Essentials of
As economies around the globe continue to transition toward services, service
industries are themselves undergoing continuous transformation, driven by
a digital and technological revolution. Amid these rapid changes across the
global business environment, knowing how to market and manage services
has never been more important.
Essentials of Services Marketing combines comprehensive coverage of core
service concepts with the latest in academic research and managerial thinking.
Key theories and practical models alike have been made accessible through
an engaging, visually rich design; they combine with a strong managerial
perspective—spanning marketing, operations, IT, and human resources—to
offer a clear and compelling view of today’s dynamic, services-dominated
world.
The fourth edition includes the following features and coverage that capture
the reality of services marketing around the world:
• NEW—Fresh coverage includes digital services, platform business models,
service robots, AI-powered self-service technologies, user-generated
content, the wallet allocation rule, and strategic pathways to cost-effective
service excellence.
• NEW and UPDATED—A selection of 21 in-depth case studies appears after
the chapters, allowing students to apply what they have learned to practical
business scenarios from around the world.
• NEW and UPDATED—Service Insights are shorter cases featured within
chapters that illustrate specific service concepts or present insights from
real-world service firms.
• UPDATED—Opening Vignettes introduce the major themes of a chapter
through engaging, illustrative marketing stories.
Essentials of Services Marketing
Services Marketing
4th
Edition
Essentials of
Services Marketing
4th Edition
Wirtz
Jochen Wirtz
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4th Edition
Jochen Wirtz
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ISBN 10: 1-292-42519-9 (print)
ISBN 13: 978-1-292-42519-1 (print)
ISBN 13: 978-1-292-42516-0 (etext)
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With gratitude and in loving memory of Christopher Lovelock,
One of the guiding lights of services marketing.
Co-author, mentor, and friend.
And above all, an inspiration.
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JW
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About the Author
Jochen Wirtz is Vice Dean, MBA Programmes, and Professor of Marketing at
the National University of Singapore (NUS). He is also an international fellow of
the Service Research Center at Karlstad University, Sweden; an Academic Scholar
at the Cornell Institute for Healthy Futures (CIHF) at Cornell University, USA;
and a Global Faculty of the Center for Services Leadership (CSL) at Arizona
State University, USA.
Previously, Professor Wirtz was the founding director of the dual degree
UCLA–NUS Executive MBA Program from 2002 to 2014, 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.
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. His research
focuses on service marketing and has been published in over 300 academic
articles, book chapters, and industry reports. He is an author of over 20 books,
including Services Marketing—People, Technology, Strategy (World Scientific,
9th edition, 2022), and like Essentials of Services Marketing, it has become one
of the world’s leading services-marketing textbooks, translated and adapted
for over 26 countries and regions, with combined sales of some 1 million
copies. He is also the author of Intelligent Automation: Learn How to Harness
Artificial Intelligence to Boost Business & Make Our World More Human (2021)
and Winning in Service Markets (World Scientific, 2017).
In recognition of his excellence in teaching and research, Professor Wirtz
has received over 50 awards, including the prestigious Christopher Lovelock
Career Contributions to the Services Discipline Award in 2019 (the highest
recognition of the American Marketing Association [AMA] service community),
the Academy of Marketing Science (AMS) 2012 Outstanding Marketing Teacher
Award (the highest recognition of teaching excellence of 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 10 academic journals, including
the Journal of Service Management, Journal of Service Research, and Cornell
Hospitality Quarterly, and is an ad hoc reviewer for the Journal of the Academy
of Marketing Science and Journal of Marketing. Professor Wirtz hosted the
American Marketing Association’s Frontiers in Services Conference in 2019
and the SERVSIG Conference in 2005.
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,
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Arthur D. Little, and KPMG as well as major service firms in the areas of strategy,
business development, and customer feedback systems. He has been involved in
a number of start-ups, including Dataswift (www.dataswift.io) and TranscribeMe
(TranscribeMe.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, see www.JochenWirtz.com.
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Brief Contents
Dedication
About the Author
Preface
Acknowledgments
iii
v
xix
xxviii
Part I:
Understanding Service Markets, Products,
and Customers
3
Chapter 1
Chapter 2
Chapter 3
Introduction to Services Marketing
Understanding Service Consumers
Positioning Services in Competitive Markets
4
34
62
Part II:
Applying the 4 Ps of Marketing to Services
93
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Developing Service Products and Brands
Distributing Services through Physical and Electronic Channels
Setting Prices and Implementing Revenue Management
Promoting Services and Educating Customers
94
122
154
190
Part III: Managing the Customer Interface
235
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Designing Service Processes
Balancing Demand and Capacity
Crafting the Service Environment
Managing People for Service Advantage
236
272
300
328
Part IV:
Developing Customer Relationships
369
Chapter 12
Chapter 13
Managing Relationships and Building Loyalty
Complaint Handling and Service Recovery
370
406
Part V:
Striving for Service Excellence
435
Chapter 14
Chapter 15
Improving Service Quality and Productivity
Building a World-class Service Organization
436
478
Part VI: Cases
504
Name Index
Subject Index
633
641
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Contents
Preface
xix
Acknowledgments
Part I:
1.
Understanding Service Markets, Products, and
Customers
3
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
8
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
10
12
Benefits without Ownership
Defining Services
Service Products versus Customer Service and After-Sales Service
12
14
14
Four Broad Categories of Services—A Process Perspective
15
People Processing
Possession Processing
Mental Stimulus Processing
Information Processing
Services Pose Distinct Marketing Challenges
The 7 Ps of Services Marketing
2.
xxviii
16
16
16
17
18
18
The Traditional Marketing Mix Applied to Services
The Extended Services Marketing Mix for Managing the Customer Interface
19
21
Marketing Must Be Integrated with Other Management Functions
The Service–Profit Chain
A Framework for Developing Effective Service Marketing Strategies
23
24
26
Understanding Service Consumers
34
The Three-Stage Model of Service Consumption
Pre-Purchase Stage
37
37
Need Awareness
Information Search
Evaluation of Alternative Services
Purchase Decision
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37
38
38
45
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Service Encounter Stage
Service Encounters Are “Moments of Truth”
The Servuction System
Theater as Metaphor for Service Delivery
Role and Script Theories
Perceived Control Theory
3.
51
Customer Satisfaction
Service Quality
Customer Loyalty
51
52
55
Positioning Services in Competitive Markets
62
Customer-Driven Services Marketing Strategy
65
Customer, Competitor, and Company Analysis (3 Cs)
Segmentation, Targeting, and Positioning (STP)
65
66
Important versus Determinant Service Attributes
Segmenting Based on Service Levels
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
Positioning Digital Services and Platforms
Attributes of Digital Service Available for Positioning
Developing an Effective Positioning Strategy
4.
Applying the 4 Ps of Marketing to Services
67
69
69
70
70
74
75
75
79
81
81
81
83
93
Developing Service Products and Brands
94
Understanding Service Products
96
What Is a Service Product?
What Are the Benefits of Well-Developed Service Products?
Creating Service Products
The Flower of Service
Facilitating Supplementary Services
Billing
Payment
Enhancing Supplementary Services
Hospitality
Exceptions
Managing the Flower of Service
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46
47
49
49
50
Post-Encounter Stage
Segmenting Service Markets
Part II:
46
97
97
98
98
99
101
102
102
102
104
105
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Branding Services
Service Brand Architecture at the Corporate Level
Branding Service Products and Experiences
Branding Service Levels (Service Tiering)
Building Brand Equity
Delivering Branded Service Experiences
New Service Development
A Hierarchy of New Service Categories
Design Thinking in New Service Development
Achieving Success in New Service Development
5.
106
107
109
110
110
111
112
113
114
Distributing Services through Physical and
Electronic Channels
122
Distribution in a Services Context
What Is Being Distributed?
How Should a Service Be Distributed?
125
125
126
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
126
126
127
130
131
Where Should a Service Facility Be Located?
132
Strategic Location Considerations
Tactical Location Considerations
Innovative Location Strategies
132
132
134
When Should Service Be Delivered?
The Role of Intermediaries
135
137
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.
105
137
139
141
141
142
143
145
146
Setting Prices and Implementing Revenue Management
154
Effective Pricing Is Central to Financial Success
157
Objectives for Establishing Prices
Pricing Strategy Stands on Three Foundations
Cost-Based Pricing
Value-Based Pricing
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
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157
157
157
159
160
163
165
165
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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
172
Service Pricing Is Complex
Piling on the Fees
Designing Fairness into Revenue Management
172
173
175
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 Target Markets?
7.
Integrated Service Marketing Communications
Defining the Target Audience
Specifying Service Communication Objectives
193
194
194
Strategic Service Communications Objectives
Tactical Service Communications Objectives
194
196
The Services Marketing Communications Mix
199
199
199
201
Service Communications Media and Their Effectiveness
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
202
203
203
207
214
215
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
220
220
221
222
224
Managing the Customer Interface
235
Designing Service Processes
236
What Is a Service Process?
Designing and Documenting Service Processes
238
238
Developing a Service Blueprint
Blueprinting the Restaurant Experience: A Three-Act Performance
A01_WIRT5191_04_GE_FM.indd 11
179
179
180
181
182
182
190
Problems of Intangibility
Overcoming the Problems of Intangibility
8.
