services marketing strategy

Valarie A. Zeithaml, Mary Jo Bitner, andDwayne D. Gremler

Services marketing strategy focuses on deliveringprocesses, experiences, and intangibles tocustomers rather than physical goods andtransactions. It involves integrating a focus onthe customer throughout the firm and across allfunctions. All company functions – marketing,selling, human resources, operations, andR&D – must work together to create effectiveservices marketing strategy. Rather thanthe traditional goods marketing focus ontransactions and exchange, services marketingstrategy is centered on the customer, usage, andrelationships (Vargo and Lusch, 2004a).

Services, which can be defined as deeds,processes, and performances, fall into severalcategories. Many services, such as hotels,transportation, and health care, are offeringsin and of themselves and are the primaryrevenue-producing activities of the firms.Another category of service is customer service,which includes the service provided in supportof a company’s core products. Typically,customer service does not directly producerevenue but rather addresses customer requests,questions, and complaints, besides providinganswers and solutions. Service can also be avalue-add for manufactured products – manycompanies provide training, installation, andrepair services for the goods they produce – oftenfor a fee. Finally, many services are derived fromor are provided by manufactured products suchas cell phones, computers, software, and mobilephones. In early writings on services, scholarsdistinguished services from goods by notingthat they were intangible, perishable, variable,and that the producer and consumer wereinseparable. Recently, it has been suggestedthat these distinctive characteristics should notbe viewed as unique to services but that theyare also relevant to goods, that ‘‘all productsare services,’’ and that ‘‘economic exchange isfundamentally about service provision’’ (Vargoand Lusch, 2004b). Although this view is ratherabstract, it does suggest that all types of organi-zations can gain valuable insights from servicesmarketing frameworks, tools, and strategies.

The four Ps of marketing (product, price,promotion, and place) are only partially ade-quate to conduct effective services marketingstrategy. Three additional Ps – people, process,and physical evidence – are also needed. Becauseservices are usually produced and consumedsimultaneously, customers are often presentin the firm’s factory, interact directly withthe firm’s personnel, and are actually part ofthe service production process. Therefore,all human actors (the P corresponding topeople) play a part in service delivery and thusinfluence the customer’s perceptions. The firm’spersonnel, the customer, and other customersin the service environment each provide cues tothe customer regarding the nature of the serviceitself. Employee dress, personal appearance,attitudes, and behaviors all influence thecustomer perceptions of the service. Physicalevidence pertains to the environment in whichthe service is delivered; all tangible componentsthat facilitate performance or communication ofthe service also affect services marketing. Thisincludes all the tangible representations of theservice such as brochures, letterheads, businesscards, report formats, signage, and equipment,and the servicescape, the physical facility wherethe service is offered. This P (physical evidence)is needed for services because customers oftenhave little on which to judge the actual qualityof an intangible offering and thus will rely onany tangible components of the service offering.Finally, process – including the operatingsystems, procedures, mechanisms, and flow ofactivities by which the service is delivered – is anelement of the services marketing mix. This P(process) addresses how the service is delivered,which, in many cases, may be perceived bycustomers to be as important as the outcome ofthe service. In the discussion that follows, theimpact of these additional three Ps in servicesmarketing strategy will be obvious.

GAPS MODEL OF SERVICE QUALITY

Executives of services organizations have longstruggled with how to approach service designand delivery in an organized manner. Thedominant approach to viewing the delivery ofservice quality in a structured and integratedway is called the gaps model of service quality

Wiley International Encyclopedia of Marketing, edited by Jagdish N. Sheth and Naresh K. Malhotra.Copyright © 2010 John Wiley & Sons Ltd

2 services marketing strategy

(Parasuraman, Zeithaml, and Berry, 1985). Thegaps model positions the key concepts, strate-gies, and decisions in delivering quality servicein a manner that begins with the customer andbuilds the organization’s tasks around whatis needed to close the gap between customerexpectations and perceptions. The gaps modelprovides a comprehensive and integratingframework for delivering service excellence andcustomer-driven service innovation.

The model is particularly relevant inservice strategy because it captures the cross-functionality inherent in service management.Although the authors are marketing academicsand their original publications appeared inmarketing journals, their work has been widelycited and used across academic disciplinesand implemented in different functions withinorganizations. The model draws heavily fromlogic, theories, and strategies in operations,human resources, marketing, and increasinglyfrom information systems.

The model, illustrated in Figure 1, isanchored on the customer and integrates cus-tomer focus throughout all gaps within themodel. As depicted in the model, a firm’sprimary goal should be to meet or exceedcustomer expectations, and strategies used toachieve that objective (whether operations,human resource, or technology-based) are allfocused on the customer. Every gap and everystrategy used to close the gaps in the modelretains a focus on the customer at its core.

The central focus of the model is the customergap – the difference between customer expecta-tions of what will be delivered and perceptions ofthe service as it is actually delivered. The otherfour gaps in the model are known as the providergaps and each represents a potential cause behinda firm’s failure to meet customer expectations.Closing the customer gap – delivering qualityservice – at the top of the model is a complexundertaking involving many different organiza-tional and employee skills and tasks. These taskscan be sorted into four other gaps – the providergaps – each of which needs to be closed in orderto close the customer gap.

The following four provider gaps, shownunder the horizontal line in Figure 1, are theunderlying causes behind the customer gap:

Gap 1: The listening gapGap 2: The service design and standards gapGap 3: The performance gapGap 4: The communication gap.

At its most basic level, the logic of the modelsuggests that the customer gap is a functionof any one or all of the four provider gaps.Early publications of the gaps model enumeratedthe complex reasons that cause each of theseprovider gaps. Later publications and a leadingservices marketing textbook (Zeithaml, Bitner,and Gremler, 2009) have further elaborated onthe gaps by delineating specific strategies forclosing each of them. We will expand briefly onkey strategies used to close each of the gaps.

THE CUSTOMER GAP

The customer gap is the heart of the gaps model.It represents the difference between customerexpectations and perceptions of service perfor-mance. The model suggests that closing this gapby matching or exceeding customer expectationswill result in the achievement of service qualityfrom the customer’s perspective. In the yearssince the introduction of the model, there hasbeen significant focus on both customer expecta-tions and perceptions in terms of conceptualizingthese constructs, developing measures for them,and studying their effects.

A prominent focus of both academic and prac-tical research has involved identifying the dimen-sions of service quality. Considerable exploratoryand empirical work resulted in the identificationof five dimensions:

1. Assurance: Knowledge and courtesy ofemployees and their ability to inspire trustand confidence.

2. Empathy: Caring, individualized attentionthe firm provides its customers.

3. Reliability: Ability to perform the promisedservice dependably and accurately.

4. Responsiveness: Willingness to help custo-mers and provide prompt service.

5. Tangibles: Appearance of physical facilities,equipment, personnel, and communicationmaterials.

services marketing strategy 3

Expected service

Perceived service

Service delivery

Customer-driven servicedesigns and standards

Service design and standards gap

Company perceptionsof consumer expectations

Customergap

Performance gapListen gap

External communicationsto customers

Communicationgap

Customer

Company

Figure 1 Gaps model of service quality.

The five dimensions of service qualityhave been captured in a questionnaire calledSERVQUAL, consisting of a total of 21 itemsmeasuring these dimensions. The SERVQUALmeasure has been applied in and adapted tomany industry settings. Related streams ofresearch have developed in parallel to studyservice encounters, customer satisfaction,customer loyalty, and their relationships withservice quality. None of these now-prominentstreams of research existed prior to the 1980s,and all continue to spawn research today.

GAP 1 – THE LISTENING GAP

Provider gap 1, the listening gap, is the differencebetween customer expectations of service andcompany understanding of those expectations.A primary cause in many firms for not meetingcustomers’ expectations – that is, the customergap – is that the firm lacks accurate under-standing of exactly what those expectations are.Many reasons exist for managers not being awareof what customers expect: They may not interactdirectly with customers, they may be unwillingto ask about expectations, or they may be unpre-pared to address them. Closing the listeninggap requires that management or empoweredemployees acquire accurate information aboutcustomers’ expectations. Customer expectations

must be assessed accurately before new servicesare developed, and they must be tracked afterthe services are introduced.

