McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved

1-2
A Note on the
PowerPoint Slides...
These PowerPoint slides contain selected exhibits,
figures, and tables from the chapters as well as
objectives for the chapters. For some chapters,
we include extra lecture slides and in-class
exercises that we have compiled and used in our
classes. The lecture slides are not intended to
provide full outlines or complete lectures for the
chapters, but rather may be used selectively to
enhance class sessions.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-3
Part 1
FOUNDATIONS
FOR SERVICES
MARKETING
FOUNDATIONS
FOR SERVICES
MARKETING
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-4
Introduction to Services
What are services?
Why services marketing?
Service and Technology
Characteristics of Services Compared to Goods
Services Marketing Mix
Staying Focused on the Customer
Chapter Chapter
1 1
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-5
Objectives for Chapter 1:
Introduction to Services
Explain what services are and identify important trends in services.
Explain the need for special services marketing concepts and
practices and why the need has developed and is accelerating.
Explore the profound impact of technology on service.
Outline the basic differences between goods and services and the
resulting challenges and opportunities for service businesses.
Introduce the expanded marketing mix for services and the
philosophy of customer focus as powerful frameworks and themes
that are fundamental to the rest of the text.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-6
Examples of Service Industries
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
airline, travel agency, theme park
Others
hair styling, pest control, plumbing, lawn maintenance, counseling services,
health club, interior design
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-7
Contributions of Service Industries to
U.S. Gross Domestic Product
Figure 1.1
Source: Survey of Current Business, May 2007, p. 19, Table 2.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-8
Tangibility Spectrum
Tangible
Dominant
Intangible
Dominant
Salt
Soft Drinks
Detergents
Automobiles
Cosmetics
Advertising
Agencies
Airlines
Investment
Management
Consulting
Teaching
Fast-food
Outlets
Fast-food
Outlets