177
Promoting Services and Educating Customers
Crafting Effective Service Communication Messages
Part III:
167
168
169
170
238
241
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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
252
253
Customers as Service Co-Creators
Reducing Service Failures Caused by Customers
254
255
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
Service Robots in the Frontline
Beginning of the Service Revolution
Service Robots versus Traditional SSTs
What Services Will Robots Deliver?
256
256
257
258
258
259
259
260
261
Balancing Demand and Capacity
272
Fluctuations in Demand Threaten Profitability
274
From Excess Demand to Excess Capacity
Building Blocks of Managing Capacity and Demand
274
276
Defining Productive Service Capacity
Managing Capacity
276
278
Stretching Capacity Levels
Adjusting Capacity to Match Demand
278
278
Understand Patterns of Demand
Managing Demand
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
Inventory Demand through Reservation Systems
Reservation Strategies Should Focus on Yield
10.
252
Customer Participation in Service Processes
Self-Service Technologies, Service Robots, and AI
9.
248
249
249
251
279
281
283
285
285
285
287
288
290
290
290
292
292
Create Alternative Uses for Otherwise Wasted Capacity
293
Crafting the Service Environment
300
Service Environments: An Important Element of the Services Marketing Mix
What Is The Purpose of Service Environments?
302
302
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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
302
302
304
305
The Theory behind Consumer Responses to Service Environments
306
Feelings Are a Key Driver of Customer Responses to Service Environments
The Servicescape Model: An Integrative Framework
307
309
Dimensions of the Service Environment
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
11.
311
315
316
317
319
319
319
321
Managing People for Service Advantage
328
Service Employees Are Extremely Important
330
Service Personnel as a Source of Customer Loyalty and Competitive Advantage
330
Front-Line Work Is Difficult and Stressful
332
Service Jobs Are Boundary-Spanning Positions
Sources of Role Conflict and Role Stress
Emotional Labor
Service Sweatshops
332
332
333
334
Cycles of Failure, Mediocrity, and Success
334
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
Internal Communications to Shape the Service Culture and Behaviors
Empower the Front Line
Build High-Performance Service-Delivery Teams
Integrate Teams across Departments and Functional Areas
Motivate and Energize People
Service Culture, Climate, and Leadership
Building a Service-Oriented Culture
A Climate for Service
Qualities of Effective Leaders in Service Organizations
Focusing the Entire Organization on the Front Line
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310
335
336
337
338
338
340
343
348
349
352
353
355
356
356
357
357
358
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Part IV:
12.
Developing Customer Relationships
369
Managing Relationships and Building Loyalty
370
The Search for Customer Loyalty
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
377
378
378
379
381
383
Strategies for Developing Loyalty Bonds with Customers
384
Deepen the Relationship
Encourage Loyalty through Financial and Non-Financial Rewards
Build Higher-Level Bonds
384
385
387
Strategies for Reducing Customer Switching
Analyze Customer Switching 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
13.
372
375
375
376
377
389
389
390
390
390
391
391
391
392
393
393
394
396
397
Complaint Handling and Service Recovery
406
Customer Complaining Behavior
408
Customer Response Options to Service Failure
Understanding Customer Complaining Behavior
What Do Customers Expect Once They Have Made a Complaint?
408
408
411
Customer Responses to Effective Service Recovery
412
Impact of Effective Service Recovery on Customer Loyalty
The Service Recovery Paradox
413
413
Principles of Effective Service Recovery Systems
Make It Easy for Customers to Give Feedback
Enable Effective Service Recovery
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414
414
415
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How Generous Should Compensation Be?
Dealing with Complaining Customers
Service Guarantees
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
Part V:
14.
419
419
420
421
421
422
Seven Types of Jaycustomers
Dealing with Customer Fraud
422
425
Striving for Service Excellence
435
Improving Service Quality and Productivity
436
Integrating Service Quality and Productivity Strategies
438
Service Quality, Productivity, and Profitability
What Is Service Quality?
Identifying and Correcting Service Quality Problems
The Gaps Model in Service Design and Delivery
How to Close Service Quality Gaps
Measuring Service Quality
438
440
440
441
442
444
Soft and Hard Service Quality Measures
444
Learning From Customer Feedback
444
Key Objectives of Effective Customer Feedback Systems
Use a Mix of Customer Feedback Collection Tools
Analysis, Reporting, and Dissemination of Customer Feedback
445
445
451
Hard Measures of Service Quality
Tools to Analyze and Address Service Quality Problems
453
455
Root Cause Analysis: The Fishbone Diagram
Pareto Analysis
Blueprinting—A Powerful Tool for Identifying Fail Points
Return on Quality
Assess Costs and Benefits of Quality Initiatives
Determine the Optimal Level of Reliability
455
456
458
458
459
460
Defining and Measuring Productivity
460
Defining Productivity in a Service Context
Measuring Productivity
461
461
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
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417
417
462
463
463
465
466
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Integration and Systematic Approaches to Improving Service Quality and
Productivity
Systematic Approaches to Improving Service Quality and Productivity
Which Approach Should a Firm Adopt?
15.
468
469
470
Building a World-Class Service Organization
478
Customer Satisfaction and Corporate Performance
Customer Satisfaction and the Wallet Allocation Rule
Creating a World-Class Service Organization
480
481
483
From Losers to Leaders: Four Levels of Service Performance
Moving to a Higher Level of Performance
483
488
Cost-Effective Service Excellence
Dual-Culture Strategy
Operations Management Approach
Focused Service Factory Strategy
Business Models Based on CESE Pathways
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
Case 12
Case 13
Case 14
Case 15
Case 16
Case 17
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488
488
494
496
497
498
504
Sullivan Ford Auto World
Susan Munro, Service Customer
Dr. Beckett’s Dental Office
Uber’s Unintended Burdens
Kiwi Experience
The Accra Beach Hotel: Block Booking of Capacity during a Peak Period
Revenue Management at The View
Aussie Pooch Mobile
Service Robots in the Frontline: How Will Aarion Bank’s
Customers Respond?
Digital Luxury Services: Tradition versus Innovation in Luxury Fashion
National Library Board, Singapore: Delivering Cost-Effective Service
Excellence through Innovation and People
Red Lobster
Banyan Tree: Branding the Intangible
Singapore Airlines: Managing Human Resources for Cost-Effective
Service Excellence
Menton Bank
Dr. Mahalee Goes to London: Global Client Management
Platform versus Pipeline Business Models: Are Airbnb and Marriott
Right to Move into Each Other’s Turf?
506
511
513
517
522
530
534
539
549
553
556
565
567
575
583
591
593
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Case 18
Case 19
Case 20
Case 21
The Royal Dining Membership Program Dilemma
The Broadstripe Service Guarantee
What Drives Share of Streaming for Streaming Video Services?
The Launch of HBO Max
LUX*: Staging a Service Revolution in a Resort Chain
596
602
606
617
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, 4th edition.
Case 22
Case 23
Case 24
Case 25
Case 26
Case 27
Case 28
Case 29
Bouleau & Huntley: Cross-Selling Professional Services
Uber: Competing as Market Leader in the United States versus Being
a Distant Second in China
Jollibee Foods Corporation
Hotel Imperial
Giordano: Positioning for International Expansion
Revenue Management of Gondolas: Maintaining the Balance between
Tradition and Revenue
Bossard Asia Pacific Can It Make Its CRM Strategy Work?
Customer Asset Management at DHL in Asia
Name, Brand, and Organization Index 633
Subject Index 641
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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 are declining
and may even disappear as new business models and industries emerge. Competitive
activity is fierce. This book has been written in response to the global transformation of
our economies to services. Clearly, 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 third edition to capture the reality of today’s world,
incorporating recent academic and managerial thinking while illustrating cutting-edge service
concepts.
This book is based on Services Marketing: People, Technology, Strategy, 9th edition (World
Scientific). 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 have been
designed to appeal to undergraduate and polytechnic students.
WHAT’S NEW IN THIS EDITION?
The fourth edition represents a significant revision. Its contents reflect ongoing developments
in the service economy, dramatic developments in technology, and new research findings.
New Topics, New Research
c
c
New applications of technology are
integrated throughout the text, ranging
from service robots, artificial intelligence
(AI), and intelligent automation (IA),
to peer-to-peer sharing platforms and
digital business models.
c
Chapter 3, “Positioning Services in
Competitive Markets,” has a new
section on digital services and
platform business models.
c
A01_WIRT5191_04_GE_FM.indd 19
Each of the 15 chapters has been revised.
All chapters incorporate new examples
and the latest academic research.
