Type:
Solution Manual
Resource:
Essentials of Services Marketing
Edition:
4th Edition
Author(s):
Jochen Wirtz
TEACHING INSIGHTS FOR THE CHAPTERS OVERVIEW In this section, you’ll find the following teaching material for each of the 15 chapters: • • •
Learning objectives. Teaching suggestions. Brief answers to the end-of-chapter review questions and comments on what to expect of students from each of the application exercises. Note that review questions can either form the basis for in-class discussions or be assigned as written work. Many review questions and application exercises would work well for quizzes or exams.
Additional teaching resources can be found in Section 4. Table 4-1 provides suggestions on which exercises could be used with the chapters, which will encourage students to get actively involved with the course material.
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CHAPTER 1 INTRODUCTION TO SERVICES MARKETING
LEARNING OBJECTIVES By the end of this chapter, students should be able to
(LO 1) Understand how services contribute to a country’s economy. (LO 2) Know the principal industries of the service sector. (LO 3) Identify the powerful forces that are transforming service markets.
(LO 4) Understand how B2B services improve the productivity of individual firms and drive economic development.
(LO 5) Define services using the non-ownership framework. (LO 6) Identify the four broad “processing” categories of services. (LO 7) Be familiar with the characteristics of services and the distinctive marketing challenges they pose.
(LO 8) Understand the components of the traditional marketing mix applied to services.
(LO 9) Describe the components of the extended marketing mix for managing the customer interface.
(LO 10) Appreciate that marketing, operations, and human resource management functions need to be closely integrated in service businesses.
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(LO 11) Understand the implications of the service–profit chain for service management.
(LO 12) Know the framework for developing effective services marketing strategies.
CHAPTER OUTLINE (L01) Understand how services contribute to a country’s economy Services dominate almost all types of economies today. The service sector accounts for a majority of the gross domestic product in all industrialized countries and provides most of the new jobs in many developing and highly developed nations worldwide. (LO2) Know the principle industries of the service sector Figure 1.8 shows various service industries and their contributions to U.S GDP. The service sector is a very diverse sector with contributions from various industries that target individual and business customers. Key industries are: • Government services • Real Estate • Wholesale and Retail trade • Business and Professional service • Finance and Insurance • Healthcare services • Transport, utilities and communication services • Accommodation and food services • Arts, entertainment and recreation services (L03) Identify the powerful forces that are transforming service markets • Changes in government policies • Social changes • Business trends like productivity and cost savings, franchising • etc. • Advances in information technology • Internationalization and • Globalization
Digital and technological revolution related to robotics, AI, Analytics, big data and Internet of Things (IoT), mobile, geo tagging, biometrics, text-speech-image processing and virtual reality has dramatically improved the way services are delivered .
and experienced by the customer.
(LO4) Understand how B2B services improve the productivity of individual firms and drive economic development Many manufacturing firms outsource their non-core support activities to independent service providers that focus on providing those activities in cost-efficient structures. This development leads to an increased specialisation with significant improvements in overall productivity and living standards. (L05) Define services using the non-ownership of service framework • •
Services are distinguished as benefits without ownership. 5 broad categories within the non-ownership framework o Rented goods services – provides customers with temporary right to exclusive use of physical good o Defined space and place rentals – obtain a defined portion of a larger space and sharing its use with other customers, under varying degrees of privacy o Labor and expertise rentals – hire others to work that they either choose not to do, or lack the necessary expertise and tools to do o o
Access to shared physical environments – may be located indoors or outdoors or a combination Systems and networks: access and usage – rent the right to participate in specified networks like telecommunications, utilities etc.
(L06) Identify the four broad “processing” categories of services Figure 1.15 highlights the four broad categories of services, such as: 1) people processing 2) possession processing 3) mental stimulus processing 4) information processing (L07) Be familiar with the characteristics of services and the distinctive marketing challenges they pose The most common characteristics of services are often cited as intangibility, heterogeneity, inseparability and perishability. These can
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be translated further into eight common differences between products and services: • Most goods cannot be inventoried • Intangible elements dominate value creation • Services are often difficult to visualise • Customers may be involved in co-production • People may be part of the service experience • Operational inputs and outputs tend to vary more widely • The time factor often assumes great importance • Distribution may take place through non-physical channels. It is important to note that these differences are useful generalisations and do not apply equally to all services. Table 1.1 gives managerial implications and challenges these differences pose. (L08) Understand the components of the traditional marketing mix applied to services Strategies to market manufactured goods usually address the traditional four elements of the marketing mix—product, price, place, and promotion. These four Ps, when applied to services, have additional considerations: 1) Product elements: All components of the service performance that create value for customers. 2) Place and time: When, where, and how to deliver services to customers. 3) Price and other user outlays: All the outlays incurred by customers in obtaining benefits from the service product costs of service, including money, time expenditures, physical and mental effort, and exposure to negative sensory experiences. 4) Promotion and education: All communications activities and incentives designed to inform and educate customers, build preference for a particular service, and encourage them to take action. Services are often difficult to visualize due to intangible elements, so service firms must create customer confidence over firm’s experience, credentials, and expertise. (L09) Describe the components of the extended marketing mix for managing the customer interface In addition to the traditional 4Ps, services include the following additional Ps in their marketing mix:
