Classifying Services to Gain Strategic Marketing Insights Christopher H. Lovelock (Paper No. 1)

Background of Our Economy Agricultural Industrial Service As the service industry continues to grow it is necessary to “segment services into clusters”1 to gain marketing advantages. Our industrial/manufacturing background has hinder the evolution of the service industry because most managers come from manufacturing or are heavily influenced by the manufacturing industry and its practices. A better classification will allow marketing to find better practices to satisfy customers and make the service industry a more mature one.

Previous Analysis 1923 – Copeland2 1963 – Bucklin3 1976 – Hunt4 Convenience Shopping Specialty goods Durable goods Non-durable goods Consumers goods Industrial goods

Classifications What is the nature of the service act? What type of relationship does the service organization have with its customers? How much is there for customization and judgment on the part of the service provider? What is the nature of demand and supply for the service? How is the service delivered?

Understanding the Nature of the Service Act? What is the Nature of the Service Act? Who or What is the Direct Recipient of the Service? People Things Tangible Actions Services Directed at People’s Bodies: Health care Passenger transportation Beauty salons and Haircutting Services directed at goods and other physical possessions: Freight transportation Janitorial services Laundry and cleaning Intangible Services directed at people’s minds: Education Broadcasting Theaters and Museums Services directed at intangible assets: Banking Legal services Securities and Insurance Does the customer needs to be physically present? Does the customer need to be mentally present during the delivery of the service?

Customization and Judgment in Service Delivery Extent to which Customer Contact Personnel Exercise Judgment in Meeting Individual Customer Needs Extent to Which Service Characteristics Are Customized High Low High Legal service Health care / surgery Plumber Tutorial service Public education Preventive health programs Low Telephone service Hotel services Retail banking Public transportation Fast food restaurant Movie theater Some services come standardized, others with some sort of customization, and others are fully customized.

Nature of Service Delivery What Type of Relationship Does the Service Organization has with its Customers? Nature of Service Delivery Type of Relationship between the Service Organization and its Customers? “Membership” Relationship No Formal Relationship Continuous Delivery of Service Insurance Telephone subscription College enrollment Banking AAA Radio station Police protection Lighthouse Public highway Discrete Transactions Long distance phone call Theatre sales subscription Commuter ticket or transit pass Car rental Mail service Toll highway Pay phone Public transportation Does the service organization enter into a ”membership” with its customers or is there a no formal relationship?

What is the Nature of Demand for the Service Relative to Supply Extent to which Supply is Constrained Extent of Demand Fluctuation over time Wide Narrow Peek Demand Can Usually Be Met w/o a Major Delay 1 Electricity Natural gas Police and fire services 2 Insurance Legal services Banking Peek Demand Regularly Exceeds Capacity 4 Accounting and tax preparation Passenger transportation Restaurants 3 Similar services to 2 but which have insufficient capacity for their base level of business What is the common cycle or recurring demand of the service? What are the fundamental causes that create the demand fluctuations of the service?

How is the Service Delivered? Nature of interaction between Customer and Service Organization Availability of Service Outlets Single Site Multiple Site Customer Goes to Service Organization Theater Barber Shop Bus Service Fast food chain Peek Demand Can Usually Be Met w/o a Major Delay Lawn care service Pest control service Taxi Mail delivery AAA emergency repairs Peek Demand Regularly Exceeds Capacity Credit card company Local TV station Broadcast network Telephone company What method is used to deliver the service?

Conclusion To help managers of service business to do a better job of developing and marketing their products. Help managers understand the nature of their service businesses. The faster we get to master the service industry, the faster we can move on to the next type of industry: experience.

References Knisely 1979, Lovelock 1981, Shostack 1977 - 1983, Journal of Marketing, summer. Copeland, Melvin T. (1923), “The Relation of Consumers’ Buying Habits to Marketing Methods,” Harvard Business Review, 1 (April), 282-9. Bucklin, Louis (19630, “Retail Strategy and the Classification of Consumer Goods,” Journal of Marketing, 27 (January), 50. Hunt, Shelby D. (1976) Marketing Theory