Ch 12 Notes Flashcards
12-1 The Difference Between Services and Goods
Services
-The service sector substantially influences the U.S. economy, accounting for nearly 80 percent of the country’s economic output.
-The service-oriented industries contributing to much of this output include scientific and technological services, health care, financial services, and administrative services
12-1 The Difference Between Services and Goods
Services have four unique characteristics that distinguish them from goods
- Intangible
- Inseperable
- Heterogeneious
- Perishable
12-1a Intangibility
-Services are intangible performances
-Evaluating the quality of services before or even after making a purchase is harder than evaluating the quality of goods because, compared to goods, services tend to exhibit fewer search qualities
*Search quality
*Experience quality
*Credence quality
-Thus, marketers often rely on tangible cues to communicate a service’s nature and quality.
-The facilities that customers visit, are a critical tangible part of the total service offering. Messages about the organization are communicated to customers through such elements as the décor, the clutter or neatness of service areas, and the staff’s manners and dress
Intangibility
12-1b Inseparability
-Services are often sold, produced, and consumed at the same time.
-Services normally cannot be produced in a centralized location and consumed in decentralized locations, as goods typically are.
-Services are also inseparable from the perspective of the service provider. Thus, the quality of service that firms are able to deliver depends on the quality of their employees.
Inseparability
12-1c Heterogenity
Ex: One great strength of Jimmy John’s is consistency. Whether customers order a Big John sub in Chicago or Seattle, they know exactly what they are going to get.
This is not the case with many service providers
Because services tend to be labor intensive and production and consumption are inseparable, consistency and quality control can be hard to achieve.
Standardization and training help increase consistency and reliability
Heterogeneity
12-1d Perishability
An empty hotel room or airplane seat produces no revenue that day. The revenue is lost.
Yet service organizations are often forced to turn away full-price customers during peak periods.
One of the most important challenges in many service industries is finding ways to synchronize supply and demand.
The philosophy that some revenue is better than none has prompted many hotels to offer deep discounts on weekends and during the offseason.
Perishability
12-2a Evaluating Service Quality
Research has shown that customers evaluate service quality by the five components:
- Reliability
- Responsiveness
- Assurance
- Empathy
- Tangibles
12-2a Evaluating Service Quality
Ability to perform the service dependably, accurately, and consistently.
Reliability is performing the service right the first time.
This component has been found to be the one most important to consumers.
Reliability
12-2a Evaluating Service Quality
-Ability to provide prompt service.
Example: calling the customer back quickly
-The ultimate in responsiveness is offering service 24 hours a day, seven days a week.
Responsiveness
12-2a Evaluating Service Quality
-Knowledge and courtesy of employees and their ability to convey trust.
-Skilled employees, who treat customers with respect and make customers feel that they can trust the firm, exemplify assurance.
Assurance
12-2a Evaluating Service Quality
Firms whose employees recognize customers and learn their specific requirements are providing empathy
Offering personalized service is important in the hospitality industry
-Employees to anticipate and meet customers’ wants and needs, which maximizes employee’s opportunities to provide great service
Empathy
12-2a Evaluating Service Quality
Physical evidence of the service.
The tangible parts of a service include the physical facilities, tools, and equipment used to provide the service, as well as the appearance of personnel
Tangibles
12-2b Gap Model of Service Quality
Five gaps that can cause problems in service delivery and influence customer evaluations of service quality
- Gap 1
- Gap 2
- Gap 3
- Gap 4
- Gap 5
12-2b The Gap Model of Service Quality
-Gap between what customers want and what management thinks customers want.
-This gap results from a lack of understanding or a misinterpretation of the customers’ needs, wants, or desires.
-A firm that does little or no customer satisfaction research is likely to experience this gap.
-To close gap 1, firms must stay attuned to customer wishes by researching customer needs and satisfaction
Gap 1
12-2b The Gap Model of Service Quality
-Gap between what management thinks customers want and the quality specifications that management develops to provide the service.
-Essentially, this gap is the result of management’s inability to translate customers’ needs into delivery systems within the firm
Gap 2
12-2b The Gap Model of Service Quality
-Gap between the service quality specifications and the service that is actually provided.
-If both gaps 1 and 2 have been closed, then gap 3 is due to the inability of management and employees to do what should be done.
-Management needs to ensure that employees have the skills and the proper tools to perform their jobs.
-Other techniques that help to close gap 3 are training employees so they know what management expects and encouraging teamwork.
