Services Marketing

Services have grown dramatically in recent years. Services now account for 74 percent of U.S. gross domestic product and nearly 60 percent of personal consumption expenditures. Whereas service jobs accounted for 55 percent of all U.S. jobs in 1970, by 1996 they accounted for 80 percent of total employment. Services are growing even faster in the world economy, making up a quarter of the value of all international trade.³⁹

Service industries vary greatly. Governments offer services through courts, employment services, hospitals, military services, police and fire departments, postal service, and schools. Private not-for-profit organizations offer services through museums, charities, churches, colleges, foundations, and hospitals. A large number of business organizations offer services—airlines, banks, hotels, insurance companies, consulting firms, medical and law practices, entertainment companies, real estate firms, advertising and research agencies, and retailers.

A company must consider four special service characteristics when designing marketing programs: intangibility, inseparability, variability, and perishability (see Figure 9.5).

Service intangibility means that services cannot be seen, tasted, felt, heard, or smelled before they are bought. For example, people undergoing cosmetic surgery cannot see the result before the purchase. Airline passengers have nothing but a ticket and the promise that they and their luggage will arrive safely at the intended destination, hopefully at the same time. To reduce uncertainty, buyers look for "signals" of service quality. They draw conclusions about quality from the place, people, price, equipment, and communications that they can see. Therefore, the service provider's task is to make the service tangible in one or more ways. Whereas product marketers try to add intangibles to their tangible offers, service marketers try to add tangibles to their intangible offers.

Figure 9.5	Four service characteristics

Physical goods are produced, then stored, later sold, and still later consumed. In contrast, services are first sold, then produced and consumed at the same time. Service inseparability means that services cannot be separated from their providers, whether the providers are people or machines. If a service employee provides the service, then the employee is a part of the service. Because the customer is also present as the service is produced, provider–customer interaction is a special feature of services marketing. Both the provider and the customer affect the service outcome.

Service variability means that the quality of services depends on who provides them as well as when, where, and how they are provided. For example, some hotels—say, Marriott—have reputations for providing better service than others. Still, within a given Marriott hotel, one registration-desk employee may be cheerful and efficient, whereas another standing just a few feet away may be unpleasant and slow. Even the quality of a single Marriott employee's service varies according to his or her energy and frame of mind at the time of each customer encounter.

Service perishability means that services cannot be stored for later sale or use. Some doctors charge patients for missed appointments because the service value existed only at that point and disappeared when the patient did not show up. The perishability of services is not a problem when demand is steady. However, when demand fluctuates, service firms often have difficult problems. For example, because of rush-hour demand, public transportation companies have to own much more equipment than they would if demand were even throughout the day. Thus, service firms often design strategies for producing a better match between demand and supply. Hotels and resorts charge lower prices in the off-season to attract more guests. And restaurants hire part-time employees to serve during peak periods.

Just like manufacturing businesses, good service firms use marketing to position themselves strongly in chosen target markets. Southwest Airlines positions itself as a no-frills, short-haul airline charging very low fares. Wal-Mart promises "Always Low Prices, Always." Ritz-Carlton Hotels positions itself as offering a memorable experience that "enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests." These and other service firms establish their positions through traditional marketing mix activities.

However, because services differ from tangible products, they often require additional marketing approaches. In a product business, products are fairly standardized and can sit on shelves waiting for customers. But in a service business, the customer and front-line service employee interact to create the service. Thus, service providers must interact effectively with customers to create superior value during service encounters. Effective interaction, in turn, depends on the skills of front-line service employees and on the support processes backing these employees.

Successful service companies focus their attention on both their customers and their employees. They understand the service-profit chain, which links service firm profits with employee and customer satisfaction. This chain consists of five links:⁴⁰

•	Internal service quality: superior employee selection and training, a quality work environment, and strong support for those dealing with customers, which results in…

•	Satisfied and productive service employees: more satisfied, loyal, and hardworking employees, which results in…

•	Greater service value: more effective and efficient customer value creation and service delivery, which results in…

•	Satisfied and loyal customers: satisfied customers who remain loyal, repeat purchase, and refer other customers, which results in…

•	Healthy service profits and growth: superior service firm performance.

Therefore, reaching service profits and growth goals begins with taking care of those who take care of customers.

Thus, service marketing requires more than just traditional external marketing using the four Ps. Figure 9.6 shows that service marketing also requires internal marketing and interactive marketing. Internal marketing means that the service firm must effectively train and motivate its customer-contact employees and supporting service people to work as a team to provide customer satisfaction. Marketers must get everyone in the organization to be customer-centered. In fact, internal marketing must precede external marketing. Ritz-Carlton orients its employees carefully, instills in them a sense of pride, and motivates them by recognizing and rewarding outstanding service deeds.

