Services Marketing Unit 1 2014

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Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 1

Chapter 1:New Perspectives onMarketing in theService Economy


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MODULE1

Definition of Services

Nature and characteristics

Classification of Services The role of services in the economy

Evolution of Service Marketing

Distinction between Goods and Services

MACFAST


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SERVICES Defined:

Activities, Experience, Deeds, Performances andProcesses.

A Service is an activity that has an element ofintangibility associated with it and which involves the

service providers interaction either with the customers

or with the property belonging to the customers. The

service activity doesn't involve the transfer or ownership

of the output.(Adrian Payne)

MACFAST


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SERVICES

An act or performance that one party can offer

to another that is essentially intangible and does

not result in the ownership of anything.

Its production may or may not be tied to a

physical product. (Philip Kotler)

MACFAST


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ADefinition of Service must includethefollowing elements

It is intangible.

It does not result in ownership.

It may or may not be attached with a physical

product

14-Oct-10 MACFAST


6/50Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 6

Some Service Sector Industries

Transportation servicesCommunication

services

Wholesale and tradeRetailingFinancial services

(banking, insurance,

real estate etc.)Tourism services

Health services

Auto repair servicesBusiness services

Legal services

Government services

Education

Public Administration;

Defence

Personal Services

Community Services

Other Services

14-Oct-10 MACFAST



BasicCharacteristics

ofServices

INTANGIBILITY

HETEROGENEITY

INSEPARABILITY

PERISHABILITY

14-Oct-10 MACFAST



INTANGIBILITY

Services are not physical objects, and cannot

be touched or directly perceived by the physical

senses.

While selling or promoting a service, one

has to concentrate on the satisfaction and

benefitsa customer can derive from

Services cannot be

defined, measured.

the service.

tested and

14-Oct-10 MACFAST



HETEROGENEITY

The quality of services cannot be standardised.

Consumers rate the services in different ways.

This is due to the difference in perception and

expectations of individuals at the level of

providers and users.

14-Oct-10 MACFAST



INSEPARABILITY

Services are created and supplied

simultaneously. There is no clear separation

between the creation and consumption of the

service, and services and service providers are

closely associated.

Donald Cowell states Goods are

produced, sold, and consumed, whereas servicesare sold, and then produced and consumed.

14-Oct-10 MACFAST


11/50Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 1114-Oct-10 MACFAST



PERISHABILITY

Services have a high degree of perishability.

The element of time assumes a

significant position. If a service is not

successfully soldtoday, the potentialforever.

It cannot be

stored.

Unutilized

services

earnings from that are lost

are an economic waste.

e.g. an unemployed person, vacant seats intransport, etc.

14-Oct-10 MACFAST

h f



Some othercharacteristics

ofServices

Ownership

Simultaneity

Quality MeasurementNature of Demand

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OWNERSHIP

The very nature of services precludes transferof ownership, as in the case of goods.

Users only gain access to services. They

cannot own the services.

E.g a customer can use a hotel room or

swimming pool, however the ownership

remains with the service providers.

14-Oct-10 MACFAST



SIMULTANEITY

Services cannot move through channels of

distribution and cannot be delivered to the

potential customers. Users are either brought

to the services, or service providers gousers.

Thus, the consumption and

production services happens at thesame place simultaneously.

to the

of

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QUALITY MEASUREMENT

It is very complicated to accurately quantifythe value of services, in monetary terms.

Quality measurement of services is subjective,

and may vary with various factors likeexpectations and perception of consumers,

brand value of service provider, etc.

E.g. We can easily quantify the food served intoa

restaurant,

measure the

but it's difficult to do the sameperformance of the restaurant

MACFAST



NATURE OF DEMAND

Demand for many services is generallyfluctuating.

E.g. During holiday season, the demand for

transportand

increases.

tourism services highly

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Goodsvs.Services

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PHYSICAL GOODS SERVICES

1. tangible intangible

2. homogeneous heterogeneous

3. Production and distribution are

separated from consumption

Production, distribution and

consumption are simultaneousprocesses

4. A thing An activity or process

5. Core value processed in factory Core value produced in the buyer-

seller interaction

6. Customers do not participate in the

production process

Customers participate in

production

7. Can be kept in stock Cannot be kept in stock

8. Transfer of ownership No transfer of ownership

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Most products havea

servicecomponent

They could be

Equipment based

People basedvarying skill levels

The dividing line between goods & services is

rapidly getting blurred, as marketing of goodsis becoming increasingly dependent on

services offered.

14-Oct-10 MACFAST



Overview of Chapter 1

Why Study Services?

What are Services?

