2007 Chapter1:
NewPerspectiveson
Marketinginthe
ServiceEconomy
Slide by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 1
OverviewofChapter1
WhyStudyServices?
WhatareServices?
TheMarketingChallengesPosedbyServices
TheExpandedMarketingMixRequiredforServices
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 2
WhyStudyServices?
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 3
WhyStudyServices?(1)
Servicesdominateeconomyinmostnations
Understandingservicesoffersyoupersonalcompetitive
advantages
Importanceofservicesectorineconomyisgrowing
rapidly:
Servicesaccountformorethan60percentofGDPworldwide
Almostalleconomieshaveasubstantialservicesector
Mostnewemploymentisprovidedbyservices
Strongestgrowthareaformarketing
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 4
ServicesDominatetheU.S.Economy
(Fig1.1)
Services, 68%
Agriculture, Forestry, Mining,
Fishing, 2.3%
Manufacturing and
Construction,
17.3%
Government, 12.4%
(mostly Services)
Source: Bureau of Economic Analysis, Survey of Current Business, May 2005, Table 1
INSIGHTS
Private sector service industries account for over two-thirds of GDP
Adding government services, total is almost four-fifths of GDP
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 5
EstimatedSizeofServiceSectorin
SelectedCountries(Fig1.2updated10/06)
Cayman Islands (95%), Jersey (93%)
Bahamas (90%), Bermuda ( 89%)
Luxembourg (83%)
Panama (80%), USA (79%)
Japan (74%), France (73%), U.K. (73%), Canada (71%)
Mexico (69%), Australia (68%), Germany (68%)
Poland (66%), South Africa (65%)
Israel (60%), Russia (58%), S. Korea (56%)
Argentina (53%), Brazil (51%)
India (48%)
China (40%)
Saudi Arabia (33%)
10
20
Services as Percent of GDP
30
Slide 2007 by Christopher Lovelock and Jochen Wirtz
40
50
60
70
Services Marketing 6/E
80
90
Chapter 1 - 6
ValueAddedbyServiceIndustry
CategoriestoU.S.GDPin2004
Other (except government) 3.6%
Accommodation and food services 4.0%
Arts, entertainment, and recreation 1.5%
Healthcare and social assistance 10.4%
Educational services 1.3%
Professional and business services 17.3%
Real estate and rental and leasing 18.7%
Finance and insurance 12.6%
Information 7.1%
Transportation and warehousing 4.4%
Retail trade 10.3%
Wholesale trade
Source: Bureau of Economic Analysis,
8.9%
Survey of Current Business, May 2005, Table 1
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 7
NAICS:ANewWaytoClassifyand
AnalyzetheServiceEconomy(RI1.1)
NAICSNorthAmericanIndustryClassificationSystem
nowusedtocompileandrecordeconomicdataby
nationalstatisticalagenciesoftheU.S.,Canada,Mexico
NewclassificationsystemreplacesoldSICcodesinU.S.
