Services Marketing
Summary Book Chapters 1-18
Bram Voets
, [SERVICES MARKETING] Bram Voets
Content
Chapter 1: Introduction to services ......................................................................................................... 4
Why services marketing? .................................................................................................................... 5
Service and Technology ...................................................................................................................... 5
Characteristics of Services Impacting on Marketing Activities ............................................................ 6
Services Marketing Mix ....................................................................................................................... 7
Staying Focused on the Customer ...................................................................................................... 7
Chapter 2: Consumer Behaviour in Services .......................................................................................... 8
Search, Experience and Credence Properties .................................................................................... 8
Consumer Choice ................................................................................................................................ 8
Post-Experience Evaluation .............................................................................................................. 11
Understanding Differences among Customers ................................................................................. 12
Chapter 3: Customer Expectations of Service ...................................................................................... 13
Importance of Customer Expectations .............................................................................................. 13
Meaning and Types of Service Expectations .................................................................................... 13
Factors that influence customer expectations of service .................................................................. 13
Issues involving Customer Service Expectations .............................................................................. 14
Chapter 4: Customer Expectations of Service ...................................................................................... 16
Customer Perceptions ....................................................................................................................... 16
Customer Satisfaction ....................................................................................................................... 16
Service Quality .................................................................................................................................. 17
Service Encounters: The Building Blocks for Customer Perceptions................................................ 18
The evidence of Service .................................................................................................................... 18
Chapter 5: Conceptual Framework of the Book: The Gaps Model of Service Quality.......................... 19
The Customer Gap ............................................................................................................................ 19
The Provider Gap .............................................................................................................................. 19
Chapter 6: Listening to Customers through Research .......................................................................... 21
Using Marketing Research to Understand Customer Expectations .................................................. 21
Elements in an Effective Services Marketing Research Programme ................................................ 21
Analysing and Interpreting Marketing Research Findings ................................................................. 23
Using Marketing Research Information ............................................................................................. 24
Ethics in Marketing Research ............................................................................................................ 24
Upward Communication .................................................................................................................... 24
Chapter 7: Building Customer Relationships ........................................................................................ 25
Relationship Marketing ...................................................................................................................... 25
Relationship Value of Customers ...................................................................................................... 26
Customer Profitability Segments ....................................................................................................... 27
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, [SERVICES MARKETING] Bram Voets
Relationship Development Strategies ............................................................................................... 27
Relationship Challenges .................................................................................................................... 28
Chapter 8: Service Innovation and Design ........................................................................................... 30
Challenges of Service Innovation and Design................................................................................... 30
New Service Development Processes .............................................................................................. 30
Types of New Services ...................................................................................................................... 30
Stages in Service Innovation and Development ............................................................................... 31
Service Blueprinting ........................................................................................................................... 32
High-performance Service Innovations ............................................................................................. 34
Chapter 9: Customer-Defined Service Standards ................................................................................ 35
Factors necessary for Appropriate Service Standards ...................................................................... 35
Types of Customer-Defined Service Standards ................................................................................ 36
Development of Customer-Defined Service Standards .................................................................... 36
Chapter 10: Physical Evidence and the Servicescape ......................................................................... 39
Physical Evidence ............................................................................................................................. 39
Types of Servicescapes .................................................................................................................... 39
Strategic Roles of the Servicescape ................................................................................................. 39
Framework for Understanding Servicescape Effects on Behaviour .................................................. 40
Guidelines for Physical Evidence Strategy........................................................................................ 42
Chapter 11: Employees‟ Roles in Service Delivery .............................................................................. 43
Service Culture .................................................................................................................................. 43
The Critical Importance of Service Employees ................................................................................. 43
