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services marketing

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    • 1. CHAPTER 1 Introduction to Services MarketingSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 1
    • 2. Overview of Chapter 1  Why study services?  Powerful forces that are transforming service Markets  What are services?  Four broad categories of services  Challenges posed by services  Expanded marketing mix for services  Framework for effective services marketing strategiesSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 2
    • 3. Why Study Services?Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 3
    • 4. Why Study Services?  Services Dominate Economy in Most Nations  Most New Jobs are Generated by Services  Fastest Growth Expected in Knowledge-Based Industries  Many New Jobs are Well-Paid Positions Requiring Good Educational QualificationsSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 4
    • 5. Contribution of Services Industries toGlobal GDPSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 5
    • 6. Estimated Size of Service Sector inSelected CountriesSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 6
    • 7. Powerful Forces Are Transforming Service MarketsSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 7
    • 8. Forces Transforming the Service Economy Social Business Advances in Changes Trends IT Government Globalization Policies ● New markets and product categories ● Increase in demand for services ● More intense competition 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 firmSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 8
    • 9. Forces Transforming the Service Economy (1) Social Business Advances in Changes Trends IT Government Globalization Policies ● Changes in regulations ● Privatization ● New rules to protect customers, employees, and the environment ● New agreement on trade in servicesSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 9
    • 10. Forces Transforming the Service Economy (2) Social Business Advances in Changes Trends IT Government Globalization Policies ● Rising consumer expectations ● More affluence ● Personal Outsourcing ● Increased desire for buying experiences vs. things ● Rising consumer ownership of high tech equipment ● Easier access to more information ● Immigration ● Growing but aging populationSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 10
    • 11. Forces Transforming the Service Economy (3) Social Business Advances in Changes Trends IT Government Globalization Policies ● Push to increase shareholder value ● Emphasis on productivity and cost savings ● Manufacturers add value through service and sell services ● More strategic alliances ● Focus on quality and customer satisfaction ● Growth of franchising ● Marketing emphasis by nonprofitsSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 11
    • 12. Forces Transforming the Service Economy (4) Social Business Advances in Changes Trends IT Government Globalization Policies ● Growth of Internet ● Greater bandwidth ● Compact mobile equipment ● Wireless networking ● Faster, more powerful software ● Digitization of text, graphics, audio, videoSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 12
    • 13. Forces Transforming the Service Economy (5) Social Business Advances in Changes Trends IT Government Globalization Policies ● More companies operating on transnational basis ● Increased international travel ● International mergers and alliances ● “Offshoring” of customer service ● Foreign competitors invade domestic marketsSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 13
    • 14. What Are Services?Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 14
    • 15. What are Services? (1) 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 ownershipSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 15
    • 16. 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 usageSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 16
    • 17. What are Services? (3)  Implications of Renting Versus Owning (Service Insights 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 sharingSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 17
    • 18. Four Broad Categories of ServicesSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 18
    • 19. Four Broad Categories of Services  Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services: People processing Possession processing Mental stimulus processing Information processingSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 19
    • 20. Four Categories Of Services (Fig 1.10)Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 20
    • 21. 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 effortSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 21
    • 22. Possession Processing Possession Processing Customers are less physically involved compared to people processing services Involvement is limitedSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 22
    • 23. 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-basedSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 23
    • 24. Information Processing Information Processing Information is the most intangible form of service output, Line between information processing and mental stimulus processing may be blurred.Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 24
    • 25. Value Added by Physical, Intangible ElementsHelps Distinguish Goods and Services (Fig 1.16)Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 25
    • 26. Defining Services  Services  Are economic activities offered by one party to another  Most commonly employ time-based performances to bring about desired results in: - Recipients themselves - Objects or other assets for which purchasers have responsibility  In exchange for their money, time, and effort, service customers 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 physical elements involved.Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 26
    • 27. Challenges Posed by ServicesSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 27
