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Chapter 2

Fundamental Differences Between Goods and Services

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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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Opening Vignette: GEICO

• Contributing to the company’s success has been the introduction of the GEICO “gecko”. The gecko with his English voice has become a recognizable tangible symbol and an advertising icon for the company.

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Intangibility

• 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

VS.

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• Lack of service inventories

• Not protected by patents

• Not easily displayed or communicated

• Pricing is difficult

Marketing Problems caused by Intangibility

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•Use tangible clues/physical evidence•Quality furniture in a lawyer’s office•Appearance of the personnel

•Utilize personal sources of information

•Create a strong organizational image

Possible Solutions for Intangibility

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Table 2.1: Intangibility

Marketing Problems Possible SolutionsLack of service inventories

Use of tangible clues

Lack of patent protection

Use of personal sources of information

Difficulty in displaying or communicating services

Creation of a strong organizational image

Difficulty in pricing strategies

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•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

Marketing Problems caused by Inseparability

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• 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

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?

Customer is involved in the production process

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• Selecting and training public contact personnel

• Develop strategies to manage consumers

• Develop multi-site locations

Possible Solutions for Inseparability

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Table 2.2: Inseparability

Marketing Problems Possible SolutionsPhysical connection of the service provide to the service

Selecting and training public contact personnel

Involvement of the customer in the production process

Consumer management

Involvement of other customers in the production process

Use of multisite location

Special challenges in mass production of services

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• Standardization and quality control are difficult to achieve

Marketing Problems caused by Heterogeneity

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• Customization•Constructed to fit

customer’s exact needs

• Standardization•Faster•Less expensive•More consistent

Possible Solutions for Heterogeneity

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Table 2.3: Heterogeneity

Marketing Problems Possible SolutionsDifficult to standardize service and quality control

Customization

Standardization

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• 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

Marketing Problems caused by Perishability

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Possible Solutions for Perishability

• 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

Demand Strategies

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• Utilize part-time employees• Share capacity• Prepare in advance for expansion• Utilize third-parties

Possible Solutions for PerishabilitySupply Strategies

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Table 2.4: Perishability

Marketing Problems Possible SolutionsHigher demand than maximum available supply

Demand strategy: Creative pricing Reservation systems

Higher demand than optimal supply level

Development of complementary services

Lower demand than optimal supply level

Development of nonpeak demand

Demand and supply and optimal levels

All 5 Supply strategies

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• Different functions are interwoven

• Marketing must maintain closer relationships with other departments

• Marketing, operations, and human resources should work together.

The Role of Marketing in the Service Firm