Examples of Service Industries

Health Care Hospital, Medical practice, Dentistry, Eye care Professional Services Accounting, Legal, Architectural Financial Services Banking, Investment advising, Insurance Hospitality Restaurant, Hotel/motel, ski resort, rafting Travel Airline, Travel agency, Theme park Others Hair styling, pest control, plumbing, lawn maintenance, counseling services, health club, interior design

Importance of Service Sector

Services dominate economy in most nations Understanding services offers you personal competitive advantages Importance of service sector in economy is growing rapidly: Services account for more than 60 percent of GDP worldwide Almost all economies have a substantial service sector Most new employment is provided by services Strongest growth area for marketing 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

Services Dominate the U.S. Economy

Services, 68%

Agriculture, Forestry, Mining, Fishing, 2.3%

Manufacturing and Construction, 17.3%

Government, 12.4% (mostly Services)

Source: Bureau of Economic Analysis, Survey of Current Business, May 2005, Table 1

INSIGHTS Private sector service industries account for over two-thirds of GDP Adding government services, total is almost four-fifths of GDP

Estimated Size of Service Sector in Selected Countries (Fig updated 10/06)

Cayman Islands (95%), Jersey (93%) Bahamas (90%), Bermuda ( 89%) Luxembourg (83%) Panama (80%), USA (79%) Japan (74%), France (73%), U.K. (73%), Canada (71%) Mexico (69%), Australia (68%), Germany (68%)

Poland (66%), South Africa (65%) Israel (60%), Russia (58%), S. Korea (56%)
Argentina (53%), Brazil (51%)

India (48%)
China (40%)

Saudi Arabia (33%)

10 20 30 40 50 60

Services as Percent of GDP

70 80 90

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 6

Changing Structure of Employment as Economic Development Evolves

Share of Employment

Agriculture Service s

Industry

Time, per Capita Income

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 11

Source: IMF, 1997

Difference between
physical goods and services

Difference between physical goods and services

Physical goods
1.Tangible 2.Homogeneous 3.Production and distribution are separated from consumption 4.A thing 5.Core value processed in factory Intangible Heterogeneous Production, distribution and consumption are simultaneous processes An activity or process Core value produced in the buyer-seller interaction

Services

6. Customers do not participate in Customers participate in the production process production 7. Can be Stored 8. Transfer of ownership Cannot be Stored No transfer of ownership

Physical goods 9. Pricing is material based 10. Repair is Possible 11. Quality is Fixed 12. Longer Channels 13. Cost Allocation is Easier 14. Low Customer Involvement 15. Mass Production is easy

Services Pricing is labor based Repair not Possible Quality is of variable standard Shorter Channels Cost Allocation is Difficult High Customer involvement Mass Production is difficulty

16. Marketing Mix has 4ps

Marketing Mix has 7ps

Categories of Services

Based on Degree of Involvement of the Customer

a) People Processing: Customer is highly involved in the service process Needs to be physically present in order to experience the service. Service is directed at the customer. Ex: A training center for dance ,health care centers, passenger transport services, beauty saloons, lodging and boarding services, educational services and fitness centers.

b) Possession Processing:
Customer doesnt require being present Has to submit his property to the service provider for the latter to deliver the service. Service is directed at the possession and not at the customer. Ex: if a person wants his car to be serviced, he has to leave it with the mechanic for some time to enable the mechanic to change the oil, check the gears, brakes, etc. and wash and clean it thoroughly. Laundry and drycleaning services, postal service, and courier service and freight transportation are other examples of such services.

c) Mental Stimulus Processing: Attention of the customer must be directed on the service in order to experience the service. Ex: Career counseling from a professional counselor stimulates a person mentally to take the right decision or develop the right attitude Recipients don't necessarily have to be physically present in a service factory just mentally in communication with the information being presented. Services like entertainment and education are often created in one place and transmitted by television, radio, or the Internet to individual customers in distant locations. These services can thus be "inventoried" because they can be consumed at a later date than when they were produced

d) Information Processing: It requires service personnel to collect information, analyze it, interpret and offer appropriate advice to the client. Ex: a market research firm hired by a company collects information from customers to know their opinion about the company's products or services, customer expectations and suggestions to improve the products/services. Then analyze the information and prepare reports in a way that allows the management of the company to formulate strategies to improve its sales. Information processing also takes place in services such as accounting, insurance, legal services, programming, data processing and data transmission.

