Services Marketing

Chapter 1:
New Perspectives On
Marketing in the
Service Economy

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
 Overview of Chapter 1
Services Marketing

= 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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 Services Marketing

Why Study Services?

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 Why Study Services?
Services Marketing

= 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

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 Services Dominate the Global
Economy
Services Marketing

Contribution of Service Industries to GDP Globally

Manufacturing
32%

Services
64%
Agriculture
4%

Source: The World Factbook 2008, Central Intelligence Agency

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5
 Estimated Size of Service
Sector
in Selected Countries Services Marketing
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%)

Services as Percent of GDP

1 2 3 4 5 6 70 8 9
Source: The World
0 Factbook
0 2008, Central
0 Intelligence
0 Agency
0 0 0 0
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 Value Added by Service
Industry
Categories to U.S. GDP Services Marketing

Business
Services 12%

Transport,
Utilities &
Communications SERVICES
9%

Wholesale &
Retail Trade 12%

Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007

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 NAICS: New Way to Classify &
Analyze the Service Economy
Services Marketing

= 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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
 NAICS Codes of Newer Service
Industries Not Profiled By SIC
Services Marketing

❖ Casino Hotels ❖ HMO Medical Centers

❖ Continuing Care Retirement ❖ Industrial Design Services
Communities
❖ Investment Banking and
❖ Diagnostic Imaging Centers Securities Dealing
❖ Diet and Weight Reducing ❖ Management Consulting
Centers Services
❖ Environmental Consulting ❖ Satellite Telecommunications
❖ Golf Courses, Country Clubs ❖ Telemarketing Bureaus

❖ Hazardous Waste Collection ❖ Temporary Help Services

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9
 Why Study Services?
Services Marketing

=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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10
 Changing Structure of
Employment as Economies
Develop Services Marketing

Agricultu
re
Servic
es
Employment
Share of

Indust
ry

Time, per Capita Income

Source: IMF, 1997
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11
 Why Study Services?
Services Marketing

= 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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12
 Transformation of the
Service Economy
Services Marketing
Social Business Advances
Changes Trends In 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 ▪ Understanding customers and competitors

on: ▪ Viable business models
▪ Creation of value for customers and firm
Increased focus on services marketing and
management
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 Services Marketing

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 Factors Stimulating
Transformation of the Service
Economy Services Marketing
Social Business Advances
Changes Trends In IT

Government Globalization
Policies

▪ Changes in regulations
▪ Privatization
▪ New rules to protect customers,
employees, and the environment
▪ New agreement on trade in services

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38
 Factors Stimulating
Transformation of the Service
Economy Services Marketing
Social Business Advances
Changes Trends In IT

Government Globalization
Policies

▪ 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

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 39
 Factors Stimulating
Transformation of the Service
Economy Services Marketing
Social Business Advances
Changes Trends In 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 and outsourcing
▪ Focus on quality and customer
satisfaction
▪ Growth of franchising
▪ Marketing emphasis by nonprofits

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 40
 Factors Stimulating
Transformation of the Service
Economy Services Marketing
Social Business Advances
Changes Trends In IT

Government Globalization
Policies

▪ Growth of Internet
▪ Greater bandwidth
▪ Compact mobile equipment
▪ Wireless networking
▪ Faster, more powerful software
▪ Digitization of text, graphics, audio,
video

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 41
 Factors Stimulating
Transformation of the Service
Economy Services Marketing
Social Business Advances
Changes Trends In 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
markets

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 42
 Services Marketing

What are Services?

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 What Are Services?
Services Marketing

= 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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 44
 What Are Services?
Services Marketing

Five broad categories within non-ownership

framework of which two or more may be
combined
Defined space Labor and
Rented goods
and place expertise
services
rentals rentals

Access to and
Access to
usage of
shared physical
systems and
environments
networks

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 45
 Definition of Services
Services Marketing

= 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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 46
 Value Creation is Dominated
by Intangible Elements
Services Marketing
Physical Elements

High

Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing Plumbing Repair

Fast-Food Restaurant Health Club

Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking

Low High
Intangible Elements
Source; Adapted from Lynn Shostack
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 47
 Service Products vs. Customer
Service & After-Sales Service
Services Marketing

