Services Marketing:

People, Technology, Strategy

CHAPTER 1
Creating Value In The Service
Economy

1
 Learning Objectives (1 of 2)
By the end of this chapter, the reader should be able to:
• Understand how services contribute to a country’s economy.
• Know the principal industries of the service sector.
• Identify the powerful forces that are transforming service
markets.
• Understand how B2B services improve the productivity of
individual firms and drive economic development.
• Be familiar with the difference between outsourcing and
offshoring of services.
• Define services using the non-ownership service framework.
• Identify the four broad “processing” categories of services. 2
 Learning Objectives (2 of 2)
• Be familiar with the characteristics of services and the distinctive
marketing challenges they pose.
• Understand the components of the traditional marketing mix applied to
services.
• Describe the components of the extended marketing mix for managing
the customer interface.
• Appreciate that the marketing, operations, and human resource
management functions need to be closely integrated in service
businesses.
• Understand the implications of the Service-Profit Chain for service
management.
• Know the framework for developing effective service marketing
strategies. 3
Chapter Overview (1 of 2)

4
 Chapter Overview (2 of 2)
• 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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 Why Study Services (1 of 6)
• Services Dominate the Global Economy
– Increasing size of the service sector across the
globe
– The relative share of employment between
agriculture, industry and services is changing
dramatically
– Service output is growing rapidly and represents
more than 50% of Gross Domestic Product
(GDP).

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 Why Study Services (2 of 6)

Evolution of
Service Dominated
Economy

Figure 1.4 Changing structure of employment as

an economy develops

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 Why Study Services (3 of 6)

Contribution Of
Services Industries
To GDP Globally

Figure 1.5 Contribution of services industries to GDP globally

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 Why Study Services (4 of 6)

Size Of Service
Sector In Various
Economies

Figure 1.6 Estimated size of service sector in selected countries as a

percentage of GDP

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 Why Study Services (5 of 6)
• Most new jobs are generated by
services
– In most countries around the world, new
job creation comes mainly from services.
– Knowledge-based industries — such as
professional and business services,
education, and health care generate high
paid jobs.

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 Why Study Services (6 of 6)
• Understanding Services Offers Personal
Competitive Advantage
– The distinctive characteristics of services
and how they affect both customer
behavior and marketing strategy will give
important insights and perhaps create a
competitive advantage

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The Principal Industries of the Service
Sector

Figure 1.8 Value added by service industry categories to US GDP.

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 Powerful Forces are Transforming Service
Markets
• Government policies, social changes, business trends,
globalization, and advances in information technology
and communications are among the powerful forces
transforming today’s service markets
• Development of IT and communications
• Innovations in big data, cloud computing, user-
generated content, mobile communications,
networking technologies, artificial intelligence, and
app-based self-service technologies bring service
revolution
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Factors stimulating transformation of service economy
Government Social Changes Business Trends Advances in Globalization
Policies Information
Technology
• Changes in • Rising consumer • Push to increase • Growth of the Internet • More companies
regulations expectations shareholder value • Wireless networking operating on a
• Privatization • Ubiquitous social • Emphasis on productivity and technology transnational basis
• New rules to networks and cost savings • Digitization of text, • Increased international
• More affluence • Manufacturers add value
protect consumers, graphics, audio, and travel
• More people short of time through service and sell
employees and the • Increased desire for services video • International mergers
environment buying experiences vs. • More strategic alliances and • Cloud technology and alliances
• New agreement on things outsourcing • Location-based • “Offshoring” of
trade in services • Rising consumer • Focus on quality and services customer service
ownership of computers, customer satisfaction • Big data • Foreign competitors
cell phones, and high-tech • Growth of franchising • Artificial intelligence invade domestic
equipment • Marketing emphasis by non- • Improved predictive markets
• Easier access to more profits analysis
information
• Immigration
• Growing but aging
population

New markets and product categories create increased demand for

services in many existing markets, making it more competition
intensive.

Innovation in service products and delivery systems is stimulated by

application of new and improved technologies.

Success hinges on (1) understanding customers and competitors, (2)

viable business models, and (3) creation of value for both customers
and the firm, (4) increased focus on services marketing and
B2B Services as Core Engine of Economic
Development

Source: Jochen Wirtz and Michael Ehret, "Service-Based Business Models: Transforming Businesses, Industries and Economies," in Raymond
P. Fisk, Rebekah Russell-Bennett, and Lloyd C. Harris, eds. Serving Customers: Global Services Marketing Perspectives (Tilde University Press, 15
Melbourne, Australia), 28–46.
Outsourcing and Offshoring (1 of 2)
• Offshoring refers to services that are
conducted in one country and consumed in
another
• 11% of service jobs around the world could
be carried out remotely

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Outsourcing and Offshoring (2 of 2)

Figure 1.12 Outsourcing and offshoring are independent, but often work in tandem.

Source: Jochen Wirtz, Sven Tuzovic, and Michael Ehret (2015), “Global Business Services: Increasing
Specialization and Integration of the World Economy as Drivers of Economic Growth,” Journal of Service 17
Management, Vol. 26, No.4, pp. 565--587.
 What Are Services?
• Production and consumption inseparable in services
• Benefits without Ownership
• Labor, skills and expertise rentals
• Rented goods services
• Defined space and facility rentals
• Access to shared facilities
• Access and use of networks and systems

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 Definition Of Services
Services are economic activities performed by one party
to another. Often time-based, these performances bring
about desired results to recipients (mong muốn), objects
(mục tiêu), or other assets (công cụ ví dụ như xe máy cho
dịch vụ vận chuyển).
In exchange for money, time, and effort, service
customers expect value from access to labor, skills,
expertise, goods, facilities, networks, and systems.
However, they do not normally take ownership of the
physical elements involved.
Dịch vụ không đăng ký Sở hữu trí tuệ
19
 Four Categories of Services –
A Process Perspective (1 of 2)

