Chapter 11 - Designing and Managing Services

A service is defined as any act or performance one party can offer to another that is essentially intangible and does not result in the ownership of anything.  Service industries include the government sector, the private nonprofit sector, the business sector, the manufacturing sector, and the retail sector.  These sectors are providing added services or excellent customer service to differentiate themselves.  Many service firms are using the Internet to reach their customers, some of which are only online.

The service component can be a major or minor part of the total offering.  Categories of a service mix include pure tangible goods, tangible goods with accompanying services, hybrids, major services with accompanying minor goods and services, and pure service.  Services have more risk in their purchase because they are generally high in experience and credence qualities.  Service consumers generally rely on word of mouth rather than advertising as well as price, provider, and physical cues to judge quality.  Distinctive characteristics of services include intangibility, inseparability, variability, and perishability.  Services are intangible as they cannot be seen, tasted, felt, heard, or smelled before they are bought.  Service firms try to demonstrate their service quality through physical evidence and presentation.  Services are typically produced and consumed simultaneously, which makes them inseparable.  They are highly variable because the quality depends on who provides them, when and where, and to whom.  Three steps to increase the quality control of services are to invest in good hiring and training procedures, to standardize the service-performance process, and to monitor customer satisfaction.  Since services cannot be stored, their perishability can be a problem when demand fluctuates. 

Service firms are among the most skilled marketers.  Services marketers must recognize three new services realities:  customer empowerment, customer coproduction, and satisfying employees as well as customers.  In the service sector, marketing requires excellence in three broad areas:  external, internal, and interactive marketing.  External marketing is the normal work of preparing, pricing, distributing, and promoting the service to customers.  Internal marketing is training and motivating employees to serve customers well.  Interactive marketing is the employees’ skill in serving the client.  Clients judge services by its technical quality and its functional quality.  Teamwork is often key.  In achieving marketing excellence, well-managed service companies share a strategic concept, a history of top-management commitment to quality, high standards, profit tiers, and systems for monitoring service performance and customer complaints.  Marketers are able to differentiate their service offerings in many ways.  The primary service package is what the customer expects.  The provider can then add secondary service features to the package. 

Service quality is tested at each service encounter.  Managing customer expectations and incorporating self-service technologies are two important considerations in delivering service quality.  Customers compare the perceived service with the expected service.  When the perceived service falls below the expected service, customers are disappointed.  Five gaps that can cause unsuccessful service delivery include the gap between consumer expectation and management perception, the gap between management perception and service-quality specification, the gap between service-quality specifications and service delivery, the gap between service delivery and external communications, and the gap between perceived service and expected service.  Based on this, five determinants of service quality (in order of importance) are reliability, responsiveness, assurance, empathy, and tangibles.  Consumers value convenience in services.  As a result, self-service technologies are replacing person-to-person service interactions.

Some service providers must provide product-support services.  Companies that make a good product but provide poor local service support are seriously disadvantaged.  Customers have three worries about product service:  reliability and failure frequency, downtime, and out-of-pocket costs.  A buyer considers all these factors and tries to estimate the life-cycle cost.  This is the product’s purchase cost plus the discounted cost of maintenance and repair less the discounted salvage value.  To provide the best support, a manufacturer must identify the services customers value most and their relative importance.  They can offer product-support services in different ways.  For example, they offer service contracts agreeing to provide free maintenance and repair services for a specified period at a specified contract price. 

Some firms provide postsale services.  They usually start by running their own parts-and-services departments so they can stay close to the equipment and know its problems.  Customer-service choices are increasing rapidly and manufacturers must determine how to make money on their equipment, independent of service contracts.  One such way is for firm’s to have their own service people on-site.

Example:  Carnival Cruise Lines provides excellent service.  I have been on four cruises in the past two years and have never been disappointed.  They go above and beyond to provide the best quality of everything from food to entertainment to personal treatments and services from then time you get ready to purchase your ticket to the time you depart the ship.  They make sure their customers are fully satisfied in every way.  They make their customers feel as if they are being treated like royalty.  They cater to everyone to give them an experience they will never forget and want to return again and again.