1. Service and Nonprofit Organization Marketing
Chapter 12 Services and Nonprofit Organization Marketing
Chapter 12
Lamb, Hair, McDaniel
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2. © 2015 by Cengage Learning Inc. All Rights Reserved.
Chapter 12 Services and Nonprofit Organization Marketing
Discuss the importance of services to the economy
Discuss the differences between services and goods
Describe the components of service quality and the gap model of service quality
Develop marketing mixes for services
Discuss relationship marketing in services
Explain internal marketing in services
Describe nonprofit organizational marketing
Discuss global issues in services marketing
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3. How Services Differ from Goods
Chapter 12 Services and Nonprofit Organization Marketing
How Services Differ from Goods
Intangible
Inseparable
Heterogeneous
Perishable
No physical object makes it hard to communicate benefits.
Production and consumption are simultaneous, meaning the consumer takes part in production.
Services depend on their employees for quality, which makes consistency difficult to achieve.
Services cannot be saved, and it is challenging to synchronize supply and demand.
Notes:
Intangibility: Services cannot be touched, seen, tasted, heard, or felt in the same way as goods. Tangible cues are often used to communicate a service’s quality and nature. Facilities are a critical tangible part of a service experience.
Inseperability: Services are often sold, produced, and consumed at the same time. Consumers are involved in the production of the services that they buy. The quality of services depends on the quality of employees.
Heterogeneity: Services are less standardized and uniform than goods. Because services tend to be labor-intensive, consistency and quality control can be hard to achieve. Standardization and training help increase consistency and reliability.
Perishability: Services cannot be stored, warehoused, or inventoried. One of the most important challenges in many service industries is finding ways to synchronize supply and demand. 2
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4. The Tangibility Continuum

5. Components of Service Quality
Chapter 12 Services and Nonprofit Organization Marketing
Components of Service Quality
Tangibles
The physical evidence
of the service.
Empathy
Caring, individualized attention to customers.
Assurance
The knowledge and courtesy
of employees.
Responsiveness
The ability to provide
prompt service.
Reliability
The ability to perform the service right the first time.
Notes:
Service quality is more difficult to define and measure than is the quality of tangible goods. Business executives rank the improvement of service quality as one of their most critical challenges.
Researchers have shown that customers evaluate service quality by these five components. 3
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6. Exhibit 12.1 Gap Model of Service Quality
Chapter 12 Services and Nonprofit Organization Marketing
Notes:
A model of service quality called the gap model identifies five gaps that can cause problems in service delivery and influence customer evaluations of service quality. These gaps are shown in Exhibit 12.1.
Gap 1: The gap between what customers want and what management thinks customers want. This gap results from a lack of understanding or a misinterpretation of customers’ needs or wants. To close gap 1, keep in touch with what customers want by doing research on customer needs and customer satisfaction.
Gap 2: The gap between what management thinks customers want and the quality specifications that management develops to provide the service.
Gap 3: The gap between the service quality specifications and the service that is actually provided. If gaps 1 and 2 are closed, gap 3 is due to the inability of management and employees to do what should be done. To close gap 3, employees need the skills, training, and tools to perform their jobs.
Gap 4: The gap between what the company provides and what the customer is told it provides. This is a communication gap, caused by such things as misleading or deceptive advertising campaigns. To close gap 4, companies need to create realistic customer expectations through honest, accurate, realistic communication.
Gap 5: The gap between the service that customers receive and the service they want. This gap can be positive or negative. As the gaps shrink, service quality improves.
