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Offering a comprehensive view of a field that is evolving at
an unprecedented pace, Essentials of Services Marketing,
Third Edition, is a concise, reader-friendly guide to
marketing and managing services. Encompassing
pioneering service concepts and the latest developments,
academic research as well as managerial insights, this book
combines a practical, real-world focus with rich visual
pedagogy to present an engaging and exciting look at the
world of service economy.
T H I R D
E D I T I O N
JOCHEN WIRTZ
CHRISTOPHER LOVELOCK
JAYANTA CHATTERJEE
GOPAL DAS
Online resources available at
www.pearsoned.co.in/jochenwirtz
This edition is manufactured in India and is authorized for sale only
in India, Bangladesh, Bhutan, Pakistan, Nepal, Sri Lanka and the Maldives.
Size: 203x254mm
Spine: 25mm
ISBN: 9789353435417
Title
Sub Title
Edition
SERVICES
MARKETING
T H I R D
E D I T I O N
JOCHEN WIRTZ
CHRISTOPHER LOVELOCK
JAYANTA CHATTERJEE
GOPAL DAS
WIRTZ | LOVELOCK
in.pearson.com
CHATTERJEE | DAS
`799.00
ESSENTIALS OF
THIRD
EDITION
MRP Inclusive
of all Taxes
Cover Image: Nonwarit. 123rf.com
 The book uses a systematic learning approach. Each
chapter has clear learning objectives, an organizing
framework that that provides a quick overview of the
chapter’s contents and line of argument, and chapter
summaries in bullet form that condense the core
concepts and messages of each chapter.
 Opening vignettes and boxed inserts within the chapters
are designed to capture the interest of the reader and
provide opportunities for in-class discussions. They
describe significant research findings, illustrate practical
applications of important service marketing concepts,
and describe best practices followed by innovative
service organizations.
 Contains the most relevant contexts of services
marketing based on the Indian perspective in the form
of relevant examples, theoretical questions, practical
exercises, activities and references.
 Simple demonstration of concepts with appropriate
figures/ images for better understanding.
 The book also shares an overview of other global
services marketing aspects along with examples in a
lucid manner.
SERVICES MARKETING
SERVICES
MARKETING
ESSENTIALS OF
NEW TO THIS EDITION
ESSENTIALS OF
Authors / Editors Name
With CD
Red Band
Territory line
URL
Price
mQuest
Offering a comprehensive view of a field that is evolving at
an unprecedented pace, Essentials of Services Marketing,
Third Edition, is a concise, reader-friendly guide to
marketing and managing services. Encompassing
pioneering service concepts and the latest developments,
academic research as well as managerial insights, this book
combines a practical, real-world focus with rich visual
pedagogy to present an engaging and exciting look at the
world of service economy.
T H I R D
E D I T I O N
JOCHEN WIRTZ
CHRISTOPHER LOVELOCK
JAYANTA CHATTERJEE
GOPAL DAS
Online resources available at
www.pearsoned.co.in/jochenwirtz
This edition is manufactured in India and is authorized for sale only
in India, Bangladesh, Bhutan, Pakistan, Nepal, Sri Lanka and the Maldives.
Size: 203x254mm
Spine: 25mm
ISBN: 9789353435417
Title
Sub Title
Edition
SERVICES
MARKETING
T H I R D
E D I T I O N
JOCHEN WIRTZ
CHRISTOPHER LOVELOCK
JAYANTA CHATTERJEE
GOPAL DAS
WIRTZ | LOVELOCK
in.pearson.com
CHATTERJEE | DAS
`799.00
ESSENTIALS OF
THIRD
EDITION
MRP Inclusive
of all Taxes
Cover Image: Nonwarit. 123rf.com
 The book uses a systematic learning approach. Each
chapter has clear learning objectives, an organizing
framework that that provides a quick overview of the
chapter’s contents and line of argument, and chapter
summaries in bullet form that condense the core
concepts and messages of each chapter.
 Opening vignettes and boxed inserts within the chapters
are designed to capture the interest of the reader and
provide opportunities for in-class discussions. They
describe significant research findings, illustrate practical
applications of important service marketing concepts,
and describe best practices followed by innovative
service organizations.
 Contains the most relevant contexts of services
marketing based on the Indian perspective in the form
of relevant examples, theoretical questions, practical
exercises, activities and references.
 Simple demonstration of concepts with appropriate
figures/ images for better understanding.
 The book also shares an overview of other global
services marketing aspects along with examples in a
lucid manner.
SERVICES MARKETING
SERVICES
MARKETING
ESSENTIALS OF
NEW TO THIS EDITION
ESSENTIALS OF
Authors / Editors Name
With CD
Red Band
Territory line
URL
Price
mQuest
Jochen Wirtz
Christopher Lovelock
Adapted by
Jayanta Chatterjee
Gopal Das
A01_WIRT9959_03_GE_FM.indd 3
5/18/2019 1:32:32 PM
The rights of Jochen Wirtz to be identified as the author of this work have been asserted by him in
accordance with the Copyright, Designs and Patents Act 1988.
Unless otherwise indicated herein, any third-party trademarks, logos, or icons that may appear in this
work are the property of their respective owners, and any references to third-party trademarks, logos,
icons, or other trade dress are for demonstrative or descriptive purposes only. Such references are not
intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the
owners of such marks, or any relationship between the owner and Pearson Education, Inc., or its affiliates,
authors, licensees, or distributors.
Authorized adaptation from the United States edition, entitled Essentials of Services Marketing, 3rd
Edition, ISBN 9781292089959 by Wirtz, Jochen and Lovelock, Christopher, published by Pearson
Education Limited, Copyright © 2018.
Indian Subcontinent Adaptation
Copyright © 2019 Pearson India Education Services Pvt. Ltd
All rights reserved. This book is sold subject to the condition that it shall not, by way of trade or
otherwise, be lent, resold, hired out, or otherwise circulated without the publisher’s prior written consent
in any form of binding or cover other than that in which it is published and without a similar condition
including this condition being imposed on the subsequent purchaser and without limiting the rights under
copyright reserved above, no part of this publication may be reproduced, stored in or introduced into
a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying,
recording or otherwise), without the prior written permission of both the copyright owner and the
publisher of this book.
ISBN 978-93-534-3541-7
First Impression
This edition is manufactured in India and is authorized for sale only in India, Bangladesh, Bhutan,
Pakistan, Nepal, Sri Lanka and the Maldives. Circulation of this edition outside of these territories is
UNAUTHORIZED.
Published by Pearson India Education Services Pvt. Ltd, CIN: U72200TN2005PTC057128.
Head Office: 15th Floor, Tower-B, World Trade Tower, Plot No. 1, Block-C, Sector-16,
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Printed in India by
* All artworks in Chapters 1–5, 12, 14, Case 3 and 14 have been developed for Pearson India
by PageTech Publishing Services Pvt. Ltd.
A01_WIRT9959_03_GE_FM.indd 4
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Brief Contents
Dedication vii
About the Authors ix
About the Adapters
xiii
About the Contributors of the Cases xv
Prefacexxvi
Acknowledgmentsxxxii
Part I:
Chapter 1
Chapter 2
Chapter 3
Part II:
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Understanding Service Markets, Products,
and Customers
3
Introduction to Services Marketing
Consumer Behavior in a Services Context
Positioning Services in Competitive Markets
4
40
70
Applying the 4 Ps of Marketing to Services
97
Developing Service Products and Brands
Distributing Services through Physical and Electronic Channels
Setting Prices and Implementing Revenue Management
Promoting Services and Educating Customers
98
128
162
204
Part III: Managing the Customer Interface
249
Part IV:
Developing Customer Relationships
389
Striving for Service Excellence
467
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Part V:
Chapter 14
Chapter 15
Designing Service Processes
Balancing Demand and Capacity
Crafting the Service Environment
Managing People for Service Advantage
Managing Relationships and Building Loyalty
Complaint Handling and Service Recovery
Improving Service Quality and Productivity
Building a World-Class Service Organization
Part VI: Cases 250
282
314
344
390
432
468
516
530
Glossary645
Credits655
Name Index 659
Subject Index
661
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Jochen Wirtz is Professor of Marketing and Vice Dean, Graduate Studies,
at the National University of Singapore (NUS) and an international fellow
of the Service Research Center at Karlstad University. Furthermore, he
is the founding director of the dual degree UCLA-NUS Executive MBA
Program (ranked globally #6 in the Financial Times 2016 EMBA rankings),
international fellow of the Service Research Center at Karlstad University,
and Academic Scholar at the Cornell Institute for Healthy Futures (CIHF)
at Cornell University. Dr. Wirtz holds a PhD in services marketing from
the London Business School and has worked in the field of services for
over 25 years.
Previously, Professor Wirtz was an associate fellow at the Saïd Business
School, University of Oxford, from 2008 to 2013, and a founding member
of the NUS Teaching Academy (the NUS think tank on education matters)
from 2009 to 2015.
Professor Wirtz’s research focuses on services marketing and has been
published in over 200 academic articles, book chapters, and industry
reports. He is an author or co-author of over ten books, including Services
Marketing: People, Technology, Strategy (8th edition, World Scientific,
2015), co-authored with Professor Lovelock, which has become one of the
world’s leading services marketing textbooks and has been translated and
adapted for over 26 countries and regions, with sales of approximately
800,000 copies. His other books include Winning in Service Markets (World
Scientific, 2015) and Flying High in a Competitive Industry: Secrets of the
World’s Leading Airline (McGraw Hill, 2009).
In recognition of his excellence in teaching and research, Professor
Wirtz has received over 40 awards, including the prestigious Academy
of Marketing Science (AMS) 2012 Outstanding Marketing Teacher Award
(the highest recognition of teaching excellence by AMS globally) and the
top university-level Outstanding Educator Award at NUS. He was also
the winner of the inaugural Outstanding Service Researcher Award 2010
and the Best Practical Implications Award 2009, both by Emerald Group
Publications. He serves on the editorial review boards of over ten academic
journals, including the Journal of Service Management, Journal of Service
Research, Journal of Service Science, and Cornell Hospitality Quarterly,
A01_WIRT9959_03_GE_FM.indd 10
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and is also an ad hoc reviewer for the Journal of Consumer Research and
Journal of Marketing. Professor Wirtz chaired the American Marketing
Association’s biennial Service Research Conference in 2005 when it was
held for the first time in Asia.
Professor Wirtz was a banker and took the banking exam at the Chamber of
Commerce and Industry in Munich. He has since been an active management
consultant, working with international consulting firms including Accenture,
Arthur D. Little, and KPMG as well as major service firms in the areas of
strategy, business development, and customer feedback systems. He has
also been involved in a number of start-ups, including in Accellion (www.
accellion.com), AngelLoop (www.angelloop.com), TranscribeMe (www.
transcribeme.com), and UP! Your Service (www.upyourservice.com).
Originally from Germany, Professor Wirtz spent seven years in London
before moving to Asia. Today, he shuttles between Asia, the United States,
and Europe. For further information, visit www.jochenwirtz.com.
The late Christopher Lovelock was one of the pioneers of services
marketing. He consulted and gave seminars and workshops for managers
around the world, with a particular focus on strategic planning in services
and managing the customer experience. From 2001 to 2008, he was an
adjunct professor at the Yale School of Management, where he taught
services marketing in the MBA program.
After obtaining a BCom and an MA in economics from the University of
Edinburgh, he worked in advertising with the London office of J. Walter
Thompson Co. and then in corporate planning with Canadian Industries
Ltd. in Montreal. Later, he obtained an MBA from Harvard and a PhD
from Stanford, where he was also a postdoctoral fellow.
Professor Lovelock’s distinguished academic career included 11 years on
the faculty of the Harvard Business School and two years as a visiting
professor at IMD in Switzerland. He has also held faculty appointments
at Berkeley, Stanford, and the Sloan School at MIT, as well as visiting
professorships at INSEAD in France and The University of Queensland
in Australia.
A01_WIRT9959_03_GE_FM.indd 11
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Author or co-author of over 60 articles, more than 100 teaching cases,
and 27 books, Professor Lovelock has seen his work translated into
16 languages. He served on the editorial review boards of the Journal
of Service Management, Journal of Service Research, Service Industries
Journal, Cornell Hospitality Quarterly, and Marketing Management and
was also an ad hoc reviewer for the Journal of Marketing.
Widely acknowledged as a thought leader in services, Professor
Lovelock has been honored by the American Marketing Association’s
prestigious Award for Career Contributions in the Services Discipline.
This award has been renamed as the SERVSIG Christopher Lovelock
Career Contribution Award in his honor. His article co-written with
Evert Gummesson, “Whither Services Marketing? In Search of a New
Paradigm and Fresh Perspectives,” won the AMA’s Best Services Article
Award in 2005. He had previously also received a best article award
from the Journal of Marketing. Recognized many times for excellence
in case writing, he has twice won top honors in the BusinessWeek
“European Case of the Year” Award. For further information, visit www.
lovelock.com.
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Gummesson “Whither Services
Marketing? In Search of a New
Paradigm and Fresh Perspectives”
won the AMA’s Best Services Article Award in 2005.
Earlier, he received a best article award from the Journal
of Marketing. Recognized many times for excellence in
case writing, he has twice wonAbout
top honors
in the Business
the Adapters
Week’s “European Case of the Year” Award.
in Save The
as the Care
They have
Asian Insti
is treasury
bank.
Karla Cab
Manageme
Business Sc
Jayanta Chatterjee holds a Ph.D. in strategic management from the
Jayanta
Chatterjee holds a Ph.D. in
Indian Institute of Technology Delhi. He is an engineer manager,
Colg
entrepreneur, management
professor, author, andfrom
consultant
has 45 yearsMark
of
strategic
thewho
Indian
professional experience in different countries.
Institute of Technology Delhi. He is Canada.
He isengineer
an Adjunct Professor
at IIT Kanpur
and is a visiting professor at
an
manager,
entrepreneur,
Design Factory, Finland, and AIT Bangkok. He has authored several
Lorelle Fr
professor,
author,
andresearch
consultant
who
books and papers.
His abiding
interests are
knowledge
Australia.
services,
and professional
socio-technical innovation
in business as well
has
45marketing
years of
experience
as social sectors.
in different countries.
His other books include Services Marketing, Knowledge Economy: The
Indian Challenge, and Managing Design – From Concept to Market
Salience. His NPTEL IIT MOOC courses on Strategic Marketing, Services
Management, Marketing I, Marketing II, and New Product Management
enjoy wide appreciation.
Jayanta Chatterjee, a Bachelor of Electrical Engineering from Jadavpur
University, and an M.Tech and holder of Doctorate from IIT Delhi,
started his career at Siemens and developed expertise in new business
development. He then pioneered the introduction of advanced control
systems to Indian Industries at Allen-Bradley India Limited, where he
rose to the position of CEO in 1990.
s.indd 15
A01_WIRT9959_03_GE_FM.indd 13
From 1994 to 1999, he was at Rockwell International (Costa Mesa,
California) as a Vice President for Technology and Business Development
for the Asia region. Later, he co-founded Strategy Innovation Inc. In
2001, he divested out and joined the academia as a full-time Professor
in the Industrial & Management Engineering Department of IIT Kanpur.
At IIT Kanpur, he mentored several technology and design start-ups,
and he continues to advise a number of small and medium enterprises
while serving on the board of large corporations.
5/18/2019 1:32:33 PM
Jayanta Chatterjee is married to Jayasree, who worked in Save The
Children. She volunteered for several years as the Career and Placement
counselor at IIT Kanpur. They have two daughters. One is a professor
at the Asian Institute of Technology, Thailand, and the other is treasury
manager in a prominent multinational bank.
