Services Marketing

A family choosing a dental clinic cannot try the root canal before paying for it. A bus operator cannot keep tonight's empty seats for Saturday. Services raise problems that a packet of biscuits never does.

Services marketing creates value through experiences, processes and interactions. It is relationship-oriented, and the contact between customer and provider is critical. Five characteristics set services apart, and each calls for its own marketing response.

Perishability in rupees (an illustration). A 40-seat sleeper bus runs from Pune to Goa at ₹1,500 a seat. It leaves with 30 passengers. The 10 empty seats are worth 10 × ₹1,500 = ₹15,000, and that money is gone for good. If the operator sells 6 of those seats at ₹900 on the afternoon of travel, it earns 6 × ₹900 = ₹5,400 it would otherwise have lost. An extra passenger costs the bus very little, so most of that is profit.

This is demand or yield management: offering the right services to the right customers at the right places, times and prices. Perishability matters most when demand fluctuates. Transport firms must own enough buses or coaches for rush hour, and some doctors charge for missed appointments.

Managing the other characteristics. Buyers cannot see a service in advance, so they look for evidence of quality in the place, people, equipment, communication material, symbols and price. The provider's task is to manage the evidence and ‘tangibilise the intangible’. Variability can be reduced in three steps: invest in good hiring and training, standardise the service process across the organisation, and monitor customer satisfaction. Service guarantees reassure buyers.

Goods and services mix. Few offerings are pure goods or pure services. Kotler and Keller place them on five levels:

Don't confuse intangibility with lack of ownership. Intangibility is about judging before you buy: you cannot inspect a haircut in advance. Lack of ownership is about what you hold afterwards: a hotel guest uses the room but never owns it. Kotler and Keller list only the first four characteristics; some textbooks add lack of ownership as a fifth.

Where it breaks. The characteristics describe typical services, not every service. A recorded lecture can be stored and replayed, so it is neither perishable nor inseparable. Christopher Lovelock and Evert Gummesson (2004) argued that these features do not hold across all services. They proposed non-ownership, paying for access or use, as the common thread.

For exams. The first four are often remembered as IHIP: intangibility, heterogeneity, inseparability, perishability. Expect match-the-pair questions (empty airline seats: perishability) and the five levels from pure tangible good to pure service.

Intangible, inseparable, variable, perishable, not owned.

Two coaching institutes on the same street charge the same fee and advertise in the same newspapers. One fills its batches and the other does not. The difference lies in the teachers, how admissions and doubt sessions run, and the classrooms students see.

Why three more Ps. Each added P answers one feature of services from the previous block:

• People answers inseparability. The provider is part of the service, so the teacher is part of what the student buys.
• Process answers variability. Fixed steps keep quality steady whoever is on duty.
• Physical evidence answers intangibility. Clean classrooms and good notes stand in for teaching quality that cannot be seen in advance.

In Valarie Zeithaml and Mary Jo Bitner's account, people include not only staff but also the customer and other customers present. A disruptive batch-mate changes the class for everyone, so admission rules are part of the mix.

Don't confuse process with place. Place is where and how customers reach the service: a branch, an app, a centre. Process is the steps the service follows once they arrive: token, queue, verification, payment.

Where it breaks. The added Ps overlap with the original four. Process can be seen as part of the product, and physical evidence as part of promotion. Some writers argue that a broadly defined 4Ps already covers them. Goods firms need people and process too, so the 7Ps are now used well beyond services.

In practice. Audit a service on all seven Ps from the customer's side. Weak people, process or evidence often explain lost customers better than price does.

For exams. Remember Booms and Bitner, 1981, and the three added Ps. Questions often ask you to match an item to its P: a uniform is physical evidence; a token system is process; a receptionist is people.

The 4Ps plus people, process and physical evidence.

A public-sector bank branch repaints its walls and buys new chairs. Complaints do not fall, because what customers minded was the long wait at the cash counter. The branch fixed something customers had not asked for.

SERVQUAL (A. Parasuraman, Valarie Zeithaml and Leonard Berry, 1988) measures service quality as the gap between customers' expectations and their perceptions of performance, on five dimensions. It grew out of the same authors' gaps model (1985).

How the score works. Customers rate each statement twice on a seven-point scale: once for what they expect, once for what they received. For each dimension:

A negative gap means the service falls short. Here are illustrative average scores for the bank branch:

The five gaps add up to −2.7, an average of −2.7 ÷ 5 = −0.54. The branch falls short overall. The largest gaps are reliability and responsiveness. Tangibles already beat expectations, so the new chairs could not help.

The gaps model explains where a shortfall comes from. Four gaps inside the firm lead to the fifth, the one customers feel.

