Services Marketing: Creating Value

Chapter 1: Creating Value in The Service Economy

• This chapter introduces "Services Marketing: People, Technology, Strategy"
• The chapter aims to explore how services create value in the economy

Learning Objectives

• Grasp services contribution to a nation's economy
• Identify key industries in the service sector
• Recognize main forces transforming service markets
• Learn how B2B services boost client productivity and drive economic growth
• Differentiate between outsourcing and offshoring in services
• Define services using the non-ownership framework
• Identify the four service processing categories
• Familiarize with service characteristics and related marketing challenges
• Understand traditional marketing mix components applied to services
• Describe extended marketing mix components for customer interface management
• Acknowledge integration of marketing, operations, HR, and IT in service businesses
• Understand Service-Profit Chain implications for service management
• Learn the five-part framework for effective service marketing strategies

Chapter Overview

• The chapter covers why services matter
• What defines a service
• The marketing challenges specific to services
• The extended marketing mix is necessary for services
• The chapter covers how marketing integrates with other management areas
• The chapter aims to create effective service marketing strategies

Why Study Services?

• Services dominate the global economy as the service sector expands worldwide
• The distribution of employment shifts significantly among agriculture, industry, and services
• Service output is growing fast, accounting for over 50% of gross domestic product (GDP)

Size of Service Sector in Various Economies

• Tertiary education is a major service purchase in life
• The service sector's size varies across different economies
• Jersey has one of the highest estimated service sector sizes at 96% of GDP
• Followed by Bermuda at 94% and Bahamas at 90%
• The USA 80%
• Bahrain's real GDP contribution in 2022:
  • Financial Corporations at 17.5%
  • Crude Petroleum & Natural Gas at 16.9%
  • Trade at 14%, Manufacturing at 5.3%

Factors Driving Growth

• New job creation is primarily in the service sector
• Knowledge-based industries such as professional and business services, education, and healthcare generate high-paying jobs
• Understanding service characteristics helps gain competitive advantage

Forces Transforming Service Markets

• Government policies, changing social dynamics, business trends, globalization, and IT advancements are reshaping service markets
• Government policies include changes in regulations, privatization, rules protecting consumers/employees/environment, and trade agreements
• Social Changes include rising consumer expectations, ubiquitous social networks, more affluence, less personal time, desire for experiences, tech ownership, and easy information
• Business trends include increasing shareholder value, emphasis on productivity, manufacturers adding value, platform business models, strategic alliances, outsourcing, and franchising growth
• Technology includes includes widespread internet/mobile use, robotics, AI, analytics, IoT, cloud, geotagging, text/speech/image processing, and VR
• Globalization means companies operate globally, international travel increases, mergers/alliances occur, customer service is offshored, and foreign competitors enter domestic markets
• Collective effects of these forces include new markets and competition
• Innovation in service products and delivery is boosted by new technologies
• Success depends on understanding customers/competitors, viable business models, creating value for customers/firm, agility with technology, and focusing on service marketing

Definition of Services

• Economic activities performed by one party for another, often time-based, yielding desired results
• Production and consumption are inseparable
• Benefits provided without ownership transfer
• In exchange, service customers value access to labor, skills, expertise, goods, facilities, networks, and systems

Non-Ownership Service Framework

• Five broad categories exist that can be combined:
  • Rented goods service
  • Defined space and place rentals
  • Labor and expertise rentals
  • Access to shared physical environments
  • Access to and usage of systems and networks

Four Categories of Services: A Process Perspective

• Services can be categorized by process:
  • People processing (e.g., hairstylist, passenger transport, healthcare):tangible actions directed at people's bodies
  • Possession processing (e.g., freight transport, laundry, repair services):services directed at physical possessions
  • Mental stimulus processing (e.g., education, advertising, psychotherapy):services directed at people's minds
  • Information processing (e.g., accounting, banking, legal services):services directed at intangible assets

Implications of People Processing Services

• Production and consumption are simultaneous
• Customer cooperation is essential
• Location, processes, service environment, demand/capacity management, and customer viewpoint require careful consideration in the service operation

Characteristics of Services & Marketing Actions

• Four characteristics:
  • Intangibility
  • Heterogeneity
  • Inseparability
  • Perishability
• The "IHIP" framework
• Services are often difficult to visualize and understand so educating customers, documentation, offering guarantees, and creating firm confidence is important
• Customers can be part of the service, so equipment, facilities, and systems that are user friendly, will train the customer effectively
• Factors like appearance and behavior of personnel etc reinforce the service concept
• Maintaining consistency, and setting quality are important through good service

Extended Marketing Mix

• Includes the 4 P's (original marketing mix): product, price, place (distribution), promotion (communication)
• Also includes an additional 3 P's specific to services:
  • Process
  • Physical environment
  • People

Process

• How a firm delivers service is as crucial as what they deliver
• It’s important to design product and implementation
• Service processes are different from manufacturing, in these ways:
  • Operational inputs and outputs can vary widely
  • Customers are often involved in co-production
  • Demand and capacity need to be balanced

Physical Environment

• Appearance, landscaping, interior, equipment, staff uniforms, and signage all give tangible evidence of service quality
• Servicescape facilitates service deliver and guides the customers

People

• Service company HR departments must work closely and devote care to selecting, training, and motivating employees
• Employees must have good interpersonal skills and a great attitude

Integrating Marketing with Other Management Functions

• Marketing, operations, HR, and IT are central and interconnected in meeting service customer needs
• Operations responsible for service delivery management
• HR responsible for job definitions, recruitment and training etc
• IT are essential, as service processes use a lot of information to manage the HR function, value and marketing etc
• Marketing's role: to affect customers and their experience