PART ONE • UNDERSTANDING SERVICES

 PART ONE • UNDERSTANDING SERVICES
internal services: service
elements within any type of
business that facilitate
creation of, or add value to,
its final output.
for more than half the gross national product (GNP) and employs more than half the
labor force.3 These countries often have a large "underground economy" that is not
captured in official statistics. In Mexico, for instance, it has been estimated that as
much as 40 percent of trade and commerce is "informal."4 Significant service output
is created by undocumented work in domestic jobs (e.g., cook, housekeeper, gardener)
or in small, cash-based enterprises such as restaurants, laundries, rooming
houses, and taxis.
Service organizations range in size from huge international corporations like airlines,
banking, insurance, telecommunications, hotel chains, and freight transportation to
a vast array of locally owned and operated small businesses, including restaurants, laundries,
taxis, optometrists, and numerous business-to-business ("B2B") services.
Franchised service outlets—in fields ranging from fast foods to bookkeeping—combine
the marketing characteristics of a large chain that offers a standardized product with local
ownership and operation of a specific facility. Some firms that create a time-sensitive
physical product, such as printing or photographic processing, are now describing themselves
as service businesses because speed, customization, and convenient locations create
much of the value added.
There's a hidden service sector, too, within many large corporations that are
classified by government statisticians as being in manufacturing, agricultural, or natural
resources industries. So-called internal services cover a wide array of activities
including recruitment, publications, legal and accounting services, payroll administration,
office cleaning, landscape maintenance, freight transport, and many other
tasks. To a growing extent, organizations are choosing to outsource those internal
services that can be performed more efficiently by a specialist subcontractor. As
these tasks are outsourced, they become part of the competitive marketplace and are
therefore categorized as contributing to the service component of the economy.
Even when such services are not outsourced, managers of the departments that supply
them would do well to think in terms of providing good service to their internal
customers.
Governments and nonprofit organizations are also in the business of providing services,
although the extent of such involvement may vary widely from one country to
another, reflecting both tradition and political values. In many countries, colleges, hospitals,
and museums are publicly owned or operate on a not-for-profit basis, but forprofit
versions of each type of institution also exist.
CHAPTER ONE . WHY STUDY SERVICES?
MARKETING SERVICES VERSUS
PHYSICAL GOODS
The dynamic environment of services today places a premium on effective marketing.
Although it's still very important to run an efficient operation, it no longer guarantees
success.The service product must be tailored to customer needs, priced realistically, distributed
through convenient channels, and actively promoted to customers. New market
entrants are positioning their services to appeal to specific market segments through
their pricing, communication efforts, and service delivery, rather than trying to be all
things to all people. But are the marketing skills that have been developed in manufacturing
companies directly transferable to service organizations? The answer is often no,
because marketing management tasks in the service sector tend to differ from those in
the manufacturing sector in several important respects.
Basic Differences Between Goods and Services
Every product—a term used in this book to describe the core output of any type of
industry—delivers benefits to the customers who purchase and use them. Goods can be
described as physical objects or devices and services are actions or performances.6 Early
research into services sought to differentiate them from goods, focusing particularly on
four generic differences, referred to as intangibility, heterogeneity (or variability), perishability
of output, and simultaneity of production and consumption.7 Although these
characteristics are still cited, they have been criticized for over-simplifying the realworld
environment. More practical insights are provided in Figure 1.3, which lists nine
basic differences that can help us to distinguish the tasks associated with service marketing
and management from those involved with physical goods.
It's important to note that in identifying these differences we're still dealing with
generalizations that do not apply equally to all services. In Chapter 2, we classify services
into distinct categories, each of which presents somewhat different challenges for marketers
and other managers. We also need to draw a distinction between marketing of services
and marketing goods through service. In the former, it's the service itself that is being
sold and in the latter, service is added—usually free of charge—to enhance the appeal of
a manufactured product. Now, let's examine each of the nine differences in more detail.
Customers Do Not Obtain Ownership Perhaps the key distinction between
goods and services lies in the fact that customers usually derive value from services
without obtaining permanent ownership of any substantial tangible elements. In many
instances, service marketers offer customers the opportunity to rent the use of a physical
object like a car or hotel room, or to hire the labor and skills of people whose expertise
ranges from brain surgery to knowing how to check customers into a hotel. As a
product: the core output
(either a service or a
manufactured good)
produced by a firm.
goods: physical objects or
devices that provide benefits
for customers through
ownership or use.
customers do not obtain ownership of services
service products are intangible performances
there is greater involvement of customers in the production process
other people may form part of the product
there is greater variability in operational inputs and outputs
many services are difficult for customers to evaluate
there is typically an absence of inventories
the time factor is relatively more important
delivery systems may involve both electronic and physical channels