In last three decades the service sector has grown in Europe at a rapid pace. According to Euromonitor reports, between 1970 and 1997 around half a million new jobs per year were created in the service sector in Europe.
Gronroose (1984) suggests that more and more countries are becoming post-industrial societies and service economies. A country is believed to be a service economy where half of its labour force is employed by the service sector.
Palmer (2005) believes that services have a multiplier effect on economies and gives an example of the development of London’s Millennium Dome in Greenwich. The hosting of the Olympic Games will initially create direct employment and then demand will go to service sectors like hotels, tourism and transport. This in turn can create demand for additional building materials and infrastructure. This multiplier effect will give a boost to the economy (Palmer, 2005).
1.1 Defining Marketing in Services Context
Marketing puts the customer at the focus of all a company’s considerations. Some basic tasks of the marketing functions such as requirement to identify the ever-changing needs of the customer and the continuous search for new opportunities in markets are present in all truly marketing-oriented organisations, it covers all areas of a company’s activities (Palmer, 2005).
Kotler et al. (2005) define service as an activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product. Similarly, Gronroose (1984) defines service as the objects of transaction offered by firms and institutions that generally offer services or that consider themselves service organisations.
Jobber (2004) states that the main characteristic that distinguishes services is the relative dominance of intangible attributes that make up a ‘service product’. Services can be called a special type of product. They usually require special understanding and special marketing efforts. Services that are pure in nature do not result in ownership, although they may be linked to a physical like after-sales service of an automobile and one-year maintenance contract of a computer etc.
Marketing of services is considered more complicated as compared to marketing of products due to some specific characteristics of services. Selling services presents some special problems which call for special marketing solutions.
2.0 Service-based Organisations
Service Industries are an integral part of economies. The jobs in services not only include those in banks, hotels, airlines, law firms, telecommunications and others, but also those of corporate lawyers, medical staff and sales trainers because product-based companies also market tangible goods with accompanying services (Palmer 2005). Kotler et al. (2005) state that Service Industries vary greatly according to the nature of services offered.
Ghobadian et al. (1994) state that the service sector encompasses a diverse and complex range of organisations and enterprises. These include:
2.1 Do Service Organisations Differ from Manufacturing Business?
The service-based organisation has some special characteristics which need to be looked at in a special way taking the nature of business into account. Service organisations have to plan their strategies and actions differently from companies selling products. The special nature of services makes it more complex and keeps the process continuous.
Macdonald (1994) stresses that service organisations are different: “The successful implementation of the process requires that the differences are fully understood. Some differences are generic to the whole service field and others are specific to certain sectors of the service aspect.”
2.2 Distinguishing Characteristics of Services
Kotler et al. (2005) state that services have a number of characteristics which differentiate them from goods and have implications for the way they are marketed. A company must take into account five service characteristics when designing marketing programmes. These characteristics are often described as intangibility, inseparability, variability, perishability and lack of ownership (Palmer, 2005).
Adapted from Jobber (2004)
Jobber (2004) states that pure services cannot be seen, tasted, touched or smelled before they are bought. That is why they are called intangible. Furthermore, Palmer (2005) believes that service is an abstraction which cannot be examined before it is purchased. Pure services have no tangible properties that can be used by consumers to verify advertising claims before it is purchased, unlike products.
Jobber suggests that the challenge for the service provider is the usage of tangible cues to service quality. For instance, a tourism firm can show pictures of exotic destinations, display testimonials from satisfied customers and provide details in attractive leaflets and brochures (Jobber, 2004; Palmer, 2005).
The production and consumption of tangible goods are two different activities. Goods are usually produced in one location and then transported to the place where customers want to buy them. In this way the manufacturer can achieve economies of scale by centralised production and centralised quality control checks. Furthermore, the goods can be produced at one convenient time and can be delivered later (Palmer, 2005).
On the other hand, the production and consumption of services are inseparable and the producer and consumer must interact in order for the service to be performed. Palmer (2005) points out that whether the producer is human, for instance in the case of health care services, or the producer is a machine, such as an ATM (cash machine), the service is only realised when both producer and consumer interact.
Jobber (2004) believes that service quality is usually subject to considerable variability which makes it hard to standardise. Variations in quality among physical products may be subject to better controls through centralised production, automation and other quality control and checking procedures before getting out of factory. However, in services the performance is often conducted at multiple locations by different people who may vary in behaviour, attitude etc. Services are also subject to simultaneous production and consumption.
