The Dynamics of the Service Sector

AN INTRODUCTION TO THE ECONOMICS,

MANAGEMENT AND MARKETING OF THE

SERVICE SECTOR

Professor Christos Nikas

UNIT 1: INTRODUCTION TO SERVICES

Objectives

•

 After completing this unit you will be able to:

•

 define a service and understand the difficulties involved in

doing so

•

 discuss the growth of services within the world economy

•

 understand the difference between goods and services

•

 realise some of the broad problems facing service providers

•

 understand the many different types of service and the

different classification systems

Introduction

In recent decades, the world economy has tended to shift

away from manufacturing towards the service sector.

Given that managing services is not the same as

managing goods and manufacturing industries, this unit

will explore the main differences between goods and

services. We will seek to highlight some of the particular

problems which face the service manager and consider

the importance of services. Finally, we will look at how

services can be classified depending on their type and

market.

What is a Service?

A service is an offering to the consumer which adds value to

their property, belongings, physical state of psychological

well-being. Many people think that services are not products

but in fact they are.

Products can be divided into those things which are tangible,

known as goods, and those things which are not tangible,

known as services. For example, services would include

transportation, communications, distribution, financial

services, education, medical services, professional services,

travel and tourism.

However, it can sometimes be difficult to decide if something

is a good or a service. A computer is a manufactured good

when it is sold as a personal computer to a household, but if

it leased to a business it becomes a service.

Service Definition

Many people have tried to define services and the most

common definitions include the word intagible. This means

that the service cannot be touched, felt or seen and after it

has been performed the customer does not actually own

anything. However, services can be tied to a physical

outcome. For example, you may go to the dry cleaners and

have some clothes cleaned. This is a service, but you have

physical evidence of it in that your clothes now look much

better.

Two other key factors used in service definitions are that a

service is actually a performance and it is something which

is experienced.

In order to understand services we need to examine the

area of tangibility and intangibility more closely.

Tangibility and Intangibility

Intangibility describes the fact that a service cannot be

physically handled. Generally a service cannot

be seen, tasted or touched. There may be elements

surrounding the service which are physical, but

these are extensions to the pure service element. Every

product has some degree of intangibility, be it a

good or a service; the point is that a service has a much higher

degree.

For example, let us look at a Porsche car. Many people who

wish to own a Porsche do so because of its

intangible elements, such as status and image. These are also

known as subjective benefits. Also important are the tangible

elements, such as the engine, luxurious interior and design

features. These are the objective benefits. No-one would

dispute that a Porsche was a tangible good, but it does

We can also consider a stereo system, which initially may be

thought to be a prysical good. However, there are many

elements apart from the size, style, features and so on, which

the customer will consider during the buying process. These

may include quality, reliability, after sales service and

guarantee. It is these elements which go a long way in

persuading a customer to buy a Bang and Olufsen.

Salt

Detergents

Cars

Cosmetics

Restaurants

Restaurants

Airlines

Banking

Teaching

We can divide the different product offerings a company has

into four groups, dependant on tangibility:

•

 A pure tangible good. No services whatsoever accompany

the product, for example salt or toothpaste.

•

 A tangible good with accompanying services this could be

a car, which is tangible, plus a warranty and service offer.

•

 A major service with accompanying minor goods

•

The main product on offer is a service, such as a flight with

an airline. The customers arrive at their destination without

anything tangible to show for their expenditure. However,

en rout they are given tangible goods, such as food and

drink, a magazine etc.

•

 A pure service There are no tangible elements, for

example a massage or psychotherapy.

The Reasons for the Growth in Services.

Services now play a major role in the economies of the

Western World, and they

are assuming an increasingly important role in the rest of the

world. There are many reasons for this:

•

 Leisure time trends - the trend is now towards increased

leisure time, which gas led to a demand for recreational

services. This has also been fuelled by the demand for fitness

and health activities.

•

 Female participation in the workforce - the changing role of

women has led to demands for a whole range of services,

from time saving services in tasks such as meal preparation,

clothes maintenance and household cleaning to an increase

in disposable income, fuelling demands for more relaxation

oriented services.

•

 Demographics - for example, the increase in the

numbers of elderly people has led to a demand for more

health care services.

•

 Lifestyle changes - we now live life at a faster pace, so

there is a demand for a whole range of services to save

time - car washes, computers etc. At the same time, the

stress that this type of lifestyle causes increases demand

for stress reduction services such as massage, health

farms, psychotherapy.

The Difference Between Goods and Services

Tthe management of services is not the same as the

management of goods and many areas, such as quality and

customer care, require special treatment by the service

manager. In fact, there are nine major differences between

goods and services and these are discussed below. The

differences are:

•

 intangibility

•

 inseparability

•

 perishability

•

 heterogeneity

•

 involvement of customers

•

 importance of the time factor

•

 quality control

•

 no inventories

•

 different distribution channels.

Intangibility

The fact that the customer has little on which to evaluate the

service, in that they cannot inspect it or try it out in advance,

makes the selling of a service that much more difficult.

The major problem caused by intangibility is that when the

consumer cannot view and examine the product before they

buy it, they find it difficult to understand exactly what is on

offer. When purchasing something consumers rely on search

qualities which are those things that can be viewed before you

buy, including colour, share, how something works and so on.

Experience qualities are those things which can only be

assessed after purchase, this would be satisfaction with the

product. Finally there are credence qualities which are those

things which cannot be evaluated even after the consumer

has used the service e.g. the example of having an operation.

Inseparability

In the minds of the consumer, those who provide the service

are the service. Usually a service can only be used as it is

being produced. For example, a haircut is only experienced

as it is being performed.

This means that the supplier has to be present to sell the

product and the customer has to be there to experience it.

As a result the customers feeling about the actual service is

highly influenced by the person who is performing it.

In essence, the way that the service is delivered to the

customer is as important as the actual service itself, and the

two elements are totally inseparable.

Perishability

Services cannot be stored. They cannot be produced ahead of

time and then used later when they are required. If they are

not used as they are produced then they are lost for ever. For

example, many Mars bars can be manufactured and if they are

not sold one day they can be sold the next day. However, if all

of the airline seats on a flight are not sold, the plane will still

fly with empty seats. The dentist who has no appointments

for two hours can never fill those appointments after that

time - the money earning opportunity is lost.

