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Services Marketing 7e, Global Edition!




      Chapter 1:!
       New Perspectives On!
         !Marketing in the!
         !   !Service Economy!




Slide © 2010 by Lovelock & Wirtz   Services Marketing 7/e   Chapter 1 – Page 1
Overview of Chapter 1!


      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 © 2010 by Lovelock & Wirtz   Services Marketing 7/e   Chapter 1 – Page 2
Why Study Services?!




Slide © 2010 by Lovelock & Wirtz           Services Marketing 7/e   Chapter 1 – Page 3
Why Study Services?!


       Services dominate most economies and are growing
        rapidly:!
              è  Services account for more than 60% of GDP worldwide!
              è  Almost all economies have a substantial service sector!
              è  Most new employment is provided by services !
              è  Strongest growth area for marketing!
              !

       Understanding services offers you a personal competitive
        advantage!



Slide © 2010 by Lovelock & Wirtz          Services Marketing 7/e            Chapter 1 – Page 4
Services Dominate the Global
   Economy!

                     Contribution of Service Industries to GDP Globally!


                  Manufacturing 32%"




                                                                                          Services 64%"


                           Agriculture 4%"



 Source: The World Factbook 2008, Central Intelligence Agency"
 !
Slide © 2010 by Lovelock & Wirtz                                 Services Marketing 7/e                   Chapter 1 – Page 5
Estimated Size of Service Sector

   in Selected Countries"

     Jersey (97%), Cayman Islands (95%), Hong Kong (92%)!
     Bahamas (90%), Bermuda ( 89%), Luxembourg (86%)!
     USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%)!
     Japan (72%), Taiwan (71%), Australia (71%), Italy (71%)!
     Canada (70%), Germany (69%), Israel (67%) !
     South Africa (65%), Brazil (66%), Poland (66%)!
     Turkey (63%), Mexico (62%)

     Argentina (57%), Russia (55%)!

     Malaysia (46%), Chile (45%)

     Indonesia (41%), China (40%)!

     Saudi Arabia (35%)!
                                                                                               Services as Percent of GDP

                 10                20   30           40               50             60   70     80         90
 Source: The World Factbook 2008, Central Intelligence Agency"
 !
Slide © 2010 by Lovelock & Wirtz                                 Services Marketing 7/e                          Chapter 1 – Page 6
Value Added by Service Industry 

   Categories to U.S. GDP!


                                       Business Services
                                             12% "




               Transport, Utilities
               & Communications     "
                      9% "                                   SERVICES!
                       "



                      Wholesale & Retail
                         Trade 12% "



Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007 "
!
Slide © 2010 by Lovelock & Wirtz                            Services Marketing 7/e   Chapter 1 – Page 7
NAICS Codes of Newer Service

   Industries Not Profiled By SIC!


     v  Casino Hotels"                          v  HMO Medical Centers"
     v  Continuing Care Retirement              v  Industrial Design Services"
         Communities"
                                                 v  Investment Banking and Securities
     v  Diagnostic Imaging Centers"                 Dealing"
     v  Diet and Weight Reducing Centers" v  Management Consulting Services"
     v  Environmental Consulting"               v  Satellite Telecommunications"
     v  Golf Courses, Country Clubs"            v  Telemarketing Bureaus"

     v  Hazardous Waste Collection"             v  Temporary Help Services"




Slide © 2010 by Lovelock & Wirtz        Services Marketing 7/e                     Chapter 1 – Page 8
Statistical Classification of Economic Activities
   in the European Community!


     Ø  ISIC International Standard Industrial Classification Rev.4 !
            Ø  United Nations Statistics Division, http://goo.gl/2hGBE!


     Ø  European Commission, Eurostat: European Statistics!
            Ø  NACE Rev.2 Statistical classification of economic activities in
                the European Community !
            Ø  RAMON System, Metadata, Link NACE!




Slide © 2010 by Lovelock & Wirtz          Services Marketing 7/e             Chapter 1 – Page 9
NAICS: New Way to Classify &

   Analyze the Service Economy "

      NAICS—North American Industry Classification System!
              è  Classifies industries in the economic statistics of USA, Canada &
                  Mexico!
              è  Replaces old SIC codes in USA!
              è  Captures huge array of new service industries, each with its own
                  NAICS code!

      NAPCS—North American Product Classification System!
               è  Assigns codes to thousands of service products!
               è  Particularly useful for looking at rented goods services!
               !


