Services Marketing

Chapter 1: New Perspectives On Marketing in the Service Economy

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Overview of Chapter 1
Services Marketing

Why Study Services? What are Services? Marketing Challenges Posed by Services Extended Marketing Mix Required for Services Integration of Marketing with Other Management Functions Developing Effective Service Marketing Strategies
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Services Marketing

Why Study Services?

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Why Study Services?

Services Marketing

Services dominate most economies and are growing rapidly:

Services account for more than 60% of GDP worldwide Almost all economies have a substantial service sector Most new employment is provided by services

Strongest growth area for marketing

Understanding services offers you a personal competitive advantage

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Services Dominate the Global Economy

Services Marketing

Contribution of Service Industries to GDP Globally

Manufacturing 32%

Services 64%

Agriculture 4%

Source: The World Factbook 2008, Central Intelligence Agency

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Estimated Size of Service Sector in Selected Countries

Jersey (97%), Cayman Islands (95%), Hong Kong (92%) Bahamas (90%), Bermuda ( 89%), Luxembourg (86%) USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%)

Services Marketing

Japan (72%), Taiwan (71%), Australia (71%), Italy (71%)

Canada (70%), Germany (69%), Israel (67%) South Africa (65%), Brazil (66%), Poland (66%) Turkey (63%), Mexico (62%) Argentina (57%), Russia (55%) Malaysia (46%), Chile (45%) Indonesia (41%), China (40%) Saudi Arabia (35%)
10
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Services as Percent of GDP

20

30

40

50

60

70

80

90
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Source: The World Factbook 2008, Central Intelligence Agency

Services Marketing 7/e

Value Added by Service Industry Categories to U.S. GDP

Business Services 12%

Services Marketing

Transport, Utilities & Communications 9%

SERVICES

Wholesale & Retail Trade 12%

Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007

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NAICS: New Way to Classify & Analyze the Service Economy

Services Marketing

NAICSNorth American Industry Classification System

Classifies industries in the economic statistics of USA, Canada & Mexico Replaces old SIC codes in USA Captures huge array of new service industries, each with its own NAICS code

NAPCSNorth American Product Classification System

Assigns codes to thousands of service products

Particularly useful for looking at rented goods services

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NAICS Codes of Newer Service Industries Not Profiled By SIC

Casino Hotels

Services Marketing

HMO Medical Centers

Industrial Design Services Investment Banking and Securities Dealing Management Consulting Services Satellite Telecommunications Telemarketing Bureaus Temporary Help Services

Continuing Care Retirement Communities

Diagnostic Imaging Centers Diet and Weight Reducing Centers Environmental Consulting Golf Courses, Country Clubs Hazardous Waste Collection

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Why Study Services?

Services Marketing

Most new jobs are generated by services

Fastest growth expected in knowledge-based industries
Significant training and educational qualifications required, but employees will be more highly compensated Will service jobs be lost to lower-cost countries? Yes, some service jobs can be exported

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Changing Structure of Employment as Economies Develop

Services Marketing

Agriculture Services
Share of Employment

Industry

Time, per Capita Income

Source: IMF, 1997
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Why Study Services?

Services Marketing

Powerful forces are transforming service markets

Government policies, social changes, business trends, advances in IT, internationalization

Forces that reshape:

Demand Supply The competitive landscape Customers choices, power, and decision making

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Transformation of the Service Economy

Social Changes Government Policies Business Trends

Services Marketing
Advances In IT

Globalization
New markets and product categories Increase in demand for services More intense competition

Innovation in service products & delivery systems, stimulated by better technology

Customers have more choices and exercise more power Success hinges on: Understanding customers and competitors Viable business models Creation of value for customers and firm Increased focus on services marketing and management
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Factors Stimulating Transformation of the Service Economy

Social Changes Government Policies Business Trends

Services Marketing

Advances In IT

Globalization

Changes in regulations Privatization New rules to protect customers, employees, and the environment New agreement on trade in services

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Factors Stimulating Transformation of the Service Economy

Social Changes Government Policies Rising consumer expectations More affluence More people short of time Increased desire for buying experiences vs. things Rising consumer ownership of high tech equipment Easier access to information Immigration Growing but aging population Business Trends

