Services Marketing

New Perspectives On
Marketing in the
Service Economy

Slide © 2010 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

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2
 Services Marketing

Why Study Services?

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3
 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

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4
 Services Dominate the Global
Economy
Services Marketing

Contribution of Service Industries to GDP Globally

Manufacturing 32%

Services 64%

Agriculture 4%

Slide © 2010 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

10 20 30 40 50 60 70 80 90

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
 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 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 9
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14
 Services Marketing

What are Services?

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 15
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 17
 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

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18
 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

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19
 4 Categories of Services
Services Marketing

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20
 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

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21
 Possession Processing
Services Marketing

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

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22
 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’

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 23
 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

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24
 Services Marketing

Marketing Challenges Posed

by Services

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25
 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26
 Differences, Implications, and
Marketing-Related Tasks
Services Marketing

Difference Implications Marketing-Related Tasks

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

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

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

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

involved in co- customer & provider; equipment, facilities &
production poor task execution systems; train customers,
could affect satisfaction provide good support

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27
 Differences, Implications, and
Marketing-Related Tasks
Services Marketing

Difference Implications Marketing-Related Tasks

People may be part of Behavior of service Recruit, train employees to
service experience personnel & customers reinforce service concept
can affect satisfaction Shape customer behavior

Operational inputs Hard to maintain

and
quality,
outputs tend to vary consistency, reliability
more widely Redesign for simplicity and
Difficult to shield
customers from failures failure proofing
Time factor often Institute good service
Time is money; recovery procedures
assumes great
importance customers want service
at convenient times Find ways to compete on
Distribution may take speed of delivery; offer
Electronic channels extended hours
place through or
nonphysical channels voice communications
Create user-friendly,
secure websites and free
access by telephone
Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28
 Services Marketing

Extended Marketing Mix for

Services

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29
 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

viable strategies for meeting customer needs profitably

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30
 The 7Ps of Services Marketing
Services Marketing

 Traditional Marketing Mix Applied to Services

 Product
 Place
 Price
 Promotion

 Extended Marketing Mix for Services

 Process
 Physical Environment
 People

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31
 Services Marketing

Integration of Marketing with

Other Management Functions

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32
 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
Management Management
Customers

Human Resources
Management

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33
 Services Marketing

Developing Effective Service

Marketing Strategies

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34
 Overview of Framework
Services Marketing
Understanding Service Products, Consumers and
Markets
Part I:

Applying the 4 P’s of Marketing to Services

Part II:

The Extended Services Marketing Mix for

Managing the Customer Interface
Part III:

Implementing Profitable Service Strategies

Part IV:

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35