Due to service _____, services cannot be stored, warehoused, or inventoried.

Services Marketing & Nonprofit Marketing

Chapter 12

Goals

Discuss the importance of services to the economy

Identify differences between services and goods

Understand the components of service quality and the gap model of service quality

Develop marketing mixes for services

Describe the role of relationship marketing in services

Evaluate internal marketing in services

Apply marketing principles to nonprofit organizations

Evaluate global issues in services marketing

Importance of Service Organizations

GOAL #1: Discuss the importance of services to the economy

Importance of Service Organizations to the U.S. Economy

“Service” defined as the result of applying human or mechanical efforts to people or objects.

This makes the Service sector different from the Goods sector.

Service sector plays a crucial role in the U.S. economy

U.S. Census’s Service Survey found that service industries accounted for 68 percent of US GDP in 2012.

Unique Characteristics of Service Organizations

Services have unique characteristics that distinguish them from goods, and marketing strategies need to be adjusted for these characteristics.

Goods vs. Services

GOAL #1: Identify differences between services and goods

7

How Are Services Different from Goods?

Intangible

Inseparable

Heterogeneous

Perishable

No physical object makes it hard to communicate benefits.

Production and consumption are simultaneous, meaning the consumer takes part in production.

Services depend on their employees for quality, which makes consistency difficult to achieve.

Services cannot be saved, and it is challenging to synchronize supply and demand.

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Notes:

Intangibility: Services cannot be touched, seen, tasted, heard, or felt in the same way as goods. Tangible cues are often used to communicate a service’s quality and nature. Facilities are a critical tangible part of a service experience.

Inseperability: Services are often sold, produced, and consumed at the same time. Consumers are involved in the production of the services that they buy. The quality of services depends on the quality of employees.

Heterogeneity: Services are less standardized and uniform than goods. Because services tend to be labor-intensive, consistency and quality control can be hard to achieve. Standardization and training help increase consistency and reliability.

Perishability: Services cannot be stored, warehoused, or inventoried. One of the most important challenges in many service industries is finding ways to synchronize supply and demand.

Services vs. Goods

Services are distinguished by four characteristics.

Services are intangible performances.

Services lack clearly identifiable physical characteristics, making it difficult for marketers to communicate their specific benefits to potential customers.

The production and consumption of services occurs simultaneously.

Services are heterogeneous (different in kind)

Their quality depends on such elements as the service provider, individual consumer, location, and the like.

Finally, services are perishable in the sense that they cannot be stored or saved. As a result, synchronizing supply with demand is particularly challenging in the service industry..

Services vs. Goods

Evaluating the delivery of services is harder than evaluating the quality of goods.

A search quality is a characteristic that can be easily assessed before purchase. Compared to goods, services tend to exhibit fewer search qualities.

Services tend to exhibit more experience and credence qualities. An experience quality is a characteristic that can be assessed only after use.

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.

Service Quality & the GAP Model

GOAL #3: Understand the components of service quality and the gap model of service quality.

Service Quality

Service quality is more difficult to define and measure than is the quality of tangible goods.

QUALITY: An essential r distinctive characteristic, property, or attribute; fineness or grade of excellence

W. Edwards Deming’s Definition: “Meeting and exceeding customer expectations.”

Business executives rank the improvement of service quality as one of their most critical challenges.

12

Components of Service Quality

Tangibles

The physical evidence

of the service.

Empathy

Caring, individualized attention to customers.

Assurance

The knowledge and courtesy

of employees.

Responsiveness

The ability to provide

prompt service.

Reliability

The ability to perform the service right the first time.

Researchers have shown that customers evaluate service quality by these five components:

Chapter 12 Services and Nonprofit Organization Marketing

12

A model of service quality called the GAP Model identifies five “gaps” that can cause problems in service delivery and influence customer evaluations of service quality.

Gap 1: The gap between what customers want and what management thinks customers want. This gap results from a lack of understanding or a misinterpretation of customers’ needs or wants. To close Gap 1, keep in touch with what customers want by doing research on customer needs and customer satisfaction.