Palmer (2005) suggests that variability not only has an impact on customers, but also in terms of processes and productions. It is usually not possible to keep on delivering a standardised service for a long time.
Consumption cannot be stored for the future so the term ‘perishability’ is often used for this phenomenon. To give an example, an airline seat if not occupied today cannot be stored. If no one will buy that seat for a specific flight then it will be considered lost income and it cannot be gained later. The same applies to other services like bus seats, hotel rooms etc. Palmer (2005) provides another example of a hotel in that if rooms are busy on specific days but empty for another set of days such as weekends, then the task of the marketer is to provide incentives for weekend use. Incentives may involve discounts and leisure activities packages etc. It is very important to match supply and demand for services.
Differential Pricing technique: Jobber (2004) suggests that demand can be manipulated and smoothed by offering differential pricing to encourage customers to use services during off-peak hours. For instance, lower call rates in the afternoon, lower ticket prices for the cinema on weekdays etc.
2.2.5 Lack of Ownership
Another characteristic of a service is the inability to own it. It is related to the characteristics of intangibility and perishability. In the goods market a buyer usually acquires some product and uses it as they wish. However, in service performance no ownership is transferred from the seller to the buyer.
The inability to own a service has implications for the design of distribution channels (Palmer, 2005).
2.3 Marketing Mix for Services Organisations
The marketing mix for service sector is predefined one and it covers more areas and is considered comparatively complicated. Palmer (2005) describes the extended marketing mix as a breakaway of service offering down into components parts for better manageable subject areas. This breakdown helps in making strategic and tactical decisions. The emphasis on each element of services mix depends on the type of service offered. For example, in a highly automated service like vending machine dispensing, people will be a less important element as compared to a highly people-centred environment such as a restaurant.
The traditional Marketing Mix elements are as follows:
These are followed by the extended marketing mix elements which combine to make the Services Mix:
In services, the product is actually the service to be offered or performed. Despite the fact that it is intangible in nature but it is still hard to distinguish it as a separate entity. Kotler et al. (2005) present the fact that service is intangible and it cannot be called a product, but there is a considerable amount of criticism present which contrasts this theory. Palmer (2005) stresses that pure services are best defined using process descriptions rather than tangible outcomes. Elements of the product mix like brand image, design, reliability and product range does not apply in the way it applies in the goods market.
The pricing mix decisions include the decisions to charge prices, discounts, payment methods and terms, and it also involves the extent to which price discrimination has to occur. The intangible nature of service usually indicates that price itself can become an indicator of service quality (Palmer, 2005). An example is Emirates Airlines that charges more fares on almost all major routes and generally it is considered that quality of service is much better than others airlines who ask a lower price.
Palmer (2005) believes that the promotion of service should focus on apparent tangibility of service. It also has to consider processes as well. Unlike goods marketing, in services, production staff can themselves become a significant element of the overall promotional efforts.
Place has an important role in the service marketing mix. The place of service performance should be easy to reach and convenient. In fact, it all depends on the nature of the service offered. Place decision can involve physical location decision, decision of which intermediary to use in making the service accessible to consumers and non-location decisions which make the service available, e.g., use of the Internet in taking orders etc. (Palmer, 2005).
Palmer (2005) believes that people are a vital element of the marketing mix for most services. Unlike manufacturing industries, in service markets the employees of organisations are considered the ‘face’ of the organisation. Their behaviour, acts and responsiveness have a direct impact on the customer perception about the company and its quality of service.
The element of people becomes most important in those services where staff have a high level of contact with customers. The planning of the marketing mix also involves developing a pattern of interaction between customers themselves, which is very important where service consumption takes place in public, and by developing a physical environment which affects the behaviour of the customer (Palmer, 2005).
Services are intangible in nature so consumers are unable to judge the service before it is consumed and it increases the risk present in the purchase decision. The marketers’ task in this area is to provide some tangible evidence of the nature of service in some form (Palmer, 2005). For example, a brochure can give pictures of holiday resorts, evidence of hotel, transport etc. Similarly a flyer of a home delivery food service can show pizzas, drinks and other items to make it evident for the potential consumer. Furthermore, staff can also play an important role in giving proof of better service like a restaurant manager wearing a suit and he is well presented then the customer will perceive that the overall service is clean, tidy and professional (Jobber, 2004; Palmer, 2005).
