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New Perspectives OnMarketing in the Service
Economy
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Overview of Chapter 1
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?
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Why Study Services?
Services dominate most economies and are growingrapidly:
Services account for more than 60% of GDP worldwide
Almost all economies have a substantial service sector
Most new employment is provided by services
Strongest growth area for marketing
Understanding services offers you a personal competitiveadvantage
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Services Dominate the Global
Economy
Contribution of Service Industries to GDP Globally
Source: The World Factbook 2008, Central Intelligence Agency
Services 64%
Agriculture 4%
Manufacturing 32%
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Services as Percent of GDP
South Africa (65%), Brazil (66%), Poland (66%)
Japan (72%), Taiwan (71%), Australia (71%), Italy (71%)
Saudi Arabia (35%)
Indonesia (41%), China (40%)
Malaysia (46%), Chile (45%)
Argentina (57%), Russia (55%)
USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%)
Jersey (97%), Cayman Islands (95%), Hong Kong (92%)
Bahamas (90%), Bermuda ( 89%), Luxembourg (86%)
Canada (70%), Germany (69%), Israel (67%)
Turkey (63%), Mexico (62%)
30 40 50 60 70 80 902010
Estimated Size of Service Sector
in Selected Countries
Source: The World Factbook 2008, Central Intelligence Agency
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SERVICES
Business Services12%
Transport, Utilities& Communications
9%
Wholesale & RetailTrade 12%
Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007
Value Added by Service Industry
Categories to U.S. GDP
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NAICS: New Way to Classify &
Analyze the Service Economy
NAICSNorth American Industry Classification System Classifies industries in the economic statistics of USA, Canada &
Mexico
Replaces old SIC codes in USA
Captures huge array of new service industries, each with its ownNAICS code
NAPCSNorth American Product Classification System
Assigns codes to thousands of service products
Particularly useful for looking at rented goods services
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HMO Medical Centers
Industrial Design Services
Investment Banking and SecuritiesDealing
Management Consulting Services
Satellite Telecommunications
Telemarketing Bureaus
Temporary Help Services
Casino Hotels
Continuing Care RetirementCommunities
Diagnostic Imaging Centers
Diet and Weight Reducing Centers
Environmental Consulting
Golf Courses, Country Clubs
Hazardous Waste Collection
NAICS Codes of Newer Service
Industries Not Profiled By SIC
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Why Study Services?
MMost 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 be lost to lower-cost countries? Yes, some service
jobs can be exported
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Changing Structure of Employment
as Economies Develop
Industry
Services
Agriculture
Time, per Capita IncomeShare
of
Emplo
yment
Source: IMF, 1997
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Why Study Services?
Powerful forces are transformingservice markets
Government policies, social changes, business trends,advances in IT, internationalization
Forces that reshape:
Demand
Supply
The competitive landscape
Customerschoices, power, and decision making
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Transformation of the
Service Economy
GovernmentPolicies
Business
Trends
Social
ChangesAdvances
In IT
Globalization
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
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
Success hinges on:
Increased focus on services marketing and management
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Factors Stimulating Transformationof the Service Economy
GovernmentPolicies
Business
Trends
Social
ChangesAdvances
In IT
Globalization
Changes in regulations Privatization New rules to protect customers, employees,
and the environment
New agreement on trade in services
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Factors Stimulating Transformationof the Service Economy
Business
Trends
Social
ChangesAdvances
In IT
Globalization
Rising consumer expectations More affluence More people short of time Increased desire for buying experiences vs.
things Rising consumer ownership of high tech
equipment Easier access to information
Immigration Growing but aging population
GovernmentPolicies
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Factors Stimulating Transformationof the Service Economy
Business
Trends
Social
ChangesAdvances
In IT
Globalization
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 Marketing emphasis by nonprofits
GovernmentPolicies
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Factors Stimulating Transformationof the Service Economy
Business
Trends
Social
ChangesAdvances
In IT
Globalization
Growth of Internet Greater bandwidth Compact mobile equipment Wireless networking Faster, more powerful software Digitization of text, graphics, audio, video
GovernmentPolicies
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Factors Stimulating Transformationof the Service Economy
Business
Trends
Social
ChangesAdvances
In IT
Globalization
More companies operating on transnationalbasis
Increased international travel International mergers and alliances Offshoring of customer service Foreign competitors invade domestic markets
GovernmentPolicies
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What are Services?
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What Are Services?
The historical view Smith (1776): Services are different from goods because they are
perishable
Say (1803): As services are immaterial, consumption cannot beseparatedfrom production
A fresh perspective: Benefits without Ownership
Rental of goods:
(a) Payment made for using or accessing something usu al ly for a def ined
per iod of t ime instead of b uying i t outr ight and
(b) Al lows part ic ipat ion in network systems that indiv iduals and
organizat ions could not af ford
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What Are Services?