• People processing
• Possession processing (machine –
people)
• Mental stimulus processing
• Information processing (facility –
machine nhiều hơn)

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• People processing
• Possession processing (machine – people)
• Mental stimulus processing
• Information processing (facility – machine
nhiều hơn)

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Four Categories of Services –
A Process Perspective (2 of 2)

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 People Processing
• Implications of people processing
services:
– Service production and consumption are
simultaneous
– Active cooperation of the customer is needed in the
service delivery process
– Careful consideration of location of the service
operation, the design of service processes and the
service environment, demand and capacity
management, and output from the customer’s point
of view
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 Possession Processing
• Production and consumption are not
necessarily simultaneous
• Customers tend to be less involved in
these services, compared to people-
processing services

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 Mental Stimulus Processing
• Customers do not have to be physically
present in the service factory
• Services can be “inventoried” for
consumption at a later date, or
consumed repeatedly.

25
 Information Processing
• Can be transformed into more
permanent and tangible forms
like letters, reports, books, or files in any
type of format
• Not very different from mental stimulus
processing services

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Marketing Challenges Posed By Services

• Four characteristics of Services

– intangibility
– heterogeneity (variability of quality)
– inseparability of production and
consumption and
– perishability

… IHIP
27
 Eight Features of Services
Difference Implications Marketing-related Topics
Most service products Customers may be turned away or have to wait Smooth demand through promotions, dynamic
cannot be inventoried pricing, and reservations
(i.e., output is perishable) Work with operations to adjust capacity
Intangible elements Customers cannot taste, smell, or touch these elements and may not be Make services tangible through emphasis on
usually dominate value able to see or hear them physical clues
creation Harder to evaluate service and distinguish from competitors Employ concrete metaphors and vivid images in
(i.e., service is physically advertising and branding
intangible)
Services are often difficult Customers perceive greater risk and uncertainty Educate customers to make good choices, explain
to visualize and what to look for, document performance, offer
understand guarantees
(i.e., service is mentally
intangible)
Customers may be Customers interact with providers’ equipment, facilities, and systems Educate customers to make good choices, explain
involved in co-production Poor task execution by customers may hurt productivity, spoil the service what to look for, document performance, offer
(i.e., if people processing experience, and curtail benefits guarantees
is involved, the service is
inseparable)
People may be part of the Appearance, attitude and behavior of service personnel and other Recruit, train, and reward employees to reinforce
service experience customers can shape the experience and affect satisfaction the planned service concept
Target the right customers at the right times; shape
their behavior
Operational inputs and Harder to maintain consistency, reliability, and service quality or to lower Set quality standards based on customer
outputs tend to vary more costs through higher productivity expectations; redesign product elements for
widely Difficult to shield customers from results of service failures simplicity and failure-proofing
(i.e., services are Institute good service recovery procedures
heterogeneous) Automate customer-provider interactions; perform
work while customers are absent
The time factor often Customers see time as a scarce resource to be spent wisely, dislike Find ways to compete on speed of delivery,
assumes great wasting time waiting, want service at times that are convenient minimize burden of waiting, offer extended service
importance hours
Distribution may take Information-based services can be delivered through electronic channels Seek to create user-friendly, secure websites and
place through such as the Internet or voice telecommunications, but core products free access by telephone
nonphysical channels involving physical activities or products cannot Ensure that all information-based service elements
Channel integration is a challenge; that is to ensure consistent delivery of are delivered effectively and reliably through all
service through diverse channels, including branches, call centres and key channels 28
websites.
Tangible-dominant to
Intangible-dominant

Relative value added by physical versus intangible elements in goods

and services
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 The 7 ‘P’s Of Services Marketing

The 4 ‘P’s
product, price, place (or distribution), and
promotion (or communication)

Extended Marketing Mix for Services – The 3

‘P’s
process, physical environment, and people

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The Traditional Marketing Mix Applied To
Services (1 of 2)
• Product Elements
– Service products consist of a core product that
meets the customers’ primary need and a variety
of supplementary service elements
• Place and Time
– Distribution of core versus supplementary
Services
– Importance of the time factor

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The Traditional Marketing Mix Applied To
Services (2 of 2)
• Price and Other User Outlays
– Pricing strategy is highly dynamic, with price levels
adjusted over time according to factors like customer
segment, time and place of delivery, level of demand,
and available capacity.
– The outlays include additional monetary costs, time
spent, unwanted mental and physical effort, and
exposure to negative sensory experiences.
• Promotion and Education
– Services are often difficult to visualize and understand as
intangible elements tend to dominate value creation
– Customer-customer interactions affect the service
experience

32
 Extended Marketing Mix Required For
Services
• Process
– Operational Inputs and Outputs Can Vary Widely
– Customers Are Often Involved in Co-production
– Demand and Capacity Need to be Balanced
• Physical Environment
– The appearance of buildings, landscaping, vehicles,
interior furnishings, equipment, staff members’ uniforms,
signs, printed materials, and other visible cues provide
tangible evidence of a firm’s service quality
• People
– Service firms need to work closely with their human
resources (HR) departments and devote special care in
selecting, training, and motivating their service
employees
33
Integration Of Marketing With Other
Management Functions

34
The Service-Profit Chain

Reprinted by permission of Harvard Business Review: Heskett, JL., Jones, T.O., Loveman, G.W., Sasser Jr., W.E., and Schlesinger, L.A.
(March–April 1994), “Putting the Service–Profit Chain to Work,” Harvard Business Review, p.166. Copyright © 1994 by the Harvard
Business School Publishing Corporation; all rights reserved. 35
Developing Effective Service Marketing
Strategies

36