Services Brands Are Intangible

Products are tangible. Services are intangible. Products are physical objects. Services are interactions. As Kellogg professor Philip Kotler wrote, services are “an activity, benefit, or satisfaction offered for sale that is essentially intangible and does not result in ownership of anything.”¹

This dynamic has important implications when it comes to branding. Services typically can’t be tried on, felt, weighed, smelled, or otherwise physically judged before purchase. For this reason, it can be difficult for consumers to evaluate services. I can examine and try on a pair of jeans, test drive a car, or see how fresh the fish looks in the case. If I don’t like the product, or it isn’t as advertised, I can often return it for replacement or a refund. The evaluation process is different when choosing a dentist, hiring an accountant, or choosing a telecommunication provider. This is particularly consequential in the case of big-ticket services: It’s inconvenient if I buy a shirt and it’s cut too small, because I can always return it. But it’s irrecoverable if I spend thousands of dollars on my honeymoon in the South Pacific and the sailboat charter turns out to be a disaster.

There is inherently a higher degree of uncertainty and risk in the selection and purchase of services compared to products. As a result, consumers look for indicators of reliable service quality, making branding particularly important to generate trust and build confidence. Does the hospital look clean? Is the prospective nanny punctual, polite, attentive, and well dressed for her interview? Are the reviews positive? What do my friends and connections say?

The Service Brand and Employee Are Inseparable

A fundamental characteristic of services is that production, delivery, and consumption occur simultaneously and are inseparable. Manufacture of a product occurs at a different time and place than its delivery and consumption. For example, Anheuser-Busch InBev manufactures a can of Budweiser beer at a brewery. The beer is eventually delivered to and consumed by a person in a different location at a later time. I may buy a case of beer a week before taking it to someone’s house for a Super Bowl party.

By contrast, the production, delivery, and consumption of a particular service occur at the same time and place. A care worker at a senior-living facility is producing and delivering the service while the resident is receiving and consuming it. Likewise, if a couple hires a chef to prepare dinner at their home for a party, the chef is delivering the service while the customer is consuming it.

In addition, the service provider is interacting directly with the customer—the worker and the service are inseparable. This is true even when the service is delivered through an automated platform.

The Experience Is Variable and Perishable

Services are variable and perishable. Both of these factors increase the branding challenge.

The challenge of variability is clear when you compare two common products: hand sanitizers and hair salons. When the manufacturer of hand sanitizer produces a bottle of the gel, the consumer experience of the product and its marketing are largely under the company’s direct control. The manufacturer develops the product, builds it to tight specifications, conducts quality-control checks, and designs the label. Some elements, such as the retail experience and usage conditions, are partly out of the company’s control, of course, but the product experience is largely controllable.

The situation is very different for a hair salon. The expertise, experience, and attitude of the hair stylists will vary. A particular stylist may be stressed or enthusiastic. He might be having a bad day or a good day. He might be under pressure to boost productivity, or he might be comfortable financially and therefore unmotivated. The hair salon chain’s marketing efforts can get the customer in the door, but the service experience depends on what happens in the moment.

Another critical difference between products and services is perishability. When an airplane pulls away from the gate, any unsold seats on that flight will remain unsold forever—they are perishable. If a resort has unsold rooms in January, it can’t sell those rooms to vacationers in February. If a restaurant has empty seats for breakfast on Monday, it can’t sell those seats for dinner on Tuesday. This dynamic has practical implications for service brand management, including pricing, demand management, and the resultant customer incentives and customer experiences.

This is quite different from the nature of product marketing. If a candle company produces too many scented candles for this holiday season and some go unsold, it can typically save them and sell them next holiday season. If a manufacturer of commercial ovens sees inventory building, it can reduce future production and let supplies sell down over time. The service marketer can do neither.

Adjusting Supply to Changes in Demand Is Difficult in the Short Term

One of the unique characteristics of some service businesses is that adjusting supply is difficult in the short run. Products are generally not limited to a finite and largely fixed inventory availability—the manufacturer can often make more or less in response to market conditions. If a book is more popular than anticipated, the publisher can print more. If the Eagles win the Super Bowl, the manufacturer can make more Eagles jerseys for fans.

