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This chapter discusses the importance of studying services marketing. It notes that services now dominate most economies and account for over 60% of GDP worldwide. Most new employment is also being generated by the services sector. The chapter provides an overview of key topics to be covered, including the challenges of marketing services, developing an extended marketing mix for services, and integrating marketing with other management functions. It also examines factors driving the transformation of service economies, such as advances in information technology, globalization, social changes, and government policies.

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Services Marketing 7e, Global Edition! Chapter 1:! New Perspectives On! !Marketing in the! ! !Service Economy! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
Overview of Chapter 1!   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! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2
Why Study Services?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3
Why Study Services?!   Services dominate most economies and are growing rapidly:! è  Services account for more than 60% of GDP worldwide! è  Almost all economies have a substantial service sector! è  Most new employment is provided by services ! è  Strongest growth area for marketing! !   Understanding services offers you a personal competitive advantage! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4
Services Dominate the Global Economy! Contribution of Service Industries to GDP Globally! Manufacturing 32%" Services 64%" Agriculture 4%" Source: The World Factbook 2008, Central Intelligence Agency" ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5
Estimated Size of Service Sector
 in Selected Countries" Jersey (97%), Cayman Islands (95%), Hong Kong (92%)! Bahamas (90%), Bermuda ( 89%), Luxembourg (86%)! USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%)! Japan (72%), Taiwan (71%), Australia (71%), Italy (71%)! Canada (70%), Germany (69%), Israel (67%) ! South Africa (65%), Brazil (66%), Poland (66%)! Turkey (63%), Mexico (62%) Argentina (57%), Russia (55%)! Malaysia (46%), Chile (45%) Indonesia (41%), China (40%)! Saudi Arabia (35%)! Services as Percent of GDP 10 20 30 40 50 60 70 80 90 Source: The World Factbook 2008, Central Intelligence Agency" ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6
Value Added by Service Industry 
 Categories to U.S. GDP! Business Services 12% " Transport, Utilities & Communications " 9% " SERVICES! " Wholesale & Retail Trade 12% " Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007 " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7
NAICS Codes of Newer Service
 Industries Not Profiled By SIC! v  Casino Hotels" v  HMO Medical Centers" v  Continuing Care Retirement v  Industrial Design Services" Communities" v  Investment Banking and Securities v  Diagnostic Imaging Centers" Dealing" v  Diet and Weight Reducing Centers" v  Management Consulting Services" v  Environmental Consulting" v  Satellite Telecommunications" v  Golf Courses, Country Clubs" v  Telemarketing Bureaus" v  Hazardous Waste Collection" v  Temporary Help Services" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
Statistical Classification of Economic Activities in the European Community! Ø  ISIC International Standard Industrial Classification Rev.4 ! Ø  United Nations Statistics Division, http://goo.gl/2hGBE! Ø  European Commission, Eurostat: European Statistics! Ø  NACE Rev.2 Statistical classification of economic activities in the European Community ! Ø  RAMON System, Metadata, Link NACE! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9
NAICS: New Way to Classify &
 Analyze the Service Economy "  NAICS—North American Industry Classification System! è  Classifies industries in the economic statistics of USA, Canada & Mexico! è  Replaces old SIC codes in USA! è  Captures huge array of new service industries, each with its own NAICS code!  NAPCS—North American Product Classification System! è  Assigns codes to thousands of service products! è  Particularly useful for looking at rented goods services! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10
Why Study Services? !   Most new jobs are generated by services! è  Fastest growth expected in knowledge-based industries! è  Significant training and educational qualifications required, but employees will be more highly compensated! è  Will service jobs be lost to lower-cost countries? Yes, some service jobs can be exported! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11
Changing Structure of Employment as Economies Develop ! Agriculture! Services! Employment! Share of ! Industry! Time, per Capita Income! Source: IMF, 1997" " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12
Why Study Services? !   Powerful forces are transforming service markets! è  Government policies, social changes, business trends, advances in IT, internationalization!   Forces that reshape:! è  Demand! è  Supply! è  The competitive landscape! è  Customers’ choices, power, and decision making! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13
Transformation of the 
 Service Economy! 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 on:" §  Understanding customers and competitors "" §  Viable business models" §  Creation of value for customers and firm" Increased focus on services marketing and management ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14
