chapter 4 the service sector and the new economy defining the new economy creating value in the...

Chapter 4Chapter 4

THE SERVICE SECTOR and THE THE SERVICE SECTOR and THE NEW ECONOMYNEW ECONOMY

Chapter 4Chapter 4

THE SERVICE SECTOR and THE THE SERVICE SECTOR and THE NEW ECONOMYNEW ECONOMY

Defining the New EconomyDefining the New Economy

Creating Value in the Creating Value in the Service SectorService Sector

Succeeding in the New Succeeding in the New EconomyEconomy

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The Service Sector:The Service Sector:Creation of the New EconomyCreation of the New Economy

Service opportunities create value in business Service opportunities create value in business and consumer marketsand consumer markets

Services drive advanced economiesServices drive advanced economies

Estimated 50% of work in industrialized countries Estimated 50% of work in industrialized countries is knowledge workis knowledge work

A transition into an information-led economyA transition into an information-led economy [the “New Economy”][the “New Economy”]

Implication: competition in marketspace as well Implication: competition in marketspace as well as the marketplaceas the marketplace

New Economy IndicatorsNew Economy Indicators

Knowledge Knowledge JobsJobs

GlobalizationGlobalization

Dynamism/Dynamism/CompetitionCompetition

Digital Digital EconomyEconomy

Innovation Innovation InfrastructureInfrastructure

Evolutionary StagesEvolutionary Stages Model Model of Internet B2B Markets (Sharma)of Internet B2B Markets (Sharma)

InformationInformationInformationInformation

KnowledgeKnowledge

ConversationsConversations

Relationships

Relationships

E-CommerceE-Commerce

The EconomyThe Economy

The The traditional economytraditional economy - - agriculture, construction, agriculture, construction, manufacturing, wholesale, retail, etc.manufacturing, wholesale, retail, etc.

A dominant service sectorA dominant service sector

A A technology-based economytechnology-based economy - -high-tech companies, information high-tech companies, information firmsfirms

thethe Traditional Traditional EconomyEconomy

■ ■ The North American Industrial Classification System (NAICSSystem (NAICS)) replaces SICreplaces SIC

■ ■ Evolving, responsive industry Evolving, responsive industry categorization tool emphasizing new categorization tool emphasizing new services and technology sectorsservices and technology sectors

■ ■ Major uses: forecasting, market share Major uses: forecasting, market share analysis, research, segmentation, analysis, research, segmentation, strategic planningstrategic planning

■ ■ The North American Industrial Classification System (NAICSSystem (NAICS)) replaces SICreplaces SIC

■ ■ Evolving, responsive industry Evolving, responsive industry categorization tool emphasizing new categorization tool emphasizing new services and technology sectorsservices and technology sectors

■ ■ Major uses: forecasting, market share Major uses: forecasting, market share analysis, research, segmentation, analysis, research, segmentation, strategic planningstrategic planning

The The NAICSNAICS Hierarchy Hierarchy

Table 4-2:

The NAICS Hierarchy NAICS Level Industry Description NAICS Code

Sector Information 51

Subsector Broadcasting, telecommunications 513

Industry Group Telecommunications 5133

Industry Wireless carriers, except satellite 51332

US industry Paging 513321

Source: www.census.gov/epcd/www/naics.html

TANGIBLEATTRIBUTES

INTANGIBLEATTRIBUTES

"Pure" Product " Pure" Service

hardware restaurant insurance

Blended Products: Goods & Services

Service ContinuumService Continuum

TeachingNursing

The theatreAdvertising agency

Air travelTelevision

Fast-food restaurantTailored suit

AutomobileHouse

Dog foodNecktie

Salt

Balanced itemequally weighedbetween goodsand services

Service-dominatedService-dominateditem (intangible) item (intangible)

Good-dominatedGood-dominateditem (tangible) item (tangible)

Balanced

INTANGIBLE

VARIABLE

PERISHABLE

INSEPARABLE

Key Characteristics of Key Characteristics of ServicesServices

Pre-sale Services

Post-sale Services

Transaction Services

Continuum of ServicesContinuum of Services

ServiceService FirmsFirms Create Create ValueValue

Service firms now account for the majority Service firms now account for the majority of GDP and jobs in industrialized nationsof GDP and jobs in industrialized nations

The U.S. service sector – 6 key areasThe U.S. service sector – 6 key areas 1) Transportation and utilities1) Transportation and utilities 2) Wholesale trade2) Wholesale trade 3) Retail trade3) Retail trade 4) Fire, insurance and real estate (FIRE)4) Fire, insurance and real estate (FIRE) 5) Other consumer and business services5) Other consumer and business services 6) Government services6) Government services

What is a Service?What is a Service?■ Products can be defined as goods, services,

and ideas■Today’s economy is characterized

by relatively few pure goods■ Most consumer and business products are

packaged with strong service components

-> Service challenge: tangibilize the intangible

Examples of Service Components

Service warrantiesService warranties

Monthly rate plansMonthly rate plans

24-hour access to technical support24-hour access to technical support

Various other service optionsVarious other service options

8 Value-Adding Practices8 Value-Adding Practices

☛ ☛ PersonalizationPersonalization

☛☛ Offering tiered service levelsOffering tiered service levels

☛☛ Collecting information to enhance Collecting information to enhance customer experiencescustomer experiences

☛ ☛ Keeping information simpleKeeping information simple

8 Value-Adding Practices - 8 Value-Adding Practices - cont.cont.8 Value-Adding Practices - 8 Value-Adding Practices - cont.cont.

