Services Marketing

The graph below shows 3 types of economies and the contribution of each economy to the country. Blu bar
represents agriculture. Agriculture contributes only to 3.68% to global GDP in 2009.

Services from 63.9% (2009) to 65.04% (2019). Services are increasing in terms of contribution to the
global GDP. In almost every country in the world, the services sector is growing.

Understanding the Services Sector:

Most new jobs are generated by services and understanding services offers personal competitive
advantage.

• Fastest growth expected in knowledge-based industries knowledge-based industries use

technology and human capital. Employees are skilled and they have a high level of
education.

Examples of knowledge-based industries: insurance, financial services, healthcare, and IT.

• Significant training and educational qualifications are required, but employees will be more
highly compensated. There is a high income per capita.

• Will service jobs be lost to lower-cost countries? Yes, some service jobs can be exported
(for example the customer service). Some brands use their website to provide the
customer service things are changing because of technology.
Services are different from physical goods, so they have different characteristics.

What are services? Any act or performance one party can offer to another that is essentially intangible
and does not result in the ownership of anything; its production may or may not be tied to a physical
product.

For example, a restaurant service is a performance that is made up of 3 acts: book a table, order the meal,
pay the bill and leave.

A service is seen as the exchange of value you are going to offer something to consumers, and they are
going to pay for it.

Services are intangible in nature. Sometimes services are just about experiences (ex. Holidays). Services
may be also linked to a physical product (ex. Fast food)

Services sectors:

- Government services are essential to citizens. Government services include: emergency services,
healthcare services, postal services…
- Non-profit  are in existence to provide a public good (ex. University, charity)
- Businesses  are in operation to make a profit (Ex. travel agency, transportation firms...)

Services are economic activities offered by one party to another. Services involve the exchange of value.
Services are most commonly employee time-based performances to bring about desired results. Services
cannot be inventoried (for example, airline tickets that are not sold for a specific date, cannot be sold for
another date)

Services provide benefits without ownership.

In exchange for their money, time, and effort, service customers expect to obtain value from:

• access to goods (you hire something for a period of time), labor (cleaning), facilities
(beauty salon, swimming pool), environments (museum), professional skills (doctor’s
appointment), networks (signing up to a social media site), and systems (signing up to
online banking)

• normally do not take ownership of any of the physical elements involved.

Since the service sector is growing so rapidly in virtually all countries around the world, new job creation
comes mainly from services. In fact, this shift in employment to the service sector has been seen as one of
the longest and most stable of economic trends.
 Services Continuum
The goods and service continuum enables marketers to see the relative goods/services composition of total
products.

A good is a physical object that you are going to buy (salt, soft drinks) they are tangible dominant: you
can go into the shop, and you can look at the ingredients, price, and brand  you can look at these
elements before purchasing this kind of product.

Intangible dominant pure services. Ex. Teachingyou leave with a qualification and more skills and
knowledge. Ex. Consultancy services  knowledge in your industry, very intangible in nature.

Intangible means that a service cannot be sensed in the same way as a physical good.

In the middle of the graph there are products that have a physical element and a service element.
McDonald, for example, sells to you the burger and then there is also the service element.

Automobiles: the car is tangible, but the warranty is intangible (providing a warranty is a service element)

Airlines: service transportation but airlines depend on the physical equipment that is the plane.

It is rare to have a pure good or a pure service  usually there is a mix of them.

It is difficult for consumers to understand the benefits of a pure service.

Service characteristics are characteristics that make services different to physical goods.

Service Characteristics: intangibility, variability, perishability (ex. empty seats) and inseparability.

INTANGIBILITY: services cannot be sensed in the same way as a physical good.

Intangibility – pure services (like teaching and consulting) cannot be seen, tasted, touched or smelled
before they are bought.

• Example – it is impossible to judge how enjoyable a holiday will be before taking it.

For some services, intangibility leads to difficulty in evaluation after consumption

• Example – it is not easy to judge how thorough car service has been immediately
afterwards.

Challenge for service provider is to use ‘tangible clues’ (= physical evidence) to help consumers evaluate
service. The task is to provide evidence of service quality. It is important to design your service.

For example, the tangible clues in a doctor’s office are the qualifications on the wall.

How attributes of products affect the ease of evaluation of services:

Note: difficulty of evaluation of products tends to decrease with broad exposure to a service category and
frequency of use of a specific supplier. A product can be a good or a service.

