© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Part 1

FOUNDATIONS FOR SERVICES MARKETING

1Chapter

Introduction to Services

What are services? Why services marketing? Characteristics of Services Compared to

Goods Services Marketing Mix

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

What are services?

All economic activities whose output is not a physical product, is generally consumed at the time it is produced and provides added value in forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its first purchaser

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Examples of Service Industries

Health Care hospital, medical practice, dentistry, eye care

Professional Services accounting, legal, architectural

Financial Services banking, investment advising, insurance

Hospitality restaurant, hotel/motel, bed & breakfast ski resort, rafting

Travel airline, travel agency, theme park

Others hair styling, pest control, plumbing, lawn maintenance, counseling

services, health club, interior design

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 1.2

Tangibility Spectrum

TangibleDominant

IntangibleDominant

SaltSoft Drinks

DetergentsAutomobiles

Cosmetics

AdvertisingAgencies

AirlinesInvestment

ManagementConsulting

Teaching

Fast-foodOutlets

Fast-foodOutlets

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Why Services Marketing

Services based economies United States – 80% India – 48%

Traditional marketing course has more focus on manufacturing and packaged goods (like P&G, Unilever, General Foods)

There is a need for Marketing concepts specifically for Services

Service initiatives and promoting service quality leads to competitive advantage and so to profits

Customer satisfaction index for services is declining

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 1.1

Contributions of Service Industries toU.A.E. Gross Domestic Product

Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June 14, 2004, p 86.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Employment in Dubai - 2005

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Table 1.2

Goods versus Services

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

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Characteristics of ServicesCompared to Goods

Intangibility

PerishabilitySimultaneous

Productionand

Consumption

Heterogeneity

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Implications of Intangibility

Services cannot be inventoried

Services cannot be easily patented

Services cannot be readily displayed or communicated

Pricing is difficult

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Implications of Heterogeneity

Service delivery and customer satisfaction depend on employee and customer actions

Service quality depends on many uncontrollable factors

There is no sure knowledge that the service delivered matches what was planned and promoted

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Implications of Simultaneous Production and Consumption

Customers participate in and affect the transaction

Customers affect each other

Employees affect the service outcome

Decentralization may be essential

Mass production is difficult

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Implications of Perishability

It is difficult to synchronize supply and demand with services

Services cannot be returned or resold

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Traditional Marketing Mix

All elements within the control of the firm that communicate the firm’s capabilities and image to customers or that influence customer satisfaction with the firm’s product and services: Product Price Place Promotion

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Expanded Mix for Services --The 7 Ps

Product Price Place Promotion People

All human actors who play a part in service delivery and thus influence the buyer’s perceptions: namely, the firm’s personnel, the customer, and other customers in the service environment.

Physical Evidence The environment in which the service is delivered and where the firm and

customer interact, and any tangible components that facilitate performance or communication of the service.

Process The actual procedures, mechanisms, and flow of activities by which the

service is delivered—the service delivery and operating systems.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Table 1.3

Expanded Marketing Mix for Services

2Chapter

The Gaps Model of Service Quality

The Customer Gap The Provider Gaps:

Gap 1 – not knowing what customers expect Gap 2 – not having the right service designs and

standards Gap 3 – not delivering to service standards Gap 4 – not matching performance to promises

Putting It All Together: Closing the Gaps

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Expectedservice

Perceivedservice

Customer Gap

Figure 2.1

The Customer Gap

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Gaps Model of Service Quality

Customer Gap: difference between customer expectations and perceptions

Provider Gap 1 (The Knowledge Gap): not knowing what customers expect

Provider Gap 2 (The Service Design & Standards Gap): not having the right service designs and standards

Provider Gap 3 (The Service Performance Gap): not delivering to service standards

Provider Gap 4 (The Communication Gap): not matching performance to promises

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Provider Gap 1: Not knowing what customers expect

