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CHAPTER 15. Designing & Managing Services. NOTION OF A PRODUCT. What is a product? A product is that which is offered to the market (consumer) to meet an identified need. Products can be classified as: Goods (tangibles) Services (intangibles). OTHER WAYS OF CLASSIFYING PRODUCTS.

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Chapter 15 l.jpg

CHAPTER 15

Designing & Managing Services


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NOTION OF A PRODUCT

  • What is a product?

  • A product is that which is offered to the market (consumer) to meet an identified need.

  • Products can be classified as:

    • Goods (tangibles)

    • Services (intangibles)


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OTHER WAYS OF CLASSIFYING PRODUCTS

  • Convenience goods

  • Shopping goods

  • Specialty

  • Unsought goods

  • Consumer Goods

  • Industrial Goods

  • Type I versus Type II Products


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WHY CLASSIFY GOODS

  • Why do marketers classify goods?


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DEFINING SERVICES

  • What is a service?

  • An act or performance offered by one person to another. It tends to be intangible and does not result in ownership of any of the factors of production (Lovelock 2001)

  • Economic activities that create value and provide benefits. Services can be bought and sold but cannot be held.


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DIFFERENCE BETWEEN GOODS AND SERVICES

  • ·Nature of the Product:

  • 1.Goods are tangible things – ownership possible

  • 2.Services are intangible performances and represent an effort – no customer ownership possible.

  • ·Customer Involvement in Production:

  • 1.Goods can be produced and stored

  • 2.Services are time bound, experiential with lasting consequences

  • 3. Benefits come from nature of performance (cannot be touched, wrapped or taken away).


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DISTINCTIVE ASPECT OF SERVICES

  • To distinguish between goods and services use scale from “Tangible Dominant” to “Intangible-Dominant.”

  • Pure Tangible goods (soap)

  • Tangible good with some services (cars)

  • Hybrid – combination of equal parts (restaurant)

  • Major Service with minor aspects of goods (air travel)

  • Pure service (baby sitting)


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GOODS vs SERVICES (Cont’d)

  • ·Quality Control Problems:

  • 1.Goods are produces before they are consumer and quality can be checked

  • 2.Services produced as they are being consumed -- in real-time.

  • 3. Service personnel and customer interact in the product therefore quality is difficult to control. Training is therefore essential.


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GOODS vs SERVICES (Cont’d)

  • ·Inventory Issues:

  • 1.Goods, because they are tangible, can be produced, moved and stored until needed.

  • 2.Services produced in real-time. Because they are intangible, services cannot be moved or stored. Service personnel may be hard to keep… marketer must set-up facilities and hold labor in readiness to create service (just like in a production facility). This produces waste if there is no demand for the service. To overcome this firms use cross training so that personnel can do something else if demand is low e.g., the person stocking the grocery shelves may be trained to also work at the checkout register.


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GOODS vs SERVICES (Cont’d)

  • ·Distribution Channels:

  • 1.Goods distributed through identified channels determined by the market coverage the marketer desires. Hence in distributing goods, marketers often make use of middlemen.

  • 2.Service firms tend to depend on electronic rather than physical distribution channels.

  • 3. Service firms also combine service factory and point of consumption into one to manage customer and personnel contact. There is little on no use of intermediaries (middlemen) in service industries. The major task is managing customers’ consumption behavior.


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CHARACTERISTICS OF SERVICES

  • ·Intangibility

  • ·Inseparability

  • ·Variability

  • ·Perishability (Time Factor)


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CHARACTERISTICS OF SERVICES (Cont’d)

  • Services tend to be (a) more intangible than tangible – consumed not possessed, (b) simultaneously produced and consumed, (c) be less standardized and uniform than goods.


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CHARACTERISTICS OF SERVICES (Cont’d)

  • Personnel is key in marketing services.

  • Marketer must do a good job of marketing to the internal customers (the employees).

  • The quality of the service is inseparable from the quality of the service provider.

  • Performance shapes the service and becomes part of the service.

  • There is much room for customization, because production and consumption tends to be simultaneous.


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CHARACTERISTICS OF SERVICES (Cont’d)

  • Goods are easier to evaluate than services. Because consumers cannot assess the quality of an intangible, they look at and for tangible cues.

  • In producing services, pay attention to those aspects of the service that are tangible (equipment and surroundings for example). Marketers can manage the tangibles to convey quality signals. View such things as physical environment, appearance of service providers, pricing, and goods that go with the services. This tends to make the service tangible and helps the customers perceived judgment of the service.


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CHARACTERISTICS OF SERVICES (Cont’d)

  • Since services cannot be inventories, marketers must synchronize supply and demand. This can be done by reshaping supply (e.g. use part-time employees, cross train employees, have employees on call) or reshaping demand (e.g. use of differential pricing, pricing incentives).


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SERVICES MARKETING MIX

  • When marketing goods marketers focus on the 4P’s – Product, Price, Place, Promotion.

  • Distinctive nature of services (intangibility, customer involvement, perishability) require other strategic elements

  • Hence the Integrated Services Management Model – 8 P’s


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Integrated Services Management Model – 8 P’s

  • Product – core features of goods & services

  • Place & Time – delivery method & channel

  • Process – effective design & implementation

  • Productivity & Quality – transformation of inputs & satisfaction derived by customer. This is a key differentiation factor

  • People – personal interactions affect perceived quality hence attention to recruit, train & motivate personnel

  • Promotion & Education – effective communication (info, advice, and persuasion)

  • Physical Evidence – appearance/atmosphere

  • Price & Other User Costs – time, effort, sensory experiences