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New Perspectives on Marketing in the Service Economy

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Vasantada Srikanth
Vasantada Srikanth

Strategy of Services

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Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1 Chapter 1:! New Perspectives On! !Marketing in the! ! !Service Economy!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2 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!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3 Why Study Services?!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4 Why Study Services?!   Services dominate most economies and are growing rapidly:! !  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 competitive advantage!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5 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%"
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6 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" !
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7 SERVICES! Business Services 12%" Transport, Utilities & Communications" 9%" " Wholesale & Retail Trade 12%" Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007 " ! Value Added by Service Industry 
 Categories to U.S. GDP!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8 NAICS: New Way to Classify &
 Analyze the Service Economy "  NAICS—North 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 own NAICS code!  NAPCS—North American Product Classification System! ! Assigns codes to thousands of service products! ! Particularly useful for looking at rented goods services! !
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9 "  HMO Medical Centers" "  Industrial Design Services" "  Investment Banking and Securities Dealing" "  Management Consulting Services" "  Satellite Telecommunications" "  Telemarketing Bureaus" "  Temporary Help Services" "  Casino Hotels" "  Continuing Care Retirement Communities" "  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!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10 Why Study Services? !   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 be lost to lower-cost countries? Yes, some service jobs can be exported!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11 Changing Structure of Employment as Economies Develop ! Industry! Services! Agriculture! Time, per Capita Income! Shareof! Employment! Source: IMF, 1997" " !
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12 Why Study Services? !   Powerful forces are transforming service markets! !  Government policies, social changes, business trends, advances in IT, internationalization!   Forces that reshape:! !  Demand! !  Supply! !  The competitive landscape! !  Customers’ choices, power, and decision making!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13 Transformation of the 
 Service Economy! Government! Policies! Business! Trends! Social! Changes! Advances! 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!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14 Factors Stimulating Transformation of the Service Economy ! Government! Policies! Business! Trends! Social! Changes! Advances! In IT! Globalization! #  Changes in regulations" #  Privatization" #  New rules to protect customers, employees, and the environment " #  New agreement on trade in services"
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 15 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! 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 " Government! Policies!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! 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" Government! Policies!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 17 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! In IT! Globalization! #  Growth of Internet" #  Greater bandwidth" #  Compact mobile equipment" #  Wireless networking" #  Faster, more powerful software" #  Digitization of text, graphics, audio, video" Government! Policies!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! In IT! Globalization! #  More companies operating on transnational basis" #  Increased international travel" #  International mergers and alliances" #  “Offshoring” of customer service" #  Foreign competitors invade domestic markets" Government! Policies!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19 What are Services?!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20 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 be separated from production!   A fresh perspective: Benefits without Ownership! !  Rental 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! !
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21 What Are Services? ! Rented goods services! Defined space and place rentals" Labor and expertise rentals" Access to shared physical environments" Access to and usage of systems and networks " !Five broad categories within non-ownership framework of which two or more may be combined!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22 Definition of Services!   Services ! !  are economic activities offered by one party to another ! !  most commonly employ time-based performances to bring about desired results!   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; ! !  normally do not take ownership of any of the physical elements involved. ! !
