Download Understanding services.

MARKETING OF SERVICES
LECTURE 2.
UNDERSTANDING SERVICES.
Today, an innovative servicing company is the winner.
Example 1: Success of Southwest Airlines. (When other shrink and disappear – this company gets
only stronger by efficient servicing).
Example 2: Singapore “World of Sports” retail chain. “Speed, Simplicity, and Service”. Claims that
“where product differentiation is not marketed, customer service makes all the difference”
Example 3: Midland bank in England. “Firstdirect” operation – “purely telephone-based bank”. No
offices, the bank never sees its customers.
View of “marketing” from different perspectives:
- strategic thrust, pursued by top management;
- set of functional activities performed by line managers (product policy, pricing, delivery,
communications);
- customer-driven orientation for the entire organization.
Actually, it is all of the above.
For the service sector, however, close cooperation b/w marketers and managers responsible for
operations and human resources becomes of top importance.
Universal phenomenon: nobody likes changes – including managers of organizations. The key to
prosper, however, is the ability to adapt quickly to the changing environment. (E.g., no site today
w/o javascript library; like jQuery).
Classification of servicing companies:
- big/small;
- networked/concentrated;
- business/individual oriented;
- internal (e.g. recruitment, legal – i.e. done for the companies) /external (done for the companies’
businesses);
- else?.
Key difference from products: “customers usually derive value from services without obtaining
permanent ownership of any tangible elements”.
Tangible vs. intangible domain of services. (Almost no services are without tangible component and
vice versa).
Alternative approach (by Sasser at al) is based on proportion of the selling price accounted for by
service elements.
Key marketing question: “how much leverage in a competitive marketplace is exerted by the service
elements of the total package?” Henkoff argues that “On the front line of the new service company,
service – bold, fast, innovative, and customized – is the ultimate strategic imperative”. (Case study:
“Service is Everybody’s Business”).
(What counts most is the service built into that something – the way the product is designed and
delivered, billed and bundled, explained and installed, repaired and renewed).
—1—
Marketing of Services. Lecture 2.
Understanding Services.
(Case study: “Development and Emergence of Services Marketing Thought”).
Dynamic environment for services.
What conditions the changes?
- Changing patters of government regulation (US dropped barriers in: airfreight, airlines,
railroads, trucking, banking, securities, insurance, telecommunications; on the other hand,
removing pricing constraints led to harsh competition b/w US domestic airlines and huge losses
in the industry, bankruptcy, inability to renovate and decrease in safety and quality!).
- Relaxation of professional association standards. In US – government or legal pressure to force
professional associations to remove or relax bans on AD and promo activities. Affected
professionals are: accountants, architects, doctors, lawyers, and optometrists, whose practices
now engage in much more vigorous competitive activities than before. However, in US, huge
surge in legal AD encourages people to file more lawsuits, many of them frivolous. (What about
Ukraine? e.g. Ukrainian Marketing Association; what else?).
- Privatization (the term coined in Great Britain). Leads (theoretically) to market focusing.
Interesting case – trash removal companies.
- Computerization and technological innovation, broad telecommunication (e.g. airline booking);
global phenomenon – provision of self-servicing.
- Growth of service chains and networks (franchising: diverse as bookkeeping, car rental,
haircutting, photocopying, quick service restaurants, real estate brokerage, etc.; co-product –
transnational AD companies);
- Expansion of leasing and rental (marriage b/w service and manufacturing; from truck to “rent-acops”).
- Manufacturers as service providers (co-products – services – such as consultation, credit,
transportation and delivery, installation, training, maintenance become the businesses on their
own even serving customers who have chosen competing solutions).
- Non-business (public) companies adopt market-focused strategies (e.g. adding museum shops,
catalogs, walk-in restaurants, etc.).
- Globalization (also facilitated by free-trade unions – EU, NAFTA, Mercosur – Spanish:
Mercado Común del Sur – joining Argentina, Brazil, Paraguay and Uruguay; etc; franchising is,
essentially, the product of globalization; problem – possible barriers b/w the unions).
- Impact of the service quality movement – general trend of improving customer servicing
(defining quality that is customer oriented; a co-product – many researches on determining
customer wants).
- Hiring and promotion of innovative managers (inbred – “born” within managers are replaced by
qualified managers who question traditional ways of doing business and bring new ideas from
previous work in another industry; intensive training becomes a norm).
Implications and opportunities for service marketers (just a few).
Note: few companies will face all of the listed, but none will be unaffected by any.
- Marketing opportunities from fewer regulations and professional restrictions (critical for western
markets, especially in banking and transportation). Resulted in:
- easier entry to specific product markets;
- more freedom to compete on price;
- removal of many geographic restrictions on service delivery;
- incentives to differentiate services in meaningful ways;
- the ability to use the mass media to promote professional services.
(New regulations designed to protect customers also have important marketing implications;
e.g. airlines are required to provide certain data on quality of service delivery, or elderly
people have more opportunities).
—2—
Marketing of Services. Lecture 2.
Understanding Services.
-
-
-
-
Mark. opportunities arising from new technology (mostly – telecommunications highways:
banking, retailing; also – wending machines, self-servicing washing stations; customer behavior
recorded in databases becomes a new asset).
Mark. opportunities in franchising (opportunity to growth, professional management,
uniformity, economy of scale, broad recognition).
