Services Marketing Overview and Insights
Services Marketing Overview and Insights
The publication of Services Marketing is very timely. Marketing practice in the service sector
continues to evolve rapidly and more and more business schools are offering courses in
services marketing. At the same time, a growing number of service industries now find
themselves competing in an international environment. With greater academic commitment
to the field has come increased student interest in understanding management issues in
services. Meanwhile, managers working in the service industries report that manufacturing-
based models of business practice are not always useful and relevant to them in their work.
Services marketing first emerged as an academic field during the 1970s. It was distin-
guished from the start by the contributions and collaboration of both European and North
American researchers, as well as by active participation from research-oriented business
practitioners. Bilingual seminars on services were held in France as early as 1975 under the
sponsorship of the Institut d’Administration des Entreprises (Université d’Aix-Marseille).
Other service marketing conferences on both sides of the Atlantic brought together
Europeans, including members of the Nordic School (representing Finnish and Scandinavi-
an researchers) and North Americans. In recent years, international conferences in locations
such as Dublin, La Londe les Maures and Stockholm have drawn participants from around
the world.
As defined by government statistics, services account for a major share of the gross
domestic product (GDP) in all member nations of the European Union, as well as being
responsible for most new jobs created in recent years. Even in developing economies, the
contribution made by services to both the GDP and employment is growing rapidly.
The service sector of the economy can best be characterised by its diversity. Service
organisations range in size from huge international corporations in such fields as airlines,
banking, insurance, telecommunications, hotel chains and freight transport to a vast array of
locally owned and operated small businesses, including restaurants, dry cleaners, hairdressers,
opticians, repair services, taxis and numerous business-to-business services. Franchised
service outlets in a wide array of fields combine the marketing characteristics of a large chain
offering a standardised product with the benefits of local ownership and operation of a
specific store or office.
Many services are concerned with the distribution, installation and upkeep of physical
objects; they include such diverse operations as retailing and warehousing, computer
installation and car repair, office cleaning and landscape maintenance. Increasingly, firms
that create a time-sensitive physical output, such as printing and photographic processing,
describe themselves as being service businesses. Governments and nonprofit organisations
are also in the business of providing services, although the extent of such involvement may
vary widely from one country to another, reflecting both traditions and political values. In
many countries, universities, hospitals and museums are in public ownership or operate on a
not-for-profit basis, but for-profit versions of each type of institution also exist.
Service industries continue to face dramatic changes in their environment, ranging from
developments in computerisation and telecommunications (including the Internet) to the
emergence of global markets for their output. Perhaps the most significant trend – repre-
senting both a threat and an opportunity – is the increasingly competitive nature of service
markets. Established ways of doing business are no longer adequate. Around the world,
innovative newcomers offering new standards of service are succeeding in markets where
established competitors have failed to please today’s demanding customers. In particular,
customers now expect higher standards of service quality and greater speed. On the other
hand, investments in quality must be made with reference to the returns that can be expected
in terms of improved revenues and stronger customer loyalty. To a growing degree, forward-
looking firms seek to couple improvements in quality with improvements in productivity. In
fact, innovative applications of technology are often the best way to achieve such dual gains.
The theme of this Course Text is that service organisations differ in many important
respects from manufacturing businesses, requiring a distinctive approach to planning and
implementing marketing strategy. By this, we don’t mean to imply that services marketing is
uniquely different from goods marketing. If that were true, it would undermine the whole
notion of marketing as a coherent management function. Rather, we stress the importance
of understanding service organisations on their own terms and then tailoring marketing goals
and strategies accordingly. Within this group we include the service divisions of manufactur-
ing firms.
Finally, please note that the term ‘billion’ denotes 1000 million.
Understanding Services
Module 1 Distinctive Aspects of Service Management
Module 2 Customer Involvement in Service Processes
Module 3 Managing Service Encounters
Learning Objectives
After reading and reflecting on this module, you should be able to:
• Describe what kinds of organisations provide services.
• Recognise the major changes occurring in the service sector.
• Identify the characteristics that make services different from goods.
• Understand the 8Ps of integrated services management.
• Explain why service businesses need to integrate the marketing, operations and human
resource functions.
