Services Marketing:

People, Technology, Strategy

CHAPTER 1
Creating Value In The Service
Economy

1
Highlight

• Chapter 1 highlights the importance of

services in our economies. We also define the
nature of services and how they create value
for customers without transfer of ownership.
The chapter highlights some distinctive
challenges involved in marketing services and
introduces the 7 Ps of services marketing.

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Learning Objectives
By the end of this chapter, the reader should be able
to:
• LO1. Demonstrate of Understanding how services
contribute to a country’s economy.
• LO2. Identify the powerful forces that are
transforming service markets.
• LO3. Identify the four broad “processing”
categories of services.
• LO4. Analyse the characteristics of services and the
distinctive marketing challenges they pose
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OPENING VIGNETTE
The World of Services Marketing

Figure 1.1 Tertiary education may be one of the biggest service purchases in life

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Chapter Overview

Figure 1.3 Introduction to services marketing

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Chapter Overview

• Why Study 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

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Why Study Services?

1. Services Dominate the Global Economy

– The size of the service sector across the globe is
increasing.
– 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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Evolution of Service Dominated Economy

Figure 1.4 Changing structure of employment as an economy develops

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Contribution of Services Industries to GDP
Globally

Figure 1.5 Contribution of services industries to GDP globally

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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.
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Service Dominated Economy

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

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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 generate high-
paid jobs.

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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.

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The Principal Industries of the Service
Sector

Figure 1.8 Value added by service industry categories to United States GDP.

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Powerful Forces are Transforming Service
Markets

• Government policies,
• Social changes,
• Business trends,
• Globalization,
• Advances in information technology and
communications are among the powerful forces
transforming today’s service markets.

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 Powerful Forces are Transforming
Service Markets
Social Business Advances
Changes Trends In 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  Understanding customers and competitors

on:  Viable business models
 Creation of value for customers and firm
Increased focus on services marketing and
management
 Factors stimulating transformation of
service economy
Social Business Advances
Changes Trends In IT

Government Globalization
Policies

 Changes in regulations
 Privatization
 New rules to protect customers,
employees, and the environment
 New agreement on trade in services
 Factors stimulating transformation of
service economy
Social Business Advances
Changes Trends In IT

Government Globalization
Policies

 Rising consumer expectations

 More affluence
 More people short of time
 Increased desire for buying
experiences vs. things
 Rising consumer ownership of high
tech equipment
 Easier access to information
 Immigration
 Growing but aging population
 Factors stimulating transformation of
service economy
Social Business Advances
Changes Trends In 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
 Factors stimulating transformation of
service economy
Social Business Advances
Changes Trends In IT

Government Globalization
Policies

• Ubiquity of the Internet and mobile

connectivity
• Robotics
• Artificial intelligence
• Analytics and big data
• User-generated content
• Internet of things (IoT)
• Mobile technologies
• Cloud technology
• Geotagging
• Text processing
• Speech processing
• Image processing
• Virtual reality
 Factors stimulating transformation of
service economy
Social Business Advances
Changes Trends In 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
What are Services?
What Are Services?
Five broad categories within non-ownership
framework of which two or more may be
combined
Rented Defined space
Labor, skills, and
goods and facility
expertise rentals
services rentals

Access and use of

Access to shared
networks and
facilities
systems
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
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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

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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

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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

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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

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Definition of Services
• A fresh perspective: Benefits without
Ownership
• 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. 29
 Value Creation is
Dominated by Intangible
Elements
Physical Elements

High

Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing Plumbing Repair
Fast-Food Restaurant Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking

Low High
Intangible Elements
Source; Adapted from Lynn Shostack
Four Categories of Services –
A Process Perspective

People Possession
processing processing

Services

Mental stimulus Information

processing processing

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People Processing
• Service directed at people bodies
Example:

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Possession Processing
• Service directed at physical possession

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Mental Stimulus Processing

• Service directed at people’s mind

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Information Processing

• Service directed to intangible assets

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Four Categories of Services –
A Process Perspective