Service providers have to try and manage the demand for

their services so that they are working at peak capacity all of

the time, and they suffer from unsold seats, or gaps in the

appointment book as little as possible. This is obviously a very

important area and will be covered later in the text in much

more detail.

Heterogeneity

It is often difficult to standardise services and offer exactly the

same service to everyone. Some areas of service have overcome

this problem to an extent. e.g MacDonalds have ensured that

their hamburgers taste the same whenever you buy them and

wherever you buy them all over the world. However, if one looks

at the medical profession, it is impossible to offer a standard

service, as every customer is different and has different needs.

This whole area of standardisation causes a dilemma for service

providers. How to provide efficient, standardised service at an

acceptable level of quality, whilst  at the same time treating

each customer as a unique person? Good service is often

translated by the customer as personal service. However, this

can cause problems for the service provider, as training for

service employees often has to be much more complex, in order

that they can learn to cope with a very wide range of

eventualities.

Involvement of Customers

The customer often plays a major role in the production of

services. In many services the customer is actively involved in

the service. This can be by actually serving themselves (e.g. in

fast food restaurants of bank cash point machines) or by being

very involved in the process (such as in hairdressing where they

say what style they want and make comments throughout the

process).

The degree of involvement can influence levels of customer

satisfaction and how they feel about the service. Customers are

heavily involved in medical provision when they describe their

symptoms: if they have been heavily involved in the production

of the service, and they are not satisfied with the outcome (the

drugs they took to solve their medical problem do not appear to

be working, for example),then the very fact of being involved

can cause them to blame themselves for the poor result.

Importance of the Time Factor

As customers often have to be present for the service to be

provided, they have limits as to how long they are prepared

to be kept waiting to receive the service.

Even when the service operation takes place away from the

customer they will have expectations about how long it

should take.

For example, if you go to buy a television set, you see the

one you like and then ask to purchase it. The whole process

can take only a few minutes. If however, for a similar amount

of money you are flying to Europe, you may be kept waiting

several hours, and while you are waiting for your service to

be performed, there is little else you can do. The time factor

also comes into play whilst queuing for services, such as in

the Post Office.

Quality Control

Manufactured goods can be checked before they leave the

factory, but because many services are consumed as they are

produced it is far more difficult to control the quality. The

customer is essentially in the service factory and actually

involved.

No Inventories

A service is an act or a performance, so there is no stock held in

the back room ready to be used. The necessary people and

equipment can be held in readiness, but when demand can be

so difficult to predict it is not easy to ensure that there are the

right number of people to carry out the service when it is

required. Service managers have to work without the aid of

inventories and have to balance the areas of supply and

demand.

Different Distribution Channels

Unlike manufactured goods which have physical distribution

channels to move the goods from the factory to the

customer, service businesses can use a whole variety of

different channels. These can be electronic, as in the case of

communications, or else they combine the factory and the

retailer into one, as in the case of hairdressers. In this

instance the manufacturer finds herself responsible for

retailing rather than contracting this out to retail

intermediaries.

We can see that there are several differences between goods

and services, and these will all impact on the way that

services are managed. All of these areas will be discussed in

greater detail, but let us briefly look at the key problems and

potential solutions raised by the first four differences:

intangibility, perishability, inseparability and heterogeneity.

The Classification of Services

The whole service industry is vast, so it can be usefyl to try

to classify services in different ways. Different strategies

can then be applied to different types of service. Just as

goods are not all the same - in that we have manufactured

goods, fast moving consumer goods, high technology

goods etc. – similarly not all services are the same.

There are many different ways of classifying services. At its

most basic level the Standard Industrial Classification (SIC)

identifies four different categories for services:

•

 distribution, hotels catering and repairs

•

 transport and communications

•

 banking, finance, insurance etc.

•

 other services (including public administration,

education, recreation).

These categories are very broad, and do not allow us really to

see if there are any differences between different types of

service. We will now look at various different ways one could

classify services, and then look at two of these ways in more

detail. Turning now to consider the classification of services

in more detail we will look firstly at the classification of the

services by market segment, i.e. the requirements of the

organisational consumer and the final consumer.

The organisational consumer requires:

•

 financial services - banking, insurance, leasing

•

 distribution - sea, rail, road, air, wholesaling, warehousing

•

 professional - architectural and engineering design,

construction

•

 legal services, accounting

•

others - computing, communication services, advertising,

other

The final consumer requires:

•

 retailing

•

 health care

•

 travel, recreation and entertainment

•

 education

•

 other social services

•

 other personal services (restaurants, repairs, dry cleaning

etc).

Although this is one stage further than the general

classification, it is still difficult to use this type of classification

as some of the services used for industry apply equally well

to the final consumer, such as architectural services - one

might employ an architect to build an extension to the house

for example. Also, as there are so many different types of

service, there tends to be a large other category.

UNIT 2: SERVICES MANAGEMENT

Objectives

After completing this unit you will be able to:

•

 describe what customers are looking for in the service

they receive from the employees of service organizations

•

 comment on the differences between the personal

qualities required  from service employees and their

counterparts in other occupations

•

 discuss the range of approaches to managing service

employees

•

 outline personnel policy initiatives which will help to

improve and sustain service employee performance.

Introduction

Customer service is one of the top important factors in our

competitive position. In the insurance sector the products

are the same, with a few exceptions. Once there is a

product innovation by one company, its not long before

everyone has it. People will pay more for good service, its

the cutting edge. It will determine who makes the cut and

who does not.

In the past twenty years the importance managers attach to

the quality of customer service provided by employees has

increased considerably. Whichever way quality is defined in

theory (i.e. zero defects, conformance to requirements, in

practice many service organisations are coming round to

definitions which encompass the notion of customer

satisfaction; and exceeding expectations;

Here a quality service is provided when customers keep

coming back, and they recommend a company to their

friends and acquaintances. What is it that customers are

looking for from the employees that serve them?

Recent research in USA, suggests that customers look for

five things from the service they receive when doing

business with other organisations.

First, customers expect reliability when it comes to

supplying the fundamentals. They want value for

money and believe if they pay more they should get a

better service, but they do not believe that they

should be treated badly just because they paid a little less.

