Christopher H. Lovelock

The diversity of the service sector makes it diffi-cult to come up with managerially useful gener-alizations concerning marketing practice in serviceorganizations. This article argues for a focus onspecific categories of services and proposes fiveschemes for classifying services in ways that tran-scend narrow industry boundaries. In each in-stance insights are offered into how the nature ofthe service might affect the marketing task.

ClassifyingServices toGain StrategicMarketingInsights

Introduction

DEVELOPING professional skills in marketingmanagement requires the ability to look across a

broad cross-section of marketing situations, to under-stand their differences and commonalities, and toidentify appropriate marketing strategies in each in-stance. In the manufacturing sector many experiencedmarketers have worked for a variety of companies inseveral different industries, often including both con-sumer goods and industrial firms. As a result, theyhave a perspective that transcends narrow industryboundaries.

But exposure to marketing problems and strategiesin different industries is still quite rare among man-agers in the service sector. Not only is the concept ofa formalized marketing function still relatively new tomost service firms, but service industries have his-torically been somewhat inbred. The majority of rail-road managers, for instance, have spent their entireworking lives within the railroad industry—even withina single company. Most hoteliers have grown up inthe hotel industry. And most hospital or college ad-

Christopher H. Lovelock is an Associate Professor at Harvard BusinessSchool.

ministrators have remained within the confmes of healthcare or higher education, respectively. The net resultof such narrow exposure is that it restricts a manager'sability to identify and learn from the experience oforganizations facing parallel situations in other ser-vice industries—and, of course, from marketing ex-perience in the manufacturing sector. Conversely,marketers from the manufacturing sector who take po-sitions in service businesses often find that their pastexperience has not prepared them well for working onsome of the problems that regularly challenge servicemarketers (Knisely 1979, Lovelock 1981, Shostack1977).

This article argues that development of greater so-phistication in services marketing will be aided if wecan find new ways to group services other than bycurrent industry classifications. A more useful ap-proach may be to segment services into clusters thatshare certain relevant marketing characteristics—suchas the nature of the relationship between the serviceorganization and its customers or patterns of demandrelative to supply—and then to examine the impli-cations for marketing action.

After briefly reviewing the value of classificationschemes in marketing, the article summarizes pastproposals for classifying services. This is followed bypresentation and discussion of five classification

Journal of MarketingVol. 47 (Summer 1983), 9-20. Classifying Services to Gain Strategic Marketing Insights / 9

schemes based on past proposals or on clinical re-search. In each instance examples are given of howvarious services fall into similar or different cate-gories, and an evaluation is made of the resulting mar-keting insights and what they imply for marketingstrategy development.

The Value of Classificationin Marketing

Hunt (1976) has emphasized the usefulness of clas-sification schemes in marketing. Various attempts havebeen made in the past by marketing theorists to clas-sify goods into different categories. One of the mostfamous and enduring is Copeland's (1923) classifi-cation of convenience, shopping and specialty goods.Not only did this help managers obtain a better un-derstanding of consumer needs and behavior, it alsoprovided insights into the management of retail dis-tribution systems. Bucklin (1963) and others have re-vised and refined Copeland's original classification andthereby been able to provide important strategicguidelines for retailers. Another major classificationhas been between durable and nondurable goods. Du-rability is closely associated with purchase frequency,which has important implications for development ofboth distribution and communications strategy. Yetanother classification is consumer goods versus in-dustrial goods; this classification relates both to thetype of goods purchased (although there is some over-lap) and to product evaluation, purchasing proceduresand usage behavior. Recognition of these distinctionsby marketers has led to different types of marketingstrategy being directed at each of these groups. Throughsuch classifications the application of marketing man-agement tools and strategies in manufacturing has be-come a professional skill that transcends industry di-visions.

By contrast, service industries remain dominatedby an operations orientation that insists that each in-dustry is different. This mind set is often manifestedin managerial attitudes that suggest, for example, thatthe marketing of airlines has nothing at all in commonwith that of banks, insurance, motels, hospitals orhousehold movers. But if it can be shown that someof these services do share certain marketing relevantcharacteristics, then the stage may be set for some usefulcross-fertilization of concepts and strategies.

How Might Services Be Ciassified?Various attempts have been proposed in the past forclassifying services and are outlined, with brief com-mentaries, in Table 1. But developing classificationschemes is not enough. If they are to have managerialvalue, they must offer strategic insights. That is whyit is important to develop ways of analyzing services

that highlight the characteristics they have in com-mon, and then to examine the implications for mar-keting management.

This article builds on past research by examiningcharacteristics of services that transcend industryboundaries and are different in degree or kind fromthe categorization schemes traditionally applied tomanufactured goods. Five classification schemes havebeen selected for presentation and discussion, reflec-ting their potential for affecting the way marketingmanagement strategies are developed and imple-mented. Each represents an attempt to answer one ofthe following questions;

1. What is the nature of the service act?

2. What type of relationship does the service or-ganization have with its customers?

3. How much room is there for customization andjudgment on the part of the service provider?

4. What is the nature of demand and supply forthe service?

5. How is the service delivered?

Each question will be examined on two dimensions,reflecting my conclusion in an earlier study (Lovelock1980) that combining classification schemes in a ma-trix may yield better marketing insights than classi-fying service organizations on one variable at a time.

