4 th S M The McGraw-Hill Companies. McGraw-Hill. McGraw-Hill The McGraw-Hill Companies

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1 4 th The Companies 2000 The Companies

2 2 Chapter 1 INTRODUCTION TO SERVICES 2000 The Companies 2000 The Companies

3 Objectives for Chapter 1: Introduction to Services 3 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 2000 The Companies

4 4 What are Services? In the simplest term services are deeds, processes and performances Services are a form of product that consist of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything. More elaborately services can be defined as, Service include all economic activities whose output is not a physical product or construction, 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 The Companies

5 5 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 2000 The Companies

6 Examples of Service Industries 6 Health Care hospital, medical practice, dentistry, eye 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 2000 The Companies

7 7 Tangibility Spectrum Salt Soft Drinks Detergents Automobiles Cosmetics Fast-food Outlets Intangible Dominant Tangible Dominant Advertising Agencies Airlines Investment Management Consulting Teaching Fast-food Outlets 2000 The Companies

8 Percent of GDP Figure 1-2 Percent of U.S. Labor Force by Industry Year Services Manufacturing Mining & Agriculture 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): The Companies

9 Percent of GDP Figure 1-3 Percent of U.S. Gross Domestic Product by Industry 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): The Companies Services Manufacturing Mining & Agriculture

10 Differences Between Goods and Services 10 Intangibility Heterogeneity Simultaneous Production and Consumption Perishability 2000 The Companies

11 11 Implications of Intangibility Services cannot be inventoried Services cannot be patented Services cannot be readily displayed or communicated Pricing is difficult 2000 The Companies

12 12 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 2000 The Companies

13 Implications of Simultaneous Production and Consumption 13 Customers participate in and affect the transaction Customers affect each other Employees affect the service outcome Decentralization may be essential Mass production is difficult 2000 The Companies

14 14 Implications of Perishability It is difficult to synchronize supply and demand with services Services cannot be returned or resold 2000 The Companies

15 15 Table 1-2 Services are Different Goods Services Resulting Implications Tangible 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 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. Production separate from consumption 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. Nonperishable Perishable It is difficult to synchronize supply and demand with services. 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): The Companies

16 16 Services Marketing Services are growing even faster in the world economy, making up a quarter of all international trade. The service industry varies greatly, consisting of governments, private nonprofit organizations, and business organizations. One of the chief reasons for the growth of the service industry is the demand generated by the time-pressed consumer The Companies

17 17 Why Services Marketing? A Service-Based Economy Service as a Business Imperative in Manufacturing and IT Deregulated Industries and Professional Service Needs Service Marketing Is Different Service Equals Profits 2000 The Companies

18 Why Service Stinks 18 There are many theories as to why this decline in customer satisfaction with services has occurred, but it is difficult to point out precisely to the reason. Plausible theories include: Overpromises but becomes underdeliverer due to offering various services with calculated profitability. Increase in self service Increase in technology based service No/Less human interaction No/Less human personalization Less Service 2000 The Companies

19 S Technology based services ( automated voice systems, internet based M services etc.) are hard to implement, and there are many failures and poorly designed systems. 19 Customer expectations are higher due to the excellent service they receive from some companies. Thus they expect the same from all and are frequently disappointed. Increased pressure to cut cost from the organizational perspective. Intense competitive job market results more job switching by skilled people Lack of internal marketing to keep the service promise of the marketer. Delivering consistent, high-quality service is not easy, yet many companies promise it The Companies

20 Figure 1-5 The Services Marketing Triangle 20 Company (Management) Internal Marketing enabling the promise External Marketing setting the promise Employees Interactive Marketing delivering the promise Customers Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler 2000 The Companies

21 Services Marketing Triangle Applications Exercise 21 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? 2000 The Companies

22 Ways to Use the Services Marketing Triangle 22 Overall Strategic Assessment How is the service organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths? 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? 2000 The Companies

23 Figure 1-6 The Services Triangle and Technology Company 23 Technology Providers Customers Source: Adapted from A. Parasuraman 2000 The Companies