Chapter 4, “Developing Service
Products and Brands,” has now
a tighter focus on productizing
services (i.e., “bundles of output”),
an expanded section on branding
of services, and a new section on
service design thinking.
c
Cruise packages
Use High Published
Prices and Fram
as customer gains
e Fences as Disc
ounts. Rate fence
(i.e., discounts)
s framed
are generally perce
framed as customer
ived as fairer than
losses (i.e., surch
arges) even if the
those
equivalent. For
situations are econ
example, a custo
mer who patronizes
omically
may perceive the
her hair salon on
salon as profiteeri
Saturdays
ng if she finds
surcharge. How
ever, she is likely
herself facing a
to find the highe
weekend
if the salon adve
r
weekend price more
rtises its peak week
acceptable
end price as the
$5 discount for
published price
weekday haircuts.
and offers a
Furth
increase the refer
ence price and relate ermore, a high published price
helps to
d quality perception
c Commun
s.
icate Consum
er Benefits of
communications
Revenue Man
should position
agement. Mark
revenue managem
eting
By providing diffe
ent as a win–win
rent prices and
practice.
value propositio
spectrum of custo
ns, firms can enab
mers to self-segme
le a broader
nt and enjoy the
prices can be charg
service. For exam
ed for the best seats
ple, higher
in a theater becau
and able to pay
more for a bette
se some people are
r location. This
willing
seats at lower price
also makes it possi
s. When customers
ble to sell other
become more fami
management pract
liar with certain
ices, unfairness
revenue
perceptions are
c “Hide” Disc
likely to decrease
ounts through Bund
over time.
ling, Product Desi
a service into a
gn, and Targeting
package effectively
. Bundling
obscures the disco
line includes the
unted price. Whe
price of air trave
n a cruise
l or ground trans
(Figure 6.23), the
portation in the
customer know
cruise package
s only the total
individual comp
price and not the
onents. Bundling
cost of the
usually makes price
bundles and its comp
comparisons betw
onents impossible
een the
perceptions and
and thereby sidereductions in refer
steps potential unfai
ence prices.
rness
bundle land tours
into their total
package price.
Natalia Deksbakh
176
• Setting Prices
and Implementing
\123rf
Revenue Manageme
nt
13/05/22 10:49 AM
c
Chapter 8, “Designing Service Processes,” has new in-depth coverage of service robots and AIpowered self-service technologies (SSTs).
c
Chapter 14, “Improving Service Quality and Productivity,” features a heavily revised section on
customer feedback systems and collection tools to reflect the rapid development of automated
rating systems, user-generated content on review sites, and third-party (social) media, as well as
their analysis using natural language processing, image processing, and other technologies.
c
Chapter 15, “Building a World-Class Service Organization,” features new sections on the strategic
pathways toward achieving cost-effective service excellence (CESE) and the wallet allocation rule.
FOR WHAT TYPES OF COURSES CAN THIS BOOK BE USED?
This text is equally suitable for courses directed at undergraduate and polytechnic students.
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 the management level.
Whatever their job is in the services industry, a person has to understand the close ties that
link the functions of marketing, operations, IT, and human resources in service firms. With that
perspective in mind, the book has been designed 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?
c
c
c
You’ll find that this text takes a strongly
managerial perspective yet is rooted in
solid academic research, complemented
by memorable frameworks. This book’s
goal is to bridge the all-too-frequent gap
between theory and the real world.
Each chapter provides a succinct chapter
overview in pictorial form.
Every effort has been made to create a
text that is clear, readable, and focused.
c
An easy-to-read text combines with
visuals to make important concepts
accessible.
c
A global perspective has been cultivated
by carefully selecting examples from
around the world.
Why Study Serv
ices
• Services dom
inate the global
economy.
• Most new jobs
are generated
by services.
• Understanding
serv
competitive adva ices offers personal
ntage.
Service Sector
ices
Industries
• Real estate
• Business and
profe
• Government serv ssional services
ices
• Wholesale and
retail trade
• Transport, utilit
ies, and commun
ications
• Healthcare and
educ
• Finance and insur ation services
ance
• Accommodatio
n and food serv
ices
• Arts, entertain
ment, and recre
ational services
• Other private
sector services
Categories of Serv
ices by Type of
General Trends
• Government polic
ies
• Social changes
• Business trend
s
• Advances in tech
nology
• Globalization
B2B Services Grow
th
• Outsourcing
• Firms' increasing
focus on core
competencies
• Increasing spec
ialization of econ
omies
Functions
Distinct
Marketing Chal
Services tend to
lenges
have four frequ
ently cited char
heterogeneity
acte
(variability of qual
ity), inseparability ristics: intangibility,
consumption, and
of production and
perishability of
output, or IHIP
implications are
for short. The key
• most services
cannot be inven
torie
• intangible elem
ents typically dom d (i.e., output is perishable)
inate value crea
physically intan
tion (i.e., services
gible
• services are often )
are
difficult to unde
intangible)
rstand (i.e., serv
ices are mentally
• customers are
often involved in
co-production (e.g.,
involved, the servi
if people processin
ce is inseparab
le)
• people (service
g is
employees) may
be part of the serv
experience
ice product and
• operational inpu
ts and outputs
tend to vary more
are heterogeneou
widely (i.e., serv
s)
ices
• the time facto
r is often very impo
• distribution may
rtant (e.g., capa
city management)
take place throu
gh nonphysical
(e.g., information
channels
processing serv
ices)
Key Trends
Need to be tight
ly
integrated as toge
ther
they shape the
cust
experience, espe omer
cially
• marketing
• operations
• human resource
s
• information tech
nology
Proc
• People processin
essing
g
• Possession proc (e.g., passenger transport, hairs
essing (e.g., freig
tyling)
• Mental stimulus
ht transport, repa
proc
ir services)
• Information proc essing (e.g., education)
essing (e.g., acco
unting)
Services Pose
Figure 1.3 An i
ntroduction to
A01_WIRT5191_04_GE_FM.indd 20
Definition of Serv
• Services prov
ide benefits with
out ownership
• Services are
economic activ
ities performed
time-based, thes
by one party to
e performances
another. Often
bring about desir
objects, or othe
r assets. In exch
ed results to recip
ange
customers expe
ients,
ct value from acce for money, time, and effort,
service
facilities, netw
ss to labor, skills
orks, and syste
,
expe
rtise
, goods,
ms.
Service-Profit
Chain
Shows the tight
links
between
• leadership
• internal quality
and IT
• employee enga
gement
• customer value
,
satisfaction, and
loyalty
• profitability and
growth
services marke
ting.
Putting Service
Strategy into Acti
on
This books is struc
tured around an
services marketing
integ
and management rated model of
• understanding
that covers
Service Products,
Consumers, and
• applying the 4
Markets
Ps of Marketing
to Services
• designing and
managing the Cust
omer Interface
additional 3 Ps
using the
of Services Mark
eting (Process,
Physical Environm
People, and
• developing Cust ent)
omer Relations
hips
• striving for Serv
ice Excellence
13/05/22 10:49 AM
A01_WIRT5191_04_GE_FM.indd 21
c
To ensure a systematic learning
approach, each chapter has clear learning objectives, an organizing framework
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.
c
Opening vignettes and boxed inserts
within the chapters are designed to
capture student interest and provide
opportunities for in-class discussions.
13/05/22 10:49 AM
The following table links the cases to the chapters in the book.
PRIMARY
CHAPTERS
CASES
1
Sullivan Ford Auto World
1
2
Susan Munro, Service Consumer
2
3
Dr. Beckett’s Dental Office
1, 2
4
Uber’s Unintended Burdens
3, 11
5
Kiwi Experience
4, 5, 7
6
The Accra Beach Hotel: Block Booking of
Capacity during a Peak Period
7
Revenue Management at The View
6, 8, 9
8
Aussie Pooch Mobile
7, 8
9
Service Robots in the Frontline: How Will Aarion
Bank’s Customers Respond?
8, 11
10
Digital Luxury Services: Tradition versus
Innovation in Luxury Fashion
10
11
National Library Board, Singapore: Delivering
Cost-Effective Service Excellence through
Innovation and People
12
Red Lobster
13
Banyan Tree: Branding the Intangible
14
Singapore Airlines: Managing Human Resources for
Cost-Effective Service Excellence
15
Menton Bank
11
16
Dr. Mahalee Goes to London: Global Client
Management
12
17
Platform versus Pipeline Business Models: Are Airbnb
and Marriott Right to Move into Each Other’s Turf?
A01_WIRT5191_04_GE_FM.indd 22
6
8, 11, 14
11
3, 4, 7, 11
11, 15
3, 12, 15
13/05/22 10:49 AM
SECONDARY
CHAPTERS
CONTINENT
COUNTRY
INDUSTRY
2
Americas
United States
Automobile Servicing
Americas
United States
Range of B2C Services
Americas
United States
Medical
4, 5, 7, 12
Americas/Global
United States
Transportation
3, 11
Oceania
New Zealand
Tourism
9
Americas
Barbados
Resort
Australia
Australia
Food & Beverage
5
Australia
Australia
Pet Grooming
11, 14, 15
Global
Banking
2, 8, 11
Global
Luxury Retail
15
Asia
Singapore
Library
Americas
United States
Food & Beverage
5
Asia/Global
Resort
3, 4, 8
Global
Airline
8
A01_WIRT5191_04_GE_FM.indd 23
Americas
United States
Banking
Europe
United Kingdom
Private Banking
Americas/Global
United States
Hotels
13/05/22 10:49 AM
PRIMARY
CHAPTERS
CASES
18
The Royal Dining Membership Program Dilemma
12
19
The Broadstripe Service Guarantee
13
20
What Drives Share of Streaming for Streaming
Video Services? The Launch of HBO Max
15
21
LUX*: Staging a Service Revolution in a Resort
Chain
11, 12, 14, 15
Cases Available on the Instructor’s Resource Website (IRW)
22
Bouleau & Huntley: Cross-SellingProfessional
Services
2, 3
23
Uber: Competing as Market Leader in the United
States versus Being a Distant Second in China
3
24
Jollibee Foods Corporation
3, 4, 5
25
Hotel Imperial
3, 4
26
Giordano: Positioning for International Expansion
3, 5
27
Revenue Management of Gondolas: Maintaining
the Balance between Tradition and Revenue
6
28
Bossard Asia Pacific: Can It Make Its CRM
Strategy Work?