What Is the Natureof the Service Act?

A service has been described as a "deed, act or per-formance" (Berry 1980). Two fundamental issues areat whom (or what) is the act directed, and is this acttangible or intangible in nature?

As shown in Figure 1, these two questions resultin a four-way classification scheme involving (1) tan-gible actions to people's bodies, such as airline trans-portation, haircutting and surgery; (2) tangible actionsto goods and other physical possessions, such as airfreight, lawn mowing and janitorial services; (3) in-tangible actions directed at people's minds, such asbroadcasting and education; and (4) intangible actionsdirected at people's intangible assets, such as insur-ance, investment banking and consulting.

Sometimes a service may seem to spill over intotwo or more categories. For instance, the delivery ofeducational, religious or entertainment services (di-rected primarily at the mind) often entails tangible ac-tions such as being in a classroom, church or theater;the delivery of financial services may require a visitto a bank to transform intangible financial assets intohard cash; and the delivery of airline services may af-fect some travelers' states of mind as well as physi-cally moving their bodies from one airport to another.

10 / Journal of Marketing, Summer 1983

TABLE 1Summarv of Previously Proposed Schemes for Classifying Services

Author Proposed Classification Schemes Comment

Judd (1964)

Rathmell {1974}

Shostack (1977)'Sasser et al"(1978)

Hill (1977)

Thomas (1978)

Chase (1978)

Kotler (1980)

Lovelock (1980)

(1) Rented goods services(right to own and use a good for a defined timeperiod)

(2) Owned goods services(custom creation, repair or improvement of goodsowned by the customer)

(3) Nongoods services (personal experiences or"experiential possession")

(1) Type of seller(2) Type of buyer(3) Buying motives(4) Buying practice(5) Degree of regulation

Proportion of physical goods and intangible servicescontained within each product "package"

(1) Services affecting persons vs. those affectinggoods

(2) Permanent vs. temporary effects of the service(3) Reversibility vs. nonreversibility of these effects(4) Physical effects vs. mental effects(5) Individual vs. collective services

(1) Primarily equipment based(a) automated (e.g., car wash)(b) monitored by unskilled operators (e.g., movie

theater)(c) operated by skilled personnel (e.g. airline)

(2) Primarily people-based(a) unskilled labor (e.g., lawn care)(b) skilled labor (e.g., repair work)(c) professional staff (e.g., lawyers, dentists)

Extent of customer contact required in service delivery(a) high contact (e.g., health care, hotels,

restaurants)(b) low contact (e.g., postal service, wholesaling)

(1) People-based vs. equipment-based(2) Extent to which client's presence is necessary(3) Meets personal needs vs. business needs(4) Public vs. private, for-profit vs. nonprofit

(1) Basic demand characteristics—object served (persons vs. property)—extent of demand/supply imbalances—discrete vs. continuous relationships between

customers and providers(2) Service content and benefits

—extent of physical goods content—extent of personal service content—single service vs. bundle of services—timing and duration of benefits

(3) Service delivery procedures—multisite vs. single site delivery—allocation of capacity (reservations vs. first come,

first served)

First two are fairly specific, butthird category is very broad andignores services such asinsurance, banking, legal adviceand accounting.

No specific application toservices—could apply equallywell to goods.

Offers opportunities formultiattribute modeling.Emphasizes that there are fewpure goods or pure services.

Emphasizes nature of servicebenefits and (in 5), variations inthe service delivery/consumptionenvironment.

Although operational rather thanmarketing in orientation, providesa useful way of understandingproduct attributes.

Recognizes that productvariability is harder to control inhigh contact services becausecustomers exert more influenceon timing of demand and servicefeatures, due to their greaterinvolvement in the serviceprocess.

Synthesizes previous work,recognizes differences in purposeof service organization.

Synthesizes previousclassifications and adds severalnew schemes. Proposes severalcategories within eachclassification. Concludes thatdefining object served is mostfundamental classificationscheme. Suggests that valuablemarketing insights would comefrom combining two or moreclassification schemes in amatrix.

Classifying Services to Gain Strategic Marketing Insights / 11

TABLE 1 (continued)Summary of Previously Proposed Schemes for Classifying Services

Author Proposed Classification Schemes Comment

—independent vs. collective consumption—time defined vs. task defined transactions—extent to which customers must be present

during service delivery^These were two independent studies that drew broadly similar conclusions.

But in most instances the core service act is confinedto one of the four categories, although there may besecondary acts in another category.

Insights and ImplicationsWhy is this categorization scheme useful to servicemarketers? Basically it helps answer the followingquestions:

1. Does the customer need to be physically pres-ent:(a) throughout service delivery?(b) only to initiate or terminate the service

transaction (e.g., dropping off a car for re-pair and picking it up again afterwards)?

(c) not at all (the relationship with the servicesupplier can be at arm's length through themails, telephone or other electronic me-dia)?

2. Does the customer need to be mentally presentduring service delivery? Can mental presencebe maintained across physical distances throughmail or electronic communications?

