Services Marketing:

CHAPTER 1
Introduction to services and services
marketing
Lecturer: Dr. Vu Hoang Linh, Ph.D.

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 Learning Objectives
By the end of this chapter, the students 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.

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 Learning Objectives
• 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.
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Chapter Overview

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 Chapter Overview
• 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
• 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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Evolution of Service Dominated Economy

Figure 1.4 Changing structure of employment as

an economy develops
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Contribution Of Services Industries To GDP
Globally

Figure 1.5 Contribution of services industries to

GDP globally

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Size Of Service Sector In Various Economies

Figure 1.6 Estimated size of service sector in selected

countries as a percentage of GDP 9
 Why Study Services
• 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
• 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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Dr. Vu Hoang Linh as a service
provider from 2012 to 2021:

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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 shareholder • Growth of the Internet • More companies
regulations expectations value • Wireless networking and operating on a
• Privatization • Ubiquitous social networks • Emphasis on productivity and technology transnational basis
• New rules to protect • More affluence cost savings • Digitization of text, • Increased international
• More people short of time • Manufacturers add value
consumers, graphics, audio, and travel
• Increased desire for buying through service and sell
employees and the experiences vs. things services video • International mergers
environment • Rising consumer ownership • More strategic alliances and • Cloud technology and alliances
• New agreement on of computers, cell phones, outsourcing • Location-based services • “Offshoring” of customer
trade in services and high-tech equipment • Focus on quality and customer • Big data service
• Easier access to more satisfaction • Artificial intelligence • Foreign competitors
information • Growth of franchising • Improved predictive invade domestic markets
• Immigration • Marketing emphasis by non- analysis
• Growing but aging profits
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 management.

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B2B Services as Core Engine of
Economic Development

Source : Joche n Wirtz an d Mi chael Ehret, "Service -Base d Busi nes s M odel s: Tra nsfor ming Busine sses, Industries and E conomies ," i n
Raymon d P. Fisk, Rebeka h Rus sell -Be nn ett, an d Ll oyd C. Harri s, e ds. Serving Customers : Gl obal Servi ces Marketing P erspectives (Tilde 16
University Press, Melbourne, Australia), 28–46.
 Outsourcing and Offshoring
• 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

Figure 1.12 Outsourcing and offshoring are independent, but often work in tandem.
Source : Jochen Wirtz, Sven T uzovi c, an d Michael E hret (20 15), “Gl obal Busi nes s Services : Increasi ng
Specializ ation an d Integration of the Worl d Economy as Drivers of Economi c Growth, ” Journal of Service 18
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, objects, or other
assets.
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.

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 Four Categories of Services –
A Process Perspective
• People processing
• Possession processing
• Mental stimulus processing
• Information processing

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Four Categories of Services –
A Process Perspective

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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.

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 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
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 Eight Features of Services
Difference Implications Marketing-related Topics
Most service products cannot be Customers may be turned away or have to wait Smooth demand through promotions, dynamic pricing,
inventoried and reservations
(i.e., output is perishable) Work with operations to adjust capacity
Intangible elements usually Customers cannot taste, smell, or touch these elements and may notbe Make services tangible through emphasis on physical clues
dominate value creation able to see or hear them Employ concrete metaphors and vivid images in
(i.e., service is physically Harder to evaluate service and distinguish from competitors advertising and branding
intangible)
Services are often difficult to Customers perceive greater risk and uncertainty Educate customers to make good choices, explain what to
visualize and understand look for, document performance, offer guarantees
(i.e., service is mentally
intangible)
Customers may be involved in Customers interact with providers’ equipment, facilities, and systems Educate customers to make good choices, explain what to
co-production Poor task execution by customers may hurt productivity, spoil the look for, document performance, offer guarantees
(i.e., if people processing is service experience, and curtail benefits
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 the
service experience customers can shape the experience and affect satisfaction planned service concept
Target the right customers at the right times; shape their
behavior
Operational inputs and outputs Harder to maintain consistency, reliability, and service quality or to Set quality standards based on customer expectations;
tend to vary more widely lower costs through higher productivity redesign product elements for simplicity and failure-
(i.e., services are Difficult to shield customers from results of service failures proofing
heterogeneous) Institute good service recovery procedures
Automate customer-provider interactions; perform work
while customers are absent
The time factor often assumes Customers see time as a scarce resource to be spent wisely, dislike Find ways to compete on speed of delivery, minimize
great importance wasting time waiting, want service at times that are convenient burden of waiting, offer extended service hours

Distribution may take place Information-based services can be delivered through electronic Seek to create user-friendly, secure websites and free
through nonphysical channels channels such as the Internet or voice telecommunications, but core access by telephone
products involving physical activities or products cannot Ensure that all information-based service elements28 are
Channel integration is a challenge; that is to ensure consistent delivery delivered effectively and reliably through all key channels
of service through diverse channels, including branches, call centres
Tangible-dominant to
Intangible-dominant

Relative value added by physical versus intangible

elements in goods and services 29
 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
• 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
• 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

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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
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 Group work
• Work in groups of 5 students and analyze 7Ps
of a service firm of your group’s choice in 15
minutes.
• Make a short PowerPoint presentation in
maximum 5 minutes.

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Integration Of Marketing With Other
Management Functions

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The Service-Profit Chain

Reprinted by permiss ion of Harvard Busines s Review : Heskett, JL., J ones, T.O., Lo veman, G.W., Sas ser Jr., W.E., and Schlesin ger, L.A.
(March–April 1 994), “ Puttin g the Service–Profit Chain to Work,” Ha rvard Business Review, p .166. Copyrig ht © 1994 by the Harvard Bus iness
School Publishing Corporation; all rights reserved.
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Developing Effective Service Marketing
Strategies

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 Case study
Work in groups of 5 students in 10 minutes and propose some solutions for
the Vietnamese restaurants abroad (ex: in France) to overcome the
difficulties raised by the COVID-19 pandemic.

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Q&A session

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