1. Fundamental Differences Between Goods and Services
Chapter 3
Fundamental Differences Between Goods and Services

2. Chapter Objectives
• Understand the characteristics of intangibility, inseparability, heterogeneity, and perishability. • Discuss the marketing problems associated with intangibility and their possible solutions. • Describe the marketing problems associated with inseparability and their possible solutions. • Explain the marketing problems associated with heterogeneity and their possible solutions. • Identify the marketing problems associated with perishability and their possible solutions. • Consider the impact of intangibility, inseparability, heterogeneity, and perishability on marketing’s relationship to other functions within the service organization.
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3. Opening Vignette: Bed Wars
Westin Hotels first introduced the “Heavenly Bed” in 1999 at a $30 million price tag
Marriott International investment in the “Battle of Beds” in 2005 at an estimated $190 million
Most recent, an array of pillow selections
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4. Intangibility Pick up the shoes Feel the quality of materials
VS.
Pick up the shoes
Feel the quality of materials
View specific style and color
Sample the fit
Entitles the consumer to an experience
Subjectively evaluated
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5. Figure 3.1: Marketing Challenges and Solutions Pertaining to Intangibility
Marketing Problems
Possible Solutions
Services cannot be inventoried
Use of tangible clues to help “tangibilize”
Lack of patent protection and can be easily copied
Use of personal sources of information
Difficulty in displaying or explain to customers
Creation of a strong organizational image
Difficulty in pricing strategies
Utilize an activity-based costing approach
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6. Marketing Problems caused by Intangibility
Lack of service inventories
Not protected by patents
Not easily displayed or communicated
Pricing is difficult
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7. Possible Solutions for Intangibility
Use tangible clues/physical evidence
Quality furniture in a lawyer’s office
Appearance of the personnel
Utilize personal sources of information
Family, friends, and other opinion leaders
Create a strong organizational image
Utilize an activity-based costing approach
Physical evidence/tangible clues – the physical characteristics that surround a service to assist consumers in making service evaluations, such as the quality of furnishings, the appearance of personnel, or the quality of paper stock used to produce the firm’s brochure.
Personal source of information – sources such as friend, family, and other opinion leaders that consumer use to gather information about a service.
Activity-based costing (ABC) - costing method that breaks down the organization into a set of activities, and activities into tasks, which convert materials, labor, and technology into outputs.
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8. Figure 3.2: Marketing Challenges and Solutions Pertaining to Inseparability
Marketing Problems
Possible Solutions
Physical connection of the service provide to the service
Selecting and training public contact personnel
Involvement of the customer in the production process
Effectively managing consumers
Involvement of other customers in the production process
Use of multisite location
Special challenges in mass production of services
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9. Marketing Problems caused by Inseparability
Service provider is involved in the production process
Customer is involved in the production process
Other customers are involved in the production process (shared experience)
The mass production of services presents special challenges
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10. Customer is involved in the production process
OPINION QUESTION: If given the choice of dining at one of two new restaurants, would you select a restaurant that had no cars in the parking lot, or would you choose a restaurant down the street with a full parking lot?
Involvement may vary
Impact on the type of service desired
cycle of service demand
length of the delivery process
Service factory must be built with the customer’s presence in mind
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11. Possible Solutions for Inseparability
Selecting and training public contact personnel
Develop strategies to manage consumers
Develop multi-site locations
PowerPoint Slide: #11
Possible Solutions to Inseparability Problems Increased emphasis placed on the selection and training of public contact personnel to ensure that the right types of employees are in the right jobs -A case in point is UPS. The company is virtually 100 percent employee owned.
-Selection and training is a strategy that minimize the impact of inseparability by hiring and educating employees in such a way that the customer’s service experience is positive and the employees are properly equipped to handle customers and their needs
Implementation of consumer management strategies that facilitate a positive service encounter for all consumers sharing the same service experience
-Consumer Management is a strategy service personnel can implement that minimizes the impact of inseparability, such as separating smokers from nonsmokers in a restaurant
Use of multisite locations to offset the mass production challenges posed by inseparability
-A case in points is H&R Block accounting services, Hyatt Legal Services, and Marriott Hotels.
