3 The Importance of Services in South Africa
4 The
Marketing Implications of the Characteristics of services in the Economy
Since the Industrial Revolution, there have been a vast variety of
products produced. Many of these products, like computers, have led to the need
for services for them after sales. An evolving complexity in our modern
civilization has led to a global increase in the demand for services. Kotler,
et al suggests that in the United States, services now generate over 74 percent
of their gross domestic product. Typically 79% of their workforce is employed
within the services sector of the economy as opposed to 55% in the 1970’s.
To define the word "services" is difficult, because they
are a complement to tangible goods, just as tangible goods are a complement to
services (Stanton, et al, 1992). A useful definition to work with can be the
following: Services encompass the rental of products, the alternation or repair
of products owned by consumers, and personal services. Services are separately
identifiable, intangible activities that are the main object of a transaction
designed to provide want-satisfaction for customers (Berman, et al, 1982:613).
Kotler (Kotler, et al, 1999:6) highlights the fact that services are activities
or benefits which are offered for sale that are essentially intangible and do
not result in the ownership of anything. A good example of a service is that of
a dry cleaner. The dry cleaner provides a service by cleaning your clothes.
Advances increasingly from the information technology sector, has
led to a drastic increase in the size of the services sector. As a result, the
composition of countries' GDP's are radically changing, and the services sector
is now the biggest generator of economic wealth in many nations, including
South Africa. The 'service economy' that we see unfolding before us is just
another step in economic progression from the previous agrarian and industrial
economies. It can only be the case that a new form of marketing will have to
emerge to market these services: Services Marketing.
Services are intangible. Customers cannot physically own a
service, because they are deeds or acts.
Goods, on the other hand are objects and things that transfer
ownership when a transaction is carried out. Furthermore, the service cannot be
' sampled ' before the transaction. Referring to the dry cleaner above, it is
obvious that the customers cannot physically own the dry cleaning that is done
to their clothing.
Services are perishable. This means that they cannot be stored for
later use or sale. In the case of the dry cleaner, the dry cleaner cannot
“store” his dry cleaning service for later use, as this will result in lost
revenue. Goods can be stored, and surpluses from one period can be transferred
to periods of excess demand. (Fletcher, 1995:45-46)
Services are also usually inseparable from the provider of it.
Often a service is created, dispensed and consumed simultaneously. This is
especially true in the case of the dry cleaning service. Personal services are
the most inseparable services. Inseparability of services, has led to the
establishment of agents like travel agents and insurance brokers.
Goods are mass-produced by machines and the margin of error has a
low variance. It is an almost impossible task to standardize all forms of
services. Every instance of the service rendered is different from the one
before and the next one to be offered. This is referred to as
heterogeneity/variability of services. The person receiving who wants his suit
dry-cleaned will get a different service from one who wants his linen cleaned.
In terms of goods-centred and service-centred operations, training
is heavily physical with goods, but heavily psychological with services.
Interpersonal skills dominate services where the employee-customer relationship
is much more complex than that of goods. Technical skills tend to dominate
goods-centred operations. Economies of scale are easily reached with goods, and
this is less the case with services. (Stamatis, 1996)
The marketing mix is the controllable variables that an organization
can co-ordinate to satisfy its target market. Because of the special
characteristics attached to services, there is a unique challenge in terms of
achieving a good services marketing mix. The essence of the marketing mix
concept is the idea of a set of controllable variables or a "toolkit"
at the disposal of marketing management, which can be used to influence
customers.
Firstly, a target market analysis needs to be carried out. Market
segmentation is of primary importance here. The motives and buying paterns of
buyers must be determined. The traditional marketing mix as defined consists of
four aspects, namely the product, price, promotion and place. (Stanton, et al,
1982)
In terms of the marketing mix, planning and developing the product
is of importance. The type of service and its position in the market needs to
be decided. Factors affecting branding and service quality will need effective
strategies if the service is to be successful. Because services are intangible,
the aim of a service marketer would be to create some tangible symbol, person,
or situation with which the market could identify the service. With reference
to the dry cleaner, an example would be a logo which uniquely identifies it.
The perceptions of buyers are affected by the pricing of a
service. If a customer pays a higher fee, he will expect much better quality
than a lower priced service. This means that the dry cleaning client will be
very picky about which dry cleaning firm to take his clothes to. The pricing of
a service is a task that cannot be determined by objective means. Making an
educated guess is the challenge to service marketers, in trying to remain
competitive and also maximise profits. Pricing objectives like survival, profit
and sales maximization, prestige and desired returns on investments need to be
taken into consideration. Pricing is also dependent demand, costs and
competition. With inelastic services, like water and electricity, higher prices
can be charged. Costs consist of fixed, variable and semi-variable costs. Dry
cleaners may need to operate a lot of expensive machinery. This drives up the
fixed costs. Analysis of competitors in their pricing strategy is very
important in a company's attempt to set prices itself. A company will not
perform well if its price strategy is out of line in relation to its
competitors, thus it needs to garner as much information about competitors as
possible. (Payne, 1993:136-41)
The place "mix" covers aspects concerned with the area
in which the service is offered and how it is offered. These all add to the
perceived value and benefit to the customer. Services, because of their
inseparability, have in the past mainly been transacted directly between the
producer and the consumer. This had placed a strain on the geographical outreach
of these services.