12
29
Customer Asset Management at DHL in Asia
12
A01_WIRT5191_04_GE_FM.indd 24
13/05/22 10:49 AM
SECONDARY
CHAPTERS
CONTINENT
COUNTRY
INDUSTRY
6
Asia
Hong Kong
Food and Beverage
Americas
United States
Cable Service
Americas
United States
Streaming Service
2, 3
Asia/Global
Mauritius
Resort
3
Asia/Americas
Philippines/United
States
Management Consulting/
Auditing
4, 5, 7, 12
Asia/Americas
China/United
States
Transportation
Asia
Philippines
Fast Food
Europe
Eastern Europe
Hotel/Hospitality
11
Asia/Global
Europe
Italy
Tourism
Asia
Singapore
Industrial Supplies
Asia
A01_WIRT5191_04_GE_FM.indd 25
Clothing Retailing
Logistics
13/05/22 10:49 AM
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
c
An opening vignette, which highlights key issues discussed in the chapter
c
Learning objectives and milestone markers for these when a section provides material that meet
these learning objectives
c
Boxed inserts throughout the chapters, which often lend themselves well to in-class discussion
c
Interesting graphics, photographs, and reproductions of advertisements, which enhance student
learning, and provide opportunities for discussion
c
Keywords, which help to reinforce important terms and concepts
c
Chapter summaries, which meet each chapter’s learning objectives
c
Review Questions and Application Exercises located at the end of each chapter
KNOW YOUR SE
Review Questions
1.
2.
Why is it impo
rtant to consider
the distribution
core and suppl
of
ementary servic
es both separately
and jointly?
3.
What are the differ
ent 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 servic
e distribution?
What risks and
opportunities
does
firm face when
a retail service
it adds electronic
channels of delive
(a) paralleling a
ry
channel involv
ing physical store
(b) replacing the
s or
physical store
s with a comb
Internet and call
ined
center channel?
4.
5.
WORK YOUR SE
1.
2.
152
A01_WIRT5191_04_GE_FM.indd 26
RVICES MARK
ETING
What is mean
t by “distributin
g services?”
can an experienc
How
e or something
distributed?
intangible be
RVICES MARK
An entreprene
ur is thinking
of setting up
service busin
a new
ess (you can
choose any spec
business). What
ific
advice would you
offer regarding
distribution strate
the
gy
What? How? Wher for this business? Address the
e? When? of servic
e distribution.
Think of three
services you
buy or use eithe
mostly or exclu
r
sively via the
Internet or a mobi
app. What is the
le
value proposition
over alternative
of this channel
channels (e.g.,
phone, mail,
branch network)?
or
• Distributing Servic
es through Physic
al and Electronic
6.
Why should servic
e marketers be
new developme
concerned with
nts in mobile comm
unications?
What marketing
and manageme
nt challenges
raised by the
are
use of interm
ediaries in a servic
setting?
e
7.
8.
Why is franc
hising a popu
lar way to expa
distribution of
nd
a service conce
pt? What are some
disadvantages
of franchising
, and how can
be mitigated?
they
9.
What are the key
drivers for the
increasing globa
ization of servic
les?
What factors
do service comp
understand in
anies need to
orde
strategy for going r to choose a distributio
n
international that
to control its intelle
still allows it
ctual property
value creation?
and sources of
10.
ETING
3.
4.
What advice would
you give to (a)
a weight reduc
tion clinic, (b)
a pest control
company, and
university offeri
(c) a
ng undergraduate
going internationa
courses about
l?
Which strategy
for entering a
new internation
market should
al
the following
businesses consi
and why? (a)
der
an architectur
al design firm,
online discount
(b) an
broker, and (c)
an advertising-funde
travel app.
d
Channels
13/05/22 10:49 AM
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, in-depth analysis of
each question, and helpful hints on teaching strategy designed to aid student learning, create
stimulating class discussions, and help instructors create end-of-class wrap-ups and “takeaways.”
Test Bank: Multiple choice, true/false, short-answer, and essay questions, with difficulty
level provided for each question. Contents are classified into general and application. This is
available in TestGen format, a test-generating program that 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.
Image Bank: A collection of images in the textbook.
EBook: Electronic version of the text that includes useful features such as highlighting and
search. It can be viewed on a variety of browsers and devices.
A01_WIRT5191_04_GE_FM.indd 27
13/05/22 10:49 AM
Acknowledgments
Over the years, many colleagues in both the academic and business worlds have provided me
with valued insights into the marketing and management of services through their publications,
in conference and seminar discussions, and in stimulating individual conversations. In addition,
I have benefited enormously from in-class and after-class discussions with my students and
executive program participants.
I am much indebted to those researchers and teachers who helped to pioneer the study of
services marketing and management, and from whose work we continue to draw inspiration.
Among them are John Bateson of Cass Business School, Leonard Berry of Texas A&M University,
Mary Jo Bitner and Stephen Brown of Arizona State University, David Bowen of Thunderbird
Graduate School of Management, Richard Chase of the University of Southern California, Bo
Edvardsson of University of Karlstad, Raymond Fisk of the Texas State University, Christian
Grönroos of the Swedish School of Economics in Finland, Stephen Grove of Clemson University,
Evert Gummesson of Stockholm University, James Heskett and Earl Sasser of Harvard University,
A. “Parsu” Parasuraman of University of Miami, Roland Rust of the University of Maryland,
Benjamin Schneider (formerly) of the University of Maryland, and Valarie Zeithaml of the
University of North Carolina. I salute, too, the contributions of the late Pierre Eiglier, Eric
Langeard, Robert Johnston, and Daryl Wyckoff.
Although it’s impossible to mention everyone who has influenced our thinking, we particularly
want to express our appreciation to the following: Lerzan Aksoy of Fordham University, Tor
Andreassen of the Norwegian School of Management; Steve Baron of the University of Liverpool;
Sabine Benoit of Surrey Business School; Ruth Bolton of Arizona State University; Elisabeth
Brüggen, Gaby Odekerken-Schröder, and Jos Lemmink, all of Maastricht University; John
Deighton, Theodore Levitt, and Leonard Schlesinger, all currently or formerly of Harvard
Business School; Michael Ehret of the University of Graz; Martin Fritze of the University of
Cologne; Thorsten Gruber of Loughborough University; Anders Gustafsson of BI Norwegian
Business School; Jens Hogreve of Katholische Universität Eichstätt-Ingolstadt; Paul Maglio of the
University of California, Merced, USA; Irene Ng of the University of Warwick; Jay Kandampully
of Ohio State University; Ron Kaufman, Customer Experience and Service Culture Expert; Tim
Keiningham of St. John’s University; Sheryl Kimes of Cornell University; Werner Kunz of the
University of Massachusetts Boston; Bart Larivière of the University of Leuven; Jean-Claude
Larréché of INSEAD; Jos Lemmink of Maastricht University; Kay Lemon of Boston College;
David Maister of Maister Associates; Anna Mattila of Pennsylvania State University; Janet
McColl-Kennedy of the University of Queensland; Martin Mende of Florida State University;
Linda Alkire of Texas State University; Ulrich Orth of Kiel University; Chiara Orsingher of the
University of Bologna; Lia Patrício of the University of Porto; Anat Rafaeli of Technion-Israeli
Institute of Technology, Ram Ramaseshan of Curtin University; Chatura Ranaweera of Wilfrid
Laurier University; Mark Rosenbaum of Saint Xavier University; Rebekah Russell-Bennett of
Queensland University of Technology; Jim Spohrer of IBM; Bernd Stauss, formerly of Katholische
Universität Eichstät; Christopher Tang of UCLA; Rodoula Tsiotsou of University of Macedonia;
Steven Vargo of University of Hawaii; Rohit Verma of VinUniversity; Lauren Wright of California
State University, Chico; George Yip of London Business School; Ping Xiao of the National
University of Singapore; and Valarie Zeithaml of the University of North Carolina.