Gopal Das is an Associate Professor of Marketing at the IIM Bangalore.
He has more than ten years of teaching and research experience in
Marketing and Data analytics. He has conducted several management
development programmes on Research Methodology, Marketing Research,
and Data Analytics using statistical packages like SPSS, AMOS, SAS,
MINITAB, and R. Professor Das has been awarded and appreciated for
his contributions to management study. He has won gold medal for
the best ‘Outstanding Doctoral Management Student Awards (2012)’
organized by AIMS International held at the IIM Bangalore. He has
also been awarded Prof. Dipak Jain award of IIM Bangalore.
Professor Das has been featured in the top 5 percent productive management
researchers in India list (Source: Omega Journal, USA). He has been ranked
2nd (out of 3600 scholars) in the world in Retailing Journal Influences
Index from 2009–15 (Source: Ketron, Runyan, and Farris 2017, USA).
Professor Das has published research papers in several leading
International journals such as International Journal of Research in
Marketing; Journal of Retailing; Journal of Business Research; Journal
of Services Marketing; International Journal of Market Research; and
Journal of Business and Industrial Marketing. He is currently serving
as an Associate Editor of the Journal of Business Research and in the
Editorial Board of the International Journal of Research in Marketing,
and Journal of Services Marketing.
A01_WIRT9959_03_GE_FM.indd 14
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Contents
Preface
xxvi
Acknowledgments
xxxii
Part I:
1.
Understanding Service Markets, Products,
and Customers
Introduction to Services Marketing
4
Why Study Services?
7
Services Dominate the Global Economy
Most New Jobs are Generated by Services
Understanding Services Offers Personal Competitive Advantage
7
8
9
What are the Principal Industries of the Service Sector?
9
Contribution to Gross Domestic Product
9
Powerful Forces are Transforming Service Markets
B2B Services as a Core Engine of Economic Development
What are Services?
10
12
13
Benefits without Ownership
Defining Services
Service Products versus Customer Service and After-Sales Service
13
15
16
Four Broad Categories of Services—A Process Perspective
16
People Processing
Possession Processing
Mental Stimulus Processing
Information Processing
Services Pose Distinct Marketing Challenges
The 7 Ps of Services Marketing
2.
3
16
17
18
19
19
20
The Traditional Marketing Mix Applied to Services
The Extended Services Marketing Mix for Managing the Customer Interface
20
25
Marketing Must Be Integrated with Other Management Functions
The Service–Profit Chain
A Framework for Developing Effective Service Marketing Strategies
27
27
29
Consumer Behavior in a Services Context
40
The Three-Stage Model of Service Consumption
Pre-Purchase Stage
43
43
Need Awareness
Information Search
A01_WIRT9959_03_GE_FM.indd 16
43
44
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Evaluation of Alternative Services
Purchase Decision
Service Encounter Stage
Service Encounters are “Moments of Truth”
Service Encounters Range from High Contact to Low Contact
The Servuction System
Theater as Metaphor for Service Delivery:
An Integrative Perspective
Role and Script Theories
Perceived Control Theory
3.
55
56
57
Customer Satisfaction
Service Quality
Customer Loyalty
58
59
61
Positioning Services in Competitive Markets
70
Customer-Driven Services Marketing Strategy
73
Customer, Competitor, and Company Analysis (3Cs)
Segmentation, Targeting, and Positioning (STP)
73
74
Targeting Service Markets
Achieving Competitive Advantage through Focus
Principles of Positioning Services
Using Positioning Maps to Plot Competitive Strategy
An Example of Applying Positioning Maps to the Hotel Industry
Mapping Future Scenarios to Identify Potential Competitive Responses
Positioning Charts Help Executives Visualize Strategy
Developing an Effective Positioning Strategy
Applying the 4 Ps of Marketing to Services
75
76
77
77
77
81
83
83
87
89
89
97
Developing Service Products and Brands
98
Creating Service Products
100
What are the Components of a Service Product?
The Flower of Service
Facilitating Supplementary Services
Enhancing Supplementary Services
A01_WIRT9959_03_GE_FM.indd 17
52
53
54
57
Important versus Determinant Service Attributes
Segmenting Based on Service Levels
4.
52
Post-Encounter Stage
Segmenting Service Markets
Part II:
44
52
100
102
103
106
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Branding Service Firms, Products, and Experiences
Branding Strategies for Services
Tiering Service Products with Branding
Building Brand Equity
Delivering Branded Service Experiences
New Service Development
5.
110
112
114
115
116
A Hierarchy of New Service Categories
Achieving Success in New Service Development
116
119
Distributing Services through Physical
and Electronic Channels
128
Distribution in a Services Context
What is Being Distributed?
How Should a Service Be Distributed?
131
131
132
Customers Visit the Service Site
Service Providers Go to Their Customers
The Service Transaction is Conducted Remotely
Channel Preferences Vary among Customers
Channel Integration is Key
132
132
133
137
138
Where Should a Service Facility Be Located?
139
Strategic Location Considerations
Tactical Location Considerations
Innovative Location Strategies
When Should Service Be Delivered?
The Role of Intermediaries
Benefits and Costs of Alternative Distribution Channels
Franchising
Other Intermediaries
The Challenge of Distribution in Large Domestic Markets
Distributing Services Internationally
Factors Favoring Adoption of Transnational Strategies
Barriers to International Trade in Services
How to Enter International Markets
6.
110
139
140
141
143
143
143
146
148
149
149
149
152
152
Setting Prices and Implementing Revenue Management
162
Effective Pricing Is Central to Financial Success
164
Objectives for Establishing Prices
Pricing Strategy Stands on Three Foundations
Cost-Based Pricing
Value-Based Pricing
A01_WIRT9959_03_GE_FM.indd 18
164
164
164
167
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Reducing Related Monetary and Non-Monetary Costs
Competition-Based Pricing
Revenue Management: What It is and How It Works
Reserving Capacity for High-Yield Customers
How Can We Measure the Effectiveness of a Firm’s Revenue Management?
How Does Competitors’ Pricing Affect Revenue Management?
Price Elasticity
Designing Rate Fences
Fairness and Ethical Concerns in Service Pricing
Service Pricing is Complex
Piling on the Fees
Designing Fairness into Revenue Management
Putting Service Pricing into Practice
How Much Should be Charged?
What Should be the Specified Basis for Pricing?
Who Should Collect Payment and Where Should Payment be Made?
When Should Payment be Made?
How Should Payment be Made?
How Should Prices be Communicated to the Target Markets?
7.
182
182
184
184
187
187
187
192
192
193
194
Promoting Services and Educating Customers
204
Integrated Service Marketing Communications
Defining the Target Audience
Specifying Service Communication Objectives
206
208
208
Strategic Service Communications Objectives
Tactical Service Communications Objectives
Crafting Effective Service Communication Messages
Problems of Intangibility
Overcoming the Problems of Intangibility
The Services Marketing Communications Mix
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170
173
174
175
177
178
178
178
208
209
213
213
214
215
Communications Originate from Different Sources
Messages Transmitted through Traditional Marketing Channels
Messages Transmitted Online
Messages Transmitted through Service Delivery Channels
Messages Originating from Outside the Organization
217
217
220
226
227
Timing Decisions of Services Marketing Communications
Budget Decisions and Program Evaluation
Ethical and Consumer Privacy Issues in Communications
The Role of Corporate Design
Integrated Marketing Communications
233
233
234
235
237
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Part III:
8.
Managing the Customer Interface
Designing Service Processes
250
What is a Service Process?
Designing and Documenting Service Processes
252
252
Developing a Service Blueprint
Blueprinting the Restaurant Experience: A Three-Act Performance
Identifying Fail Points
Fail-Proofing to Design Fail Points out of Service Processes
Setting Service Standards and Targets
Consumer Perceptions and Emotions in Service Process Design
Service Process Redesign
Service Process Redesign Should Improve Both Quality and Productivity
254
255
262
263
265
266
267
268
Customer Participation in Service Processes
270
Customers as Service Co-Creators
Reducing Service Failures Caused by Customers
270
270
Self-Service Technologies
Customer Benefits and Adoption of Self-Service Technology
Customer Disadvantages and Barriers of Adoption of Self-Service Technology
Assessing and Improving SSTs
Managing Customers’ Reluctance to Change
9.
249
270
271
272
272
274
Balancing Demand and Capacity
282
Fluctuations in Demand Threaten Profitability
284
From Excess Demand to Excess Capacity
Building Blocks of Managing Capacity and Demand
284
285
Defining Productive Service Capacity
Managing Capacity
285
287
Stretching Capacity Levels
Adjusting Capacity to Match Demand
287
289
Understand Patterns of Demand
Managing Demand
290
292
Marketing Mix Elements Can Be Used to Shape Demand Patterns
Inventory Demand through Waiting Lines and Queuing Systems
Waiting Is a Universal Phenomenon
Managing Waiting Lines
Different Queue Configurations
Virtual Waits
Queuing Systems Can Be Tailored to Market Segments
Customer Perceptions of Waiting Time
The Psychology of Waiting Time
A01_WIRT9959_03_GE_FM.indd 20
294
296
296
296
298
300
300
302
302
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Inventory Demand through Reservations Systems
Reservations Strategies Should Focus on Yield
10.
305
Crafting the Service Environment
314
Service Environments—an Important Element
of the Services Marketing Mix
What is the Purpose of Service Environments?
316
316
316
316
318
319
The Theory behind Consumer Responses to Service Environments
321
Feelings Are a Key Driver of Customer Responses to Service Environments
The Servicescape Model–An Integrative Framework
321
323
Dimensions of the Service Environment
325
The Effect of Ambient Conditions
Spatial Layout and Functionality
Signs, Symbols, and Artifacts
People Are Part of the Service Environment Too
Putting It All Together
Design with a Holistic View
Design from a Customer’s Perspective
Tools to Guide Servicescape Design
326
330
330
331
332
332
334
335
Managing People for Service Advantage
344
Service Employees are Extremely Important
346
Service Personnel as a Source of Customer Loyalty and Competitive Advantage
346
Front-Line Work Is Difficult and Stressful
348
Service Jobs Are Boundary-Spanning Positions
Sources of Role Conflict
Emotional Labor
Service Sweatshops
348
349
350
351
Cycles of Failure, Mediocrity, and Success
352
The Cycle of Failure
The Cycle of Mediocrity
The Cycle of Success
Human Resource Management—How to Get It Right?
Hire the Right People
Tools to Identify the Best Candidates
Train Service Employees Actively
Empower the Front Line
Build High-Performance Service-Delivery Teams
A01_WIRT9959_03_GE_FM.indd 21
304
Create Alternative Use for Otherwise Wasted Capacity
Shape Customers’ Service Experiences and Behaviors
Signal Quality and Position, Differentiate, and Strengthen the Brand
Core Component of the Value Proposition
Facilitate the Service Encounter and Enhance Productivity
11.
304
352
354
355
356
356
359
361
365
369
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Integrate Teams across Departments and Functional Areas
Motivate and Energize People
Service Culture, Climate, and Leadership
374
Building a Service-Oriented Culture
A Climate for Service
Qualities of Effective Leaders in Service Organizations
Leadership Styles, Focus on the Basics, and Role Modeling
Focusing the Entire Organization on the Front Line
374
375
375
376
377
Developing Customer Relationships
389
Managing Relationships and Building Loyalty
390
The Search for Customer Loyalty
392
Part IV:
12.
371
372
Why Is Customer Loyalty So Important to a Firm’s Profitability?
Assessing the Value of a Loyal Customer
Worksheet for Calculating Customer Lifetime Value
The Gap between Actual and Potential Customer Value
Why Are Customers Loyal?
The Wheel of Loyalty
Building a Foundation for Loyalty
Target the Right Customers
Search for Value, Not Just Volume
Manage the Customer Base through Effective Tiering of Services
Customer Satisfaction and Service Quality Are Prerequisites for Loyalty
392
394
395
396
396
397
398
398
399
401
404
Strategies for Developing Loyalty Bonds with Customers
405
Deepen the Relationship
Encourage Loyalty through Financial and Non-financial Rewards
Build Higher-Level Bonds
406
406
410
Strategies for Reducing Customer Defections
Analyze Customer Defections and Monitor Declining Accounts
Address Key Churn Drivers
Implement Effective Complaint Handling and Service Recovery Procedures
Increase Switching Costs
Enablers of Customer Loyalty Strategies
Customer Loyalty in a Transactional Marketing Context
Relationship Marketing
Creating ‘Membership-type’ Relationships as Enablers for Loyalty Strategies
Customer Relationship Management
Common Objectives of CRM Systems
What Does a Comprehensive CRM Strategy Include?
Common Failures in CRM Implementation
How to Get CRM Implementation Right
A01_WIRT9959_03_GE_FM.indd 22
411
411
413
413
413
414
414
414
415
416
417
417
420
421
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13.
Complaint Handling and Service Recovery
432
Customer Complaining Behavior
434
Customer Response Options to Service Failure
Understanding Customer Complaining Behavior
What Do Customers Expect Once They Have Made a Complaint?
Customer Responses to Effective Service Recovery
439
Impact of Effective Service Recovery on Customer Loyalty
The Service Recovery Paradox
439
440
Principles of Effective Service Recovery Systems
Make It Easy for Customers to Give Feedback
Enable Effective Service Recovery
How Generous Should Compensation Be?
Dealing with Complaining Customers
Service Guarantees
Part V:
14.
441
441
443
444
445
447
The Power of Service Guarantees
How to Design Service Guarantees
Is Full Satisfaction the Best You Can Guarantee?
Is It Always Beneficial to Introduce a Service Guarantee?
Discouraging Abuse and Opportunistic Customer Behavior
Seven Types of Jaycustomers
Dealing with Customer Fraud
448
448
449
451
451
452
455
Striving for Service Excellence
467
Improving Service Quality and Productivity
468
Integrating Service Quality and Productivity Strategies
471
Service Quality, Productivity, and Profitability
What Is Service Quality?
Identifying and Correcting Service Quality Problems
The Gaps Model in Service Design and Delivery
Key Ways to Close the Gaps in Service Quality
Measuring Service Quality
471
472
473
473
474
477
Soft and Hard Service Quality Measures
477
Learning From Customer Feedback
477
Key Objectives of Effective Customer Feedback Systems
Use a Mix of Customer Feedback Collection Tools
Analysis, Reporting, and Dissemination of Customer Feedback
477
478
485
Hard Measures of Service Quality
Tools to Analyze and Address Service Quality Problems
487
490
Root Cause Analysis: The Fishbone Diagram
Pareto Analysis
Blueprinting–A Powerful Tool for Identifying Fail Points
A01_WIRT9959_03_GE_FM.indd 23
434
434
438
490
491
492
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Return on Quality
Assess Costs and Benefits of Quality Initiatives
Determine the Optimal Level of Reliability
Defining and Measuring Productivity
Defining Productivity in a Service Context
Measuring Productivity
Service Productivity, Efficiency, and Effectiveness
Improving Service Productivity
Generic Productivity Improvement Strategies
Customer-Driven Approaches to Improve Productivity
How Productivity Improvements Impact Quality and Value
15.
493
493
494
495
495
496
496
497
497
498
499
Integration and Systematic Approaches to Improving Service
Quality and Productivity
502
Systematic Approaches to Improving Service Quality and Productivity
Which Approach Should a Firm Adopt?
