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Marketing Homework

Read the Chapter 14 Case: Real Choices at Frito-Lay

Answer each question in 200 words.

Summarize the case and identify the dilemma facing Frito-Lay.

Research the products and organization at www.fritolay.com. Identify and discuss the most important issues surrounding the successful use of CRM at Frito-Lay. How does CRM link the marketing and sales functions of the organization?

3. What is the purpose of trade sales promotions? Identify three types of trade sales promotions that Frito-Lay should use to increase sales. Specifically how should these be implemented?

4. What factors are important in addressing the dilemma facing Frito-Lay? What are your recommendations and discuss specific implementation tactics for your recommendations?

Correct APA Source Citing of the Textbook:

In-Text Citation

ï‚· First in-text use is: (Solomon, Marshall & Stuart, 2012).

ï‚· Subsequent in-text uses is: (Solomon et al., 2012)

Reference Section:

Solomon, M. R., Marshall, G. W.; & Stuart, E. W. (2012). Brand you: marketing

real people, real choices. (4th ed.). Upper Saddle River, N.J.: Pearson, 2012. Print.

BE SURE TO USE AT LEAST THREE OUTSIDE SOURCES…….

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Chapter | 10

Services and Other Intangibles: Marketing the Product That Isn’t There

Real People Profiles

A Decision Maker at the Philadelphia 76ers Lara Price is senior vice president of busi- ness operations for the Philadelphia 76ers professional basketball team. When Lara was elevated to vice president of market- ing in August 1998, she became one of only 18 female vice presidents in the NBA (National Basketball Association). After being named the team’s senior vice president in August 2001, Price was pro- moted to her current position in June 2003

and continues to oversee the day-to-day activities of the 76ers business operation. She is responsible for the team’s sales and marketing along with the communica- tions department, which includes public relations, community relations, and new me- dia, as well as game entertainment. She also oversees the Sixers’ television and radio broadcasts.

The recipient of several awards for excellence in advertising and public rela- tions, Price joined the 76ers in 1996 as director of marketing after serving as man- ager of team services for the NBA. She also served as director of team services for the Continental Basketball Association. A native of Boulder, Colorado, Price is a graduate of Colorado State University, where she was also a member of the women’s basketball team.

Lara’s Info

What do I do when I’m not working? A) Running or walking my Rottweiler, Deuce.

First job out of school? A) Continental Basketball Association.

Career high? A) Going to the NBA Finals in 2001 and helping to organize the NBA All-Star Weekend Celebration that honored the 50 greatest players. Having the opportunity to stand with all of them and organize them before they went out on the court.

A job-related mistake I wish I hadn’t made? A) Letting a vendor talk me into using more fireworks than we should have used for opening night. The haze/smoke didn’t lift for at least 5 minutes. This delayed the game and the team was fined.

Business book I’m reading now? A) Competing on Analytics by Thomas H. Davenport and Jeanne G. Harris.

My hero? A) My parents.

My motto to live by? A) Never quit and the Golden Rule.

What drives me? A) Passion.

My management style? A) Hands on!

My pet peeve? A) People who blame others and don’t try to resolve the issue or problem at hand. Figure out why it happened, correct it, and move on.

Profile Info

Lara L. Price

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To better serve its fans (customers), the 76ers needed to compile more detailed information

about its customer base. The team’s management had access to several data sources; these included some surveys, notes from customer service represen- tatives that recorded highlights of conversations with fans, and a ticketing sys- tem (which showed past purchases)—but this system only recorded a ticket

buyer’s name, address, length of being a sea- son ticket holder, and any miscellaneous notes that customer service representatives added to the account. Lara knew that she needed a better system to compile buying habit infor- mation to predict what Sixers fans wanted, as opposed to the poorly organized “spray and pray” strategy the team was currently using.

Sports have been a little bit slower than other industries to jump on board with CRM techniques (customer relationship manage- ment; see Chapter 7). Many professional teams don’t have the resources or type of in-

ternal culture that encourages a lot of rigorous analysis of what fans want and do, but Lara recognized the value of systematically tracking this information to fine-tune her marketing strategies. Still, she acknowledged that you can’t run before you can walk: The company (not just the 76ers but the team’s parent company, Comcast Spectacor, which owns the Flyers, 76ers, Phantoms, the Wachovia Center/Spectrum, and Comcast SportsNet) needed to find a work- able CRM solution. This solution had to grow with Comcast’s business needs; it wouldn’t work to put an overly sophisticated system in place that was too complicated to use and would be rejected before it had a chance to show why it was superior to the way the team tracked customers’ buying habits now.

Lara considered her Options 1 • 2 • 3 Phase in a CRM database approach. This would allow Lara to obtain a full view of her customers and segment her base ac- cording to relevant drivers, such as purchasing behaviors, Web site viewing habits (even which specific pages customers were going to on the site), which e-mails people are opening, who re- sponds to direct mail/letters, text messages, and so on. This sys-

tem is more efficient in the long run because it tracks behaviors (purchasing) and requires minimal human input. However, to adopt such a system would require buy-in from the company at all levels (including senior management), and it wasn’t clear that her colleagues would be receptive to this more ana- lytical approach to monitoring fans’ behavior as opposed to a more tradi- tional “hands-on” perspective. And, depending upon the CRM system the company adopted, this could be a pricey option, ranging from six figures to more than $2 million.

See what option Lara chose and its success on page 291

Send out several surveys to season ticket holders each year. These would request feedback about many topics includ- ing game operations, payment options, broadcast preferences, and the general direction of the team. Although this is a proven (and relatively inexpensive) method to get feedback from cus- tomers, mail surveys might not capture rapid changes in prefer-

ences. In addition, it’s risky to base business decisions on customers’ opinions rather than taking into account their actual behaviors.

Analyze the lifetime value of customers by projecting how their spending habits over time will provide revenue to the organization. This technique would allow Lara to iden- tify her most profitable customers to be sure she was allocating her marketing dollars toward satisfying their needs. The Sixers’ full season ticket holders are the lifeblood of the team’s busi-

ness, but other segments such as partial plan holders, individual game pur- chasers, and broadcast viewers are very important as well. This approach would let Lara’s staff identify which types of customers provide the largest revenue to the company over time and tailor its promotions accordingly. A lifetime value analysis is useful because it’s based on actual behavior rather than on what fans say they will do in the future. On the other hand, these behaviors don’t tell the whole story: It’s still important to know about cus- tomers’ demographics and psychographics (see Chapter 5) to enable the team to market one-to-one. For example, a lifetime value analysis doesn’t in- dicate if a customer wants her Sixers information delivered via the Web, phone, or mail.

Now, put yourself in Lara’s shoes: Which option would you choose, and why?

You Choose

Which Option would you choose, and why?

1. YES NO 2. YES NO 3. YES NO

Real People, Real Choices

273

Option

Option

Option

Here’s my problem. . .

Things to remember

The Philadelphia 76ers didn’t have a rigorous system in place to measure their fans’ experiences. The team needed to do a better job of tracking the specific aspects of its service that either attracted or turned off potential ticket buyers.

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Marketing What Isn’t There What do a Lady Gaga concert, a college education, a Cubs baseball game, and a visit to Walt Disney World have in common? Easy answer—each is a product that combines experiences with physical goods to create an event that the buyer consumes. You can’t have a concert without musical instruments (or bizarre masks, in Lady Gaga’s case), a college education without textbooks (Thursday night parties don’t count), a Cubbies game

without a hot dog, or a Disney experience without the mouse ears. But these tangibles are secondary to the primary product, which is some act that, in these cases, produces enjoyment, knowledge, or excitement.

In this chapter we’ll consider some of the challenges and opportunities that face marketers whose primary offerings are intangibles: services and other experience-based products that we can’t touch. The marketer whose job is to build and sell a better football, automobile, or smartphone—all tangibles— deals with issues that are somewhat different from the job of the marketer who wants to sell tickets to a basketball game, limousine service to the airport, or al- legiance to a hot new rock band. In the first part of this chapter, we’ll discuss services, a type of intangible that also happens to be the fastest-growing sector in our economy. As we’ll see, all services are intangible, but not all intangibles are services. Then we’ll look at a few other types of intangibles as well.