Boundary-Spanning Roles................................................................................................................. 43
Strategies for Delivering Service Quality through People ................................................................. 45
Customer-oriented service delivery ................................................................................................... 46
Chapter 13: Delivering Service through Intermediaries and Electronic Channels ................................ 47
Delivering Service through Electronic Channels ............................................................................... 47
Other Forms of Service Distribution .................................................................................................. 48
Direct or Company-Owned Channels ................................................................................................ 48
Franchising ........................................................................................................................................ 48
Agents and Brokers ........................................................................................................................... 49
Common issues involving intermediaries .......................................................................................... 50
Strategies for effective Service through Intermediaries .................................................................... 50
Chapter 14: Managing Demand and Capacity ...................................................................................... 51
The Underlying Issue: Lack of Inventory Capability .......................................................................... 51
Capacity constraints .......................................................................................................................... 51
Demand patterns ............................................................................................................................... 52
Strategies for matching Capacity and Demand ................................................................................. 52
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, [SERVICES MARKETING] Bram Voets
Yield Management............................................................................................................................. 53
Queuing Strategies: When Demand and Capacity cannot be matched ............................................ 54
Chapter 15: Service Recovery .............................................................................................................. 56
The Impact of Service Failure and Recovery .................................................................................... 56
How Customers Respond to Service Failures................................................................................... 56
Customer‟s Recovery Expectations .................................................................................................. 57
Cultural Differences in Customers‟ Recovery.................................................................................... 57
Switching versus Loyalty Following Service Recovery ..................................................................... 58
Service Recovery Strategies ............................................................................................................. 58
Service Guarantees ........................................................................................................................... 59
Chapter 16: Integrated Service Marketing Communications ................................................................ 61
The Need for Coordination in Marketing Communication ................................................................. 61
Key Service Communication Challenges .......................................................................................... 61
Five Categories of Strategies to match Service Promises with Delivery .......................................... 62
Chapter 17: Pricing of Services ............................................................................................................ 64
Three Key Ways that Service Prices are Different for Consumers ................................................... 64
Approaches to Pricing Services ........................................................................................................ 64
Pricing Strategies that Link to the Four Value Definitions ................................................................. 65
Chapter 18: The Financial Impact of Service Quality ........................................................................... 67
Service and Profitability: The Direct Relationship ............................................................................. 67
Offensive Marketing Effects of Service: Attracting More and Better Customers ............................... 67
Defensive Marketing Effects of Service: Customer Retention .......................................................... 67
Customer Perceptions of Service and Purchase Intentions .............................................................. 68
The Key Drivers of Service Quality, Customer Retention and Profits ............................................... 68
Customer Equity and Return on Marketing ....................................................................................... 68
Company Performance Measurement: The balanced performance scorecard ................................ 68
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, [SERVICES MARKETING] Bram Voets
Chapter 1: Introduction to services
What are services?
Simple definition Services: Services are deeds, processes and performances.
Definition Services: all economic activities whose output is not a physical product or
construction, 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 purchasers.
The service sector is estimated to represent 73% of the GDP of the EU.
Lovelock’s classification of services:
People as recipients Possessions as recipients
Tangible actions Services directed at People’s Services directed at People’s tangible
Bodies possessions
- Passenger transportation - Courier services
- Healthcare - Car repair
- Spa treatments - Laundry and dry cleaning
Intangible Services directed at People’s Services directed at intangible
actions minds assets/possessions
- Education - Accounting
- Entertainment - Banking
- Psychotherapy - Legal services
Services directed at People’s Bodies
Customer is required to be present when the service is being delivered.
Services directed at People’s minds
Customer does not need to be present in the place where the services is delivered (internet).
Services directed at intangible possessions
Can be delivered with very little direct interaction between the customer and the organisation.
Difficult to differentiate such services and to communicate their true value.
Tangibility spectrum
Intangibility is a key determinant of whether an offering is a service.
Very few products are purely intangible. There are very few „pure services‟.
Services tend to be more intangible than manufactured products.
See figure 1.2 in the book.
1. Service industries and companies
= include those industries and companies typically classified within the service sector whose core
product is a service.
Pure service companies: Accor (hotels), Lufthansa (transportation), HSCB (banking).
2. Services as products
= a wide range of intangible products offerings that customers value and pay for in the marketplace.
Sold by service companies and by non-service companies.
e.g. IBM and HP offer IT consulting services, competing with firms such as Accenture which
are traditional pure service firms.
Half of Siemens (turnover comes from the provision of service).
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3. Services as experiences
Service companies would evolve from simply providing a service to creating memorable
events for their customers, with the memory of the experience becoming the product (Pine
and Gilmore, 1998).
