Chapter 1: New Perspectives on Marketing in the Service Economy.
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Transcript of Chapter 1: New Perspectives on Marketing in the Service Economy.
Chapter 1: New Perspectives on Marketing in the Service Economy
Why Study Services? (1)Services dominate economy in most nationsUnderstanding services offers you personal competitive
advantagesImportance of service sector in economy is growing
rapidly:Services account for more than 60 percent of GDP worldwideAlmost all economies have a substantial service sectorMost new employment is provided by services Strongest growth area for marketing
Estimated Size of Service Sector in Selected Countries (Fig 1.2—updated 10/06)
Services as Percent of GDP
Poland (66%), South Africa (65%)
Japan (74%), France (73%), U.K. (73%), Canada (71%)
Saudi Arabia (33%)
China (40%)
India (48%)
Argentina (53%), Brazil (51%)
Panama (80%), USA (79%)
Luxembourg (83%)
Cayman Islands (95%), Jersey (93%)
Bahamas (90%), Bermuda ( 89%)
Mexico (69%), Australia (68%), Germany (68%)
Israel (60%), Russia (58%), S. Korea (56%)
30 40 50 60 70 80 902010
Three Major sectors:
The structure of an economy is defined by the shares of these sector’s in total output, total employment, total trade etc.
There is a definite relationship between economic development and structural changes of an economy.
As the economy is on the development path, the structure of the economy shifts away from agriculture to industry and then from industry to services.
Changing Structure of sectors as Economic Development Evolves
Primary (agriculture)
Secondary (manufacturin
g)
Tertiary (services)
Changing Structure of Employment as Economic Development Evolves
Industry
Services
Agriculture
Time, per Capita Income
Share of Employment
Source: IMF, 1997
Economic sectors in Bangladesh
Sector GDP composition
by sector
Share of Labor
Agriculture18.4% 45%
Industry28.6% 30%
Services53% 25%
Source: CIA World Fact Book 2011
Source Bangladesh Economic Review, 2010
BangladeshGDP: 285.8 Billion (2011)Labor force: 75.42 millionUnemployment rate: 5%
40% of the population is under employedPopulation below poverty line: 31.51%
GDP (purchasing power parity) (Billion $)
Contribution of total Service Sector in GDP
Source Bangladesh Economic Review, 2010
Why Study Services? (2) 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
Will service jobs lost to lower-cost countries? Yes, some service jobs can be exported
Why Study Services? (3)Powerful forces are transforming service
marketsGovernment policies, social changes, business
trends, advances in IT, internationalizationThese forces are reshaping
DemandSupplyThe competitive landscapeCustomers’ choices, power, and decision
making
Transformation of the Service Economy
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
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
New markets and product categories Increase in demand for services More intense competition
Factors Stimulating Transformation of the Service Economy (1)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Changes in regulations
Privatization
New rules to protect customers, employees, and the environment
New agreement on trade in services
Factors Stimulating Transformation of the Service Economy (2)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
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
Factors Stimulating Transformation of the Service Economy (3)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
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
Factors Stimulating Transformation of the Service Economy (4)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Growth of the Internet
Greater bandwidth
Compact mobile equipment
Wireless networking
Faster, more powerful software
Digitization of text, graphics, audio, video
Factors Stimulating Transformation of the Service Economy (5)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
More companies operating on transnational basis
Increased international travel
International mergers and alliances
“Offshoring” of customer service
Foreign competitors invade domestic markets
What are Services?
ServicesCombination of outcomes and experiences
delivered to and received by customers.Deeds, processes, performances.
All economic activities whose output is not a physical product.
Generally consumed at the time it is producedProvides added value in forms that are essentially
intangible.Services deal with processes rather than with
things and are experienced than consumed.Usually cover a vast array of different and often
complex activities.
Categories of Services
Service industries and companiesInclude companies whose core product is a service
Westin, Biman, NSU etc.
Services as productsRepresent a wide range of intangible product
offerings Sold by both service and non-service companies.
IBM, HP etc
Customer serviceCritical aspect of what we mean by “service”Service provided in support of a company’s core
product.Companies typically do not charge for it.Can occur on-site, over phone or via internet.
Categories
Derived ServiceAll products and physical goods are valued for
the services they provide.New logic but somewhat abstract.
Pharmaceutical providing medical service. Computer providing info and data manipulation
services.