What Is a Service? Services are acts, efforts, or performances exchanged from producer to user without ownership rights. Like other intangibles, a service satisfies needs when it provides pleasure, information, or convenience. In 2010, service in- dustry jobs accounted for over 75 percent of all employment in the United States and over two-thirds of the gross domestic product (GDP).1 If you pur- sue a marketing career, it’s highly likely that you will work somewhere in the services sector of the economy. Got your interest?

Of course, the service industry includes many consumer-oriented ser- vices, ranging from dry cleaning to body piercing. But it also encompasses a vast number of services directed toward organizations. Some of the more com- mon business services include vehicle leasing, information technology services, insurance, security, Internet transaction services (Amazon.com, Google, on- line banking, etc.), legal advice, food services, consulting, cleaning, and main- tenance. In addition, businesses also purchase some of the same services as consumers, such as electricity, telephone service, and gas (although as we saw in Chapter 6 these purchases tend to be in much higher quantities).

The market for business services has grown rapidly because it is often more cost effective for organizations to hire outside firms that specialize in these services than to hire a workforce and handle the tasks themselves.

Characteristics of Services Services come in many forms, from those done to you, such as a massage or a teeth cleaning, to those done to something you own, such as having your com- puter tuned up by the Geek Squad or getting a new paint job on your classic 1965 Mustang. Regardless of whether they affect our bodies or our posses-

Chapter 10

274 PART THREE | CREATE THE VALUE PROPOSITION

Objective Outline 1. Describe the characteristics of

services and the ways marketers classify services.

MARKETING WHAT ISN’T THERE (p. 274)

2. Appreciate the importance of service quality to marketers.

HOW WE PROVIDE QUALITY SERVICE (p. 281)

3. Explain the marketing of people, places, and ideas.

MARKETING PEOPLE, PLACES, AND IDEAS (p. 286)

(pp. 286–290)

(pp. 280–286)

(pp. 274–280)

Check out chapter 10 Study Map on page 292

1 OBJECTIVE

Describe the

characteristics of

services and the ways

marketers classify

services. (pp. 274–280)

services Intangible products that are exchanged directly from the producer to the customer.

intangibles Experience-based products.

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CHAPTER 10 | SERVICES AND OTHER INTANGIBLES 275

Variability Inseparability

Intangibility Perishability

Figure 10.1 Snapshot | Characteristics of Services

Services have four unique characteristics versus products.

sions, all services share four characteristics, which are summarized in Figure 10.1: in- tangibility, perishability, inseparability, and variability. The discussion that follows shows how marketers can address the unique issues related to these characteristics of services that don’t pop up when they deal with tangible goods.

Intangibility

Part of the title of this chapter is “Marketing the Product That Isn’t There.” The essence is that unlike a bottle of Izzo soda or a flat screen TV—both of which have physical, tangible properties—services do assume a tangible form. Intangibility means customers can’t see, touch, or smell good service. Unlike the purchase of a tangible good, we can’t inspect or han- dle services before we buy them. This makes it much more difficult for con- sumers to evaluate many services. Although it may be easy to evaluate your new haircut, it is far less easy to determine whether the dental hygienist did a great job when she cleaned your teeth.

Because they’re buying something that isn’t there, customers look for re- assuring signs before they purchase—so marketers must ensure that these signs are readily available. That’s why they try to overcome the problem of in- tangibility by providing physical cues to reassure the buyer. These cues might be the “look” of the facility, its furnishings, logo, stationery, business cards, ap- pearance of its employees, or well-designed advertising and Web sites.

Perishability

Perishability refers to the characteristic of a service that makes it impossible to store for later sale or consumption—it’s a case of use it or lose it. When rooms go unoccupied at a ski resort, there is no way to make up for the lost opportunity to rent them for the weekend. Marketers try to avoid these prob- lems when they use the marketing mix to encourage demand for the service during slack times. One popular option is to reduce prices to increase de- mand for otherwise unsold services. Airlines do this when they offer more lower-priced seats in the final days before a flight by direct e-mail to cus- tomers who sign up for last-minute deals or online through outlets like Priceline.com. In a last-ditch effort to fill their ships to the highest possible ca- pacity, Disney Cruise Lines offers Walt Disney World Resort employees dis- counts in excess of 50 percent off about a week before the ship sets sail. We’ll talk more about these and other pricing tactics in Chapter 11.

intangibility The characteristic of a service that means customers can’t see, touch, or smell good service.

perishability The characteristic of a service that makes it impossible to store for later sale or consumption.

Because services are intangible, marketers often find it useful to link them to very vivid images—like talking money.

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276 PART THREE | CREATE THE VALUE PROPOSITION

Capacity management is the process by which orga- nizations adjust their services in an attempt to match sup- ply with demand. This strategy may mean adjusting the product, or it may mean adjusting the price. In the sum- mer, for example, the Winter Park Ski Resort in Colorado combats its perishability problem when it opens its lifts to mountain bikers who tear down the sunny slopes. Rental car companies offer discounts on days of the week when business travel is light, and many hotels offer special weekend packages to increase weekend occupancy rates. Las Vegas might add free meals, room discounts, show passes, or other incentives to lure travelers during slow weeks, yet during a big convention or major boxing match prices go sky high and amenities disappear.

Variability

An NFL quarterback may be hot one Sunday and ice cold the next, and the same is true for most services. Variability

means that over time even the same service the same individual performs for the same cus- tomer changes—even only in minor ways. It’s rare when you get exactly the same cut from a hairstylist each time you visit him. Even your physician might let a rough day get in the way of her usual charming bedside manner with patients.

It’s difficult to standardize services because service providers and customers vary. Think about your experiences in your college classes. A school can standardize its offer- ings to some degree—course catalogs, course content, and classrooms are fairly control- lable. Professors, however, vary in their training, life experiences, and personalities, so there is little hope of being able to make teaching uniform (not that we’d want to do this anyway). And because students with different backgrounds and interests vary in their needs, the lecture that you find fascinating might put your friend to sleep (trust us on this). The same is true for customers of organizational services. Differences in the quality of individual security guards or cleaning personnel mean variability in how organizations deliver these services.

The truth is, if you really stop and think about it, we don’t necessarily want standardi- zation when we purchase a service. Most of us desire a hairstyle that fits our face and per- sonality, and a personal trainer who will address our unique physical training needs. Businesses like McDonald’s, Wendy’s, and Burger King want unique advertising campaigns to set them apart from each other, not cookie-cutter messages. Because of the nature of the tasks service providers perform, customers often appreciate the one that customizes its ser- vice for each individual.

Inseparability

In services, inseparability means that it is impossible to divide the production of a service from the consumption of that service. Think of the concept of inseparability this way: A firm can manufacture goods at one point in time, distribute them, and then sell them later (likely at a different location than the original manufacturing facility). In contrast, by its nature a service can take place only at the time the actual service provider performs an act on either the customer or the customer’s possession. Nobody wants to eat a meal at a restaurant that was prepared yesterday at another location—that’s inseparability. And you can’t bulk up haircuts or empty seats on airplanes as inventory for future use!

Still, it’s difficult if not impossible to detach the expertise, skill, and personality of a provider or the quality of a firm’s employees, facilities, and equipment from the offering it- self. The central role that employees play in making or breaking a service underscores the

capacity management The process by which organizations adjust their offerings in an attempt to match demand.

variability The characteristic of a service that means that even the same service performed by the same individual for the same customer can vary.

A symphony orchestra provides an intangible service that is also variable from one performance to another.

inseparability The characteristic of a service that means that it is impossible to separate the production of a service from the consumption of that service.

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CHAPTER 10 | SERVICES AND OTHER INTANGIBLES 277

importance of the service encounter, or the interaction between the customer and the ser- vice provider.2 The most expertly cooked meal is just plain mush if a surly or incompetent waiter brings it to the table.

