New Perspectives on Marketing

in the Service Economy

(chapter 1)
 Services Dominate
Services, 68%
Agriculture, Forestry, Mining,
Fishing, 2.3%

Manufacturing and
Construction,
17.3%

Government, 12.4%
(mostly Services)
Source: Bureau of Economic Analysis, Survey of Current Business, May 2005, Table 1

INSIGHTS
 Private sector service industries account for over two-thirds of GDP
 Adding government services, total is almost four-fifths of GDP
 Services: advantage India
 Global outsourcing hub for services
 Contribution to GDP: nearly 65%
 Service exports more than US$ 47 billion.
 Outsourcing is becoming a widespread
phenomenon
 The Nature of Services
 Categories of Service Mix
 Pure tangible good (soap, salt)
 Tangible good with
accompanying services (car,
computers)
 Hybrid (restaurants)
 Major service with accompanying
minor goods and services (airlines)
 Pure service (babysitting)

15-4
Continuum of Evaluation for Different Types of Products

15-5
Physical
Elements
Value Added by Physical,
High Intangible Elements Helps
Distinguish Goods and Services
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 Intangible Elements High

Source; Adapted from Lynn Shostack
 Service Industry Categories
Other (except government) 3.6%
Accommodation and food services 4.0%
Arts, entertainment, and recreation 1.5%
Healthcare and social assistance 10.4%
Educational services 1.3%
Professional and business services 17.3%

Real estate and rental and leasing 18.7%

Finance and insurance 12.6%
Information 7.1%
Transportation and warehousing 4.4%
Retail trade 10.3%
Wholesale trade 8.9%
 Why Study Services
 New Jobs
 most will be in services
 high level of training, education required
 salaries commensurate
 impact of outsourcing
Structure of Employment over
Time
Share of
Employment Agriculture

Services

Industry

Time, per Capita Income

Source: IMF, 1997
Online companies that provide services are
often directly impacted by the quality of a
customer’s computer or the customer’s
Internet connection. Can you think of
another service sector that has so little
control over the environment
in which their services
are provided?
15-10
 Transforming Service Economy
Social Business Advances in
Changes Trends 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
 Transforming Service Economy
Social Business Advances in
Changes Trends IT

Government
Globalization
Policies

 Changes in regulations
 Privatization
 New rules to protect customers,
employees, and the environment

 New agreement on trade in services

 Transforming Service Economy
Social Business Advances in
Changes Trends IT

Government
Globalization
Policies
 Rising consumer expectations
 More affluence
 More people short of time
 Increased desire for buying experiences
versus things
 Rising consumer ownership of high tech
equipment
 Easier access to information
 Immigration
 Growing but aging population
 Transforming Service Economy
Social Business Advances in
Changes Trends 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
 Transforming Service
Social
Economy
Business Advances in
Changes Trends IT

Government
Globalization
Policies

 Growth of the Internet

 Greater bandwidth
 Compact mobile equipment
 Wireless networking
 Faster, more powerful software
 Digitization of text, graphics, audio, video
 Transforming Service Economy
Social Business Advances in
Changes Trends 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
FedEx and UPS have taken over much of the
US Postal Service’s business, mostly through
flexibility and innovation that the USPS can’t
match. Can you think of another governmental
service (in India) where a private company has
been able to take the profitable segment of a
service, and leave the less profitable or more
risky segment for a government agency?

15-17
 Services vs.Goods
 Historical View  Traditional Marketing
 Adam Smith (1776) view
 perishable  inseparable
 Jean-Baptiste Say  intangible
(1803)  perishable
 separable  variable
 intangible  Newer Perspective
 some form of rental
 different marketing
tasks
 Defining Services
 Services
 Are economic activities offered by one party to another
 Performance is essentially intangible; process may be
tied to a product
 No ownership
 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
 But they do not normally take ownership of any of the
physical elements involved
A Service-Performance-Process Map: Nationwide
Floral Delivery

15-20
Elements in a Service Encounter

15-21
 Characteristics of Services

1. Intangibility - “u can’t touch this”

• Services cannot be stored
• Services cannot be protected through
patents
-therefore a really great travel package and
service can be copied
-Whereas a really great physical object can
be patented, and NOT allowed to be copied
 Characteristics of Services

1. Intangibility - “u can’t touch this”

Marketing Strategies
• stress tangible cues, eg. Smiling face
• use personal information, sources, references
• use word-of-mouth
• contact customers after they buy to stimulate
continued enthusiasm and hope they “talk it up”
 Characteristics of Services

1. Intangibility - “u can’t touch this”

• Hard to explain and display Services if you
can’t see them
• Prices are difficult to set - depends on
customers expectations
 Characteristics of Services

2. Inseparability of Production (or

performing the service) and Consumption
(using the service) - happens at the same
time
• Many people involved in delivering a service
• mass production of services is hard to do
 Characteristics of Services

2. Inseparability of Production (or

performing the service) and Consumption
(using the service) - happens at the same
time
Marketing Strategies
• Emphasize how much you train your people - so
their ability to give you good service will be high
• Have many locations so customers can get to you
• ie. Insurance sales come to your home
 Characteristics of Services

3. Heterogeneity - services are not always

delivered the same way
It is very difficult to standardize services
eg. A machine can make ice cream cones a
standard size 100% of the time
A person filling an ice cream cone with a
scoop cannot fill the same amount each time,
unless you use a machine to dispense the ice
cream
 Characteristics of Services

3. Heterogeneity - services are not always

delivered the same way
It is very difficult to standardize services
eg. A Taxi driver cannot drive you to the office
in exactly the same time each day because
the traffic patterns change
eg. A travel agent can sell you a vacation
package - but cannot guarantee you will like
the trip exactly the same way another tourist
did.
 Characteristics of Services

4. Perishability - cannot be put in

inventory or stored for later use
ie. You can’t buy 2 haircuts

Demand fluctuates and changes, sometimes

depending on the season, or weather
eg. Taxi in the rain, vacation in summer
 Differences, Implications, and
Marketing-Related Tasks
Difference Implications Marketing-Related Tasks

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

Services are often Greater risk and Educate customers on

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

Customers may be Interaction between Develop user-friendly

customer and provider;
involved in co-
but poor task execution
production
could affect satisfaction
equipment, facilities, and
systems; train customers,
provide good support
 Differences, Implications, and
Marketing-Related Tasks
Difference Implications Marketing-Related Tasks

People may be part Behavior of service Recruit, train employees to

of personnel and customers
service experience reinforce service concept
can affect satisfaction
Shape customer behavior
Operational inputs Hard to maintain quality,
and consistency, reliability
outputs tend to vary Difficult to shield 
more widely customers from failures
Institute good service
Time is money; recovery procedures
Time factor often customers want service
assumes great at convenient times Find ways to compete on
importance speed of delivery; offer
Electronic channels or extended hours
Distribution may take voice telecommunications
place through Create user-friendly,
nonphysical channels secure websites and free
access by telephone
Three Types of Marketing in Service Industries

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 The 8Ps of Services Marketing
 Product Elements (Chapter 3)
 Place and Time (Chapter 4)
 Price and Other User Outlays
(Chapter 5)
 Promotion and Education (Chapter 6)
 Process (Chapter 8)
 Physical Environment (Chapter 10)
 People (Chapter 11)
 Productivity and Quality (Chapter 14) Fig 1.9 Working in
Unison: The 8Ps of
Services Marketing