Gap 3
12-2b The Gap Model of Service Quality
Gap between what the company provides and what the customer is told it provides.
This is clearly a communication gap. It may include misleading or deceptive advertising campaigns promising more than the firm can deliver or doing “whatever it takes” to get the business.
To close this gap, companies need to create realistic customer expectations through honest, accurate communication about what the firms can provide.
Gap 4
12-2b The Gap Model of Service Quality
The gap between the service that customers receive and the service they want.
This gap can be positive or negative.
For example, if a patient expects to wait 20 minutes in the physician’s office before seeing the physician but actually waits only 10 minutes, the patient’s evaluation of service quality will be high.
However, a 40-minute wait would result in a lower evaluation.
Gap 5
12-2b The Gap Model of Service Quality
-When one or more of these gaps is large, service quality is perceived as low.
-As the gaps shrink, perceptions of service quality improve. Market research can help service firms close these gaps.
-Several other companies consistently get their service quality right:
These companies have three core beliefs in common:
*good service starts at the top;
*service is seen as a continual challenges
*companies work best when people want to work for them.
The Gap Model of Service Quality
12-3a Product (Service) Strategy
-A product is everything a person receives in an exchange.
-Product strategies for service offerings include:
*decisions on the type of process involved
*core and supplementary services, standardization or customization of the service product
*the service mix.
Product (Service) Strategy
12-3a Product (Service) Strategy
Two broad categories of things are processed in service organizations:
*people
*objects
Service As a Process
12-3a Product (Service) Strategy
Service processes can be placed into one of four categories:
1.People processing takes place when the service is directed at a customer.
Ex: transportation services and health care
- Possession processing occurs when the service is directed at customers’ physical possessions.
Ex: lawn care, dry cleaning, and veterinary services.
- Mental-stimulus processing refers to services directed at people’s minds.
Ex: theater performances and education.
- Information processing describes services that use technology or brainpower directed at a customer’s assets.
Ex: insurance and consulting
12-3a Product (Service) Strategy
People-processing services
Require customers to enter the service factory, which is a physical location, such as an aircraft, a physician’s office, or a hair salon.
12-3a Product (Service) Strategy
Typically do not require the presence of the customer in the service factory.
Possession-processing services
12-3a Product (Service) Strategy
-Core Service:
Ex: Providing rooms for a nightly fee, which involves people processing
-Supplementary Service:
Ex: Include food services and reservations, parking, phone, and television services
Core service becomes a commodity as competition increases.
Thus, firms often emphasize supplementary services to create a competitive advantage.
Some firms position themselves in the marketplace by greatly reducing supplementary services, which can therefore lead to a decrease in prices.
Core and Supplementary Service Products
12-3a Product (Service) Strategy
Customized services are more flexible and respond to individual customers’ needs. They also usually command a higher price.
Standardized services are more efficient and cost less.
-Mass customization
Customization/Standardization
12-3a Product (Service) Strategy
-Most service organizations market more than one service.
-Each organization’s service mix represents a set of opportunities, risks, and challenges.
-Each part of the service mix should make a different contribution to achieving the firm’s goals.
-To succeed, each service may also need a different level of financial support.
0Designing a service strategy, therefore, means deciding which new services to introduce to which target market, which existing services to maintain, and which services to eliminate.
The Service Mix
12-3b Place (Distribution) Strategy
Place (Distribution) Strategy
-Must focus on issues such as convenience, number of outlets, direct versus indirect distribution, location, and scheduling
-A key factor influencing the selection of a service provider is convenience
-“Try before you buy” option now offered by several companies. Customers select certain items to order (or personal stylist selects items for them), return what they don’t like for free, and are then charged only for what they keep
Place (Distribution) Strategy
12-3b Place (Distribution) Strategy
An important distribution objective for many service firms
The number of outlets to use or the number of outlets to open during a certain time.
Generally, the intensity of distribution should meet, but not exceed, the target market’s needs and preferences.
Having too few outlets may inconvenience customers; having too many outlets may boost costs unnecessarily.
12-3b Place (Distribution) Strategy
Whether to distribute services to end users directly or indirectly through other firms
Because of the intangible nature of services, many service firms have to use direct distribution or franchising.
The most-used form of direct distribution is the internet.
Other firms with standardized service packages have developed indirect channels using independent intermediaries.