Discussion/Team Activity:
Discuss firms who provide high levels of service quality. Examples: Ritz-Carlton, Nordstrom, Neiman Marcus, Lexus. 3

7. Service Strategies (Similar to Product Strategies)
Chapter 12 Services and Nonprofit Organization Marketing
Service Strategies (Similar to Product Strategies)
Service
Mix
Customization/
Standardization
Core and Supplementary
Service as a
Process
Notes:
Product strategies for service offerings include decisions on:
Type of process involved
Core and supplementary services
Standardization or customization of the service product, and
Service mix. These are described on the following slides. 4
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8. Service as a Process People Processing Possession Processing
Chapter 12 Services and Nonprofit Organization Marketing
Service as a Process
Mental Stimulus Processing
People
Processing
Possession Processing
Information Processing
Notes:
Two things get processed in service organization: people and objects. In some cases, the process is physical, while in others the process is intangible. There are four types of service processing categories:
People processing takes place when the service is directed at a customer. Examples include health care and hairstyling
Possession processing occurs when the service is directed at customers’ physical possessions. Examples include lawn care, car repair, and dry cleaning.
Mental stimulus processing refers to services directed at people’s minds. Examples include spectator sports events, theater performances, and education.
Information processing describes services that use technology or brainpower directed at a customer’s assets. Examples include insurance, consulting, and banking. 4
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9. The Service Offering and Mix
Chapter 12 Services and Nonprofit Organization Marketing
The Service Offering and Mix
Core Service
Supplementary
Service
The most basic benefit the consumer is buying.
A group of services that support or enhance the core service.
Notes:
The service offering is a bundle of activities that includes the core service, which is the most basic benefit, and a group of supplementary services that enhance or support the core service.
In many service industries, the core service becomes a commodity product as competition increases. As a result, supplementary services are used to create competitive advantage.
Discussion/Team Activity:
Name organizations and discuss their core and supplementary services. 4
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10. Customization/Standardization
Chapter 12 Services and Nonprofit Organization Marketing
Customization/Standardization
Mass Customization
A strategy that uses technology to deliver customized services on a mass basis.
Notes:
An important issue in developing service offerings is whether to customize or standardize.
Customized services are more flexible but command a higher price. On the other hand, standardized services are more efficient and cost less.
Instead of choosing either strategy, elements of both can be incorporated into an emerging strategy called mass customization. Mass customization uses technology to deliver customized services on a mass basis, thus meeting customers’ specific needs.
Discussion/Team Activity:
Identify companies who have successfully used mass customization to deliver individualized services. Examples include Lands’ End and airlines’ video on demand. 4
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11. Place (Distribution) Strategy
Chapter 12 Services and Nonprofit Organization Marketing
Place (Distribution) Strategy
Scheduling
Location
Direct or indirect
distribution
Number of outlets
Convenience
Notes:
Distribution strategy for services should focus on issues shown on this slide.
Convenience: A key factor influencing the selection of a service provider.
Number of outlets: The intensity of distribution should meet the target market’s needs and preferences.
Direct vs. indirect distribution: Many service firms use direct distribution or franchising. The newest form of direct distribution is the Internet.
Location: The location of a service reveals the relationship between its target market strategy and distribution strategy.
Scheduling: The most important factor for time-dependent service providers like airlines, physicians, and dentists.
Discussion/Team Activity:
Identify specific service providers who have utilized the distribution strategies described above. 4
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Chapter 12 Services and Nonprofit Organization Marketing
Promotion Strategy
Stress tangible cues
Use personal information
sources
Create a strong organizational image
Engage in postpurchase communication
Notes:
Services are less tangible and are more difficult to promote than tangible goods. Four promotion strategies are:
Stressing tangible cues
Using personal informational sources
Creating a strong organizational image
Engaging in postpurchase communication
Discussion/Team Activity:
Identify specific service providers who have utilized the promotion strategies described above. 4
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13. Pricing Challenges for Services
Chapter 12 Services and Nonprofit Organization Marketing
Price Strategy
Pricing Challenges for Services
Define the unit of service consumption
Determine if multiple elements are “bundled” or priced separately
Notes:
The unique characteristics of services present two pricing challenges.
Defining the unit of service consumption. Should it be based on completing a service task or should it be time based?
Determining if multiple elements are bundled. Should pricing be based on a bundle of elements or whether each element should be priced separately?