Slide © 2010 by Lovelock & Wirtz            Services Marketing 7/e             Chapter 1 – Page 10
Why Study Services? !


       Most new jobs are generated by services!
             è  Fastest growth expected in knowledge-based industries!

             è  Significant training and educational qualifications required,
                 but employees will be more highly compensated!

             è  Will service jobs be lost to lower-cost countries? Yes, some service
                 jobs can be exported!




Slide © 2010 by Lovelock & Wirtz          Services Marketing 7/e               Chapter 1 – Page 11
Changing Structure of Employment
   as Economies Develop !



                                       Agriculture!


                                                            Services!
                      Employment!
                      Share of !




                                              Industry!


                                    Time, per Capita Income!
 Source: IMF, 1997"
 "
Slide © 2010 by Lovelock & Wirtz                      Services Marketing 7/e   Chapter 1 – Page 12
Why Study Services? !


       Powerful forces are transforming service markets!
              è  Government policies, social changes, business trends,
                  advances in IT, internationalization!

       Forces that reshape:!
              è  Demand!
              è  Supply!
              è  The competitive landscape!
              è  Customers’ choices, power, and decision making!




Slide © 2010 by Lovelock & Wirtz         Services Marketing 7/e           Chapter 1 – Page 13
Transformation of the 

   Service Economy!
                                    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 © 2010 by Lovelock & Wirtz                        Services Marketing 7/e                        Chapter 1 – Page 14
Factors Stimulating Transformation
   of the Service Economy !
                                    Social!             Business !              Advances !
                                   Changes  !            Trends!                  In IT!


     Government !                                                                            Globalization!
      Policies!




                                      §  Changes in regulations"
                                      §  Privatization"
                                      §  New rules to protect customers, employees,
                                          and the environment "
                                      §  New agreement on trade in services"




Slide © 2010 by Lovelock & Wirtz                       Services Marketing 7/e                    Chapter 1 – Page 15
Factors Stimulating Transformation
   of the Service Economy !
                                    Social!                Business !               Advances !
                                   Changes  !               Trends!                   In IT!


     Government !                                                                                Globalization!
      Policies!

                                      §    Rising consumer expectations"
                                      §    More affluence"
                                      §    More people short of time"
                                      §    Increased desire for buying experiences vs.
                                            things"
                                      §    Rising consumer ownership of high tech
                                            equipment"
                                      §    Easier access to information"
                                      §    Immigration"
                                      §    Growing but aging population "




Slide © 2010 by Lovelock & Wirtz                           Services Marketing 7/e                    Chapter 1 – Page 16
Factors Stimulating Transformation
   of the Service Economy !
                                    Social!            Business !               Advances !
                                   Changes  !           Trends!                   In 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"




Slide © 2010 by Lovelock & Wirtz                       Services Marketing 7/e                    Chapter 1 – Page 17
Factors Stimulating Transformation
   of the Service Economy !
                                    Social!                  Business !              Advances !
                                   Changes  !                 Trends!                  In IT!


     Government !                                                                                 Globalization!
      Policies!


                                      §    Growth of Internet"
                                      §    Greater bandwidth"
                                      §    Compact mobile equipment"
                                      §    Wireless networking"
                                      §    Faster, more powerful software"
                                      §    Digitization of text, graphics, audio, video"




Slide © 2010 by Lovelock & Wirtz                            Services Marketing 7/e                    Chapter 1 – Page 18
Factors Stimulating Transformation
   of the Service Economy !
                                    Social!             Business !              Advances !
                                   Changes  !            Trends!                  In 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"




Slide © 2010 by Lovelock & Wirtz                       Services Marketing 7/e                    Chapter 1 – Page 19
What are Services?!




Slide © 2010 by Lovelock & Wirtz          Services Marketing 7/e   Chapter 1 – Page 20
What Are Services? !


       The historical view!
           è  Smith (1776): Services are different from goods because they are
               perishable !
           è  Say (1803): As services are immaterial, consumption cannot be
               separated from production!

       A fresh perspective: Benefits without Ownership!
           è  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 © 2010 by Lovelock & Wirtz                 Services Marketing 7/e                Chapter 1 – Page 21
What Are Services? !


                          !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 © 2010 by Lovelock & Wirtz                 Services Marketing 7/e                 Chapter 1 – Page 22
Definition of Services!