3. In what ways is the target of the service act"modified" by receipt of the service? And howdoes the customer benefit from these "modi-fications"?

It's not always obvious what the service is andwhat it does for the customer because services areephemeral. By identifying the target of the service andthen examining how it is "modified" or changed byreceipt of the service act, we can develop a better un-derstanding of the nature of the service product andthe core benefits that it offers. For instance, a haircutleaves the recipient with shorter and presumably moreappealingly styled hair, air freight gets the customer'sgoods speedily and safely between two points, a newsradio broadcast updates the listener's mind about re-cent events, and life insurance protects the future valueof the insured person's assets.

If customers need to be physically present duringservice delivery, then they must enter the service"factory" (whether it be a train, a hairdressing salon,or a hospital at a particular location) and spend timethere while the service is performed. Their satisfac-

FIGURE 1Understanding the Nature of the Service Act

What is the Natureof the Service Act?

Tangible Actions

Intangible Actions

Who or What is the Direct Recipient of the Service?

People

Services directed at people's bodies:

<

(i

» health care• passenger transportation» beauty salons* exercise clinics» restaurants* haircuttingServices directed at people's minds:> education* broadcasting» information services* theaters* museums

Things

Services directed at goods and other physicalpossessions:

ii

» freight transportation• industrial equipment repair and maintenance> janitorial services• laundry and dry cleaning• landscaping/lawn care• veterinary careServices directed at intangible assets:i

<

* banking» legal services* accounting* securities* insurance

12 / Journal of Marketing, Summer 1983

tion with the service will be influenced by the inter-actions they have with service personnel, the natureof the service facilities, and also perhaps by the char-acteristics of other customers using the same service.Questions of location and schedule convenience as-sume great importance when a customer has to bephysically present or must appear in person to initiateand terminate the transaction.

Dealing with a service organization at arm's length,by contrast, may mean that a customer never sees theservice facilities at all and may not even meet the ser-vice personnel face-to-face. In this sort of situation,the outcome of the service act remains very important,but the process of service delivery may be of littleinterest, since the customer never goes near the "fac-tory." For instance, credit cards and many types ofinsurance can be obtained by mail or telephone.

For operational reasons it may be very desirableto get the customer out of the factory and to transforma "high-contact" service into a "low-contact" one(Chase 1978). The chances of success in such an en-deavor will be enhanced when the new procedures alsooffer customers greater convenience. Many servicesdirected at things rather than at people formerly re-quired the customer's presence but are now deliveredat arm's length. Certain financial services have longused the mails to save customers the inconvenience ofpersonal visits to a specific office location. Today,new electronic distribution channels have made it pos-sible to offer instantaneous delivery of financial ser-vices to a wide array of alternative locations. Retailbanking provides a good example, with its growinguse of such electronic delivery systems as automaticteller machines in airports or shopping centers, pay-by-phone bill paying, or on-line banking facilities inretail stores.

By thinking creatively about the nature of theirservices, managers of service organizations may beable to identify opportunities for alternative, moreconvenient forms of service delivery or even for trans-formation of the service into a manufactured good.For instance, services to the mind such as educationdo not necessarily require attendance in person sincethey can be delivered through the mails or electronicmedia (Britain's Open University, which makes ex-tensive use of television and radio broadcasts, is a primeexample). Two-way communication hook-ups can makeit possible for a physically distant teacher and studentsto interact directly where this is necessary to the ed-ucational process (one recent Bell System advertise-ment featured a chamber music class in a smalltown being taught by an instructor several hundredmiles away). Alternatively, lectures can be packagedand sold as books, records or videotapes. And pro-grammed learning exercises can be developed in com-puterized form, with the terminal serving as a Socraticsurrogate.

What Type of Relationship Doesthe Service Organization Have

with Its Customers?With very few exceptions, consumers buy manufac-tured goods at discrete intervals, paying for each pur-chase separately and rarely entering into a formal re-lationship with the manufacturer. (Industrial purchasers,by contrast, often enter into long-term relationshipswith suppliers and sometimes receive almost contin-uous delivery of certain supplies.)

In the service sector both household and institu-tional purchasers may enter into ongoing relationshipswith service suppliers and may receive service on a

FIGURE 2Relationships with Customers

Nature of Service Delivery

Continuous Delivery of Service

Discrete Transactions

Type of Relationship between the Service Organizationand its Customers

"Membership" Relationship

insurancetelephone subscriptioncollege enrollmentbankingAmerican Automobile Associationlong-distance phone callstheater series subscriptioncommuter ticket or transit pass

No Formal Relationshipradio stationpolice protectionlighthousepublic highway

car rentalmall servicetoll highwaypay phonemovie theaterpublic transportationrestaurant

Classifying Services to Gain Strategic Marketing Insights / 13

continuing basis. This offers a way of categorizingservices. We can ask, does the service organizationenter into a "membership" relationship with its cus-tomers—as in telephone subscriptions, banking andthe family doctor—or is there no formal relation-ship? And is service delivered on a continuous ba-sis—as in insurance, broadcasting and police protec-tion—or is each transaction recorded and chargedseparately? Figure 2 shows the 2 x 2 matrix resultingfrom this categorization, with some additional ex-amples in each category.