According to Palmer (2005), the service firm has no products it only has processes that are interactive with each other. The production processes of products/goods can be of no or very little interest to buyers. On the other hand, the service consumer is closely linked to those processes.
John (1999) believes that service operations depend on the customer to provide the information that is raw to be transformed into the service output.
In another segment of the service sector, the customer processing operation, the customer who enters the system is the recipient, and possibly the participant such as in a hospital, X-ray etc.
3.0 Management Issues of Services
Services have their own differentiated management styles and there are problems related to them. Due to the distinct nature of services and also depending on service types, managers have to deal with different issues. These issues start from examples like the extent of customer involvement. Management of services not only contains issues directly related to offering and running services, but covers a number of areas. These are: Customer Relationship Management, Service Productivity Management, Service Quality Management and last but not least Service Personnel Management.
3.1 Customer Relationship Management
Once customers have been connected to the service provider, then their long-term relationship with their service provider is important for the overall success of the company operating in a highly saturated and competitive market.
Ganesh et al. (2000) in their work argue that loyal customers build businesses by buying more services, paying premium prices, and providing new referrals through positive word of mouth over time (cited by Aydin and Ozer, 2005).So the capability of a company to retain its existing customers and make them loyal to their brands has become a major issue for service providers. For example, a current issue is that of telecommunication companies which are losing 2–4 percent of their customers monthly. This is becoming a problematic concern because disloyal customers can amount to millions of lost revenue and profit
(Aydin and Ozer, 2005).
3.1.1 Methods of developing Buyer-Seller Relationships
Palmer (2005) states that the possibility of developing relations occurs only when parties are aware of each other and their mutual wish to enter into exchange transactions. Entering into a relationship means that buyers and sellers have to make a series of promises to each other. In the early stage the supplier has to fulfil the promise of good service and to meet the customer’s expectations. The actual performance determines the customer’s perception of quality.
Recording Customer Information: Many companies keep records of customer information for the future of benefit of both parties. These records can be used to build databases whereby customers are kept informed of new offers and special deals (Palmer, 2005).
Financial Incentives: Financial incentives are usually given to loyal customers as a reward. These can range from simple discount vouchers to club level schemes.
Making Re-ordering Easier: Information about individuals can be retained in databases so that next time the customer only has to give a reference number and can re-order quickly (Palmer, 2005). This practice is common in online transaction websites.
Equal Distribution of CRM in all Departments: It is not only the duty of relationship department to keep relations with customers going. People from other departments should also be trained to deal properly with customers. To achieve high levels of satisfaction requires the effort of all functions within an organisation (Palmer, 2005).
3.1.2 Customer Loyalty and Retention Strategy
Many companies have developed customer loyalty programmes and retention strategies. These strategies comply with the nature of service and type of business. There is an important model which explains customer loyalty. This model is called the European Customer Satisfaction Index (ECSI) and explains customer loyalty using the constructs of trust and communication.
European Customer Satisfaction Index Model (ECSI Model) – Source: Ball et al. (2003) (2004)
This means that loyalty is not linked to one area of service, but is interlinked to a number of factors which strengthens the overall relationship and effect on loyalty either in positive or negative way.
A retention strategy needs to look at a number of areas from expectations to satisfaction, complaints etc.
Palmer (2005) suggests a method of making customers loyal by making structural bonds where buyers are tied to sellers. Structural bonds means investments that cannot be retrieved when a relationship ends or when it is difficult to end a relationship due to the complexity and cost involved. An example is the contract phone service in UK.
3.2 Service Productivity Management
Jobber (2004) defines productivity as the measure of relationship between an input and an output. There could be conflict between enhancing service productivity (efficiency) and raising service quality (effectiveness). For instance, a GP who reduces the time of consultation per patient or a college which increases class size raises productivity at the risk of lowering service quality. The emphasis should be placed on efficiency, but not at the cost of service quality. A company may get extra profits by focusing on efficiency rather than quality for the short run, but in the long term it can cause some serious damage to the company itself by losing customer share due to dissatisfied customers. Managing a blend of efficiency and service quality at the same time is a key task of a service operator.
3.2.1 Technology Usage
Technology can be used to improve productivity (Jobber, 2004). For example, in libraries, the automatic book issue and return machine can raise the throughput of borrowers. Automatic cash dispensers in banks and stores increase the number of transactions per period while reducing customer waiting time. Similarly, vending machines can increase the number of drinks sold, increasing efficiency and giving customers a convenient location and accessibility thereby increasing service quality at the same time (Jobber, 2004).