Figure 1.2
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-9
Overview: Why Services Matter
Services dominate U.S. and worldwide
economies
Services are growing dramatically
Service leads to customer retention and
loyalty
Service leads to profits
Services help manufacturing companies
differentiate themselves
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-10
Percent of U.S. Labor Force by Industry
Figure 1.3
Sources: U.S. Department of Labor, Bureau of Labor Statistics, Industry at a Glance, May 4, 2007, Survey of Current
Business, February 2001, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; E. Ginzberg and G. J. Vojta, ³The
Service Sector of the U.S. Economy,´ Scientific American 244, no. 3 (1981), pp. 31±39.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-11
Percent of U.S. Gross Domestic
Product by Industry
Figure 1.4
Sources: Survey of Current Business, May 2007, p. 19, Table 2; Survey of Current Business, February 2001,
Table B.3, and August 1996, Table 11; E. Ginzberg and G. J. Vojta, ³The Service Sector of the U.S. Economy,´
Scientific American 244, no. 3 (1981), pp. 31±39.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-12
Eight Central Paradoxes of Technological
Products
Source: D. G. Mick and S. Fournier, ³Paradoxes of Technology: Consumer Cognizance, Emotions, and Coping Strategies,´
Journal of Consumer Research 25 (September 1998), pp. 123±47.
Table 1.1
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-13
Comparing Goods and Services
Table 1.2 Source: A. Parasuraman, V.A. Zeithaml, and L. L. Berry, ³A Conceptual Model of Service Quality and Its Implications for Future
Research,´ Journal of Marketing 49 (Fall 1985), pp. 41±50.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-14
Why do firms focus on Services?
Services can provide higher profit margins
and growth potential than products
Customer satisfaction and loyalty are driven
by service excellence
Services can be used as a differentiation
strategy in competitive markets
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-15
Why study Services Marketing?
Service-based economies
Service as a business imperative in manufacturing
and IT
Deregulated industries and professional service
needs
Services marketing is different
Service equals profits
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-16
What is Service? The Old View
Service is a technical after-sale function that is provided by
the service department.
Old:
Service =
wrench time
Old view of service =
Customer Service Center
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-17
What is Service? The New View
Service includes every interaction between any customer
and anyone representing the company, including:
Dealers
Salespeople
Receptionists
and
Schedulers
Management
and Executives
Service
Employees
Billing and
Accounting
Personnel
Web site and
any e-channel
Interaction
Customer
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-18
Service Can Mean all of These
Service as a product
Customer service
Services as value
add for goods
Service embedded in
a tangible product
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-19
Characteristics of Services
Compared to Goods
Intangibility
Perishability
Simultaneous
Production
and
Consumption
Heterogeneity
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-20
Implications of Intangibility
Services cannot be inventoried
Services cannot be easily patented
Services cannot be readily displayed or
communicated
Pricing is difficult
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-21
Implications of Heterogeneity
Service delivery and customer satisfaction
depend on employee and customer actions
Service quality depends on many
uncontrollable factors
There is no sure knowledge that the service
delivered matches what was planned and
promoted
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-22
Implications of Simultaneous
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
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-23
Implications of Perishability
It is difficult to synchronize supply and
demand with services
Services cannot be returned or resold
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-24
Challenges for Services
Defining and improving quality
Ensuring the delivery of consistent quality
Designing and testing new services
Communicating and maintaining a consistent image
Accommodating fluctuating demand
Motivating and sustaining employee commitment
Coordinating marketing, operations, and human resource
efforts
Setting prices
Finding a balance between standardization versus
customization
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-25
Examples of Goods Companies that are
Expanding into Services
Boeing
Kodak
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-26
network administration
network
technical support
network equipment
nonproductive operations
by end user (downtime,
file management, etc.)
administration
technical support
desktop hardware
yard operations,
railroad administration,
other
train operations
Infrastructure
freight car services
locomotive services
locomotives
other
finance
repair
insurance
gas
used car purchase
new car purchase
total expenditure:
5X product costs
total expenditure:
21X product costs
total expenditure:
5X product costs
100%
80%
60%
40%
20%
0%
annual cost of
PC use: $6,259
total annual cost of rail
operations: $29 billion
average annual household
expenditure: $6,064
Personal Computers Locomotives Automobiles
The sale of a
product accounts
for only a small
portion of overall
revenues.
Providing
services to
customers is
where the real
money is.
Where the Money in Manufacturing Is:
Services
¬·vv·÷- ·=vfu÷v·v·v,. ^····1=f1·u ·¡ ^m÷v1·=u R=1!v·=d·. l÷d÷v=! û1zh»=v ^dm1u1·fv=f1·u ¤¡¡1·÷ ·¡
û1zh»=v Tu¡·vm=f1·u M=u=z÷m÷uf. ¹R=1!v·=d ÷x,÷ud1fvv÷· =v÷ ¡·v ´!=·· 1 v=1!v·=d·.)
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-27
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
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-28
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 delivered²the service delivery and operating systems.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-29
Expanded Marketing Mix for Services
Table 1.3
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved
1-30
Ways to Use the 7 Ps
Overall Strategic
Assessment
How effective is a firm¶s
services marketing mix?
Is the mix well-aligned
with overall vision and
strategy?
What are the strengths
and weaknesses in
terms of the 7 Ps?
Specific Service
Implementation
Who is the customer?
What is the service?
How effectively does the
services marketing mix for
a service communicate its
benefits and quality?
What changes/
improvements are needed?

1-2

A Note on the PowerPoint Slides... 
These PowerPoint slides contain selected exhibits, figures, and tables from the chapters as well as objectives for the chapters. For some chapters, we include extra lecture slides and in-class exercises that we have compiled and used in our classes. The lecture slides are not intended to provide full outlines or complete lectures for the chapters, but rather may be used selectively to enhance class sessions.