Insights and ImplicationsThe advantage to the service organization of a mem-bership relationship is that it knows who its currentcustomers are and, usually, what use they make of theservices offered. This can be valuable for segmenta-tion purposes if good records are kept and the data arereadily accessible in a format that lends itself to com-puterized analysis. Knowing the identities and ad-dresses of current customers enables the organizationto make effective use of direct mail, telephone sellingand personal sales calls—all highly targeted market-ing communication media.

The nature of service relationships also has im-portant implications for pricing. In situations whereservice is offered on an ongoing basis, there is oftenjust a single periodic charge covering all services con-tracted for. Most insurance policies fall in this cate-gory, as do tuition and board fees at a residential col-lege. The big advantage of this package approach isits simplicity. Some memberships, however, entail aseries of separate and identifiable transactions with theprice paid being tied explicitly to the number and typeof such transactions. While more complex to admin-ister, such an approach is fairer to customers (whoseusage patterns may vary widely) and may discouragewasteful use of what are perceived as "free" services.In such instances, members may be offered advan-tages over casual users, such as discounted rates (tele-phone subscribers pay less for long-distance calls madefrom their own phones than do pay phone users) oradvance notification and priority reservations (as intheater subscriptions). Some membership services of-fer certain services (such as rental of equipment orconnection to a public utility system) for a base feeand then make incremental charges for each separatetransaction above a defined minimum.

Profitability and customer convenience are centralissues in deciding how to price membership services.Will the organization generate greater long-term prof-its by tying payment explicitly to consumption, bycharging a flat rate regardless of consumption, or byunbundling the components of the service and charg-ing a flat rate for some and an incremental rate forothers? Telephone and electricity services, for in-

stance, typically charge a base fee for connection tothe system and rental of equipment, plus a variety ofincremental charges for consumption above a definedminimum. On the ocher hand. Wide Area TelephoneService (WATS) offers the convenience of unlimitedlong-distance calling for a fixed fee. How importantis it to customers to have the convenience of payinga single periodic fee that is known in advance? Forinstance, members of the American Automobile As-sociation (AAA) can obtain information booklets, traveladvice and certain types of emergency road servicesfree of additional charges. Such a package offers ele-ments of both insurance and convenience to customerswho may not be able to predict their exact needs inadvance.

Where no formal relationship exists between sup-plier and customer, continuous delivery of the productis normally found only among that class of servicesthat economists term "public goods"—such as broad-casting, police and lighthouse services, and publichighways—where no charge is made for use of a ser-vice that is continuously available and financed fromtax revenues. Discrete transactions, where each usageinvolves a payment to the service supplier by an es-sentially "anonymous" consumer, are exemplified bymany transportation services, restaurants, movie thea-ters, shoe repairs and so forth. The problem of suchservices is that marketers tend to be much less well-informed about who their customers are and what useeach customer makes of the service than their coun-terparts in membership organizations.

Membership relationships usually result in cus-tomer loyalty to a particular service supplier (some-times there is no choice because the supplier has amonopoly). As a marketing strategy, many servicebusinesses seek ways to develop formal, ongoing re-lations with customers in order to ensure repeat busi-ness and/or ongoing financial support. Public radioand television broadcasters, for instance, developmembership clubs for donors and offer monthly pro-gram guides in return; performing arts organizationssell subscription series; transit agencies offer monthlypasses; airlines create clubs for high mileage fliers;and hotels develop "executive service plans" offeringpriority reservations and upgraded rooms for frequentguests. The marketing task here is to determine howit might be possible to build sales and revenues throughsuch memberships but to avoid requiring membershipwhen this would result in freezing out a large volumeof desirable casual business.

How Much Room Is There forCustomization and Judgment?

Relatively few consumer goods nowadays are built tospecial order; most are purchased "off the shelf." The

14 / Journal of Marketing, Summer 1983

same is true for a majority of industrial goods, al-though by permutating options it's possible to give theimpression of customization. Once they've purchasedtheir goods, of course, customers are usually free touse them as they see fit.

The situation in the service sector, by contrast, issharply different. Because services are created as theyare consumed, and because the customer is often ac-tually involved in the production process, there is farmore scope for tailoring the service to meet the needsof individual customers. As shown in Figure 3, cus-tomization can proceed along at least two dimensions.The first concerns the extent to which the character-istics of the service and its delivery system lend them-selves to customization; the second relates to how muchjudgment customer contact personnel are able to ex-ercise in defining the nature of the service receivedby individual customers.

Some service concepts are quite standardized.Public transportation, for instance, runs over fixedroutes on predetermined schedules. Routine appliancerepairs typically involve a fixed charge, and the cus-tomer is responsible for dropping off the item at agiven retail location and picking it up again after-wards. Fast food restaurants have a small, set menu;few offer the customer much choice in how the foodwill be cooked and served. Movies, entertainment andspectator sports place the audience in a relatively pas-sive role, albeit a sometimes noisy one.

