Services Marketing:

People, Technology, Strategy

CHAPTER 1
Creating Value In The Service
Economy

1
 Chapter Overview
• Why Study Services?

• Factor driving services growth

• Definition of 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

2
Chapter Overview

3
Let’s see what you know about services?
Log onto the following site via your phones:

pollEv.com/kwabenafrimp907
1. Why Study Services
 Why Study Services
1. 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
– The services output is growing rapidly as shown by
following data: 2021(37.2%); 2022 (42%); 2023
(44.8%) of Gross Domestic Product.
– https://www.theglobaleconomy.com/Saudi-Arabia/
Share_of_services/

6
Evolution of Service Dominated Economy

Figure 1.4 Changing structure of

employment as
7
an economy develops
Contribution Of Services Industries To GDP
Globally

Figure 1.5 Contribution of services

industries to GDP globally

8
Size of Service Sector in Various Economies

Figure 1.6 Estimated size of service sector in selected countries

as a percentage of GDP
Source: The World Factbook 2020, Central Intelligence Agency, www.cia.gov, accessed February 5, 2021.
9
 Service Dominated Economy

Figure 1.7 The Panama Canal forms the backbone of Panama’s

service economy
10
 Why Study Services
2. 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 healthcare, Fintech, etc.
generate high paid jobs.

11
 Why Study Services?
Rolls-Royce Sells Power by the Hour

12
 Why Study Services
3.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

13
Why Study Services
4.Deregulation and Services Marketing
Specific demand for services marketing concepts has
come from deregulated industries and professional
services
 Deregulatory moves by governments have affected
service industries such as airlines, banking, and
telecommunications
 As a result, marketing decisions that used to be
tightly controlled by government are now partially,
and sometimes totally, within the control of
individual firms
 The Principal Industries of the Service
Sector

Figure 1.8 Value added by service industry categories to United

States GDP.

15
2. Factors Driving Growth of Services
 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:
• New business models – Uber, Airbnb, etc.
17
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
consumers, • More people short of time • Manufacturers add value 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
trade in services and high-tech equipment • Focus on quality and customer • Big data customer 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.

18
 Factors stimulating transformation of
service economy
• Success hinges on:

understanding creation of value

viable business for both customers
customers and
models and the firm
competitors

agility and increased focus on

capabilities related services marketing
to technology and management

19
B2B Services as Core Engine of Economic
Development

Source: Jochen Wirtz and Michael Ehret, "Service-Based Business Models: Transforming Businesses, Industries and Economies," in Raymond
P. Fisk, Rebekah Russell-Bennett, and Lloyd C. Harris, eds. Serving Customers: Global Services Marketing Perspectives (Tilde University Press, 20
Melbourne, Australia), 28–46.
 Outsourcing and Offshoring
• Outsourcing refers to the contracting of services that
were previously conducted internally in an
organization to an external service provider.

• 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.

21
 Outsourcing and Offshoring

Figure 1.12 Outsourcing and offshoring are independent, but often work
in tandem.
Source: Jochen Wirtz, Sven Tuzovic, and Michael Ehret (2015), “Global Business Services: Increasing
Specialization and Integration of the World Economy as Drivers of Economic Growth,” Journal of Service 22
Management, Vol. 26, No.4, pp. 565--587.
3. What are Services?
 Definition Of Services
• The attempts to define services go back to two
centuries ago (1800s)
• Services consist of a broad and range of activities
making it difficult to define

• Work done by servants

• Acts, deeds and performances, efforts, etc.,

24
 What Are Services?

• Production and consumption inseparable in services

• Benefits without Ownership. Five broad categories
of non-ownership include:
I. Labor, skills and expertise rentals
II. Rented goods services
III. Defined space and facility rentals
IV. Access to shared facilities
V. Access and use of networks and systems

25
 What are Services?
• Production and consumption inseparable in services

• Benefits Without Ownership

Labor, skills, and expertise rentals: Other people
are hired to perform work that customers either
cannot or choose not to do themselves. Some
of these include:
• Car repair
• Medical check-up
• Management
26
 What are Services?
Rented goods services: These services allow
customers to obtain the exclusive temporary right
to use a physical object that they prefer not to own.
Examples include:
• Boats
• Fancy dress costumes
• Construction and excavation equipment

