Services Marketing - Definition and Characteristics

Introduction

The world economy nowadays is increasingly characterized as a service economy. This is

primarily due to the increasing importance and share of the service sector in the economies of
most developed and developing countries. In fact, the growth of the service sector has long
been considered as indicative of a country’s economic progress.

Economic history tells us that all developing nations have invariably experienced a shift from
agriculture to industry and then to the service sector as the main stay of the economy.

This shift has also brought about a change in the definition of goods and services themselves.
No longer are goods considered separate from services. Rather, services now increasingly
represent an integral part of the product and this interconnectedness of goods and services is
represented on a goods-services continuum.

Definition and characteristics of Services

The American Marketing Association defines services as - “Activities, benefits and satisfactions
which are offered for sale or are provided in connection with the sale of goods.”

The defining characteristics of a service are:

Intangibility: Services are intangible and do not have a physical existence. Hence services
cannot be touched, held, tasted or smelt. This is most defining feature of a service and that
which primarily differentiates it from a product. Also, it poses a unique challenge to those
engaged in marketing a service as they need to attach tangible attributes to an otherwise
intangible offering.

1. Heterogeneity/Variability: Given the very nature of services, each service offering is

unique and cannot be exactly repeated even by the same service provider. While
products can be mass produced and be homogenous the same is not true of services.
eg: All burgers of a particular flavor at McDonalds are almost identical. However, the
same is not true of the service rendered by the same counter staff consecutively to two
customers.
 1. Perishability: Services cannot be stored, saved, returned or resold once they have
been used. Once rendered to a customer the service is completely consumed and
cannot be delivered to another customer. eg: A customer dissatisfied with the services of
a barber cannot return the service of the haircut that was rendered to him. At the most
he may decide not to visit that particular barber in the future.

1. Inseparability/Simultaneity of production and consumption: This refers to the fact

that services are generated and consumed within the same time frame. Eg: a haircut is
delivered to and consumed by a customer simultaneously unlike, say, a takeaway burger
which the customer may consume even after a few hours of purchase. Moreover, it is
very difficult to separate a service from the service provider. Eg: the barber is
necessarily a part of the service of a haircut that he is delivering to his customer.

Types of Services

1. Core Services: A service that is the primary purpose of the transaction. Eg: a haircut or
the services of lawyer or teacher.

1. Supplementary Services: Services that are rendered as a corollary to the sale of a

tangible product. Eg: Home delivery options offered by restaurants above a minimum bill
value.

Difference between Goods and Services

Given below are the fundamental differences between physical goods and services:

Goods Services

A physical commodity A process or activity

Tangible Intangible

Homogenous Heterogeneous

Production and distribution are separation Production, distribution and consumption are
from their consumption simultaneous processes

Can be stored Cannot be stored

Transfer of ownership is possible Transfer of ownership is not possible

Services Marketing - Definition and its Importance

Stated simply, Services Marketing refers to the marketing of services as against tangible
products.

As already discussed, services are inherently intangible, are consumed simultaneously at the
time of their production, cannot be stored, saved or resold once they have been used and
service offerings are unique and cannot be exactly repeated even by the same service provider.

Marketing of services is a relatively new phenomenon in the domain of marketing, having

gained in importance as a discipline only towards the end of the 20th century.

Services marketing first came to the fore in the 1980’s when the debate started on
whether marketing of services was significantly different from that of products so as to
be classified as a separate discipline. Prior to this, services were considered just an aid to
the production and marketing of goods and hence were not deemed as having separate
relevance of their own.

The 1980’s however saw a shift in this thinking. As the service sector started to grow in
importance and emerged as a significant employer and contributor to the GDP, academics and
marketing practitioners began to look at the marketing of services in a new light. Empirical
research was conducted which brought to light the specific distinguishing characteristics of
services.

By the mid 1990’s, Services Marketing was firmly entrenched as a significant sub discipline of
marketing with its own empirical research and data and growing significance in the increasingly
service sector dominated economies of the new millennium. New areas of study opened up in
the field and were the subject of extensive empirical research giving rise to concepts such as -
the product-service spectrum, relationship marketing, franchising of services, customer retention
etc.

Importance of Marketing of Services

Given the intangibility of services, marketing them becomes a particularly challenging and yet
extremely important task.