503
505
Building a World-Class Service Organization
516
Introduction
Creating a World-Class Service Organization
517
517
From Losers to Leaders: Four Levels of Service Performance
Moving to a Higher Level of Performance
Customer Satisfaction and Corporate Performance
Conclusion and Wrap-Up
Part VI:
Cases
Case 1
Case 2
Case 3
Case 4
Case 5
Case 6
Case 7
Case 8
Case 9
Case 10
Case 11
A01_WIRT9959_03_GE_FM.indd 24
517
521
522
522
530
Sullivan Ford Auto World
Dr. Beckett’s Dental Office
Uber: Competing as Market Leader in the United States
versus Being a Distant Second in China
Banyan Tree: Branding the Intangible
Kiwi Experience
The Accra Beach Hotel: Block Booking
of Capacity during a Peak Period
Revenue Management of Gondolas: Maintaining
the Balance between Tradition and Revenue
Aussie Pooch Mobile
Is Netflix’s Global Dominance a Force for Good or Bad?
Red Lobster
Singapore Airlines: Managing Human Resources for
Cost-Effective Service Excellence
532
538
543
551
561
570
575
579
590
595
597
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Case 12
Case 13
Case 14
Case 15
Case 16
Case 17
Dr. Mahalee Goes to London: Global Client Management
The Royal Dining Membership Program Dilemma
Customer Asset Management at DHL in Asia
The Myth of the Young Start-up Whizz
LUX*: Staging a Service Revolution in a Resort Chain
Where Millennials Turn for Financial Advice
607
609
616
620
623
639
The following cases are available for free download and class distribution
on the Instructor’s Resource Website for courses that adopt Essentials of
Services Marketing.
Case 18
Case 19
Case 20
Case 21
Case 22
Case 23
Case 24
Case 25
Case 26
Case 27
Case 28
Case 29
Case 30
Susan Munro, Service Consumer
Bouleau & Huntley
Hotel Imperial
Jollibee Foods Corporation
TLContact: Care Pages Service (A + B)
Giordano: Positioning for International Expansion
Revenue Management at Prego Italian Restaurant
Managing Word-of-Mouth: Referral Incentive Program
that Backfired
Menton Bank
Massachusetts Audubon Society
Bossard Asia Pacific: Can It Make Its CRM Strategy Work?
The Broadstripe Service Guarantee
NLB
Glossary645
Credits655
Name Index 659
Subject Index
661
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Preface
Services dominate the expanding world economy as never before, and technology continues
to evolve in dramatic ways. Established industries and old, illustrious companies decline
and may even disappear as new business models and industries emerge. Competitive
activity is fierce, with firms often using new strategies and technologies to respond to
changing customer needs, expectations, and behaviors. This book has been written in
response to the global transformation of our economies to services. Clearly, the skills in
marketing and managing services have never been more important!
As the field of services marketing has evolved, so too has this book. This new edition has
been revised significantly since the 2nd edition. It captures the reality of today’s world,
incorporates recent academic and managerial thinking, and illustrates cutting-edge service
concepts.
This book is an adaptation of Essentials of Services Marketing, 3rd edition (Pearson, 2018).
It has been significantly condensed and sharpened to provide a crisp introduction to key
topics in services marketing. In addition, the case selection, visuals, and design are meant
to appeal to undergraduate students and professionals.
WHAT’S NEW IN THIS EDITION?
The 3rd edition represents a significant revision. Its contents reflect ongoing developments
in the service economy, dramatic developments in technology, new research findings, and
enhancements to the structure and presentation of the book in response to feedback from
reviewers and adopters.
New Structure, New Topics
➤➤ Almost all chapters are now structured around an organizing framework that provides
a pictorial overview of the chapter’s contents and line of argument.
➤➤ New applications of technology are integrated throughout the text, ranging from
apps, M-commerce and social networks, to robots, artificial intelligence, and biometrics.
➤➤ Each of the 15 chapters has been revised. All chapters incorporate new examples and
references to recent research. Significant changes in chapter content are highlighted
below.
➤➤ Chapter 1, “Introduction to Services Marketing,” now explores the nature of the
modern service economy more deeply and covers B2B services, outsourcing, and
offshoring. Furthermore, the Service-Profit Chain was moved here to serve as a guiding
framework for the book (it was featured in Chapter 15 in the previous edition).
➤➤ Chapter 2, “Consumer Behavior in a Services Context,” also covers the postconsumption behaviors, including service quality, its dimensions and measurement
A01_WIRT9959_03_GE_FM.indd 26
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(including SERVQUAL), and how quality relates to customer loyalty. This section was
in Chapter 14 in the previous edition.
➤➤ Chapter 7, “Promoting Services and Educating Customers,” is now tightly organized
around the 5 Ws model, a new section on the services marketing communications
funnel was added, and the coverage of new media (including social media, mobile,
apps, and QR codes) was significantly expanded.
➤➤ Chapter 8, “Designing Service Processes,” has a new section on emotionprints and
covers service blueprinting in more depth.
➤➤ Chapter 11, “Managing People for Service
Advantage,”
,” has new sections on a serviceoriented culture, how to build a climate for
service, and effective leadership in service
organization and leadership styles. Part
of this content was previously covered in
Chapter 15.
customer while provi
ding customers a
clear idea in advan
can expect to pay.
ce of how much they
Unbundled pricin
g provides customers
choose what to buy
with the freedom
and pay for. How
to
ever, customers may
discover that the
be angered if they
actual price of what
they consume, infl
is substantially highe
ated by all the “extr
r than the advertised
as,”
base price that attrac
first place.23
ted them in the
➤➤ Chapter 14, “Improving
Improving Service Quality
and Productivity,”
,” now integrates key
concepts in the main body of the chapter
instead of the appendix as in the earlier
edition. These are TQM, ISO 9000, Six Sigma,
and the Malcolm-Baldrige and EFQM.
➤➤ Chapter 15, “Building a Service Organization
that Wins,” was completely restructured
to provide a recap and integration of the
key themes of Services Marketing, 8th
edition. It now features an auditing tool to
assess the service level of an organization.
It emphasizes the impact of customer
satisfaction on long-term profitability and
closes with a call to action.
Freemium. Over
the past decade,
“freemium” (a comb
“premium”) has
ination of “free”
become a popular
and
pricing strategy
services. Users get
for online and mobi
the basic service
le
at no cost (typically
and can upgrade
funded by advertisin
to a richer functional
g)
ity for a subscriptio
shared files on Drop
n fee. If you have
box, networked
on LinkedIn, or
Spotify, you have
streamed music
experienced this
from
business model fi
for technology and
rst hand. As marg
bandwidth are drop
inal costs
ping, freemium mode
become more attrac
ls are likely to
tive. 24
Applying the 4 Ps of
M06_WIRT9959_03_GE_
PART II
Discounting. Selec
tive price discountin
g targeted at speci
can offer important
fic market segments
opportunities to attrac
t new customers and
would otherwise
go unused. However,
fill capacity that
unless it is used with
that allow specifi
effective rate fence
c segments to be
s
targe
ted
should be approached
cleanly, a strategy
of discounting
with caution.
figure 6.25 Shipm
ent
are typically charg of goods
ed
combination of distan by a
kilometers, or zones ce (miles,
) and
weight or size (such
as cubic
volume)
Marketing to Servic
C06.indd 191
es 191
5/13/2019 1:07:24
PM
NEW TO THE INDIAN EDITION
➤➤ Contains the most relevant contexts of services marketing based on Indian perspective
through relevant examples, theoretical questions, practical exercises, activities and
references.
➤➤ Real-life cases based on the Indian market context.
➤➤ Simple demonstration with appropriate figures/images for better understanding.
➤➤ The book also shares an overview of other global services marketing aspects.
➤➤ Includes a series of global and local examples in colourful crisp presentation.
A01_WIRT9959_03_GE_FM.indd 27
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FOR WHAT TYPES OF COURSES CAN THIS BOOK BE USED?
This text is suitable for courses directed at undergraduate and polytechnic students
equally. Essentials in Services Marketing places marketing
issues within a broader general management context. The
book will appeal to students heading for a career in the service sector, whether at the
executive or management level.
Whatever the job is in the services industry, a person has to understand the close ties that
link the marketing, operations, and human resources functions in service firms. With that
perspective in mind, we have designed the book so that instructors can make selective use
of chapters and cases to teach courses of different lengths and formats in either services
marketing or services management.
WHAT ARE THE BOOK’S DISTINGUISHING FEATURES?
The third edition of ESM retains some of the
key features that have made it successful, and
improves on other aspects of the textbook to
help students understand services marketing
more effectively. These features include the
following:
Why Study Serv
ices
• Services dom
inate the glob
• Most new jobs
al economy
• Understandi are generated by services
ng services
offers personal
competitive
advantage
Service Sec
ices
tor Industrie
s
In order of cont
ribution to India
• Government
n GDP:
services
• Real estate
• Business and
professional
• Wholesale
services
and retail trad
e
• Transport,
utilit
• Finance and ies, and communications
insurance
• Healthcare
serv
• Accommodat ices
ion
• Arts, entertain and food services
ment, and recr
• Other priva
eation services
te sector serv
ices
➤➤ You’ll find that this text takes a strongly
managerial perspective, yet is rooted in
solid academic research,, complemented
by memorable frameworks. Our goal is to
bridge the all-too-frequent gap between
theory and the real world.
Categories of
Services Pos
e Distinct Mar
keting Challen
Services tend
ges
to
heterogeneity have four frequently cited
(variability of
characteristic
quality), inse
consumption,
s: intangibility,
parability of
and perishab
prod
ility of output,
of these feat
ures include:
or IHIP for shor uction and
• Most services
t. Key implicati
ons
cann
ot
be inventoried
• Intangible elem
(i.e., output is
ents typically
peri
shab
physically intan
dominate valu
e creation (i.e., le)
• Services are gible)
services are
often difficult
to understand
intangible)
(i.e., services
• Customers
are mentally
are often invo
lved in co-produ
involved, the
ction (i.e., if peop
service in inse
parable)
• People (ser
le processing
vice employe
is
es) may be part
experience
of the service
• Operational
product and
inpu
are heteroge ts and outputs tend to vary
neous)
more widely
• The time fact
(i.e., services
or often assu
mes great impo
management)
rtance (e.g.,
capacity
• Distribution
may
(e.g., informati take place through nonp
hysical chan
on processing
nels
services)
General Tren
ds
• Government
policies
• Social chan
ges
• Business tren
ds
• Advances in
IT
• Globalization
B2B Services
Growth
• Outsourcing
• Offshoring
• Firms increasi
ng focus on
core
competencie
s
• Increasing
specialization
of economie
• Increasing
s
productivity
through R&D
Functions
Need to be tight
ly
integrated as
together
they shape the
customer
experience,
especially:
• Marketing
• Operations
• Human reso
urces
• Information
technology
Service-Profi
t Chain
Shows the tight
links
between
• Leadership
• Internal qual
ity
• Employee enga and IT
gem
ent
• Customer valu
e,
satisfaction,
and loyalty
• Profitability
and growth
Figure 1.3 An
6 Chapter 1 • Intro
duction to Serv
M01_WIRT
9959_03_GE
_C01.indd
Services
by Type of Proc
• People proc
essing
essing (e.g.,
pass
• Possession
processing (e.g. enger transport, hairstyli
ng)
• Mental stim
ulus processin , freight transport, repair
g (e.g.
services)
• Information
processing (e.g. , education)
, accounting)
Key Trends
➤➤ The text is organized around an integrated
framework the reader immediately can
relate to. The framework cascades across
the entire book. Furthermore, each
chapter provides a succinct chapter
overview in pictorial form.
➤➤ We worked hard to create a text that is
clear, readable, and focused.
Definition of
Serv
• Services prov
ide benefits
with
• Services are
economic activ out ownership
time-based,
ities perform
thes
ed by
objects, or othe e performances bring abou one party to another.
Often
r
t desired resu
customers expe assets. In exchange for
lts to recipien
money, time
ct value from
, and effort, serv ts,
facilities, netw
access to labo
ice
orks, and syst
r, skills, expe
ems.
rtise, goods,
Putting Serv
ice Strategy
into
This books is
Action
structured arou
services mar
keting and man nd an integrated model of
• Understandin
agement that
covers:
g Service Prod
• Applying the
ucts
4 Ps of Marketin , Consumers and Markets
• Designing and
g
Managing the to Services
additional 3
Ps of Services Customer Interface usin
g the
Marketing (Pro
Physical Envi
ronment)
cess, People,
• Developing
and
Customer Rela
tionships
• Striving for
Service Exce
llence
introduction
to services mar
keting
ices Marketin
g
6
➤➤ ➤An easy-to-read text that works hand-in-hand with visuals that make
important concepts accessible.
5/13/2019 11:16:
21 AM
➤➤ A
➤ global perspective. Examples were carefully selected from America, Europe and Asia.
➤➤ ➤Systematic learning approach. Each chapter has clear learning objectives, an
organizing framework that that provides a quick overview of the chapter’s contents
A01_WIRT9959_03_GE_FM.indd 28
5/18/2019 1:32:35 PM
➤➤ ➤Opening vignettes and boxed inserts within the
chapters are designed to capture student interest
and provide opportunities for in-class discussions.
They describe significant research findings, illustrate
practical applications of important service marketing
concepts, and describe best practices by innovative
service organizations.
OPENING VIGNETTE
too little, too late—JetBlue’s service recovery1
A terrible ice storm in the East Coast of the United States
caused hundreds of passengers to be trapped for 11 hours
inside JetBlue planes at the John F. Kennedy International
Airport in New York. These passengers were furious because
JetBlue personnel did nothing to get them off the planes. In
addition, JetBlue cancelled more than 1,000 flights over six
days, leaving even more passengers stranded. This incident
cancelled out much that JetBlue had done right to become
one of the strongest customer service brands in the United
States. The company was going to be ranked number four
by Business Week in a list of top 25 customer service leaders
but was pulled from the rankings due to this service failure.
What happened?
There was no service recovery plan. No one—not the pilot, the
flight attendants, or the station manager—had the authority
to get the passengers off the plane. JetBlue’s offer of refunds
and travel vouchers did not seem to reduce the anger of the
passengers who had been stranded for so many hours. David
Neeleman, JetBlue’s CEO at the time, sent a personal e-mail
to all customers in the company’s database to explain what
caused the problem, apologize profusely, and detail its service
recovery efforts. He even appeared on late-night television
to apologize, and he admitted that the airline should have
had better contingency planning. However, the airline still
had a long way to go to repair the damage done.
Gradually, JetBlue rebuilt its reputation, starting with its
new Customer Bill of Rights. The bill required the airline
Figure 13.2 JetBlue’s new Customer Bill of Rights
and publicity campaigns involving the Simpsons were
measures taken to win customers back
to provide vouchers or refunds in certain situations when
flights were delayed. Neeleman also changed JetBlue’s
information systems to keep track of the locations of its crew
and trained staff at the headquarters to help out at the airport
when needed. All these activities were aimed at helping the
company climb its way back up to the heights it fell from.
By 2014, JetBlue Airways was back on the list of J. D. Power
Customer Service Champions for many consecutive years.
(J. D. Power and Associates conducts customer satisfaction
research based on survey responses from
millions of customers worldwide.) This
showed that JetBlue’s customers had
finally forgiven its service failure and were
supporting its efforts to deliver continued
service excellence.
PART IV
and line of argument, and chapter summaries in
bullet form that condense the core concepts and
messages of each chapter.
Developing Customer Relationships 433
M13_WIRT9959_03_GE_C13.indd 433
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What Aids Are Available for Instructors?
