Services Marketing:

People, Technology, Strategy

CHAPTER 1
Creating Value In The Service Economy

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Learning Objectives
By the end of this chapter, the reader should be able to:

• Understand how services contribute to a country’s economy.

• Know the principal industries of the service sector.

• Identify the powerful forces that are transforming service markets.

• Understand how B2B services improve the productivity of

individual firms and drive economic development.

• Be familiar with the difference between outsourcing and offshoring

of services.

• Define services using the non-ownership service framework.

• Identify the four broad “processing” categories of services.

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Learning Objectives
• Be familiar with the characteristics of services and the distinctive
marketing challenges they pose.

• Understand the components of the traditional marketing mix applied to

services.

• Describe the components of the extended marketing mix for managing the
customer interface.

• Appreciate that the marketing, operations, and human resource

management functions need to be closely integrated in service businesses.

• Understand the implications of the Service-Profit Chain for service

management.

• Know the framework for developing effective service marketing strategies.

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Chapter Overview

4
 Chapter Overview
• 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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Why Study Services
• Services Dominate the Global Economy
• Increasing size of the service sector across the globe
• The relative share of employment between agriculture, industry and services
is changing dramatically
• Service output is growing rapidly and represents more than 50% of Gross
Domestic Product (GDP).

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Evolution of Service Dominated
Economy

Figure 1.4 Changing structure of employment as

an economy develops
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Contribution Of Services Industries To
GDP Globally

Figure 1.5 Contribution of services industries to

GDP globally

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Contribution to GDP in India: Sector-wise
2020-21
Sector Contribution

Agriculture 20.19%

Service 53.89%

Industry 25.92%
Why Study Services
• Most new jobs are generated by services
• In most countries around the world, new job creation
comes mainly from services.
• Knowledge-based industries — such as professional and
business services, education, and health care generate
high paid jobs.

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Why Study Services
• Understanding Services Offers Personal Competitive
Advantage
• The distinctive characteristics of services and how they
affect both customer behavior and marketing strategy will
give important insights and perhaps create a competitive
advantage

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Factors stimulating transformation of service economy
Government Social Changes
Policies
• Changes in • Rising consumer
regulations expectations
• Privatization • Universal social networks
• New rules to protect • More affluence
consumers, • More people short of time
• Increased desire for buying
employees and the experiences vs. things
environment • Rising consumer ownership
• New agreement on of computers, cell phones,
trade in services and high-tech equipment
• Easier access to more
information
• Immigration
• Growing but aging
population
Business Trends
• 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
Advances in Globalization
Information
Technology
• Growth of the Internet • More companies
• Wireless networking and operating on a
technology transnational basis
• Digitization of text, • Increased international
graphics, audio, and travel
video • International mergers
• Cloud technology and alliances
• Location-based services • “Offshoring” of
• Big data customer service
• Artificial intelligence • Foreign competitors
• Improved predictive invade domestic markets
analysis

New markets and product categories create increased demand for services
in many existing markets, making it more competition intensive.

Innovation in service products and delivery systems is stimulated by

application of new and improved technologies.

Success hinges on (1) understanding customers and competitors, (2) viable

business models, and (3) creation of value for both customers and the firm,
(4) increased focus on services marketing and management.

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B2B Services as Core Engine of
Economic Development

Source: Jochen Wirtz and Michael Ehret, "Service-Based Business Models: Transforming Businesses, Industries and Economies," in Raymond
P. Fisk, Rebekah Russell-Bennett, and Lloyd C. Harris, eds. Serving Customers: Global Services Marketing Perspectives (Tilde University Press,
Melbourne, Australia), 28–46.

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What Are Services?
• Production and consumption inseparable in services
• Benefits without Ownership
• Labor, skills and expertise rentals (Car repar, Medial Check up,
Management Consulting)
• Rented goods services (Boats, Fancy Dress Costumes,
Construction equipment)
• Defined space and facility rentals (A seat in an aircraft, a suite
in an office building, a storage container in a warehouse)
• Access to shared facilities (Theme parks, Golf Clubs, Toll Roads)
• Access and use of networks and systems (Telephone, Internet,
Banking)

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Definition Of Services
Services are economic activities performed by one party
to another. Often time-based, these performances bring
about desired results to recipients, objects, or other
assets.

In exchange for money, time, and effort, service

customers expect value from access to labor, skills,
expertise, goods, facilities, networks, and systems.
However, they do not normally take ownership of the
physical elements involved.

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 Four Categories of Services –
A Process Perspective

• People processing
• Possession processing
• Mental stimulus processing
• Information processing

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Four Categories of Services –
A Process Perspective

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People Processing
• Implications of people processing
services:
• Service production and consumption are
simultaneous
• Active cooperation of the customer is needed in
the service delivery process
• Careful consideration of location of the service
operation, the design of service processes and the
service environment, demand and capacity
management, and output from the customer’s
point of view
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Possession Processing
• Production and consumption are not
necessarily simultaneous
• Customers tend to be less involved in
these services, compared to people-
processing services

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Mental Stimulus Processing
• Customers do not have to be physically present in the
service factory
• Services can be “inventoried” for consumption at a
later date, or consumed repeatedly.

