Solution Manual for Essentials of Services Marketing, 3rd Edition

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CHAPTER1INTRODUCTIONTOSERVICESMARKETINGLEARNINGOBJECTIVESBytheendofthischapter,studentsshould beableto(LO 1) Understand how services contribute to a country’s economy.(LO 2) Know the principal industries of the service sector.(LO 3) Identify the powerful forces that are transforming servicemarkets.(LO 4) Understand how B2B services improve the productivity ofindividual firms and drive economic development.(LO 5) Define services using the non-ownership framework.(LO 6) Identify the four broad“processing” categories of services.(LO 7) Be familiar with the characteristics of services and the distinctivemarketing challenges they pose.(LO 8) Understand the components of the traditional marketing mixapplied to services.(LO 9) Describe the components of the extended marketing mix formanaging the customer interface.(LO 10) Appreciate that marketing, operations, and human resourcemanagement functions need to be closely integrated in servicebusinesses.

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(LO 11) Understand the implications of the service–profit chain forservice management.(LO 12) Know the framework for developing effective services marketingstrategies.CHAPTEROUTLINE(L01)Understandhowservicescontributetoacountry’seconomyServicesdominatealmostalltypesofeconomiestoday.Theservicesectoraccountsforamajorityofthegrossdomesticproductinallindustrializedcountriesandprovidesmostofthenewjobsinmanydevelopingandhighlydevelopednationsworldwide.(LO2) Know the principle industries of theservice sectorTheservicesectorisaverydiversesectorwithcontributionsfromvarious industries that target individual and business customers. Keyindustries are:•Government services•Real Estate•Wholesale and Retail trade•Business and Professional service•Finance and Insurance•Healthcare services•Transport, utilities and communication services•Accommodation and food services•Arts, entertainment and recreation services(L03)Identifythepowerfulforcesthataretransformingservicemarkets•Changesingovernmentpolicies•Socialchanges•Businesstrendslikeproductivityandcostsavings,franchisingetc.•Advancesininformationtechnology•InternationalizationandglobalizationCustomerneedsareevolving,marketsandcompetitionarechangingrapidly,andeffectivestrategicleadershipisvitaltosuccess.Studentsshouldrecognizethatunderstandingthethreatsandopportunities

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posedbythesechallengesisavitalfirststepindevelopingeffectivestrategies.Inparticular,theincreasinglycompetitivenatureofmanyserviceindustriesplacesapremiumoneffectivemarketingstrategy.(LO4) Understand how B2B services improve the productivity ofindividual firms and drive economic developmentMany manufacturing firms outsource their non-core support activities toindependent service providers that focus on providing those activities incost-efficientstructures.Thisdevelopmentleadstoanincreasedspecialisation with significant improvements in overall productivity andliving standards.(L05)Defineservicesusingthenon-ownershipofserviceframework•Servicesaredistinguishedasbenefitswithoutownership.•5broadcategorieswithinthenon-ownershipframeworkoRentedgoodsservices–providescustomerswithtemporaryrighttoexclusiveuseofphysicalgoodoDefinedspaceandplacerentals–obtainadefinedportionofalargerspaceandsharingitsusewithothercustomers,undervaryingdegreesofprivacyoLaborandexpertiserentals–hireotherstoworkthattheyeitherchoosenottodo,orlackthenecessaryexpertiseandtoolstodooAccesstosharedphysicalenvironments–maybelocatedindoorsoroutdoorsoracombinationoSystemsandnetworks:accessandusage–renttherighttoparticipateinspecifiednetworksliketelecommunications,utilitiesetc.(L06)Identifythefourbroad“processing”categoriesofservicesFigure1.14highlightsthefourbroadcategoriesofservices,suchas:1)peopleprocessing2)possessionprocessing3)mentalstimulusprocessing4)informationprocessing(L07)Befamiliarwiththecharacteristics ofservicesandthedistinctivemarketingchallengestheyposeThe most common characteristics of services are often cited asintangibility, heterogeneity, inseparability and perishability. These can

