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.

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 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.

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 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.

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Introduction to Services Marketing

1.1 Understand how services

contribute to a country’s
economy.

WIRTZ LOVELOCK
INTRODUCTION TO SERVICES
MARKETING

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 How services contribute
to a country’s economy
• Services dominate most economies and are
growing rapidly:
INTRODUCTION TO SERVICES

o Services account for almost two-thirds of GDP

worldwide
o Almost all economies have a substantial service sector
MARKETING

o Most new employment is provided by services

o Strongest growth area for marketing
• Understanding services offers you a personal
competitive advantage

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 How services contribute
to a country’s economy
• Contribution of Services Industries to Global GDP
INTRODUCTION TO SERVICES
MARKETING

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 How services contribute
to a country’s economy
• Estimated Size of Service Sector in Selected Countries
INTRODUCTION TO SERVICES
MARKETING

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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

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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

Government Social Advances in

Policies Changes Business Trends IT Globalization

New markets and product categories

Increase in demand for services
MARKETING

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

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 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES

Government Social Advances in

Policies Changes Business Trends IT Globalization

• Changes in regulations
MARKETING

• Privatization

• New rules to protect customers, employees, and the environment

• Focus on quality and customer satisfaction

• New agreements on trade in services

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2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES

Government Social Advances in

Policies Changes Business Trends IT Globalization

• Rising consumer expectations

MARKETING

• 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

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2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES

Government Social Advances in

Policies Changes Business Trends IT Globalization

• Push to increase shareholder value

MARKETING

• 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

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2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES

Government Social Business Trends Advances in

Policies Changes IT Globalization

• Growth of the Internet

MARKETING

• 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

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2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES

Government Social Advances in

Policies Changes Business Trends IT Globalization

• More companies operating on a transnational basis

MARKETING

• Increased international travel

• International mergers and alliances

• “Offshoring” of customer service

• Foreign competitors invade domestic markets

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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

providers
• This leads to an increased specialization with
MARKETING

significant improvements in overall productivity

and standards.

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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

o Include rental of goods

o Marketing tasks for services differ from those involved
in selling goods and transferring ownership
MARKETING

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 What are services?
Definition of Services
INTRODUCTION TO SERVICES

•Services
o are economic activities offered by one party to
MARKETING

another
o most commonly employ time-based performances to
bring about desired results

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 What are services?
Definition of Services
INTRODUCTION TO SERVICES

•In exchange for their money, time, and effort,

service customers
MARKETING

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

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 Scope of Services
• The line between services and manufacturing is
becoming blurred.
INTRODUCTION TO SERVICES

• Instead of bundling supplementary services with

physical products, firms are now enhancing
MARKETING

certain service elements and marketing them as

standalone services
• Theodore Levitt: “ There are no such things as
service industries. There are only industries
whose service components are greater or less
than those of other industries. Everybody is in
service.”
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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

recipient of service (people/possessions), there

are four categories of services:
o People processing
MARKETING

o Possession processing
o Mental stimulus processing
o Information processing

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 Four broad categories of services
INTRODUCTION TO SERVICES
MARKETING

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 Four broad categories of services
1. People Processing
eg. Transportation, Food, Lodging, Health and beautification
INTRODUCTION TO SERVICES

•Customers must:
MARKETING

• physically enter the service factory

• co-operate actively with the service operation
•Managers should think about process and output
from the customer’s perspective
• Location
• to identify benefits created and non-financial costs:
Time, mental, and physical effort
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 Four broad categories of services
2. Possession Processing
House Pest control, Elevator Service, broken smartphone, parcel to
INTRODUCTION TO SERVICES

another city, Sick Pet…

•Customers are less involved compared to people

MARKETING

processing services.
•Involvement may be limited to just dropping off
the possession.
•Production and consumption are separable.

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 Four broad categories of services
3. Mental Stimulus Processing
Education, News, Information, Professional advice and religious
INTRODUCTION TO SERVICES

activity…
•Ethical standards required when customers who
depend on such services can potentially be
MARKETING

manipulated by suppliers.
•Physical presence of recipients not required.
•Core content of services is information-based.
• Can be digitized and can be made available via
download
• Can be “inventoried” and consumed Repeatedly
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 Four broad categories of services
4. Information Processing
 accounting, law, marketing research,
INTRODUCTION TO SERVICES

management consultancy and medical diagnosis

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.
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 Four broad categories of services
INTRODUCTION TO SERVICES
MARKETING