Discussion/Team Activity:
Identify specific service providers who have utilized the pricing strategies described above. 4
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Chapter 12 Services and Nonprofit Organization Marketing
Pricing Objectives
Revenue-Oriented Pricing
Operations-Oriented Pricing
Patronage-Oriented Pricing
Maximize the surplus of income over costs
Match supply and demand by varying price
Maximize the number of customers by varying price
Online: E*Trade, Ameritrade, Schwab, Scottrade
Compare the pricing for services on the largest Internet financial Web sites. How can you account for the great differences in price for essentially the same service?
Notes:
1. Marketers should set performance objectives when pricing each service. Three categories of pricing objectives are:
• Revenue-oriented pricing focuses on maximizing the surplus of income over costs.
• Operations-oriented pricing seeks to match supply and demand by varying prices.
• Patronage-oriented pricing tries to maximize the number of customers using the service.
2. A firm may need to use more than one type of pricing objective. 4
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15. Relationship Marketing in Services
Chapter 12 Services and Nonprofit Organization Marketing
Relationship Marketing in Services
Creating value-added services not available elsewhere 3
Structural
Social
Financial
Design services to meet customer needs 2
Social
Financial
Notes:
Many services involve ongoing interaction between the service organization and the customer. They can benefit from relationship marketing as a means of attracting, developing, and retaining customer relationships.
It is more cost effective to keep existing customers than to attract new ones. Increasing customer retention by 2 percent can have the same effect on profits as reducing costs by 10 percent.
Relationship marketing can be practiced at three levels:
• Level 1: The firm uses pricing incentives to encourage customers to continue doing business. This level of relationship marketing is the least effective because its price-based advantage is easily imitated by competitive firms.
• Level 2: This level uses pricing incentives as well as building social bonds with customers. The firm keeps in touch with customers.
• Level 3: At this level, the firms adds structural bonds to the formula. This offers value-added services that are not available by competitive firms. 1
Financial
Pricing incentives 5
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Chapter 12 Services and Nonprofit Organization Marketing
Internal Marketing
Treating employees as customers and developing systems and benefits that satisfy their needs.
Notes:
Services are performances, so the quality of a firm’s employees is an important component in building long-term relationships with customers.
It is beneficial to the company to keep happy employees. To satisfy employees, companies have designed and instituted a wide variety of programs such as flextime, on-site day care, and concierge services.
A firm that makes its employees happy has a better chance of retaining customers. 6
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17. Nonprofit Organization
Chapter 12 Services and Nonprofit Organization Marketing
Nonprofit Organization
An organization that exists to achieve some goal other than the usual business goals of profit, market share, or return on investment.
Governments
Museums
Theaters
Schools
Churches
Notes:
Nonprofit organizations account for more than 20 percent of the economic activity in the United States. 7
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18. Nonprofit Organization Marketing
Chapter 12 Services and Nonprofit Organization Marketing
Nonprofit Organization Marketing
Market intangible products
Production requires
customer’s presence
Services vary greatly
Services cannot be stored
Shared Characteristics
with
Service Organizations
Notes:
Nonprofit organization marketing is the effort by nonprofit organizations to bring about mutually satisfying exchanges with target markets.
Nonprofit organizations share characteristics with service firms. Both market intangible products, and often require the customer to be present during the production process. Services often vary greatly, and can not be stored in the same way as tangible goods. 7
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19. Nonprofit Organization Marketing Activities
Chapter 12 Services and Nonprofit Organization Marketing
Nonprofit Organization
Marketing Activities
Identify desired customers
Specify objectives
Develop, manage, eliminate programs and services
Decide on prices
Schedule events or programs
Communicate their availability
Notes:
Most nonprofit organizations perform the marketing activities as shown on this slide. Often, nonprofit organizations that carry out these functions do not realize they are engaged in marketing. 7
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20. Unique Aspects of Nonprofit Organization Marketing Strategies
Chapter 12 Services and Nonprofit Organization Marketing
Unique Aspects of Nonprofit Organization Marketing Strategies
Setting of marketing objectives
Selection of target markets
Development of marketing mixes
Notes:
Like their counterparts in business organizations, nonprofit managers develop marketing strategies to bring about mutually satisfying exchanges with target markets. 7
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21. Target Markets Unique Issues of Nonprofit Organizations
Chapter 12 Services and Nonprofit Organization Marketing
Target Markets
Apathetic or strongly opposed
targets
Pressure to adopt undifferentiated segmentation
Complementary positioning
Unique Issues of Nonprofit
Organizations
Notes:
Three issues relating to target markets are unique to nonprofit organizations:
Apathetic or strongly opposed targets: Nonprofit organizations must often target those who are apathetic about or strongly opposed to receiving their services.