Figure 2 lists the three key strategies forclosing the listening gap. Each of these strategiesis backed by research and practical applications.The first strategy is to listen to customersin multiple ways through customer researchand employee upward communication. Suchresearch includes the full range of traditionalmarketing research methods such as surveys,focus groups, and complaint handling. Therehave also been research methods uniquelyuseful in service situations such as SERVQUALsurveys, mystery shopping, and critical inci-dents analysis. A distinguishing factor betweenmarketing research on goods and services isthat services research must capture humanperformance. Whereas goods research canevaluate goods independent of the individualswho create them, service is often created inthe interaction between customers and contactpersonnel. The behavior of personnel can behighly variable across individuals as well aswith employees from day to day, so constantmonitoring must occur. For that reason,additional techniques are needed to assess andfeedback information about the performance ofindividuals. Mystery shopping – hiring people

4 services marketing strategy

Gap1

Listen to customers in multiple waysthrough customer research andemployee communication.

Build relationships by understandingand meeting customer needs over time.

Know and act on what customersexpect when they experience aservice failure.

Figure 2 Strategies for closing the listening gap.

to pose as customers to evaluate performance –is typically used in restaurants and otherretail service settings. Critical incidents research,in which a customer recalls and discussesboth satisfying and unsatisfying experienceswith a service provider and its employees, isparticularly useful in examining and improvingservice encounters. Another marketing researchapproach that is particularly useful in servicefirms is the trailer call, a short survey that follows(‘‘trails’’) a service event or encounter. Thetrailer call offers quick feedback on employeesand also allows a company to fix its processes ina timely fashion.

The second strategy that closes provider gap1 is to focus on building relationships by under-standing and meeting customer needs over time.In firms where customers and companies haveinterpersonal contact, this can involve manydifferent strategies: learning customers’ names,their businesses, their industries, and their histo-ries with the firm. Even in direct marketing oronline situations, a firm can develop a virtualrelationship with customers by learning theirpreferences and history. The stronger the firm’srelationship with its customers, the better is thefirm’s ability to listen to customers (and thusclose the listening gap).

The final key factor associated with providergap 1 is lack of service recovery, or a failure tounderstand and act on what customers expectwhen there is a service failure. Even the bestcompanies, with the best of intentions and clearunderstanding of their customers’ expectations,sometimes fail. It is critical for an organiza-tion to understand the importance of servicerecovery – why people complain, what theyexpect when they complain, and how to developeffective service recovery strategies for dealingwith inevitable service failures. Such strategies

might involve a well-defined complaint-handlingprocedure and an emphasis on empoweringemployees to react on the spot, in real time,to fix the failure; at other times, it involves aservice guarantee or ways to compensate thecustomer for the unfulfilled promise. Firms thatlearn from their failures – which often result fromnot fully understanding their customers’ expec-tations – can reduce or eliminate the listeninggap.

GAP 2 – THE DESIGN AND STANDARDS GAP

Closing gap 1 through research and effectivemanagement of customer relationships is neces-sary, but not sufficient, for achieving serviceexcellence. Even when a company has a thoroughand ongoing understanding of its customers’expectations, it is still very possible, in fact,quite easy, to fail to deliver quality service.Focusing on gap 2, the design and standardsgap, is the next step toward ensuring against suchfailure. This gap is concerned with translatingcustomer expectations into actual service designsand developing standards to measure serviceoperations against customer expectations.

Figure 3 summarizes several key strategiesfor closing gap 2. The first strategy is to employwell-defined new-service development andinnovation practices for designing services.Some have referred to this as formalization of a‘‘services R&D’’ practice. While standardizednew-product development processes and R&Dare common in technology and manufacturing,they are still quite rare in services (for a majorexception, we note the investment of the IBMCorporation in service innovation researchthrough its global research labs). A formalizedprocess typically involves a series of stepsbeginning with strategy formulation and idea

services marketing strategy 5

Gap2

Employ well-defined new servicedevelopment and innovation practices-“services R&D.”

Understand the total customerexperiance through service blueprinting.

Measure service operations viacustomer-defined rather than company-defined standards.

Incorporate physical evidence in servicedesign.

Figure 3 Strategies for closing the design and standards gap.

generation and ending with full-scale implemen-tation. Because of the nature of services (theirprocess orientation, intangibility, cocreation bycustomers), it is more challenging to engage inthese typical steps that are so well establishedin other industries. However, it is clear thatfollowing a well-defined process, engagingcustomers along the way, and carefully planningand prototyping the complexities of serviceimplementation are all essential in ensuringservice designs that meet customer expectations.Building prototypes of services and planning foreventual full-scale implementation again meansthat operations, marketing, and, in many cases,human resource functions must work together.