Because services are generally high in experience and credence qualities, there is more risk in their
purchase, with several consequences. First, service consumers generally rely on word of mouth rather than
advertising. Second, they rely heavily on price, provider, and physical cues to judge quality. Third, they are
highly loyal to service providers who satisfy them. Fourth, because switching costs are high, consumer
inertia can make it challenging to entice business away from a competitor.
Search attributes (price, colour, material) consumer can evaluate search attributes before making the
purchase decision. Most of the physical goods are high in search attributes.

Experience attributes  products that we can only evaluate when we are experiencing them.

Credence attributes products that customers find difficult to evaluate even after the purchase because
the customer doesn’t have the expertise or the knowledge to evaluate the product. For example, education
is very difficult to evaluate.

Branding to make Tangible

-Corporate brand is one of the main ways to build customer trust. It is fundamental to make the offering of
a company more tangible.

-Service brands need to develop a clear set of values about what is important to them as a service firm.

-Use physical clues to communicate the brand to the consumer uniform, office equipment, and brand
on the transportation of the firm it is important to provide tangible evidence about your offering.

-Package design / design of physical facilities in services represents an opportunity for differentiation 
ex. design of a happy meal: shape of a house, kids will get a toy…

-Tangible elements surrounding the brand can serve to facilitate the service performanceonline brands
use trusted third parties to communicate their credentials. For example, some brands use PayPal as a
payment method to make online purchases on a company’s website.

-Tangible elements of a service brand encourage and discourage particular types of consumer behaviour.
For example, music has an impact on shopping behaviour  classical music: teenagers don’t like this type
of music and so they spend less time in the store if there is this kind of music.

When people are abroad they use more data Three - sorry for #holidayspam. “Our customers are now
using their phones abroad at no extra cost. Research showed the campaign led to Three being viewed as
more appealing and customer-friendly, with its roaming policy identified as a reason for consumers to stay
with the company.

VARIABILITY: services are highly variable because they are delivered by people. Services may vary
depending on who is serving the customer. Because the quality of services depends on who provides them,
when and where, and to whom, services are highly variable. Service buyers are aware of this variability and
often talk to others before selecting a service provider.

For example, some doctors have an excellent bedside manner; others are less empathic

Variations in employees providing the service: someone is kind, another one is rude.

Variations in the same employee: the service that you provide at the start of the shift is different from the
service that you provide at the end of the shift.

Many organisations try to tackle this variability problem through service standardisation  you try to
standardise the steps that the customer will go through. Standardising a service by using technology is a
way to serve a higher level of service. Standardized services enable network operators to efficiently deliver
services with an expectation of cross-compatibility among equipment.
Quality of goods can be checked before they leave the supplier, whereas the quality of services is more
problematic to check.

Service firms train their staff Service managers observe their staff and watch how they provide the
service to their customers. Staff training needs particular attention as every member of staff plays a major
role in ensuring the quality of service.

• Regular training ‘refreshers’ useful

• Emphasis on collaboration between members of staff  share experience and tips.

VS

Face-to-face service OR self-service technology (SST): with SST, you use technology to serve the customer.
Some companies have found that the biggest obstacle is not the technology itself, but convincing
customers to use it, especially for the first time. Customers must have a clear sense of their roles in the SST
process, must see a clear benefit, and must feel they can use it. Technology can annoy customers and so
you have to look at who are you targeting.

Not all SSTs improve service quality, but they can make service transactions more accurate, convenient, and
faster. Obviously, they can also reduce costs.

INSEPARABILITY: services are typically produced and consumed at the same time.

Services unlike physical goods have inseparability – this means that they have simultaneous production and
consumption.

Service production and consumption are simultaneous, which means that the customers typically must be
present in the physical location (service factory). This requires planning about the location of the service
operation, careful design of service processes and the service environment, and demand and capacity
management

• Examples - haircut, medical operation, holiday, concert

Service provider is an integral part of the satisfaction gained by the consumer. It is important to recruit
people who have a natural disposition to provide good services.

Consumers are often actively involved in co-creating the service, either by undertaking a lot of the service
themselves (e.g. launderette: lavanderie comuni) or by co-operating with staff (e.g. hair salon).

Consumption of the service may take place in the presence of other customers to enhance the experience,
but the presence of other customers can lead to inter-customer conflict  This occurs when there are
incompatible expectations and requirements from 2 or more customers.

Important role of the Service Employee:

Frei (2008, p. 75) explains that “companies often live or die on the quality of their workforces” and
because services are people intensive, good employees can provide a real competitive advantage.

