Growth and Importance of Services

Sales of services in both consumer and organisational markets are expanding. At home and overseas services are also being exported; in fact they are the fastest growing part of international trade.

Why? Freedom.

Freeing up personal time and freeing up business overheads. Consumers want services that free up their leisure time and organisations want services that free up their overhead costs.

Take organisations: subcontracting, out-sourcing, down-sizing or right-sizing – call it what you want, organisations today buy in more services from outside than ever before. Instead of having their own staff and equipment, they buy in many of those services as required.

Fixed overheads are cut by releasing staff and equipment tied up in canteens, computers, warehouses and delivery vehicles. Buying in services changes costs from fixed overheads to flexible variable costs.

As the organisation slims down, it becomes what Charles Handy calls ‘a box of contracts’ with most activities contracted out. By shedding the activities which they are not especially good at, organisations can focus on what they are excellent at – their core competencies.

The other activities, at which they are less competent, can be carried out by an outside supplier in a much more efficient and cost effective way. This has lead to ‘network organisations’ where access to skills is more important than ownership of those skills.

Now consider consumer markets – they also want more services. Longer working weeks and dual income families mean less leisure time; services like baby minding free up work time while services like cleaning and ironing free up limited leisure time. In a sense, consumers buy time when buying services. And with greater affluence consumers can now also afford to buy other services, some of which were once considered only available to the rich.

Services in both domestic and organisational markets are growing and so too are the demands on the marketing managers that supply them. The marketing of a service involves the management of people, productivity, production, processes, quality, physical evidence as well as the other typical marketing activities.

There are separate sections on each of these areas which are essential in the quest for success in the marketing of service.

Quality of Service

Managing levels of quality in services is more difficult than goods for at least two reasons: intangibility and individuality.

Whereas goods have tangible quality standards like size and weight, services have more abstract quality standards like time and happiness, for example queuing times or satisfaction scores respectively.

In addition, the individuality of employees and customers means quality – both real and perceived – can vary. The inseparability of production and consumption of services means customers can participate in the process of delivery.

This means the quality of the service is partly dependant on customer performance. The perceived quality of a self-service restaurant is very low if it is untidy – regardless of who makes the mess, whether it’s customers or staff.

The individuality of employees’ and customers’ performances complicates the quality equation and deepens the marketer’s fascination with human nature and its effect on service quality.

So how do you define and measure quality in services? There are many criteria but here are five: Reliability, Responsiveness, Assurance, Empathy and Tangibles.

Tangibles include physical evidence such as staff, uniforms, buildings – do they project the desired quality image?

High scores across all these criteria would be very nice – it may even differentiate your service from competition. But how can you afford it and does the customer want it ? Will they pay for it? And does the level of service match the desired positioning?

Quality control has a major impact on the financial situation. Research shows that on average, businesses with poor service quality ratings earn low margins and lose market share each year.

Quality is all about expectations and subsequent performance. Customer expectations are created firstly by the promises made in advertisements and other communication tools, and secondly by customers’ previous experiences.

Performance is primarily delivered by staff. You can see how they influence quality in the section on ‘People’.

Services are high in credence qualities – which make measuring quality, even after the event, difficult.

Customer expectations and subsequent perceptions about quality are often based on their unquantifiable subjective feelings.

Marketing managers on the other hand, can objectively measure through surveys and maintain high levels of quality in services – if there is a quality orientation, a customer orientation and an overall marketing orientation permeating every aspect of the organisation.

Extended Mix

One of the most common approaches to the marketing mix for products is Jerome McCarthy’s 4 ‘P’s. Product, Price, Place and Promotion are combined together in such a way that customers can learn about a product, and buy it at affordable prices from a convenient place. But 4 ‘P’s are not enough for services.

Because of their intangibility, perishability, variability, inseparability, combined with simultaneous production and consumption, services also need to expand the mix to accommodate other key ingredients required by successful services.

Booms and Bitner added 3 ‘P’s: Physical evidence, Processes of producing the service, and People.

Firstly, the physical evidence includes the way a place of service looks, feels and smells. These can influence a customer even before entering the place of service.

Secondly, the people, or staff, who produce the service are really front-line marketing people, as well as production people. The staff behind the counter are the organisation’s ambassadors – part of its PR team. They are also part of the marketing research team, sales team and marketing team. Staff have many responsibilities and much potential.

Thirdly, the process of actually producing the service. Customers can see it all, or at least a lot of the process. They can also participate in the process, depending how much a manager wants to save money and involve them as part of the experience they buy. Whatever the process, it should make it easy to do business – in other words the process should help and not hinder.

There is a section on each of these three ‘P’s where you can explore them in more detail. Incidentally, there is also the Hall Of Fame where you can meet the gurus and find out what they have to say about the difference (if any) between goods and services and whether it is possible to give too much service.

To conclude: there are many similarities in the marketing of goods and services. Aspects of all three of the services’ ‘extra’ ‘P’s may be present in the marketing of goods. It is however the different emphasis of Physical evidence, People, and the Process of production that make the marketing of services a little different from the marketing of goods.