TWENTY TWO - THE MARKETING OF SERVICES

__________________________________________________________________________ AIMS AND OBJECTIVES OF THE CHAPTER The aim of this chapter is to provide a specific focus on the distinctive marketing needs of services. Services now form the dominant sector of most western economies, yet marketing theory still tends to be oriented towards the goods sector. This chapter aims out to identify the distinguishing characteristics of services and the effects these have on marketing. Key topics of intangibility, inseparability, variability and perishability are introduced. It is noted that it may be more appropriate to talk about a goods-service continuum rather than a clear distinction between the two. An extended marketing mix is developed, in which the importance of people management is emphasised. CHAPTER SYNOPSIS The importance of services in national economies Definition of services Key characteristics of services Classification of services An extended marketing mix for services ANNOTATED LECTURE OUTLINE Point 1 - The importance of the services sector Although we have seen recent rapid growth in the services sector, the sector itself is not new. Even the so-called "Industrial Revolution" can be more accurately described as a service revolution. The industrial revolution could not have happened without the services sector. The period saw the development of many services whose presence was vital to economic development. There is little doubt that the services sector has become a dominant force in developed economies, accounting for about three quarters of all employment in the USA, UK, Canada and Australia. Between 1980 and 1992, it is reported that the EU created almost 1.3 million new jobs per year in the services sectors - twice the average for the rest of the economy (Eurostat 1995). There appears to be a close correlation between the level of economic development in an economy (as expressed by its GDP per capita) and the strength of its service sector, although whether a strong service sector leads to economic growth or results from it is debatable. 2201

Point 2 - What are services? It can be difficult to define just what is meant by a service because most products we buy contain a mixture of goods elements and service elements. A meal in a restaurant contains a combination of goods elements (the food) and service elements (the manner in which the food is served). Even apparently "pure" goods such as timber often contain service elements, such as the service required in transporting timber from where it was produced to where a customer requires it. A contemporary definition is provided by Kotler, Armstrong, Saunders and Wong (1996); "A service is any activity or benefit that one party can offer to another which is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product". In a more tongue-in-cheek manner, services have been described as "anything which cannot be dropped on your foot". "Pure" services have a number of distinctive characteristics that differentiate them from goods and have implications for the way in which they are marketed. These characteristics are often described as intangibility, inseparability, variability, perishability and the inability to own a service. Point 3 - Intangibility A pure service cannot be assessed using any of the physical senses - it is an abstraction which cannot be directly examined before it is purchased. The intangible process characteristics which define services, such as reliability, personal care, attentiveness of staff, their friendliness etc. can only be verified once a service has been purchased and consumed. Measuring quality for services can be very different compared with goods. Goods generally have tangible benchmarks against which quality can be assessed (e.g. durability, reliability, taste). In the case of services, these benchmarks can often only be defined in the minds of consumers. Where goods form an important component of a service offer, many of the practices associated with conventional goods marketing can be applied to this part of the service offer (e.g. the food component of the service provided by a restaurant). 2202

Intangibility has a number of important marketing implications. The lack of physical evidence which intangibility implies increases the level of uncertainty that a consumer faces when choosing between competing services. Point 4 - Inseparability Companies usually produce goods in one central location and then transport them to the place where customers most want to buy them. On the other hand, the consumption of a service is said to be inseparable from its means of production. Producer and consumer must interact in order for the benefits of the service to be realised. Both must normally meet at a time and a place that is mutually convenient in order that the producer can directly pass on service benefits. In the extreme case of personal care services, the customer must be present during the entire production process. Inseparability has a number of important marketing implications for services. Firstly, whereas goods are generally first produced, then offered for sale and finally sold and consumed, inseparability causes this process to be modified for services. They are generally sold first, then produced and consumed simultaneously. Secondly, while the method of goods production is to a large extent (though by no means always) of little importance to the consumer, production processes are critical to the enjoyment of services. Point 5 - Variability For services, variability impacts upon customers not just in terms of outcomes but also in terms of processes of production. It is the latter point that causes variability to pose a much greater problem for services, compared to goods. Because the customer is usually involved in the production process for a service at the same time as they consume it, it can be difficult to carry out monitoring and control to ensure consistent standards. The opportunity for predelivery inspection and rejection which is open to the goods manufacturer is not normally possible with services. The variability of service output can pose problems for brand building in services compared to tangible goods. For the latter it is usually relatively easy to incorporate monitoring and quality control procedures into production processes in order to ensure that a brand stands for a consistency of output. The service sectors attempts to reduce variability concentrate on methods used to select, train, motivate and control personnel. In some cases, service offers 2203

