The service industry has becoming the dominating fraction in the GDP for many of the leading nations in the past few years. 80% of the USA's and 74% of the UK's GDP is in services and not manufacturing, which it has been for many years before1. This change can be seen as a result as a large increase in the disposable income of the consumers, who are often encouraged to spend rather than save. Consumers also have more time off work and are inclined to spend their time in leisure activities that have become so readily available in so many places around the globe, such as restaurant meals and weekend hotel breaks.
Greater discretionary income has increased the need and demand for financial services. Deregulation has been the catalyst in boosting competition in certain service industries such as television and telecommunications. 2 Westernization has played an important role in the spread of the services industry around the world. This alongside cheaper flights and ease of transportation around the globe as seen the tourist industry flourish and cheaper holidays are being advertised every day.
However the services industry has some very unique characteristics from normal goods and this essay will establish them in depth and examine how they present problems to marketers. Services are intangible; one cannot touch it, it is an experience. L. Berry describes it a service as "a deed, performance or effort, not an object, device or thing"3. A key element to the intangibility of the industry is the promotion of the good. Services cannot be seen or tried out before hand and thus word of mouth and third party endorsement is very important to the survival of the service.
People will not always believe what they see in terms of advertising, however with the approval by a friend who has experienced the service (who is obviously complimentary about it) will definitely encourage said customer to participate in the service. The perceived risk for services, as intangible goods, is much higher than that for tangible goods. The evaluation of how much the service is worth is also hard to do. For example, the price of a tangible good that has been through a production line can be calculated by looking at the cost of production and using that as a starting point.
However the price of a service is much harder to estimate, both for the provider and the customer. How much does a particular experience cost? Most goods will travel in a cycle, from developing the raw materials to being produced, then marketed and finally put on a 'shelf' in some kind of shop. However, there is a very unclear production line for services and the production is almost indivisible to the consumption. Services are bought and consumed at the same time, and the customer is very much like a partner in the production process. As a result of this, the conditions of the arrangement must be carefully revised.
Due to the close proximity and integration of the customer in the service industry, customer care has become increasingly important. This is often what will separate the quality of the service providers. Through the provision of suitable customer care and convenience, the consumer will feel like their money is going further and will be more willing to agree to the firm's terms. This can actually be said for companies in general. Sainsbury's has spent millions of pounds training staff to be more customer care aware, and sees this has the method to been recognized as the number one food retailer over its rivals Tesco.
In the service industry it is very easy to look at the service (alone) and be challenged in determining what differs it from another. A bank is a bank. This is where the third characteristic, heterogeneity (or variability) comes into play. It is imperative in the service industry for companies to play a very active role in conveying to the customer why what they are offering, as a service, is better than competing firms. This is where marketers need to perform. They need to captivate a sound market and ensure that their existing clients remain customers.
The importance of umbrella branding is important here, as it breeds confidence to the client. The other factor heterogeneity is to do with the difference in the service that can be found within different 'outlets' of that company. The service and customer care received at one place may not be of the same quality as that found at another. Services are often carried out by a company at many different locations, and by many different people, thus someone may be more tired or rude at one place which would degrade the experience.
Companies use different methods to try and reduce this variation. For example, McDonalds use the exactly the same furniture, uniforms and try to use a similar layout in all of their thousands of stores across the globe. This way the customer knows exactly what he/she can expect in terms of the service. The fourth and final characteristic of services is the perish ability of services in the way that they cannot be bought now and consumed later. Due to this attribute of services, there are various skills management must undertake in order to avoid loss of profit.
A shop that fails to sell all the goods on its shelf can simply bring them out another day and hope to sell them then. However, airline seats, for example, that are not filled will always be a loss in profit. Thus it is important for service companies to match the supply and demand. Due to the varying demand for services (such as hotel rooms during peak and off-peak seasons), firms must use marketing to convey the incentives that will encourage customers to use their service during periods of low demand.
Just as important is to be able to cater for a high demand. A physical goods provider can bring out reserved stock during peak sales, but this is more difficult for a service provider. Ways of countering this problem include, hiring part-time and temporary staff, multi-tasking the workforce to do a variety of jobs, involve participation of the customer (like self-service buffets in hotels). Demand may become more smoothed out with differential pricing, making off-peak rates cheaper as well as creating a more stimulating experience during this period.