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 23 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 Car" Tailored clothing" Fast-Food Restaurant" Plumbing Repair" Health Club" Airline Flight" Landscape Maintenance" Consulting" Life Insurance" Internet Banking Intangible Elements!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24 Service Products vs. Customer Service & After-Sales Service!   A firm’s market offerings are divided into core product elements and supplementary service elements!   Need to distinguish between:! !  Marketing of services – when service is the core product! !  Marketing through service – when good service increases the value of a core physical good!   Manufacturing firms are reformulating and enhancing existing added-value services to market them as stand- alone core products!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25 Service – A Process Perspective!   Differences exist amongst services depending on what is being processed!   Classification of services into! !  People processing! !  Possession processing! !  Mental stimulus processing! !  Information processing!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26 4 Categories of Services!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27 People Processing!   Customers must:! !  physically enter the service factory! !  cooperate actively with the service operation!   Managers should think about process and output from ! ! the customer’s perspective ! !  to identify benefits created and non-financial costs: Time, mental and physical effort!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28 Possession Processing!   Involvement is limited!   Less physical involvement!   Production and consumption are separable!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29 Mental Stimulus Processing!   Ethical standards required:! !  Customers might be manipulated!   Physical presence of recipients not required!   Core content of services is information-based! !  Can be ‘inventoried’!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30 Information Processing!   Most intangible form of service!   May be transformed:! !  Into enduring forms of service output!   Line between information processing and mental ! ! ! stimulus processing may be unclear!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31 Marketing Challenges Posed by Services!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32 Services Pose Distinctive Marketing Challenges !   Marketing management tasks in the service sector differ from those in the manufacturing sector.!   Eight common differences between services and goods but they do not apply equally to all services! What are marketing implications of these differences?!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33 Differences, Implications, and 
 Marketing-Related Tasks " Difference! ! #  Most service products! cannot be inventoried! ! #  Intangible elements! usually dominate! value creation! ! #  Services are often! difficult to visualize &! understand! ! #  Customers may be! involved in co-! production! ! ! Implications! ! #  Customers may be! turned away! ! ! #  Harder to evaluate! service & distinguish! from competitors! ! #  Greater risk &! uncertainty perceived! ! #  Interaction between! customer & provider; ! poor task execution ! could affect satisfaction! " Marketing-Related Tasks! ! #  Use pricing, promotion, ! reservations to smooth ! demand; work with ops to ! manage capacity ! ! #  Emphasize physical clues, ! employ metaphors and vivid ! images in advertising! ! #  Educate customers on! making good choices; offer ! guarantees! ! #  Develop user-friendly! equipment, facilities & ! systems; train customers, ! provide good support! "
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34 Differences, Implications, and 
 Marketing-Related Tasks " Difference! ! #  People may be part of ! service experience! ! ! #  Operational inputs and! outputs tend to vary ! more widely! #  Time factor often ! assumes great ! importance! ! #  Distribution may take ! place through ! nonphysical channels! ! ! Implications! ! #  Behavior of service! personnel & customers! can affect satisfaction! ! #  Hard to maintain quality,! consistency, reliability ! #  Difficult to shield ! customers from failures! ! #  Time is money; ! customers want service! at convenient times! ! #  Electronic channels or ! voice communications! ! " " Marketing-Related Tasks! ! #  Recruit, train employees to ! reinforce service concept! #  Shape customer behavior! ! #  Redesign for simplicity and! failure proofing! #  Institute good service ! recovery procedures! ! #  Find ways to compete on ! speed of delivery; offer ! extended hours! ! #  Create user-friendly,! secure websites and free! access by telephone! " "
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35 Extended Marketing Mix for Services!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 36 Services Require 
 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 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!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 37 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)!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38 Integration of Marketing with Other Management Functions!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 39 Marketing to be Integrated with Other Management Functions " Three management functions play central and interrelated roles in meeting needs of service customers! ! Customers! Operations ! Management" Marketing ! Management" Human Resources ! Management"
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 40 Developing Effective Service Marketing Strategies!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 41 Overview of Framework! Understanding Service Products, Consumers and Markets! Part I: Chapters 1-3! Applying the 4 P’s of Marketing to Services! Part II: Chapters 4-7! The Extended Services Marketing Mix for Managing the Customer Interface! Part III: Chapters 8-11! Implementing Profitable Service Strategies! Part IV: Chapters 12-15!
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 42 Framework - Part I! Understanding Service Products, 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"
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 43 Framework - Part II! Applying the 4 P’s of Marketing to Services! " Chapter 4 "Developing Service Products: Core and Supplementary " " "Elements" Chapter 5 "Distributing Services through Physical and Electronic " " "Channels" Chapter 6 "Setting Prices and Implementing Revenue Management" Chapter 7 "Promoting Services and Educating Customers"
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 44 Framework - Part III! The Extended Services Marketing Mix for Managing the Customer Interface! " Chapter 8 "Designing and Managing Service Processes" Chapter 9 "Balancing Demand and Productive Capacity" Chapter 10 "Crafting the Service Environment" Chapter 11 "Managing People for Service Advantage"
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 45 Framework - Part IV! Implementing Profitable 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"
Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 46 Summary! 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 that bring about a desired result." " Product, Place & Time, Price, Promotion & Education, Process, Physical Environment, People" CHAPTER 1!

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New Perspectives on Marketing in the Service Economy

  • 1. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1 Chapter 1:! New Perspectives On! !Marketing in the! ! !Service Economy!
  • 2. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2 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!
  • 3. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3 Why Study Services?!
  • 4. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4 Why Study Services?!   Services dominate most economies and are growing rapidly:! !  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 competitive advantage!
