Chapter 1

Marketing in the
service economy

STUDENT NOTES

Digital Image PowerPoint to accompany:

Adapted by H Madden-Hallett
BHO3439 Marketing Services and
Experiences
Slide 1
Learning objectives

1.1 Explain how services contribute to a countrys economy

1.2 Define services
1.3 Explain how services create value for consumers
1.4 Describe the key characteristics that distinguish services from
manufactured goods
1.5 Identify the forces that are transforming service markets
1.6 Describe ways of categorising services
1.7 Identify the key components of service operations, delivery and
marketing systems
1.8 Describe the expanded marketing mix for services

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 Introduction
Service (experience) sector is the engine of economic growth in
developed and most developing countries today

Services are becoming the mainstream focus of marketing

Every day you use a vast array of services; rentals (furniture, garden
plants), IT services, health, finance, recreation, hospitality, tourism,
etc.

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 CBA is attempting to
differentiate itself by its new
positioning of helping
customers to reach their
potential, achieve their goals
and move forward, so that
they can feel like they CAN
with CBA.
Opening vignette chapter 1

Vanessa Hunter / Newspix/News Ltd/3rd Party Managed

Reproduction & Supply Rights

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 Defining services
Any act, performance or experience that one party can offer to another

Essentially intangible and does not result in the ownership of anything

Processes (economic activities) that provide time, place, form, problem solving
or experiential value to the receiver

Something that may be bought or sold but cannot be dropped on your foot

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Table 1.1 Examples of diversity of services
Consumer services Business services
Airline Accountancy
Banking and finance Architecture
Insurance Engineering
Medical Legal services
Telecommunications Management consulting
Hotel Printing
Restaurant Insurance
Opera/theatre Telecommunications
Football match IT consulting
House cleaning Logistics consulting
Transportation Marketing research

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 Simon Grimmett

A workout with a fitness traineran experiential, high-contact service that

creates customer value

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 Its all about value
creation

Value comes from a variety of value-

creating elements rather than transfer of
ownership

Firms must create and deliver services

that are perceived (by customers) to
provide value

The value proposition must be actively

promoted through efective
communications and there must be a
strategy for educating customers
especially first time users about how to
make good choices and how to use the Slide 10
 erwinova/Shutterstock.com

Hotel concierge staff can create value for customers by the friendly,
respectful and courteous manner in which they treat them, so boosting
customers self-esteem

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 Services: Intangible elements dominate value creation
Services typically have both tangible and intangible elements
Service products versus customer service and after-sales service
Is everyone in service?
Marketing of services
Marketing goods through added-value service

Move towards the service dominant logic (Vargo & Lusch 2004)
Service Dominant logic suggests that all products are valued for the services
they provide and that the value derived from a physical good is not the good
itself but value created only by value-in-use.
Customers for services and goods are co-creators of value. Only when
customers engage or participate during production, delivery and consumption of
the service that customer value is co-created.
E.g. in a fitness class the person who is too lazy to push themselves will gain
little value compared to someone who participates more energetically.

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Slide 13
 Tourisma booming service
industry in Vietnam that
creates experiential value
for tourists

Paul Patterson

Sportan experiential
service where value is
created by the
entertainment
experience St GeorgeIllawarra
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 Hollowing out effect
Powerful forces
transforming the
service economy Shift in employment patterns in
industrialised economies

Outsourcing tasks to skilled labour where

wages are lower
(e.g., customer service)

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 Deregulation and privatisation
Changes in regulations
Privatization
New rules to protect customers, employees,
and the environment
New agreement on trade in services

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 Social changes

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
Increased international travel

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 Professional Services and Franchises
Government and legal pressure has forces professional
services associations to remove or relax bans on
advertising and promotional activities affects
accountants, architects, doctors, lawyers and
optometrists, many of whom operate globally.
These industries seek better ways to understand
customers, segment markets and delivery quality
services.
More and more services are delivered through national
or even global franchise networks (7-11, Starbucks, The
Body Shop)
Service features are codified for consistency and pricing
is scientifically determined.
Service operations become uniformly standardised.
Brand names, symbols and uniforms are standardised.

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Table 1.2 Continued

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Hong Kong: a service-based economy where 93 per cent of GDP is generated by the services sector

Paul Patterson

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Slide 23
 Service as a system
Service operations system: can be divided into those involving the actors
(or service personnel) and those involving the stage set (or physical facilities,
equipment and other tangibles).

Service delivery system: concerned with where, when and how the service
product is delivered to the customer.

Service marketing system: all the different ways in which the customer may
encounter or learn about the service organisation.

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An expanded marketing mix for services
People: direct, personal
interaction between customers and
the firms personnel or employees
for the service to be
manufactured and delivered.

Physical evidence
(tangible cues):
servicescape such as physical
layout of the service facility,
ambience, background music and
seating comfort.

Process of service production:

required to manufacture and
deliver the service.

www.crowncasino.com
.au
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Figure 1.9 An expanded marketing mix for services

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 The development and emergence of services thought

Crawling out (Pre-1980s)

Discussion about service economy & marketing
Shostacks article Breaking free from product marketing

Scurrying about stage (1980-1985)

Deregulation of service industries, service quality was discussed (Parasuraman,
Zeithaml & Berry 1985)

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The development and emergence of services thought

Walking erect stage (1990s)

Research on service quality, customer satisfaction, managing customer and employee
interactions, tangibles and physical environment, service design (TQM, blueprinting),
customer retention and relationship marketing, internal marketing (empowerment)

Future (2000 beyond)

Service design and delivery, customer intelligence
Service encounters and service experiences (customer intelligence, solve customer
problems, cross-sell additional services, quality and profitability)
Service recovery
Reverse marketing (relationships with suppliers to provide the final customer with
higher service quality)
Internal marketing and support services
Modeling and measurement (i.e., satisfaction and SERQUAL)
Technology infusion
Service dominant logic

Slide 33
Service Dominant Logic (Vargo
(Vargo and
and Lusch
Lusch 2004,
2004, p7)
p7)

GC - Goods-centred; SC - Service-centred
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References

Lovelock, C.H. And Wirtz, J. (2007) Services marketing: people, technology, strategy,
Pearson Education, Upper Saddle.
Parasuraman, A. Zeithaml, V. & Berry, L. (1985) A conceptual model of service quality
and its implications for future research, Journal of Marketing, 49(3), 41-50.
Shostack, G.L. (1977) Breaking free from product marketing, Journal of Marketing, 41(2), 73
80.
Vargo, S.L. and Lusch, R.F. (2004) Evolving to a new dominant logic for marketing,
Journal of Marketing, 68(1), 1-17.

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