Partnerships with technology firms also allow service firms more options for distribution
12-3b Place (Distribution) Strategy
Location of Service
Most clearly reveals the relationship between its target market strategy and distribution strategy.
For time-dependent service providers such as airlines, physicians, and dentists, scheduling is often a more important factor.
12-3b Place (Distribution) Strategy
How and where consumers interact with service organizations was impacted by the COVID-19 pandemic
-The pandemic led to a huge increase in the use of services such as curbside pickup, also referred to as buy online pick up in store (BOPIS), local delivery and contactless payments.
Research has found that stores that do not offer BOPIS have noticed a decrease in online sales of nearly 5 percent in recent years.
12-3c Promotion Strategy
Four promotion strategies:
- Stressing tangible cues
- Using personal information sources
- Creating a strong organizational image
- Engaging in post-purchase communication
12-3c Promotion Strategy
A tangible cue is a concrete symbol of the service offering.
Ex: hotels turn down the bedcovers and put mints on the pillows.
Stressing tangible cues
12-3c Promotion Strategy
-Someone consumers are familiar with (such as a celebrity) or someone they admire or can relate to personally.
-Service firms may seek to simulate positive word-of-mouth (WOM) communication among present and prospective customers by using real customers in their ads
Using personal information sources
12-3c Promotion Strategy
-Manage the evidence, including the physical environment of the service facility, the appearance of the service employees, and the tangible items associated with a service (such as stationery, bills, and business cards).
Ex: McDonald’s golden arches are instantly recognizable.
-Another way to create an image is through branding
Creating a strong organizational image
12-3c Promotion Strategy
Post-purchase communication refers to the follow-up activities that a service firm might engage in after a customer transaction.
Ex: Postcard surveys, telephone calls, and other types of follow-up show customers that their feedback matters.
Engaging in post-purchase communication
12-3d Price Strategy
Unique characteristics of services present two special pricing challenges:
- It is important to define the unit of service consumption
- For services that are composed of multiple elements, the issue is whether pricing should be based on a “bundle” of elements or whether each element should be priced separately.
12-3d Price Strategy
It is important to define the unit of service consumption
Ex: should pricing be based on completing a specific service task (cutting a customer’s hair), or should it be time based (how long it takes to cut a customer’s hair)?
12-3d Price Strategy
For services that are composed of multiple elements, the issue is whether pricing should be based on a “bundle” of elements or whether each element should be priced separately
A bundled price may be preferable when consumers dislike having to pay “extra” for every part of the service (e.g., paying extra for baggage or food on an airplane), and it is simpler for the firm to administer.
Alternatively, customers may not want to pay for service elements they do not use.
12-3d Price Strategy
Three categories of pricing objectives
- Revenue-oriented pricing
- Operations-oriented pricing
- Patronage-oriented pricing
12-3d Price Strategy
Focuses on maximizing the surplus of income over costs.
Approach that many manufacturing companies use.
A limitation of this approach is that determining costs can be difficult for many services.
Revenue-oriented pricing
12-3d Price Strategy
Seeks to match supply and demand by varying prices.
Ex: matching hotel demand to the number of available rooms can be achieved by raising prices at peak times and decreasing them during slow times.
Operations-oriented pricing
12-3d Price Strategy
Tries to maximize the number of customers using the service.
Thus, prices vary with different market segments’ ability to pay and methods of payment (such as credit) are offered that increase the likelihood of a purchase
Senior citizen and student discounts at movie theaters and restaurants are examples
Patronage-oriented pricing
12-3e Global Service Marketing
-United States has become the world’s largest exporter of services
-Competition in international services is increasing rapidly, but many U.S. service industries have been able to enter the global marketplace because of their competitive advantages.
Global Service Marketing
12-3e Global Service Marketing
For both for-profit and nonprofit service firms, the first step toward success in the global marketplace
Determining the nature of the company’s core products.
Then the marketing-mix elements (additional services, place, promotion, pricing, and distribution) should be designed to take into account each country’s cultural, technological, and political environment.
12-4 Relationship Marketing in Services
Relationship Marketing in Services
Idea is to develop strong loyalty by creating satisfied customers who will buy additional services from the firm and are unlikely to switch to a competitor.
Satisfied customers are also likely to engage in positive WOM communication, thereby helping to bring in new customers
Many businesses have found that it is more cost-effective to hang on to the customers they have than to focus only on attracting new ones.
It has been estimated that marketing to new customers can be as much as 5 to 10 times more expensive than marketing to existing customers.