have been simplified, jobs have been "deskilled" and personnel replaced with machines in order to reduce human variability. Point 6 - Perishability Unlike most goods, services cannot be stored. The producer of a service which cannot sell all of its output produced in the current period gets no chance to carry it forward for sale in a subsequent period. Very few services face a constant pattern of demand through time. Many show considerable variation, which could follow a daily pattern (e.g. city centre sandwich bars at lunchtime), weekly (the Friday evening peak in demand for railway travel), seasonal (shops at Christmas time), cyclical (mortgages) or an unpredictable pattern of demand (emergency building repair services following heavy storms). The perishability of services results in greater attention having to be paid to the management of demand by evening out peaks and troughs in demand and in scheduling service production to follow this pattern as far as possible. It is not good enough to ensure that supply and demand are matched overall in the long-term. Point 7 - Inability to own services The inability to own a service is related to the characteristics of intangibility and perishability. When a service is performed, no ownership is transferred from the seller to the buyer. The buyer is merely buying the right to a service process such as the use of a car park or an accountants time. A distinction should be drawn between the inability to own the service act, and the rights which a buyer may acquire to have a service carried out at some time in the future (a theatre gift voucher for example). The inability to own a service has implications for the design of distribution channels, so a wholesaler or retailer cannot take title, as is the case with goods. Instead, direct distribution methods are more common and where intermediaries are used, they generally act as a coproducer with the service provider. Point 8 - Goods and services compared It was noted earlier that most products are a combination of goods and services. This has led some people to argue that we do not really need a separate theory of marketing for services. In the words of Theodore Levitt: ".. there is no such thing as service industries. There are only 2204

industries where service components are greater or less than those of other industries" (Levitt 1972). Others have pointed to the distinctiveness of services which makes the application of traditional marketing principles inappropriate. In reality, most products which we buy are a combination of goods and services. In this way, cars have traditionally been considered examples of pure goods. However, today, most cars are sold with considerable service benefits, such as an extended warranty, a maintenance contract or a financing facility. A package holiday may seem like a pure service, but it includes tangible elements in the form of the aeroplane, the hotel room and transfer coach, for example. Pure goods and pure services are hypothetical extremes, but which are nevertheless important to note because they help to define the distinctive characteristics of goods and services marketing. Point 9 - Classifying services Because the services sector accounts for about three quarters of economic activity in developed countries, it is unlikely that one body of marketing theory will be applicable to all services, from a jobbing electrician to a multi-national airline. Traditional production-based methods of classifying services are not particularly useful for marketers. Small guesthouses and international hotels may fall within the same sector, but their marketing needs are very different. The international hotel may in fact share more in common with an airline in terms of customers expectations and a peaked pattern of demand. A number of bases for classifying services according to their marketing needs have been suggested, based on the following: Degree of Intangibility Producer v Consumer Services The Status of the Service within the Total Product Offer Extent of Inseparability The Pattern of Service Delivery Extent of People Orientation 2205

The Significance of the Service to the Purchaser Marketable v Unmarketable Services