We have developed pedagogical aids to help instructors develop and teach courses built
around this book and to create stimulating learning experiences for students both in and
out of the classroom.
Teaching Aids within the Text
➤ An opening vignette, which highlights key issues discussed in the chapter
➤ Learning objectives and milestone markers for these when a section provides material
that meet these learning objectives
➤ Boxed inserts throughout the chapters, which often lend themselves well to in-class discussion
➤ Interesting graphics, photographs, and reproductions of advertisements, which
enhance student learning, provide opportunities for discussion, and add a visual
appeal
➤ Key words, which help to reinforce important terms and concepts
➤ Chapter summaries, which meet each chapter’s learning objectives
➤ Review Questions and Application Exercises located at the end of each chapter
CHAPTER SUM
MARY
KNOW YOUR SE
on personal
umers rely more
However, cons
is high and
the perceived risk
channels when
behind the
social motives
when there are
transaction.
service
use different
rs are likely to
(e.g.,
LO 6 u Custome with the same service organization nels
channels
ut of chan
use the entire gam
and websites
bank customers
apps
ing
bank
ile
ranging from mob
). Thus, channel
ches
bran
bank
consistent
to ATMs and
ntial for delivering
integration is esse experiences.
ice
and seamless serv
is an
delivered? This
be
ice
serv
should
that require
LO 7 u Where
ion for services
important decis
physical locations.
involved
are
tions
idera
location cons
o First, strategic
ral part of the
ion is an integ
as the site locat
ion strategy
strategy. The locat
overall service
marketing
t with the firm’s
must be consisten
ctations of
expe
needs and
strategy and the
mers.
its target custo
iderations are
cal location cons
c sites. They
o Second, tacti
between specifi
ristics;
used to choose
size and characte
lation
popu
include
petitors in
of access; com
ce
enien
conv
bility
traffic;
y businesses; availa
nearb
of
e
natur
the area;
, conditions,
; and rental costs
systems
of labor and sites
raphic information
and regulation. Geog used to help firms make
ently
frequ
(GISs) are
decisions.
specific location
online).
as a need for
constraints such of high fixed
physical location
ices require a
o Locational
, because
this severely
Some core serv
omy of scale (e.g. d medical facilities)
econ
ing services), and
cess
onle-pro
ialize
mati
(e.g., peop
such as in spec
n. However, infor
costs
, airports or
ibutio
(e.g.
distr
ents
their
requirem
restricts
supplementary
and operational
ion choice.
ices and many
tely.
rs) limit a firm’s locat
based core serv
delivered remo
distribution cente
distributed and
can be at the
services can be
ion strategies
locat
e
e
onlin
vativ
,
nt trends
tions
o Inno
ice models. Rece space
in telecommunica
serv
new
ted
ents
of
lopm
istica
core
retail
soph
LO 4 u Deve
, the sharing of
ice apps, and
location
include ministores
technology, serv
innovations in
providers, and the
have spurred
ntary
ions
leme
solut
comp
with
logistics
facilities (e.g.,
multi-purpose
delivery.
of services in
remote service
ping malls).
products and
shop
core
in
s
ased
clinic
ion-b
locating
information,
o All informat
services (i.e.,
supplementary
be delivered?
and payment)
should service
r taking, billing,
ing hours of a
LO 8 u When
consultation, orde
ices can be
determining open
ession-based serv
needs and
o Key factors
and many poss
include customer
s
tely.
service channel
delivered remo
s of opening hour
ery
deliv
omic
ice
econ
serv
the
of
wants and
ble costs of
of the growth
ce, (2) ease
a facility, varia
o Key drivers
(fixed costs of
are (1) convenien
mental sales or
incre
ntial
s,
pote
via cyberspace
hour
(4)
ing
extending open
broader selection,
ntial operational
pote
with
and
ice
of search, (3) a
cted,
serv
contribution expe
s, and (5) 24/7
and from peak
for lower price
by shifting dem
gains achieved
s).
prompt delivery.
nded opening hour
periods to exte
ting
channel choice:
rd extended opera
ice
r preferences drive
is now a move towa
ome
There
Cust
often
o
y
u
savv
goal of 24/7 serv
LO 5
are technologically
with the ultimate
s,
who
achieved
rs
hour
ter
ome
often
grea
is
o Cust
This
to the
channels due
day of the year.
y.
y
te
nolog
ever
lly
remo
r
tech
usua
e
prefe
ervic
mers
offer. Such custo
the use of self-s
gh
they
ce
throu
the
t
enien
abou
conv
e in and knowledge
have confidenc
the channel.
service and/or
o
Review Questio
ns
1.
2.
PART II
s to
When? Response
How? Where?
foundation of any
LO 1 u What?
tions form the
these four ques
egy.
strat
n
ibutio
service distr
el of
The Flow Mod
is distributed?
the Flower of
LO 2 u What
be mapped onto
Distribution can
following flows
and includes the
ept
conc
ice
Serv
ibution:
the
of service distr
flows (includes
and promotion
consultation
o Information
potentially the
information and
petals)
g and
takin
r
orde
the
flow (includes
s as well)
o Negotiation
and payment petal
potentially the billing
product and
(includes the core
of Service)
o Product flow
ls of the Flower
peta
ining
rema
the
all
encompasses
ibution strategy
A service distr
three flows.
Services can
d?
ibute
distr
services be
LO 3 u How canibuted through three main modes:
lebe distr
site (e.g., for peop
visit the service
MRI scan).
o Customers
ices such as an
processing serv
mers (e.g.,
go to their custo
iders
prov
ice
services).
o Serv
private banking
for high net-worth
ucted remotely
actions are cond
l insurance
o Service trans
trave
g
buyin
for
or
(i.e., for Skype
Applying the 4
Ps of Marketing
3.
4.
5.
H05.indd 145
A01_WIRT9959_03_GE_FM.indd 30
What is meant
by “distributing
services?” How
can an experienc
e or somethin
g intangible be
distributed?
Why is it impo
rtant to consider
the distribution
core and supp
of
lementary serv
ices both sepa
and jointly?
rately
What are the diffe
rent options for
service delivery?
What factors
do service firms
need to take
account when
into
using each of
these options?
What are the key
factors driving
the place and time
decisions of serv
ice distribution?
What risks and
opportunities
does a retail serv
firm face when
ice
it adds electronic
channels of deliv
(a) paralleling a
ery
channel involving
physical stores
(b) replacing the
or
physical store
s with a combine
internet and call
d
center channel?
Give examples
.
WORK YOUR SE
RVICES MARKE
Application Exer
cises
1.
2.
to Services 145
PM
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9781292089959_C
RVICES MARKE
148 Chapter 5 •
An entrepreneur
is
service business thinking of setting up a new
(you can choo
business). Wha
se any specific
t advice would
you offer regarding
distribution strat
the
egy for this busin
ess?
What? How? Whe
re? When? of serv Address the
ice distribution.
Think of three serv
ices you buy or
use either mos
or exclusively
tly
via the internet.
What is the value
proposition of
this channel over
alternative chan
(e.g., phone, mail
nels
, or branch netw
ork)?
Distributing Servi
ces through Physi
cal and Electronic
6.
7.
8.
Why should serv
ice marketers
be concerned
new developm
with
ents in mobile
communicatio
ns?
What marketing
and managem
ent challenges
raised by the
are
use of intermed
iaries in a serv
setting?
ice
Why is franchis
ing a popular
way to expa
distribution of
nd
an effective serv
ice concept? Wha
are some disad
t
vant
can they be mitig ages of franchising, and how
ated?
9.
What are the
key drivers for
the increasing
globalization of
services?
10. What fact
ors do service
companies nee
understand in orde
d to
r to choose a distr
for going internatio
ibution strategy
nal that still allow
intellectual prop
s it to control its
erty and sources
of value creation?
TING
3.
4.
TING
What advice
would you give
to (a) a weig
reduction clinic
ht
, (b) a pest cont
rol company, and
a university offer
(c)
ing undergrad
uate courses abou
going internatio
t
nal?
Which strategy
for entering a
new internatio
market should
nal
(a) an architect
ural design firm,
an online disc
(b)
ount
channel consider, broker, and (c) a satellite TV
and why?
Channels
9781292089959_C
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PM
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Pedagogical Materials Available from the Publisher
Case Bank: A large set of additional cases that can be used in courses that adopt this
textbook. Available in both Word and PDF versions as a resource for instructors. A table
shown in the textbook will suggest which cases to pair with which chapters.
Instructor’s Manual: A repository of detailed course design and teaching hints, including
sample course outlines; chapter-by-chapter teaching suggestions, plus discussion of
learning objectives and sample responses to study questions and exercises; suggested
student exercises and comprehensive projects (designed for either individual or team work);
detailed case teaching notes, including teaching objectives, suggested study questions, indepth analysis of each question, and helpful hints on teaching strategy designed to aid
student learning, create stimulating class discussions, and help instructors create end-ofclass wrap-ups and “takeaways.”
Test Bank: Multiple choice True/False, short-answer, and essay questions, with page
references and difficulty level provided for each question. Contents are classified into
general and application. This is available in TestGen format, a test-generating program,
which allows instructors to add, edit, or delete questions from the test item file; analyze
test results; and organize a database of exams and student results.
PowerPoint Slides: The slides are linked to each chapter and featuring both “word”
slides and graphics. All slides have been designed to be clear, comprehensible, and easily
readable.
A01_WIRT9959_03_GE_FM.indd 31
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PA R T
ww
I
THE ESM
FRAMEWORK
PART I
Understanding Service Markets, Products, and
Customers
• Introduction to Services Marketing
• Consumer Behavior in a Services Context
• Positioning Services in Competitive Markets
PART II
PART III
PART IV
Applying the 4 Ps of
Marketing to Services
Managing the Customer
Interface
Developing Customer
Relationships
• Developing Service Products
and Brands
• Distributing Services through
Physical and Electronic
Channels
• Setting Prices and
Implementing Revenue
Management
• Promoting Services and
Educating Customers
• Designing Service
Processes
• Balancing Demand and
Capacity
• Crafting the Service
Environment
• Managing People for Service
Advantage
• Managing Relationships and
Building Loyalty
• Complaint Handling and Service
Recovery
PART V
Striving for Service Excellence
• Improving Service Quality and Productivity
• Building a World-Class Service Organization
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Part I lays the building blocks for studying services
and learning how one can become an effective
service marketer. It consists of the following three
chapters:
I
PA R T
Understanding Service Markets,
Products, and Customers
Chapter 1 Introduction to Services Marketing
Chapter 1 highlights the importance of services in our economies. We also define the nature of
services and how they create value for customers without transfer of ownership. The chapter
highlights some distinctive challenges involved in marketing services and introduces the 7 Ps of
services marketing.
The framework shown in Figure 1.1 on the facing page will accompany us throughout as it
forms the basis for each of the four parts in this book. It describes in a systematic manner of what
is involved in developing marketing strategies for different types of services. The framework is
introduced and explained in Chapter 1.
Chapter 2 Consumer Behavior in a Services Context
Chapter 2 provides a foundation for understanding consumer needs and behavior related to services.
The chapter is organized around the three-stage model of service consumption that explores how
customers search for and evaluate alternative services, make purchase decisions, experience and
respond to service encounters, evaluate service performance, and finally, develop loyalty.
Chapter 3 Positioning Services in Competitive Markets
Discusses how to develop a customer-driven services marketing strategy and how a value proposition
should be positioned in a way that creates competitive advantage for the firm. This chapter first
links the customer, competitor, and company (commonly referred to as 3 Cs) analysis links to a
firm’s positioning strategy. The core of the chapter is then organized around the three key elements
of positioning—segmentation, targeting and positioning (commonly referred to as “STP”)—and
shows how firms can segment a service market, position their value proposition and finally focus on
attracting their target segment.
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CHAPTER
1
introduction to
SERVICES
MARKETING
leArning oBJecTives (los)
By the end of this chapter, the reader should be able to:
lo 1 Understand how services contribute to
a country’s economy.
lo 2 Know the principal industries of the
service sector.
lo 3 Identify the powerful forces that are
transforming service markets.
lo 4 Understand how B2B services improve
the productivity of individual firms and
drive economic development.
lo 5 Define services using the
non-ownership framework.
lo 6 Identify the four broad “processing”
categories of services.
lo 7 Be familiar with the characteristics of
services and the distinctive marketing
challenges they pose.
lo 8 Understand the components of the
traditional marketing mix applied to
services.
lo 9 Describe the components of the
extended marketing mix for managing
the customer interface.
lo 10 Appreciate that marketing, operations,
and human resource management
functions need to be closely integrated
in service businesses.
lo 11 Understand the implications of the
Service–Profit Chain for service
management.
lo 12 Know the framework for developing
effective services marketing strategies.
Figure 1.1 Tertiary education may be one
of the biggest service purchases in life
4 Chapter 1 • Introduction to Services Marketing
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PART I
OPENING VIGNETTE
introduction to the world of services marketing
Like every reader of this book, you’re an experienced
service consumer. You use an array of services every
day, although some—like talking on the phone, using a
credit card, riding a bus, downloading music, using the
Internet, or withdrawing money from an ATM—may be
so routine that you hardly notice them unless something
goes wrong. Other service purchases may involve more
thought and be more memorable—for instance, booking
a cruise vacation, getting financial advice, or having a
medical examination.
Suppliers of services, who often face stiff competition, appear
to have a very different set of concerns. Many owners and
managers complain about how difficult it is to find skilled
and motivated employees, to keep costs down and make a
profit, or to satisfy customers who, they sometimes grumble,
have become unreasonably demanding. Fortunately, there are
service companies that know how to please their customers
even as they run productive and profitable operations. Often,
their services are made available through user-friendly selfservice technologies, websites, and apps.
Enrolling in college may be one of the biggest service
purchases you will ever make. The typical university is a
complex service organization that offers not only educational
services, but also libraries, student accommodation, healthcare, athletic facilities, museums, security, counseling, and
career services. On campus, you may find a bookstore,
a bank, a post office, a photocopying shop, Internet cafes,
a grocery store, entertainment, and more.
You probably have a few favorite firms whose services
you like to purchase. Have you ever stopped to think about
the way they succeed in delivering services that meet and
sometimes even exceed your expectations? This book will
show you how service businesses can be managed to satisfy
customers and generate profits at the same time. In addition
to studying key concepts, organizing frameworks, and tools
of services marketing, you will also be introduced to many
examples from firms across India and around the world.
From the experiences of other firms, you can draw important
lessons on how to succeed in increasingly competitive
service markets.
Your use of these services is an example of service consumption
at the individual or business-to-consumer (B2C) level. Organizations also use many business-to-business (B2B) services,
which usually involve purchases on
a much larger scale than those made
by individuals or households.
Unfortunately, consumers aren’t
always happy with the quality and
value of the services they receive. Both
individual and corporate consumers
complain about broken promises, poor
value for money, rude or incompetent
personnel, inconvenient service
hours, bureaucratic procedures,
wasted time, malfunctioning selfservice technologies, complicated
websites, or a lack of understanding
of their needs.
Figure 1.2 Happy vacationers
clicking a photo in front of the
Taj Mahal
Understanding Service Markets, Products, and Customers 5
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Why Study Services
• Services dominate the global economy
• Most new jobs are generated by services
• Understanding services offers personal
competitive advantage
Definition of Services
• Services provide benefits without ownership
• Services are economic activities performed by one party to another. Often
time-based, these performances bring about desired results to recipients,
objects, or other assets. In exchange for money, time, and effort, service
customers expect value from access to labor, skills, expertise, goods,
facilities, networks, and systems.
