CHAPTER 15

Designing & Managing

Services
 NOTION OF A PRODUCT

• What is a product?
• A product is that which is offered to the
market (consumer) to meet an identified
need.
• Products can be classified as:
– Goods (tangibles)
– Services (intangibles)
 OTHER WAYS OF
CLASSIFYING PRODUCTS

• Convenience goods
• Shopping goods
• Specialty
• Unsought goods
• Consumer Goods
• Industrial Goods
• Type I versus Type II Products
 WHY CLASSIFY GOODS

• Why do marketers classify goods?

 DEFINING SERVICES
• What is a service?
• An act or performance offered by one person to
another. It tends to be intangible and does not
result in ownership of any of the factors of
production (Lovelock 2001)
• Economic activities that create value and
provide benefits. Services can be bought and
sold but cannot be held.
 DIFFERENCE BETWEEN
GOODS AND SERVICES
 Nature of the Product:
• 1. Goods are tangible things – ownership
possible
• 2. Services are intangible performances and
represent an effort – no customer ownership
possible.
  Customer Involvement in Production:
• 1. Goods can be produced and stored
• 2. Services are time bound, experiential with
lasting consequences
• 3. Benefits come from nature of performance
(cannot be touched, wrapped or taken away).
 DISTINCTIVE ASPECT OF
SERVICES
• To distinguish between goods and services use
scale from “Tangible Dominant” to
“Intangible-Dominant.”
• Pure Tangible goods (soap)
• Tangible good with some services (cars)
• Hybrid – combination of equal parts
(restaurant)
• Major Service with minor aspects of goods (air
travel)
• Pure service (baby sitting)
GOODS vs SERVICES (Cont’d)
 Quality Control Problems:
• 1. Goods are produces before they are
consumer and quality can be checked
• 2. Services produced as they are being
consumed -- in real-time.
• 3. Service personnel and customer
interact in the product therefore quality is
difficult to control. Training is therefore
essential.
 GOODS vs SERVICES (Cont’d)
 Inventory Issues:
• 1. Goods, because they are tangible, can be
produced, moved and stored until needed.
• 2. Services produced in real-time. Because
they are intangible, services cannot be moved or
stored. Service personnel may be hard to keep…
marketer must set-up facilities and hold labor in
readiness to create service (just like in a
production facility). This produces waste if there
is no demand for the service. To overcome this
firms use cross training so that personnel can do
something else if demand is low e.g., the person
stocking the grocery shelves may be trained to
also work at the checkout register.
GOODS vs SERVICES (Cont’d)
 Distribution Channels:
• 1. Goods distributed through identified
channels determined by the market coverage the
marketer desires. Hence in distributing goods,
marketers often make use of middlemen.
• 2. Service firms tend to depend on electronic
rather than physical distribution channels.
• 3. Service firms also combine service factory and
point of consumption into one to manage
customer and personnel contact. There is little
on no use of intermediaries (middlemen) in
service industries. The major task is managing
customers’ consumption behavior.
 CHARACTERISTICS OF
SERVICES

 Intangibility
 Inseparability
 Variability
 Perishability (Time Factor)
 CHARACTERISTICS OF
SERVICES (Cont’d)

• Services tend to be (a) more

intangible than tangible – consumed
not possessed, (b) simultaneously
produced and consumed, (c) be less
standardized and uniform than
goods.
 CHARACTERISTICS OF
SERVICES (Cont’d)
• Personnel is key in marketing services.
• Marketer must do a good job of marketing
to the internal customers (the employees).
• The quality of the service is inseparable
from the quality of the service provider.
• Performance shapes the service and
becomes part of the service.
• There is much room for customization,
because production and consumption
tends to be simultaneous.
 CHARACTERISTICS OF
SERVICES (Cont’d)
• Goods are easier to evaluate than services.
Because consumers cannot assess the quality of
an intangible, they look at and for tangible cues.
• In producing services, pay attention to those
aspects of the service that are tangible
(equipment and surroundings for example).
Marketers can manage the tangibles to convey
quality signals. View such things as physical
environment, appearance of service providers,
pricing, and goods that go with the services. This
tends to make the service tangible and helps the
customers perceived judgment of the service.
 CHARACTERISTICS OF
SERVICES (Cont’d)

• Since services cannot be inventories,

marketers must synchronize supply
and demand. This can be done by
reshaping supply (e.g. use part-time
employees, cross train employees,
have employees on call) or reshaping
demand (e.g. use of differential
pricing, pricing incentives).
 SERVICES MARKETING
MIX
• When marketing goods marketers focus on the
4P’s – Product, Price, Place, Promotion.
• Distinctive nature of services (intangibility,
customer involvement, perishability) require
other strategic elements
• Hence the Integrated Services Management
Model – 8 P’s
 Integrated Services
Management Model – 8 P’s
• Product – core features of goods & services
• Place & Time – delivery method & channel
• Process – effective design & implementation
• Productivity & Quality – transformation of inputs
& satisfaction derived by customer. This is a key
differentiation factor
• People – personal interactions affect perceived quality
hence attention to recruit, train & motivate personnel
• Promotion & Education – effective communication
(info, advice, and persuasion)
• Physical Evidence – appearance/atmosphere
• Price & Other User Costs – time, effort, sensory
experiences