chapter 1 - services marketing
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Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/ Chapter ! " !
Chapter 1:
New PerspectivesonMarketing in the
Service Economy
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Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/ Chapter ! " 2
Overview of Chapter 1
Why Study Services?
What are Services?
The Marketing Challenges Posed by Services
The !panded Marketing Mi! "e#uired for Services
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Why Study Services?
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Why Study Services? $1%
Services do&inate econo&y in &ost nations
'nderstanding services offers you personal co&petitiveadvantages
(&portance of service sector in econo&y is growingrapidly)
Services account for more than 60 percent of GDP worldwide
Almost all economies have a substantial service sector
Most new employment is provided by services
Strongest growth area for mareting
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Why Study Services? $*%
Most new +obs are generated by services
!astest growth e"pected in nowledge#based industries
Significant training and educational $ualifications re$uired%but employees will be more highly compensated
&ill service 'obs lost to lower#cost countries( )es% some service 'obs
can be e"ported
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Changing Structure of &ploy&ent ascono&ic ,evelop&ent volves
Industry
Services
Agriculture
Time, per Capita Income
S hare of
E mployment
Source: IMF, 1997
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Why Study Services? $-%
Powerful forces are transfor&ing service &arkets
Government policies% social changes% business trends%advances in *+% internationali,ation
These forces are reshaping Demand
Supply
+he competitive landscape
-ustomers& choices% power% and decision maing
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Transfor&ation of the Service cono&y
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and eercise more po!er
Success hinges on"
#nderstanding customers and competitors
$iable business models
Creation o% value %or customers and %irm
e! mar'ets and product categories
Increase in demand %or services
(ore intense competition
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.actors Sti&ulating Transfor&ationof the Service cono&y $1%
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Changes in regulations
Privatization
e! rules to protect customers,employees, and the environment
e! agreement on trade in services
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.actors Sti&ulating Transfor&ationof the Service cono&y $*%
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
)ising consumer epectations
(ore a%%luence
(ore people short o% time
Increased desire %or buying eperiencesversus things
)ising consumer o!nership o% high teche*uipment
+asier access to in%ormation
Immigration
Gro!ing but aging population
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.actors Sti&ulating Transfor&ationof the Service cono&y $-%
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Push to increase shareholder value
+mphasis on productivity and cost savings
(anu%acturers add value through service andsell services
(ore strategic alliances and outsourcing
ocus on *uality and customer satis%action
Gro!th o% %ranchising
(ar'eting emphasis by nonpro%its
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.actors Sti&ulating Transfor&ationof the Service cono&y $/%
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Gro!th o% the Internet
Greater band!idth
Compact mobile e*uipment
-ireless net!or'ing
aster, more po!er%ul so%t!are
.igitization o% tet, graphics, audio, video
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.actors Sti&ulating Transfor&ationof the Service cono&y $0%
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
(ore companies operating on transnationalbasis
Increased international travel
International mergers and alliances
/%%shoring2 o% customer service
oreign competitors invade domestic mar'ets
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What 3re Services?
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What 3re Services? $1%
The historical view
Goes bac over .00 years to Adam Smith and /ean#aptiste Say
Different from goods because they are perishable 1Smith 23364
-onsumption cannot be separated from production% services areintangible 1Say 2504
3 fresh perspective) Services involve a for& of rental4offering benefits without transfer of ownership
*nclude rental of goods Mareting tass for services differ from those involved in selling
goods and transferring ownership
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What 3re Services? $*%
.ive broad categories within non5ownership fra&ework)27 8ented goods services
.7 Defined space and place rentals
7 9abor and e"pertise rentals
:7 Access to shared physical environments
;7 Systems and networs< access and usage
(&plications of renting versus owning $Service Perspectives 161%
Marets e"ist for renting durable goods rather than selling them
8enting portions of larger physical entity 1e7g7% office space% apartment4 can
form basis for service -ustomers more closely engaged with service suppliers
+ime plays central role in most services
-ustomer choice criteria may differ between rentals and outright purchases
Services offer opportunities for resource sharing
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,efining Services
Services Are economic activities offered by one party to another
Most commonly employ time#based performances to bring aboutdesired results in<
) recipients the&selves) ob+ects or other assets for which purchasers have responsibility
(n e!change for their &oney4 ti&e4 and effort4 servicecusto&ers e!pect to obtain value fro&
Access to goods% labor% facilities% environments% professional sills%networs% and systems
ut they do not normally tae ownership of any of the physicalelements involved
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Service Products versus Custo&er Serviceand 3fter5Sales Service
3 fir&0s &arket offerings are divided into core productele&ents and supple&entary service ele&ents
(s everyone in service? 7eed to distinguish between)
Mareting of services Mareting goods through added#value service
8ood service increases the value of a core physical good
3fter5sales service is as i&portant as pre5sales servicefor &any physical goods
Manufacturing fir&s are refor&ulating and enhancinge!isting added5value services to &arket the& as stand5alone core products
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Challenges Posed by Services
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Services Pose ,istinctiveMarketing Challenges
Marketing &anage&ent tasks in the service sectordiffer fro& those in the &anufacturing sector
The eight co&&on differences are)
27 Most service products cannot be inventoried
.7 *ntangible elements usually dominate value creation
7 Services are often difficult to visuali,e and understand
:7 -ustomers may be involved in co#production
;7 People may be part of the service e"perience
67 =perational inputs and outputs tend to vary more widely
37 +he time factor often assumes great importance
57 Distribution may tae place through nonphysical channels
What are &arketing i&plications?