Service Sector Industries
In order of contribution to Indian GDP:
• Government services
• Real estate
• Business and professional services
• Wholesale and retail trade
• Transport, utilities, and communications
• Finance and insurance
• Healthcare services
• Accommodation and food services
• Arts, entertainment, and recreation services
• Other private sector services
Key Trends
General Trends
• Government policies
• Social changes
• Business trends
• Advances in IT
• Globalization
B2B Services Growth
• Outsourcing
• Offshoring
• Firms increasing focus on core
competencies
• Increasing specialization of economies
• Increasing productivity through R&D
Categories of Services by Type of Processing
• People processing (e.g., passenger transport, hairstyling)
• Possession processing (e.g., freight transport, repair services)
• Mental stimulus processing (e.g., education)
• Information processing (e.g., accounting)
Services Pose Distinct Marketing Challenges
Services tend to have four frequently cited characteristics: intangibility,
heterogeneity (variability of quality), inseparability of production and
consumption, and perishability of output, or IHIP for short. Key implications
of these features include:
• Most services cannot be inventoried (i.e., output is perishable)
• Intangible elements typically dominate value creation (i.e., services are
physically intangible)
• Services are often difficult to understand (i.e., services are mentally
intangible)
• Customers are often involved in co-production (i.e., if people processing is
involved, the service in inseparable)
• People (service employees) may be part of the service product and
experience
• Operational inputs and outputs tend to vary more widely (i.e., services
are heterogeneous)
• The time factor often assumes great importance (e.g., capacity
management)
• Distribution may take place through nonphysical channels
(e.g., information processing services)
Functions
Service-Profit Chain
Putting Service Strategy into Action
Need to be tightly
integrated as together
they shape the customer
experience, especially:
• Marketing
• Operations
• Human resources
• Information
technology
Shows the tight links
between
• Leadership
• Internal quality and IT
• Employee engagement
• Customer value,
satisfaction, and loyalty
• Profitability and growth
This books is structured around an integrated model of
services marketing and management that covers:
• Understanding Service Products, Consumers and Markets
• Applying the 4 Ps of Marketing to Services
• Designing and Managing the Customer Interface using the
additional 3 Ps of Services Marketing (Process, People, and
Physical Environment)
• Developing Customer Relationships
• Striving for Service Excellence
Figure 1.3 An introduction to services marketing
6 Chapter 1 • Introduction to Services Marketing
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lo 1
C
Understand how services
contribute to a country’s
economy.
onsider this paradox: we live in a service-driven economy, yet most business
schools continue to teach marketing from a manufacturing perspective. If
you have already taken a course in marketing, you have probably learned about
marketing manufactured products rather than services. Fortunately, a growing
and enthusiastic group of scholars, consultants, and educators, including the
authors of this book, has chosen to focus on services marketing. This book aims
to provide you with the knowledge and skills that are necessary and relevant in
tomorrow’s business environment.
Services Dominate the Global
Economy
The size of the service sector is increasing in almost all
countries around the world. As an economy develops,
the relative share of employment between agriculture,
industry, and services changes dramatically.1 Even in
emerging economies, the service output represents at
least half of the Gross Domestic Product (GDP). Figure
1.4 shows how an economy becomes increasingly
service-dominated over time as the per capita income
rises. In Figure 1.5, we see that the service sector
already accounts for almost two-thirds of the value of
the global GDP.
Figure 1.6 shows the relative size of the service sector
in various large and small economies. Services account
for 65% to 80% of the GDP in most developed nations.
One exception is South Korea, a manufacturing-oriented
country, whose service sector contributes only 58%
to the GDP. Jersey, the Bahamas, and Bermuda—all
small islands with a similar economic mix—are home
to the world’s most service-dominated economies.
Luxembourg (88%) has the most service-dominated
economy in the European Union. Panama’s strong
showing (82%) reflects not only the operation of
the Panama Canal, but also related services such as
container ports, flagship registry, and a free port zone,
as well as financial services, insurance, and tourism
(Figure 1.7). The contribution of service sector in India
has increased to 62% as the income of people has
increased, and more services related to IT, finance,
telecommunications etc., are growing.
PART I
wHY sTuDY services?
Agriculture
services
Share of
Employment
Industry
Time, Per Capita Income
Figure 1.4 Changing structure of employment as an economy
develops
SOURCE
International Monetary Fund, 1997.
Agriculture 15%
Services 62%
Industry 23%
Figure 1.5 Contribution of services industries to GDP
globally
SOURCE
On the opposite end of the scale is China (46%),
an emerging economy dominated by a substantial
Data from The World Factbook 2016, Central Intelligence Agency, www.cia.gov,
accessed 9 December, 2018.
Understanding Service Markets, Products, and Customers 7
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size of service sector
in selected countries
as a Percentage of gDP
country
size of service sector
in selected countries
as a Percentage of gDP
Jersy
96%
South Africa
67%
Bermuda
93%
Brazil
73%
Hong Kong
92%
Israel
69%
Bahamas
90%
Turkey
61%
Luxembourg
88%
Poland
57%
Barbados
94%
Argentina
61%
Singapore
75%
Chile
64%
USA
80%
Mexico
64%
UK
80%
Russia
62%
France
78%
India
62%
Panama
82%
Philippiness
60%
Belgium
78%
Bangladesh
57%
Australia
70%
Malaysia
55%
Germany
70%
China
52%
Japan
69%
Thailand
56%
Switzerland
74%
Indonesia
46%
Canada
70%
Laos
46%
Fiji
72%
Saudi Arabia
53%
Taiwan
62%
Croatia
63%
country
Figure 1.6 Estimated size of the service sector in selected countries as a
percentage of GDP
SOURCE
Data from ‘The World Factbook 2016.’ Central Intelligence Agency, www.cia.gov, accessed 8th December, 2018.
agricultural sector as well as booming manufacturing and
construction industries. However, China’s economic growth
is now leading to an increase in demand for business and
consumer services.
Most New Jobs Are Generated
by Services
Figure 1.7 The Panama
Canal forms the backbone of
Panama’s service economy
Due to the rapid growth of the service sector in virtually all
countries around the world, new job creation comes mainly
from services. Service jobs do not just refer to relatively low-paid
front-line jobs. Rather, some of the fastest economic growth
is in knowledge-based industries, such as professional and
business services, education, and healthcare.2 These well-paid jobs require good
educational qualifications and offer attractive careers.
8 Chapter 1 • Introduction to Services Marketing
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PART I
Understanding Services Offers Personal
Competitive Advantage
This book is in response to the global transformation of our economies toward
services. It discusses the distinctive characteristics of services and the ways
in which they affect both customer behavior and marketing strategy. There
is a high probability that you will spend most of your working life in service
organizations. The knowledge gained from studying this book may create a
competitive advantage for your own career, and even encourage you to think
about starting your own service business!
wHAT Are THe PrinciPAl inDusTries
oF THe service secTor?
lo 2
Know the principal industries of
the service sector.
W
hat industries make up the service sector, and which are the biggest?
The latter may not be the ones you would imagine at first, because this
diverse sector includes many services targeted at business customers. Some
of these are not very visible unless you happen to work in that industry.
Contribution to Gross Domestic Product
Look at Figure 1.8 to see how much value each of the major service industry
groups contributes to the U.S. GDP. Would you have guessed that real estate,
Public administration,
defence and
other services 14%
Agriculture, forestry
& fishing 17%
Series1, mining
& quarrying, 2.25%, 2%
Financial, real estate &
professional
services 21%
Series1, trade, hotels, transport,
communication and services
related to broadcasting,
18.46%, 19%
Series1, manufacturing,
16.57%, 17%
Electricity, gas supply
& other utility services
2%
Series1, Construction,
7.74%, 8%
Figure 1.8 Value added by service industry categories to Indian GDP
SOURCE
Central Statistical Office figures FY 2018, Govt. of India.
Understanding Service Markets, Products, and Customers 9
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rental, and leasing constitute the largest for-profit service industry sector in the
United States, accounting for 13% (almost one-eighth) of the GDP in 2013? Over
90% of this figure comes from such activities as renting residential or commercial
property; providing realty services to facilitate purchases, sales, and rentals; and
appraising property to determine its condition and value. The remaining 10%
involves the renting or leasing of a wide variety of other manufactured products,
ranging from heavy construction equipment (with or without operators) to office
furniture, tents, and party supplies. Another large cluster of services provides
for the distribution of physical products. Wholesale and retail trade accounts
for about 11.8% of the GDP.
Other substantial industry sectors or subsectors are professional and business services
(11.8%), finance and insurance (7.2%), and healthcare (7.1%). Accommodation
and food services constitute 2.7% of the GDP. The arts, entertainment, and
recreation subsector—which includes such high-profile consumer services as
spectator sports, fitness centers, skiing facilities, museums and zoos, performing
arts, casinos, golf courses, marinas, and theme parks—collectively represents
a mere 1% of the GDP. Nevertheless, in an economy worth over $17.1 trillion,
this last group of services was still valued at an impressive $164 billion
in 2013.
LO 3
Identify the powerful forces
that are transforming service
markets.
Powerful Forces Are Transforming
Service Markets
W
hat are the factors causing this rapid growth of the service sector?
Government policies, social changes, business trends, globalization,
and advances in information technology and communications are powerful
forces that are transforming today’s service markets (Figure 1.9). Collectively,
these forces reshape demand, supply, and even the way customers buy and
use services.
Of these forces, the dramatic development of IT and communications is perhaps
the most important. Innovations in big data, cloud computing, user-generated
content, mobile communications, networking technologies, artificial intelligence,
the Internet of Things, and increasingly app-based self-service technologies
have a major impact on the service market. These technologies enable firms to
deepen their relationships with customers, offer multi-way information flow and
more personalized services, and increase productivity and profitability.3 More
importantly, these new technologies also lead to a vast array of highly innovative
business models, ranging from peer-to-peer services (e.g., Airbnb for short-term
accommodation and Lending Club for personal loans) and integrators (e.g.,
Uber, which connects passengers with independent drivers through apps) to
crowd-based services (e.g., crowdSPRING, which is a leading provider of logo
and graphic design services).
10 Chapter 1 • Introduction to Services Marketing
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Social Changes
Business Trends
Changes in
regulations
Rising consumer
expectations
Push to increase
shareholder value
Growth of the
Internet
Privatization
More affluence
New rules to
protect customers,
employees, and the
environment
More people short
of time
Emphasis on
productivity and
cost savings
Wireless networking
and technology
New agreements
on trade in services
Increased desire for
buying experiences
vs. things
Rising consumer
ownership of
computers, cell
phones, and hightech equipment
Ubiquitous social
networks
Easier access to
more information
Immigration
Growing but aging
population
Manufacturers
add value through
service and sell
services
Advances in
Information Technology
Digitalization of text
graphics, audio, and
video
Cloud technology
User-generated
content
More strategic
alliances and
outsourcing
Focus on quality
and customer
satisfaction
Location-based
services
Globalization
More companies
operating on a
transnational basis
PART I
Government Policies
Increased
international travel
International
mergers and
alliances
“Offshoring” of
customer service
Foreign competitors
invade domestic
markets
Big data
Artificial intelligence
Growth of
franchising
Marketing
emphasis by nonprofits
Improved predictive
analysis
Internet of Things
New markets and product categories create increased
demand for services in many existing markets, making
it more competition intensive.
Innovation in service products and delivery systems is
stimulated by application of new and improved technologies.
Customers have more choices and exercise more power.
Success hinges on (1) understanding customers and competitors,
(2) viable business models, (3) creation of value for both
customers and the firm, and (4) increased focus on services marketing
and management.
Figure 1.9 Factors stimulating the transformation of the service economy
Understanding Service Markets, Products, and Customers 11
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LO 4
Understand how B2B services
improve the productivity of
individual firms and drive
economic development.
B2B SERVICES AS A CORE ENGINE OF ECONOMIC
DEVELOPMENT4
A
key driver of successful economies is their ecosystem of advanced, competitive,
and innovative business services. You may ask, “Why would business
services improve the productivity of a manufacturing firm and an economy
as a whole?” How good do you think a manufacturing firm is in buying food
ingredients; cooking, designing, and running kitchen processes; supervising
chefs; and controlling quality and costs in a canteen? The general answer
is that the firm would probably not be capable of producing fantastic food,
since canteen operations are low-volume and of little importance to the
overall business.
Many manufacturing firms have recognized this problem and outsourced their
canteen operations, usually via a tendering process with a renewal period
of every few years. The winning bidder is likely to be a firm that specializes
in running canteens and kitchens across many sites or branches. It focuses
on providing food and other services of high quality within a cost-efficient
structure. It also makes sense for the firm to invest in process improvements
and R&D as the benefits can be reaped across multiple sites. What used to
be a neglected support activity within a manufacturing firm thus becomes the
core competency of an independent service provider. The same logic applies
to almost all non-core activities, assets, goods, and services. Figure 1.10 shows
how companies can source services more cost-effectively from third-party
Provision of Assets and Processes
(ranging from the provision and operation
of machines to entire manufacturing lines)
R&D
Services
Product
Design Services
Manufacturing
Services provided inside
firm: accounting, design,
legal, advertising, etc.
Business Services Supporting
Manufacturing
(e.g., accounting, legal, consulting,
IT, customer contact centers)
Service Industries
(e.g., communications, transportation,
utilities, banking, insurance, etc.)
Logistics and
Distribution
Services
(e.g., supply chain
management,
transportation,
wholesale,
retail)
Post-sale
Services
(e.g.,
maintenance,
repair, upgrades,
recycling/
disposal)
Commercial
Users
Consumers
Government Support Services
(e.g., infrastructure, education, public safety, regulation)
Figure 1.10 Outsourcing is an important driver of the growth of the service sector
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PART I
providers. McKinsey estimates that such service inputs to manufacturing
output are about 20% to 25%, offering much potential for further outsourcing.5
This development leads to an increasing specialization of our economies
with significant improvements in overall productivity and living standards
(see Figure 1.11).
wHAT Are services?
lo 5
T
hus far, our discussion of services has focused on different types of service
industries and their development. Now it’s time to ask the question: What
exactly is a service?
Define services using the nonownership framework.
Benefits without Ownership
Services cover a huge variety of complex activities, making them difficult to
define. The word service was originally associated with the work that servants
did for their masters. In time, the term came to be defined more
broadly as “the action of serving, helping, or benefiting; conduct
tending to the welfare or advantage of another.”6 Early marketing
definitions described services as “acts, deeds, performances, or
efforts” and argued that they had different characteristics from
goods, which were defined as “articles, devices, materials, objects,
or things.”7 However, we believe that services need to be defined
in their own right rather than in relation to goods. A short and
snappy definition, like the oft-repeated “something which can
be bought and sold but which cannot be dropped on your
foot”8 is amusing and memorable, but may not be particularly
helpful as a guide to marketing strategy. Our definition of
services will focus on the lack of transfer of ownership when
buying a service.
Consider this: you didn’t acquire ownership of the hotel room in which you
stayed last weekend, you didn’t have ownership over the physical therapist who
worked on your injured knee, and you didn’t receive ownership of the concert
you just attended. If you didn’t receive a transfer of ownership the last time you
purchased a service, then what did you buy?
Figure 1.11 Many services
today can be outsourced to
lower-cost destinations
Christopher Lovelock and Evert Gummesson argue that services involve a form
of rental through which customers can obtain benefits.9 We use the term rent as
a general term to describe payment made for the temporary use of something,
or for access to skills and expertise, facilities, or networks (usually for a defined
period of time), instead of buying it outright.
