Services marketing

Services marketing
Published: 
October 2012

Every sector has had its own internet-led revolution. In the service industry it’s been ‘remote provision’, with all the flexibility, choice and price comparison that online delivery facilitates. But, says Professor Hean Tat Keh, convenience may be perceived to come at greater risk.

If you go shopping for ‘goods’, the chances are you are going to take them home in a bag, or a basket or on the back of your car. Goods are tangible, countable. When you buy a service – whether it’s a haircut, a health check or car maintenance – it’s rarely something you can wrap and take out.

Traditional marketing theorists have separated the notion of ‘goods’ and ‘services’ by defining a service as intangible, heterogeneous, inseparable and perishable.

But, says Professor Hean Tat Keh, you don’t always have to be physically present to buy and receive a service. There’s a range of services that operate in the grey area, where customers can choose to enjoy the service in person, or remotely, areas like banking, or education. Understanding the trade-offs that consumers make between the risks and convenience of online service delivery has lessons for how traditional service industries can adjust to take advantage of the new channels.

Education, says Keh, is one service industry where remote delivery is challenging the traditional model. The explosion of online learning is global, with universities putting course material online for free. What’s more, new players are coming into the market to challenge the established players.

The universities of Michigan, Princeton, Stanford and Pennsylvania are founding partners in Coursera, a joint ventures which within six months has grown to include 33 university partners around the world. Almost 1.5 million students have already signed up for their massive open online courses (MOOCs).

The Khan Academy features 3300 micro lectures via video tutorials stored on YouTube. It started with mathematics tutorials, but now covers subjects from organic chemistry to art history. With a staggering 175 million hits, it is revolutionising education across the world enabling stretched teachers to manage classes with a wide range of abilities and knowledge more effectively.

But the explosion in online learning has not spelt the end of traditional education models. Campus applications are still high. As Keh exhorts his students, learning is not a spectator sport. For those with the time and the money, the participation of other students and personalisation of services in a campus setting offers a higher user experience.For courses such as physics or medicine, which involve substantial laboratory work,the requisite equipment is too sophisticated and expensive to be in any student’s home so online learning is not a viable option.

Additionally, many online learning providers have yet to establish a viable business model. Like Ted-Ed, the education arm of TED, and others, the Khan Academy does not charge for its services; nor, since it receives significant backing from the Bill and Melinda Gates Foundation and Google, does it take advertising. Coursera does not pay its university partners, nor vice versa. Coursera is currently using initial seed funding, and it is not clear whether it will be able to build a sustainable business model before the funds run out.

HOW TO MANAGE YOUR ONLINE PRESENCE
How do you look? – Your online presence must inspire confidence. Is it professional and up to date? Is your site clear and easy to navigate?
Build trust – Be transparent. Identify terms and conditions, payment terms, returns, data security and privacy policy upfront. If anything goes wrong, fix it fast.
Crowd source approval – Ratings and review sites abound for many industries – from trip advisor to restaurant recommendations and eBay certification. Show new customers what old customers think about you.
Share your story – What is your company’s history? Include media mentions, trade association memberships, awards received, key customers (with their permission) and testimonials.

ONLINE OR IN PERSON?

What is behind the choice to receive a service online or in person? Professor Keh and his research collaborators interviewed university students and individuals they approached randomly in shopping centres. The initial study was conducted in China, and despite cultural differences, Keh believes that what he found has considerable relevance elsewhere.

Unsurprisingly, online delivery was valued for convenience, time saving, and the ability to compare the price between service providers. Mortgage rate and insurance policy comparison sites or Trip Advisor with customer ratings for holiday destinations all empower consumers to make informed choices, with a few clicks of the mouse.

But there is a flipside. Respondents expressed concern about the increased risk – both real and perceived – in using separated services. Online banking is quick and convenient, but not all services are available online and Keh found some consumers concerned about the potential misuse of their personal information.

Consumer choice, Keh says, is often the outcome of a trade-off between convenience and risk. A customer’s view of that trade-off will depend on the types of services being considered, and who and where we are.

There’s a difference, Keh says, between ‘experience’ and ‘credence’ services. For services such as buying tickets online we learn through experience. Once we’ve had a successful experience, it’s not such a big step to buy again. The sense of risk diminishes. In comparison, in ‘credence’ services such as education, consulting or health services, it’s harder to learn by experience. In these cases, the perceived risks seem greater and convenience may not be the determining factor.

Keh quotes a psychiatrist who noted that “Internet-based therapy, whether by e-mail or live chat, seems like a poor substitute for a real human bond with all its nonverbal cues and face-to-face exchanges… So here is what e-mail with my patients has taught me: if you need to reschedule an appointment or need a routine medication refill, please push ‘send’; if you have something on your mind you want to talk about, please call me – the old-fashioned way”.

When designing a strategy, a service provider needs to consider the customer’s age, cultural background and other relevant factors. For example, Gen Y-ers who have grown up in a connected world generally have greater tolerance of online risk. Keh cites a survey showing 40% of the generation Y demographic use the availability of mobile banking facilities as an important criterion for choosing a bank. There is also some evidence that cultural background impacts values and perception of risk and time.

In the end, it’s about trust. If the customer has a good experience with a company, or hears positive reports about it, they are more likely to experience the service in a ‘separated’ mode.

LEARN MORE

If you would like to learn more about the research in this article, then take a look at:
“Customer Reactions to Service Separation”, Journal of Marketing, 2010
This paper received an honourable mention for the 2011 SERVSIG Best Service Article Award.
“Getting Ready for the Online Tsunami”, The Australian, 16 August, 2012.