Other services offer customers a wide choice ofoptions. Each telephone subscriber enjoys an individ-ual number and can use the phone to obtain a broadarray of different services—from receiving personalcalls from a next-door neighbor to calling a business

associate on the other side of the world, and from datatransmission to dial-a-prayer. Retail bank accounts arealso customized, with each check or bank card car-rying the customer's name and personal code. Withinthe constraints set down by the bank, the customerenjoys considerable latitude in how and when the ac-count is used and receives a personalized monthlystatement. Good hotels and restaurants usually offertheir customers an array of service options from whichto choose, as well as considerable flexibility in howthe service product is delivered to them.

But in each of these instances, the role of the cus-tomer contact personnel (if there are any) is somewhatconstrained. Other than tailoring their personal man-ner to the customer and answering straightforwardquestions, contact personnel have relatively little dis-cretion in altering the characteristics of the service theydeliver: their role is basically that of operator or ordertaker. Judgment and discretion in customer dealingsis usually reserved for managers or supervisors whowill not normally become involved in service deliveryunless a problem arises.

A third category of services gives the customercontact personnel wide latitude in how they deliverthe service, yet these individuals do not significantlydifferentiate the characteristics of their service be-tween one customer and another. For instance, edu-cators who teach courses by lectures and give multiplechoice, computer scored exams expose each of theirstudents to a potentially similar experience, yet oneprofessor may elect to teach a specific course in a verydifferent way from a colleague at the same institution.

However, there is a class of services that not onlyinvolves a high degree of customization but also re-

FIGURE 3Customization and Judgment in Service Delivery

Extent to Which Customer ContactPersonnel Exercise Judgment in Meeting

Individual Customer Needs

High

Low

Extent to Which Service Characteristics Are Customized

Highlegal serviceshealth care/surgeryarchitectural designexecutive search firmreal estate agencytaxi servicebeauticianplumbereducation (tutorials)telephone servicehotel servicesretail banking (excl. major loans)good restaurant

Loweducation (large classes)preventive health programs

public transportationroutine appliance repairfast food restaurantmovie theaterspectator sports

Classifying Services to Gain Strategic Marketing Insights / 15

quires customer contact personnel to exercise judg-ment concerning the characteristics of the service andhow it is delivered to each customer. Far from beingreactive in their dealings with customers, these ser-vice personnel are often prescriptive: users (or clients)look to them for advice as well as for customized ex-ecution. In this category the locus of control shiftsfrom the user to the supplier—a situation that somecustomers may find disconcerting. Consumers of sur-gical services literally place their lives in the sur-geon's hands (the same, unfortunately, is also true oftaxi services in many cities). Professional services suchas law, medicine, accounting and architecture fall withinthis category. They are all white collar "knowledgeindustries," requiring extensive training to develop therequisite skills and judgment needed for satisfactoryservice delivery. Deliverers of such services as taxidrivers, beauticians and plumbers are also found inthis category. Their work is customized to the situa-tion at hand and in each instance, the customer pur-chases the expertise required to devise a tailor-madesolution.

Insights and implicationsTo a much greater degree than in the manufacturingsector, service products are "custom-made." Yet cus-tomization has its costs. Service management oftenrepresents an ongoing struggle between the desires ofmarketing managers to add value and the goals of op-erations managers to reduce costs through standard-ization. Resolving such disputes, a task that may re-quire arbitration by the general manager, requires agood understanding of consumer choice criteria, par-ticularly as these relate to price/value trade-offs andcompetitive positioning strategy. At the present time,most senior managers in service businesses have comeup through the operations route; hence, participationin executive education programs may be needed to givethem the necessary perspective on marketing to makebalanced decisions.

Customization is not necessarily important to suc-cess. As Levitt (1972, 1976) has pointed out, indus-trializing a service to take advantage of the economiesof mass production may actually increase consumersatisfaction. Speed, consistency and price savings maybe more important to many customers than custom-ized service. In some instances, sucb as spectator sportsand the performing arts, part of the product experi-ence is sharing the service with many other people.In other instances the customer expects to share theservice facilities with other consumers, as in hotels orairlines, yet still hopes for some individual recogni-tion and custom treatment. Allowing customers to re-serve specific rooms or seats in advance, having con-tact personnel address them by name (it's on their ticketor reservation slip), and providing some latitude for

individual choice (room service and morning calls,drinks and meals) are all ways to create an image ofcustomization.

Generally, customers like to know in advance whatthey are buying—what the product features are, whatthe service will do for them. Surprises and uncertaintyare not normally popular. Yet when the nature of theservice requires a judgment-based, customized solu-tion, as in a professional service, it is not always clearto either the customer or the professional what theoutcome will be. Frequently, an important dimensionof the professional's role is diagnosing the nature ofthe situation, then designing a solution.

In such situations those responsible for developingmarketing strategy would do well to recognize thatcustomers may be uneasy concerning the prior lack ofcertainty about the outcome. Customer contact per-sonnel in these instances are not only part of the prod-uct but also determine what that product should be.

One solution to this problem is to divide the prod-uct into two separate components, diagnosis and im-plementation of a solution, that are executed and paidfor separately. The process of diagnosis can and shouldbe explained to the customer in advance, since theoutcome of the diagnosis cannot always be predictedaccurately. However, once that diagnosis has beenmade, the customer need not proceed immediately withthe proposed solution; indeed, there is always the op-tion of seeking a second opinion. The solution "prod-uct," by contrast, can often be spelled out in detailbeforehand, so that the customer has a reasonable ideaof what to expect. Although there may still be someuncertainty, as in legal actions or medical treatment,the range of possibilities should be narrower by thispoint, and it may be feasible to assign probabilities tospecified alternative outcomes.