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Processes: It is how a firm does things by designing and implementing processes for the creation and delivery of services. Since services are variable, the operational inputs and outputs can vary widely also and often customers are involved in co-production to design a suitable process. In services processes are often not a smooth flow because services cannot be inventoried, thus wait systems are built into the service process. Physical Environment: The “servicescape” of the service is its physical environment including building, vehicles, landscape, interior and all other visible cues. People: Services are often delivered through people therefore the selection, training and motivation of the service employees is essential. (LO10) Appreciate that marketing, operations, and human resource management functions need to be closely integrated in service business. The key deliverables and objectives of these various functions need to compatible and mutually reinforcing and tightly integrated. In service organisations, operations functions are actively involved in the design of products and processes to improve productivity and quality. HR provides quality front-line service providers to ensure the service experience and IT provides real-time information at every customer touch-point to create value with updated customer data. (LO11) Understand the implications of the Service-Profit Chain for Service Management Figure 1.27 provides the Service-Profit chain and explains how internal operating strategies of workplace design, rewards and recognition, adequate employee training yield higher service quality and this in turn leads to revenue growth and profitability through customer loyalty and satisfaction. (LO12) Know the framework for developing effective service marketing strategies The framework for services marketing strategies is the same as the structure of this book. The 5 parts of this structure are provided on Pages 26 and 27 and involve understanding of services, applying 4Ps to services, using the additional 3Ps to design and manage customer interface, developing customer relationships and quality management in services using Gaps model to move to higher levels of performance.
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TEACHING SUGGESTIONS Chapter 1 provides students with an introduction to some of the basic concepts of service marketing and management. It’s important to spend enough time to make sure students really comprehend this material, because conceptual frameworks and background information introduced in this chapter will underlie topics discussed in later chapters. Forces for change. There are several interesting ways to approach this topic. You can ask students to find a print ad illustrating one of the forces for change in service management (see Figure 1.9) and to write a one-page paper discussing the ad and the applicable force(s). If students turn in their ads and papers in advance of class, you can make overheads of the best ads and ask the students who submitted them to describe why they chose the ads. Non-ownership of services. This is a fresh perspective on services and advances our thinking in this area. This should be impressed upon students and they can be encouraged to challenge this view to see if they can find exceptions. Differences between goods and services. It’s very helpful to use services that are familiar to students to illustrate the distinguishing characteristics of services. Banking, insurance, airlines, service garages, hotels, and broadcasting/cable provide good starting points. As the course proceeds, however, you should start introducing professional and business-to-business services. Seven Ps. When you introduce the 7 Ps, you should clarify how this framework differs from the 4 Ps of the traditional marketing mix (especially if students have previously taken an introductory marketing management course). Students should be advised that the 7 Ps framework will be revisited in subsequent chapters. In fact, each component of the 7 Ps forms the topic of a separate chapter. Students can be assigned Application Exercise 3, which asks them to show how each of the 7 Ps relates to a specific service. Service-Profit Chain. Service-profit chain is an important guiding philosophy of this book and it demonstrates the links in the managerial process that are essential for success in service business. Figure 1.27 describes these links that are both internal and external to the organization. Application Exercise 4 can be assigned to the students to discuss service quality improvements suggested through Service-Profit Chain.
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QUESTIONS AND EXERCISES Review Questions 1. What are the main reasons for the growing share of the service sector in the major economies of the world? Increased productivity and automation in agriculture and industry, combined with growing demand for both new and traditional services, have jointly resulted in a continuing increase over time in the percentage of the labor force that is employed in services. Increased international trade and tourism drives demand for freight and passenger transportation, international finance, communications, and hotel entertainment, and food services. Increased spending on services by individuals is often associated with higher standards of living. People eat out more, take more vacations, spend more on entertainment, and employ other people to undertake household chores they used to undertake for themselves. Similarly, as companies become larger and more sophisticated, they may choose to outsource so-called internal services such as recruitment, legal and accounting services, payroll administration, office cleaning, landscape maintenance, supply-chain management, advertising, etc. to specialist subcontractors. When such tasks are outsourced, they become part of the competitive marketplace and are therefore more easily identifiable as contributing to the services component of the economy. Technology has resulted in the creation of entire new service industries. 2. What are the five powerful forces transforming the service landscape and what impact do they have on the service economy? The five powerful forces are: • Government policies • Social changes • Business trends • Advances in information technology • Globalization Refer to Figure 1.10 for a more detailed explanation.