The Service Revolution __________________________________________
Across Europe – and, indeed, around the world – the service sector of the economy is
going through a period of almost revolutionary change in which established ways of
doing business continue to be shunted aside. At the beginning of the second decade of
the twenty-first century all of us are seeing the way we live and work being transformed
by new developments in services. Innovators continually launch new ways to satisfy our
existing needs and to meet needs that we did not even know we had. (How many of us,
ten years ago, used social networking sites, or, 20 years ago, ever thought we would
need electronic mail?) The same is true of services directed at corporate users.
Although many new service ventures fail, a few succeed. Many long-established firms are
also failing – or being merged out of existence; but others are making spectacular
progress by continually rethinking the way they do business, looking for innovative ways
to serve customers better and taking advantage of new developments in technology.
Consider the following examples:
The Conrad International Dublin, a 5-star hotel in Ireland’s capital, has won a
significant quality-related award nearly every year since it opened in 1989. The hotel was
purpose-built as a luxury hotel and has, of course, all the physical trappings that might
be expected of Hilton Hotel Corporation’s luxury international brand. But great hotels
are made (or broken) by the quality of the personal service provided. The Conrad
encourages its guests to expect the highest standards of service, and management equips
its employees with the skills needed to meet these expectations. A highly structured
approach to staff recruitment, training and development is the natural starting point. ‘It
all starts with getting the right people,’ says the general manager. ‘You can teach skills,
but what really comes across, especially to business people, is attitude.’ Pursuing a
strategy of continuous improvement, each department has a detailed training plan and
each employee’s development needs are assessed regularly in consultation with line
managers. A ‘listening’ initiative from the personnel department led to the creation of a
formal channel for staff to communicate ideas for service improvement based on their
interactions with guests. In short, a strategy of investing in employee development (and
listening to employee feedback) results in better service for customers, making them
willing to pay a higher price, more likely to return, and more likely to recommend the
hotel to other people.
Albert Heijn BV is the largest supermarket chain in the Netherlands, with 750
branches, an annual turnover of some €6.5 billion, and a 33 per cent market share. To
extend its reach (and offer greater convenience for customers) it worked in partnership
with other organisations to create mini-stores. It signed an agreement with Shell to set
up Miniwinkels stores in 500 filling stations throughout the country. These mini-shops
sell about 1500 different products, including fruit, vegetables and meat. In 1997 it began
testing a convenience store in the Academic Hospital in Groningen. Although most
patronage comes from hospital staff, some patients shop there too. Other innovations
by the chain include home delivery throughout the Netherlands, an online home
shopping service and experimental store designs.
British Airways, one of the world’s largest and most profitable airlines, was formed in
1972 through the merger of two smaller, government-owned carriers. For many years,
it had a reputation for inefficiency and incompetence; in fact, people joked that the
initials BA stood for ‘bloody awful’. Following major efforts to reduce costs, the airline
was privatised, with shares being offered to private investors. Through a series of
transformations, every aspect of the airline’s operation and the passengers’ experience
was improved, with particular attention being paid to recruitment and staff training. BA
offers a variety of different service categories, including First, Business and Economy.
Each class of service is managed as a ‘sub-brand’, with distinctive, clearly defined features
and standards. Further ‘sub-branding’ has been developed for each service category –
for example, within the Business service category, BA offers Club World, Club Europe
and Club London City (a business class only service to New York). The airline’s reach
has been extended through investments in French, German and Australian airlines and
partnerships with Canadian, Hong Kong and US carriers. It also pioneered the use of
franchising by licensing several smaller airlines to operate certain European routes in its
name, featuring aircraft painted in BA colours and cabin crew trained to offer BA
standards of service. In 1997, Fortune magazine named British Airways as the world’s
most admired airline. In 1998, the company launched a new subsidiary airline named GO
to compete with the growing number of low-fare airlines in Europe. The airline industry
experienced intense pressures from a variety of environmental and market sources in
the first decade of the twenty-first century, which led to a drop in passenger numbers,
1.14 Explain to the manager of a computer software producer why elements of the company form part
of a hidden service sector.
