Service marketing and management

Lovelock and Wright Principles of Service Marketing and Management 2/E Slide ©2002 by Lovelock Associates 1

PRINCIPLES OF SERVICE MARKETING AND MANAGEMENT 2/E

Christopher Lovelock and Lauren Wright

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PART I

UNDERSTANDING SERVICES


The Service Management Decision Framework (Fig. I-1)

What Business A re We In?

What Service Processes Can Be U sed in O ur O pera tion?

Who Are O ur Custom ers and H ow Should We Rela te to Them ?

What Price Should We Charge for O ur Services?

H ow Should We Com m unica te Wha t O ur Service H a s to O ffer?

What Are the O ptions for Delivering O ur Service?

H ow Can We Ba lance Productivity a nd Q ua lity?

What Should be the Core a nd Supplem enta ry Elem ents of O ur Service Product?

H ow Should We M atch Dem a nd a nd Productive Capacity?

What Are Appropria te Roles for People and Technology?

H ow Can O ur Firm Achieve Service Leadership?


Chapter 1

Distinctive Aspects of

Service Management


What is a Service? Defining the Essence

• An act or performance offered by one party to another (performances are intangible, but may involve use of physical products)

• An economic activity that does not result in ownership

• A process that creates benefits by facilitating a desired change in customers themselves, physical possessions, or intangible assets


The Service Sector

• Includes businesses, government agencies, nonprofits

• Jobs range from high-paid professionals and technicians to minimum-wage positions

• Service organizations can be any size--from huge global corporations to local small businesses

• In most countries, adds more economic value than agriculture, raw materials and manufacturing combined

• In the USA -- world’s largest economy -- services account for 73% of GDP and 76% of jobs


Fig. 1.1: GDP by Industry in the USA, 1999

Source: Bureau of Economic Analysis, December 2000

S E R V I C E S

Agriculture, Forestry,Fish ing a nd M in ing

7%

M a nufa cturing16%

G overnm ent(M ostly Services)

12%

O ther Services10%

BusinessServices

5%

H ea lth5%

Tra nsport, U tilitiesa nd Com m unica tions

8%

Wholesa le a ndReta il Tra de

17%

Fina nce, Insura ncea nd Rea l Esta te

20%


Changing Structure of Employment as Economic Development Evolves (Fig. 1.2)

Time, per Capita Income

Share of Employment

Industry

Services

Agriculture

Source: IMF


Some Industries in the Service Sector

• Banking, stockbroking

• Lodging

• Restaurants, bars, catering

• Insurance

• News and entertainment

• Transportation (freight and passenger)

• Health care

• Education

• Wholesaling and retailing

• Laundries, drycleaning

• Repair and maintenance

• Professional (e.g., law, architecture, consulting)


Internal Services

• Service elements within an organization that facilitate creation of--or add value to--its final output

• Includes:– accounting and payroll administration– recruitment and training– legal services– transportation– catering and food services– cleaning and landscaping

• Increasingly, these services are being outsourced


Basic Differences between Goods and Services (Fig. 1.3)

• Customers do not obtain ownership of services

• Service products are intangible performances--not objects

• Customers often actively involved in production process

• Other people may form part of product experience

• More variability in operational inputs and outputs--harder to improve productivity, control quality

• Often difficult for customers to evaluate

• Absence of inventories after production

• Time factor is more important--speed may be key

• Delivery systems include electronic and physical channels


Value Added by Tangible versus Intangible Elements in Goods and Services (Fig. 1.4)

Fast food restaurantPlumbing repair

Lawn careOil change on car

House cleaningAirline flight

TeachingInvestment mgt.

SaltSoft drinks

VCRTennis racquet

New carCustom-made clothes

Furniture rental

Lo Hi

Hi

Ta

ng

ible

Ele

men

ts

Intangible Elements


The “8Ps” of Integrated Service Management vs. the Traditional “4Ps” (Fig. 1.5)