Factors Stimulating Transformation of the 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 15
Factors Stimulating Transformation of the 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 " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16
Factors Stimulating Transformation of the 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 17
Factors Stimulating Transformation of the Service Economy ! Social! Business ! Advances ! Changes ! Trends! In IT! Government ! Globalization! Policies! §  Growth of Internet" §  Greater bandwidth" §  Compact mobile equipment" §  Wireless networking" §  Faster, more powerful software" §  Digitization of text, graphics, audio, video" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18
Factors Stimulating Transformation of the 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19
What are Services?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20
What Are Services? !   The historical view! è  Smith (1776): Services are different from goods because they are perishable ! è  Say (1803): As services are immaterial, consumption cannot be separated from production!   A fresh perspective: Benefits without Ownership! è  Rental of goods: ! (a) Payment made for using or accessing something – usually for a defined period of time – instead of buying it outright and! !(b) Allows participation in network systems that individuals and organizations could not afford! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21
What Are Services? ! !Five broad categories within non-ownership framework of which two or more may be combined ! Rented goods Defined space Labor and services! and place rentals" expertise rentals" Access to shared Access to and physical usage of systems environments" and networks " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22
Definition of Services! Services are economic activities offered by one party to another. Often time-based, performances bring about desired results to recipients, objects or other assets for which purchasers have responsibility. ! In exchange for money, time and effort, service customers expect value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved.! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 23
Definition of Services!   Services ! è  are economic activities offered by one party to another ! è  most commonly employ time-based performances to bring about desired results!   In exchange for their money, time, and effort, service customers expect to obtain value from! è  access to goods, labor, facilities, environments, professional skills, networks, and systems; ! è  normally do not take ownership of any of the physical elements involved. ! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24
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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25
Service Products vs. Customer Service & After-Sales Service!   A firm’s market offerings are divided into core product elements and supplementary service elements!   Need to distinguish between:! è  Marketing of services – when service is the core product! è  Marketing through service – when good service increases the value of a core physical good!   Manufacturing firms are reformulating and enhancing existing added-value services to market them as stand- alone core products! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26
Service – A Process Perspective!   Differences exist amongst services depending on what is being processed (and nature processing)!   Classification of services into! è  People processing! è  Possession processing! è  Mental stimulus processing! è  Information processing! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27
4 Categories of Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28
People Processing!   Customers must:! è  physically enter the service factory! è  cooperate actively with the service operation!   Managers should think about process and output from ! ! the customerʼs perspective ! è  to identify benefits created and non-financial costs: Time, mental and physical effort! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29
Possession Processing!   Involvement is limited!   Less physical involvement!   Production and consumption are separable! Installation, maintaining, repairing, improving, removal and disposal -!  The entire value-adding chain of activities that may take place during the lifetime of the object! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30
Mental Stimulus Processing!   Ethical standards required:! è  Customers might be manipulated!   Physical presence of recipients not required!   Investment of time and a degree of mental effort!   Core content of services is information-based! è  Can be ʻinventoriedʼ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31
Information Processing!   Most intangible form of service!   May be transformed:! è  Into enduring forms of service output!   Line between information processing and mental ! ! ! stimulus processing may be unclear: information-based services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32
Marketing Challenges Posed by Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33
Services Pose Distinctive Marketing Challenges !   Marketing management tasks in the service sector differ from those in the manufacturing sector.!   Eight common differences between services and goods but they do not apply equally to all services! What are marketing implications of these differences?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34
Differences, Implications, and 
