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2. CMK 313 CHAPTER 2 Nature and Characteristics of Services.ppt

  1. Gilbert arap Bor Catholic University of Eastern Africa: Gaba Campus, Eldoret SCHOOL OF BUSINESS & ECONOMICS Department of Marketing & Management CMK 313 – Marketing of Services Chapter 2: Unique Characteristics of Services
  2. Gilbert arap Bor Chapter Objectives 1. Characteristics of Services Compared to Goods 2. Unique Characteristics of Services 1. Intangibility 2. Heterogeneity 3. Inseparability 4. Perishability 3. Major marketing task facing service companies
  3. Gilbert arap Bor Characteristics of Services Compared to Goods • There is a general agreement that differences between goods and services exist; the distinctive characteristics of services pose challenges (and advantages) for managers of services. • All services share four (4) unique characteristics that distinguish them from physical products: 1. Intangibility 2. Heterogeneity (Variability) 3. Inseparability – Simultaneous Production of Services 4. Perishability
  4. Gilbert arap Bor Goods vs. Services Goods Services Resulting implications Tangible Intangible 1. Services cannot be inventoried 2. Services cannot be easily patented 3. Services cannot be easily communicated or displayed 4. Pricing is difficult Homogeneous Heterogeneous 1. Service delivery & customer satisfaction depend on employee and customer actions. 2. Service quality depend on many uncontrollable factors 3. There is no sure knowledge that the service delivered matches what was planned and promised.
  5. Gilbert arap Bor Goods vs. Services Goods Services Resulting implications Production and distribution are separated from consumption Production, distribution and consumption are simultaneous processes - inseparability 1. Customers participate in and affect service transaction. 2. Customers affect each other 3. Employees affect the service outcome. 4. Decentralization may be essential 5. Mass production is difficult. Non- perishable Perishable 1. It is difficult to synchronize supply and demand for services. 2. Services cannot be returned or resold
  6. Gilbert arap Bor Unique Characteristics of Services 1. Intangibility 1. Services cannot be inventoried; Hard to grasp, concept is abstract 2. Customer is unable to experience the ‘product’ prior to ‘purchase’ 3. Dramatization often necessary for concept • Intangibility generally makes the marketing of services a challenge • Understanding how people buy services and the segments that exist is just as important • Knowing more about the value of customer segments is important -- some are more valuable than others • Knowing what they value so that service levels can be tailored is also important • Marketing implications 1. Great marketing skills in tangibilising intangible offerings, i.e., in surrounding them with “hard” peripheral attributes 2. Technical superiority and long term vision in new service development, in order to protect a service from its non-patentability 3. Services cannot be inventoried – fluctuations in demand difficult to manage 4. Creative communications skills, i.e., what message to communicate?
  7. Gilbert arap Bor Unique Characteristics of Services 2. Heterogeneity (Variability) 1. Service quality tends to vary considerably. 2. Difficulty in establishing consistency in quality • across Providers or within providers • across Time • across Delivery Centers • Marketing implications 1. Need to develop service blueprints , i.e., a production line approach to the production and delivery process 2. Ability to find a balance between standardization and personalization during service delivery 3. Ability for real time detection of which side of the encounter causes service failure 4. Need for a mechanism of timely service recovery 5. Skillful selection and motivation of appropriate front-line employees
  8. Gilbert arap Bor Unique Characteristics of Services 3. Inseparability 1. It refers to the simultaneous production and consumption of services 2. Outlet accessibility can limit the area covered by the service. 3. Image is important: Image affects the perception of the service. 4. Consumer is present and when service is produced; Plays role in production. 5. Hard to separate the service provider and the service 6. Consumers interact with one another and may be affected (positively or negatively) by this interaction.
  9. Gilbert arap Bor Unique Characteristics of Services 3. Inseparability – Marketing implications 1. Mass production of services is difficult, if possible at all 2. No significant economies can be earned from centralization of operations, since the service must be produced at the convenience of customers (temporal and physical) 3. Service quality depends highly on what happens in real time, i.e., during the service encounter 4. Since customers have a vital role in the production and delivery process, the service provider needs great skills to train them how to play their role 5. The service provider must prove excellence each time the service is produced 6. The service provider needs skills in order to tackle disruptions in the production process, caused by problem customers
  10. Gilbert arap Bor Unique Characteristics of Services 4. Perishability 1. It refers to the fact that services cannot be saved, stored, resold or returned, i.e. services cannot be stored or held in inventory. 2. If not used when available, they “go to waste”. 3. Difficulties in synchronizing supply and demand for services – Marketing implications 1. Need for developing an as accurate as possible demand forecasting mechanism 2. Need for a creative plan for capacity utilization 3. Need for the implementation of strategies and actions to accommodate malcontent customers from non-returnable services
  11. Gilbert arap Bor Challenges and Questions for Service Marketers • Very real and distinctive challenges face service marketers as a result of the basic characteristics of services. • Some of the difficult questions: 1. How can service quality be defined and improved when product is intangible and non-standardized? 2. How can new services be designed and tested effectively when the service is essentially an intangible process? 3. How can the firm be sure it is communicating a consistent and relevant image when so many elements of the marketing mix communicate to customers ; some of these being the service providers? 4. How does the firm accommodate fluctuating demand when capacity is fixed and the service itself is perishable? 5. How can the firm motivate and select service employees who, because the service is delivered in real time, become a critical part of the service product itself? 6. How should prices be set when it is difficult to determine the actual cost of production?
