Marketing Assignment

Business Studies 1

To what extent do you think there is a difference between marketing goods and services? Draw on contemporary examples to support your argument.

Ben McGregor Urquhart Anna Ishkova 23/11/2008

List of Figures Figure One Figure Two Figure Three Figure Four Figure Five Exchange Process, Alderson (1957) Molecular Diagrams of Market Entities, Shostack (1977) Scale of Market Entities, Shostack (1977) Black Box of Consumption Servuction Model, Bateson (1995)

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Introduction The UKs service sector accounts for over three quarters of the countrys GDP, with 4 in 5 people working in the sector. Services have therefore come of new and great importance. Services and goods, although products, have differing characteristics1 which react differently to marketing approaches. Marketers have developed models to analyse these characteristics in an attempt to adapt sensitive marketing practices.

Definition of Marketing Marketing is defined by the American Marketing Association (2005) as: an organisational function and a set of principles for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organisation and its stakeholders This broad definition of marketing emphasises marketing as a; process (Mises, 1949) consumers and organisations coming together; giving customers what they want gearing activities towards helping customers to create satisfaction; and benefitting the organisations profitably. This definition originates from 19602, leading to arguments that the definition, although revised in 2005, is outdated (Webster, 2005). The AMA definition of

Lovelock (1999) proposes the following generic differences; the nature of the product, customers involvement in the production process and the troubles when evaluating services 2 The previous AMA marketing definition from 1985 says: Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives.

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marketing, in spite of popular usage, is increasingly being criticised for failing to demonstrate the reality of modern marketing. Christian Grnroos3 suggests a new definition: Marketing is a customer focus that permeates organisational functions and processes and is geared towards making promises through fulfilling expectations and support to customers value-generating processes, thereby supporting value creation in the firms as well as its customers and other stakeholders processes. Grnroos definition can be likened to that of the AMA, in that it promotes the satisfaction of consumers but goes further in promising to support the buyer in the value-generating process (Grnroos suggests value is created every time the product is consumed, not just in the primary exchange). Furthermore Grnroos argues that marketing is seen less and less as just a functional area and more as the business in its entirety (Grnroos, 2006). Lastly, it must be highlighted that marketing is offering an exchange of goods, services and ideas.

Consumer Cash

Organisation

Stake thirst

Figure 1: Alderson (1957) Exchange Process The exchange process (Alderson, 1957) is a simple model of Ive got something you want, youve got something I want, so lets do a deal alongside the assumption that both partys value what the other has to offer.

Christian Grnroos, Professor of Service and Relationship management

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Definition of a Product (goods and services) Aldersons exchange process assumes that both partys value what is being offered; this comes to the consumer in the form of a product. A product is: A bundle of attributes usually a mix of tangible and intangible forms. A product may be an idea, a physical entity (a good), or a service, or a combination It exists for the purpose of exchange in the satisfaction of individual and organizational objectives. (AMA) A product is more than just the sum of its material characteristics; the term product also encompasses the intangible (not material) aspects of the product.

Difference between marketing a Good and a Service Nature of the Product Products can be split into goods and services. A good is an object, a device, a thing e.g. salt; a service is a deed, a performance, and effort e.g. teaching (Berry 1980). When a good is purchased it can be seen, touched or smelt, making it tangible. A service, when purchased, has normally nothing to show as it is consumed not possessed, making it intangible. Services tend to be supported by tangibles, for example a taxi company is a service but the taxi cab supports the service. Most products tend to have varying levels of tangibility. Shostack (1977) argues that a car may be a tangible good but it provides the intangible service of transportation, or on the other hand that an airline is a service,
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therefore intangible but the dcor, uniforms, in-flight food all increase the reality of the service in the mind of the customer. He proposes that goods are a combination of discrete elements which are linked together in molecular like wholes.

Figure 2: Molecular Diagram of Market Entities, Shostack (1977) Shostack compares a car to air travel; they both have the intangible aspect of transport in common and influence of dcor and appearance but they are exact opposites, with cars having a tangible nuclei and air travel having an intangible nuclei. The molecular model can be further developed to compare goods and services, helping to describe a selection of goods along a continuum in accord to their weight in the mix. As is seen below airlines are ranked as I-dominant whereas cars are T-dominant.