It is unlikely that an organisation can exceed the

expectations of its customers merely by reliably providing

the fundamentals.

A hotel guest want be surprised if they get the room they

reserved, and it is clean and ready when they arrive.

However, there are four other process dimensions which

refer to the way in which the service is delivered and it is

here that the customer may be surprised. Customer

expectations of the service they will receive exist along a

continuum. An adequate level of service will be defined by

reference to the availability of alternatives and the

standards set by these other providers. Customers are more

likely to perceive a service as inadequate if they can take

their business elsewhere at little cost, or the service

provided elsewhere is of a higher standard. However, the

level of service desired by customers tends to be a personal

thing. Different people want different things from their

service relationship with an organisation.

First impressions .

You never get a second chance to make a first impression,

like other cliches, contains a grain of truth. A considerable

body of research over the last thirty years has shown that

when people first meet strong impressions are formed

within the initial three minutes of less. Important

decisions may be taken during this time which will affect

the nature of any future relationship. Among the

questions asked will be:

•

 Do I get on with this person?

•

 Do I want to pursue this conversation?

•

 Would I like to do business with his or her company?

Managing Service Provision

So far we have demonstrated that every customer will

expect a personalised service, certain qualities from the

staff that serve them, and that their impressions of this

service are partly formed in the first few minutes. These

facts present service managers with a problem. We ensure

that your staff are providing your customers with the

service they expect? We have all experienced rude and

abrupt sales assistants, teachers who are not interested in

our difficulties and staff in other companies who are never

available to deal with our requests. How can managers

seek to overcome these difficulties and ensure that the

service to customers exceeds expectations?

In general managers are faced with three prossible

alternatives when it comes to managing service provision by

their employees:

•

 removal

•

 automation

•

 people management.

A company may cease to provide a particular service or

reduce the importance of the service in the final

product/service mix. The service may be automated so that

customers serve themselves. Finally, managers can after the

way they manage their staff so that they can be more certain

that the customer gets the service they expect. In this

section we consider the first two of these options. The

following section examines how the management of service

employees can be improved in more detail.

Removal

One of the simplest solutions available to a manager faced

with problems in managing service provision is to stop

supplying that service. Fifty years ago, bakers and corner

shops regularly delivered groceries to family homes, and it

was not uncommon for laundries to collect the week’s

washing. Women expecting a baby could expect to be cared

for by nurses and midwives in a hospital ward for up to three

weeks after the birth of their baby. Today, many women

return home from hospital within two or three days of the

birth, and receive advice from community midwives and

health visitors who call on them at home. The reduction in

time spent in hospital has been welcomed by many women

anxious to return home, and has enabled . valuable medical

resources to be re-directed to more pressing problems.

In Europe, pressures for cut price overnight accommodation

have pushed many hotel chains towards radical innovations.

For example at the IBIS chain, new hotels have been

designed to minimise - the need for staff. On a typical

business day, one employee deals with the paper work

when guests check-in, distributes pre-packed breakfasts and

oversees the cleaning staff. There are no lunches or, dinners

and staff are not on duty between 11 pm and 7am.

Automation

Many of the tasks previously performed by service workers

are now being provided by

manufactured products or automated services through

which customers serve themselves.

There has been a growth in all the forms of services and he

maintains that the area in which growth is most rapid is

amongst self-service activities. Examples of this general

trend are numerous. We no longer send our washing to a

laundy, but are much more likely to buy our own washing

machine, Bank and building society customers increasingly

use a hole in the wall (ATM) to provide basic account

services, and many have taken advantage of branchless

banking operations, e.g. Midlands First Direct telephone

banking service. Students at colleges are less likely to receive

as many lectures and seminars as they may have in the past,

but are more likely to use open learning texts, videos and

computer packages.

The process of turning personal services into impersonal

commodities is teferred to as “commodification” and

according to pessimistic critics this process is often

accompanied by deskilling (reducing the skill content and

degree of discretion in a job) or degradation (a reduction in

the value attached to a job, either in terms of financial

reward or status within the organisation). If we return to

the examples above, laundry staff have traditionally been

paid for their work, whilst those who fill the washing

machine at home are invariably housewives who do not

receive payment. The work of banking staff has traditionally

been skilled and highly paid, the movement to telephone

banking services normally involves less highly skilled staff,

performing routine telephonic and data input services in

areas of the country where labour costs are low.

Finally, if we consider the jobs of college lecturers, the

introduction of standard open learning texts may be said to

remove their discretion and security at work. What is to be

taught is specified in advance in print, and does not depend

on an individual deciding what they will teach on the basis

of knowledge in their own heads.

More optimistic commentators point out that the

introduction of new technologies and new ways of

providing services is more likely to up-skill the job holder, as

they are freed to undertake more challenging and rewarding

work. Despite considerable research in this area, the results

are far from clear cut. It would appear that neither de-

skilling nor up-skilling is inevitable and the final effects of

any change depends upon the decisions of the managers

controlling these initiatives.

Managing Service Employees

The Distinctive Features of Service Employment

It is the process of delivering a service that makes all the

difference. As many services can not be separated from the

person that delivers them, the quality of employees is of

central importance. Thus for organisations anxious to bridge

the gap between adequate and desired levels of service the

lesson appears to be that managers should devote more

attention to developing and managing their staff.

In non-service organisations the qualities of staff are usually

defined in terms of their skills, knowledge and attitudes.

Within service industries a number of studies have shown

that service workers will be expected to display a number of

other qualities in practice. Of particular importance are the

emotions, personalities and sexuality of staff.

The phrase emotional labour has been coined to refer to

occupations where employees have to manage their emotions

in order to serve the commercial purposes of their employer.

Using flight attendants and debt collectors as examples. It has

been shown how peoples work requires them to manage their

emotions: friendliness for the steward and suspension of trust

and sympathy for the debt collector. If is not simply individuals

who manage their feelings in order to do a job; whole

organisations have entered the game. The emotion

management that keeps the smile on Delta Airlines competes

with the emotion management that keeps the same smile on

United and other airlines. Similar points are made by authors

who widen their analysis to consider how modern

organisations attempt to recruit staff with personalities and

inter personal skills appropriate to the business of the

organisation.

