Overview of Chapter 1 Introduction to Services Marketing

1. Why study services?

a. Services Dominate Economy in Most Nations b. Most New Jobs are generated by services

2. Powerful forces that are transforming service Markets

a. b. c. d. e. Government Policies Social Changes Business Trends Advances in Information Technology Globalization

3. What are services?

a. Services involve a form of rental, offering benefits without transfer of ownership. b. Implications of Renting versus Owning

4. Four broad categories of services

a. b. c. d. People processing Possession processing Mental stimulus processing Information processing

5. Challenges posed by services 6. Expanded marketing mix for services

a. Traditional 4Ps applied to services b. Extended mix for managing the customer interface

7. Framework for effective services marketing strategies

1. Why Study Services?

a. Services Dominate Economy in Most Nations b. Most New Jobs are generated by Services
Fastest Growth Expected in Knowledge-Based Industries Many New Jobs are Well-Paid Positions Requiring Good Educational Qualifications

Many manufacturing firms moved to marketing stand- alone services

Contribution of Services Industries to Global GDP

Estimated Size of Service Sector in Selected Countries

2. Powerful Forces Are Transforming Service Markets

a. Government Policies
Changes in regulations Privatization New rules to protect customers, employees, and the environment New agreement on trade in services

b. Social Changes
Rising consumer expectations More affluence Personal Outsourcing Increased desire for buying experiences vs. things Rising consumer ownership of high tech equipment Easier access to more information Immigration Growing but aging population

c. Business Trends
Push to increase shareholder value Emphasis on productivity and cost savings Manufacturers add value through service and sell services More strategic alliances Focus on quality and customer satisfaction Growth of franchising Marketing emphasis by nonprofits

d. Advances in IT
Growth of Internet Greater bandwidth Compact mobile equipment Wireless networking Faster, more powerful software Digitization of text, graphics, audio, video

e. Globalization
More companies operating on transnational basis Increased international travel International mergers and alliances Offshoring of customer service Foreign competitors invade domestic markets

3. What are Services?

a. Services involve a form of rental, offering benefits without transfer of ownership.

Include rental of goods (Temporary right to use an object, hire the labour and expertise of personnel, or obtain access to facilities and networks) Marketing tasks for services differ from those involved in selling goods and transferring ownership

Five broad categories within non-ownership framework i. Rented goods services

These services allow customers to obtain the temporary right to use a physical object that they prefer not to own. E.g.) Boats, dresses When customers obtain the use of a certain portion of a larger space in a building vehicle or area. They usually share this space with other customers. E.g.) Sent in an aircraft, suite. Other people are hired to perform work that customers either cannot or choose not to do themselves. E.g.) House cleaning, car repair, management consulting.

ii. Defined space and place rentals

iii. Labour and expertise rentals

iv. Access to shared physical environments

Customers rent the right to share the use of the environments. The locations may be indoors, outdoors or a combination of both. E.g.) Theme parks, trade shows, toll roads. Customers rent the right to participate in a specified network. Service providers use a variety of terms for access and use, depending on customer needs. E.g.) Telecommunications, utilities, banking.

v. Systems and networks: access and usage

b. Implications of Renting versus Owning

Markets exist for renting durable goods rather than selling them Renting portions of larger physical entity (e.g., office space, apartment) can form basis for service Customers more closely engaged with service suppliers Time plays central role in most services Customer choice criteria may differ between rentals and outright purchases Services offer opportunities for resource sharing

4. Four broad categories of services

Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services:

a. b. c. d.

People processing Possession processing Mental stimulus processing Information processing

a. People Processing
Customers must: - physically enter the service factory - co-operate actively with the service operation Managers should think about process and output from customers perspective - to identify benefits created and nonfinancial costs: time, mental, physical effort

b. Possession Processing
Customers are less physically involved compared to people processing services Involvement is limited Production and consumption are separable

c. Mental Stimulus Processing

Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers Physical presence of recipients not required Core content of services is informationbased - Can be inventoried

d. Information Processing
Information is the most intangible form of service output But may be transformed into enduring forms of service output Line between information processing and mental stimulus processing may be blurred.

Value added by physical, intangible elements. Helps to distinguish goods and services

Services
Are economic activities offered by one party to another Most commonly employ time-based performances to bring about desired results in: - Recipients themselves - Objects or other assets for which purchasers have responsibility

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.