Marketing efforts may need to focus on the pro-cess of client-provider interactions. It will help pro-spective clients make choices between alternative sup-pliers, especially where professionals are concerned,if they know something of the organization's (or in-dividual's) approach to diagnosis and problem-solv-ing, as well as chent-relationship style. These are con-siderations that transcend mere statements of quali-fication in an advertisement or brochure. For instance,some pediatricians allow new parents time for a freeinterview before any commitments are made. Such atrial encounter has the advantage of allowing both par-ties to decide whether or not a good match exists.

What Is the Nature of Demandand Supply for the Service?

Manufacturing firms can inventory supplies of theirproducts as a hedge against fluctuations in demand.This enables them to enjoy the economies derived fromoperating plants at a steady level of production. Ser-

16 / Journal of Marketing, Summer 1983

vice businesses can't do this because it's not possibleto inventory the finished service. For instance, the po-tential income from an empty seat on an airline flightis lost forever once that flight takes off, and each hoteldaily room vacancy is equally perishable. Likewise,the productive capacity of an auto repair shop is wastedif no one brings a car for servicing on a day when theshop is open. Conversely, if the demand for a serviceexceeds supply on a particular day, the excess busi-ness may be lost. Thus, if someone can't get a seaton one airline, another carrier gets the business or thetrip is cancelled or postponed. If an accounting firmis too busy to accept tax and audit work from a pro-spective client, another firm will get the assignment.

But demand and supply imbalances are not foundin all service situations. A useful way of categorizingservices for this purpose is shown in Figure 4. Thehorizontal axis classifies organizations according towhether demand for the service fluctuates widely ornarrowly over time; the vertical axis classifies themaccording to whether or not capacity is sufficient tomeet peak demand.

Organizations in Box 1 could use increases in de-mand outside peak periods, those in Box 2 must de-cide whether to seek continued growth in demand andcapacity or to continue the status quo, while those inBox 3 represent growing organizations that may needtemporary demarketing until capacity can be in-creased to meet or exceed current demand levels. Butservice organizations in Box 4 face an ongoing prob-lem of trying to smooth demand to match capacity,involving both stimulation and discouragement of de-mand.

Insights and ImplicationsManaging demand is a task faced by nearly all mar-keters, whether offering goods or services. Even where

the fluctuations are sharp, and inventories cannot beused to act as a buffer between supply and demand,it may still be possible to manage capacity in a servicebusiness—for instance, by hiring part time employeesor renting extra facilities at peak periods. But for asubstantial group of service organizations, success-fully managing demand fluctuations through market-ing actions is the key to profitability.

To determine the most appropriate strategy in eachinstance, it's necessary to seek answers to some ad-ditional questions:

1. What is the typical cycle period of these de-mand fluctuations?• predictable (i.e., demand varies by hour of

the day, day of the week or month, seasonof the year).

• random (i.e., no apparent pattern to demandfluctuations).

2. What are the underlying causes of these de-mand fluctuations?• customer habits or preferences (could mar-

keting efforts change these)?• actions by third parties (for instance, em-

ployers set working hours, hence marketingefforts might usefully be directed at thoseemployers).

• nonforecastable events, such as healthsymptoms, weather conditions, acts of Godand so forth—marketing can do only a fewthings about these, such as offering priorityservices to members and disseminating in-formation about alternative services to otherpeople.

One way to smooth out the ups and downs of de-mand is through strategies that encourage customers

FIGURE 4What is the Nature of Demand for the Service Relative to Supply?

Extent to Which Supplyis Constrained

Peak Demand Can Usually Be Metwithout a Major Delay

Peak Demand Regularly ExceedsCapacity

Extent of Demand Fluctuations over TimeWide Narrow

1electricitynatural gastelephonehospital maternity unitpolice and fire emergencies

4accounting and tax preparationpassenger transportationhotels and motelsrestaurantstheaters

2insurancelegal servicesbankinglaundry and dry cleaning

3services similar to those in 2 butwhich have insufficient capacity fortheir base level of business

Classifying Services to Gain Strategic Marketing Insights / 17

to change their plans voluntarily, such as offering spe-cial discount prices or added product value during pe-riods of low demand. Another approach is to rationdemand through a reservation or queuing system (whichbasically inventories demand rather than supply). Al-ternatively, to generate demand in periods of excesscapacity, new business development efforts might betargeted at prospective customers with a countercycli-cal demand pattern. For instance, an accounting firmwith a surfeit of work at the end of each calendar yearmight seek new customers whose financial year endedon June 30 or September 30.

Determining what strategy is appropriate requiresan understanding of who or what is the target of theservice (as discussed in an earlier section of this ar-ticle). If the service is delivered to customers in per-son, there are limits to how long a customer will waitin line; hence strategies to inventory or ration demandshould focus on adoption of reservation systems (Sas-ser 1976). But if the service is delivered to goods orto intangible assets, then a strategy of inventoryingdemand should be more feasible (unless the good isa vital necessity such as a car, in which case reser-vations may be the best approach).

