Chapter 1:
New Perspectives
on
Marketing in the
Service Economy
Overview of Chapter 1
Why study services?
Powerful forces that are transforming
service Markets
What are services?
Four broad categories of services
Challenges posed by services
Expanded marketing mix for services
Framework for effective services
marketing strategies
What are
Services?
Services
Combination of outcomes and experiences
delivered to and received by customers.
Deeds, processes, performances.
All economic activities whose output is not a
physical product.
Generally consumed at the time it is produced
Provides added value in forms that are essentially
intangible.
Services deal with processes rather than with
things and are experienced than consumed.
Usually cover a vast array of different and often
complex activities.
Challenges
Posed by
Services
Service Characteristics:
Intangibility
Inseparability
Heterogeneity/ Variability
Perishability
Customer participation
No ownership
Differences, Implications, and
Marketing-Related Tasks (1) (Table 1.1)
Difference Implications Marketing-Related Tasks
Most service
products
Customers may be Use pricing, promotion,
and
turned away or have to reservations to smooth
cannot be inventoried wait
demand; work with ops to
manage capacity
Intangible elements Harder to evaluate Emphasize physical clues,
usually dominate service and distinguish employ metaphors and vivid
value creation from competitors images in advertising
Services are often Greater risk and Educate customers on
difficult to visualize uncertainty perceived making good choices; offer
and understand guarantees
Customers may be Interaction between Develop user-friendly
involved in co- customer and provider; equipment, facilities, and
production but poor task execution systems; train customers,
could affect satisfaction provide good support
Difference Implications Marketing-Related Tasks
People may be part Appearane, Attitude and
Behavior of service
Recruit, train employees to
of
service experience personnel and other reinforce service concept
customers
can affect satisfaction
Shape customer behavior
Operational inputs Hard to maintain quality,
and
consistency, reliability
outputs tend to vary
more widely Difficult to shield Institute good service
customers from failures
recovery procedures
Time factor often Time is money;
assumes great customers want service Find ways to compete on
importance at convenient times speed of delivery; offer
extended hours
Distribution may take Electronic channels or
place through voice telecommunications Create user-friendly,
secure websites and free
nonphysical channels access by telephone
Why Study Services? (1)
Services dominate economy in most nations
Understanding services offers you personal competitive
advantages
Importance of service sector in economy is growing
rapidly:
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
Economic Sectors in Bangladesh
Sector GDP Share of
composition Labor
by sector
11.20% 36.86%
Agriculture
37.56% 21.88%
Industry
51.24% 41.26
Services
Source: Bangladesh Economic Review 2023 (GDP), Statista 2022(Labor
Share)
Trend of Structural Transformation of Broad Sectoral Shares in
GDP at Constant Prices
Changing Structure of Employment
as Economic Development Evolves
Share of
Employment Agriculture
Services
Industry
Time, per Capita Income Source: IMF, 1997
Changing Structure of sectors as
Economic Development Evolves
Three Major sectors:
Primary Secondary Tertiary
(agriculture) (manufacturin (services)
g)
Structural Transformation
Decline in Agriculture’s contribution
Stagnant Industrial Sector
Increase in Services’ contribution
As the economy is on the development path, the
structure of the economy shifts away from
agriculture to industry and then from industry to
Economic sectors in
Bangladesh
Why Study Services? (2)
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
Will service jobs lost to lower-cost countries?
Yes, some service jobs can be exported
Outsourcing and Offshoring
Outsourcing
About moving internal operations to a third-party
To move transactional activities to the experts to
give an organization the capacity to focus on its
expertise.
Offshoring
Services that are conducted in one country and
consumed in another
Takes advantage of the cost differentials by
relocating factories from costly countries to the
cheaper economies
Why Study Services? (3)
Powerful forces are transforming service
markets
Government policies, social changes, business
trends, advances in IT, internationalization
These forces are reshaping
Demand
Supply
The competitive landscape
Customers’ choices, power, and decision
making
Transformation of the Service Economy
Social Business Advances in
Changes Trends IT
Government
Globalization
Policies
New markets and product categories
Increase in demand for services
More intense competition
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
Factors Stimulating Transformation of the Service Economy
Categories of
Services
Differences among Services Affect
Customer Behavior
Consumers are rarely involved in the
manufacture of goods but often participate in
service creation and delivery
There are four categories of services:
People processing
Possession processing
Mental stimulus processing
Information processing
Four Categories Of Services
Who or What Is the Direct Recipient of the Service?
