DESCRIBING THE NATURE OF SERVICE

THE NATURE OF A SERVICE

It is worth to note from the onset that in marketing, the term 'product' is a generic
term that includes physical goods, ideas, persons, places, and services. There are
very few, if any, pure products or services. Most products have some service
attributes and many services are in some way attached to products. In effect, all
products are on a continuum between the purely physical products (a packet of
sugar) to purely services (insurance). Even at these extreme ends, there are no pure
products; a packet of sugar has to be stocked by an intermediary, and an insurance
policy still has a physical document to prove that it exists.

Definitions of the term 'service'

 Services include the separately identifiable but intangible activities that

provide want-satisfaction, and that are not, of necessity, tied to or inextricable
from, the sale of a product or another service. To produce a service may or
may not require the use of tangible goods or assets. However, where such use
is required, there is no transfer of title (permanent ownership) to the tangible
goods. (Cowel, 1995).

 A service is any activity or benefit that 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. (Kotler, P.)

 Services are goods that are largely or mainly non-physical in character, such as
personal services, travel and tourism, medical care or management
consultancy. (Brassington and Pettit, 2006).

 Services are activities, benefits or satisfactions which are offered for sale, or
are provided in connection with the sale of goods. (A Glossary of Marketing
terms, American Marketing Association).

Although there are many definitions of the term service, the following summary can
help to understand the nature of a service.

(a) A service is an intangible activity. As such, it cannot be seen, tasted or smelt.

(b) A service is provided by one person or organisation to another person or

organisation.

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(c) A service must have the ability to satisfy consumer wants.

(d) A service can be sold as a 'stand-alone' or used to augment a physical product.

This means that our point of discussion should relate to 'commercial services' which
may exclude 'personal services.'

Therefore, the two main categories of services to include in our discussion are:

 Those intangible activities which accompany the sale of tangible goods and
which are perceived to possess value for at least some of the customers (such
as credit, installation, maintenance); and

 Those intangible activities which are perceived to provide customer

satisfaction without being tied to the sales of a tangible product (such as
insurance, education).

However, it is from the second description that most of our discussions will
concentrate.

DISTINGUISHING FEATURES OF SERVICES (CHARACTERISTICS OF SERVICES)

The following are the major characteristics that distinguish services from physical
goods.

● Intangibility

● Inseparability

● Heterogeneity

● Perishability

● Ownership

These characteristics are now discussed in full.

1 Intangibility

Services are dominant in intangibility, and this is the major attribute that
distinguishes them from physical goods. Intangibility means that a service
cannot be tasted, touched, felt or smelt, or heard before it is purchased.

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Because of the intangibility of a service, it means that:

● Opinions and attitudes may be sought before the purchase.

● Repeat purchase may rely upon previous experience.

● The customer may be given something to represent the service.

Although this may be done, ultimately, the purchase of a service is the

purchase of something intangible.

The concept of intangibility may lead to dividing services as follows:

 Services providing pure intangibles, such as security services.

 Services providing added value to a tangible, such as insurance.

 Services that make available a tangible, such as financial services,

retailing.

Intangibility is the critical characteristic that distinguishes services from

products. It can be categorised as:

 Palpable intangibility – referring to the fact that a service cannot be

touched by the customer.

 Mental intangibility – referring to the fact that the service is difficult

for the customer to grasp mentally.

These two aspects of intangibility account for some of the characteristics

which separate product and service marketing:

 Services cannot be touched.

 Precise standardisation of a service is difficult.

 There is no ownership transfer.

 A service cannot be patented.

 Production and consumption are inseparable.

 There are no inventories of the service.

 Middlemen roles are different.

 The consumer is part of the production process (either the delivery

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 system must go to the market or the customer must come to the
delivery system.

2 Inseparability

In many instances, services cannot be separated from the person who markets
or sells them. Many services are therefore created and marketed
simultaneously. This means that creating or performing the service may occur
at the same time as full or partial consumption of it.

3 Heterogeneity

The production of tangible goods usually means standardisation can be

achieved through specialisation and division of labour, thus creating
homogeneous products. However, it is difficult to standardise the output in
services. Even though standardisation systems may be used, each unit of
service provided may differ from other units in terms of quality. The customer
may also find it difficult to judge quality in advance of purchase. All these
factors make services provided over time to be heterogeneous. A service firm
must pay special attention to the way services are planned, the service
assortment mix, pricing and promotion of the service. In short, it should do
everything feasible to ensure reasonably consistent and high quality service

4 Perishability

Services are perishable cannot be stored. For example, you cannot buy
haircuts in Lusaka and take them to Luangwa National Park to last you over
the vacation period. This problem of perishability is compounded further by
the fact that demand for most services tend to fluctuate widely over time. For
example, the unused airline seats or unused electric power. Key decisions
have to be made on what maximum capacity level should be available to cope
with surges in demand before service levels suffer. Equally, the service
provider should pay attention to those times of low level usage on whether
excess capacity will be idle or provide short-term promotional incentives to
even out fluctuations in demand (e.g. differential pricing, special promotions).

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5 Ownership

Lack of ownership is one of the major differences between a physical product

and a service product. It means that it means that the customer may only have
access to/use of a facility or activity (e.g. hostel room) but will not have title to
those facilities transferred to that consumer at any time. Payment made by
the consumer is for the use of, access to, or hire of items.

The following figure is a summary of service characteristics with their implications

CHARACTERISTIC IMPLICATIONS SOLUTIONS

● Sampling difficult ● Focus on benefits

● Places strain on promotion ● Increase service tangibility

Intangibility ● No patents possible ● Use brand names

● Difficult to judge quality and price in advance ● Develop reputation

● Use personalities to personalise service

Inseparability ● Requires presence of producer ● Learn to work in large groups

● Direct sales ● Work faster

● Limited scale of operations ● Train more competent service providers

Heterogeneity ● Standards depend upon who and when ● Careful personnel selection and training
provided
● Ensure standards are maintained
● Difficult to assure quality
● Pre-package service

● Mechanise and industrialise for quality control

● Emphasise bespoke features

Perishability ● Cannot be stored ● Better match between supply and demand

● Problems with demand fluctuations (e.g. off-peak price reductions)

Ownership ● Customer has access to, but not ownership of, ● Stress advantages of non-ownership (e.g.
activity or facility easier payment system)

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CLASSIFICATIONS OF SERVICES

There are a variety of schemes that have been presented as attempts to classify
services. Some of these schemes are discussed below.

1 FOOTE AND HATTE'S CLASSIFICATION OF SERVICE INDUSTRIES

According to Foote and Hatte, the service industry, and the types of services,
can be grouped as follows:

 Tertiary – include such businesses providing services such as hotels,

barber shops, beauty shops, laundry and dry cleaning, home repair and
maintenance, and handicrafts.

 Quaternary – includes transportation, commerce, communication,

finance, and administration. These differ from the tertiary
industry/services in the sense that they facilitate and effectuate the
division of labour.

 Quinary – include health care, education, and recreation. The key

aspect here is that the service provided is designed to change and
improve the recipient in some way.

NB: It is to note that, this classification does not use the term 'service' in a
consistent way, as its main purpose is to classify the various types of
industry.

2 SHOSTACK, G.LYNN – THE GOODS-SERVICE CONTINUUM

She gave five broad categories of goods and services which may be seen to be
lying along a continuum. She also suggested that there are some services
along the continuum that have both characteristics of services and goods and
these she called hybrid services.

 A pure tangible good – the 'product' consists of a pure tangible with no

explicit service accompanying it. The object of the sale is a tangible
item. For example, salt.

 A tangible good with accompanying services – the 'product' consists of

a good with accompanying services. Still the object of the sale is the

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 tangible item. Example here includes the sale of a car.

 A hybrid service - an offering which is such that 50% of the offering is a

good while the other is a service. People that patronise restaurants do
so for both the food, and its preparation accompanying services.

 A service with accompanying goods and services – the 'product'

consists of a service with accompanying goods and services. The object
of the sale is an intangible item. For example, passenger air transport
which is accompanied by such goods and services as food, drinks, the
vehicle, pre- and post-flight services, in-flight services, and transport
service. Another example is training which is sold together with other
goods and services.

 A pure service – the 'product' consist of a service. The object of the sale
is an intangible item. For example, massage.

The two diagrams below illustrate this continuum.

Tangibility Intangilbility

Pure tangible good Hybrid service Pure service

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 Pure (Tangible) Good

Tangible Good accompanied with Service

Hybrid

Major Service accompanied by minor goods and services

Pure (Intangible) Service

3 BUYER, SELLER OR SERVICE RELATED CLASSIFICATION

This classifies the services on the basis of whether they are buyer, seller, or
service related. The classification is as follows.

(a) Seller related basis

This classification has three ways of classifying services from the seller’s
viewpoint
NATURE OF ENTERPRISE FUNCTIONS PERFORMED INCOME SOURCE

● Private, for profit ● Communication ● Derived from market

● Private, non-profit ● Consulting ● Market plus donations

● Public, for profit ● Educational ● Taxation

● Public, non-profit ● Financial ● Donations only

● Taxation

● Health

● Insurance

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(b) Buyer related basis

This classification also has three ways of classifying services from the buyer’s
(customer’s) viewpoint
MARKET TYPE WAY IN WHICH SERVICE IS MOTIVES
BOUGHT

● Consumer market service ● Convenience Service ● Instrumental (i.e. means to an end)

● Industrial market service ● Shopping service ● Expressive (i.e. an end in itself)

● Government market service ● Specialty service

● Agricultural market service ● Unsought service

(c) Service related basis

This also has three ways of classifying services from the service point of view.

SERVICE FORM HUMAN or MACHINE HIGH or LOW CONTACT

● Uniform service ● Human centred service ● High contact service

● Bespoke service ● Machine centred service ● Low contact service

The above scheme presents three main ways of classifying services, which are
discussed in more details in the proceeding sections.

(a) Seller related based classification

This classifies services by looking at them from the seller's point of view. This
gives the following sub-classifications.

(i) The nature of enterprise. This is where service marketing organisations

are classified on the basis of whether they are private organisations
(owned by individuals) or public organisations (owned by government),
and within each of these groups whether the organisations are profit
oriented or non-profit oriented.

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 (ii) Functions performed. This is used to classify services by looking at
what the organisation performs. This looks at whether the organisation
provides educational services, health services, and so on.

(iii) Income source. This involves classifying service marketing organisations

on the basis of their main source of income. Thus, some service
organisations derive their incomes from the market (selling services to
customers), or from the market coupled with donations, or from
taxation, or from donations only.

(b) Buyer related based classification

This involves classifying services from the customer's point of view. Buyer
related bases include:

(i) Market type

This is classifying services by considering the market that requires the
service. The following are the main categories under market type.
 Consumer market services are sold to individuals and
households.

 Industrial market services are sold to individuals and

organisations that use these services to run their businesses (for
the production of goods and services that they later sell).
 Government market services are mainly sold to government
ministries, departments, units and agents.

 Agricultural market services are sold to individuals and

organisations involved in producing crops, fruits, meat, fish, and
so on.

(ii) The way in which the service is bought

This leads to classifying services as follows.

 Convenient services are those services that consumers buy
frequently and do not require to put in more effort to obtain
them (i.e. limited search).

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  Shopping services are those services consumers will compare
their prices, expected or perceived quality, and other factors
before buying. Consumers will choose to buy from one of the
many service marketing organisations after making comparisons.
 Specialty services are highly expensive and infrequently
purchased and consumers are willing to travel extensively to get
these services.
 Unsought services are those services consumers would willingly
avoid to buy unless they are highly persuaded.