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,ifferences4 (&plications4 andMarketing5"elated Tasks $1% 1+able 2724
.i%%erence
(ost serviceproducts
cannot be inventoried
Intangible elementsusually dominate
value creation
Services are o%ten
di%%icult to visualizeand understand
Customers may beinvolved in co1
production
Implications
Customers may beturned a!ay
2arder to evaluateservice and distinguish
%rom competitors
Greater ris' anduncertainty perceived
Interaction bet!eencustomer and provider3
but poor tas' eecution
could a%%ect satis%action
(ar'eting1)elated Tas's
#se pricing, promotion,and
reservations to smoothdemand3 !or' !ith ops to
manage capacity
+mphasize physical clues,employ metaphors and vividimages in advertising
+ducate customers on
ma'ing good choices3 o%%erguarantees
.evelop user1%riendlye*uipment, %acilities, and
systems3 train customers,
provide good support
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Implications
Behavior o% servicepersonnel and customers
can a%%ect satis%action
2ard to maintain *uality,consistency, reliability
.i%%icult to shieldcustomers %rom %ailures
Time is money3
customers !ant serviceat convenient times
+lectronic channels orvoice telecommunications
.i%%erence
People may be parto%
service eperience
/perational inputsand
outputs tend to vary
more !idely
Time %actor o%tenassumes great
importance
.istribution may ta'eplace through
nonphysical channels
(ar'eting1)elated Tas's
)ecruit, train employees to
rein%orce service concept
Shape customer behavior
Institute good servicerecovery procedures
ind !ays to compete onspeed o% delivery3 o%%er
etended hours
Create user1%riendly,secure !ebsites and %reeaccess by telephone
,ifferences4 (&plications4 andMarketing5"elated Tasks $*% 1+able 2724
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Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/ Chapter ! " 2#
9alue 3dded by Physical4 (ntangible le&ents:elps ,istinguish 8oods and Services 1!ig 2764
PhysicalElements
2igh
4o!Intangile Elements 2igh
Salt
.etergents
C. Player -ine
Gol% Clubse! Car
Tailored clothing
ast1ood )estaurantPlumbing )epair
2ealth Club
Airline light4andscape (aintenance
Consulting
4i%e Insurance
Internet Ban'ing
Source; Adapted from Lynn Shostack
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!panded Marketing Mi!for Services
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Services "e#uire3n !panded Marketing Mi!
Marketing can be viewed as) A strategic and competitive thrust pursued by top management
A set of functional activities performed by line managers
A customer#driven orientation for the entire organi,ation
Marketing is the only function to bring operatingrevenues into a business; all other functions are costcenters
The 5
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The lements
Place and +ime
Price and =ther ?ser =utlays
Promotion and >ducation
Process
Physical >nvironment
People
Productivity and @ualityFig 1!9 "or#ing in$nison: The %Ps ofSer&ices Mar#eting
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The
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The
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The
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The
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The
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Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/ Chapter ! " #2
The
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The
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The
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Marketing Must e (ntegrated withOther Manage&ent .unctions
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Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/ Chapter ! " #6
Three management functions play central an' interrelate' rolesin meeting nee's of ser&ice customers
Marketing Must e (ntegrated withOther Manage&ent .unctions 1!ig 27204
Customers
/perations
(anagement
(ar'eting
(anagement
2uman )esources
(anagement
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Services) 3n 3lternative Classification
Sche&e
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.our Categories Of Services 1!ig .724
Information processing
(services directed at
intangible assets):
Accounting
Banking
ature of the Service Act !eople !ossessions
"angible Actions !eople processing
(services directed at
people’s bodies):
Barbers
#ealth care
$ho or $hat Is the %irect &ecipient of the Service'
!ossession processing
(services directed at
physical possessions):
&efueling
%isposalrecycling
ental stimulus
processing
(services directed at people’s minds):
*ducation
Advertising!&
Intangible Actions
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People Processing
Custo&ers &ust)
Physically enter the servicefactory
-o#operate actively with theservice operation
Managers should think aboutprocess and output fro&custo&ers perspective
+o identify benefits created andnon#financial costs<
) Ti&e4 &ental4 physical effort
.our Categories Of Services
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Possession Processing
Possession Processing
Customers are less physicallyinvolved compared to people
processing services
Involvement is limited
Production and consumptionare separable
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Mental Sti&ulus Processing
Mental Stimulus Processing
Ethical standards required whencustomers who depend on suchservices can potentially be
manipulated by suppliers
Physical presence of recipientsnot required
Core content of services isinformation-based
Can be inventoried!
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(nfor&ation Processing
Information Processing
Information is the mostintangible form of serviceoutput
"ut may be transformed intoenduring forms of serviceoutput
#ine between information processing and mental stimulus processing may be blurred$
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