What are the four major characteristics of service industries that affect the design of marketing programs?

With the rapid development of information and communication technology and increasingly intense competition with other organizations, information organizations face a pressing need to market their unique services and resources and reach their user bases in the digital age. We need to understand the relationship between quality and marketing in services and offer dozens of practical insights into ways to improve services marketing. Many marketers argue that superior service cannot be manufactured in a factory, packaged, and delivered intact to customers. Through an innovative service, the concept may give a company an initial edge, superior quality is vital to sustaining success.

This article tries to show that inspired leadership, a customer-minded corporate culture, an excellent service-system design, and effective use of technology and information are crucial to superior service quality and services marketing. When a company's service is excellent, customers are more likely to perceive value in transactions, spread favorable word-of-mouth impressions, and respond positively to employee-cross-selling efforts.

It is important to note that a service company that does relatively little pre-sales marketing but is truly dedicated to delivering excellent quality service will have greater marketing effectiveness, higher customer retention, and more sales to existing customers than a company that emphasizes pre-sale marketing but falls short during actual service delivery. The focus of any company, as I insist, must be customer satisfaction through the integration of service quality throughout the entire system.

Definition of Service Marketing:

Service marketing is marketing based on relationship and value. It may be used to market a service or a product. With the increasing prominence of services in the global economy, service marketing has become a subject that needs to be studied separately. Marketing services are different from marketing goods because of the unique characteristics of services namely, intangibility, heterogeneity, perishabil­ity and inseparability.

In most countries, services add more economic value than agriculture, raw materials and manu­facturing combined. In developed economies, employment is dominated by service jobs and most new job growth comes from services.

Effective services marketing is a strong service concept delivered well, the desired service performed excellently. This synergy of strategy and execution fuels service industry builders and leaders, from Domino's Pizza to Cable News Network (CNN), from Federal Express to Walt Disney World, from ServiceMaster to Southwest Airlines. Each of these industry leaders reflects special chemistry that combines a big idea and superior execution.

The big idea alone offers only a temporary advantage. Companies that pioneer successful new service concepts always face ambitious competitors unashamed to imitate. Pizza Hut had little choice but to add home-delivery service given the dynamic growth of Domino's. Federal Express's success ushered in a horde of new competitors -- and a climate of fierce price-cutting -- in the overnight mail business.

How does one go about marketing a service—a pet boarding and grooming service, for example? The challenges associated with marketing a service-based business are quite different from the challenges associated with marketing a product-based business. Service businesses have unique characteristics that should be explored and understood when developing a marketing plan and competitive strategy. The four key characteristics of service businesses are: Intangibility, Inseparability, Perishability, and Variability. Let’s take a closer look at each of these qualities so you can apply them to your service business. I will also provide some tips for dealing with the challenges inherent in each characteristic.

1) Intangibility. While services maybe intangible, the process of delivery and even the customer experience of the service is not necessarily so. Thus while service providers focus on pre purchase behavior they often fail to pay attention to customer experience during the process of service delivery, the nature of output (which may manifest in an observable physical change) or the learning outcomes of the delivery process.

When you buy a car, you can see it, feel it, and even test it prior to purchase. In other words, products have tangible qualities that provide information to consumers so they can easily compare one product to another. Services, on the other hand, are intangible. Most services cannot be experienced or consumed until the purchase is made. Customers can easily end up feeling like they have to make a purchasing decision without adequate information.

What is the answer to this challenge? Communicate, communicate, communicate. Communication can come from a variety of sources. The use of customer testimonials and referrals is an excellent way to reduce the level of intangibility for your service. Additionally, you can increase customers’ comfort level by explaining your service in as much detail as possible. If you provide your services at one location (e.g. a doggy daycare) you might consider allowing customer preview visits. Here is a tip: a well-designed brochure or website can provide information to customers before they talk to you, improving your overall efficiency and increasing your chances of securing new business.

2) Inseparability. Even this criterion does not hold true for all services rendered. Inseparability implies that the production and consumption of services is simultaneous. Thus, consumers need to be present and/or involved in the production process. In reality however, there are several services that are separable. Example: insurance, repair and maintenance where production happens prior to consumption and the customers need not necessarily be present at the time the service is rendered. The same is witnessed in the phenomenon of outsourcing of services.

To continue using the automobile analogy, cars are produced at one location, sold at another, and used at yet another location. Services are unique because they are usually provided and consumed at the same time in the same location (e.g. a haircut or car tune-up). Because of the characteristic of inseparability, customers have strong expectations about how a service will be provided, which can lead to disappointment if their expectations are not met.

A solid customer service process is the key to managing this challenge effectively. How do you ensure customer satisfaction? How do you deal with unhappy customers? If you don’t know the level of your customers’ satisfaction with your service, ask them!

3) Perishability. Even though this is true for a lot of services, there are several notable exceptions. In today’s information era there are several information-based services that can be recorded and saved in electronic media and reproduced on demand. Moreover, for greater clarity in this regard it is necessary to have a distinction between the perishability of productive capacity, of customer experience and of the output.

If a car does not sell today, it can be stored and sold the following day or at some other time in the future. Services, on the other hand, are often perishable, meaning that unused capacity cannot be stored for future use or sale. For example, a restaurant might be full one night and half empty the next. If the restaurant runs with an inflexible staffing model, expenses are the same each night. However, the revenue picture is quite different, which impacts profits. The same is true for Mt. Bachelor – every empty seat on the chairlift is lost revenue.

This challenge can be overcome by carefully managing supply and demand. A restaurant might operate with fewer staff during the week and hire additional staff to cover weekends when demand is higher. This strategy will allow the restaurant to provide the same level of customer service with varying customer demand—and improve productivity. Does your business have peak periods? What can you do to control supply and demand? Tip: Use pricing strategies and promotions to stimulate demand for your service.

4) Variability/ Heterogeneity : Heterogeneity of services is also not applicable to the services domain today. Across sectors and industries we see increased pressure for standardization of services. This is being achieved in some instances through automation such as through ATMs and vending machines. Even in cases where automation is not possible there is a greater focus on standardizing the service delivery process by way of service scripts and strict adherence to service cycles. For example, most fast food outlets and quick service restaurants follow the & steps of the service cycle that starts with greeting the customer (using standard phrases) through to saying goodbye.

Once you have decided to buy a Honda Accord, you know that there will be no variation in the quality of the Accord from one Honda dealer to another. Manufactured goods tend to have automated processes and quality assurance procedures that result in a consistent product. However, the quality of service can vary by many factors, including who provides it, where it is provided, when it is provided, and how it is provided. The more your business relies on humans to provide services (instead of automation), the more susceptible you are to variability.

How can you manage this challenge? Establishing standard procedures (or checklists) can ensure consistent service delivery. If you have employees, training is essential. Can technology improve an aspect of your business? One obvious example of technology’s impact is illustrated by ATMs reducing bank teller service variability for customers. Don’t forget the “little things” like invoicing and newsletters. Any time you have a “customer touch” you have an opportunity to demonstrate consistency and professionalism, which will translate into your customer’s perception that your service is consistent in quality.

Now put a few of these characteristics together to improve your competitive position. In order to be successful, a small service business must not only attract new customers, but it must also develop long-term relationships with existing customers. Take advantage of the opportunities offered by the characteristics of “inseparability” and “variability” to build trust and satisfy your customers—and earn their loyalty and referrals.

Thus the definition of services is not as clear cut as it was once assumed to be. Consequently this is one of the major challenges lying ahead for the field of Services Marketing.

As you explore the unique characteristics of your service business, do not become overwhelmed by the challenges they present. “Challenges” are simply disguised opportunities. Now that you have this information, turn one or more of these service characteristics into a competitive advantage for your business.

Superior execution is vital to sustaining the success initiated by an innovative service concept. An innovator's service quality is usually more difficult to imitate than its service concept. This is because quality service comes from inspired leadership throughout an organization, a customer-minded corporate culture, excellent service-system design, the effective use of information and technology, and other factors that develop slowly in a company, if at all. Entering the home-delivery pizza business is one matter. Performing this service as well as Domino's Pizza is quite another matter.

Strategic marketing decisions for services are complicated by factors that distinguish services from goods. Because services are intangible, variable, and the production and consumption experiences are inseparable, the trial of the identical service to be purchased cannot be offered. Services cannot be inventoried, so potential customers are lost if they are unaware of a particular service or it is unavailable during their time of need. Partially due to the difficulty of matching service supply to demand, service marketers typically assume that it is best to work toward retaining current clients, rather than focusing too much on attracting new customers.