McGraw-Hill/Irwin

© 2009 The McGraw-Hill Companies, All Rights Reserved

1-3

Part 1

FOUNDATIONS FOR SERVICES MARKETING

McGraw-Hill/Irwin

© 2009 The McGraw-Hill Companies, All Rights Reserved

Chapter1-4 Introduction to Services 1  What are services?  Why services marketing?  Service and Technology  Characteristics of Services Compared to Goods  Services Marketing Mix  Staying Focused on the Customer McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

 Explore the profound impact of technology on service.  Outline the basic differences between goods and services and the resulting challenges and opportunities for service businesses.1-5 Objectives for Chapter 1: Introduction to Services  Explain what services are and identify important trends in services.  Explain the need for special services marketing concepts and practices and why the need has developed and is accelerating. All Rights Reserved .  Introduce the expanded marketing mix for services and the philosophy of customer focus as powerful frameworks and themes that are fundamental to the rest of the text. McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies.

hotel/motel. medical practice. dentistry. lawn maintenance. investment advising. theme park  Others  hair styling. counseling services. bed & breakfast  ski resort. plumbing. All Rights Reserved . insurance  Hospitality  restaurant. travel agency. legal. rafting  Travel  airline. pest control.1-6 Examples of Service Industries  Health Care  hospital. health club. interior design McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. eye care  Professional Services  accounting. architectural  Financial Services  banking.

May 2007.S. Table 2. © 2009 The McGraw-Hill Companies. p.1-7 Contributions of Service Industries to U. All Rights Reserved . 19.1 McGraw-Hill/Irwin Source: Survey of Current Business. Gross Domestic Product Figure 1.

2 McGraw-Hill/Irwin Fast-food Outlets Advertising Agencies Airlines Investment Management Consulting Teaching       © 2009 The McGraw-Hill Companies.1-8 Tangibility Spectrum Salt  Soft Drinks  Detergents  Automobiles  Cosmetics  Fast-food Outlets  Tangible Dominant Intangible Dominant Figure 1. All Rights Reserved .

S. and worldwide economies  Services are growing dramatically  Service leads to customer retention and loyalty  Service leads to profits  Services help manufacturing companies differentiate themselves McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies.1-9 Overview: Why Services Matter  Services dominate U. All Rights Reserved .

Table B.´ Scientific American 244. © 3 (1981).S.4C. All Rights Reserved . and July 1992.3 McGraw-Hill/Irwin Sources: U. July 1988. Industry at a Glance. Ginzberg and G.1-10 Percent of U. 2007.8. Economy. Survey of Current Business. Vojta. Department of Labor. February 2001. Table 6.S. May 4. no. Labor Force by Industry Figure 1. 31±39. J. Table 6.S. McGraw-Hill Companies. Bureau of Labor Statistics. ³The Service Sector of the U. E. 2009 Thepp.6B.

All Rights Reserved .3. Table 11. no. 3 (1981). May 2007. J. © 2009 The McGraw-Hill Companies. Table B.´ Scientific American 244.1-11 Percent of U. and August 1996.4 McGraw-Hill/Irwin Sources: Survey of Current Business. Survey of Current Business. 19. Economy. Vojta. E. Ginzberg and G. Table 2. 31±39. pp. Gross Domestic Product by Industry Figure 1. February 2001.S. ³The Service Sector of the U. p.S.

123±47.´ Journal of Consumer Research 25 (September 1998). © 2009 The McGraw-Hill Companies. and Coping Strategies. Emotions.1-12 Eight Central Paradoxes of Technological Products Table 1. All Rights Reserved . Fournier. Mick and S. ³Paradoxes of Technology: Consumer Cognizance.1 McGraw-Hill/Irwin Source: D. pp. G.

All Rights Reserved .1-13 Comparing Goods and Services Table 1. V. Parasuraman.A. © 2009 The McGraw-Hill Companies. L. Zeithaml. Berry. and L.´ Journal of Marketing 49 (Fall 1985). 41±50. pp.2 McGraw-Hill/Irwin Source: A. ³A Conceptual Model of Service Quality and Its Implications for Future Research.

1-14 Why do firms focus on Services?  Services can provide higher profit margins and growth potential than products  Customer satisfaction and loyalty are driven by service excellence  Services can be used as a differentiation strategy in competitive markets McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

All Rights Reserved .1-15 Why study Services Marketing?  Service-based economies  Service as a business imperative in manufacturing and IT  Deregulated industries and professional service needs  Services marketing is different  Service equals profits McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies.

Old view of service = Customer Service Center McGraw-Hill/Irwin Old: Service = wrench time © 2009 The McGraw-Hill Companies. All Rights Reserved .1-16 What is Service? The Old View  Service is a technical after-sale function that is provided by the service department.