They call these facets of the individual tacit skill and

question whether organisations should be in the business of

attempting to control individuals to this extent.

Finally, a number of recent studies have drawn attention to

the steps taken by organisations to manage the sexuality of

employees in order to improve the performance of the

organisation. As an author  demonstrates in his study of a

chain of betting shops, managers consciously sought young

attractive women to staff their shops. This approach was

summed up by two counter staff in the following terms: If

your over 30 forget it What (the manager) wants up here is

the figures (good at the tills and sums), the personality and

the bums. The author goes on to demonstrate how women

betting shop staff were encouraged to manage relationships

with customers in order to get them to re-bet their

winnings.

Among the tactics frequently used were remembering

customer’s names or giving them nick names, joking with

customers, mock , scolding and sexual talk designed to

enhance the self-esteem of customers. The importance of

the gender of employees in managing the provision of

services is further demonstrated within the insurance

industry. They found that whilst these companies were

happy to employ women to work as counter staff, they

chose married young men as sales staff because the

responsibilities of a wife and mortgage kept them on their

toes and managers felt that they had better interpersonal

skills when it came to selling financial services.

Developing Service Employees Personal Qualities

There are a number of techniques available to an

organisation anxious to develop the skills,

knowledge, attitudes and emotional range of their

employees.

Service managers may chose to fill the gap between the

present and desired qualities of their staff through the

combination of a number of techniques. For example, more

effective recruitment and section practices, developing

existing staff through the use of appropriate training

courses, disciplining or dismissing poor performers and

encouraging good performance through appropriate

appraisal techniques.

Different Management Approaches

Etzioni has provided a very useful typology for considering

the relationship between employees and their employing

organisations. He distinguishes between organisations in

terms of two dimensions:

•

 the kind of authority or power and rewards used by

managers to elicit commitment from their sub-ordinates

•

 the kind of involvement employees exhibit when at

work.

On the power and authority dimension, Etzioni has

identified three basically different types of organisational

or managerial approach (see Figure 1 below).

Figure 1

Types of Power and Authority in Modern Organisations

Predominant approach

Type of power or authority

                                             and method of reward

Coercive                         

Non-legitimate authority and

                                         physical compulsion, e.g. prisons

                                         &custodial institutions.

Functional

                      Utilitarian Legal authority and

                                          economic and financial rewards,

                                          e.g. business with a few exceptions,

                                          trade unions &armies in peace time.

Regulative                       

Authority based on charisma or

                                          expertise and rewards based on

                                          membership and status, e.g. hospitals,

                                          churches, educational institutions and

                                          professional associations.

According to Etzioni few organisations display the pure

forms of coercive, calculative or normative authority, it is far

more common for organisations to display a mixture of

approaches. Many companies display a utilitarian-coercive

approach e.g. mass producers and service providers where

the strict division of labour and tight definition of

standardised tasks combined

Firms adopting a utilitarian-normative approach, may

employ standard bureaucratic methods to manage their

workforce but will supplement this with attempts to win the

hearts and minds of their workers. Here, culture change and

total quality management programmes may be seen as

techniques which will unlock the hidden energies and talents

of the workforce. This little bit extra can then be channelled

into tackling the pressing problems facing the employing

organisation.

Firms adopting a utilitarian-normative approach, may employ

standard bureaucratic methods to manage their workforce

but will supplement this with attempts to win the hearts and

minds of their workers.

Here, culture change and total quality management

programmes may be seen as techniques which will unlock the

hidden energies and talents of the workforce. This little bit

extra can then be channelled into tackling the pressing

problems facing the employing organisation.

On the employee involvement dimension, he distinguishes

between three types of commitment.(see Figure 2 below).

Like the forms of power and authority used by

organisations and their managers, these forms of

commitment rarely exist in a pure form. Employees may

display mixtures of alienative-calculative involvement

or calculative-moral commitment

Figure 2:Forms of Employee Involvement and Commitment in

Modern Organisations

______________________________________________________

Predominent 

 Types of involvement and commitment exhibited

Approach

         exhibited by members of the organisation

_______________________________________________________

Alienative        

People feel no commitment to the organisation and

                           feel no sympathy with the goals pursued.

Calculative       

Members of these organisations stay only as long as

                           they are forced to by circumstances or the actions of

                           super-ordinates. Members of the organisation

                           stay for as long as it is in their economic interests.

Moral                

Here people intrinsically value and identify with the

                           work performed by the organisation. They work hard

                           because they believe in what the organisation is

                           doing.

.

If we return to the specifics of service management, the

above tables help us to distinguish between the variety of

approaches adopted by managers in service situations. At

the coercive/utilitarian end of the authority and power

dimension, some service companies (like their

manufacturing counterparts) have attempted to standardise

and control the provixion of services. These companies may

use service handbooks and modular training courses to

ensure that staff have the skills and knowledge required to

provide a specified level of service. However, these

approaches have not always been successful as companies

have failed to gain full commitment and acceptance from

their staff.

For many employees customer service programmes merely

change the goal posts, they don’t alter the purpose of the

game: earning a living. Those companies interested getting

employees to value customer service as an important part

of the job, and not just a way if improving their pay check,

have adopted a more utilitarian/normative approach. They

believe that changing staff attitudes to customer service

can only come about by giving their employees more

discretion over the way they perform their jobs. The

following section explores the elements of these two

approaches in more detail and describes some of the

techniques currently used by the managers of service

employees.

The Coercive/Utilitarian Approach to Services Management.

Organisations adopting this approach tend to use economic

rewards or physical sanctions to obtain the required levels of

customer service from employees. The specification of these

service levels may be ad hoc (changing on the whim of

management) or systematic (carefully planned, monitored

and controlled). The following section concentrates on the

latter of these two categories.

In recent years many service organisations have begun to

compile written specifications of the level of service they

require from their employees and sub-contractors. Examples

include, local authorities, drawing up service specifacations

for public utilities subject to compulsory competitive

tendering, and fast food companies anxious to ensure the

same service is provided in all their outlets.

Many of these organisations have borrowed techniques

from the manufacturing industry in order manage this

process. For example, job analysis and work study

techniques have been used to breakdown jobs into their

costituent tasks, so that employee performance can be

monitored and controlled more effectively.