3.2.2 Customer Involvement
Jobber (2004) believes that inseparability between production and consumption gives an opportunity to the service provider to increase both productivity and service quality. For example, self-service petrol stations improve productivity per employee and reduce customer waiting time.
3.2.3 Yield Management
Balancing supply and demand is a key determinant of productivity. For example, hotels that remain half full display low productivity. By smoothing demand or increasing the flexibility of service supply, managers can achieve both productivity and service quality. Lovelock and Wirtz (2000) describe yield management as controlling customer demand through the use of variable pricing and capacity management to enhance profitability. Most of this work is mathematical and technical instead of managerial. Yield management is important to both traditional and modern service business models. Effective use of strategic levers of pricing mix can help capacity-limited organisations to be more profitable by effectively utilising their resources.
3.3 Service Quality Management
Service quality is one of the main components of service marketing. Management of service quality up to high standards is a continuous and rigorous task. It requires common management sense and modern analytical and benchmarking tools.
3.3.1 Importance of Service Quality
Quality of service is the way in which a service is delivered which eventually influences the degree of satisfaction with that service (Groth and Dye, 1999).
According to Ghobadian et al. (1994), the term quality can be defines as innate excellence as well as unit of goodness packed in a product or service.
Ghobadian et al. (1994), stress that organisations with perceived high quality services usually have higher market share and higher profitability than companies with perceived low quality. This led them to the conclusion that in the long term, the most important factor affecting business performance is the quality of goods and services offered by the organisation, relative to its competitors.
Service quality is considered a critical determinant of competitiveness.
Attention to service quality can help an organisation to differentiate itself from other organisations and eventually gain a lasting competitive advantage (Ghobadian et al., 1994).
Palmer (1995) argues that the high quality of service is considered an essential determinant of the long-term profitability not only of service organisations, but also of manufacturing organisations. In some manufacturing industries service quality is considered a more important order winner than product quality. Superior service quality is a key to improved profitability, and not the cost of doing business (Groth and Dye, 1999).
3.3.2 Expected and Perceived Service Quality
Groth and Dye (1999) argue that a service (contemplated, expected, or received) is different from perceptions of quality of service. Moreover, customer criteria actually determine the proper definition of quality and the variables that affect perceptions of quality.
Perceptions of quality before the delivery of service and perception formed after the service can be different. In service delivery and in the perceptions of quality of service, divergence between perceptions and reality is a source of risk, and the greater the divergence, the greater the risk that post-perceptions of service quality differ from expectations before the service.
Jobber (1994) states that for many companies high standards of service quality remain hard to define.
Source: Flanagan et al. (2005).
3.3.3 Barriers to the matching of expected and perceived service levels
Jobber (2004) suggests the causes of perceived poor quality. These causes are the barriers that separate the perception of users from actual service quality to their service expectations.
(Adapted from Jobber, 2004.)
These barriers are further explained by Jobber (2004) as follows:
The Misconception Barrier: The misconception barrier comes from the misunderstanding of management about the expectation of the customer. There are some important service attributes which matter most to customers in evaluating a service. Lack of marketing research can lead managers to misconceive these important attributes. For example, a restaurant manager may believe that serving food quickly and shortening the gap between starters, main course and dessert satisfies the customer, while the customer actually becomes more satisfied by having a pause between eating and may need time to relax and talk (Jobber, 2004).The solution for eliminating these misconceptions lies in marketing research and understanding customers properly.
Inadequate Resource Barrier: Customer expectations may be understood by managers but they may not be ready to provide adequate resources to fulfil those expectations. The reasons for not providing such resources can be cost reduction, productivity emphasis or may be the inconvenience it can cause.
Inadequate Delivery Barrier: In this case, managers may understand customer expectations and be able to supply adequate resources, but be unable to train and motivate staff properly. This results in poor and inadequate service. Examples of such cases can be inappropriate or untidy dress, lack of communication skills and lack of motivation to solve customer problems.
Exaggerated Promises Barrier/Lack of Promise Fulfilment: The most important thing in services is delivering what one has promised. Advertising and other marketing communications that build expectations to a level of pitch that cannot be fulfilled may leave customers disappointed even if they receive very good service. This barrier can be avoided by setting realistic promises.