If there is an ongoing or frequent periodic need for the service, it may indeed be less expensive to maintain an existing customer relationship than to build a new one; however, for services that customers require infrequently, the marketer must find ways to build awareness and attract new customers. Just as marketing strategies for manufactured goods depend on whether the items are frequently purchased or durable, more effective service marketing decisions may be obtained by considering whether customer needs are frequent or not.

Discuss these differences in general terms, then provide an application, developing an optimal promotion strategy decision model for an infrequently purchased service. We conclude that customers in the market for infrequently purchased services have particularly high needs for product awareness and purchase risk reduction, influencing strategic marketing decisions.

Service quality is the foundation for services marketing because the core product being marketed is a performance. The performance is the product; the performance is what customers buy. A strong service concept gives companies the opportunity to compete for customers; a strong performance of the service concept builds competitiveness by earning customers' confidence and reinforcing branding, advertising, selling, and pricing.

The first four elements in the services marketing mix are the same as those in the traditional marketing mix. However, given the unique nature of services, the implications of these are slightly different in case of services.

1. Product: In case of services, the ‘product’ is intangible, heterogeneous and perishable. Moreover, its production and consumption are inseparable. Hence, there is scope for customizing the offering as per customer requirements and the actual customer encounter therefore assumes particular significance. However, too much customization would compromise the standard delivery of the service and adversely affect its quality. Hence particular care has to be taken in designing the service offering.
2. Pricing: Pricing of services is tougher than pricing of goods. While the latter can be priced easily by taking into account the raw material costs, in case of services attendant costs - such as labor and overhead costs - also need to be factored in. Thus a restaurant not only has to charge for the cost of the food served but also has to calculate a price for the ambience provided. The final price for the service is then arrived at by including a mark up for an adequate profit margin.
3. Place: Since service delivery is concurrent with its production and cannot be stored or transported, the location of the service product assumes importance. Service providers have to give special thought to where the service would be provided. Thus, a fine dine restaurant is better located in a busy, upscale market as against on the outskirts of a city. Similarly, a holiday resort is better situated in the countryside away from the rush and noise of a city.
4. Promotion: Since a service offering can be easily replicated promotion becomes crucial in differentiating a service offering in the mind of the consumer. Thus, service providers offering identical services such as airlines or banks and insurance companies invest heavily in advertising their services. This is crucial in attracting customers in a segment where the services providers have nearly identical offerings.

We now look at the 3 new elements of the services marketing mix - people, process and physical evidence - which are unique to the marketing of services.

1. People: People are a defining factor in a service delivery process, since a service is inseparable from the person providing it. Thus, a restaurant is known as much for its food as for the service provided by its staff. The same is true of banks and department stores. Consequently, customer service training for staff has become a top priority for many organizations today.
2. Process: The process of service delivery is crucial since it ensures that the same standard of service is repeatedly delivered to the customers. Therefore, most companies have a service blue print which provides the details of the service delivery process, often going down to even defining the service script and the greeting phrases to be used by the service staff.
3. Physical Evidence: Since services are intangible in nature most service providers strive to incorporate certain tangible elements into their offering to enhance customer experience. Thus, there are hair salons that have well designed waiting areas often with magazines and plush sofas for patrons to read and relax while they await their turn. Similarly, restaurants invest heavily in their interior design and decorations to offer a tangible and unique experience to their guests.
4. Promotion: Since a service offering can be easily replicated promotion becomes crucial in differentiating a service offering in the mind of the consumer. Thus, service providers offering identical services such as airlines or banks and insurance companies invest heavily in advertising their services. This is crucial in attracting customers in a segment where the services providers have nearly identical offerings.

We now look at the 3 new elements of the services marketing mix - people, process and physical evidence - which are unique to the marketing of services.

1. People: People are a defining factor in a service delivery process, since a service is inseparable from the person providing it. Thus, a restaurant is known as much for its food as for the service provided by its staff. The same is true of banks and department stores. Consequently, customer service training for staff has become a top priority for many organizations today.
2. Process: The process of service delivery is crucial since it ensures that the same standard of service is repeatedly delivered to the customers. Therefore, most companies have a service blue print which provides the details of the service delivery process, often going down to even defining the service script and the greeting phrases to be used by the service staff.
3. Physical Evidence: Since services are intangible in nature most service providers strive to incorporate certain tangible elements into their offering to enhance customer experience. Thus, there are hair salons that have well designed waiting areas often with magazines and plush sofas for patrons to read and relax while they await their turn. Similarly, restaurants invest heavily in their interior design and decorations to offer a tangible and unique experience to their guests.