Services Marketing

Advances In IT

Globalization

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Factors Stimulating Transformation of the Service Economy

Social Changes Government Policies Business Trends

Services Marketing

Advances In IT

Globalization

Push to increase shareholder value Emphasis on productivity and cost savings Manufacturers add value through service and sell services More strategic alliances and outsourcing Focus on quality and customer satisfaction Growth of franchising Marketing emphasis by nonprofits

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Factors Stimulating Transformation of the Service Economy

Social Changes Government Policies Growth of Internet Greater bandwidth Compact mobile equipment Wireless networking Faster, more powerful software Digitization of text, graphics, audio, video Business Trends

Services Marketing

Advances In IT

Globalization

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Factors Stimulating Transformation of the Service Economy

Social Changes Government Policies Business Trends

Services Marketing

Advances In IT

Globalization

More companies operating on transnational basis Increased international travel International mergers and alliances Offshoring of customer service Foreign competitors invade domestic markets

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Services Marketing

What are Services?

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What Are Services?

Services Marketing

The historical view

Smith (1776): Services are different from goods because they are perishable Say (1803): As services are immaterial, consumption cannot be separated from production

A fresh perspective: Benefits without Ownership

Rental of goods:
(a) Payment made for using or accessing something usually for a defined period of time instead of buying it outright and (b) Allows participation in network systems that individuals and organizations could not afford
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Slide 2011 by Lovelock & Wirtz

What Are Services?

Services Marketing

Five broad categories within non-ownership framework of which two or more may be combined

Rented goods services

Defined space and place rentals

Labor and expertise rentals

Access to shared physical environments

Access to and usage of systems and networks

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Definition of Services
Services Marketing

Services
are economic activities offered by one party to another most commonly employ time-based performances to bring about desired results

In exchange for their money, time, and effort, service customers expect to obtain value from
access to goods, labor, facilities, environments, professional skills, networks, and systems;

normally do not take ownership of any of the physical elements involved.

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Value Creation is Dominated by Intangible Elements

Physical Elements High

Services Marketing

Salt Detergents CD Player Wine Golf Clubs New Car Tailored clothing Fast-Food Restaurant

Plumbing Repair
Health Club Airline Flight Landscape Maintenance Consulting Life Insurance Internet Banking

Low
Source; Adapted from Lynn Shostack
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High Intangible Elements

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Service Products vs. Customer Service & After-Sales Service

Services Marketing

A firms market offerings are divided into core product elements and supplementary service elements Need to distinguish between:
Marketing of services when service is the core product Marketing through service when good service increases the value of a core physical good

Manufacturing firms are reformulating and enhancing existing added-value services to market them as standalone core products

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Service A Process Perspective

Services Marketing

Differences exist amongst services depending on what is being processed Classification of services into
People processing Possession processing Mental stimulus processing Information processing

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4 Categories of Services
Services Marketing

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People Processing
Services Marketing

Customers must:
physically enter the service factory cooperate actively with the service operation

Managers should think about process and output from the customers perspective
to identify benefits created and non-financial costs: Time, mental and physical effort

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Possession Processing
Services Marketing

Involvement is limited
Less physical involvement Production and consumption are separable

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Mental Stimulus Processing

Services Marketing

Ethical standards required:

Customers might be manipulated

Physical presence of recipients not required Core content of services is information-based

Can be inventoried

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Information Processing
Services Marketing

Most intangible form of service

May be transformed: Into enduring forms of service output Line between information processing and mental stimulus processing may be unclear

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Services Marketing

Marketing Challenges Posed by Services

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Services Pose Distinctive Marketing Challenges

Services Marketing

Marketing management tasks in the service sector differ from those in the manufacturing sector. Eight common differences between services and goods but they do not apply equally to all services

What are marketing implications of these differences?