Location is essential to a service that does not go to the
customer, but which needs to be sought by the customer. (Payne, 1993:144) The
dry cleaner needs to be located preferably in the CBD of a town. A customer is
going to analyse the cost of travelling to a location of a service against the
perceived benefits that will be acquired by the service. Cost can be the bother
of getting there in terms of energy, effort and time and the transportation
costs. If these costs outweigh the benefits, the customer will not frequent the
service.
How services are delivered is answered by analysis of the
distribution channels used. The various channels include direct sales,
traditionally known to be the most effective form of distribution of services.
Intermediaries, like travel agents can serve as middlemen between the customer
and the provider and so can franchises and contracted service deliverers
(Payne, 1993:146). The dry cleaner will use a shop as a means of distributing
his service.
Promotion is a means of an organization to communicate to a market
to sell its product. Intangibility of services makes promotion difficult.
Unlike product promotion, which may stress tangible attributes and consumer
analysis prior to a purchase, much service promotion must rely on performance
attributes, which can be measured only after a purchase is made. (Payne,
1993:151). A service can be promoted by developing a tangible representation of
the service, associate the intangible service with a tangible object more
easily perceived by the customer and focus on the relationship between the
seller and the user of the service and away from the intangible itself.
Advertising, personal selling, sales promotion, public relations, word of mouth
and direct mail are also tools used for promotion purposes (Berman, et al,
1982:620-21). The dry cleaner will probably have to advertise using the mass
media such as television and newspapers.
In addition to the traditional 4P's marketing mix strategy, some
authors also suggest an additional three P's, namely process, physical evidence
and people - giving us an extended, 7P mix:
Physical aspects such as buildings, layout, furnishings and so on
may require close attention from marketers. An example suggested by Wilson
(Wilson, 1994:15) is that of the British betting agency
Ladbrokes that decided to completely overhaul their interior
design to reposition betting as a wholesome activity.
Human resources are one of the most pivotal elements of service
delivery. People are virtually inseparable from providing many services like
waitresses, airline hosts, etc. The selection and implementation of the best
people and training them in the best possible way in the most conducive
atmosphere will make employees feel more comfortable and this consequently will
result in them performing better. Ultimately, customers will feel the ripple
effects of this in the form of increased satisfaction and patronage. (Wilson,
1994:163). Internal marketing, taken as part of the marketing mix, will inevitably
yield a better competitive advantage. The staff working at the dry cleaning
firm will have to be suited to the job and adequately trained.
The quality of marketing depends greatly on operational
functionality and its efficiency. The processes of service delivery determine
marketing implications. Customers will perceive the service delivery system as
part of the service itself. Therefore, the process is inseparable from the act
of successfully providing the service. (Wilson, 1994:15).
To consistently have a competitive edge in the marketplace, firms
have to offer something unique that is going to appeal. To achieve this,
companies have to continuously research the market for customer needs, and come
up with new, unusual and different features, that will deliver better customer
value and satisfaction. Companies that will always be differentiated are those
that are most creative and invest most into researching market tastes. This can
be achieved via the means of questionnaires, etc.
If the dry cleaner builds up a reputation for being at the edge of
innovation then it will retain customers who expect the latest and best.
Criteria that customers use to determine superior value are the cost
components, value-added components and quality components.
As we continue through the 21st century, services are going to
become an ever-increasing part of our lives. Services at the moment are booming
in the computer science and information technology industries. As the age of
the world population starts to grey due to increased life expectancies, the
amount of services being offered for elderly care is also going to dramatically
increase. Gone are the days when the customer will accept services he/she
without question. There are more and more players and the competition is
fierce. The needs of our rapidly globalising world are changing just as fast.
This surge in services worldwide is slowly changing the way we do marketing. If
Darwin's theory of survival of the fittest is applied to these changes, then
marketers will have to adapt to these dynamic times with dynamic, creative
techniques to survive.
Berman, B and Evans, J R. (1982). Marketing, New York :
McMillan Publishing
Stanton, W J., Etzel, M J., Walker, B J, Abratt, R, Pitt L.,
Staude G E (1992).
Marketing Management in South Africa, Johannesburg :Lexicon
Stamatis, D H (1996). Total Quality Service. Delray Beach:
St. Lucie Press
Payne, A (1993). The Essence of Services Marketing.
Englewood Cliffs, N J: Prentice-Hall
Wilson, I. (1994). Marketing Interfaces. London: Pitman
Publishing
Kotler, P and Armstrong G. Principles of Marketing. Upper Saddle
River, New Jersey: Prentice-Hall