A. The organisation performs a service for retail companies in producing goods for them to
sell.
B. The organisation provides value for its workers in providing them with a salary and
benefits.
C. In producing the software, the company has a wide array of activities which could be
outsourced.
D. In producing the software, there are a range of activities which can be classed as internal
services.
1.15 You own a market research agency. Explain to your manager why targeting service businesses
rather than manufacturing businesses is likely to benefit organisations like yours in the long term.
A. Manufacturing businesses are investing less in market research or are more likely to
keep it in house.
B. Advanced producer services such as market research are more likely to be used by
service businesses.
C. The growth of the service sector stimulates additional advanced producer services.
D. The service environment is evolving more rapidly than the manufacturing environment.
1.16 The underground, or shadow, economy accounts for up to a quarter of GDP in European
countries? Why is the growth of services linked to the growth of the underground economy?
A. Service sector organisations include their own internal services which artificially affect
levels of service production.
B. Many people conceal income made through service-based self-employment.
C. There has been a growth in the range of internal services provided by traditional goods-
producing organisations.
D. There is a hidden service sector within many large corporations.
1.18 Traditionally, many service industries were highly regulated. Which factor tended to be regulated
by government?
A. Employment levels.
B. Price levels.
C. Output levels.
D. Supply levels.
1.19 In Europe how has regulation of the service industry changed since the 1970s?
A. Regulation of service industries has generally increased.
B. The amount of regulation has been maintained.
C. There was a trend to partial or complete deregulation in major service industries.
D. There has been an increase in regulation in EU member states.
1.22 Services are often described as intangible. What does this mean?
A. The service benefits come from its physical characteristics.
B. Every time a person experiences the service, it changes in some distinct manner.
C. The person performing the service is often not visible to the customer.
D. The service benefits come from the nature of its performance.
1.23 As the manager of a restaurant, why do you need to understand and integrate marketing activities
with other functional areas?
A. To understand the tangible elements of restaurant service.
B. To add value to the process of marketing the restaurant.
C. To achieve synergy between diverse activities such as cooking and waiting.
D. To achieve total customer focus in providing a dining experience.
1.24 Why do people say there are no stocks for service performance?
A. Because service has to be delivered quickly.
B. Because service performance cannot be stockpiled for sale at a later time.
C. Because when demand exceeds capacity, customers may be kept waiting.
D. Because service factory, retail outlet and point of consumption occur at a single
location.
1.26 A business consultant has recommended something for re-engineering service processes to
increase customer uptake of services at your hotel. What might they have recommended?
A. Service franchises.
B. Privatisation.
C. Technological innovation.
D. Internationalisation.
1.28 Expansion of leasing and rental business is a force for change in service management? Why?
A. It allows many service organisations to set up business.
B. It allows service organisations to lease fleets of cars for managers.
C. It allows a creative marriage between service and manufacturing businesses.
D. It allows service businesses to sell and lease back their properties.
1.29 You work for a producer of mechanical equipment. To increase profitability, the CEO has asked
you to investigate setting up several service profit centres. What is a service profit centre?
Choose the definition you would use to explain the idea to your assistant.
A. A profit-seeking service within a manufacturing company.
B. A service conducted by homeworkers.
C. The franchise of a successful business format.
D. A department of a manufacturing organisation.
1.30 You work for a producer of mechanical equipment. To increase profitability, the CEO has asked
you to investigate setting up several service profit centres. Which of the following organisational
activities is a potential service profit centre for a manufacturing company?
A. Installation of mechanical equipment.
B. Production of mechanical equipment.
C. Assembly of mechanical equipment.
D. Packing of mechanical equipment.
1.31 Many organisations have invested heavily in researching what their customers want on every
dimension of service, customer-focused quality improvements, and regular measurement of
customer satisfaction. Which of the forces of change in service management does this type of
activity represent?
A. Pressures for public and non-profit organisations to find new income sources.
B. Internationalisation and globalisation.
C. Manufacturers as service providers.
D. Service quality movement.
1.34 Service benefits come from the nature of the service performance. Which idea is this describing?
A. The intangible elements of service provision.
B. The tangible elements of a service.
C. The continuum from tangible-dominant to intangible-dominant elements of a service.
D. The flexible nature of services.
1.35 Tangible products can offer consumers intangible benefits. Which of the following is an intangible
element of car hire?