To minimize the potentially negative effects of bad service encounters and to save on labor costs, some service businesses turn to disintermediation, which means removing the “middleman” and thus eliminating the need for customers to interact with people at all. Ex- amples include self-checkouts at the supermarket or home improvement store, self-service gas pumps, and bank ATMs. Even salad and dessert bars reduce reliance on a restaurant server. Although some consumers resist dealing with machines, pumping their own gas, or fixing their own salad, most prefer or at least don’t mind the speed and efficiency disinter- mediation provides. The remaining consumers who want a Caesar salad prepared table-side by your server with old fashioned flare or a fill-up that includes an oil check and a clean windshield provide marketing opportunities for full-service restaurants and the few gas sta- tions that still provide these higher levels of service—usually at a higher price.

The Internet provides many opportunities for disintermediation, especially in the fi- nancial services area. Banking customers can access their accounts, transfer funds from one account to another, and pay their bills with the click of a mouse. Many busy consumers can check out mortgage interest rates and even apply for a loan at their convenience—a much better option than taking an afternoon off from work to sit in a mortgage company office. Online brokerage services are popular, as many consumers seek to handle their invest- ments themselves so they can avoid the commission a full-service brokerage firm charges. Insurance companies like GEICO and Progressive aggressively lead consumers to the Web instead of to an agent’s office to get rate quotes and visit about the weather and fishing.

The Service Encounter Earlier we said that a service encounter occurs when the customer comes into contact with the organization—which usually means she interacts with one or more employees who rep- resent that organization. The service encounter has several dimensions that are important to marketers.3 First, there is the social contact dimension—one person interacting with another person. The physical dimension is also important—customers often pay close attention to the environment where they receive the service.

Despite all the attention (and money) firms pay to create an attractive facility and de- liver a quality product, this contact is “the moment of truth”—the employee often deter- mines whether the customer will come away with a positive or a negative impression of the service. Our interactions with service providers can range from the most superficial, such as when we buy a movie ticket, to telling a psychiatrist (or bartender) our most intimate se- crets. In each case, though, the quality of the service encounter exerts a big impact on how we feel about the service we receive.

Because services are intimately tied to company employees who deliver the service, the quality of a service is only as good as its worst employee. The employee represents the organiza- tion; her actions, words, physical appearance, courtesy, and professionalism reflect its val- ues. Customers entrust themselves and/or their possessions to the care of the employee, so it is important that employees look at the encounter from the customer’s perspective.

However, the customer also plays a part in the type of experience that results from a service encounter. When you visit a doctor, the quality of the health care you receive de- pends not only on the physician’s competence. It’s also influenced by your ability to accu- rately and clearly communicate the symptoms you experience and how well you follow the regimen she prescribes to treat you. The business customer must provide accurate informa- tion to her accounting firm. And even the best personal trainer is not going to make the de- sired improvements in a client’s physique if the client refuses to do the workout designed for her.

service encounter The actual interaction between the customer and the service provider.

disintermediation A service that requires the customer to obtain an outcome without the intervention of a human provider.

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How We Classify Services? When they understand the characteristics of different types of services, marketers can de- velop strategies to ramp up customer satisfaction. As Table 10.1 shows, we classify services in terms of whether the service is performed directly on the customer or on something the customer owns, and whether the service consists of tangible or intangible actions. Cus- tomers themselves receive tangible services to their bodies—a haircut or a heart transplant. The education (we hope!) you are receiving in this course is an intangible service directed at the consumer. A customer’s possessions are the recipient of tangible services such as the re- pair of a favorite carpet. Intangible services directed at a consumer’s possessions include in- surance and home security.

In reality, most products are a combination of goods and services. The purchase of a “pure good” like a Cadillac Escalade still has service components, such as bringing it to the dealer for maintenance work or using its OnStar service to figure out how to find the dealer in the first place. The purchase of a “pure service” like a makeover at a department store has product components, for example, lotions, powders, and lipsticks the cosmetologist uses to create the “new you.” Either tangible or intangible elements dominate some products, such as salt versus teaching, whereas others such as a commercial airline flight tend to include more of a mixture of goods and services. To make sense of this, it’s useful to consider a firm’s offerings within the context of three categories: goods-dominated products, equipment- or facility-based services, and people-based services.

Goods-Dominated Products

Even if this means only that the company maintains a toll-free telephone line for questions or provides a 30-day warranty against defects, companies that primarily sell tangible products still must provide support services. Automobile, major appliance, and electronics firms can realize a competitive advantage when they provide customers with this support better than the competition. Services may be even more important for marketers of B2B tangibles. Busi- ness customers often will not even consider buying from manufacturers who don’t provide services after the sale like employee training and equipment maintenance. For example, hos- pitals that buy lifesaving patient care and monitoring equipment costing hundreds of thou- sands of dollars demand not only in-service training for their nursing and technician

Table 10.1 | Marketing Strategies for Different Service Characteristics

Characteristic Marketing Response

Intangibility Provide tangibility through physical appearance of the facility

Furnishings

Employee uniforms

Logo

Web sites

Advertising

Perishability Adjust pricing to influence demand

Adjust services to match demand (capacity management)

Variability Institute total quality management programs

Offer service guarantees

Conduct gap analysis to identify gaps in quality

Inseparability Train employees about successful service encounters

Explore means for disintermediation

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CHAPTER 10 | SERVICES AND OTHER INTANGIBLES 279

personnel, but also quick response to breakdowns and regular maintenance of the equipment.

Equipment- or Facility-Based Services

Some products include a mixture of tangible and intangible elements. Al- though a restaurant is a balanced product because it includes the prepara- tion and delivery of the food to your table plus the food itself, for many other offerings the tangible elements of the service are less evident. For example, in the case of hospitals and hotels, customers do not take away a tangible good from the service encounter, but clearly these organizations do rely on expensive equipment or facilities to deliver a their offerings. Equipment- or facility-based services such as automatic car washes, amusement parks, mu- seums, movie theaters, health clubs, tanning salons, and zoos all must be concerned with important operational, locational, or environmental factors of the service encounter.

• Operational factors: Clear signs and other guidelines must show cus- tomers how to use the service (think about the infamous roped waiting spaces at airport ticket counters, banks, and hotel check-in lobbies. In particular, firms need to minimize waiting times (or at least give that il- lusion). Marketers employ a number of tricks to give impatient cus- tomers the illusion that they aren’t waiting too long. One hotel chain, responding to complaints about the long wait for elevators, installed mirrors in the lobby: People tended to check themselves out until the el- evators arrived, and lo and behold, protests decreased.4

• Locational factors: These are especially important for frequently purchased services, such as dry cleaning or retail banking, that we obtain at a fixed spot. When you select a bank, a restaurant, or a health club, its location often factors into your decision. Marketers of these services make sure their service sites are convenient and in neighborhoods that are attractive to prospective customers.

• Environmental factors: Service managers who operate a storefront service that requires people to come to their location realize they must create an attractive environment to lure customers. One trend is for such services to adopt a more retail-like philosophy, borrowing techniques from clothing stores or restaurants to create a pleasant environ- ment as part of their marketing strategy. Banks, for example, increasingly create signa- ture looks for their branches through the careful use of lighting, color, and art.5

People-Based Services

We’ve already pointed out that the unique service characteristics of inseparability and vari- ability are largely due to the fact that individual service providers—even for the same firm— are inherently unique and different. When dad takes his six-year-old son to get male-bonding haircuts at Big League Barbers, one can only hope that the cut will be basically consistent time and again! Because people have less and less time to get things done today, the importance of people-based services is increasing. Self-improvement services such as those wardrobe consultants and personal trainers offer are increasingly popular, and in some locales even professional dog walkers and mobile pet washing trucks do a brisk business. Many of us hire someone to do our legal work, repair our cars and appliances, or do our tax returns.

Core and Augmented Services When we buy a service, we may actually purchase a set of services. The core service is a benefit that a customer gets from the service. For example, when your car breaks down, repairing the problem is a core service you seek from an auto dealer or a garage. In most

An amusement park is an equipment-based service.

core service The basic benefit of having a service performed.