We can identify five broad categories within the non-ownership framework of
services. These focus on (1) the use of labor, skills, and expertise; (2 to 4) various
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degrees of use of goods and facilities (exclusive, defined, or shared); and (5)
access to and use of networks and systems:
1)
Labor, skills, and expertise rentals. Here, other people are hired to
perform work that customers either cannot or choose not to do themselves.
Some of these include:
oo Car repair
oo Medical check-up
oo Management consulting
2)
Rented goods services. These services allow customers to obtain the
exclusive temporary right to use a physical object that they prefer not to
own. Examples include:
oo Boats
oo Fancy-dress costumes
oo Construction and excavation equipment
3)
Defined space and facility rentals. This is when customers obtain the
use of a certain portion of a larger facility such as a building, vehicle, or
area. They usually share this facility with other customers. Examples of this
kind of rental include:
oo A seat in an aircraft
oo A suite in an office building
oo A storage container in a warehouse
4)
Access to shared facilities. Customers rent the right to share the use of
a facility. Such facilities may be a combination of indoors, outdoors, and
virtual. Examples include:
oo Theme parks
oo Golf clubs
oo Toll roads (Figure 1.12)
5)
Access to and use of networks and systems. Customers rent the right
to participate in a specified network. Service providers offer a variety of
terms for access and use, depending on the needs of customers. Examples
include:
oo Telecommunications
oo Utilities and banking
oo Social online networks and games (e.g., League of Legends)
The difference between ownership and non-ownership has a major impact on
marketing strategy. For example, the criteria for a customer’s choice of service
differ when something is being rented instead of owned. Customers who wish
to rent a car for a vacation in Hawaii will probably focus on the ease of making
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PART I
Figure 1.12 Customers rent
the right to use toll roads at
Bandra-Worli Sea link toll plaza
DeFiniTion oF services
Services are economic activities performed by one party to another. Often
time-based, these performances bring about desired results to recipients, objects,
or other assets.
In exchange for money, time, and effort, service customers expect value from
access to labor, skills, expertise, goods, facilities, networks, and systems. However,
they do not normally take ownership of the physical elements involved.10
reservations, the rental location and hours, the performance of service personnel,
and the maintenance of the vehicles. However, if the customers are looking to own
a car, then they are more likely to consider factors such as price, brand image,
ease of maintenance, running costs, design, color, and upholstery.
Defining Services
We offer the following comprehensive definition of services based on the
non-ownership perspective:
Note that we define services as economic activities between two parties, implying
an exchange of value between the seller and the buyer in the marketplace. We
describe services as performances that are most commonly time-based. We
emphasize that purchasers buy services for desired results. In fact, many firms
explicitly market their services as “solutions” to the needs of potential customers.
Lastly, our definition emphasizes that customers expect to obtain value from their
service purchases in exchange for their money, time, and effort. This value comes
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from access to a variety of value-creating elements rather than
transfer of ownership.
Service Products versus Customer
Service and After-Sales Service
With the growth of the service economy and the emphasis on
adding value-enhancing services to manufactured goods, the
line between services and manufacturing becomes increasingly
blurred. Many manufacturing firms—from car makers Toyota
and aerospace engine producers GE and Rolls-Royce to hightech equipment manufacturers Samsung and Siemens—are
moving aggressively into service businesses. Instead of simply
bundling supplementary services with their physical products,
quite a few firms are now enhancing certain service elements
and marketing them as standalone services (see the example
of Toyota in Figure 1.13).
Figure 1.13 Services like
Toyota’s interactive navigation
service “T-Connect” move
beyond the supplementary into
the stand-alone
LO 6
Identify the four broad
“processing” categories of
services.
The principles discussed in services marketing are equally
applicable to manufacturing firms that increase the service
component of their offerings. As Theodore Levitt observed long ago, “There are
no such things as service industries. There are only industries whose service
components are greater or less than those of other industries. Everybody is in
service.”11
Four Broad Categories of Services—
A PROCESS PERSPECTIVE
D
id you notice that the definition of services emphasizes not only value
creation through rental and access, but also the desired results that can be
brought about to recipients of the service? There are major differences among
services depending on what is being processed. Services can “process” people,
physical objects, and data, and the nature of the processing can be tangible
or intangible. Tangible actions are performed on people’s bodies or to their
physical possessions. Intangible actions are performed on people’s minds or
to their non-physical assets. This gives rise to the classification of services into
four broad categories. They are people processing, possession processing, mental
stimulus processing, and information processing (Figure 1.14)12. Let’s examine
why these four different types of processes often have distinctive implications
for marketing, operations, and human resource management.
People Processing
From ancient times, people have sought out services directed at themselves,
including transportation, food, lodging, health restoration, and beautification
(Figure 1.15). To receive these services, customers must enter the service factory,
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PART I
Who or What Is the Direct Recipient of the Service?
Nature of the Service Act
People
Possessions
Tangible Actions
People processing
(services directed at people’s bodies):
• Hairstylist
• Passenger Transportation
• Healthcare
Possession processing
(services directed at physical possessions):
• Freight Transportation
• Laundry and Dry Cleaning
• Repair and Maintenance
Intangible Actions
Mental stimulus processing
(services directed at people’s minds):
• Education
• Advertising PR
• Psychotherapy
Information processing
(services directed at intangible assets):
• Accounting
• Banking
• Legal Services
Figure 1.14 Four broad categories of services
a physical location where people or machines (or both) create and deliver service
benefits to customers. Sometimes, service providers are willing to bring the
necessary tools of their trade to the customers’ preferred location. Implications
of people-processing services include:
➤
Service production and consumption are simultaneous, which means that
the customers must be physically present in the service factory.
➤
The active cooperation of the customer is required. For example, for a
manicure service, you would have to cooperate with the manicurist by
specifying what you want, sitting still, and presenting each finger for
treatment when requested.
➤
There is a need for managers to think carefully about the location of the
service operation, the design of service processes and the service environment,
demand and capacity management, and output from the customer’s point
of view.
Possession Processing
Figure 1.15 A customer
getting pampered to look more
beautiful
Often, customers ask a service organization to provide tangible treatment for
some physical possession, such as a house that has been invaded by insects,
a malfunctioning elevator (Figure 1.16), the broken screen of a smartphone, a
parcel that needs to be sent to another city, or a sick pet.
The implications of such services are:
➤
Production and consumption are not necessarily simultaneous. This
allows the service firm greater flexibility in designing such services for
cost-efficiency.
➤
Customers tend to be less involved in these services. Their involvement
may be limited to dropping off or collecting the item. In such instances,
production and consumption can be described as separable. In other cases,
Figure 1.16 Elevator repair is a
possession-processing service
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customers may prefer to be present during service delivery. For example,
they may wish to supervise the cutting of the hedge, or comfort the family
dog while it receives an injection at the veterinary clinic.
Mental Stimulus Processing
Mental-stimulus-processing services include education, news and information,
professional advice, and some religious activities. Customers are required to
invest some time and mental effort to obtain the full benefit of such services.
However, they don’t necessarily have to be physically present in a service factory.
For instance, passengers can sleep through a flight and still arrive at their desired
destination. However, if you fall asleep during an online lecture, you won’t be
any wiser at the end than at the beginning!
As the core content of the services in this category is information-based, it
can be digitized and made available via downloads. For instance, the Boston
Symphony Orchestra’s concerts can be attended live, viewed or heard live, prerecorded on TV, or sold as digital recordings (Figure 1.17). Key implications that
arise from these kinds of services are:
➤
Customers do not have to be physically present in the service factory. They
only access the information remotely when they need it.
➤
Services in this category can be “inventoried” for consumption at a later
date than their production. The same performance can also be consumed
repeatedly.
Figure 1.17 Orchestral concerts provide mental stimulation and pleasure
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PART I
Information Processing
Information can be processed by information and
communications technology (often referred to as ICT),
or by professionals. Information is the most intangible
form of service output. However, it can be transformed
into more permanent and tangible forms such as letters,
reports, books, or files in any type of format. Some
services that are highly dependent on the effective
collection and processing of information are financial
and professional services such as accounting (Figure
1.18), law, marketing research, management consulting,
and medical diagnosis.
It is sometimes difficult to tell the difference between information and mental
stimulus processing services. For example, if a stockbroker analyzes a client’s
brokerage transactions, it seems like information processing. Yet, when the results
of the analysis are used to make a recommendation about the most suitable type
of investment strategy, it seems like mental stimulus processing. Therefore, for
simplicity, we will periodically combine our coverage of mental-stimulus and
information-processing services under the umbrella term of information-based
services.
services Pose DisTincT mArkeTing
cHAllenges
Figure 1.18 A salesman giving
advice to a couple
lo 7
C
an the marketing concepts and practices developed in manufacturing
companies be transferred to service organizations where no transfer of
ownership takes place? The answer is often “no.” Services tend to have different
features from goods, including the frequently cited four characteristics of
intangibility, heterogeneity (variability of quality), inseparability of production
and consumption, and perishability of output,13 or IHIP for short. Table 1.1
explains these characteristics and other common differences between services
and goods. Together, these differences cause the marketing of services to differ
from that of manufactured goods in several important respects.
Be familiar with the
characteristics of services
and the distinctive marketing
challenges they pose.
It is important to recognize that these differences, while useful generalizations,
do not apply equally to all services. Intangibility, for example, ranges from
tangible-dominant to intangible-dominant (see Figure 1.19 for a scale that
presents a variety of examples).14 Major differences also exist between the
four categories of services we discussed in the previous section. For example,
customers tend to be part of the service experience only if they have direct
contact with service employees. This is usually the case for people-processing
services, but not for many information-processing service transactions such
as online banking.
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High
PHYSICAL ELEMENTS
Salt
Detergents
CD Players
Wine
Golf Clubs
New Cars
Tailored Clothing
Fast-food Restaurant
Plumbing Repair
Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking
Low
High
INTANGIBLE ELEMENTS
Figure 1.19 Relative value added by physical versus intangible elements in goods and services
SOURCE
Based on Lynn Shostack, “Breaking Free from Product Marketing,” in Journal of Marketing 41: 73–80, April 1977. © Jochen Wirtz
lo 8
Understand the components of
the traditional marketing mix
applied to services.
THe 7 Ps oF services mArkeTing
W
hen developing strategies to market manufactured goods, marketers usually
address four basic elements: product, place (or distribution), price, and
promotion (or communication). They are usually referred to as the “4 Ps” of the
marketing mix. As is evident from Table 1.1, the nature of services poses distinct
marketing challenges. Hence, the 4 Ps of goods marketing are not adequate to
deal with the issues arising from marketing services and have to be adapted.
We will therefore revisit the traditional 4 Ps of the marketing mix in this book
to focus on service-specific issues.
Furthermore, the traditional marketing mix fails to cover the customer interface.
We therefore need to extend the marketing mix by adding three Ps associated
with service delivery—process, physical environment, and people. Collectively,
these seven elements are referred to as the “7 Ps” of services marketing. Now,
let’s look briefly at each of the 7 Ps.
The Traditional Marketing Mix Applied to Services
Product Elements
Service products lie at the heart of a firm’s marketing strategy. If a product is
poorly designed, it won’t create meaningful value for customers, even if the
rest of the 7 Ps are well executed. Thus, the first step is to create a service
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Difference
implications
marketing-related Topics
Most service products
cannot be inventoried
(i.e., output is perishable).
• Customers may be turned away or have
to wait.
• Smooth demand through promotions, dynamic
pricing, and reservations.
• Work with operations to adjust capacity.
Intangible elements usually
dominate value creation
(i.e., service is physically
intangible).
• Customers cannot taste, smell, or touch
these elements and may not be able to
see or hear them.
• Harder to evaluate service and
distinguish from competitors.
• Make services tangible through emphasis on
physical clues.
• Employ concrete metaphors and vivid images
in advertising, branding.
Services are often difficult
to visualize and understand
(i.e., service is mentally
intangible).
• Customers perceive greater risk and
uncertainty.
• Educate customers to make good choices,
explain what to look for, document
performance, offer guarantees.
Customers may be involved
in co-production (i.e.,
if people processing is
involved, the service is
inseparable).
• Customers interact with providers’
equipment, facilities, and systems.
• Poor task execution by customers
may hurt productivity, spoil service
experience, and curtail benefits.
• Develop user-friendly equipment, facilities, and
systems.
• Train customers to perform effectively; provide
customer support.
People may be part of the
service experience.
• The appearance, attitude and behavior of
service personnel and other customers
can shape the experience and affect
satisfaction.
• Recruit, train, and reward employees to
reinforce the planned service concept.
• Target the right customers at the right times;
shape their behavior.
Operational inputs and
outputs tend to vary more
widely (i.e., services are
heterogeneous).
• Harder to maintain consistency,
reliability, and service quality or to lower
costs through higher productivity.
• Difficult to shield customers from the
results of service failures.
• Set quality standards based on customer
expectations; redesign product elements for
simplicity and failure-proofing.
• Institute good service recovery procedures.
• Automate customer-provider interactions;
perform work while customers are absent.
The time factor often
assumes great importance.
• Customers see time as a scarce resource
to be spent wisely, dislike wasting time
waiting, and want service at times that
are convenient.
• Find ways to compete on speed of delivery,
minimize burden of waiting, offer extended
service hours.
Distribution may take
place through nonphysical
channels.
• Information-based services can
be delivered through electronic
channels such as the Internet or voice
telecommunications, but core products
involving physical activities or products
cannot.
• Seek to create user-friendly, secure websites
and free access by telephone.
• Ensure that all information-based service
elements can be downloaded from site.
PART I
Table 1.1 Managerial implications of eight common features of services.
product that will offer value to target customers and satisfy their needs better
than competing alternatives. Service products usually consist of a core product
that meets the customers’ primary need, and a variety of other elements that
help customers use the core product more effectively. Supplementary service
elements include providing information, consultation, order taking, hospitality,
and handling exceptions.
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Place and Time
Service distribution may take place through physical or
electronic channels (or both), depending on the nature
of the service (see Table 1.1). For example, today’s banks
offer customers a wide range of distribution channels,
including visiting a bank branch, using a network of
ATMs, doing business by telephone, online banking on a
desktop, and using apps on a smartphone. In particular,
many information-based services can be delivered almost
instantaneously to any location in the world that has
Internet access. Firms may also deliver their services
directly to end-users, or through intermediary organizations
that receive a fee or commission to perform certain tasks
associated with sales, service, and customer contact.
Companies need to decide where and when they can
deliver service elements to customers, and the methods
and channels they can use.
Distribution of Core versus Supplementary Services.
The Internet is reshaping distribution strategies for numerous
industries. It can be used to deliver information-based
core products (those that respond to customers’ primary
requirements) as well as supplementary services that facilitate
the purchase and use of physical goods. Examples of
information-based core products include online educational
programs offered by the Khan Academy and Coursera,
and automobile insurance coverage from Progressive
Casualty Co.
Figure 1.20 Time is of the
essence—service providers
must be swift and smart in their
customer interactions
In contrast, if you buy outdoor gear or book a flight online, the actual delivery
of the core product must take place through physical channels. The tent and
sleeping bag that you bought from Flipkart.com will be delivered to your home,
and you’ll have to go to the airport in person to board your Jet Airways flight.
Much e-commerce activity concerns supplementary services based on the transfer
of information, reservations, and payments, as opposed to downloading the
core product itself.
