- Marketing Services Versus Physical Goods
The dynamic environment of services today places a premium on effective marketing.
Marketing can be described in several ways as :
- A strategic thrust pursued by top management
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A set of functional activities performed by line managers (such as Product, Price, policy, Delivery and Communications)
- A customer-driven orientation for the entire organization
Employees must be customer service oriented as well aw concerned about efficiency.
The service product must be tailored to customer needs, prices realistically, distributed through convenient channel, and actively promoted to customers.
Today many new market entrants are positioning their services to appeal to specific market segments through their pricing, communication efforts and service delivery, rather than trying to be all things to all people.
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All products deliver benefits to the customers who purchase and use them
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Goods can be described as physical objects or devices
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Whereas services are actions or performances.
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Focusing particularly on 4 generic differences between services from goods, referred to as
- Intangibility
- Heterogeneity (or Variability)
- Perishability of Output
- Simultaneously of Production and Consumption
- No Customer Ownership of Services
But in many instances, service marketers offer customers the opportunity to rent the use of a physical object such as a rental car or hotel room.
A key implication for marketers concerns pricing when the form rents out usage of its physical, human or intangible assets, time becomes an important denominator, in particular, determining the relevant costs requires times based calculations.
- Service Products as Intangible Performances
Although services often include tangible elements, the service performance itself is basically an intangible.
In services, the benefits come from the nature of the performance, which requires a different marketing emphasis from marketing tangible goods, including a need to employ tangible images and metaphors to demonstrate the competencies of the service firm and to illustrate the benefits resulting from service delivery.
Kotler proposes 5 categories of market office :
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Pure Tangible Good (salt or soap)
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Tangible Good with accompanying Services (cars or computers)
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Hybrid combining roughly Equal Parts of Goods & Services (restaurant)
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Major Service with Accompanying Minor Goods and Services (air travel)
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Pure Service (babysitting)
Price of a service = cost of elements + the value added
- Customer Involvement int the Production Process
Many services requires customers to participate in creating the service product.
Customer involvement in helping to create the service product can take the form of self-service (automated teller machine ATM) or corporation with service personnel.
- Service delivery can have an important impact on customer’s satisfaction
(the service delivery site, convenient location => attractive)
- People as Part of the Product
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High-Contact Services = when customers not only come into contact with service personnel but also rub shoulders with others customers.
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≠ Low-Contact Services = at arm’s length with human contact being limited to resolution of problems.
- The differences between one high-contact service and another often lies in the quality of employees who serve the customers.
It can be a challenging task to manager service encounters between customers and service personnel in ways that will create a satisfactory experiences.
Similarly the type of customers who patronize a particular service business helps to define the nature of the service experience (ex: Fans of sporting event).
Service firms need :
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To devote special care to selecting, training and motivating those employees who will be serving customers directly. (Technical skills and to possess good interpersonal skills)
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To have to manage and shape customer behaviour
- Greater Variability in Operational Inputs and Outputs
The presence of employees and other customers in the operational system make it difficult to standardize and control variability in both service inputs and outputs.
Manufacturing goods can be produced under controlled conditions that have been designed to optimise both productivity and quality and then checked for conformance with quality standards long before they reach the customer.
- The same is true for services performed while the customer is absent.
But for those services that are consumed as they are produced, “final assembly” must take place under real-time conditions, which may vary from customer and even from one time of the day to another.
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These factors make it difficult for service organizations to improve productivity, control quality and offer a consistent product.
- Difficulty of Customer Evaluation
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Most physical goods = to be relatively high in Search Properties = the characteristics of the product that a customer can determine prior to purchasing it (colour, style, price, shape, ...)
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Other goods and some services may emphasize Experience Properties that can be discerned only after purchase or during consumption (taste, wearability, quietness, ...)
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Finally they are Credence Properties = Characteristics that customers find hard to evaluate even after consumption.
- No Inventories for Services after Production
A service is a deed or performance.
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consequence : the customer can’t keep it as a tangible item.
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A service is perishable and can’t be stocked.
An important task for service marketers is to find ways of smoothing demand levels to match capacity through price incentives, promotions and others means.
There may be opportunities for the firm to stretch or shrink its capacity to serve so as to match predicted fluctuations in demand.
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Inventory = refers to firm’s future capacity to deliver service.
- Importance of Time Factor
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In real time : customers have to be physically present to receive service from organizations (hairdressers, airlines, restaurants, ...)
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On elapsed time : an order for a service to be undertaken in customer’s absence (repairing a machine, cleaning a suit, ...)