When it comes to monitoring and controlling the work done

by employees a review of recent literature in this area

reveals three distinctive approaches, fire-fighters, insurers

and preventers.

Fire-Fighters

These organisations rely on unsolicited complaints and

suggestions from customers which they deal with on a one-

off basis. An emphasis is placed on placating the customer,

repairing any damage and restoring their faith in the

organisation. Larger companies adopting this approach will

tend to have small specialised departments that deal with

letters and telephone calls from customers. Staff in these

departments answer customer queries and resolve disputes

between customers and other employees of the company.

This approach may rely on specialised staff with skills in

negotiation, mediation, arbitration and conflict reduction.

Unfortunately for these companies, because they only react

when something has gone wrong, they have no way of

knowing about the dissatisfaction of customers who do not

complain.

Insurers

Companies adopting this approach take a more active

stance. They may have a written service policy or guarantee

that assures customers of certain levels of service. Staff may

be given training in how to greet and deal with customers,

and work may be organised to focus on the needs of the

customer.

For example, dedicated staff allocated to particular groups of

customers rather than to performing specific functions. This

means that customers only have to deal with one point of

enquiry and do not need to chase the process of their order

for themselves. Staff may well wear name badges and be

encouraged to introduce themselves so that customers

develop a personal relationship with the staff that serve

them.

Complaints and suggestions may be encouraged through the

provision of a free-phone number. More general information

about the standards of every day employee service is

provided by analysis of customer comment cards. Feedback

from these cards provides more useful information than an

analysis of complaints because it combines positive and

negative feedback allowing managers to get a more

complete picture of customer perceptions of service quality.

Preventers

According to several American researchers a number of

companies have begun to move beyond the basic approach

of insurers and have introduced measures to ensure that

staff always provide a basic level of service. This new

approach uses a range of information gathering, control and

surveillance techniques.

These companies see the setting up of a customer services

department as surrendering to the problem of poor service.

They are more likely to focus their attentions on curing the

disease rather than treating the illness. Amongst the

techniques regularly used by these companies are surveys or

focus group discussions, in which customers are asked

questions about their perceptions of the service provided by

employees. More ambitious techniques involve the use of

anonymous customers who are employed to report on their

experiences of doing business with the organisation. In

the USA the use of anonymous customers has escalated in

recent years and thy have been used in some surprising

settings.

Recent research reports examples of dummy claims

being submitted to insurance companies, anonymous

shoppers taping conversations with sales staff and the

management of at least one hospital considered employing

people to pose as patients. The reports filed by these

anonymous shoppers were used to tasted the overall level of

service provided by a company but also uncluded information

which allowed individual staff to be identified.

The monitoring and control of employees by companies

adopting a utilitarian-coercive approach is not without its

problems. Many customer surveys and visits by anonymous

shoppers are unscientific, samples are not representative and

survey responses tend to be biased towards negative

evaluation because of self-selection problems (i.e. disgruntled

customers are more likely to respond than their happier

counterparts).

There are also problems with the wording of questions

which may make answers difficult to interpret. For example,

how would you respond to the following questions?

•

 Were your nurses concerned?

•

 Was our employee knowledgeable?

•

 Were you greeted graciously?

•

 How was your salesperson’s appearance?

The Utilitarian/Normative Approach to Service

Management

A number of organisations have found that the systematic

approach to planning, monitoring and controlling service

employees may not be the answer. If staff do not

necessarily believe in what they are doing how sill the

company convince its customers. Many customers will wee

through false smiles and may prefer staff to reveal their

own personalities and genuine emotions. Furthermore, for

many customers it is the creative solution of their

problems that makes the difference as the following

example demonstrates.

“The customer pointed out to the Nordstrom salesperson

that she bad bought a pair of shoes at 13loomingdales (a

competitor) that were too small for her.

She liked the style but Bloomingdales didn’t have her

size. After being fitted with the same shoe of the proper

size, the customer started to pay for the shoes. The

salesperson instead suggested that she merely take the too

small shoes in exchange for the new pruchase. When

the customer reminded the salesperson that she hadn’t

bought the first pair at Nodstrom, the salesperson said to

her. 

If I take these shoes for you, you won’t have any reason

to return to Bloomingdales.

It is these types of incident that customers talk about with

their friends and associates, and it is this that ultimately

improves the reputation of an organisation. Companies and

managers facing this problem don’t just want their

customers to keep coming back, they want their customers

friends, and griends of riends to come in future.

Consequently a number of organisations have begun

experiments in using utilitarian-normative forms of power

and authority to promote a climate which increases the

discretion and commitment of their employees. The current

management buzz-word attached to this phenomenon is

employee enfranchisement but it has parallels in earlier

discussions of lob enlargement and job enrichment.

Enfranchisement is a way of granting freedom and

responsibility to an employee within an organisation, without

requiring a monetary investment or ownership on the part of

the employee. It is achieved through a

combination of empowerment (participation) coupled with

compensation schemes that reward people for the

performance. It has the potential for producing

extraordinarily responsive service, extra employee effort, and

unusually high rewards to those who are enfranchised.

The owner of a chain of American restaurants reported that

he had traditionally given employees responsibility

without giving them authority. However, this approach waw

found wanting: as customer dissatisfaction grew, the paper

work associated with customer complaints mushroomed

and began to take over the time of senior managers. We

may refer to this as the hassle factor and explains how it led

to the restaurant chain to introduce a replace plus one

policy. If the customer doesn’t like the salad, they either

replace it or don’t charge for it, plus they will give the

customer a free drink or similar. Obviously this costs money

but the company’s response was that this was good. Not

only was it selective direct advertising but also a good

indication of the company’s quality costs.

Rather than blame individual employees, they encourage

them to use their discretion when dealing with customer

complaints. When the same problem arises again and again,

rather than blame or admonish staff, the company’s

managers are encouraged to adopt a systems approach,

investigating with staff all the causes of the problems and

possible solutions. Staff are encouraged to contribute to this

process by the award of a 510.000 branch bonus once the

costs of replacing unsatisfactory goods and dealing with

complaints has fallen to 25% of their original level.

Summarising this approach there are three rules:

•

 make the guarantee to customers simple

•

 make sure all employees know how to use their new

authority

•

 make progress visible: prepare results in a graphical and

easily digested manner.