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Ethical/Sustainable Decisions in the Real World The fast food industry certainly is a great example of a product that is about equal in tangible and intangible elements. And employees and customers interact to create a sale. McDonald’s is the 800-pound gorilla in fast food. The chain is by far number one 1 in revenue, and it also ranks as the sixth biggest brand in the world in terms of brand value ($32.3 billion in 2009). With such size comes a certain, shall we say, visibility, and McDonald’s comes under the scrutiny of many consumer and governmental groups. Re- cently much of that focus has been related to the epidemic of childhood obesity and how McDonald’s, through its sheer market power, could con-

tribute to solutions. A recent study focused on an aspect of Mc-

Donald’s service, specifically the likelihood that a counter or drive-through employee will mention healthier choices to consumers when they pur- chase a kid’s Happy Meal. Nutrition researchers working for the Center for Science in the Public

280 PART THREE | CREATE THE VALUE PROPOSITION

cases though, the core service alone just isn’t enough. To attract customers, a service firm of- ten tries to offer augmented services—additional service offerings that differentiate the firm from the competition. When the auto dealership provides pickup and delivery of your car, a free car wash, or a customer lounge with donuts and coffee, it gains your loyalty as a customer.

And what about your own college education? Over the last decade, increased compe- tition for students prompted many colleges and universities to emphasize a whole variety of augmented products such as full-service gyms and fitness centers, comprehensive on-site health services, upgraded dining options, writing and editing centers for term paper devel- opment, expanded hours for campus support departments, more variety of housing options including boutique and upscale dorms, user-friendly grant and scholarship counseling, and convenient bill payment plans. With so many augmented services, hopefully in their spare moments students even squeeze in a few classes along the way!

Physical Elements of the Service Encounter: Servicescapes and Other Tangibles As we noted earlier in the chapter, because services are intangible, mar- keters have to be mindful of the physical evidence that goes along with them. An important part of this physical evidence is the servicescape: the environment in which the service is delivered and where the firm

and the customer interact. Servicescapes include facility exteriors—elements such as a building’s architecture, the signage, parking, and even the landscaping. They also include interior elements, such as the design of the office or store, equipment, colors, air quality, tem- perature, and smells. For hotels, restaurants, banks, airlines, and even schools, the ser- vicescape is quite elaborate. For other services, such as an express mail drop-off, a dry cleaner, or an ATM, the servicescape can be very simple.

Marketers know that carefully designed servicescapes can have a positive influence on customers’ purchase decisions, their evaluations of service quality, and their ultimate satis- faction with the service. Thus, for a service such as a pro basketball game that Lara Price

servicescape The actual physical facility where the service is performed, delivered, and consumed.

Ripped from the Headlines Interest visited 44 McDonald’s restaurants around the United States and ordered 75 Happy Meals without specifying the side dish or beverage.The side dish options are French fries or apple slices with a low-fat caramel dipping sauce (apple slices alone apparently don’t cut it). The beverage options are 1 percent low-fat milk, 100 percent juice, or standard sodas. The result: 93 per- cent of the time McDonald’s employees served fries automatically without of- fering the apple choice, and 84 percent of the time sugar-loaded sodas were the first option mentioned for the accompanying drink (think: Would you like a Coke with that?). More than 75 percent of stores had toy displays for the Happy Meals, essentially implying a reward for ordering and consuming a high- fat, high-calorie, high-sugar meal.

Of all 24 possible Happy Meal product combinations McDonald’s describes on its Web site, calories range from 380 to 650 per meal. At the high end, 650 is half of the 1,300-calorie recommended daily intake for kids 4 to 8 years old. McDonald’s, along with Coca-Cola and other providers of food products heavily consumed by children, is becoming increasingly sensitive about its role in childhood obesity.

What should McDonald’s do to ensure that healthier options are offered to customers by its service personnel? Would you make menu changes to the Happy Meal to make it healthier?

YES NO

ETHICS CHECK: Find out what other students taking this course would do and why on www .mypearsonmarketinglab .com

2 OBJECTIVE

Appreciate the

importance of service

quality to marketers. (pp. 280–286)

augmented services The core service plus additional services provided to enhance value.

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sells, much planning goes into designing not only the actual court, but also the exterior de- sign and entrances of the stadium, landscaping, seating, restrooms, concession stands, and ticketing area. Similarly, marketers pay close attention to the design of other tangibles that facilitate the performance of the service or provide communications. For the basketball fan, these include the signs that direct people to the stadium, the game tickets, the programs, the team’s uniforms, and the hundreds of employees who help to deliver the service.

Nowadays, for many consumers the first tangible evidence of a business (service or oth- erwise) is its Web site. Web sites send a strong cue to customers about you, and sites that are unattractive or frustratingly dysfunctional provide a horrible first impression of the com- pany and its service. Searchability is important, as is paying attention to search engine op- timization (SEO): a systematic process of ensuring that your firm comes up at or near the top of lists of typical search phrases related to your business. SEO is critical, because if your organization’s name doesn’t come up when someone Googles, she’ll just click on one of the competitors that does appear on the list (try Googling our book’s title Real People, Real Choices, and see what happens).

How We Provide Quality Service If a service experience isn’t positive, it can quickly turn into a disservice with nasty conse- quences. Quality service ensures that customers are satisfied with what they have paid for. However, satisfaction is relative because the service recipient compares the current experi- ence to some prior set of expectations. That’s what makes delivering quality service tricky. What may seem like excellent service to one customer may be mediocre to another person who has been “spoiled” by earlier encounters with an exceptional service provider. So, mar- keters must identify customer expectations and then work hard to exceed them.

In air travel, lots of “little things” that used to be considered a normal part of the ser- vice are now treated by most airlines as extras. Many fliers believe the airlines are “nickel and diming” them for extra bag weight, blankets and pillows, small snacks and drinks, and prime seat locations. Southwest, though, has continued to offer all these perks as part of the basic service. Thus, by essentially doing nothing different from what they’ve always done, Southwest now stands out from the crowd and exceeds customer expectations. No surprise that for over five straight years Southwest has been ranked among the top three in customer satisfaction among low-priced carriers by J.D. Power and Associates.6

The Cutting Edge

Airlines Introduce Handheld Devices to Improve Service The beleaguered airline industry is looking for any ways it can use handheld technology to improve performance with customers (and save time and money in the process!). Airline agents are increasingly going mobile at airports, with tools in hand to help passengers check in and print boarding passes, and even- tually help sell augmented services (which is where they get a lot of their profit).

American Airlines recently equipped its agents at several U.S. airports with mobile devices. The plan is to eventually assign them at every gate. Delta in- troduced agents with mobile devices last year too, and the airline has since in- creased the number of devices to 900 units used at all domestic airports.

Services in place or planned via the devices include printing boarding passes, providing flight and gate information, displaying maps of other airports, printing bag tags, making upgrade purchases and other bundled offerings, adding passengers to standby lists, rebooking canceled flights and issuing meal vouchers, and paying for oversized bags that shouldn’t have cleared security.

Despite the industry’s generally bad service reputation, one thing they have done well over time is integrating technology into the service encounter.As trav- elers, we’ve all been trained to use the Internet to buy tickets and self-serve kiosks to check in and print boarding passes. Our expectations are very low for having an actual human encounter throughout the process.With the handhelds, the airlines can reintroduce a human touchpoint and maximize opportunities for up-sale to travelers while at the same time speeding along the airport process.7

search engine optimization (SEO) A systematic process of ensuring that your firm comes up at or near the top of lists of typical search phrases related to your business.

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Of course, it’s not always so easy to meet or exceed customer expectations. The stories we hear from friends and acquaintances may influence our standards, and these may not always be realistic in the first place.8 In some cases, there is little marketers can do to soothe ruffled feathers. Exaggerated customer expectations, such as providing a level of personal service im- possible for a large company to accomplish, account for about 75 percent of the complaints ser- vice businesses report. However, providing customers with logical explanations for service failures and compensating them in some way can substantially reduce dissatisfaction.

Service Quality Attributes Because services are inseparable in that an organization doesn’t produce one until the time a customer consumes it, it is difficult to estimate how good a service will be until you buy it. Most service businesses cannot offer a free trial. Because services are variable, it is hard to predict consistency of quality and there is little or no opportunity for comparison shopping. The selection process for services is somewhat different than for goods, especially for serv- ices that are highly intangible. Service marketers have to come up with creative ways to illus- trate the benefits their service will provide. A useful way to begin to develop approaches to marketing services effectively is to consider three types of service quality attributes—search qualities, experience qualities, and credence qualities.