(iii) Motives
This is a framework of classifying services by looking at the reasons
(motives) why consumers buy them. This framework groups services
into:
 Instrumental is when a consumer buys a service as a means to
an end. This service is used to obtain another benefit. For
example, getting an educational service in order to get a better
pay.
 Expressive is when a service is bought and used as an end in
itself.

(c) Service related based classification

This involves subdividing services from the service point of view. The
classifications include:

(i) Service form, where services may be grouped as:

 Uniform service is where only one type of standardised service is

provided without any modifications or related alternatives.

 A bespoke service is where a combination of elements of a

service are made so that there are varieties and related services
are also provided from which a customer can choose.

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 (ii) Human-based or machine-based services. This is where services are
grouped as:

 Human-based service is that service which requires the use of

more of humans, and less or no machinery, to provide it.

 Machine-based service involves providing a service by using

more machinery with little or no human beings involved.

(iii) High contact or low contact services. This framework classifies services
as:

 High contact service is a service that requires continuous or

frequent and close contact between the service provider and the
consumer.

 Low contact service is a service that requires less contact

between the service provider and the consumer.

4 LOVELOCK C AND WIRTS J’S PROCESS PERSPECTIVE

Lovelock and Wirts state that although services do not involve transfer of
ownership, major differences still exist among services depending on what is
being processed. They state that in services, people, physical objects, and data
can be processed, and the nature of the processing can be tangible or
intangible.
Tangible actions are performed on people’s bodies or to their physical
possessions. Intangible actions are performed on people’s minds or to their
intangible assets. This gives rise to the classification of services into four broad
categories, as shown in the diagram on the next page.

(i) People Processing

These are services directed at people themselves – being transported, fed,
lodged, restored to health, or made more beautiful. To receive these types of
services, customers must physically enter the service system because they are
an integral part of the process and cannot obtain the desired benefits by
dealing at arm’s length with service suppliers. In short, they must enter the
service factory, a physical location where people or machines (or both) create

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 and deliver service benefits to customers. A customer who wants the benefits
of a people-processing service must be prepared to cooperate actively with
the service operation. For example, a customer who wants a manicure would
have to cooperate with the manicurist by specifying what she wants, sit still,
and presenting each hand for treatment when requested.
The amount of time required of customers in people-processing services
varies widely, ranging from boarding a city bus for a short ride to undergoing a
lengthy course of treatment at a hospital. Managers should be thinking about
process and output from the standpoint of what happens to the customer.
Reflecting on the service process helps to identify not only what benefits are
created at each point in the process but also the non-financial costs incurred
by the customer in terms of time, mental and physical effort, and even fear
and pain.

WHO OR WHAT IS THE DIRECT RECIPIENT OF THE SERVICE

People Possessions

People-processing Possession-processing
NATURE OF SERVICE ACT

Tangible Actions (services directed at people's bodies): (services directed at physical possessions)

● Passenger transportation ●Freight transportations, repair and

maintenance
● Lodging
● Laundry and dry cleaning
● Health care

Mental stimulus processing Information processing

Intangible Actions (services directed at people's minds) (services directed at intangible assets)

● Education ● Accounting

● Advertising/PR ● Banking
● Psychotherapy ● Legal services

(ii) Possession Processing

This involves providing tangible treatment for some physical possession – a
house invaded by insects, an overgrown hedge, a malfunctioning elevator, a
package that needs to be delivered to another town, dirty clothes or a sick
pet.

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 Many such activities are quasi-manufacturing operations and do not involve
simultaneous production and consumption. Examples include dry cleaning,
maintaining, storing, improving, or repairing physical objects – both living and
inanimate – that belong to the customer in order to extend their usefulness.
Additional possession processing services include transport and storage of
goods; wholesale and retail distribution; and installation, removal, and
disposal of equipment.
Customers are less physically involved with this type of service than with
people-processing services. Consider the difference between passenger and
parcel transportation. In the former, you have to go along for the ride to
obtain the benefit of travelling from one location to another. But with a
package, you drop it off at the post office or courier and wait for it to be
delivered to the recipient.
In most possession-processing services, the customer involvement usually is
limited to dropping off the item that needs treatment, requesting the service,
explaining the problem, and later returning to pick the item and pay the bill. In
such instances, production and consumption can be described as separable.
However, in some instances, the customer may prefer to be present during
service delivery, perhaps wishing to supervise the hedge cutting or comfort
the family dog when it receives an injection at the veterinary clinic.

(iii) Mental Stimulating Processing

Services directed at people’s minds include education, news and information,
professional advice, psychotherapy, entertainment, and certain religious
activities. Anything touching people’s minds has the power to shape attitudes
and influence behaviour. So, when customers are in a position of dependency
or potential for manipulation exists, strong ethical standards and careful
oversight are required. Obtaining the full benefit of such services require an
investment of time and a degree of mental effort on the customer’s part.
However, recipients do not necessarily have to be physically present in a
service factory – just mentally in communication with the information
presented.
An interesting contrast with some people-processing services is that whilst
passengers can sleep through a flight and arrive at their desired destination, a
student cannot fall asleep in class or during an education TV broadcasting and
be wiser at the end!
Services such as education and entertainment often are created in one place
and transmitted by television, radio, or the Internet to individual customers in

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 distant locations. However, they can also be delivered to groups of customers
at the originating location in a facility such as a theatre or lecture hall.
Because the core content of a service in this category is information based
(whether music, voice or visual images), it can be converted to digital bits or
analog signals and made into a physical product such as DVD or CD which can
then be packaged and marketed much like any other physical good. Services in
this category can thus be “inventoried” for consumption at a later date; in fact
the same performance can be consumed repeatedly.

(iv) Information Processing

Information processing has been revolutionised by information technology,
but not all information is processed by machines. Professionals in a wide
variety of fields also use their brains to perform information processing and
packaging.
Information is the most intangible form of service output, but it may be
transformed into the most enduring, tangible form such as letters, reports,
plans, CD-ROMs, or DVDs. Among the services that are highly on the effective
collection and processing of information are financial services and
professional services like accounting, law, marketing research, management
consulting, and medical diagnosis.

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THE SERVICE ECONOMY

OVERVIEW OF SERVICES

A central feature of a country’s economy is its Gross Domestic Product. The various
sectors of GDP make up its economy. According to the Central Statistical Office, the
GDP in Zambia comprises the following sectors:

● Agriculture, Forestry and Fisheries

● Mining and Quarrying

● Manufacturing

● Construction

● Services

And the service sector is made up of the following sub-sectors:

● Utilities (electricity and water)

● Transport and communication

● Wholesale and retailing

● Finance, Insurance, and Real Estate

● Business services

● Community, Social and Personal services

The table below shows Zambia’s economic sectors and their contributing
percentages to the country’s GDP.

SECTOR GDP( as of July 26, 2012) GDP (2016)

Agriculture 21.4% 9.2%

Industry 35.1% 29.2%

Services 43.5% 61.7%

Source: CIA World Factbook

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As can be seen, the service sector was the largest contributor to Zambia’s Gross
Domestic Product for the year 2012 as well as for the year 2016. This is evidence that
the service sector is the largest and is growing.

Reasons for the growth of the service economy

The following have been advanced as the reasons that have led to the growth of the
service sector

(a) Growth of the extractive and manufacturing sectors

The growth in the service sector has been somewhat related to the
development that have been experienced in the extractive and manufacturing
sectors. First, there are those services that are established to add value to a
tangible product. Second, services make available a tangible product. Over the
last 70 years, the world has witnessed rapid growth in:

● Agriculture due to rising population

● Extractive industries due to industrialisation

● Manufacturing due to growing affluence and technological advances

Thus, for services that add value and/or make available a tangible product, the
growth of services was connected to increased output of physical products in
agriculture, extractive and manufacturing and the need to deliver this output
to markets through communication and distributive trades. Also, growth in
services and tangible products was fueled by the technological boom in the
2000s.

(b) Lack of growth in labour productivity in service industry

The growth of services is also attributed to the slower growth of labour

productivity in the service sector. With increasing labour productivity in
manufacturing, there were less people needed in the manufacturing sector,
which by implication suggests that the service sector grew as it did not
experience the labour productivity enjoyed by the manufacturing sector. In
Zambia, the demise of the manufacturing sector has also contributed to the
growth of the service sector, particularly wholesaling and retailing.

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(c) Growth in intermediate demand from firms

Another factor that has led to the growth of the service sector has been the
growth of intermediate demand from firms. Specialist firms have been set up
to provide services previously undertaken by firms themselves. Examples
include services such as in-ward and out-ward transportation, security,
personnel, data processing, call centers, and so on.

(d) Growth in final demand from consumers

Another factor that has led to the growth of the service sector has been the
growth in the final demand from consumers. As society gets wealthier, the
marginal utility derived from additional consumption of physical products
declines and people turn to services as opposed to physical products. With
rising incomes, consumers spend proportionately more on services than
goods. The increased affluence has led to increased demand for services such
as hair dressing, lawn care and domestic help, to mention a few.

(e) More leisure time

There has been an increase in leisure time available to employees as more

work is done by machines. There has been a reduction in the number of hours
employees spend and at work per week. The remaining time is usually spent
by consumers on the consumption of services such as travel, restaurants,
tourism, and entertainment.

(f) More women labour force

Globally, there has been an increase in the number of women who are
employed and do not have time to attend to home chores. This has led to
increased demand for services such as nurseries, fast foods, etc.

(g) Greater life expectancy

Due to improvements in medicine and health, more people are getting older
due to increased life expectancy. This has led to demand for services such as
health care.

(h) Greater complexity of products

More products are being made that are highly technical, and their repair,
maintenance and sometimes operations call for the demand of technical
services from experts.

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(i) Increased complexity of life has led to the increase in demand for legal
services by firms and individuals

(j) Greater concern about ecology and resource scarcity has led to more demand
for car rentals.

(k) Increased number of new products has also seen increase in demand for
services such programming.

Importance (or Benefits) of the service economy

(a) Value addition – services contribute significantly to need/want satisfaction

either as pure intangibles, or in combination

(b) Competitive advantage – from the marketing perspective, services can

provide an organisation with a competitive advantage.

(c) Employment – many people are employed in the service sector. The table
below shows that the proportion employed in the service sector is directly
related to the level of development of a nation (measured by its Gross
National Product – GNP).

Table: The service sector as a % of Gross National Product in selected countries

COUNTRY % of GNP

Bahamas 89%

Luxemburg 83%

Panama, USA 79%

Japan, France, UK, Canada 72%

Mexico, Australia, Germany 68%

Poland, South Africa 65%

Israel, Russia, South Korea 55-60%

Argentina, Brazil 50-53%

India 48%

China 40%

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(d) Contribution to GNP – in 1972, the service sector contributed a total of 52%
to Zambia’s GNP, and in 2016, it contributed 61.7%, and this has been rising
and is expected to continue rising.

(e) Services and balance of payments – services provided across the Zambian
border bring in income (foreign exchange) and contribute to the country’s
balance of payments (e.g., services on goods exported, services exported, and
property income from abroad).

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THE CONCEPT OF SERVICE QUALITY
Introduction

Based on the premise that marketing is about satisfying the needs and wants of
customers, and that these needs and wants can be satisfied by providing services
rather than physical goods, it is necessary to examine what customers look for when
they seek and purchase services in the marketplace. What is needed is a service
quality model – a conceptual framework that describes the significance and
relationships of various variables in the perception of the value of service offered.

What is service quality?

