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

Part 1

FOUNDATIONS
FOR SERVICES
MARKETING

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 Chapter
Introduction to Services 1

 What are services?

 Why services marketing?
 Service and Technology
 Characteristics of Services Compared to Goods
 Services Marketing Mix
 Staying Focused on the Customer
 Objectives for Chapter 1:
Introduction to Services
 Explain what services are and identify important trends in
services.

 Explain the need for special services marketing concepts and

practices and why the need has developed and is accelerating.

 Explore the profound impact of technology on service.

 Outline the basic differences between goods and services and

the resulting challenges and opportunities for service
businesses.

 Introduce the expanded marketing mix for services and the

philosophy of customer focus, as powerful frameworks and
themes that are fundamental to the rest of the text.

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 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

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 Figure 1.1

Contributions of Service Industries to

U.S. Gross Domestic Product

McGraw-Hill/Irwin Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June
© 2006 The 14, 2004, pCompanies,
McGraw-Hill 86. Inc. All rights reserved.
 Figure 1.2

Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 CosmeticsFast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
Teaching
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 Figure 1.3

Percent of U.S. Labor Force by Industry

80
Percent of U.S. Labor Force
70
60
50
40
30
20
10
0  Services
1929 1948 1969 1977 1984 1999  Manufacturing
Year  Mining & Agriculture

Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; Eli
Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

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 Figure 1.4

Percent of U.S. Gross Domestic

Product by Industry
80
70
60
Percent of GDP

50
40
30
20
10
0  Services
1948 1959 1967 1977 1987 1999  Manufacturing
Year  Mining & Agriculture

Source: Survey of Current Business, August 1996, Table 11, April 1998, Table B.3; Eli Ginzberg and George J. Vojta,
“The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

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 Table 1.1

Eight Central Paradoxes of Technological

Products

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

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 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.

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 Why study Services Marketing?

 Service-based economies

 Service as a business imperative in manufacturing and IT

 Deregulated industries and professional service needs

 Services marketing is different

 Service equals profits

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 Characteristics of Services
Compared to Goods

Intangibility Heterogeneity

Simultaneous
Production
and Perishability
Consumption

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 Implications of Intangibility

 Services cannot be inventoried

 Services cannot be easily patented

 Services cannot be readily displayed or communicated

 Pricing is difficult

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 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

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 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

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 Implications of Perishability

 It is difficult to synchronize supply and demand with

services

 Services cannot be returned or resold

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 Challenges for Services
 Defining and improving quality
 Designing and testing new services
 Communicating and maintaining a consistent image
 Accommodating fluctuating demand
 Motivating and sustaining employee commitment
 Coordinating marketing, operations, and human resource
efforts
 Setting prices
 Finding a balance between standardization versus
personalization
 Ensuring the delivery of consistent quality

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 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

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 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.

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 Table 1.3

Expanded Marketing Mix for Services

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 Ways to Use the 7 Ps
Overall Strategic Assessment
 How effective is a firm’s
services marketing mix?
 Is the mix well-aligned with
overall vision and strategy?
 What are the strengths and
weaknesses in terms of the
7 Ps?
McGraw-Hill/Irwin
Specific Service Implementation
 Who is the customer?
 What is the service?
 How effectively does the
services marketing mix for a
service communicate its
benefits and quality?
 What changes/
improvements are needed?
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 2.6

Gaps Model of Service Quality

Expected
Service
CUSTOMER
Customer
Gap
Perceived
Service

External
COMPANY Service
Communications
Delivery Gap 4 to Customers
Gap 3
Gap 1 Customer-Driven
Service Designs and
Standards
Gap 2
Company Perceptions
of Consumer
Expectations
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 Figure 3.2

Continuum of Evaluation for Different Types

of Products

Most Most
Goods Services

Easy to evaluate Difficult to evaluate

High in search High in experience High in credence

qualities qualities qualities

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 Figure 5.1

Customer Perceptions of Quality and

Customer Satisfaction

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 Factors Influencing
Customer Satisfaction
 Product/service quality
 Specific product or service features
 Consumer emotions
 Attributions for service success or failure
 Perceptions of equity or fairness
 Other consumers, family members, and coworkers
 Price
 Personal factors
 the customer’s mood or emotional state
 situational factors

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 Outcomes of
Customer Satisfaction
 Increased customer retention
 Positive word-of-mouth communications
 Increased revenues

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 Service Quality

 The customer’s judgment of overall excellence of the

service provided in relation to the quality that was
expected.
 Service quality assessments are formed on judgments of:
 outcome quality
 interaction quality
 physical environment quality

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 The Five Dimensions of
Service Quality

Reliability Ability to perform the promised service

dependably and accurately.

Assurance Knowledge and courtesy of employees and

their ability to inspire trust and confidence.

Physical facilities, equipment, and

Tangibles appearance of personnel.