5. Challenges posed by services

Services Pose Distinctive Marketing Challenges
Marketing management tasks in the service sector differ from those in the manufacturing sector. The eight common differences are: - Most service products cannot be inventoried - Intangible elements usually dominate value creation - Services are often difficult to visualize and understand - Customers may be involved in co-production - People may be part of the service experience - Operational inputs and outputs tend to vary more widely - The time factor often assumes great importance - Distribution may take place through nonphysical channels

Differences, Implications, and Marketing-Related Tasks Differences Implications Marketing-Related Task

Most service products cannot be inventoried Intangible elements usually dominate value creation Services are often difficult to visualize & understand Customers may be involved in coProduction People may be part of service experience Operational inputs and outputs tend to vary more widely Time factor often assumes great importance Distribution may take place through nonphysical channels Customers may be turned away Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity Emphasize physical clues, employ metaphors and vivid images in advertising Educate customers on making good choices; offer guarantees Develop user-friendly equipment, facilities & systems; train customers, provide good support Recruit, train employees to reinforce service concept. Shape customer behavior Redesign for simplicity and failure proofing Institute good service recovery procedures Find ways to compete on speed of delivery; offer extended hours Create user-friendly, secure websites and free access by telephone

Harder to evaluate service & distinguish from competitors Greater risk & uncertainty perceived Interaction between customer & provider; but poor task execution could affect satisfaction Behavior of service personnel & customers can affect satisfaction Hard to maintain quality, consistency, reliability Difficult to shield customers from failures Time is money; customers want service at convenient times Electronic channels or voice telecommunications

6. Expanded marketing mix for services

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 in a competitive marketplace i. Product elements (Chapter 4) ii. Place and time (Chapter 5) iii. Price and other user outlays (Chapter 6) iv. Promotion and education (Chapter 7) v. Process (Chapter 8) vi. Physical environment (Chapter 10) vii. People (Chapter 11)

a. Traditional 4Ps applied to services

i. Product elements
Service products are at the heart of services marketing strategy Marketing mix begins with creating service concept that offers value Service product consists of core and supplementary elements (Core products meet primary needs and supplementary elements are value-added enhancements.) Service distribution can take place through physical and non-physical channels Some firms can use electronic channels to deliver all (or at least some) of their service elements Information-based services can be delivered almost instantaneously electronically Delivery Decisions: Where, When, How Time is of great importance as customers are physically present Convenience of place and time become important determinants of effective service delivery From the firms perspective, pricing generates income and creates profits From the customers perspective, pricing is key part of costs to obtained wanted benefits Marketers must recognize that customer costs involve more than price paid to seller Identify and minimize non-monetary costs incurred by users: - Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting, etc.) - Time expenditures, especially waiting - Unwanted mental and physical effort - Negative sensory experiences Revenue management is an important part of pricing

ii. Place and time

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iii. Price and other user outlays

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iv. Promotion and Education

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Plays three vital roles: - Provide information and advice - Persuades the target customers of merit of service product/brand - Encourages customer to take action at specific time Customers may be involved in co-production so: - Teach customer how to move effectively through the service process - Shape customers roles and manage their behavior

b. Extended mix for managing the customer interface

i. Process
How firm does things may be as important as what it does Customers often actively involved in processes, especially when acting as co-producers of service Operational inputs and outputs vary more widely - Quality and content varies among employees, between employees - Variations can be with different customers - Variations from time of the day Variability can be reduced by: - Standardized procedures - Implementing rigorous management of service quality - Training employees more carefully - Automating tasks - Train employees in service recovery procedures Manage process design and flow of customers

ii. Physical environment

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Design servicescape and provide tangible evidence of service performances Create and maintain physical appearances - Buildings/landscaping - Interior design/furnishings - Vehicles/equipment - Staff grooming/clothing - Sounds and smells - Other tangibles Manage physical cues carefully can have profound impact on customer impressions

iii. People
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Interactions between customers and contact personnel strongly influence customer perceptions of service quality Well-managed firms devote special care to selecting, training and motivating service employees Other customers can also affect ones satisfaction with a service

7. Framework for effective services marketing strategies

Framework For Developing Effective Service Marketing Strategies Overview

Reasons for studying services - Service sector dominates economy in most nations - Most new jobs are generated by services - Powerful forcesgovernment policies, social changes, business trends, IT advances, and globalizationare transforming service markets The service concept and its definition: - Services offer benefits without transfer of ownership - Four broad categories of services people processing, possession processing, mental stimulus processing and information processing - Customers expect value from access to goods, facilities, labor, professional skills, environments, networks & systems in return for money, time, effort Services present distinctive marketing challenges relative to goods, requiring: - Expanded marketing mix comprising 7Ps instead of traditional 4Ps Framework for developing effective services marketing strategies: - Understanding service products, consumers & markets - Applying the 4 Ps to services - Managing the customer interface - Implementing profitable service strategies