1. MKTG 29 : Service Marketing
PART 1 – Understanding Services
Chapter 1: Distinctive Aspects of Service
Management
Instructor: Mr. Abelito T. Quiwa. MBA
School Year 2011 – 2012
2. Distinctive Aspect of Service
Management
“ Ours is a service economy and it has been one
for some time.” – Karl Albrecht and Ron Zemke
“ Consciously or unconsciously, every one of us
does render some service or other. If we cultivate
the habit of doing this service deliberately, our
desire for service will steadily grow stronger and
we will make not only our own happiness, but that
of the world. The best way to find yourself is to
love yourself in the service of others.”
- Mahatma Gandhi
3. Objectives
To know how significant is the service sector in the
economies of different countries.
To know what characteristics make services different
from goods and what are their implications for
service marketers.
To know why is it important to examine services
marketing within the broader framework of integrated
service management.
To know why do service businesses need to
integrate the marketing, operations and human-
resources functions.
To what are the major changes occurring in the
4. Service in the Modern Economy
HSBC Holdings, one of the world’s largest banking
groups, is turning to it own backyard, Asia, in search
of profit and growth after two decades of expansion
in the US and Europe.
Singapore Airlines (SIA) is one of the most
consistently profitable airlines in the world. Turning
economic crisis of 1997 into opportunity. It has spent
$292 million on upgrading service in all classes
without raising fares.
NBC Asia, a subsidiary of the National Broadcasting
Company, one of the leading national television
network in the U.S., has launched CNBC Asia, a 24
hour business and financial news covering from
three continents.
5. What Is a Service?
The two definitions that capture its essence.
A service is an act or performance offered by one
party to another. Although the process may be tied to
a physical product, the performance is essentially
intangible and does not usually result in ownership of
any of the factors of production.
A service is an economic activity that creates value
and provides benefits for customers at a specific
time and place, by bringing about a desired change
in, or on behalf of, the recipient of the service.
6. Understanding the Service Sector
Table 1.1. Size of the Service Sector in Selected Asian
Countries
Value Added by Services as a Percentage of Gross Domestic
Product in 1999, 1990,1989
1999 1990 1989
China 32.9% 30.1% 21.4%
Hon Kong 84.7% 74.5 67.5 1
India 46.1 39.7 36.0
Indonesia 37.7 41.5 31.8
South Korea 51.5 48.4 43.7 3
Malaysia 43.1 42.6 n.a.
Philippines 52.0 43.6 36.1 3
Singapore 64.1 65.3 60.6
Taiwan 64.3 54.6 46.6 2
Thailand 49.6 50.3 48.1
Vietnam 40.1 38.6 26.9
Pakistan 49.4 48.8 45.5
7. Service Marketing Versus
Physical Goods Marketing
Marketing can be described in several ways. It
can be as a strategic thrust pursued by top
management; as a set of functional activities
performed by line managers ( such as product
policy, pricing, delivery and communications); or
as a customer-driven orientation for the entire
organization.
It also recognizes that the service-marketing
function is much broader than the activities and
output of the traditional marketing department,
requiring close cooperation between marketers
and those managers responsible for operations
8. Table 1.2. Management Implication of some Basic Differences b
Goods and Services
How Service do not Differ
from Goods Some Key Implications
Customers do not obtain Need to think of temporary rentals
rather than permanent sales
ownership of services How best to price such rentals?
Customer criteria are different for
renting an object instead of purchasing
it.
Service product are Consider how to create and
communicate tangible evidence
intangible performances Understand how to stage the
performance and manage each step
Greater involvement of Customer behavior and competence
can help or hinder productivity
customers in the production Customers may need to be managed
process as partial employees
Consider opportunities for self-service
Location and opening hours of service
“factories” must be convenient for
customers
9. Table 1.2. Management Implication of some Basic Differences b
Goods and Services
How Service do not Differ Some Key Implications
from Goods
Other people may form part Behavior and demeanor of employees
and other customers must be
of the product managed, because they affect
customer satisfaction
Recruit service personnel who possess
or can be trained to have both
technical skills and human skills; keep
them motivated
May be unwise to mix different market
segments at the same time and
location
More variability in Quality control-particularly
consistency-is more difficult to achieve
operational inputs and Productivity may be improved by
outputs standardization
Replacing employees by automation
10. Table 1.2. Management Implication of some Basic Differences b
Goods and Services
How Service do not Differ Some Key Implications
from Goods
Many services are difficult for Need to develop trust between
customers to evaluate customer and firm
Educate customers to help them
make smarter choices
Absence of inventories after One produced, services cannot
production usually be stored, so firms must
develop strategies to manage
demand levels
Many capacity level to match
predicted fluctuations in demand
Profitability of capacity-constrained
service businesses is often a
function of getting the right
business at the right time at the
right price.
11. Table 1.2. Management Implication of some Basic Differences b
Goods and Services
How Service do not Differ Some Key Implications
from Goods
Time factor is relatively Must understand customer’s time
more important constraints and priorities
Recognize that spending time is often
seen by customers as a burden
Look for ways to compete on fast
service delivery; minimize waiting
Expand service hours ; consider 24/7
service.
