Lecture 1to3 SM Unit I EX AR

Marketing of ServicesUnit IProf. Arun [email protected]

Learning ObjectivesWhat are Services?Why Study Services?Characteristics of ServicesMarketing Implications for Strategic decisionGoods Vs. Services Marketing Marketing Mix Required for Services

What are Services?

What Are Services? The historical viewSmith (1776): Services are different from goods because they are perishable Say (1803): As services are immaterial, consumption cannot be separated from productionA fresh perspective: Benefits without OwnershipRental 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

Definition of ServicesServices are economic activities offered by one party to another most commonly employ time-based performances to bring about desired resultsIn exchange for their money, time, and effort, service customers expect to obtain value fromaccess to goods, labor, facilities, environments, professional skills, networks, and systems; normally do not take ownership of any of the physical elements involved.

Value Creation is Dominated by Intangible ElementsSource; Adapted from Lynn ShostackIntangible Elements

Service Products vs. Customer Service & After-Sales ServiceA firms market offerings are divided into core product elements and supplementary service elementsNeed to distinguish between:Marketing of services when service is the core productMarketing through service when good service increases the value of a core physical goodManufacturing firms are reformulating and enhancing existing added-value services to market them as stand-alone core products

Why Study Services?

Why Study Services?Services dominate most economies and are growing rapidly:Services account for more than 60% of GDP worldwideAlmost all economies have a substantial service sectorMost new employment is provided by services Strongest growth area for marketingUnderstanding services offers you a personal competitive advantage

Services Dominate the Global EconomyContribution of Service Industries to GDP GloballySource: The World Factbook 2008, Central Intelligence AgencyServices 64%Agriculture 4%Manufacturing 32%

Chart1

0.64

0.04

0.32

Contribution of Services Industries to GDP globally

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Contribution of Services Industries to GDP globally

Services64%

Agriculture4%

Manufacturing32%

To resize chart data range, drag lower right corner of range.

Why Study Services? Most new jobs are generated by servicesFastest growth expected in knowledge-based industriesSignificant training and educational qualifications required, but employees will be more highly compensatedWill service jobs be lost to lower-cost countries? Yes, some service jobs can be exported

Why Study Services? Powerful forces are transforming service marketsGovernment policies, social changes, business trends, advances in IT, internationalizationForces that reshape:DemandSupplyThe competitive landscapeCustomers choices, power, and decision making

Transformation of the Service EconomySuccess hinges on: Increased focus on services marketing and management

Factors Stimulating Transformation of the Service Economy

Factors Stimulating Transformation of the Service Economy

Factors Stimulating Transformation of the Service Economy

Factors Stimulating Transformation of the Service Economy

Factors Stimulating Transformation of the Service Economy

Characteristics of Services

Characteristics of ServicesIntangibility: difficult to sample and to evaluateInseparability: difficult to separate services from the service provider; mainly direct sales; staff are essential to the delivery of quality servicesHeterogeneity: virtually every service is different; very difficult to standardize qualityPerishability: those not sold can not be storedFluctuating demand: demand for some services fluctuates by season, or even by time of day.

Challenges for ServicesDefining and improving qualityDesigning and testing new servicesCommunicating and maintaining a consistent imageAccommodating fluctuating demandMotivating and sustaining employee commitmentCoordinating marketing, operations, and human resource effortsSetting pricesFinding a balance between standardization versus personalizationEnsuring the delivery of consistent quality

Implication 1No ownershipCustomers obtain temporary rentals, hiring of personnel, or access to facilitiesPricing often based on time Customer choice criteria may differ for renting vs. purchase--may include convenience, quality of personnelMarketing a car rental service to a customer differs from that of selling a car to a person. Services cannot be inventoried after productionService performances are momentarytransitory, perishable Exception: some information-based output can be recorded in electronic/printed form and re-used many times Balancing demand and supply may be vital marketing strategyKey to profits: target right segments at right times at right priceNeed to determine whether benefits are perishable or durable

Implication 2Customers may be involved in production processThink of customers in these settings as partial employeesCustomer behavior and competence can help or hinder productivity, so marketers need to educate/train customersChanging the delivery process may affect role played by customersDesign service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedulesIntangible elements dominate value creationUnderstand value added by labor and expertise of personnelEffective HR management is critical to achieve service qualityMake highly intangible services more concrete by creating and communicating physical images or metaphors and tangible clue

Implication 3Other people are often part of the service productSporting eventbehavior of fans on other spectators!Achieve competitive edge through perceived quality of employeesRecognize that appearance and behavior of other customers can influence service experience positively or negativelyAvoid inappropriate mix of customer segments at same time.Manage customer behavior (the customer is not always right!)Greater variability in operational inputs and outputsMust work hard to control quality and achieve consistencySeek to improve productivity through standardization, and by training both employees and customersNeed to have effective service recovery policies in place because it is more difficult to shield customers from service failures

Implication 4Often difficult for customers to evaluate servicesEducate customers to help them make good choices, avoid riskTell customers what to expect, what to look forCreate trusted brand with reputation for considerate, ethical behaviorEncourage positive word-of-mouth from satisfied customersTime factor assumes great importanceOffer convenience of extended service hours up to 24/7Understand customers time constraints and priorities Minimize waiting timeLook for ways to compete on speedDistribution channels take different formsTangible activities must be delivered through physical channelsUse electronic channels to deliver intangible, information-based elements instantly and expand geographic reach

Goods vs. Service Marketing

Goods versus Services

Marketing Mix for Services

Services Require An Extended Marketing MixMarketing can be viewed as:A strategic and competitive thrust pursued by top managementA set of functional activities performed by line managersA customer-driven orientation for the entire organizationMarketing is only function to bring operating revenues into a business; all other functions are cost centersThe 7 Ps of services marketing are needed to create viable strategies for meeting customer needs profitably

The 7Ps of Services MarketingTraditional Marketing Mix Applied to ServicesProductPlace PricePromotionExtended Marketing Mix for Services ProcessPhysical Environment People

The 7Ps of Services Marketing

People are crucial in service delivery. The best food may not seem equally tasty if the waitress is in a sour mood. A smile always helps. Processes are important to deliver a quality service. Services being intangible, processes become all the more crucial to ensure standards are met with. Physical evidence affects the customers satisfaction. Services being intangible, customers depend on other cues to judge the offering. This is where physical evidence plays a part. Productivity and Quality is the another P which has grown in significance in Services Marketing is the 8th P.The Extended Marketing Mix

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