Ch-1

Introduction to Services
Chapter Overview (1 of 2)

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Chapter Overview (2 of 2)

Why Study What are

Services? Services?

Marketing Extended
Challenges Marketing
Posed by Mix Required
Services for Services

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Why Study Services (1 of 6)

• 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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Why Study Services (2 of 6)
Evolution of Service
Dominated Economy

Figure 1.4 Changing structure of employment as

an economy develops
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Why Study Services (3 of 6)
Contribution Of
Services Industries To
GDP Globally

Figure 1.5 Contribution of services industries

to GDP globally

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 Why Study Services (4 of 6)

Figure 1.6 Estimated size of service sector in selected countries as a percentage of GDP 7
Why Study Services (5 of 6)
• 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 (6 of 6)
• 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. 10

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

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. 11
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, Melbourne, Australia), 28–46. 12
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 (1 of 2)

Mental
People Possession Information
stimulus
processing processing processing
processing

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Four Categories of Services –
A Process Perspective (2 of 2)

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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, and reservations
inventoried Work with operations to adjust capacity
(i.e., output is perishable)
Intangible elements usually Customers cannot taste, smell, or touch these elements and may not Make services tangible through emphasis on physical clues
dominate value creation be able to see or hear them Employ concrete metaphors and vivid images in advertising and branding
(i.e., service is physically Harder to evaluate service and distinguish from competitors
intangible)
Services are often difficult to Customers perceive greater risk and uncertainty Educate customers to make good choices, explain what to look for, document
visualize and understand performance, offer guarantees
(i.e., service is mentally
intangible)
Customers may be involved in co- Customers interact with providers’ equipment, facilities, and systems Educate customers to make good choices, explain what to look for, document
production Poor task execution by customers may hurt productivity, spoil the 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 service Appearance, attitude and behavior of service personnel and other Recruit, train, and reward employees to reinforce the planned service concept
experience customers can shape the experience and affect satisfaction 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; redesign product elements for
tend to vary more widely lower costs through higher productivity simplicity and failure-proofing
(i.e., services are heterogeneous) Difficult to shield customers from results of service failures 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 burden of waiting, offer extended
great importance wasting time waiting, want service at times that are convenient service hours
Distribution may take place Information-based services can be delivered through electronic Seek to create user-friendly, secure websites and free access by telephone
through nonphysical channels channels such as the Internet or voice telecommunications, but core Ensure that all information-based service elements are delivered effectively and reliably
products involving physical activities or products cannot through all key channels
Channel integration is a challenge; that is to ensure consistent delivery
of service through diverse channels, including branches, call centres
and websites. 22
Tangible-dominant to
Intangible-dominant

Relative value added by physical versus intangible

elements in goods and services
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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 (1 of 2)
• 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 (2 of 2)
• 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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