Chapter 1 Services Marketing.pdf

1 Introduction to SERVICES MARKETING WIRTZ LOVELOCK  Learning Objectives 1.1 Understand how services contribute to a country’s economy. 1.2 Know the principal industries of the service sector. 1.3 Identify the powerful forces that are transforming service markets...

1 Introduction to SERVICES MARKETING WIRTZ LOVELOCK  Learning Objectives 1.1 Understand how services contribute to a country’s economy. 1.2 Know the principal industries of the service sector. 1.3 Identify the powerful forces that are transforming service markets. 1.4 Understand how B2B services improve the productivity of individual firms and drive economic development. Copyright © 2018 Pearson Education Ltd. 2-2  Learning Objectives 1.5 Define services using the non-ownership framework. 1.6 Identify the four broad “processing” categories of services. 1.7 Be familiar with the characteristics of services and the distinctive marketing challenges they pose. 1.8 Understand the components of the traditional marketing mix applied to services. Copyright © 2018 Pearson Education Ltd. 2-3  Learning Objectives 1.9 Describe the components of the extended marketing mix for managing the customer interface. 1.10 Appreciate that marketing, operations, and human resource management functions need to be closely integrated in service businesses. 1.11 Understand the implications of the Service–Profit Chain for service management. 1.12 Know the framework for developing effective services marketing strategies. Copyright © 2018 Pearson Education Ltd. 2-4 Introduction to Services Marketing 1.1 Understand how services contribute to a country’s economy. WIRTZ LOVELOCK  How services contribute to a country’s economy Services dominate most economies and are growing rapidly: INTRODUCTION TO SERVICES MARKETING o Services account for almost two-thirds of GDP worldwide o Almost all economies have a substantial service sector o Most new employment is provided by services o Strongest growth area for marketing Understanding services offers you a personal competitive advantage Copyright © 2018 Pearson Education Ltd. 2-6  How services contribute to a country’s economy Contribution of Services Industries to Global GDP INTRODUCTION TO SERVICES MARKETING Copyright © 2018 Pearson Education Ltd.  How services contribute to a country’s economy Estimated Size of Service Sector in Selected Countries INTRODUCTION TO SERVICES MARKETING Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.2 Know the principal industries of the service sector. WIRTZ LOVELOCK  Principal industries of the service sector INTRODUCTION TO SERVICES MARKETING Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.3 Identify the powerful forces that are transforming service markets. WIRTZ LOVELOCK  Powerful forces that are transforming service markets Forces Transforming the Service Economy INTRODUCTION TO SERVICES MARKETING Government Social Advances in Business Trends Globalization Policies Changes IT New markets and product categories Increase in demand for services More intense competition Innovation in service products & delivery systems, stimulated by improved 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 Copyright © 2018 Pearson Education Ltd. 2-1  Powerful forces that are transforming service markets Forces Transforming the Service Economy INTRODUCTION TO SERVICES MARKETING Government Social Business Trends Advances in Policies Changes IT Globalization Changes in regulations Privatization New rules to protect customers, employees, and the environment Focus on quality and customer satisfaction New agreements on trade in services Copyright © 2018 Pearson Education Ltd. 2-1  Powerful forces that are transforming service markets Forces Transforming the Service Economy INTRODUCTION TO SERVICES MARKETING Government Social Advances in Business Trends Globalization Policies Changes IT Rising consumer expectations More affluence More people short of time Increased desire for buying experiences vs. things Rising consumer ownership of computers, cell phones, and high-tech equipment Ubiquitous social networks Easier access to more information Immigration Growing but aging population Copyright © 2018 Pearson Education Ltd. 2-1  Powerful forces that are transforming service markets Forces Transforming the Service Economy INTRODUCTION TO SERVICES MARKETING Government Social Advances in Business Trends Globalization Policies Changes IT 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 Copyright © 2018 Pearson Education Ltd. 2-1  Powerful forces that are transforming service markets Forces Transforming the Service Economy INTRODUCTION TO SERVICES MARKETING Government Social Advances in Business Trends Globalization Policies Changes IT Growth of the Internet Wireless networking and technology Digitalization of text graphics, audio, and video Cloud technology User-generated content Location-based services Big data Artificial intelligence Improved predictive analysis Internet of Things Copyright © 2018 Pearson Education Ltd. 2-1  Powerful forces that are transforming service markets Forces Transforming the Service Economy INTRODUCTION TO SERVICES MARKETING Government Social Advances in Business Trends Globalization Policies Changes IT More companies operating on a transnational basis Increased international travel International mergers and alliances “Offshoring” of customer service Foreign competitors invade domestic markets Copyright © 2018 Pearson Education Ltd. 2-1 Introduction to Services Marketing 1.4 Understand how B2B services improve the productivity of individual firms and drive economic development. WIRTZ LOVELOCK  How B2B drives economic development Many manufacturing firms outsource their non- core support activities to independent service INTRODUCTION TO SERVICES MARKETING providers This leads to an increased specialization with significant improvements in overall productivity and standards. Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.5 Define services using the non-ownership framework. WIRTZ LOVELOCK  What are services? Services involve a form of rental, offering benefits without transfer of ownership INTRODUCTION TO SERVICES MARKETING o Include rental of goods o Marketing tasks for services differ from those involved in selling goods and transferring ownership Copyright © 2018 Pearson Education Ltd.  What are services? Definition of Services INTRODUCTION TO SERVICES MARKETING Services o are economic activities offered by one party to another o most commonly employ time-based performances to bring about desired results Copyright © 2018 Pearson Education Ltd. 2 - 22  What are services? Definition of Services INTRODUCTION TO SERVICES MARKETING In exchange for their money, time, and effort, service customers o expect to obtain value from access to goods, labor, facilities, environments, professional skills, networks, and systems o normally do not take ownership of any of the physical elements involved Copyright © 2018 Pearson Education Ltd. 2 - 23 Introduction to Services Marketing 1.6 Identify the four broad “processing” categories of services WIRTZ LOVELOCK  Four broad categories of services Based on differences in nature of service act (tangible/intangible) and who or what is direct INTRODUCTION TO SERVICES MARKETING recipient of service (people/possessions), there are four categories of services: o People processing o Possession processing o Mental stimulus processing o Information processing Copyright © 2018 Pearson Education Ltd.  Four broad categories of services INTRODUCTION TO SERVICES MARKETING Copyright © 2018 Pearson Education Ltd.  Four broad categories of services People Processing INTRODUCTION TO SERVICES MARKETING Customers must: physically enter the service factory co-operate actively with the service operation Managers should think about process and output from customer’s perspective to identify benefits created and non-financial costs: Time, mental, physical effort Copyright © 2018 Pearson Education Ltd.  Four broad categories of services Possession Processing INTRODUCTION TO SERVICES MARKETING Customers are less involved compared to people processing services. Involvement may be limited to just dropping off the possession. Production and consumption are separable. Copyright © 2018 Pearson Education Ltd.  Four broad categories of services Mental Stimulus Processing INTRODUCTION TO SERVICES MARKETING Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers. Physical presence of recipients not required. Core content of services is information-based. Can be “inventoried” Copyright © 2018 Pearson Education Ltd.  Four broad categories of services Information Processing INTRODUCTION TO SERVICES MARKETING Information is the most intangible form of service output. May be transformed into enduring forms of service output. Line between information processing and mental stimulus processing may be blurred. Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.7 Be familiar with the characteristics of services and the distinctive marketing challenges they pose. WIRTZ LOVELOCK  Characteristics of services and marketing challenges Marketing management tasks in the service sector differ from the manufacturing sector: INTRODUCTION TO SERVICES MARKETING o Most service products cannot be inventoried o Intangible elements usually dominate value creation o Services are often difficult to visualize and understand o Customers may be involved in co-production o People may be part of the service experience o Operational inputs and outputs tend to vary more widely o The time factor often assumes great importance o Distribution may take place through nonphysical channels Copyright © 2018 Pearson Education Ltd.  Characteristics of services and marketing challenges Differences, Implications, and Marketing-Related Tasks (1) Difference Implications Marketing-related Topics Most service products Customers may be turned Use pricing, promotion, cannot be inventoried away reservations to smooth demand; work with ops to Intangible elements Harder to evaluate service manage capacity usually dominate value & distinguish from creation competitors Emphasize physical clues, employ metaphors and Services are often difficult Greater risk & uncertainty vivid to visualize & understand perceived images in advertising Customers may be Interaction between Educate customers on involved in co-production customer & provider; but making good choices; offer poor task execution guarantees could affect satisfaction Develop user-friendly equipment, facilities & systems; train customers, provide good support Copyright © 2018 Pearson Education Ltd. 2 - 33  Characteristics of services and marketing challenges Differences, Implications, and Marketing-Related Tasks (2) Difference Implications Marketing-related Topics People may be part of Behavior of service Recruit, train employees to service experience personnel & customers can reinforce service concept affect satisfaction Operational inputs and Shape customer behavior outputs tend to vary Hard to maintain quality, more widely consistency, reliability Redesign for simplicity and failure proofing Time factor often Difficult to shield assumes great customers from failures Institute good service recovery importance procedures Time is money; customers Distribution may take want service at convenient Find ways to compete on place through times speed of delivery; offer nonphysical channels extended hours Electronic channels or voice telecommunications Create user-friendly, secure websites and free access by telephone Copyright © 2018 Pearson Education Ltd. 2 - 34 Introduction to Services Marketing 1.8 Understand the components of the traditional marketing mix applied to services. WIRTZ LOVELOCK  The traditional marketing mix The 7 Ps of services marketing INTRODUCTION TO SERVICES MARKETING Product elements (Chapter 4) Place and time (Chapter 5) Price and other user outlays (Chapter 6) Promotion and education (Chapter 7) Process (Chapter 8) Physical environment (Chapter 10) People (Chapter 11) Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Applying the 4 Ps of Marketing to Services (1) INTRODUCTION TO SERVICES MARKETING Product elements o