Understandably, early efforts at defining and evaluating service quality have come
from the goods sector:

● According to the prevailing Japanese philosophy, quality is ‘zero

defects – doing right the first time.’

● Crosby (1979) defines quality as ‘conformance to requirements.’

● Garvin (1983) measures quality by counting the incidences of internal

failures and external failures – those observed before a product leaves
the factory and those incurred in the field after a unit has been
installed.

● According to Lewis and Booms (1982), service quality is a measure of

how well the service level delivered matches customer expectations.
Delivering quality service means conforming to customer
expectations on a constant basis.

Knowledge about the quality of goods does not by itself provide sufficient
understanding of service quality because service characteristics have inherent
implications for service quality. The table below summarises these implications for
service quality.

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Table: Implications of service characteristics for service quality

Service Characteristic Implications

Intangibility ● Because services are performances rather than

objects, they cannot be counted, measured,
inventoried, tested and verified in advance of
sale to assure quality.

● The firm may find it difficult to understand how

consumers perceive their services and evaluate
service quality.

Heterogeneity ● The performance of services with high labour

content often varies from producer to producer,
from customer to customer, and from day to day.
Hence, it is difficult to maintain uniform quality.

Inseparability ● Quality is not engineered at the factory, and then

delivered intact to the customer.

● Quality occurs during delivery, usually involving

interaction between producer and customer.

● Moreover, if there is consumer involvement –

haircuts, hotel service – the client may affect the
process.

The characteristic of intangibility does not provide a potential buyer the opportunity
to evaluate the service in order to facilitate judgment on whether or not a service
should be bought. Thus, while food can be seen, touched or tested before it is
bought, the quality of the preparation of the food cannot be determined in advance.
Not only is a consumer in a quandary on how to determine quality but the firm will
correspondingly be unable to plan for quality the consumer is looking for.
Heterogeneity implies that the quality of a service will vary with the individual or the
circumstances and that quality cannot be guaranteed over time. And inseparability
implies that quality of a service is intertwined with the service provider or the
customer.

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The Gronroos Model of Service Quality

This model features three variables: the expected service, the perceived service, and
perceived service quality.

Expected service

We have previously observed that a characteristic of intangibility implies that

consumers cannot evaluate the quality of a service in advance of purchase.
Nevertheless, consumers will evaluate the quality of a service at the post-
consumption stage. To do that, they must compare what they experienced from the
use or consumption of a service against what they expected. The perceived quality of
a given service is the outcome of an evaluation process, where the consumer
compares his expectations with the service he has received. The perceived
expectations may indeed be based on a customer’s previous experience with the
service, or the experience of others shared with him through word of mouth.
Expectations can also be based on what a firm promises the customer. This is usually
done through the traditional marketing activities of advertising, field selling, public
relations or sales promotion.

Perceived service

This is perceived performance. It consists of:

(a) Instrumental performance (technical quality), which in the case of a

service is what the customer is left with after the production process is
finished. For example, a passenger who has been transported from one
place to another, a person who has received medical attention at a
hospital: it is the technical result of a service production process.

(b) The expressive performance (functional quality) is related to the

psychological level of performance. In a service context, the expressive
performance would be related to the buyer-seller interaction, to the
contact the customer has with various resources and activities of the
service firm, e.g., a customer’s contact with various employees. Or a bank
may offer a technical service by way of dispensing cash to a customer but
the customer may not be happy with the way the manager performed the
task.

23
Perceived service quality

The difference between expected service and perceived service is perceived service
quality. The centrality of service quality and its relationship to expected service and
perceived service are shown in the figure below. Together, technical quality and
functional quality constitute corporate image.

Figure: The Service Quality Model

Perceived Service Perceived Service Quality Expected Service

Image

Technical Quality Functional Quality

(Instrumental Performance) (Expressive Performance)

The Parasuraman Model of Service Quality

The previous model described and illustrated service quality from the customer’s
perspective as the difference between expected service and perceived service. We
present an improvement on the previous arising from the classic work of
Parasuraman, Seithaaml and Berry in which they incorporate the perspective of
management in order to develop service gaps. The model is premised on the
involvement of two parties – the customer and the marketer to service performance.

24
The following are the postulated service gaps that may obtain:

Gap 1: Consumer Expectations and Management Perception

This is the knowledge gap. It reflects a difference between a

consumer’s perception of expected service and management
perception about what the consumer expects.

In service firms, it is difficult to know in advance what features of

service connote high quality, or what levels of performance are
required in order to deliver high quality performance.

In order to close this gap, management can make concerted efforts to

understand the customer and improve communication between those
staff who interact with customer and customers.

Gap 2: Management Perception and Service Quality Specifications

This is the standards gap. This is the difference between management

perception of consumer expectations and the firm’s service quality
specifications.

Empirical studies reveal that there are difficulties on the part of

management to match or exceed consumer expectations. On account
of some constraints, such as lack of resources and market conditions, it
is not easy to establish specifications to deliver, say, quick response in
repair and maintenance or fire extinguishing services. Another reason
for possible lapse on this gap is the absence of total management
commitment, or indifference, to quality.

To close this gap, management should consider consulting with

customers more rigorously and institute customer-oriented standards
throughout the organisation. The firm may also consider establishing
positive systems for influencing behavior toward service quality.

25
 Gap 3: Service Quality specifications and Service Delivery

This is the delivery gap which exists between service quality

specifications and actual service delivery.

Even when guidelines exist for performing services well and treating
customers correctly, a service firm’s employees may nevertheless fail
to deliver the service to the company’s own specifications. The
problem occurs because of the pivotal role played by contact
personnel.

To overcome this problem, the firm must ensure that performance

meets standards by clarifying the role of employees; training
employees in priority setting; creating harmony among employees; and
developing a good incentive and reward system.

Gap 4: Service Delivery and External Communications

This is the communications gap. This refers to the gap between actual service
delivery and external communications about the service that has been delivered,
bearing in mind the discrepancy between promises made to the customer and
actual service delivery.

One way of closing this gap is not to make unrealistic promises in the first place.
However, even in instances where promises made were realistic, communication
is still important irrespective of the performance achieved.

Gap 5: Expected Service and Perceived Service

This represents the service quality. It may comprise any or all the previous four
gaps.

26
Figure: The Parasuraman Model of Service Quality

Word-of-mouth Personal Needs Past Experience

Communications

Expected Service

Gap 5

Perceived Service
Consumer

Company Service Delivery External communications

to Consumers
Gap 4

Gap 3

Service Standards
Gap 1

Gap 2

Management Perception of
Consumer Expectations

Determinants of service quality

The empirical work of Parasuraman et. al also revealed that the following criteria or
dimensions were used to evaluate service quality:

● Reliability – this involves consistency of performance and dependability.

○ Performing the service at the designated time

○ Accuracy in billing

○ Keeping records correctly

27
● Responsiveness – this involves the willingness or readiness of employees to
provide the service.

○ Calling a customer back quickly

○ Giving prompt response

○ Competence

○ Knowledge and skill of contact person

● Access – involves approachability and ease of contact. It can be manifested by:

○ Making the service easily accessible

○ Promptly attending to customers waiting to receive a service

○ Delivering service quality in convenient locations

○ Operating at convenient hours

● Courtesy – this involves:

○ Politeness

○ Respect

○ Consideration for the consumer’s interest

○ Friendliness

● Communication – this means keeping customers informed and listening to

customers by:

○ Explaining the service itself

○ Explaining how much the service will cost and any trade-offs

○ Assuring the customer the problem will be attended to

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● Credibility – this involves trustworthiness, believability, and honesty as
reflected in company name:

○ Company reputation

○ Personal characteristics of the contact person

○ Trustworthiness as may be exhibited in a hard sale

● Security – refers to freedom from danger, risk or doubt. It involves:

○ Physical safety

○ Financial security

○ Confidentiality

● Understanding and knowing the customer – this involves making the effort to
understand the customer’s needs. It entails:

○ Learning the customer’s specific requirements

○ Providing individual attention

○ Taking notice of the regular customer

● Tangibles – these include the physical evidence of the service such as:

○ Physical facilities

○ Appearance of personnel

○ Tools and equipment

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IDENTIFYING THE SERVICE PRODUCT
Introduction

This section introduces the first element of the service mix in much the same way
that Product, as a tangible good, is analysed in physical goods marketing.

The service product

The service product and an understanding of the dimensions of which it is made are
central to the success of any service marketing organisation. A starting point is the
marketing philosophy which, among other things, places emphasis on the consumer
and the needs and wants of that consumer. Accordingly, the definition of a service
product will be approached from three perspectives, which are intertwined and not
mutually exclusive:

● The consumer benefit perspective/concept

● The service offer

● The service delivery system

The consumer benefit concept

The needs of a customer are central to marketing. It is the need of a customer which
triggers marketing effort. Accordingly, the true nature of a product/service can be
perceived only by the consumer. For any firm, then, these will be a bundle of
functional, effectual and psychological benefits the customer wants. For example,
in the case of a restaurant, the benefits sought by the customer range from a meal,
drink, waiting, atmosphere, and so on. It is important to separate this customer
benefit concept from the product itself.

Important caveats of the consumer benefit concept:

● It cannot exist without a service delivery system.

● The service offered must be based on the need and benefit sought by
the customer. This congruent may be difficult to attain if either or both
parties are unclear about the need sought by the customer.

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 ● Benefits sought may change over time through good or bad experience,
new expectations, or sophistication in the use or consumption of the
service.

● There are practical problems in deriving consumer-based

measurements regarding the importance of the benefits, the
preferences among them, the shifts in the market place and the trade-
offs among them that consumers may desire to make.

The service offer

This is concerned with what general and specific benefits the firm will offer. It can
be considered as the 'service formula'. It consists of the service elements, forms or
levels.

● Elements refer to the ingredients of the bundle of benefits, such as, the
tangible vs. the intangible.

● Form refers to the various options relating to each element, such as

price systems used.

● Level refers to the judgment made by consumers about the service,

such as, service quality and service quantity.

The service delivery system

This refers to how the service is delivered. It refers to people who perform the
service and the people who have had some experience with the service.

It also refers to physical evidence, such as, buildings, equipment, plant, tools, the
layout of facilities and any physical contexts in which services are performed.

In designing a service concept, it is recommended to take a holistic view of the entire

performance an organisation wants its customers to experience. The value
proposition must address and integrate three components:

31
(a) The core product/services – this refers to the core set of principal benefits and
solutions delivered to a customer. For example, transport services solve the
need to move from one place to another, and repair services restore a
damaged or malfunctioning machine to good working order.

(b) Supplementary services – refers to activities that enhance or facilitate the

delivery of core services. For instance, in delivering the core service of
accommodation, a hotel offers supplementary services such as television,
parking or a bar. In general, enhancing services cover consultation, hospitality,
safekeeping of possessions customers bring with them or goods purchased,
and giving exceptions, that is, accommodating requests that fall outside the
normal service delivery. Facilitating services encompass information provided
to customers, order-taking, billing and provision of easy and convenient
payment modes.

(c) Delivery process – this refers to the process used to deliver both the core and
supplementary services. This entails specifying the different service
components to be delivered to the customer, the nature of the customer’s
role, the duration of delivery, and the level and style of service to be offered.

All three must be integrated into an offering.

The service range

The service range is the set or mix of all services offered by an organisation for
customer use or purchase.

Few service marketing organisations offer only one service but a range of services. A
particular service range offered by a service organisation will be developed in
response to internal needs such as objectives, variety, etc., as well as in response to
external factors such as competition, seasonality, etc.