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be translated further into eight common differences between productsand services:•Most goods cannot be inventoried•Intangible elements dominate value creation•Services are often difficult to visualise•Customers may be involved in co-production•People may be part of the service experience•Operationalinputs and outputs tend to vary more widely•The time factor often assumes great importance•Distribution may take place through non-physical channels.It is important to note that these differences are useful generalisationsand do not apply equally to allservices.Table 1.1 gives managerial implications and challenges thesedifferences pose.(L08)UnderstandthecomponentsofthetraditionalmarketingmixappliedtoservicesStrategiestomarketmanufacturedgoodsusuallyaddressthetraditionalfourelementsofthemarketingmix—product,price,place,andpromotion.ThesefourPs,whenappliedtoservices,haveadditionalconsiderations:1)Productelements:Allcomponentsoftheserviceperformancethatcreatevalueforcustomers.2)Placeandtime:When,where,andhowtodeliverservicestocustomers.3)Priceandotheruseroutlays:Alltheoutlaysincurredbycustomersinobtainingbenefitsfromtheserviceproductcostsofservice,includingmoney,timeexpenditures,physicalandmentaleffort,andexposuretonegativesensoryexperiences.4)Promotionandeducation:Allcommunicationsactivitiesandincentivesdesignedtoinformandeducatecustomers,buildpreferenceforaparticularservice,andencouragethemtotakeaction.(L09)DescribethecomponentsoftheextendedmarketingmixformanagingthecustomerinterfaceInadditiontothetraditional4Ps,servicesincludethefollowingadditional Ps in their marketing mix:

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Processes:It ishowa firm does things by designing and implementingprocesses for the creation and delivery of services. Since services arevariable, the operational inputs and outputs can vary widely also andoften customers areinvolved in co-production todesign a suitableprocess.In services processes are often nota smooth flow becauseservices cannot be inventoried, thus wait systems are built into theservice process.Physical Environment:The “servicescape” of the service is its physicalenvironment including building, vehicles, landscape, interior and allother visible cues.People:Servicesareoftendeliveredthroughpeoplethereforetheselection,trainingandmotivationoftheserviceemployeesisessential.(LO10)Appreciate that marketing, operations, and humanresource management functions need to be closely integrated inservice business.The key deliverables and objectives of these various functions need tocompatible and mutually reinforcing and tightly integrated. In serviceorganisations, operations functions are actively involved in the designofproducts and processes to improve productivity and quality. HR providesquality front-line service providers to ensure the service experience andIT provides real-time information at every customer touch-point tocreate value with updated customer data.(LO11)Understand the implications of the Service-Profit Chainfor Service ManagementFigure 1.27 provides the Service-Profit chain and explains how internaloperating strategies of workplace design, rewards and recognition,adequate employee trainingyield higher service quality and this in turnleads to revenue growth and profitability through customer loyalty andsatisfaction.(LO12)Know the framework for developing effective servicemarketing strategiesThe framework for services marketing strategies is the same as thestructure of this book. The 5 parts of this structure are provided onPages 28 and 29 and involve understanding of services, applying 4Ps toservices, using the additional 3Ps to design and manage customerinterface, developing customer relationships and quality management inservices using Gaps model to move to higher levels of performance.

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TEACHINGSUGGESTIONSChapter1providesstudentswithanintroductiontosomeofthebasicconceptsofservicemarketingandmanagement.It’simportanttospendenoughtimetomakesurestudentsreallycomprehendthismaterial,becauseconceptualframeworksandbackgroundinformationintroducedinthischapterwillunderlietopicsdiscussedinlaterchapters.Forcesforchange.Thereareseveralinterestingwaystoapproachthistopic.Youcanaskstudentstofindaprintadillustratingoneoftheforcesforchangeinservicemanagement(seeFigure1.9)andtowriteaone-pagepaperdiscussingtheadandtheapplicableforce(s).Ifstudentsturnintheiradsandpapersinadvanceofclass,youcanmakeoverheadsofthebestadsandaskthestudentswhosubmittedthemtodescribewhytheychosetheads.Non-ownershipofservices.Thisisafreshperspectiveonservicesandadvancesourthinkinginthisarea.Thisshould beimpresseduponstudentsandtheycanbeencouragedtochallengethisviewtoseeiftheycanfindexceptions.Differencesbetweengoodsandservices.It’sveryhelpfultouseservicesthatarefamiliartostudentstoillustratethedistinguishingcharacteristicsofservices.Banking,insurance,airlines,servicegarages,hotels,andbroadcasting/cableprovidegoodstartingpoints.Asthecourseproceeds,however,youshouldstartintroducingprofessionalandbusiness-to-businessservices.SevenPs.Whenyouintroducethe7Ps,youshouldclarifyhowthisframeworkdiffersfromthe4Psofthetraditionalmarketingmix(especiallyifstudentshavepreviouslytakenanintroductorymarketingmanagementcourse).Studentsshouldbeadvisedthatthe7Psframeworkwillberevisitedinsubsequentchapters.Infact,eachcomponentofthe7Psformsthetopicofaseparatechapter.StudentscanbeassignedApplicationExercise3,whichasksthemtoshowhoweachofthe7Psrelatestoaspecificservice.Service-ProfitChain.Service-profitchainisanimportantguidingphilosophy of this book and it demonstrates the links in the managerialprocess that are essential for success in service business. Figure 1.27describestheselinksthatarebothinternalandexternaltotheorganization. Application Exercise 4 can be assigned to the students todiscuss service quality improvements suggested through Service-ProfitChain.