Services Marketing - Moment of Truth

Every business knows that in order to thrive it needs to differentiate itself in the mind of the consumer. Price has proved inadequate since there is a limit to how much a firm can cut back on its margins. Product differentiation is also no longer enough to attract or retain customers since technological advances have resulted in products becoming almost identical with very few tangible differences from others in the same category. Consequently, marketers have realized the importance of service differentiation as a sustainable strategy for competing for a portion of the customer’s wallet.

Service Encounter / Moment of Truth

A moment of truth is usually defined as an instance wherein the customer and the organization come into contact with one another in a manner that gives the customer an opportunity to either form or change an impression about the firm. Such an interaction could occur through the product of the firm, its service offering or both. Various instances could constitute a moment of truth - such as greeting the customer, handling customer queries or complaints, promoting special offers or giving discounts and the closing of the interaction.

Importance

In today’s increasingly service driven markets and with the proliferation of multiple providers for every type of product or service, moments of truth have become an important fact of customer interaction that marketers need to keep in mind. They are critical as they determine a customer’s perception of, and reaction to, a brand. Moments of truth can make or break an organization’s relationship with its customers.

This is more so in the case of service providers since they are selling intangibles by creating customer expectations. Services are often differentiated in the minds of the customer by promises of what is to come. Managing these expectations constitutes a critical component of creating favorable moments of truth which in turn are critical for business success.

Moments of Magic and Moments of Misery

Moments of Magic: Favorable moments of truth have been termed as ’moments of magic’. These are instances where the customer has been served in a manner that exceeds his expectations. Eg: An airline passenger being upgraded to from an economy to a business class ticket or the 100th (or 1000th) customer of a new department store being given a special discount on his purchase. Such gestures can go a long way in creating a regular and loyal customer base. However, a moment of magic need not necessarily involve such grand gestures. Even the efficient and timely service consistently provided by the coffee shop assistant can create a moment of magic for the customers.

Moment of Misery: These are instances where the customer interaction has a negative outcome. A delayed flight, rude and inattentive shop assistants or poor quality of food served at a restaurant all qualify as moments of misery for the customers. Though lapses in service cannot be totally avoided, how such a lapse is handled can go a long way in converting a moment of misery in to a moment of magic and creating a lasting impact on the customer.

Customer’s Expectations and Delight

Introduction

In today’s ultra competitive business environment merely meeting customer expectations is not enough. In order to effectively differentiate themselves from the competition, service providers need to focus on exceeding customer expectations to create customer delight and create a pool of loyal customers. Therefore, when deciding on a service delivery design, it is imperative for the service provider to consider the targeted customer base and their needs and expectations. This will help in developing a service design that will help the provider to effectively manage customer expectations leading to customer delight.

Customer Needs and Expectations

Customer needs comprise the basic reason or requirement that prompts a customer to approach a service provider. For instance, a person visits a restaurant primarily for the food it serves. That is the customer’s need. However, the customer expects polite staff, attentive yet non intrusive service and a pleasant ambience. If these expectations are not properly met the guest would leave the restaurant dissatisfied even if his basic requirement of a meal being served has been met. Thus knowing and understanding guest expectations is important for any service provider.

Customer Satisfaction, Dissatisfaction and Delight

Based on the quality of the service experience a customer will either be satisfied, dissatisfied or delighted. Knowing a customer’s expectation is instrumental in developing a strategy for meeting and exceeding customer expectations.

1. Customer Dissatisfaction: This is a situation when the service delivery fails to match up to the customer’s expectations. The customer does not perceive any value for money. It’s a moment of misery for the customer.
2. Customer Satisfaction: In this case, the service provider is able to match the customer’s expectations and deliver a satisfactory experience. However, such a customer is not strongly attached to the bran and may easily shift to a competing brand for considerations of price or discounts and freebies.
3. Customer Delight: This is an ideal situation where the service provider is able to exceed the customer’s expectations creating a Moment of Magic for the customer. Such customers bond with the brand, are regular and loyal and will not easily shift to other brands.