 A key differentiator: Due to the increasing homogeneity in product offerings, the

attendant services provided are emerging as a key differentiator in the mind of the
 consumers. Eg: In case of two fast food chains serving a similar product (Pizza Hut and
Domino’s), more than the product it is the service quality that distinguishes the two
brands from each other. Hence, marketers can leverage on the service offering to
differentiate themselves from the competition and attract consumers.

 Importance of relationships: Relationships are a key factor when it comes to the

marketing of services. Since the product is intangible, a large part of the customers’
buying decision will depend on the degree to which he trusts the seller. Hence, the need
to listen to the needs of the customer and fulfill them through the appropriate service
offering and build a long lasting relationship which would lead to repeat sales and
positive word of mouth.

 Customer Retention: Given today’s highly competitive scenario where multiple

providers are vying for a limited pool of customers, retaining customers is even more
important than attracting new ones. Since services are usually generated and consumed
at the same time, they actually involve the customer in service delivery process by taking
into consideration his requirements and feedback. Thus they offer greater scope for
customization according to customer requirements thus offering increased satisfaction
leading to higher customer retention.

The 7 P’s of Services Marketing

The first four elements in the services marketing mix are the same as those in the traditional
marketing mix. However, given the unique nature of services, the implications of these are
slightly different in case of services.

1. Product: In case of services, the ‘product’ is intangible, heterogeneous and perishable.

Moreover, its production and consumption are inseparable. Hence, there is scope for
customizing the offering as per customer requirements and the actual customer
encounter therefore assumes particular significance. However, too much customization
would compromise the standard delivery of the service and adversely affect its quality.
Hence particular care has to be taken in designing the service offering.

1. Pricing: Pricing of services is tougher than pricing of goods. While the latter can be
priced easily by taking into account the raw material costs, in case of services attendant
costs - such as labor and overhead costs - also need to be factored in. Thus a restaurant
not only has to charge for the cost of the food served but also has to calculate a price for
the ambience provided. The final price for the service is then arrived at by including a
mark up for an adequate profit margin.

1. Place: Since service delivery is concurrent with its production and cannot be stored or
transported, the location of the service product assumes importance. Service providers
have to give special thought to where the service would be provided. Thus, a fine dine
restaurant is better located in a busy, upscale market as against on the outskirts of a
 city. Similarly, a holiday resort is better situated in the countryside away from the rush
and noise of a city.

1. Promotion: Since a service offering can be easily replicated promotion becomes crucial
in differentiating a service offering in the mind of the consumer. Thus, service providers
offering identical services such as airlines or banks and insurance companies invest
heavily in advertising their services. This is crucial in attracting customers in a segment
where the services providers have nearly identical offerings.

We now look at the 3 new elements of the services marketing mix - people, process and
physical evidence - which are unique to the marketing of services.

1. People: People are a defining factor in a service delivery process, since a service is
inseparable from the person providing it. Thus, a restaurant is known as much for its
food as for the service provided by its staff. The same is true of banks and department
stores. Consequently, customer service training for staff has become a top priority for
many organizations today.

1. Process: The process of service delivery is crucial since it ensures that the same
standard of service is repeatedly delivered to the customers. Therefore, most companies
have a service blue print which provides the details of the service delivery process, often
going down to even defining the service script and the greeting phrases to be used by
the service staff.

1. Physical Evidence: Since services are intangible in nature most service providers strive
to incorporate certain tangible elements into their offering to enhance customer
experience. Thus, there are hair salons that have well designed waiting areas often with
magazines and plush sofas for patrons to read and relax while they await their turn.
Similarly, restaurants invest heavily in their interior design and decorations to offer a
tangible and unique experience to their guests.

Customer’s Expectations and Delight

Introduction

In today’s ultra competitive business environment merely meeting customer expectations is not
enough. In order to effectively differentiate themselves from the competition, service providers
need to focus on exceeding customer expectations to create customer delight and create a pool
of loyal customers. Therefore, when deciding on a service delivery design, it is imperative for
the service provider to consider the targeted customer base and their needs and expectations.
This will help in developing a service design that will help the provider to effectively manage
customer expectations leading to customer delight.
Customer Needs and Expectations

Customer needs comprise the basic reason or requirement that prompts a customer to
approach a service provider. For instance, a person visits a restaurant primarily for the food it
serves. That is the customer’s need. However, the customer expects polite staff, attentive yet
non intrusive service and a pleasant ambience. If these expectations are not properly met the
guest would leave the restaurant dissatisfied even if his basic requirement of a meal being
served has been met. Thus knowing and understanding guest expectations is important for any
service provider.