• Search qualities are product attributes that the consumer can examine prior to pur- chase. These include color, style, price, fit, smell, and texture. Tangible goods, of course, are more likely to have these characteristics, so services need to build them in by pay- ing attention to details such as the style of flight attendants’ uniforms or the decor of a hotel room.

• Experience qualities are product attributes that customers identify during or after con- sumption. For example, we can’t really predict how good a vacation will be until we have it, so marketers need to reassure customers before the fact that they are in for a pos- itive experience. A travel agency may invest in a slick presentation complete with allur- ing images of a tropical resort and perhaps even supply enthusiastic recommendations from other clients who had a positive experience at the same location. On the other hand, the last thing a marketer wants to do is overpromise and then fall short in the ac- tual delivery—so conveniently cropping out that construction site that’s located right next to the resort may not be a great idea.

search qualities Product characteristics that the consumer can examine prior to purchase.

experience qualities Product characteristics that customers can determine during or after consumption.

Insurance companies like this one in Germany need to reassure customers about what they will receive if and when they actually need the service they sell.

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• Credence qualities are product attributes we find difficult to evaluate even after we’ve experienced them. For example, most of us don’t have the expertise to know if our doc- tor’s diagnosis is correct.9 To a great extent the client must trust the service provider. That is why tangible clues of professionalism, such as diplomas, an organized office, or even the professional’s attire (for example, a physician in a lab coat instead of blue jeans) count toward purchase satisfaction.

How We Measure Service Quality Because the customer’s experience of a service determines if she will return to the provider in the future, service marketers feel that measuring positive and negative service experi- ences is the “Holy Grail” for the services industry. Marketers gather consumer responses in a variety of ways. For example, some companies hire “mystery shoppers” to check on ho- tels and airlines and report back. These shoppers usually work for a research firm, although some airlines reportedly recruit “spies” from the ranks of their most frequent flyers. Some firms also locate “lost customers” (former patrons) so they can find out what turned them off and correct the problem.

SERVQUAL

The SERVQUAL scale is one popular instrument to measure consumers’ perceptions of ser- vice quality. SERVQUAL identifies five dimensions, or components, of service quality:

• Tangibles: the physical facilities and equipment and the professional appearance of personnel

• Reliability: the ability to provide dependably and accurately what was promised

• Responsiveness: the willingness to help customers and provide prompt service

• Assurance: the knowledge and courtesy of employees, and the ability to convey trust and confidence

• Empathy: the degree of caring and individual attention customers receive10

Thousands of service businesses apply the SERVQUAL scale. They usually administer it in a survey format through a written, online, or phone questionnaire. Firms often track SERVQUAL scores over time to understand how their service quality is (hopefully) improv- ing. They also can use this measure to apply the gap analysis approach we describe next.

Gap Analysis

Gap analysis (no, nothing to do with a Gap clothing store) is a measurement approach that gauges the difference between a customer’s expectation of service quality and what actually occurs. By identifying specific places in the service system where there is a wide gap be- tween what customers expect and what they receive, services marketers can get a handle on what needs improvement. Figure 10.2 illustrates where the gaps can occur in service, both on the consumer’s side (often referred to as “in front of the curtain”) and on the mar- keter’s side (“behind the curtain”). Some major gaps include the following:11

• Gap between consumers’ expectations and management’s perceptions: A major quality gap oc- curs when the firm’s managers don’t understand what its customers’ expectations are in the first place. Many service organizations have an operations orientation rather than a customer orientation. For example, banks often used to close branches at midday to bal- ance transactions because that’s more efficient for them, even though it’s not conven- ient for customers who want to do their banking during their lunch hour. Today more and more banks are open late and on weekends.

• Gap between management’s perception and quality standards the firm sets: Quality suffers when a firm fails to establish a quality-control program. Successful service firms, such

credence qualities Product characteristics that are difficult to evaluate even after they have been experienced.

SERVQUAL A multiple-item scale used to measure service quality across dimensions of tangibles, reliability, responsiveness, assurance, and empathy.

gap analysis A marketing research method that measures the difference between a customer’s expectation of a service quality and what actually occurred.

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as American Express, Ritz-Carlton, and JetBlue, develop written quality goals. American Express found that customers complained most about its responsiveness, accuracy, and timeliness. The company established 180 specific goals to correct these problems, and it now monitors how fast employees answer phones in an effort to be more responsive.

• Gap between established quality standards and service delivery: One of the biggest threats to service quality is poor employee performance. When employees do not deliver the ser- vice at the level the company specifies, quality suffers. Teamwork is crucial to service success. Unfortunately, many companies don’t clearly specify what they expect of em- ployees. Merrill Lynch addressed this problem when the brokerage firm assembled its operations personnel into quality groups of 8 to 15 employees each to clarify its expec- tations for how its personnel should interact with clients.

• Gap between service quality standards and consumers’ expectations: Sometimes a firm makes exaggerated promises or does not accurately describe its service to customers. When the Holiday Inn hotel chain developed an advertising campaign based on the promise that guests would receive “No Surprises,” many operations personnel opposed the idea. They pointed out that no service organization, no matter how good, can anticipate every single thing that can go wrong. Sure enough, the campaign was unsuccessful. A services

Personal needs Word-of-mouth communications

Expected service

Word-of-mouth communications

Perceived service

Service delivery (including pre-

and post-contacts)

Translation of perceptions into service-quality specifications

Management perceptions of

consumer expectations

External communications

to consumers

GAP 5

GAP 3

GAP 2

GAP 1

GAP 4

CONSUMER MARKETER

Figure 10.2 Process | The Gap Model of Service Delivery A gap analysis identifies specific places in the service system where there is a wide gap between what customers expect and what they receive, allowing marketers to get a handle on what needs improvement.

A. Parasuraman, Valarie A. Zeithaml, and Leonard L. Berry, “A Conceptual Model of Service Quality and its Implications for Future Research,” Journal of Marketing (Fall 1985), pp. 41–50.

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firm is better off when it communicates exactly what the customer can expect and how the company will make it right if it doesn’t deliver on its promises.

• Gap between expected service and actual service: Some- times consumers misperceive the quality of the ser- vice. Thus, even when communications accurately describe what service quality the firm provides and what customers can expect, buyers are less than satis- fied. Some diners at fine restaurants are so demand- ing that even their own mothers couldn’t anticipate their every desire (that’s probably why they’re eating out in the first place).

The Critical Incident Technique

The critical incident technique is another way to measure service quality.12 Using this approach, the company col- lects and closely analyzes very specific customer com- plaints. It can then identify critical incidents—specific contacts between consumers and service providers that are most likely to result in dissatisfaction.

Some critical incidents happen when the service orga- nization simply can’t meet a customer’s expectations. For example, it is impossible to satisfy a passenger who says to a flight attendant, “Come sit with me. I don’t like to fly alone.” In other cases, though, the firm is capable of meeting these expectations but fails to do so. For example, the customer might complain to a flight attendant, “My seat won’t re- cline.”13 A service provider can turn a potentially dissatisfied customer into a happy one if it addresses the problem or perhaps even tells the customer why the problem can’t be solved at this time. Customers tend to be fairly forgiving if the organization gives them a reason- able explanation for the problem.

Strategic Issues When We Deliver Service Quality We’ve seen that delivering quality is the goal of every successful service organization. What can the firm do to maximize the likelihood that a customer will choose its service and be- come a loyal customer? Because services differ from goods in so many ways, decision mak- ers struggle to market something that isn’t there. But, just as in goods marketing, the first step is to develop effective marketing strategies. Table 10.2 illustrates how three different types of service organizations might devise effective marketing strategies.