A. Colour.
B. Upholstery.
C. Central locking.
D. Price.
1.36 One way to distinguish between goods and services is to place them on a scale from tangible
dominant to intangible dominant. Which of the following services is intangible dominant?
A. Teaching.
B. Furniture rental.
C. Delicatessen.
D. Restaurant.
1.37 Often customers are actively involved in helping to create the service. How could this
involvement be used by a retail organisation?
A. Ask customers to help out in the store.
B. Expect customers to help themselves from merchandise displays.
C. Do a telephone survey of customers.
D. Ask staff to pack bags for customers.
1.38 The type of customer that patronise a particular service business helps to define the quality of the
service experience. This reflects one of the basic differences between goods and services. Which
difference?
A. Services are intangible performances whereas goods are tangible products.
B. Customers have greater involvement in service performance than in goods production.
C. Many services are difficult for customers to evaluate.
D. Other people may form part of the product.
1.39 A service is a perishable deed or performance. How can a leisure centre overcome the problem
of service perishability?
A. Maximise service opportunities by targeting different customer groups.
B. Develop 24 hour a day capacity.
C. Make sure there are equipment and labour in readiness.
D. Ensure that staff are well trained.
1.40 What is the main reason for the interdependence of marketing, human resources and operations
in service management?
A. They must act together to communicate service quality levels.
B. Marketing feeds back customer requirements to the other two functions.
C. Customers interact with all three functions.
D. All three functions require successful interaction so they can improve customer
satisfaction.
[Link] likes to describe itself as Earth’s Biggest Bookstore, yet it has no physical bookshops.
Instead it’s a virtual bookshop doing business on the Web and accessible 24 hours a day to anyone in the
world who has a computer capable of connecting to the Internet. It opened its ‘virtual doors’ in the US
in July 1995 and grew at an extraordinary rate. By mid 1998 it had made sales to more than 3 million
customers in 160 countries, claiming it was by then the leading online shopping site. In addition to books,
the company offered 125 000 music titles, ten times the number offered by the average music store. Ten
years later [Link] had 88 million customers, sales of $25 billion and a net income of $9.2 million.
In addition to books, the company offers a wide range of music, electronics and other goods and it
operates retail websites for other major retailers. In 2007 Amazon launched a cheap electronic reading
device, the Kindle, on which owners can buy and download electronic books.
Through its website, Amazon customers could search for books by author, title, subject or keyword
or browse for books in 28 subject areas. The software at its user-friendly website simulates a knowl-
edgeable bookshop assistant. By indicating your mood, your preferences and other authors or artists you
like, you can get recommendations for new books or music that you might enjoy. Customers are invited
to send in their own reviews of books or music, which visitors to the website can then compare with
reviews by professional reviewers. When a customer places an order through the website, the company
arranges for physical items such as books, CDs or other products to be shipped directly from a
warehouse. Customers selecting MP3 music or e-books can download the material onto the relevant e-
product.
1 Explain how technological innovation and internationalisation, two of the twelve forces for change
in service management, contributed to the competitive advantage of [Link].
References
1. These two definitions are derivatives of a collection of definitions from various sources collected
by Christian Grönroos, Service Management and Marketing, Lexington, MA: Lexington Books, 1990,
pp. 26–7.
2. Evert Gummesson, ‘Lip Service – A Neglected Area in Services Marketing’, Journal of Services
Marketing, No. 1, 1987, p. 22 (referring to an unidentified source).
3. World Bank, El Mundo del Trabajo en una Economia Integrada, Washington DC 1995.
4. Javier Reynoso, ‘The Evolution of Services Management in Developing Countries: Insights from
Latin America’, in Tony Meenaghan (ed.), New and Evolving Paradigms: The Emerging Future of Market-
ing, Dublin: American Marketing Association and University College Dublin, 1997, pp. 112–21
(published on CD-ROM).
5. Light in the Shadows: So Nothing is Uncertain except Death and Taxes? Look at the Growth of
the Underground Economy and Think Again about Taxes’, The Economist, 3 May 1997.