24 24 Service And Technology Potential for New Service Offerings ( connected car ) New Ways to Deliver Service (bill paying, tracking, Questions checking, transaction, ordering, complaints, learn and research etc) Enabling both Customers and Employees (self-service via online banking, CRM software for employees, registration software for universities etc) Extending the Global Reach of Services (Internet has no boundaries) The Internet is a Service (One big service: people want dependable outcome, easy access, responsive systems, flexibility, and compensation) 2000 The Companies

25 Services Marketing Mix: 7 Ps for Services 25 Traditional Marketing Mix Expanded Mix for Services: 7 Ps Building Customer Relationships Through People, Processes, and Physical Evidence Ways to Use the 7 Ps 2000 The Companies

26 26 Traditional Marketing Mix All elements within the control of the firm that communicate the firm s capabilities and image to customers or that influence customer satisfaction with the firm s product and services: Product Price Place Promotion 2000 The Companies

27 27 Expanded Mix for Services -- the 7 Ps Product Price Place Promotion People Process Physical Evidence 2000 The Companies

28 Table 1-3 Expanded Marketing Mix for Services 28 PRODUCT PLACE PROMOTION PRICE Physical good features Channel type Promotion blend Flexibility Quality level Exposure Salespeople Price level Accessories Intermediaries Advertising Terms Packaging Outlet location Sales Differentiation promotion Warranties Transportation Publicity Allowances Product lines Branding Storage 2000 The Companies

29 Table 1-3 (Continued) Expanded Marketing Mix for Services 29 PEOPLE PHYSICAL PROCESS EVIDENCE Employees Facility design Flow of activities Customers Equipment Number of steps Communicating culture and values Employee research Signage Employee dress Level of customer involvement Other tangibles 2000 The Companies

30 30 PEOPLE All human actors who play a part in service delivery and thus influence the buyers perceptions: namely the firm s personnel, the customer, and other customers in the service environment. Factors to Consider Regarding People: Employees Recruiting Training Motivation Rewards Teamwork Customers - Education - Training 2000 The Companies

31 PHYSICAL EVIDENCE 31 The environment in which the service is delivered and where the firm and customer interact, and any tangible components that facilitate performance or communication of the service. Factors to Consider Regarding Physical Evidence : Facility Design. Equipment Signage Employee dress. Other tangibles Reports. Business cards. Statements. Guarantees The Companies

32 32 PROCESS The actual procedures, mechanisms and flow of activities by which the service is delivered- the service delivery and operating systems. Factors to Consider Regarding Process: Flow of activities: Standardized. Customized. Number of steps: Simple. Complex. Customer Involvement 2000 The Companies

33 33 Ways to Use the 7 Ps Overall Strategic Assessment How effective is a firm s 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? 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? 2000 The Companies

34 Zeithaml, Valarie A., Mary Jo Bitner, and Dwayne D. Gremler (2006), Services Marketing (Fourth ed.). Boston, MA: /Irwin. Expected Service Perceived Service Service is not as good as expected 34 The Gaps Model of Service Quality Not knowing what customers expect Service Delivery Not matching performance to promises Company Communications to Customers Not meeting designs and standards Customer Service Standards Company Perceptions of Consumer Expectations Selecting wrong service designs and standards 2000 The Companies

35 Zeithaml, Valarie A., Mary Jo Bitner, and Dwayne D. Gremler (2006), Services Marketing (Fourth ed.). Boston, MA: /Irwin. Word of mouth communication Personal Needs Past Experiences 35 The Gaps Model of Service Quality Expected Service Gap 5 Perceived Service CONSUMER MARKETER G ap 1 Service Delivery Gap 4 External Communication to Customers Gap 3 Service Quality Specifications Gap 2 Management Perception of Customer Expectations 2000 The Companies

36 Zeithaml, Valarie A., Mary Jo Bitner, and Dwayne D. Gremler (2006), Services Marketing (Fourth ed.). Boston, MA: /Irwin. There are five gaps shown in the model: Gap 1 the gap between customer expectation and management perception Gap 2 the gap between management perception and service quality specification Gap 3 the gap between service quality specification and service delivery Gap 4 the gap between service delivery and external communication Gap 5 the gap between perceived service and expected service. The Gaps 36 Model of Service Quality 2000 The Companies