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QUESTIONSANDEXERCISESReviewQuestions1.Whatarethemainreasonsforthegrowingshareoftheservicesectorinthemajoreconomiesoftheworld?Increasedproductivityandautomationinagricultureandindustry,combinedwithgrowing demandforbothnewandtraditionalservices,havejointlyresultedinacontinuingincreaseovertimeinthepercentageofthelaborforcethatisemployedinservices.Increasedinternationaltradeandtourismdrivesdemandforfreightandpassengertransportation,internationalfinance,communications,andhotelentertainment,andfoodservices.Increasedspendingonservicesbyindividualsisoftenassociatedwithhigherstandardsofliving.Peopleeatoutmore,takemorevacations,spendmoreonentertainment,andemployotherpeopletoundertakehouseholdchorestheyusedtoundertakeforthemselves.Similarly,ascompaniesbecomelargerandmoresophisticated,theymaychoosetooutsourceso-calledinternalservicessuchasrecruitment,legalandaccountingservices,payrolladministration,officecleaning,landscapemaintenance,supply-chainmanagement,advertising,etc.tospecialistsubcontractors.Whensuchtasksareoutsourced,theybecomepartofthecompetitivemarketplaceandarethereforemoreeasilyidentifiableascontributingtotheservicescomponentoftheeconomy.Technologyhasresultedinthecreationofentirenewserviceindustries.2.Whatarethefivepowerfulforcestransformingtheservicelandscapeandwhatimpactdotheyhaveontheserviceeconomy?Thefivepowerfulforcesare:•Governmentpolicies•Socialchanges•Businesstrends•Advancesininformationtechnology•GlobalizationRefertoFigure1.6andTable1.1formoredetailedexplanations.

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3.Why would growth in business services help individual firmsand entire economies become moreproductive?A key driver of successful economies is their ecosystem of advanced,competitive and innovative business services. Many manufacturing firmshave recognised the importance of outsourcing their non-core supportactivities to other specialised service providers that have more cost-efficient structures. This development results in the growth of B2Bservice sector and helps these specialised firms run successfulbusinesses and in the broader perspective, better economic productivitycreates more jobs and improves the overall standard of living.4.Describethefourbroad“processing”categoriesofservices,andprovideexamplesforeach ofthem.Figure1.9highlightsthefourbroadcategoriesofservices,suchas:•Peopleprocessing(directedatpeople’sbodies):hairstylists,healthcare•Possessionprocessing(directedatphysicalpossessions):refueling,recycling•Mentalstimulusprocessing(directedatpeople’sminds):education,training,advertising/PRconsultancy•Informationprocessing(directedatintangibleassets):accounting,financial5.Whatissospecialaboutservicesmarketingthatitneedsaspecialapproach?EachoftheeightdistinctivecharacteristicsofserviceslistedinTable1.2hasimportantimplicationsformarketingstrategy.•NoownershipoCustomersobtaintemporaryrentals,hiringofpersonnel,oraccesstofacilitiesandsystems.oPricingoftenbasedontime.oCustomerchoicecriteriamaydifferforrentingversuspurchase—mayincludeconvenience,qualityofpersonnel.oCan’townpeople(noslavery!)butcanhireexpertiseandlabor.•ServicescannotbeinventoriedafterproductionoServiceperformancesareephemeral—transitory,perishable.oException—someinformation-basedoutputcanbe

