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Classifying Services to GainStrategic Marketing Insights

By Christopher H. Lovelock

Article1

Presented by Sandra Lamprecht

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Objective

To generate greater sophistication within

the realm of service marketing bysegmenting services into clusters that

share certain relevant marketingcharacteristics.

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Previous Work

Classification of Goods

Hunt (1976)

Emphasized the usefulness of classification schemes

in marketing

Copeland (1923)

Most famous and enduring attempt to classify goods

Classification of convenience, shopping, and specialty

goods Helped managers to:

Better understand consumer needs and behavior

Provided insight into the management of retail distribution

systems

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Classification of Goods

Cont.

Bucklin (1963)

Revised and refined Copelands original

classification

Provided important strategic guidelines for

retailers

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Classification of Goods

Cont.Other Classification schemes:

Durable vs. non-durable goods

Durability is relative to purchase frequency and,

therefore, is important for the development of

distribution and communications strategies

Consumer goods vs. industrial goods Relates to types of goods purchased and

product evaluation (purchasing procedures and

usage behaviors)

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Shostack (1977), Bateson (1979), Berry (1980) Argued that there are significant distinctions between

services and goods and have proposed several

generalizations for management practices

Enis & Roering (1981) Believe that the differences that lie between goods and

services have no meaningful strategic implications

Langeard et al. (1981) Stated the importance of recognizing that the service

sector, escpecially in the US, is becoming increasinglycompetitive

Previous Work

Classification of Services

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Classification of Services

Cont.

Judd (1964) - classification in accordance withownership 1) Rented goods services- right to own and use a

good for a defined time

2) Owned goods services- owned by customer

(repair or improvement of goods, custom creation)

3) Nongoods services- experiential possessions or

personal experiences

1 & 2 are specific in the services they encompass

3 is very broad and ignores select services- banking,accounting, insurance, legal advice

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Classification of Services

Cont.Rathmell (1874) Getting to know how onesbusiness operates

1) Type of seller 2) Type of buyer

3) Buying motives

4) Buying practice

5) Degree of regulation This classification has no specific application to

services and, therefore, could also be used toclassify goods

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Classification of Services

Cont.Shostack (1977), Sasser et al (1978) recognizing the composition of each productpackage

Identified the proportion of physical goods relative to theamount of intangible services within

Emphasizes that there are few pure goods / services

Physical

Goods +Intangible

Services =Package

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Classification of Services

Cont.Hill (1977) Emphasizes the nature ofservice benefits and, in 5, variations in the

service delivery/consumption environment 1) Services affecting persons vs. those effecting

goods

2) Permanent vs. temporary effects of the service

3) Reversibility vs. nonreversability of thoseeffects

4) Physical effects vs. mental effects

5) Individual vs. collective services

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Classification of Services

Cont.Thomas (1978) Equipment based vs. Peoplebased, helps to understand product attributes 1) Primarily equipment based:

A) Automated- car wash

B) Monitored by unskilled operators- movie theatre

C) Operated by skilled personnel- airlines

2) Primarily people based:

A) Unskilled labor- lawn care B) Skilled labor- repair work

C) Professional staff- lawyers, dentists

Operational rather than marketing oriented

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Classification of Services

Cont.

Chase (1978) Levels of customer contact

Extent of customer contact required in service

1) High contact- health care, hotels, restaurants

2) Low contact- wholesaling, postal service

Product variability is harder to control in high contactservices because customers exert more influences on

timing of demand and service features due to greater

involvement in the service process

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Classification of Services

Cont.Kotler(1980) Synthesizes previouswork, recognizes difference in purpose of

service organizations 1) People based vs. equipment based

2) Extent to which the clients presence is

necessary 3) Meets personal need vs. business needs

4) Public vs. private , For-profit vs. nonprofit

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Classification of Services

Cont.Lovelock (1980) Synthesizes previousclassifications and adds new schemes 1) Basic demand characteristics:

Object served- personal vs. property

Extent of demand / supply imbalances

Discrete vs. continuous relationship between customers andproviders

2) Service content and benefits: Extent of physical goods content

Extent of personal service content

Single service vs. bundle service

Timing and duration of benefits

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3) Service delivery procedures: Multi-site vs. single-site delivery

Allocation of capacity- reservations or first come first serve

Independent vs. collective consumption

Time defined vs. task defined transactions Extent to which customers must be present during service

delivery

Defining objects served = most fundamentalclassification scheme

Suggests valuable marketing insights would comefrom combining two or more classification schemesin a matrix

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Methodology

Builds on past research by examining

characteristics of services that transcend

industry boundaries and are different in

degree or kind from the categorizationschemes traditionally applied to

manufacturing goods.