3.3.4 Methods to Standardise Service Quality
Maintaining service quality to the level of satisfaction of customers is essential for the long-term success of the company. There are a number of ways to research and standardise services to a certain level. These methods are widely accepted in the service sector.
18.104.22.168 Benchmarking Studies
Palmer (2005) suggests that customer needs may be similar between different industries even when the service nature is quite different. So, there are many common issues which exist in every organisation and can be generalised. For instance, a pleasant environment, welcoming gestures, competent and helpful staff are a few such common dimensions.
Benchmarking is a term used to describe the process by which companies set standards for themselves and it is based on the study of best practices elsewhere. For example, benchmarks for waiting time in a retail store can be applied to a bank queue. There are a number of levels of benchmarking (Palmer,2005). Palmer presents six levels of benchmarking:
Performance Benchmarking: They are based on output measures, e.g., profit per customer, throughput per minute etc.
Process Benchmarking: The efficiency and effectiveness of customer handling procedures.
Strategic Benchmarking: Comparison of integrity of a company’s strategic plan with best practices in the industry.
Internal Benchmarking: Comparison of internal processes and structures.
Competitive Benchmarking: This is related to market share, price, sales etc.
Functional Benchmarking: This deals with the assessment of the performance of company functions with best practice. Functions can be advertising, promotion, sales etc.
22.214.171.124 Service Quality Research
There are a number of ways in which research can be done in service sector. Every method has its own implications and advantages as well as limitations. Palmer suggests nine methods which are in practice throughout service industry.
3.4 Management of Service Staff
It has been widely accepted that staff play an important role in the effective performance of services. Front desk or frontline staff are considered the lifeblood of a service organisation. Lovelock and Wirtz (2005) stress that employees are expected to be fast and efficient at performing operational tasks and at the same time they are expected to be courteous and welcoming in dealing with customers. Frontline employees are a key source of delivering service to high and competitive levels. In some cases, organisations can attain competitive advantage over others due to their efficient employees.
3.4.1 Challenges of Managing People
Lovelock and Wirtz (2005) suggest that the key requirement for achieving service excellence and customer loyalty is high performing and satisfied employees. The recruiting, training and utilising of service personnel is a demanding and challenging task as the company’s success or failure lies in the way its staff performs (Palmer, 2005).
Lovelock and Wirtz (2005) present some important practices in order to manage personnel properly:
Being the preferred employer: Competing in the labour market means having an attractive value position, good perception and generally a better reputation. Thus a firm has first to compete for talent market share. Understanding the needs of the potential employees is also an important factor (Lovelock and Wirtz, 2005).
Selecting the right people: Positions are filled by people with different skill sets, styles and personalities. So there should be different criteria for different roles in the services sector. Some people better work in the background while some people like to work in an interactive and frontline environment. Proper screening is required to select appropriate employees for the right positions (Lovelock and Wirtz, 2005).
Staff training: Investment in training can yield excellent results when a company has good staff. The challenge of training staff starts with making them understand company values and policies. Lovelock and Wirtz (2005) stress that emphasis is placed on giving them enough interpersonal and technical skills. Personnel should also understand about theservice properly, i.e, its knowledge, purpose, processes, etc. Training is a demanding job requiring patience and time. Once trained, the employees can become the life blood of the organisation.
4.0 Positioning the Service
The positioning strategy distinguishes a company’s service offers from those of its competitors in order to give the firm a competitive advantage within the market (Palmer, 2005). Companies must examine their opportunities and strengths and take a position in the market. In the service context, positioning can be defined by different scales. For example, a price that is charged can be a dimension of positioning strategy at the basic level.
4.1 Criteria of Positioning
Positioning can be based on various criteria such as service type, place, etc.
Palmer presents six criteria for positioning:
(Source: Palmer, 2005).
There is a considerable academic literature available which argues that services marketing is becoming a different discipline. Especially, when a major part of the economy relies on services then it should be dealt with in different way and should not be intermixed with traditional product marketing methods and strategies. Services are not only different in just basic characteristics, but the difference goes deep inside into the strategies and operations of a Service Organisation. That difference covers all dimensions of the services industry from Total Quality Management to Marketing and from Operations and Performance Management to Relationship Management, and one can identify the existence of a separate entity in the form of Services. A Service Organisation has to perform according to its own nature of service, employing the fundamental and advanced tools of services marketing instead of relying on traditional marketing methods.
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