Marketing of Services

1. Marketing of Services Marketing for Engineers ELE 4EMT George Alexander G.Alexander@latrobe.edu.au www.latrobe.edu.au/eemanage Lecture 11 16 April, 2007

2. Business plan development lecture – 20/3Competition/niche market • Identify your competitors and the way they do business. • A unique business idea may mean little or no competition (Niche Market). • Lots of competitors means there is a market, but how would your business survive? • Identify any gaps in the market and show how you may fill them.

3. Clarifying ‘niche market’ • ‘No competition’ does not necessarily mean that we are dealing with a niche market. • A niche market is a very narrowly defined group of potential customers. • An example is specialised cleaning services. • Because of the narrow definition, there is a lower probability of there being competition. • It should be treated as a form of market segmentation and should be subject to the ‘meaningfulness’ tests of market segmentation.

4. Meaningful Market Segment? • Distinctive characteristic? • Adequate market size potential? • Accessible? Distribution and promotion • Will respond to the marketing mix?

5. Today’s topics • Defining service in its technical, specific sense. • Explaining the four basic characteristics of services. • Understand demand management strategies. • Examine strategies for standardisation & customisation.

6. What is a Service ? A service is an instrumental activity performed for a consumer or a consummatory activity involving consumer participation in, but not ownership of, an organisation’s products or facilities.

7. Examples • Instrumental services, work performed by others to achieve a goal without their direct involvement in the task: • lawn mowing • car service, etc. • Consummatory services, the customer is directly involved and immediately gratified by use of the service: • hiring a video. • Taking a skiing lesson may be both instrumental and consummatory.

8. The Characteristics of Services 1 Intangibility 2 Perishability 3 Inseparability 4 Variability

9. Intangibility 1 • Intangibility is a characteristic of services referring to the customer’s inability to see, hear, smell, feel, or taste the service product before buying. • Most services are intangible, even though the production of a service may be linked to a tangible product. • The element of intangibility makes the marketing of services different from the marketing of tangible goods.

10. Marketing Approach • To help consumers understand and evaluate the nature of the offered services, a marketing strategy that makes the intangible tangible should be employed. • To make a service tangible the marketing strategy should stress symbolic clues and provide supplemental tangible evidence to indicate that the promises about the service quality will be kept.

11. Examples • The service provided by: • Accountants (e.g. tax return) • Doctors • Lawyers • Consultants • Airline • Car hire

12. Perishability 2 • The services provided by humans cannot be stored, and hence services are perishable. • As an example of perishability, the airline cannot store the service equivalent of the empty seats on a particular flight for later sale. • In order to avoid problems associated with perishability, marketing managers implement demand management strategies.

13. Demand Management Strategies • Because perishable services cannot be stored, service marketers plan and implement demand (or capacity) management strategies. • Effective demand management strategies require thorough understanding of the nature of services and accurate forecasting of the need for such services. • Selling services in advance and requiring reservations is an important aspect of a demand management strategy.

14. Other Strategies • Two-Part Pricing is a strategy by which a service marketer charges a fixed fee plus a variable usage fee to adjust for losses due to the service perishability. • Two-part pricing strategy may be be applied for clubs, members pay an annual fee and a variable usage fee. • How about telephone services where subscribers (now known as customers) pay service and equipment fees and an additional fee per call (fixed + variable)?

15. Inseparability 3 • Inseparability is a characteristic of services that reflects the fact that the production often is not distinct from the consumption of a service. • Inseparability means that producer and consumer must be present in the same place and the same time for the service transaction to occur.

16. Inseparability and the Exchange Process Tangible Product Production Sale Consumption Production Intangible Product Sale Consumption Time

17. Variability 4 • Because many intangible offerings are closely tied to the supplier’s personal performance, there can be great variability, or heterogeneity, among the services provided. • Standardising services (i.e. reducing heterogeneity) is very difficult. • Variability leads service marketers to choose one of two alternative strategies: • Standardisation or • Customisation.

18. The Strategy of Standardisation • The varied nature of services may be the reason to choose a strategy to standardise the service offered. • The strategy of standardisation emphasises the careful selection and training of personnel. • It is much easier to standardise service when the delivery mechanism involves machines. • It is mandatory that the service quality be monitored to discover if it falls below the established standard.

19. Example – Service in the mobile network • Technicians’ competences and training clearly defined • Detailed procedures manual • Consistent approach to fault resolution • Defines necessary procedures. • Is continually updated with process improvements, leading to best practice. • Can be a powerful marketing tool

20. The Strategy of Customisation • In contrast to standardisation, a customisation strategy requires modifying or customising a service for each individual customer. • Customisation strategy is not suitable for the mass market and is intended for individualised services.

21. The Service Encounter • The Service Encounter is defined as the period during which a consumer interacts with a service provider. • Production of a service often requires a great deal of time beyond the service encounter. • For example, accountants may spend ten times as many hours working on a tax return as they do interacting with the client. • How about delivering a lecture ?

22. Managing Service Quality • Service Quality is the degree to which the performance of service providers matches customer expectations. • Service Quality is the essential characteristic of a service that measures its excellence. • Marketers who wish to deliver high service quality must consistently conform to consumers’ service expectations. • How would rate the services quality of your ISP ? • With the mobile network service example, there is a high degree of monitoring and reporting of service performance – part of the SLA.

23. Determinants of Service Quality • Access • Communication • Competence • Courtesy • Reliability • Credibility

24. References • Zikmund, William G., d’Amico, Michael, Marketing, 5th edition West Publishing Company 1996 (Chapter 11). Thanks for your attention