Ch. 12 Services and Non- Profit Organization Marketing

The Importance of Services

A service is the result of applying human or mechanical efforts to people or objects. Services involve a deed, a performance, or an effort that cannot be physically possessed. The service sector substantially influences the U.S. economy, accounting for approximately 80 percent of the country’s economic output. The service-oriented industries contributing to much of this output include technology, financial services, health care, and retail.

How Services Differ from Goods

Services have four unique characteristics that distinguish them from goods.

Intangibility

The basic difference between services and goods is that services are intangible performances. Because of their intangibility, they cannot be touched, seen, tasted, heard, or felt in the same manner that goods can be sensed.

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. A search quality is a characteristic that can be easily assessed before purchase—for instance, the color of an appliance or automobile

  • An experience quality is a characteristic that can be assessed only after use, such as the quality of a meal in a restaurant. A credence quality is a characteristic that consumers may have difficulty assessing even after purchase because they do not have the necessary knowledge or experience. Medical and consulting services are examples of services that exhibit credence qualities.

Inseparability

Goods are produced, sold, and then consumed. In contrast, services are often sold, produced, and consumed at the same time. In other words, their production and consumption are inseparable activities. This inseparability means that, because consumers must be present during the production of services like haircuts or surgery, they are actually involved in the production of the services they buy. That type of consumer involvement is rare in goods manufacturing.

Heterogeneity

One great strength of McDonald’s is consistency. Whether customers order a Big Mac in Chicago or Seattle, they know exactly what they are going to get. This is not the case with many service providers. Because services have greater heterogeneity, or variability of inputs and outputs, they tend to be less standardized and uniform than goods. For example, physicians in a group practice or barbers in a barbershop differ within each group in their technical and interpersonal skills. Because services tend to be labor intensive and production and consumption are inseparable, consistency and quality control can be hard to achieve.

Perishability

Perishability is the fourth characteristic of services. Perishability refers to the inability of services to be stored, warehoused, or inventoried. 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 off-season.

Service Quality

Because of the four unique characteristics of services, service quality is more difficult to define and measure than is the quality of tangible good


Evaluating Service Quality

Research has shown that customers evaluate service quality by the following five components:

  • Reliability: the 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.

  • Responsiveness: the ability to provide prompt service. Examples of responsiveness include calling the customer back quickly, serving lunch fast to someone who is in a hurry, or mailing a transaction slip immediately. The ultimate in responsiveness is offering service 24 hours a day, seven days a week. Priceline Group’s global business, which operates in more than 220 countries and territories, shows responsiveness to its customers by hiring people who can answer calls in dozens of languages.

  • Assurance: the 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.

  • Empathy: caring, individualized attention to customers. Firms whose employees recognize customers and learn their specific requirements are providing empathy. LUX Resorts, a hospitality company based in Mauritius, recently initiated a company-wide plan to offer creative personalized service. Understanding that highly scripted employees are often less able to empathize with customer needs, LUX’s CEO started an educational program focused on getting employees to anticipate and understand guests’ priorities. Knowing more about customers’ wants and needs maximized employees’ opportunities for providing great service, and two years after the program began, half of TripAdvisor’s Top 10 list for Mauritius was filled with LUX properties.

  • Tangibles: the 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.

Product (Service) Strategy

Service as a Process

Two broad categories of things are processed in service organizations: people and objects. In some cases, the process is physical, or tangible, while in others the process is intangible. Based on these characteristics, service processes can be placed into one of four categories:

  • People processing takes place when the service is directed at a customer. Examples are transportation services and health care.

  • Possession processing occurs when the service is directed at customers’ physical possessions. Examples are lawn care, dry cleaning, and veterinary services.

  • Mental-stimulus processing refers to services directed at people’s minds. Examples are theater performances and education.

  • Information processing describes services that use technology or brainpower directed at a customer’s assets. Examples are insurance and consulting.

Core and Supplementary Service Products

The service offering can be viewed as a bundle of activities that includes the core service, which is the most basic benefit the customer is buying, and a group of supplementary services that support or enhance the core service. Exhibit 12.2 illustrates these concepts for a luxury hotel. The core service is providing bedrooms for rent, which involves people processing. The supplementary services, some of which involve information processing, include food services and reservation, parking, phone, and television services.

Customization/Standardization

An important issue in developing the service offering is whether to customize or standardize it. 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.

Instead of choosing to either standardize or customize a service, a firm may incorporate elements of both by adopting an emerging strategy called mass customization. Mass customization uses technology to deliver customized services on a mass basis, which results in giving each customer whatever she or he asks for

The Service Mix

Most service organizations market more than one service. For example, TruGreen offers lawn care, shrub care, carpet cleaning, and industrial lawn services. 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. Designing 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.

Place (Distribution) Strategy

Distribution strategies for service organizations must focus on such issues as convenience, number of outlets, direct versus indirect distribution, location, and scheduling. A key factor influencing the selection of a service provider is convenience.

  • An important distribution objective for many service firms is 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

  • The next service distribution decision is 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. Examples include legal, medical, accounting, and personal-care services. The most-used form of direct distribution is the Internet.

  • The location of a 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.


Nonprofit Organization Marketing

A nonprofit organization is an organization that exists to achieve some goal other than the usual business goals of profit, market share, or return on investment. Both nonprofit organizations 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.

Few people realize that nonprofit organizations account for more than 20 percent of the economic activity in the United States.

Nonprofit organization marketing is the effort by nonprofit organizations to bring about mutually satisfying exchanges with target markets. Although these organizations vary substantially in size and purpose and operate in different environments, most 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