MKTG 29 : Service Marketing

PART 1 – Understanding ServicesChapter 1: Distinctive Aspects of Service

Management

PASIG CATHOLIC COLLEGE

Instructor: Mr. Abelito T. Quiwa. MBASchool Year 2011 – 2012

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

ObjectivesTo 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 service sector and how to these affect the nature of service competition.

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.

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.

Understanding the Service SectorTable 1.1. Size of the Service Sector in Selected Asian Countries Value Added by Services as a Percentage of Gross Domestic

Product in 1999, 1990,19891999 1990 1989

China 32.9% 30.1% 21.4%

Hon Kong 84.7% 74.5 67.5

India 46.1 39.7 36.0

Indonesia 37.7 41.5 31.8

South Korea 51.5 48.4 43.7

Malaysia 43.1 42.6 n.a.

Philippines 52.0 43.6 36.1

Singapore 64.1 65.3 60.6

Taiwan 64.3 54.6 46.6

Thailand 49.6 50.3 48.1

Vietnam 40.1 38.6 26.9

Pakistan 49.4 48.8 45.5

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Service Marketing Versus Physical Goods MarketingMarketing 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 and human resources.

How Service do not Differ from Goods Some Key Implications

Customers do not obtain ownership of services

Need to think of temporary rentals rather than permanent sales How best to price such rentals?Customer criteria are different for renting an object instead of purchasing it.

Service product are intangible performances

Consider how to create and communicate tangible evidence Understand how to stage the performance and manage each step

Greater involvement of customers in the production process

Customer behavior and competence can help or hinder productivityCustomers may need to be managed as partial employeesConsider opportunities for self-serviceLocation and opening hours of service “factories” must be convenient for customersDesign of service factory must be appealing and user-friendly.

Table 1.2. Management Implication of some Basic Differences between Goods and Services

How Service do not Differ from Goods

Some Key Implications

Other people may form part of the product

Behavior and demeanor of employees and other customers must be managed, because they affect customer satisfactionRecruit 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 operational inputs and outputs

Quality control-particularly consistency-is more difficult to achieve Productivity may be improved by standardizationReplacing employees by automation may reduce variability

Table 1.2. Management Implication of some Basic Differences between Goods and Services

Table 1.2. Management Implication of some Basic Differences between Goods and Services

How Service do not Differ from Goods

Some Key Implications

Many services are difficult for customers to evaluate

Need to develop trust between customer and firmEducate customers to help them make smarter choices

Absence of inventories after production

One produced, services cannot usually be stored, so firms must develop strategies to manage demand levelsMany 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.

Table 1.2. Management Implication of some Basic Differences between Goods and Services

How Service do not Differ from Goods

Some Key Implications

Time factor is relatively more important

Must understand customer’s time constraints and priorities Recognize that spending time is often seen by customers as a burdenLook for ways to compete on fast service delivery; minimize waitingExpand service hours ; consider 24/7 service.

Delivery systems may involve both electronic and physical channels

Consider opportunities for electronics delivery of any information-based service elements.Recognize opportunities for instantaneous delivery of services worldwide Where services are delivered through physical channels, need to combine service factory, retail outlet and point of consumption

Customer Do Not Obtain Ownership of ServicesIn 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 requires time-based calculations.

Service Products as Intangible PerformanceAn 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

psychotherapy).

Most Goods Contain a Service, and Most Service Contain a Good

GOODS SERVICES

Automobile

Computer

Fast-food meal

Advertising agency/investment management

Installed carpeting

Restaurant meal/auto repair

Hospital care

Consulting Services/teaching

Counseling

100%0 75%50%25%

100% 75% 50% 25%

Customer Involvement in the Production ProcessUnder 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.

People as part of the ProductThe 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 experience of everybody else.

Greater Variability in Operational Inputs and OutputsThe 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 quality and offer a consistent product.

Harder for Customer to EvaluateService 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

No Inventories for Service after ProductionThe 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 right times, focusing on selling during peak periods to those segments that are willing to pay premium prices.

Importance of the Time FactorMany 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.

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.

An Integrated Approach to Service ManagementImage 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.

An Integrated Approach to Service ManagementThe Eight Components of Integrated

Service Management1. Product Elements2. Place, Cyberspace and Time3. Process4. Productivity and Quality5. People6. Promotion and Education7. Physical Evidence8. Price and Other Costs of Service

An Integrated Approach to Service ManagementLinking Services Marketing, Operation and Human

ResourcesAs 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 integrated strategies will have a better chance of surviving and prospering.

An Integrated Approach to Service ManagementMarketing Services Versus Marketing Goods and

through ServiceTheodore 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.”

An Integrated Approach to Service Management

Creating ValueValue 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.

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.

Government PoliciesAction 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 and price increases.

Social ChangesA 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.

Business TrendsThe 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.

Advance in information TechnologyNew 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.

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.

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.

ConclusionWhy 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 only as a service employee or manager, but also as a customer of many different types of service businesses.