A service range has width and depth. Width refers to the number of service lines
offered by an organisation. Depth refers to the assortment of items within each
service line. A product line is a group of service items which share similar
characteristics in terms of customers, end use, price range, or sales methods.

32
The following is an illustrative service range of an imaginary college.

WIDTH OF RANGE

Business Secretarial programmes Medical studies

programmes programmes

Accountancy Stenography Pharmacy

DEPTH OF RANGE

Computing Personal Secretary Laboratory Technician

Human Resources Physiotherapy

Marketing

Production
Management

The college has three product lines: business programmes, secretarial programmes,
and medical studies programmes.
The width of the range is three (3)

The depth of range: Business programmes is five (5)

Secretarial programmes is two (2)

Medical studies programmes is three (3)

In developing a service range, careful attention should be devoted to:

 What the optimum range of service should be. There is no clear cut way to do
this, and most organisations rely on trial and error.

 The length and width of the range, and the complementarity of separate
services within it, and the synergistic effects of range developments.

 The profitability of the range of services. The Pareto Principle (80/20) should
be applied. The principle states that 80% of profit comes from 20% of
customers, and vice versa.

Core and satellite services

As discussed before, Core services are those services that are provided by a service
organisation which defines what that organisation does. They are the essential

33
services that, if changed, would make the organisation to change in relation to what
it provides. For example, a college may provide the core services of training, research
and consultancy. If these services were to be phased out and replaced with insurance
services, for example, then it would no longer be a college but an insurance
company.
Satellite services (or supplementary services) are all those services provided by a
service organisation to ensure total satisfaction of the core service. Satellite services
augment the core service. In the case of a college, satellite services would include
accommodation services, catering services and entertainment provided to students.
Satellite services can be phased out and would not change the purpose of the
business.

New service development

New service development involves the performance of all those activities that would
bring about the introduction of new services by a service organisation. However,
many service organisations do not have fully fledged new service development
departments.

Why new service development is not highly developed in many service

organisations

 Many service organisations have limited resources, such as human and

financial resources.
 Limited competition may lead to lack of motivation to innovate. This is
common with public sector services where many service firms operate as
monopolies.
 Services that are subjected to government regulation and control may provide
little opportunities for innovation, e.g., the case of ZESCO in Zambia.
 The relative newness of the service sector and the small amount of attention
it has received.

 The development of new services is much more difficult than the

development of new products.

34
Why service organisations should develop new services

 The need to remain competitive – new services are required to maintain

present sales success and to capitalise on changing requirements in the
marketplace.
 Replacing services eliminated from the portfolio – new services need to be
introduced to replace those which have been phased out and those whose
sales are declining

 To utilise excess capacity – new services will have to be introduced to take

advantage of spare capacity or unused facilities.
 Smoothing out seasonal fluctuations – many services are subject to seasonal
sales patterns, and require the introduction of new services to even out
fluctuations in sales.

 Risk reduction – new services may require to be introduced so as to balance

an existing sales pattern where heavy dependence may be placed on few
services offered.

 Exploiting new opportunities – new opportunities may arise through a

competitor dropping out of the market or through changing customer needs
and wants.

The new service development process

In product marketing, it is generally held that there is a systematic process in which
products come into being. This process is known as New Product Development (NPD)
and comprises of the following stages:

● Idea generation

● Idea screening

● Concept development and testing

● Business Analysis

● Product Development

● Test Marketing

● Commercialisation

35
In developing new services, marketers of service organisations can borrow from the
traditional marketing concept of how a service should be developed and adapt,
where possible, to come up with the following steps in developing a new service.

1 Idea generation

Ideas for new services may be generated in many ways, some of which are as
follows:

 Market research – locating areas of customer dissatisfaction with

current services.
 Long–range studies – predictions from changing economic and social
conditions.
 Market gap analysis – analysing of existing service perceptions.
 Consumer activity analysis – studying consumer activities to identify
unsatisfied needs, for example, studying a housewife's day.

 Competitors – copying from competitors.

 Learning from overseas experience – transferring foreign services.
 Internal creative process – e.g. brainstorming, lateral thinking,
synectics (problem solving method that stimulate thought processes
of which the subject may be unaware).

2 Idea screening

This stage is concerned with identifying those good ideas worth investing the
organisation's time, expenses and managerial commitment for further
research and study.

The following activities are conducted during the screening stage:

 The establishment of a new or previously agreed evaluation criterion to

enable comparison of ideas generated (e.g. ideas compatible with the
organisation's objectives and resources.

 The weighing, ranking and rating of the ideas against the criteria used.

 The ideas with the highest total scores are selected for further
development.

36
3 Concept development and testing
Concept development involves translating the service idea which is defined in
functional and objective terms into a service concept which is the specific
objective of consumer meaning that the organisation is trying to build into the
product idea.
Concept testing involves taking the concepts that have been developed and
getting reactions to them from groups of target customers. Considerations at
this stage can also be made in relation to service positioning. Service
positioning is the visual presentation of the image of an organisation's service
in relation either to competitive services or to other services in the
organisation's mix. This enables service attributes to be compared with
competitive offerings and with the consumer's perception of the service
relative to his/her needs.

4 Business analysis

Business analysis is concerned with translating the proposed idea into a real
business proposal. It includes a detailed analysis of the attractiveness of the
idea in business terms and its likely chances of success or failure. This will
involve analysing the following:

 Manpower required to implement the new service idea

 Additional physical resources required
 Sales estimates
 Costs over time
 Profits over time
 Contribution of the new service to the service range

 Likely customer reaction to the new service

 Likely competitors' reaction

5 Service development
This involves translating the idea into an actual service for the market.
Investment will be made into the project, staff recruited or trained, facilities
constructed, and establishment of communication systems. The tangible
elements of the service are then designed and tested. The organisation will
pay great attention to both the tangible elements and the service delivery
system.

37
6 Test marketing
This involves launching the service into a limited market and applying the
planned marketing mix so as to fine tune the mix elements that will be used
when the service is launched on full scale. However, not all services can be
test marketed. A number of services have to be available and operated to
designed levels of quality and performance from the introduction. A service
such as a bank's automatic teller machine can be test marketed in a limited
number of branches, but a training programme may not be test marketed.

7 Commercialisation
This involves launching the new service on a full scale. The major decisions to
be made at this stage include:

 When to introduce the new service

 Where to launch the new service (locally, regionally, nationally, or
internationally)

 To whom to launch the new service

 How to launch the new service

The David Birnbaun New Service Development Lifecycle

David Birnbaun of Pacific Horizons has proposed the following process in the creation
of new services:

38
Figure: The David Birnbaun New Service Development Lifecycle

Stage Characteristics
Identify the Customer Pain ● Emphasise on relationship with customer
Point ● Seek information from field staff
● Customer seeking relief? ● Interviews with customer
● Customer frustrated? ● Review of warranty claims
● Assessing competitors
● Look into other functional areas
Define the service ● Requires defining the components of service
Restate the customer pain point ● Develop a service delivery plan
into action plan ● Align with other functional areas
● Identify executive responsible for engaging with customers
● Does the customer require knowledge transfer?
● Monitor and measure customer satisfaction
Marketing and selling ● Deal with customer-based issues:
Package the service into an ▪ Pricing approach
offering that can be ▪ Discount policy
communicated and sold by the ▪ Sales contract
company ▪ Information package about service product -
○ notice,
○ brochure,
○ presentation at conference
▪ Fact-oriented summary of deliverables
▪ Sales channels to use
▪ Training of staff
Delivery and support ● Develop an implementation plan which is based on an
understanding of:
▪ Components of service product
▪ How the service product will be delivered
▪ Pre-requisite and requirement specification for the
customer
▪ Who will deliver the service?
▪ Service methodology
▪ Timeliness and milestones
▪ Payment terms and conditions
▪ Client training and support

39
Categories of service innovation

The categories of service innovation are discussed below, ranging from the basic to
the major/radical innovation.

(a) Style changes – these do not involve any change in process or delivery but
serve the purpose of creating visibility or excitement, e.g., outfitting
employees in new uniforms, introducing a new bank cheque, or changing
service scripts for employees.

(b) Service improvements – these refer to modest changes in service

performance.

(c) Supplementary service innovations – takes the form of adding new facilitating
or enhancing service elements to an existing core service or of significantly
improving an existing supplementary service.

(d) Process line extensions – this refers to offering a service in new distinctive
way which customers may find convenient, e.g., mobile banking - banks can
inform customers of account balances or any transaction on an account.

(e) Product line extension – this refers to the introduction of new services similar
to the existing ones.

(f) Major process innovation – these refer to new processes for delivering an
existing core service, e.g., a university introducing on-line learning.

(g) Major service delivery – this refers to introducing new and radical service
characteristics, e.g., 24-hour service where none existed.

THE SERVICE LIFE CYCLE

The service life cycle refers to the stages that a service passes through from the time
it is launched up the time it is phased out of the market. The service life cycle can be
depicted by plotting the level of sales and profits of a given service over time.

Introduction stage

At this stage the organisation will experience low sales of the new service that has
been launched. Low sales are mainly due to the small number of innovators who are

40
the initial customers to the new service, limited capacity of service delivery system
experienced in the early stages, and the problem of assuring service quality and
reliability. Profits are likely to be low due to high promotional costs and high unit
costs. At this stage, there may be few or no competitors. The service organisation's
marketing objective would relate to the creation of service awareness and trial
among innovators and early majority groups.

Growth stage

During this stage, sales start to rise so rapidly as most early adopters would have
started accepting the service. This acceptance is mainly due to the fact that the
service organisation has started differentiating the service and segmenting the
market. Profits reach the peak during this stage due to increased volume of sales
coupled with economies of scale being enjoyed (i.e. costs are falling). However, more
competitors will start entering the market due to the attractiveness of higher profits
being enjoyed by the already existing service firms in the industry. The service
organisation's marketing objective should be the maximisation of the market share.

Maturity stage

During this stage, sales growth start to slow down and finally peak. Major customers
are the early majority and late majority groups of adopters. Profits also start to
decline slowly due to the large number of competitors who have entered the service
industry (with the possibility of overcapacity), and the increased costs due to
intensified promotional activities, service differentiation. Price cuts made to beat
competitors also further reduce the profits. The service organisation's marketing
objective should now relate to maximising profits whilst defending the market share.

Decline stage

The sales at this stage will start declining and profits as well will be declining. The
main types of customers are laggards. The number of competitors will also be
declining. The marketing objective should relate to milking the service brand whilst
reducing marketing expenditure.

41
SERVICE GROWTH STRATEGIES
The marketer for a service organisation would require to design a business portfolio
that would enable the service organisation to be profitable now and in the future.
The marketing manager must consider the possible growth strategies available in
order to make the service organisation compete effectively. However, the marketing
manager must be careful so that the growth pursued is not growth for its own sake
but profitable growth.
The marketing manager can use the product/market expansion grid to identify
possible growth strategies.
Figure: The product/market expansion grid

42
Market penetration
This involves the service organisation making more sales from existing customers
without changing the service. This may include creating more service outlets where
existing customers can easily get the service, streamlining the service delivery system
or procedure, improving prices and advertising, extending service provision hours,
etc., which may encourage existing customers to get more services.

Market development
This involves the marketing manager for a service organisation identifying and
developing new markets where the existing services can be sold. This may include
identifying local geographic markets that are not currently being served, national
geographic markets, or international markets. The service organisation can also
consider new demographic markets that are not being served such as children,
women, ethnic groups, etc.
Product development

This involves the service organisation providing modified or new services to its
current customers. The purpose of product development is to make a complete and
rich offer to existing customer that would delight them and provide convenience to
them. In this way, the service organisation can obtain more business from existing
customers.

