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Differences Between Services And Goods Marketing Essay

4887 words (20 pages) Essay in Marketing

5/12/16 Marketing Reference this

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It is essential to note the differences between services and goods. Goods are things we can touch like laptops, food, shoes etc, while services are things provided for the benefits of people such as nurses, teachers, flight attendants. Some organizations are dealing with pure goods while others are basically service providers, but the two components may be attached at times. Services are sometimes seen as direct or indirect products when attached to goods. For instance, airline services comprise physical goods and services in terms of customer satisfaction

Utilities also include elements of services and goods. For instance, the use of water is a physical good and the utility aspects relate to services. Services provided in an airline contain physical goods and services because of setting and cleaning up the environment. As explained above, it is difficult to separate goods from services. Services are seen as intangible while tangibility aspect relates to goods.

Goods are tangible in nature, they can be transferred, keep in store. Customers are not part of the production, and also the production and distribution are separated from consumption.

Services are heterogeneous, when transfer of ownership does not occur. The types of services have been explained by different scholars, but it is important to specify characteristics of services that differentiate them from goods. There are four major characteristics of services- intangibility, inseparability, heterogeneity and perishability.

2. Characteristics of Services and its implications

2.1 Intangibility

Shostack (1977) considers that intangibility is essential in marketing and it separates services from goods, as well as gives an insight where there is no tangible good for customer to see before the purchase. Swartz, Bowen and Brown (1992) note that services or goods are not completely pure. The argument was that all goods have a service component while all services have tangible representation. Service providers are advised to give the proof of service quality; a customer who buys intangible product is risk-prone. Santos (2002) argues that if intangibility is an essential characteristic of services, then tangibility has more importance in service. The main characteristic of services which is “intangibility” is difficult to understand and it has been overemphasized.

Bateson (1991) suggests that consumers purchase satisfaction, symbolic meanings and anticipated service provision. What is more, they purchase benefits. For instance, hospital is an intangible service, but the customer is dependant on the medical professional, patient can determine service quality through the physical environment and the bedside manner based on the nurse or physician. The argument was ‘customers do not buy goods or services: they buy offering which renders services which create value’. The tradition division between goods and services is long outdated. It is now a matter of redefining services and seeing them from a customer perspective; activities render services, things render services. The shift in focus to services is a shift from the means and the producer perspective to the utilization and the customer perspective (Gummenson 1995). In an organization where they use machine and computer facility for self service, an accessible communicational symbol or language directory should be attached for efficiency, also price must be open without any hidden charges. The service encounters by customer determine the quality standard of organization if they can meet customer’s satisfaction.

2.2 Heterogeneity

Robinson (1969) described heterogeneity in the 20th century as the fourth characteristic of services. The early scholars focused on the need for “standardization”, how quick quality service and customer satisfaction can be achieved in service sector. But some scholars discussed the challenges of standardization; some were of the opinion that heterogeneity problems would be fewer if machine-intensive operations replace the function of human service. Heterogeneity services involve human and their diverse nature in interpreting their key roles, therefore it is not ascertain that an enquiry would have the same answer. Zeithaml and Bitner (2003) note that two customers are not precisely alike. Hence, they will have unique demands or experience, because the service is delivered in a unique way. Some service scholars have the opinion that variability is better, because it distinguishes service operations from manufacturing. Gummesson (2000) notes that service providers such as retail banks offer highly standardized services. Lovelock (2001) contends that possession processing services such as education are often provided homogeneously. Service marketers are challenged with difficulty when it comes to standardization, because customers have their own expectations of quality and the provider determines them. The relations of customer service employee or front desk officer will specify the quality and uniformity of the company. For instance, in an organization where customer seeks assistance any dissatisfaction can be avoided by recruiting carefully and providing adequate training to newly employed. In addition, monitoring of customers’ satisfaction is required for standardization. Despite the arguments that heterogeneity should be replaced by variability, it is evident that heterogeneity comprises both tangible and intangible elements. Therefore it should be seen as a differentiating factor or a bundle of benefits, not as a service characteristic that separates goods from services.

