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The Marketing of Professional
Services—An Organisational Dilemma
by Evert Gummesson
Service Marketing versus Goods Marketing
This paper is concerned with the marketing of a certain set of producer services called
professional services.1 They include the services of advertising agencies, management
consultants, accountants, architects, engineering consultants and several others. Some
professional services also have a consumer market: this exists for example in the case
of the legal and medical professions.
Services to firms can include transportation services, cleaning services, etc. Professional services are a subset which is differentiated from other services by being
mainly advisory and being operated by skilled professionals. When goods and services
are sold together the term systems selling is used. For instance, a computer firm may
sell the computers but also undertake to adjust and install computer programs. Systems
may include both professional and other services.
My interest in both the producer and service sectors developed from practical work
in which I was engaged in those areas and where I found the existing marketing
literature insufficient. Hitherto, most marketing literature and research has concentrated on consumer goods while producer goods and services have been neglected. I
found that the taxonomy and models developed for consumer goods marketing could
help to shed light on industrial marketing or the marketing of professional services,
but only to a limited extent.
It is unfortunate that consumer goods marketing has been set more or less as a
norm for all marketing. An estimate of annual sales values in Sweden indicates that
consumer goods only account for 20 per cent, while producer goods account for 58
per cent, consumer services for 12 per cent and producer services for 10 per cent.
Professional services, as defined in this project, account for 15 per cent of producer
services.
In the discussions on professional service marketing which I have had with marketing theorists it has often been argued that marketing theory is generally applicable—
services are no different from other products. In some articles authors take the same
view[12, 13, 22], In most marketing literature services are not treated at all, but
implicitly the authors accept that goods marketing is applicable also to services[l0].
1
Also the term consultancy services is used. There are no commonly accepted definitions of the
two terms[l, 4, 15,17].
Marketing of Professional Services | 309
I have also had several discussions with practitioners in service industries and they
feel neglected by marketing literature: they are looking for conceptual frameworks
that can help them approach and solve their particular marketing problems.
Traditionally and rightly, he who claims that his models and theories have applicability to other areas than those for which they are primarily meant, has the burden
of proving this. Thus, if someone says that consumer goods marketing is applicable
to service marketing, he should show that this is likely to be true. In marketing so far
it seems to be the other way around: the burden of proof is thrown on those who
doubt. There is, however, a growing community of marketing theorists who claim
that unique features do exist for different kinds of products and services and that these
unique features have to be recognised in order to develop an appropriate marketing
theory[2, 3, 5, 9, 14, 18, 19, 20].
The purposes of my research project have accordingly been to investigate marketing
practices in the field of professional services, to combine empirical findings with
marketing theory and buyer behaviour theory and to attempt to find conceptual
frameworks or principles that could guide professional servicefirmsin their marketing
efforts. Further, my intention has been to contribute to the theories of service marketing and industrial marketing.
The conclusions presented here are part of the results of a broad project to investigate the marketing and purchase of professional services. Altogether some 50 people
representing different professional services were interviewed about marketing practices.
Four cases were studied where both sellers and buyers were interviewed. The research
project was sponsored by the University of Stockholm and the Marketing Techniques
Centre (MTC). Its empirical part was carried out during 1975-1977 and the project
report completed in 1977[8].
An Organisational Dilemma
This paper will report results from the research project concerning an organisational
dilemma for professional service firms. Those firms usually do not have a marketing
or sales department. In a goods-producing firm it is usually quite easy to separate
marketing (including sales) from production. You belong either to one or to the
other. In a service firm, and especially in a professional service firm, the following
dilemma arises:
The person who is a marketer of the service usually must also be prepared to take
part in the operation of assignments.
This fact has been pointed out before in the literature[19, 21] and it is supported
by my empirical research. To my knowledge the implications have not been further
developed elsewhere. I have considered implications in three areas: (1) the organisational structure of a professional firm, (2) the marketing activities carried out by
professionals and (3) the costs of marketing. These areas will be dealt with below.
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Implications for Organisational Structure
A professional can engage in the following tasks. He can:
—operate assignments for clients and invoice clients for this,
—market the services of the professional firm,
—develop or improve services,
—take part in education and training,
—administer a professional firm or some part of it.
It is common for a professional mainly to spend his time in operating assignments
but it is less common for him only to market, develop or administer the services. In
the cases I have come across, where the professional is restricted to marketing,
developing or administering services, results have been poor. A professional who does
not take part in the carrying out of assignments suffers after some time a reduction
in his professional effectiveness. He may, however, have an inclination and gift for
combining the activities set out above in varying proportions.