Diversification
Diversification involves the service organisation developing new services for new
markets. This may be a risky strategy since the organisation will be moving in those
services and markets where it has little or no experience. For example, a training
college that goes into insurance services which are sold to business firms would be
said to have diversified.

MANAGING THE SERVICE PORTFOLIO

The service portfolio consists of all those services that an organisation provides to its
customers. The service organisation should analyse and manage its service portfolio.

43
A Question Mark is any service that is in the market which is growing at a fast rate
but the firm has a small market share. This is a cash-using service that requires a lot
of investment in order for it to become a star. A low share means low profits while
high growth demands heavy investment.
A Star is a service in high growth market and the service has a large market share.
The cash flow from a star will be used in maintaining its market share as the market
grows. A star can be a self-sustaining service.
A Cash Cow is a service in a market that is growing at a low rate per annum, but the
market share is high. The service generates more cash than can profitably be
invested in a slow growing market in which it is already a leader. The service will
therefore be able to support other services with the cash it generates.

A Dog is a service that is in a low growth market with a low market share. The service
generates low profits barely sufficient to maintain it.

NEW SERVICES AND THE DIFFUSION PROCESS

The marketer of a service should also analyse how quickly the new service will be
adopted by the market.
Innovators – these are eager to try a new service and are often close with change
agents like sales staff and other opinion leaders. They are perceived to be risk takers,
prepared to try and willing to pay often premium process for being the first to try the
service. (Relate this to space tourism).

44
Early adopters - are also willing to change and are often opinion leaders themselves.
They are likely to have greater exposure to the mass media than the majority group,
and are certainly willing to change. They are likely to actively seek out information
about new services in specialist journals and other such media.
Early and late majority – these are generally more conservative and skeptical about
new services. They are cautious buyers who need some persuading, since they tend
to give a lot of thought before the purchase.
Laggards – are a smaller group of traditionalists who are not willing to change. They
may actually be forced to change only when their previous choice is obsolete and no
longer available. (For example, some banks are forcing their account holders to be
using the ATM than getting cash at the counter).
The diagram below shows these adopter categories.

Diffusion and marketing strategy

Service marketers would want to ensure a rapid diffusion or rate of adoption for a
new service. This allows them to gain a large share of the market before competitors
respond. A penetration policy associated with low introductory pricing and
promotion designed to facilitate trial are associated with such a strategy. However, if
a service is protected from competitors perhaps by patents, a skimming policy may
be adopted. Here, the price would initially be high before competitors respond with
their own versions of the service. This would guarantee high profits in the early
stages, and then the price can be reduced in stages so as to increase sales of the
service, in line with available capacity or competitors responses.

SERVICE PROTECTION
A service can be protected from copying by competitors through patents, trademarks

45
and copyrights. Some of these methods have limitations in relation to services.

A patent is the provision of monopoly right to exploit an invention for a stated period
of time. Such an invention should be novel (never existed before or used by anyone).
The fact that services are intangible, and that most services are not relatively new, it
is difficult to protect services through patents. This makes it easy for competitors to
copy a service.
A trademark is the protection of a distinctive word, name or other mark used to
indicate a connection, in the course of trade, between a service (or product) and the
owner (service organisation). It is possible for a service organisation to register its
trademarks as a way of protecting its services although there are limitations as to the
types of services that can be protected in this way.
A copyright is the protection of authors, artists, composers, etc. from being deprived
of their rewards by unauthorised copying of their works.
In all, lack of protection for most services means that service innovations can have
short life cycles because competitors can easily copy. For certain services, however,
the expertise required may make it difficult for competitors to copy. For example,
heart surgery.

Warranties
A warranty is an express or implied undertaking on the part of the vendor (service
organisation) that the service being sold is the vendor's and is fit for use or fulfils
specified conditions.,
Certain services would require the application of warranties as a way of guaranteeing
the provision of a service in future (e.g. financial services, insurance services), or as a
strategy to build strong customer retention and goodwill (e.g., delayed airline
customers).

After-sales services
After-sales services are all those services provided by the vendor to customers after
the purchase or provision of service. These may include check-ups, service
organisation making special arrangements on behalf of a customer, advice, etc.
After-sales services are important in services marketing because:

46
  Their availability can help to sell a service in the first place
 They can help to maintain and develop customer loyalty and goodwill
 They can become means through which feedback about service performance
can be obtained by a service organisation

 They can become a means of obtaining suggestions and new ideas for new
and improved services.

SERVICE ELIMINATION
In order to maintain a healthy and profitable service portfolio, a service organisation
requires to adopt a systematic approach to service elimination.

Advantages of using a systematic approach to service elimination

 Improved profitability – the approach would eliminate all those services

whose sales are low or costs are high, thus leaving a portfolio of services that
would be more profitable to the service organisation.
 Time saving – time can be devoted to more successful services, allowing them
to be fully exploited.
 Untying up of resources – marginal services tie up other resources such as
personnel and advertising budgets. If these marginal services are eliminated,
more resources would be available which can be put to better use in other
areas.
 Speeding up of new service development – weak services can delay the
search for new ones which can lead to an unhealthy portfolio. If weak services
are eliminated, it can force the organisation to introduce new ones.

Drawbacks to the use of a systematic approach to service elimination

 Some managers and employees may have strong sentimental feelings and
vested interests, and may frustrate the need to use a systematic approach to
service elimination.

47
  There may be hope that although sales are currently low, the situation will
improve in the near future, thus allowing a weak or marginal service to be
provided.
 There may be a possibility of disruptive consequences that may follow the
elimination of a particular service as it may require, for example, to pay high
redundancy packages to laid off employees, legal suits from customers, etc.
 There may be some interrelationship that may exist between the sale of
different services which may affect sales of other services, and this may allow
continuation with weaker services.

INCREASING THE TANGIBILITY OF SERVICES

Services are generally intangible. This means that a service cannot be touched or
tasted.
The marketer of a service can deal with the intangibility of a service (i.e. increasing its
tangibility) in the following ways:
(a) Use physical or conceptual representations or illustrations to make customers
feel more confident as to what it is the service is delivering.

(b) Focus the attention of the customer on the principal benefits of consumption,
by communicating the benefits of purchasing the service so that the customer
visualises its use.

(c) Differentiate the service and build reputation by offering excellence in the
delivery of the service.

(d) Creating physical evidences such as:

 At the environment of service delivery through colour, layout, staff
uniforms, noise levels, smells, ambience, website design.
 Facilities such as vehicles, vans, equipment, tool.
 Tangible evidence of purchase or use such as certificates, labels and other
printed information, tickets, vouchers, purchase confirmation, logos and
other visible evidence of brand identity, packaging.

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CUSTOMISING THE SERVICE
Customisation is the process of segmenting and targeting each individual customer
as a separate entity or segment and making an offer that would satisfy each
individual customer.

 Customisation requires the marketer to identify each individual's needs or

wants and then tailoring the service to meet those specific individual
requirements. As such, customisation requires the availability of a
customer database that would capture data on each customer so that the
mix elements can be arranged to meet those individual needs or wants.
 Customisation is possible in those service areas which require high level of
skill on the part of the service provider, which can be a source of
competitive advantage.
 Customisation leads to increased customer satisfaction, which makes
customers to become loyal, and therefore repeat purchases.
 It leads to the strengthening of customer relationships between the
service provider and the customer, and therefore making it easy to
implement relationship marketing.
 It can lead to an improved corporate image because it reduces customer
complaints, and satisfied customers can become advocates of the
organisation who can make referrals (they become 'unpaid salespersons')

The marketer applying the concept of customisation should consider its drawbacks,
some of which are:
 It increases operational costs. The firm cannot enjoy economies of scale,
leading to lower profits unless the firm raises the prices.

 Prices set for the services will tend to be high and can limit demand. However,
this can work well if the firm is serving a market niche.
 For certain services, it may require the utilisation of more personnel which can
increase costs. At the same time, it would also cause an increase in the
variability of the service provided to an individual at different times and this
may lead to more customer dissatisfaction.

DELIVERING QUALITY SERVICE

The service marketer must design the marketing programme with the view of

49
 ensuring that it leads to better customer satisfaction. This requires the marketer to
come up with a way of ensuring that the quality of service delivered to customers is
high. The following procedure can be applied to ensure this is achieved:
 Assessing and shaping of customer expectations
 Careful selection and training of personnel
 Internal marketing

 Using practices to obtain consistent behavior

 Ensuring consistent appearance

 Reducing the importance of personal contact

 Careful control through personnel audit

The above factors are now discussed in detail.

1 Assessing and shaping of customer expectations

This is the first step that should be done in order to deliver quality service to
customers. It involves identifying the level of service standards customers will
assume. The service marketer has to conduct marketing research to identify key
service factors in terms of:
 Their importance
 The expected levels
The service marketer will then prepare a service concept and test it on customers.

2 Careful selection and training of personnel

It is imperative that the service personnel are carefully selected and trained. This
means that the recruitment, selection, training and development programmes
should be tailored to the needs of customers to which the services are being
provided.
The service personnel must clearly understand the job. This involves:

 Drawing up detailed job specifications

50
  Clear definition of qualities of service personnel needed
 Stating the type of education, experience, and skills required
 Stating the communication demands that will be placed on them by
customers

 Specifying how the job will be controlled and organised

3 Internal marketing

Internal marketing involves a variety of approaches and techniques used by which an

organisation acquires, motivates, equips and retains customer-conscious employees,
in order to help retain customers through achieving high quality service delivery and
increased customer satisfaction.

Internal marketing requires the creating, developing and maintaining an internal

service culture and orientation. It is the acknowledgement of the impact of employee
behavior and attitude on the relationship between staff and external customers.
It requires making employees develop an understanding of how their tasks, and the
way they perform them, create and deliver value and build relationships.

Activities necessary for effective implementation of internal marketing

In order to effectively implement internal marketing in a service organisation, the
following activities should be performed.
(a) Organisational design – e.g. drawing employees together in cross-
functional customer service or quality teams.
(b) Regular staff surveys – assessing internal staff culture and attitudes.
(c) Internal customer segmentation – adapting the internal marketing mix
to different employee groups.
(d) Personnel development and training – focused on core competences
for internal marketing.
(e) Empowerment and involvement – enabling staff, within defined
parameters, to use their discretion to deliver better service to
customers.
(f) Recognition and rewards – based on employees’ contribution to
service excellence.

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The internal marketing mix
This involves relating the elements of the marketing mix to internal customers as
follows:

Product
The product may be:
- The marketing plan and strategies that are being proposed.
- The attitudes, values and actions needed to make the plan successful (e.g.
marketing budgets, extra staff)
Price
This is what internal customers are being asked to pay or sacrifice as a result of
accepting the marketing plan (e.g. lost resources, lower status, new ways of working,
harder work, etc.).

Promotion (Communications)

This relates to the communications media and messages used to inform, persuade,
and gain support of internal customers for the marketing plan. E.g., minutes, reports,
leaflets, service provider manuals, etc.

Place
This relates to how the product (marketing plan) and communications are delivered
to internal customers, such as via meeting, committees, seminars, informal
conversations, etc. this may be direct or via intermediaries (e.g. consultants).

(The internal marketing mix may include such elements as processes, procedures,
and physical evidence).

Segmenting the internal market

The internal marketing mix will need to be adapted to the needs and wants of the
target audience. The internal market can be segmented into groups using the
following models:

(a) Jobber’s segmentation model

Jobber suggested segmenting internal customers into the following three

groups.

