Chapter 7 – Services Strategy
- Define service.
- Explain how services are different from products and how to manage those differences.
As of 2017, services represent more than two-thirds (71%) of Canada’s gross domestic products and almost 80% of employment opportunities. These statistics attest to the important role that services play in Canada’s economy. In a similar fashion, on a value-added basis (accounting for only domestic goods and services exported), services also make up about 45% of all exports from Canada. Consequently, it is important to understand the marketing implications of the service industry given that many of you may end up working in this industry, whether it be in a marketing capacity or in some other role. While much of the traditional product marketing principles still apply, there are some unique characteristics to consider. ‡
Philip Kotler et al. (2009, p. 372) defines a service as “any act or performance that one party can offer to another that is essentially intangible and does not result in ownership of anything. Its production may or may not be tied to a physical product.” When we think about products and services, these tend to fall on a continuum from purely product to purely service, with everything in the middle of this continuum consisting of a combination of product and service. See Figure 7.1 “Continuum of Evaluation for Different Product Types” for an illustration. ‡
At one end of the continuum, you have products that do not have a service component attached to them, such as an item of clothing. At the other end you have a service that does not include a physical product element to it, such as an auto repair (tune-up that does not require any parts or materials) or a medical diagnosis. Then in the middle, you have offerings that include both a physical component and an intangible component such as a restaurant meal. The physical product component includes the actual food and drinks you may consume at the restaurant, but for most people there is also an intangible or service component that forms part of the restaurant’s meal offering. It may include the atmosphere or environment within the restaurant which may or may not include music or entertainment, but will also include the service received by the wait staff at the restaurant. ‡
It is important to understand this continuum because it will help you to understand the way consumers evaluate these potential offerings and the marketing implications along the continuum. At the purely goods (physical) end of the continuum, it is much easier for consumers to evaluate the product both before and after the purchase. It is easy for consumers to compare and contrast the features and benefits associated with a purely physical product prior to purchase. Similarly, even after purchase and consumption of the purely physical good, it is easy for the consumer to evaluate their purchase.
It is suggested that offerings at the goods end of the continuum are high in search qualities—that is, they have characteristics that a buyer can easily use to evaluate before and after purchase. Those offerings in the middle of the continuum are considered high in experience qualities—that is, they have characteristics that a buyer can evaluate easily after purchase (e.g., through experiencing a restaurant meal). Finally, the other end of the continuum, where you have offerings that are purely services (i.e., they don’t have a tangible element to them), are considered to be high in credence qualities—meaning they have characteristics that a buyer finds difficult to be able to evaluate after purchase. For example, with a medical diagnosis, how do you know that a doctor has made the correct diagnosis and has solved the issues? ‡
Those offerings that are in the middle of the continuum (i.e., high in experience qualities) and those at the purely service end of the continuum (i.e., high in credence quality) are considered high risk for consumers because often they can only be evaluated after purchase/consumption. Even then, these products can sometimes be difficult to evaluate for the consumer. Therefore, as you move from left to right along the continuum of offerings, consumers generally tend to rely on word of mouth rather than advertising. In addition, consumers may also consider other cues as an indicator of quality, such as price, personnel, and other physical cues (service equipment used to deliver the offering). Therefore, once a customer has consumed a purely intangible service offering for which they are totally satisfied, they tend to be highly loyal to those service providers and therefore, because of high switching costs and consumer inertia, it becomes difficult for competitors to lure away customers (Ostrom & Lacobucci 1995). ‡
Distinctive Characteristics of Services
This is why it is important to understand what characteristics makes services distinctive and determine how to manage these characteristics from a marketing perspective.
Unlike physical products which are easy to see, touch, feel, taste, smell or compare, services are intangible and you cannot experience them in the same way before purchase. For example, someone who is interested in cosmetic surgery or psychiatric services, cannot easily compare the service offerings from different providers.