• Success of Disney linked to firm training that employees always ‘on stage’.

Despite best intentions, not every customer will experience the service encounter positively every time.

• Commitment to service recovery is important it is important for a firm to recover quickly.

There will always be service failures.

• Key factors in service recovery – fairness, promptness, accountability, learning

Recovery paradox: a customer experiences a negative service and if the service firm recovers well, the
customer can become more loyal to the firm than before. If you recover well, you can create very loyal
customers. The recovery paradox is a situation in which a customer thinks more highly of a company after
the company has corrected a problem with their service, compared to how they would regard the company
if non-faulty service had been provided.

Employees can sometimes act as ‘saboteurs’ that is in a manner that is deliberately deviant or intentionally
dysfunctional. Managers observe employees and offer them refresher training courses.

United airlines poor service recovery  the customer complains about his experience.

It is important for a firm to respond quickly to the customer.

Emotional labour: in the long term, emotional labour can have a negative impact on mental health.
Emotional labour involves managing emotions during interactions to achieve professional goals and
conform to work role requirements. Managers try to recruit people who have a natural disposition to
communicate with customers, people who are naturally friendly…
 Encourage a Customer-Orientation Culture:

1. Recruit the right people  the recruitment process at Google is very long. Google is very strict in
the recruitment process.

2. Train staff to deliver service quality how employees need to behave. The motto for staff of
Google is: “Don’t be evil”.

3. Provide support systems  in terms of equipment and IT.

4. Retain the best people  high turnover of staff, firms need to think about how they can retain
staff. It is important for a company to provide opportunities for staff while they are working in the
firm

Consumer as Co-Producer consumer can be regarded as partial employees. Through co-production,

consumers relieve manufacturers and retailers from performing various activities along the value creation
chain which allows the latter to lower their production costs. These costs savings are then translated to
price reductions to consumers.

Low level of customer participation: airlines, you just have to buy the ticket

Moderate level of customer participation: technology of the banking, transactions by using technologies

High level of customer participation: you have to commit to the program (diet)

PERISHABILITY: services cannot be inventoried or stored. (ex. Empty seats). It is important to match
demand with supply.

Importance of synchronising supply and demand for services how can you balance supply and demand
for your services  Failure to address such problems can lead to weakened brands. You have to be able to
match supply and demand.

Demand or yield management is critical—the right services must be available to the right customers at the
right places at the right times and right prices to maximize profitability.
Strategies to deal with peak demand (picco della domanda):

• Multiskilling of employees

• Participation by customers in production self-service checkout in large supermarkets

• Differential pricing to encourage customers during off-peak periods  morning shows in

the cinema are cheaper than evening shows.

• Comfortable waiting area  private doctor appointment

• Use of reservation system you are able to plan out each day and

Extended Marketing Mix for Services

Services require an extended marketing mix

Marketing can be viewed as:

• A strategic and competitive thrust pursued by top management: marketing can help the
firm achieve its strategic objectives.

• A set of functional activities performed by line managers: marketing is one of the

functions that is carried out in an organisation (other functions are operations, human
resources, and accounting…)

• A customer-driven orientation for the entire organization: it is most important to

understand your customers and to develop products that satisfy their needs and wants. It is
important to develop products that are tailored to the customers that we are targeting.

Marketing is the only function in the organisation to bring operating revenues into a business; all other
functions are cost centers. This is why marketing is so important.
The “7 Ps” of services marketing are needed to create viable strategies for meeting customer needs
profitably.

Selling insurance is something that is more challenging than selling a smartphone. A product can be a
physical good, a service, or a mix of them.

The 7Ps of services marketing

Traditional Marketing Mix Applied to Services

• Product

• Place, Cyberspace, and Time

• Price

• Promotion and Education

Extended Marketing Mix for Services:

Services require an extended marketing mix which requires 3 more Ps

• Process

• Physical Environment

• People

1) PRODUCT ELEMENTS:

Embrace all aspects of service performance that create value.

Planning the marketing mix begins with creating a service product that will offer value to target customers
and satisfy their needs better than competing alternatives. Service products consist of a core product that
meets the customers’ primary need and a variety of supplementary service elements that are mutually
reinforcing, and add value to help customers to use the core product more effectively. Supplementary
service elements include providing information, consultation, order taking, hospitality, handling exceptions,
etc.

Core product responds to customer’s primary need  the core product satisfies the primary need or want
that the customer has.

Array of supplementary service elements  these elements are about what adds value to customers. The
supplementary element is a way to differentiate yourself from the competition. Supplementary service
elements are things that help the customer to use the core product.