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  Supporters are those who are likely to gain from the change or plan, or are
already committed to it.
 Neutrals are those who are likely to experience both gains and losses from
the change or plan.
 Opposers are those who are likely to lose from the change or plan, or are
traditional opponents.
Using this model, the internal marketer can then adjust the marketing mix to
suit the segment being targeted. For example:-
o The product (service plan) and price may have to be modified to
gain acceptance from opposers.
o Place decisions will be used to reach each group more effectively.
For example, using high-involvement approaches such as
consultation meetings for supporters and neutrals.
o Promotion objectives will also differ according to the target group,
because of their positions or issues.

(b) Christopher et al’s Segmentation Model

This is based on how close internal customers are to external customers. Four
groups were identified:
 Contactors are internal customers who have frequent or regular
customer contact and are heavily involved with conventional marketing
activities. Examples include sales persons, customer service personnel,
etc. Contactors need to be well versed in the firm’s marketing strategy
and they must also be trained, prepared and motivated to service
customers on a day-to-day basis in a responsive manner.
 Modifiers are not directly involved with the conventional marketing
activities, but still have frequent contact with customers. Examples
include receptionists, switchboard, and the credit department. They
need a clear view of the organisation’s marketing strategy and the
importance of being responsive to customer needs.
 Influencers are involved with the traditional elements of marketing,
but have little or no direct contact with customers. Examples include
product development or marketing research personnel. The service
firm must ensure that influencers develop a sense of customer
responsiveness, as they influence the total value of the offering to the
customer.
 Isolators (Part-time marketers) are support functions that have neither

53
 direct customer contact nor marketing input. However, their activities
affect the organisation’s performance. Examples include purchasing,
human resource, and data processing. Isolators need to be sensitive to
the needs of internal customers as well as their role in the chain that
delivers value to the customers.

The diagram below shows these categories.

Contact with customers

Frequent Infrequent
Marketing activity involvement

Contactors Influencers
High
Frequent Infrequent/None

Low Modifiers Isolators

Infrequent Low/None

4 Using practices to obtain consistent behaviour

The behavior of customers affects the behavior of service providers and affect the
quality of service provided which may vary from one individual provider to another.
Therefore, achieving consistent behavior among service personnel is very important
in a service organisation. The organisation must establish set procedures for some
services to ensure consistency in the behavior of personnel. The set procedures must
be rigid enough, but allowing some element of flexibility so that they can be able to
meet varying customer needs. These may include, for example:
 Setting standards of performance
 Developing individuals
 Management training

 Manpower planning

54
  Profit sharing scheme

5 Ensuring consistent appearance

Services are intangible, and one way of achieving tangibility is through the
appearance of the organisation and its personnel. Customers are likely to choose a
service organisation that suggests that its place of business and personnel will deliver
the desired quality for the satisfaction of their needs. The appearance of service
personnel is one way of suggesting the image of the firm and quality of service.
Consistent appearance of personnel can be achieved through the following:
(a) Use of uniforms and style of dress
The firm can adopt a formal style of dress such as top coats (doctors),
complete uniform (airliners), or complete uniform and accessories –
this may be for protective or promotional purposes. The firm can adopt
an acceptable style of dress (but not uniform), such as suits and ties,
and discourage unacceptable style of dress (such as casual wear). This
is done where uniformity is required.

(b) Use of non-conforming style of dress

The service firm can adopt a varying style of non-conforming dress to
express an image of variety (e.g. advertising agency).
(c) Standardising appearance

The firm can standardise the appearance of service personnel by

recruiting those with specific characteristics, such as height, age range,
slimness, and so on.
(d) Encouraging personal care
The service firm can provide personal care so that its service personnel
have standard appearance. This may include hairdressing facilities,
beauty parlours, and so on.

6 Reducing the importance of personal contact

The marketing of services lies in the belief that they should be people-intensive.
However, marketers of services can use modern technology to ensure they provide
an efficient service. The mechanisation of service provision can lead to standardised
service and delivery of high quality service.
Examples include:

55
  Use of consumer credit cards
 Automatic car washes
 Automatic bank machines
 Airport x-ray machines
 Video conferencing for learning
 Purchase of tickets on the Internet
 Telephone banking and purchase of mobile phone airtime

 Automatic vending machines, and so on.

7 Careful control through personnel audit
The service organisation must strive to create and maintain a perceived image to
equal or surpass the required image. This would imply:

 Establishing norms and standards of behaviour for service personnel

 Establishing evaluative systems that would ensure the established standards

are adhered to.
This means the use of the service personnel audit. A service personnel audit is a
systematic, comprehensive, critical and unbiased review of service personnel
practices. The service personnel audit may be part of the marketing audit.
The service personnel audit is intended to:
 Support effective marketing practices

 Correct faulty behaviour.

The firm can use:

 Sales related systems

 Complaint systems
 Suggestion systems
 Audit visits (routine, structured and unannounced and vice versa)
 Customer satisfaction surveys.

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PRICING OF SERVICES
Pricing decisions are of major importance in service marketing strategy. Many service
marketing organisations are customer dominated. Price represents the sacrifice a
consumer makes in exchange for a perceived service.

Price is the amount of money charged for a product or service. More broadly, price is
the sum of values that consumers exchange for the benefits of having or using the
product or service.

Pricing must, accordingly, be managed properly. Different terminologies for pricing

are used given the great diversity of the environment in which services are offered.
Some examples are shown below.

Table: Price terminology for selected services

Nature of service Terminology

Education Tuition fees
Transport Fare
Accommodation Rent
Insurance Premium
Employee’s services Salary

Characteristics of services and their price implications

Intangibility

This raises the question of the degree of intangibility inherent in a service. When a
service has a degree of material content, pricing is usually based on cost, and the
price can be standardised. For example, the service at a hotel.

If the service is dominated by intangibility, price is likely to be dominated by the

customer and there will be considerable flexibility, such as negotiation involved in
the provision of education.

Perishability

The combination of service perishability and fluctuating demand has the following
price implications:

57
 ● A customer can defer consumption and create a buyer’s market, thus
price can be consumer driven, e.g. selling of vegetables at a market.

● A supplier of a service will be under considerable pressure to sell a

service and may offer price discounts e.g. holiday packages and hotels,
and air travel.

● Customers may take advantage of performance postponement of a

service to perform the service themselves and thereby depress price,
e.g. repair and maintenance, catering, or housekeeping services.

Heterogeneity

The aspect of heterogeneity has the following price implications:

● When services vary in quality, it is possible to negotiate price.

● The more unique a service, the greater will be the seller’s discretion in
setting the price.

● If services are heterogeneous, pricing may be competitive. However,

for strategic services, a regulatory body can set prices to prevent price
cutting and speculation.

Inseparability

Inseparability has the following price implications:

● Price may depend on the service provider, e.g. legal services.

● It may restrict consumption to geographic areas, and the degree of

competition within the geographical area may influence the price.

Price implications of service classifications

The nature of regulation in respect of service provision may be used to categorise

services, and the following classification of services may be used to classify the
services:

58
 ● Services subject to public regulation

● Services subject to formal self-regulation

● Services subject to regulation in the marketplace

(a) Services subject to public regulation

Some services are publicly regulated. Such services include

telecommunications, energy, health services, and education.

The following implications may arise:

● Price may be controlled for political and social reasons.

● Marketers may have to place emphasis on non-price factors to achieve

marketing objectives.

● Cost recovery may be the singular major consideration.

● Tax may be used to fund a service, and such considerations are in the
realm of government.

(b) Services subject to self-regulation

Professional services are usually self-regulated by the respective professional

bodies. Legal, airline and audit services fall in this category.

The following implications may arise:

● Little discretion exist for an individual service provider for as long as

they value membership to the association.

● Marketers may have to place reliance on non-price factors to achieve

marketing objectives.

● The price may be based on the cost structure of the least efficient firm
in the profession.

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(c) Services subject to regulation in the marketplace

This applies to the provision of many kinds of services. Prices charged depend
on what the market will bear or the factors obtaining in the marketplace such
as:

● Economic conditions

● Consumer feelings about prices

● Consumer perception of certain services

● Competition in the marketplace

● Level of demand

● Buyer need urgency

The following services are some examples of pricing being determined by the
marketplace:

● Banking

● Insurance

● Dry cleaning

● Private school fees

● Housing rentals

● Garage repairs

● Security services

Pricing and marketing strategy

Marketing strategies imply that various elements of the marketing mix are integrated
in order to achieve the company’s objectives. Similarly, a pricing strategy is based on
taking into account a number of factors in order to pursue a specific objective. Some
of the significant elements are:

60
(a) What is the strategic role of price?

● Strategy provides a sense of direction for the entire firm.

● A pricing policy must therefore contribute value to corporate purpose

and blend in with other functional responsibilities.

● There are four objectives for pricing of services:

▪ To seek profit by making the largest possible contribution.

▪ To cover costs, particularly those of providing the service.

▪ To build demand.

▪ To build a customer base on a sustainable basis by maximising

patronage.

The pursuit of any of these objectives must necessarily be compatible

with other functional areas. For instance, in order to build market
share, a firm might set a penetration price to reach as many customers
as possible. However, such a goal must be based on sound financial
management, a responsibility of the finance department.

(b) What is the planned market position of the service product?

● A market position refers to how the firm is seen in relation to others in

the industry.

● Some firms are perceived as market leaders, others as market

challengers to market leaders, others as market followers, and still
others as market nichers.

● A pricing policy must be set in the context of the market position in

which the firm finds itself.

● A market leader sets a price that reflects responsibility for the entire
industry. A market challenger must set a price that does not bring
retaliation from the market leader; the market follower must diligently
follow industry trends; and the market nicher’s pricing policy must
serve to protect and enhance the niche market.

61
(c) What is the competitive situation?

● The nature and intensity of competition will have an influence on the

extent to which price can be manipulated to the advantage in the
marketplace.

● In some situations, such as one where there is little or no service

differentiation, a firm might find that there is little or limited latitude in
using price to competitive advantage and the firm may very well have
to rely on non-price methods to gain competitive advantage.

(d) What is the elasticity of demand for the product?

● Elasticity of demand refers to how responsive demand is to price

changes.

● If a small change in price has a large impact on sales, demand for that
particular service is said to be price elastic.

● If, on the other hand, a change in price has little or no effect on sales,
demand is described as price inelastic.

● There is unquestionably more discretion on the part of the marketer

when demand is inelastic as opposed to a situation of demand
elasticity.

● Elasticity imposes limitations on certain price alternatives.

(e) What is the stage of the life-cycle of the service product?

● The PLC concept seems to have little application in services marketing.

● This is however qualified in the sense that some service sectors have
been observed with certain characteristics of one stage or another, but
no case had been shown where the service sector went through the
process.

● Thus, cases exist where a penetration price was used to gain an entry
into a market but it was difficult to establish a sequential development
of the next stage.

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Methods of pricing services

Service organisations may use the following methods to determine the price at which
a service will be priced:

(a) Cost-based pricing

● Profit-oriented firms can aim at achieving some minimum profit level.

This occurs among professional service providers who are averse to
being perceived as greedy.

● It may also occur in respect of services that have a wide consumption

base such as sports services, exhibitions such as the Zambia
International Trade fair in Ndola.

● A variation of cost-based pricing is when the government controls

prices with the aim of protecting the consumer. Such prices are based
on cost plus a modest profit margin.

There are, however, difficulties with this approach:

● Services are difficult to describe and measure because a "unit"

of service cannot easily be established.

● Most costs related to a service are principally "people costs."