Customer Satisfaction, Dissatisfaction and Delight

Based on the quality of the service experience a customer will either be satisfied, dissatisfied or
delighted. Knowing a customer’s expectation is instrumental in developing a strategy for
meeting and exceeding customer expectations.

1. Customer Dissatisfaction: This is a situation when the service delivery fails to match
up to the customer’s expectations. The customer does not perceive any value for
money. It’s a moment of misery for the customer.

1. Customer Satisfaction: In this case, the service provider is able to match the
customer’s expectations and deliver a satisfactory experience. However, such a
customer is not strongly attached to the bran and may easily shift to a competing brand
for considerations of price or discounts and freebies.

1. Customer Delight: This is an ideal situation where the service provider is able to
exceed the customer’s expectations creating a Moment of Magic for the customer. Such
customers bond with the brand, are regular and loyal and will not easily shift to other
brands.

Meeting and Exceeding Customer Expectations

Exceeding customer expectations is all about creating that extra value for the customer. The
hospitality industry specializes in creating customer delight.

Example, most 5 star hotels maintain customer databases detailing room order choices of their
guests. So if a guest has asked for say orange juice to be kept in the mini bar in his room, the
next time that he makes a reservation at the hotel, the staff ensures that the juice s already kept
in the room. Such small gestures go a long way in making customers feel important and
creating customer delight.
Another novel way of exceeding guest expectations is often demonstrated by travel companies.
Since, they usually have details on their customers’ birthdays, they often send out an email
greeting to their guests to wish them. This not only makes an impact on the guest but also helps
to keep the company acquire ‘top of the mind recall’ with the guest.

Maintaining Service Quality

After having attained the desired service level, the next great challenge faced by service
providers is to maintain service standards at levels of excellence. This is as important, and as
tough, as establishing service standards and attaining to them in the first place.

There are basically two approaches that any organization can have towards maintaining
service standards - a proactive approach or a reactive approach.

Proactive: A proactive approach entails actively reaching out to customers and trying to gather
their feedback on service quality and suggested areas of improvement. This can be done by
way of

 Surveys and administering questionnaires

 Gap Analysis, and
 Staff training

1. Surveys and questionnaires: Such an approach helps a brand to anticipate customer

demands and expectations and align its service offering accordingly. Also, the findings of
such surveys can help to identify common issues and demands of customers hence
helping a company to customize its service offering.

1. Gap Analysis: Another approach that is adopted for analyzing service quality is that of
the gap analysis. The company has an ideal service standard that it would like to offer to
its customers. This is contrasted with the current level of service being offered. The gap
thus identified serves both as a measure and as a basis for planning a future course of
action to improve the service offering.

1. Staff Training: Another crucial aspect of the proactive approach is staff training.
Companies nowadays spend generously on training their personnel to adequately
handle customer queries and/or complaints. This is particularly true if a company is
changing its service offering or going in for a price hike of its existing services. For
example, when a fast food chain increases the price of its existing products, the staff has
to handle multiple customer queries regarding the hike. Lack of a satisfactory
explanation would signify poor service standards and lead to customer dissatisfaction.
Reactive: A reactive approach basically consists of resorting to a predetermined service
recovery mechanism once a customer complains about poor service quality. It usually starts
with apologizing to the customer and then taking steps to redeem the situation. The
fundamental flaw with this approach is that, here the customer has already had a bad
experience of the brand’s service.

Measuring Service Quality

Another crucial element to be kept in mind while seeking to maintain service quality is to have in
place a metric for ‘measuring’ quality. The particular parameters selected would depend on the
type of business, service model and the customer expectations. For example: at a customer
service call center of a telecom provider, the metric for measuring service quality could be the
average time taken for handling a call or rectifying a complaint. For a fast food outlet, the
metrics for measuring service quality of the sales staff could be the number of bills generated as
a percentage of total customer footfalls or the increase in sales month on month.

Once a system is put in place for measuring quality, a standard can then be mandated for the
service standard the organization is seeking to maintain.