= 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

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 Service – A Process
Perspective
Services Marketing

= Differences exist amongst services depending on

what is being processed

= Classification of services into

🡺 People processing
🡺 Possession processing
🡺 Mental stimulus processing
🡺 Information processing

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 4 Categories of Services
Services Marketing

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 People Processing
Services Marketing

= 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

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 Possession Processing
Services Marketing

= Involvement is limited
= Less physical involvement
= Production and consumption are separable

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 Mental Stimulus Processing
Services Marketing

= Ethical standards required:

🡺 Customers might be manipulated

= Physical presence of recipients not required

= Core content of services is information-based
🡺 Can be ‘inventoried’

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 Information Processing
Services Marketing

= 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

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 Services Marketing

Marketing Challenges
Posed by Services

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 Services Pose Distinctive
Marketing Challenges
Services Marketing

= 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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 56
 Differences, Implications, and
Marketing-Related Tasks
Services Marketing

Difference Implications Marketing-Related

Tasks
▪ Most service ▪ Customers may be
products ▪ Use pricing, promotion,
turned away
cannot be reservations to smooth
inventoried
demand; work with ops to
manage capacity
▪ Harder to evaluate
▪ Intangible elements service & ▪ Emphasize physical clues,
usually dominate distinguish employ metaphors and vivid
value creation from competitors images in advertising

▪ Services are often ▪ Greater risk & ▪ Educate customers on

difficult to visualize uncertainty making good choices; offer
& perceived
guarantees
understand

▪ Customers may be ▪ Interaction between ▪ Develop user-friendly

involved in co- customer & equipment, facilities &
production provider; systems; train customers,
poor task execution provide good support
could affect
satisfaction
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 Differences, Implications, and
Marketing-Related Tasks
Services Marketing

Difference Implications Marketing-Related

Tasks
▪ People may be part ▪ Behavior of service
of ▪ Recruit, train employees to
personnel &
service experience customers reinforce service concept
can affect ▪ Shape customer behavior
satisfaction
▪ Operational inputs
and ▪ Hard to maintain
outputs tend to vary quality,
more widely consistency, ▪ Redesign for simplicity and
reliability
▪ Difficult to shield failure proofing
▪ Time factor often customers from ▪ Institute good service
assumes great failures recovery procedures
importance
▪ Time is money; ▪ Find ways to compete on
▪ Distribution may customers want speed of delivery; offer
take service
place through at convenient times extended hours
nonphysical ▪ Create user-friendly,
channels ▪ Electronic channels
or secure websites and free
voice access by telephone
Slide © 2011 by Lovelock & Wirtz communications
Services Marketing 7/e Chapter 1 – Page 58
 Services Marketing

Extended Marketing Mix

for Services

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 59
 Services Require
An Extended Marketing Mix
Services Marketing

= 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
Slide © 2011 by Lovelock & Wirtz viable strategies for 7/emeeting customerChapter 1 – Page 60
Services Marketing
 The 7Ps of Services Marketing
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)

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 Services Marketing

Integration of Marketing
with Other Management
Functions

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 Marketing to be Integrated
with Other Management
Functions Services Marketing

Three management functions play central and

interrelated roles in meeting needs of service
customers

Operations Marketing

Customer
Management Management
s

Human
Resources
Management
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 Services Marketing

Developing Effective
Service Marketing
Strategies

Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 64
 Overview of Framework
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 65
 Framework - Part I
Services Marketing

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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 66
 Framework - Part II
Services Marketing

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

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 Framework - Part III
Services Marketing

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

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 Framework - Part IV
Services Marketing

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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 69
 Summary
Services Marketing

Services dominate Why Study Unique Services are often

the economy in Services? Characteristi intangible, difficult to
many nations. The cs visualize and
majority of jobs understand, and
are created in the customers may be
service sector. involved in co-
CHAPTER production.
Services are a
form of rental (not 1 Product, Place &
Time, Price,
ownership). They
Extended Promotion &
are performances What are
Marketing Education, Process,
that bring about a Services?
Mix Physical
desired result.
Environment, People
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