Gap 2: The gap between what management thinks customers want and the quality specifications that management develops to provide the service.

Gap 3: The gap between the service quality specifications and the service that is actually provided. If Gaps 1 and 2 are closed, Gap 3 is due to the inability of management and employees to do what should be done. To close Gap 3, employees need the skills, training, and tools to perform their jobs.

Gap 4: The gap between what the company provides and what the customer is told it provides. This is a communication gap, caused by such things as misleading or deceptive advertising campaigns. To close Gap 4, companies need to create realistic customer expectations through honest, accurate, realistic communication.

Gap 5: The gap between the service that customers receive and the service they want. This gap can be positive or negative. As the gaps shrink, service quality improves.

The GAP Model of Service Quality

14

Exhibit 12.1 Gap Model of Service Quality

Chapter 12 Services and Nonprofit Organization Marketing

14

Marketing Mixes for Service Organizations

GOAL #4: Develop marketing mixes for services

Marketing Mix

Due to services’ unique characteristics, elements of the marketing mix need to be adjusted to meet these special needs.

Product strategies for service offerings include decisions on:

Type of process involved

Core and supplementary services

Standardization or customization of the service

product, and

Service mix.

17

Product Strategies for Services

Service

Mix

Customization/

Standardization

Core and Supplementary

Service as a

Process

Chapter 12 Services and Nonprofit Organization Marketing

17

Service as a Process

Two things get processed in service organization: people and objects. In some cases, the process is physical, while in others the process is intangible. There are four types of service processing categories:

People processing takes place when the service is directed at a customer. (Examples include health care and hairstyling)

Possession processing occurs when the service is directed at customers’ physical possessions. (Examples include lawn care, car repair, and dry cleaning.)

Mental stimulus processing refers to services directed at people’s minds. (Examples include spectator sports events, theater performances, and education.)

Information processing describes services that use technology or brainpower directed at a customer’s assets. (Examples include insurance, consulting, and banking.)

19

Service as a Process

Mental Stimulus Processing

People

Processing

Possession Processing

Information Processing

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19

Notes:

The Service Offering

Service offering is a bundle of activities that includes the core service (the most basic benefit) and a group of supplementary services that enhance or support the core service.

In many service industries, the core service becomes a commodity product as competition increases. As a result, supplementary services are used to create competitive advantage.

21

The Service Offering

Core Service

Supplementary

Service

The most basic benefit the consumer is buying.

A group of services that support or enhance the core service.

Chapter 12 Services and Nonprofit Organization Marketing

21

Notes:

Customization vs. Standardization

An important issue in developing service offerings is whether to customize or standardize.

Customized services are more flexible but command a higher price.

On the other hand, standardized services are more efficient and cost less.

Instead of choosing either strategy, elements of both can be incorporated into an emerging strategy called mass customization. Mass customization uses technology to deliver customized services on a mass basis, thus meeting customers’ specific needs.

23

Customization/Standardization

A strategy that uses technology to deliver customized services on a mass basis.

Mass Customization

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23

Marketing Mixes

“Product” (service) strategy issues include what is being processed (people, possessions, mental stimulus, information), core and supplementary services, customization versus standardization, and the service mix.

Distribution (place) decisions involve convenience, number of outlets, direct versus indirect distribution, and scheduling. Stressing tangible cues, using personal sources of information, creating strong organizational images, and engaging in postpurchase communication are effective promotion strategies.

Pricing objectives for services can be revenue oriented, operations oriented, patronage oriented, or any combination of the three.

Relationship Marketing

GOAL #5: Discuss relationship marketing in services.

Relationship Marketing in Services

Relationship marketing in services involves attracting, developing, and retaining customer relationships.

Many services involve ongoing interaction between the service organization and the customer. They can benefit from relationship marketing as a means of attracting, developing, and retaining customer relationships.

It is more cost effective to keep existing customers than to attract new ones. Increasing customer retention by 2 percent can have the same effect on profits as reducing costs by 10 percent.

There are three levels of relationship marketing:

Level 1 focuses on pricing incentives;

Level 2 uses pricing incentives and social bonds with customers;

Level 3 uses pricing, social bonds, and structural bonds to build long-term relationships.