     Services are economic activities offered by one party to
     another. Often time-based, performances bring about desired
     results to recipients, objects or other assets for which
     purchasers have responsibility. !

     In exchange for money, time and effort, service customers
     expect value from access to goods, labor, professional skills,
     facilities, networks, and systems; but they do not normally take
     ownership of any of the physical elements involved.!
                                   !




Slide © 2010 by Lovelock & Wirtz       Services Marketing 7/e   Chapter 1 – Page 23
Definition of Services!


       Services !
              è  are economic activities offered by one party to another !
              è  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!
              è  access to goods, labor, facilities, environments, professional
                  skills, networks, and systems; !
              è  normally do not take ownership of any of the physical elements
                  involved. !
                                   !


Slide © 2010 by Lovelock & Wirtz           Services Marketing 7/e             Chapter 1 – Page 24
Value Creation is Dominated by
   Intangible Elements!
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 © 2010 by Lovelock & Wirtz                                 Services Marketing 7/e                                   Chapter 1 – Page 25
Service Products vs. Customer
   Service & After-Sales Service!

       A firm’s market offerings are divided into core product
        elements and supplementary service elements!

       Need to distinguish between:!
              è  Marketing of services – when service is the core product!
              è  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 © 2010 by Lovelock & Wirtz          Services Marketing 7/e              Chapter 1 – Page 26
Service – A Process Perspective!


       Differences exist amongst services depending on what is
        being processed (and nature processing)!

       Classification of services into!
              è  People processing!
              è  Possession processing!
              è  Mental stimulus processing!
              è  Information processing!




Slide © 2010 by Lovelock & Wirtz            Services Marketing 7/e   Chapter 1 – Page 27
4 Categories of Services!




Slide © 2010 by Lovelock & Wirtz   Services Marketing 7/e   Chapter 1 – Page 28
People Processing!



       Customers must:!
            è  physically enter the service factory!

            è  cooperate actively with the service operation!

       Managers should think about process and output from !
      ! the customerʼs perspective !
            è  to identify benefits created and non-financial costs: Time, mental
              and physical effort!



Slide © 2010 by Lovelock & Wirtz           Services Marketing 7/e           Chapter 1 – Page 29
Possession Processing!



       Involvement is limited!

       Less physical involvement!

       Production and consumption are separable!

     Installation, maintaining, repairing, improving, removal and
     disposal -!

      The entire value-adding chain of activities that may take
     place during the lifetime of the object!

Slide © 2010 by Lovelock & Wirtz   Services Marketing 7/e     Chapter 1 – Page 30
Mental Stimulus Processing!



     Ethical standards required:!
           è  Customers might be manipulated!

     Physical presence of recipients not required!

     Investment of time and a degree of mental effort!

     Core content of services is information-based!
           è  Can be ʻinventoriedʼ!



Slide © 2010 by Lovelock & Wirtz       Services Marketing 7/e   Chapter 1 – Page 31
Information Processing!



       Most intangible form of service!

       May be transformed:!

            è  Into enduring forms of service output!

       Line between information processing and mental !      !
       ! stimulus processing may be unclear: information-based
     services!




Slide © 2010 by Lovelock & Wirtz         Services Marketing 7/e   Chapter 1 – Page 32
Marketing Challenges Posed
                        by Services!



Slide © 2010 by Lovelock & Wirtz   Services Marketing 7/e   Chapter 1 – Page 33
Services Pose Distinctive
   Marketing Challenges !

       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 © 2010 by Lovelock & Wirtz       Services Marketing 7/e       Chapter 1 – Page 34
Differences, Implications, and 

   Marketing-Related Tasks "

  Difference!                      Implications!                         Marketing-Related Tasks!
      !                                !                                       !
  §  Most service products!       §  Customers may be!                 §    Use pricing, promotion, !
      cannot be inventoried!           turned away!                            reservations to smooth !
      !                                                                        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!                                                          images in advertising!
                                       from competitors!
      !                                !                                       !
  §  Services are often!          §  Greater risk &!                   §    Educate customers on!
      difficult to visualize &!         uncertainty perceived!                  making good choices; offer !
      understand!                      !                                       guarantees!
                                                                               !
      !
                                   §  Interaction between!              §    Develop user-friendly!
  §  Customers may be!
                                       customer & provider; !                  equipment, facilities & !
      involved in co-!
                                       poor task execution !                   systems; train customers, !
      production!
                                       could affect satisfaction!              provide good support!
      !
                                        "                                       "
      !
Slide © 2010 by Lovelock & Wirtz                Services Marketing 7/e                              Chapter 1 – Page 35
Differences, Implications, and 