• Supplementary service elements help customers use core product effectively

• Supplementary service elements add value through useful enhancements

Example:

Core product  a bed for two nights in an elegant private room with a bathroom.

Supplementary service elements reservations, reception, baggage service, restaurant, cocktail bar, room
service, entertainment/sports…

Planning marketing mix begins with creating a service concept that:

• Will offer value to target customers

• Satisfy their needs better than competing alternatives

2)PLACE and TIME:

Place includes channels (physical and electronic) that a marketer uses to reach the end customer.

Service distribution may take place through physical or electronic channels (or both), depending on the
nature of the service. For example, today’s banks offer customers a wide range of distribution channels,
including visiting a bank branch, using a network of ATMs, doing business by telephone, online banking on a
desktop, and using apps on a smartphone. In particular, many information-based services can be delivered
almost instantaneously to any location in the world that has Internet access.

Delivery decisions: Where, When, How

Geographic locations served

Service schedules

Physical channels: a service firm has a physical presence. Ex: Customers can go into the branch and talk
with someone who is working in the bank

Electronic channels: mobile applications

Customer control and convenience: the range of channels that you are offering to customers should give to
customers control and convenience. It is all about what your customer wants.

Channel partners/intermediaries: the firm should form strategic relations with partners and intermediates.
It is all about getting more customers into your business and extending your reach.

3)PRICE and OTHER USER OUTLAYS:

Marketers must recognize that customer outlays involve more than the price paid to the seller.

For customers, price is a key part of the costs they must incur to obtain desired benefits. To calculate
whether a particular service is “worth it,” they may go beyond just money and assess how much time and
effort are involved.

Traditional pricing tasks:

• Selling price, discounts (unused capacity), premiums

• Margins for intermediaries (if any) or channel partners that you are going to work with.

• Credit terms: it is difficult to establish a price for something that is not a physical good,
because a service is something intangible. To set the price you have to look at the
competition.
Identify and minimize other costs incurred by users:

• Additional monetary costs associated with service usage (e.g., travel to service location,
parking, phone, babysitting, etc.)

• Time expenditures, especially waiting. For example, you can develop a waiting area offering
magazines or drinks.

• Unwanted mental and physical effort: they include the way in which you describe your
product

• Negative sensory experiences

4)PROMOTION and EDUCATION:

Advertising drives the customers’ attention towards a product or a service, while promotion involves a set
of activities that create interest and awareness in a brand, product, or service.

Informing, educating, persuading, reminding customers  you have to educate consumers about what you
are selling

Marketing communication tools

• Media elements (print, broadcast, outdoor, retail, the Internet, etc.)

• Personal selling, customer service : the customer service can be a way to promote yourself

• Sales promotion

• Publicity/PR

Imagery and recognition

• Branding

• Corporate design

Content

• Information, advice

• Persuasive messages

• Customer education/training

Ex. Bank of Ireland website  there is a huge amount of product information, many details because a bank
is a complex service. On the website there is information about how you can apply to the website of the
bank , different options, cashback, flexible options... Because it is a financial product, you have to talk about
what happens if you skip payments or you are late with payments. Financial products are defined as a
“means to an end”. The Bank of Ireland links their products to life moments because they try to make their
offerings tangible
5)PROCESS:

Process is about how the service is delivered to the end customers. How firm does things may be as
important as what it does

Customers are often actively involved in processes, especially when acting as co-producers of service.

Process involves choices of method (channels) and sequence (in some services the steps are very short, for
other services you may have more steps to follow) in service creation and delivery.

• Design of activity flows

• Number and sequence of actions for customers

• Nature of customer involvement

• Role of contact personnel

• Role of technology, degree of automation

Badly designed processes waste time, create poor experiences and disappoint customers.

A service blueprint is an overview of the service delivery process, and it is useful to understand the steps in
the service process.

A service blueprint includes:

- physical evidence: interior and exterior of a service firm

- customer actions: things that the customer has to do during the service delivery process
- on-stage employee contact: front stage
- back-stage employee contact: things that happen behind the scenes that we never see as
customers (ex. Cleaning of the reception area)
- support processes: these processes support the overall delivery of the service. Examples of support
processes: IT Systems, inventory management system….

6)PHYSICAL ENVIRONMENT

The physical environment is the tangible clue and includes things that the customer can see.

It is important to design servicescape (it is what the customer sees) and provide tangible evidence of
service performances.