Empathy Caring, individualized attention the firm

provides its customers.

Responsiveness Willingness to help customers and provide

prompt service.

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 The Service Encounter
 is the “moment of truth”
 occurs any time the customer interacts with the firm
 can potentially be critical in determining customer
satisfaction and loyalty
 types of encounters:
 remote encounters, phone encounters, face-to-face
encounters
 is an opportunity to:
 build trust
 reinforce quality
 build brand identity
 increase loyalty
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 Relationship Marketing
 is a philosophy of doing business, a strategic orientation, that
focuses on keeping current customers and improving
relationships with them

 does not necessarily emphasize acquiring new customers

 is usually cheaper (for the firm)

 keeping a current customer costs less than attracting a new one

 thus, the focus is less on attraction, and more on retention and

enhancement of customer relationships

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 Figure 7.1

Customer Goals of Relationship Marketing

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 Benefits of Relationship Marketing
 Benefits for Customers:  Benefits for Firms:
 Receipt of greater value  Economic benefits:
 Confidence benefits:  increased revenues
 trust  reduced marketing and
 confidence in provider administrative costs
 reduced anxiety  regular revenue stream
 Social benefits:  Customer behavior benefits:
 familiarity  strong word-of-mouth endorsements
 social support  customer voluntary performance
 personal relationships  social benefits to other customers
 mentors to other customers
 Special treatment benefits:
 special deals  Human resource management
 price breaks
benefits:
 easier jobs for employees
 social benefits for employees
 employee retention

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 Figure 7.6

Levels of Relationship Strategies

Stable
Volume and pricing Bundling and
frequency cross selling
rewards

1.
Integrated Financial Continuous
information relationships
systems
bonds

4. Excellent 2.
Joint service Personal
Structural Social
investments relationships
bonds and value bonds

Shared Social bonds

processes 3.
among
and Customization customers
equipment Bonds

Anticipation/ Customer
innovation intimacy
Mass
customization

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 Figure 8.3

Customer Complaint Actions Following

Service Failure

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 Figure 8.5

Service Recovery Strategies

Quickly
Act
Service
Fail-safe Treat Customers
the Service
Recovery
Fairly
Strategies

Learn from Recovery

Experiences

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 Service Guarantees
 guarantee = an assurance of the fulfillment of a condition
(Webster’s Dictionary)

 in a business context, a guarantee is a pledge or assurance that

a product offered by a firm will perform as promised and, if not,
then some form of reparation will be undertaken by the firm

 for tangible products, a guarantee is often done in the form of a

warranty

 services are often not guaranteed

 cannot return the service
 service experience is intangible
(so what do you guarantee?)

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 Exhibit 8.6

Characteristics of an Effective
Service Guarantee
 Unconditional
 the guarantee should make its promise unconditionally – no strings
attached
 Meaningful
 the firm should guarantee elements of the service that are important
to the customer
 the payout should cover fully the customer’s dissatisfaction
 Easy to Understand and Communicate
 customers need to understand what to expect
 employees need to understand what to do
 Easy to Invoke and Collect
 the firm should eliminate hoops or red tape in the way of accessing
or collecting on the guarantee
Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

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 Benefits of Service Guarantees
 A good guarantee forces the company to focus on its customers.
 An effective guarantee sets clear standards for the organization.
 A good guarantee generates immediate and relevant feedback
from customers.
 When the guarantee is invoked there is an instant opportunity to
recover, thus satisfying the customer and helping retain loyalty.
 Information generated through the guarantee can be tracked and
integrated into continuous improvement efforts.
 Employee morale and loyalty can be enhanced as a result of
having a service guarantee in place.
 A service guarantee reduces customers’ sense of risk and builds
confidence in the organization.
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 Why a Good Guarantee Works

 forces company to focus on customers

 sets clear standards

 generates feedback

 forces company to understand why it failed

 builds “marketing muscle”

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 Service Guarantees
 Does everyone need a guarantee?

 Reasons companies might NOT want to offer a service

guarantee:
 existing service quality is poor
 guarantee does not fit the company’s image
 too many uncontrollable external variables
 fears of cheating or abuse by customers
 costs of the guarantee outweigh the benefits
 customers perceive little risk in the service
 customers perceive little variability in service quality among
competitors

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 Service Guarantees

 service guarantees work for companies who are already

customer-focused
 effective guarantees can be BIG deals – they put the
company at risk in the eyes of the customer
 customers should be involved in the design of service
guarantees
 the guarantee should be so stunning that it comes as a
surprise – a WOW!! factor
 “it’s the icing on the cake, not the cake”

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 Figure 9.5

Service Blueprinting
 A tool for simultaneously depicting the service process, the
points of customer contact, and the evidence of service
from the customer’s point of view.