A similar approach is used by Fairfield Inns which allocates

an employee relations budget to be spent in any way the

manager sees as appropriate to improve morale, e.g.

employee of the month award. Accompanying the

employee relations budget is a customer relations budget

which is used to pay for a computerised record of customer

preferences compiled by employees. A typical entry reveals

that one of the Inn’s regular customers prefers a particular

brand of cookies and so the staff ensure that these biscuits

were put in the guests room before he arrived on each of

his visits.

Amongst the other techniques used to increase employee

commitment to high standards of service are long induction

programmes, and regular social gatherings designed to

foster a social life at work. Advocates of this approach

argue that if staff feel involved (enfranchised) at work they

will devote more attention to the service provided to

customers.

UNIT 3: SERVICES MARKETING

Objectives

After completing this unit you will be able to:

•

 assess the status of marketing in service industries

•

 discuss the key differences between marketing goods and

marketing services

•

 understand how the marketing mix for goods differs from

the marketing mix for services

•

 consider the key elements of the services marketing mix,

and how they interrelate with each other.

The Status of Marketing in Service Industries

It is generally accepted that service organisations are less

marketing oriented than manufacturing firms. It is even

suggested that the development of services to date has had

little to do with marketing. The following are suggested as

reasons why service firms are less market oriented:

•

 Services are intangible, making them more difficult to

market, and more difficult to apply standard marketing

practice to, such as branding.

•

 Some service organisations are openly opposed to

marketing, considering it to be unprofessional. For example,

professional services where, until recently, their association

rules forbade certain promotional elements of marketing.

•

 Many service organisations are small and offer a highly

customised service, and they already have contact with their

customers.

•Some service operations have enjoyed more demand than

they can cope with, such as hospitals. Therefore they have

seen no need to either market their services, or to ensure

that their customers were satisfied. Satisfied or not, the

customer would still return as they had little or no

alternative.

•

 Some services were monopolies and therefore felt no

need for competitive marketing. This would include the

utilities such as gas, electricity and water, and ail.

•

 Quality of management is often perceived as lower in

service industries.

Overall, it appears that managers in service industries have

less awareness of the benefits that marketing can bring to

the organisation than their counterparts in manufacturing.

This has not been helped by the fact that most of the

marketing literature over the past 60 years has concentrated

on the tangible goods industry. The marketing of services

requires an entirely different approach.

Services are a special kind of product, and they require

special understanding and marketing effort. However, the

same sequence of market research, product and service

planning and development, pricing, promotion, distribution,

sales and after sales service would seem to be appropriate

to all marketing situations. What is required in marketing

services is an appreciation of the special attributes which

define services and must be taken into account when

marketing them.

The Key Differences in Marketing Services

We have already looked at the differences between goods

and services in earlier units. We shall now consider how

some of those differences create special marketing

problems.

Intangibility

Earlier we discussed the fact that selling intangibles is

generally more difficult than selling goods. This is largely

because they can seldom be tried out, inspected or tested in

advance which poses a number of problems for marketers.

When prospective customers can’t experience the product

in advance they are being asked to buy what are essentially

promises - promises of satisfaction. They are forced to

depend on surrogates to assess what quality of service they

will receive..

These surrogates can consist of a number of things: word of

mouth; the physical evidence of the service, such as the

brochures; or the offices of the company the customer is

thinking of dealing with.

We can look at the process of going on holiday. The

prospective customer will begin by looking at the brochure to

help him make his choice. There he will find clues as to the

type of company he is dealing with. These clues consist of the

quality of the brochure, the way it is written, information

about the terms of booking and about the destination and a

photograph and information about the resort. He will then

ask friends if anyone has been to that country or resort, and

gather further information about it. Finally he will discuss his

choice with the travel agent. If the travel agent is unhelpful,

this will make him lose his trust, he will not believe the

promise, and will go elsewhere.

Perishability

If a service is not used when it is available then it represents a

loss, as the capacity has been wasted. The critical marketing

problem is how to manage demand so that there is a steady

flow of business, and the staff are available to deal with the

business at the right level of quality.

There are various strategies the marketer can used to try to

ensure this steady flow.

Differential Pricing

Different prices can be charged at different times to try to

smooth the flow. For example. London Underground charge

more to travel in the rush hour, and less after 9.30am. This is

to try to persuade those people who do not need to travel in

the busy period, to travel later.

Cultivate Non-peak Demand

Marketers can try to persuade people to use the service at a

time when business is usually slack. An example of this would

be the Air Miles promotion, which enables people to travel at

off peak times. Also, British rail have special saver tickets

which can be used at off peak times only.

Complimentary Services

These can be offered to waiting customers in peak times,

such as cocktail lounges in restaurants. Complimentary

services can also be used to encourage some demand, even

if not for the primary service, for example the provision of

sun beds in hairdressing salons.

Reservation Systems

The best way of controlling the demand is to smooth the flow in

advance. Airlines, hairdressers, doctors, dentists etc, all operate

reservation systems. British Rail is trying to encourage prior

ticket reservation with the introduction of its Apex fare, where

you receive a price reduction if you book some time in advance.

Part Time Employees

These can be hired during the busy periods. However, the

quality of the part time staff must be equal to that of the full

time staff.

Peak Time Efficiency Routines

In the busy times the work pattern can be changed to a more

efficient routine. This may not provide the same level of staff

satisfaction - with one person only having one task to do.

instead of a variety - but it will increase the throughput of work

when necessary.

Increased Consumer Participation

To cut back on the number of staff needed, the . customer

can be involved in the service. Examples of this are self-

service restaurants and Automated Teller machines which

reduce the level of staffing required.

All of these are options which can be developed to try to

smooth the flow of customer demand

Heterogeneity

Heterogeneity refers to the fact that a service cannot be

standardised completely due to the human element

involved. This leads to all kinds of problems, such as the

inability to accurately predict the length of time it will take

for the service to be provided. In fact, the possible problems

in the delivery of a service are as unpredictable as human

behaviour - both on the customer and the supplier side.