Wittreich[21] has stressed two points concerning this. Firstly, the client is buying a
professional: "A professional service can only be purchased meaningfully from
someone who is capable of rendering the service. Selling ability and personality by
themselves are meaningless" (p. 6). Secondly, what is needed is the professional who
sells, not the professional salesman (p. 10).
The marketing organisation concerning professional services therefore differs in
important respects from marketing organisations outlined in textbooks. Figure 1
illustrates this principle. The following comments apply to the figure.
Some people mistake the marketing department as being identical with the marketing
function of a firm. In all operations it is essential to make this distinction[7] and in a
professional servicefirmit is even more so as the marketing department is only a small
part of the marketing function and the marketing function spreads to all levels of the
organisation. The managing director and other managers (for divisions, regions,
groups, etc.) and those with the status of full professionals (and in some of the largest
firms also a marketing staff unit), are engaged both in marketing management (marketing research, strategies, organisation, planning, sales control, etc.) and in the creation
of advertising, other promotional activities and public relations, often with the aid of
an advertising agency. They are also engaged in the planning and implementation of
selling activities and PR activities. Assistants and internal staff contribute to the design
and production of material used in advertising, sales promotion and PR, in cooperation with external specialists.
Implications for Marketing Activities
In the preceding paragraph the possible tasks of the professional have been set out. I
will now go one step further and identify possible activities within the area of marketing. Here, I will concentrate on promotional activities, i.e., the various ways of com-
Marketing of Professional Services | 311
municating with, and influencing, the market. These activities are listed in Table I and
divided into (A) personal selling including market research, (B) advertising and (C)
public relations and other promotional activities. The following consequences are
worth noting.
Figure 1. The Organisation of a Professional Service Firm
Firstly, almost all means except (B) (advertising) are very person-intensive. Personal
contact under (A) (selling) and (C) (PR, etc.) dominate. Secondly, the use of (A) and
(C), with activities such as writing proposals, giving lectures, writing articles, requires
activities from highly qualified individuals. This work will be shared out in the
professional service firm and different individuals will (it is hoped) concentrate on the
particular activities that suit them best. Thirdly, the local and individual use of the
means is predominant. Some of the means such as advertising, administration of
courses can, however, be worked out centrally. Fourthly, the marketing costs will
mainly be the time costs of the professionals involved. These are the costs connected
with the organisational dilemma. However, expenses such as typing, copying and
travelling can also lead to substantial costs. Probably much work is done in the spare
time by motivated individuals and is never registered as marketing costs. Fifthly,
several activities contain elements of service development and the individual's own
education. Examples are articles, books, conferences. Sixthly, the marketing strategy
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of a professional service firm may include activities in different combinations. Some
may concentrate on personal contact with prospects and not use advertising and PR
at all.
Others may avoid direct approaches and only use indirect means such as giving
lectures, writing articles. Some groups of professionals prohibit direct sales approaches
and advertising whereas they usually allow more indirect means of promotion.
Table I. Promotional Activities used by Professional Service Firms
(A) Personal selling including market research
Sales calls on own initiative
Sales calls on inquiry
Proposals
Current contacts with certain important customers and prospects
Controlling time-consuming negotiations
Controlling suppliers or others who may influence sales
Surveying activities and events in the market
Developing know-how on individual prospects
(B) Advertising
Advertisements in daily newspapers
Advertisements in trade journals
Other types of advertisements: telephone directories, year books, etc.
Direct mail
Participation in advertising arranged by trade associations
(C) Public relations and other promotional activities
Conferences, symposiums, seminars, courses, etc. arranged by the professional firm
Participation in conferences, etc. arranged by a trade association or someone outside the
professional firm
Participation as lecturer, seminar leader, etc.
Membership of associations
Dinners, lunches and other forms of entertainment
Invitations, e.g., to the professional firm's office
Exhibitions
Reference assignments
References to persons
Participation in professional contests
Arranging contests
Awarding fellowships
Publication of articles
Reprints of articles
Publication of books
Product sheets
Annual reports
Publishing a magazine for clients
Slides, films, etc.
Billboards and name-plates
Press releases
Press conferences, interviews
Gifts
Christmas greeting, anniversary greetings, etc.
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Implications for the Determination of Marketing Costs
The third area which is affected by the organisational dilemma concerns the costs of
marketing. To my knowledge, there are no estimates of marketing and sales costs for
different types of professional service firms. There is also a lack of cost concepts
applicable to the special features of professional services. Cost concepts relevant to
marketing have been developed for manufacturing industries and trade but not for
professional services (nor for other services). Therefore, I must first of all introduce a
set of concepts. These concepts were used in estimating the sales costs in four cases.