A second strategy for closing gap 2 relatesto understanding the total customer experienceand designing all elements of that experience inways that meet or exceed customer expectations.This involves considering everything that occursfrom the moment the customer engages theservice through the entire length of the serviceexperience. Common elements of the serviceexperience that need to be designed includecustomer-facing processes, the physical spacewhere the service is delivered, and the interac-tions between service employees and customers.Viewing these operational elements from thecustomer’s perspective and designing them tobe consistent with expectations, or to reinforcea desired service image, are critical to closinggap 2. Because of the special challenges inherentin designing services, techniques such as serviceblueprinting have evolved to aid in the designprocess (Zeithaml, Bitner, and Gremler, 2009).The purpose of a service blueprint is to make acomplex and intangible service concrete throughits visual depiction of all of the steps, actors,

processes, and physical evidence of the service.The key feature of service blueprints is theirfocus on the customer – the customer’s experi-ence is documented before any of the internalprocesses are determined.

A third strategy for closing gap 2 involvesmeasuring service operations via customer-definedstandards. These are standards set to corre-spond to customer expectations rather thanto firm-focused goals. The quality of servicedelivered by customer-contact personnel is crit-ically influenced by the standards against whichthey are evaluated and compensated. Standardssignal to contact personnel what the manage-ment priorities are and which types of perfor-mance really count. When service standards areabsent or when the standards in place do notreflect customers’ expectations, quality of serviceas perceived by customers is likely to suffer.Customer-defined standards can either take theform of operational (hard) or perceptual (soft)standards.

The final strategy that closes gap 2 involvesthe use of physical evidence in service design andin meeting customer expectations. This includeseverything tangible in the service-deliveryprocess, such as business cards, reports, signage,Internet presence, equipment, and facilitiesused to deliver the service. The servicescape, thephysical setting where the service is delivered,is a particular focus of physical evidence andis critical in industries such as restaurants andhotels to communicate about the service andmake the entire experience pleasurable. In thesecases, the servicescape plays a variety of roles,from serving as a visual metaphor for what thecompany stands for to actually facilitating theactivities of both consumers and employees.

6 services marketing strategy

Gap3

Align human resource practices (hiring,training, support systems, and rewards)around delivering service excellence.Define customers’ roles and help themto understand and perform effectively.

Integrate technology effectively andappropriately to aid service performance.Motivate and incentirize intermediaries toperform service according to firm standards.Manage fluctuations in supply and demand.

Figure 4 Strategies for closing the service performance gap.

Given the importance of physical evidenceand its potentially powerful influence on bothcustomers and employees, it is important forfirms to think strategically about the design andmanagement of the tangible evidence of service.

To accomplish the type of customer-focusedservice design described above means thatmarketing and operations functions within thefirm must at least share information, and, in thebest case, actually collaborate in designing theservice and setting standards for its delivery.Because of the interpersonal nature of manyservices it is critical to design and plan for thehuman element as well; thus, effective servicedesign and customer-defined standards willreflect collaboration with the human resourcefunction in the organization. These typesof cross-functional collaborations are not asessential in goods marketing where process,people, and physical evidence (the new-servicesmarketing mix elements) are not as critical indefining the product.

GAP 3 – THE PERFORMANCE GAP

Although a company may have closed boththe listening gap and the service design andstandards gap, it may still fall short of providingservice that meets customers’ expectations if itis unable to deliver service in the way the servicewas designed. Gap 3, the service performancegap, must also be closed to make sure thereis no discrepancy between customer-drivenservice design and standards and actual servicedelivery. Even when guidelines exist forperforming service well and treating customerscorrectly, high-quality service performance isnot a certainty. Standards must be backed byappropriate resources (people, systems, and

technology) and also must be enforced to beeffective – that is, employees must be measuredand compensated on the basis of performancealong those standards. Thus, even when stan-dards accurately reflect customers’ expectations,if the company fails to provide support for thosestandards – if it does not facilitate, encourage,and require their achievement – standards dono good. When the level of service delivery fallsshort of the standards, it falls short of whatcustomers expect as well. Narrowing gap 3 byensuring that all the resources needed to achievethe standards are in place reduces the customergap.