6. Regis McKenna, Real Time, Boston: Harvard Business School Press, 1997.
7. Sandra Vandermerwe, ‘Making Internal Services More Market Driven’, Business Horizons, Vol. 32,
No. 6, November–December 1989, pp. 83–9; ‘Ciba-Geigy Allcomm (A), (B)’, Lausanne: IMD,
1992.
8. L.E. Juleff-Tranter, ‘Advanced Producer Services: Just a Service to Manufacturing?’, The Service
Industries Journal, Vol. 16, July 1996, pp. 389–400.
9. Simon Holberton, ‘Utilities: Privatisation is an Irreversible Trend’, Financial Times, 19 September
1997.
10. See, for example, Valarie A. Zeithaml, A. Parasuraman and Leonard L. Berry, Delivering Quality
Service, New York: The Free Press, 1990; Sandra Vandermerwe, ‘The Market Power is in the Ser-
vices Because the Value is in the Results’, European Management Journal, Vol. 8, No. 4.
11. See, for example, Barbara R. Lewis, ‘Customer Care in Services’, in W.J. Glynn and J.G. Barnes,
Understanding Services Management, Chichester: John Wiley & Sons, 1995.
12. Christopher H. Lovelock and Charles B. Weinberg, Public and Nonprofit Marketing, 2nd edition,
Redwood City, CA.: The Scientific Press/Boyd and Davis, 1989; and Philip Kotler and Alan An-
dreasen, Strategic Marketing for Nonprofit Organizations, 5th edition, Upper Saddle River, NJ: Prentice-
Hall, 1996.
13. Leonard L. Berry, ‘Services Marketing is Different’, Business, May–June 1980.
14. W. Earl Sasser, R. Paul Olsen and D. Daryl Wyckoff, Management of Service Operations: Text, Cases,
and Readings, Boston: Allyn & Bacon, 1978.
15. Grönroos, [Link]., p. 29.
16. G. Lynn Shostack, ‘Breaking Free from Product Marketing’, Journal of Marketing, April 1977.
17. Bonnie Farber Canziani, ‘Leveraging Customer Competency in Service Firms,’ International Journal
of Service Industry Management, Vol. 8, No. 1, 1997, pp. 5–25.
18. Curtis P. McLaughlin, ‘Why Variation Reduction is Not Everything: A New Paradigm for Service
Operations’, International Journal of Service Industry Management, Vol. 7, No. 3, 1996, pp. 17–31.
19. This section is based on Valarie A. Zeithaml, ‘How Consumer Evaluation Processes Differ
between Goods and Services’, in J.A. Donnelly and W.R. George, Marketing of Services, Chicago:
American Marketing Association, 1981, pp. 186–90.
20. Christian Grönroos, ‘From scientific management to service management’, International Journal of
Service Industry Management, Vol. 5, pp5–90.
21. The 4Ps classification of marketing decision variables was created by E. Jerome McCarthy, Basic
Marketing: A Managerial Approach, Homewood, IL: Richard D. Irwin, Inc., 1960.
22. The 8Ps model of integrated service management was introduced in Christopher Lovelock and
Lauren Wright, Principles of Service Marketing and Management (Upper Saddle River: Prentice Hall,
1999). It represents an extension and enhancement of the 7Ps model created by Bernard H.
Booms and Mary Jo Bitner, ‘Marketing Strategies and Organizational Structures for Service Firms’,
in Marketing of Services (eds), J.H. Donnelly and W.R. George (Chicago: American Marketing Asso-
ciation, 1981), pp. 47–51.
23. For a review of the literature on this topic, see Michael D. Hartline and O.C. Ferrell, ‘The
Management of Customer Contact Service Employees’, Journal of Marketing, Vol. 60, No. 4, Octo-
ber 1996, pp. 52–70.
24. K. Douglas Hoffman and John E.G. Bateson, ‘Ethical Issues in Services Marketing’, Chapter 6 in
Essentials of Services Marketing, New York: The Dryden Press, 1997, pp. 100–20.
25. Cited in a presentation by Derek Higgs, London, September 1997.