12-4 Relationship Marketing in Services
Services that purchasers receive on a continuing basis (e.g., internet, banking, insurance)
When services involve discrete transactions (e.g., in a movie theater, at a restaurant, or on public transportation), it may be more difficult to build membership-type relationships with customers.
Services involving discrete transactions may be transformed into membership relationships using marketing tool
Membership services
12-4 Relationship Marketing in Services
Relationship marketing can be practiced at four levels
Level 1: Financial
Level 2: Social
Level 3: Customization
Level 4: Structural
12-4 Relationship Marketing in Services
The firm uses pricing incentives to encourage customers to continue doing business with it.
Ex: Frequent-flyer programs
This level of relationship marketing is the least effective in the long term because its price-based advantage is easily imitated by other firms.
Level 1: Financial
12-4 Relationship Marketing in Services
This level of relationship marketing also uses pricing incentives but further seeks to build social bonds with customers.
The firm stays in touch with customers, learns about their needs, and designs services to meet those needs.
Ex: company sends its customers birthday cards.
Often more effective than level 1 relationship marketing.
Level 2: Social
12-4 Relationship Marketing in Services
Encourages customer loyalty through intimate knowledge of individual customers (often referred to as customer intimacy) and the development of one-to-one solutions to fit customers’ needs.
Level 3: Customization
12-4 Relationship Marketing in Services
Developed by offering value-added services that are not readily available from other firms.
Most hotels with spas have created signature treatments and products based on their locations.
Ex: the Ritz-Carlton in New Orleans, Louisiana, has a signature Voodoo Ritual spa treatment
Level 4: Structural
12-5 Internal Marketing in Service Firms
Services are performances, so the quality of a firm’s employees is an important part of building long-term relationships with customers.
A firm that makes its employees happy has a better chance of retaining customers.
-Internal marketing
In service industries, employees deliver the brand promise—their performance as a brand representative—directly to customers.
To satisfy employees, companies have designed and instituted a wide variety of programs such as flextime, on-site day care, and concierge services
Internal Marketing in Service Firms
12-6 Nonprofit Organization Marketing
Both this organization and private-sector service firms market intangible products, and both often require the customer to be present during the production process.
Both for-profit and nonprofit services vary greatly from producer to producer and from day to day from the same producer.
The cost of government (i.e., taxes), the predominant form of nonprofit organization, has become the biggest single item in the American family budget—more than housing, food, or health care.
Together, federal, state, and local governments collect tax revenues that amount to approximately one-fifth of the U.S. gross domestic product (GDP).
12-6 Nonprofit Organization Marketing
12-6a What Is Nonprofit Organization Marketing?
Perform the following marketing activities:
-Identify the customers they wish to serve or attract (although they usually use other terms, such as clients, patients, members, or sponsors)
-Explicitly or implicitly specify objectives
-Develop, manage, and eliminate programs and services
-Decide on prices to charge (although they use other terms, such as fees, donations, tuition, fares, fines, or rates)
-Schedule events or programs, and determine where they will be held or where services will be offered
-Communicate their availability through brochures, signs, public service announcements, or advertisements
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Marketing in nonprofit organizations is unique in many ways
The setting of marketing objectives, the selection of target markets, and the development of appropriate marketing mixes.
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
In the private sector, profit motives are both objectives for guiding decisions and criteria for evaluating results.
Nonprofit organizations do not seek to make a profit for redistribution to owners or shareholders. Rather, their focus is often on generating enough funds to cover expenses.
Most nonprofit organizations are expected to provide equitable, effective, and efficient services that respond to the wants and preferences of multiple constituencies.
These include users, payers, donors, politicians, appointed officials, the media, and the general public.
Nonprofit organizations cannot measure their success or failure in strictly financial terms.
Objectives
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Three issues relating to target markets are unique to nonprofit organizations:
- Apathetic or strongly opposed targets
- Pressure to adopt undifferentiated segmentation strategies
- Complementary positioning
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Private-sector organizations usually give priority to developing those market segments that are most likely to respond to particular offerings.
In contrast, nonprofit organizations must often target those who are apathetic about or strongly opposed to receiving their services, such as vaccinations and psychological counseling.
Apathetic or strongly opposed targets
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Nonprofit organizations often adopt undifferentiated strategies by default.
Sometimes they fail to recognize the advantages of targeting, or an undifferentiated approach may appear to offer economies of scale and low per capita costs.