It turned out during the data collection that the professional service firms did not
know their marketing and sales costs, nor did the clients know their purchasing costs.
The major source of income for professional firms is the hourly fees invoiced to the
client. There are other ways of payment, e.g., commissions. Here I will only deal
with income generated through time-based fees.
Two kinds of marketing costs were identified. The first kind are costs for activities
designed to increase the market's awareness of the firm and its services and to create
a favourable image. Activities of this kind were listed in Table I mainly under (B) and
(C). These costs can be called costs for indirect marketing. The second kind of costs
are those incurred in negotiations with a specific prospect. These are sales costs and
they are caused by sales calls and other contacts and the writing of proposals.
The element of marketing costs which is caused by the professional spending time
on marketing activities can be valued at three levels:
—An upper cost. This consists of the income sacrificed by the professional with a
full work-load (usually his hourly fee), plus expenses caused by the specific
marketing activity (e.g., travel costs).
—A lower cost. For a professional not otherwise fully occupied, the only costs will
be the expenses caused by the specific marketing activity.
—A middle cost. This is made up principally of the professional's remuneration plus
expenses.
Which cost concept should then be used by the professional service firm? There is
not a simple, clear-cut answer to that. In my belief, however, an understanding of
these concepts may help to make better decisions. Some possible situations will be
discussed below.
The upper and lower costs seem to be relevant alternatives in the short term and
the middle cost in the long term. In the short term the evaluation of the cost is a
function of the work-load during a certain period. In the long term it is a matter of
estimating the necessary marketing resources required to maintain the professional
firm at a certain size.
The professional firm can have a high or a low work-load. But the work-load can
also be evenly or unevenly distributed on individuals. It can also be dispersed or
concentrated in time. The volume of proposals can be low or high, the number of
prospects can also be low or high.
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In every individual case there may be present, instead of the extreme of high or
low, a particular level of operation, somewhere in between. Moreover, in any particular
defined period of time, a particular and individual mix may provide optimum operating
conditions.
In a situation where all the factors go in a positive direction it is reasonable in the
short run to use the upper cost. In a negative situation the opportunity cost is zero. In
the short run the lower cost should therefore be used. If positive factors keep prevailing
it is possible for the professional firm to expand, if the negative ones prevail, it must
contract. In a more balanced situation, the middle cost is reasonable, it is necessary
to keep a certain volume of work.
What you should not do of course—and I have seen several firms do this—is to
use the upper cost constantly. That will give the idea that they spend a lot of money
on marketing. It may inhibit them from putting in enough efforts in getting jobs
because "it is so expensive". When the distribution in work-load between the individual
members of a professional firm is very uneven, one individual could be in a very
positive situation and another in an extremely negative situation. For the former
professional it may be reasonable to assess the sales time as an upper cost, for the
latter as a lower cost. If the former professional is a good salesman who can sell
assignments for others he may make a larger contribution to thefirmby selling rather
than operating. Actually, there is an opportunity cost for operating.
Some figures to illustrate these concepts may help the reader to realise their
significance. The sales costs for the professional firm which was awarded the contract
and the costs for all competitors are given below. The costs are sales costs for a
specific contract. The example concerns a company which wanted to build a new plant.
The company got in touch with six firms of consulting engineers asking them all if
they were interested in tendering for the job. The sales costs are given in Table II.
The table shows that the difference between costs is quite substantial depending on
how they are evaluated. The adoption of a particular cost definition will, therefore,
affect how the professional firm assigns its priorities between sales and other activities
and between different prospects.
Table II. Costs Expressed in US Dollars
Hours spent
Upper cost
Middle cost
Lower cost
Seller
Competitors
109
4·300
2·980
890
410
16·200
11·100
3·330
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Allocating Marketing Efforts—Decision Rules
With the above discussion in mind, four decision rules for the professional service
marketer will be suggested.
Rule 1: Train all members of the organisation in marketing in order to influence their
attitudes and develop marketing techniques.
In a goods-producing firm it is easier to separate the marketing function from other
functions, especially from production. In a professional service firm, the marketing
department is usually a small staff unit and marketing activities are spread through
the organisation. The concepts of marketing function and marketing (and sales)
department can then facilitate the analysis, i.e., it is important to establish where
marketing activities should be carried out. In practice, when a marketing department
is created, people in other areas of the firm may believe that they do not have to
worry about marketing: it is taken care of by the department. Marketing and sales
training for professionals then becomes important. They are usually hired because
they are professionals in a specific area, not because they are able to attract business.
Some even frown upon selling, it does notfittheir image of themselves as professionals.
Rule 2: Use Table I as a checklist ofpossible promotional activities, select those which
are considered relevant for your firm and determine who shall do what.