    • 28. Services Pose Distinctive Marketing Challenges Marketing management tasks in the service sector differ from those in the manufacturing sector. The eight common differences are:  Most service products cannot be inventoried  Intangible elements usually dominate value creation  Services are often difficult to visualize and understand  Customers may be involved in co-production  People may be part of the service experience  Operational inputs and outputs tend to vary more widely  The time factor often assumes great importance  Distribution may take place through nonphysical channelsSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 28
    • 29. Differences, Implications, andMarketing-Related Tasks (1) (Table 1.1) Difference Implications Marketing-Related Tasks Most service products Customers may be Use pricing, promotion, cannot be inventoried turned away reservations to smooth demand; work with ops to manage capacity Intangible elements Harder to evaluate Emphasize physical clues, usually dominate service & distinguish employ metaphors and vivid value creation from competitors images in advertising Services are often Greater risk & Educate customers on difficult to visualize & uncertainty perceived making good choices; offer understand guarantees Customers may be Interaction between Develop user-friendly involved in co- customer & provider; equipment, facilities & Production but poor task execution systems; train customers, could affect satisfaction provide good supportSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 29
    • 30. Differences, Implications, andMarketing-Related Tasks (2) (Table 1.1) Difference Implications Marketing-Related Tasks People may be part of Behavior of service Recruit, train employees to personnel & customers reinforce service concept service experience can affect satisfaction Shape customer behavior Operational inputs and Hard to maintain quality, outputs tend to vary consistency, reliability more widely Redesign for simplicity and Difficult to shield customers from failures failure proofing Time factor often Time is money; Institute good service assumes great customers want service recovery procedures importance at convenient times Find ways to compete on Distribution may take Electronic channels or speed of delivery; offer place through voice telecommunications extended hours nonphysical channels Create user-friendly, secure websites and freeSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing access by telephoneChapter 1 - Page 30
    • 31. Expanded Marketing Mix for ServicesSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 31
    • 32. Services Require An 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 only function to bring operating revenues into a business; all other functions are cost centers. ● The “7 Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplaceSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 32
    • 33. The 7 Ps of Services Marketing ● Product elements ● Place and time ● Price and other user outlays ● Promotion and education ● Process ● Physical environment ● PeopleSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 33
    • 34. Traditional 4 Ps Applied to Services (1)  Product elements  Service products are at the heart of services marketing strategy  Marketing mix begins with creating service concept that offers value  Service product consists of core and supplementary elements -Core products meet primary needs -Supplementary elements are value-added enhancementsSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 34
    • 35. Traditional 4 Ps Applied to Services (2)  Place and time  Service distribution can take place through physical and non- physical channels  Some firms can use electronic channels to deliver all (or at least some) of their service elements  Information-based services can be delivered almost instantaneously electronically  Delivery Decisions: Where, When, How  Time is of great importance as customers are physically present  Convenience of place and time become important determinants of effective service deliverySlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 35
    • 36. Traditional 4 Ps Applied to Services (3)  Price and other user outlays  Marketers must recognize that customer costs involve more than price paid to seller  Identify and minimize non-monetary 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 experiencesSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 36
    • 37. Traditional 4 Ps Applied to Services (4)  Promotion and Education  Plays three vital roles: -Provide information and advice -Persuades the target customers of merit of service product or brand -Encourages customer to take action at specific time  Customers may be involved in co-production so: -Teach customer how to move effectively through the service process -Shape customers’ roles and manage their behaviorSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 37
    • 38. Extended Mix for Managing the CustomerInterface (1)  Process  How firm does things may be as important as what it does  Customers often actively involved in processes, especially when acting as co- producers of service  Operational inputs and outputs vary more widely -Quality and content varies among employees, between employees -Variations can be with different customers -Variations from time of the day  Variability can be reduced by: -Standardized procedures -Implementing rigorous management of service quality -Training employees more carefully -Automating tasks -Train employees in service recovery procedures  Manage process design and “flow of customersSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 38
    • 39. Extended Mix for Managing the CustomerInterface (2)  Physical environment  Create and maintain physical appearances -Buildings/landscaping -Interior design/furnishings -Vehicles/equipment -Staff grooming/clothing -Sounds and smells -Other tangibles  Manage physical cues carefully— can have profound impact on customer impressionsSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 39
    • 40. Extended Mix for Managing the CustomerInterface (3) People  Interactions between customers and contact personnel strongly influence customer perceptions of service quality  Well-managed firms devote special care to selecting, training and motivating service employees  Other customers can also affect one’s satisfaction with a serviceSlide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 40

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