In general, today’s customers are increasingly time sensitive and speed is often seen as a key element in a good service.
Services marketers need to understand customers time constraints and priorities.
- to compete on speed and to minimize time wasted waiting for service.
- Different Distribution Channels
Many service businesses use electronics channels (as in broadcasting or electronic funds transfer).
As a result of advances in computers and telecommunications (the growth of the Internet) electronic delivery of services is expanding rapidly.
- As Integrated Approach to Service Management
- service operations and human resource management
- The 8 Components of Integrated Service Management
4 Ps = Product / Price / Place / Promotion
The 8 Ps model of integrated service management = in unison for achieve optimal effectiveness
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a similar synergy and integration between each of the 8 Ps is required for success in any competitive service business.
- Product elements
= select the features of both the core product (good or service) and the bundle of supplementary service elements surrounding it.
Be attentive to all aspects of the service performance that have the potential to create value for customers.
- Place, Cyberspace, Time
Delivering product elements to customers involves decisions on the place and time of delivery as well as on the methods and channels employed speed and customers on becoming important determinants in service delivery strategy.
- Process
= Design and implementation of effective processes that describe the method and sequence of actions in which service operating systems work.
!!! Poor Processes ➔ difficult for staff to do their job well ➔ Low Productivity ➔ Increase likelihood of service failures
- Productivity and Quality
Improve productivity is essential to keep costs under control.
Service quality is essential improvement without understanding the trade off between incremental costs and incremental revenues may hurt profitability.
- People
= Personal interaction between customers and a firm’s employees. Its nature influences the customers’ perceptions of service quality. Successful service firms devote significant effort to recruiting, training, and motivating their personnel.
- Promotion and Education
3 vital roles of effective communications :
- Providing needed information and advice
- Persuading target customers of the merits of a specific product
- Encouraging them to take action at specific times
Much communication is educational in nature, especially for new customers.
Promotional activities may serve to marshal arguments in factor of selecting a particular brand or use incentives to catch customers’ attention and motivate them to act.
- Physical Evidence
= the appearance, visible cues provide tangible evidence of a firm’s service quality.
Physical evidence can have a profound impact on customers’ impressions.
- Price and other User Costs
This component addresses management of the expenditures and other outlays incurred by customers in obtaining benefits from the service product.
Seek to minimize other burdens that customers may bear in purchasing and using a service, including time, mental and physical effort and unpleasant sensory experiences (noise and smells).
- Linking Services Marketing, Operations, and Human Resources
3 management functions play central and interrelated roles in meeting customer needs :
Marketing, Operations, and Human Resource.
Operations Management Marketing Management
Customers
Human Resource Management
Firms whose managers succeed in developing integrated strategies will have a better chance of surviving and prospering.
- Marketing Services versus Marketing Goods through Service
With the growth of the service economy and the increasing emphasis on adding value-enhancing services to manufactured goods, the lines between services and manufacturing sometimes become a bit blurred.
It’s important to clarify the difference between situations in which a service itself is the core product and those in which manufacturers are adopting servicelike strategies to help them market the physical goods that they product.
- Marketing of Services
- Marketing goods through service
A manufacturing or natural resource firm may base its marketing strategy on a philosophy of serving customers well and seek to add supplementary service elements that add value to the core product, but that core product still remains a physical goods and not an intangible performance.
- Creating Value in a Context of Value
Value = the worth of a specific action or object relative to an individual’s (or organization’s) needs at a particular point in time, less the costs involved in obtaining those benefits.
Transfers of value illustrate one of the most fundamental concepts in marketing, that of Exchange, which takes place when one party obtains value from another in return for something else of value.
- Firms create value by offering the types of services that customers need, accurately presenting their capabilities, and delivering, them in a pleasing and convenient fashion at an acceptable price.
In return, firms receive value from their customers, primarily in the form of the money paid by the latter to purchase and use the services in question.
- The employers gets the benefit of the worker’s efforts. In turn, the employee receives wages, benefits, and possibly such valued experiences as training, on-the-job experience, and working with friendly colleagues.
No firm that seeks long-term relationships with either customers or employees can afford to mistreat them or to provide poor value on an ongoing basis. At a minimum, it’s bad business, at worst, it’s unethical. The potential for abusive behaviour is perhaps higher in services than in manufacturing, reflecting the difficulty of evaluating many services in advance.
Hence, companies need a set of morally and legally defensible values to guide their actions and to shape their dealings with both employees and customers.