Importance of the Time Factor. Speed and convenience of place and time
are important for the effective distribution and delivery of services (see Table
1.1). Many services are delivered in real time while customers are physically
present. Today’s customers are highly time-sensitive. They may be willing to pay
extra to save time, such as taking a taxi when a city bus serves the same route
(see Figure 1.21). Increasingly, busy customers expect services to be available
when it suits them, rather than when it suits the supplier. If one firm responds
by offering extended hours, its competitors often feel obliged to follow suit.
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PART I
Figure 1.21 Taking a taxi can
save time for busy customers
Nowadays, a growing number of services are available 24/7, and via more
delivery channels.
Price and Other User Outlays
Payment is very important in allowing a value exchange to take place. The
pricing strategy of firms directly affects the income generated. Pricing strategy is
often highly dynamic, with price levels adjusted over time according to factors
such as customer segment, time and place of delivery, level of demand, and
available capacity.
For customers, price is a key part of the costs they must incur to
obtain desired benefits. To calculate whether a particular service
is “worth it,” they may also go beyond money and assess how
much time and effort are involved (see Figure 1.22). Service
marketers must not only set prices that target customers are willing
and able to pay, but also understand—and seek to minimize,
where possible—the other costs that customers incur in using the
service. These may include additional monetary costs, time spent,
unwanted mental and physical effort, and exposure to negative
sensory experiences.
Most Service Products Cannot Be Inventoried. Since services
involve actions or performances, they are temporary and perishable.
They usually cannot be stocked as inventory for future use (see
Table 1.1). Although facilities, equipment, and labor can be held in
readiness to create the service, each represents productive capacity Figure 1.22 Money is not the only consideration
and not the product. If there is no demand, unused capacity is when measuring the cost of a service
Understanding Service Markets, Products, and Customers 23
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wasted and the firm loses the chance to create value from these assets. During
periods when demand exceeds capacity, customers may be turned away or asked
to wait until later. Service marketers must therefore find ways to match demand
levels with the available capacity using dynamic pricing strategies.
Promotion and Education
Few marketing programs can succeed without effective communication. It plays
three vital roles: (1) providing the necessary information and advice; (2) persuading
target customers to buy the service product; and (3) encouraging them to take
action at specific times. In services marketing, most communication is educational in
nature, especially for new customers. Suppliers need to teach their customers about
the benefits of the service, where and when to obtain it, and how to participate
in service processes to get the best results.
Services Are Often Difficult to Visualize and
Understand as Intangible Elements Tend to
Dominate Value Creation. Intangibility consists
of both mental and physical dimensions. Mental
intangibility refers to the difficulty in understanding
the value and benefits of a service before purchasing
it. In contrast, physical intangibility is what cannot
be touched or experienced by the other senses.15
Often, intangible elements such as processes, Internetbased transactions, and the expertise and attitudes of
service personnel create maximum value in service
performances. When customers can’t taste, smell, touch,
see, or hear these elements (i.e., when the service is
physically intangible), it may be more difficult for them
to assess important service features before purchase,
or to evaluate the quality of the service performance
(see Table 1.1).
Figure 1.23 Services and offerings can be communicated
through physical images and metaphors
It is important for a service firm to create confidence
in its experience, credentials, and the expertise of
its employees. For example, firms can use physical
images and metaphors to promote service benefits
and demonstrate their competencies (see Figure 1.23).
They must also have well-trained service employees
to help prospective customers make good choices,
educate them on what to expect both during and
after service delivery, and help them to move
smoothly through the service process. Documenting
performance, explaining what was done and why,
and offering guarantees are additional ways to
reassure customers. Service firms have much to gain
from helping customers to appreciate the service
offering. After all, if you know how to use a service
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PART I
well, you’ll not only have a better service experience and outcome, but your
greater efficiency may boost the firm’s productivity, lower its costs, and even
enable it to reduce the price you pay.
Customer–Customer Interactions Affect the Service Experience. When
you encounter other customers at a service facility, they too can affect your
satisfaction. How they’re dressed, who they are, and how they behave can reinforce
or negate the image a firm is trying to project and the experience it is trying to
create. The implications are clear: we need to use marketing communications to
attract the right customer segments to the service facility, and to educate them
on the proper behavior.
The Extended Services Marketing Mix for Managing
the Customer Interface
Process
Smart managers know that where services are concerned, how a firm does
things is as important as what it does. Therefore, it is necessary to design and
implement effective processes for the creation and delivery of services. Badly
designed service processes lead to slow and ineffective service delivery, wasted
time, and a disappointing experience for customers.
lo 9
Describe the components of
the extended marketing mix
for managing the customer
interface.
Operational Inputs and Outputs Can Vary Widely. Operational inputs and
outputs tend to vary more widely for services. This makes customer service
process management a challenge (see Table 1.1). When a service is delivered
face-to-face and consumed as it is produced, final “assembly” must take place in
real time. However, operations are often distributed across thousands of sites or
branches. In such cases, it is difficult for service organizations to ensure reliable
delivery, control quality, and improve productivity. As a former packaged goods
marketer once observed after moving to a new position at Holiday Inn:
We can’t control the quality of our product as well as a Procter and
Gamble control engineer on a production line can . . .When you buy
a box of Tide, you can reasonably be 99 and 44/100% sure that it will
work to get your clothes clean. When you reserve a Holiday Inn room,
you’re sure at some lesser percentage that it will work to give you a
good night’s sleep without any hassle, or people banging on the walls
and all the bad things that can happen in a hotel.16
Nevertheless, the best service firms have made significant progress in reducing
variability by carefully designing customer service processes, adopting standardized
procedures and equipment, implementing rigorous management of service quality,
training employees more carefully, and automating tasks previously performed
by humans.
Customers Are Often Involved in Co-production. Some services require
customers to participate actively in co-producing the service product (see Table 1.1).
Understanding Service Markets, Products, and Customers 25
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For example, you’re expected to help the
investment banker understand what your needs
are, the kind of risks you are willing to take,
and the expected returns. This will enable
the banker to advise you on what to invest
in. Increasingly, your involvement takes the
form of self-service, often using self-service
technologies (SSTs) facilitated by smart machines,
telecommunications, and the Internet. Thus,
well-designed customer service processes are
needed to facilitate service delivery.
Figure 1.24 Co-producing the
service: doing yoga under
the direction of a personal
instructor
Demand and Capacity Need to Be Balanced. Manufacturing can ensure a
smooth process flow by having an inventory of materials and parts ready for use.
For services, the same thing would mean having customers wait in the service
process! Therefore, effective service process management involves the balancing
of demand and capacity, the design of waiting systems, and the management of
the impact of waiting on the customer’s psychology.
Physical Environment
If your job is in a service business that requires customers to enter the service
factory, you’ll also have to spend time thinking about the design of the
“servicescape.”17 The appearance of buildings, landscaping, vehicles, interior
furnishings, equipment, staff members’ uniforms, signs, printed materials, and
other visible cues provide tangible evidence of a firm’s service quality. The
servicescape also facilitates service delivery and guides customers through the
service process. Service firms need to manage
servicescapes carefully, since they can have a
profound impact on customer satisfaction and
service productivity.
People
Figure 1.25 Hospitality is
shown through employees
wearing smart outfits and a
ready smile
Despite advances in technology, many services
will always need direct interaction between
customers and service employees (see Table
1.1). You must have noticed many times how
the difference between one service supplier
and another lies in the attitude and skills of
their employees. Service firms need to work
closely with their human resources (HR)
departments and devote special care to the
selection, training, and motivation of their
service employees (see Figure 1.25). In addition to possessing the necessary
technical skills, these individuals also need good interpersonal skills and a
positive attitude.
26 Chapter 1 • Introduction to Services Marketing
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lo 10
A
s you think about the 7 Ps, it should quickly become clear that marketers
working in a service business cannot expect to operate successfully in
isolation from managers in other functions. Marketing, operations, human resources
(HR), and information technology (IT) are four management functions that play
central and interrelated roles in meeting the needs of service customers: Figure
1.26 illustrates this interdependency.
The operations function is primarily responsible
for managing service delivery through equipment,
facilities, systems, and many tasks performed by
customer-contact employees. In most service
organizations, operations managers are actively
involved in the design of products and processes
and the implementation of programs for improving
productivity and quality.
Appreciate that marketing,
operations, and human resource
management functions need to
be closely integrated in service
businesses.
Operations
Management
PART I
mArkeTing musT Be inTegrATeD wiTH oTHer
mAnAgemenT FuncTions
Marketing
Management
Customers
Information
HR is often seen as a staff function, responsible
Technology
for job definition, recruitment, training, reward
systems, and the quality of work life. However, in a
Human Resources
well-managed service business, HR managers view
Management
these activities from a strategic perspective. They
understand that the quality and commitment of the
front-line are crucial for gaining competitive advantage. Service organizations
Figure 1.26 Marketing,
cannot afford to have HR specialists who do not understand customers. Marketing
operations, human resources,
and operations activities are more likely to be successful when employees have
and IT must collaborate to serve
the necessary skills and training to create and maintain customer satisfaction.
the customer
IT is a key function, as many service processes are information heavy. At almost
every customer touch-point, real-time information is needed (from customer data
to prices and available capacity). Operations, HR, and marketing are critically
dependent on IT to manage their functions and create value for the organization’s
customers.
For these reasons, we don’t limit our coverage exclusively to marketing in this
book. In many of the chapters, you’ll also find us referring to service operations,
human resource management, and IT.
THe service–ProFiT cHAin
T
lo 11
he Service–Profit Chain is a conceptual framework that shows how
marketing, operations, HR, and IT are integrated in high-performance
service organizations. James Heskett and his colleagues at Harvard argue that
Understand the implications
of the Service–Profit Chain for
service management.
Understanding Service Markets, Products, and Customers 27
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when service companies put employees and customers first, there is a major
change in the way they manage and measure success. They relate profitability,
customer loyalty, and customer satisfaction to the value created by productive
employees and supported by customer- and employee-centric operations and
technology:
Top-level executives of outstanding service organizations spend little
time setting profit goals or focusing on market share. . . . Instead they
understand that in the new economics of service, frontline workers and
customers need to be the center of management concern. Successful
service managers pay attention to the factors that drive profitability. . . .
investment in people, technology that supports frontline workers,
revamped recruiting and training practices, and compensation linked
to performance for employees at every level.
The service–profit chain, developed from analyses of successful service organizations,
puts “hard” values on “soft” measures. It helps managers target new investments
to develop service and satisfaction levels for maximum competitive impact,
widening the gap between service leaders and their merely good competitors.18
The service–profit chain, shown in Figure 1.27, demonstrates the links in a
managerial process that are essential for success in service businesses.
Internal
External
Operating strategy and
service delivery system
Service concept
Target market
Loyalty
Customers
Satisfaction
Employees
Capability
Productivity
&
Output
quality
Service value
Satisfaction
Revenue
growth
Loyalty
Profitability
Service
quality
• Workplace design
• Job design/decision-making latitude
• Selection and development
• Rewards and recognition
• Information and communication
• Adequate “tools” to serve customers
• Quality and productivity
improvements, yield
higher service quality
and lower cost
• Attractive value
• Service designed
and delivered to
meet targeted
customers’ needs
• Lifetime value
• Retention
• Repeat business
• Referral
Figure 1.27 The service–profit chain
SOURCE
From J. L. Heskett, T. O. Jones, G. W. Loveman, W. E. Sasser Jr., and L. A. Schlesinger, “Putting the Service-Profit Chain to Work,” Harvard Business School,
1994, p.166.
28 Chapter 1 • Introduction to Services Marketing
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PART I
Table 1.2 Links in the service–profit chain.
1. Customer loyalty drives profitability and growth
2. Customer satisfaction drives customer loyalty
3. Value drives customer satisfaction
4. Quality and productivity drive value
5. Employee loyalty drives service quality and productivity
6. Employee satisfaction drives employee loyalty
7. Internal quality as delivered by operations and IT drives employee satisfaction
8. Top management leadership underlies the chain’s success.
SOURCE
From J. L. Heskett, T. O. Jones, G. W. Loveman, W. E. Sasser Jr., and L. A. Schlesinger, “Putting
the Service-Profit Chain to Work,” Harvard Business School, 1994.
Table 1.2 summarizes what service leaders must do to manage their organizations
effectively. Links 1 and 2 focus on customers. They emphasize the need to identify
and understand customer needs, make investments to ensure customer retention,
and adopt new performance measures to track variables such as satisfaction
and loyalty among both customers and employees. Link 3 focuses on customer
value created by the service concept and highlights the need for investments to
continually improve both service quality and productivity.
Another set of service leadership behaviors (links 4–7) relates to employees and
includes organizational focus on the front-line. The design of jobs should offer
greater freedom for employees. Managers with potential should be developed.
This category also stresses the idea that paying higher wages can actually decrease
labor costs because of reduced turnover, and ensure higher productivity and
quality. Underlying the chain’s success (link 8) is top management leadership.
The service–profit chain is an important guiding philosophy for this book, with
core chapters explaining how to successfully implement it.
A FrAmework For DeveloPing eFFecTive
service mArkeTing sTrATegies
T
he 7 Ps and the service–profit chain are integrated into the wider organizing
framework of this book. Figure 1.28 presents this organizing framework,
which is divided into five parts: (1) understanding service markets, products,
and customers; (2) applying the 4 Ps of marketing to services; (3) managing
lo 12
Know the framework for
developing effective services
marketing strategies.
Understanding Service Markets, Products, and Customers 29
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the customer interface (i.e., the additional 3 Ps of services marketing);
(4) developing customer relationships; and (5) striving for service excellence.
Note that the different boxes in the model are linked by arrows. This stresses
the interdependence between the different parts. Decisions made in one area
must be consistent with those taken in another, so that each strategic element
will mutually reinforce the rest.
Figure 1.28 Integrated model of
services marketing
PART I
Understanding Service Markets, Products, and
Customers
• Introduction to Services Marketing
• Consumer Behavior in a Services Context
• Positioning Services in Competitive Markets
PART II
PART III
PART IV
Applying the 4 Ps of
Marketing to Services
Managing the Customer
Interface
Developing Customer
Relationships
• Developing Service Products
and Brands
• Distributing Services through
Physical and Electronic
Channels
• Setting Prices and
Implementing Revenue
Management
• Promoting Services and
Educating Customers
• Designing Service
Processes
• Balancing Demand and
Capacity
• Crafting the Service
Environment
• Managing People for Service
Advantage
• Managing Relationships and
Building Loyalty
• Complaint Handling and Service
Recovery
PART V
Striving for Service Excellence
• Improving Service Quality and Productivity
• Building a World-Class Service Organization
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PART I
The key contents of the five parts of this book are:
PART I
Understanding Service Markets, Products, and Customers
Part I of the book lays the foundation for studying services and learning how to become an effective
services marketer.
•
Chapter 1—defines services and shows how we can create value without transfer of ownership.
•
Chapter 2—discusses consumer behavior in both high- and low-contact services. The three-stage
model of service consumption is used to explore how customers search for and evaluate alternative
services, make purchase decisions, experience and respond to service encounters, and evaluate
service performance.
•
Chapter 3—discusses how a service value proposition should be positioned in a way that creates
competitive advantage for the firm. The chapter shows how firms can segment a service market,
position their value proposition, and focus on attracting their target segment.
PART II
Applying the 4 Ps of Marketing to Services
Part II revisits the 4 Ps of the traditional marketing mix. However, the 4 Ps are expanded to account for
the characteristics of services.
•
Chapter 4—Product includes both the core and supplementary service elements. The supplementary
elements facilitate and enhance the core service offering.
•
Chapter 5—Place and time elements refer to the delivery of the product elements to the customers.
