Thursday, June 18, 2009

Difference in goods and services

The most basic and universally cited, difference between goods and services is intangibility. Because services are performances or actions rather than objects, they cannot be seen, felt, tasted or touched in the same manner that we can sense intangible goods. E.g., health care services are actions ( surgery, diagnosis, examination and treatment) performers by providers and directed towards the patients and their families. The services cannot be actually seen or touched by the patients, although the patient may be able to see or touch the tangible components of the service (e.g. equipment, hospital room)
Intangibility presents several marketing challenges: Services cannot be inventoried, and therefore fluctuations in demand are often difficult to manage. E.g. there is tremendous demand for resort accommodations in phoenix in February, but little demand in July. Yet the resort owners have the same number of rooms to sell year-round. Services cannot be patented legally, and new service concepts can therefore easily be copied by the competitors. Services cannot be readily displayed or easily communicated to the customers, so quality may be difficult for the consumers to assess. Decisions about what to include in advertising and other promotional materials challenging, as is pricing. The actual cost of a “unit of service” is hard to determine and the price-quality relationship is complex.

Heterogeneity:

Because services are performances, frequently produced by humans, no 2 services will be precisely alike. Heterogeneity also results because no two customers are precisely alike; each will have unique demands or experience the service in a unique way. Thus, the heterogeneity connected with services is largely the result of human interaction (between and among employees and customers) and all of the vagaries that accompany it.
e.g. a tax accountant may provide a different service experience to two different customers on the same day depending upon their personal needs and personalities.

Because services are heterogeneous across time, organizations and people, ensuring consistent service quality is important. Quality actually depends on many factors that cannot be fully controlled by the service supplier, such as ability of consumer to articulate his needs, willingness & ability of the personnel to satisfy those needs, presence of other consumers and level of demand for the service.

Simultaneous production and consumption

Whereas most goods are produced first, then sold and consumed, most services are sold first and then produced and consumed simultaneously. For example, an automobile can be manufactured in Detroit, shipped to San Francisco, sold 2 months later and consumed over a period of years. But restaurant services cannot be provided until they have been sold, and the dining experience is essentially produced and consumed at the same time. This means that the customer is present while the service is being produced and thus his views are taken in the production process.
Because services are often produced and consumed at the same time, mass production is difficult. The quality of service and customer satisfaction depends on the real time including actions of employees and interaction between employees and customers. It is not possible to gain economies of scale through centralisation. If the services are decentralised they can be delivered to the consumer in convenient locations. As the customer is part of the production process, they affect the outcome of the service. A ‘problem’ employee can cause problems for themselves and for others in the service setting leading to lower level satisfaction.
e.g. in a restaurant setting, an overdemanding and intoxicated customer will command extra attention of service provider and negatively impact the experiences of other customers.

Perishability:
Refers to the fact that services cannot be saved, stored, resold or returned. A seat on an airplane or restaurant not used cannot be reclaimed or used or resold at a later time.
Due to this nature a service cannot be inventoried. Demand forecasting and creative planning for capacity utilisation are therefor important. Since services cannot typically be returned or resold it implies strong recovery strategies when things go wrong. E.g. a bad haircut cannot be returned, the customer should have strategies to recover the customers good will if and when such problems occur.

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