The situation is different for many services providers. If a hotel has 500 rooms and 1,000 people want to stay there for a convention, it still only has 500 rooms to sell. It can’t make more. If economic conditions weaken and people cut back on hotel stays, it still has 500 rooms to sell. If a furnace repair company hires and trains five new winter crews, but fewer furnaces break down due to an unseasonably warm winter, it still has the service capacity. If the company finds itself experiencing a record-breaking cold winter and the phone is ringing off the hook for furnace repairs, it can still only fix a certain number of furnaces.

Not only is service inventory generally finite, it is often localized, so it can’t be moved easily or quickly in response to regional demand variations. If a healthcare system that operates hospitals in Washington, Oregon, and California is faced with too many beds in Washington and too few beds in California, it can’t shift the inventory between states.

The Customer Doesn’t Own the Service Asset

With services, the customer doesn’t end up as an owner after purchase. When I buy a car, it becomes my car. If I use a ride-share service, however, I don’t own the car that picks me up. If I purchase health insurance, I don’t own the clinics. With services, I may own the rights to use certain service facilities, but I do not acquire any tangible assets.

In some new digital services, particularly those known as platform businesses, neither the service provider nor the service customer owns or acquires ownership of the assets being used to deliver the service. Airbnb does not own its rental accommodations. Uber does not own the automobiles used for its ride-sharing.

Nonownership of service delivery assets can be financially rewarding for the service provider, but it also introduces much greater potential for service delivery variation and branding problems. Royal Caribbean needs to manage customer service interactions across thousands of points of contact before, during, and after a cruise, but it owns and operates the ship. Uber does neither. Thus, not only might the driver be exceptional or having a bad day, but the car might not be as described to Uber or to the customer.

Franchised services encounter many of the same issues. Holiday Inn Express does not own its hotels. Franchisors focus intensively on consistent delivery of the brand experience through the use of franchise agreements, brand standards, and service delivery metrics.

The Rise of Self-Service

It used to be that when a customer wanted to take a flight, she would call the airline and speak to an agent. On the day of travel, she would go to the airport and check in with another agent, then speak to an agent at the gate to ask if the flight was on time. On the plane, she would order a drink from the flight attendant. Later, if the bags didn’t arrive, she would talk with an airline agent.

Today, the experience is very different; many of these points of interaction have been supplemented, enabled, or replaced with digital technology. In many cases, the passenger now performs tasks along the customer journey: she searches for a flight, picks a seat, and checks the arrival time.

Self-service delivery can be highly efficient for both the provider and the customer. For many customers, it may be their preferred form of interaction. At the same time, different types of customers in different situations have different service requirements. Service leaders have to carefully think through how digital technology will impact the customer experience, and thus the service brand, for different customer segments and under various usage conditions.

New Opportunities through Informed Contact

Digital technology has opened the window to greater informed contact. For services, informed contact has always been important; I appreciate it when my personal trainer remembers that I had rotator cuff surgery and knows to modify my exercise regimen accordingly. Digital technology has made this vastly easier; the service provider now has access to data that enables more personalized customer interactions.

When an airline flight attendant greets and serves a passenger, for example, he can do so knowing profile and customer history information, such as loyalty program status and recent service experiences. Has she had two flights cancelled in the previous week? Was her last flight delayed by six hours? Marketers can then incorporate this information when providing a service. Front-line providers can even be informed with customer lifetime value and other metrics.

Informed service delivery enables the brand and the front-line service contact to execute differentiated practices, interventions, and enhancements on an individualized customer basis. If a guest arrives at a hotel only to learn that the hotel is oversold, the hotel will typically apologize and perhaps offer some minimal compensation. If the hotel and front desk agent know that the guest is a high-value customer who has had the same experience three times in the last six months, they may upgrade her to a suite and offer free dinner and drinks while she waits for the hotel transfer.