The key strategies for closing gap 3 aredepicted in Figure 4. The first strategy is toalign the firm’s human resource strategies arounddelivering service excellence. In particular, inorder to deliver service as it was designed a firmneeds to ensure that employees are willing andable to deliver quality services and that theyare motivated to perform in customer-oriented,service-minded ways. In creating such a work-force, an organization must hire the right people,develop those people to deliver service quality,and retain the best people. To effectively deliverservice quality, considerable attention shouldalso be focused on recruiting and hiring the rightservice personnel. Service employees need twocomplementary capacities: service competencies –the skills and knowledge necessary to do the job– and service inclination – an interest in doingservice-related work. Once the right people arein place, to provide quality service they needto be developed through ongoing training inthe necessary technical skills and interactiveskills. An organization that hires the right peopleand trains and develops them to deliver servicequality must also work to retain them. If a

services marketing strategy 7

Company(management)

"Making the promise"

Interactive marketing

"Enabling the promise"

CustomersEmployees

"Delivering the promise"

External marketingInternal marketing

Figure 5 The services marketing triangle.

company wants the strongest service performersto stay with the organization, it must reward andpromote them. Organizations use a variety ofrewards to retain the best employees; traditionalapproaches such as higher pay, promotions, andone-time monetary awards or prizes are oftenlinked to service performance.

Services marketing is about promises madeand promises kept to customers. A strategicframework known as the services triangle(Figure 5) visually reinforces the importanceof people in the ability of firms to keep theirpromises and succeed in building customerrelationships (Bitner, 1995; Kotler, 1994;Gronroos, 2007).

The triangle shows the three interlinkedgroups that work together to develop, promote,and deliver services. These key players arelabeled on the points of the triangle: thecompany (or SBU (small business unit) ordepartment or ‘‘management’’), the customers,and the providers. Providers can be the firm’semployees, subcontractors, or outsourcedentities who actually deliver the company’sservices. Between these three points on thetriangle, three types of marketing must besuccessfully carried out for a service to succeed:external marketing, interactive marketing, andinternal marketing.

On the right side of the triangle are theexternal-marketing efforts that the firm engagesin to set up its customers’ expectations and makepromises to customers regarding what is to be

delivered. Anything or anyone that communi-cates to the customer before service delivery canbe viewed as part of this external-marketingfunction. But external marketing is just thebeginning for services marketers: promises mademust be kept. On the bottom of the triangle iswhat has been termed interactive marketing orreal-time marketing. This is where promises arekept or broken by the firm’s employees, subcon-tractors, or agents. People are critical at thisjuncture. If promises are not kept, customersbecome dissatisfied and eventually leave. Theleft side of the triangle suggests the criticalrole played by internal marketing. Managementengages in these activities to aid the providersin their ability to deliver on the service promise:recruiting, training, motivating, rewarding, andproviding equipment and technology. Unlessservice employees are able and willing to deliveron the promises made, the firm will not besuccessful, and the services triangle will collapse.

All three sides of the triangle are essential tocomplete the whole, and the sides of the triangleshould be aligned – that is, what is promisedthrough external marketing should be the sameas what is delivered; and the enabling activitiesinside the organization should be aligned withwhat is expected of service providers.

For many services, customers are partici-pants in service production and cocreators ofvalue and, therefore, play a key role in theservice-delivery process – that is, customersthemselves can influence whether the service

8 services marketing strategy

meets customer-defined specifications and canpotentially contribute to the widening of gap3. Therefore, a second strategy for closing theperformance gap is to define customers’ roles andassist them in understanding and performingtheir roles effectively. Sometimes customerswiden gap 3 because they lack understandingof their roles and exactly what they are to do in agiven situation or because they are unwillingor unable to perform for some reason. Toreduce this gap the organization needs to clearlydefine and communicate what the customer’srole entails – in essence, the customer’s jobdescription. Once the customer’s role is clearlydefined, the firm needs to help facilitate that role.In a sense, the customer is a ‘‘partial employee’’of the organization, and strategies for managingcustomer behavior in service production anddelivery can mimic, to some degree, the effortsaimed at service employees discussed in theprevious paragraph.

A third strategy for closing gap 3 involvesintegrating technology effectively and appro-priately to aid service performance. For serviceworkers (and customers) to be efficient and effec-tive in performing their jobs, technology thatfacilitates their efforts is often required. Tech-nology can help employees to be more effectiveand efficient in serving customers. Technologycan also help customers become more educatedand involved in cocreating service. In somecases, technology can serve as a substitute foremployees, and actually deliver the service tothe customer without any need for human inter-action. These types of services – called self-servicetechnologies – are prevalent today across indus-tries.