Expectations. Customers form them from past experience, word of mouth and advertising. They compare the service they perceive with the service they expected. Falling short disappoints; exceeding expectations delights. Kotler and Keller list the five dimensions in order of importance to customers: reliability, responsiveness, assurance, empathy, tangibles.

The zone of tolerance (Zeithaml, Berry and Parasuraman, 1993) is the range between the desired and the adequate service level. Within it, variation in service goes largely unnoticed. A customer may hope to be served in 10 minutes and accept 20. A 15-minute wait passes without comment; a 35-minute wait does not.

Don't confuse the five dimensions with the five gaps. The dimensions (RATER) are what customers judge. The gaps are where the firm goes wrong. SERVQUAL measures gap 5 on each dimension; gaps 1 to 4 are its causes inside the firm. Also keep reliability (doing what was promised) apart from assurance (inspiring trust).

Where it breaks. J. Joseph Cronin and Steven Taylor (1992) argued that performance scores alone predict quality better than the difference score; their measure is SERVPERF. Expectations asked after the service may be coloured by it. Studies in different industries do not always find the same five dimensions.

For exams. Know RATER, the order and names of the five gaps, and the dates: gaps model 1985, SERVQUAL 1988, zone of tolerance 1993, Oliver 1980.

Reliability, Assurance, Tangibles, Empathy, Responsiveness.

A mobile operator's advertisement promises a fix in one call. The call-centre agent has no authority to reverse a wrong charge, so the customer calls four times. One part of the firm made the promise and another part broke it.

All three sides are needed. External marketing alone makes promises nobody is ready to keep. Kotler and Keller argue that the marketing department's most important contribution may be to be ‘exceptionally clever in getting everyone else in the organization to practice marketing’.

Two kinds of quality. In interactive marketing, clients judge both technical quality (was the surgery successful?) and functional quality (did the surgeon show concern and inspire confidence?). Christian Grönroos drew this distinction in 1984: technical quality is what the customer gets, functional quality is how it is delivered.

Don't confuse internal marketing with internal communication. Internal marketing treats staff as a first market. It hires, trains, equips and rewards them so they can keep the promises external marketing makes. A circular to staff is communication; giving the agent authority to reverse the charge is internal marketing.

Where it breaks. The triangle assumes an employee meets the customer. In self-service, at an ATM or in an app, the customer meets a machine. Later textbook versions add technology to the triangle for this reason. The model also says nothing about how much to spend on each side.

In practice. Before approving a new promise in an advertisement, check the other two sides. Can staff deliver it, with the training and authority they have? Will they, at the counter, on a busy day?

External, internal, interactive: promise, enable, deliver.

Two hotels in Jaipur have similar rooms and similar rates. One remembers that a returning guest wants a quiet room and no onions; the other hands him the same form again. Over time, the guest's choice is easy.

Well-managed service companies share several practices (Kotler and Keller).

What a lost complaint costs (an illustration). Suppose 200 guests a year have a bad stay at the Jaipur hotel, and each spends ₹20,000 a year there. If 40 per cent leave, that is 200 × 0.4 = 80 guests. Their business is 80 × ₹20,000 = ₹16 lakh a year. If quick, on-the-spot recovery keeps half of them, the hotel saves ₹8 lakh a year.

Service brands. As firms move from making products to delivering solutions and services, they build service brands. These depend on consistently high delivery. A pure service brand, such as an airline, sells mainly a service. Marketers must turn intangible services into concrete benefits and a well-defined experience, as theme parks do.

Brand experience has four dimensions, in the scale of J. Joško Brakus, Bernd Schmitt and Lia Zarantonello (2009):

• Sensory: what the brand does to sight, sound, smell, taste and touch.
• Affective: the feelings and moods it creates.
• Behavioural: the actions and physical experiences it involves.
• Intellectual: the thinking and curiosity it provokes.

Don't confuse profit tiers with yield management. Yield management varies price by time and demand, to fill capacity that would otherwise perish. Profit tiers vary the level of service by how valuable the customer is.

Where it breaks. Profit tiers can backfire when lower-tier customers see the difference and feel slighted. Standards measured in seconds can push staff to hurry rather than help. Some studies find that a well-handled failure leaves customers happier than no failure at all; others do not. That is no reason to tolerate failures.

In practice. Make complaining easy, and give front-line staff the authority and a budget to fix problems on the spot. Track complaints by cause, not only by count.

For exams. Expect the list of practices, QSCV, the 40 per cent figure, and the four dimensions of brand experience.

Customer-obsessed, committed, high standards, tiers, monitoring, complaints welcomed.