On Marketing in The: New Perspectives Service Economy

Services Marketing
Chapter 1:
New Perspectives On
Marketing in the
Service Economy
Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
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
Services Marketing
Why Study Services?
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
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
Value Added by Service Industry
Categories to U.S. GDP
Services Marketing
Business Services
12%
Transport, Utilities
& Communications
9% SERVICES
Wholesale & Retail

Trade 12%
Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007

NAICS Codes of Newer Service
Industries Not Profiled By SIC
Services Marketing
 Casino Hotels  HMO Medical Centers

 Continuing Care Retirement  Industrial Design Services
Communities
 Investment Banking and Securities
 Diagnostic Imaging Centers Dealing
 Diet and Weight Reducing Centers  Management Consulting Services
 Environmental Consulting  Satellite Telecommunications
 Golf Courses, Country Clubs  Telemarketing Bureaus
 Hazardous Waste Collection  Temporary Help Services
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
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
Transformation of the
Service Economy
Services Marketing
Social Business Advances
Changes Trends In IT
Government Globalization
Policies
 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
Factors Stimulating Transformation
of the Service Economy
Services Marketing
Policies
 Changes in regulations
 Privatization
 New rules to protect customers, employees,
and the environment
 New agreement on trade in services
Services Marketing
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
Services Marketing
Policies
 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
Services Marketing
Policies
 Growth of Internet
 Greater bandwidth
 Compact mobile equipment
 Wireless networking
 Faster, more powerful software
 Digitization of text, graphics, audio, video
Services Marketing
Policies
 More companies operating on transnational

basis
 Increased international travel
 International mergers and alliances
 “Offshoring” of customer service
 Foreign competitors invade domestic markets
Services Marketing
What are Services?
17
SM Introduction
• Services are deeds,processes and performance

• Intangible, but may have a tangible component
• Generally produced and consumed at the same
time
• Need to distinguish between SERVICE and
CUSTOMER SERVICE
Contact: +923006641921 Usman Waheed

18
SM What is Service? The Old

View
• Service is a technical after-sale function that is provided by the
service department.
Old:
Old view of service = Service =
Customer Service Center wrench time

19
SM What is Service? The New

View
• Service includes every interaction between any customer and
anyone representing the company, including:
Dealers
Web site and

any e-channel Salespeople
Interaction
Billing and Customer Receptionists

Accounting and
Personnel Schedulers
Management
Service
and
Employees
Executives
20
Examples of Service Industries
SM
• Health Care
– hospital, medical practice, dentistry, eye care
• Professional Services
– accounting, legal, architectural
• Financial Services
– banking, investment advising, insurance
• Hospitality
– restaurant, hotel/motel, bed & breakfast,
– ski resort, rafting
• Travel
– airlines, travel agencies, theme park
• Others:
– hair styling, pest control, plumbing, lawn maintenance,
counseling services, health club
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
What Are Services?
Services Marketing
Five broad categories within non-ownership

framework of which two or more may be combined
Rented goods Defined space Labor and

services and place rentals expertise rentals
Access to shared Access to and

physical usage of systems
environments and networks
Definition of Services
Services Marketing
In another word, Services are a form of

product that consists of activities,
benefits, or satisfactions offered for sale
that are essentially intangible and do not
result in the ownership of anything.
Service Products vs. Customer
Service & After-Sales Service
Services Marketing
 A firm’s 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 stand-
alone core products
Difference between physical goods and services
Physical goods Services
tangible intangible
homogeneous heterogeneous
Production and distribution are separated Production, distribution and consumption

from consumption are simultaneous processes
A thing An activity or process
Core value processed in factory Core value produced in the buyer-seller

interaction
Customers do not participate in the Customers participate in production
production process
Can be kept in stock Cannot be kept in stock
Transfer of ownership No transfer of ownership

26
Differences Between
SM
Goods and Services
Intangibility Heterogeneity
Simultaneous
Production Perishability
and
Consumption

27
SM Implications of Intangibility
 Services cannot be inventoried

 Services cannot be patented
 Services cannot be readily displayed or
communicated
 Pricing is difficult

28
SM Implications of Heterogeneity
 Service delivery and customer satisfaction

depend on employee actions
 Service quality depends on many uncontrollable
factors
 There is no sure knowledge that the service
delivered matches what was planned and
promoted

29
Implications of Simultaneous
SM
Production and Consumption
 Customers participate in and affect the

transaction
 Customers affect each other
 Employees affect the service outcome
 Decentralization may be essential
 Mass production is difficult

30
SM Implications of Perishability
 It is difficult to synchronize supply and

demand with services
 Services cannot be returned or resold

31
SM Implications of Perishability
 It is difficult to synchronize supply and

demand with services
 Services cannot be returned or resold

32
SM Table 1-2
Services are Different
Goods Services Resulting Implications
Tangible Intangible Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Standardized Heterogeneous Service delivery and customer satisfaction depend on
employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Production Simultaneous Customers participate in and affect the transaction.
separate from production and Customers affect each other.
consumption consumption Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
Nonperishable Perishable It is difficult to synchronize supply and demand with
services.
Services cannot be returned or resold.
Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,”
Journal of Marketing 49 (Spring 1985): 33-46.

