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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

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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!