From Product Manufacturing to Service Providers

Digital transformation has upended many business models. In some cases, companies that were primarily product manufacturers have become largely service providers.

Perhaps the best known and prototypical of these transformations from products to services is IBM. After struggling with intense competition from personal computer makers throughout the 1980s and 1990s, IBM successfully transformed itself from manufacturer of computer hardware to provider of software and services. GE is another example; it developed a service offering as an alternative to the physical product of aircraft engines. GE aircraft engines power many of the world’s largest airlines, so the company introduced the option for its customers to purchase “power by the hour.” In other words, it offers thrust as a service, rather than the conventional model of engine purchases. Some of these product-to-service models work out and some don’t, but the shift is steadily impacting a growing range of industries.

More firms will see this transformation in coming years. Consider the automobile industry: it is in the nascent stages of moving from building and selling cars (product) to enabling and providing transportation (service). Bloomberg recently reported on the industry reaching the point of “peak car,” with people now shifting in growing numbers to transportation services in lieu of car ownership.²

Be Clear on the Value Proposition and How to Execute It

Brands create value for services just as they do for products: by creating preference that results in increased demand, premium pricing, and repeat purchase. Marketers must differentiate offerings, set expectations, communicate features and benefits, establish quality level, and reduce purchase risk.

For service brand managers, the brand’s value proposition is ultimately created or destroyed at the moments of service interaction. A service brand may have the best-designed marketing strategy, the best advertising, the most robust offering with the best features, the best-targeted promotional campaign, and the most refined pricing strategy. Yet, if the customer service interaction breaks down or doesn’t live up to the brand promise, none of the other marketing elements matter. Each time a negative interaction occurs, brand integrity erodes.

So how does a service marketer manage this practical reality? At the most basic level, he or she must understand the service delivery model and processes. This must go beyond a conceptual understanding. It means personally living the experiences of the customer and the person delivering the service in different situations, in different locations, and under different conditions. The challenge is to ensure that the service delivery experience matches the brand platform.

This can only be achieved by getting out into the field. For service marketing leaders, there is no substitute for frequent interaction with front-line service delivery. When I was working at United Airlines, and before that at Hyatt Hotels Corporation, I often reminded myself that the real world is not in the corporate office—it’s in the field. The brand doesn’t happen at corporate headquarters: it happens in thousands of service interactions in hundreds of locations around the world every day. It’s easy for service brand executives to slip into viewing the brand as an abstraction separate from actual service delivery and customers. It is imperative to observe and experience the brand delivery and execution in the field, from both sides of the service interaction and in actual practice under a range of real-world conditions.

The inseparability of the service brand and marketing from service delivery has very practical implications for marketing leadership. Typically, front-line service delivery does not fall under the reporting structure, authority, and control of the marketing function. Often, it lies in the domain of operations management. Thus, the services marketing leader must be adept at working with operations or other service delivery management and staff. Service marketing leaders who try to assert centralized control over service execution without building commitment from both operations leadership and front-line service employees typically fail. In short, effective working relationships with operations leadership are essential for services brand leaders.

Create Standards

To manage the inherent variability of service delivery, service design is essential. While a service interaction may seem spontaneous, the best-managed service interactions are carefully structured.

Service delivery should be a carefully designed experience. In the airline industry, the timing, presentation, manner, and elements of meal delivery in business class on an international airline is not left entirely to the discretion of the flight attendants. The service is designed and choreographed, based on customer input and operational requirements, to create the desired brand experience. Each step is defined and specified in the operational process.

Digital enablement can be incorporated into the service design and facilitate greater satisfaction, value, utility, and efficiency for both the customer and service provider. Consider the practical example of selecting a meal in business class. The standard procedure is to provide a printed menu for the passenger. Then the flight attendant asks each passenger in succession which meal she would like to select. At the same time, the passenger is still getting settled and the flight attendant is dealing with multiple operational responsibilities, service activities, and passenger inquiries. If the passenger can make her meal selections on an in-seat touchscreen or through a mobile app, it relieves demands on both the passenger and the flight attendant, while still accomplishing a necessary step in the service process. Even better, if the passenger makes her selection before boarding via a mobile phone, the task is accomplished earlier, which also provides the airline with advance information. (There are operational reasons why this is not always feasible.)