2.3 Inseparability

Inseparability interacts simultaneously for consumption services and differentiates products from services. What is more, it involves the service providers and the consumer at the same time. According to Lovelock (1991) inseparability involves ‘people as part of the product’, which means greater involvement of customers. This implies that consumer can create a brand loyalty to a particular service provider depending on the satisfaction acquired. The quality of service satisfaction achieved by customer comes with the physical use of the goods which result to services, ordinary goods cannot provide service. ‘Goods are merely the distribution vehicle or channel for service provision; they are appliances’ (Vargo and Lusch 2004). There are multiple approaches to customer engagement. We use the term co-producer here in the narrow sense of a transfer of work from the provider to the customer (Prahalad, 2004). For example, the cooperation between the costumer and producer for performing flights means that the responsibility for completing production and quality inspection of the flight requires consumer involvement.

‘Inseparability could cause problems more than opportunities for the service providers because of the fact that it introduced uncertainty’ (Edvardsson 2005). Inseparability could be a problem if customers are not sure of their demands, although it could be resolved by assigning or training competent staff to help the customers identify their needs. Services are often seen as separable at times not involving the presence of customer when the production is taken place. Although customers and service providers may agree for a production to take place it is not important for a customer to participate in it. It should be noted that in most separable services consumption of the benefits happens after production has been completed. Therefore inseparability is an important characteristic of services for identifying and creating brand loyalty, although it poses a serious implications for marketers because of the customers involved.

2.4 Perishability

The ‘unused service capacity of one time period cannot be stored for future use’ (Pride and Ferrell 2003). For instance, if a flight takes off without the whole seats occupied, the ticket cannot be sold. Service providers and customers experience perishability but it is viewed from different perspectives. They are faced with challenges and customers become aware when there is delay or capacities are insufficient. If demand for capacity is steady with sufficient facilities perishability wouldn’t be a problem, but if demands are not steady it may result to business loss. This could be resolved by proper management of time and resources. If the demand is high service provider should introduce off peak and peak prices, this will attract more people to the off peak hour and more part-time workers should be employed to increase efficiency. The generalization of perishability is that productive capacity perished if unused, but if time is applicable it identifies the problems of time spent, how customer is treated. Therefore it is important to reduces inventories.

3. Explanation of dimensions of service quality

3.1 Dimensions of service quality

Parasuraman, Zeithaml and Berry (1988) state that service quality can be assessed by customers with overlapping dimensions such as reliability, tangibles, responsiveness, assurance and empathy. They also suggest that responsiveness, assurance, empathy, which are considered as service process dimensions often should exceed customers’ expectations. Negative opinions about the service can be related to each of the measurements, whereas positive ones concern only process dimensions. Airline companies should be accurate and provide exactly the same service they have promised. It is doubtful that an airline company will exceed customers’ expectations by providing only the reserved flight seats. It is more likely to surprise customers by presenting good manners, punctuality and kindness (1991). What is more, assurance is related to conduct confidence and faith in customers. Hence, an airline company will not be credible, if the cabin crew or the air hostesses ask customers where are the emergency exits. Parasuraman et al. (1991) say that empathy is about personalized attention provided to the customer. Consequently, in the airline industry that means to know your clients and provide them service beyond the standardized framework. For example, stewardesses may know their regular customers’ favourite drink and does not ask them every time when they get on the flight. Reliability concern delivering what is promised to the customers. For instance, when a customer pays for extra leg room in a plane, they do not measure the space when he takes a seat. Tangibles are also very important for a good service quality. For instance, people want to see neat and good looking cabin crew, who greets them and smile when they get into the plane. In addition, responsiveness is about helping customers willingly. When they want some information about their lost luggage, airline employees should do as much as possible to provide a sufficient answer. Consequently, service quality is measured by exploring its set dimensions. Service excellence is not well defined and does not have an accepted structure. However, many airline companies try to achieve service excellence in delivering services.

