Services marketing 7e chapter1

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Services marketing 7e chapter1

  1. 1. Chapter 1: New Perspectives On Marketing in the Service Economy Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
  2. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2
  3. 3. Why Study Services? Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3
  4. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4
  5. 5. Services Dominate the Global Economy Contribution of Service Industries to GDP Globally Manufacturing 32% Services 64% Agriculture 4% Source: The World Factbook 2008, Central Intelligence Agency Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5
  6. 6. Estimated Size of Service Sector in Selected Countries Jersey (97%), Cayman Islands (95%), Hong Kong (92%) Bahamas (90%), Bermuda ( 89%), Luxembourg (86%) USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%) Japan (72%), Taiwan (71%), Australia (71%), Italy (71%) Canada (70%), Germany (69%), Israel (67%) South Africa (65%), Brazil (66%), Poland (66%) Turkey (63%), Mexico (62%) Argentina (57%), Russia (55%) Malaysia (46%), Chile (45%) Indonesia (41%), China (40%) Saudi Arabia (35%) 10 20 Services as Percent of GDP 30 40 50 60 70 80 90 Source: The World Factbook 2008, Central Intelligence Agency Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6
  7. 7. Value Added by Service Industry Categories to U.S. GDP Business Services 12% Transport, Utilities & Communications 9% SERVICES Wholesale & Retail Trade 12% Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7
  8. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
  9. 9. NAICS Codes of Newer Service Industries Not Profiled By SIC  Casino Hotels  HMO Medical Centers  Continuing Care Retirement Communities  Industrial Design Services  Diagnostic Imaging Centers  Investment Banking and Securities Dealing  Diet and Weight Reducing Centers  Management Consulting Services  Environmental Consulting  Satellite Telecommunications  Golf Courses, Country Clubs  Telemarketing Bureaus  Hazardous Waste Collection  Temporary Help Services Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9
  10. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10
  11. 11. Changing Structure of Employment as Economies Develop Agriculture Share of Employment Services Industry Time, per Capita Income Source: IMF, 1997 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11
  12. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12
  13. 13. Transformation of the Service Economy Social Changes Government Policies Business Trends Advances In IT Globalization  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 firm Increased focus on services marketing and management Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13
  14. 14. Factors Stimulating Transformation of the Service Economy Social Changes Business Trends Advances In IT Government Policies Globalization  Changes in regulations  Privatization  New rules to protect customers, employees, and the environment  New agreement on trade in services Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14
  15. 15. Factors Stimulating Transformation of the Service Economy Social Changes Business Trends Advances In IT Government Policies Globalization         Slide © 2010 by Lovelock & Wirtz 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 Services Marketing 7/e Chapter 1 – Page 15
  16. 16. Factors Stimulating Transformation of the Service Economy Social Changes Business Trends Advances In IT Government Policies 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16
  17. 17. Factors Stimulating Transformation of the Service Economy Social Changes Business Trends Advances In IT Government Policies Globalization       Slide © 2010 by Lovelock & Wirtz Growth of Internet Greater bandwidth Compact mobile equipment Wireless networking Faster, more powerful software Digitization of text, graphics, audio, video Services Marketing 7/e Chapter 1 – Page 17
  18. 18. Factors Stimulating Transformation of the Service Economy Social Changes Business Trends Advances In IT Government Policies Globalization  More companies operating on transnational basis  Increased international travel  International mergers and alliances  “Offshoring” of customer service  Foreign competitors invade domestic markets Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18
  19. 19. What are Services? Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19
  20. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20
  21. 21. What Are Services? Five broad categories within non-ownership framework of which two or more may be combined Rented goods services Defined space and place rentals Access to shared physical environments Slide © 2010 by Lovelock & Wirtz Labor and expertise rentals Access to and usage of systems and networks Services Marketing 7/e Chapter 1 – Page 21
  22. 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. Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22
  23. 23. Value Creation is Dominated by Intangible Elements Physical Elements High Salt Detergents CD Player Wine Golf Clubs New Car Tailored clothing Plumbing Repair Health Club Airline Flight Fast-Food Restaurant Landscape Maintenance Consulting Life Insurance Internet Banking Low Source; Adapted from Lynn Shostack Slide © 2010 by Lovelock & Wirtz High Intangible Elements Services Marketing 7/e Chapter 1 – Page 23
  24. 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 standalone core products Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24
  25. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25
  26. 26. 4 Categories of Services Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26
  27. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27
  28. 28. Possession Processing  Involvement is limited  Less physical involvement  Production and consumption are separable Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28
  29. 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‘ Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29
  30. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30
  31. 31. Marketing Challenges Posed by Services Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31
  32. 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? Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32
  33. 33. Differences, Implications, and Marketing-Related Tasks Difference Implications Marketing-Related Tasks  Most service products cannot be inventoried  Customers may be turned away  Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity  Intangible elements usually dominate value creation  Harder to evaluate service & distinguish from competitors  Emphasize physical clues, employ metaphors and vivid images in advertising  Services are often difficult to visualize & understand  Greater risk & uncertainty perceived  Educate customers on making good choices; offer guarantees  Customers may be involved in coproduction  Interaction between customer & provider; poor task execution could affect satisfaction  Develop user-friendly equipment, facilities & systems; train customers, provide good support Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33
  34. 34. Differences, Implications, and Marketing-Related Tasks Difference Implications Marketing-Related Tasks  People may be part of service experience  Behavior of service personnel & customers can affect satisfaction  Recruit, train employees to reinforce service concept  Shape customer behavior  Operational inputs and outputs tend to vary more widely  Hard to maintain quality, consistency, reliability  Difficult to shield customers from failures  Redesign for simplicity and failure proofing  Institute good service recovery procedures  Time factor often assumes great importance  Time is money; customers want service at convenient times  Find ways to compete on speed of delivery; offer extended hours  Distribution may take place through nonphysical channels  Electronic channels or voice communications  Create user-friendly, secure websites and free access by telephone Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34
  35. 35. Extended Marketing Mix for Services Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35
  36. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 36
  37. 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) Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 37
  38. 38. Integration of Marketing with Other Management Functions Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38
  39. 39. Marketing to be Integrated with Other Management Functions Three management functions play central and interrelated roles in meeting needs of service customers Operations Management Marketing Management Customers Human Resources Management Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 39
  40. 40. Developing Effective Service Marketing Strategies Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 40
  41. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 41
  42. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 42
  43. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 43
  44. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 44
  45. 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 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 45
  46. 46. Summary Services dominate the economy in many Services? Unique Why Study Characteristics Services are often intangible, difficult to nations. The majority visualize and understand, of jobs are created in and customers may be the service sector. involved in co-production. CHAPTER 1 Services are a form Product, Place & Time, of rental (not Price, Promotion & ownership). They are performances that bring about a desired Extended Services? Physical Environment, Mix result. Slide © 2010 by Lovelock & Wirtz Education, Process, Marketing What are Services Marketing 7/e People Chapter 1 – Page 46

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