Interactive marketing means that service quality depends heavily on the quality of the buyer–seller interaction during the service encounter. In product marketing, product quality often depends little on how the product is obtained. But in services marketing, service quality depends on both the service deliverer and the quality of the delivery. Service marketers, therefore, have to master interactive marketing skills. Thus, Ritz-Carlton selects only "people who care about people" and instructs them carefully in the fine art of interacting with customers to satisfy their every need.

In today's marketplace, companies must know how to deliver interactions that are not only "high-touch" but also "high-tech." For example, customers can log on to the Charles Schwab Web site and access account information, investment research, real-time quotes, after-hours trading, and the Schwab learning center. They can also participate in live online events and chat online with customer service representatives. Customers seeking more-personal interactions can contact service reps by phone or visit a local Schwab branch office. Thus, Schwab has master interactive marketing at all three levels—calls, clicks, and visits.⁴¹

Today, as competition and costs increase, and as productivity and quality decrease, more service marketing sophistication is needed. Service companies face three major marketing tasks: They want to increase their competitive differentiation, service quality, and productivity.

Figure 9.6	Three types of marketing in service industries

In these days of intense price competition, service marketers often complain about the difficulty of differentiating their services from those of competitors. To the extent that customers view the services of different providers as similar, they care less about the provider than the price.

The solution to price competition is to develop a differentiated offer, delivery, and image. The offer can include innovative features that set one company's offer apart from competitors' offers. Some hotels offer car rental, banking, and business center services in their lobbies. Airlines introduced innovations such as in-flight movies, advance seating, air-to-ground telephone service, and frequent flyer award programs to differentiate their offers. British Airways even offers international travelers beds and private "demi-cabins," hot showers, and cooked-to-order breakfasts.

Service companies can differentiate their service delivery by having more able and reliable customer-contact people, by developing a superior physical environment in which the service product is delivered, or by designing a superior delivery process. For example, many banks offer their customers Internet banking as a better way to access banking services than having to drive, park, and wait in line.

Finally, service companies also can work on differentiating their images through symbols and branding. The Harris Bank of Chicago adopted the lion as its symbol on its stationery, in its advertising, and even as stuffed animals offered to new depositors. The well-known Harris lion confers an image of strength on the bank. Other well-known service symbols include The Travelers' red umbrella, Merrill Lynch's bull, and Allstate's "good hands."

One of the major ways a service firm can differentiate itself is by delivering consistently higher quality than its competitors do. Like manufacturers before them, most service industries have now joined the customer-driven quality movement. And like product marketers, service providers need to identify the expectations of target customers concerning service quality. Unfortunately, service quality is harder to define and judge than is product quality. For instance, it is harder to get agreement on the quality of a haircut than on the quality of a hair dryer. Customer retention is perhaps the best measure of quality—a service firm's ability to hang on to its customers depends on how consistently it delivers value to them.⁴²

Service differentiation: British Airways differentiatesits offer by providing first-class world travelers private "demicabins" and other amenities.

Top service companies are customer obsessed and set high service quality standards. They do not settle for merely good service; they aim for 100 percent defect-free service. A 98 percent performance standard may sound good, but using this standard, 64,000 FedEx packages would be lost each day, 10 words would be misspelled on each printed page, 400,000 prescriptions would be misfilled daily, and drinking water would be unsafe 8 days a year.⁴³ Top service firms also watch service performance closely, both their own and that of competitors. They communicate their concerns about service quality to employees and provide performance feedback.

Unlike product manufacturers who can adjust their machinery and inputs until everything is perfect, service quality will always vary, depending on the interactions between employees and customers. As hard as they try, even the best companies will have an occasional late delivery, burned steak, or grumpy employee. However, good service recovery can turn angry customers into loyal ones. In fact, good recovery can win more customer purchasing and loyalty than if things had gone well in the first place. Therefore, companies should take steps not only to provide good service every time but also to recover from service mistakes when they do occur.⁴⁴

The first step is to empower front-line service employees—to give them the authority, responsibility, and incentives they need to recognize, care about, and tend to customer needs. At Marriott, for example, well-trained employees are given the authority to do whatever it takes, on the spot, to keep guests happy. They are also expected to help management ferret out the cause of guests' problems and to inform managers of ways to improve overall hotel service and guests' comfort.

With their costs rising rapidly, service firms are under great pressure to increase service productivity. They can do so in several ways. The service providers can train current employees better or hire new ones who will work harder or more skillfully. Or they can increase the quantity of their service by giving up some quality. The provider can "industrialize the service" by adding equipment and standardizing production, as in McDonald's assembly-line approach to fast-food retailing. Finally, the service provider can harness the power of technology. Although we often think of technology's power to save time and costs in manufacturing companies, it also has great—and often untapped—potential to make service workers more productive.

However, companies must avoid pushing productivity so hard that doing so reduces quality. Attempts to industrialize a service or to cut costs can make a service company more efficient in the short run. But they can also reduce its longer-run ability to innovate, maintain service quality, or respond to consumer needs and desires. In short, they can take the "service" out of service.