Captureshugearrayofnewserviceindustries,eachwith
itsownNAICScode
NAPCSNorthAmericanProductClassificationSystem
assignscodestothousandsofserviceproducts
Particularlyusefulforlookingatrentedgoodsservices
U.S.andCanadiandataeasilyaccessibleontheWeb;
informationincludesnumberofestablishmentsand
employment
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 8
SomeNewerServiceIndustries
ProfiledbyNAICSCodesButNotSIC
CasinoHotels
ContinuingCareRetirement
Communities
DiagnosticImagingCenters
DietandWeightReducing
Centers
EnvironmentalConsulting
GolfCourses,CountryClubs
HazardousWasteCollection
Slide 2007 by Christopher Lovelock and Jochen Wirtz
HMOMedicalCenters
IndustrialDesignServices
InvestmentBankingand
SecuritiesDealing
ManagementConsulting
Services
SatelliteTelecommunications
TelemarketingBureaus
TemporaryHelpServices
Services Marketing 6/E
Chapter 1 - 9
WhyStudyServices?(2)
Mostnewjobsaregeneratedbyservices
Fastestgrowthexpectedinknowledgebasedindustries
Significanttrainingandeducationalqualificationsrequired,
butemployeeswillbemorehighlycompensated
Willservicejobslosttolowercostcountries?Yes,someservicejobs
canbeexported
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 10
ChangingStructureofEmploymentas
EconomicDevelopmentEvolves
Share of
Employment
Agriculture
Services
Industry
Time, per Capita Income
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Source: IMF, 1997
Services Marketing 6/E
Chapter 1 - 11
WhyStudyServices?(3)
Powerfulforcesaretransformingservicemarkets
Governmentpolicies,socialchanges,businesstrends,
advancesinIT,internationalization
Theseforcesarereshaping
Demand
Supply
Thecompetitivelandscape
Customerschoices,power,anddecisionmaking
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 12
TransformationoftheServiceEconomy
Social
Business
Advances in
Changes
Trends
IT
Government
Policies
Globalization
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
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 13
FactorsStimulatingTransformation
oftheServiceEconomy(1)
Social
Business
Advances in
Changes
Trends
IT
Government
Globalization
Policies
Changes in regulations
Privatization
New rules to protect customers,
employees, and the environment
New agreement on trade in services
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 14
FactorsStimulatingTransformation
oftheServiceEconomy(2)
Social
Business
Advances in
Changes
Trends
IT
Government
Policies
Globalization
Rising consumer expectations
More affluence
More people short of time
Increased desire for buying experiences
versus things
Rising consumer ownership of high tech
equipment
Easier access to information
Immigration
Growing but aging population
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 15
FactorsStimulatingTransformation
oftheServiceEconomy(3)
Social
Business
Advances in
Changes
Trends
IT
Government
Globalization
Policies
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
Marketing emphasis by nonprofits
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 16
FactorsStimulatingTransformation
oftheServiceEconomy(4)
Social
Business
Advances in
Changes
Trends
IT
Government
Globalization
Policies
Growth of the Internet
Greater bandwidth
Compact mobile equipment
Wireless networking
Faster, more powerful software
Digitization of text, graphics, audio, video
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 17
FactorsStimulatingTransformation
oftheServiceEconomy(5)
Social
Business
Advances in
Changes
Trends
IT
Government
Globalization
Policies
More companies operating on transnational
basis
Increased international travel
International mergers and alliances
Offshoring of customer service
Foreign competitors invade domestic markets
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 18
WhatAreServices?
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 19
WhatAreServices?(1)
Thehistoricalview
Goesbackover200yearstoAdamSmithandJeanBaptisteSay
Differentfromgoodsbecausetheyareperishable(Smith1776)
Consumptioncannotbeseparatedfromproduction,servicesare
intangible(Say1803)
Afreshperspective:Servicesinvolveaformofrental,
offeringbenefitswithouttransferofownership
Includerentalofgoods
Marketingtasksforservicesdifferfromthoseinvolvedinselling
goodsandtransferringownership
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 20
WhatAreServices?(2)
Fivebroadcategorieswithinnonownershipframework:
1.
2.
3.
4.
5.