Of course, no one (not even your marketing professor) is perfect, and mistakes happen. Some failures, such as when your dry cleaner places glaring red spots on your new white sweater, are easy to see at the time the firm performs the service. Others, such as when the dry cleaner shrinks your sweater, are less obvious and you recognize them only at a later time when you’re running late and get a “surprise.” But no matter when or how you dis- cover the failure, the important thing is that the firm takes fast action to resolve the problem. A timely and appropriate response means that the problem won’t occur again (hopefully) and that the customer’s complaint will be satisfactorily resolved. The key is speed; research shows that customers whose complaints are resolved quickly are far more likely to buy from the same company again than from those that take longer to resolve complaints.14

To make sure that they keep service failures to a minimum and that when they do blow it they can recover quickly, managers should first understand the service and the potential points at which failures are most likely to occur so they can plan how to recover ahead of time. That’s why it’s so important to identify critical incidents. In addition, employees

Disney Parks and Resorts is a real champion of consistency between standards and delivery. Disney makes all employees, or “Cast Members” (whether they sell ice cream on Main Street USA or they come in from another company to fill an executive role), go through “Traditions” training, as well as many other training programs, to help ensure that all Disney cast members know how they should interact with guests. They follow up frequently with refresher seminars and meetings to remind everyone of the company’s history and traditions.

critical incident technique A method for measuring service quality in which marketers use customer complaints to identify critical incidents—specific face-to-face contacts between consumer and service providers that cause problems and lead to dissatisfaction.

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should be trained to listen for complaints and be empowered to take appropriate actions immediately. Many hoteliers allow front desk employees the discretion to spend up to a cer- tain amount per service failure to compensate guests for certain inconveniences.

Marketing People, Places, and Ideas By now, you understand that services are intangibles that marketers work hard to sell. But as we said earlier, services are not the only intan- gibles that organizations need to market. Intangibles such as people, places, and ideas often need to be “sold” by someone and “bought” by someone else. Let’s consider how marketing is relevant to each of these.

Marketing People As we saw in Chapter 1, people are products, too. If you don’t believe that, you’ve never been on a job interview or spent a Saturday night in a singles bar! Many of us find it distaste- ful to equate people with products. In reality, though, a sizable number of people hire per- sonal image consultants to devise a marketing strategy for them, and others undergo plastic surgery, physical conditioning, or cosmetic makeovers to improve their “market position” or “sell” themselves to potential employers, friends, or lovers.15 Let’s briefly touch on a few prominent categories of people marketing.

Sophisticated consultants create and market politicians when they “package”” candi- dates (clients) who then compete for “market share” as measured by votes. We trace this per-

Table 10.2 | Marketing Strategies for Service Organizations Dry Cleaner City Opera Company A State University

Marketing objective

Increase total revenues by 20 percent within one year by increasing business of existing customers and obtaining new customers

Increase to 1,000 the number of season memberships to opera productions within two years

Increase applications to undergraduate and graduate programs by 10 percent for the coming academic year

Target markets

Young and middle-aged professionals living within a five-mile radius of the business

Clients who attend single performances but do not purchase season memberships

Primary market: prospective undergraduate and graduate students who are residents of the state

Other local residents who enjoy opera but do not normally attend local opera performances

Secondary market: prospective undergraduate and graduate students living in other states and in foreign countries

Benefits offered

Excellent and safe cleaning of clothes in 24 hours or fewer

Experiencing professional-quality opera performances while helping ensure the future of the local opera company

High-quality education in a student- centered campus environment

Strategy Provide an incentive offer to existing customers such as one suit cleaned for free after 10 suits cleaned at regular price

Correspond with former membership holders and patrons of single performances encouraging them to purchase new season memberships

Increase number of recruiting visits to local high schools; arrange a special day of events for high-school counselors to visit campus

Use newspaper and direct mail advertising to communicate a limited-time discount offer to all customers

Arrange for opera company personnel and performers to be guests for local television and radio talk shows

Communicate with alumni encouraging them to recommend the university to prospective students they know

3 OBJECTIVE

Explain the marketing

of people, places,

and ideas. (pp. 286–290)

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spective all the way back to the 1952 and 1956 presidential campaigns of Dwight Eisenhower. Advertising executive Rosser Reeves (one of the original “Mad Men” who shaped the industry) repackaged the bland but amiable army general as he invented jingles and slogans such as “I like Ike” and contrived man-on-the-street interviews to improve the candidate’s market position.16 For better or worse, Reeves’s strategies revolutionized the political landscape as people realized they could harness the tactics they use to sell soap to sell candidates for public office. To- day, the basic idea remains the same, even though the techniques are more sophisticated.

In the age of electronic everything, marketing politics gets a little wackier. For example, comedian Stephen Col- bert announced on his show that he was running for pres- ident in the 2008 election as “both a Democrat and a Republican.” After his announcement, an online group was set up, and through links with social networking sites such as Facebook, he managed to acquire one million sup- porters! In fact, his fans’ responses inspired the creation of the “1,000,000 Strong for Stephen T. Colbert” Facebook group, which modeled itself after a similarly named group set up for Democratic candidate Barack Obama’s campaign. It took more than eight months for Obama to gain 380,000 sup- porters, while it took less than two weeks for Colbert’s group to become one of the largest political groups on Facebook.17

From actors and musicians to athletes and supermodels, the famous and near-famous jockey for market position in popular culture. Agents carefully package celebrities as they connive to get their clients exposure on TV, starring roles in movies, recording contracts, or product endorsements.18 Like other products, celebrities even rename themselves to craft a “brand identity.” They use the same strategies marketers use to ensure that their products make an impression on consumers, including memorability (Evel Knievel), suit- ability (fashion designer Oscar Renta reverted to his old family name of de la Renta be- cause it sounded more elegant), and distinctiveness (Steveland Morris Hardaway became Stevie Wonder).

It’s hard to imagine anyone topping Stefani Joanne Angelina Germanotta for pure marketing chutzpah. Oh, by the way, that’s Lady Gaga’s real name. Her stage name was inspired by the Queen song “Radio Ga Ga” and in 2010 she laid claim to the most Facebook friends of any living person with over 11 million. A lot of corporate marketing gurus could take a lesson or two from Lady Gaga’s marketing playbook!

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In addition to these branding efforts, there are other strategies marketers use to “sell” a celebrity as Table 10.3 shows. These include the following:

1. The pure selling approach: An agent presents a client’s qualifications to potential “buy- ers” until she finds one who is willing to act as an intermediary.

2. The product improvement approach: An agent works with the client to modify certain characteristics that will increase her market value.

3. The market fulfillment approach: An agent scans the market to identify unmet needs. Af- ter identifying a need, the agent then finds a person or a group that meets a set of min- imum qualifications and develops a new “product.”

Marketing Places Place marketing strategies regard a city, state, country, or other locale as a brand. Marketers use the marketing mix to create a suitable identity so that consumers choose this brand over competing destinations when they plan their travel. Because of the huge amount of money tourism generates, the competition to attract visitors is fierce. There are about 1,600 visitors’ bureaus in the United States alone that try to brand their locations. In addition, almost every town or city has an economic development office charged with luring new businesses or res- idents. For example, after the 2001 attack on the World Trade Center, New York City un- veiled a new tourism advertising campaign that November with the slogan “The New York Miracle: Be a Part of It.” The campaign included six 30-second TV commercials and some of New York’s biggest celebrities such as Woody Allen and Robert DeNiro.19 Since then, NYC & Company, the city’s official tourism marketer, reports that both the domestic and overseas visitor counts are returning to pre-9/11 levels.20

Table 10.3 | Strategies to Sell a Celebrity Marketing Approach Implementation

Pure Selling Approach Agent presents a client

– to record companies

– to movie studios

– to TV production companies

– to talk show hosts

– to advertising agencies

– to talent scouts

Product Improvement Approach Client is modified

– New name

– New image

– Voice lessons

– Dancing lessons

– Plastic surgery

– New back-up band

– New music genre

Market Fulfillment Approach Agent looks for market opening

– Identify unmet need

– Develop a new product (band, singer) to the specifications of consumer wants

place marketing Marketing activities that seek to attract new businesses, residents, or visitors to a town, state, country, or some other site.