Categories
Challenges Posed by Services
Service Characteristics:IntangibilityInseparabilityVariabilityPerishabilityCustomer participationNo ownership
Differences, Implications, and Marketing-Related Tasks (1) (Table 1.1)Difference
Most service products
cannot be inventoried
Intangible elementsusually dominatevalue creation
Services are oftendifficult to visualizeand understand
Customers may beinvolved in co-production
Implications
Customers may beturned away
Harder to evaluateservice and distinguishfrom competitors
Greater risk anduncertainty perceived
Interaction betweencustomer and provider; but poor task execution could affect satisfaction
Marketing-Related Tasks
Use pricing, promotion, and
reservations to smooth demand; work with ops to manage capacity
Emphasize physical clues, employ metaphors and vivid images in advertising
Educate customers onmaking good choices; offer guarantees
Develop user-friendlyequipment, facilities, and systems; train customers, provide good support
Implications
Behavior of servicepersonnel and customerscan affect satisfaction
Hard to maintain quality, consistency, reliability
Difficult to shield customers from failures
Time is money; customers want serviceat convenient times
Electronic channels or voice telecommunications
Difference
People may be part of
service experience
Operational inputs and
outputs tend to vary more widely
Time factor often assumes great importance
Distribution may take place through nonphysical channels
Marketing-Related Tasks
Recruit, train employees to
reinforce service conceptShape customer behavior
Redesign for simplicity andfailure proofing
Institute good service recovery procedures
Find ways to compete on speed of delivery; offer extended hours
Create user-friendly,secure websites and freeaccess by telephone
Expanded Marketing Mix
for Services
Services Require An Expanded Marketing MixMarketing can be viewed as:
A strategic and competitive thrust pursued by top management
A set of functional activities performed by line managers
A customer-driven orientation for the entire organization
The “8Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplace
8 P’s of Services MarketingProduct Price PlacePromotionPhysical evidence/environmentPeopleProductivity and Quality
(1) Product ElementsEmbrace all aspects of service performance that
create value
Core product responds to customer’s primary need
Array of supplementary service elementsHelp customer use core product effectivelyAdd value through useful enhancements
Planning marketing mix begins with creating a service concept that:Will offer value to target customersSatisfy their needs better than competition
(2) Place and TimeDelivery decisions: Where, When, How
Geographic locations served
Service schedules
Physical channels
Electronic channels
Customer control and convenience
Channel partners/intermediaries
(3) Price and Other User Outlays Marketers must recognize that customer outlays
involve more than price paid to seller
Traditional pricing tasks: Selling price, discounts, premiums Margins for intermediaries (if any) Credit terms
Identify and minimize other costs incurred by users: Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting, etc.)
Time expenditures, especially waiting Unwanted mental and physical effort Negative sensory experiences
(4) Promotion and Education Informing, educating, persuading, reminding
customers
Marketing communication toolsMedia elements (print, broadcast, outdoor, retail, the
Internet, etc.)Personal selling, customer serviceSales promotionPublicity/PR
Imagery and recognitionBrandingCorporate design
Content Information, advicePersuasive messagesCustomer education/training
(5) ProcessHow firm does things may be as important as what it
doesCustomers often actively involved in processes,
especially when acting as co-producers of serviceProcess involves choices of method and sequence in
service creation and deliveryDesign of activity flowsNumber and sequence of actions for customersNature of customer involvementRole of contact personnelRole of technology, degree of automation
Badly designed processes waste time, create poor experiences, and disappoint customers
(6) Physical EnvironmentDesign servicescape and provide tangible evidence of
service performances
Create and maintain physical appearancesBuildings/landscapingInterior design/furnishingsVehicles/equipmentStaff grooming/clothingSounds and smellsOther tangibles
Manage physical cues carefully— can have profound impact on customer impressions
(7) PeopleInteractions between customers and contact personnel
strongly influence customer perceptions of service quality
The right customer-contact employees performing tasks wellJob designRecruitingTrainingMotivation
The right customers for firm’s missionContribute positively to experience of other customersPossess—or can be trained to have— needed skills (co-
production)Can shape customer roles and manage customer
behavior
(8) Productivity and QualityProductivity and quality must work hand in hand
Improving productivity key to reducing costs
Improving and maintaining quality is essential for building customer satisfaction and loyalty
Ideally, strategies should be sought to improve both productivity and quality simultaneously—technology often the keyTechnology-based innovations have potential to create high
payoffsBut, must be user friendly and deliver valued customer benefits
Chapter 1 Summary: New Perspectives on Marketing in the Service Economy
Reasons for studying services:Service sector dominates economy in most nations,
many new industries
Most new jobs created by services
Powerful forces—government policies, social changes, business trends, IT advances, and globalization—are transforming service markets
Understanding services offers personal competitive advantage
Chapter 1 Summary: New Perspectives on Marketing in the Service Economy
The service concept and its definition: Services create benefits without transfer of ownership
Most employ time-based performances to bring about desired results in recipients or in assets for which they have responsibility
Customers expect value from access to goods, facilities, labor, professional skills, environments, networks & systems in return for money, time, effort
Services present distinctive marketing challenges relative to goods, requiring: Expanded marketing mix comprising 8Ps instead of traditional 4Ps
Integration of marketing function with operations and human resources