1. introduction to service marketing
TRANSCRIPT
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CHAPTER 1
I N TRODUCT I ON TOSERV I CES
MARKE T I NG
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HOW IMPORTANT IS THE SERVICE SECTOR IN
OUR ECONOMY?
In most countries, services add more economic valuethan agriculture, raw materials and manufacturingcombined
In developed economies, employment is dominated byservice jobs and most new job growth comes fromservices
Jobs range from high-paid professionals andtechnicians to minimum-wage positions
Service organizations can be any sizefrom huge
global corporations to local small businessesMost activities by government agencies and nonprofit
organizations involve services
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SERVICES DOMINATE THE UNITED STATES ECONOMY:
GDP BY INDUSTRY, 2001
Source: Bureau of Economic Analysis, November 2002
Finance, Insurance,Real Estate
20%
Wholesale andRetail Trade
16%
Transport, Utilities,Communications
8%Health
6%BusinessServices
5%
Other Services 11%
Government(mostly services)
13%
Manufacturing 14%
Agriculture, Forestry,Mining, Construction 8%
SERVICES
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CHANGING STRUCTURE OF EMPLOYMENT
AS ECONOMIC DEVELOPMENT EVOLVES
Time, per Capita Income
Industry
Services
Agriculture
Sou rce: IMF, 1997
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Casino Hotels
Continuing Care Retirement
Communities
Diagnostic Imaging Centers
Diet and Weight Reducing
Centers
Environmental Consulting
Gold Courses and CountryClubs
Hazardous Waste Collection
HMO Medical Centers
Industrial Design Services
Investment Banking and
Securities Dealing
Management Consulting
Services
Satellite Telecommunications
Telemarketing Bureaus
Temporary Help Services
SOME SERVICE INDUSTRIES PROFILED BY NAICS BUT
NOT IDENTIFIED BY SIC CODES
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INTERNAL SERVICES
Service elements within an organization that facilitatecreation of--or add
value to--its final output
Includes:
accounting and payroll administration
recruitment and training
legal services
transportation
catering and food services
cleaning and landscaping
Increasingly, these services are being outsourced
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MAJOR TRENDS IN SERVICE SECTOR
Government Policies (e.g., regulations, tradeagreements)
Social Changes (e.g., affluence, lack of time, desire forexperiences)
Business Trends
Manufacturers offer service
Growth of chains and franchising
Pressures to improve productivity and quality
More strategic alliances
Marketing emphasis by nonprofits
Innovative hiring practices
Advances in IT (e.g., speed, digitization, wireless,Internet)
Internationalization (travel, transnational companies)
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SOME IMPACTS OF TECHNOLOGICAL CHANGE
Radically alter ways in which service firms do business:
with customers (new services, more convenience)
behind the scenes (reengineering, new value chains)
Create relational databases about customer needs andbehavior, mine databanks for insights
Leverage employee capabilities and enhance mobility
Centralize customer servicefaster and more responsiv
Develop national/global delivery systems
Create new, Internet-based business models
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Marketing Relevant
Differences BetweenGoods and Services
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DEFINING THE ESSENCE OF A SERVICE
An act or performance offered by one party to
another
An economic activity that does not result in
ownership
A process that creates benefits by facilitating
a desired change in:
customers themselves
physical possessions
intangible assets
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DISTINGUISHING CHARACTERISTICS OF SERVICES
Customers do not obtain ownership of services
Service products are ephemeral and cannot be
inventoried
Intangible elements dominate value creation
Greater involvement of customers in production proces
Other people may form part of product experience
Greater variability in operational inputs and outputs
Many services are difficult for customers to evaluate
Time factor is more important--speed may be key
Delivery systems include electronic and physical
channels
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MARKETING IMPLICATIONS - 1
No ownership
Customers obtain temporary rentals, hiring of personnel, or accessto facilities and systems
Pricing often based on timeCustomer choice criteria may differ for renting vs. purchase--may
Include convenience, quality of personnelCant own people (no slavery!) but can hire expertise and laborServices cannot be inventoried after productionService performances are ephemeraltransitory, perishable
Exception: some information-based output can be recordedin electronic/printed form and re-used many times