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Marketing Ideas You can see people. You can stand in a city. So how do you market something you can’t see, smell, or feel? Idea mar- keting refers to strategies that seek to gain market share for a concept, philosophy, belief, or issue. Even religious organizations market ideas about faith and desirable be- havior when they adopt secular marketing techniques to attract young people. Some evangelists use the power of television to convey their messages. So-called mega- churches are huge steel and glass structures, with acres of parking and slickly produced services complete with live bands and professional dancers that draw huge audi- ences. Some offer aerobics, bowling alleys, and multime- dia Bible classes inspired by MTV to attract “customers” turned off by traditional approaches to religion.21

But make no mistake about it, the marketing of ideas can be even more difficult than marketing goods and ser- vices. Consumers often do not perceive that the value they receive when they wear seat belts or recycle garbage or des- ignate a driver or even when they conserve to reduce global warming is worth the cost—the extra effort necessary to re- alize these goals. Governments and other organizations use marketing strategies, often with only limited success, to sell ideas that will save the lives of millions of unwilling con- sumers or that will save our planet.

The Future of Services As we look into the future, we recognize that service industries will continue to play a key role in the growth of both the United States and the global economy. In fact, in recent years the accelerating impact of service as an integral part of any firm’s value proposition has led some analysts to argue that there is now a new dominant logic for marketing. This means that we need to rethink our traditional distinction between services and goods. Instead, we need to recognize that a service is the central (core) deliverable in every exchange; any physical products involved are relatively minor in terms of their contribution to the value proposition.22 Figure 10.3 provides several trends for us to consider that will provide both opportunities and challenges for the marketers of services down the road (that means you). In the future, we can expect services we can’t even imagine yet. Of course, they will

idea marketing Marketing activities that seek to gain market share for a concept, philosophy, belief, or issue by using elements of the marketing mix to create or change a target market’s attitude or behavior.

The marketers whose job is to promote Las Vegas as a tourist destination have changed course several times. First they tried to clean up the city’s original image as a den of corruption and vice to encourage family visits. Then they switched direction and plugged the city’s bawdy roots with the slogan “What happens in Vegas stays in Vegas.” Oops, then the recession hit and companies clamped down on business and convention travel to “Sin City.” Now, Vegas no longer promotes its famous tagline as it opens its arms to families once again with all sorts of kid-friendly activities and incentives. Pascal Le Segretain/Getty Images

new dominant logic for marketing A reconceptualization of traditional marketing to redefine service as the central (core) deliverable and the actual physical products purveyed as comparatively incidental to the value proposition.

Technological Advances

Globalization Proliferation of

Information

Changing Demographics

The Future of Services

Figure 10.3 Snapshot | Factors That Shape the Future of Services

Changing demographics, globalization, technological advances, and proliferation of information all impact services.

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also provide many new and exciting job opportunities for future marketers.

• Changing demographics: As the population ages, ser- vice industries that meet the needs of older consumers will see dramatic growth. Companies that offer recre- ational opportunities, health care, and living assis- tance for seniors will be in demand.

• Globalization: The globalization of business will in- crease the need for logistics and distribution services to move goods around the world (we’ll talk more about these in Chapter 15) and for accounting and legal services that facilitate these global exchanges. In addition, global deregulation will affect the delivery of services by banks, brokerages, insurance, and other financial service industries because globalization means greater competition. For example, many “medical tourists” now journey to countries like

Thailand and India to obtain common surgical procedures that may cost less than half what they would in the United States. Meanwhile, hospitals back home often look more like luxury spas as they offer amenities such as adjoining quarters for family members, choice of different ethnic cuisines, and in-room Internet access. In the hotel in- dustry, demand for luxury properties is growing around the world. Hyatt International is expanding aggressively in China with 14 lux- ury properties either open or scheduled to open. Hyatt expects to have as many as 24 properties there within a decade.23

• Technological advances: Changing technology provides opportuni- ties for growth and innovation in global service industries such as telecommunications, health care, banking, and Internet services. And we can also expect technological advances to provide oppor- tunities for services that we haven’t even thought of yet but that will dramatically change and improve the lives of consumers. Best Buy’s Geek Squad makes the company a ton of money by show- ing people how to set up and use their home computers—with new advances there will always be “clueless” customers who need help to keep up with progress! Meanwhile, social media Web sites, smartphones, blogs, and the Internet in general all are central to successfully marketing all kinds of intangibles. In the political realm, the U.S. presidential campaign of 2008 was a breakthrough in the use of digital platforms as handlers for both parties’ candi- dates invested heavily to support these “real-time” methods of communicating with tech-savvy voters about their candidate’s ideas and position on the issues du jour.

• Proliferation of information: In many ways, we have become an in- formation society. The availability of, flow of, and access to infor- mation are critical to the success of organizations. These changes will provide greater opportunities for database services, artificial intelligence systems, communications systems, and other services that facilitate the storage and transfer of knowledge.

Non-profit organizations often use vivid imagery to communicate the seriousness of their causes.

This Australian ad promotes the idea of safe driving.

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Brand YOU! Corporate life is not for everyone. You can blaze a trail to suc- cess in many different ways. Learn about the myths and realities of the job market and how you can explore different options for your career, including being a contract employee with flexible hours, a free agent with many clients and projects, or even pur- suing your personal passion while you are working. Consider your options in Chapter 10 of the Brand You supplement.

Real People, Real Choices

Here’s my choice. . .

To learn the whole story, visit www.mypearsonmarketinglab.com.

Why do you think Lara chose option 1?

OptionOption Option

How It Worked Out at the Philadelphia 76ers The Sixers hired a Web-based company that provided a data warehouse, and the vendor also developed soft- ware to help the Sixers track their customer base. The team realized a 150-to-1 return on its investment due to the money it saved in advertising spending (TV, print, and radio). The CRM approach has proven to be so suc- cessful that the company is in the process of developing more sophisticated systems.

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Objective Summary Key Terms Apply Study Map CHAPTER 10

1. Objective Summary Describe the characteristics of services and the ways marketers classify services. Services are products that are intangible and that are ex- changed directly from producer to customer without ownership rights. Generally, services are acts that accomplish some goal and may be directed either toward people or toward an object. Both consumer services and business-to-business services are important parts of the economy. Important service characteris- tics include the following: (1) intangibility (they cannot be seen, touched, or smelled), (2) perishability (they cannot be stored), (3) variability (they are never exactly the same from one time to the next), and (4) inseparability from the producer (most serv- ices are produced, sold, and consumed at the same time).

In reality, most products are a combination of goods and services. Some services are goods-dominant (i.e., tangible prod- ucts are marketed with supporting services). Some are equip- ment- or facility-based (i.e., the creation of the service requires elaborate equipment or facilities). Other services are people- based (i.e., people are actually a part of the service marketed).

Like goods, services include both a core service, or the ba- sic benefit received, and augmented services, including inno- vative features and convenience of service delivery. Banking and brokerages, computer software, music, travel, dating ser- vices, career services, distance learning, and medical care are among some of the services available on the Internet. Mar- keters know that both the social elements of the service en- counter (i.e., the employee and the customer) and the physical evidence including the servicescape are important to a positive service experience.

Key Terms intangibles, p. 274

services, p. 274

intangibility, p. 275

perishability, p. 275

capacity management, p. 276

variability, p. 276

inseparability, p. 276

service encounter, p. 277

disintermediation, p. 277

core service, p. 279

augmented services, p. 280

servicescape, p. 280

(pp. 274–280) 2. Objective Summary Appreciate the importance of service quality to marketers. The customer’s perception of service quality is related to prior expectations. Because services are intangible, evaluation of ser- vice quality is more difficult, and customers often look for cues to help them decide whether they have received satisfactory service. Marketers improve customers’ perceptions of services by designing important search qualities, experience qualities, and credence qualities.

SERVQUAL is a multiple-item scale used to measure con- sumer perceptions of service quality across dimensions of tan- gibles, reliability, responsiveness, assurance, and empathy. Gap analysis measures the difference between customer expecta- tions of service quality and what actually occurred. Using the critical incident technique, service firms can identify the spe- cific contacts between customers and service providers that create dissatisfaction. When service quality does fail, marketers must understand the points at which failures occur and take fast action.