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Figure 3: Scale of Market Entities, Shostack (1977), Journal of Marketing, Volume 41, April pp. 73 - 80 The characteristics of goods and services have led marketers to think about the process of marketing in differing ways, known as good and service logics. The Nordic School of service marketing suggests that goods logic is firms making goods as resources available for customers, leaving them to manage their own processes in a value-creating way, with suppliers creating all the value. In contrast to this the service model suggests that the company is a resource which tries hard to interact with the customers, as they create the value and that resources are only a means of supporting value.

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Influence on Consumption The Nordic School suggest that: Interactions between service providers and customers is the core of marketing value is created by the customer interactions with the service provider and supported by the service provider This led to the consideration of the black box of consumption. The black box theory suggest that in the case of goods marketers do not enter the consumption process, and have no idea of what the buyer is doing with the good, thus the black box.

PRODUCTION

EXCHANGE

CONSUMPTION

Figure 4: Black Box of Consumption According to the goods marketing model, goods emerge in a closed process. Alternatively, services appear in an open process with customers participating in the co-production of the process, this is due to the nature of a service. Services are provided and consumed simultaneously (Cowell, 1984). It is the interactions between the service provider and the consumer during the simultaneous service production and consumption processes that the Nordic School see as essential. Grnroos (1978) developed the new perspective known as interactive marketing, whereby there are an increased number of interactions between the consumer and the producer during the consumption process, the more successful these are the greater the
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chance that the exchanges will continue. This follows on from the value-in-use notion where value is created by the customer, alongside the producer; this is extended over time allowing for a set of interactions and a relationship to form between the two. This may include activities such as repairs, maintenance, and documentation on how the good works or customer training. Grnroos (2004) refers to these episodes of interaction as touch points that should fulfil promises that have been given (by the firm to the customer). The main objective is to provide customers with value-supporting solutions. If performed well the interaction process contributes to customer value creation. The success of these interactions is influenced by two factors: primarily it is the people4 who are providing the service e.g. the bank teller at RBS that the consumer associates with the firm known as part time marketers (Gummesson, 1987). They take on the role of satisfying the customers needs in the moment of truth (Normann, 1983); therefore the service can be dependent on the knowledge, skill and motivation of the parttime marketer: A successful service firm must first sell the job to the employees then it can sell its services to its customers. (Berry, 1980) Berry (1980) also puts forward that view that the design of stores and the use of architecture also influence the success of the interaction, for example the pleasing aesthetics of Disneyworld and Starbucks or the comfortable and private layout of a bank. The Nordic School successfully looks at the perspective of interactive marketing, with the main influences of the consumer and the producer, but a model developed in France
4

People is an addition to the traditional marketing mix suggested by Booms and Bitner (1982) to suit the marketing of services

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suggests there may be further influential factors. The servuction model, a conflation of service and production, emphasises the active role of the customer (A) as a result of cooperation with a number of factors.