- how people should be treated (or behave),
- how business should be conducted.
It would be the firm’s values as reference point when recruiting and motivating employees.
- to clarify the firm’s values and expectations in dealing with prospective customers, as well as making an effort to attract and retain customers who share and appreciate those same values.
Ethical behaviour :
Citation of Siegmund Warburg (the investment banking house) who remarked that a company’s reputation for :
“integrity, generosity and thorough service is its most important asset, more important than any financial item. However, the reputation of a firm is like a very delicate living organism which can easily be damaged and which has to be taken care of incessantly, being mainly a matter of human behaviour and human standards.”
What’s new today is the greater scrutiny given to a firm’s business ethics and the presence of tougher legislation designed to protect both customers and employees from abusive treatment.
- The Evolving Environment of Services
In practice, service jobs cover a huge spectrum of positions in both consumer services and business-to-business services, with knowledge-based jobs in particular being very well compensated.
Research Insight (encadré) : The evolution of services marketing as an Academic Field
“ Key topics :
- service quality
- customer satisfaction
- managing service encounters
- the customer’s role in service production and delivery
- the role of tangibles and physical environments in customer evaluations
- technology in service design
Studies of customer retention and relationship marketing emphasized the need to retain as well as attract customers.
- The role of service guarantees documented recovery strategies for service failures
- The importance of understanding the long-term value of a customer
- Financial losses from customer defections.
During the 70s and 80s, innovative newcomers offering new standards of service began to succeed in unprotected markets that established competitors had long taken for granted.
Other firms anticipated changing consumer needs by creating new service concepts.
Many factors underlie the transformation of services management, depending on the industry and the country in which the service firm does business.
Factors Stimulating the Transformation of the Service Economy
- Government Policies
Since the 70s, there has been a trend in the US and Europe towards complete or partial Deregulation in several major service industries.
Reduced government regulation has already eliminated or minimized many constraints on competitive activity in such industries as airfreight, airlines, railroads, trucking, banking, securities, insurance and telecommunications.
Barriers to entry by new firms have been dropped in many instances, geographic restrictions on service delivery have been reduced, there is more freedom to compete on price, and existing firms have been able to expand into new markets or new lines of business.
Another important action taken by the governments of many countries has been Privatization of what were once government-owned services.
The term privatization was first widely used in the UK to describe the policy of transforming government organizations into investor-owned companies.
The transformation of such operations as national airlines, telecommunication services, and utilities into private-enterprise services has led to restructuring, cost cutting, and a more market-focused posture.
Privatization can also apply to regional or local government departments.
With privatization, there are fears that the search of efficiency and profits will lead in service and prices increases.
The result may be to deny less-affluent segments the services they need at prices they can afford.
Not all regulatory changes represent a relaxation of government rules.
In many countries, steps continue to be taken to strengthen consumer protection laws, to safeguard employees, to improve health and safety, and protect the environment.
These new rules often require service firms to change their marketing strategies, their operational procedure, and their human resource policies.
Finally, national governments have long controlled trade in both goods and services. International trade in services is being stimulated by decisions to loosen trading restrictions through negotiations of the World Trade Organization (WTO). And individual countries are choosing to enter into free-trade agreements with some of their neighbours: e.g. Mercosur, NAFTA, Pacto Andino in South America, European Union.
- Social Changes
The demand for consumer services has been strongly influenced by host of social changes, e.g. more people are living alone than before, and more households contain 2 working adults, including telecommuters and others who work from in-home offices.
More people find themselves short on time and are obliged to hire firms or individuals to perform tasks that used to be performed by a household member.
A combination of changing lifestyles, higher incomes, and declining prices for many high-technology products has meant that more and more people are buying computers and using the Internet (e-mail, access Web sites).
Meantime, the rapid growth in use of mobile phones and other wireless equipment means that customers are more connected than ever before.
Another important social trend has been increased immigration into countries such as US, Canada, Australia.
Many immigrants, even if they learned to speak the language of their new countries, prefer to do business in their native languages and appreciate those service organizations that accommodate this preference by offering communications in multiple languages.
- Business Trends
Service profit centres within manufacturing firms are transforming many well-known companies in fields such as computers (IBM, HP), motor vehicles (Ford, Daimler-Chrysler), and electrical (General Electric) and medical equipment.
Supplementary services once designed to help sell equipment (including consultation, credit, transportation and delivery, installation, training and maintenance) are now offered as profit-seeking services in their own right, even to customer who have chosen to purchase competing equipment.
