Chapter 1:

Field of Services The

Service Economy
 Learning Objective
The students must be able to interpret
and analyze the impact of changes in
Service Economy on Service Industry.
 Overview of Topics
Why Study Services?

What are Services?

Marketing Challenges Posed by Services

Understand role played by services in different economies

Appreciate transformation of economies

Facts responsible for growth in services

Why quality in services is poor?

Why marketing inevitable for services?

Search for marketing know-how for services

Why Study Services?
 Why Study
Services?
Services dominate most economies and are growing
rapidly:
Services account for more than 60% of GDP worldwide
Almost all economies have a substantial service sector
Most new employment is provided by services
Strongest growth area for marketing

Understanding services ------- personal competitive

advantage

Developed countries already service economies, and

new economies like India, China Vietnam, Phillipines
are moving towards becoming ones.
 Why Study
Services?
Indias poor industrial growth is dragging down the
overall economy, according to theEconomic Survey
released on Thursday, while the service sector
appears to be keeping the economy afloat at its
current growth rate of just under 7 percent.

The survey noted that India is still one of the fastest

growing economies in the world and its sovereign
credit rating rose by 2.98 percent during 2007-12.

The services sector continues to be a star

performer, and its share in overall gross domestic
product has risen to 59 percent, up from 58 percent
in the previous fiscal year. The sector grew at 9.4
percent.
 Why Study
Services?
The current situation in India is that the growth
rate of services has overtaken both agriculture
and industry and is now more than 50% of GDP.
The services sector has the highest growth rate
and is the least volatile sector.
Growth is particularly marked in public
services, IT and financial services. In some
areas the growth rate of the services sector is
40-50% due to increased use of mobile
technologies.
India therefore has a services-oriented
economy.
 Why Study
Services?
A 50 mn dollar industry in 1989 and 87 bn dollars by 2008,
employing 70 lakh people by 2008. in 2008 GDP of $1.209 trillion
it contributed 53 percent.
As Per IBEF(Indian Brand Equity Foundation)
Foreign tourist arrivals during Jan to Sept in 2010 were 3.84
mn, an increase of 10 percent over corresponding period in
2009 as ministry of tourism data.
According to TRAI Telephone subscribers 951 mn users as on
31st March 2012 with a teledensity of 78.66 percent.
Acc to Indian Ports Association data major ports in India
handled 271.29 mn tonnes traffic during April-Sep 2010-11 to
267.98 MT during same period in 2009-2010.
Acc to CSO key indicators of railway, like net tonne kms, and
passenger kms have shown growth rates of 4.7 % and 5.6 %
resp in the first quarter of 2010-11.
 Why Study
Services?
Only the services sector can have a major
impact on poverty. Improvements in
agriculture are not having an effect on
poverty. To address poverty there is a need to
move people from bad sectors to good
sectors or from unemployment to
employment.
This is happening with growth in human skills
intensive sectors such as hotels, restaurants
and IT, but there are geographical, labour
unions and human skills restrictions on labour
movement.
 Services Dominate
the Global Economy
Contribution of Service Industries to GDP
Globally
Manufacturing
32%

Services
64%
Agriculture
4%

Source: The World Factbook 2008, Central Intelligence Agency

 Estimated Size of Service
Sector
in Selected Countries

Source: The World Factbook 2008, Central Intelligence Agency

Sector Wise Contribution to
GDP of Services in Select
Countries
Movement of Sectoral Shares in GDP
Estimated Size of Service
Sector
in Selected Countries
Growth in Different Sectors
Employment in Service
Sector
 Changing Structure of
Employment as Economies
Develop

Agriculture

Services
Employment

Industry
Share of

Time, per Capita Income

Source: IMF, 1997
Size of Specific Services in
India
Size of Specific Services in
India
Size of Specific Services in
India
Contribution of Different Sectors to national Income
Rate of Growth of Different Sectors of Indian
Economy
Annual Growth Rates in Service Exports
Composition of Service Exports from
India
Composition of Export of Miscellaneous Services from
India
 Factors Leading to Growth of
Services
Increasing levels of income

Urbanization

Women in the workforce

Demographic shifts

Concern for environment

Government

Industrialisation
 Factors Leading to Growth of
Services
Competitive pressures

National Specialization

International Specialization

State of Services
Environmental Trends and
Emerging Service Markets
Common Bugs in
Various Services
Environmental Trends
and Emerging Service
Markets
 Service Failure

Reasons
Slow to realise the importance of good service

Tendency to overlook matters that are more important

from customers view point and over managing some not
so important matters(known as Distortion of Reality)

Not much importance given in management education

initially as per Lovelock

Assumption that a successful product manager can be a

successful service manager too. Management issues get
overlooked because of this as service manager has to
deal with people.

Using goods oriented experience to solve service

problems too leads to failure
 Why Study
Services?
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 be lost to lower-cost
countries? Yes, some service jobs can be
exported
 Why Study
Services?
Powerful forces are transforming service
markets
Government policies, social changes, business
trends, advances in IT, internationalization

Forces that reshape:

Demand
Supply
The competitive landscape
Customers choices, power, and decision making
Transformation of the
Service Economy

New markets and product categories

Increase in demand for services
More intense competition

Success hinges
on:

Increased focus on services marketing and

management
What are Services?
What Are Services?
The historical view
Smith (1776): Services are different from goods
because they are perishable
Say (1803): As services are immaterial, consumption
cannot be separated from production

A fresh perspective: Benefits without Ownership

Rental of goods:
(a) Payment made for using or accessing something
usually for a defined period of time instead of buying it
outright and
(b) Allows participation in network systems that individuals
and organizations could not afford
 Characteristics of
Services
IntangibilityLack of tangible assets
which can be seen, touched, or smelled
prior to purchase.
PerishabilityInability of a service to be
inventoried or stored.
InseparabilitySimultaneous production
and consumption of a service.
VariabilityUnwanted or random levels
of service quality customers receive
when they patronize a service firm.
Non-ownership -
What Are Services?
Five broad categories within non-ownership
framework of which two or more may be
combined
 Definition of
Services
Services
are economic activities offered by one party to
another
most commonly employ time-based performances
to bring about desired results

In exchange for their money, time, and effort,

service customers expect to obtain value from
access to goods, labor, facilities, environments,
professional skills, networks, and systems;
normally do not take ownership of any of the
physical elements involved.
 Value Creation is Dominated by
Intangible Elements
Physical Elements

High

Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing Plumbing Repair
Fast-Food Restaurant Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking

Low High
Intangible Elements
Source; Adapted from Lynn Shostack
 Service Products vs. Customer
Service & After-Sales Service
A firms market offerings are divided into
core product elements and supplementary
service elements
Need to distinguish between:
Marketing of services when service is the core
product
Marketing through service when good service
increases the value of a core physical good

Manufacturing firms are reformulating and

enhancing existing added-value services to
market them as stand-alone core products
 Service A Process
Perspective
Differences exist amongst services
depending on what is being processed

Classification of services into

People processing
Possession processing
Mental stimulus processing
Information processing
4 Categories of
Services
 People Processing

Customers must:
physically enter the service factory

cooperate actively with the service operation

Managers should think about process and output

from the customers perspective
to identify benefits created and non-financial costs: Time,
mental and physical effort
 Possession
Processing

Involvement is limited

Less physical involvement

Production and consumption are separable

 Mental Stimulus
Processing

Ethical standards required:

Customers might be manipulated

Physical presence of recipients not required

Core content of services is information-based

Can be inventoried
 Information
Processing

Most intangible form of service

May be transformed:

Into enduring forms of service output

Line between information processing and mental

stimulus processing may be unclear
Need for Marketing

Sales Decline

Slow Growth

Changes in buying patterns

Increasing competition

Increasing marketing expenditure

Paradigm Shift
Marketing Challenges
Posed by Services
Services Pose Distinctive
Marketing Challenges
Marketing management tasks in the
service sector differ from those in the
manufacturing sector.
Eight common differences between
services and goods but they do not
apply equally to all services

What are marketing implications of these

differences?
 Differences, Implications, and
Marketing-Related Tasks
Difference Implications Marketing-Related Tasks
Use pricing, promotion,
Most service products Customers may be
reservations to smooth
cannot be inventoried turned away
demand; work with ops to
manage capacity
Emphasize physical clues,
Intangible elements Harder to evaluate
employ metaphors and vivid
usually dominate service & distinguish
images in advertising
value creation from competitors
Educate customers on
Services are often Greater risk &
making good choices; offer
difficult to visualize & uncertainty perceived
guarantees
understand
Develop user-friendly
Customers may be equipment, facilities &
Interaction between
involved in co- systems; train customers,
customer & provider;
production provide good support
poor task execution
could affect satisfaction
 Differences, Implications, and
Marketing-Related Tasks
Marketing-Related Tasks
Difference Implications
Recruit, train employees to
People may be part of Behavior of service reinforce service concept
service experience personnel & customers Shape customer behavior
can affect satisfaction

Operational inputs and Hard to maintain quality,
consistency, reliability Institute good service
outputs tend to vary recovery procedures
Difficult to shield
more widely customers from failures
Find ways to compete on
Time is money; speed of delivery; offer
customers want service extended hours
Time factor often at convenient times
assumes great Create user-friendly,
Electronic channels or secure websites and free
importance voice communications access by telephone

Distribution may take

place through
nonphysical channels
 Learning Objective
Students should be able to identify
the aspects that differentiate
between a Product and a service and
what additional aspects have to be
used to be able to market services in
an efficient manner
Extended Marketing Mix for
Services
 Services Require
An Extended Marketing Mix
Marketing can be viewed as:
A strategic and competitive thrust pursued by top
management
A set of functional activities performed by line managers
A customer-driven orientation for the entire organization

Marketing is only function to bring operating

revenues into a business; all other functions are cost
centers

The 7 Ps of services marketing are needed to

create viable strategies for meeting customer needs
profitably
 The 7Ps of Services
Marketing
Traditional Marketing Mix Applied to
Services
Product (Chapter 4)
Place and Time (Chapter 5)
Price (Chapter 6)
Promotion and Education (Chapter 7)

Extended Marketing Mix for Services

Process (Chapter 8 & 9)
Physical Environment (Chapter 10)
People (Chapter 11)
Integration of Marketing
with Other Management
Functions
Marketing to be Integrated with
Other Management Functions
Three management functions play
central and interrelated roles in
meeting needs of service customers
Operations Marketing
Management
Management
Customers

Human Resources

Management
Developing Effective
Service Marketing
Strategies
 Summary

Services dominate Why Study Unique Services are often

the economy in Services? Characteristics intangible, difficult to
many nations. The visualize and
majority of jobs are understand, and
created in the customers may be
service sector. involved in co-
production.
Services are a form
Product, Place &
of rental (not
Time, Price,
ownership). They
Extende
are performances What are Promotion &
d Education, Process,
that bring about a Services?
Marketin Physical
desired result.
Environment, People
g Mix