Figure 5: Servuction Model (Bateson, 1995) The customer interacts with the invisible organisation; this is the relationship with behind the scenes and can influence issues such as waiting times and reliability of a firm. There is also a relationship present with the visible firm. This comes in the form of the inanimate environment (non living, physical conditions) e.g. the dcor of hairdressers, and the animate environment e.g. the contact with the primary provider, the dentist and with the secondary employees, the receptionist. Lastly, other customers (customer B) also influence the service experience with differing levels, for example a loud member of a cinema audience or a football hooligan is likely to lower the quality of customer As experience. Thus there are more influences on the quality of a service than that of a good that the firm can control.
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Customer Evaluation and Risk Taking As can be deduced from the above, the influences on services (intangibility and influence on consumption) results in consumers hedging a larger risk in the purchasing of a service than of a good. Service purchasing therefore follows a slightly altered sequence from the purchasing of a physical good (see Appendix One). From the buyers standpoint there is a higher risk attached to the purchase of a service than that of a physical product. As a result of this, consumers are more likely to spend a greater deal of time gathering information and relying more on others opinions and experiences. We can compare the search for a new doctor to the search for a new washing machine. One is more likely to be concerned with the experience and qualifications of the doctor than those of Boschs chief design engineer. The extra risks occurring in the purchase of services can take numerous forms. A consequential loss may occur, this happens if a service goes wrong and causes a loss, for example a bad court case can cause the loss of ones liberty (Blythe, 1998). Purchase price risk can also haunt consumers if the service doesnt work e.g. if a meal is cooked in correctly, restaurant waiters will therefore check during the meal that the service is satisfactory rather than waiting until the end. Lastly consumers may experience a misunderstanding, whereby they may acquire something that they did not expect; leading to a strong post-purchase dissonance (the characteristics and benefits of the product do not meet the expectations of the consumer). Services intangible nature (Betson, 1977) results in higher risks and lower consumer confidence businesses must therefore use price and promotion to encourage sales. Promotion is used to communicate with customers the benefits of the service. Firms use the medium of public relations and, as stated before, word-of-mouth alongside advertising has
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a strong influence over a reputation, with a good local news report on a restaurant generating sales. Likewise, price can be used to justify a services quality to consumers. Prices are hard to set, again thanks to the intangible nature of services, one cannot compare like with like and therefore assess their relative worth (Zeithaml, 1981) but firms can use pricing to inspire confidence in the consumer similar to that of a good. Eiglier and Langeard (1977) believe that due to the lack to material characteristics: `The relative absence of material data with which to appraise services makes price a potentially important index of quality. A higher price may be charged for a Toni and Guy haircut compared to that of a high street barbers. The high price charged for the cut leads to consumer appreciating the heightened quality of the service, thus encouraging consumers. Price and promotion are part of the traditional marketing mix alongside product and place, but Booms & Bitner (1982) added processes (process of giving the service), people (anyone who comes in contact with the firm) and physical evidence. Physical evidence comprises of the tangible elements that support a service. This can be seen with the use of a universitys prospectus it is the aim of the university to allow the student to go away with a piece of information, pictures and a general overview of its potential.

Conclusion Like that of chemistry it is the elements of a product that are compounded to form its characteristics; it is these features that then react with the marketers approach. Models such as the black box of consumption, the servuction model and Shostocks model of market
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entities all highlight services as an open process open to a great deal of influences. For this reason approaches to marketing for a service should involve much more consideration by the firm to add value after sales, and aid customers in the value generating process, with the use of Grnroos touch points (2004) and interactive marketing (2006b).

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Appendix One Service purchasing sequence compared with physical product purchasing sequence.

(a) Purchasing a good

Decision to buy good

Payment for goods

Receipt of goods

Use of goods

Postpurchase evaluation

(b) Purchasing a service

Decision to buy service

Commitment to supplier

Delivery and consumption of service

Evaluation of service

Pay for service

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References Journals Berry, L (1980) Service Marketing is Different. Business Magazine Grnroos, C (2004a) Adopting a Service Logic for Marketing. Marketing Theory (6:4)395417 Grnroos, C (2004b) On Redefining Marketing; Finding new Roadmap for Marketing. Marketing Theory (6:3)317 333 Knisely, G. (1979) Comparing Marketing Management in Packaged Goods and Service Organisations. Advertising Age Lovelock, C (1981) Why does Marketing Management needs to be different for Services Marketing of Services (AMA) Morgan, M; Watson, P; Hemmington, N (2008) Drama in the Dining Room: Theatrical Perspectives on the Food Service Encounter Journal for Foodservice (19) 111-118 Shostack, G. Lynn (1977) Breaking Free from Product Marketing. The Journal of Marketing

Books Blythe, J (1998) Products, Branding and Packaging Business Studies 1, Volume 1 (3rd Edition) Great Britain: Pearson 321 364 Brassington, F; Pettit, S (2006) Principles of Marketing, 4th edn. Harlow: Prentice Hall

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Hill, L; OSullivan, T (2004) Foundation Marketing, 3rd edn. Glasgow: Prentice Hall Graham, C (2007) International Marketing, 13th edn. Singapore: McGraw-Hill Lancaster, G; Massingham, L (1993) Essential to Marketing: Texts and Cases, 2nd edn. Maidenhead: McGraw-Hill Lovelock, C (1984) Service Marketing. New Jersey: Prentice Hall Woodruffe, H (1995) Services Marketing. London: Pitman

Websites AMA (2008) Definition of Marketing [online] available from <http://www.marketingpower.com/_layouts/Dictionary.aspx > [21 November 2008] CIA (2008) British Economy Overview available from < https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html.> [21 November 2008]

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