1. Product elements

2. Place, cyberspace, and

time

3. Process

4. Productivity and quality

5. People

6. Promotion and education

7. Physical evidence

8. Price and other user outlays

1. The Evidence : Core, Added Benefit, Competitiveness

2. To Reach and Control : Channel, Schedules, Network

3. To Create : Actions, Cust. Involvement, Techno based Role

4. Performance measured : Effectivity, Efficiency, Trust, Speed, Humanistic

5. Employees are Prepared Well : Motivation, Fit to Goals, Behavior

6. Waking Up the Customers : Informing, Educating, Persuading, Reminding,

7. Entertainment : Interior, Clothes, Vehicles, and also Tangible Metaphors

8. Trade Off between Customer Value vs Price : … barter/negotiation process


8Ps: (1) Product Elements

All Aspects of Service Performance that Create Value

• Core product features

• Bundle of supplementary service elements

• Performance levels relative to competition

• Benefits delivered to customers

• Guarantees


8Ps:(2) Place, Cyberspace, and Time

Delivery Decisions: Where, When, and How

• Geographic locations served

• Service schedules

• Physical channels

• Electronic channels

• Customer control and convenience

• Channel partners/intermediaries


8Ps:(3) Process

Method and Sequence in Service Creation and Delivery

• Design of activity flows

• Number and sequence of actions for customers

• Providers of value chain components

• Nature of customer involvement

• Role of contact personnel

• Role of technology, degree of automation


8Ps:(4) Productivity and Quality

Synergy in Value Creation for Customers and the Firm

• Achieve productive transformation of inputs to outputs– efficiency (cost control, avoidance of waste)– effectiveness (value added, including quality and

timeliness)

• Attain customer-defined quality standards– reliability– responsiveness– competence/trust– human dimensions– tangibles


8Ps:(5) People

The Human Side of the Enterprise

• The right employees performing tasks well– job design– recruiting/selection– training– motivation– evaluation/rewards– empowerment/teamwork

• The right customers for the firm’s mission– fit well with product/processes/corporate goals– appreciate benefits and value offered– possess (or can be educated to have) necessary skills– firm is able to manage customer behavior


8Ps:(6) Promotion and Education

Informing, Educating, Persuading, and Reminding Customers

• Marketing communication tools– media elements (print, broadcast, outdoor, retail, Internet, etc.)– personal selling, customer service– sales promotion– publicity/PR

• Imagery and recognition– branding– corporate design

• Content– information, advice– persuasive messages– customer education/training


8Ps:(7) Physical Evidence

Providing tangible evidence of service performances

• Create and maintaining physical appearances– buildings/landscaping– interior design/furnishings– vehicles/equipment– staff grooming/clothing– other tangibles

• Select tangible metaphors for use in marketing communications


8Ps:(8) Price and Other User Costs

Managing Customer Outlays Relative to Corporate Revenues

• Quoted price level and trade margins

• Discount terms• Price-setting mechanism

– determined by seller – negotiation/barter– auction/reverse auction

• Credit terms

• Strategies to minimize other user costs– out-of-pocket financial expenses (e.g., travel, phone)– time investments and mental/physical effort– negative sensory experiences


Factors Stimulating Competition and Innovation in the Service Economy (Fig. 1.6)

• Government Policies (e.g., regulations, trade agreements)

• Social Changes (e.g., affluent, time poor, seek experiences)

• Business Trends– Manufacturers offer service– Growth of chains and franchising– Pressures to improve productivity and quality– More strategic alliances– Marketing emphasis by nonprofits– Innovative hiring practices

• Advances in IT (e.g., speed, digitization, wireless, Internet)

• Internationalization (travel, transnational companies)


Some Impacts of Technological Change

• Radically alter ways in which service firms do business:– with customers (new services, more convenience) – behind the scenes (reengineering, new value chains)

• Create relational databases about customer needs and behavior, mine databanks for insights

• Leverage employee capabilities and enhance mobility

• Centralize customer service, be faster and more responsive

• Develop national/global delivery systems

• Create new, Internet-based business models


Relating the 8Ps to the Service Decision Framework (Fig. 1.8)

W H AT BU SIN ESS A RE W E IN ?

W ha t Service Pro cesses C a n Be U sed in O ur O pera tio n? (PRO CESS)

W ho A re O ur C usto m ers a nd H o w Sh o u ld W e Rela te to Th em ?

W ha t Price Sho u ld W e C h arge? (PRICE AN D O TH ER U SER O U TLAYS)

H o w to C o m m u nica te? (PRO M O TIO N & EDU CATIO N , PH YSICAL EV IDEN CE)

O ptio ns fo r D e livery? (PLACE, CYBERSPACE & TIM E, PH YSICAL EVIDEN CE)

H o w C a n W e Ba la nce ?PRO DU CTIV ITY AN D Q U ALITY

W ha t Sh o u ld be the C o re a nd Supp lem en ta ry Elem en ts o f O u r Service Pro duct? (PRO DU CT ELEM EN TS)

H o w Sh o u ld W e M a tch D em a nd a nd Pro ductive C a pa city?

W ha t A re A ppro pria te Ro les fo r Peo p le a nd Techno lo gy? (PEO PLE)

H o w C a n O ur F irm A ch ieve Service Lea dersh ip?


Service Decision Framework What Business Are We In?

• With what industry is our service associated?

• With what other goods and services do we compete?

• What forces for change do we face?

• What solutions do we offer to meet customer needs? (How do we create value?)

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Service marketing and management