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
4 Categories of Services
Services Marketing
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 customer’s perspective
 to identify benefits created and non-financial costs: Time, mental
and physical effort
Possession Processing
Services Marketing
 Involvement is limited
 Less physical involvement
 Production and consumption are separable
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’
Services Marketing
Extended Marketing Mix for

Services
Services Require
An Extended Marketing Mix
Services Marketing
 Marketing can be viewed as:

 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
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)
41
SM Services Marketing Mix:

7 Ps for Services
• Traditional Marketing Mix

• Expanded Mix for Services: 7 Ps
• Building Customer Relationships Through
People, Processes, and Physical Evidence
• Ways to Use the 7 Ps

42
SM Traditional Marketing Mix
• All elements within the control of the firm that

communicate the firm’s capabilities and image to
customers or that influence customer satisfaction with the
firm’s product and services:
 Product
 Price
 Place
 Promotion

43
SM Expanded Mix for Services --

the 7 Ps
• Product
• Price
• Place
• Promotion
• People
• Process
• Physical Evidence
44
Table 1-3
SM Expanded Marketing Mix for
Services
PRODUCT PLACE PROMOTION PRICE
Physical good Channel type Promotion Flexibility
features blend
Quality level Exposure Salespeople Price level

Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales Differentiation
promotion
Warranties Transportation Publicity Allowances
Product lines Storage
Branding

45
Table 1-3 (Continued)
SM Expanded Marketing Mix for
Services
PEOPLE PHYSICAL PROCESS
EVIDENCE
Employees Facility design Flow of activities
Customers Equipment Number of steps
Communicating Signage Level of customer

culture and values involvement
Employee research Employee dress
Other tangibles

Expanded Mix for Services – The 7 Ps
 Product
 Price
 Place
 Promotion
 People
 All human actors who play a part in service delivery and thus influence the buyer’s
perceptions: namely, the firm’s personnel, the customer, and other customers in the
service environment.
 Physical Evidence
 The environment in which the service is delivered and where the firm and customer
interact, and any tangible components that facilitate performance or communication of
the service.
 Process
 The actual procedures, mechanisms, and flow of activities by which the service is
delivered—the service delivery and operating systems.
1-46
Expanded Marketing Mix for Services
1-47
Summary
Services Marketing
Services dominate Why Study Unique Services are often

the economy in many Services? Characteristics intangible, difficult to
nations. The majority visualize and understand,
of jobs are created in and customers may be
the service sector. involved in co-production.
CHAPTER 1
Services are a form
Product, Place & Time,
of rental (not
Price, Promotion &
ownership). They are
Extended Education, Process,
performances that What are
Marketing Physical Environment,
bring about a desired Services?
Mix People
result.

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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

Why Study Services?

 Services dominate most economies and are growing

 Understanding services offers you a personal competitive

Contribution of Service Industries to GDP Globally

Source: The World Factbook 2008, Central Intelligence Agency

Wholesale & Retail

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

 Casino Hotels  HMO Medical Centers

 Hazardous Waste Collection  Temporary Help Services

Most new jobs are generated by services

 Significant training and educational qualifications required,

 Will service jobs be lost to lower-cost countries? Yes, some service

 Powerful forces are transforming service markets

 Forces that reshape:

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

 Rising consumer expectations

 Push to increase shareholder value

 More companies operating on transnational

What are Services?

• Services are deeds,processes and performance

Contact: +923006641921 Usman Waheed

SM What is Service? The Old

Contact: +923006641921 Usman Waheed

SM What is Service? The New

Web site and

Billing and Customer Receptionists

 The historical view

 A fresh perspective: Benefits without Ownership

Five broad categories within non-ownership

Rented goods Defined space Labor and

Access to shared Access to and

In another word, Services are a form of

 A firm’s market offerings are divided into core product

 Need to distinguish between:

 Manufacturing firms are reformulating and enhancing

Production and distribution are separated Production, distribution and consumption

A thing An activity or process

Core value processed in factory Core value produced in the buyer-seller

Transfer of ownership No transfer of ownership

Contact: +923006641921 Usman Waheed

 Services cannot be inventoried

Contact: +923006641921 Usman Waheed

 Service delivery and customer satisfaction

Contact: +923006641921 Usman Waheed

 Customers participate in and affect the

Contact: +923006641921 Usman Waheed

 It is difficult to synchronize supply and

Contact: +923006641921 Usman Waheed

 It is difficult to synchronize supply and

Contact: +923006641921 Usman Waheed

Contact: +923006641921 Usman Waheed

 Differences exist amongst services depending on what is

 Classification of services into

 Managers should think about process and output