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Information Processing
• Can be transformed into more permanent and
tangible forms
like letters, reports, books, or files in any type of
format
• Not very different from mental stimulus processing
services

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Marketing Challenges Posed By Services
• Four characteristics of Services
• intangibility
• heterogeneity (variability of quality)
• inseparability of production and
consumption and
• perishability
… IHIP
(277) Service characteristics - Intangibility, Perishability, Heterogeneity, Ownership - You
Tube
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 Eight Features of Services
Difference
Most service products
cannot be inventoried
(i.e., output is perishable)
Intangible elements usually
dominate value creation
(i.e., service is physically
intangible)
Services are often difficult
to visualize and understand
(i.e., service is mentally
intangible)
Customers may be involved
in co-production
(i.e., if people processing is
involved, the service is
inseparable)
People may be part of the
service experience
Operational inputs and
outputs tend to vary more
widely
(i.e., services are
heterogeneous)
The time factor often
assumes great importance
Distribution may take place
through nonphysical
channels
Implications
Customers may be turned away or have to wait
Customers cannot taste, smell, or touch these elements and may not be able to
see or hear them
Harder to evaluate service and distinguish from competitors
Customers perceive greater risk and uncertainty
Customers interact with providers’ equipment, facilities, and systems
Poor task execution by customers may hurt productivity, spoil the service
experience, and curtail benefits
Appearance, attitude and behavior of service personnel and other customers
can shape the experience and affect satisfaction
Harder to maintain consistency, reliability, and service quality or to lower costs
through higher productivity
Difficult to shield customers from results of service failures
Customers see time as a scarce resource to be spent wisely, dislike wasting time
waiting, want service at times that are convenient
Information-based services can be delivered through electronic channels such
as the Internet or voice telecommunications, but core products involving
physical activities or products cannot
Channel integration is a challenge; that is to ensure consistent delivery of
service through diverse channels, including branches, call centres and websites.
Marketing-related Topics
Smooth demand through promotions, dynamic pricing,
and reservations
Work with operations to adjust capacity
Make services tangible through emphasis on physical
clues
Employ concrete metaphors and vivid images in
advertising and branding
Educate customers to make good choices, explain what
to look for, document performance, offer guarantees
Educate customers to make good choices, explain what
to look for, document performance, offer guarantees
Recruit, train, and reward employees to reinforce the
planned service concept
Target the right customers at the right times; shape
their behavior
Set quality standards based on customer expectations;
redesign product elements for simplicity and failure-
proofing
Institute good service recovery procedures
Automate customer-provider interactions; perform
work while customers are absent
Find ways to compete on speed of delivery, minimize
burden of waiting, offer extended service hours
Seek to create user-friendly, secure websites and free
access by telephone
Ensure that all information-based service elements are
delivered effectively and reliably through all key
channels
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Tangible-dominant to
Intangible-dominant

Relative value added by physical versus intangible

elements in goods and services
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 The 7 ‘P’s Of Services Marketing

The 4 ‘P’s
product, price, place (or distribution), and promotion (or
communication)

Extended Marketing Mix for Services – The 3 ‘P’s

process, physical environment, and people

(277) Service marketing mix explained with Example - YouTube

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The Traditional Marketing Mix Applied To
Services
• Product Elements
• Service products consist of a core product that meets the customers’ primary
need and a variety of supplementary service elements
• Place and Time
• Distribution of core versus supplementary Services
• Importance of the time factor

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The Traditional Marketing Mix Applied To
Services
• Price and Other User Outlays
• Pricing strategy is highly dynamic, with price levels
adjusted over time according to factors like customer
segment, time and place of delivery, level of demand, and
available capacity.
• The outlays include additional monetary costs, time spent,
unwanted mental and physical effort, and exposure to
negative sensory experiences.
• Promotion and Education
• Services are often difficult to visualize and understand as
intangible elements tend to dominate value creation
• Customer-customer interactions affect the service
experience

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Extended Marketing Mix Required
For Services
• Process
• Operational Inputs and Outputs Can Vary Widely
• Customers are Often Involved in Co-production
• Demand and Capacity Need to be Balanced
• Physical Environment
• The appearance of buildings, landscaping, vehicles, interior
furnishings, equipment, staff members’ uniforms, signs,
printed materials, and other visible cues provide tangible
evidence of a firm’s service quality
• People
• Service firms need to work closely with their human
resources (HR) departments and devote special care in
selecting, training, and motivating their service employees
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Integration Of Marketing With Other
Management Functions

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 The Service-Profit Chain

Reprinted by permission of Harvard Business Review: Heskett, JL., Jones, T.O., Loveman, G.W., Sasser Jr., W.E., and Schlesinger, L.A.
(March–April 1994), “Putting the Service–Profit Chain to Work,” Harvard Business Review, p.166. Copyright © 1994 by the Harvard
Business School Publishing Corporation; all rights reserved.
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Developing Effective Service Marketing
Strategies

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