Service Marketing: Products and Services - Essay Example

Summary Traditional barriers between products and services are crumbling, as patents expire and technology becomes more egalitarian. Customers in an age of globalization revel in their expanded options, and demand value-added services in addition to distinctive product features. The rise of Services in the Gross Domestic Products of developed economies has relegated traditional manufacturing to the third world. Organizations that work not-for-profit are not spared the harsh glare of Service Quality, and bureaucracies and governments in the third world are under increasing pressure to change their attitudes to work and to the manner in which they deal with the people they are supposed to serve. Excellence in Services Management will probably continue to overshadow many sectors of the economy during the coming decades. Innovation in the tangible aspects of products will have shorter life cycles than in the past, whereas Services will continue to fashion the most durable branding opportunities. The reasons for Services Management rising in value is related to the complex and interrelated steps that organizations have to take to implement strategies for excellence in meeting customer needs which lie outside the domain of concrete product features. It is easier to state the conceptual differences between products and services than to develop the elements of the marketing mix in an appropriate manner. The additional elements of the marketing mix that services require new competencies and skills that organizations must acquire. Even more difficult, can be the spread of a shared passion for customer satisfaction, which product and authority led organizations may never have required in the past. Nevertheless, the worlds of business, commerce and governance have no alternatives but to acquire the resources by which they can excel in Services Management. Retraining employees from older stages of industrial development and assessing new recruits for their skills in Services Management areas are amongst the greatest challenges of emerging markets of strategic importance. Classic Differences of Concept A clear understanding of the term ‘Services’, is a useful starting point for enumerating its differences from products. Since the word is used in common parlance, its application in the principles of Business Management requires definition. A Service involves a degree of intangible properties and interaction with a customer (Payne, 2002). Services are different from products in their heterogeneity, inseparability and perishability, apart from the factor of intangibility. Most products have elements of Service built in, and most Services have some tangible elements. Computers, for example, are tangible products, but need liberal doses of service to work. Airlines, on the other hand, focus on service, but have product elements as well. We can therefore conceive of most enterprises as differing mixes of products and services. Pure products with no service are restricted to rare examples of some generic categories such as common salt. Similarly, mental wellness counseling is an unusual example of a Service without any tangible element at all. Therefore, most products will be affected in some degrees by the special characteristics of Services, namely intangibility, heterogeneity, inseparability and perishability. Products may be differentiated by their Service components, rather than by their tangible features (Payne, 2002). Understanding where an enterprise stands on the product service continuum and using Service characteristics for competitive advantage, has tremendous strategic implications. The distinctive nature of Services is highlighted by the following quote: Services and goods have some conceptual differences and numerous tactical differences that must be considered in designing their optimal marketing and management. Services tend to be (1) intangible, (2) produced and consumed simultaneously, and (3) heterogeneous. (Iacobucci, 2001, p. 321) Service characteristics require enormous skills and expertise for differentiation. Intangibility, for example, is a major challenge, since customers are accustomed to touching, seeing and using all their sense when they decide to buy products. The intangible nature of services requires deep knowledge of customer tastes and likes. The latter can change over time, hence Service providers have to be vigilant and spot trend changes before the competition. Customer perceptions can be unpredictable and companies must have reliable systems in place to observe market responses to their Services and to adapt appropriately and in time. Intangibility can pose such major difficulties that some firms outsource Services, using third parties with specialized expertise to meet needs of key customers. Heterogeneity is even more difficult to cope with for Service providers. Each transaction is different, and therefore standardization is very difficult if not impossible. Customers have varying requirements and may rate a uniform service differently. The Service itself can cover a variety of situations, and therefore defy all attempts to establish any fixed algorithm may fail. Each patient in a hospital, each student in an educational institution, each diner in a restaurant and every client of an attorney may rate respective Services differently, for example, and indeed have their unique needs as well. Professionals in Services have to acquire skills to handle customer interactions with uniform excellence, adapting their actions and responses in each case to expressed and covert customer requirements. Inseparability is another feature of Services with which marketers have to contend. The major implication is to plan for high peak capacities at lowest possible fixed costs, since production cannot be separated or undertaken in advance of consumption. Employees need continuous training inputs so as to contend with a variety of situations in the presence of customers: most often there is no time or opportunity to correct errors during crucial stages of interaction. Value addition must be relatively high in Services to cover for lean times and seasons during which there are few or even no customers. Most services related to tourism and vacations suffer from such a handicap. Perishability is related to inseparability. Physical resources such as hotel rooms, created to give expression to a Service, cannot be stored. Hence, every vacant room night is a direct loss for the enterprise, which can never be recovered. Services operate under constant time pressure unlike the relatively easy business of products. Crockery and cutlery can be stored in a restaurant at negligible cost, but salaries paid to servers and cooks are permanent losses when the tables are empty for even a short while. Services cannot afford the luxury of gestation periods as their counterparts in the world of