Services Marketing,: 7e, Global Edition

Services Marketing, 7e, Global Edition
Chapter 1:
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
1. Why Study Services?
2. What are Services?
3. Marketing Challenges Posed by Services
4. Extended Marketing Mix Required for Services
5. Integration of Marketing with Other Management Functions
6. Developing Effective Service Marketing Strategies
Chapter 1 Page 2
1. Why Study Services?
Chapter 1 Page 3
Why Study Services?

Services dominate most economies and are growing
rapidly:
Increased productivity and automation in agriculture
and industry, combined with growing demand for both
new and traditional services
Services account for more than 60% of GDP worldwide
Most new employment is provided by services
(B2C: financial advice, medical examination,
B2B: outsourcing)
Strongest growth area for marketing
Chapter 1 Page 4
Changing Structure of Employment

as Economies Develop
Agriculture
Share of
Employment
Services
Industry
Time (per capita income)
Source: IMF, 1997

Chapter 1 Page 5
Contribution of Services to GDP Globally (G, T, U, C),

SIC, NAICS (711211)
Manufacturing
(32, 29) %
Services
(64, T69~71, U79,
Agriculture
C40) %
(4, 2) %
Chapter 1 Page 6
Estimated Size of Service Sector

in Selected Countries (%)
Source: The World Factbook 2008, Central Intelligence Agency

Chapter 1 Page 7
Why Study Services?

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
(IBM SSME: Service Science, Management and
Engineering)
Will service jobs be lost to lower-cost countries?
Yes, some service jobs can be exported
Chapter 1 Page 8
5 Powerul forces are transforming service markets

(1) Government policies
(2) Social changes
(3) Business trends
(4) Advances in IT
(5) Internationalization
Chapter 1 Page 9
(1) Government policies

Changes in regulations, e.g., deregulation (
)
Privatization (BOT)
New rules to protect customers, employees, and the
environment
New agreement on trade in services
Chapter 1 Page 10
(2) Social changes

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
Growing but aging population
Chapter 1 Page 11
(3) Business trends

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
Chapter 1 Page 12
(4) Advances in IT
Growth of Internet
Greater bandwidth, e.g., 4G
Compact mobile equipment
Wireless networking
Faster, more powerful software
Self-service technology
Chapter 1 Page 13
(5) Internationalization
More companies operating on transnational basis
Increased international travel
International mergers and alliances
Offshoring of customer service
Foreign competitors invade domestic markets
Chapter 1 Page 14
2. What are Services?
Chapter 1 Page 15
What Are Services?

Historical view of servicesproduction and consumption
are separable
Fresh new perspectiveservices is distinguished as
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
Chapter 1 Page 16
What Are Services?

Five broad categories within non-ownership
framework of which two or more may be combined
Chapter 1 Page 17
Definition of Services
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
normally do not take ownership of any of the physical
elements involved.
Chapter 1 Page 18
Categories of Services
2*2
Tangible, Intangible
People: Passenger Transportation, Education
Possessions: fright transportation, Accounting
Chapter 1 Page 19
Service Products, Customer Service, After-Sales Service

A firms 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 standalone core products (Rolls-Royce sells power by the hour)
Chapter 1 Page 20
3. Marketing Challenges Posed

by Services
Chapter 1 Page 21
Services Pose Distinctive Marketing Challenges

Marketing is usually separated from the operations and
human resources functions in a manufacturing business,
where goods are usually produced in a factory and then
distributed and sold at a separate location.
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
Chapter 1 Page 22
8 characteristics of services
1. Most service products cannot be inventoried

2. Intangible elements usually dominate value creation
3. Services are often difficult to visualize & understand
4. Customers may be involved in co-production
5. People may be part of service experience
6. Operational inputs and outputs tend to vary more widely
7. Time factor often assumes great importance
8. Distribution may take place through nonphysical channels
Chapter 1 Page 23
4. Extended Marketing Mix for

Services
Chapter 1 Page 24
Services Require
An Extended Marketing Mix
Marketing can be viewed as:
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
Chapter 1 Page 25
The 7Ps of 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)
Chapter 1 Page 26
5. Integration of Marketing
with Other Management
Functions
Chapter 1 Page 27
Integration of Marketing with Other

Management Functions
Marketing links the firm to its external environment and acts
as a customer champion;
Operations is concerned with service design and delivery,
often involving customers in operational processes;
Human resources helps to recruit, train, and motivate
employees whose jobs bring them into direct contact with
customers.
Chapter 1 Page 28
6. Developing Effective Service

Marketing Strategies
Chapter 1 Page 29
Overview of Framework
Understanding Service Products,
Consumers and Markets
Applying the 4 Ps of
Marketing to Services
The Extended Services Marketing Mix
for Managing the Customer Interface
Implementing Profitable Service
Strategies
Chapter 1 Page 30
Summary (Integration, Extensions, Questions)

Understand the contribution of services to a countrys
economy
Define services using the non-ownership of services
framework and understand how non-ownership affects
services marketing strategies
Understand the components of the services marketing
mix (the 7Ps)
31
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 1 Page 31

Services Marketing,: 7e, Global Edition

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Slide 2010 by Lovelock & Wirtz