In other instances, nonprofit organizations are pressured or required to serve the maximum number of people by targeting the average user.
Pressure to adopt undifferentiated segmentation strategies
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
The main role of many nonprofit organizations is to provide services, with available resources, to those who are not adequately served by private-sector organizations.
As a result, the nonprofit organization must often complement, rather than compete with, the efforts of others.
The positioning task is to identify underserved market segments and to develop marketing programs that match their needs rather than target the niches that may be most profitable.
Ex: , a university library may perceive itself as complementing the services of the public library rather than as competing with it.
Complementary positioning
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
There are three product-related distinctions between business and nonprofit organizations:
- Benefit complexity
- Benefit strength
- Involvement
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Nonprofit organizations often market complex behaviors or ideas.
Ex: need to exercise and eat nutritional foods or the need to quit smoking.
The benefits that a person receives are complex, long term, and intangible, and therefore, they are more difficult to communicate to consumers.
Benefit complexity
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
The benefit strength of many nonprofit offerings is quite weak or indirect.
Most private-sector service organizations can offer customers direct, personal benefits in an exchange relationship.
Benefit strength
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Many nonprofit organizations market products that elicit very low involvement (“Prevent forest fires”) or very high involvement (“Stop smoking”).
The typical range for private-sector goods is much narrower.
Traditional promotional tools may be inadequate to motivate adoption of either low- or high-involvement products
Involvement
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
A nonprofit organization’s capacity for distributing its service offerings to potential customer groups when and where they want them is typically a key variable in determining the success of those service offerings.
Ex: many large universities have one or more satellite campus locations to provide easier access for students in other areas.
The extent to which a service depends on fixed facilities has important implications for distribution decisions.
Place (Distribution) Decisions
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Many nonprofit organizations are explicitly or implicitly prohibited from advertising, thus limiting their promotion options.
Most federal agencies fall into this category.
Other nonprofit organizations simply do not have the resources to retain advertising agencies, promotion consultants, or marketing staff.
Promotion Decisions
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Few special promotion resources
- Professional volunteers
- Sales promotion activities
- Public service advertising
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Nonprofit organizations often seek out marketing, sales, and advertising professionals to help them develop and implement promotion strategies.
In some instances, an advertising agency donates its services in exchange for potential long-term benefits.
Donated services create goodwill; personal contacts; and general awareness of the donor’s organization, reputation, and competency
Professional volunteers
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Sales promotion activities that use existing services or other resources are increasingly being used to draw attention to the offerings of nonprofit organizations.
Sometimes nonprofit charities even team up with other companies for promotional activities.
Sales promotion activities
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Unlike a commercial advertiser, the sponsor of the PSA does not pay for the time or space. Instead, it is donated by the medium.
Public service advertising
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Five key characteristics distinguish the pricing decisions of nonprofit organizations from those of the for-profit sector:
- Pricing objectives
- Nonfinancial prices
- Indirect payment
- Separation between payers and users
- Below-cost pricing
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Revenue or, more specifically, profit maximization, sales maximization, or target return on sales or investment.
Many nonprofit organizations must also be concerned about revenue.
Often, however, nonprofit organizations seek to either partially or fully defray costs rather than to achieve a profit for distribution to stockholders.
Nonprofit organizations also seek to redistribute income—for instance, through taxation and sliding-scale fees.
Moreover, they strive to allocate resources fairly among individuals or households or across geographic or political boundaries
Pricing objectives
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
In many nonprofit situations, consumers are not charged a monetary price but instead must absorb nonmonetary costs.
The importance of those costs is illustrated by the large number of eligible citizens who do not take advantage of so-called free services in underprivileged communities.
In many public assistance programs, about half the people who are eligible do not participate.
Nonmonetary costs include time, embarrassment, and effort
Nonfinancial prices
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
Indirect payment through taxes is common to marketers of “free” services, such as libraries, fire protection, and police protection.
Indirect payment is not a common practice in the profit sector.
Indirect payment
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
By design, the services of many charitable organizations are provided for those who are of lower socioeconomic status and are largely paid for by those who are of higher socioeconomic status.
Although examples of separation between payers and users can be found in the profit sector (such as insurance claims), the practice is much less prevalent.
Separation between payers and users
12-6b Unique Aspects of Nonprofit Organization Marketing Strategies
An example of below-cost pricing is university tuition.
Virtually all private and public colleges and universities price their services below full cost
Below-cost pricing
