New Perspectives On Marketing in The Service Economy

Chapter 1:
New Perspectives on
Marketing in the
Service Economy
Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 1
Overview of Chapter 1
 Definition of Services?
 Characteristics of Services?
 Why Study Services?
 What are Services?
 The Marketing Challenges Posed by Services
 The Expanded Marketing Mix Required for Services
 Difference between Goods and Service
Definition Services……
 The American Marketing Association

defines services as - “Activities,
benefits and satisfactions which are
offered for sale or are provided in
connection with the sale of goods.”
Definition of service
According to philip kotler
Service is any activity or benefit that one party

can offer to another that is essentially intangible
and doesnot result in the ownership of anything.
Characteristics of Services….
 The defining characteristics of a service

are:
 Intangibility: Services are intangible and do not

have a physical existence. Hence services cannot
be touched, held, tasted or smelt before purchase.
This is most defining feature of a service and that
primarily differentiates it from a product. Also, it
poses a unique challenge to those engaged in
marketing a service as they need to attach
tangible attributes to an otherwise intangible
offering.
 Heterogeneity/Variability: Given the very nature

of services, each service offering is unique and
cannot be exactly repeated even by the same
service provider. While products can be mass
produced and be homogenous the same is not true
of services. eg: All burgers of a particular flavor at
McDonalds are almost identical. However, the
same is not true of the service rendered by the
same counter staff consecutively to two
customers.
 Perishability: Services cannot be stored, saved,

returned or resold once they have been used. Once
rendered to a customer the service is completely
consumed and cannot be delivered to another
customer. eg: A customer dissatisfied with the
services of a barber cannot return the service of
the haircut that was rendered to him. At the most
he may decide not to visit that particular barber in
the future.
 Inseparability/Simultaneity of production and

consumption: This refers to the fact that services are
generated and consumed within the same time frame.
Eg: a haircut is delivered to and consumed by a
customer simultaneously unlike, say, a takeaway
burger which the customer may consume even after a
few hours of purchase. Moreover, it is very difficult to
separate a service from the service provider. Eg: the
barber is necessarily a part of the service of a haircut
that he is delivering to his customer.
Why Study Services?
Why Study Services? (1)
 Services dominate economy in most nations
 Understanding services offers you personal competitive

advantages
 Importance of service sector in economy is growing

rapidly:
 Services account for more than 60 percent of GDP worldwide
 Almost all economies have a substantial service sector
 Most new employment is provided by services
 Strongest growth area for marketing
Why Study Services? (2)
 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 lost to lower-cost countries? Yes, some service
jobs can be exported
Changing Structure of Employment as
Economic Development Evolves
Share of
Employment Agriculture
Services
Industry
Time, per Capita Income Source: IMF, 1997
What Are Services?
What Are Services? (1)
 The historical view

 Goes back over 200 years to Adam Smith and Jean-Baptiste Say
 Different from goods because they are perishable (Smith 1776)
 Consumption cannot be separated from production, services are
intangible (Say 1803)
 A fresh perspective: Services involve a form of rental,

offering benefits without transfer of ownership
 Include rental of goods
 Marketing tasks for services differ from those involved in selling
goods and transferring ownership
What Are Services? (2)
 Five broad categories within non-ownership framework:

1. Rented goods services
2. Defined space and place rentals
3. Labor and expertise rentals
4. Access to shared physical environments
5. Systems and networks: access and usage
 Implications of renting versus owning (Service Perspectives 1.1)

 Markets exist for renting durable goods rather than selling them
 Renting portions of larger physical entity (e.g., office space, apartment) can
form basis for service
 Customers more closely engaged with service suppliers
 Time plays central role in most services
 Customer choice criteria may differ between rentals and outright purchases
 Services offer opportunities for resource sharing
Challenges Posed by Services
Services Pose Distinctive
Marketing Challenges
 Marketing management tasks in the service sector
differ from those in the manufacturing sector
 The five common differences are:

1. Most service products cannot be stored
2. Intangible elements usually dominate value creation
3. Services are often difficult to visualize and understand
4. Customers may be involved in co-production
5.Distribution may take place through nonphysical channels
 What are marketing implications?
Differences, Implications, and
Marketing-Related Tasks (1) (Table 1.1)
Difference Implications Marketing-Related Tasks
Most service
products
Customers may be Use pricing, promotion,
and
turned away reservations to smooth
cannot be inventoried
demand; work with ops to
manage capacity
Intangible elements Harder to evaluate
service and distinguish Emphasize physical clues,
usually dominate employ metaphors and vivid
from competitors images in advertising
value creation
Services are often Greater risk and Educate customers on

uncertainty perceived making good choices; offer
difficult to visualize
and understand guarantees
Customers may be Interaction between Develop user-friendly

customer and provider; equipment, facilities, and
involved in co-
but poor task execution systems; train customers,
production
could affect satisfaction provide good support
Differences, Implications, and
Marketing-Related Tasks (2) (Table 1.1)
Difference Implications Marketing-Related Tasks
People may be part Behavior of service Recruit, train employees to

of personnel and customers
service experience reinforce service concept
can affect satisfaction
Shape customer behavior
Operational inputs Hard to maintain quality,
and consistency, reliability
outputs tend to vary Difficult to shield 
more widely customers from failures
Institute good service
Time is money; recovery procedures
Time factor often customers want service
assumes great at convenient times Find ways to compete on
importance speed of delivery; offer
Electronic channels or extended hours
Distribution may take voice telecommunications
place through Create user-friendly,
nonphysical channels secure websites and free
access by telephone
Value Added by Physical, Intangible Elements
Helps Distinguish Goods and Services (Fig 1.6)
Physical
Elements
High
Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing Plumbing Repair
Fast-Food Restaurant
Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking
Low Intangible Elements High