How Is the Service Delivered?Understanding distribution issues in service marketingrequires that two basic issues be addressed. The firstrelates to the method of delivery. Is it necessary forthe customer to be in direct physical contact with theservice organization (customers may have to go to theservice organization, or the latter may come to theformer), or can transactions be completed at arm'slength? And does the service organization maintainjust a single outlet or does it serve customers throughmultiple outlets at different sites? The outcome of thisanalysis can be seen in Figure 5, which consists ofsix different cells.

Insights and ImplicationsThe convenience of receiving service is presumablylowest when a customer has to come to the serviceorganization and must use a specific outlet. Offeringservice through several outlets increases the conve-nience of access for customers but may start to raiseproblems of quality control as convenience of accessrelates to the consistency of the service product de-livered. For some types of services the organizationwill come to the customer. This is, of course, essen-tial when the target of the service is some immovablephysical item (such as a building that needs repairs orpest control treatment, or a garden that needs land-scaping). But since it's usually more expensive to takeservice personnel and equipment to the customer thanvice versa, the trend has been away from this ap-proach to delivering consumer services (e.g., doctorsno longer like to make house calls). In many in-stances, however, direct contact between customersand the service organization is not necessary; instead,transactions can be handled at arm's length by mailor electronic communications. Through the use of 800numbers many service organizations have found thatthey can bring their services as close as the nearesttelephone, yet obtain important economies from op-erating out of a single physical location.

Although not all services can be delivered througharm's length transactions, it may be possible to sep-arate certain components of the service from the coreproduct and to handle them separately. This suggestsan additional classification scheme: categorizing ser-vices according to whether transactions such as ob-taining information, making reservations and makingpayment can be broken out separately from deliveryof the core service. If they can be separated, then thequestion is whether or not it is advantageous to theservice firm to allow customers to make these periph-eral transactions through an intermediary or broker.

For instance, information about airline flights, res-ervations for such flights and purchases of tickets can

FIGURE 5Method of Service Delivery

Nature of Interaction between Customerand Service Organization

Customer Goes to Service Organization

Service Organization Comes to Customer

Customer and Service Organization Transact atArm's Length {mail or electronic communications)

Availability of Service OutletsSingle Site Multiple Set

theaterbarbershop

lawn care servicepest control servicetaxi

credit card co.local TV station

bus servicefast food chain

mail deliveryAAA emergency repairs

broadcast networktelephone co.

18 / Journal of Marketing, Summer 1983

all be made through a travel agent as well as directlythrough the airline. For those who prefer to visit inperson, rather than conduct business by telephoning,this greatly increases the geographic coverage of dis-tribution, since there are usually several travel agen-cies located more conveniently than the nearest airlineoffice. Added value from using a travel agent comesfrom the "one-stop shopping" aspect of travel agents;the customer can inquire about several airlines and makecar rental and hotel reservations during the same call.Insurance brokers and theater ticket agencies are alsoexamples of specialist intermediaries that represent anumber of different service organizations. Consumerssometimes perceive such intermediaries as more ob-jective and more knowledgeable about alternatives thanthe various service suppliers they represent. The riskto the service firm of working through specialist in-termediaries is, of course, that they may recommenduse of a competitor's product!

DiscussionWidespread interest in the marketing of services amongboth academics and practitioners is a relatively recentphenomenon. Possibly this reflects the fact that mar-keting expertise in the service sector has significantlylagged behind that in the manufacturing sector. Up tonow most academic research and discussion has cen-tered on the issue, "How do services differ fromgoods?" A number of authors including Shostack(1977), Bateson (1979) and Berry (1980) have arguedthat there are significant distinctions between the twoand have proposed several generalizations for man-agement practice. But others such as Enis and Roering(1981) remain unconvinced that these differences havemeaningful strategic implications.

Rather than continue to debate the existence of thisbroad dichotomy, it seems more useful to get on withthe task of helping managers in service businesses doa better job of developing and marketing their prod-ucts. We need to recognize that the service sector,particularly in the United States, is becoming increas-ingly competitive (Langeard et al. 1981), reflecting

such developments as the partial or complete deregu-lation of several major service industries in recent years,the removal of professional association restrictions onusing marketing techniques (particularly advertising),the replacement (or absorption) of independent ser-vice units by franchise chains, and the growth of newelectronic delivery systems. As competition intensi-fies within the service sector, the development of moreeffective marketing efforts becomes essential to sur-vival.

The classification schemes proposed in this articlecan contribute usefully to management practice in twoways. First, by addressing each of the five questionsposed earlier, marketing managers can obtain a betterunderstanding of the nature of their product, of thetypes of relationships their service organizations havewith customers, of the factors underlying any sharpvariations in demand, and of the characteristics of theirservice delivery systems. This understanding shouldhelp them identify how these factors shape marketingproblems and opportunities and thereby affect the na-ture of the marketing task. Second, by recognizingwhich characteristics their own service shares with otherservices, often in seemingly unrelated industries,managers will learn to look beyond their immediatecompetitors for new ideas as to how to resolve mar-keting problems that they share in common with firmsin other service industries.

