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:
 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 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%)

Egypt (48%)
Malaysia (46%), Chile (45%)

Indonesia (41%), China (40%)

Services as Percent of GDP
Saudi Arabia (35%)
10 20 30 40 50 60 70 80 90

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6
 Services Dominate the Global Economy

EGYPT's GDP

Agriculture, 14%

Services, 48%

Industry, 38%

Source: The World Factbook 2008, Central Intelligence Agency

[Link]

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7

Services Dominate the Global Economy

EGYPT's Labor Force

Agriculture, 32%

Services, 51%

Industry, 17%
Source: The World Factbook 2008, Central Intelligence Agency
[Link]

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
 Why Study Services?

 Most new jobs are generated by services

 Fastest growth expected in knowledge-based industries

 Significant training and educational qualifications required,

but employees will be more highly compensated

 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 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 13
 Why Study Services?

 Powerful forces are transforming service markets

 Government policies, social changes, business trends,
advances in IT, internationalization

 Forces that reshape:

 Demand
 Supply
 The competitive landscape
 Customers’ choices, power, and decision making

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 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 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 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 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 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 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 20

What are Services?

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21
 What Are Services?

 The historical view

 Smith (1776): Services are different from goods because they are
perishable
 Say (1803): As services are immaterial, consumption cannot be
separated from production

 A fresh perspective: Benefits without Ownership

 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 22

What Are Services?

Five broad categories within non-ownership

framework of which two or more may be combined

Rented goods Defined space & Labor & expertise

services place rentals rentals

Access to shared Access to and

physical usage of systems
environments & networks

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 Definition of Services

 Services
 are economic activities offered by one party to another
 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
 Having access to goods, labor, facilities, environments,
professional skills, networks, and systems;
 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:

 Marketing of services – when service is the core product
 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

 Classification of services into

 People processing
 Possession processing
 Mental stimulus processing
 Information processing

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27
 4 Categories of Services

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People Processing

 Customers must:
 physically enter the service factory

 cooperate actively with the service operation

 Managers should think about process and output from

the customer’s perspective
 to identify benefits created and non-financial costs: Time, mental
and physical effort

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 Possession Processing

 Involvement is limited

 Less physical involvement

 Production and consumption are separable

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30

Mental Stimulus Processing

 Ethical standards required:

 Customers might be manipulated

 Physical presence of recipients not required

 Core content of services is information-based

 Can be ‘inventoried’

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 Information Processing

 Most intangible form of service

 May be transformed:

 Into enduring forms of service output

 Line between information processing and mental

stimulus processing may be unclear

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Marketing Challenges Posed

by Services

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 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

1. Most service products  Customers may be  Use pricing, promotion,
cannot be inventoried turned away reservations to smooth
demand; work with operations to
manage capacity
2. Intangible elements  Harder to evaluate  Emphasize physical clues,
usually dominate service & distinguish employ metaphors and vivid
value creation from competitors images in advertising

3. Services are often  Greater risk &  Educate customers on

difficult to visualize & uncertainty perceived making good choices; offer
understand guarantees

 Interaction between  Develop user-friendly

4. Customers may be
customer & provider; equipment, facilities &
involved in co-
poor task execution systems; train customers,
production
could affect satisfaction provide good support

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 Differences, Implications, and
Marketing-Related Tasks

Difference Implications Marketing-Related Tasks

5. 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

6. 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

7. 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

8. 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:

 A strategic and competitive thrust pursued by top management
 A set of functional activities performed by line managers
 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

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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)

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
 @RamyKhodeir

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