☛ Respond to what customers do not like doing ☛ Providing one-stop shopping ☛ Balancing customer self-service with support ☛ Get to know the customer best

EmergenceEmergence of theof the New Economy New Economy

The InternetThe Internet was the major change was the major change agent of the new economy in past decadeagent of the new economy in past decade

Period of explosive growthPeriod of explosive growth (1995-2000) (1995-2000) characterized by over-investment in:characterized by over-investment in:

->CRM (Customer Relationship Mgt.) ->CRM (Customer Relationship Mgt.)

->Systems->Systems

->Computer technology->Computer technology

->Liberally dispensed stock options ->Liberally dispensed stock options

Period of Period of rapid descentrapid descent (2000-2002 (2000-2002):):

** Failure of much-hyped virtual Failure of much-hyped virtual marketspace to achieve business marketspace to achieve business objectivesobjectives

** Thousands of online businesses and Thousands of online businesses and supporting companies failedsupporting companies failed

* * Hundreds of thousands of highly Hundreds of thousands of highly educated technology managers laid offeducated technology managers laid off

* * Inflated internet stocks crashedInflated internet stocks crashed

** Local economies of high-tech cities Local economies of high-tech cities negativelynegatively impacted impacted

The 21The 21stst

Century Century

NewNew

EconomyEconomy

The 21The 21stst

Century Century

NewNew

EconomyEconomy

The 21The 21stst

Century Century

New New

EconomyEconomy

The 21The 21stst

Century Century

New New

EconomyEconomy

Period of Period of Re-energizationRe-energization (2003):(2003):

* Stabilized and growing web sector; * Stabilized and growing web sector; only part of new economyonly part of new economy

* Growth in online sales* Growth in online sales

Major DriversMajor Drivers of of the New the New EconomyEconomy

TTechnologyechnology GGlobalizationlobalization MMarket deregulationarket deregulation CCustomizationustomization DDigitalizationigitalization CConnectivityonnectivity IIndustry convergencendustry convergence NNew types of intermediaries ew types of intermediaries

10 10 KKeyseys to to Successfully CompetingSuccessfully Competing in thein the New Economy New Economy

☛ ☛ Be Customer Oriented☛ Excel in Process Management ☛ Designing Winning Value

Propositions ☛ Providing Outstanding

Customer Service☛ Offer Innovative and High

Quality Products☛ Forge Strong Relationships

with Collaborators and Customers

☛ ☛ Be Customer Oriented☛ Excel in Process Management ☛ Designing Winning Value

Propositions ☛ Providing Outstanding

Customer Service☛ Offer Innovative and High

Quality Products☛ Forge Strong Relationships

with Collaborators and Customers

10 10 KKeyseys toto Successfully CompetingSuccessfully Competing inin the the

New EconomyNew Economy. . – cont– cont

☛ ☛ Stress Retention Marketing (RM) Stress Retention Marketing (RM) -keeping and growing accounts-keeping and growing accounts

☛ ☛ Seek Ways to Continually Add Seek Ways to Continually Add Value for CustomersValue for Customers

☛ ☛ Understand the Changing Understand the Changing Nature of the Global Business Nature of the Global Business EnvironmentEnvironment

☛ ☛ Have a Long-term Management Have a Long-term Management PerspectivePerspective

7 7 Strategic GuidelinesStrategic Guidelines toto Become CV Become CV Market LeadersMarket Leaders

Differentiate via Unique Business ModelsDifferentiate via Unique Business Models

Hire and Retain Great EmployeesHire and Retain Great Employees

Balance Marketing & Technology in the Balance Marketing & Technology in the

OrganizationOrganization

7 7 Strategic GuidelinesStrategic Guidelines toto Become CV Become CV

Market LeadersMarket Leaders Maximize the Usage of the Maximize the Usage of the

Customer DatabaseCustomer Database Be Super-responsive to Be Super-responsive to

CustomersCustomers Develop an Outstanding Develop an Outstanding

Internet StrategyInternet Strategy Create a “Buzz” for the Create a “Buzz” for the

BusinessBusiness

– – A RecapA Recap

Customers are theCustomers are the

most important assetmost important asset

to an organization! to an organization! Customer equity and relationship marketing Customer equity and relationship marketing

demonstrate that the value of a firm lies in demonstrate that the value of a firm lies in the the long-term value of its customerslong-term value of its customers rather rather than its brands. than its brands.

Customers want to do business with Customers want to do business with organizations when and how it is organizations when and how it is convenient for them to do so.convenient for them to do so.

The web must be an integral The web must be an integral part of every organization’s part of every organization’s business strategy business strategy

Successful new economy Successful new economy firms provide interesting firms provide interesting experiences for their experiences for their customers.customers.

Long-term relationships with Long-term relationships with these companies are due to these companies are due to high customer loyalty and high customer loyalty and retention rates.retention rates.

– – A Recap A Recap (cont.)(cont.)