Meeting and Exceeding Customer Expectations

Exceeding customer expectations is all about creating that extra value for the customer. The hospitality industry specializes in creating customer delight.

Example, most 5 star hotels maintain customer databases detailing room order choices of their guests. So if a guest has asked for say orange juice to be kept in the mini bar in his room, the next time that he makes a reservation at the hotel, the staff ensures that the juice s already kept in the room. Such small gestures go a long way in making customers feel important and creating customer delight.

Another novel way of exceeding guest expectations is often demonstrated by travel companies. Since, they usually have details on their customers’ birthdays, they often send out an email greeting to their guests to wish them. This not only makes an impact on the guest but also helps to keep the company acquire ‘top of the mind recall’ with the guest.

How to Maintain Competitive Edge in Service Industry

In the present times, doing business has become an extremely competitive game. This is true not only for the product industry but to the service industries as well. In case of service industry, the competition to be at the top and be the market leader is tougher simply because of the fact that service is all about intangibles unlike the product industry that sells a tangible product.

In a bid to grow and tap the market, the service companies in all sectors be it the hospitality, airlines or banks, all have been investing heavily into technology and bringing in standardization of service process and delivery operations. If you look at the marketing and sales channels adopted by the service industry, they tend to follow the same as product industry. Over a period of time, there is a very high chance that the service companies start looking at their business in the same way that the product companies do and the core service delivery part of their business might get sidelined.

When you go to a hotel, you are definitely taken in by the décor, their systems and procedures etc. However what makes you enjoy your stay and revisit the hotel or the restaurant has to do with your experience that you enjoy. A lot of other factors like the personal touch, quality of customized service, the attitude of the people serving as well as the efficiency and quality of service come into the picture. Therefore if the hotel s were to have the right processes and miss out on its personalized service aspect, it would fail to build customer loyalty, little realizing where it is going wrong.

Take the case of management consulting companies. No matter when tangible processes and tools they use to engineer their solutions, it is the consultants depth of experience and the knowledge that holds the key to the success of their solution. In such a case, if the company relies on its technology and tools to promote or market themselves, it does not attract the attention of a client who is looking for a solution.

What we are simply trying to say here is that, the service companies should realize that it is the core service intangibles that make the service offering and gives the service companies the competitive advantage and over a period of time, this point should not be lost sight of. The service continuum that is pursued by each of the service companies may be different. For example, two restaurants selling pizzas may pursue different service goals. One might focus on the home delivery service and the other might focus on the fastest delivery. The way that each company would need to pursue their respective core service goal would be different. The restaurant that wants to pursue the ‘home delivery segment’ would probably set up a separate order and delivery counters for home delivery. The packaging and the menu might be different for this section from that offered at the restaurant. The second company pursuing the fastest delivery would put in place a time-based order to delivery process and customize its menu as well as the delivery process to suit this goal.

Today all of the banks are heavily investing in technology and offering internet-based services to the customers. So when the customers are able to use similar systems and obtain the same standard of services, which bank would they choose to bank with?. Obviously, the customers will look at the value addition that the bank is giving to its customers and choose to go with one whom he finds more beneficial. The value additions can come in the form of account management, expert advice, availability of umbrella products like investment options, insurance etc under one roof.

The banking sector in the current scenario gives us the perfect example to study how the service companies need to focus on their intangible services and not on the tangible service delivery systems to make a difference in the market.

Getting Ahead of the Race in the Service Industry

The service industry today dominates the economic scene in all the countries. Over a period of few decades we have seen the rise and unprecedented growth of the service industry in almost all sectors including technology and telecommunications, health care, education, media, Utilities, financial and banking sector, etc.

Service industry's growth has been characterized by focusing on customer service which hereto pushed the product companies too to reorient themselves to look at the customers first. The concept of ‘Customer Is The King’ has come about thanks to the Service industry. In the next cycle, we see service companies have embraced technology and used technology to upgrade their service offerings altogether. This is true in all of the service sectors including the traditional hospitality and travel industries as well. Technology not only helped the service industries to scale up their business operations, it helped bring about standardization in the operations and service delivery mechanisms. At this point we see service industries beginning to align themselves to product industry culture of standardizing operations and processes and embracing the same principles of operational efficiency, quality of service and other concepts. They have also borrowed the concepts of process re-engineering and other costing methods to manage their business operations.