 Marketing-Related Tasks " Difference! Implications! Marketing-Related Tasks! ! ! ! §  Most service products! §  Customers may be! §  Use pricing, promotion, ! cannot be inventoried! turned away! reservations to smooth ! ! demand; work with ops to ! ! manage capacity ! ! ! §  Intangible elements! §  Harder to evaluate! §  Emphasize physical clues, ! usually dominate! service & distinguish! employ metaphors and vivid ! value creation! images in advertising! from competitors! ! ! ! §  Services are often! §  Greater risk &! §  Educate customers on! difficult to visualize &! uncertainty perceived! making good choices; offer ! understand! ! guarantees! ! ! §  Interaction between! §  Develop user-friendly! §  Customers may be! customer & provider; ! equipment, facilities & ! involved in co-! poor task execution ! systems; train customers, ! production! could affect satisfaction! provide good support! ! " " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35
Differences, Implications, and 
 Marketing-Related Tasks " Difference! Implications! Marketing-Related Tasks! ! ! ! §  People may be part of ! §  Behavior of service! §  Recruit, train employees to ! service experience! personnel & customers! reinforce service concept! ! can affect satisfaction! §  Shape customer behavior! ! ! ! §  Operational inputs and! §  Hard to maintain quality,! §  Redesign for simplicity and! outputs tend to vary ! consistency, reliability ! failure proofing! more widely! §  Difficult to shield ! §  Institute good service ! customers from failures! recovery procedures! ! ! §  Time factor often ! §  Time is money; ! §  Find ways to compete on ! assumes great ! customers want service! speed of delivery; offer ! importance! at convenient times! extended hours! ! ! ! §  Distribution may take ! §  Electronic channels or ! §  Create user-friendly,! place through ! voice communications! secure websites and free! access by telephone! nonphysical channels! ! " ! " " " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 36
Extended Marketing Mix for Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 37
Services Require 
 An Extended Marketing Mix!   Marketing can be viewed as:! è  A strategic and competitive thrust pursued by top management! è  A set of functional activities performed by line managers! è  A customer-driven orientation for the entire organization!   Marketing is only function to bring operating revenues into a business; all other functions are cost centers!   The “7 Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38
The 7Ps of Services Marketing!   Traditional Marketing Mix Applied to Services! è  Product ! è  Place and Time! è  Price! è  Promotion and Education!   Extended Marketing Mix for Services ! è  Process! è  Physical Environment! è  People! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 39
Integration of Marketing with Other Management Functions ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 40
Marketing to be Integrated with Other Management Functions " Three management functions play central and interrelated roles in meeting needs of service customers! Operations ! Marketing ! Management" Management" Customers! ! Human Resources ! Management " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 41
Developing Effective Service Marketing Strategies ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 42
Overview of Framework! Understanding Service Products, Consumers and Markets! Part I: Chapters 1-3! Applying the 4 Pʼs of Marketing to Services! Part II: Chapters 4-7! The Extended Services Marketing Mix for Managing the Customer Interface! Part III: Chapters 8-11! Implementing Profitable Service Strategies! Part IV: Chapters 12-15! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 43
Framework - Part I! Understanding Service Products, Consumers, and Markets! " Chapter 1 "New Perspectives on Marketing in the Service Economy" Chapter 2 "Consumer Behavior in a Services Context" Chapter 3 "Positioning Services in Competitive Markets" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 44
Framework - Part II! Applying the 4 Pʼs of Marketing to Services! " Chapter 4 "Developing Service Products: Core and Supplementary " " "Elements" Chapter 5 "Distributing Services through Physical and Electronic " " "Channels" Chapter 6 "Setting Prices and Implementing Revenue Management" Chapter 7 "Promoting Services and Educating Customers" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 45
Framework - Part III! The Extended Services Marketing Mix for Managing the Customer Interface! " Chapter 8 "Designing and Managing Service Processes" Chapter 9 "Balancing Demand and Productive Capacity" Chapter 10 "Crafting the Service Environment" Chapter 11 "Managing People for Service Advantage" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 46
Framework - Part IV! Implementing Profitable Service Strategies! " Chapter 12 "Managing Relationships and Building Loyalty" Chapter 13 "Complaint Handling and Service Recovery" Chapter 14 "Improving Service Quality and Productivity" Chapter 15 "Striving for Service Leadership" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 47
Summary! Services dominate Why Study Unique Services are often the economy in many Services?" Characteristics " intangible, difficult to nations. The majority visualize and understand, of jobs are created in and customers may be the service sector. " involved in co-production." " " CHAPTER 1! Services are a form of rental (not Product, Place & Time, Price, Promotion & ownership). They are Extended Education, Process, performances that What are Marketing Physical Environment, bring about a desired Services?" Mix People" result. " " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 48