Recognizing that the products of service organi-zations previously considered as "different" actuallyface similar problems or share certain characteristicsin common can yield valuable managerial insights. In-novation in marketing, after all, often reflects a man-ager's ability to seek out and learn from analogoussituations in other contexts. These classificationschemes should also be of value to researchers to whomthey offer an alternative to either broad-brush researchinto services or an industry-by-industry approach. In-stead, they suggest a variety of new ways of lookingat service businesses, each of which may offer op-portunities for focused research efforts. Undoubtedlythere is also room for further refinement of the schemesproposed.

REFERENCESBateson, John E. G. (1979), "Why We Need Service Mar-

keting," in Conceptual and Theoretical Developments inMarketing, O. C. FerTell, S. W. Brown and C. W. Lamb,eds., Chicago, American Marketing Association, 131-46.

Berry, Leonard L. (1980), "Services Marketing Is Different,"Business Week (May-June), 24-29.

Bucklin, Louis (1963), "Retail Strategy and the Classificationof Consumer Goods," Journal of Marketing, 27 (January),50.

Chase, Richard B. (1978), "Where Does the Customer Fit ina Service Operation?," Harvard Business Review, 56 (No-vember-December), 137-42.

Copeland, Melvin T. (1923), "The Relation of Consumers'Buying Habits to Marketing Methods," Harvard BusinessReview, 1 (April), 282-9.

Enis, Ben M. and Kenneth J. Roering (1981), "Services Mar-keting: Different Products, Similar Strategies," in Market-ing of Services, J. H. Donnelly and W. R. George, eds..

Classifying Services to Gain Strategic Marketing Insights / 19

Chicago: American Marketing Association.Hill, T. P. (1977), "On Goods and Services," Review of In-

come and Wealth, 23 (December), 315-38.Hunt, Shelby D. (1976), Marketing Theory, Columbus, OH:

Grid.Judd, Robert C. (1964). "The Case for Redefining Services,"

Journal of Marketing, 28 (January), 59.Knisely, Gary (1979), "Marketing and the Services Industry,"

Advertising Age (January 15), 47-50; (February 19), 54-60; (March 19), 58-62; (May 15), 57-58.

Kotler, Philip (1980), Principles of Marketing, EnglewoodCliffs, NJ: Prentice-Hall, Inc.

Langeard, Eric, John E. G. Bateson, Christopher H. Lovelockand Pierre Eiglier (1981), Services Marketing: New Insightsfrom Consumers and Managers, Cambridge, MA: Market-ing Science Institute,

Levitt, Theodore (1972), "Production Line Approach to Ser-vice," Harvard Business Review, 50 (September-October),41.

(1976), 'The Industrialization of Service," HarvardBusiness Review, 54 (September-October), 63-74.

Lovelock, Christopher H. (1980), "Towards a Classificationof Services," in Theoretical Developments in Marketing,C. W. Lamb and P. M. Dunne, eds., Chicago: AmericanMarketing Association, 72-76.

(1981), "Why Marketing Management Needs to BeDifferent for Services," in Marketing of Services, J. H.Donnelly and W, R. George, eds., Chicago, IL: AmericanMarketing Association.

Rathmell, John M. (1974), Marketing in the Service Sector,Cambridge, MA: Winthrop.

Sasser, W. Earl, Jr. (1976), "Match Supply and Demand inService Industries," Harvard Business Review, 54 (Novem-ber-December), 133.

, R. Paul Olsen and D. Daryl Wyckoff (1978),Management of Service Operations: Text and Cases, Bos-ton: Allyn & Bacon.

Shostack, G. Lynn (1977), "Breaking Free from Product Mar-keting," Journal of Marketing, 41 (April), 73-80.

Thomas, Dan R. E. (1978), "Strategy Is Different in ServiceBusinesses," Harvard Business Review, 56 (July-August),158-165.

Strategic Sales ManagementG. Dmrid Hughes, University of North Carolina,and Charles H. Singler, sales management coii-sultant and retired Vice President for Saks,Burroughs-Wellcome Co.combines academic research with practical experi-ence and cases to give complete and current

No coverage of basic sales nianagement.n 10260 1983

Strategic Retaii ManagementDanny R. Am old, Louis M. Capella, andGarry D, Smith, Mississippi State University

focuses on the analysis of retail environments andNo strategic planning and decision making to achieveU objectives. 10085 1983

No

D

Transportation Policy in the 1980sGayton E. Germane, Stanford University

The first casebook in the field uses a problem-solvingorientation in covering the major transporationissues of the 1980s.10510 1983

Product Policy: Concepts, Methods,and StrategyYoram]. Wind, the Wharton School,University ofPemts)'lvaniathe definitive book on product policy.08343 688pp 1982

For complimentary copy consideration or for pur-chase for personal library, write Marketing Manager,Business. Ifyou're teaching a course, be sure tomention course title, enrollment, and book now

in use.

Addison-Wesley Publishing Company, Inc.Reading, Massachusetts 01867

Yes. No

20 / Journal of Marketing, Summer 1983