial, consumption
cannot be separated from production

A fresh perspective: Benefits without Ownership

Rental of goods:
(a) Payment made for using or accessing something
usually for a defined period of time instead of buying it
outright and
(b) Allows participation in network systems that
individuals and organizations could not afford

Definition of Services
Services
are economic activities offered by one party to
another
most commonly employ time-based performances to
bring about desired results

In exchange for their money, time, and effort,

service customers expect to obtain value from
access to goods, labor, facilities, environments,
professional skills, networks, and systems;
normally do not take ownership of any of the physical
elements involved.

Value Creation is Dominated by Intangible Elements

Physical Elements
High

Salt
Detergents
CD Player

Wine
Golf Clubs
New Car
Tailored clothing

Plumbing Repair

Fast-Food Restaurant

Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking

Low

Intangible Elements

Source; Adapted from Lynn Shostack

High

Service Products vs. Customer Service &

After-Sales Service
A firms market offerings are divided into core product
elements and supplementary service elements
Need to distinguish between:
Marketing of services when service is the core product
Marketing through service when good service increases
the value of a core physical good

Manufacturing firms are reformulating and enhancing

existing added-value services to market them as standalone core products

Why Study Services?

Why Study Services?

Services dominate most economies and are
growing rapidly:
Services account for more than 60% of GDP
worldwide
Almost all economies have a substantial service
sector
Most new employment is provided by services
Strongest growth area for marketing

Understanding services offers you a personal

competitive advantage

Services Dominate the Global Economy

Contribution of Service Industries to GDP Globally
Manufacturing
32%
Services
64%
Agriculture
4%

Source: The World Factbook 2008, Central Intelligence Agency

Why Study Services?

Most new jobs are generated by services
Fastest growth expected in knowledge-based
industries
Significant
training
and
educational
qualifications required, but employees will
be more highly compensated
Will service jobs be lost to lower-cost
countries? Yes, some service jobs can be
exported

Why Study Services?

Powerful forces are transforming service
markets
Government policies, social changes, business
trends, advances in IT, internationalization

Forces that reshape:

Demand
Supply
The competitive landscape
Customers choices, power, and decision making

Transformation of the Service Economy

New markets and product categories

Increase in demand for services
More intense competition

Success hinges
on:

Increased focus on services marketing and management

Factors Stimulating Transformation of the

Service Economy

Changes in regulations
Privatization
New rules to protect customers,
employees, and the environment
New agreement on trade in services

Factors Stimulating Transformation of the

Service Economy

Government
Policies

Rising consumer expectations

More affluence
More people short of time
Increased desire for buying
experiences vs. things
Rising consumer ownership of high
tech equipment
Easier access to information
Immigration
Growing but aging population

Factors Stimulating Transformation of the

Service Economy

Government
Policies
Push to increase shareholder value
Emphasis on productivity and cost
savings
Manufacturers add value through
service and sell services
More strategic alliances and
outsourcing
Focus on quality and customer
satisfaction
Growth of franchising
Marketing emphasis by nonprofits

Factors Stimulating Transformation of the

Service Economy

Government
Policies

Growth of Internet
Greater bandwidth
Compact mobile equipment
Wireless networking
Faster, more powerful software
Digitization of text, graphics, audio,
video

Factors Stimulating Transformation of the

Service Economy

Government
Policies
More companies operating on
transnational basis
Increased international travel
International mergers and alliances
Off shoring of customer service
Foreign competitors invade domestic
markets

Characteristics of Services

Characteristics of Services
Intangibility:
Intangibility difficult to sample and to evaluate
Inseparability: difficult to separate services
from the service provider; mainly direct sales;
staff are essential to the delivery of quality
services
Heterogeneity:
Heterogeneity virtually every service is
different; very difficult to standardize quality
Perishability: those not sold can not be stored
Fluctuating demand: demand for some
services fluctuates by season, or even by time of
day.

Challenges for Services

Defining and improving quality
Designing and testing new services
Communicating and maintaining a consistent
image
Accommodating fluctuating demand
Motivating and sustaining employee commitment
Coordinating marketing, operations, and human
resource efforts
Setting prices
Finding a balance between standardization versus
personalization
Ensuring the delivery of consistent quality

Implication 1
No ownership
Customers obtain temporary rentals, hiring of personnel, or access
to facilities
Pricing often based on time
Customer choice criteria may differ for renting vs. purchase--may
include convenience, quality of personnel
Marketing a car rental service to a customer differs from that of
selling a car to a person.

Services cannot be inventoried after production

Service performances are momentarytransitory, perishable
Exception: some information-based output can be recorded
in electronic/printed form and re-used many times
Balancing demand and supply may be vital marketing strategy
Key to profits: target right segments at right times at right price
Need to determine whether benefits are perishable or durable

Implication 2
Customers may be involved in production process
Think of customers in these settings as partial employees
Customer behavior and competence can help or hinder
productivity, so marketers need to educate/train customers
Changing the delivery process may affect role played by
customers
Design service facilities, equipment, and systems with
customers in mind: user-friendly, convenient
locations/schedules

Intangible elements dominate value creation

Understand value added by labor and expertise of personnel
Effective HR management is critical to achieve service quality
Make highly intangible services more concrete by creating
and communicating physical images or metaphors and
tangible clue

Implication 3
Other people are often part of the service product
Sporting eventbehavior of fans on other spectators!
Achieve competitive edge through perceived quality of
employees
Recognize that appearance and behavior of other customers
can influence service experience positively or negatively
Avoid inappropriate mix of customer segments at same time.
Manage customer behavior (the customer is not always right!)

Greater variability in operational inputs and

outputs

Must work hard to control quality and achieve consistency

Seek to improve productivity through standardization, and by
training both employees and customers
Need to have effective service recovery policies in place
because it is more difficult to shield customers from service
failures

Implication 4
Often difficult for customers to evaluate services
Educate customers to help them make good choices, avoid risk
Tell customers what to expect, what to look for
Create trusted brand with reputation for considerate, ethical
behavior
Encourage positive word-of-mouth from satisfied customers

Time factor assumes great importance

Offer convenience of extended service hours up to 24/7

Understand customers time constraints and priorities
Minimize waiting time
Look for ways to compete on speed

Distribution channels take different forms

Tangible activities must be delivered through physical channels
Use electronic channels to deliver intangible, information-based
elements instantly and expand geographic reach

Goods vs. Service Marketing

Goods versus Services

Marketing Mix for Services

Services Require An Extended Marketing Mix

Marketing can be viewed as:
A strategic and competitive thrust pursued by top
management
A set of functional activities performed by line managers
A customer-driven orientation for the entire organization

Marketing is only function to bring operating revenues

into a business; all other functions are cost centers
The 7 Ps of services marketing are needed to create
viable strategies for meeting customer needs profitably

The 7Ps of Services Marketing

Traditional Marketing Mix Applied to
Services

Product
Place
Price
Promotion

Extended Marketing Mix for Services

Process
Physical Environment
People

The 7Ps of Services Marketing

The Extended Marketing Mix

People are crucial in service delivery. The best food

may not seem equally tasty if the waitress is in a sour
mood. A smile always helps.

Processes are important to deliver a quality service.

Services being intangible, processes become all the
more crucial to ensure standards are met with.

Physical evidence affects the customers satisfaction.

Services being intangible, customers depend on other
cues to judge the offering. This is where physical
evidence plays a part.

Productivity and Quality is the another P which has

grown in significance in Services Marketing is the 8th
P.