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Lovelock ppt chapter_01.ppt

  • 1. Services Marketing 7e, Global Edition! Chapter 1:! New Perspectives On! !Marketing in the! ! !Service Economy! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
  • 2. Overview of Chapter 1!   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! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2
  • 3. Why Study Services?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3
  • 4. Why Study Services?!   Services dominate most economies and are growing rapidly:! è  Services account for more than 60% of GDP worldwide! è  Almost all economies have a substantial service sector! è  Most new employment is provided by services ! è  Strongest growth area for marketing! !   Understanding services offers you a personal competitive advantage! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4
  • 5. Services Dominate the Global Economy! Contribution of Service Industries to GDP Globally! Manufacturing 32%" Services 64%" Agriculture 4%" Source: The World Factbook 2008, Central Intelligence Agency" ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5
  • 6. Estimated Size of Service Sector
 in Selected Countries" Jersey (97%), Cayman Islands (95%), Hong Kong (92%)! Bahamas (90%), Bermuda ( 89%), Luxembourg (86%)! USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%)! Japan (72%), Taiwan (71%), Australia (71%), Italy (71%)! Canada (70%), Germany (69%), Israel (67%) ! South Africa (65%), Brazil (66%), Poland (66%)! Turkey (63%), Mexico (62%) Argentina (57%), Russia (55%)! Malaysia (46%), Chile (45%) Indonesia (41%), China (40%)! Saudi Arabia (35%)! Services as Percent of GDP 10 20 30 40 50 60 70 80 90 Source: The World Factbook 2008, Central Intelligence Agency" ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6
  • 7. Value Added by Service Industry 
 Categories to U.S. GDP! Business Services 12% " Transport, Utilities & Communications " 9% " SERVICES! " Wholesale & Retail Trade 12% " Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007 " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7
  • 8. NAICS Codes of Newer Service
 Industries Not Profiled By SIC! v  Casino Hotels" v  HMO Medical Centers" v  Continuing Care Retirement v  Industrial Design Services" Communities" v  Investment Banking and Securities v  Diagnostic Imaging Centers" Dealing" v  Diet and Weight Reducing Centers" v  Management Consulting Services" v  Environmental Consulting" v  Satellite Telecommunications" v  Golf Courses, Country Clubs" v  Telemarketing Bureaus" v  Hazardous Waste Collection" v  Temporary Help Services" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
  • 9. Statistical Classification of Economic Activities in the European Community! Ø  ISIC International Standard Industrial Classification Rev.4 ! Ø  United Nations Statistics Division, http://goo.gl/2hGBE! Ø  European Commission, Eurostat: European Statistics! Ø  NACE Rev.2 Statistical classification of economic activities in the European Community ! Ø  RAMON System, Metadata, Link NACE! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9
  • 10. NAICS: New Way to Classify &
 Analyze the Service Economy "  NAICS—North American Industry Classification System! è  Classifies industries in the economic statistics of USA, Canada & Mexico! è  Replaces old SIC codes in USA! è  Captures huge array of new service industries, each with its own NAICS code!  NAPCS—North American Product Classification System! è  Assigns codes to thousands of service products! è  Particularly useful for looking at rented goods services! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10
  • 11. Why Study Services? !   Most new jobs are generated by services! è  Fastest growth expected in knowledge-based industries! è  Significant training and educational qualifications required, but employees will be more highly compensated! è  Will service jobs be lost to lower-cost countries? Yes, some service jobs can be exported! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11
  • 12. Changing Structure of Employment as Economies Develop ! Agriculture! Services! Employment! Share of ! Industry! Time, per Capita Income! Source: IMF, 1997" " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12
  • 13. Why Study Services? !   Powerful forces are transforming service markets! è  Government policies, social changes, business trends, advances in IT, internationalization!   Forces that reshape:! è  Demand! è  Supply! è  The competitive landscape! è  Customers’ choices, power, and decision making! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13
  • 14. Transformation of the 
 Service Economy! 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 on:" §  Understanding customers and competitors "" §  Viable business models" §  Creation of value for customers and firm" Increased focus on services marketing and management ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14
  • 15. Factors Stimulating Transformation of the 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 15
  • 16. Factors Stimulating Transformation of the 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 " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16
  • 17. Factors Stimulating Transformation of the 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 17
