Lecture 06

Introduction

Services represent one of the most dynamic areas in the field of Marketing. According to the Bureau of Labor Statistics, 74-percent of our Gross Domestic Product (GDP) is accounted for by the service sector, as is 79-percent of all employment. The US Department of Commerce recognizes four broad categories of services:

Transportation, communication, and public utilities
Finance, insurance, and real estate
Public administration
General services, which includes everything from advertising agencies to automotive services, and lodging to legal services.

It is doubtful there is a person alive who is not a consumer of services in some shape or form, for they are pervasive in western society. It is typical of fully-developed nations to export many of their manufacturing jobs to less-developed countries, and replace those jobs with service-based industries. In other words, as a nation evolves, it focuses less energy on "making," and more on "doing." Alvin Toffler observed this in his book The Third Wave, which is the third in a series of books he has written on the socio-cultural-industrial evolution of countries. With the USA now firmly established in its "third wave," it is not surprising to see such an influx of service providers.

This lecture will first review the basics of services, and explore the unique characteristics and problems related to them. The bulk of the lecture will then be spent examining why and how services rose to such prominence (and why demand for them keeps rising). We will look at many web sites from a variety of service providers to learn more about the many service types available. Finally, the lecture will conclude with a prognosis for the future.

What Is A Service?

Simply stated, a service is any task performed by a second party that satisfies the needs and wants of consumers or businesses. Services may or may not include physical products along with delivery or completion of the service; as such, services range along a continuum:

Pure Service---Service with Product---Product with Service---Pure Product

A Pure Service refers to any activity done by a second party for another which does not depend on a physical product, such as: a nanny, housecleaning, a haircut, accounting services, etc.
A Service with Product occurs whenever the service is inseparable from a physical product; in other words, without the physical product, the service would not occur. Still, the service is greater than the product, because the value of the service may go beyond the actual dollar cost. For example, renting a car or U-Haul truck is a service that could not occur without the vehicle, but the value of the service is still far greater, because the renter is relieved of having to purchase the car or truck. Another example would be a restaurant, where the luxury of having someone prepare the meal (and then clean up the mess) is likely worth far more than the cost of being served. The food, of course, is a prerequisite, but is secondary to the purpose of patronizing a restaurant in the first place.
A Product with Service occurs when the focal point if the physical product purchased, but it comes with intangible amenities such as delivery, warranty, return privileges, gift wrapping, etc.
A Pure Product is just that--a physical item with no intangible characteristics or augmentation whatsoever, like off-the-rack clothing, groceries, CDs, etc.

Which are more common? The middle two--the combined service/product offerings. These allow the Marketer a lot of flexibility, such that two dimensions can be altered for the sake of strategy. A retailer of physical products can enhance its offerings by providing all sorts of post-purchase service, while a service provider can enhance its offerings by combining the attributes of physical products with the service. For example, a hair stylist that features a certain brand of shampoos, conditioners, etc., could be peceived as offering a better "service" than another stylist, all because of the augmentation. The same would hold true for a car dealer that allowed patrons to stop by for free oil changes and car washes.

Characteristics of Services

Intangibility. By its very nature, a service is intangible, meaning it cannot be touched. In many regards, it is vaporous; it simply does not exist. For example, a radio station offers a service (entertainment, as well as advertising possibilities). What is it they are "delivering?" It is airwaves, something that cannot be touched, but is still in high demand by listeners and advertisers alike. Similarly, a haircut is intangible, as is lawn maintenance. The consumer receives the benefits of the haircut or the nice lawn, but there is nothing to touch or feel or put on a shelf. The hybrid service/product offerings discussed above also have an intangible element; for example, an oil change involves the tangible oil, and the intangible labor. In summary, services occupy no physical space.
Inseparability. This principle means that the "production" and consumption of the service are simultaneous, although the consumer may indeed derive benefits from the service for a long time after the initial "production." For example, the person getting the haircut is consuming it while it is being produced, but will also continue consuming it until the next haircut. A physical product, on the other hand, will probably not be consumed until some time has passed following its manufacture; in other words, there is a time gap between production and consumption for physical products, whereas with services, the consumption begins at the point of manufacture.
Perishability. For obvious reasons, services cannot be stored in inventory. If production and consumption are simultaneous, it follows that services cannot be pre-produced and stockpiled in anticipation of future demand. This causes problems for service providers (as discussed below) because bottlenecks can occur when demand peaks. For example, demand for electricity peaks during the summer, when weather is at its hottest. Consequently, "brown outs" are more likely to occur, and prices are higher than during the winter. Similarly, oit changes cannot be produced during off-times, and haircuts cannot be stored in a warehouse.
Variability. Because of the human element, there is the possibility for both intra- and inter-variability. The latter refers to variability between individuals providing the service, while the former refers to variability within the service provider. In a restaurant, one server may be better than another, leading to inconsistent rendering of the service. Furthermore, the good server may occasionally have a "bad day," thereby causing inconsistency in their own service rendering. It is the service manager's task to try to even-out the service between and within, and constantly strive for a consistently high level.
Non-Standardization. This refers to the fact that many services are in fact customized to the needs and wants of the consumer. Whenever non-standardization is a factor, then service quality may differ considerably, especially if the service provider is venturing into "new" territory or lacks experience in serving different needs.
Buyer Involvement. Finally, with many services, the consumers themselves are involved in the "manufacture" of the service. For example, a customer in a salon will specify what style they desire, and will give feedback while the styling is occurring. A home-owner will tell the painter what color of paint to use. A financial advisor or investment analyst will only take on as much risk as directed by the consumer.