The Marketing Challenges Posed by Services

The Expanded Marketing Mix Required for Services



Why Study Services? (1)

Services dominate economy in most nations

Understanding services offers you personal competitiveadvantages

Importance of service sector in economy is growingrapidly:

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



Estimated Size of Service Sector inSelected Countries (Fig 1.2updated 10/06)

Services as Percent of GDP

Poland (66%), South Africa (65%)

Japan (74%), France (73%), U.K. (73%), Canada (71%)

Saudi Arabia (33%)

China (40%)

India (48%)

Argentina (53%), Brazil (51%)

Panama (80%), USA (79%)

Luxembourg (83%)

Cayman Islands (95%), Jersey (93%)

Bahamas (90%), Bermuda ( 89%)

Mexico (69%), Australia (68%), Germany (68%)

Israel (60%), Russia (58%), S. Korea (56%)

30 40 50 60 70 80 902010



Some Newer Service IndustriesProfiled by NAICS Codes But Not SIC

Casino Hotels

Continuing Care RetirementCommunities

Diagnostic Imaging Centers

Diet and Weight ReducingCenters

Environmental Consulting

Golf Courses, Country Clubs

Hazardous Waste Collection

HMO Medical Centers

Industrial Design Services

Investment Banking and

Securities Dealing

Management Consulting Services

Satellite Telecommunications

Telemarketing Bureaus

Temporary Help Services


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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


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Powerful forces are transforming service markets

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

These forces are reshaping

Demand

Supply

The competitive landscape

Customerschoices, power, and decision making


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Transformation of the Service Economy

Government

Policies

BusinessTrends

SocialChanges

Advances inIT

Globalization

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

New markets and product categories

Increase in demand for services More intense competition


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Factors Stimulating Transformationof the Service Economy (1)

Government

Policies

BusinessTrends

SocialChanges

Advances inIT

Globalization

Changes in regulations

Privatization

New rules to protect customers,employees, and the environment

New agreement on trade in services


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Government

Policies

BusinessTrends

SocialChanges

Advances inIT

Globalization

Rising consumer expectations

More affluence

More people short of time

Increased desire for buying experiencesversus things

Rising consumer ownership of high tech

equipment

Easier access to information

Immigration

Growing but aging population


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Government

Policies

BusinessTrends

SocialChanges

Advances inIT

Globalization

Push to increase shareholder value

Emphasis on productivity and cost savings

Manufacturers add value through service andsell services

More strategic alliances and outsourcing

Focus on quality and customer satisfaction

Growth of franchising

Marketing emphasis by nonprofits


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Government

Policies

BusinessTrends

SocialChanges

Advances inIT

Globalization

Growth of the Internet

Greater bandwidth

Compact mobile equipment

Wireless networking

Faster, more powerful software

Digitization of text, graphics, audio, video


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Government

Policies

BusinessTrends

SocialChanges

Advances inIT

Globalization

More companies operating on transnationalbasis

Increased international travel

International mergers and alliances

Offshoringof customer service

Foreign competitors invade domestic markets


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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 sellinggoods and transferring ownership


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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) canform 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


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Defining Services

Services Are economic activities offered by one party to another

Most commonly employ time-based performances to bring aboutdesired results in:

recipients themselves

objects or other assets for which purchasers have responsibility

In exchange for their money, time, and effort, servicecustomers expect to obtain value from

Access to goods, labor, facilities, environments, professional skills,networks, and systems

But they do not normally take ownership of any of the physicalelements involved


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Service Products versus Customer Serviceand After-Sales Service

A firms market offerings are divided into core productelements and supplementary service elements

Is everyone in service? Need to distinguish between:

Marketing of services

Marketing goods through added-value service

Good service increases the value of a core physical good

After-sales service is as important as pre-sales service

for many physical goods

Manufacturing firms are reformulating and enhancingexisting added-value services to market them as stand-alone core products


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Services Pose DistinctiveMarketing Challenges

Marketing management tasks in the service sectordiffer from those in the manufacturing sector

The eight common differences are:

1. Most service products cannot be inventoried

2. Intangible elements usually dominate value creation3. Services are often difficult to visualize and understand

4. Customers may be involved in co-production

5. People may be part of the service experience

6. Operational inputs and outputs tend to vary more widely7. The time factor often assumes great importance

8. Distribution may take place through nonphysical channels

What are marketing implications?

Diff I li i d


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Differences, Implications, andMarketing-Related Tasks (1) (Table 1.1)

Difference

Most service productscannot be inventoried

Intangible elementsusually dominate

value creation

Services are oftendifficult to visualize

and understand

Customers may beinvolved in co-

production

Implications

Customers may beturned away

Harder to evaluateservice and distinguish

from competitors

Greater risk anduncertainty perceived

Interaction betweencustomer and provider;

but poor task execution

could affect satisfaction

Marketing-Related Tasks

Use pricing, promotion, andreservations to smoothdemand; work with ops tomanage capacity