Rentedgoodsservices
Definedspaceandplacerentals
Laborandexpertiserentals
Accesstosharedphysicalenvironments
Systemsandnetworks:accessandusage
Implicationsofrentingversusowning(ServicePerspectives1.1)
Marketsexistforrentingdurablegoodsratherthansellingthem
Rentingportionsoflargerphysicalentity(e.g.,officespace,apartment)can
formbasisforservice
Customersmorecloselyengagedwithservicesuppliers
Timeplayscentralroleinmostservices
Customerchoicecriteriamaydifferbetweenrentalsandoutrightpurchases
Servicesofferopportunitiesforresourcesharing
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 21
DefiningServices
Services
Areeconomicactivitiesofferedbyonepartytoanother
Mostcommonlyemploytimebasedperformancestobringabout
desiredresultsin:
recipientsthemselves
objectsorotherassetsforwhichpurchasershaveresponsibility
Inexchangefortheirmoney,time,andeffort,service
customersexpecttoobtainvaluefrom
Accesstogoods,labor,facilities,environments,professionalskills,
networks,andsystems
Buttheydonotnormallytakeownershipofanyofthephysical
elementsinvolved
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 22
ServiceProductsversusCustomerService
andAfterSalesService
Afirmsmarketofferingsaredividedintocoreproduct
elementsandsupplementaryserviceelements
Iseveryoneinservice?Needtodistinguishbetween:
Marketingofservices
Marketinggoodsthroughaddedvalueservice
Goodserviceincreasesthevalueofacorephysical
good
Aftersalesserviceisasimportantaspresalesservice
formanyphysicalgoods
Manufacturingfirmsarereformulatingandenhancing
existingaddedvalueservicestomarketthemasstand
alonecoreproducts
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 23
ChallengesPosedbyServices
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 24
ServicesPoseDistinctive
MarketingChallenges
Marketingmanagementtasksintheservicesector
differfromthoseinthemanufacturingsector
Theeightcommondifferencesare:
1. Mostserviceproductscannotbeinventoried
2. Intangibleelementsusuallydominatevaluecreation
3. Servicesareoftendifficulttovisualizeandunderstand
4. Customersmaybeinvolvedincoproduction
5. Peoplemaybepartoftheserviceexperience
6. Operationalinputsandoutputstendtovarymorewidely
7. Thetimefactoroftenassumesgreatimportance
8. Distributionmaytakeplacethroughnonphysicalchannels
Whataremarketingimplications?
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 25
Differences,Implications,and
MarketingRelatedTasks(1)(Table1.1)
Difference
Implications
Marketing-Related Tasks
Most service
products
cannot be inventoried
Customers may be
Intangible elements
Harder to evaluate
usually dominate
value creation
turned away
service and distinguish
from competitors
Services are often
Greater risk and
Customers may be
Interaction between
difficult to visualize
and understand
involved in coproduction
uncertainty perceived
customer provider;
but and poor task execution
could affect satisfaction
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Use pricing, promotion,
and
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, and
systems; train customers,
provide good support
Services Marketing 6/E
Chapter 1 - 26
Differences,Implications,and
MarketingRelatedTasks(2)(Table1.1)
Difference
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
Implications
Marketing-Related Tasks
Behavior of service
Recruit, train employees to
personnel and customers
can affect satisfaction
reinforce service concept
Shape customer behavior
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
place through
nonphysical channels
Slide 2007 by Christopher Lovelock and Jochen Wirtz
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, 1 - 27
Chapter
Services Marketing 6/E
ValueAddedbyPhysical,IntangibleElements
HelpsDistinguishGoodsandServices(Fig1.6)
Physical
Elements
High
Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing
Fast-Food Restaurant
Low
Source; Adapted from Lynn Shostack
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Plumbing Repair
Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking
Intangible Elements
Services Marketing 6/E
High
Chapter 1 - 28
ProgressiveandREI:TwoTypesof
WebsiteReflectingCoreProduct(Fig1.8)
Websites can deliver info-based
services like Progressives car
insurance but