27

Relationship Marketing in Services

2

Social

Financial

1

Financial

3

Structural

Social

Financial

Pricing incentives

Design services to meet customer needs

Creating value-added services not available elsewhere

Chapter 12 Services and Nonprofit Organization Marketing

27

Notes:

Internal Marketing in Services

GOAL #6 – Describe internal marketing in services.

Internal Marketing

Internal marketing means treating employees as customers and developing systems and benefits that satisfy their needs. Employees who like their jobs and are happy with the firm they work for are more likely to deliver good service.

30

Rationale for Internal Marketing

Services are performances – so the quality of an organization’s employees is an important component in building long-term relationships with customers.

It is beneficial to the company to keep committed employees. To satisfy employees, companies have designed and instituted a wide variety of programs such as flextime, on-site day care, and concierge services.

An organization that makes its employees happy has a better chance of retaining customers.

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30

Marketing for Nonprofit Organizations

GOAL #7: Apply marketing principles to nonprofit organizations.

Nonprofit Organizations

Nonprofit organizations pursue goals other than profit, market share, and return on investment.

Nonprofit organizations account for more than 20 percent of the economic activity in the United States

Governments

Museums

Theaters

Schools

Churches

Nonprofit organization marketing facilitates mutually satisfying exchanges between nonprofit organizations and their target audience.

Several unique characteristics distinguish non-business marketing strategy, including

a concern with services and social behaviors rather than manufactured goods and profit;

a difficult, undifferentiated, and in some ways marginal target market;

a complex product that may have only indirect benefits and elicit very low involvement;

distribution that may or may not require special facilities depending on the service provided;

a relative lack of resources for promotion; and

prices only indirectly related to the exchange between the producer and the consumer of services.

Nonprofit Organizations

Nonprofit organization marketing is the effort by nonprofit organizations to bring about mutually satisfying exchanges with target markets.

Nonprofit organizations share characteristics with service firms. Both market intangible products, and often require the customer to be present during the production process. Services often vary greatly, and can not be stored in the same way as tangible goods.

Marketing the Nonprofit Organization

Nonprofit Organization Marketing

35

Market intangible products

Production requires

customer’s presence

Services vary greatly

Services cannot be stored

Shared Characteristics

with

Service Organizations

7

Chapter 12 Services and Nonprofit Organization Marketing

35

36

Nonprofit Organization

Marketing Activities

Identify desired customers

Specify objectives

Develop, manage, eliminate programs and services

Decide on prices

Schedule events or programs

Communicate their availability

Chapter 12 Services and Nonprofit Organization Marketing

36

37

Setting of marketing objectives

Selection of target markets

Development of marketing mixes

Unique Aspects of Nonprofit Organization Marketing Strategies

Like business organizations, nonprofit managers develop marketing strategies to bring about mutually satisfying exchanges with target markets, like:

Chapter 12 Services and Nonprofit Organization Marketing

37

Notes:

38

Nonprofit’s Objectives

Provide services that respond to the wants of:

Users

Payers

Donors

Politicians

Appointed officials

Media

General Public

Nonprofit organizations do not seek to earn a profit for redistribution to owners or shareholders. The focus is to generate enough funds to cover expenses and provide for future growth.

Most nonprofit organizations are expected to provide equitable, effective, and efficient services that respond to the wants and needs of multiple constituencies.

Chapter 12 Services and Nonprofit Organization Marketing

38

Notes:

39

Target Markets

Apathetic or strongly opposed

targets

Pressure to adopt undifferentiated segmentation

Complementary positioning

Unique Issues of Nonprofit

Organizations

Chapter 12 Services and Nonprofit Organization Marketing

39

Notes:

Three issues relating to target markets are unique to nonprofit organizations:

Target Markets of Nonprofit Organizations

Apathetic or strongly opposed targets – Nonprofit organizations must often target those who are apathetic about or strongly opposed to receiving their services.

Pressure to adopt undifferentiated segmentation strategies: Nonprofit organizations often fail to recognize the advantages of targeting, or are pressured to service the maximum number of people.