Balancing demand and supply may be vital marketing strategyKey to profits: target right segments at right times at right priceNeed to determine whether benefits are perishable or durable
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MARKETING IMPLICATIONS - 2
Customers may be involved in production process Customer involvement includes self-service and cooperation with
service personnel
Think of customers in these settings as partial employees
Customer behavior and competence can help or hinder productivity, so
marketers need to educate/train customersChanging the delivery process may affect role played by customers
Design service facilities, equipment, and systems with customers in
mind: user-friendly, convenient locations/schedules
Intangible elements dominate value creationUnderstand value added by labor and expertise of personnel
Effective HR management is critical to achieve service quality
Make highly intangible services more concrete by creating and
communicating physical images or metaphors and tangible clues
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VALUE ADDED BY TANGIBLE VS INTANGIBLE
ELEMENTS IN GOODS AND SERVICES
Fast food restaurantPlumbing repair
Office cleaning
Health club
Airline flight
Retail banking
Insurance
Weather forecast
Salt
Soft drinks
CD PlayerGolf clubs
New carTailored clothing
Furniture rental
Lo Hi
Hi
Intangib le Elements
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MARKETING IMPLICATIONS - 3
Other people are often part of the service productAchieve competitive edge through perceived quality of employees
Ensure job specs and standards for frontline service personnel reflect both
marketing and operational criteria
Recognize that appearance and behavior of other customers can influence
service experience positively or negativelyAvoid inappropriate mix of customer segments at same time
Manage customer behavior (the customer is notalways right!)
Greater variability in operational inputs and outputs
Must work hard to control quality and achieve consistency
Seek to improve productivity through standardization, and by training both
employees and customers
Need to have effective service recovery policies in place because it is
more difficult to shield customers from service failures
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MARKETING IMPLICATIONS - 4
Often difficult for customers to evaluate services Educate customers to help them make good choices, avoid risk
Tell customers what to expect, what to look for
Create trusted brand with reputation for considerate, ethical behavior
Encourage positive word-of-mouth from satisfied customers
Time factor assumes great importanceOffer convenience of extended service hours up to 24/7
Understand customers time constraints and priorities
Minimize waiting time
Look for ways to compete on speed
Distribution channels take different forms Tangible activities must be delivered through physical channels
Use electronic channels to deliver intangible, information-basedelements instantly and expand geographic reach
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Important Differences
Exist among Services
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FOUR CATEGORIES OF SERVICES
EMPLOYING DIFFERENT UNDERLYING PROCESSES
People Processin g Possession Processing
Mental Stimulu s
Processing
Information Processing
(directed at intang ible assets)
e.g., airlines, hospitals,
haircutting, restaurants
hotels, fitness centers
e.g., freight, repair,
cleaning, landscaping,
retailing, recycling
e.g., broadcasting, consulting,
education, psychotherapy
e.g., accounting, banking,
insurance, legal, research
TANGIBLE
ACTS
INTANGIBLE
ACTS
DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS
What is the
Nature of th e
Service Ac t?
Who or What is the Direct Recipient of th e Service?
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IMPLICATIONS OF SERVICE PROCESSES
(1) SEEKING EFFICIENCY MAY LOWER SATISFACTION
Processes determ ine how services are created/del iveredprocess change may affect cu stomer sat is fact ion
Imposing new processes on customers, especially replacing people
by machines, may cause dissatisfaction
New processes that improve efficiency by cutting costs may hurt
service quality
Best new processes deliver benefits desired by customers
Faster
Simpler
More conveniently
Customers may need to be educated about new procedures and
how to use them
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IMPLICATIONS OF SERVICE PROCESSES:
(2) DESIGNING THE SERVICE FACTORY
People-pro cessin g services
require customers to v is i t the
service factory, so:
Think of facility as a stage for
service performance
Design process around customer
Choose convenient location
Create pleasing appearance, avoid
unwanted noises, smells
Consider customer needs--info,
parking, food, toilets, etc.
