Service Marketing: New Perspectives

• The lecture will discuss service marketing
• Chapter 1 will cover new perspectives on marketing in the service economy
• The overview will discuss the following topics:
• Why study services
• What are services
• Marketing challenges posed by services
• Extended marketing mix required for services
• Integration of marketing with other management functions

Why Study Services?

• Services dominate most economies and are growing rapidly
• Services account for more than 60% of GDP worldwide
• Almost all economies have a substantial service sector
• Most new employment is provided by services
• Strongest growth area for marketing
• Understanding services offers a personal competitive advantage
• New job creation is mostly in the service industry
• Fastest growth is expected in knowledge-based industries
• Significant training and educational qualifications are required, but employees will be more highly compensated
• Some service jobs may be exported to lower-cost countries
• Government policies, social changes, business trends, advances in IT, and internationalization are powerful forces transforming service markets
• Several forces reshape markets:
• Demand
• Supply
• The competitive landscape
• Customer choices, power, and decision-making

Factors of the Service Transformation

• Social changes in the market
• Rising consumer expectations and affluence
• More people are short on time
• Increased desire for buying experiences vs things
• Rising consumer ownership of high tech equipment
• Easier access to information
• Immigration
• Growing but aging population
• Business trends
• 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
• Government policies
• Changes in regulations
• Privatization
• New rules to protect customers, employees, and the environment
• New agreements on trade in services
• Advances in IT
• Growth of the internet
• Greater bandwidth
• Compact mobile equipment
• Wireless networking
• Faster, more powerful software
• Digitization of text, graphics, audio, video
• Globalization
• 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?

• The historical view of services stated:
• Smith (1776): Services are different than goods because they are perishable
• Say (1803): Services are immaterial, consumption cannot be separated from production
• A fresh perspective recognizes benefits without ownership
• It involves the rental of goods:
• Payment made for using or accessing something – usually for a defined period of time – instead of buying it outright
• Allows participation in network systems that individuals and organizations could not afford
• Services are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything
• There are five broad categories within non-ownership, two or more of which may be combined:
• Rented goods services
• Defined space and place rentals
• Labor and expertise rentals
• Access to shared physical environments
• Access to and usage of systems and networks
• Services are economic activities offered by one party to another
• Services commonly employ time-based performances to bring about desired results
• In exchange for money, time, and effort, service customers expect to obtain value from access to goods, labor, facilities, environments, professional skills, networks, and systems
• Customers normally do not take ownership of any of the physical elements involved
• A firm's market offerings are divided into core product elements and supplementary service elements
• It is important to distinguish the type of marketing
• Marketing of services is when service is the core product
• Marketing through service is 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
• Differences exist among services depending on what is being processed
• Services can be classified into:
• People processing
• Possession processing
• Mental stimulus processing
• Information processing

Service Categories

• In People-processing services:
• Customers must physically enter the service factor
• Customers must cooperate actively with the service operation
• Managers should think about process and output from the customer's perspective
• This will identify benefits created and non-financial costs: Time, mental and physical effort
• In Possession-processing services:
• Involvement is limited
• There is less physical involvement
• Production and consumption are separable
• In Mental-stimulus processing:
• Ethical standards are required
• Customers might be manipulated
• Physical presence of recipients is not required
• Core content of services is information-based
• Services can be inventoried
• In Information Processing
• There is mostly intangible form of service
• Services may be transformed into enduring forms of service output
• The line between information processing and mental stimulus processing may be unclear

Marketing Challenges Posed by Services

• Marketing management tasks in the service sector differ from those in the manufacturing sector
• There are eight common differences between services and goods, but these do not equally apply to all services

Extended Marketing Mix for Services

• Marketing can be viewed as a strategic and competitive thrust pursued by top management, a set of functional activities performed by the line managers, and a customer-driven orientation for the entire organization
• Marketing is the only function to bring operating revenues into a business
• The other functions are cost centers
• There are "7 P's" of services marketing are needed to create viable strategies for meeting customer needs profitably
• The traditional marketing mix for services:
• Product
• Place and Time
• Price
• Promotion and Education
• The extended marketing mix for services includes:
• Process
• Physical Environment
• People

Integration of Marketing with Other Management Functions

• Three management functions play central and interrelated roles in meeting needs of service customers:
• Operations Management
• Marketing Management
• Human Resources Management