A01_WIRT5191_04_GE_FM.indd 28
13/05/22 10:49 AM
We’ve also gained important insights from our co-authors on international adaptations of
Services Marketing and are grateful for the friendship and collaboration of Guillermo D’Andrea
of Universidad Austral, Argentina; Harvir S. Bansal of University of Waterloo, Canada; Jayanta
Chatterjee of the Indian Institute of Technology, Kanpur, India; Gopal Das of the Indian Institute
of Management Bangalore, India; Chris Lin of National Taiwan University; Xiucheng Fan of
Fudan University, China; Miguel Angelo Hemzo of Universidade de São Paulo, Brazil; Hean
Tat Keh of the University of Queensland, Australia; Luis Huete of IESE, Spain; Laura Iacovone
of the University of Milan and Bocconi University, Italy; Denis Lapert of Telecom École de
Management, France; Barbara Lewis of the Manchester School of Management, UK; Xiongwen
Lu of Fudan University, China; Annie Munos, Euromed Marseille École de Management, France;
Jacky Mussry of MarkPlus, Inc., Indonesia; Javier Reynoso of Tec de Monterrey, Mexico; Paul
Patterson of the University of New South Wales, Australia; Sandra Vandermerwe of Imperial
College, London, UK; Fuxing Wei of Tianshi College, China; and Yoshio Shirai of Takasaki City
University of Economics, Japan.
It takes more than authors to create a book and its supplements. Warm thanks are due to the
editing and production team who worked hard to transform our manuscript into a handsome
published text. They include Ishita Sinha, the book’s acquisitions editor, and Daniel Luiz and
Kajori Chattopadhyay, its project editors. Thanks also to Gavin Fox of Texas Tech University,
author of the third edition test bank, and to Jon Sutherland for the additions in the fourth edition.
Finally, I’d like to thank you, the reader, for your interest in this exciting and fast-evolving field
of services marketing.
Finally, if you have interesting research, examples, stories, cases, videos, or any other materials
that would look good in the next edition of this book, or any feedback, please do contact me
via www.JochenWirtz.com. I’d love to hear from you!
JOCHEN WIRTZ
A01_WIRT5191_04_GE_FM.indd 29
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A01_WIRT5191_04_GE_FM.indd 30
13/05/22 10:49 AM
4th Edition
A01_WIRT5191_04_GE_FM.indd 31
13/05/22 10:49 AM
PA R T
I
THE ESM
FRAMEWORK
PART I
Understanding Service Markets, Products, and Customers
• Introduction to Services Marketing
• Understanding Service Consumers
• 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
M01_WIRT5191_04_GE_C01.indd 2
5/11/22 7:53 PM
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 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 Understanding Service Consumers
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
Chapter 3 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) 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 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 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 10 Appreciate that marketing,
operations, human resource
management, and IT functions
need to be closely integrated in
service businesses.
LO 5 Define services using the non-
ownership framework.
LO 6 Identify the four broad “processing”
categories of services.
LO 11 Understand the implications of the
service–profit chain for service
management.
LO 12 Know the five-part framework
rawpixel\123rf
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
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INTRODUCTION TO THE WORLD OF
SERVICES MARKETING
PART I
companies that know how to please their customers while
also running productive and profitable operations.
You probably have a few favorite firms whose services
you like purchasing. 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 the United States and around
the world. From the experiences of these firms, you can
draw important lessons on how to succeed in increasingly
competitive service markets.
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, streaming music, 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.
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.
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, incompetent personnel,
inconvenient service hours, bureaucratic procedures, wasted time, complicated websites,
or a lack of understanding of their needs.
Suppliers of services, who often face stiff
competition, appear to have a very different
set of concerns. Many 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
Figure 1.2 Happy vacationer on a cruise vacation.
Pavel L Photo and Video\Shutterstock
OPENING VIGNETTE
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
• Real estate
• Business and professional services
• Government services
• Wholesale and retail trade
• Transport, utilities, and communications
• Healthcare and education services
• Finance and insurance
• Accommodation and food services
• Arts, entertainment, and recreational services
• Other private sector services
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
Key Trends
General Trends
• Government policies
• Social changes
• Business trends
• Advances in technology
• Globalization
B2B Services Growth
• Outsourcing
• Firms’ increasing focus on core
competencies
• Increasing specialization of economies
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. The key
implications are
• 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 (e.g., if people processing is
involved, the service is 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 is often very important (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.
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WHY STUDY SERVICES?
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 author 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.
Figure 1.3 provides an overview of Chapter 1. In this
chapter, we describe today’s ever-changing service economy,
define the nature of services, and highlight some challenges
Agriculture
involved in marketing services. We conclude the chapter with
a framework for developing and implementing service market- Share of
ing strategies. This framework also establishes the structure Employment
for this book.
Services Dominate the Global
Economy
Services
Industry
The size of the service sector is increasing in almost all counTime, Per Capita Income
tries around the world. As an economy develops, the relative
share of employment between agriculture, industry, and ser- Figure 1.4 Changing structure of employment as an
vices changes dramatically. Even in emerging economies, the economy develops.
service output represents at least half of the gross domestic Source: International Monetary Fund, 1997.
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
Agriculture, 7%
Bahamas, and Bermuda—all small islands with a similar economic
mix—are home to the world’s most service-dominated economies.
Luxembourg (87%) has the most service-dominated economy in
Manufacturing, 30%
the European Union. Panama’s strong showing (82%) reflects
Services, 63%
not only the operation of the Panama Canal but also related
services such as container ports, flagship registry, and a free port
zone, in addition to financial services, insurance, and tourism
(Figure 1.7).
On the opposite end of the scale is China (52%), a fast-growing Figure 1.5 Contribution of services industries to GDP
economy with a booming manufacturing sector. However, China’s globally.
economic growth is now leading to an increase in demand for busi- Source: Central Intelligence Agency, The World Factbook 2020, www.cia.gov
(accessed January 9, 2022).
ness and consumer services.
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Jersey (96%), Bermuda (94%), Hong Kong (92%), Bahamas (90%)
Barbados (89%), Luxembourg (87%), Panama (82%), USA (80%)
UK (79%), France (79%), Belgium (77%), Singapore (75%)
Switzerland (74%), Brazil (73%), Australia (71%), Canada (70%), Israel (70%)
Fiji (69%), Finland (69%), Japan (69%), Germany (69%), South Africa (68%), Sweden (65%)
Chile (63%), Taiwan (62%), Russia (62%), Mexico (62%), India (62%)
Turkey (61%), Argentina (61%), Philippines (60%)
South Korea (58%), Poland (57%), Bangladesh (57%)
Malaysia (54%), Saudi Arabia (53%), China (52%),
Thailand (52%
Algeria (47%), Laos (46%),
Indonesia (45%), Brunei (42%)
Services as Percent of GDP
1
20
30
40
50
60
70
80
90
Figure 1.6 Estimated size of service sector in selected countries as a percentage of GDP.
Source: Central Intelligence Agency, The World Factbook 2020, www.cia.gov (accessed January 9, 2022).
RIEGER Bertrand/hemis.fr/Hemis/Alamy Stock Photo
Most New Jobs Are
Generated by Services
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. In fact, some of the fastest economic growth is
in knowledge-based industries such as professional
and business services, education, and healthcare.
These well-paid jobs require good educational
qualifications and offer attractive careers.
Figure 1.7 The Panama
Canal forms the backbone of
Panama’s service economy.
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,
perhaps even encourage you to think about starting your own service business!
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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, rental, and
leasing constitute the largest for-profit service industry sector in the United States,
accounting for 13.3% (almost one-eighth) of the GDP in 2018? 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. A fast-growing cluster are professional and business services,
which contribute 12.5% to the GDP. 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 transportation, utilities, and
communications (10%); healthcare and education (8.7%); and finance and insurance
(7.6%). Accommodation and food services constitute 3.1% 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 1.1% of the GDP. Nevertheless, in an economy worth over $20.6 trillion, this
last group of services was still valued at an impressive $227 billion in 2019.
Government services
12.4%
Other private sector services
6.2%
Arts, entertainment, and
recreation service 1.1%
Accommodation and
food services 3.1%
Agriculture, forestry,
fishing, and mining
2.5%
Manufacturing
11.3%
Real estate
13.3%
Healthcare and
education services 8.7%
Finance and insurance
7.6%
Transport, utilities,
and communications
10%
Wholesale and
retail trade
11.4%
Business and
professional services
12.5%
Figure 1.8 Value added by service industry categories to U.S. GDP.
Source: U.S. Department of Commerce, Bureau of Economic Analysis, GDP by Industry Accounts for 2018, www.bea.gov (accessed January 9, 2022).
Understanding Service Markets, Products, and Customers 9
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COLLANGES/BSIP SA/Alamy Stock Photo
POWERFUL FORCES ARE
TRANSFORMING SERVICE
MARKETS
W
Figure 1.9 Robotics is one of
the many fields in technology
transforming today’s service
markets.
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.
hat are the factors causing this rapid
growth of the service sector? Government
policies, social changes, business trends, globalization, advances in information technology and
communications, and globalization are powerful
forces that are transforming today’s service markets
(Figure 1.10). Collectively, these forces reshape
demand, supply, and even the way customers buy
and use services.
Especially exciting is the digital and technological revolution that is in progress. We may be
at an inflection point with regard to productivity
gains and service industrialization similar to the industrial revolution in manufacturing
that started in the 18th century. Technologies are rapidly becoming smarter, smaller,
and cheaper, especially those related to robotics; artificial intelligence (AI); analytics;
big data; the Internet of Things (IoT); mobile; geo tagging; biometrics; text-, speech-,
and image-processing; and virtual reality.