It charges for the feelings that customers derive from engaging in the service.
e.g. Disneyland Paris
Other services including retailers (Nike Store) and Airlines (Virgin Atlantic) are focusing on
experience now too.
4. Customer services
= the service provided in support of a company‟s core products. It should not be confused with the
services provided for sale by the company.
Companies do typically not charge for customer service.
5. Service dominant logic (Steve Vargo and Bob Lusch)
New dominant logic for marketing that suggests that all products and physical goods are
valued for the services they provide.
The value derived from physical goods is really the service provided by the good, and not the
good itself
e.g. pharmaceutical products provides medical services and a razor providing shaving
services
Why services marketing?
Services marketing is different
Over time, people have realised that marketing and managing services presents issues and
challenges not faced in the marketing of products.
Dedication to quality service has been the foundation for success for many firms, across
industries.
Corporate strategies focused on customer satisfaction, revenue generation, and service
auqlity may actually be more profitable than strategies focused on cost-cutting or strategies
that attempt to do both simultaneously (Marketing Science Institute).
Service and Technology
Technology, specifically IT, is currently shaping the field and profoundly influencing the practice of
services marketing.
Potential for new service offerings
Recent new technologies such as voice mail, mobile phones etc.
Internet: Amazon, Facebook, eBay.
Financial times offers an interactive edition that allows customers to organise the
newspaper‟s content to suit their individual preferences and needs.
New ways to deliver service
Technology is providing vehicles for delivering existing services in more accessible,
convenient, productive ways.
Technology also facilitates transactions by offering a direct vehicle for making purchases.
e.g. Dell offers virtually all its customer service and ordering functions to its business
customers via technology. Over 90% if its transactions with customers are completed online.
Technology provides an easy way for customers to learn and research.
Enabling both customers and employees
Through self-service technologies, customers can serve themselves more effectively.
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, [SERVICES MARKETING] Bram Voets
For employees, technology can provide support too.
e.g. Customer relationship management and sales support software
Characteristics of Services Impacting on Marketing Activities
Services tend to be more heterogeneous, more intangible and more difficult to evaluate than goods,
but the differences between goods and services and not black and white by any means.
See table 1.2 (page 15)
Growing diversity of activities within the service sector, many of which involve a combination
of goods and services within the offering.
The continuing importance of understanding these differences can be explained as follows:
1. The identification of these characteristics provided the impetus and legitimacy necessary
to launch the new field of services marketing and the related academic research.
2. The characteristics identified enabled service researchers to recognise that achieving
quality in manufacturing requires a different approach to that required for a service quality
improvement.
3. Each of the characteristics taken separately or in combination continue to infom research
and management in specific service industries, categories and situations.
Intangibility
Services cannot be seen, felt, tasted or touched in the same manner that you can sense
tangible goods.
Resulting Marketing Implications:
o Services cannot be patented easily, and therefore new service concepts can easily
be copied by competitors;
o Services cannot be readily displayed or easily communicated to customers, so quality
may be difficult to assess;
o Decisions about what to include in advertising and other promotional materials are
challenging, as is pricing. The actual costs of a „unit of service‟ is hard to determine.
Heterogeneity
Because services are performances, no two services will be precisely alike.
The employees delivering the service frequently are the service.
It also results because no two customers are the same; each will have unique demands.
The heterogeneity connected with services is largely the result of human interaction (between
employees and customers) and all of the vagaries that accompany it.
Resulting Marketing Implications:
o Ensuring consistent service quality is challenging;
o Manager cannot know whether the service is delivered in the way it was originally
planned and promoted;
o Sometimes services may be provided by a third party, further increasing the potential
heterogeneity of the offering.
Inseparability
Most services are sold first and then produced and consumed simultaneously.
e.g. Restaurant services cannot be provided until they have been sold, and the dining
experience is essentially produced and consumed at the same time.
Inseparability also means that customers will frequently interact with each other during the
service production process and thus may affect each other‟s experiences.
Resulting Marketing Implications:
o Because services are often produced and consumed at the same time; mass
production is difficult.
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