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    The service sector

    The services sector has been growing at a rate of 8%per annum in recent years

    More than half of our GDP is accounted for from theservices sector

    This sector dominates with the best jobs, best talentand best incomes and Services dominate economy in

    most nations

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    Defining Services

    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

    But they do not normally take ownership of any of

    the physical elements involved

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    The service sector

    Understanding services offers you personalcompetitive advantages

    Importance of service sector in economy 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 marketing

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    I T I S T H E P A R T O F T H E P R O D U C T O R T H E

    F U L L P R O D U C T F O R W H I C H T H E C U S T O M E R

    I S W I L L I N G T O S E E V A L U E A N D P A Y F O R I T .

    What is services?

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    What is a service?

    It is intangible.

    It does not result in ownership.

    It may or may not be attached with a physical

    product

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    Difference between physical goods andservices

    Physical goods Services

    tangible intangible

    homogeneous heterogeneous

    Production and distribution are

    separated from consumption

    Production, distribution and

    consumption are simultaneousprocesses

    A thing An activity or process

    Core value processed in factory Core value produced in the buyer-seller

    interaction

    Customers do not participate in the

    production process

    Customers participate in production

    Can be kept in stock Cannot be kept in stock

    Transfer of ownership No transfer of ownership

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    Table 1-2

    Services are DifferentGoods Services Resulting ImplicationsTangible Intangible Services cannot be inventoried.

    Services cannot be patented.Services cannot be readily displayed or communicated.Pricing is difficult.

    Standardized Hetero eneous Service delivery and customer satisfaction depend on

    employee actions.Service quality depends on many uncontrollable factors.There is no sure knowledge that the service deliveredmatches what was planned and promoted.

    Productionseparate fromconsumption

    Simultaneousproduction andconsumption

    Customers participate in and affect the transaction.Customers affect each other.Employees affect the service outcome.

    Decentralization may be essential.Mass production is difficult.

    Nonperishable Perishable It is difficult to synchronize supply and demand withservices.Services cannot be returned or resold.

    Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Problems and Strategies in Services Marketing,

    Journal of Marketing 49 (Spring 1985): 33-46.

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    Services could meet

    Personal needs haircuts, tuition, beauty parlours

    Business needs courier services, office cleaningservices, delivering fresh flowers

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    Nature /Characteristics of services

    Intangibility

    Inseparability

    Perishability Variability

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    Services Dominate the U.S. Economy(Fig 1.1)

    Services, 68% Agriculture, Forestry, Mining,Fishing, 2.3%

    Manufacturing andConstruction,

    17.3%

    Government, 12.4%(mostly Services)

    Source: Bur eau of Econom ic Analysis , Survey of Cu rrent Bus iness, May 2005, Table 1

    INSIGHTS

    Private sector service industries account for over two-thirds of GDP

    Adding government services, total is almost four-fifths of GDP

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    Estimated Size of Service Sector inSelected Countries (Fig 1.2updated 10/06)

    Services as Percent of GDP

    Poland (66%), South Africa (65%)

    Japan (74%), France (73%), U.K. (73%), Canada (71%)

    Saudi Arabia (33%)

    China (40%)

    India (48%)

    Argentina (53%), Brazil (51%)

    Panama (80%), USA (79%)

    Luxembourg (83%)

    Cayman Islands (95%), Jersey (93%)

    Bahamas (90%), Bermuda ( 89%)

    Mexico (69%), Australia (68%), Germany (68%)

    Israel (60%), Russia (58%), S. Korea (56%)

    30 40 50 60 70 80 902010

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    Changing Structure of Employment as EconomicDevelopment Evolves

    Industry

    Services

    Agriculture

    Time, per Capita Income Sou rc e: IMF, 1997

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    Figure 1-1

    Tangibility Spectrum

    TangibleDominant

    Intangible

    Dominant

    Salt

    Soft Dri nks

    Detergents

    Automobiles

    Cosmetics

    AdvertisingAgencies

    Airlines

    I nvestmentManagement

    ConsultingTeaching

    Fast-foodOutlets

    Fast-foodOutlets

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    Transformation of the Service Economy

    Government

    Policies

    BusinessTrends

    SocialChanges

    Advances inIT

    Globalization

    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

    New markets and product categories

    Increase in demand for services More intense competition

    i l i f i f h

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    Factors Stimulating Transformation of theService Economy (1)

    Government

    Policies

    BusinessTrends

    SocialChanges

    Advances inIT

    Globalization

    Changes in regulations

    Privatization

    New rules to protect customers,employees, and the environment

    New agreement on trade in services

    S i l i f i f h

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    Factors Stimulating Transformation of theService Economy (2)

    Government

    Policies

    BusinessTrends

    SocialChanges

    Advances inIT

    Globalization

    Rising consumer expectations

    More affluence

    More people short of time

    Increased desire for buying experiencesversus things

    Rising consumer ownership of high techequipment

    Easier access to information

    Immigration

    Growing but aging population

    F S i l i T f i f h

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    Factors Stimulating Transformation of theService Economy (3)

    Government

    Policies

    BusinessTrends

    SocialChanges

    Advances inIT

    Globalization

    Push to increase shareholder value

    Emphasis on productivity and cost savings

    Manufacturers add value through service andsell services

    More strategic alliances and outsourcing

    Focus on quality and customer satisfaction

    Growth of franchising

    Marketing emphasis by nonprofits

    F S i l i T f i f h

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    Factors Stimulating Transformation of theService Economy (4)

    Government

    Policies

    BusinessTrends

    SocialChanges

    Advances inIT

    Globalization

    Growth of the Internet

    Greater bandwidth

    Compact mobile equipment

    Wireless networking

    Faster, more powerful software

    Digitization of text, graphics, audio, video

    F t Sti l ti T f ti f th

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    Factors Stimulating Transformation of theService Economy (5)

    Government

    Policies

    BusinessTrends

    SocialChanges

    Advances inIT

    Globalization

    More companies operating on transnationalbasis

    Increased international travel

    International mergers and alliances

    Offshoringof customer service

    Foreign competitors invade domestic markets

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    Traditional Marketing Mix

    All elements within the control of the firmthat communicate the firms capabilities and

    image to customers or that influence customersatisfaction with the firms product and services:

    Product

    Price

    Place

    Promotion

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    Expanded Mix for Services --the 7 Ps

    Product

    Price

    Place Promotion

    People

    ProcessPhysical Evidence

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    Table 1-3

    Expanded Marketing Mix forServices

    PRODUCT PLACE PROMOTION PRICE

    Ph sical oodfeatures

    Channel type Promotionblend

    Flexibility

    Quality level Exposure Salespeople Price level

    Accessories Intermediaries Advertising Terms

    Packaging Outlet location Salespromotion

    Differentiation

    Warranties Trans ortation Publicity Allowances

    Product lines Storage

    Branding

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    Table 1-3 (Continued)

    Expanded Marketing Mix forServices

    PEOPLE PHYSICALEVIDENCE

    PROCESS

    Employees Facility design Flow of activities

    Customers Equipment Number of steps

    Communicatingculture and values

    Signage Level of customer involvement

    Employee research Employee dress

    Other tangibles

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    Figure 1-5

    The Services Marketing Triangle

    Internal

    Marketing

    I nteractive Marketing

    External

    Marketing

    Company

    (Management)

    CustomersEmployees

    enabling thepromise

    delivering the promise

    setting thepromise

    Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler