Services Marketing Lovelock Chapter 01

1. SERVICES
MARKETING
Christopher Lovelock
Paul Patterson
Rhett Walker
PowerPoint to accompany
3

2. Chapter 1
Understanding
Services

3. Lovelock, Patterson, Walker: Services Marketing 3e © 2004 Pearson Education Australia 3
Chapter 1 Objectives
Identify reasons for changes occurring
in the economy
Distinguish between goods and
services
Describe key tasks and challenges
facing service marketers
Explain expanded ‘mix’ for services

4. Lovelock, Patterson, Walker: Services Marketing 3e © 2004 Pearson Education Australia 4
Services Defined
An act or performance (or experience) which is
essentially intangible and does not result in
ownership of anything
Economic activities that add time, place or form utility
(value)
Something that may be bought or sold but cannot be
dropped on your foot
Service might include the process of selling
telecommunications, health treatment, financial,
hospitality, car rental, air travel, and
professional services.

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Service Marketing Defined

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The Importance of
Services in the Asia-
Pacific Region
The output of services now accounts for 70-80% of the GDP of
highly developed countries such as Australia, New Zealand,
Japan and Singapore.
Services are key to the economies of developing nations such
as Thailand, Malaysia, China and Indonesia where they account
for up to 50% of the GDP.
In the next ten years, 90-95% of all new jobs in highly developed
countries are expected to be in the services sector.
In Bangladesh it is close to 40% (Telco, FI, Restaurant,
Hospital)

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McKinsey and Coy’s Three
Horizons of National
Development
First horizon: the nation’s core products.
Second horizon: recently introduced
services that are expected to grow in the
medium term.
Third horizon: services in the embryonic
stages of development which represent future
growth potential (exports, job growth and
GDP).

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Typical Industries of the
Three Horizons
Horizon 1: Physical goods, Agriculture, Mining,
Manufacturing, Metals, Chemicals etc.
Horizon 2: Services such as Communications,
Retail, Tourism, Finance, Transport, Construction,
Hospitality, Personal Services, Business Services
etc.
Horizon 3: Information and Knowledge based
Biotechnology and health, New information
technology

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Services as Performance
Service delivery is like staging a play
(Concert by a celebrity)
The service providers or personnel are
the play’s performers or actors
The service consumers or customers
are the audience
(Grove, Fiske and Bitner (1992)

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The Diversity of Services
Large commercial corporations e.g. banking,
airlines, insurance, telecommunications, hotel chains,
transport, consultants etc.
Smaller corporations e.g. restaurants, laundries,
taxis, travel agents, optometrists and many business
to business professional services etc.
Franchises e.g. Fast food chains, hotels, tax
preparation services etc (University different campus)

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Value Added Utilities
Time based utility: airlines, car hire, cleaning
and maintenance services etc.
Place based utility: distribution, retailing,
telecommunications, serviced offices etc.
Form based utility: medical, hairdressing,
investment management, sports and leisure
etc.
Problem solving utility: consulting, research
services, legal services, IT services etc.

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Multidimensional Services
Most services are multidimensional with
both tangible and intangible elements-
such as a meal in a restaurant, bed in a
hotel or medical supplies used during a
hospital stay. Few services are without
tangibles elements (playing song) and
few goods are without a service
component.

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Figure 1.5 The dominance of tangible
versus intangible elements in
goods and services

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Factors responsible for the
transformation of the service
economy (Figure 1.7)
Internationalisation (e.g. ‘Hollowing out’ effect,
Increased services trade, Global customers)
Government Regulation (e.g. Deregulation/
privatisation (Airline Sector in BD),
Social Changes (e.g. Increased customer
expectations, Increased affluence and leisure time,
More women in the workforce)

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Factors responsible for the
transformation of the service
economy (Figure 1.7)
Business trends (e.g. Relaxation of professional
association standards, Marketing emphasis by non –
profit organisations, Outsourcing of non-core
services, Services quality movement, Franchising
and service chains)
Advances in technology (Convergence of
computers and telecommunications, Miniaturisation,
Digitalisation, Enhanced software)

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Characteristics of Services
Intangibility (lawyer suggestion)
Inseparability of production and
consumption (Hair dresser)
Heterogeneity (Class Lecture)
Perishability (Concert Ticket)

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Differences between Goods and
Services (Table 1.1)
Customers do not obtain ownership of the
intangible element of the service product (i.e.
service personnel and their performance cannot be
‘owned’ by the customer).
Service products are intangible performances (i.e.
physical evidence of the purchase may be limited).
There is greater involvement of customers in the
production process (i.e. customers are part of the
performance, they interact with the service
provider).

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Differences between Goods
and Services (Table 1.1)
It is more difficult to maintain quality
standards of service products (i.e. individuals’
behaviour is hard to control and standardise).
Many services are difficult for customers to
evaluate (i.e. there may be elements of
personal taste, experience, ability and mood
that affect customers’ evaluation).

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Differences between Goods
and Services (Table 1.1)
Absence of inventories for services (i.e. no
use for unsold stock, difficult to deal with
sudden increases in demand).
Importance of time factor (i.e. many services
are delivered in real time so the consumer
and provider must be together for the service
to occur).
Delivery systems may involve both electronic
and physical channels (i.e. different needs for
staff behaviour management).

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The Traditional Marketing
Mix (four Ps)
Product
Price
Promotion
Place

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Figure 1.12 An expanded marketing
mix for services
Customers Price
Place &
Time
Promotion
Product
(Service)People Process
Physical Evidence
Customers Pricecustomers
Place,
Cyber-
space
& Time

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The Additional Marketing
Mix Elements for Services
People: direct contact between customers and
service personnel, some services involve high levels
of contact, high levels of trust and dependency.
Physical evidence: this may be an actual physical
component or a cue to indicate or represent the
existence quality of the service purchased (often
referred to as ‘Servicescape’).
Process: the order and/or system of service delivery.

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Keys to Success in Service
Businesses
Understanding that service is a time bound
performance comprising core products and
supplementary services.
Recognising the importance of understanding
and managing the operational processes.
Understanding the customer’s role in the
service transaction.

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Core and Supplementary Service
Elements
Provision
of a
Hotel Room
Food &
Beverages
Reservations
Reception
Housekeeping
Leisure
and
entertainmentsAdvice
and
information
Admin. and
Accounts
Concierge
Problem
Solving

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Keys to Success in Service
Businesses
Seeking distinctive market positions for
competitive strength.
Understanding and offering what target
customers perceive to be superior value.
Managing contact between customers and
service personnel.
Understanding the role of technology in
service delivery.

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Internal
marketing
Traditional
marketing
OrganisationOrganisation
EmployeesEmployees CustomersCustomers
Satisfaction; Quality;
Brand Loyalty
Relationship
management
A framework for analysing
services marketing (Figure 1.13)

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The Actions of Efficient
Companies
Evaluate and select market segments.
Research customer needs and
preferences.
Monitor competitors’ performance,
strategies, strengths and weaknesses.
Tailor the product to suit the chosen
market segment

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The Actions of Efficient
Companies
Set prices to reflect costs, competitive
strategies and consumer sensitivity to
different price levels.
Tailor location, and scheduling of
service availability to customers’ needs
and preferences.

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The Actions of Efficient
Companies
Develop communication strategies,
using appropriate media to transmit
messages that inform prospective
customers about the service and
promote its advantages.
Develop performance standards and
measures.
Create programs for rewarding and
reinforcing customer loyalty.

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Managing the 7Ps Requires Collaboration
between Marketing, Operations, and HR
Functions (Fig. 1.14)
Customers
Operations
Management
Marketing
Management
Human Resources
Management