Today we believe that the service industry is in a mature stage. Competition in the Service industry is tougher than the product industry simply because one is dealing with intangible services and customer experience as well as perceptions which can be highly subjective. What we see is that all of the service industry players in all segments have been using technology and standardized processes as enablers of their business. In the rat race, there is every chance that the service company loses its focus on the service experience as one of its deliverables and gets busy in pursuit of revenue targets and market share. This danger of forgetting that one is in the business of delivery customer delight and satisfaction in terms of experience may be lost sight of.

When all of the companies given a similar scale of operations are following the same standard procedures and similar systems to manage their business, how does one become a market leader?. The answer to this question lies in ‘doing things differently’. Take a look at the airline sector for example. When the competition is so stiff, two companies have thrived amidst tough competition. South West and Virgin Atlantic have managed to become leaders by innovating themselves differently from that of competition. Southwest grabbed attention with its no-frills flying and offering the cheapest airfares, while Virgin Atlantic has built not only a business but a brand successfully. If you read the Virgin Atlantic case study, you will realize that the airline has invented many ‘Firsts’ in customer service by offering a brand new in-flight experience with entertainment as well as in-flight services including personalized services such as foot massage, customized meals, etc in flight. They have followed this up with specialized origin and destination services offering company chauffeur-driven cars from the airport including special services such as ‘drive-in check-in’ at certain airports. According to Richard Branson - “A brand name that is known internationally for innovation, quality and a sense of fun is what we have always aspired to with Virgin.”

Those companies that realize the value of their core service offering and focus continually on innovating their service offering and ensuring increased customer benefit and value will naturally find themselves ahead of the game in the long run.

Leadership in Service Industry

The past few decades have seen unprecedented growth of the service industry. In fact we can today say that the service industry is at its maturity stage. The gamut of services that make up for the significant contribution towards the GDP of the economy is numerous ranging from financial services, health care, hospitality, travel, insurance, information services, retail, utilities, information technology-enabled services including social network and media services, etc.

One of the prominent features of the service industry that we see is the use of technology and standardized processes to drive operations. Every company makes investments into technology and offers a gamut of services to the customers. Every service company tries its best to increase its operational efficiency and protect its bottom line while trying to increase its market share. Doing business efficiently and offering the best service at the cheapest rates is what these companies are aiming to achieve. In the bargain most service organizations tend to lose out in the long run and fail to see real healthy growth in revenues. This happens only because they have failed to perceive the right direction and leadership strategies for service companies. Most often these companies are found to have adopted the strategies and plans that are appropriate for the ‘Product’ companies.

A service company needs to create that edge by doing things differently from the others while continuing to strive for operational excellence and efficiency from within. While competition can easily duplicate the service offering, maintaining leadership calls for a different mindset and thinking in terms of continuous innovation and providing an enhanced value of customer experience and service.

Southwest Airlines, McDonald’s, Wal-Mart and credit card companies like Bank of America, Citi Bank credit cards have grown to become leaders in their market segment globally not only because of their service offerings and competitiveness but by design to become customer-centric Organizations that are driven to innovate all the time and outperform themselves all the time. The major difference is that these organizations are built and think differently than the rest of the companies. These organizations too are driven by the same philosophy of operational efficiency, excellence, and quality, etc. But the difference lies not in their procedures but in the people that manage the operations and the management. Each of these companies has tried to achieve excellence by choosing to focus a few value propositions and create a customized service experience that is difficult to be copied or matched by the competition. When Bank of America introduced its credit cards in the market, they chose to build such robust processes and equipped with the technology they promised the fastest delivery of credit cards to the customers, which no other company could match at that point of time. The pain of having to apply and wait for the card to reach the customer through the mail after due verification and authentication was something that this bank chose to attack and work to address this major pain point. While the rest of the credit card offerings would have been the same as the others in the market, they managed to score over the others and managed to establish their leadership overnight. This was not all, the company further went on to provide enhanced value to personalized customer service to customers. Any customer could expect the customer service to be flexible and go out of the way to facilitate the customer’s special requests. The bank is a service industry had got its focus and strategy just right.

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