   Marketing-Related Tasks "

  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 and!      §  Hard to maintain quality,!        §  Redesign for simplicity and!
      outputs tend to vary !           consistency, reliability !            failure proofing!
      more widely!                 §  Difficult to shield !              §  Institute good service !
                                       customers from failures!              recovery procedures!
                                       !                                   !
  §  Time factor often !          §  Time is money; !                  §  Find ways to compete on !
      assumes great !                  customers want service!               speed of delivery; offer !
      importance!                      at convenient times!                  extended hours!
      !                                !                                     !
  §  Distribution may take !      §  Electronic channels or !          §  Create user-friendly,!
      place through !                  voice communications!                 secure websites and free!
                                                                             access by telephone!
      nonphysical channels!            !                                      "
      !                                 "
                                                                              "
                                       "
      !
Slide © 2010 by Lovelock & Wirtz                Services Marketing 7/e                                  Chapter 1 – Page 36
Extended Marketing Mix for
                          Services!



Slide © 2010 by Lovelock & Wirtz   Services Marketing 7/e   Chapter 1 – Page 37
Services Require 

   An Extended Marketing Mix!

       Marketing can be viewed as:!
              è  A strategic and competitive thrust pursued by top management!
              è  A set of functional activities performed by line managers!
              è  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 © 2010 by Lovelock & Wirtz           Services Marketing 7/e              Chapter 1 – Page 38
The 7Ps of Services Marketing!


       Traditional Marketing Mix Applied to Services!
              è  Product !
              è  Place and Time!
              è  Price!
              è  Promotion and Education!

       Extended Marketing Mix for Services !
              è  Process!
              è  Physical Environment!
              è  People!


Slide © 2010 by Lovelock & Wirtz          Services Marketing 7/e   Chapter 1 – Page 39
Integration of Marketing with
               Other Management Functions    !



Slide © 2010 by Lovelock & Wirtz   Services Marketing 7/e   Chapter 1 – Page 40
Marketing to be Integrated with
   Other Management Functions "

             Three management functions play central and interrelated
                    roles in meeting needs of service customers!


                            Operations !                              Marketing !
                            Management"                              Management"
                                           Customers!
     !




                                     Human Resources !
                                       Management "


Slide © 2010 by Lovelock & Wirtz            Services Marketing 7/e                  Chapter 1 – Page 41
Developing Effective Service
                  Marketing Strategies !



Slide © 2010 by Lovelock & Wirtz   Services Marketing 7/e   Chapter 1 – Page 42
Overview of Framework!

                                   Understanding Service Products, Consumers and
                                                        Markets!
                                                 Part I: Chapters 1-3!



                                     Applying the 4 Pʼs 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 © 2010 by Lovelock & Wirtz                     Services Marketing 7/e         Chapter 1 – Page 43
Framework - Part I!



                      Understanding Service Products, Consumers, and Markets!
            "
           Chapter 1               "New Perspectives on Marketing in the Service Economy"
           Chapter 2               "Consumer Behavior in a Services Context"
           Chapter 3               "Positioning Services in Competitive Markets"




Slide © 2010 by Lovelock & Wirtz                    Services Marketing 7/e            Chapter 1 – Page 44
Framework - Part II!



                                   Applying the 4 Pʼs of Marketing to Services!
             "
            Chapter 4                "Developing Service Products: Core and Supplementary
                          "          "       "Elements"
            Chapter 5                "Distributing Services through Physical and Electronic
                          "          "       "Channels"
            Chapter 6                "Setting Prices and Implementing Revenue Management"
            Chapter 7                "Promoting Services and Educating Customers"




Slide © 2010 by Lovelock & Wirtz                     Services Marketing 7/e                   Chapter 1 – Page 45
Framework - Part III!



                 The Extended Services Marketing Mix for Managing the Customer
                                                   Interface!
             "
            Chapter 8              "Designing and Managing Service Processes"
            Chapter 9              "Balancing Demand and Productive Capacity"
            Chapter 10             "Crafting the Service Environment"
            Chapter 11             "Managing People for Service Advantage"




Slide © 2010 by Lovelock & Wirtz                   Services Marketing 7/e       Chapter 1 – Page 46
Framework - Part IV!