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Differences, Implications, and Marketing-Related Tasks

Difference
Most service products cannot be inventoried

Services Marketing

Implications
Customers may be turned away

Marketing-Related Tasks
Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity Emphasize physical clues, employ metaphors and vivid images in advertising Educate customers on making good choices; offer guarantees Develop user-friendly equipment, facilities & systems; train customers, provide good support

Intangible elements usually dominate value creation Services are often difficult to visualize & understand Customers may be involved in coproduction

Harder to evaluate service & distinguish from competitors Greater risk & uncertainty perceived Interaction between customer & provider; poor task execution could affect satisfaction

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Differences, Implications, and Marketing-Related Tasks

Difference
People may be part of service experience

Services Marketing

Implications
Behavior of service personnel & customers can affect satisfaction Hard to maintain quality, consistency, reliability Difficult to shield customers from failures Time is money; customers want service at convenient times

Marketing-Related Tasks
Recruit, train employees to reinforce service concept Shape customer behavior Redesign for simplicity and failure proofing Institute good service recovery procedures

Operational inputs and outputs tend to vary more widely

Time factor often assumes great importance Distribution may take place through nonphysical channels

Find ways to compete on speed of delivery; offer extended hours

Create user-friendly, secure websites and free access by telephone

Electronic channels or voice communications

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Services Marketing

Extended Marketing Mix for Services

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Services Require An Extended Marketing Mix

Marketing can be viewed as:

Services Marketing

A strategic and competitive thrust pursued by top management A set of functional activities performed by line managers A customer-driven orientation for the entire organization

Marketing is only function to bring operating revenues into a business; all other functions are cost centers The 7 Ps of services marketing are needed to create viable strategies for meeting customer needs profitably

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The 7Ps of Services Marketing

Services Marketing

Traditional Marketing Mix Applied to Services

Product (Chapter 4) Place and Time (Chapter 5) Price (Chapter 6) Promotion and Education (Chapter 7)

Extended Marketing Mix for Services

Process (Chapter 8 & 9) Physical Environment (Chapter 10) People (Chapter 11)

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Services Marketing

Integration of Marketing with Other Management Functions

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Marketing to be Integrated with Other Management Functions

Services Marketing

Three management functions play central and interrelated roles in meeting needs of service customers

Operations Management
Customers

Marketing Management

Human Resources Management

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Services Marketing

Developing Effective Service Marketing Strategies

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Overview of Framework
Services Marketing
Understanding Service Products, Consumers and Markets Part I: Chapters 1-3

Applying the 4 Ps of Marketing to Services Part II: Chapters 4-7

The Extended Services Marketing Mix for Managing the Customer Interface Part III: Chapters 8-11

Implementing Profitable Service Strategies Part IV: Chapters 12-15

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Slide 2011 by Lovelock & Wirtz

Framework - Part I
Services Marketing

Understanding Service Products, Consumers, and Markets Chapter 1 New Perspectives on Marketing in the Service Economy

Chapter 2
Chapter 3

Consumer Behavior in a Services Context

Positioning Services in Competitive Markets

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Framework - Part II
Services Marketing

Applying the 4 Ps of Marketing to Services Chapter 4 Chapter 5 Chapter 6 Chapter 7 Developing Service Products: Core and Supplementary

Elements
Distributing Services through Physical and Electronic Channels Setting Prices and Implementing Revenue Management Promoting Services and Educating Customers

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Framework - Part III

Services Marketing

The Extended Services Marketing Mix for Managing the Customer Interface

Chapter 8
Chapter 9 Chapter 10 Chapter 11

Designing and Managing Service Processes

Balancing Demand and Productive Capacity Crafting the Service Environment Managing People for Service Advantage

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Framework - Part IV
Services Marketing

Implementing Profitable Service Strategies Chapter 12 Chapter 13 Chapter 14 Chapter 15 Managing Relationships and Building Loyalty Complaint Handling and Service Recovery Improving Service Quality and Productivity Striving for Service Leadership

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Summary
Services Marketing
Why Study Services? Unique Characteristics

Services dominate the economy in many nations. The majority of jobs are created in the service sector.

Services are often intangible, difficult to visualize and understand,

and customers may be

involved in co-production.

CHAPTER 1
Services are a form

of rental (not
ownership). They are performances that bring about a desired result.

Product, Place & Time, Price, Promotion &

What are Services?

Extended
Marketing Mix
Services Marketing 7/e

Education, Process,

Physical Environment,
People

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