2. Global Services Chapter 13 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

3. Outline Characteristics of Services Services as Products Service Globalization Potential Foreign Entry Modes of Services Service Quality and Cultural Differences Two special cases: Fast Food and Professional Services Takeaways.

4. Accounting Advertising Banking Broadcasting Computer services Consulting Data processing Design & engineering Distribution Education Entertainment Health care Insurance Investment banking Leasing Legal Services Lodging Media Reservation systems Restaurants Tourism Telecommunications Transportation Utilities The Service Industries

5. INTANGIBILITY – you cannot easily touch a service HETEROGENEITY – the service is not exactly the same each time INSEPARABILITY – services are produced when they are consumed PERISHABILITY – you cannot store a service Characteristics of Services

6. CORE SERVICE: IS WHAT THE BUYER IS REALLY BUYING. FOR EXAMPLE, AN OIL CHANGE AND TUNE-UP FOR YOUR CAR PROVIDES TROUBLE-FREE OPERATION. FORMAL SERVICE PACKAGE: SPECIFIC SERVICES OFFERED TO THE CUSTOMER INCLUDING PRICE, SERVICE FEATURES, THE PACKAGING, GUARANTEES. AUGMENTED SERVICE: THE TOTALITY OF THE BENEFITS A CUSTOMER RECEIVES OR EXPERIENCES THEY HAVE WHEN BUYING THE PRODUCT. The Service “Product”

7. Generic benefits Provider’s behavior Physical surroundings Provider’s appearance Brand image Features Quality Packaging After-sales support Price Warranty Core service Formal service package Augmented service The service as a “product”

8. Stage in the Life Cycle – potential is highest during the maturity stage because then the service is fully developed and can be blueprinted. Infrastructure barriers – service applicability depends on availability of infrastructure, as when, for example, warehouse stores require customers to take home large items in their own cars. Idiosyncratic Home Markets – special regulations induce domestic service providers to develop practices that are not applicable elsewhere, as when, for example, advertising agencies in Japan produce television programs whose sponsorship the agency controls. Three factors that influence the globalization potential of services Service Globalization Potential

9. Reasonable similarity to the home country situation Distilling exactly what the key features of the product/service concept are Localization of the key features to another environment while still maintaining the FSA's of the firm 2 1 3 Keys to Successful Service Globalization

10. 1.EXPORTING – where services can be transferred via communications media or personal travel to countries 2.LICENSING – when local involvement is important, where the service can be standardized (e.g. franchising) 3.STRATEGIC ALLIANCES – when a local presence is necessary but where government regulations are restrictive to foreigners 4.FOREIGN DIRECT INVESTMENT – when a local presence is feasible, where foreign ownership is permitted The Four Service Entry Modes

11. Foreign Entry of Services Tourism exports provide an illustration of foreign trade in services, as when Americans visit France. A franchising expansion by McDonalds provides an illustration of a licensing mode of service entry. In marketing research, it is common to strike up alliances with research firms in other countries to be able to provide global coverage to clients. In consulting services, foreign direct investment is sometimes necessary, as when Price-Waterhouse opens an office in Brussels.

12. 1.MARKET SEGMENTATION – typically new services from abroad target very specific segments or audiences 2.POSITIONING – the customer benefit of the service needs to be identified clearly to position the service accordingly 3.PRODUCT LINE – a service provider that fits the local infrastructure 4.BRANDING – is always important given the intangibility of services. The Local Marketing of a Service

13. 5. PRICING – competitive parity, costs, demand, and the value of time spent by customers must be factored in 6. PROMOTION – many professional services have restrictions on promotional activities that differ across countries 7. DISTRIBUTION – since a service is produced & consumed at the same time, service delivery is identical to service production; consequently, distribution becomes the “critical incident” or “moment of truth.” The Local Marketing of a Service (cont’d)

14. CRITICAL INCIDENTS/MOMENTS OF TRUTH – the period of time during which an individual consumes the service Desired Service – highest or ideal quality Predicted or Expected Service – lies somewhere between the desired & the adequate service Adequate Service – forms the lower limit below which the service quality is unacceptable Perceived Service –must lie between the desired & the adequate service levels to make sure customer is satisfied Service Quality

15. Desired Service Predicted/Expected Service Adequate Service (Perceived Service low) Surprise Acceptable Dissatisfaction Zone of tolerance Performance Gap Service Quality: The Gap and the Zone of Tolerance (Perceived Service high) Inadequate Service

16. Since services are intangible, service quality is more difficult to quantify, allowing for a more subjective view Different cultures have different habits and preferences and therefore different definitions of service quality So culture affects perceived service quality & customer satisfaction strongly And what is considered high service quality in one country is not necessarily high in another country. Culture and Service Quality

17. Asking Listening JapaneseAmericans Expressing doubt Expressing sympathy Explain what cannot be done Explain what can be done Defending company policy Apologize for company policy Responsibility of the buyer Responsibility of the seller “We’ll fix it, but…” “I’m very sorry” Low customer satisfaction High customer satisfaction Personal Service Quality: Differences in Complaint Handling

18. ADVANTAGES – allows franchisee to start a business with limited capital, benefiting from local experience of franchiser DISADVANTAGES – franchiser’s ability to dictate many facets of the business may seem overly intrusive Has been growing in the last two decades Mitigates risk of financial exposure in other country markets Common method of penetrating new markets, leveraging existing brand names Firms provide pre-planning tools to entice local investors E.g. McDonalds, KFC, Wendy’s, Dunkin Donuts, Pizza Hut Close-up: Fast Food Franchising

19. Professional services are expanding globally despite idiosyncratic local regulations A gradual move toward making regulations more homogeneous benefits this expansion (e.g. EU certification of lawyers & doctors) Accounting standards are converging, allowing accounting firms to go global, with clients outside their home countries Increased sophistication in creating strategic alliances aid global service expansion E.g. lawyers, doctors, accounting firms Close-up: Professional Services

20. Services have become an increasingly important part of the economy, especially in developing countries. Like manufacturers of products, service providers are turning increasingly to foreign markets for growth. Takeaway

21. Services have characteristics that make foreign expansion different from products. Intangibility of many services makes the mode of entry different from physical goods. Takeaway

22. Globalizing a service means identifying what the core advantages of the service are & whether they can be reproduced in a foreign market. This usually means that foreign expansion of services occurs in the mature life cycle stage. Takeaway

23. The barriers to entry for services tend to be greater than for goods, because of restrictive government regulation & the need for localized delivery. Takeaway

24. Because of the human factor, the way services are marketed locally & the trade-off between standardization & adaptation hinge very much on cultural factors. Takeaway