Australian National University · FACULTY OF MARKETING

MKTG2023 Chap.1 Services, IHIP and the Extended Marketing Mix

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Chapter 1 of 12 · MKTG2023

Services, IHIP and the Extended Marketing Mix

A service is rented, not owned

The first week of MKTG2023 starts by asking what customers actually pay for when they buy a service. The answer is access: the right to hire people’s skills, use a space or object, or reach shared networks and systems, without owning any of them.

Services now dominate the economy and most new jobs, and even manufacturers compete on the services around their goods.

Four characteristics, four kinds of trouble

The chapter sorts services into people, possession, mental stimulus and information processing, then works through intangibility, heterogeneity, inseparability and perishability.

Each creates a different management problem: the seminar debrief treats intangibility as a communication problem and heterogeneity and perishability as operations problems.

Why four Ps became seven

Product, place and time, price and promotion all change shape for services, and three more levers manage the customer interface: process, physical environment and people.

The chapter closes on the flower of service, the core benefit with its supplementary petals.

In this chapter

What this chapter covers

  • 01

    Services in the economy and servitisation

  • 02

    The non-ownership definition of a service

  • 03

    People, possession, mental stimulus and information processing

  • 04

    Intangibility, heterogeneity, inseparability and perishability

  • 05

    Marketing implications of the IHIP characteristics

  • 06

    The extended marketing mix and the service-profit chain

Worked example · free

Classify four services on the processing grid

Q [4 marks]. AskSia-authored practice. Place each service in one of the four processing categories and say whether the customer must be present: a physiotherapy session, a car repair, an online statistics course and a tax return prepared from uploaded documents. The marks shown are an AskSia study allocation, not an official University marking scheme.
Four processing categories.Four processing categories. Columns separate services aimed at people from those aimed at things, rows separate tangible from intangible actions; notice that the two people cells need the customer present or mentally engaged.Directed at peopleDirected at thingsTangible actionsIntangible actionsPeople processingPossession processingMental stimulus processingInformation processinghairstyling, passenger transportfreight, repaireducation, entertainmentaccounting, insurance
Four processing categories. Columns separate services aimed at people from those aimed at things, rows separate tangible from intangible actions; notice that the two people cells need the customer present or mentally engaged.
  • 1Physiotherapy acts tangibly on the customer’s body, so it is people processing and the customer must be present.
  • 1A car repair acts tangibly on a possession, so it is possession processing; the owner can drop the car off and leave.
  • 1An online course acts intangibly on the mind, so it is mental stimulus processing; the learner must be mentally engaged but need not be on site.
  • 1A tax return acts intangibly on information, so it is information processing and can run entirely through electronic channels.
People processing for the physiotherapy, possession processing for the repair, mental stimulus processing for the course and information processing for the tax return. Only the first needs the customer physically present, which is why it is the hardest to deliver remotely.
Sia tip — Ask two questions in order: is the action tangible or intangible, and is it aimed at a person or at a thing? The pair of answers fixes the cell.
Glossary

Key terms

Servitisation
Strategy in which a manufacturer bundles ongoing services with its goods, such as engine servicing sold by the hour of use.
People Processing
Category of services that act tangibly on customers themselves, such as passenger transport or hairdressing, so the customer must be present.
Perishability
The characteristic that service output cannot be stored, so an unsold seat or hour of capacity is lost for good.
Heterogeneity
Variability in service quality from one encounter to the next, often because people deliver and co-produce the service.
Physical Environment
The servicescape, one of the three added Ps, which gives tangible evidence of a firm’s quality and image.
FAQ

Services, IHIP and the Extended Marketing Mix FAQ

What does it mean that a service is a form of rental?

It means the customer pays for temporary access rather than ownership. You hire people’s labour and expertise, use a physical object or space, or reach shared facilities and networks for a time. Because nothing changes hands, what you judge is the performance itself, which is why services are described as performances rather than things.

Which IHIP characteristic is usually hardest to manage?

It depends on the service, which is why the Week 1 seminar has groups vote after diagnosing one problem per characteristic. A rule of thumb from the debrief helps: intangibility is a communication problem, while heterogeneity and perishability are operations problems, so the most damaging one is usually the one the firm’s operations cannot buffer.

Why do services need seven Ps instead of four?

The original four were built for physical goods. Services add process, the design of delivery and capacity; physical environment, the tangible evidence of quality; and people, the employees who deliver the service. These three manage the customer interface, where much of a service’s value is created and judged.

How is outsourcing different from offshoring?

Outsourcing hands an activity that used to be done internally to an outside provider. Offshoring performs a service in one country for customers in another. The two are independent, so a firm can do either alone, but they are often combined when a company contracts its call centre to a provider overseas.

Study strategy

Assessment move

Draw the four-cell processing grid from memory and place two services you used this week in each cell. Then take one of them and write one problem and one existing tactic for each IHIP characteristic, as the seminar sprint does. Finish by naming which of the three added Ps the tactic belongs to, so the three frameworks join up in your notes.

Working through Services, IHIP and the Extended Marketing Mix in MKTG2023? Sia is AskSia’s AI Marketing tutor — ask any MKTG2023 Services, IHIP and the Extended Marketing Mix question and get a clear, step-by-step explanation grounded in how MKTG2023 is taught and assessed. Read this chapter free, then take your hardest questions to Sia.

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