Problematic Issues For Service Providers

Managing the Service Offering. As long as there are humans performing services for their employers, there will be managerial problems. For example, in a restaurant, it may be impossible to achieve equal service levels across all waiters and waitresses, because they are driven by the prospect of customer gratuities. Some wait-staff may be outgoing and particularly friendly, while others may be more withdrawn, yet still do a perfectly good job. Not all persons possess the same skills, no matter how hard the manager tries to screen employees. Gaining consistency across and between persons is the service manager's biggest challenge.
Determining the Price. How much can be charged for a price? What is legal advice worth? How much is an oil change worth? A hotel room near the airport? Service providers use a combination of market-driven pricing and follow-the-leader pricing, always tring to know what their competitors are charging, but also trying to get a feel for what the market will bear. Soft demand and surplus capacity can cause a downward spiral, while scarcity accompanied by high demand can cause prices to escalate.
Determining the "Product" Offering. This is a tougher decision than many people realize. The Marketer must use caution in determing his service mix. Just because the VCR repairman also knows how fix toasters doesn't mean he should add that to his repertoir. Service providers must use the same caution here as do product retailers. Stick to your area(s) of expertise, and make sure everything is consistent with the company mission and positioning strategy.
Determining the Distribution of the Service. This asks the important question of where the service shall be available. Will it be done strictly in an office or store-front environment, or will the service provider make house calls? For that matter, over what geographical territory will customers be solicited? With the advent of overnight deliveries, as well as the Internet, services can now be delivered over a large geographic area virtually seamlessly.
Determining the Promotion Plan. Whereas virtually all product retailers and manufacturers are free to advertise their wares, service providers are in many regards governed by professional and social customs. For example, doctors and lawyers who advertise are looked down upon by their peers (and possibly even potential clients). While all of the same options available to product marketers are open to service providers, they must first consider if there are any other limitations or expectations.
Seasonality. Some services are only sought seasonally, such as skiing (only Mt. Hood in Oregon offers year-'round skiing in the USA), tanning, and lawn mowing. These service providers must either develop the most efficient operations possible (to makr profit while they can), or develop other services that can be performed during the slack times. For example, many ski resorts allow mountain biking, hiking, and other activities during the summer, and lawn care specialists prune trees and perform other yard maintenance during the off-season.
Peak and Off-Peak Demand. This problem occurs not seasonally, but on a more regular basis, such as weekly or even daily. For example, business hotels are generally filled during the week, but virtually empty on the weekend. Long-distance telephone calls are primarily placed during the daytime. And movie theaters are usually filled on Friday and Saturday evenings. Service providers should offer lower prices during the slack times in order to try to smooth out demand.