3.2 Service excellence

Dahlgaard-Park and Dahlgaard (2007) suggest that for establishing organizational excellence a “4P” model is needed. It can provide an approach between conflicting aspects, such as intangible and tangible. According to this model people, partnership, processes and products develop organizational excellence. Human resources are concerned as one of the most important parts for improving an organization. Consequently, building excellence means establish quality into people, which is considered as basis for improving partnerships, processes and products. What is more, excellence means building a leadership. It is the foundation, which support the other four factors. Heracleous et al. (2004) say that in a particular airline company, managers can cope with conflicting issues in order to achieve service excellence. Dahlgaard and Dahlgaard-Park (2007) also state that processes in building excellence are connected to practice. Leaders, individuals and teams improve needed capabilities through every-day trainings. Building products means establish quality into tangible and intangible services related to customers’ needs.

3.3 Differences between service quality and service excellence

Service quality is different to service excellence, although both aim at delivering the service in a well performed way. Parasuraman et al. (1991) suggest that reliability is more related to the service outcome and to the delivered service. Whereas the other four dimensions are connected with the service process and services are assessed as being delivered. In contrast, Dahlgaard-Park and Dahlgaard (2007) suggest that the European model for service excellence consists of criteria like leadership, people management, policy and program, etc. Service quality is about developing trust in the customer through high rate of the service, whereas service excellence is more about developing perfection and caring about the customer. Parasuraman, Zeithaml and Berry (1988) reckon that tangibility as part of service quality includes physical facilities and how the staff appears. In addition, dependability refers to performing promised service reliably. Thirdly, empathy expresses caring and personal attention to every customer. Confidence and responsiveness concern employee’s capability to build trust and desire to help customers. Prince and Simon (2009) consider that airline companies can hire more employees and have more maintained airplanes in order to have on-time performance. Consequently, tangibles as dimension of service quality will be implemented.

Heracleous, Wirtz and Johnson (2004) state that airline service excellence is achieved by top management and staff focused mainly on customers’ needs. They also say that some airline companies have department for service development, where customers opinions and reactions are assessed. If customers do not find an innovation interesting, it is not a problem to be replaced or removed. Hence, human resource practices and customer care as key ingredients of service excellence are performed. In comparison, service quality is related to delivering what is promised to the customers. Parasuraman et al. (1991) reckon that reliability is the key factor in meeting customers’ expectations. Prince and Simon (2009) suggest that scheduled arrival or departure time of the airplanes is a suitable way to measure on-time performance. Dahlgaard-Park and Dahlgaard (2007) say that service excellence is different to service quality, because it looks more closely to intangible aspects such as people and culture, while in service quality they remain unseen. They are often ignored and not discussed. Heracleous, Wirtz and Johnson (2004) reckon that airline companies work with many other organizations before and after the flight in order to achieve efficient and caring service. They also state that a famous airline company tries to perform service excellence with using a program called “Transforming customer service”. It includes staff in different operational levels – cabin crew, engineering, ground services, flight and sales support. They try to work as a team, which aim is to provide customers with as delightful and immaculate flight as possible. Consequently, employees as a key feature of providing service excellence try to be hired as the most suitable for this job. Dahlgaard-Park and Dahlgaard (2007) say that training is essential for making employees competent and perform their job well. In addition, forming teams help them to practice the needed values in their daily duties. Relationships are established within and between the teams. Heracleous, Wirtz and Johnson (2004) suggest that every employee in a particular airline company has a development plan, no matter from how long works there. New air hostesses attend four month training program, which is longer than any other. It includes developing personal skills, as well as calmness and control in interaction with demanding customers. What is more, crew employees form groups, which help them to exchange experience and knowledge, as well as achieving team spirit.