Five Classification Schemes were selected

and examined on two dimensions- reflectingLovelocks early conclusions

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Five Classification Schemes

Services

Natureof the service

act

Organization / Customer

relations

Level of customization

& judgment for the

service provider

Nature of

demand and

supply

Mode of

delivery

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What is the nature of the

service act?

Service= a deed, act or performance

(Berry 1980)Fundamental issues of services:

At whom, or what, is the act direct?

Is the act tangible or intangible

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Who or what is the direct recipient of

the service?What is the nature

of the service act?

People Things

Tangible Actions Services directed at

peoples bodies

-restaurants,

haircutting, beauty

salons

Services directed at

goods and otherphysical

possessions

-freight transport,

laundry/dry cleaning

Intangible Actions Services directed at

peoples mind

-education, theatres

Services direct at

intangible assets

-banking, legal

services

Nature of

Service Act

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What type of relationship does

the service organization have

with the customer?Relationships

Ongoing relationships- customers receive service on a continuing basis

Possible membership relationship- ex) family doctor, phone plans

No formal relationship

Delivery Continuous basis- ex) public goods (police protection, broadcasts)

Each transaction is recorded and charged separately

Marketers tend to be less informed about their customers-anonymous consumer

Profitability & customer convenience are central to how a service will bepriced

1) Single periodic charge / Flat rate- simple, usually for services offered onan ongoing basis. Ex) insurance, public goods

2) Price per service administered- more complex, more fair for the lessfrequent customers. Ex) pay phone

3) Base fee + incremental charges

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Type of relationship between the

service organization and the customer

Nature of service

delivery

Membership

relationship

No formal

relationshipContinuous

delivery system

Ex) college

enrollment,

insurance, banking

Ex) police

protection, radio

station, public

highway

Discrete

Transactions

Ex) transit pass,

long-distance phone

calls

Ex) pay phone, car

rental, restaurant,

movie theater

Organization / Customer

Relationships

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How much room is there for

customization and judgment on the

part of the service provider?Customer is often involved in the production process allows for tailoring of theservice to meet the needs of the individual customer

Concerns:

The extent to which the characteristics of the service allows them to be

customized How much judgment customer contact personnel are able to exercise in

defining the nature of the service received by the individual customer

Types of services:

Wide choice of options

Contact personnel is limited- mobile phone providers

Contact personnel has freedom- locus of control shifts from user tosupplier, these people often give advice- professional such as doctors

Standardization

Contact personnel is limited- public transport

Contact personnel has freedom- educators (different teachers teach thesame course different ways)

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Extent to which servicecharacteristics are customized

Extent to which customer

contact personnel

exercise judgment in

meeting individualcustomer needs

High Low

High Ex) legal services,

taxi service, real

estate agents,

plumber

Ex) preventative

health programs,

education (large

class)

Low Ex) hotel service,

telephone service

Ex) public

transportation, fast

food restaurants,

movie theaters

Customization vs. Judgment

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What is the nature for the

demand and supply for the

service?

Finished services cannot be inventoried

Demand exceeds supply on a particularday = excess business may be lost

Demand and supply imbalances are not

found in all services

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Extent of demand fluctuations over time

Extent towhich supply

is constrained

Wide Narrow

Peak demand

can usually be

met without amajor delay

Could use increases in

demand outside of peak

periodsEx) electricity, telephone,

natural gas

Must decide whether to seek

cont. growth in demand &

capacity or maintain statusquo

Ex) banking, insurance, legal

services

Peak demand

regularly

exceeds

capacity

Must try to smooth demand

to match capacity- must both

stimulate and discourage

demand

Ex) theatres, hotels/motels,

restaurants

A growing organization that

may need temporary

demarketing until capacity

can be reach to meet current

needs

Ex) services similar to those

in above field but with

insufficient capacity

Nature of Demand

& Supply

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How is the service

delivered?Nature of the interaction between the

customer and the service organization:

Customer goes to service organization

Service organization comes to customer

Customer and service organization transact at

arms length

Availability of service outlets:

Single site

Multiple site

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Availability of service outlets

Nature of

interaction betweencustomer and

service organization

Single Site Multiple Site

Customer goes to

service organization

Ex) theatre,

barbershop

Ex) bus service, fast

food chain

Service

organization comes

to customer

Ex) lawn care

service, pest control

service, taxi

Ex) mail deliver, AAA

emergency repairs

Customer and

service organizationtransact at arms

length (mail or e-

communications)

Ex) credit card

company, local t.v.station

Ex) broadcast

network, telephonecompany

Service Delivery

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Conclusion

Service sector is becoming increasingly

competitive partly due to the partial or completederegulation of several major service industries