  • 5. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5 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%"
  • 6. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6 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" !
  • 7. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7 SERVICES! Business Services 12%" Transport, Utilities & Communications" 9%" " Wholesale & Retail Trade 12%" Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007 " ! Value Added by Service Industry 
 Categories to U.S. GDP!
  • 8. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8 NAICS: New Way to Classify &
 Analyze the Service Economy "  NAICS—North 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 own NAICS code!  NAPCS—North American Product Classification System! ! Assigns codes to thousands of service products! ! Particularly useful for looking at rented goods services! !
  • 9. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9 "  HMO Medical Centers" "  Industrial Design Services" "  Investment Banking and Securities Dealing" "  Management Consulting Services" "  Satellite Telecommunications" "  Telemarketing Bureaus" "  Temporary Help Services" "  Casino Hotels" "  Continuing Care Retirement Communities" "  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!
  • 10. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10 Why Study Services? !   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 be lost to lower-cost countries? Yes, some service jobs can be exported!
  • 11. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11 Changing Structure of Employment as Economies Develop ! Industry! Services! Agriculture! Time, per Capita Income! Shareof! Employment! Source: IMF, 1997" " !
  • 12. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12 Why Study Services? !   Powerful forces are transforming service markets! !  Government policies, social changes, business trends, advances in IT, internationalization!   Forces that reshape:! !  Demand! !  Supply! !  The competitive landscape! !  Customers’ choices, power, and decision making!
  • 13. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13 Transformation of the 
 Service Economy! Government! Policies! Business! Trends! Social! Changes! Advances! 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!
  • 14. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14 Factors Stimulating Transformation of the Service Economy ! Government! Policies! Business! Trends! Social! Changes! Advances! In IT! Globalization! #  Changes in regulations" #  Privatization" #  New rules to protect customers, employees, and the environment " #  New agreement on trade in services"
  • 15. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 15 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! 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 " Government! Policies!
  • 16. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! 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" Government! Policies!
  • 17. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 17 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! In IT! Globalization! #  Growth of Internet" #  Greater bandwidth" #  Compact mobile equipment" #  Wireless networking" #  Faster, more powerful software" #  Digitization of text, graphics, audio, video" Government! Policies!
  • 18. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18 Factors Stimulating Transformation of the Service Economy ! Business! Trends! Social! Changes! Advances! In IT! Globalization! #  More companies operating on transnational basis" #  Increased international travel" #  International mergers and alliances" #  “Offshoring” of customer service" #  Foreign competitors invade domestic markets" Government! Policies!
  • 19. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19 What are Services?!
  • 20. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20 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 be separated from production!   A fresh perspective: Benefits without Ownership! !  Rental 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! !
  • 21. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21 What Are Services? ! Rented goods services! Defined space and place rentals" Labor and expertise rentals" Access to shared physical environments" Access to and usage of systems and networks " !Five broad categories within non-ownership framework of which two or more may be combined!
  • 22. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22 Definition of Services!   Services ! !  are economic activities offered by one party to another ! !  most commonly employ time-based performances to bring about desired results!   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; ! !  normally do not take ownership of any of the physical elements involved. ! !
  • 23. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 23 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 Car" Tailored clothing" Fast-Food Restaurant" Plumbing Repair" Health Club" Airline Flight" Landscape Maintenance" Consulting" Life Insurance" Internet Banking Intangible Elements!
  • 24. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24 Service Products vs. Customer Service & After-Sales Service!   A firm’s market offerings are divided into core product elements and supplementary service elements!   Need to distinguish between:! !  Marketing of services – when service is the core product! !  Marketing through service – when good service increases the value of a core physical good!   Manufacturing firms are reformulating and enhancing existing added-value services to market them as stand- alone core products!
  • 25. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25 Service – A Process Perspective!   Differences exist amongst services depending on what is being processed!   Classification of services into! !  People processing! !  Possession processing! !  Mental stimulus processing! !  Information processing!
  • 26. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26 4 Categories of Services!
  • 27. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27 People Processing!   Customers must:! !  physically enter the service factory! !  cooperate actively with the service operation!   Managers should think about process and output from ! ! the customer’s perspective ! !  to identify benefits created and non-financial costs: Time, mental and physical effort!
  • 28. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28 Possession Processing!   Involvement is limited!   Less physical involvement!   Production and consumption are separable!