•
Chapter 6—Prices of services need to be set with reference to costs, competition and value, and
revenue management considerations.
•
Chapter 7—Promotion and education explains the educational nature of the communication
involved in teaching customers how to move effectively through service processes.
PART III
Managing the Customer Interface
Part III of the book focuses on managing the interface between customers and the service firm. It covers
the additional 3 Ps that are unique to services marketing.
•
Chapter 8—Processes create and deliver the product elements. The chapter begins with the design
of effective delivery processes, specifying how the operating and delivery systems link together to
deliver the value proposition. Very often, customers are involved in these processes as co-producers,
and well-designed processes need to account for that.
Understanding Service Markets, Products, and Customers 31
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•
Chapter 9—This chapter also relates to process management and focuses on balancing demand and
capacity for each step of a customer service process. Marketing strategies for managing demand
involve smoothing demand fluctuations, inventorying demand through reservation systems, and
formalized queuing.
•
Chapter 10—The servicescape needs to be engineered to create the right impression and facilitate
effective service process delivery. The servicescape provides tangible evidence of a firm’s image
and service quality.
•
Chapter 11—People play a key role in services marketing when direct interaction between customers
and service personnel is part of the service. The nature of these interactions strongly influences
how customers perceive service quality. Hence, service firms devote a significant amount of effort
to the recruitment, training, and motivation of employees. The Service Talent Cycle explains how
a firm can execute all this effectively.
PART IV
Developing Customer Relationships
Part IV focuses on developing customer relationships and building loyalty.
•
Chapter 12—Achieving profitability requires creating relationships with customers from the right
segments, and then finding ways to build and reinforce their loyalty. This chapter introduces the
Wheel of Loyalty, which shows three systematic steps in building customer loyalty. The chapter
closes with a discussion of customer relationship management (CRM) systems.
•
Chapter 13—A loyal customer base is often built from effective complaint handling and service
recovery. Service guarantees are explored as a powerful way of institutionalizing service recovery,
and as an effective marketing tool to signal high-quality service.
PART V
Striving for Service Excellence
Part V focuses on how to develop and transform a firm to achieve service excellence.
•
Chapter 14—Productivity and quality are strongly related to financial success in services. This
chapter focuses on service quality, diagnosing quality shortfalls using the Gaps Model. Customer
feedback systems are discussed as an effective tool for systematically listening to and learning from
customers. Productivity is also introduced as being closely related to quality.
•
Chapter 15—This final chapter discusses how we can move a service organization to higher levels
of performance in each functional area.
32 Chapter 1 • Introduction to Services Marketing
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lo 1 ➤ Services represent an important and growing
contribution to most economies in the world. As
economies develop, services form the largest part
of their GDP. Globally, most new jobs are generated
in the service sector.
lo 2 ➤ The principal industries of the service sector include
(in order of contribution to GDP):
o
o
o
o
o
o
o
o
o
Government services
Real estate services
Business and professional services
Wholesale and retail trade
Transport, utilities, and communications services
Finance and insurance
Healthcare services
Accommodation and food services
Arts, entertainment, and recreation services
lo 3 ➤ Many forces are transforming our economies,
making them more service-oriented. They include
government policies, social changes, business
trends, advances in information technology, and
globalization.
lo 4 ➤ Business services allow manufacturing firms and
other service organizations to outsource non-core
activities, processes, and assets. The benefits include:
o
o
o
Economies of scale and scope, and high quality
and productivity levels
Tight cost and quality control (performance can
be benchmarked across many sites)
Application of process improvements and R&D
The rapid growth of business services leads to an
increasing specialization of advanced economies
with significant gains in overall productivity and
standards of living.
lo 5 ➤ What exactly is a service? The key distinguishing
feature of a service is that it is a form of rental
rather than ownership. Service customers obtain
the rights to hire the labor, skills, and expertise
of personnel; use a physical object or space; or
access shared facilities, networks, and systems.
Services are performances that bring about the
desired results or experience for the customer.
lo 6 ➤ Services vary widely and can be categorized
o
Mental stimulus processing
o
Information processing
Mental stimulus and information processing can
collectively be called information-based services.
lo 7 ➤ Services have unique characteristics that make
them different from products:
o
Most service products cannot be inventoried
(i.e., they are perishable).
o
Intangible elements usually dominate value
creation (i.e., they are physically intangible).
o
Services are often difficult to visualize and
understand (i.e., they are mentally intangible).
o
Customers may be involved in co-production
(i.e., if people processing is involved, the
service is inseparable).
o
People may be part of the service experience.
o
Operational inputs and outputs tend to vary
widely (i.e., they are heterogeneous).
o
The time factor often assumes great importance.
o
Distribution may take place through nonphysical channels.
lo 8 ➤ Due to the unique characteristics of services, the
traditional marketing mix of the 4 Ps needs to be
amended. Some important amendments are as
follows:
o
Product elements include not only the core
elements, but also supplementary service
elements such as the provision of consultation,
hospitality, or the handling of exceptions.
o
Place and time elements refer to the delivery
of the product elements to the customer.
o
Pricing includes non-monetary costs to
the consumer and revenue management
considerations.
o
Promotion does not focus only on advertising
and promotions, but is also viewed as a form
of communication and education that guides
customers through service processes.
lo 9 ➤ Services marketing requires three additional Ps
that cover management of the customer interface:
o
Process refers to the design and management
of customer service processes, including
managing demand and capacity and related
customer waits.
o
Physical environment, also known as the
servicescape, facilitates process delivery and
according to the nature of the underlying process.
There are four broad categories of services:
o
People processing
o
Possession processing
PART I
cHAPTer summArY
Understanding Service Markets, Products, and Customers 33
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cHAPTer summArY
o
provides tangible evidence of a firm’s image
and service quality.
o
Service employees must be enabled and
motivated.
People covers the recruitment, training, and
motivation of service employees to deliver
service quality and productivity.
o
Top management’s leadership needs to
drive and support all the components of the
service–profit chain.
lo 10 ➤ To be successful, marketing, operations, human
resource, and IT management functions need to
be tightly integrated. Integration means that the
key deliverables and objectives of the various
functions are not only compatible but also mutually
reinforcing.
lo 12 ➤ A framework for services marketing strategy forms
the underlying structure of this book. The framework
consists of the following five interlinked parts:
o
Part I begins with the need for service firms
to understand their markets, customers, and
competition.
o
service firms integrate key management functions
and deliver high quality performance in several
related areas:
Part II shows us how to apply the traditional
4 Ps to services marketing.
o
o
Customer relationships must be managed
effectively, and there must be strategies to
build and sustain loyalty.
Part III covers the 3 Ps of the extended services
marketing mix, and shows how to manage the
customer interface.
o
o
Value must be created and delivered to the
target customers in ways that lead them to see
the firm’s offerings as superior to competing
offerings.
Part IV illustrates how to develop lasting
customer relationships through a variety of
tools ranging from the Wheel of Loyalty and
CRM to effective complaint management and
service guarantees.
o
Part V discusses how to improve service
quality and productivity. This part closes with
a discussion on how change management
and leadership can propel a firm to become
a service leader.
lo 11 ➤ The service–profit chain shows how successful
o
Service quality and productivity must be
continuously improved through better processes,
systems and tools, and IT.
34 Chapter 1 • Introduction to Services Marketing
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lo 1 1 Knowledge-based
industries
2 Service science
3 Service sector
4 Service-driven economy
2 Deeds
3 Economic activities
4 Efforts
5 Non-ownership
6 Performances
7 Rental
lo 2 1 Contribution to GDP
2 NAICS
lo 3 1 Advances in IT and
6 People processing
7 Possession processing
8 Tangible actions
lo 5 1 Acts
lo 7 1 4 Ps
2 Heterogeneity
3 Inseparability
4 Intangibility
5 Intangible-dominant
6 Perishability
7 Tangible-dominant
lo 6 1 “Inventoried”
communications
2 Business trends
3 Globalization
4 Government policies
5 Social change
PART I
unlock Your leArning
2 Information processing
3 Information-based
services
4 Intangible actions
5 Mental stimulus
processing
lo 4 1 Business services
2 Non-core activities
3 Management focus
4 Economies of scale
5 Cost and quality control
6 Process improvements
and R&D
7 Specialization of
advanced economies
How well do
you know
the language
of services
marketing? Quiz
yourself!
not for the academically faint-of-heart
For each keyword you are able to recall without referring to earlier pages, give yourself a
point (and a pat on the back). Tally your score at the end and see if you earned the right to be
called—a services marketeer.
score
01 – 12
13 – 24
25 – 36
37 – 48
49 – 60
61 – 73
Services Marketing is done a great disservice.
The midnight oil needs to be lit, pronto.
I know what you didn’t do all semester.
By George! You’re getting there.
Now, go forth and market.
There should be a marketing concept named after you.
Understanding Service Markets, Products, and Customers 35
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lo 8 1 7 Ps
2 Core products
3 Place and time
4 Price
5 Product elements
6 Promotion and education
7 Service products
8 User outlays
lo 9 1 “Servicescape”
2 Capacity
3 Co-production
4 Demand
5 Operational inputs
6 People
7 Physical environment
8 Process
lo 10 1 Marketing function
2 Operations function
3 Human resources
function
4 IT
5 Interfunctional
integration
lo 11 1 Customer loyalty
2 Customer satisfaction
3 Productive employees
4 Profitability
5 Service–profit chain
6 Shareholder value
7 Top management
leadership
lo 12 1 Complaint handling
2 Customer feedback
systems
3 Customer interface
4 Customer relationship
management (CRM)
systems
5 Customer relationships
6 Delivery processes
7 Gaps Model
8 High-contact services
9 Human resources
10 Low-contact services
11 Marketing
12 Motivating
13 Operations
14 Productive capacity
15 Productivity
16 Quality
17 Recruiting
18 Service excellence
19 Service–profit chain
20 Service recovery
21 Tangible evidence
22 Target segment
23 Training
24 Value proposition
25 Wheel of Loyalty
36 Chapter 1 • Introduction to Services Marketing
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PART I
know Your services mArkeTing
Review Questions
1.
What are the main reasons for the growing share
of the service sector in all major economies of
the world?
2.
What are the five powerful forces transforming the
service landscape, and what impact do they have
on the service economy?
3.
6.
What is so special about services marketing that
it needs a special approach?
7.
“The 4 Ps are all a marketing manager needs to
create a marketing strategy for a service business.”
Prepare a response that argues against this, and
support it with examples.
Why would growth in business services help
individual firms and entire economies become
more productive?
8.
Why do the marketing, operations, human resource
management, and IT functions need to be closely
coordinated in service organizations?
4.
“A service is rented rather than owned.” Explain
what this statement means, and use examples to
support your explanation.
9.
What are the implications of the service–profit
chain for service management?
10.
5.
Describe the four broad “processing” categories
of services, and provide examples for each.
What are the key elements in the framework for
developing effective service marketing strategies?
work Your services mArkeTing
Application Exercises
1.
Visit the websites of the following national statistical
bureaus: U.S. Bureau of Economic Analysis (www.
bea.gov); Eurostat (ec.europa.eu/eurostat); and the
respective websites for your country if they are
not covered here. In each instance, obtain data on
the latest trends in services as (a) a percentage of the
GDP; (b) the percentage of employment accounted
for by services; (c) the breakdown of these two
statistics by type of industry; and (d) service exports
and imports. Looking at these trends, what are your
conclusions for the main sectors of these economies
and the specific service sectors?
2.
Give examples of how Internet and telecommunications
technologies (e.g., mobile commerce [M-Commerce]
and apps) have changed some of the services you use.
3.
Choose a service company you are familiar with, and
show how each of the 7 Ps of services marketing
applies to one of its service products.
4.
Explain how the concepts in Chapter 1 are relevant to
the marketing of a religious institution, or a non-profit
organization such as World Wildlife Fund.
Understanding Service Markets, Products, and Customers 37
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enDnoTes
1.
Organisation for Economic Co-operation and
Development, The Service Economy (Paris:
OECD, 2000).
2.
Marion Weissenberger-Eibl and Daniel Jeffrey
Koch, “Importance of Industrial Services and
Service Innovations,” Journal of Management
and Organization 13 (2007): 88–101.
3.
Roland Rust and Ming-Hui Huang, “The Service
Revolution and the Transformation of Marketing
Science,” Marketing Science 33, no. 2 (2014):
206–221.
4.
This section is based on: Jochen Wirtz and
Michael Ehret, “Service-based Business
Models: Transforming Businesses, Industries
and Economies,“ in Raymond P. Fisk, Rebekah
Russell-Bennett, and Lloyd C. Harris (eds),
Serving Customers: Global Services Marketing
Perspectives (Melbourne: Tilde University Press,
2013): 28–46. For firms’ motivation to use nonownership services see also: Kristina Wittkowski,
Sabine Möller, and Jochen Wirtz, “Firms’
Intentions to Use Non-Ownership Services,”
Journal of Service Research 16, no. 2 (2013):
171–185.
5.
McKinsey & Company, Manufacturing the Future:
The Next Era of Global Growth and Innovation,
McKinsey Global Institute (November 2012).
6.
Lesley Brown, ed., Shorter Oxford English
Dictionary, 5th edition, 2002.
7.
John M. Rathmell, “What Is Meant by
Services?” Journal of Marketing 30 (October
1966): 32–36.
8.
9.
Evert Gummeson (citing an unknown source),
“Lip Service: A Neglected Area in Services
Marketing,” Journal of Consumer Services 1
(Summer 1987): 19–22.
Christopher H. Lovelock and Evert Gummesson,
“Whither Services Marketing? In Search of a
New Paradigm and Fresh Perspectives,” Journal
of Service Research 7 (August 2004): 20–41.
10.
Adapted from a definition by Christopher
Lovelock (identified anonymously as Expert
6, Table II, p. 112) in Bo Edvardsson, Anders
Gustafsson, and Inger Roos, “Service Portraits
in Service Research: A Critical Review,”
International Journal of Service Industry
Management 16, no. 1 (2005): 107–121.
11.
From Theodore Levitt, Marketing for Business
Growth. McGraw-Hill, 1974.
12.
These classifications are derived from
Christopher H. Lovelock, “Classifying Services
to Gain Strategic Marketing Insights,” Journal of
Marketing 47 (Summer 1983): 9–20.
13.
Valarie A. Zeithaml, A. Parasuraman, and Leonard
L. Berry, “Problems and Strategies in Services
Marketing,” Journal of Marketing 49 (Spring
1985): 33–46.
14.
G. Lynn Shostack, “Breaking Free from Product
Marketing,” Journal of Marketing 41 (April 1977):
73–80.
15.
John E. G. Bateson, “Why We Need Service
Marketing,” in O.C. Ferrell, S. W. Brown, and C.
W. Lamb Jr. (eds.), Conceptual and Theoretical
Developments in Marketing (Chicago: American
Marketing Association, 1979): 131–146.
16.
From Gary Knisely, “Greater Marketing Emphasis
by Holiday Inns Breaks Mold,” Advertising Age,
January 15, 1979.
17.
The term “servicescape” was coined by Mary Jo
Bitner, “Servicescapes: The Impact of Physical
Surroundings on Customers and Employees,”
Journal of Marketing 56 (April 1992), 57–71.
18.
From J. L. Heskett, T. O. Jones, G. W. Loveman,
W. E. Sasser Jr., and L. A. Schlesinger, “Putting
the Service-Profit Chain to Work,” Harvard
Business School, 1994.
38 Chapter 1 • Introduction to Services Marketing
M01_WIRT9959_03_GE_C01.indd
38
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