Uncontrollable Factors Faced By Service Providers

Service providers are no different from product Marketers in that their controllable and uncontrollable factors are the same. Each has a great deal of control over their 4Ps, as well as choice of target market. Furthermore, each is faced with many of the same uncontrollable variables, such as:

The Economic Environment. The service provider is not immune to swings in the economy, and in many regards, is more vulnerable than the product Marketer. This is true because, in many cases, services are really optional (althoughwe may delude ourselves otherwise); we really can do things for ourselves if faced with economic hard times and uncertainty.
The Technological Environment. Changes in technology may render some services obsolete, while at the same time create many new opportunities. If electric cars ever reach popularity, the auto repair specialist will have to adapt, and oil change firms will have to find a new line of work.
The Competitive Environment. Service providers cannot keep the competition from entering the market. This can be especially important in the service sector, because competition will commonly begin to focus on price, and who is willing to do the same job for less money. Travel agencies are learning this lesson the hard way, as witnessed by recent announcements from the major airlines to cut the agents' commissions from 10-percent to 8-percent. The airlines are selling too many tickets themselves through their web sites, so travel agents are left to compete with their own supplier.
The Legal/Political Environment. Many communities regulate home-based businesses, many of which are service-based. Thus, these businesses may be forced to locate in offices and other places outside of residential areas. In other instances, prices are regulated by the government (e.g., insurance, cable TV, telephones, etc.).
The Socio-Cultural Environment. We cannot stop the natural progression of society and culture, of values and norms. Many of today's services are a result of changes in our society and values. In other words, while this element should certainly not be ignored, it should likely be looked to as a source of opportunities.

Why Have Services Grown So Much?

No can argue that the service industry has grown at a rapid rate. What we need to do is understand why it has grown, and be able to pinpoint new opportunities for future services.

This section takes a close look at many of the primary reasons behind the growth in services. Wherever possible, examples are provided to illustrate how Marketers have responded to emerging opportunities. Please note also that some of the factors are necessarily related to others, and their cumulative effects are recognized and responded to by Marketers.

Poverty of Time--The "Necessary" Service. American citizens feel a time crunch like at no other time in their lives. When people started migrating to the suburbs several decades ago, little did they realize that it would take much longer to travel to work. In large metro areas like Los Angeles, it is not uncommon to spend 2-3 hours commuting each direction to- and from work. This leaves little time for other tasks, especially when one considers that other family members demand attention, too. Thus, services that once may have seemed frivolous and even a luxury, now become a necessity. Dry cleaning and laundering are a weeklyritual for many couples--they drive to the dry cleaner, drop off dirty clothes, and pick up laundered, starched, and pressed clothes that were left several days prior.
Prosperity and Higher Discretionary Income.With inflation having bottomed out in the last decade, and more families living off of two or more incomes, a higher standard of life is now available to many people. What we may have once done ourselves because we disliked paying someone to do, we now happily pay them do the work for us.
Complexity of Many Products. Many of today's products are highly-advanced and sophisticated, and often require a certain level of knowledge to be able to operate them correctly. For example, some purchasers of personal computers hire outside specialists to come to the home to set up the system. A satellite dish and receiver requires someone with knowledge in this field, and the ability to find the satellite(s) in the sky so that the system can be used.
The Aging PopulationThe American population is aging rapidly, but not necessarily dying. The over-65 bracket is the fastest growing age bracket, and there are 76 million baby boomers between the ages of 33 and 51 who are running headlong toward retirement. As people age they lose their ability and desire to do jobs themselves, and become increasingly likely to hire someone else to do it for them. This is particularly apparent in areas with high concentrations of retirees, such as Florida. House-cleaning specialists, physical therapists that make housecalls, lawn maintenance professionals, etc., are very common. Retirees are also considered prime candidates for expensive travel, such as cruises and tours.
Dual-Career Families. With both Mom and Dad likely to be employed outside of the home, there is a greater need for a variety of services, ranging from child care to car detailing. Faced with the obligations of employment and family, people have little time for even the smallest of tasks, and if the checkbook permits, someone else will be hired.
Greater Desire for Recreation and Leisure Time. With all of the stresses of the 1990s (jobs, kids, lack of time, etc.), people yearn to spend what free time they have in the pursuit of something more enjoyable. This gives people a sense of control over at least some aspect of their life. Activities range from concerts and plays to sporting events (both spectator and participant).
The Information Age. As Toffler said, we are in the third wave of development, and manufacturing jobs have been replaced in large part by service jobs, many of which are based on the distribution of information. For example, the Internet is nothing more than a medium through which information can be delivered, and people will pay $15-25 monthly for access. Jobs as market reseachers are common, as companies pay other companies to tell them what their customers like and dislike. Financial advisors tell people how to invest their money. All told, information in its varied forms enjoys a high monetary value, and whoever has the information is in an enviable position.
Undesirable Tasks. As we have climbed the ladder of prosperity, and become time-poor, many jobs are not only too demanding of us in terms of time, we simply do not want to do them anymore. There are services for "yard duty" (picking up after pets), car detailing (a fancy way of saying a clean car), oil changes, and many other once-common tasks that we either cannot or will not do.