Service products are at the heart of services marketing strategy o Marketing mix begins with creating service concept that offers value o Service product consists of core and supplementary elements ▪ Core products meet primary needs ▪ Supplementary elements are value-added enhancements Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Applying the 4 Ps of Marketing to Services (2a) INTRODUCTION TO SERVICES MARKETING Place and time o Service distribution can take place through physical and non-physical channels o Some firms can use electronic channels to deliver all (or at least some) of their service elements o Information-based core services can be delivered almost instantaneously electronically Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Applying the 4 Ps of Marketing to Services (2b) INTRODUCTION TO SERVICES MARKETING Place and time o Delivery Decisions: Where, When, How o Time is of great importance as customers are physically present o Convenience of place and time become important determinants of effective service delivery Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Applying the 4 Ps of Marketing to Services (3a) INTRODUCTION TO SERVICES MARKETING Price and other user outlays o From the firm’s perspective, pricing generates income and creates profits o From the customer’s perspective, pricing is key part of costs to obtained wanted benefits o Marketers must recognize that customer costs involve more than price paid to seller Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Applying the 4 Ps of Marketing to Services (3b) Price and other user outlays INTRODUCTION TO SERVICES MARKETING o Identify and minimize non-monetary costs incurred by users: ▪ Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting, etc.) ▪ Time expenditures, especially waiting ▪ Unwanted mental and physical effort ▪ Negative sensory experiences Revenue management is an important part of pricing. Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.9 Describe the components of extended marketing mix for managing the customer interface. WIRTZ LOVELOCK  The traditional marketing mix Extended Mix for Managing the Customer Interface (1) INTRODUCTION TO SERVICES MARKETING Process o How a firm does things may be as important as what it does o Customers often actively involved in processes, especially when acting as co-producers of service o Operational inputs and outputs vary more widely o Customers are often involved in co-production o Demand and capacity need to be balanced Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Extended Mix for Managing the Customer Interface (2a) INTRODUCTION TO SERVICES MARKETING Physical environment Design servicescape and provide tangible evidence of service performances Manage physical cues carefully—can have profound impact on customer impressions Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Extended Mix for Managing the Customer Interface (2b) INTRODUCTION TO SERVICES MARKETING Physical environment o Identify and minimize non-monetary costs incurred by users: ▪ Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting, etc.) ▪ Time expenditures, especially waiting ▪ Unwanted mental and physical effort ▪ Negative sensory experiences Revenue management is an important part of pricing Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Extended Mix for Managing the Customer Interface (2c) INTRODUCTION TO SERVICES MARKETING Physical environment o Create and maintain physical appearances: ▪ Buildings/landscaping ▪ Interior design/furnishings ▪ Vehicles/equipment ▪ Staff grooming/clothing ▪ Sounds and smells ▪ Other tangibles Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Extended Mix for Managing the Customer Interface (3) INTRODUCTION TO SERVICES MARKETING People o Interactions between customers and contact personnel strongly influence customer perceptions of service quality o Well-managed firms devote special care to selecting, training and motivating service employees o Other customers can also affect one’s satisfaction with a service Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.10 Appreciate that marketing, operations, and human resource management functions need to be closely integrated in service business. WIRTZ LOVELOCK  Integration with Other Management Functions Marketers must work closely with managers in INTRODUCTION TO SERVICES MARKETING other central functions Operations: o involved in the design of products and processes o implementation of programs for improving productivity and quality Copyright © 2018 Pearson Education Ltd.  Integration with Other Management Functions HR: INTRODUCTION TO SERVICES MARKETING o responsible for quality front-line service providers IT: o provides real-time information at every customer touch-point to create value with updated customer data Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.11 Understand the implications of the Service–Profit Chain for Service Management WIRTZ LOVELOCK  The Service–Profit Chain The service– profit chain demonstrates the links in a INTRODUCTION TO SERVICES MARKETING managerial process that are essential for success in service businesses. Copyright © 2018 Pearson Education Ltd.  The traditional marketing mix Links in the Service Profit Chain o Customer loyalty drives profitability and growth. INTRODUCTION TO SERVICES MARKETING o Customer satisfaction drives customer loyalty. o Value drives customer satisfaction. o Quality and productivity drive value. o Employee loyalty drives service quality and productivity. o Employee satisfaction drives employee loyalty. o Internal quality as delivered by operations and IT drives employee satisfaction. o Top management leadership underlies the chain’s success. Copyright © 2018 Pearson Education Ltd. Introduction to Services Marketing 1.12 Be familiar with the characteristics of services and the distinctive marketing challenges they pose. WIRTZ LOVELOCK  Service marketing strategies Integrated model of services marketing. INTRODUCTION TO SERVICES MARKETING Copyright © 2018 Pearson Education Ltd.  Thank You. Copyright © 2018 Pearson Education Ltd.