Chapter 01

Introduction to Services
 Why do firms focus on Services?

• Services can provide higher profit margins and

growth potential than products

• Customer satisfaction and loyalty are driven by

service excellence

• Services can be used as a differentiation

strategy in competitive markets
 Examples of Service Industries

• 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
– airline, travel agency, theme park
• Others
– hair styling, pest control, plumbing, lawn maintenance,
counseling services, health club, interior design
 Contributions of Service Industries to
U.S. Gross Domestic Product

Figure 1.1
Source: Survey of Current Business, May 2007, p. 19, Table 2.
 What is Service? The Old View

• Service is a technical after-sale function that is provided

by the service department.

Old view of service

= Old: Service
Customer Service Center
=
wrench time
 What is Service? The New View
• Service includes every interaction between any customer
and anyone representing the company, including:
Dealers

Web site and

any e-channel Salespeople
Interaction

Billing and Customer Receptionists

Accounting and
Personnel Schedulers

Service Management
Employees and Executives
 Service Can Mean all of These

• Service as a product

• Customer service

• Services as value
add for goods

• Service embedded in
a tangible product
• Derived Service
 Tangibility Spectrum
Salt

Soft Drinks
 Detergents
 Automobiles
 Cosmetics

Fast-food
Outlets
 Intangible
Dominant
Tangible
Dominant 
Fast-food
Outlets 
Advertising 
Agencies Airlines

Investment
Management 
Consulting 
Teaching

Figure 1.2
 Overview: Why Services Matter

• Services dominate U.S. and worldwide

economies
• Services are growing dramatically
• Service leads to customer retention and loyalty
• Service leads to profits
• Services help manufacturing companies
differentiate themselves
 Percent of U.S. Labor Force by
Industry

Figure 1.3
Sources: U.S. Department of Labor, Bureau of Labor Statistics, Industry at a Glance, May 4, 2007, Survey of Current Business, February 2001, Table B.8, July 1988, Table 6.6B, and July 1992,
Table 6.4C; E. Ginzberg and G. J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American 244, no. 3 (1981), pp. 31–39.
 Percent of U.S. Gross Domestic
Product by Industry

Figure 1.4

Sources: Survey of Current Business, May 2007, p. 19, Table 2; Survey of Current Business, February 2001,
Table B.3, and August 1996, Table 11; E. Ginzberg and G. J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American 244, no. 3 (1981), pp. 31–39.
 Why study Services Marketing?

• Service-based economies

• Service as a business imperative in manufacturing and

IT

• Deregulated industries and professional service needs

• Services marketing is different

• Service equals profits

 Services and Technology

• Potential for new service offerings

• New ways to deliver service

• Enabling both customers and employees

• Extending the global reach of services

• The internet is a service

 Eight Central Paradoxes of
Technological Products

Table 1.1
Source: D. G. Mick and S. Fournier, “Paradoxes of Technology: Consumer Cognizance, Emotions, and Coping Strategies,” Journal of Consumer Research 25 (September
1998), pp. 123–47.
 Comparing Goods and Services

Table 1.2
Source: A. Parasuraman, V.A. Zeithaml, and L. L. Berry, “A Conceptual Model of Service Quality and Its Implications for Future Research,” Journal of Marketing 49 (Fall 1985),
pp. 41–50.
 Characteristics of Services
Compared to Goods

Intangibility Heterogeneity

Simultaneous
Production
and Perishability
Consumption
 Implications of Intangibility
• Services cannot be inventoried

• Services cannot be easily patented

• Services cannot be readily displayed or

communicated

• Pricing is difficult
 Implications of Heterogeneity

• Service delivery and customer satisfaction depend on

employee and customer actions

• Service quality depends on many uncontrollable factors

• There is no sure knowledge that the service delivered

matches what was planned and promoted
 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

 Implications of Perishability

• It is difficult to synchronize supply and demand

with services

• Services cannot be returned or resold

 Challenges for Services
• Defining and improving quality
• Ensuring the delivery of consistent 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
customization
 Examples of Goods Companies that
are Expanding into Services

Boeing Kodak
 Where the Money in Manufacturing Is:
Services
Personal Computers Locomotives Automobiles
annual cost of total annual cost of rail average annual household
PC use: $6,259 operations: $29 billion expenditure: $6,064
The sale of a
product accounts 100% network administration yard operations, other
for only a small railroad administration,
network finance
portion of overall other
80% technical support
revenues. repair
network equipment
Providing nonproductive operations insurance
60% train operations
services to by end user (downtime,
customers is gas
file management, etc.)
where the real Infrastructure
40%
money is. used car purchase
administration freight car services
technical support
20%
locomotive services new car purchase
desktop hardware

0% locomotives

total expenditure: total expenditure: total expenditure:

5X product costs 21X product costs 5X product costs

Source: GartnerGroup, Association of American Railroads, Federal Highway Administration Office of Highway Information Management. (Railroad expenditures are for
Class 1 railroads.)
 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
 Expanded Mix for Services –
The 7 Ps
• Product
• Price
• Place
• Promotion

• People
– All human actors who play a part in service delivery and thus influence
the buyer’s perceptions: namely, the firm’s personnel, the customer, and
other customers in the service environment.
• Physical Evidence
– 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.
• Process
– The actual procedures, mechanisms, and flow of activities by which the
service is delivered—the service delivery and operating systems.
 Expanded Marketing Mix for
Services

Table 1.3
 Ways to Use the 7 Ps

Overall Strategic Specific Service

Assessment Implementation
– How effective is a firm’s – Who is the customer?
services marketing mix? – What is the service?
– Is the mix well-aligned – How effectively does the
with overall vision and services marketing mix for
strategy? a service communicate its
– What are the strengths benefits and quality?
and weaknesses in – What changes/
terms of the 7 Ps? improvements are needed?
Thank You