products, because capacity must be largely if not fully used as soon as an enterprise opens its doors. Another important aspect of Services is that there is no transfer of ownership. Customers may derive satisfaction by becoming long-term if not permanent owners of physical assets they acquire, but can look forward to no such tangible satisfaction when they pay money for a Service. This places an increased burden on the Service provider to ensure sufficient satisfaction during the comparatively brief interlude of interaction to such an extent that the customer returns and spreads the good word as well. A customer owns no part of a beauty salon to which she or he returns at regular intervals, but does so because of the very pleasurable experience and also because of the effects of each visit on intangible aspects such as appearance. Service providers require finely honed skills to maintain such customer relationships, and must always live with the danger of permanently losing a customer of long standing through a single defective experience. Customers are at the heart of all businesses, but the dependence is underscored in Services. Here is a leading view on the matter: A customer focus necessitates a deep understanding of customers and their activities, interests, and opinions around the particular value or solution that the firm is providing. It should be an attitude that is pervasive and that permeates throughout the firm such that it becomes ingrained as a culture. Once this focus becomes a given, then the firm will find itself in the mode of serving the customer while ensuring a reasonable profit. The realization is that you cannot achieve a sustainable competitive advantage to command sustainable profits unless you are customer focused. (John, 2003, p. 9) Service industries need to develop customer relationship programs in order to compete and to perform well in business terms (Payne, 2002). Many enterprises reward loyal customers through financial and other incentives. Durable products manufacturers may be satisfied with the conclusion of a sale, but Service providers can never lower their guards or take their customers for granted. Customer retention is so vital for Services that the best providers consider them to be their prime assets. Marketing Mix Nuances Product, promotion, price and place are the four critical axes along which product manufacturers shape their marketing strategies. Most of these factors are important in Services as well. Market segmentation, targeting and differentiation are other vital marketing concepts that Services share with products (Payne, 2002). Though Services and products share many common concepts of marketing, there are some significant differences as well. The product element of the marketing mix seems at first sight to be a contradiction in terms when thinking of Services, but one can resolve this confusion that customer buy benefits rather than either products or services (Payne, 2002). The product element has generic, expected, augmented and potential dimensions in Services. A hotel room for a night is a standard example of a generic product in the Services sector. The expected product includes minimum conditions and standards that most customers assume when they pay money for or order a Service. The augmented product evolves from a drive by the provider to differentiate the service offer from comparable deals from competitors. The potential product creates a Service that protects customer loyalty. This is often achieved by making the costs of switching from one provider to another as high as possible Pricing is an important and a strategic weapon for Service providers. Image, for example is perceived by customers largely through pricing. Rack rates are marks of standards and quality in the business of hotels, for example. Pricing of Services is a most flexible matter, reaching peaks during heavy demand, and slumping attractively when the off-season is at hand. Pricing is also a key tool to promote loyalty, with handsome discounts for regular customers. Inseparability and perishability make the distribution element of Services more important than it is for many products (Payne, 2002). A Service is of no use to a customer unless it is available immediately and at the right place. Providers must plan in detail and invest heavily so that they are ready whenever their offerings are required. Service quality and image are also deeply affected by the ambience and environment in which Service is provided. Promotion gives a sense of tangibility to a service and helps customers evaluate it better (Payne, 2002). Word of mouth promotion is especially important for Services, and some of the communications program has to be internally directed at company employees, so that they are periodically reminded of the Service Mission. Additional Strategic Elements Though the marketing mix elements originally developed for products have modified applications in Services, the latter also requires additional elements of their own, which are not encountered in Products. People, Process, Physical Evidence and Preferential Customers are the four additional marketing mix elements which are necessary for optimal marketing strategies for Services. The importance of the People element is highlighted by the following quote: The key principle in services marketing and management is to remember that “people, both the customers and the service providers, are much more intricately involved in the marketplace exchange than for the relatively simpler purchase of most goods. Keeping in mind this customer-service provider dyad helps the marketing manager gain empathy for the customer experience, hopefully with the goal of designing service delivery systems that provide opportunities for inherently high-quality interactions, and that accommodate modifications, either for still higher quality customization requests, or in recovery to re-attain high-quality provision. (Iacobucci, 2001, p. 328) Professionals who enter Services from the product sector often require fresh training to understand the nuances of customer relationships that this type of enterprise requires. New recruits should be screened by industrial psychologists to ensure that they have suitable personalities and dispositions to serve customers. Appraisal and remuneration systems may require modification so that all employees are clearly focused on customer satisfaction. The Process element of the Services marketing mix requires that internal operations are chalked out in detail to meet service standards. This is often a group activity within the Service organization, cutting across functions and levels of hierarchy. The nature of the Process element can be discerned from the following quote: Questioning involves the group in creating a solution, which in turn helps raise the level of commitment. Effective group members are open, candid, and involved in the process. Getting