How to create and maintain physical appearances:

• Buildings/landscaping: exterior building (is it well painted?)

• Interior design/furnishings

• Vehicles/equipment

• Staff grooming/clothing

• Sounds and smells: the servicescape can also include sounds and smells

• Other tangibles

It is essential to manage physical clues carefully because they can have a profound impact on customer
impressions.
7)PEOPLE:

Employees are very important when it comes to services. Services employees are seen as the brand in the
customers’ eyes. Service firms invest a lot in the recruitment and training of staff.

Interactions between customers and contact personnel strongly influence customer perceptions of service
quality. It is important to use marketing communications to attract the right customer segments to the
service facility, and once there, also to educate them on the proper behavior.

The right employees, who are in contact with the customer, perform tasks well.

• Job design

• Recruiting: try to recruit people who have a natural friendly disposition

• Training

• Motivation is about how the service firm motivates employees. Motivation includes
financial rewards and non-financial rewards. Sometimes non-financial rewards are more
effective.

The right customers for the firm’s mission:

• Contribute positively to the experience of other customers. It is important to select the

right customers for your service brand.

• Possess—or can be trained to have— needed skills (co-production)

• Can shape customer roles and manage customer behavior

Achieving excellence in services: marketing excellence (level of customer service), differentiating services
(make yourself stand out of the competition because of the level of the service that you provide), follow
best practices (who is the best competitor in this industry? Can we imitate it?)

Marketing excellence (The increased importance of the service industry has sharpened the focus on what it
takes to excel in the marketing of services) includes 3 main areas:

External marketing: Preparing, pricing, distributing, and promoting the service. The firm is focusing on its
communication with end customers. External marketing is about delivering on your service promises.

Internal marketing: Training/motivating employees. Internal marketing includes relationships between the
organisation and the people who work within the organisation. The focus is on recruitment, training and
retention of the staff. With the turnover, the firm is able to retain people.

Interactive marketing: describes the employees’ skill in serving the client. Interactive marketing includes
interactions between employees working in the company and the end customers. The focus is on how well
employees serve the end customer. Interactive marketing is about how well employees can deliver on the
service promise.
 Managing service quality

Customer switching behaviour factors it is when the customer changes to a different service firm.

• Pricing: better price in another firm

• Inconvenience: too much effort and time for the customer. The customer decides to
change to somewhere that is closer to him.

• Core service failure: there is an issue with the core offering.

• Service encounter failures: is about the employee-customer interaction.

• Response to service failure: if the firm solves the issue quickly, the firm can keep the
customer.

• Competition: better offering in another firm

• Ethical problems: unfair to staff

• Involuntary switching: the customer ends up switching but it is not by choice

What Customers Want from Providers

Dimensions of Service Quality

Service quality looks at what is more important for a customer

Reliability: Ability to perform the promised service dependably and accurately

Responsiveness: is the willingness of staff to help customers and the ability to provide prompt and speedy
service

Assurance: knowledge and courtesy of employees and their ability to convey trust and confidence

Empathy: is about providing individualised service. Is about showing that you care about customers.

Tangibles: appearance of physical evidence. Tangibles looks at things like facilities, equipment and
communication materials.

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 Marketing to be integrated with other management functions
Marketing is linked to other functions within an organisation

Three management functions (= operations management, marketing management and human resources
management) play central and interrelated roles in meeting the needs of service customers.

Operations management: is important when we think about service firms. Operations management helps
with managing service delivery. Operations are responsible for the systems that are used, the equipment
and the tasks that are performed by the service employees. In most service organizations, you can also
expect to see operations managers actively involved in product and process design, many aspects of the
physical environment, and implementation of productivity and quality improvement programs.

HRM: HRM is often seen as a staff function, responsible for job definition, recruitment, training, reward
systems, and quality of work life — all of which are, of course, central to the people element. But in a well-
managed service business, HR managers view these activities from a strategic perspective. They understand
that the quality and commitment of the front line have become a major source of competitive advantage.
Service organizations cannot afford to have HR specialists who do not understand customers. When
employees understand and support the goals of their organization, have the skills and training needed to
succeed in their jobs, and recognize the importance of creating and maintaining customer satisfaction, both
marketing and operations activities are easier to manage and are more likely to be successful.

Marketing management: is about develop a strategy. Marketing management includes decisions about
who to target and how to position the firm within the market.

Because services are a subjective experience, service firms can also design marketing communication and
information programs so consumers learn more about the brand than what they get from service
encounters alone