Complementary positioning: Nonprofit organizations must often complement, rather than compete with, the effort of other groups.

41

Benefit complexity

Weak or indirect benefit strength

Low involvement

Product Decisions

Distinctions between Business and Nonprofit Organizations

Chapter 12 Services and Nonprofit Organization Marketing

41

Notes:

There are

Three product-related distinctions between business and nonprofit organizations:

Benefit complexity: Nonprofit organizations often market complex behavior or ideas, such as the need to quit smoking. The benefits that a person receive are complex, long term, and intangible, and therefore are difficult to communicate to consumers.

Benefit strength: The benefit strength of many nonprofit offerings may be weak or indirect.

Involvement: Many nonprofit organizations market products that elicit low involvement, such as “Prevent forest fires,” or very high involvement, such as “Stop smoking.”

Product Decisions

43

Promotion Decisions

Sales promotion activities

Public service advertising

Professional volunteers

Chapter 12 Services and Nonprofit Organization Marketing

43

Notes:

Promotion Decisions

Many nonprofit organizations (such as federal organizations) are prohibited from advertising, or do not have the resources to retain marketing expertise.

However, special promotion resources include:

Professional volunteers, such as donation of advertising agency time. Donated services create goodwill, personal contacts, and general awareness of the organization.

Sales promotion activities that make use of existing services to draw attention to the offerings of nonprofit organizations.

Public service advertising that is donated by a sponsor, so the public service advertiser does not pay for the time or space.

45

Pricing Decisions

Below-cost pricing

Separation between payers and users

Indirect payment

Nonfinancial prices

Pricing objectives

Characteristics

Distinguishing

Pricing Decisions of Nonprofit Organizations

Chapter 12 Services and Nonprofit Organization Marketing

45

Five key characteristics distinguish the pricing decisions of nonprofit organizations from those of the profit sector:

Pricing objectives: The main objective is to defray all or partial costs rather than achieve a profit.

Nonfinancial prices: In many nonprofit situations, consumers must absorb nonmonetary costs, such as costs of time, embarrassment costs, and effort costs.

Indirect payment: Indirect payment through taxes is common to marketers of “free” services, such as libraries, fire protection, and police protection.

Separation between payers and users: The services of many nonprofit organizations are used by those who are relatively poor and paid for by those who are better off financially.

Below-cost pricing: An example is university tuition, with services priced below cost.

Pricing Decisions

Global Issues in Services Marketing

GOAL #8: Discuss global issues in Services Marketing

Global Issues

The US has become the world’s largest exporter of services. Although competition is intense, the US has a competitive advantage because of its vast experience in many service industries.

To be successful globally, service organizations must adjust their marketing mix for the environment of each target country.

Review

A(n) _____ is the result of applying human or mechanical efforts to people or objects.

application processor

profit intermediary

tangible product

service

nonprofit organization

All of the following are unique characteristics that distinguish services from goods EXCEPT:

intangible.

inseparable.

searchable.

heterogeneous.

perishable.

Review

A service cannot be touched, seen, tasted, heard, or felt in the same manner in which goods can be sensed and, therefore, is referred to as being:

impervious.

extraneous.

synergistic.

perishable.

intangible.

Auto repair, manicures, and landscaping are all services that are produced and consumed at the same time. All of these services exhibit the service characteristic of:

inseparability.

intangibility.

heterogeneity.

perishability.

variability.

Review

It is difficult to achieve consistency and standardization of services because of which service characteristic?

Customization

Simultaneous production and consumption

Intangibility

Perishability

Heterogeneity

All of the following are service components customers use to evaluate service quality EXCEPT:

validity.

empathy.

assurance.

responsiveness.

reliability.

Review

Canyons ski resort is so positive that guests will enjoy their visit that they offer a money-back guarantee for special lift tickets purchased at the resort Web site. Canyons’ “You’llLoveItOrIt’sFree” guarantee provides consumers which of the following service quality aspects?

Tangibility

Responsiveness

Sympathy

Responsibility

Reliability

Service personnel who exhibit caring, individualized attention to customers are addressing which service quality component?