                                   Implementing Profitable Service Strategies!
            "
           Chapter 12               "Managing Relationships and Building Loyalty"
           Chapter 13               "Complaint Handling and Service Recovery"
           Chapter 14               "Improving Service Quality and Productivity"
           Chapter 15               "Striving for Service Leadership"




Slide © 2010 by Lovelock & Wirtz                     Services Marketing 7/e         Chapter 1 – Page 47
Summary!



        Services dominate          Why Study                                 Unique       Services are often
      the economy in many          Services?"                   Characteristics
                                                                              "          intangible, difficult to
      nations. The majority                                                            visualize and understand,
      of jobs are created in                                                            and customers may be
         the service sector.
                           "                                                           involved in co-production."
                      "                                                                             "
                                                CHAPTER 1!
        Services are a form
              of rental (not                                                            Product, Place & Time,
                                                                                          Price, Promotion &
       ownership). They are
                                                                           Extended       Education, Process,
         performances that         What are
                                                                           Marketing    Physical Environment,
       bring about a desired       Services?"
                                                                                Mix              People"
                   result.
                         "
                          "
Slide © 2010 by Lovelock & Wirtz                  Services Marketing 7/e                                Chapter 1 – Page 48

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Lovelock ppt chapter_01.ppt

  • 1. Services Marketing 7e, Global Edition! Chapter 1:! New Perspectives On! !Marketing in the! ! !Service Economy! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
  • 2. Overview of Chapter 1!   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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 2
  • 3. Why Study Services?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 3
  • 4. Why Study Services?!   Services dominate most economies and are growing rapidly:! è  Services account for more than 60% of GDP worldwide! è  Almost all economies have a substantial service sector! è  Most new employment is provided by services ! è  Strongest growth area for marketing! !   Understanding services offers you a personal competitive advantage! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 4
  • 5. Services Dominate the Global Economy! Contribution of Service Industries to GDP Globally! Manufacturing 32%" Services 64%" Agriculture 4%" Source: The World Factbook 2008, Central Intelligence Agency" ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 5
  • 6. Estimated Size of Service Sector
 in Selected Countries" Jersey (97%), Cayman Islands (95%), Hong Kong (92%)! Bahamas (90%), Bermuda ( 89%), Luxembourg (86%)! USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%)! Japan (72%), Taiwan (71%), Australia (71%), Italy (71%)! Canada (70%), Germany (69%), Israel (67%) ! South Africa (65%), Brazil (66%), Poland (66%)! Turkey (63%), Mexico (62%) Argentina (57%), Russia (55%)! Malaysia (46%), Chile (45%) Indonesia (41%), China (40%)! Saudi Arabia (35%)! Services as Percent of GDP 10 20 30 40 50 60 70 80 90 Source: The World Factbook 2008, Central Intelligence Agency" ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 6
  • 7. Value Added by Service Industry 
 Categories to U.S. GDP! Business Services 12% " Transport, Utilities & Communications " 9% " SERVICES! " Wholesale & Retail Trade 12% " Source: US Bureau of Economic Analysis, Industry Economics Accounts, 2007 " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 7
  • 8. NAICS Codes of Newer Service
 Industries Not Profiled By SIC! v  Casino Hotels" v  HMO Medical Centers" v  Continuing Care Retirement v  Industrial Design Services" Communities" v  Investment Banking and Securities v  Diagnostic Imaging Centers" Dealing" v  Diet and Weight Reducing Centers" v  Management Consulting Services" v  Environmental Consulting" v  Satellite Telecommunications" v  Golf Courses, Country Clubs" v  Telemarketing Bureaus" v  Hazardous Waste Collection" v  Temporary Help Services" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 8
  • 9. Statistical Classification of Economic Activities in the European Community! Ø  ISIC International Standard Industrial Classification Rev.4 ! Ø  United Nations Statistics Division, http://goo.gl/2hGBE! Ø  European Commission, Eurostat: European Statistics! Ø  NACE Rev.2 Statistical classification of economic activities in the European Community ! Ø  RAMON System, Metadata, Link NACE! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 9
  • 10. NAICS: New Way to Classify &
 Analyze the Service Economy "  NAICS—North American Industry Classification System! è  Classifies industries in the economic statistics of USA, Canada & Mexico! è  Replaces old SIC codes in USA! è  Captures huge array of new service industries, each with its own NAICS code!  NAPCS—North American Product Classification System! è  Assigns codes to thousands of service products! è  Particularly useful for looking at rented goods services! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 10
