Chapter 13: Services: The Intangible Product MKTG-300 Exam #3

Importance of service

Adding a service to product increases the value of the product

• there are a lot of service businesses. Many people will end up working for a service business

  • add agency, financial service, accounting firm, consulting, electrical services, travel agency, auto repair, babysitting

Service as Product

productization of services attempts to treat service as product

How?

• standardizing services into modularized “products”

• creating a name/logo/identity for the service

• ex: modularized ‘content marketing’ services

Why productization?

• to capture more brand equity

• to reduce costs and increase margin

• to maintain consistent performance

productizing services has generally increased the profitability of service organizations

Productization of services

a movement for pure services like consulting and financial advising

• opposite movement “servicization”

• letting customer use the product instead of to own the product

You should consider “ something” as a service if

• your product is one time purchased good (eg software)

• your product is expensive to purchase for many customers

• your product requires maintenance and after-services frequently

Characteristics of Service

• services are intangible

• services are perishable

• generally produced and consumed at the same time

• are co-produced by the service provider and the consumer

• humans typically perform services

services are intangible

• we cannot see or touch services / no physical presence

• brand association is low

  • memory aids (logos, tagline) are more important for services

  • memory aids should appear in website, envelop, proposal, business card, a truck, advertising, etc

• it is difficult to convey the quality and benefit of service, service providers

  • therefore offer cues to help their customers experience and perceived their services more positively such as waiting rooms stocked with large TV, beverages, and comfy chairs

Is word-of-mouth important for services ?

• Word-of-mouth becomes more important for services than for hard goods

• in the absence of a physical product and associated cues such as packaging and logo, word-of-mouth becomes crucially important factor

(Word-Of-Mouth) with the rise of social media what must marketers consider?

• with the rise of social media, the rate at which info moves has increased exponentially, consumers are consistently asked to provide ratings of everthing

• marketers must be vigilant about managing their digital reputation emphasizing positive experiences and dealing quickly and effectively with negative report

• before social media rule of thumb was that every customer who has an extreme service encounter, positive or negative tells ten other people

Services are perishable

• services cannot be inventoried

• service can not be inspected as we do inventory checking for a physical product

  • operational excellence: is a necessary core competence for many service business

  • we cannot hold inventory for fluctuations in demand

    • Planning for demand fluctuations

Planning for demand fluctuations

1. Offload demand during peak periods, or

2. Boost low-period demand, sufficiently to support the fixed and labor costs necessary to meet peak demand

Example of offloading: A restaurant bar

Offloading demand

• customers are more willing to wait to sit down to dinner at 9:30 pm instead of 8 pm if they are provided a comfortable bar and lounge area in which to socialize while waiting

Boosting low-period demand

• the same restaurant may also offer a 5pm dinner special or happy hour to generate increased revenues during a commonly slow period

what type of services has started to emerge?

Unhuman (AI) has started providing services in many areas. More from AI in the future, very soon

ex: robotaxi

Figure AI

• Our first applications will be in industries such as

  • manufacturing

  • shipping and logistics

  • warehousing

  • retail

• In early development, humanoids’ complete will be structured and repetitive,e but over time and with advancements in robot learning and software, humanoids will expand their capability and be able to tackle more complex job functions

service gaps

• customers have certain expectations about how a service should be delivered

• when the delivery of that service fails to meet those expectations, a service gap results

Service Gaps Model: To provide great service:

• close the knowledge gap: understanding customer expectations

• close the standards gap: setting service standards

• close the delivery gap: delivering service quality

• close the communication gap: communication the service

The knowledge gap: understanding customer expectations

• an important early step in providing good service is knowing the customer wants

• it exists when management misunderstand customer expectations for service quality

• customer expectations for service quality are quite different and changing —> ongoing marketing research is much needed to understand customer expectations

The knowledge gap zone of tolerance

Zone of tolerance

1. Define service quality dimensions

2. Ask questions about each service quality dimension about

• the importance

• desired level of service

• expected level of service

• customers’ perceptions of how well our service performs

Service quality dimensions

• reliability

• responsiveness

• assurance

• empathy

• tangibles

reliability

the ability to perform the service dependably and accurately

responsiveness

the willingness to help customers and provide prompt service

assurance

the knowledge of and courtesy by employees and their ability to convey trust and confidence

empathy

the caring, individualized attention provided to customers

tangibles

the appearance of physical facilities, equipment, personnel, and communication materials

the most comprehensive way of understanding customer expectations

Other ways to understand customer expectations

Ask our customers how they liked the service

• overall satisfaction

• satisfaction on

  • reliability

  • responsive

  • assurance

  • empathy

  • tangibles

collect complaints and analyze them

put managers on the frontlines occasionally

The standards gap: setting service standards

• the standards gap exists when the service standard differ from customer expectations for service quality

• by setting appropriate service standards, training employees, and measuring service performance, firms can close this gap

The delivery gap: delivering service quality

• the delivery gap is where the rubber meets the road, where the customer directly interacts with the service provider

• delivery gaps can be reduced when employees are empowered to spontaneously act in the customers’ and the firm’s best interests when problems or crises arises

The communication gap: communicating the service promise

• if a firm promises more than it can deliver, customers’ expectations won’t be met

• an advertisement may lure a customer into a service situation once, but if the service doesn’t deliver on the promise the customer will be dissatisfied and never return. They oftentimes say negative word-of-mouth

Service recovery

• despite a firm’s best efforts, sometimes service providers fail to meet customer expectations

• when this happens the best course of action is to attempt to make amends with the customer and learn from the experience

• effective service recovery efforts can increase customer satisfaction and positive word of mouth

Listening to the customers and involving them in service recovery

• customers can get emotional over a service failure

• often customer just want someone to listen

Distributive fairness and procedural fairness

• Distributive fairness: pertains to a customer’s perception of the benefits or she received compared with the costs (inconvenience or loss)

• Procedural fairness: refers to the perceived fairness of the process used to resolve them. Even if they eventually receive a solution that seems fair, when a consumer must work hard to achieve it, their low procedural fairness perceptions may cause them to believe that they are being punished for receiving bad service

Resolving problems quickly

• the longer it takes to resolve service failure, the more irritated the customer will become and the more people the customer will tell

• it is in the firm’s best interest to solve problems quickly