Services Marketing, 7e, Global Edition Chapter 1: New Perspectives On Marketing in the Service Economy

Overview of Chapter 1 1. Why Study Services? 2. What are Services? 3. Marketing Challenges Posed by Services 4. Extended Marketing Mix Required for Services 5. Integration of Marketing with Other Management Functions 6. Developing Effective Service Marketing Strategies

1. Why Study Services?

Why Study Services? Services dominate most economies and are growing rapidly: Increased productivity and automation in agriculture and industry, combined with growing demand for both new and traditional services Services account for more than 60% of GDP worldwide Most new employment is provided by services (B2C: financial advice, medical examination, B2B: outsourcing) Strongest growth area for marketing

Changing Structure of Employment as Economies Develop Agriculture Services Employment Share of Industry Time (per capita income) Source: IMF, 1997

Contribution of Services to GDP Globally (G, T, U, C), SIC, NAICS (711211) Manufacturing (32, 29) % Services (64, T69~71, U79, C40) % Agriculture (4, 2) %

Estimated Size of Service Sector in Selected Countries (%) Services as Percent of GDP South Africa (65%), Brazil (66%), Poland (66%) Japan (72%), Taiwan (71%), Australia (71%), Italy (71%) Saudi Arabia (35%) Indonesia (41%), China (40%) Malaysia (46%), Chile (45%) Argentina (57%), Russia (55%) USA (79%), Fiji (78%), Barbados (78%), France (77%), U.K. (76%) Jersey (97%), Cayman Islands (95%), Hong Kong (92%) Bahamas (90%), Bermuda ( 89%), Luxembourg (86%) Canada (70%), Germany (69%), Israel (67%) Turkey (63%), Mexico (62%) 30 40 50 60 70 80 90 20 10 Source: The World Factbook 2008, Central Intelligence Agency

Why Study Services? Most new jobs are generated by services Fastest growth expected in knowledge-based industries Significant training and educational qualifications required, but employees will be more highly compensated (IBM SSME: Service Science, Management and Engineering) Will service jobs be lost to lower-cost countries? Yes, some service jobs can be exported

5 Powerul forces are transforming service markets (1) Government policies (2) Social changes (3) Business trends (4) Advances in IT (5) Internationalization

(1) Government policies Changes in regulations, e.g., deregulation (放鬆管制，開放競 爭) Privatization (BOT) New rules to protect customers, employees, and the environment New agreement on trade in services

(2) Social changes 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 Growing but aging population

(3) Business trends 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

(4) Advances in IT Growth of Internet Greater bandwidth, e.g., 4G Compact mobile equipment Wireless networking Faster, more powerful software Self-service technology

(5) Internationalization More companies operating on transnational basis Increased international travel International mergers and alliances “Offshoring” of customer service Foreign competitors invade domestic markets

2. What are Services?

What Are Services? Historical view of services—production and consumption are separable Fresh new perspective—services is distinguished as benefits without ownership. 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

What Are Services? Access to and usage of systems and networks Five broad categories within non-ownership framework of which two or more may be combined Rented goods services Defined space and place rentals Labor and expertise rentals Access to shared physical environments Access to and usage of systems and networks

Definition of Services are economic activities offered by one party to another 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 normally do not take ownership of any of the physical elements involved.

Categories of Services 2 * 2 Tangible, Intangible People: Passenger Transportation, Education Possessions: fright transportation, Accounting

Service Products, Customer Service, After-Sales Service A firm’s market offerings are divided into core product elements and supplementary service elements Need to distinguish between: Marketing of services – when service is the core product 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 (Rolls-Royce sells power by the hour)

3. Marketing Challenges Posed by Services

Services Pose Distinctive Marketing Challenges Marketing is usually separated from the operations and human resources functions in a manufacturing business, where goods are usually produced in a factory and then distributed and sold at a separate location. 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

8 characteristics of services 1. Most service products cannot be inventoried 2. Intangible elements usually dominate value creation 3. Services are often difficult to visualize & understand 4. Customers may be involved in co-production 5. People may be part of service experience 6. Operational inputs and outputs tend to vary more widely 7. Time factor often assumes great importance 8. Distribution may take place through nonphysical channels

4. Extended Marketing Mix for Services

Services Require An Extended Marketing Mix Marketing can be viewed as: 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

The 7Ps of Services Marketing Traditional Marketing Mix Applied to Services Product (Chapter 4) Place and Time (Chapter 5) Price (Chapter 6) Promotion and Education (Chapter 7) Extended Marketing Mix for Services Process (Chapter 8 & 9) Physical Environment (Chapter 10) People (Chapter 11)

5. Integration of Marketing with Other Management Functions

Integration of Marketing with Other Management Functions Marketing links the firm to its external environment and acts as a customer champion; Operations is concerned with service design and delivery, often involving customers in operational processes; Human resources helps to recruit, train, and motivate employees whose jobs bring them into direct contact with customers.

6. Developing Effective Service Marketing Strategies

Overview of Framework Understanding Service Products, Consumers and Markets Applying the 4 P’s of Marketing to Services The Extended Services Marketing Mix for Managing the Customer Interface Implementing Profitable Service Strategies

Summary (Integration, Extensions, Questions) Understand the contribution of services to a country’s economy Define services using the non-ownership of services framework and understand how non-ownership affects services marketing strategies Understand the components of the services marketing mix (the 7Ps) ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.