The list of means and activities to market the service (set out in Table I) can be used
as a practical checklist for both strategic and tactical decisions: do we use the measures
at our disposal, do we use them in a satisfying combination, what shall we concentrate
on, who shall do what and in what proportions? These activities will cost money:
what level of promotion is acceptable and what level is necessary to keep the firm at
a certain scale, in the short term as well as in the long term? In the negotiations with
specific prospects, what sales costs are reasonable and how should they be valuated ?
Rule 3: Budget your marketing costs, do not make them a residual. Do not mismanage
long-term promotional activities when times are good.
The guiding principle for professionals seems to be this: it is better to take a certain,
short-term revenue rather than a long-term, but more uncertain, revenue. If that
principle is used too consistently, however, there is the risk of a rather unstable situation developing, as illustrated in Figure 2.
The figure shows that when the work-load is high, the firm devotes little time to
marketing. When the work-load goes down more time is devoted to marketing. The
lead time from first contact with a prospect to an assignment is usually long (several
months or years) and therefore the firm may have a very low work-load before the
marketing activities begin to create jobs. Therefore, it would be more desirable to
keep an even work-load and a marketing activity level such as the dotted line indicates.
A more even work-load facilitates planning. A very low work-load even during a short
period can cause serious liquidity problems. To get a more even work-load requires
discipline and a systematic use of experience.
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Figure 2. The Use of a Professional's Time on Marketing
Rule 4: Use expected value with caution.
When the work-load goes down, one wants to increase the work-load quickly as each
day off the clock is a lost day of revenue. The choice then is not between the alternatives of work in assignments or sell, but between selling to prospect (a), prospect (b)
or prospect (c) etc. Therefore, there is an opportunity cost for selling to (a) in relation
to (b). The evaluation of this cost can be based on such factors as: how quickly can
the job start, how big will it be and what are the chances of getting it? It is not possible
to calculate an expected value in its true sense. If the firm makes a conscious choice
based on systematic reasoning, under-pinned by experience and intuition, no better
alternative exists and consequently the opportunity cost in relation to another prospect
is nil.
Kotler and Connor in a recent article[ll] advocate the use of expected value in
ranking prospects. In my view they put too much trust in the concept. The following
formula is used:
probability of
expected value
value of the
sales
= attaining the x
—
ofr a prospect
prospect
costs
prospect
It is an academically appealing way of calculating risk but the formula can only be
used if a large number of prospects are being negotiated and it is also sensitive to
extreme values[16]. For instance, a professional service firm has one prospect worth
one million US dollars, the probability (which of course is subjective) is 0·90 and the
sales costs (valued in what way?) 10,000 dollars. The expected value becomes $890,000.
Another firm has 100 prospects worth $10,000, i.e., one million dollars together. The
value for each is 0·75 and the sales costs $20,000 which gives an expected value of
Marketing of Professional Services | 317
S730,000. In the first case you get the assignment or you do not get it, there is one
decision-making unit. In the second case you have 100 decision-making units. Common
sense of course would lead one to have more confidence in the future of the second
firm. Even if most real situations are not as extreme as this, professional service
firms often have very few prospects. The formula could not in my experience be used
in practice, especially not to rank prospects. Firstly, it applies only when great numbers are concerned: an individual prospect you get or you do not get. Secondly,
probability is a matter of subjective judgement. Thirdly, the probability may increase
if you put in more activities, and consequently have higher sales costs. The problem
is what costs to allocate and what action to take. The formula for the expected value
therefore is not operational, it becomes merely a neat exercise which gives little guidance
in practice. It may even lull the professional service firm into a sense of false security
and prevent it from making a proper analysis.
Summary and Conclusions
This article pointed out an organisational dilemma for professional service firms.
The implications of this dilemma for marketing organisation, promotional activities
and marketing cost was then discussed. Four decision rules were suggested.
The reasonings in this article are based on empirical data from professional service
firms. However, the same dilemma may arise in other service marketing. Gronroos[6]
recently made similar observations for consumer service firms such as banks and
travel agencies. The dilemma is also likely to occur in firms producing goods on
customers' orders such as customer-designed machines. Therefore, empirical studies
of its effects for producer goods marketing will be welcomed.
References
1. Bennion, F. A. R., Professional Ethics, London, Charles Knight, 1969.
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Consumer Services: New Insights, Cambridge, Mass., Marketing Science Institute, 1977.
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Bureau of Economic Research, 1969.
5. Grönroos, C., "A Service-Oriented Approach to Marketing of Services", European Journal of
Marketing, Vol. 12 No. 8, 1978, pp. 588-601.
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318 | European Journal of Marketing 13, 5
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