Information Based Services

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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

o Most service products cannot be inventoried-Output is Perishable

o Intangible elements usually dominate value creation-Physically
Intangible
MARKETING

o Services are often difficult to visualize and understand-Mentally

Intangible
o Customers may be involved in co-production-Inseparable
o People may be part of the service experience
o Operational inputs and outputs tend to vary more widely-
Heterogeneous
o The time factor often assumes great importance
o Distribution may take place through nonphysical channels

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 Characteristics of services and
marketing challenges
• Differences, Implications, and Marketing-Related Tasks (1)

Difference Implications Marketing-related Topics

Most service products cannot be inventoried Customers may be turned away Use pricing, promotion, reservations to smooth
demand; work with ops to manage capacity

Emphasize physical clues, employ metaphors

Intangible elements usually dominate value creation
and vivid
Harder to evaluate service & distinguish from competitors
images in advertising
Services are often difficult to visualize & understand

Educate customers on making good choices;

Greater risk & uncertainty perceived offer guarantees

Develop user-friendly equipment, facilities &

Customers may be involved in co-production
Interaction between customer & provider; but poor task execution systems; train customers, provide good support
could affect satisfaction

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 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 personnel & customers can Recruit, and train employees to
service experience affect satisfaction reinforce service concept

Operational inputs and Hard to maintain quality, consistency, reliability Shape customer behavior
outputs tend to vary Redesign for simplicity and
more widely failure proofing

Difficult to shield customers from failures Institute good service recovery procedures
Time factor often
assumes great
importance Find ways to compete on speed of delivery; offer
Time is money; customers want service at
convenient times extended hours
Distribution may take
place through Create user-friendly, secure websites and free access
Electronic channels or voice telecommunications
nonphysical channels by telephone

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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

•Product elements (Chapter 4)

•Place and time (Chapter 5)
MARKETING

•Price and other user outlays (Chapter 6)

•Promotion and education (Chapter 7)
•Process (Chapter 8)
•Physical environment (Chapter 10)
•People (Chapter 11)

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (1)
•Product elements
INTRODUCTION TO SERVICES

o Service products are at the heart of services

marketing strategy
MARKETING

o Marketing mix begins with creating a 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
 Hotel, Flight
 Providing Info, Consultation, order taking, hospatility and
handling expectations
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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (2a)
•Place and time
INTRODUCTION TO SERVICES

o Service distribution can take place through physical and

non-physical channels
o Banks…
MARKETING

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
o Use of physical distribution system
o Intermediaries (in financial services)
o Travel Agents (in Hospitality Industry)

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (2b)
INTRODUCTION TO SERVICES

•Place and time

o Delivery Decisions: Where, When, How
MARKETING

o Time is of great importance as customers are

physically present
o Convenience of place and time become important
determinants of effective service delivery

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (3a)
INTRODUCTION TO SERVICES

•Price and other user outlays

o From the firm’s perspective, pricing generates income
MARKETING

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

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (3b)
•Price and other user outlays
INTRODUCTION TO SERVICES

o Identify and minimize non-monetary costs incurred by

users:
 Additional monetary costs associated with service usage
MARKETING

(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.
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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (4)
•Promotion and Education
INTRODUCTION TO SERVICES

1. Providing necessary Info

2. Persuade target customer to buy
3. Encouraging them to take action
MARKETING

•Mental Intangibility
•Physical Intangibility

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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

•Process
MARKETING

o How a firm does things may be as important as what

it does
o Customers are 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
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 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (2a)
INTRODUCTION TO SERVICES

•Physical environment
MARKETING

• Design servicescape and provide tangible evidence of

service performances
• Manage physical cues carefully—can have profound
impact on customer impressions

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 The traditional marketing mix
Extended Mix for Managing the Customer Interface
(2b)
INTRODUCTION TO SERVICES

•Physical environment
o Identify and minimize non-monetary costs incurred by
users:
MARKETING

 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
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 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (2c)
INTRODUCTION TO SERVICES

•Physical environment
MARKETING

o Create and maintain physical appearances:

 Buildings/landscaping
 Interior design/furnishings
 Vehicles/equipment
 Staff grooming/clothing
 Sounds and smells
 Other tangibles

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 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (3)
INTRODUCTION TO SERVICES

•People
MARKETING

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
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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
other central functions
INTRODUCTION TO SERVICES

• Operations:
o involved in the design of products and processes
MARKETING

o implementation of programs for improving productivity and

quality
• HR:
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
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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
managerial process that are essential for success in
service businesses.
INTRODUCTION TO SERVICES
MARKETING

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 The traditional marketing mix
• Links in the Service Profit Chain
o Customer loyalty drives profitability and growth.
INTRODUCTION TO SERVICES

o Customer satisfaction drives customer loyalty.

o Value drives customer satisfaction.
MARKETING

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.
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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

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 Thank You.

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