Overview

Objectives

 To provide an overview of marketing strategies in service organizations.

 To describe the process of scanning the service environment and examine how the external
environment affects the service sector.
 To explain the process of planning a service's marketing strategy.
 To examine the tasks of positioning and segmentation for the service organization.
 To present the unique strategic challenges facing service organizations.
 To convey the importance of service strategies for competitive advantage.

customer-oriented marketing strategy allows service organizations to retain existing customers and
acquire new ones in both good and bad economic times. The fundamental characteristiG of services
require different marketing strategies from those goods' Because marketing activities are intimately

resource and operations functions in

service organizations, a successful markeüng strategy is extremely more

*mportant for service organizations. A service marketing strategy must not Only consider the operational
goals of efficiency and productivity' but it must also the human resource issues of hiring,

'7 Marketinvtratqisthe:process framing, and mo€vating the work force,

A marketing strategy can be as the process Of controllable marketing factors cope with or exploit

fåctors tOcopeWith exploit uncontrollgble environmental forces, Controllable marketing fac-

-uncontroltabieenviioriipenul forces, torshinge ons the service offering, Uncontrollable environmen

the service organization and the marketplace

Although an organization may sometimes influence theSk uncon&ollableforces through various acfivities
(e.g., lobbying to Chang the legal environment), such influerrce is rare, Usually, an organizatio

192

193

must cope with and adapt to conditions in the external environment. A successful markeång strategy
matches service offerings to market needs. In other words, it adapts organizational resources to
environmental conditions. This approach requireS that service organizations carefully scan the
environment, plan and implement the strategy, and assess the outcomes of the strategy.
External trends from uncontrollable forces carry great significance for service organizati011S• Rising
discretionary income from improving economic and competitive conditions in various parts of the world
has encouraged more customers to buy services rather than perform them themselves. Deregulation
(the result of changes in the ethical and legal environment) has radically altered the nature of retail
banking, airline service, and various professional services in the United States. Changes in social, cultural,
and demographic conditions have led to the dual-income family and provide opportunities for a variety
of service industries such as child care, dry-cleaning services, and home delivery services. Finally,
changes in technology alter the way people live and work in both major and minor ways. For example,
the Internet allows individuals to find information about airfares and purchase their tickets directly from
the airline, which has significantly reduced the number of bookings at travel agencies. The key for
services marketers is to search for opportunities and threats arising from uncontrollable forces.

The primary controllable factors for service organizations are the seven Ps (the four Ps of the &aditional
marketing mix—product, price, promotion, and place and the additional •three Ps of the services
marketing mix—participants, physical evidence, and process of service assembly), as outlined in Chapter
2. Although the uncontrollable forces are the same as those facing marketers of physical goods (e.g.,
economic and competitive forces), services marketers face added challenges. Unlike manufacturers,
which compete with other firms based on the brands they offer, service organizations must sometimes
compete with the customer as well as with other service organizations. After all, customers can choose
to perform many services themselves. Homeowners, for instance, may elect to take care of their yards
rather than hire a landscaping service to do it for them. The choice of performing a service yourself
versus paying a service provider affects restaurants, fitness centers, hairstylists, tax preparation
businesses, appliance repair shops, automobile repair garages, housecleaning services, laundries, and
transportation companies. Some bold individuals may even opt to educate themselves rather than
attend a university or åttempt to change their own watch batteries rather than visit a jeweler.

Hamel and Prahalad (1994) argue that truly innovative organizations must learn to compete with a clear
vision of the future. Such organizations are adept at finding unmet and unarticulated customer needs
and filling them. In short, they are good at reaching the future first. Figure 13.1 illusfrates four sfrategic
choices available to any service organization. Complacency might lead an organization to choose to stay
within the boundaries of today's business. The hazards of such a s&ategy are that competitive pressures
would slowly, but surely erode the organizaüon's posiåon. Service organizations can seek unserved
opportunities by identifying new customers that the organization might serve through what is called a
market expansion s&ategy. An example would be the expansion of Starbucks
(http://www.starbucks.com) coffee from the United States to other countries. Alternatively, a service
organizaüon might seek unarticulated opportunities by looking for new needs their customers might
have, using a product expansion sfrategy.

Source: Gary Hamel and C. K. Prahalad (1994), "Seeing the Future First," Fortune (September 5), 64—68.
Reprinted by permission of Harvard Business School Press. From Competing for the Future by C. K.
Prahalad and Gary Hamel. Boston, MA 1996. Copyright 0 1996 by the Harvard Business All rights
reserved.
An example of this strategy would be the addition of downloadable television programs to the iTunes
Web site (http://www.apple.com/itunes/). The most difficult s&ategy is to pursue unarticulated and
unserved opportunities. This strategy requires simultaneously pursuing new customers with new service
products and doubles the degree of s&ategic risk. New entrepreneurial service organizations are
pursuing such a strategy. When larger and older service organizations pursue this s&ategy, it is
considered a diversification strategy. An example of this strategy of pursuing unaråculated needs and
unserved markets would be the decision by McDonald's (http://www.mcdonalds.com) to offer the
Chicken Maharaja Mac when it entered India in 1996, out of respect for the Hindu religion. Because
many Indians are vegetarians, the organization also offered a vegetable burger.