Reliability

Responsiveness

Assurance

Empathy

Tangibles

Review

The model of service quality that identifies five disparities that can cause problems in service delivery and influence customer evaluations of service quality is referred to as the _____ model.

gap

theory of reasoned action

attribution

dual-coding

Fishbein

All of the following are types of service processing that can occur EXCEPT:

people processing.

product processing.

possession processing.

information processing.

mental stimulus processing.

Review

First Community Bank spent a considerable amount of money updating its lobby with plush sofas, a large-screen television, and a refreshment counter with popcorn and soft drinks. However, very few customers spend time in the lobby. In fact, most customers want to be in and out of the bank, with their financial transaction completed as quickly as possible. The GAP model of service quality would suggest that a gap exists between:

The service quality specifications and the service that is actually provided.

What the company provides and what the customer is told it provides.

The service customers receive and the service they want.

What customers want and what management thinks customers want.

What management thinks customers want and the quality specifications management develops to provide the service.

Review

_____ is the strategy that uses technology to deliver customized services on a mass basis.

Mass standardization

Aggregated service

Technological processing

Mass customization

Aggregated marketing

All of the following are recommended promotional strategies for services EXCEPT:

concentrating on franchising

stressing tangible cues

using personal information sources

creating a strong organizational image

engaging in post-purchase communications

Review

What is a nonprofit organization? Discuss the marketing activities performed by nonprofit organizations.

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. Nonprofit organizations include a wide variety of entities ranging from the government to private, not-for-profit churches. Although nonprofit organizations differ substantially in size and purposes and operate in quite different environments, most perform common marketing activities:

Identify customers (such as clients, patients, members, or sponsors) they wish to serve or attract

Explicitly or implicitly specify objectives

Develop, manage, and eliminate programs and services

Decide on prices (such as fees, donations, tuition, fares, or rates) to charge

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

Review

Discuss three issues relating to target markets that are unique to nonprofit organizations. Provide an example of each issue.

APATHETIC OR STRONGLY OPPOSED TARGETS. While private-sector organizations develop market segments that are most responsive to their offerings, nonprofit organizations must develop marketing programs aimed at relatively unresponsive targets or people strongly opposed to receiving their services. This includes targets for services such as vaccinations, family planning, aid for substance abuse, and psychological counseling.

PRESSURE TO ADOPT UNDIFFERENTIATED SEGMENTATION STRATEGIES. Some nonprofit organizations fail to recognize the advantages of segmentation, or they use an undifferentiated approach for apparent economies of scale and low per-capita costs. Other organizations are required to serve the maximum number of people by targeting the average user. Unfortunately, there are few “average” users, and most nonprofit organizations benefit from differentiated strategies.

COMPLEMENTARY POSITIONING. Nonprofit organizations strive to provide services to those individuals or groups who are not adequately served by private sector organizations. Thus, the goal is to complement rather than compete with the efforts of others. For example, a nonprofit organization would seek to identify underserved market segments (low-income families) and develop marketing programs that match their needs (low-cost health care or free vaccinations).

Review

List and describe the five key characteristics that distinguish the pricing decisions of nonprofit organizations from those of the profit sector.

PRICING OBJECTIVES. Nonprofit organizations are concerned with revenue production but only to defray costs, not to achieve profits for distribution to stockholders. Income redistribution takes the form of equitable allocation among individuals and households or across geographic or political boundaries.

NONFINANCIAL PRICES. Consumers often absorb nonmonetary costs rather than paying a monetary price. These nonmonetary costs may consist of the cost of time, embarrassment costs, or effort costs.

INDIRECT PAYMENT. Indirect payment is received to cover a broad range of services. Indirect payment may take the form of taxes or other dues that help pay for free services provided by libraries, police departments, or fire departments.

SEPARATION BETWEEN PAYERS AND USERS. Services distributed to one group are largely paid for by those in another group (usually those in a better financial situation).

BELOW-COST PRICING. Often, products and services are provided below cost. Nonprofit organizations do this to remain socially responsible.

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