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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 between Implications Marketing-Related Topics
Services and Goods
Most service products • Customers may be turned • Smooth demand through
cannot be inventoried away or have to wait promotions, dynamic pricing,
(i.e., output is and reservations
perishable) • Work with operations to
adjust capacity

Intangible elements • Customers cannot taste, • Make services tangible

usually dominate value smell, or touch these through emphasis on
creation elements and may not be physical clues
(i.e., service is physically able to see or hear them • Employ concrete metaphors
intangible) • Harder to evaluate service and vivid images in
and distinguish from advertising and branding
competitors

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 Eight Features of Services
Difference between Implications Marketing-Related Topics
Services and Goods
Services are often • Customers perceive greater risk • Educate customers to make
difficult to visualize and and uncertainty good choices, explain what to
understand look for, document
(i.e., service is mentally performance, offer
intangible) guarantees
• Create confidence in the
firm’s experience, expertise,
and credentials

Customers may be • Customers interact with • Develop user-friendly

involved in co- providers’ equipment, facilities, equipment, facilities, and
production and systems systems
(i.e., if people • Poor task execution by • Train customers to perform
processing is involved, customers may hurt effectively; provide customer
the service is productivity, spoil the service support
inseparable) experience, and curtail benefits

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 Eight Features of Services
Difference between Implications Marketing-Related Topics
Services and Goods
People may be part of • Appearance, attitude, and • Recruit, train, and reward
the service experience behavior of service personnel employees to reinforce the
and other customers can shape planned service concept
the experience and affect • Target the right customers at
satisfaction the right times; shape their
behavior

Operational inputs and • Harder to maintain consistency, • Set quality standards based
outputs tend to vary reliability, and service quality on customer expectations;
more widely • Lower costs through higher redesign product elements
(i.e., services are productivity for simplicity and failure-
heterogeneous) • Difficult to shield customers proofing
from results of service failures • Automate customer–provider
interactions; perform work
while customers are absent
• Institute good service
recovery procedures

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 Eight Features of Services
Difference between Implications Marketing-Related Topics
Services and Goods
The time factor often • Customers see time as a scarce • Find ways to compete on
assumes great resource to be spent wisely, speed of delivery, minimize
importance dislike wasting time waiting, burden of waiting, offer
want service at times that are extended service hours
convenient

Distribution may take • Information-based services can • Seek to create user-friendly,

place through be delivered through electronic secure websites and apps,
nonphysical channels channels such as the Internet or and free access by telephone
voice telecommunications, but • Ensure that all information-
core products involving physical based service elements are
activities or products cannot delivered effectively and
• Channel integration is a reliably through all key
challenge; that is to ensure channels
consistent delivery of service
through diverse channels,
including branches, call centres,
websites, and apps.

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The 7 ‘P’s of Services Marketing
The 4 ‘P’s
product, price, place (or distribution), and
promotion (or communication)
• The traditional marketing mix does not cover
the customer interface.
Thus the extended Marketing Mix for Services
– The 3 ‘P’s
process, physical environment, and people

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The 7Ps of Services
Marketing
• Traditional Marketing Mix Applied to
Services
– Product (Chapter 4)
– Place and Time (Chapter 5)
– Price (Chapter 6)
– Promotion and Education (Chapter 7)
• Extended Marketing Mix for Services
– Process (Chapter 8 & 9)
– Physical Environment (Chapter 10)
– People (Chapter 11) 43
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 that are
mutually reinforcing, and add value to help
customers use the core product more effectively.
– Supplementary service elements include providing
information, consultation, order-taking,
hospitality, handling exceptions, etc.

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The Traditional Marketing Mix Applied to
Services
• Place and Time
– Distribution of core versus supplementary Services
Facilitate purchase and use of physical goods.
Much e-commerce activity concerns
supplementary services that are based on transfer
of information, making reservations and
payments, as opposed to downloading the core
product itself.

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The Traditional Marketing Mix Applied to
Services
– Importance of the time factor
 Willing to pay extra to save time
 Busy customers expect service to be available
when it suits them, rather than when it suits the
supplier

Figure 1.21 Taking a taxi can save time for busy commuters
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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.