All Rights Reserved . including: Dealers Web site and any e-channel Interaction Billing and Accounting Personnel Salespeople Customer Receptionists and Schedulers Service Employees McGraw-Hill/Irwin Management and Executives © 2009 The McGraw-Hill Companies.1-17 What is Service? The New View  Service includes every interaction between any customer and anyone representing the company.

1-18 Service Can Mean all of These  Service as a product  Customer service  Services as value add for goods  Service embedded in a tangible product McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

Characteristics of Services Compared to Goods 1-19 Intangibility Heterogeneity Simultaneous Production and Consumption Perishability McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

All Rights Reserved .1-20 Implications of Intangibility  Services cannot be inventoried  Services cannot be easily patented  Services cannot be readily displayed or communicated  Pricing is difficult McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies.

1-21 Implications of Heterogeneity  Service delivery and customer satisfaction depend on employee and customer actions  Service quality depends on many uncontrollable factors  There is no sure knowledge that the service delivered matches what was planned and promoted McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

Implications of Simultaneous 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 McGraw-Hill/Irwin 1-22 © 2009 The McGraw-Hill Companies. All Rights Reserved .

1-23 Implications of Perishability  It is difficult to synchronize supply and demand with services  Services cannot be returned or resold McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

1-24 Challenges for Services  Defining and improving quality  Ensuring the delivery of consistent quality  Designing and testing new services  Communicating and maintaining a consistent image  Accommodating fluctuating demand  Motivating and sustaining employee commitment  Coordinating marketing. operations. All Rights Reserved . and human resource efforts  Setting prices  Finding a balance between standardization versus customization McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies.

1-25 Examples of Goods Companies that are Expanding into Services Boeing Kodak McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

) administration train operations gas Infrastructure freight car services locomotive services locomotives used car purchase 40% 20% technical support desktop hardware new car purchase 0% total expenditure: 5X product costs total expenditure: 21X product costs total expenditure: 5X product costs McGraw-Hill/Irwin 6RXUFH*DUWQHU*URXS$VVRFLDWLRQRI$PHULFDQ5DLOURDGV)HGHUDO+LJKZD\$GPLQLVWUDWLRQ2IILFHRI +LJKZD\. annual cost of PC use: $6. etc. Providing services to customers is where the real money is. file management.064 network administration network technical support network equipment yard operations.259 100% Locomotives total annual cost of rail operations: $29 billion Automobiles average annual household expenditure: $6.QIRUPDWLRQ0DQDJHPHQW 5DLOURDGH[SHQGLWXUHVDUHIRU&ODVVUDLOURDGV. other other finance repair insurance 80% 60% nonproductive operations by end user (downtime.1-26 Where the Money in Manufacturing Is: Services Personal Computers The sale of a product accounts for only a small portion of overall revenues. railroad administration.

All Rights Reserved . © 2009 The McGraw-Hill Companies.

1-27 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 © 2009 The McGraw-Hill Companies. All Rights Reserved McGraw-Hill/Irwin .

and flow of activities by which the service is delivered²the service delivery and operating systems.Expanded Mix for Services ± The 7 Ps     Product Price Place Promotion 1-28  People  All human actors who play a part in service delivery and thus influence the buyer¶s perceptions: namely.  Physical Evidence  The environment in which the service is delivered and where the firm and customer interact.  Process  The actual procedures. the firm¶s personnel. the customer. McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. and any tangible components that facilitate performance or communication of the service. and other customers in the service environment. All Rights Reserved . mechanisms.

All Rights Reserved .1-29 Expanded Marketing Mix for Services Table 1.3 McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies.

1-30 Ways to Use the 7 Ps Overall Strategic Assessment  How effective is a firm¶s services marketing mix?  Is the mix well-aligned with overall vision and strategy?  What are the strengths and weaknesses in terms of the 7 Ps? Specific Service Implementation  Who is the customer?  What is the service?  How effectively does the services marketing mix for a service communicate its benefits and quality?  What changes/ improvements are needed? McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies. All Rights Reserved .

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