Although service excellence can fit into the framework of service quality, they are not similar.However, key factors need to be concerned in order service excellence to be achieved. Service quality is more explored topic and has an established framework, whereas service excellence is harder to be measured.

4. Service quality issues

4.1 Service quality and customer satisfaction

‘Service quality and customer satisfaction are inarguably the two core concepts that are at the crux of the marketing theory and practice’ (Sprang and Mackoy cited in Sureshchandar et al., 2002). ‘In today’s world of intense competition, the key to sustainable competitive advantage lies in delivering high quality service that will in turn result in satisfied customers’ (Shemwell et al., cited in Sureshchandar et al. 2002).

Interrelation between quality of customer service and client’s demand plays a very important role for airline companies, as it gives an opportunity for managers to think about service level and related resources, necessary to achieve company’s targets while taking strategic decisions. Although most airline companies have special programme on service quality and check customer satisfaction all the time, they sometimes forget about prioritisation of their CR (Shahin and Zairi 2009). ‘Knowing which customer segments you serve is critical to understanding their requirements’ (Bolt & Mazur cited in Shahin and Zairi 2009).

The airline industry is considered to be intangible and transient, therefore, it is perceived as an action. It has a very high degree of impalpability, but it is not a complete service, because of the presence of other material services like in-flight entertainment, meals served on-board, and sometimes even airplane comfort conditions. And this is the quality of services provided, which will be judged and estimated by the customer. Moreover, nowadays it is very important to involve the client into service execution in order to gain success. Client’s participation in the service performance is becoming more active these days. So, while making any strategic decision airline company has to consider his or her point of view, as its position in the market will be dictated by their opinion. While choosing a regular or low cost carrier clients seek for different aims. The crucial factors while choosing an airline company are different. In low cost, the most important factor for customer is price, while it is less important element when choosing a regular carrier to travel with. In this instance convenience factors like close location of airport, schedules, direct flights, quality food and others take the privilege (Pereira 2011).

4.2 Challenges in getting service quality

According to most scientific studies, services differ from goods, therefore, companies may encounter challenges in service providing, because of difficulty for clients to evaluate them. Main characteristics of services for simplicity are referred to as ‘IHIP’: intangibility, inseparability, heterogeneity and perishability. Intangibility is most commonly mentioned difference of services from goods. According to Zeithaml (1981) paraphrased by Lovelock and Gummeson (2011) most goods are high in search quality, because they can be evaluated before the purchase. As for services, they are high in experience quality, because they can not be defined or valued before the consumption. For example, while flying with new airline customer cannot be sure in food quality, convenience of cabin, pilot’s experience and other factors before the arrival. But at the same time, some scholars argue that service comprise both tangible and intangible elements. The idea of tangibility of services was supported by the research of Zaithaml, Parasuraman and Berry (1990) who defined it as one of main dimensions of service quality. Another problem in case of service delivery is heterogeneity. In spite of the fact that variability is mostly based on difference of staff performance, Zeithaml and Bitner (2003) paraphrased by Lovelock and Gummeson (2011) mentioned that each customer has his own demand and may evaluate service in his own way. For example, businessman who travels with his partners would choose premium carrier in order to fly with full comfort, while family would prefer low cost airline in order to save money for the trip. Most companies, including airlines, provide standardized services where customer may choose the package that suits his needs. For instance, scheduled service in airlines is designed according to standards, but at the same time may offer different variations according to customer’s needs: economy and business class service, location of seat, food and drink choice, booking of hotel or taxi before the arrival. At the same time, variability may become a problem for carriers regarding serving food on-board, as it is connected with customer’s satiation and loss of interest. Inseparability is another characteristic of services, which helps companies to show their competitive advantage. When customer becomes a part of service performance, managers have to act more professionally in order to keep them (Lovelock and Gummeson 2011). Sometimes people may also be a part of service experience, thus attitude, behaviour, appearance and other factors can form the experience and level of customer’s satisfaction (Lovelock and Wirtz 2007). Therefore, premium carriers pay big attention to appearance of their crew in order to make good impression on customers. Perishability (inventory) is another challenge for companies, as services almost alike goods in this case cannot be stored for later use or returned. It means that customers have to wait or may be turned away (Lovelock and Wirtz 2007). In spite of the challenges in delivering qualified services some companies manage to become absolute leaders in their industry, by giving their customers unforgettable experience and well value.