A fourth difficulty associated with providergap 3 involves the challenge in deliveringservice through such intermediaries as retailers,franchisees, agents, brokers, subcontractors,and outsourcers. Because quality in serviceoften occurs in the human interaction betweencustomers and service providers, control overthe service encounter by the company is crucial,yet it rarely is fully possible. Most service(and many manufacturing) companies face aneven more formidable task: attaining serviceexcellence and consistency in the presence ofintermediaries who represent them and interactwith their customers yet are not under their

direct control. Franchisers of services depend ontheir franchisees to execute service delivery asthey have specified it. And it is in the executionby the franchisee that the customer evaluates theservice quality of the company. With franchisesand other types of intermediaries, someoneother than the producer is responsible for thefulfillment of quality service. This issue hasbecome particularly relevant as firms increasethe outsourcing of their customer supportto other countries; concerns about language,quality control, and consistency of performanceare the ultimate trade-offs for lower costs.Because firms often provide service throughintermediaries, they must develop ways to eithercontrol or motivate these intermediaries to meetcompany goals and perform as well as their ownemployees.

A final issue in provider gap 3 is the needin service firms to synchronize demand andcapacity. Because services are perishable andcannot be inventoried, service companiesfrequently face situations of over demand orunder demand. Lacking inventories to handleover demand, companies lose sales whencapacity is inadequate to handle customerneeds. On the other hand, capacity is frequentlyunderutilized in service companies during slowperiods. Most companies rely on operationsstrategies such as cross training or varying thesize of the employee pool to synchronize supplyand demand. Marketing strategies for managingdemand – such as price changes, advertising,promotion, and alternative service offerings – cansupplement approaches for managing supply.

GAP 4 – THE COMMUNICATION GAP

Even when a firm has done everything suggestedby the other three gaps to ensure service quality,there can still be a failure to meet customerexpectations if communications about the servicedo not match with what is delivered. Thus, thefinal provider gap that must be closed is thecommunication gap, or gap 4. This gap focuseson the difference between service delivery andwhat is communicated externally to customersthrough advertising, pricing, and other forms ofcommunications.

Figure 6 captures several key strategies forclosing gap 4. The first strategy revolves around

services marketing strategy 9

Gap4

Employ integrated services marketingcommunication strategies around everythingand everyone sending a message or signalto the customer.

Manage customer expectations effectivelythroughout the experience.

Develop mechanisms for internalcommunication to avoid overpromising andensure successful delivery.

Manage the service brand.

Price services appropriately.

Figure 6 Strategies for closing the communication gap.

integrated services marketing communicationthat ensures that everything and everyonesending messages or signals about the servicedoes so in a manner that is consistent with whatcustomers expect and what is actually delivered.The challenge with this strategy is that thereare a myriad of communication channels andmodes that send messages to customers – moretoday than every before – including traditionalwebsites, personal sales, direct mail, print media,blogs, virtual communities, mobile advertising,and television. Beyond these types of channels,which are also available to goods-producingfirms, service customers receive additionalcommunication from servicescapes, customerservice representatives, and everyday serviceencounters with company employees. Ensuringthat all of these channels communicate effec-tively and consistently is a daunting task, yet onethat is essential to an integrated communicationstrategy. Unfortunately, the people withincompanies that deal with these differentcommunication vehicles are not always locatedin the same department, leading to disparate,conflicting messages.

A second key strategy for closing the commu-nication gap is to manage customer expectationseffectively throughout the service experience.Many services (e.g., many business-to-businessservices and consumer membership services)take place over an extended time frame thatmight mean a few hours, days, weeks, or evenyears. These extended service experiences oftenchange over time, varying from the originalservice promise as a result of business reali-ties (for either the provider or the customer) thatchange the nature of the service, customer needsthat change over time, and financial pressures

that may cause increases in pricing or adjust-ments to the service contract. Thus, commu-nications to the customer must also evolvethrough time to ensure that expectations andservice performance match. This might meanmanaging customer expectations relative to newbusiness realities, often in the form of managingexpectations downward when a service previ-ously provided is discontinued or when pricesfor similar services must be increased.