These technologies will lead to a wide range of innovations that are likely to
dramatically improve the customer experience, service quality, and productivity all
at the same time. Robot- and AI-delivered service is likely to show unprecedented
economies of scale and scope as the bulk of the costs incurred are developmentbased. Physical robots cost a fraction of human headcount, and virtual robots
can be deployed at negligible incremental costs. For example, a holograph-based
humanoid robot providing service at an information counter will require only lowcost components (e.g., a projector, speaker, camera, and microphone), and fully
virtual robots (e.g., voice-based chat bots) already have nearly zero incremental costs.
Similar to the shift that started in the industrial revolution, from craftsmen to mass
production, an accelerated shift in the service sector toward modular, self-service technology
(SST), robotics, and AI-based business models is likely to occur. As in manufacturing,
the craftsman-equivalent will continue to offer a viable business model, but at a high
price point. The mass market for many services is likely to shift to more cost-effective
service models.1 Together, these technologies will transform virtually all service sectors.2
B2B SERVICES AS A CORE ENGINE OF ECONOMIC
DEVELOPMENT3
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, as canteen operations are low-volume and of little
importance to the overall business.
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Social Changes
Business Trends
Advances in Technology
Globalization
Changes in
regulations
Rising consumer
expectations
Ubiquity of the Internet
and mobile connectivity
Privatization
Increasing focus on
sustainability
Push to increase
shareholder value
Emphasis on
productivity and
cost savings
Manufacturers
add value through
service and sell
services
Firms increasingly
focus on developing
platform-type
business models
More strategic
alliances and
outsourcing
Focus on quality
and customer
satisfaction
Growth of
franchising
Marketing
emphasis by nonprofits
Companies
increasingly operate
on a global level
Government Policies
New rules to
protect customers,
employees, and the
environment
New agreements
on trade in services
More people short
of time
Increased desire for
buying experiences
vs. things
Rising consumer
ownership of smart
phones, wearables,
and other high-tech
equipment
Ubiquitous social
networks
Easy access to
more information
Immigration
Aging population
Robotics
Artificial intelligence (AI)
Analytics and big data
User-generated content
Internet of Things (IoT)
Mobile technologies
Cloud technology
Geo tagging
Increased
international travel
International
mergers and
alliances
“Offshoring” of
customer service
Foreign competitors
invade domestic
markets
Biometrics
Text processing
Speech processing
Image processing
Virtual reality
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, (4) agility and capabilities related to technology, and (5)
increased focus on services marketing and management.
Figure 1.10 Factors stimulating the transformation of the service economy.
Understanding Service Markets, Products, and Customers 11
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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)
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)
Used with permission by Randy Glasbergen
Figure 1.11 Outsourcing is an important driver of the growth of the service sector.
Figure 1.12 Many services today can be
outsourced to lower-cost destinations.
LO 5
Define services using the nonownership framework.
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 1.11
shows how companies can source services more cost-effectively
from third-party providers. This development leads to increasing
specialization of our economies, with significant improvements
in overall productivity and living standards (see Figure 1.12).
WHAT ARE SERVICES?
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?
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,
12 Chapter 1 • Introduction to Services Marketing
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helping, or benefiting; conduct tending to the welfare or advantage of another.”4 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.”5 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”6 is amusing and memorable, but it 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?
What customers value and are willing to pay for are desired experiences and solutions. Services deliver these through a form of rental or access through which customers
can obtain the desired benefits. We can identify the following five broad categories7
within the non-ownership framework that focus on access to and use of the following:
1. Labor, skills, and expertise rentals. Here, other people are hired to perform
work that customers either cannot or choose not to do themselves. Examples
include the following:
o car repair
o medical check-up
o management consulting
2. Rented goods. These services allow customers to obtain the exclusive temporary
right to use a physical object that they prefer not to own. Examples include the
following:
o boats
o fancy-dress costumes
o construction and excavation equipment
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 spaces.
Examples include the following:
o theme parks
o golf clubs
o toll roads (Figure 1.13)
Stacy Walsh Rosenstock/Alamy Stock Photo
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 the following:
o a seat in an aircraft
o a suite in an office building
o a storage container in a warehouse
Figure 1.13 Customers rent the right to use toll roads.
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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 the
following:
o telecommunications
o utilities and banking
o 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 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 nonownership perspective: 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 from access to a variety of value-creating elements rather
than transfer of ownership.
DEFINITION OF SERVICES
Services are economic activities performed by one party to another. Often timebased, 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.8
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 high-tech equipment manufacturers Samsung and Siemens—are moving aggressively into service
businesses. Instead of simply bundling supplementary services with their physical
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Medicshots/Alamy Stock Photo
products, quite a few firms are now enhancing certain service elements and marketing
them as standalone services (see the example
of Samsung in Figure 1.14).9
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.”10 More recently, service-dominant (S-D)
logic suggests that all products are valued for
the service they provide, and the value derived
from a physical good is not the good itself but
the service it provides during consumption
(which is termed “value-in-use” ).11
Figure 1.14, Manufacturing giant Samsung offers advanced medical
services at the Samsung Medical Center.
FOUR BROAD CATEGORIES
OF SERVICES—A PROCESS PERSPECTIVE
D
LO 6
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 for
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: people processing, possession processing, mental stimulus processing, and information
processing (Figure 1.15).12 Let’s examine why these four different types of processes often
have distinctive implications for marketing, operations, and human resource management.
Identify the four broad
“processing” categories of
services.
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 1.15 Four broad categories of services.
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gosphotodesign/Shutterstock
People Processing
From ancient times, people have sought out services directed at themselves,
including transportation, food, lodging, health restoration, and beautification (Figure 1.16). To receive these services, customers must enter the service
factory, 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 the following:
c Service production and consumption are simultaneous, which means
that the customers must be physically present in the service factory.
Figure 1.16 A customer
getting pampered to look
more beautiful.
c 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.
c
Customers’ non-financial costs such as (travel) time and mental and physical
effort need to be taken into account and ideally minimized.
c
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, and
demand and capacity management.
Possession Processing
Customers often 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, the broken screen of a smartphone, a parcel that needs to be sent to another
city, or a sick pet (Figure 1.17).
The implications of such services include the following:
c
Production and consumption are not necessarily simultaneous. This allows the
service firm greater flexibility in designing such services for cost-efficiency.
Jeff Gilbert/Alamy Stock Photo
c
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. However, in some cases, 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
Figure 1.17 Repairing the
rail track in the London
Underground is a possessionprocessing service.
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!
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As the core content of the services in this category is information-based, it can be
digitized and made available via downloads. For instance, a classical music concert can
be attended live, viewed or heard live, pre-recorded on TV, or sold as digital recordings
(Figure 1.18). Some key implications that arise from these kinds of services include the
following:
c
Customers do not have to be physically present in the service factory. They only
access the information remotely when they need it.
c
Services in this category can be “inventoried” for consumption at a later date than
their production. For example, the same performance can be consumed repeatedly.
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 1.19), law, marketing
research, management consulting, and medical diagnosis.
Figure 1.18 Orchestral concerts provide mental stimulation and pleasure.
© chrisstockphoto/Alamy Stock Photo
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Ldprod\Shutterstock
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.
Figure 1.19 A young couple
getting financial advice on
buying a new home.
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.
SERVICES POSE DISTINCT MARKETING
CHALLENGES
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.
It is important to recognize that these differences, while useful generalizations,
do not apply equally to all services. Intangibility, for example, ranges from tangibledominant to intangible-dominant (see Figure 1.20 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.
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 widely 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.15 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.
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Table 1.1 Managerial implications of eight common features of services.
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.
• It is harder to evaluate service and
distinguish from competitors.
• Make services tangible through emphasis on
physical clues.
• Employ concrete metaphors and vivid images in
advertising and 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, and offer
guarantees.
• Create confidence in the firm’s experience,
expertise, and credentials.
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 the 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).
• It is harder to maintain consistency,
reliability, and service quality or to
lower costs through higher productivity.
• It is 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, and 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,
apps, and free access by telephone.
• Ensure that all information-based service elements
can be downloaded from the website and/or app.
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 product that will offer value
to target customers and satisfy their needs better than competing alternatives. Service
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High
PHYSICAL ELEMENTS
Salt
Detergents
Music 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 1.20 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 (April 1977): 73–80.
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.
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 an ATM network, doing business by telephone, online banking
on a desktop, and using apps on a smartphone. In particular, many informationbased 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.
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 and uses revenue management tools to adjust price levels over time according
to factors such as the customer segment, time and place of delivery, level of demand,
and available capacity.
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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. Service
marketers must not only set prices that target customers are
willing and able to pay, but they must 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.
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
because intangible elements tend to dominate value creation.
Therefore, an important role of a service firm’s communications is to create confidence in the firm’s experience and
credentials as well as in the expertise of its employees. To do
this, service firms can use physical images and metaphors to
promote service benefits and demonstrate their competencies (Figure 1.23).
The Extended Services Marketing
Mix for Managing the Customer
Interface
Figure 1.21 Time is of the essence—service providers must
be swift and smart in their customer interactions.
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. The following three sections show how service processes differ from
manufacturing processes.
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
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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
Figure 1.22 Money is not
the only consideration when
measuring the cost of a service.