-Multisite locations is a way service firms that mass produce combat inseparability, involving multiple locations to limit the distance the consumers have to travel and staffing each location differently to serve a local market -factories in the field is another name for multisite locations
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12. Figure 3.3: Heterogeneity-Marketing Challenges and Possible Solutions
Marketing Problems
Possible Solutions
Difficult to standardize service and quality control
Customization
Standardization
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13. Marketing Problems caused by Heterogeneity
Standardization and quality control are difficult to achieve
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14. Possible Solutions for Heterogeneity
Customization Strategy
Constructed to fit customer’s exact needs
Standardization Strategy
Faster
Less expensive
More consistent
Customization develops services that meet each customer’s individual needs
-taking advantage of the variation inherent in each service encounter by developing services that meet each customer’s exact specifications
-Downside of providing customized services
Customers may not be willing to pay the higher prices
The speed of service delivery may be an issue
Customers may not be willing to face the uncertainty
Standardization
-reducing variability in service production through intensive training of providers and/or replacing human labor with machines
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15. Figure 3.4: Perishability-Marketing Challenges and Possible Solutions
Marketing Problems
Possible Solutions Demand
Possible Solutions Supply
Demand exceeds supply
Creative pricing
Part time employees
Demand exceeds optimal levels of supply
Reservation system
Share capacity with other providers
Lower demand than optimal supply level
Shift to complementary services
Prepare for expansion in advance
Nonpeak demand
Utilize third parties
Customer participation
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16. Marketing Problems caused by Perishability
Matching supply and demand
Demand exceeds maximum available supply
Demand exceeds optimum supply level
Demand is below optimal levels of supply
Demand and supply are at optimal levels
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17. Possible Solutions for Perishability
Demand Strategies
Creative pricing
Reservation systems
Complementary services
Developing nonpeak demand
utilizing nonpeak periods to prepare for peak periods
appeal to different market segments with different demand patterns
Creative Pricing-pricing strategies often used by service firms to help smooth demand fluctuations, such as offering “matinee” prices or “earlybird specials” to shift demand from peak to nonpeak periods.
Used to target specific groups such as senior citizens, children and their parents (families), and college students
Price incentives to use the company’s web site
Reservation Systems-a strategy to help smooth demand fluctuations in which consumers ultimately request a portion of the firm’s services for a particular time slot.
Typical service firms that use reservation systems include restaurants, doctors of all varieties, golf courses (tee times), and day spas.
Advantage of a reservation system
Reduce the customer’s risk of not receiving the service
Minimize the time spent waiting in line for the service to be available
Allow service firms to prepare in advance for a known quantity of demand
Disadvantage of a reservation system
Someone must maintain the system, which adds additional cost to the operation
Customers do not always show up on time or sometimes fail to show up at all
Offer to the customer an implied guarantee that the service will be available at a specified time, thereby increasing the customer’s expectation
Development of Complementary Services-services provided for consumers to minimize their perceived waiting time, such as driving ranges at golf courses, arcades at movie theaters, or reading materials of doctors’ offices.
Development of Nonpeak Demand-utilizes service downtime to prepare in advance for peak periods, and/or to market to different market segments with different demand patterns.
Can reduce the effects of perishability
Employees can be cross-trained during nonpeak demand periods to perform a variety of other duties to assist fellow personnel during peak demand periods
Can be developed to generate additional revenues by marketing to a different market segment that has a different demand pattern than the firm’s traditional segment
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18. Possible Solution for Perishability
Supply Strategies
Utilize part-time employees
Share capacity
Prepare in advance for expansion
Utilize third-parties
Increase customer participation
Part-time Employee Utilization-employees who typically assist during peak demand periods and who generally work fewer than 40 hours per week
Advantage of employing part-time workers
Lower labor costs
Flexible labor force that can be employed when needed and released during nonpeak periods
Disadvantage of employing part-time workers
Causes consumers to associate the firm with lower job skills and lack of motivation and organizational commitment
Capacity Sharing-a strategy to increase the supply of service by forming a type of co-op among service providers that permits co-op members to expand their supply or service as a whole.
Advance preparation for Expansion-planning for future expansion in advance and taking a long-term orientation to physical facilities and growth
Utilization of Third Parties-a supply strategy in which a service firm utilizes an outside party to service customers and thereby save on costs, personnel, etc
Increase in customer participation-a supply strategy that increases the supply of service by having the customer perform part of the service, such as providing a salad bar or dessert bar in a restaurant
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19. The Structure of This Text
An Overview of Services Marketing
The Tactical Services Marketing Mix
Implementing Successful Service Strategies
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20. Figure 3.5: Overview of Services Marketing Chapters
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21. Copyright © 2011 Cengage Learning.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2011 Cengage Learning.  
©2011 Cengage Learning. All rights reserved.