As competition intensifies within the servicesector, the development of more effectivemarketing efforts becomes essential for survival

The 5 matrixes will help managers: Identify how those factors shape marketing problems

and opportunities and, therefore, how they should

affect the nature of the marketing tasks Recognize similarities between their industry and

other industries to help them look beyond theirimmediate competitors for new ideas as to how to

resolve marketing problems

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Limitations

These matrixes can only provide a guideline for

service companies to become more aware of theircustomers and the type of service they actually

provide

It does not provide a simple clear outline as to how

to market a specific service effectivelyEvery service in every market is different and unique,

even services within the same market differ

The customer and market are always changing

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Management ImplicationsNature of the service act:

Answers questions such as: A) Does the customer need to be physically present?

1) Throughout the service delivery?

2) Only to initiate / terminate the service transaction?

3) Not at all

Customer satisfaction will be influenced by interactions they have with

personnel, nature of facilities, characteristic of other customers,questions of location and schedule convenience

B) Does the customer need to be mentally present during service delivery?If so can it be maintained across physical distance (mail or e-communications)?

C) In what ways is the target of the service act modified by the receipt of

the service? How does the customer benefit from the modifications?To develop a better understanding of the nature of the service product andthe core benefits it offers

Managers of service organizations may be able to identifyopportunities for alternative, more convenient forms of servicedelivery- ex) Britains Open Universitys use of t.v. and radio broadcasts

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Organization / Customer Relations

Membership relationships:

Company knows who its current customers are, their

addresses, their preferences, their opinions on the service

provided,

Valuable for segmentation purposes & targeted marketing

May be offered discount rates in return for continuouspatronage

Usually result in customer loyalty to a particular provider. Ex)

Rewards cards, Costco membership

Helps ensure repeat business

Task= build sales and revenues through membership butavoid required membership and freezing out customers. Ex)

Best Buy w/ Reward Zone

Allows for better decisions in regard to pricing

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Level of Customization & Judgment Most senior managers have come up through

operations and, therefore, may require executiveeducation programs to given them the necessaryperspective on marketing to make balanced decisions

Customization is not necessarily important for success sometimes the image of customization is enough.

Many people share the same experience. People share the same service facility but still have some

custom treatment. Ex) airlines use your name

Customers like to know in advance what they arebuying Professional services the professional diagnosis the nature of

the situation- can divide into two segments (diagnosis andimplementation) to easy customer worries

Marketing focus on process of client-provider interactions. Ex)statement of qualifications

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Levitt (1972,1976)

The industrialization of a service in order to take advantageof the economies of mass production may increase

consumer satisfaction if speed, consistency, and price

savings hold a higher value than service customization

Industrialization > Customization

ifSpeed + Consistency + Price Savings > benefits which yield from

the ability to customize

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Nature of Demand and Supply

Managing demand in services because

fluctuations can be sharp and there is no

buffer of inventory between supply and

demand

Manage demand Hire seasonal or part time workers

Renting extra facilities during peak periods

Determining the appropriate strategy:

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Determining the appropriate strategy: 1) What is the typical cycle period for these demand fluctuations?

Predictable- demand varies by hour of the day, day of week/month,season of year

Random- no apparent pattern to demand fluctuations

2) What are the underlying causes of these demand fluctuations?

Customer habits or preferences- could marketing change these?

Actions by third parties- employers set working hrs. hence markingefforts might be directed at those employers

Nonforcestable events- weather conditions, health symptoms

Managers need to know who or what is the target of the service toeffectively choose these strategies.

Smooth out ups and downs of demand:

Decrease demand:

Encourage customers to change their plans voluntarily- Offer discounts

or added product value during times of low demand Ration demand through reservations or a queuing system

Increase demand:

New business development efforts should be targeted at prospectivecustomers with a counter cyclical demand pattern. Ex) accounting firmhas lots of business at the end of the year may find new business for thebulk of the year when it has relatively no business

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Mode of delivery Customer has to come to the service

Convenience is lowest to the customer

Service comes to customer- when target of the serviceis immovable More expensive for the service organization

Transactions at arms length

Ex) 800 numbers Not all services may be conducted at arms length but certain

portions of that service may be

Ex) make reservations by phone to go eat at a restaurant

If it is possible, it is up to the manager to decide whether a thirdparty will have the right to participate in the arms length step

sometimes consumers see these middle men as more objectiveand knowledgeable and trust their guidance more than the serviceprovider

Increasing the number of outlets Increases convenience of access to customers but may raise

issues of quality control (consistency of the service)

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