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recordedinelectronic/printedformandreusedmanytimes.oBalancingdemandandsupplymaybevitalmarketingstrategy.oTargetingrightsegmentsatrighttimesatrightpriceisoftenkeytoprofitability.oMarketersmustdeterminewhetherbenefitsareperishable(e.g.,meal,entertainment,hotelnight)ordurable(e.g.,manysurgeries,education).•CustomersmaybeinvolvedinproductionprocessoCustomerinvolvementincludesself-serviceandcooperationwithservicepersonnel.oThinkofcustomersinthesesettingsas“partialemployees.”oCustomerbehaviorandcompetencecanhelporhinderproductivity,somarketersneedtoeducate,traincustomers.oChangingnatureofservicedeliveryprocessmayaffectroleplayedbycustomersinthatprocess.oDesignservicefacilities,equipment,andsystemswithcustomersinmind:user-friendly,convenientlocations/schedules.•IntangibleelementsdominatevaluecreationoUnderstandvalueaddedbylaborandexpertiseofservicepersonnel.oEffectiveHRmanagementiscriticaltoachieveservicequality.oTrytomakehighlyintangibleservicesmore“concrete” bycreatingandcommunicatingphysicalimagesormetaphorsandtangibleclues.•Otherpeopleareoftenpart oftheserviceproductoAchievecompetitiveedgethroughperceivedqualityofemployees.oEnsurejobspecsandstandardsforfront-lineservicepersonnelreflectbothmarketingandoperationalcriteria.oRecognizethatappearanceandbehaviorofothercustomerscaninfluenceserviceexperiencepositivelyornegatively.oAvoidinappropriatemixofcustomersegmentsatsametime.

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oManagecustomerbehavior(thecustomerisnotalwaysright!).•GreatervariabilityinoperationalinputsandoutputsoMustworkhardtocontrolqualityandachieveconsistency.oSeektoimproveproductivitythroughstandardization,andbytrainingbothemployeesandcustomers.oNeedtohaveeffectiveservicerecoverypoliciesinplacebecauseitismoredifficulttoshieldcustomersfromservicefailures.•OftendifficultforcustomerstoevaluateservicesoEducatecustomerstohelpthemmakegoodchoices,avoidrisk.oTellcustomerswhattoexpect,whattolookfor.oCreatetrustedbrandwithreputationforconsiderate,ethicalbehavior.oEncouragepositiveword-of-mouthfromsatisfiedcustomers.•TimefactorassumesgreatimportanceoOfferconvenienceofextendedservicehours,even24/7.oUnderstandcustomers’timeconstraintsandpriorities.oMinimizewaitingtime.oLookforwaystocompeteonspeed.•DistributionchannelstakedifferentformsoTangibleactivitiesmustbedeliveredthroughphysicalchannels.oUseelectronicchannels(e.g.,theInternet,telephone)todeliverintangible,information-basedactivities,expandgeographicreach,andachieveinstantaneousdelivery,anywhere.6.“The4Psareallamarketingmanagerneedstocreateamarketingstrategyforaservicebusiness.”Preparea responsethatarguesagainstthisandsupportitwithexamples.Thetraditional4Psprovidesastartingpointformarketingservicesbutfallsshortofprovidingthefullarrayoftoolsandstrategicelementsneeded.Wehavetorecasttheexisting4Ps(forinstance,speakingoftimeaswellasplace)andintroducenewelementsthataddressmanagementofthephysicalenvironmenttocreatedifferentiationandshapeserviceexperiences,peoplemanagementtoaccountfortheimportantroleofbothserviceprovidersandother