  12. Gilbert arap Bor Challenges and Questions for Service Marketers • Very real and distinctive challenges face service marketers as a result of the basic characteristics of services. • Some of the difficult questions: 7. How should the firm be organized so that good strategic and tactical decisions are made when a decision in any functional area may have significant impact on the other areas? 8. How can the balance between standardization and personalization be determined to maximize both the efficiency of the organization and satisfaction of its customers? 9. How can the organization protect new service concepts from competitors when service processes cannot be readily patented? 10. How does the firm communicate quality and value to consumers when the offering is intangible and cannot be readily tried or displayed? 11. How can the firm ensure the delivery of consistent quality service when both the firm’s employees and the customers themselves can affect the service outcome?
  13. Gilbert arap Bor The Goods/Service Continuum • In reality, it is often very difficult to separate product from services. • Most product are actually a combination of goods and services. • We need to identify to what extent a product is characterized by tangible vs. intangible properties. • The purchase of a car still has service components, including the services of a mechanic, and the use of a comfortable customer launch while waiting for the car to be serviced. • The purchase of a “pure service” like a makeover at a beautician’s clinic still has product components like the various lotions, powders, and lipstick that are used by the cosmetologist.
  14. Gilbert arap Bor The Goods/Service Continuum • In the goods/service continuum, we distinguish among products that are either dominated by goods or services. • Some products are dominated by tangible or intangible characteristics, e.g. salt vs. teaching • Others tend to have a mixture of goods and services, e.g. flying on an airplane. • As the product approaches the tangible pole of the continuum, there is fairly little emphasis on service , and vice versa. • Towards the middle of the continuum, both goods and services contribute to the quality of the product.
  15. Gilbert arap Bor The Goods/Service Continuum Canned foods Ready- made clothes Auto- mobiles Draperies, Carpets Rest- aurant meals Repairs: auto, house, landscaping Air travel Insurance, Consulting, Teaching MOSTLY GOODS MOSTLY SERVICES
  16. Service Marketing Mix/Extended Marketing Mix – 4 More Ps • The service marketing mix comprises of the 4’p’s. These are: • Product • Price • Place • Promotion • People • Process • Physical evidence • Productivity and quality 16
  17. Traditional Marketing Mix PRODUCT PLACE PROMOTION PRICE Physical good features Channel type Promotion blend Flexibility Quality level Exposure Salespeople • Selection • Training • Incentives Price level Accessories Intermediaries Advertising • Media types • Types of ads Terms Packaging Outlet locations Sales promotion Differentiation Warranties Transportation Publicity Discounts Product lines Storage Internet/web strategy Allowances 3/25/2023 Gilbert arap Bor 17
  18. 3/25/2023 Gilbert arap Bor 18 PEOPLE PHYSICAL EVIDENCE PROCESS PRODUCTIVITY Employees • Recruiting • Training • Motivation • Rewards • Teamwork Facility design Flow of activities • Standardized • Customized Customers • Education • Training Equipment Number of steps • Simple • Complex Signage Customer involvement Employee dress Other tangibles • Reports • Business cards • Statements • Guarantees Extended Marketing Mix for Services
  19. The additional 4 Ps of Service Marketing 1. People – All humans who play a role in service delivery and who influence the perceptions of customers – Service delivery employees (front-line staff) – The general staff of the service company – The customer – The other customers that are present in the production and delivery process – An essential ingredient to any service provision is the use of appropriate staff and people. – Recruiting the right staff and training them appropriately in the delivery of their service is essential if the organisation wants to obtain a form of competitive advantage. – Consumers make judgments and deliver perceptions of the service based on the employees they interact with. – Staff should have the appropriate interpersonal skills, attitude, and service knowledge to provide the service that consumers are paying for. 19
  20. The additional 4 Ps of Service Marketing 2. Process – Refers to the systems used to assist the organisation in delivering the service. – The actual procedure, mechanisms and flow of activities through which a service is delivered – the service delivery and operating systems. – The dimensions of a process’s efficiency and effectiveness: • Length: the number of steps that participants have to follow in order to effect service delivery. • Duration: the time that elapses from the first to the last activity of the service delivery process. • Logistical effectiveness: the degree of smoothness in the flow of the steps of the service delivery process • Banks that send out ATM Cards automatically when their customers’ old ones expire again require an efficient process to identify expiry dates and renewal. An efficient service that replaces old credit cards will foster consumer loyalty and confidence in the company. 20
  21. The additional 4 Ps of Service Marketing 3. Physical Evidence – The setting where the service is delivered. Where is the service being delivered? – Where the service company and the customer interact – Any tangible components that facilitate performance or communication of the service – Physical Evidence is the element of the service mix which allows the consumer again to make judgments on the organisation. – If you walk into a restaurant your expectations are of a clean, friendly environment. – On an aircraft if you travel first class you expect enough room to be able to stretch your legs or lie down! – Physical evidence is an essential ingredient of the service mix. – Consumers will make perceptions based on their sight of the service provision which will have an impact on the organization's perceptual plan of the service. 21
  22. The additional 4 Ps of Service Marketing 4. Productivity and Quality – service productivity and its connection to service quality and eventually to profits. – In service operations the customer plays an active role in influencing productivity and quality. – Productivity and quality issues affect all members of a network, not just the provider and the customer. – This is clear from the new developments in relationship marketing and imaginary (virtual) organizations. 22