1 Chapter 1 – Marketing in the service economy
1.1 Define ‘services’
Services defined
There are many definitions of services such as:
(1) “Any act, performance or experience that one party can offer another and that is essentially intangible and does not result in the ownership of anything, but nonetheless creates value for the recipient”
(2) “Services are economic activities that create time, place, form, problem-solving or experiential value for the recipient”
• i.e. time value may be created by catching a taxi and form value may be forged by a hairdresser
1.2 Explain how services create value for customers Services are about value creation
Services are economic activities between two parties that create value for both buyer and seller;
service provider receives payment and customer receives time/experiential value.
◦ S-D logic (Service-dominant logic) suggests that customers are co-creators of value meaning the more the customers put in the more they often get back from the service (e.g. if you focus during your university lecture you will inevitably get more out of it than someone who doesn’t attend or sleeps in the lecture)
1.3 Describe the key characteristics that distinguish services from manufactured goods Differences between goods and services
Difference Implications Marketing-related tasks
Most service products cannot be inventoried
Services involve actions or performance and are therefore ephemeral
Although facilities and equipment can be held to create the service, these represent product capacity, not the product itself; if there is no demand, unused capacity is wasted
Also during periods where demand exceeds capacity, customers may be sent away or asked to wait
Smooth demand through promotional activities
Work with operations to adjust capacity
Attempt to create a match capacity and demand
Intangible elements usually dominate value
creation Customers can’t smell, taste see or touch
these elements
This makes service firms harder to evaluate and distinguish from competitors
Make services tangible througb physical clues
Customers may be involved in production Customers interact with providers’
equipment, facilities and systems Poor task execution by customers may hurt productivity and affect satisfaction
Develop user-friendly equipment, facilities and systems
Train customers to perform
effectively; provide customer support People are sometimes part of the product Appearance, attitude and behaviour of
service personnel and other customers can shape the experience
Recruit, train and reward employees to reinforce the planned service concept
Target the right customers at the right times; shape their behaviour
The time factor frequently assumes great
importance Customers see time as a scarce resource
to be spent widely and dislike wasting time or having to wait
Find ways to compete on speed of delivery; minimise burden of waiting, offer extended trading hours
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Distribution may take place through non- physical channels
Information-based services can be delivered through electronic channels such as the Internet
Seek to create user-friendly, secure websites
Ensure that all information-based service elements can be downloaded 1.4 Identify the forces that are transforming market services
Powerful forces are transforming the service economy
§ The ‘hollowing out’ effect refers to the shift in employment patterns in industrialised economies (e.g. most manufacturing that was once done in Australia has now been shifted to low-wage countries)
§ Deregulation and privatisation: Reduced government regulation or the absence of
government regulation altogether in industries where it once was has led to an increase in competition (e.g. the freight, airline and banking industries used to be heavily regulated by government)
§ Social changes: A growing middle class and dual-income families has increased cleaning service demand and general workload increase and business has increased online grocery delivery services
1.5 Describe ways of categorising services Categorising service processes
Categorising services involves two key questions:
1. At whom (or what) is the activity directed?
2. Is the activity tangible or intangible?
These questions result in a four-way classification scheme:
1. Tangible actions to peoples’ bodies (people-processing) - Such as transportation, body massages and surgery
- Customers need to be physically present throughout service delivery in order to receive the desired benefits
2. Tangible actions to goods and other physical possessions (possession processing) - Such as air freight, furniture removal, lawn-mowing and repair services
- The object requiring processing must be present but the customer need not be 3. Intangible actions directed at peoples’ minds (mental-stimulus processing)
- Such as public broadcasting, education or a musical
- Customers must be located mentally but may be located elsewhere such as where they are connected via the internet or broadcast signals
4. Intangible actions directed at intangible assets (information processing) - Such as investment banking, insurance and consulting
- Direct involvement with the customer may not be necessary once the request for service has been initiated
1.6 Identify the key components of service operations, delivery and marketing systems Key components of the service system
1. Service operations
- The service operations system can be divided into what the customers sees and what goes on ‘backstage’
- Customers rarely care about what is going on behind the scenes. For example, a customer may be disgruntled where they discover they cannot have their preferred
3 menu item because someone forgot the collect the fish from the market that
morning 2. Service delivery system
- Service delivery is concerned with where when and how the service is delivered to the customer
- Traditionally, almost all service providers had direct interactions with customers, however, this had changed due to technology
- The shift from personal service to self-service can create personalisation and is not regarded as acceptable to all customers
3. Service marketing system
- Customers’ perceptions of an organisation are also influenced by advertising, websites and other communications such as billing from the accounting department and random exposure to the firm’s personnel
- Together, these make up the service marketing system
- Marketers need to be aware of how all these factors come to together to influence consumers’ perceptions and design their marketing techniques accordingly
1.7 Describe the expanded ‘marketing mix’
An expanded marketing mix for services
The traditional ‘four P’s’ of the marketing mix (product, price, place and promotion) are inadequate to describe the key tasks of a service-marketer’s job. Instead, three additional P’s have been identified:
§ People: In spite of technology, many services will always need direct interaction between provider and client.
- Differences between service suppliers (even when from the same company) lies in their attitudes, skills and affiliation with customers
- Service companies need to work closely with their HR departments and devote time to training and motivating their employees as these attributes create competitive advantage for the firm
- ‘People’ also includes management of the firm’s customers (i.e. satisfaction with a firm can be influenced by the behaviour of other customers)
- Management must determine the right customer mix and manage customer behaviour to enhance experiential value and avoid conflict
§ Physical evidence: In the absence of tangible elements, cue indicating the quality of the service come from other contexts
- Appearance of staff (grooming and style), before and after photos, background music and promotional materials may all contribute to the firm’s value as perceived by customers
- Service providers should design these items with extreme care since they influence a customer’s impression of the firm, especially first-time customers
§ Process of service production: This includes the process-systems associated with services - Poorly designed processing systems make it very difficult for frontline staff to do
their jobs well
- For example, the process of providing an invoice or bill (if this goes wrong and a customer is overcharged, this could cause serious issues)
- Also, losing a reservation or assigning a hotel room to someone else is an example of a process failure
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