Provider Gap 2: Not selecting the right service designs and standards

Provider Gap 3: Not delivering to service standards

Provider Gap 4: Not matching performance to promises

Customer Expectations

Customer Perceptions

Key Factors Leadingto the Customer Gap

CustomerGap

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Customer Expectations

Company Perceptions of Customer Expectations

Inadequate marketing research orientation Insufficient marketing research Research not focused on service quality Inadequate use of market research

Lack of upward communication Lack of interaction between management and customers Insufficient communication between contact employees and managers Too many layers between contact personnel and top management

Insufficient relationship focus Lack of market segmentation Focus on transactions rather than relationships Focus on new customers rather than relationship customers

Inadequate service recovery Lack of encouragement to listen to customer complaints Failure to make amends when things go wrong No appropriate recovery mechanisms in place for service failures

Figure 2.2

Not knowing what customers expect

Gap1

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Customer-Driven Service Designs and Standards

Management Perceptions of Customer Expectations

Poor service design Unsystematic new service development process Vague, undefined service designs

Failure to connect service design to service positioning Absence of customer-driven standards

Lack of customer-driven service standards Absence of process management to focus on customer

requirements Absence of formal process for setting service quality goals

Inappropriate physical evidence and servicescape Failure to develop tangibles in line with customer expectations Servicescape design that does not meet customer and

employee needs Inadequate maintenance and updating of the servicescape

Figure 2.3

Not selecting the right service designs and standards

Gap2

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinService Delivery

Customer-Driven Service Designs and Standards

Deficiencies in human resource policies Ineffective recruitment Role ambiguity and role conflict Poor employee-technology job fit Inappropriate evaluation and compensation systems Lack of empowerment, perceived control, and teamwork

Customers who do not fulfill roles Customers who lack knowledge of their roles and responsibilities Customers who negatively impact each other

Problems with service intermediaries Channel conflict over objectives and performance Difficulty controlling quality and consistency Tension between empowerment and control

Failure to match supply and demand Failure to smooth peaks and valleys of demand Inappropriate customer mix Overreliance on price to smooth demand

Figure 2.4

Not delivering to service standards

Gap3

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Service Delivery

Lack of integrated services marketing communications Tendency to view each external communication as independent Not including interactive marketing in communications plan Absence of strong internal marketing program

Ineffective management of customer expectations Absence of customer expectation management through all forms of

communication Lack of adequate education for customers

Overpromising Overpromising in advertising Overpromising in personal selling Overpromising through physical evidence cues

Inadequate horizontal communications Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedures across branches or units

External Communications to Customers

Figure 2.5

Not matching the performance to promises

Gap4

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

PerceivedService

Expected ServiceCUSTOMER

COMPANY

CustomerGap

Gap 1

Gap 2

Gap 3

External Communications

to CustomersGap 4ServiceDelivery

Customer-Driven Service Designs and

Standards

Company Perceptions of Consumer Expectations

Figure 2.6

Gaps Model of Service Quality

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

The Customer Gap Chapter 3 – Consumer Behavior in Services Chapter 4 – Customer Expectations of Service Chapter 5 – Customer Perceptions of Service Gap 1 – Not Knowing What Customers Expect (The Knowledge Gap) Chapter 6 – Listening to Customers through Research Chapter 7 – Building Customer Relationships Chapter 8 – Service Recovery Gap 2 – Not Having the Right Service Quality Designs and Standards (The Service Design and

Standards Gap) Chapter 9 – Service Development and Design Chapter 10 – Customer-Defined Service Standards Chapter 11 – Physical Evidence and the Servicescape Gap 3 – Not Delivering to Service Standards (The Service Performance Gap) Chapter 12 – Employees’ Roles in Service Delivery Chapter 13 – Customers’ Roles in Service Delivery Chapter 14 – Delivering Service through Intermediaries and Electronic Channels Chapter 15 – Managing Demand and Capacity Gap 4 – Not Matching Performance to Promises (The Communication Gap) Chapter 16 – Integrated Services Marketing Communications Chapter 17 – Pricing of Services