Examples of Services

Long Distance Telephone Service. The American people have taken to heart the phrase "Reach Out and Touch Somebody." With de-regulation in the industry, price competition has been fierce. Quality of connections has also improved dramatically, enabling people to call around the world as easily as calling your next-door neighbor.

Opera Companies (Entertainment). Even the opera can be considered as a service provider, because they are delivering entertainment and culture to discerning consumers.

Professional Sports Teams.Professional Sports is a big-money business, attracting millions of fans to stadiums, and even more to satellite- and cable TV. Nearly pro team has a web site to further enhance their corporate image, and, of course, to sell merchandise.

Hotel/Motel Accommodations. Americans are on the go, either for pleasure, or for business. The hospitality industry (as motels and hotels like to call themselves) has never been stronger, with chains targeting very specific classes of customers, like business class, families, budget-minded people, the wealthy, etc.

Car Rental. With Americans moving about so freely (especially by airplane, as discussed below), it stands to reason that the automobile rental business would also be booming. And it is. The top rental firms have made renting a car as easy as renting a videotape, and, as long as the customer has a credit card and clean driving record, a car can be "yours" in under five minutes; the return is just as easy, with a clerk waiting to meet you at the parking lot with a remote data device and printer so you can board the shuttle and get to your plan in just a matter of minutes.

Avis
Hertz

Funeral Homes. Consumers may not expect a funeral home to advertise on the web, but they, too, are finding it to be a good place to have a presence. The industry is bracing itself for increased volume in the years to come as gthe current 65+ cohort makes its departure, and the baby boomers begin to fade.

Falk Funeral Home, Inc.

Mail Boxes. In order to protect their mail, many people are opting to rent postal boxes at private locations. These locations also offer the same services as the US Post Office, UPS, Fed Ex, and more, all in one place, and often with hours exceeding these entities. Conveience is obviously a critical factor in the success of these outlets.

Mail Boxes, Etc.

Carpet Cleaning. Need your carpets cleaned? Here's a job that is very low on most people's lists of things to do, but it must be done, especially when vacating a house or apartment.

Stanley Steemer Carpet Cleaner

Movies. Movies are a form of entertainment, and therefore a service. Major motion picture releases are commonly accompanied by their own website, which may only be maintained for a short time. Still, they serve as an excellent way to promote the flick, and can be far more effective than TV or print ads.

Run Away Bride

Cruises. Cruises are a growth industry, what with the aging of the American population. This group of people is the largest in size it has ever been, and is also quite well off. Thus, with plenty of free time and spare cash, cruises become a popular way to spend one's retirement.

Carnival Cruise

TV Stations. As if TV stations did not have enough presence with 24-hour broadcasting, most of the national channels, and even many of the local network affiliates, have added their web sites. They can promote their own programming, show sports scores, weather, and other items of interest. In the case of the national stations, the web site further enhance their "brand" image, which is still a viable concept even for services.

CNN
ESPN

Airlines. Americans have come to embrace airline travel, which was once only reserved for the wealthy. Today, only the lowest social classes are relegated to buses. One has only to look at airport boarding data to see the trend. In Amarillo alone, there are about 460,000 boardings each year, which is nearly three boardings for every man, woman, and child in Amarillo, or approximately one boarding for every person within Amarillo's area of influence (which covers parts of five states). Still, competition is fierce, and the airlines have looked to the Internet as a way to try to sell more tickets (albeit at the expense of travel agents).

Internet Service Providers. With 60% of US homes with personal computers, the business of providing Internet access is booming, and includes huge national providers all the way down to minuscule local providers. These providers serve both individual consumers with personal Internet access, as well as companies who need access to a web server.

ARNET

Prognosis For the Future

The future for the services industry seems very positive. Unless their are negative trends encountered in the external environments, there is no reason to think that services will not continue to grow, or at least maintain their current level of acceptance. As time becomes more precious, and as our population continues to age, the need for services will continue to grow.

The task of the Marketer is to catch a view of emerging opportunities before others see them, for that is where the profits lay. Could it be that Online education is an emerging service? You be the judge!

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