● Cost allocation is difficult to implement where services are

involved; such costs as rent and travel are problematic in
determining a cost center (an activity within the organisation to
which costs are assigned).

● When costs are used as a basis for pricing, there may be little
incentive to control the costs.

(b) Market-oriented pricing

Market-oriented pricing can be:

● Competitive – this can be prompted by competition by which a firm

must accept the going rate in order to increase or protect its market
share, e.g. mobile telecommunication.

● Customer-oriented – it can also be driven by customers’ attitudes and

63
 behavior, in which case service quality is called for, e.g. business travel.

Price tactics

Some of the tactical pricing techniques can equally be used to sell tangibles. The
choice as to which to apply will largely depend on the kind of services involved, the
target market, and general conditions prevailing in the marketplace at the time.

(a) Differential or flexible pricing – this is the practice of charging different prices
according to customers’ ability to pay. It is used to:

● Build primary demand particularly for non-peak periods

● Even out fluctuations in demand for the service

Some forms of differential pricing are:

● Price-time differentials, e.g. as used in holidays

● Customer ability to pay

● Service type differentials, e.g. different types of models of

service –dry cleaning (express or 24 hour service)

● Place differentials, .g. in hotel room pricing, seat position at an

entertainment function – grand stand or front seat

Difficulties with differential pricing are that:

● Customers may delay their purchase in anticipation of

differential to be exercised.

● Customers may come to expect the discount as a regular

feature.

(b) Discount pricing – these are special reductions or payments to a customer.

They serve two purposes:

● It is a payment or reward for services undertaken which enable

the service to be provided or consumed, e.g. commission paid to

64
 intermediaries.

● They can be used as promotional devices intended to encourage

early payment, bulk purchase or off-peak usage/consumption,
e.g. special rates offered by hotels during week-ends.

A major drawback of discount pricing is that the discounts offered erode profit
margins.

(c) Diversionary pricing – this is where a low price is quoted for a service or part
of a service is offered to give the impression of a low price, e.g. a low price for
a basic meal is offered but other more attractive and expensive options are
also offered, or one is made to pay more for supplementary services.

(d) Offset pricing – this is where a low basic price is quoted but "extras"
associated with the service are excluded. For example, a lawyer quotes for his
time in court but leaves out travel and board expenses which must be borne
by the client.

(e) Price lining – this is where prices are not varied but the quality, quantity and
level of service reflect actual cost changes. It is appropriate where a fixed set
of charges can apply to a range of standard services. Leasing and chain type
services are good examples, e.g. maintaining the same price for a service item
in different retail outlets.

(f) High price maintenance pricing (or Premium pricing) – here, consumers
associate the price of a service with its quality. This is practiced where
suppliers of a service deliberately pursue a 'high quality, high price' posture.
Price is used as an index of quality. An example might be of a high profile
tailor, or surgeon. This would cater to a select market segment.

(g) Loss leader pricing (or Price leaders) – this refers to a pricing strategy/services
that are sold by a firm at or below cost to attract customers in the hope that

65
 the attracted customers will buy other full priced services. This tactic is often
used in department stores and supermarkets to sell physical products. Its
application to services may be limited. This tactic is appropriate when:

● Customers are dissatisfied with existing suppliers of the type of service

(competitors)

● Buyers are relatively unsophisticated

● Market prices are not competitive

Caution: Customers may resist paying a higher price on future orders, should
the service firm decide to increase the price on price leaders.

(h) Penetration pricing – this involves charging an initial lower price for a new
service in order to secure rapid wide penetration of the market. The price may
be increased at a later stage.

(i) Skimming pricing – this involves setting the original price high in the early
stages of the life cycle of a service in an attempt to get as much profit as
possible before prices are driven down by increasing competition.

Putting service pricing into practice

The following questions are worth keeping in mind in implementing a pricing

strategy:

(a) How much should be charged for a particular service?

It is necessary to be realistic in charging a particular price, bearing in mind that

any price is a function of costs, competition and value to a customer.

(b) What should be the basis of pricing?

Because it is not easy to define a unit of service, there are a number of

options that may be used depending on the nature of service and the
marketing circumstance. These alternative bases include:

● Basing price upon undertaking in part or in total the promised

service
66
 ● Basing price on time used in executing a service

● Basing price on admission to a service facility

● Basing price on physical resources consumed

● Basing price on geographical distance covered in rendering the

service

● Basing price on the value of the transaction

(c) Who should collect payment?

Where supplementary services are used and delegated, it is necessary for the
service provider to allocate the responsibility of collecting payment between
the provider and the intermediary. Intermediaries may in some instances be
preferred by the customer because of working closely with a customer, rather
than the original supplier.

(d) Where payment should be made?

Air transportation is a classic example of a situation where the service delivery

site (airport) is not conveniently located in relation to where a potential
passenger lives or works. However, with the many services providers
establishing online payment facilities, the inconvenience may be overcome.

(e) When should payment be made?

Payment for services is usually of two modes: either the customer pays in
advance of service delivery or pays after the service has been delivered.
Advance payments are risky when the service supplier is dishonest or
unfolding circumstances genuinely preclude the completion of a task. This is
common today in Zambia particularly in road construction or rehabilitation.
Dishonesty may also occur in instances where customers receive the full
benefits of a service but are not able to settle the bill at the end of the day.
Many hotels in Zambia have experienced this problem and it is a common
practice – particularly in lodges – to demand payment in advance, often at the
risk of irritating a customer. In the long term, electronic funds transfer and the
charge card system may be the answer.

67
(f) How should prices be communicated to the target market?

Finally, customers need know in advance the price of services, and how,
where, to whom and when they should make the payment.

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EVALUATING SERVICE MARKETING OPERATIONS (DISTRIBUTION)

Importance of distribution to service businesses

Distribution channels consist of individuals and firms who take title or help transfer
title to the particular good or service as it moves from producer to consumer.
The need to use intermediaries is based on the following reasons:
 Intermediaries are usually more efficient.
 Intermediaries reduce the number of transactions.
 Intermediaries provide broader market exposure.

 Most producers/service providers lack capital to market to consumers (and

the money needed can be used elsewhere in the firm).

What is distributed?
In services marketing, there is usually nothing to physically move as is the case with
the selling of physical goods. Experiences, performances, and solutions are not
physically shipped and stored. In a typical sales cycle, distribution embraces three
interrelated flows, which partially addresses what is distributed in the selling of a
service:
 Information and promotion flow – distribution of information and promotional
materials relating to the service offer. The objective is to get the customer
interested in buying the service.
 Negotiation flow – reaching an agreement on the service features and
configuration, and the terms of the offer, so that a purchase contract can be
closed. The objective is to sell the right to use a service (e.g., sell a reservation
or ticket).
 Product flow – many services, especially those involving people processing or
possession processing, require physical facilities for delivery. Here,
distribution strategy requires the development of a network of local sites. For
information-processing services, such as Internet banking, distance learning,
broadcast news, and entertainment, the product flow can be undertaken via
electronic channels, employing one or more centralised sites.

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Use of intermediaries
The distribution channels used to physically move goods from producers to
consumers do not usually lend themselves to the marketing of services. At the same
time, there has been greater negligence of distribution as a marketing mix element,
and hence less adaptation of distribution has been done to suit service marketing.
However, these problems arise due to the following factors:

 Services are intangible and would make it difficult to transfer ownership to

intermediaries.
 Provision of service tends to be inseparable from the person performing that
service, making it difficult to use intermediaries.
 Services are perishable since they cannot be stocked (inventory cannot be
carried).

As such, the definition of the term “distribution” in service marketing would mean
the following. “Any extra corporate entity between the producer of a service and
prospective users that is utilised to make the service available and/or more
convenient.”

Areas of distribution management analysis for service marketing organisations are:

 Methods of distributing services
 Location of outlets

Methods of distributing services

The options available to service marketing are:

 Direct distribution
 Indirect distribution using intermediaries

 Combination of direct and indirect distribution

1 Direct distribution
This involves moving a service from the producer (service provider) to
consumers without using any channel members. This is the most common in
service marketing due to the fact that services are inseparable from the
service provider.

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 Direct distribution is achieved through:
 Customers going to the service provider; or
 Service provider going to customers.

Direct distribution provides the following advantages to the service marketing

organisation:
 It enables the firm to have better control on how the service is provided
to consumers.

 It makes it possible to differentiate the service from those offered by

competing service firms.
 Direct feedback from consumers can easily be obtained on their
needs/wants and their perceptions of competing offerings.
Disadvantages of direct distribution of a service include the following:
 Expansion of the business may be problematic if demand is high.

 It leads to limited market coverage which can lead to dissatisfied

customers and possible switching by the customers (if an organisation
has a large clientele).

2 Indirect distribution (using intermediaries)

This method of distribution is used by some service organisation. It involves

providing the service by using other firms or individuals. The specific
combination and structure tend to vary from one service organisation to
another. Many service firms find it cost-effective to outsource certain tasks.
Most frequently, this delegation concerns supplementary service elements.
Therefore, most indirect distribution involves allowing other firms and
individuals to provide supplementary services to customers as a means of
making the core service available and convenient to consumers.
The most frequently used indirect channels of distribution include the
following:

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(a) Agents
These are businesses that may sell the service on behalf of a marketing
organisation without taking title to the services, and are paid
commission for the job they do on behalf of the service organisation.
Businesses such as hotels, insurance firms, and firms seeking
employees may use agents.

(b) Institutional middlemen

These are clearly assigned businesses in certain markets who perform
certain pivotal roles in those markets. For example, stockbrokers are
institutional middlemen between limited companies and shareholders,
so are advertising agencies who stand between the advertisers and
media owners.

(c) Wholesalers

These are institutions that assist in industrial markets to provide an

efficient service. For example, firms involved in laundry services for
large businesses (they collect laundry), and merchant banks (they
provide financial services to businesses, and not directly to individuals).

(d) Retailers
These are large retail businesses that provide different services in their
stores on behalf of service marketing organisations. For example, a
supermarket or hypermarket providing banking services, laundry
services, and a photographic studio.

(e) Franchising
This involves allowing other firms to deliver both the core service and
supplementary services using a special type of contract. Franchising has
become a popular way to expand delivery of an effective service
concept, enabling all the 7Ps to multiple sites without the level of
investment capital that would be needed for rapid expansion of
company-owned and–managed sites. A franchisor would go on to
recruit entrepreneurs who are willing to invest their own time and
equity in managing a previously developed service concept. In return,

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 the franchisor provides training to these franchisees in how to operate
and market business, sell necessary supplies, and provide promotional
support at a national or regional level to augment local marketing
activities that are paid for by the franchisees, but must adhere to copy
and media guidelines prescribed by the franchisor.

These forms are general, but specific service organisations may use a
combination of different intermediaries. The following are examples.
(a) Intermediaries used by a bank to distribute money products
could include:
 Clearing banks
 Merchant banks
 Finance houses

 Building societies
 Cheque traders

 Credit cards
 Government
 Stockbrokers

 Unit trust and Insurance and Assurance companies

(b) Insurance companies can use:

 Merchants

 Brokers (serving many insurance companies)

 Travel agents
 Vending machines selling insurance services

 Retail outlets selling medical insurance

 Insurance agents

 Freelance sales agents/persons

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 (c) Hotels may use the following intermediaries:
 Tourist boards – acting as booking agents
 Hotel representatives – acting as sales agents
 Airlines – integrated with hotels to provide a complete offer
 Tour operators (reserve blocks of rooms)
 Travel agents (selling rooms on behalf of a hotel)
 Centralised reservation systems – where a chain of hotels use
one point for sale of rooms

Location
This involves making decisions on the specific points for the service firm and its
intermediaries where people and facilities used to provide a service will be placed
(i.e. the siting of service operations).
Factors affecting location of service facilities include the following:
 Location of customers

 Dispersion of customers

 Frequency of purchase of service

 Variability of demand

 Whether customers go to the service provider to get the service or not

 Nature of the service (convenience, specialty service, etc.)

