Services Marketing
Chapter 1:
New Perspectives On
Marketing in the
Service Economy
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
Overview of Chapter 1
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2
Services Marketing
Why Study Services?
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3
Why Study Services?
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4
Services Dominate the Global
Economy
Services Marketing
Contribution of Service Industries to GDP Globally
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5
Changing Structure of Employment
as Economies Develop
Services Marketing
Agriculture
Services
Employment
Share of
Industry
Time, per Capita Income
Source: IMF, 1997
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6
Estimated Size of Service Sector
in Selected Countries
Services Marketing
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7
Value Added by Service Industry
Categories to U.S. GDP
Services Marketing
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
Why Study Services?
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9
Why Study Services?
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10
Transformation of the
Service Economy
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11
Factors Stimulating Transformation of the
Service Economy
Services Marketing
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12
BUSINESS-TO-BUSINESS SERVICES AS A
CORE ENGINE OF ECONOMIC
DEVELOPMENT
Services Marketing
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13
Services Marketing
What are Services?
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14
What Are Services?
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 15
What Are Services?
Services Marketing
Five broad categories within non-ownership
framework of which two or more may be combined
Rented goods Defined space Labor and
services and place rentals expertise rentals
Access to shared Access to and
physical usage of systems
environments and networks
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16
Definition of Services
Services Marketing
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
access to goods, labor, facilities, environments, professional
skills, networks, and systems;
normally do not take ownership of any of the physical elements
involved.
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 17
Value Creation is Dominated by
Intangible Elements
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18
Service Products vs. Customer
Service & After-Sales Service
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19
Service – A Process Perspective
Services Marketing
Differences exist amongst services depending on what is
being processed
Classification of services into
People processing
Possession processing
Mental stimulus processing
Information processing
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20
4 Categories of Services
Services Marketing
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21
People Processing
Services Marketing
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
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22
Possession Processing
Services Marketing
Involvement is limited
Less physical involvement
Production and consumption are separable
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 23
Mental Stimulus Processing
Services Marketing
Ethical standards required:
Customers might be manipulated
Physical presence of recipients not required
Core content of services is information-based
Can be ‘inventoried’
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24
Information Processing
Services Marketing
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
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25
Services Marketing
Marketing Challenges Posed
by Services
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26
Services Pose Distinctive
Marketing Challenges
Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27
Differences, Implications, and
Marketing-Related Tasks
Services Marketing
Difference Implications Marketing-Related Tasks
Most service Customers may be Use pricing, promotion,
products reservations to smooth
turned away
cannot be inventoried demand; work with ops to
manage capacity
Intangible elements Harder to evaluate Emphasize physical clues,
usually dominate service & distinguish employ metaphors and vivid
value creation from competitors images in advertising
Services are often Greater risk & Educate customers on
difficult to visualize & uncertainty perceived making good choices; offer
understand guarantees
Customers may be Interaction between Develop user-friendly
involved in co- customer & provider; equipment, facilities &
production poor task execution systems; train customers,
could affect satisfaction provide good support
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28
Differences, Implications, and
Marketing-Related Tasks
Services Marketing
Difference Implications Marketing-Related Tasks
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
Operational inputs Hard to maintain
and
quality,
outputs tend to vary consistency, reliability
more widely Redesign for simplicity and
Difficult to shield
customers from failures failure proofing
Time factor often Institute good service
Time is money; recovery procedures
assumes great
importance customers want service
at convenient times Find ways to compete on
Distribution may take speed of delivery; offer
Electronic channels extended hours
place through or
nonphysical channels voice communications
Create user-friendly,
secure websites and free
access by telephone
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29
Services Marketing
Extended Marketing Mix for
Services
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30
Services Require
An Extended Marketing Mix
Services Marketing
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
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31
The 7Ps of Services Marketing
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 © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32
Services Marketing
Integration of Marketing with
Other Management Functions
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33
Marketing to be Integrated with
Other Management Functions
Services Marketing
Three management functions play central and interrelated
roles in meeting needs of service customers
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34
Services Marketing
Developing Effective Service
Marketing Strategies
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35
Overview of Framework
Services Marketing
Understanding Service Products, Consumers and
Markets
Part I: Chapters 1-3
Applying the 4 P’s of Marketing to Services
Part II: Chapters 4-7
The Extended Services Marketing Mix for
Managing the Customer Interface
Part III: Chapters 8-11
Implementing Profitable Service Strategies
Part IV: Chapters 12-15
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 36
Summary
Services Marketing
Services are often
Services dominate Why Study Unique
intangible, difficult to
the economy in many Services? Characteristics
visualize and understand,
nations. The majority
and customers may be
of jobs are created in
involved in co-production.
the service sector.
CHAPTER 1
Services are a form
Product, Place & Time,
of rental (not
Price, Promotion &
ownership). They are
Extended Education, Process,
performances that What are
Marketing Physical Environment,
bring about a desired Services?
Mix People
result.
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 37
Questions
Services Marketing
1. What are the main reasons for the growing share of the service sector in all major economies of
the world?
2. What are the five powerful forces that are transforming the service landscape and what impact
do they have on the service economy?
3. Is it possible for an economy to be almost entirely based on services? Is it a sign of weakness
when a national economy manufactures few of the goods that it consumes?
4. Why would growth in business services help individual firms and entire economies become
more productive?
5. “A service is rented rather than owned.” Explain what this statement means and use examples
to support your explanation.
6. Describe the four broad “processing” categories of services and provide examples for each.
7. “The 4 Ps are all a marketing manager needs to create a marketing strategy for a service
business.” Prepare a response that argues against this and support it with examples
Slide © 2011 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38