Source; Adapted from Lynn Shostack
Services: An Alternative Classification
Scheme
Four Processing Categories Of Services (Fig
2.1)
Who or What Is the Direct Recipient of the Service?

Nature of the Service Act People Possessions
Tangible Actions People processing Possession processing
(services directed at (services directed at

people’s bodies): physical possessions):
 Barbers  Refueling
 Health care  Disposal/recycling

Intangible Actions Mental stimulus Information processing
processing
(services directed at
(services directed at
intangible assets):
people’s minds):
 Education
 Accounting
 Advertising/PR
 Banking
Four Categories Of Services
People Processing
 Customers must:
 Physically enter the service
factory
 Co-operate actively with the
service operation
 Managers should think about

process and output from
customer’s perspective
 To identify benefits created and
non-financial costs:
― Time, mental, physical effort
Possession Processing
Possession Processing
 Customers are less physically

involved compared to people
processing services
 Involvement is limited
 Production and consumption

are separable
Mental Stimulus Processing
Mental Stimulus Processing
 Ethical standards required when

customers who depend on such
services can potentially be
manipulated by suppliers
 Physical presence of recipients

not required
 Core content of services is

information-based
 Can be “inventoried”
Information Processing
Information Processing
 Information is the most

intangible form of service
output
 But may be transformed into

enduring forms of service
output
 Line between information

processing and mental stimulus
processing may be blurred.
At a glance of processing categories of
service
service
 People Processing Services: People processing here

refers to the physical presence of the customer at the
service system or location, to avail the service. For
example, a person needs to be physically present at the
‘salon’ to get a hair cut.
 Product/Possession Processing Services: Such services

are related to a specific product or its possession with
limited or no involvement of the customer. For instance,
the services offered by ‘packers and movers’ are
primarily concerned with the safe shifting of customer’s
belongings, i.e., furniture and assets from one place to
another.
service
 Mental Stimulus Processing Services: The services which

influence the consumer’s mental abilities, religious
believes, behaviour, perception, lifestyle and attitude
are termed as mental stimulus processing services. Like,
educational institutes deliver knowledge which develops
the mental ability of a person.
 Information Processing Services: These are a unique

form of intangible products where the information acts
as a product, or information technology is used. Such
decisions are considered to be critical due to massive
investment and a high level of risk; therefore, absolute
customer involvement can be seen over here.
Difference between Goods and Services…
 Given below are the fundamental differences between

physical goods and services:
Goods Services
A physical commodity A process or activity
Tangible Intangible
Homogenous Heterogeneous
Production and distribution are Production, distribution and

separation from their consumption are simultaneous
consumption processes
Can be stored Cannot be stored
Transfer of ownership is possible Transfer of ownership is not
possible

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Chapter 1:

 Why Study Services?

 What are Services?

 The Marketing Challenges Posed by Services

 The Expanded Marketing Mix Required for Services

 Difference between Goods and Service

 The American Marketing Association

According to philip kotler

Service is any activity or benefit that one party

 The defining characteristics of a service

 Intangibility: Services are intangible and do not

 Heterogeneity/Variability: Given the very nature

 Perishability: Services cannot be stored, saved,

 Inseparability/Simultaneity of production and

 Services dominate economy in most nations

 Understanding services offers you personal competitive

 Importance of service sector in economy is growing

 Most new jobs are generated by services

 Fastest growth expected in knowledge-based industries

Time, per Capita Income Source: IMF, 1997

 The historical view

 A fresh perspective: Services involve a form of rental,

 Five broad categories within non-ownership framework:

 Implications of renting versus owning (Service Perspectives 1.1)

 The five common differences are:

 What are marketing implications?

Difference Implications Marketing-Related Tasks

Services are often Greater risk and Educate customers on

Customers may be Interaction between Develop user-friendly

Difference Implications Marketing-Related Tasks

People may be part Behavior of service Recruit, train employees to

Low Intangible Elements High

Who or What Is the Direct Recipient of the Service?

(services directed at (services directed at

 Health care  Disposal/recycling

 Managers should think about

 Customers are less physically

 Production and consumption

Mental Stimulus Processing

 Ethical standards required when

 Physical presence of recipients

 Core content of services is

 Information is the most

 But may be transformed into

 Line between information

 People Processing Services: People processing here

 Product/Possession Processing Services: Such services

 Mental Stimulus Processing Services: The services which

 Information Processing Services: These are a unique

 Given below are the fundamental differences between

Production and distribution are Production, distribution and

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