REIs camping gear must be delivered
through physical channels to customers
after they have used the website to make
choices, order, and pay
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 29
ExpandedMarketingMix
forServices
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 30
ServicesRequire
AnExpandedMarketingMix
Marketingcanbeviewedas:
Astrategicandcompetitivethrustpursuedbytopmanagement
Asetoffunctionalactivitiesperformedbylinemanagers
Acustomerdrivenorientationfortheentireorganization
Marketingistheonlyfunctiontobringoperating
revenuesintoabusiness;allotherfunctionsarecost
centers
The8Psofservicesmarketingareneededtocreate
viablestrategiesformeetingcustomerneeds
profitablyinacompetitivemarketplace
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 31
The8PsofServicesMarketing
ProductElements(Chapter3)
PlaceandTime(Chapter4)
PriceandOtherUserOutlays(Chapter5)
PromotionandEducation(Chapter6)
Process(Chapter8)
PhysicalEnvironment(Chapter10)
People(Chapter11)
ProductivityandQuality(Chapter14)
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Fig 1.9 Working in
Unison: The 8Ps of
Services Marketing
Services Marketing 6/E
Chapter 1 - 32
The8PsofServicesMarketing:
(1)ProductElements
Embraceallaspectsofserviceperformancethat
createvalue
Coreproductrespondstocustomersprimaryneed
Arrayofsupplementaryserviceelements
Helpcustomerusecoreproducteffectively
Addvaluethroughusefulenhancements
Planningmarketingmixbeginswithcreatinga
serviceconceptthat:
Willoffervaluetotargetcustomers
Satisfytheirneedsbetterthancompetingalternatives
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 33
The8PsofServicesMarketing:
(2)PlaceandTime
Deliverydecisions:Where,When,How
Geographiclocationsserved
Serviceschedules
Physicalchannels
Electronicchannels
Customercontrolandconvenience
Channelpartners/intermediaries
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 34
The8PsofServicesMarketing:
(3)PriceandOtherUserOutlays
Marketersmustrecognizethatcustomeroutlays
involvemorethanpricepaidtoseller
Traditionalpricingtasks:
Sellingprice,discounts,premiums
Marginsforintermediaries(ifany)
Creditterms
Identifyandminimizeothercostsincurredbyusers:
Additionalmonetarycostsassociatedwithserviceusage(e.g.,
traveltoservicelocation,parking,phone,babysitting,etc.)
Timeexpenditures,especiallywaiting
Unwantedmentalandphysicaleffort
Negativesensoryexperiences
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 35
The8PsofServicesMarketing:
(4)PromotionandEducation
Informing,educating,persuading,remindingcustomers
Marketingcommunicationtools
Mediaelements(print,broadcast,outdoor,retail,theInternet,etc.)
Personalselling,customerservice
Salespromotion
Publicity/PR
Imageryandrecognition
Branding
Corporatedesign
Content
Information,advice
Persuasivemessages
Customereducation/training
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 36
The8PsofServicesMarketing:
(5)Process
Howfirmdoesthingsmaybeasimportantaswhatitdoes
Customersoftenactivelyinvolvedinprocesses,
especiallywhenactingascoproducersofservice
Processinvolveschoicesofmethodandsequencein
servicecreationanddelivery
Designofactivityflows
Numberandsequenceofactionsforcustomers
Natureofcustomerinvolvement
Roleofcontactpersonnel
Roleoftechnology,degreeofautomation
Badlydesignedprocesseswastetime,createpoor
experiences,anddisappointcustomers
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 37
The8PsofServicesMarketing:
(6)PhysicalEnvironment
Designservicescapeandprovide
tangibleevidenceofservice
performances
Createandmaintainphysical
appearances
Buildings/landscaping
Interiordesign/furnishings
Vehicles/equipment
Staffgrooming/clothing
Soundsandsmells
Othertangibles
Managephysicalcuescarefully
canhaveprofoundimpacton
customerimpressions
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 38
The8PsofServicesMarketing:
(7)People
Interactionsbetweencustomersand
contactpersonnelstronglyinfluence
customerperceptionsofservicequality
Therightcustomercontactemployees
performingtaskswell
Jobdesign
Recruiting
Training
Motivation
Therightcustomersforfirmsmission
Contributepositivelytoexperienceofother
customers
Possessorcanbetrainedtohave
neededskills(coproduction)
Canshapecustomerrolesandmanage
customerbehavior