It is essential that the designed elements of service delivery be expressed in the form of service standards. Service standards tell the delivery organization and front-line service people exactly how the service is to be delivered—the steps, signature features, sequence, descriptions and explanations, options, and so on. In practice, service standards for routine interactions, such as delivering room service at a hotel, can and should be very detailed. What time should be quoted for the guest to expect delivery? How much variance from the quoted time is acceptable? When should the order be checked for accuracy before delivery? How should the guest be greeted? Where should the food be placed? Should the guest-room door remain open or closed? Should the dishes be uncovered or left covered to stay hot? Should the coffee be poured? When and how should the check be presented?

Service standards create brand expectations, brand integrity, and thus, brand value. They can also create brand differentiation for service brands. If I know that Amm’s Limousine Service is always going to arrive 15 minutes before my scheduled pickup time, and it reliably does so, I can plan confidently what time to schedule my pickup to go to the airport and have peace of mind that I won’t miss my flight. Plus, I know that the Amm’s driver is going to be polite and attentive, get out to open the door, take my bags from the door of my house, and ask what route I prefer to the airport. I know exactly what to expect time after time. That experience differentiates Amm’s, creates brand preference, reduces risk, and creates customer loyalty. As a customer, it’s also worth paying a premium price, rather than trying a different car service that may be a little cheaper but may or may not arrive on time. What makes this all happen are clearly specified, well-executed internal service standards.

At the same time, service design and service standards must allow some flexibility for individual front-line service responsiveness, discretion, and interpretation. Too much room for individual variation can destroy service consistency, but too little can be equally or even more damaging to the branded service experience. Rigid enforcement of service rules by front-line staff without regard for the variance of individual customer situations can alienate customers, undermining the perception of thoughtfulness and resulting in brand-damaging customer service incidents. Too often, service organizations are so driven by the demand for financial performance, productivity, standardization, and efficiency that they limit front-line service discretion to the point that, ironically, it destroys brand value. For many years, Hyatt was known for “the Hyatt Touch.” The Hyatt Touch wasn’t just a brand tag line. It was the actual expression of an operating culture that called for maintaining very high service standards while allowing for, encouraging, and expecting its front-line staff to be responsive, attentive, and creative in anticipating and serving guest needs.

The art of service delivery and creating service brands depends largely on creating a service culture, operational protocols, and brand standards that allow for the right latitude of personal interpretation, creativity, and expression by the individual interacting with the customer. Finding the right balance between rigorous service standards and individual variation is one of the most difficult, and yet most critical, dimensions of building and executing branded services.

Engage Employees and Communicate, Communicate, Communicate

The most effective, successful, and experienced service marketing leaders know that the brand strategy needs to be shared and understood by the people who will fulfill it. Internal communication is critical.

If the brand wants to be positioned as “professional,” “caring,” or “helpful,” the people who will fulfill that positioning need to understand it, be comfortable with it, and know what delivering it means. Brand communication on the subject should debut inside the company before being launched externally—in other words, the people who deliver the service being advertised should never see the new television campaign for the first time when it airs. They want to be proud of and enthused about the company they work for and the new brand advertising. They want to be in the know and tell their friends and relatives. They want their role to be acknowledged and respected.

For brand initiatives to be effective in a service organization, front-line employees must understand the company’s goals and brand positioning strategy. A good practical test is asking front-line staff to explain in simple and practical terms what the brand stands for and what that means for their role. Too often, front-line service employees are asked to fulfill brand claims that don’t correspond to their actual daily experience.