Delivery systems may Consider opportunities for electronics
involve both electronic and delivery of any information-based
service elements.
physical channels Recognize opportunities for
instantaneous delivery of services
worldwide
Where services are delivered through
12. Customer Do Not Obtain
Ownership of Services
In many instances, service marketing
offer customers the opportunity to rent
the use of physical object like a rental
car or hotel room, to hire the labor and
expertise of people.
A key implication for marketers concerns
pricing. When the firm rents out usage of
its physical, human or intangible assets,
time becomes as important denominator
and determining the relevant costs
13. Service Products as Intangible
Performance
An interesting way to distinguish between goods
and services is to place them on a scale from
tangible-dominant to intangible-dominant.
Kotler has proposed five categories of markets
based on the goods offered.
Pure tangible food (like soap or salt)
Tangible good with accompanying services ( for
example, cars or computers)
Hybrid( like a restaurant) combining roughly equal
parts of good and services.
Major service with accompanying minor goods
and services(e.g. air travel).
Pure service(such as babysitting or
14. and Most Service Contain a
Good
GOODS SERVICES
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/investment management
Consulting Services/teaching
Counseling
100% 75% 50% 25% 0 25% 50% 75% 100%
15. Customer Involvement in the
Production Process
Under such circumstances, customers can be
thought of as partial employees and services
firms have much to gain form trying their
customers to make them more competent and
productive.
Changing the nature of the production
process often affects the role that customers
are asked to play in that process.
When customers are required to visit the site
of services delivery, it should have a
convenient location and be open at times that
suit customer’s needs.
16. People as part of the Product
The difference between one high-contact
service and another often lies in the quality of
employees who serve customers. This is
especially so in many “high-contact” service,
where customers come into contact not only
with service personnel but also with other
customers.
Service firms need to devote special care to
selecting, training and motivating those
employees who will be serving customer
directly. At the same time firms need to
manage and shape customer behavior so that
the misbehavior of a few will not spoil the
17. Greater Variability in Operational
Inputs and Outputs
The presence of employees and other
customers in the operational systems makes it
difficult to standardize and control quality in
both inputs and outputs.
The services performed while the customer is
absent, such as process bank cheque,
repairing cars or cleaning offices at night. As a
result, mistakes are both more likely to occur
and more difficult to shield from customers.
These factors make it difficult for service
organizations to improve productivity, control
18. Harder for Customer to Evaluate
Service marketers can reduce
customers perceived risk before a
service purchase by helping them match
their needs to specific service features
and educating them on what to expect
both during and after service delivery.
A firm that develops as reputation for
considerate and ethical treatment of its
customers will gain the trust of its
existing customers and benefit from
positive word-of-mouth referrals
19. No Inventories for Service after
Production
The necessary facilities, equipment and labor
can be held in readiness to create the service,
but these simply represent productive capacity,
not the product itself.
Unused capacity is wasted and when demand
exceeds capacity, customers may be sent away
disappointed, unless they are prepared to wait.
An important task for service marketers,
therefore, is to find ways of smoothing demand
levels to match capacity through price incentives,
promotions or other means.
If profit maximization is an important goal, then
marketers should target the right segments at the
20. Importance of the Time Factor
Many services are delivered in real time and
customers have to be physically present. There
are limits as to how long people are willing to
spend at the service factory as customers place a
value on their time and some people are willing to
pay more for faster service.
In general, today speed is often seen as a key
element in good service. Service marketers need
to understand customers time constraints and
priorities, which may vary from one market
segment to another.
21. Different Distribution Channels
Service businesses may choose to combine the
service factory, retail outlet and point of consumption
at a single location, or use electronic means to
distribute their services ( broadcasting or electronic
fund transfer).
Sometimes, as in banking, firms offer customers a
choice of distribution channels, ranging from visiting
the bank in person to conducting home banking on
the internet.
A firm that previously could not survive because it
was serving a narrow market segment in a limited
geographic area can now greatly increase its market
potential, with no geographic boundaries.
22. An Integrated Approach to
Service Management
Image yourself as the manager of a hotel. In both
instances, you need to be concerned about
satisfying your customers on daily basis, about
operational system running smoothly and
efficiently, about your employees not only working
productively but are also delivering good service.
In short, integration of activities between
functions is the name of the game. Problems in
any one of those three area may signal future
financial problems.
23. An Integrated Approach to
Service Management
The Eight Components of Integrated Service
Management
1. Product Elements
2. Place, Cyberspace and Time
3. Process
4. Productivity and Quality
5. People
6. Promotion and Education
7. Physical Evidence
8. Price and Other Costs of Service
24. An Integrated Approach to
Service Management
Linking Services Marketing, Operation and Human
Resources
As shown on the 8Ps model, marketing cannot
operate successfully in isolation from other functions
in service business.