A customer’s experience of a service is not only dependant on

the attitude of the supplier; the customer will also evaluate

the service in the context of her own feelings. For example, if

a customer is waiting for an electrician to call, and it is a sunny

day outside, he resents the time spent waiting. If, however,

the weather was poor, and he had work to do in the house,

then the same level of resentment

is not there. The whole environment in which the service

takes place has a tremendous effect on the service

experience.

It is this inability to predict the nature of the service that

causes fundamental problems for the marketer. The marketing

issue is basically one of quality assurance, but in the absence

of anything tangible, it is hard to establish objective standards

of service quality. Equally, quality is hard for the consumer to

assess prior to, or sometimes even after, purchase.

Inseparability

The consumption of services takes place at the same time as

they are produced, often on the premises of the person

providing the service. This raises a number of issues which

are particular to services marketing:

•

 the participation of the consumer in the production process

•

 the interaction between the service provider, the service

environment and the consumer

•

 the merging of operations, human resources and marketing

responsibilities in one individual

•

 the customers often interact not only with the service

provider, but with each other (e.g. it may be a very good

restaurant, but if the other customers are noisy or not the

type of people you like to be with, you would not go there).

The standard marketing mix of Price, Procuct, Place an

Promotion was developed originally for manufactured

goods. However, it became apparent that this was not

sufficient to meet the needs of services Figure 3 shows an

outline of this new mix and the key areas it covers.

Therefore, there was a redefinition of the mix for the

service sector, to include three additional elements -

People, Physical evidence and Process

Let us now look at each of the elements of the services

marketintg mix in turn.

Figure 3: The Marketing Mix for Services

________________________________________________

Product

          Range Brand Quality .       After sales service

                                 Waranty                            level

Price

                    Level Discounts                   Terms

Place

                  Location Coverage              Channels

Promotion

  Advertising Sales Promotion   PR Selling

                        Merchandising Direct

                               Marketing

People

            Training Commitment         Attitude

incentives

                              Appearance                           Skills

Physical

           Environment Furnishings   Tangibles. Layout

                                     Facilities

Process

            Customer involvement

                          Procedures Systems

.

Product

The service as a product is a package of different services,

both tangible and intangible, which together form the total

product. There is a distinction between three groups of

services:

•

 the core service

•

 facilitating services (or goods)

•supporting services (or goods)

The core service is the reason for being in business. For a

hotel it is lodging; for an airline it is transportation. In order

to make it possible for customers to use the core service

there must be facilitating services. These would be the

reception in a hotel and the check in desk for an airline.

Sometimes facilitating goods are also required. For example,

a customer cannot use a cashpoint machine without a

cashpoint card.

The third type of service offering is supporting services. These

are not necessary for the core service to operate, but are used

to increase the value of the service, or to differentiate from

competitors. In the example of hotels this would include the

restaurant, and for the airline it would

be inflight videos. Supporting services can also be tangible,

such as shampoo in hotel rooms, or food on airlines. Often it

is these tangible elements which the customer evaluates most

easily.

From a managerial point of view it is important to make a

distinction between facilitating and supportin services.

Facilitating services are mandatory. If they are left out the

core service collapses.However, this does not mean that such

services could not be designed in such a way that they differ

from the facilitating services of the competition.

The facilitating services can, and should, be designed so they also

become a means of competition and thus help to differentiate

the service. The supporting services are used as a means of

competition only. If they are lacking the core service can still be

used. However, the total service package may be less attractive

and perhaps less competitive.

A major problem with the service offering is that services cannot

be protected by patent. This means that any development,

whether at the core, the facilitating or the supporting level, can

be quickly and easily copied by the competition. Therefore it is

difficult to have a sustainable competitive advantage.

Take the example of current accounts. Nationwide Anglia

introduced the first interest bearing current account, a major

service innovation, and gave good competitive advantage.Within

a matter of months all of the banks had followed suit - the

competitive advantage was shortlived.

Price

Many servide industries do not use the term price. Amongst

the many substitutes are admission, commission, fare, fee,

premium, rent, subscription and tuition. Whether one is

considering goods or services, pricing decisions are complex.

However, there are several particular issues and problems

facing service marketers which make the pricing decision

even more complex.

Intangibility means that customers cannot see what they are

buying, and therefore cannot easily judge if they are

receiving value for money. It introduces more freedom into

pricing decisions for the service provide, but there is greater

risk for the consumer. They may place more effort into

comparing the different prices available, vut often because

the service offerings are so complex, comparison can be

difficult.

This introduces dissonance into the consumer purchase

decision. For example, people on package holidays often find

that others on the same holiday have paid substantially less.

The greater the proportion of tangibles there are in the service

offering, the greater the degree of standardisation there must

be. However, in intangible dominant services there is greater

freedom, as there are fewer objective criteria against which

customers can compare prices.

Perishability imposes the need for flexibility of pricing

decisions: lowering the price in times of slack demand;

increasing the price when capacity is at a peak. In the tourism

industry you will often receive discounts for booking early,

followed by the standard price, and then bargains when you

book very late. The ethos of bargains for late booking has

caused tremendous perishability problems for the travel

industry with so many people now waiting until the last minute

to book their holidays.

Some service industries operate self-regulation of prices. This

is common amongst lawyers, estate agents and architects, for

example. Prices tend to be maintained through professional

associations or, in some cases, cartels.

When the service is intangible-dominant, such as consulting

or education, or when the consumer is buying access to

knowledge and skills, there is no simple relationship between

the costs of producing and delivering the service and the

price charged to the customer. Many services of this kind are

therefore not suited to cost-plus pricing methods. But instead

are more demand oriented. Service marketers need to

understand the value that customers place on their product,

and the price the are willing to pay. This makers for a complex

cost/value/price relationship.

Place

The location decision is the most important decision for an

organisation. This is true in areas such as retailing, distribution

and manufacturing. However, the important issues regarding

service firms are not so much location, but more accessibility

and channel decisions. One of the major problems facing service

firms is how to make their product accessible and available to

the target market. Accessibility refers to four main areas.

Site Accessibility

This includes the following considerations:

•

 the convenience and ease of access from a major street

•

 parking facilities

•

 the ease of locating where you want to be once inside the

building

•

 oppening hours

•

 the ease of getting an appointment

•

 the size of the waiting area.

Customer Ease of Use of the Physical Resources

This includes the following considerations:

•

 the attractiveness and condition of the inside and outside

of the location

•

 the waiting area.