Rented goodsservices
Defined spaceand place rentals
Labor andexpertise rentals
Access to shared
physicalenvironments
Access to and
usage of systemsand networks
Five broad categories within non-ownershipframework of which two or more may be combined
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Definition of Services
Services are economic activities offered by one party to another
most commonly employ time-based performances to bring aboutdesired results
In exchange for their money, time, and effort, servicecustomers expect to obtain value from
access to goods, labor, facilities, environments, professionalskills, networks, and systems;
normally do not take ownership of any of the physical elementsinvolved.
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Services-Definition
Is an act or performance offered by one party to theother
Process may not be tied to a physical product
Performance is essentially intangible
Does not normally result in ownership of any factorsof production
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Service Definition
Are economic activities
That create value & provide benefits for customers atspecific times & places
As a result of bringing about desired change in, or onbehalf of the recipient of the service
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What is a Service
Moments of Truth: Scandinavian Airlines CEO, JanCarlzon said all encounters or transactions wherecustomer interacted with the company were MOT, &
moulded customers opinion
Servuction Model: (Bateson) 2 components the visible& the invisible
Service theatre (Grove & Frisk); back stage & front
stage, actors visible to customers. Playing out role asper script
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What is a Service
Is an experience
Sum of all encounters between customer & provider
Feelings of this encounter immediately after the event
Recollections about event
Value Creation is Dominated by
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Value Creation is Dominated by
Intangible Elements
Physical Elements
High
Low High
Source; Adapted from Lynn Shostack
Salt
Detergents
CD Player
Wine
Golf Clubs
New CarTailored clothing
Fast-Food Restaurant
Plumbing Repair
Health ClubAirline Flight
Landscape Maintenance
Consulting
Life InsuranceInternet Banking
Intangible Elements
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The Good Service Continuum
Place them on a scale from tangible-dominant to intangibledominant
According to Kotler- 5 categories of market offerings
Pure tangible good (salt, soap)
Tangible good with accompanying service (cars, computers)
Hybrid (restaurant) roughly equal parts of goods & services
Major service with accompanying minor goods (air travel)
Pure service (baby sitting, psychotherapy)
How to Differentiate between Good and
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How to Differentiate between Good andService
Acid test of whether a good or a service is todetermine whether more half the value comes fromservice elements
Service Products vs Customer
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Service Products vs. Customer
Service & After-Sales Service
A firms market offerings are divided into core productelements and supplementary service elements
Need to distinguish between:
Marketingof serviceswhen service is the core product
Marketingthrough servicewhen good service increases thevalue of a core physical good
Manufacturing firms are reformulating and enhancing
existing added-value services to market them as stand-alone core products
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ServiceA Process Perspective
Differences exist amongst services depending on what isbeing processed
Classification of services into
People processing
Possession processing
Mental stimulus processing
Information processing
C i f S i
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4 Categories of Services
P l P i
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People Processing
Customers must:
physically enter the service factory
cooperate actively with the service operation
Managers should think about process and output fromthe customers perspective
to identify benefits created and non-financial costs: Time, mental
and physical effort
P i P i
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Possession Processing
Involvement is limited
Less physical involvement
Production and consumption are separable
M t l Sti l P i
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Mental Stimulus Processing
Ethical standards required:
Customers might be manipulated
Physical presence of recipients not required
Core content of services isinformation-based
Can be inventoried
Information Processing
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Information Processing
Most intangible form of service
May be transformed:
Into enduring forms of service output
Line between information processing and mentalstimulus processing may be unclear
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Marketing Challenges Posed
by Services
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Services involve kind of Rentals
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Rented goods & services-fancy dress costumes
Defined space place rentals-seat in restaurant, train
Labour & expertise rentals-tuition teacher, cleaning ofhouse
Access to shared physical environments-trade shows, tollroads
Access to & usage of systems & networks-tele-communications, utilities
In exchange for t ime, effort , money cus tom ers expect value
from access to the above
Differences, Implications, and
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Marketing-Related Tasks
Difference Most service products
cannot be inventoried
Intangible elements
usually dominatevalue creation
Services are often
difficult to visualize &understand
Customers may beinvolved in co-production
Implications Customers may be
turned away
Harder to evaluate
service & distinguish
from competitors
Greater risk &
uncertainty perceived
Interaction betweencustomer & provider;poor task executioncould affect satisfaction
Marketing-Related Tasks Use pricing, promotion,
reservations to smooth