Peter Horree/Alamy Stock Photo
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,
Figure 1.23 Services and offerings can be communicated through
physical images and metaphors.
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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). 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.
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 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, Figure 1.24 Co-producing the service: working out at
the gym under the direction of a personal trainer.
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
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.
MARKETING MUST BE INTEGRATED WITH OTHER
MANAGEMENT FUNCTIONS
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
LO 10
Appreciate that marketing,
operations, human resource,
and IT management functions
need to be closely integrated in
service businesses.
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Naka-stockphoto/Shutterstock
Figure 1.25 Hospitality is shown
through employees wearing
smart outfits and a ready smile.
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.
HR is often seen as a staff function, responsible for job definition,
recruitment, training, reward systems, and the quality of work life.
However, in a well-managed service business, HR managers view 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 cannot afford to have HR specialists
who do not understand customers. Marketing and operations activities
are more likely to be successful when employees have the necessary skills
and training to create and maintain customer satisfaction.
IT is a key function, as many service processes are informationheavy. 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.
LO 11
THE SERVICE–PROFIT CHAIN
Understand the implications
of the Service–Profit Chain for
service management.
T
he Service–Profit Chain is a conceptual framework that shows how marketing,
operations, HR, and IT are integrated in high-performance service organizations.
It holds that when service companies put employees and customers first, there is
a major change in the way they manage and measure success. Firms adopting the
service-profit chain relate profitability, customer loyalty, and customer satisfaction to the value created by
productive employees and supported by customer- and
employee-centric operations and technology:
Operations
Marketing
Customers
Information
Technology
Human Resources
Figure 1.26 Marketing, operations, human resources, and IT
must collaborate to serve the customer.
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, [namely]
investment in people, technology that supports
frontline workers, revamped recruiting and
training practices, and compensation linked
to performance for employees at every level.
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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).
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.
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
Internal
Operating Strategy and
Service Delivery System
External
Service Concept
Target Market
Loyalty
Customers
Satisfaction
Productivity
and
Employees
output
quality
Capability
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.
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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.
LO 12
Know the five-part framework
for developing effective services
marketing strategies.
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 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.
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The key contents of the five parts of this book are
PART I
Understanding Service Markets, Products, and Customers
• Introduction to Services Marketing
• Understanding Service Consumers
• 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
Figure 1.28 Integrated model of services marketing.
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CHAPTER SUMMARY
LO 1 c 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 c The principal industries of the service sector include
(in order of contribution to GDP) the following:
o
Real-estate services
o
Business and professional services
o
Government services
o
Wholesale and retail trade
Mental stimulus and information processing can
collectively be called information-based services.
LO 7 c 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
Transport, utilities, and communications services
o
Healthcare services
o
People may be part of the service experience.
o
Finance and insurance
o
o
Accommodation and food services
Operational inputs and outputs tend to vary
widely (i.e., they are heterogeneous).
o
Arts, entertainment, and recreation services
o
The time factor often assumes great importance.
LO 3 c Many forces are transforming our economies, making
o
Distribution may take place through nonphysical
channels.
them more service-oriented. They include government
policies, social changes, business trends, advances
in information technology, and globalization.
LO 4 c Business services allow manufacturing firms and
other service organizations to outsource non-core
activities, processes, and assets. The benefits
include the following:
LO 8 c 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
or hospitality, or the handling of exceptions.
o
Economies of scale and scope as well as high
quality and productivity levels
o
Tight cost and quality control (performance can
be benchmarked across many sites)
o
Place and time elements refer to the delivery
of the product elements to the customer.
o
Application of process improvements and R&D
o
The rapid growth of business services leads to an
increasing specialization of advanced economies
with significant gains in overall productivity and
standards of living.
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 5 c 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 c Services vary widely and can be categorized
according to the nature of the underlying process.
There are four broad categories of services:
o
People processing
o
Possession processing
o
Mental stimulus processing
o
Information processing
LO 9 c 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
provides tangible evidence of a firm’s image
and service quality.
o
People covers the recruitment, training, and
motivation of service employees to deliver
service quality and productivity.
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CHAPTER SUMMARY
LO 10 c 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 11 c The service–profit chain shows how successful
LO 12 c 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
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
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.
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.
o
Service quality and productivity must be
continuously improved through better
processes, systems and tools, and IT.
o
Service employees must be enabled and
motivated.
o
Top management’s leadership needs to
drive and support all the components of the
service–profit chain.
Understanding Service Markets, Products, and Customers 29
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UNLOCK YOUR LEARNING
LO 1 1 Knowledge-based
industries
2 Service sector
3 Service-driven
economy
LO 2 1 Principle service
industries
2 Contribution to GDP
LO 3 1 Technology
2 Business trends
3 Globalization
4 Government policies
5 Social change
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
LO 5 1 Acts
2 Deeds
3 Economic activities
4 Efforts
5 Non-ownership
6 Performances
7 Rental
LO 6 1 “Inventoried”
2 Information processing
3 Information-based
services
4 Intangible actions
5 Mental stimulus
processing
6 People processing
7 Possession processing
8 Tangible actions
LO 7 1 Heterogeneity
2 Inseparability
3 Intangibility
4 Intangible-dominant
5 Perishability
6 Tangible-dominant
LO 8 1 7 Ps
2 Core product
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
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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 Integrated model
of services marketing
2 Part I: Understanding
service products,
markets, and
customers
3 Part II: Applying the 4
Ps of marketing to
services
4 Part III: Managing the
customer interface
5 Part IV: Developing
customer
relationships
6 Part V: Striving for
service excellence
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
marketeer.
SCORE
01 – 12
13 – 24
25 – 36
Services Marketing is done a great disservice.
The midnight oil needs to be lit, pronto.
I know what you didn’t do all semester.
37 – 48
49 – 60
61 – 73
By George! You’re getting there.
Now, go forth and market.
There should be a marketing concept named after you.
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KNOW YOUR SERVICES MARKETING
Review Questions
6.
Why does services marketing need a special
approach?
7.
“The 4 Ps are all a marketing manager needs to
create a marketing strategy for a service business.”
Prepare an argument that opposes this statement,
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?
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.
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 AI, analytics, robotics,
apps and mobile technologies (e.g., 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.
32 Chapter 1 • Introduction to Services Marketing
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Endnotes
1. Jochen Wirtz, Paul Patterson, Werner Kunz, Thorsten Gruber, Vinh Nhat
Lu, Stefanie Paluch, and Antje Martins, “Brave New World: Service Robots
in the Frontline,” Journal of Service Management 29(5) (2018): 907–931;
and Jochen Wirtz and Valarie Zeithaml, “Cost-Effective Service Excellence,”
Journal of the Academy of Marketing Science 46(1) (2018): 59–80.
2. Roland T. Rust and Ming-Hui Huang, “The Service Revolution and the
Transformation of Marketing Science,” Marketing Science 33(2) (2014):
206–221; and Ming-Hui Huang and Roland T. Rust, “Artificial Intelligence
in Service,” Journal of Service Research 21(2) (2018): 155–72.
3. 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),
pp. 28–46. For firms’ motivation to use non-ownership services, see also Kristina
Wittkowski, Sabine Möller, and Jochen Wirtz, “Firms’ Intentions to Use NonOwnership Services,” Journal of Service Research 16(2) (2013): 171–85.
4. Lesley Brown (ed.), Shorter Oxford English Dictionary, 5th edition (2002).
5. John M. Rathmell, “What Is Meant by Services?,” Journal of Marketing
30 (October 1966): 32–36.
6. Evert Gummeson (citing an unknown source), in “Lip Service: A Neglected
Area in Services Marketing,” Journal of Consumer Services 1 (Summer 1987):
19–22.
Firm Risk,” Journal of Service Research 19(2) (2016): 142–157.
10. From Theodore Levitt, Marketing for Business Growth (McGraw-Hill,
1974).
11. Stephen L. Vargo and Robert R. Lusch, “Evolving to a New Dominant
Logic for Marketing,” Journal of Marketing 68(1) (2004): 1–17; Stephen L.
Vargo and Robert R. Lusch, “Service-Dominant Logic: Continuing the Evolution,” Journal of the Academy of Marketing Science 36(1) (2008): 1–10.
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. An expanded 7 Ps marketing mix was first proposed by Bernard H.
Booms and Mary J. Bitner, “Marketing Strategies and Organization Structures for Service Firms,” in J.H. Donnelly and W.-R. George (eds.), Marketing of Services (Chicago: American Marketing Association, 1981), pp. 47–51.
16. From Gary Knisely, “Greater Marketing Emphasis by Holiday Inns
Breaks Mold,” Advertising Age (January 15, 1979).
7. 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.
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.
8. 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(1) (2005): 107–21.
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).