Three management functions play central and
interrelated roles in meeting customer needs, namely
marketing, operations and human resources.
Service firms must understand that implications of the
eight components of integrated service management,
as described above, in order to develop effective
strategies.
Firms whose managers succeed in developing
25. An Integrated Approach to
Service Management
Marketing Services Versus Marketing Goods and
through Service
Theodore Levitt, one of the world’s best known
marketing experts, commented almost 30 years
ago that “there are no such things as service
industries. There are only industries whose
service components are greater or less than
those of other industries. Everybody is in service.
More recently. Roland Rust, editor of the Journal
of Service Research, suggested that
manufacturing firms had got this message when
he observed that “ most goods businesses now
view themselves primarily as services.”
26. An Integrated Approach to Service
Management
Creating Value
Value can defined as the worth of a specific action or
object, relative to an individual’s ( or organization’s)
needs at a particular point in time, less the costs involved
in obtaining those benefits.
A useful way of thinking about “values” is as underlying
beliefs about how life should be lived, how people should
be treated and how business should be conducted.
Managers would be wise to use their firm’s values as a
reference point when recruiting and motivating
employees. They should also clarify the firm’s values and
expectation in dealing with prospective customers and
make an effort to attract and retain customers who share
and appreciate those same values
Today, there is greater scrutiny of a firm’s business ethics
and tougher legislation to protect both customers and
employees form abusive treatment.
27. The Evolving Environment of
Services
Even as service industries grew, many practitioners
had an outdated view of marketing, regarding it as
little more than advertising and public relations.
Academics, too were slow to respond to the
changing business environment. But scholars
eventually began challenging the notion of applying
traditional marketing concepts to the burgeoning
service sector.
Many factors underline the transformation of
services management. Depending on the industry
and the country in which the service firm does
business.
28. Government Policies
Action by government agencies continue to see the
structure of the service economy and the terms
under which competition takes place. Traditionally,
many service industries have been highly regulated.
Government agencies mandated price levels, placed
geographic constraints on distribution strategies and,
in some instances, even defined the product
attributes.
When services are provided by public agencies,
there are often cross subsidies, designed to achieve
broader social goals.
With privatization, there are fears that the search for
efficiency and profits will lead to restricted service
29. Social Changes
A combination of changing lifestyle , higher incomes
and declining prices for many high-tech products has
meant that more people are buying computers and
using the internet to access information from around
the world.
For example, the pharmaceutical industry in China
has been growing at an average annual rate of 20
percent since 1990. This is in striking contrast to an
average annual growth of 7-9 percent in the U.S.
and Europe during the same period.
30. Business Trends
The environment in which businesses operate has also
been changing rapidly. Supplementary services one
designed to help sell equipment, including consultation,
credit, transportation and delivery, installation, training
and maintenance, are now offered as profit-seeking
services in their own right, even to customers who have
chosen to purchase competing equipment.
The freedom to engage in aggressive marketing is
essential to bring innovative services, price cuts and
new delivery systems to prospective customers.
31. Advance in information Technology
New technologies are radically altering the ways in
which many service organizations do business. One
of the most powerful is the integration of computers
and telecommunications.
Digitization allow text, graphics, video and audio to be
manipulated, stored, and transmitted digitally.
Technology does more than enable creation of new or
improved services. It may also facilitate re-
engineering of such activities as delivery of
information, order-taking and payment , maintaining
more consistent service standards, creation of
centralized customer-service departments,
automation and self-service systems.
32. Internationalization and
Localization
The internationalization of service companies is
readily apparent to any tourist or business executive
travelling through Asia.
Brand names such as Giordano, 7-Eleven, Sogo,
Shangria-la Hotels and Carrefour have moved far
from their nations of origin.
These companies recruit local employees and
modify their products or services to the local
business environment and culture. Ex. Mcdonald’s “
Curry Potato Pie “ and “ Red Bean Sundae”
introduced in Hong Kong is a case in point.
33. Managing in a Continually
Changing Environment
The willingness and ability of managers in service
firms to respond to the dramatic changes
affecting the service economy will determine
whether their own organizations survive and
prosper or go under in the face of more agile and
adaptive competitors.
The opening up of the service economy means
that there will be greater competition. In turn,
more competition will stimulate innovation, not
least through the application of new and improved
technologies.
34. Conclusion
Why study services? The answer is simply that modern
economies are driven by service businesses. Services
are responsible for the creation of a substantial
proportion of new jobs, both skilled and unskilled, around
the world. This sector includes a wide variety of different
industries, including many activities provided by public
and non-profit organizations. It accounts for over half the
economy in most developing countries and for 70% or
more in many highly developed economies.
As has been shown in this chapter, services differ from
manufacturing organizations in may important respect
and require a distinctive approach to marketing and other
management functions. As a result, managers who want
their enterprises to succeed cannot continue to rely solely
on tools and concepts developed in the manufacturing
sector. The rest of this book will discuss in more detail
the unique challenges and opportunities faced by service
businesses. It is our hope that you will use the material
from this text to enhance your future experiences, not