A proactive strategy of engaging employees in brand activities engages and energizes the organization. United Airlines’ long-time sponsorship of the U.S. Olympic team exemplifies this approach. In its brand advertising before and during the Olympics, the airline closely involves and features United employees who interact with the Olympic athletes. It promotes the brand’s relationship with the Olympics in a wide range of employee activities. Doing so greatly magnifies the impact of the sponsorship. The employees love it. The athletes love it. The passengers love it.

Use Metrics to Track Progress

Given the inherent variability of services and reliance on front-line employees to fulfill the brand promise, managing service delivery according to its design and specifications requires clear service metrics. Metrics measure the execution and effectiveness of service initiatives and provide feedback to help the organization improve service delivery. Typically, these include both operational metrics (e.g., on-time flight arrival, completion time for room service delivery, call answering time, waiting time before being seated, response time to pickup request) and customer metrics (e.g., Net Promoter Score, customer satisfaction rating).

Metrics should be shared with and be meaningful to front-line service staff. If service delivery personnel don’t know how they’re performing, why they are scoring at the reported levels, and how to impact their scores positively, then service metrics will be ineffective as a tool for improvement. It’s important that service metrics be meaningful, comprehensible, and make sense in practical terms to the people who deliver the service and are being measured. If they’re presented with dozens of service metrics, they won’t know which are the most important to focus on. If a service metric is produced through a complicated algorithm, adjusted for multiple factors, or otherwise derived in ways that aren’t clear, employees won’t know exactly where it came from, what it says, and how it relates to what they actually do and how to improve it. Service metrics such as: “The driver greeted the customer by name,” “The coffee was hot when delivered,” “The meal came within 10 minutes of being ordered,” and “The server was friendly and courteous” are straightforward, meaningful, and practical for the people who need to fulfill them and thus fulfill the brand promise.

Digital technology enables companies to use brand service metrics in new and advantageous ways. Mobile apps can facilitate immediate customer ratings while the service experience is still fresh. Dashboards can provide real-time feedback on service performance. Plus, digital systems enable intensive analytics to understand service performance for specific customer segments, during specific events (e.g., a service outage and subsequent recovery); what is driving service metrics (i.e., what factors are most impactful on the service metric); and service delivery in specific locations or even by specific service teams or individuals. Additionally, digital information enables companies to compile new types of metrics, such as a customer dissatisfaction score that incorporates multiple specific measures of service performance over time, at the individual customer, segment, or other aggregated level. This output can then be analyzed to correlate it with other outcomes (e.g., customer lifetime value), discover what has the most weight in driving it, and determine how to manage it for optimal service performance and customer value.

Ideally, metrics should enable service recovery efforts before customers are lost or share their disgruntlement on social media. Using predictive analytics, service brand leaders can act proactively to intervene before suffering attrition.

Consider Loyalty Programs

Many services businesses are well suited to loyalty programs. If designed and administered well, these programs can drive customer repeat, build customer lifetime value, and enhance brand perceptions.

Loyalty programs are most effective when designed strategically to achieve defined business objectives. These should be based on customer differentiation and incorporate functional benefits to create a compelling value proposition in an economically sustainable manner.

Historically, loyalty programs have been structured and managed based on fixed tiers of customer value, points earning, redemption pricing, and other features. With the emergence of data-driven digital marketing methods, loyalty programs are increasingly shifting in the direction of what one CMO of a national retailer recently described as “nonprogram loyalty programs,” which personalize a wide range of targeted marketing initiatives and promotional offers based on individual purchase history, customer value, and other factors.

Loyalty programs have been and remain a mainstay marketing practice for service brands. Both Uber and Airbnb, megasuccessful service brands in the digital era, introduced new loyalty programs in 2018. Likewise, Starbucks Rewards exemplifies the convergence of loyalty programs, mobile enablement, and payment systems. Finally, Amazon Prime demonstrates the incorporation of delivery services (another feature rapidly growing in importance for loyalty programs) while charging an annual fee and eschewing a loyalty-points mechanism. Loyalty programs are becoming digitally based, mobile-enabled, personalized marketing systems that will remain essential to driving customer value for services brands in the digital era.