Therefore, when marketing service offerings, it is important to tangibilize the intangible aspects of services. Buyers will look for evidence of quality by considering various elements of your service offering. These include the place in which your services are offered, the people who provide the services, the equipment used to deliver the services, the quality of the communications materials as well as the use of symbols, and, of course, the price point. For example, think about the purchase of premium spa services. These types of services are difficult to evaluate in advance of the purchase. Therefore, in making this purchase decision, the customer will look at the surroundings of the environment in which the spa services are offered. If you are offering premium spa services, it is important that the spa use quality finishes to project a luxurious feel, and is kept clean and orderly. Similarly, the people who offer the services must also live up to the premium nature of services. This may necessitate that the people are well groomed, wear high quality and professional uniforms, and are attentive to the guests at the spa. Likewise, the communications materials must also support the premium nature of the spa services. This may mean using a high-quality cardstock, with high quality colour photos taken by a professional photographer. Lastly, the spa services should also be priced accordingly to match with the premium spa services offering. ‡
Unlike physical goods which can be manufactured in advance, stored in inventory, sold by many distribution partners and consumed at a later time, service must be produced and consumed at the same time. If a person is required to render a service, both the service provider and the customer must be present when the service is performed (at a minimum, if a service is provided by machine, the customer must be present at the time that the service is performed). Think of a barber providing a haircut. Both the barber and the customer must be present when the haircut is provided. The barber cannot perform the service in advance (in the absence of a customer) and store it in inventory to be provided at a later time. ‡
The implication of this is that there is limited service availability based on the hours of operation and the presence of customers. If customers are not available at the time that the service is offered, there is revenue loss that cannot be recovered or made up at a later time. ‡
Unlike physical goods which can be manufactured with the exact same specifications and are subsequently subject to quality checks to ensure consistency, the services provided by human beings are subject to variability. For example, the service provided by the different people can vary depending on their level of experience (e.g., they may be able to provide better service when they accumulate greater experience on the job). Furthermore, the same service can be performed by multiple employees who work for the service provider, leading to differences in the service quality. Unlike self-serve machines, humans, by nature, do things differently. This, if left unchecked, can lead to significant differences in the service that is offered to different customers, or same customers at different visits.
In order to address the potential for service variation, it is important to 1) invest in good hiring and training procedures; 2) standardize the service-performance process; and 3) keep an eye on customer satisfaction. It is important to invest in recruitment practices that attract the right employees, and it is just as important to provide them with the appropriate training on how the service should be performed. Equally important, service providers need to make sure they standardize the way services should be offered and what performance level should be expected from employees. It is important for employees to understand what the customer experience should look like and to deliver this experience to the same standard as every other employee. This might entail the creation of a service blueprint which outlines every aspect of how the service should be offered. Lastly, often when there is service variability, it will show up in customer satisfaction. Therefore, it is important for service providers to monitor customer satisfaction as this will often highlight service variability or failure. ‡
Services cannot be stored in inventory, they become perishable. Service providers have a finite number of hours that it can operate with the people they employ. Unfortunately, like most offerings, customer demand for services will fluctuate. This means that if customers are not available when the service can be performed, or if customer demand exceeds service capacity, it means the opportunity to charge for those services is lost. For example, a highly sought-after restaurant has a limited number of seats in the restaurant that can only be turned over an average number of times. If you have more customers show up at the restaurant when you are unable to seat them, it may be difficult to capture that service demand.
Therefore, it is important for service providers to manage customer demand so they can maximize their revenue opportunities. There are several ways to address the fluctuating demand.
On the demand side (with customers), there are several strategies a service provider can employ. They could offer differential pricing to entice customers to shift their demand to off-peak times when they can take advantage of that demand. A common example is with movie theatres. Often there is a day of the week (e.g. Tuesdays) when demand for movie viewing is lower. Movie theatres will often lower pricing on that day to entice visitors to attend on a lower demand day. Additionally, to increase revenues, some service providers offer new services during a non-peak period. For example, Subways sandwiches was often frequented during lunch and dinner. To increase demand during non-peak periods, they introduced breakfast options in the morning. Similarly, to entice customers to wait when they arrive during peak periods, service providers could offer complementary services. For example, a restaurant might offer customers a free cocktail while they wait for a table to open up. Lastly, a service provider might employ a reservation system to reserve a spot when there is availability and have the customer arrive at that time.
On the supply side (with employees), there are additional strategies that can be engaged to deal with the perishability issue. A service provider can hire part-time employees to deal with the fluctuations in demand. They can also have their own employees focus on critical service aspects during peak-times and address non-critical aspects during non-peak times. For example, wait staff at a restaurant can focus more on the customers during peak-times, and leave the task of dealing with replenishing supplies during non-peak times when possible. Service providers can also encourage customers to participate in the service delivery to address demand issues, such as filling out their own medical records during a hospital visit, or bagging their own groceries at the store. ‡