Distribution options for servicing customers: determining the type of contact

A service firm needs to make decisions on how the services will be distributed. The
firm will need to answer key questions to make relevant decisions:
 Does the service or the firm’s positioning strategy require customers to be in
direct physical contact with its personnel, equipment and facilities?
 If so, do customers have to visit the facilities of the service organisation, or
will the latter send personnel and equipment to customers’ own sites?

 Alternatively, can transactions between provider and customer be completed

at arm’s length through the use of either telecommunications or physical

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 channels of distribution? and
 For each of these three options, should the firm maintain just a single outlet
or offer to serve customers through multiple outlets at different locations?
The three possible options, together with their availability of service outlets are
illustrated below.
Options for service delivery

NATURE OF INTERACTION BETWEEN AVAIALBILITY OF SERVICE OUTLET

CUSTOMERS AND SERVICE SINGLE SITE MULTIPLE SITES
ORGANISATION

Theater Bus service

Customer goes to service organisation Barbershop Fast-food chain

House painting Mail delivery

Service organisation comes to customer Mobile car wash Auto club road service

Customer and service organisation Credit card Broadcast network

transact remotely (mail or electronic company
Telephone company
communications)
Local TV station

(a) Customer visits the service site

The convenience of service factory locations and operational schedules
assume great importance when a customer has to be physically present –
either through service delivery or even just to initiate and/or terminate the
transaction. Elaborate statistical analysis, in the form of retail gravity models,
is sometimes used to aid decisions on where to locate supermarkets and
similar large stores relative to prospective customers’ homes and workplaces.
Traffic and pedestrian counts help to establish how many prospective
customers pass by certain locations in a day.

(b) Service providers go to the customers

For some types of services, the supplier visits the customer. Examples include
door-to-door mail delivery services, and outdoor catering services. Going to

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 the customer’s site is unavoidable whenever the object of the service is some
immovable physical item, such as a tree to be pruned, installed machinery to
be repaired, or a house that requires pest-control treatment. In other
instances, going to the customer is optional. Because it is more expensive and
time consuming for the service firm to send personnel and their equipment to
travel to the customer rather than vice versa, the trend has been toward
requiring customers to come to the service provider instead.

In general, service providers are more likely to visit corporate customers at

their premises than to visit individuals in their homes, reflecting the large
volume associated with business-to-business (B2B) transactions. However,
there may be a profitable niche in serving individuals willing to pay a premium
price for the convenience of receiving personal visits.

(c) The service transaction is conducted remotely

When you deal with a service firm through remote transactions, you may
never see the service facilities and meet service personnel face-to-face. There
tend to be service encounters, and those encounters that you do have with
service personnel are more likely to be made via a call centre, or even more
remotely, by mail or email.

Repair services for small pieces of equipment sometimes require customers to

ship the product to a maintenance facility where they are serviced and then
returned by mail (with the option of paying extra for express shipment). Many
service providers offer solutions with the help of integrated logistics firms
such as FedEx, DHL, or UPS. These solutions range from storage and express
delivery of spare parts for aircraft (B2B delivery), to pickup of defective cell
phones from the customer’s home and subsequent return of the repaired
phones to the customer (B2C pickup delivery, also called “reverse logistics”).

Balancing demand and productive capacity

Fluctuating in demand is a major challenge for many types of capacity-constrained

service organisations, including airlines, restaurants, vacation resorts, courier
services, consulting firms, theatres, and call centres. These fluctuations may range in
frequency from as long as a season of the year to as short as an hour, and they play
havoc with efficient use of productive assets, thus eroding productivity. By working
collaboratively with managers in operations and human resources, service marketers
may be able to develop strategies to bring demand and capacity into balance in ways
that create benefits for customers as well as improving financial returns for the
business.

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Defining productive capacity

Productive capacity refers to the resources or assets that a firm can employ to
create goods and services. In a service context, productive capacity can take several
forms:

(a) Physical facilities designed to contain customers and used for delivering
people-processing services or mental stimulating processing services.
Examples include medical clinics, hotels, passenger aircrafts, and college
classrooms. The primary capacity constraint is likely to be defined in terms
of such furnishings as beds, rooms, or seats. In some cases, for health or
safety reasons, local regulations may set an upper limit to the number of
people allowed in.

(b) Physical facilities designed for storing or processing goods that either
belong to customers or are being offered to them for sale. Examples
include pipelines, warehouses, parking lots, and railroad freight wagons.

(c) Physical equipment used to process people, possessions, or information

may embrace a huge range of items and may be very situation specific –
diagnostic equipment, airport security detectors, toll gates, bank ATMs,
and “seats” in a call centre - are among the many items whose absence in
sufficient numbers for a given level of demand can bring service to a crawl
(or even a complete stop).
(d) Labour is a key element of productive capacity in all high-contact services
and many low-contact ones. Staffing levels for restaurant servers, nurses,
and call centre staff need to be sufficient to meet anticipated demand –
otherwise customers are kept waiting or service is rushed. Professional
services are especially dependent on highly skilled staff to create high
value-added, information-based output.

(e) Infrastructure. Many organisations are dependent on access to sufficient

capacity in the public or private infrastructure to be able to deliver quality
service to their own customers. Capacity problems of this nature may
include congested airways that lead to air traffic restrictions on flights,
traffic jams on major highways, and power failures (or “brown outs”
caused by reduced voltage).

From excess demand to excess capacity

Most services are perishable and normally cannot be stockpiled for sale at a later
date, posing a challenge for any capacity-constrained service that faces wide swaying
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in demand. The problem is most acute in for service organisations that engage in
physical processes such as people or possession processing, but it also affects labour-
intensve, information processing services that face cyclical shift in demand, such as
accounting services.
Effective use of the productive capacity is one of the secrets in such businesses. The
goal should not be to utilise staff, labour, equipment, and facilities as much as
possible, but rather to use them as productively as possible. At the same time, the
search for productivity must not be allowed to undermine service quality and
degrade the customer experience.

At any given moment, a fixed capacity service may face one of four conditions:
(a) Excess demand – the level of demand exceeds maximum available capacity
with the result that some customers are denied service and business is lost.

(b) Demand exceeds optimum capacity – no one is turned away, but conditions
are crowded and customers are likely to perceive deterioration in service
quality and may feel dissatisfied.

(c) Demand and supply are well balanced at the level of optimum capacity. Staff
and facilities are busy without being overcrowded and customers receive good
service without delay.
(d) Excess capacity – demand is below optimum capacity and productive
resources are underutilised, resulting in low productivity. Low usage also
poses a risk that customers may find the experience disappointing or have
doubts about the availability of the service.

Managing Capacity
Although service firms may encounter capacity limitations because of varying
demand, there are a number of ways in which capacity can be adjusted to reduce the
problem:
 Stretching capacity
 Shrinking capacity

 Adjusting overall capacity to match demand

Stretching capacity

Some capacity is elastic in its ability to absorb demand. Here, the actual level of

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capacity remains unchanged, and more people are being served with the same level
of capacity. For example, the normal capacity for a bus may offer 62 seats and allow
standing room for another 30 passengers standing with adequate handrail and floor
space for all.
Alternatively, capacity can be stretched by utilising facilities for longer periods. For
example, the Accounts section of Evelyn Hone College may extend their operating
times to late hours and even weekends when more students are paying their fees.
Universities may offer evening classes, and weekend and summer semester
programmes.

Reducing capacity

The service firm may also reduce the average amount of time customers (or their
possessions) spend in the process. Sometimes, this is achieved by minimising slack
time. For example, a restaurant can quickly move tables, seat arriving diners and
present menus fast, and the bill can be presented promptly to a group of diners
relaxing at the table after a meal. In other instances, it may be achieved by cutting
back the level of service – say, offering a simpler menu at busy times of the day.

Adjusting overall capacity to match demand

Unlike the previous options, this set of options involves tailoring the overall level of
capacity to match variations in demand – a strategy that is also known as chasing
demand. There are several actions that a service marketing manager can take to
adjust capacity as needed. These actions start from the easiest to implement, to the
more difficult:
 Schedule downtime during periods of low demand. To ensure that 100 percent
of capacity is available during peak periods, maintenance, repair, and
renovations should be conducted when demand is expected to be low.
Employee vacations should be taken during such periods.
 Cross train employees. Even when the service delivery system appears to be
operating at full capacity, certain physical elements – and their attendant
employees – may be underutilised. If employees can be cross-trained to
perform a variety of tasks, they can be shifted to bottleneck points as needed,
thereby increasing total system capacity. In a supermarket, for example, the
manager may call on stockers to operate cash registers when lines become
too long. Likewise, during slow periods, the cashiers may be asked to help
stock the shelves.

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  Use part-time employees. Many service firms hire extra workers during their
busiest periods. Examples include postal workers and retailers during
Christmas, additional hotel employees during vacation periods and for major
conventions.
 Invite customers to perform self-service. If the number of employees is limited,
capacity can be increased by involving customers in co-production of certain
tasks. One way to do this is by adding self-service technologies such as
electronic kiosks at the airport for airline ticketing and check-in, or automated
check-out stations at a supermarket.

 Ask customers to share. Capacity can be stretched by asking customers to

share a unit of capacity normally dedicated to one individual. For example, at
busy airports and train stations, where the supply of taxis is not sufficient to
meet demand, travelers going in the same direction may be given the option
of sharing a ride at a reduced rate.
 Create flexible capacity. Sometimes, the problem does not lie in the overall
capacity but in the mix available to serve the needs of different market
segments. One solution lies in designing physical facilities to be flexible. For
example, the tables in the restaurant can be two-seaters. When necessary,
two tables can be combined to seat four, or three tables combined to seat six.
Boeing 777 has been designed to rearrange the classes (in relation to
plumbing and so on) within hours, reconfiguring it with varying numbers of
allocated among different classes.

 Rent or share extra facilities and equipment. To limit investment in fixed

assets, a service business may to rent extra space or machines at peak times.
Firms with complimentary demand patterns may enter into formal sharing
agreements.

Technology-based services (delivering services in cyberspace)

Developments in telecommunications and computer technology have led to many
new approaches to service delivery.
Service delivery innovations facilitated by technology
More recently, entrepreneurs have taken advantage of the Internet to create new
services. Four innovations of particular interest are:
(a) Development of “smart” mobile telephones and PDAs (personal digital
assistants) and Wi-Fi high-speed Internet technology that can link users to
the Internet – wherever they may be.

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(b) Usage of voice recognition technology that allow customers to give
information and request service simply by speaking into a phone or
microphone,
(c) Creation of websites that provide information, take orders (e-commerce),
and even serve as a delivery channel for information-based services.
(d) Commercialisation of “smart cards” containing a microchip that can store
detailed information about the customer and act as an electronic purse
containing digital money. The ultimate in self-service banking will be when
you can not only use a smart card as an electronic wallet for a wide array
of transactions, but also refill it from a special card reader connected to
your PC.
(e) Recent developments that link websites, customer relationship
management (CRM) systems, and mobile telephony. Integrating mobile
devices into the service delivery infrastructure can be used as a means to:

 Access services
 Alert customers to opportunities or problems by delivering the right
information or interaction at the right time, and update information
in real time to ensure it is continuously accurate and relevant.

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