  • 11. Why Study Services? !   Most new jobs are generated by services! è  Fastest growth expected in knowledge-based industries! è  Significant training and educational qualifications required, but employees will be more highly compensated! è  Will service jobs be lost to lower-cost countries? Yes, some service jobs can be exported! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 11
  • 12. Changing Structure of Employment as Economies Develop ! Agriculture! Services! Employment! Share of ! Industry! Time, per Capita Income! Source: IMF, 1997" " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 12
  • 13. Why Study Services? !   Powerful forces are transforming service markets! è  Government policies, social changes, business trends, advances in IT, internationalization!   Forces that reshape:! è  Demand! è  Supply! è  The competitive landscape! è  Customers’ choices, power, and decision making! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 13
  • 14. Transformation of the 
 Service Economy! 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 14
  • 15. Factors Stimulating Transformation of the Service Economy ! Social! Business ! Advances ! Changes ! Trends! In IT! Government ! Globalization! Policies! §  Changes in regulations" §  Privatization" §  New rules to protect customers, employees, and the environment " §  New agreement on trade in services" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 15
  • 16. Factors Stimulating Transformation of the Service Economy ! Social! Business ! Advances ! Changes ! Trends! In IT! Government ! Globalization! Policies! §  Rising consumer expectations" §  More affluence" §  More people short of time" §  Increased desire for buying experiences vs. things" §  Rising consumer ownership of high tech equipment" §  Easier access to information" §  Immigration" §  Growing but aging population " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 16
  • 17. Factors Stimulating Transformation of the Service Economy ! Social! Business ! Advances ! Changes ! Trends! In 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 17
  • 18. Factors Stimulating Transformation of the Service Economy ! Social! Business ! Advances ! Changes ! Trends! In IT! Government ! Globalization! Policies! §  Growth of Internet" §  Greater bandwidth" §  Compact mobile equipment" §  Wireless networking" §  Faster, more powerful software" §  Digitization of text, graphics, audio, video" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 18
  • 19. Factors Stimulating Transformation of the Service Economy ! Social! Business ! Advances ! Changes ! Trends! In 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" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 19
  • 20. What are Services?! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 20
  • 21. What Are Services? !   The historical view! è  Smith (1776): Services are different from goods because they are perishable ! è  Say (1803): As services are immaterial, consumption cannot be separated from production!   A fresh perspective: Benefits without Ownership! è  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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 21
  • 22. What Are Services? ! !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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 22
  • 23. Definition of Services! Services are economic activities offered by one party to another. Often time-based, performances bring about desired results to recipients, objects or other assets for which purchasers have responsibility. ! In exchange for money, time and effort, service customers expect value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved.! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 23
  • 24. Definition of Services!   Services ! è  are economic activities offered by one party to another ! è  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! è  access to goods, labor, facilities, environments, professional skills, networks, and systems; ! è  normally do not take ownership of any of the physical elements involved. ! ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 24
  • 25. Value Creation is Dominated by Intangible Elements! 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 25
  • 26. Service Products vs. Customer Service & After-Sales Service!   A firm’s market offerings are divided into core product elements and supplementary service elements!   Need to distinguish between:! è  Marketing of services – when service is the core product! è  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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 26
  • 27. Service – A Process Perspective!   Differences exist amongst services depending on what is being processed (and nature processing)!   Classification of services into! è  People processing! è  Possession processing! è  Mental stimulus processing! è  Information processing! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 27
  • 28. 4 Categories of Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 28
  • 29. People Processing!   Customers must:! è  physically enter the service factory! è  cooperate actively with the service operation!   Managers should think about process and output from ! ! the customerʼs perspective ! è  to identify benefits created and non-financial costs: Time, mental and physical effort! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 29
  • 30. Possession Processing!   Involvement is limited!   Less physical involvement!   Production and consumption are separable! Installation, maintaining, repairing, improving, removal and disposal -!  The entire value-adding chain of activities that may take place during the lifetime of the object! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 30