demand; work with ops to
manage capacity
Emphasize physical clues,
employ metaphors and vividimages in advertising
Educate customers onmaking good choices; offerguarantees
Develop user-friendlyequipment, facilities &systems; train customers,provide good support
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Extended Marketing Mix for
Services
Services Require
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An Extended 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 only function to bring operating revenues intoa business; all other functions are cost centers
The 7 Ps of services marketing are needed to create
viable strategies for meeting customer needs profitably
The 7Ps of Services Marketing
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The 7Ps of Services Marketing
Traditional Marketing Mix Applied to Services Product (Chapter 4)
Place and Time (Chapter 5)
Price (Chapter 6)
Promotion and Education (Chapter 7)
Extended Marketing Mix for Services
Process (Chapter 8 & 9)
Physical Environment (Chapter 10)
People (Chapter 11)
Extended Marketing Mix for Services-P
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Process
Process
*Flow of activities
-Standardised McDonald, NIIT-franchisees to
deliver consistent service under control-guidance
-Customized- SOTC, Thomas Cook
*Number of Steps
-Simple /Complex
*Level of Customer Involvement
Extended Marketing Mix for Services-Ph i l E id
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Physical Evidence
Physical Evidence
*Facility Design
-Aesthetics
-Functionality
-Ambient Conditions
*Equipment
*Signage
*Employee dress
*Other tangibles
-Reports, business cards, statements
Extended Marketing Mix for Services-People
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People
People
*Employees
-Recruiting, training, motivating, rewards,
teamwork
*Customers
-Educating , training
*Dealers/ franchisees
*Communicating
-Culture & values
*Employee research
Price
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Prices & Other User Costs
*Price levels
*Terms
*Differentiation
*Discounts
*Allowances
*Time, mental, physical, & sensory costs
Extended Marketing Mix-Productivity andQuality
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Quality
Productivity & Quality
*Productivity
-how inputs are transformed into outputs
-keep costs under control
*Quality
-degree to which service satisfies customer
-essential for differentiation, customer loyalty
-understanding the tradeoff between incremental costs &incremental revenues
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Integration of Marketing with
Other Management Functions
Marketing to be Integrated with
Other Management Functions
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Other Management Functions
Three management functions play central and interrelatedroles in meeting needs of service customers
Customers
Operations
Management
Marketing
Management
Human ResourcesManagement
operations
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Primary line function of service business
Responsible for managing service delivery through
*equipment,
*facilities,
*systems & contact employees
Operations managers may be involved in product processdesign, aspects of physical environment, implementation ofproductivity & quality improvement programmes
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Interdependency
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Interdependency of marketing, operations & HR functions
Only minority of the people in service Organizations areemployed in formal marketing positions
Al those whose work affects customer in some way-either
though
*direct contact
*or design of processes & policies that shape customers
experiences
Need to think of themselves aspart-t ime marketers
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Developing Effective Service
Marketing Strategies
Overview of Framework
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Understanding Service Products, Consumers and
MarketsPart I: Chapters 1-3
Applying the 4 Ps of Marketing to ServicesPart II: Chapters 4-7
The Extended Services Marketing Mix forManaging the Customer Interface
Part III: Chapters 8-11
Implementing Profitable Service StrategiesPart IV: Chapters 12-15
Framework - Part I
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Understand ing Service Produc ts, Consumers, and Markets
Chapter 1 New Perspectives on Marketing in the Service Economy
Chapter 2 Consumer Behavior in a Services Context
Chapter 3 Positioning Services in Competitive Markets
Framework - Part II
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Applying the 4 Ps of Marketing to Services
Chapter 4 Developing Service Products: Core and Supplementary
ElementsChapter 5 Distributing Services through Physical and Electronic
Channels
Chapter 6 Setting Prices and Implementing Revenue Management
Chapter 7 Promoting Services and Educating Customers
Framework - Part III
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The Extended Services Market ing Mix for Managing the Custom er
Interface
Chapter 8 Designing and Managing Service ProcessesChapter 9 Balancing Demand and Productive Capacity
Chapter 10 Crafting the Service Environment
Chapter 11 Managing People for Service Advantage
Framework - Part IV
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Implementing Prof i table Service Strategies
Chapter 12 Managing Relationships and Building Loyalty
Chapter 13 Complaint Handling and Service Recovery
Chapter 14 Improving Service Quality and Productivity
Chapter 15 Striving for Service Leadership
Summary
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Services dominate
the economy in many
nations. The majority
of jobs are created in
the service sector.
Services are often
intangible, difficult to
visualize and understand,
and customers may be
involved in co-production.
Unique
Characteristics
Why Study
Services?
Extended
Marketing
Mix
What are
Services?
Services are a form
of rental (not
ownership). They are
performances thatbring about a desired
result.
Product, Place & Time,
Price, Promotion &
Education, Process,
Physical Environment,
People
CHAPTER 1
