CHAPTER 1 -NEW PERSPECTIVES ON MARKETING IN THE SERVICE ECONOMY
DEFINITION OF SERVICE~ Services are economic activities offered by one party to another, most commonly employing time-based performances to bring about desired results in recipients themselves or in objects or other assets for which purchasers have responsibility.
} Most commonly employing time-based performances to bring about desired results in recipients themselves or in objects or other assets for which purchasers have responsibility in exchange for their money, time and effort.
} Service customers expect to obtain value from access to goods, labor, professional skills, facilities, networks, and system
} They do not normally take ownership of any of the physical elements involved.
WHY STUDY SERVICE?
} Service Dominate the Economy in Most Nation
} Classifying service industries
} Contribute the gross domestic product
} Most new jobs are generated by services
} Powerful forces are transforming service markets
} Understanding services offers personal competitive advantage
} Service Dominate the Economy in Most Nation
} The size of the service sector is increasing around the world, in both developed and emerging countries.
} Contribution of service industries to U.S Gross Domestic Product, 2004
Classifying service industries
} NAICS: A new way to classify and analyze the service economy
} NAICS (North America Industry Classification System) use to compile and record economic data by national statistical agencies of the U.S, Canada, Mexico
} New classification system replaces old SIC codes in U.S
} Uses a consistent principle for classification, grouping together businesses that use similar production process
} Its goal is to make economic statistic more useful and to capture developments that encompass applications of high tech, new businesses that previously not exist and changes in the way business is done
} The NAICS codes are set up in such a way that researchers can drill down within broad industry sectors to obtain information on tightly defined types of service establishments.
} NAPCS (North American Product Classification System)
- Assign codes to thousands of service products
- Particularly useful for looking at rented goods services
} Contribute the gross domestic product
} Value added by service industry categories to U.S Gross Domestic Product, 2004 (in $billions)
} Most new jobs are generated by services
} Fastest growth expected in knowledge-based industries
} Significant training and educational qualification required, but employees will be more highly compensated
POWERFUL FORCES ARE TRANSFORMING SERVICE MARKETS (5)
1. GOVERNMENT POLICIES
} Changes in regulations
} Privatization
} New rules to protect customers, employees, and the environment
} New agreements 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 computers, cell phones, and high-tech equipment
} Easier access to more information
} Immigration
} Growing but aging population
3. BUSINESS TRENDS
} Push to increase shareholder value
} Emphasis on productivity and cost savings
} Manufacturer 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
4. ADVANCE IN INFORMATION TECHNOLOGY
} Growth of internet
} Greater bandwidth
} Compact mobile equipment
} Wireless networking
} Faster, more powerful software
} Digitization of text, graphics, audio, and video
5. GLOBALIZATION
} More companies operating on transnational basis
} Increased international travel
} International mergers and alliances
} “offshoring” of customer service
} Foreign competitors invade domestic markets
} Understanding services offers personal competitive advantage
} Learning about the distinctive characteristics of services and how they affect both customer behavior and marketing strategy will give you important insights and perhaps create a competitive advantage for your own career.
} 5 broad categories within the non-ownership framework
- Rented goods services
- Defined space and place rentals
- Labor and expertise rentals
- Access to shared physical environments
- Systems and networks: access and usage
} New Perspective on Marketing in the Service Economy
} Service Pose Distinctive Marketing Challenges
8 common differences are:
Most service product cannot be inventoried
- because service involved actions and performance
- customer may be turned away or have to wait eg: barber, salon
Intangible element usually dominate value creation
- customer can’t taste, smell, touch, hear or even see them
- harder to evaluate service and distinguish from competitors
- such as process, internet based transaction, and the expertise and attitudes of service personnel. That will create the most value in service performance.
- eg: ATM, consultants who give their consultation to customer.
Service often difficult to visualize and understand
- service can be described as “mentally intangible” meaning that it is difficult for customer to visualize the experience in advance of purchase and to understand what they will be getting.
- customer perceived greater risk and uncertainty
- eg: travel agency
Customer may be involved in co-production
- service require customers to participate actively in co-producing the service product.
- customers interact with provider’s equipment, facilities and system
- the involvement takes the form of self-service, often using the technology of smart machines, telecommunication and the internet
- eg: withdrawing money from an ATM
People may be part of service experience
- the difference between one service suppliers and another often lies in the attitude and skills of their employees
- behavior of service personnel and customer can affect satisfaction
- service supplier should have good attitude in treating their customer.
- customer misbehavior present a marketing problem
Operational inputs and outputs tend to vary more widely
- When a service is delivered directly and consumed as its produced final “assembly” must take place in real time.
- service execution often differs among employees, between the same employee and different customer and even from one time of day to another
- attitudes, transaction speed, quality of performance can vary widely
- hard to maintain quality, consistency and reliability
- Difficult to shield customer from failure.
The time factor often assumes great importance
- customer are the most time-sensitive, everything must be in hurry and they see wasted time as a cost to avoid
- Time is money. Customer wants service at convenience times.
Distribution may take place through non-physical channel
- service business use electronic channels to deliver all of their service elements
- eg: banks offer customer a choice of distribution channels, including visiting the branch, using a network of ATMs, doing business by telephone or conducting banking transaction on the internet
The 8P’s of Service Marketing
- The 8P’s of service marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplace.
- Product element
- Place and time
- Price and other user outlays
- Promotion and education
- Process
- Physical environment
- People
- Productivity and quality
} Product Element
- All components of service performance that create value
- Core product responds to customer’s primary needs
- Array of supplementary service elements
a) Help customer use core product effectively
b) Add value through useful enhancements
- Planning marketing mix begins with creating a service concept that:
a) Will offer value to target customer
b) Satisfy their needs better than competing alternatives
} Place and Time
- Usually for delivery decision
(Where, when, how)
- Geographic location served
- Service schedule
- Physical channels
- Electronic channels
- Customer control and convenience
- Channel partners/ intermediaries
} Price and Other User Outlays
- Marketers must recognize that customer outlays involve more than price paid to seller.
- All the outlays incurred by customers in obtaining benefits from the service product costs of service, including money, time expenditures, physical and mental effort, and exposure to negative sensory experience.
} Promotion and Education
- All communication activities and incentives designed to inform and educate customers, build preference for a particular service and encourage them to take action
- Using marketing tools such as advertising, personal selling, sales promotion and public relation.
} Process
- How firm does things may be as important as what it does
- Customer often actively involved in processes, especially when acting as co-producers of service
- Process involves choice of method and sequence in service creation and delivery
- Badly designed processes will cause in waste time, create poor experiences, and disappoint customer
} Physical Environment
- The appearance of buildings, landscaping, vehicles, interior furnishing, equipment, staff members’ uniform, signs, printed materials, other visible cues all provide tangible evidence of a firm service quality.
- Service firms need to manage physical evidence carefully because it can have a profound impact on customers’ impression
} People
- Interaction between customers and contact personnel strongly influence customer perceptions of service quality
- Dissatisfaction with service quality will reflect of front-line staff.
- Successful service firm devotes significant effort to recruiting, training and motivating employees
} Productivity and Quality
- Productivity and quality must work hand in hand
- Improving productivity key to reduce costs
- Improving and maintaining quality essential for building customer satisfaction and loyalty
- Ideally, strategies should be sought to improve both productivity and quality simultaneously- technology often the key
q technology based innovations have potential to create high payoffs
q must be user friendly and deliver valued customer benefits