Process

Service Points of contact

Blueprint
Evidence

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 Service Blueprint Components

Customer Actions
line of interaction

“Onstage” Contact Employee Actions

line of visibility

“Backstage” Contact Employee Actions

line of internal interaction

Support Processes

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 Figure 9.6

Service Blueprint Components

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 Figure 9.8

Blueprint for Overnight Hotel Stay Service

EVIDENCE
PHYSICAL

Hotel Exterior Cart for Desk Elevators Cart for Room Menu Delivery Food Bill
Parking Bags Registration Hallways Bags Amenities Tray Desk
Papers Room Bath Food Lobby
Lobby Appearance Hotel Exterior
Key Parking
CUSTOMER

Arrive Give Bags Call Check out

Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave
(Back Stage) (On Stage)

Line of Interaction
SUPPORT PROCESS CONTACT PERSON

Greet and
Process Deliver Deliver Process
Take
Registration Bags Food Check Out
Bags

Line of Visibility
Take
Take Bags Food
to Room Order
Line of Internal Interaction

Registration Prepare Registration

System Food System

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 Figure 9.9

Building a Service Blueprint

Step 1 Step 2 Step 3 Step 4 Step 5 Step 6

Identify the Identify the Map the Map contact Link contact Add
process to customer process employee activities to evidence of
be blue- or from the actions, needed service at
printed customer customer’s onstage and support each
segment point of back-stage, functions customer
view and/or action step
technology
actions

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 Figure 12.2

The Services Marketing Triangle

Company
(Management)

Internal Marketing External Marketing

“Enabling the promise” “Making the promise”

Employees Customers
Interactive Marketing
“Delivering the promise”
McGraw-Hill/Irwin Source: Adapted from Mary©Jo
2006 The McGraw-Hill
Bitner, Christian Companies,
Gronroos,Inc.
andAllPhilip
rights Kotler
reserved.
 Figure 12.3

The Service Profit Chain

Source: An exhibit from J. L. Heskett, T. O. Jones, W. E. Sasser, Jr., and L. A. Schlesinger, “Putting the Service-Profit Chain to Work,”
Harvard Business Review, March-April 1994, p. 166.

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 Figure 12.6
Human Resource Strategies for Delivering
Service Quality through People
Hire for service
competencies and
service
Compete for inclination Be the
the best preferred
people employer

Measure and Train for

reward strong technical and
Hire the
service interactive
performers
right people
skills

Develop
Treat Customer-
Retain the people to
employees Oriented Empower
best deliver
as Service employees
customers people service
Delivery quality

Include Provide
employees in needed support Promote
the teamwork
systems
company’s
vision
Develop Measure
service-oriented Provide internal service
internal supportive quality
processes technology
and
equipment
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 Figure 12.7

Traditional Organizational Chart

Manager

Supervisor Supervisor

Front-line Front-line Front-line Front-line Front-line Front-line Front-line Front-line

Employee Employee Employee Employee Employee Employee Employee Employee

Customers

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 Figure 12.8

Customer-Focused Organizational Chart

Customers

Front-line Front-line Front-line Front-line Front-line Front-line Front-line Front-line

Employee Employee Employee Employee Employee Employee Employee Employee

Supervisor Supervisor

Manager

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 Figure 16.1
Communications and the Services
Marketing Triangle
Company

Internal Marketing External Marketing

Vertical communications Communication
Horizontal communications Advertising
Sales promotion
Public relations
Direct marketing

Employees Interactive Marketing Customers

Personal selling
Customer service center
Service encounters
Servicescapes
Source: Kotler, Philip, Marketing Management: Analysis, Planning, Implementation, and Control, 9th Edition, © 1997.
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Figure 16.2
Approaches for Integrating Services Marketing
Communication

Manage
customer
expectations

Goal:
Manage Delivery is Improve
service greater than customer
promises or equal to education
promises

Manage
internal
marketing
communication

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 Figure 17.1
Three Basic Marketing Price Structures and
Challenges Associated with Their Use for Services

Challenges: Challenges:
1. Costs difficult to trace.
1. Small firms may charge too
2. Labor is more difficult to
little to be viable.
price than materials.
2. Heterogeneity of services
3. Costs may not equal the
limits comparability.
value that customers perceive
3. Prices may not reflect
the services are worth.
customer value.

Challenges:
1. Monetary price must be adjusted to reflect
the value of non-monetary costs.
2. Information on service costs is less available to
customers; hence, price may not be a central factor.

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 Figure 17.2

Four Customer Definitions of Value

Value is everything
Value is low price.
I want in a service.

Value is the Value is all that

quality I get for I get for all
the price I pay. that I give.

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 Service Quality Spells Profits
Lower
costs

Defensive Volume of Margins

Marketing purchases

Price
premium

Service Customer Word of

Retention mouth Profits

Market
share
Sales
Offensive
Reputation
Marketing
Price
premium
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