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customersintheserviceexperience,andprocesstohelpusunderstandandmanagethecustomer’sinvolvementinservicedelivery.Managementmustlookintotheother3Psaswell:processandproductivity,peopleandphysicalenvironmentinordertostayaheadofthecompetition.Studentsneedtoelaborateontheadvantages/strengthsofconcentratingontheother3Psintheirargument.7.Whattypesofservicesdoyouthinkare(a)mostaffectedand(b)leastaffectedbytheproblemofvariableinputsandoutputs?Why?Servicesthatrequirehighcontactinwhichcustomersexperiencethetangibleactionsoftheserviceproviderswouldbemostaffected.Customersaredirectlyincontactwithserviceprovidersmostofthetimetoreceivetheservice.Theevaluationoftheoverallexperiencewoulddependonthemoodandpersonalbeliefsofthecustomer,aswellastheskillsoftheserviceprovider.However,serviceexecutionoftendiffersamongemployees,betweenthesameemployeeanddifferentcustomers,andevenfromonetimeofdaytoanother.Attitudes,transactionspeed,andqualityofperformancecanvarywidely.Thiswidevariabilityaccountsforthedifficultiesin peopleprocessingservices.Onthecontrary,servicesthatprocesspeople’spossessionsandwhichoccursatanarm’slengthareleastaffectedbythevariability.Forexample,servicesthatinvolveutilities,telecommunicationandinternet-basedtransactions.Thismaybeachievedbyadoptingstandardizedprocedures,implementingrigorousmanagementofservicequality,trainingemployees,andautomatingtaskspreviouslyperformedbyhumanbeings.ServicesthatinvolveintangibleactionsmaybeabletomakemoreextensiveuseofinformationtechnologyandtodeliverthecoreservicethroughtheInternetorothertelecommunications.Customersreceivemorestandardizedservices,whichmayreflectperceivedfairness.However,usingtoomuchtechnologymakestheservicemoreimpersonal.8. Why do the marketing, operations, human resourcemanagement and IT functions need to be closely coordinated inservice organizations?The integrated model of service marketing in Figure 1.28 requires a closecoordination between operations, human resource management and ITfor itto be fully productive.Figure 1.26 presents the interdependency ofthese functions to meet customer needs. In service organisations,operations functions are actively involved in the design of products andprocesses to improve productivity and quality. HRprovides quality front-line service providers to ensure the service experience and IT provides

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real-time information at every customer touch-point to create value withupdated customer data.9. What are the implications of the service-profit chain forservice management?One of the biggest implications of the service-profit chain is how theleadership role from top management underlies the chain’s success. Thisleadership role will be the driver for internal quality delivered byoperations, IT and other departments to improve employee satisfactionwhich can lead to employee loyalty and can drive the quality andproductivity of service upwards resulting in higher customer satisfactionand loyalty that will eventually result in growth and profitability.APPLICATIONEXERCISES1.Visitthewebsitesofthefollowingnationalstatisticalbureaus:U.S.BureauofEconomicAnalysis(www.bea.gov);StatisticsCanada(www.statcan.ca);NationalBureauofStatisticsofChina(www.stats.gov.cn/english/);Eurostat(http://europa.eu.int/en/comm/eurostat/);JapaneseStatisticsBureau(www.stat.go.jp);CentralBureauofStatistics(Indonesia)(www.bps.go.id);StatisticsSouthAfrica(www.statssa.gov.za)andtherespectivewebsitesforyourhomecountryifitisnotcoveredhere.Ineachinstance,obtaindataonthelatesttrendsinservicesas(a)percentageofgrossdomesticproduct;(b)thepercentageofemploymentaccountedforbyservices;(c)breakdownsofthesetwostatisticsbytypeofindustry;and(d)serviceexportsandimports.Lookingatthesetrends,whatareyourmainconclusionsforthemainsectorsoftheseeconomies,andwithinservices,forspecificservicesectors.Thisexercisewillhelpstudentslearnhowtoaccessandanalyzedatafromdifferentnationalstatisticalagencies.Notethatasoflate2003,theUnitedStateshadnotyetconverteditsindustrialstatisticstothenewNAICSformat,butprogressisbeingmadetowardthisgoal.Canada’sstatisticsarefurtheralonginthisconversionprocess.CanadiandatatendtobemorerecentthanthoseintheUnitedStates(thisprobablyreflectsthecountry’smuchsmallereconomyandpopulation).Comparisonofservicestatisticsacrossthesethreecountriescanprovidethebasisforin-classdiscussionanddebateyou