this kind of involvement, and getting it early in the meeting, takes skill and the ability to frame good questions (Gottlieb, 2003, p. 84) Service organizations think in terms of internal customers, so that people, who are not involved in direct customer interaction, are equally committed to their satisfaction as a route to corporate success. Physical evidence essentially helps to bolster the Service image and helps customers recognize the Service category. Medical equipment, white coats and stethoscopes are examples of the kinds of physical evidence to which most patients are accustomed when they seek medical service. Preferential customers take the relationship imperative in Service organizations to logical limits. Preferential customers are offered financial incentives and privileges that appeal to their egos and which make it unattractive for such individuals and corporate bodies to switch from one Service provider to the competition. The four additional elements of the Services marketing mix help companies to manage the complex nature of their enterprises, and form cornerstones of competitive advantage. Many traditional manufacturers have abandoned their old functions and started focusing on Service elements of their erstwhile products, in order to breathe new dynamism in to their firms. Conclusions The world is rapidly moving towards a Services regime as seem from the following quote: Economic statistics attribute at least two-thirds of the global economy to services sectors. 2 Moreover, service sectors thrive in exporting, 3 moderate inflation, 4 and provide vast employment." (Iacobucci, 2001, p. 321) Intangibles have become strategic sources of value creation and of competitive advantage in matured economies (Bounfour, 2003). There are five reasons for this trend. The first is because services have dominant shares of such economies. Secondly, large corporations and major brand owners have begun to use their resources of marketing, preferring to outsource routine manufacturing activities to smaller and newer associates. Simultaneously, many traditional services have begun to acquire industrial status in bids to offer more professional services. Fourthly, knowledge is now recognized as a strategic resource and there is a related awareness that many assets of great consequence do not appear in conventional financial statements. Finally, there is a realization that intangibles have major roles in corporate performance. The overall effects of these trends are to make services grow and to inject elements of service in traditional manufacturing enterprises as well. Services are difficult to differentiate in sustainable manner (Davies, Chun, Silva & Roper, 2003), but they can help in the branding of tangible products that have been copied by the competition. Every enterprise that is a pure service and those with large components of service for their products, face enormous challenges in defending their respective turf. Judicious and coordinated developments of all elements of the marketing mix make the difference between success and failure in such cases. Direct Marketing is an important field for Services Management (Geller, 2002). Customers always have a number of suppliers from who they can order their requirements. Speed and quality of service, professional relationships and the best standards of professionalism determine which Direct Marketing organization gets the most business. The Internet has increased the need for Service Excellence on the part of Direct Marketers since browsers now have a wider choice of providers from who they can access service. Even seemingly minor differences in service levels can prove to be decisive. Excellence in Services Management is no longer restricted to companies that work for profit, but has become relevant for public service organizations as well (Doherty & Horne, 2002). This is especially the case in powerful democracies, in which common citizens have power and influence to demand top quality in all aspects of governance. Many departments and organizations that have operated in bureaucratic manner in the past, have now to retrain their people and to transform their operations entirely. It would be valid to conclude that Services Marketing is more sophisticated and requires greater skills than the traditional product format. The number of pure product categories continues to diminish as organizations of all hues realize the importance of Services, and start adding relevant elements of this discipline to their offers. This often results in shifts of focus from manufacturing to marketing, and of drives by companies to acquire new competencies. A major social benefit of Services Marketing is that it promotes consumer rights, offers buyers more choices, and raises the quality standards of offerings in the market place. This is why Services Marketing has a kind of universal relevance, which gives it gradual ascendancy over the product sector. Marketing professionals have always known that purchase decision models have important roles for intangible and somewhat emotional elements of thinking by customers. Services Marketing takes this orientation by the horns and seeks to provide substance and structure to the efforts of all organizations to serve their customers better. The Internet has given Services Marketing a major fillip because it enables small and medium enterprises to extend their reach on a global platform. Flower, gift and food delivery services, which had hitherto operated on a most localized format, are now able to form global chains, with pin-pointed deliveries at any time and place of a customer’s choice. Digital technologies have also shortened proprietary rights over tangible inventions and placed intangible value delivery at a higher and growing premium. The recent trend of Services growth at the cost of manufactured and concrete products seems set to continue in to the foreseeable future. References Bounfour, A. The Management of Intangibles: The Organisation's Most Valuable Assets. London: Routledge, 2003. Questia. 26 Apr. 2006 . Davies, G, Chun, R, Rui Vinhas Da Silva, and Roper, S. Corporate Reputation and Competitiveness. London: Routledge, 2003. Questia. 26 Apr. 2006 . Doherty, TL., and Horne, T. Managing Public Services--Implementing Changes: A Thoughtful Approach to the Practice of Management. London: Routledge, 2002. Questia. 26 Apr. 2006 . Geller, LK. Response: The Complete Guide to Profitable Direct Marketing. New York: Oxford University Press, 2002. Questia. 26 Apr. 2006 . Gottlieb, MR. Managing Group Process. Westport, CT: Praeger, 2003. Questia. 26 Apr. 2006 . Iacobuccid, D, ed. Kellogg on Marketing. New York: Wiley, 2001. Questia. 26 Apr. 2006 . John, J. Fundamentals of Customer-Focused Management: Competing through Service. Westport, CT: Praeger, 2003. Questia. 26 Apr. 2006 . Payne, A. The Essence of Services Marketing New Delhi Prentice-Hall of India, 2002 Read More