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The Traditional Marketing Mix Applied to
Services
– For customers, price is a key part of the costs they
must incur to obtain desired benefits.

Figure 1.22 Money is not the only consideration when measuring the
cost of a service
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The Traditional Marketing Mix Applied to
Services

– The outlays include additional monetary costs,

time spent, unwanted mental and physical effort,
and exposure to negative sensory experiences.

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The Traditional Marketing Mix Applied to
Services

– Most Service Products Cannot be Inventoried

Services involve actions or performances, they

are temporary and perishable. Hence cannot be
stocked as inventory for future use.
 A key task for service marketers is to find ways of
smoothing demand levels to match available
capacity using dynamic pricing strategies.

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The Traditional Marketing Mix Applied to
Services
• Promotion and Education

Suppliers need to teach their customers about the

benefits of the service, where and when to obtain
it, and how to participate in service processes to
get the best results.

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Extended Marketing Mix Required for
Services

• Process

As far as services are concerned, how a firm does

things is as important as what it does.

Creating and delivering product elements requires

design and implementation of effective processes.

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Extended Marketing Mix Required for
Services

Service processes differ from manufacturing in

three ways:

– Operational Inputs and Outputs Can Vary Widely

– Customers Are Often Involved in Co-production
– Demand and Capacity Need to be Balanced

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Extended Marketing Mix Required for
Services
• Physical Environment

– 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.
– Servicescape also facilitates service delivery and
guides customers through the service process.

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Extended Marketing Mix Required for
Services
• 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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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
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Integration of Marketing with Other
Management Functions

Figure 1.25 Marketing, operations, human resources, and information

technology departments must collaborate to serve the customer
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Integration of Marketing with Other
Management Functions
• Marketing, operations, human resources, and
information technology (IT) – Play central and
interrelated roles in meeting the needs of service
customers.

• Operations – Primary line function in a service

business, responsible for managing service
delivery through equipment, facilities, systems,
and many tasks performed by customer-contact
employees.

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Integration of Marketing with Other
Management Functions

• Human resources (HR) – Staff function responsible

for job definition, recruitment, training and
development, reward systems, and quality of work
life — all of which are central to the people element.

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Integration of Marketing with Other
Management Functions

• Information Technology (IT) is:

 a key function as service processes are information-
heavy
 manage the functions of marketing, operations,
human resources, and create value for the
organization’s customers.

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Integration of Marketing with Other
Management Functions

• Marketing: Only a minority of people who work in a

service firm are employed in formal marketing
positions.

 All those whose work affects the customer in some

way — either through direct contact or the design of
processes, systems, and policies that shape
customers’ experiences — need to think of
themselves as part-time marketers.

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Chapter Overview

Figure 1.3 Introduction to services marketing

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Integrated Model of Services
Marketing

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Summary

Services Why Study Unique Services are often

dominate the Services? Characteris intangible, difficult
economy in many tics to visualize and
nations. The understand, and
majority of jobs customers may be
are created in involved in co-
the service CHAPTER production.
Services are a
sector.
form of rental 1 Product, Place &
Time, Price,
(not ownership).
Extended Promotion &
They are What are
Marketing Education,
performances Services?
Mix Process, Physical
that bring about
Environment,
a desired result.
People
Review Questions

1. What are the main reasons for the growing share of the service sector in all the
major economies of the world?
2. What are the five powerful forces transforming the service landscape, and what
impact do they have on the service economy?
3. Is it possible for an economy to be almost entirely based on services? Is it a sign of
weakness when a national economy manufactures few of the goods that it consumes?
4. Why would growth in business services help individual firms and entire economies
become more productive?
5. “A service is rented rather than owned.” Explain what this statement means, and
use examples to support your explanation.
6. Describe the four broad “processing” categories of services, and provide examples
for each.
7. What is so special about services marketing that it needs a special approach?
8. “The 4 Ps are all a marketing manager needs to create a marketing strategy for a
service business.” Prepare a response that argues against this, and support it with
examples. 65