Chapter 1

Introduction to Services Marketing Click to edit Master subtitle style

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How Important is the Service Sector in Our Economy?

In most countries, services add more economic value than agriculture, raw materials and manufacturing combined In developed economies, employment is dominated by service jobs and most new job growth comes from services Jobs range from high-paid professionals and technicians to minimum-wage positions 3/18/12 Service organizations can be any size

Services dominate the United States Economy: GDP by Industry, 2001 (Fig. 1.1)
Agriculture, Forestry, Mining, Construction 8% Manufacturing 14% Finance, Insurance, Real Estate 20% Wholesale and Retail Trade 16% Transport, Utilities, Communications 8%

Government (mostly services) 13% Other Services 11%

SERVICES

Business Services 5% 3/18/12

Health 6%

Source: Bureau of Economic Analysis, November 2002

Employment as Economic Development Evolves (Fig. 1.2) Share of

Employme nt

Agricult ure Servi ces

Indust ry
Time, per Capita Income
Source: IMF, 1997

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Some Service Industries Profiled by NAICS but Not Identified by SIC Codes
v Casino Hotels v Continuing Care Retirement Communities v Diagnostic Imaging Centers v Diet and Weight Reducing Centers v Environmental Consulting v Gold Courses and Country Clubs v3/18/12 Hazardous Waste Collection v HMO Medical Centers v Industrial Design Services v Investment Banking and Securities Dealing v Management Consulting Services v Satellite Telecommunications v Telemarketing Bureaus v Temporary Help Services

Internal Services

Service elements within an organization that facilitate creation of--or add value to--its final output Includes:
accounting and payroll administration recruitment and training legal services transportation catering and food services 3/18/12 cleaning and landscaping

Government Policies (e.g., regulations, trade agreements) Social Changes (e.g., affluence, lack of time, desire for experiences) Business Trends

Major Trends in Service Sector (Fig. 1.3)

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Advances in IT (e.g., speed,

Manufacturers offer service Growth of chains and franchising Pressures to improve productivity and quality More strategic alliances Marketing emphasis by nonprofits Innovative hiring practices

Some Impacts of Technological Change

Radically alter ways in which service firms do business:

with customers (new services, more convenience) behind the scenes (reengineering, new value chains)

Create relational databases about customer needs and behavior, mine databanks for insights 3/18/12 Leverage employee capabilities and

Marketing Relevant Differences Between Goods and Services

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Defining the Essence of a Service

An act or performance offered by one party to another An economic activity that does not result in ownership A process that creates benefits by facilitating a desired change in:

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customers themselves physical possessions intangible assets

Distinguishing Characteristics of Services

(Table 1.1)

Customers do not obtain ownership of services Service products are ephemeral and cannot be inventoried Intangible elements dominate value creation Greater involvement of customers in production process Other people may form part of product 3/18/12

Marketing Implications - 1

No ownership

Customers obtain temporary rentals, hiring of personnel, or access to facilities and systems Pricing often based on time Customer choice criteria may differ for renting vs. purchase--may include convenience, quality of personnel Cant own people (no slavery!) but can hire expertise and labor

Services cannot be inventoried 3/18/12 after production

Marketing Implications - 2

Customers may be involved in production process

Customer involvement includes selfservice and cooperation with service personnel Think of customers in these settings as partial employees Customer behavior and competence can help or hinder productivity, so marketers need to educate/train customers the delivery process may affect

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Intangible Elements in Goods and Services (Fig. 1.4)

Hi
S al Soft t drinks CD Player Golf clubsNew Tailored car clothing Furniture rental

TANGIBILITY SPECTRUM

Tangible Elements

Lo
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Fast food restaurant Plumbing repair Office cleaning Health club irline A flight Retail banking Insuranc e Weather Intangible Elements forecast

Hi

Marketing Implications - 3

Other people are often part of the service product

Achieve competitive edge through perceived quality of employees Ensure job specs and standards for frontline service personnel reflect both marketing and operational criteria Recognize that appearance and behavior of other customers can influence service experience positively or negatively inappropriate mix of customer

Avoid 3/18/12

Marketing Implications - 4

Often difficult for customers to evaluate services

Offer convenience of extended service hours up to 24/7 Understand customers time constraints 3/18/12

Time factor assumes great importance

Educate customers to help them make good choices, avoid risk Tell customers what to expect, what to look for Create trusted brand with reputation for considerate, ethical behavior Encourage positive word-of-mouth from satisfied customers

Important Differences Exist among Services

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Four Categories of Services Employing Different Underlying Processes (Fig. 1.5)

What is the Nature of the Service Act?
TANGIBLE ACTS

Who or What is the Direct Recipient of the Service?

DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS

People Processing
e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers

Possession Processing
e.g., freight, repair, cleaning, landscaping, retailing, recycling

INTANGIBLE ACTS

Mental Stimulus Processing

e.g., broadcasting, consulting, education, psychotherapy

Information Processing
(directed at intangible assets)

e.g., accounting, banking, insurance, legal, research

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Processes determine how services are created/delivered process change may affect customer satisfaction Imposing new processes on customers, especially replacing people by machines, may cause dissatisfaction New processes that improve 3/18/12

Processes (1) Seeking Efficiency May Lower Satisfaction

Processes: (2) Designing the Service Factory services People-processing

require customers to visit the service factory, so:

Think of facility as a stage for service performance Design process around customer Choose convenient location Create pleasing appearance, avoid unwanted noises, smells Consider customer needs--info, parking, food, toilets, etc.

Implications of Service Processes: (3) Evaluating Alternative Delivery Channels For possession-processing, mentalstimulus processing, or information processing services, alternatives include: 1. Customers come to the service factory 2. Customers come to a retail office 3. Service employees visit customers home or workplace 3/18/12 4. Business is conducted at arms length

Processes: (4) Balancing Demand and Capacity When capacity to

serve is limited and demand varies widely, problems arise because service output cant be stored: 1. If demand is high and exceeds supply, business may be lost 2. If demand is low,

Processes: (5) Applying Information Technology

All services can benefit from IT, but mental-stimulus processing and informationprocessing services have the most to gain: Remote delivery of information-based services anywhere, anytime

Processes: (6) Including People as Part of theInvolvement in Product

service delivery often entails contact with other people Managers should be concerned about employees appearance, social skills, technical skills

The Services Marketing Mix

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Marketing Mix: 7Ps vs. the Traditional 4Ps

Rethinking the original 4Ps Product elements Place and time Promotion and education Price and other user outlays

All Aspects of Service Performance that Create Value

The 7Ps: (1) Product Elements

Core product featuresboth tangible and intangible elements Bundle of supplementary service elements Performance levels relative to competition Benefits delivered to customers 3/18/12 (customers dont buy a hotel room,

The 7Ps: (2) Place and Time

Delivery Decisions: Where, When, and How

Geographic locations served Service schedules Physical channels Electronic channels Customer control and convenience
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Channel partners/intermediaries

Informing, Educating, Persuading, and Reminding Customers

The 7Ps: (3) Promotion and Education

Marketing communication tools

media elements (print, broadcast, outdoor, retail, Internet, etc.) personal selling, customer service sales promotion publicity/PR

Imagery and recognition

branding 3/18/12 corporate design

The 7Ps: (4) Price and Other User Outlays Marketers Must Recognize that Customer
Outlays Involve More than the Price Paid to Seller
Traditional Pricing Tasks Selling price, discounts, premiums Margins for intermediaries (if any) Credit terms Identify and Minimize Other 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 experiences
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The 7Ps: (5) Physical Environment

Designing the Servicescape and providing tangible evidence of service performances Create and maintaining physical appearances
buildings/landscaping interior design/furnishings vehicles/equipment staff grooming/clothing sounds and smells 3/18/12

7Ps: (6) Process

Method and Sequence in Service Creation and Delivery

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Design of activity flows Number and sequence of actions for customers Providers of value chain components Nature of customer involvement Role of contact personnel

Managing the Human Side of the Enterprise

The 7Ps: (7) People

The right customer-contact employees performing tasks well

job design recruiting/selection training motivation evaluation/rewards empowerment/teamwork 3/18/12

Collaboration between Marketing, Operations, and HR Functions (Fig. 1.7)

Operations Management Customers Marketing Management

Human Resources Management

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