(What business can be franchised?)
(Problems in the US are overcrowding of franchise businesses and deterioration b/w franchisers
and franchisees, growth is tailing off).
Opportunities in servicing physical goods (especially, high-value durables); e.g.:
- transport and storage;
- installation;
- refueling;
- maintenance, repair and upgrading;
- cleaning and refinishing;
- environmentally-responsible disposal or recycling.
Appearance of third-party suppliers (due to better expertise, pricing, or outsource).
(Ironically, higher quality and greater reliability often mean that machines become
technically obsolete before they start to need major repairs;
however, the key in these circumstances is creating long-term relationships with customers;
vendors (can) create more complex services requiring certain knowledge and skills).
Opportunities in international markets (requires understanding overlooking cultural and other
differences; telecommunications aids this process, however).
Cultural differences are more likely to pose problems for services rather than for goods.
(Case study: “Euro Disney”).
(What difficulties can face a company entering international market?).
NB: the domain of services is in an intensifying phase of structural and content changes; traditions
are broken down and new developments are appearing at an increasing rate.
Marketing-relevant differences between services and goods.
(Marketing skills developed in manufacturing organizations are rarely transferable to service sector;
although, a vice verse move is easier).
Similar benefits, different processes.
A packaged foods marketer is likely to come to grief using strategies similar to those of fast-food
restaurant marketers; a successful automobile marketer will not necessarily find it easy to replicate
that success in the rental business; marketing executive for a manufacturing of heavy electrical
equipment will need to develop a new managerial style – as well as strategies – if transferred to the
same company’s equipment servicing division.
Services compete with goods (e.g. car ownership vs. rental; hiring temporary workers vs.
permanent). However, the processes are totally different due to:
- generic difference b/w service products and physical goods;
- differences in management environment or context within which marketing tasks must be
executed.
—3—
Marketing of Services. Lecture 2.
Understanding Services.
Table: services as substitutes for owing and/or using goods.
Own a physical good
Rent the use of a physical good
Perform the
- Drive own car;
- Rent a car and drive it;
work oneself
- Type own word processor
- Rent a word processor
Hire someone to - Hire a chauffeur to drive a car;
- Hire a taxi or a limousine;
do the work
- Hire a typist to use word
- Send work out to a secretarial
processor
service
Broad generic differences b/w goods and services.
(Old concept of similarity and services’ characteristics of intangibility, heterogeneity (variability),
perishability of output, and simultaneity of production and consumption is replaces by a newer and
broader insight).
- Nature of the product (a good is “an object, a device, a thing”, a service is “a deed, a
performance, an effort”; performance is the key aspect, in general, which is purely intangible).
(E.g. selecting a car to buy and to rent). (Case study: “The Dramaturgy of Services Exchange:
An Analytical Framework for Services Marketing”).
- Customer involvement in the production process (from none – laundromat, to full – legal
consultation). Issue: managing the role of customers in “production” process.
- People (presence of others) as part of the product (service encounters and servicing employees’
quality matter and becomes a challenging task).
- Quality control problems (“real-time quality control conditions”; e.g., noisy neighbors in a
hotel).
- Harder for customers to evaluate (easy vs. difficult to evaluate creates a range, where:
- Physical goods with observable pre-purchase characteristics are high in search qualities;
- Goods and some services with post-purchase characteristics emphasize experience qualities;
- If hard to evaluate even after consumption, what matters is credence.
(Domain from “easy to evaluate” – “china” to difficult – complex surgery).
- No inventories (labor, equipment, etc. are related to productivity, but not the product itself –
bottlenecks in equipment may diminish the expected output; smoothing demand and managing
capacity becomes a tedious but important task).
- Importance of time factor. Many services are delivered in real time (airlines, hospitals,
haircutters, restaurants). It is critical as to how long a customer can wait in a queue and a service
should take to complete.
- Different distribution channels (no intermediaries and attention to contact personnel due to
“direct sale” nature of transactions).
Different context for servicing marketing.
- Narrow definitions of marketing (by operations managers), even limited to “AD and PR”;
customer orientation is not a tradition yet; operations do not perceive marketing as an integral
managerial component.
- Lack of appreciation for marketing skills (dominance of operations management; remedy –
marketers should earn respect).
- Different organizational structures (general managers [responsible for operating service
facilities and managing customer-contact employees] are engaged in marketing management
whether they recognize them as such or not; servicing outlets are frequently lacking the balance
of operations and marketing practice [i.e. customer servicing]).
- Limited data on competitive performance (lack of data on product-by-product performance
[difficult to evaluate AD efforts]; data from competitors is hardly available; data is highly
aggregated [e.g., whole industry]; good part – services has become the domain for MR).
—4—
Marketing of Services. Lecture 2.
Understanding Services.
-
Problems in determining costs for pricing purposes.
Constraints and opportunities for nonbusiness marketers (e.g., in public sector priorities are set
by politicians, not management; nonprofit marketers may have to defer to the wishes of
volunteer boards and make “compromises” to retain donor support; external financing makes it
possible to offer many public and nonprofit services at prices below full cost; free advertising
time and space may be available in the form of public service announcement; volunteers may
work without payment on marketing-related tasks like personal selling or customer contact at
the point of service delivery).
—5—
Marketing of Services. Lecture 2.
Understanding Services.