9. Wolfgang Ulaga and Werner J. Reinartz, “Hybrid Offerings: How
Manufacturing Firms Combine Goods and Services Successfully,” Journal
of Marketing 75(6) (2011): 5–23; Bernhard Dachs, Sabiene Biege, Martin
Borowiecki, Gunter Lay, Angela Jäger, and Doris Schartinger, “Servitisation
of European Manufacturing: Evidence from a Large Scale Database,” The
Service Industries Journal 34(1)(2014): 5–23; Andreas Eggert, Jens Hogreve,
Wolfgang Ulaga, and Eva Muenkhoff, “Revenue and Profit Implications of
Industrial Service Strategies,” Journal of Service Research 17(1) (2014): 23–39;
and Brett W. Josephson, Jean L. Johnson, Babu John Mariadoss, and John
Cullen, “Service Transition Strategies in Manufacturing: Implications for
A meta-analysis of 576 independent datasets confirmed all core relationships of the service-profit chain (SPC). However, additional important direct
effects and moderators were found. For example, internal service quality not
only has direct effects on employee satisfaction but also direct positive effects
on employee productivity, external service quality, and firm profitability. Furthermore, customer responses do not only depend on external service quality.
Rather, customer responses are also directly determined by employee satisfaction and employee productivity. See the full study with its extensive online
appendices for details: Jens Hogreve, Anja Iseke, Klaus Derfuss, and Tönnjes
Eller, “The Service-Profit Chain: A Meta-Analytic Test of a Comprehensive
Theoretical Framework,” Journal of Marketing 81(3) (2017): 41–61.
Understanding Service Markets, Products, and Customers 33
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CHAPTER
2
understanding
SERVICE
CONSUMERS
LEARNING OBJECTIVES (LOs)
By the end of this chapter, the reader should be able to:
LO 1 Understand the three-stage model
of service consumption.
LO 2 Use the multi-attribute model
to understand how consumers
evaluate and choose between
alternative service offerings.
LO 3 Learn why consumers often have
difficulty evaluating services,
especially those with many
experience and credence attributes.
LO 7
Contrast how customers
experience and evaluate highversus low-contact services.
LO 8
Be familiar with the servuction
model and understand the
interactions that together create
the service experience.
LO 9
Obtain insights from viewing the
service encounter as a form of
theater.
LO 4 Know the perceived risks customers
LO 10 Know how role, script, and
LO 5 Understand how customers form
LO 11 Describe how customers evaluate
LO 6 Understand the “moment of truth”
LO 12 Understand service quality, its
face in purchasing services and the
strategies firms can use to reduce
consumer risk perceptions.
service expectations and the
components of these expectations.
Tonobalaguer/123RF
metaphor.
perceived control theories contribute
to a better understanding of service
encounters.
services and what determines
their satisfaction.
dimensions and measurement, and
how quality relates to customer
loyalty.
LO 13 Know why customer loyalty is
such an important outcome of
excellent service experiences.
Figure 2.1 New York University is the gateway to
a brighter future for students like Susan Munro.
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SUSAN MUNRO, SERVICE
CONSUMER1
Christo\Shutterstock
Susan Munro, a final-year business student, had breakfast and
then checked the weather app on her iPhone. It predicted rain, so
she grabbed an umbrella before leaving the apartment. On the
way to the bus stop, she dropped a letter in a mailbox.The bus
arrived on schedule. It was the usual driver, who recognized her
and greeted her cheerfully as she showed her commuter pass.
On arriving at her destination, Susan walked to the
College of Business. Joining a crowd of other students, she
found a seat in the lecture theater where her marketing class
was held. Susan made several contributions to the discussion
and felt that she had learned a lot from listening to others’
analyses and opinions.
After class, Susan and her friends ate lunch at the recently
renovated Student Union. It was a well-lit and colorfully
decorated food court, featuring a variety of small stores.These
included both local suppliers and brand-name fast-food chains.
Although Susan wanted a sandwich, there was a long queue
at the Subway outlet. Instead, she joined her friends at Burger
King and then splurged on a caffe latte from the Have-a-Java
coffee stand. The food court was unusually crowded, perhaps
because of the rain. When they finally found a table, they had to
clear away dirty trays. “Lazy slobs!” her friend Mark remarked,
referring to the previous customers.
After lunch, Susan stopped at an ATM, inserted her bank
card, and withdrew some money.Then she remembered that she
had a job interview at the end of the week, so she telephoned her
hairdresser and made an appointment for later. When she left the
Student Union, the rain had stopped and the sun was shining.
Susan looked forward to her visit to the hairdresser. The
store, which had a bright, trendy décor, was staffed by friendly
hairdressers. Unfortunately, the hairstylist was running late,
and Susan had to wait for 20 minutes. She used that time to
review a human resources course.
Eventually, it was time for a shampoo, after which the
hairstylist proposed a slightly different cut. Susan agreed,
although she drew the line at the suggestion that she
lighten her hair color. She had never done it before and was
unsure about how it would look. She did not want to take
the risk just before her job interview. She sat still, watching the process in the mirror and turning her head when
asked. She was pleased with the result and complimented
the hairstylist on his work. She tipped him and paid at the
reception desk.
On the way home, Susan stopped by the dry cleaners
to pick up some clothes. The store was gloomy and smelled
of cleaning solution, and the walls needed repainting. She
was annoyed to find that although her silk blouse was ready
as promised, the suit that she needed for the interview was
not. The assistant, who had dirty fingernails, mumbled
an apology in an insincere tone. Although the store was
conveniently located and the quality of work was good,
Susan thought the employees were unfriendly and unhelpful, and she was unhappy with their service. However, she
had no choice but to use them as there were no other dry
cleaners nearby.
Back at her apartment building, she opened the mailbox
in the lobby. Her mail included a bill from her insurance
company. However, it required no action, as the payment had
been deducted automatically from her MasterCard account.
She was about to throw away the junk mail when she noticed
a flyer promoting a new dry-cleaning store nearby. It even
included a discount coupon. She decided to try out the new
firm and kept the coupon.
This story of Susan’s day as a service consumer will
follow us throughout this chapter to illustrate service-related
consumer behavior concepts and theories.
PART
PART II
OPENING VIGNETTE
Figure 2.2 Susan is just another customer
facing a large selection of services out there.
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Stages of Service Consumption
1. Pre-purchase Stage
Key Concepts
Awareness of need
Information search
• Clarify needs
• Explore solutions
• Identify alternative service products and suppliers
Need arousal
Evaluation of alternatives (solutions and suppliers)
Multi-attribute model
• Review supplier information
(e.g., websites, brochures, advertising)
• Review information from third parties
(e.g., online reviews, ratings, comments on the
web, blogs, awards)
• Discuss options with service personnel
• Get advice and feedback from third-party advisors,
friends and family, other customers
Search, experience, and
credence attributes
Evoked set
Consideration set
Perceived risk
Formation of expectations
• Desired service level
• Predicted service level
• Adequate service level
• Zone of tolerance
Make decisions on service purchase and
often make a reservation
2. Service Encounter Stage
Request service from a chosen supplier or initiate selfservice (payment may be upfront or billed later)
Service delivery by personnel or self-service
Low- versus high-contact encounters
Servuction system
Theater as a metaphor
Role and script theories
Perceived control theory
3. Post-encounter Stage
Evaluation of service performance
Confirmation/disconfirmation of
expectations
Dissatisfaction, satisfaction,
delight
Service quality
Future intentions and behaviors
Word of mouth
Repurchase
Loyalty and engagement
­Figure 2.3 The three-stage model of service consumption.
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THE THREE-STAGE MODEL OF SERVICE
CONSUMPTION
LO 1
Understand the three-stage
model of service consumption.
S
usan Munro’s story shows consumer behavior in a variety of situations and stages. In
marketing, it is very important to understand why customers behave the way they
do. How do they make decisions about buying and using a service? What determines
their satisfaction with it after consumption? Without this understanding, no firm can
hope to create and deliver services that will satisfy customers.
Service consumption can be divided into three main stages. These are the
pre-purchase, service encounter, and post-encounter stages. Figure 2.3 shows that
each stage consists of several steps. The pre-purchase stage includes awareness
of need, information search, evaluation of alternatives, and making a purchase
decision. During the service encounter stage, the customer initiates, experiences, and consumes the service. The post-encounter stage includes evaluation
of the service performance, which determines future intentions such as wanting
to buy again from the same firm and recommending it to friends. The rest of
this chapter is organized around the three stages and the related key concepts of
service consumption.
PRE-PURCHASE STAGE
T
he pre-purchase stage begins with need awareness, which is followed by information
search and, in turn, by evaluation of alternatives, and it ends with the decision
on whether or not to buy a particular service.
When a person or organization decides to buy or use a service, it is triggered by an
underlying need or need arousal. The awareness of a need will lead to a search for information and the evaluation of alternatives before
a decision is reached. Needs may be triggered by
c
people’s unconscious minds (e.g., personal
identity and aspirations)
c
physical conditions (e.g., Susan Munro’s
hunger, which led her to Burger King)
c
external sources (e.g., social media or a service
firm’s marketing activities)
Susan Munro’s need for hair styling, for example,
was triggered when she remembered that she had
a job interview at the end of the week. She wanted
to look her best for the interview. Needs and wants
are continuously developing. One example is the
growing demand for novel and innovative service
experiences, including extreme sports such as
paragliding (see Figure 2.4).
Mikadun/Shutterstock
Need Awareness
Figure 2.4 As activities such as paragliding are becoming more
popular, there is an increase in the number of service providers
offering these sports.
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