Although a number of bases for classifying services have been presented in isolation, services are in practice, like goods, classified by a number of criteria simultaneously. There have been a number of attempts to develop multi-dimensional approaches for identifying clusters of similar services. Point 10 - An extended marketing mix for services The marketing mix is not based on any theory, but on the need for marketing managers to break down their decision making into a number of identifiable and actionable headings. The familiar 4"Ps" marketing mix is very much based on the needs of the manufactured goods sector and has given us the four familiar Ps of Product, Price, Promotion and Place. These 4 Ps have been found to be too limited in their application to services. These weaknesses have resulted in a number of attempts to redefine a marketing mix for the services sector. The expansion by Booms and Bitner (1981) provides a useful framework for the services sector. It should be stressed that this is not an empirically proven theory of services marketing, but an analysis of the decisions that services marketers take in developing services to satisfy customers needs. In addition to the four traditional elements of the marketing mix, it is common to recognise the importance of People and Processes as additional elements. Booms and Bitner also talk about Physical Evidence making up a seventh "P". People - For most services, people are a vital element of the marketing mix. It can be almost a clich to say that for some businesses, the employees are the business - if these are taken away, the organisation is left with very few assets with which it can seek to gain competitive advantage in meeting customers' needs. For some organisations, the management of personnel can be seen as just one other asset to be managed. For others, human resource management is so central to the activities of the organisation that it cannot be seen as a separate activity. Processes - Production processes are usually of little concern to consumers of manufactured goods, but can be of critical concern to consumers of "high contact" services where the consumer can be seen as a co-producer of the service. A customer of a restaurant is deeply affected by the manner in which staff serve them and the amount of waiting which is involved during the production process. Issues arise as to the boundary between the producer and consumer in terms of the allocation of production functions for example, a restaurant might require a customer to collect their meal from a counter, or 2206

to deposit their own rubbish. With services, a clear distinction cannot be made between marketing and operations management. Blueprints are commonly used to describe service processes. Sometimes, service processes have been "industrialised" and deskilled by simplifying employees tasks and reducing their scope for judgement and error. Physical Evidence - The intangible nature of a service means that potential customers are unable to judge a service before it is consumed, increasing the riskiness inherent in a purchase decision. An important element of marketing planning is therefore to reduce this level of risk by offering tangible evidence of the promised service delivery. This evidence can take a number of forms. At its simplest, a brochure can describe and give pictures of important elements of the service product - a holiday brochure gives pictorial evidence of hotels and resorts for this purpose. The appearance of staff can give evidence about the nature of a service - a tidily dressed ticket clerk for an airline gives some evidence that the airline operation as a whole is run with care and attention. Buildings are frequently used to give evidence of service characteristics.

Within the expanded marketing mix for services, remember that many of the traditional 4 Ps need to be reinterpreted, for example "Place" is best understood in terms of accessibility to a service. The promotion mix should include inputs provided by front line service personnel. With intangible services, price may become a key indicator of product quality. CASE STUDY DISCUSSION The case study should bring home the point that very few industries can consider themselves to be outside of the services sector. The case describes how Ford, far from being essentially a producer of tangible goods, is now heavily dependent upon services for business success. Three questions are posed in the text: 1. Given the evidence of Ford, is it still appropriate to talk about the goods and services sectors being quite distinctive? The evidence of the case study suggests that it is necessary for car companies to build well designed cars, but this will not guarantee profitability. With increasing similarity between cars, which have often been designed using the same computer programmes and wind tunnel tests, the availability and quality of value added services becomes a differentiating feature. Services have certainly become important to Ford, but it should not be forgotten that success for these services is still very much dependent upon the performance of its cars. If customers do not buy its cars, the opportunities for selling related services will be much less.

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2. What business is Ford in? What business should it be in? Ford probably sees itself as being in the "personal transport solutions" business. In Europe, its marketing appears to be focused on making it easy for private individuals (and corporate fleet buyers) to have access to a personal means of transport which is safe, reliable and economical. With its Ford brand it is probably not in the business of selling excitement or status (although its Jaguar and Volvo brands may be more so). 3. Discuss the view that Ford should do what it is good at - designing cars - and leave services to other companies. Some Japanese companies have invested their energies in designing and building new cars and sub-contracted much of the additional services, e.g. by using a third party bank to provide loans for car purchase. Management can become focused on the quality of its cars. But remember that service quality is an inherent part of most peoples enjoyment of a car, so no car manufacturer can afford to completely ignore the service element of its product offer.

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