Many manufacturers now base much of their competitive appeal on the capabilities of their worldwide consultation, maintenance, repair, and problem-solving services.
Meantime, the financial pressures confronting public and nonprofit organizations have forced them not only to develop more efficient operations but also to pay more attention to customer needs and competitive activities.
Many professional associations have been forced by government or legal pressure to remove or relax long-standing bans on advertising and promotional activities.
The freedom to engage in advertising, promotion, and overt selling activities is, after all, essential in bringing innovative services, price cuts, and new delivery systems to the attention of prospective customers.
With increasing, often price-based competition has come greater pressure for firms to improve productivity.
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to search for new ways to increase profits by reducing the costs of service delivery.
Using technology to replace labor (or to permit customer self-service) is one cost-cutting route that has been followed in many industries.
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But managers need to be aware of the risk that cost-cutting measures, driven by finance and operations personnel without regards for customers needs, may lead to a perceived deterioration in quality and convenience.
In fact, customer discontent with the quality of service has been ongoing.
- In the case of manufactured products, complaints have often concerned poor service at the retail point of purchase and with difficulties in solving problems, obtaining refunds, or getting repairs made after the sale.
- By contrast, service industries such as banks, hotels, car hire firms, restaurants and telephone companies have been criticized as much for human failings on the part of their employees as for failures on the technical aspects of service.
Recognition that improving quality is good for business and necessary for effective competition has led to a radical change in thinking.
Franchising = it involves the licensing of independent entrepreneurs to produce and sell a branded service according to tightly specified procedures and has become a popular way to finance the expansion of multisite service chains that deliver a consistent service concept.
Among the requirements for success are creation of mass-media advertising campaigns to promote brand name nationwide (or worldwide), standardization of service operations, formalized training programs, an ongoing search for new products, continued emphasis on improving efficiency, and dual marketing programs directed at customers and franchisees, respectively.
- Advances In Information Technology
New technology are radically altering the ways in which many service organizations do business with their customers.
Perhaps the most powerful force for change today comes from the integration of computers and telecommunications.
Faster and more powerful software enables firms to create relational database that combine information about customers with details of all their transactions and then to mine these database for insights into new trends, new approaches to segmentation, and new marketing opportunities.
Most recently, the development of the Internet and its best known component World Wide Web, has provides not only an important new medium of communication between service organizations and their customers but also the potential for creating radically new business models, including what one leading technology firm has christened “e-services”.
E.g. :
- Amazon.com has become a global operation in just a few short years, marketing its huge array of books and music through its Web site and using modern business logistics to ship purchases quickly to customers all over the world.
- TNT, DHL, Fedex, UPS, recognize that the ability to provide real-time information about customers’ packages has become as important to success as the physical movement of those packages.
Technology does more than enable creation of new or improved services.
It may also facilitate reengineering of such activities, as delivery of information, order taking, and payment.(centralized customer service departments)
- Internationalization and Globalization
More and more services are being delivered through national or even global chains.
In some instances, such chains (Air Canada, Burger King, Citibank, Hertz, ...) are entirely company owned, in other instances, the creator of the original concept has entered into partnership with outside investors.
Numerous financial service, advertising, hotel chains, fast-food restaurants firms now operate in several continents.
Some of this growth has been internally generated, but much has also come about through acquisitions of other companies.
A strategy of international expansion may be driven by a search for new markets or by the need to respond existing customers.
The net effect of such developments is to increase competition and to encourage the transfer of innovation in both products and process form country to country.
Developing a strategy for competing effectively across numerous different countries is becoming a major marketing priority for many service firms.
Franchising offers a way to enable a service concept developed in one nation to be delivered around the world through distribution systems owned by local investors.
An alternative to mergers and takeovers is strategic alliances, whereby several firms working in the same or complementary industries in different countries join forces to expand the geographic read and product scope.
- Managing in a continually changing environment
The implications of the changes outlined previously are several.
- On the positive side, demand for many services is likely to grow.
- But the opening up of the service economy means that there will be greater competition fot that demand.
In turn, more competition will stimulate innovation, not least through the application of new and improved technologies.
Conclusion
Modern economies are driven by service businesses, both large and small.
Services are responsible for the creation of a substantial majority of new jobs, both skilled and unskilled, around the world.
The service sector includes a tremendous variety of different industries, including many activities provided by public and nonprofit organizations.
It accounts for ever half the economy in most developing countries and for 70 percent or more in many highly developed economies.