4.3 SERVQUAL – does it help to evaluate service quality (change!)

As it has been mentioned before, customers` perceptions and service quality can be managed and measured by SERVQUAL – 22-item instrument (Parasuraman, Zeithaml and Berry 1988). In spite of its popularity and wide use it has become a subject of theoretical and operational arguments.

Theoretical:

Paradigmatic shortcomings: SERVQUAL shows disconfirmation rather than attitude.

Gaps model: the fact of customers` evaluation of service quality according to “Expectations-Perceptions” scheme is not supported.

Process orientation: SERVQUAL theory is directed at service delivery process rather than service encounter result.

Dimensionality: main five dimensions of SERVQUAL are not general, they are mostly contextualized.

Operational:

Expectations: customers use standards rather than expectations in estimating service quality, thus SERVQUAL can hardly identify exact service quality expectations.

Moments of truth: many services are provided over several moments of truth or encounters between personnel and clients

Item structure: it`s not possible to understand variability of each service quality dimension using just five elements.

Polarity: polarity of items result in comprehension problems of respondents.

These critical issues indicate that there are doubts whether clients structurally evaluated service quality in terms of Expectations and Perceptions (Buttle 1995).

5. Barriers to entry

These are restrictions created through strategies developed by the industry to secure its market share and gain a competitive edge over competitors. Porter (2008) described barriers as advantages existing firms have relative to new entrants.

Porter (2008) identified seven barrier creation avenues, which are an extension of the sources stated in Porter (1980) and Karakaya et al (1989). They include:

Supply-side economies to scale: this occurs when the incumbent firm operates on a large volume output and benefits low cost per unit produced. New entrants are forced to either enter market on a larger scale or accept competitive disadvantage (?).

Demand-side benefits to scale: this places limits on customer patronage to new entrants due to the network effect that incumbent firms have developed through image or brand recognition. Customers’ buying decision is based on the number of other buyers in the firm.

Customer switching costs: customers are cost sensitive and will not want to switch vendors due to high cost involvement, making it difficult for new entrants to gain market share.

Capital requirements: it is important not to overstate the effect of this source as investors are more to provide financial assistance to new entrants. The need for large initial investment on the other hand can deter entry into market.

Cost advantages independent on size: incumbents stand the chance of gaining cost and quality advantages made available to proprietary technology, preference in raw material accessibility, experience and so on.

Access to distribution channels: entrants must distribute products or services and might find it difficult to displace the incumbents in the industry.

Government policy: (ending??)

These sources pose a threat to new entrants in any market especially if incumbents are judged based on their capacity to express monopoly through these factors and how well they have managed competition within the markets (Porter 1980). Entry barriers should be assessed by the capability of new entrant who can develop ways of circumventing barriers (Porter 2008).

5.1 Positive issues with barriers to entry

It is crucial for airline management to consider entry barriers into any market. This is not only for the good of the incumbent industry in maintaining market position but also for new entrants to gain directions in market selection. The importance of market entry barriers differs in order of competitive strategy or entry decisions (Karakaya et al 1989).

Barriers to entry are realities of a marketplace and not doctrines. They bring about economic efficiency rather than economic equality (Tuner and Pepperall 1981).