  • 18. Factors Stimulating Transformation of the Service Economy ! Social! Business ! Advances ! Changes ! Trends! In IT! Government ! Globalization! Policies! §  Growth of Internet" §  Greater bandwidth" §  Compact mobile equipment" §  Wireless networking" §  Faster, more powerful software" §  Digitization of text, graphics, audio, video" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18
  • 19. Factors Stimulating Transformation of the 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19
  • 20. What are Services?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20
  • 21. What Are Services? !   The historical view! è  Smith (1776): Services are different from goods because they are perishable ! è  Say (1803): As services are immaterial, consumption cannot be separated from production!   A fresh perspective: Benefits without Ownership! è  Rental of goods: ! (a) Payment made for using or accessing something – usually for a defined period of time – instead of buying it outright and! !(b) Allows participation in network systems that individuals and organizations could not afford! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21
  • 22. What Are Services? ! !Five broad categories within non-ownership framework of which two or more may be combined ! Rented goods Defined space Labor and services! and place rentals" expertise rentals" Access to shared Access to and physical usage of systems environments" and networks " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22
  • 23. Definition of Services! Services are economic activities offered by one party to another. Often time-based, performances bring about desired results to recipients, objects or other assets for which purchasers have responsibility. ! In exchange for money, time and effort, service customers expect value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved.! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 23
  • 24. Definition of Services!   Services ! è  are economic activities offered by one party to another ! è  most commonly employ time-based performances to bring about desired results!   In exchange for their money, time, and effort, service customers expect to obtain value from! è  access to goods, labor, facilities, environments, professional skills, networks, and systems; ! è  normally do not take ownership of any of the physical elements involved. ! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24
  • 25. 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25
  • 26. Service Products vs. Customer Service & After-Sales Service!   A firm’s market offerings are divided into core product elements and supplementary service elements!   Need to distinguish between:! è  Marketing of services – when service is the core product! è  Marketing through service – when good service increases the value of a core physical good!   Manufacturing firms are reformulating and enhancing existing added-value services to market them as stand- alone core products! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26
  • 27. Service – A Process Perspective!   Differences exist amongst services depending on what is being processed (and nature processing)!   Classification of services into! è  People processing! è  Possession processing! è  Mental stimulus processing! è  Information processing! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27
  • 28. 4 Categories of Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28
  • 29. People Processing!   Customers must:! è  physically enter the service factory! è  cooperate actively with the service operation!   Managers should think about process and output from ! ! the customerʼs perspective ! è  to identify benefits created and non-financial costs: Time, mental and physical effort! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29
  • 30. Possession Processing!   Involvement is limited!   Less physical involvement!   Production and consumption are separable! Installation, maintaining, repairing, improving, removal and disposal -!  The entire value-adding chain of activities that may take place during the lifetime of the object! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30
  • 31. Mental Stimulus Processing!   Ethical standards required:! è  Customers might be manipulated!   Physical presence of recipients not required!   Investment of time and a degree of mental effort!   Core content of services is information-based! è  Can be ʻinventoriedʼ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31
  • 32. Information Processing!   Most intangible form of service!   May be transformed:! è  Into enduring forms of service output!   Line between information processing and mental ! ! ! stimulus processing may be unclear: information-based services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32
  • 33. Marketing Challenges Posed by Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33
  • 34. Services Pose Distinctive Marketing Challenges !   Marketing management tasks in the service sector differ from those in the manufacturing sector.!   Eight common differences between services and goods but they do not apply equally to all services! What are marketing implications of these differences?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34
  • 35. Differences, Implications, and 