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 39
The8PsofServicesMarketing:
(8)ProductivityandQuality
Productivityandqualitymustworkhandinhand
Improvingproductivitykeytoreducingcosts
Improvingandmaintainingqualityessentialforbuilding
customersatisfactionandloyalty
Ideally,strategiesshouldbesoughttoimproveboth
productivityandqualitysimultaneouslytechnology
oftenthekey
Technologybasedinnovationshavepotentialtocreatehighpayoffs
But,mustbeuserfriendlyanddelivervaluedcustomerbenefits
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 40
MarketingMustBeIntegratedwith
OtherManagementFunctions
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 41
MarketingMustBeIntegratedwith
OtherManagementFunctions(Fig1.10)
Three management functions play central and interrelated roles
in meeting needs of service customers
Operations
Management
Marketing
Management
Customers
Human Resources
Management
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 42
AFrameworkforDeveloping
EffectiveServiceMarketing
Strategies(Fig1.11)
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 43
AFrameworkForDevelopingEffective
ServiceMarketingStrategies:Overview
Understanding Customer Needs, Decision Making,
and Behavior in Service Encounters
Chapter 2
Building the Service Model
Part II: Chapters 3-7
Managing the Customer Interface
Part III: Chapters 8-11
Implementing Profitable Service Strategies
Part IV: Chapters 12-15
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 44
FrameworkforDevelopingEffective
ServiceMarketingStrategies:PartI
I: Understanding Customer Needs, Decision Making,
and Behavior in Service Encounters
(Chapter 2)
Differences among Services Affect
Customer Behavior
Three-Stage Model of Service Consumption
Prepurchase Stage:
Search, evaluation of
alternatives, decision
Service Encounter Stage:
Role in high-contact vs.
low-contact delivery
Post-Encounter Stage:
Evaluation against
expectations, future
intentions
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 45
FrameworkforDevelopingEffective
ServiceMarketingStrategies:PartII
Building The Service Model
Part II: Chapters 3-7
The Value Proposition
Develop service concept: core
& supplementary elements
Select physical & electronic
channels for service delivery
Value Exchange
Set prices with reference to
costs, competition & value
The Business Model
Educate customers & promote
the value proposition
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Position the value proposition
against competing alternatives
Services Marketing 6/E
Chapter 1 - 46
FrameworkforDevelopingEffective
ServiceMarketingStrategies:PartIII
III: Managing the Customer
Interface
(Chapters 8-11)
Design and manage service
processes
Balance demand against
productivity capacity
Plan the service
environment
Manage service employees
for competitive advantage
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 47
FrameworkforDevelopingEffective
ServiceMarketingStrategies:PartIV
IV: Implementing Profitable Service
Strategies
(Chapters 12-15)
Create customer relationship
and build loyalty
Plan for service recovery and
create customer feedback
systems
Continuously improve service
quality and productivity
Organize for change management
and service leadership
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 48
Chapter1Summary:NewPerspectives
onMarketingintheServiceEconomy
Reasonsforstudyingservices:
Servicesectordominateseconomyinmostnations,manynewindustries
Mostnewjobscreatedbyservices
Powerfulforcesgovernmentpolicies,socialchanges,businesstrends,IT
advances,andglobalizationaretransformingservicemarkets
Understandingservicesofferspersonalcompetitiveadvantage
Theserviceconceptanditsdefinition:
Servicescreatebenefitswithouttransferofownership
Mostemploytimebasedperformancestobringaboutdesiredresultsin
recipientsorinassetsforwhichtheyhaveresponsibility
Customersexpectvaluefromaccesstogoods,facilities,labor,professional
skills,environments,networks&systemsinreturnformoney,time,effort
Servicespresentdistinctivemarketingchallengesrelativetogoods,
requiring:
Expandedmarketingmixcomprising8Psinsteadoftraditional4Ps
Integrationofmarketingfunctionwithoperationsandhumanresources
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 1 - 49