27
 What are Services?
Defined space and facility rentals: This is when
customers obtain the use of a certain portion of a
larger facility such as a building, vehicle, or area.
They usually share this facility with other customers.
Examples include:
• A seat in an aircraft
• A suite in an office building
• A storage container in a warehouse

28
 What are Services?
Access to shared facilities: Customers rent the
right to share the use of the facility. The facilities
may be a combination of indoors, outdoors, and
virtual.
Examples include:
• Theme parks
• Golf clubs
• Toll roads

Figure 1.13 Customers rent the right to use

toll roads 29
 What are Services?
Access and use of networks and systems:
Customers rent the right to participate in a
specified network. Service providers offer a variety
of terms for access and use, depending on
customer needs.
Examples include:
• Telecommunications
• Utilities and banking
• Social online networks and games

30
 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.

31
 Reduced Gap between Services and
Manufacturing

Service-dominant (S-D) logic:

All products are valued for the service they provide,
and that the value derived from a physical good, for
example, is not the good itself, but the service it
provides during consumption.

32
 Four Categories of Services –
A Process Perspective
• People processing
• Possession processing
• Mental stimulus processing
• Information processing

33
Four Categories of Services –
A Process Perspective

34
 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

35
 Possession Processing
• Production and consumption are not
necessarily simultaneous

• Customers tend to be less involved in

these services, compared to people-
processing services

36
 People Processing

Figure 1.16 A customer getting treated to a luxurious

manicure
37
 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.

38
Mental Stimulus Processing

Figure 1.18 Orchestral concerts

provide mental stimulation and 39
 Information Processing
• Information is the most intangible form of service
output.

• But it can be transformed into more permanent and

tangible forms like letters, reports, books, or files in
any type of format.

• It is not very different from mental stimulus

processing services.

40
 Information Processing

Figure 1.19 A young couple getting financial advice on buying a

new home
41
4. Characteristics of Services and
Implications
Marketing Challenges Posed By Services

• Four characteristics of Services

– intangibility
– heterogeneity (variability of quality)
– inseparability of production and
consumption and
– perishability

… IHIP
43
 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 not be 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 heterogeneous) Difficult to shield customers from results of service failures proofing
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 elements 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 and
websites.
44
Tangible-dominant to
Intangible-dominant

Relative value added by physical versus intangible

elements in goods and services 45
5. Marketing Mix for Services
 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

47
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

48
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

49
 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
50
Extended Marketing Mix Required for
Services
– Employees need to possess good interpersonal
skills and a positive attitude.

Figure 1.24 Hospitality is shown through employees

wearing
a ready smile and being ready to serve customers 51
6. Integration of Marketing and other
Management Functions
 Integration of Marketing with Other
Management Functions

Figure 1.25 Marketing, operations, human resources, and

information technology departments must collaborate to
serve the customer
53
 The Service-Profit Chain

• A conceptual framework that shows how marketing,

operations, human resources, and information
technology (IT) are integrated in high-performance
service organizations.

54
 The Service-Profit Chain

Source: Reprinted with permission of Harvard Business Review: James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and
Leonard L. Schlesinger (March–April 1994), “Putting the Service-Profit Chain to Work,” Harvard Business Review, p. 166. Copyright © 1994 by
the Harvard Business School Publishing Corporation; all rights reserved.
55
7. Developing Effective Service
Marketing Strategy
Developing Effective Service Marketing
Strategies

57
 Conclusion

Figure 1.28 Advances in technology are changing

the ways in which the service industry works
58
 Conclusion

• Effective marketing plays a vital role in determining

whether an individual organization survives and
thrives — or declines and fails.

• Services require a distinctive approach to marketing

because the context and the tasks often differ in
important aspects from those in the manufacturing
sector.

59
 Conclusion

• Succeeding as a marketing manager in a service

business requires you to understand key marketing
concepts and tools, and also know how to use them
effectively.

• Each of the 7 Ps — the strategic levers of services

marketing — has a role to play, but it’s how well you
tie them together that will make the difference.

60
Next Lecture

Ch.2: Consumer Behavior in a Services

Context