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3. Why would growth in business services help individual firms and entire economies become more productive? A key driver of successful economies is their ecosystem of advanced, competitive and innovative business services. Many manufacturing firms have recognised the importance of outsourcing their non-core support activities to other specialised service providers that have more costefficient structures. This development results in the growth of B2B service sector and helps these specialised firms run successful businesses and in the broader perspective, better economic productivity creates more jobs and improves the overall standard of living. 4. “A service is rented rather than owned.” Explain what this statement means, and use examples to support your explanation. In service consumption, ownership does not occur, but customers value and are willing to pay for desired experiences and solutions. Services deliver these through a form of rent or access through which customers can obtain the desired benefits. Examples of such renting of services include hotel room reservations, car repair, medical check-up, and airplane seats. 5. Describe the four broad “processing” categories of services, and provide examples for each of them. Figure 1.15 highlights the four broad categories of services, such as: •
People processing (directed at people’s bodies): hair stylists, healthcare • Possession processing (directed at physical possessions): refueling, recycling • Mental stimulus processing (directed at people’s minds): education, training, advertising/ PR consultancy • Information processing (directed at intangible assets): accounting, financial 6. What is so special about services marketing that it needs a special approach? Each of the eight distinctive characteristics of services listed in Table 1.2 has important implications for marketing strategy. •
No ownership o Customers obtain temporary rentals, hiring of personnel, or access to facilities and systems. o Pricing often based on time. o Customer choice criteria may differ for renting versus .
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purchase—may include convenience, quality of personnel. Can’t own people (no slavery!) but can hire expertise and labor.
Services cannot be inventoried after production o Service performances are ephemeral—transitory, perishable. o Exception—some information-based output can be
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recorded in electronic/printed form and reused many times. Balancing demand and supply may be vital marketing strategy. Targeting right segments at right times at right price is often key to profitability. Marketers must determine whether benefits are perishable (e.g., meal, entertainment, hotel night) or durable (e.g., many surgeries, education).
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Customers may be involved in production process o Customer involvement includes self-service and cooperation with service personnel. o Think of customers in these settings as “partial employees.” o Customer behavior and competence can help or hinder productivity, so marketers need to educate, train customers. o Changing nature of service delivery process may affect role played by customers in that process. o Design service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedules.
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Intangible elements dominate value creation o Understand value added by labor and expertise of service personnel. o Effective HR management is critical to achieve service quality. o Try to make highly intangible services more “concrete” by creating and communicating physical images or metaphors and tangible clues.
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Other people are often part of the service product o Achieve competitive edge through perceived quality of employees. o Ensure job specs and standards for front-line service personnel reflect both marketing and operational criteria. .
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Recognize that appearance and behavior of other customers can influence service experience positively or negatively. Avoid inappropriate mix of customer segments at same time. Manage customer behavior (the customer is not always right!).
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Greater variability in operational inputs and outputs o Must work hard to control quality and achieve consistency. o Seek to improve productivity through standardization, and by training both employees and customers. o Need to have effective service recovery policies in place because it is more difficult to shield customers from service failures.
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Often difficult for customers to evaluate services o Educate customers to help them make good choices, avoid risk. o Tell customers what to expect, what to look for. o Create trusted brand with reputation for considerate, ethical behavior. o Encourage positive word-of-mouth from satisfied customers.
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Time factor assumes great importance o Offer convenience of extended service hours, even 24/7. o Understand customers’ time constraints and priorities. o Minimize waiting time. o Look for ways to compete on speed.
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Distribution channels take different forms o Tangible activities must be delivered through physical channels. o Use electronic channels (e.g., the Internet, telephone) to deliver intangible, information-based activities, expand geographic reach, and achieve instantaneous delivery, anywhere.
7. “The 4 Ps are all a marketing manager needs to create a marketing strategy for a service business.” Prepare a response that argues against this and support it with examples. The traditional 4 Ps provides a starting point for marketing services but falls short of providing the full array of tools and strategic elements needed. We have to recast the existing 4 Ps (for instance, .
speaking of time as well as place) and introduce new elements that address management of the physical environment to create differentiation and shape service experiences, people management to account for the important role of both service providers and other customers in the service experience, and process to help us understand and manage the customer’s involvement in service delivery. Management must look into the other 3 Ps as well: process and productivity, people and physical environment in order to stay ahead of the competition. Students need to elaborate on the advantages/ strengths of concentrating on the other 3 Ps in their argument. 8. Why do the marketing, operations, human resource management and IT functions need to be closely coordinated in service organizations? The integrated model of service marketing in Figure 1.28 requires a close coordination between operations, human resource management and IT for it to be fully productive. Figure 1.26 presents the interdependency of these functions to meet customer needs. In service organisations, operations functions are actively involved in the design of products and processes to improve productivity and quality. HR provides quality frontline service providers to ensure the service experience and IT provides real-time information at every customer touch-point to create value with updated customer data. 9. What are the implications of the service-profit chain for service management? One of the biggest implications of the service-profit chain is how the leadership role from top management underlies the chain’s success. This leadership role will be the driver for internal quality delivered by operations, IT and other departments to improve employee satisfaction which can lead to employee loyalty and can drive the quality and productivity of service upwards resulting in higher customer satisfaction and loyalty that will eventually result in growth and profitability. 10. What are the key elements in the framework for developing effective service marketing strategies? A framework for service marketing strategy follows five interlinked parts: • Part I: Understanding consumer, markets and competition • Part II: Apply traditional 4Ps to service marketing • Part III: Manage the 3Ps of extended service marketing mix into the customer interface • Part IV: Develop lasting customer relationships using Wheel of Loyalty and CRM • Part V: Improve service quality and productivity APPLICATION EXERCISES .