Based on Tangibility
1. Pure tangible good: The offering is a tangible good such as soap or tooth paste; No services accompany the product. 2. Tangible good with accompanying services: The offering consists of a tangible good accompanied by one or more services. The more technologically advanced the product the greater the need for high quality supporting services. General Motors, for example, offers repairs, maintenance, warranty fulfillment, and other services along with its cars and trucks. 3. Hybrid: The offering consists of equal parts of goods and services. For example, people utilize restaurants for both food and service. 4. Major service with accompanying minor goods and services: The offering consists of a major service along with additional services or supporting goods. For example, airline passengers are buying transportation service, but they get food and drinks, as well. 5. Pure service: The offering consists primarily of a service; examples Legal advice and psychotherapy and massage

The Goods-Services Continuum

Canned Ready- AutoDraperies, RestRepairs: Air foods made mobiles Carpets aurant auto, house, travel clothes meals landscaping

Insurance, Consulting, Teaching

MOSTLY GOODS

MOSTLY SERVICES

Based on type of End-user

a) Consumer services: These services are purchased by individual customers for their own consumption. Ex : Beauty care, physiotherapy and hair Cutting are examples of consumer services. b) Business to Business (B2B) services: These services are purchased by organizations. Ex :Market research, consultancy and advertising are some of the B2B services. c) Industrial services: Industrial services are generally based on a contract between organization and service providers. Ex : Machine installation and plant maintenance

Based on the business orientation of doing service provider

a) Not-for-profit organizations:

These are the services in which the main objective of the service provider is to serve society and not to make profits.
Ex : Government Hospitals and Red Cross

b) Commercial organizations:
These are services in which the main objective of the service provider is to earn revenues and make profits. Ex : Airlines, insurance firms and restaurants charge customers for the services they offer and attempt to continuously improve their services and profitability

Based on Skills and Expertise Required

a) Professional services: These services require the service provider to be formally. trained to deliver the service. Ex : Service rendered by a doctor, a pilot, an IT consultant or a corporatetrainer are examples of professional services b) Non-professional services: These services do not require the service provider to undergo any training to deliver the service.

Ex : Baby-sitting and housekeeping are examples of non-professional services and can be delivered without the need for formal training.

Defining services

1) Any act of performance that one party can offer another that is essentially intangible and does not result in the ownership of anything; its production may or may not be tied to a physical product.

2) Services may be defined as intangible activities performed by persons or machines or both for the purpose of creating value perceptions among consumers.

Since services are intangible activity (ies) or benefit(s) produced by the service provider, in association with the consumer, its quality results in perception and value assessment by the consumer.

Factors Influencing Services

Social Changes Government Policies

Business Trends

Advances in IT
Globalization

Reduced government regulations Privatization New rules to protect customers, employees, and the environment New agreement on trade in services

Social Changes Government Policies

Business Trends

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

Social Changes Government Policies

Business Trends

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

Social Changes Government Policies

Business Trends

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

Social Changes Government Policies

Business Trends

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

Special Characteristics of Services

Intangibility Inseparability Heterogeneity or variability Perish ability

Intangibility:
Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are bought. This can cause lack of confidence on the part of the consumer It is often difficult for the consumer to measure service value and quality. To overcome this, consumers tend to look for evidence of quality and other attributes, for example in the decor and surroundings of the beauty salon, or from the qualifications of the professional giving the service. Marketing Implication: Tangibilize the intangible, through style, cleanliness, speed or physical evidence & presentation. Service providers often choose brand elementslogos, symbols, characters, and slogansto make the service and its key benefits more tangible Ex: Disney Park , Singapore Airlines

At Tokyo Disney Land, children are eager to experience the pleasure of meeting and taking pictures with their favorite Disney characters.

Inseparability: Services are produced and consumed at the same time, unlike goods which may be manufactured, then stored for later distribution. Services cannot be inventoried and need to be consumed immediately.

This means that the service provider becomes an integral part of the service itself.
The waitress in the restaurant, or the cashier in the bank, is an inseparable part of the service offering. The client also participates to some extent in the service, and can affect the outcome of the service. Buyers of entertainment and professional services are very much interested in the specific provider. Marketing Implication: Service Provider can learn to work in larger groups. Service provider can work faster. Service organization can train more service performers

Variability: Services cannot be separated from the service provider. In fact, the production, delivery and consumption of a service take place simultaneously in the buyer-seller interactions. This characteristic of a service creates problems to the marketer, particularly in the case of market expansion. Wherever the service provider intends to offer services, he should have a service production unit that offers the same service quality standards. Service organizations face major problems in standardizing and communicating the service standards because of this characteristic

Marketing Implication: 1. Invest in good hiring and training procedures. 2. Standardize the service-performance process throughout the organization.( A service blueprint can map out the service process, the points of customer contact, and the evidence of service from the customers point of view.) 3. Monitor customer satisfaction. (Employ suggestion and complaint systems, customer surveys, and comparison shopping) 4. Some service organizations are able to reduce direct interactions by introducing new technologies. For example, banking organizations have introduced the cheque facility, the credit card facility, tele banking and ATM to minimize direct buyer-seller interactions.

Perishability: Services cannot be stored and are perishable. Thus a train that leaves the railway station half full means that the service of the empty half remains unused. An unutilized service capacity cannot be used further. When the demand is stable, perishability cannot be a problem to the service organisation. But service firms face many problems when demand fluctuates; the major challenge to these firms is to balance the supply-demand positions.

Thus demand management is one of the major tasks for the service firms.

Marketing Implication: Differential pricing for peak & off peak seasons Reservation systems: EX Airlines, Hotels Complementary services for waiting customers: EX ATM Part-time employees Increased consumer participation self service