Key Terms search engine optimization (SEO), p. 281

search qualities, p. 282

experience qualities, p. 282

credence qualities, p. 283

SERVQUAL, p. 283

gap analysis, p. 283

critical incident technique, p. 285

3. Objective Summary Explain the marketing of people, places, and ideas. Managers follow the steps for marketing planning when mar- keting other intangibles as well. People, especially politicians and celebrities, are often packaged and promoted. Place marketing aims to create or change the market position of a particular locale, whether a city, state, country, resort, or insti- tution. Idea marketing (gaining market share for a concept, phi- losophy, belief, or issue) seeks to create or change a target

(pp. 286–290)

(pp. 280–286)

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Chapter Questions and Activities Concepts: Test Your Knowledge

1. What are intangibles? How do basic marketing concepts apply to the marketing of intangibles?

2. What is a service? What are the important characteristics of services that make them different from goods?

3. What is the service continuum? What are goods-dominated services, equipment- or facility-based services, and people- based services?

4. What are core and augmented services? How do mar- keters increase market share with augmented services?

5. What are the social and physical elements of the service encounter?

6. What are search qualities, experience qualities, and cre- dence qualities?

7. What dimensions do consumers and business customers use to evaluate service quality? How do marketers measure service quality?

8. How should marketers respond to failures in service quality? 9. What is the so-called “new dominant logic for market-

ing”? Why is it especially relevant to someone just start- ing a career in business (either in marketing or otherwise)?

10. What do we mean by marketing people? Marketing places? Marketing ideas?

Activities: Apply What You’ve Learned

1. Because of increased competition in its community, you have been hired as a marketing consultant by a local bank. You know that the characteristics of services (in- tangibility, perishability, variability, and inseparability) cre- ate unique marketing challenges. You also know that these challenges can be met with creative marketing strategies. Outline the challenges for marketing the bank created by each of the four characteristics of services. List your ideas for what might be done to meet each of these challenges.

2. Assume that you are a physician. You are opening a new family practice clinic in your community. You feel that you have the best chance of being successful if you can create a product that is superior to that offered by competing businesses. Put together a list of ways in which you can augment the basic service offering to develop a better product. List the advantages and disadvantages of each.

3. You are currently a customer for a college education, a very expensive service product. You know that a service organi- zation can create a competitive advantage by focusing on how the service is delivered after it has been purchased— making sure the service is efficiently and comfortably deliv- ered to the customer. Develop a list of recommendations for your school for improving the delivery of its service. Consider both classroom and nonclassroom aspects of the educational product.

4. Assume that you work for a marketing firm that has been asked to develop a marketing plan for an up-and-coming rock band called Stalagmite and its new CD, Slow Drip. Prepare an outline for your marketing plan. First, list the special problems and challenges associated with market- ing people rather than a physical product. Then outline your ideas for product, price, and promotion strategies.

5. Address the same issues in question #4 for a marketing plan for your hometown.

6. Assume that you have been recently hired by your city gov- ernment to head up a program to create 100 percent com- pliance with recycling regulations. Develop a presentation for the city council in which you will outline the problems in “selling” recycling. Develop an outline for the presenta- tion. Be sure to focus on each of the Four Ps.

Choices: What Do You Think?

1. Why are first impressions we form about a service through the Internet so important? What can a service firm do to ensure a favorable first impression online? (Hint: Consider issues beyond the Web site itself.)

2. Sometimes service quality may not meet customers’ expec- tations. What problems have you experienced with quality in the delivery of the following services? a. A restaurant meal b. An airline flight c. Automobile repairs d. Your college education

What do you think is the reason for the poor quality? 3. Internet dating services, while becoming very popular, may

present some dangers for those who use their services. Who do you think uses Internet dating services? What, if anything, should dating services do to protect their clients?

market’s attitude or behavior. Marketing is used by religious organizations and to promote important causes. Marketing of ideas may be especially difficult, as consumers may not consider the value to be worth the cost.

Key Terms place marketing, p. 288

idea marketing, p. 289

new dominant logic for marketing, p. 289

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4. What “service” do providers such as MySpace convey? What core and augmented services do they offer? How should we evaluate MySpace’s service quality?

5. There has been a lot of criticism about the way politicians have been marketed in recent years. What are some of the ways marketing has helped our political process? What are some ways the marketing of politicians might have an ad- verse effect on our government?

6. Many not-for-profit and religious organizations have found that they can be more successful by marketing their ideas. What are some ways that these organizations market themselves that are similar to and different from the mar- keting by for-profit businesses? Is it ethical for churches and religious organizations to spend money on marketing? Why or why not?

7. In the chapter we mentioned that most of the airlines have transformed elements of their core service (extra bags, pil- lows and blankets, etc.) into “extras.” They claim that this is better for customers because they can now pay for only what they want instead of paying for a bundle of services they do not even use. How do you react to their premise? Do you agree or disagree?

8. Many developed countries, including the United States, have in recent decades become primarily service economies; that is, there is relatively little manufacturing of goods, and most people in the economy are employed by service industries. Why do you think this has occurred? In what ways is this trend a good and/or a bad thing for a country? Do you think this trend will continue?

Marketing Metrics Exercise

The consulting firm Market Metrix employs a metric it calls the Marketing Metrix Hospitality Index (MMHI) to measure cus- tomer satisfaction with hotel, airline, and car rental compa- nies. The metric is based on 35,000 in-depth consumer interviews. The MMHI includes most major brand hotels, air- lines, travel industry Web sites, and car rental companies— each rated on over 50 different dimensions. Subscribers to the quarterly report can measure their company’s stand-alone performance and also benchmark its ratings against those of competitors and highly ranked companies within and across the other hospitality industries. Go to the MMHI Web site (www.marketmetrix.com), then click on “Hospitality Index.”

Review the information on MMHI Winners, Brand History, and MMHI Brand List. Based on recent results, how are your fa- vorite brands faring on their index? Do you agree with the re- sults provided about your favorites?

Miniprojects: Learn by Doing

Miniproject 1 1. Select a service that you, as a consumer, will purchase in

the next week or so. 2. As you experience the service, record the details of every

aspect, including the following: a. People b. Physical facilities c. Location d. Waiting time e. Hours f. Transaction g. Other customers h. Tangible aspects i. Search qualities j. Credence qualities

3. Recommend improvements for this service encounter.

Miniproject 2 Theme and entertainment parks like Universal Studios fall in the middle of the goods/services continuum—half goods and half services. To be successful in this highly competitive market, these parks must carefully develop targeting and positioning strategies. Visit the Web sites of the four top theme park orga- nizations: Walt Disney World (www.disneyworld.com), Six Flags parks (www.sixflags.com), Universal’s Orlando® Theme Park (www.universalstudios.com), and Busch Gardens (www .buschgardens.com). Thoroughly investigate each site.

1. How is the Web site designed to appeal to each theme park organization’s target markets?

2. How does each park position its product? How is this po- sitioning communicated through the Web site?

3. What changes or improvements would you recommend for each Web site?

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Marketing in Action Case Real Choices at Clear & SIMPLE™

Want to know how to fit your very complicated life into your very small apartment? How to organize your clothes so you can find that great pink sweater on Friday night? What to do with those very valuable high school football trophies? Like many people, you may be faced with a seemingly insurmountable problem of clutter.

As evidenced by the increasing popularity of TV programs like Clean Sweep (TLC), Clean House (Style Network), and Mission: Organization (HGTV), many consumers recognize that they suffer from home chaos. For some of us, the clutter comes from excessive buying or an attachment to things, while for others the problem is simply a lack of organizational skills. A disorganized home or office not only lowers our efficiency but also create stress and interrupts the harmony of the space. For- tunately, there is help.

Clear & SIMPLE™, founded in 1999, is one of a number of professional organizing companies that meets the growing need for home and office organization skills. Because many of us seem to be missing a gene for good organizational skills, profes- sional organizers like Clear & SIMPLE™ help clients to build a har- monized life and restore order to their homes and workplaces.

Clear & SIMPLE™ owners Marla Dee and Lisa Parsons try to convince homeowners and businesses that “Getting Organized can be Fun, Simple, and Freeing!” The company offers clutter- afflicted consumers a variety of services. Their two major sys- tems, SEE IT • MAP IT • DO IT and S.T.A.C.K.S.™, aim to train clients how to identify their problems with clutter and chaos and then show them how to better organize their space.