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wish.Additionalnationalstatisticalagenciescanbeaddedasdesired,butyoushouldfirstcheckouttheextentofthedatabeingpresentedontheWebsiteinquestion.2.Legalandaccountingfirmsnowadvertisetheirservicesinmanycountries.Searchforafewadvertisementsandreviewthefollowing:Whatdothesefirmsdotocopewiththeintangibilityoftheirservices?Whatcouldtheydobetter?Howdotheydealwithconsumerqualityandriskperceptions,andhowcouldtheyimprovethataspectoftheirmarketing?LegalandaccountingfirmsformpartoftheInformationProcessingcategory.Informationisthemostintangibleformofserviceoutput.However,itcanbetransformedintomorepermanentandtangibleformslikeletters,reports,books,CD-ROMs,orDVDs.Someoftheservicesthataremosthighlydependentontheeffectivecollectionandprocessingofinformationarefinancialandprofessionalserviceslikeaccounting,law,marketingresearch,managementconsultingandmedicaldiagnosis.Todealwithconsumerqualityandriskperceptions,suchfirmsmusttryandprovideconsistentqualityofservice,agoodunderstandingoftheirproductknowledgeandwhattheirclientsneedandwant.Itisimportanttokeeptheseclientsinformedandeducatedaboutwhattheselegalandaccountingfirmscandoforthem.3.GiveexamplesofhowInternetandtelecommunicationstechnologies(e.g.,InteractiveVoiceResponseSystems[IVRs]andmobilecommerce[M-commerce])havechangedsomeoftheservicesthatyouuse.Studentsshouldbeabletoprovidemanyinterestingexamples,including:theproliferationofWeb-basedservices(suchasreservations,entertainment,andmedicalhelp);theuseofemailtointeractwithcustomersandbuildlong-termrelationships;satelliteTVanddigitalcable;specialeffectsinmovies;theincreasedeaseofcommunicationthroughcellularphones,etc.4.Explain how the concepts in Chapter 1 are relevant tothe marketing of a religious institution, or a non-profitorganization such as World Wildlife Fund.

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Students can relate Service-Profit chain to explain unique marketing ofreligiousinstitutionornon-profitorganisationssuchasWWFbyexplaininghowtheseservicesdonotmeasuretheirsuccessbytheprofitabilityrathertheyviewgrowthoftheirideologyasthemainmeasure of success. Students can also discuss the additional 3Ps ofservice•People:Theimam of a mosqueandpastor of a churchare criticalto the delivery of service.•Processes:Although for non-profit firms like WWF, or an adoptioncentre, profit is not the main aim, nevertheless, poorly designedservice process will lead to wasted time and ineffective servicedelivery.This can reduce the social support and funds that are soessential for such businesses.•Physical Environment:Asinany service, physical features likebuilding of a church and office of the non-profit firm will reflect itsvalues and beliefs. Religious symbology, or ideological depictionslike pictures of animals or WWF projects to save wildlife will bethe key feature of physical environment.

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CHAPTER2CONSUMERBEHAVIORINASERVICESCONTEXTThischapteremphasizesthepointmadeinChapter1thatservicesuccessrequiresafocusonbothcustomersandcompetitivemarkets.Accordingly,Chapter2establishesathemethatrunsthroughoutthebook:theneedforservicefirmstobecustomerfocused,tounderstandcustomerconcernsandexpectations,andtorecognizethecustomer’softendynamicroleinserviceoperations.LEARNINGOBJECTIVESBytheendofthischapter,studentsshould beableto:(LO 1) Understand the three-stage model of service consumption.(LO 2) Use the multi-attribute model to understand how consumers evaluateand choose between alternative service offerings.(LO3)Learnwhyconsumersoftenhavedifficultyevaluatingservices,especially those with many experience and credence attributes.(LO 4) Know the perceived risks customers facein purchasing services andthe strategies firms can use to reduce consumer risk perceptions.(LO5)Understandhowcustomersformserviceexpectationsandthecomponents of these expectations.(LO 6) Know the “moment of truth” metaphor.(LO 7) Contrast howcustomers experience and evaluate high-versus low-contact services.(LO 8) Be familiar with the servuction model and understand the interactionsthat together create the service experience.

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