IMPLICATIONS OF SERVICE PROCESSES
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IMPLICATIONS OF SERVICE PROCESSES:
(3) EVALUATING ALTERNATIVE DELIVERY
CHANNELS
For possession -pro cessing, mental-st imulus processing,or
information process ing services, al ternat ives inc lude:
1.Customers come to the service factory2. Customers come to a retail office
3. Service employees visit customers home or workplace
4. Business is conducted at arms length through- physical channels (e.g., mail, courier service)
- electronic channels (e.g., phone, fax, email, Web site
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IMPLICATIONS OF SERVICE PROCESSES:
(4) BALANCING DEMAND AND CAPACITY
When capacity to s erve isl imited and demand var iesw idely, problems ar ise becauseservice output cant be stored:
1. If demand is high and exceeds
supply, business may be lost
2. If demand is low, productivecapacity is wasted
Potent ial solu t ions :
-Manage demand
-Manage capacity
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IMPLICATIONS OF SERVICE PROCESSES:
(5) APPLYING INFORMATION TECHNOLOGY
A ll services can benefi t from IT,bu t mental-st imulus processingand information-processingservices have the mos t to gain:
Remote delivery of information-based services anywhere,anytime
New service features throughwebsites, email, and internet
(e.g., information, reservations)More opportunities for self-service
New types of services
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IMPLICATIONS OF SERVICE PROCESSES:
(6) INCLUDING PEOPLE AS PART OF THE PRODUCT
Invo lvement in service
del ivery o ften entails
contact wi th other peop le
Managers should be
concerned about employeesappearance, social skills,
technical skills
Other customers may enhance
or detract from serviceexperience--need to manage
customer behavior
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The Serv ices
Market ing Mix
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ELEMENTS OF THE SERVICES MARKETING MIX:
7PS VS.THE TRADITIONAL 4PS
Rethin king the original 4Ps
Product elements
Place and time
Promotion and education
Price and other user outlays
Add ing Three New Elements
Physical environment
Process
People
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THE 7PS:
(1) PRODUCT ELEMENTS
All Aspects of Service Perform ance that Create Value
Core product featuresboth tangible and intangible
elements
Bundle of supplementary service elements
Performance levels relative to competition
Benefits delivered to customers (customers dont buy a
hotel room, they buy a good nights sleep)
Guarantees
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THE 7PS:
(2) PLACE AND TIME
Delivery Decis ions: Where, When, and How
Geographic locations served
Service schedulesPhysical channels
Electronic channels
Customer control and convenience
Channel partners/intermediaries
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THE 7PS:
(3) PROMOTION AND EDUCATIONInform ing, Educat ing , Persuading, and Rem inding Custom ers
Marketing communication tools
media elements (print, broadcast, outdoor, retail, Internet, etc.)
personal selling, customer service
sales promotion
publicity/PR
Imagery and recognition
branding
corporate design
Content
information, advice
persuasive messages
customer education/training
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THE 7PS:
(4) PRICE AND OTHER USER OUTLAYS
Marketers Must Recog nize that Customer Out lays Involve
More than the Price Paid to Seller
Tradit io nal Pricing Task s
Selling price, discounts, premiums
Margins for intermediaries (if any)Credit terms
Ident i fy and Minim ize Other Costs Incu rred by Users
Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting,etcTime expenditures, especially waiting
Unwanted mental and physical effort
Negative sensory experiences
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THE 7PS:
(5) PHYSICAL ENVIRONMENT
Design ing the Servicescape and prov id ing tangibleevidence o f service performances
Create and maintaining physical appearances
buildings/landscaping
interior design/furnishingsvehicles/equipment
staff grooming/clothing
sounds and smells
other tangibles
Select tangible metaphors for use in marketingcommunications
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7PS:
(6) PROCESS
Method and Sequence in Service Creation and Del ivery
Design of activity flows
Number and sequence of actions for customers
Providers of value chain components
Nature of customer involvement
Role of contact personnelRole of technology, degree of automation
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THE 7PS:
(7) PEOPLE
Managing the Human Side of the Enterpr ise
The right customer-contact employees performing tasks well
job design
recruiting/selection
training
motivation
evaluation/rewards
empowerment/teamwork
The right customers for the firms mission
fit well with product/processes/corporate goals
appreciate benefits and value offered
possess (or can be educated to have) needed skills (co-production
firm is able to manage customer behavior
MANAGING THE 7PS REQUIRES COLLABORATION
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MANAGING THE 7PS REQUIRES COLLABORATION
BETWEEN MARKETING, OPERATIONS, AND HR
FUNCTIONS
Customers
Operations
ManagementMarketing
Management
Human Resources
Management