Nature of the Service Act People Possessions
Tangible Actions People processing Possession processing
(services directed at (services directed at
people’s bodies): physical possessions):
Barbers Refueling
Health care Disposal/recycling
Intangible Actions Mental stimulus Information processing
processing
(services directed at
(services directed at
intangible assets):
people’s minds):
Education
Accounting
Advertising/PR
Banking
People Processing
-Services Directed at People’s Bodies
People Processing
-Services Directed at People’s Bodies
Customers must:
Physically enter the service factory
Co-operate actively with the service operation
Expect some degree of variability
Managers should think about process and output
from customer’s perspective
To identify benefits created and non-financial costs:
Time, mental, physical effort
Possession Processing
-Services Directed at Physical Possessions
Possession Processing
-Services Directed at Physical Possessions
Customers are less physically involved
compared to people processing services
Involvement is limited
Production and consumption are separable
In each instance, the output should be a
satisfactory solution.
Mental Stimulus Processing
-Services Directed at People’s Minds
Mental Stimulus Processing
-Services Directed at People’s Minds
Has the power to shape attitude and influence
behavior
Ethical standards required when customers who
depend on such services can potentially be
manipulated by suppliers
Physical presence of recipients not required
Mode of delivery can vary
Core content of services is information-based
Can be “inventoried”
Information Processing
-Services Directed at Intangible Assets
Information Processing
-Services Directed at Intangible Assets
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.
Mental Stimulus services and Information Processing services are combined
under the umbrella, information-based services.
Expanded Marketing
Mix
for Services
Services Require
An Expanded Marketing Mix
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
The “8Ps” of services marketing are needed to
create viable strategies for meeting customer
needs profitably in a competitive marketplace
8 P’s of Services Marketing
Product
Price
Place
Promotion
Physical evidence/environment
People
Process
Productivity and Quality
(1) Product Elements
Embrace all aspects of service performance that
create value
Core product responds to customer’s primary
need
Array of supplementary service elements
Help customer use core product effectively
Add value through useful enhancements
Planning marketing mix begins with creating a
service concept that:
Will offer value to target customers
Satisfy their needs better than competition
(2) Place and Time
Delivery decisions: Where, When, How
Geographic locations served
Service schedules
Physical channels
Electronic channels
Customer control and convenience
Channel partners/intermediaries
(3) Price and Other User Outlays
Marketers must recognize that customer outlays
involve more than price paid to seller
Traditional pricing tasks:
Selling price, discounts, premiums
Margins for intermediaries (if any)
Credit terms
Identify and minimize other 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
(4) Promotion and Education
Informing, educating, persuading, reminding
customers
Marketing communication tools
Media elements (print, broadcast, outdoor, retail, the
Internet, etc.)
Personal selling, customer service
Sales promotion
Publicity/PR
Imagery and recognition
Branding
Corporate design
Content
Information, advice
Persuasive messages
(5) 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
Process involves choices of method and sequence in
service creation and delivery
Design of activity flows
Number and sequence of actions for customers
Nature of customer involvement
Role of contact personnel
Role of technology, degree of automation
Badly designed processes waste time, create poor
experiences, and disappoint customers
(6) Physical Environment
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
(7) People
Interactions between customers and contact personnel
strongly influence customer perceptions of service quality
The right customer-contact employees performing tasks
well
Job design
Recruiting
Training
Motivation
The right customers for firm’s mission
Contribute positively to experience of other customers
Possess—or can be trained to have— needed skills (co-
production)
Can shape customer roles and manage customer
behavior
(8) Productivity and Quality
Productivity and quality must work hand in hand
Improving productivity key to reducing costs
Improving and maintaining quality is essential for
building customer satisfaction and loyalty
Ideally, strategies should be sought to improve both
productivity and quality simultaneously—technology
often the key
Technology-based innovations have potential to create high
payoffs
But, must be user friendly and deliver valued customer benefits