5.2 Negative issues with barriers to entry

According to Demsetz (2001) the factors that create barriers to entry are not absolute to those stated by Porter (1980). He referred to the work of Bain (1968), Ferguson (1974) and Stigler (1968), which had differing arguments on economies of scale as a factor that creates market entry barriers. In other words, gives no stringent analysis to the notion of creating barriers. Carlton (2004) points that the factors of barrier to entry is built around the logic that these barriers determine the number of firms competing in an industry, and in turn determines the rate of return of each firm. But he argues that a firm’s entry into any market is determined by its profitability weighed not only by cost but also by price. Price in this case is determined by the level of competition in the market. Barriers to entry, Carlton argues, are not important in the short run since by assumption entry is made impossible and may take too long to achieve the long run objective of ‘supracompetitive profits’. Barriers to entry are not of economic merits as they pose a threat to the development and expansion of the market. The competitive law (antitrust) and regulation tries to combat the effect of inequality in markets which is perceived as unfair, but fails to recognize that competition cannot be curbed and gives rise to inequality of results (Carlton, 2004; Turner and Pepperell, 1981).

5.3 Porter’s five forces in relation to creating barriers

Threat of New Entrants: The airline industry is a sector which requires high investment capital and tends to present a high penetration barrier. The threat of a new entry springs the concept of capacity and desire for market share, therefore placing pressure on cost, price and investment rates for competition. The level of entry barriers created by the industry tends to determine the degree to which this threat can affect the position of the industry. Considering the rate at which the financial institutions (banks) have opened up markets through credit facilities on a long term basis, it has placed a limitation to monopoly of market by the existing firms thereby saturating the industry with competitors and forcing the existing firms to lower prices that may affect profitability. This can be managed through brand name recognition, reputation building and offering of incentives such as frequent fliers (what does that mean?) advantages to retain the firm’s customer base and loyalty.

Power of Suppliers: It depends on the number of supplier available in the industry. In the airline industry the supply business (maybe put just ‘business’?) is dominated by two suppliers, Boeing and Airbus. This is the reason for the high suppliers’ power on firms and is a result of high dependence on suppliers’ product (no substitute e.g. pilots’ union) and limited market. On the other hand, the industry can be leveraged if suppliers incur switching cost, which is hardly the case in the airline industry.

Power of Buyers: In this industry the bargaining power of buyers is relatively low when weighed against service quality and customer satisfaction. Buyers are swayed by service differentiation that is perceived to be in line with service expectations, and therefore can buy a bundle of benefits at a nonnegotiable price.

Availability of Substitutes: This factor can be viewed based on time, convenience or personal preference, it can be said that the airline industry has no substitute in service delivery. Substitutes are threats to a firm’s profitability by placing a ceiling on its price, and since the buyers in this industry are subject to the industry’s competitive pricing due to low availability of service substitutes, this poses no threat to the airline industry (too long, not understandable??)

Competitive Rivalry: On the other hand, the presence of competitive rivalry could be viewed as creating options for the customer and can be weighed internally within the industry in terms of airline options and service class. The competition between airlines tends to drive prices down to help them retain customers but at a low rate of return.

5.4 Service differentiation

Differentiation as described by Rackoff et al (1985) is the achievement of an advantage by distinguishing products or services of an industry from that of its competitors. Porter (1980) cited in Dennett et al (2000) describes differentiation as a unique feature developed to be

superior in some way. Kotler and Armstrong (1993) cited in Dennett et al (2000) states that differentiation can be achieved through improving product only, enhancing supplementary services with or without the product, developing and motivated personnel or company image and brand name. The extent to which an industry can differentiate its products or services will determine the level of competitive advantage gained over competitors and in turn translates to entry barrier creation.

5.5 Understanding the process

The European aviation industry was recently confronted by events that fundamentally changed the industry structure. The European carriers will be said to have observed the unfolding of this events from the deregulation of the US-airline market in 1978 which led to the frequent-flyer programs and hub-and-spoke networks. The emergence of the low-cost airlines in 2001 has subsequently increased the competition in the industry. It is necessary to note that the airline industry is now sectioned into full or regular service, low-cost and chartered airline services. This is further classified into business and economy class. However, the emergence of low-cost airlines ha

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