Emphasize physical clues,employ metaphors and vividimages in advertising

Educate customers onmaking good choices; offer

guarantees

Develop user-friendlyequipment, facilities, and

systems; train customers,

provide good support

Diff I li i d


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Implications

Behavior of servicepersonnel and customers

can affect satisfaction

Hard to maintain quality,consistency, reliability

Difficult to shieldcustomers from failures

Time is money;customers want service

at convenient times

Electronic channels orvoice telecommunications

Difference

People may be part ofservice experience

Operational inputs andoutputs tend to vary

more widely

Time factor oftenassumes great

importance

Distribution may takeplace through

nonphysical channels

Marketing-Related Tasks

Recruit, train employees toreinforce service concept

Shape customer behavior

Redesign for simplicity andfailure proofing

Institute good servicerecovery procedures

Find ways to compete on

speed of delivery; offerextended hours

Create user-friendly,secure websites and freeaccess by telephone

Differences, Implications, andMarketing-Related Tasks (2) (Table 1.1)


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Value Added by Physical, Intangible ElementsHelps Distinguish Goods and Services (Fig 1.6)

PhysicalElements

High

Low Intangib le Elements High

Salt

Detergents

CD Player

Wine

Golf ClubsNew Car

Tailored clothing

Fast-Food RestaurantPlumbing Repair

Health Club

Airline FlightLandscape Maintenance

Consulting

Life Insurance

Internet Banking

Source; Adapted from Lynn Shostack

S i R i


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Services RequireAn Expanded Marketing Mix

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 the only function to bring operatingrevenues into a business; all other functions are costcenters

The8Ps

of services marketing are needed to createviable strategies for meeting customer needs profitably

in a competitive marketplace


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The 8Ps of Services Marketing

Product Elements

Place and Time

Price and Other User Outlays

Promotion and Education

Process

Physical Environment

People

Productivity and QualityFig 1.9 Working in

Unison: The 8Ps of

Services Marketing

Th 8P f S i M k ti


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The 8Ps of Services Marketing:(1) Product Elements

Embrace all aspects of service performance thatcreate value

Core product responds to customers primary need

Array of supplementary service elements Help customer use core product effectively

Add value through useful enhancements

Planning marketing mix begins with creating a service

concept that: Will offer value to target customers

Satisfy their needs better than competing alternatives

Th 8P f S i M k ti


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The 8Ps of Services Marketing:(2) Place and Time

Delivery decisions: Where, When, How

Geographic locations served

Service schedules

Physical channels

Electronic channels

Customer control and convenience

Channel partners/intermediaries

Th 8P f S i M k ti g:


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The 8Ps of Services Marketing:(3) Price and Other User Outlays

Marketers must recognize that customer outlaysinvolve more than price paid to seller

Traditional pricing tasks:

Selling price, discounts, premiums

Margins for intermediaries (if any)

Credit terms

Identify and minimize other costs incurred by users:

Additional monetary costs associated with service usage (e.g.,travel to service location, parking, phone, babysitting, etc.)

Time expenditures, especially waiting

Unwanted mental and physical effort

Negative sensory experiences

The 8Ps of Services Marketing:


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The 8Ps of Services Marketing:(4) Promotion and Education

Informing, educating, persuading, reminding customers

Marketing communication tools

Media elements (print, broadcast, outdoor, retail, the Internet, etc.)

Personal selling, customer service

Sales promotion

Publicity/PR

Imagery and recognition

Branding

Corporate design

Content Information, advice

Persuasive messages

Customer education/training



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The 8Ps of Services Marketing:(5) Process

Howfirm does things may be as important as whatit does

Customers often actively involved in processes, especiallywhen acting as co-producers of service

Process involves choices of method and sequence inservice creation and delivery

Design of activity flows

Number and sequence of actions for customers

Nature of customer involvement

Role of contact personnel Role of technology, degree of automation

Badly designed processes waste time, create poorexperiences, and disappoint customers



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The 8Ps of Services Marketing:(6) Physical Environment

Design servicescape and providetangible evidence of serviceperformances

Create and maintain physicalappearances

Buildings/landscaping

Interior design/furnishings

Vehicles/equipment

Staff grooming/clothing

Sounds and smells

Other tangibles

Manage physical cues carefullycan have profound impact oncustomer impressions



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The 8Ps of Services Marketing:(7) People

Interactions between customers and contactpersonnel strongly influence customerperceptions of service quality

The right customer-contact employeesperforming tasks well

Job design

Recruiting Training Motivation

The right customers for firms mission

Contribute positively to experience of

other customers Possessor can be trained to have

needed skills (co-production) Can shape customer roles and manage

customer behavior



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The 8Ps of Services Marketing:(8) Productivity and Quality

Productivity and quality must work hand in hand

Improving productivity key to reducing costs

Improving and maintaining quality essential for buildingcustomer satisfaction and loyalty

Ideally, strategies should be sought to improve bothproductivity and quality simultaneouslytechnology

often the key Technology-based innovations have potential to create high payoffs

But, must be user friendly and deliver valued customer benefits

Marketing Must Be Integrated with


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Three management func t ions play central and interrelated

ro les in m eeting n eeds of serv ice custom ers

Marketing Must Be Integrated withOther Management Functions(Fig 1.10)

Customers

Operations

ManagementMarketing

Management

Human Resources

Management

Documents

Services Marketing Unit 1 2014