A third strategy for closing gap 4 is todevelop mechanisms for internal communicationso that the customer hears consistent messagesbefore the sale and during service delivery. Acommon cause for the communications gap isoverpromising on the part of customer-contactemployees, salespeople, and marketing commu-nications. While a certain amount of promotionis needed in many cases to gain a sale, excessivepromotional activity can be detrimental when itexceeds the ability of the delivery organizationto keep the promises made. Customers gained inthe short term through excessive promises can belost just as quickly through a failure to deliver. Anumber of internal communication strategies canhelp avoid the latter problem. These strategiesincluding effective vertical communication thatkeeps employees informed of corporate plans andmarketing messages so that they communicateaccurately to consumers. Selling the brand insidethe company also helps employees to see its valueand to be realistic about what can and should bepromised to customers. Horizontal communica-tion across marketing, operations, and servicedesign teams can also help align promises withservice-delivery capabilities.

A fourth strategy to close the communica-tions gap is to create a strong brand image for

10 services marketing strategy

the service. A brand image – reinforced by brandcharacters, slogans, logos, and similar images –serves to unify perceptions of the brand. Serviceorganizations such as Chick-fil-a, with its ubiqui-tous cow, or McDonalds, with its golden arches,have successfully created brand images over timethat reduce the communications gap.

A fifth issue in provider gap 4 is associatedwith the pricing of services. In packaged goods(and even in durable goods), customers possessenough price knowledge before purchase to beable to judge whether a price is fair or in linewith competition. With services, customersoften have no internal reference points forprices before purchase and consumption. Forthis reason, determining the value of a serviceto customers, called demand-oriented pricing,can be complicated. Further, pricing strategiessuch as discounting, ‘‘everyday low prices,’’ andcouponing obviously need to be different inservice cases in which the customer has no initialsense of prices. Even cost-based techniquesfor developing prices for services are morecomplicated than those for pricing tangiblegoods, largely because the dominant cost factoris labor. Placing a value on an employee’s timeis more difficult than knowing the costs ofcomponents of a physical good.

SERVICE EQUALS PROFITS

Through the 1980s and early 1990s, many firmsjumped on the service bandwagon, investingin service initiatives and promoting servicequality as ways to differentiate them andcreate competitive advantage. Many of theseinvestments were based on faith and intuitionby managers who believed in serving customerswell and who felt in their hearts that qualityservice made good business sense. Indeed,a dedication to quality service has been thefoundation for success for many firms, acrossindustries. Since the mid-1990s firms havedemanded hard evidence of the bottom-lineeffectiveness of service strategies. Fortunately,researchers are building a convincing case thatservice strategies, implemented appropriately,can be very profitable. Work sponsored bythe Marketing Science Institute suggeststhat corporate strategies focused on customersatisfaction, revenue generation, and service

quality may actually be more profitable thanstrategies focused on cost cutting or strategiesthat attempt to do both simultaneously (Rust,Moorman, and Dickson, 2002). Research fromthe Harvard Business School builds a case for the‘‘service–profit chain,’’ linking internal serviceand employee satisfaction to customer valueand ultimately to profits (Heskett et al., 1994).Furthermore, considerable research has shownlinkages between customer satisfaction (oftendriven by service outcomes) and profits(Anderson and Mittal, 2000). The Universityof Michigan American Customer SatisfactionIndex (ACSI) provides data suggesting thatcustomer satisfaction is directly linked toshareholder value. Firms in the top 50% ofthe ACSI rankings show significantly highershareholder value than do firms in the bottom50% (Fornell, 2004). An important key to thesesuccesses is that the right service strategies arechosen and that these strategies are implementedappropriately and well.

CONCLUSION

Services marketing strategy focuses on deliv-ering processes, experiences, and intangiblesto customers rather than physical goods anddiscrete transactions. Delivering experiencessuccessfully and building customer relationshipsare complicated undertakings involving manydifferent strategies and tactics. Althoughcompanies have often found it difficult toattack service problems in an organized manner,a well-established model called the gapsmodel focuses on the customer and describesthe approaches necessary to close the gapbetween customer expectations and perceptions.Figure 1, the full gaps model, shows that closingthe all-important customer gap is a functionof closing four gaps on the service providerside: the listening gap, the service design andstandards gap, the performance gap, and thecommunication gap. Each of these gaps involvesconcepts and tools designed to minimize thegaps, and these were discussed in this article.

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