  • 29. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29 Mental Stimulus Processing!   Ethical standards required:! !  Customers might be manipulated!   Physical presence of recipients not required!   Core content of services is information-based! !  Can be ‘inventoried’!
  • 30. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30 Information Processing!   Most intangible form of service!   May be transformed:! !  Into enduring forms of service output!   Line between information processing and mental ! ! ! stimulus processing may be unclear!
  • 31. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31 Marketing Challenges Posed by Services!
  • 32. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32 Services Pose Distinctive Marketing Challenges !   Marketing management tasks in the service sector differ from those in the manufacturing sector.!   Eight common differences between services and goods but they do not apply equally to all services! What are marketing implications of these differences?!
  • 33. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33 Differences, Implications, and 
 Marketing-Related Tasks " Difference! ! #  Most service products! cannot be inventoried! ! #  Intangible elements! usually dominate! value creation! ! #  Services are often! difficult to visualize &! understand! ! #  Customers may be! involved in co-! production! ! ! Implications! ! #  Customers may be! turned away! ! ! #  Harder to evaluate! service & distinguish! from competitors! ! #  Greater risk &! uncertainty perceived! ! #  Interaction between! customer & provider; ! poor task execution ! could affect satisfaction! " Marketing-Related Tasks! ! #  Use pricing, promotion, ! reservations to smooth ! demand; work with ops to ! manage capacity ! ! #  Emphasize physical clues, ! employ metaphors and vivid ! images in advertising! ! #  Educate customers on! making good choices; offer ! guarantees! ! #  Develop user-friendly! equipment, facilities & ! systems; train customers, ! provide good support! "
  • 34. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34 Differences, Implications, and 
 Marketing-Related Tasks " Difference! ! #  People may be part of ! service experience! ! ! #  Operational inputs and! outputs tend to vary ! more widely! #  Time factor often ! assumes great ! importance! ! #  Distribution may take ! place through ! nonphysical channels! ! ! Implications! ! #  Behavior of service! personnel & customers! can affect satisfaction! ! #  Hard to maintain quality,! consistency, reliability ! #  Difficult to shield ! customers from failures! ! #  Time is money; ! customers want service! at convenient times! ! #  Electronic channels or ! voice communications! ! " " Marketing-Related Tasks! ! #  Recruit, train employees to ! reinforce service concept! #  Shape customer behavior! ! #  Redesign for simplicity and! failure proofing! #  Institute good service ! recovery procedures! ! #  Find ways to compete on ! speed of delivery; offer ! extended hours! ! #  Create user-friendly,! secure websites and free! access by telephone! " "
  • 35. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35 Extended Marketing Mix for Services!
  • 36. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 36 Services Require 
 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 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!
  • 37. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 37 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)!
  • 38. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38 Integration of Marketing with Other Management Functions!
  • 39. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 39 Marketing to be Integrated with Other Management Functions " Three management functions play central and interrelated roles in meeting needs of service customers! ! Customers! Operations ! Management" Marketing ! Management" Human Resources ! Management"
  • 40. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 40 Developing Effective Service Marketing Strategies!
  • 41. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 41 Overview of Framework! Understanding Service Products, Consumers and Markets! Part I: Chapters 1-3! Applying the 4 P’s of Marketing to Services! Part II: Chapters 4-7! The Extended Services Marketing Mix for Managing the Customer Interface! Part III: Chapters 8-11! Implementing Profitable Service Strategies! Part IV: Chapters 12-15!
  • 42. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 42 Framework - Part I! Understanding Service Products, 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"
  • 43. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 43 Framework - Part II! Applying the 4 P’s of Marketing to Services! " Chapter 4 "Developing Service Products: Core and Supplementary " " "Elements" Chapter 5 "Distributing Services through Physical and Electronic " " "Channels" Chapter 6 "Setting Prices and Implementing Revenue Management" Chapter 7 "Promoting Services and Educating Customers"
  • 44. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 44 Framework - Part III! The Extended Services Marketing Mix for Managing the Customer Interface! " Chapter 8 "Designing and Managing Service Processes" Chapter 9 "Balancing Demand and Productive Capacity" Chapter 10 "Crafting the Service Environment" Chapter 11 "Managing People for Service Advantage"
  • 45. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 45 Framework - Part IV! Implementing Profitable 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"
  • 46. Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 46 Summary! 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 that bring about a desired result." " Product, Place & Time, Price, Promotion & Education, Process, Physical Environment, People" CHAPTER 1!