Frontline Personnel’s Contribution to Accessibility

This includes the following considerations:

•

 the response time to phone calls

•

 the number of employees

•

 the skills of employees

•

 the response time at reception

•

 the professionalism of the employees

•

 the billing procedure

•

 the types of payment accepted.

Ease of Customer Participation

This includes the following considerations:

•

 the number and difficulty of forms to ,be filled out

•

 the instructions given to customers

•

 the difficulty of the instructions

Depending on such factors customers will feel that it is easy

of difficult to get access to the service and to purchase and

use it. If the telephone receptionist does not answer the

phone then there is no accessiblity to the service. Even an

excellent service can be destroyed in this way.

The distribution channel comprises those organisations and

individuals which make the service more convenient and

accessible. Many consider that the only possible channel for

services is dierect to the customer. Whilst this is

commonplace (for example, dentists, accountants, lawyers,

architects) it is certainly not the only channel.

The distribution channel comprises those organisations and

individuals which make the service more convenient and

accessible. Many consider that the only possible channel for

services is direct to the customer. Whilst this is commonplace

(for example, dentists, accountants, lawyers, architects) it is

certainly not the only channel. Indirect channels are

becoming more common in the travel industry (travel

agents), leisure (theatre booking agents) and insurance

(banks). We are now seeing more innovations in the use of

channels.

Promotion

The promotion mix includes:

•

Advertising

•

Personal selling

•

Sales promotion

•

Direct marketing

•

 Sponsorship

•

Merchandising

•

Public relations.

It is often said that some of these cannot apply to certain

services either because of the nature of the service or the

specific regulatory restrictions applying to that service. The

difficulty of promoting an intangible product means that,

where possible, many organisations promote the tangible

benefits of their services.

However, in intangible-dominant industries, this cannot be

done, and so they focus on consumer benefits.

The main task of promotion is to influence the consumer’s

decision process. In the case of services their purchase is

perceived as riskier than goods purchase. Accordingly,

promotion can focus on:

•

 assurances and guarantees of quality

•

 staff qualifications and training

•

 procedures which are designed to standardise the quality of

the service.

In service promotion there are basically four different types

of communication with the customer:

•

 personal communication

•

 mass communication

•

 direct communication

•

 interactive communication

Personal communication is also known as personal selling,

which can play a major role in the marketing of services. Mass

communication includes advertising and brochures. Direct

communication is dierect mail sent to named reseivers.

Interactive communication is very much

how customers perceive the total service, in ways which are

unplanned and not part of the formal sales process.

The challenge is to manage all these parts of the communi-

cation mix so that the customer does not receive conflicting

messages. The organisation which can manage this has a

substantial effect on the most powerful promotional tool in

services which is word of mouth. As services are so

intangible, and customers are buying promises of satisfaction,

they often tely on the opinion of people who have already

experienced the service, in order to decide whether to buy or

not.

People

The conventional marketing mix acknowledges the impact of

personal influence on the buying process, but only in the role

of the sales person. In services marketing customers are

exposed to two groups of participants in the service

production and consumption process: customer contact

employees and other customers.

There will always be a need for people in the service industry,

although attempts are constantly being made to increase the

level of automation. Nonetheless there will always be a

demand for the human factor. As the famous sign in the

Tokyo offices of IBM says:

«MAN - Slow, Slovenly, Brilliant

IBM - Fast, Accurate, Stupid»

However, all people encountered in the service situation

form part of the overall service experience, or at least

influence the perceptions of that service. Controlling the

interaction between customers can be problematic, as

managment ideally want a certain behaviour from their own

customers. For example, an exclusive French restaurant will

be careful in specifying dress, to ensure theright type of

customers only Customers expect certain standards

depending on the service they are using.It is not only the

staff they expect to ensure these standards are kept, but also

the other customers.

Therefore the type of customer attracted to . a service

organisation must be manipulated so that no one customer

can offend another. Each customer has to reinforce the

perceptions of any other customer who comes into contact

with them.

Physical Evidence

Physical evidence adds tangibility to the service delivery.

Examples of physical evidence for a service are meals and

newspapers on an aeroplane, appointment cards, pass

books and plastic cards for financial services. The tangible

items can be very important in communicating the image of

the organisation and must be consistent with the rest of the

marketing mix.

Some tangibles may help in the actual delivery of the

service, such as a building society pass book detailing all

transactions made and in-flight brochures detailing the duty

free goods available. These are examples of essential

evidence.

Other tangible evidence is there simply to improve customer

perception and satisfaction, and make the customer feel

they are getting value for money from the service.

They can also assist in reminding the customer of the service

(providing quality cheque book holders for example). These

can be called peripheral evidence which is actually

prossessed as part of the service and has little, if any,

independent value.

Physical evidence has materialised as a result of the lack of

understanding of services, the inherent suspicion of services

and as a method of differentiation between services. Visual

and physical presentation is important because consumers

can relate to these elements much more easily.

As well as the tangibles associated with the service, it is

important that the whole physical environment of the

service should be consistent with the rest of the marketing

mix. This would include the environment in which the

service is delivered (for example, the building, the decor)

as well as the tangible gifts.

Process

Much has been discussed on the problems marketers face

with regard to trying to cope with the peculiarities of

services. However, the process of a service leads to an

inherent advantage, in that service providers have the

chance to speak to their customers regularly on a first-hand

basis. A goods firm has to carry out very expensive and time

consuming research even to open up any form of

communications with their customers.

This contact also means that service firms are often put

through one of the toughest tests possible -they are

constantly open to inspection by their customers. Clients

have the chance to witness the total production and delivery

process due to the inseparability of production and

consumption.

This forces certain efficiencies upon the service firm - they

cannot keep the customer waiting while they find tools,

take a coffee break and so on. If the service provider is late

for work the shop is not opened. These sorts of pressures are

not faced by the manufacturing firm. The service firm is

forced into being more efficient and customer conscious,

which results in a better service.

Cooperation between marketing and operations is vital for

the service firm (but rarely considered in the goods-

producing firm). Accurate and efficient operating systems will

provide the foundations for the marketing programmes,

while the marketing will fail if it is not supported by efficient

processes.