  • 31. Mental Stimulus Processing!   Ethical standards required:! è  Customers might be manipulated!   Physical presence of recipients not required!   Investment of time and a degree of mental effort!   Core content of services is information-based! è  Can be ʻinventoriedʼ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 31
  • 32. Information Processing!   Most intangible form of service!   May be transformed:! è  Into enduring forms of service output!   Line between information processing and mental ! ! ! stimulus processing may be unclear: information-based services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 32
  • 33. Marketing Challenges Posed by Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 33
  • 34. Services Pose Distinctive Marketing Challenges !   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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 34
  • 35. Differences, Implications, and 
 Marketing-Related Tasks " Difference! Implications! Marketing-Related Tasks! ! ! ! §  Most service products! §  Customers may be! §  Use pricing, promotion, ! cannot be inventoried! turned away! reservations to smooth ! ! 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! images in advertising! from competitors! ! ! ! §  Services are often! §  Greater risk &! §  Educate customers on! difficult to visualize &! uncertainty perceived! making good choices; offer ! understand! ! guarantees! ! ! §  Interaction between! §  Develop user-friendly! §  Customers may be! customer & provider; ! equipment, facilities & ! involved in co-! poor task execution ! systems; train customers, ! production! could affect satisfaction! provide good support! ! " " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 35
  • 36. Differences, Implications, and 
 Marketing-Related Tasks " 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 and! §  Hard to maintain quality,! §  Redesign for simplicity and! outputs tend to vary ! consistency, reliability ! failure proofing! more widely! §  Difficult to shield ! §  Institute good service ! customers from failures! recovery procedures! ! ! §  Time factor often ! §  Time is money; ! §  Find ways to compete on ! assumes great ! customers want service! speed of delivery; offer ! importance! at convenient times! extended hours! ! ! ! §  Distribution may take ! §  Electronic channels or ! §  Create user-friendly,! place through ! voice communications! secure websites and free! access by telephone! nonphysical channels! ! " ! " " " ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 36
  • 37. Extended Marketing Mix for Services! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 37
  • 38. Services Require 
 An Extended Marketing Mix!   Marketing can be viewed as:! è  A strategic and competitive thrust pursued by top management! è  A set of functional activities performed by line managers! è  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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 38
  • 39. The 7Ps of Services Marketing!   Traditional Marketing Mix Applied to Services! è  Product ! è  Place and Time! è  Price! è  Promotion and Education!   Extended Marketing Mix for Services ! è  Process! è  Physical Environment! è  People! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 39
  • 40. Integration of Marketing with Other Management Functions ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 40
  • 41. Marketing to be Integrated with Other Management Functions " Three management functions play central and interrelated roles in meeting needs of service customers! Operations ! Marketing ! Management" Management" Customers! ! Human Resources ! Management " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 41
  • 42. Developing Effective Service Marketing Strategies ! Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 42
  • 43. Overview of Framework! Understanding Service Products, Consumers and Markets! Part I: Chapters 1-3! Applying the 4 Pʼs 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 © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 43
  • 44. Framework - Part I! Understanding Service Products, Consumers, and Markets! " Chapter 1 "New Perspectives on Marketing in the Service Economy" Chapter 2 "Consumer Behavior in a Services Context" Chapter 3 "Positioning Services in Competitive Markets" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 44
  • 45. Framework - Part II! Applying the 4 Pʼs of Marketing to Services! " Chapter 4 "Developing Service Products: Core and Supplementary " " "Elements" Chapter 5 "Distributing Services through Physical and Electronic " " "Channels" Chapter 6 "Setting Prices and Implementing Revenue Management" Chapter 7 "Promoting Services and Educating Customers" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 45
  • 46. Framework - Part III! The Extended Services Marketing Mix for Managing the Customer Interface! " Chapter 8 "Designing and Managing Service Processes" Chapter 9 "Balancing Demand and Productive Capacity" Chapter 10 "Crafting the Service Environment" Chapter 11 "Managing People for Service Advantage" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 46
  • 47. Framework - Part IV! Implementing Profitable Service Strategies! " Chapter 12 "Managing Relationships and Building Loyalty" Chapter 13 "Complaint Handling and Service Recovery" Chapter 14 "Improving Service Quality and Productivity" Chapter 15 "Striving for Service Leadership" Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 47
  • 48. Summary! Services dominate Why Study Unique Services are often the economy in many Services?" Characteristics " intangible, difficult to nations. The majority visualize and understand, of jobs are created in and customers may be the service sector. " involved in co-production." " " CHAPTER 1! Services are a form of rental (not Product, Place & Time, Price, Promotion & ownership). They are Extended Education, Process, performances that What are Marketing Physical Environment, bring about a desired Services?" Mix People" result. " " Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 48