Pressure to adopt undifferentiated segmentation strategies: Nonprofit organizations often fail to recognize the advantages of targeting, or are pressured to service the maximum number of people.
Complementary positioning: Nonprofit organizations must often complement, rather than compete with, the effort of other groups. 7
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22. Distinctions between Business and Nonprofit Organizations
Chapter 12 Services and Nonprofit Organization Marketing
Product Decisions
Distinctions between Business and Nonprofit Organizations
Benefit complexity
Weak or indirect benefit strength
Low involvement
Notes:
There are three product-related distinctions between business and nonprofit organizations:
Benefit complexity: Nonprofit organizations often market complex behavior or ideas, such as the need to quit smoking. The benefits that a person receive are complex, long term, and intangible, and therefore are difficult to communicate to consumers.
Benefit strength: The benefit strength of many nonprofit offerings may be weak or indirect.
Involvement: Many nonprofit organizations market products that elicit low involvement, such as “Prevent forest fires,” or very high involvement, such as “Stop smoking.” 7
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23. Promotion Decisions Professional volunteers Sales promotion activities
Chapter 12 Services and Nonprofit Organization Marketing
Promotion Decisions
Sales promotion activities
Public service advertising
Professional volunteers
Notes:
Many nonprofit organizations (such as federal organizations) are prohibited from advertising, or do not have the resources to retain marketing expertise. However, special promotion resources include:
Professional volunteers, such as donation of advertising agency time. Donated services create goodwill, personal contacts, and general awareness of the organization.
Sales promotion activities that make use of existing services to draw attention to the offerings of nonprofit organizations.
Public service advertising that is donated by a sponsor, so the public service advertiser does not pay for the time or space. 7
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24. Pricing Decisions Pricing objectives Nonfinancial prices
Chapter 12 Services and Nonprofit Organization Marketing
Pricing Decisions
Below-cost pricing
Separation between payers and users
Indirect payment
Nonfinancial prices
Pricing objectives
Characteristics
Distinguishing
Pricing Decisions of Nonprofit Organizations
Notes:
Five key characteristics distinguish the pricing decisions of nonprofit organizations from those of the profit sector:
Pricing objectives: The main objective is to defray all or partial costs rather than achieve a profit.
Nonfinancial prices: In many nonprofit situations, consumers must absorb nonmonetary costs, such as costs of time, embarrassment costs, and effort costs.
Indirect payment: Indirect payment through taxes is common to marketers of “free” services, such as libraries, fire protection, and police protection.
Separation between payers and users: The services of many nonprofit organizations are used by those who are relatively poor and paid for by those who are better off financially.
Below-cost pricing: An example is university tuition, with services priced below cost. 7
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25. Global Issues in Services Marketing
Chapter 12 Services and Nonprofit Organization Marketing
Global Issues in Services Marketing
The U.S. is the world’s largest exporter of services.
The marketing mix must reflect each country’s cultural, technological, and political environment.
Notes:
International marketing of services is a major part of global business. The United States is the world’s largest exporter of services. Because of competitive advantages, many U.S. service industries, such as banking, have been able to enter the global marketplace.
To be successful in the global marketplace, firms must first determine the nature of their core product, then design the marketing mix elements to take into account each country’s cultural, technological, and political environment. 8
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26. Ch 12 Discussion Questions
Define services and explain how they differ from goods.
Define service and explain the service marketing strategy of a company.
Define nonprofit marketing and explain the nonprofit marketing strategy of a company.
What is service quality? Explain.