 Marketing-Related Tasks " Difference! Implications! Marketing-Related Tasks! ! ! ! §  Most service products! §  Customers may be! §  Use pricing, promotion, ! cannot be inventoried! turned away! reservations to smooth ! ! demand; work with ops to ! ! manage capacity ! ! ! §  Intangible elements! §  Harder to evaluate! §  Emphasize physical clues, ! usually dominate! service & distinguish! employ metaphors and vivid ! value creation! images in advertising! from competitors! ! ! ! §  Services are often! §  Greater risk &! §  Educate customers on! difficult to visualize &! uncertainty perceived! making good choices; offer ! understand! ! guarantees! ! ! §  Interaction between! §  Develop user-friendly! §  Customers may be! customer & provider; ! equipment, facilities & ! involved in co-! poor task execution ! systems; train customers, ! production! could affect satisfaction! provide good support! ! " " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35
  • 36. Differences, Implications, and 
 Marketing-Related Tasks " Difference! Implications! Marketing-Related Tasks! ! ! ! §  People may be part of ! §  Behavior of service! §  Recruit, train employees to ! service experience! personnel & customers! reinforce service concept! ! can affect satisfaction! §  Shape customer behavior! ! ! ! §  Operational inputs and! §  Hard to maintain quality,! §  Redesign for simplicity and! outputs tend to vary ! consistency, reliability ! failure proofing! more widely! §  Difficult to shield ! §  Institute good service ! customers from failures! recovery procedures! ! ! §  Time factor often ! §  Time is money; ! §  Find ways to compete on ! assumes great ! customers want service! speed of delivery; offer ! importance! at convenient times! extended hours! ! ! ! §  Distribution may take ! §  Electronic channels or ! §  Create user-friendly,! place through ! voice communications! secure websites and free! access by telephone! nonphysical channels! ! " ! " " " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 36
  • 37. Extended Marketing Mix for Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 37
  • 38. Services Require 
 An Extended Marketing Mix!   Marketing can be viewed as:! è  A strategic and competitive thrust pursued by top management! è  A set of functional activities performed by line managers! è  A customer-driven orientation for the entire organization!   Marketing is only function to bring operating revenues into a business; all other functions are cost centers!   The “7 Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38
  • 39. The 7Ps of Services Marketing!   Traditional Marketing Mix Applied to Services! è  Product ! è  Place and Time! è  Price! è  Promotion and Education!   Extended Marketing Mix for Services ! è  Process! è  Physical Environment! è  People! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 39
  • 40. Integration of Marketing with Other Management Functions ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 40
  • 41. Marketing to be Integrated with Other Management Functions " Three management functions play central and interrelated roles in meeting needs of service customers! Operations ! Marketing ! Management" Management" Customers! ! Human Resources ! Management " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 41
  • 42. Developing Effective Service Marketing Strategies ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 42
  • 43. Overview of Framework! Understanding Service Products, Consumers and Markets! Part I: Chapters 1-3! Applying the 4 Pʼs of Marketing to Services! Part II: Chapters 4-7! The Extended Services Marketing Mix for Managing the Customer Interface! Part III: Chapters 8-11! Implementing Profitable Service Strategies! Part IV: Chapters 12-15! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 43
  • 44. Framework - Part I! Understanding Service Products, Consumers, and Markets! " Chapter 1 "New Perspectives on Marketing in the Service Economy" Chapter 2 "Consumer Behavior in a Services Context" Chapter 3 "Positioning Services in Competitive Markets" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 44
  • 45. Framework - Part II! Applying the 4 Pʼs of Marketing to Services! " Chapter 4 "Developing Service Products: Core and Supplementary " " "Elements" Chapter 5 "Distributing Services through Physical and Electronic " " "Channels" Chapter 6 "Setting Prices and Implementing Revenue Management" Chapter 7 "Promoting Services and Educating Customers" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 45
  • 46. Framework - Part III! The Extended Services Marketing Mix for Managing the Customer Interface! " Chapter 8 "Designing and Managing Service Processes" Chapter 9 "Balancing Demand and Productive Capacity" Chapter 10 "Crafting the Service Environment" Chapter 11 "Managing People for Service Advantage" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 46
  • 47. Framework - Part IV! Implementing Profitable Service Strategies! " Chapter 12 "Managing Relationships and Building Loyalty" Chapter 13 "Complaint Handling and Service Recovery" Chapter 14 "Improving Service Quality and Productivity" Chapter 15 "Striving for Service Leadership" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 47
  • 48. Summary! Services dominate Why Study Unique Services are often the economy in many Services?" Characteristics " intangible, difficult to nations. The majority visualize and understand, of jobs are created in and customers may be the service sector. " involved in co-production." " " CHAPTER 1! Services are a form of rental (not Product, Place & Time, Price, Promotion & ownership). They are Extended Education, Process, performances that What are Marketing Physical Environment, bring about a desired Services?" Mix People" result. " " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 48