Marketing in the “New” Economy CRM Service Marketing Internet Marketing Int’l Marketing

SERVICES

Service Perspectives: Not a “Product” Intangible human act- that is produced at the time of consumption & can’t be standardized or inventoried… No One- Automation, Virtualization & Outsourcing No Difference- Products are just appliances that provide services- Shift perspective from Mfgr to consumer… and focus on benefits

Defining -a Service An act or performance offered by one party for another An economic activity that does not result in ownership A process that creates benefits by facilitating a desired change in: customers themselves –get a haircut physical possessions- get a wig intangible assets- get therapy 4

Service as process…. People Processing Mental Stimulus Processing Who / What is Direct Recipient of the Service? DIRECTED AT POSSESSIONS DIRECTED AT PEOPLE What is the Nature of the Service Act? People Processing Possession Processing TANGIBLE ACTS e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers e.g., transport, repair, cleaning, landscaping, retailing, recycling Mental Stimulus Processing Information Processing (directed at intangible assets) INTANGIBLE ACTS e.g., accounting, banking, insurance, legal, research e.g. media, consulting, education, psychotherapy

Importance of Service Sector In most countries, services add more economic value than agriculture, raw materials and manufacturing combined In developed economies, employment is dominated by service jobs and most new job growth comes from services http://earthtrends.wri.org/searchable_db/index.php?action=select_countries&theme=5&variable_ID=216

Changing Structure of Employment as Economic Development Evolves Share of Employment Agriculture Services Industry Time, per Capita Income Source: IMF, 1997

Waves of Change.. % US WORK-FORCE THE PROPORTION OF AMERICANS WORKING IN SERVICES BANKING, INSURANCE, CONSULTING, SOFTWARE DESIGN, HEALTH CARE, ENTERTAINMENT CONTINUES TO GROW. IT IS THESE SERVICE WORKERS WHO WILL BE AFFECTED MOST BY DIGITAL DOCUMENT PROCESSING SYSTEMS OF ALL TYPES. The Economist, 1996

http://seekingalpha.com/article/27883-gdp-by-category-services-spending-and-foreign-investments-in-u-s

At present …in U.S. Services account for ~80% of U.S. GDP ~80% workers are in service sector Services account for ~80% of U.S. GDP Service occupations is responsible for ~90% job growth Composition of US GDP In 2007, 1.2 percent of total US GDP was contributed by agricultural sector. Industrial sector made up 19.8 percent of US GDP in 2007. Services sector made up 79 percent of US GDP in that same period http://www.economywatch.com/gdp/world-gdp/usa.html

Fast growing services -next decade- predicted by macro-environmental trends.. More People: working more, living longer, living alone: Social services Health services Residential care Child day-care Finance, Insurance, Real estate Changes in workplace- automation, globalization: Computer & data processing Business services Transportation Increased need/desire to recreate & communicate: Hospitality & Travel Interactive Entertainment Mobile Communication

Services dominate the United States Economy: GDP by Industry, 2001 Agriculture, Forestry, Mining, Construction 8% Finance, Insurance, Real Estate 20% Manufacturing 14% Government (mostly services) 13% Wholesale and Retail Trade 16% Other Services 11% Transport, Utilities, Communications 8% SERVICES Business Services 5% Health 6% Source: Bureau of Economic Analysis, November 2002

US likely to devote "30 %+ GDP on health by mid century." http://seekingalpha.com/article/27883-gdp-by-category-services-spending-and-foreign-investments-in-u-s

Critical Questions What is the “debate” all about regarding how services should be defined / envisioned? How does the definition of a service affect your marketing strategy? 2. What are the key P’s to meeting service management challenges? 3. What are some of the factors & considerations affecting the near future of “services” marketing?

In the olden days- (a few years ago)… A Service was defined “categorically” according to its “tangibility”….. Pure service; no tangible good Major service with minor good Hybrid: equal part goods and service Tangible goods with some services Pure tangible good; no service Milk Computer & Warranty Meal at Restaurant Hair Styling Legal Advice

Product - Service Spectrum Salt  Soft Drinks  Pure Service Tangible Good w/ Services Major w/ Goods Hybrid Detergents  Automobiles  Cosmetics  Fast-food Outlets  Intangible Dominant Tangible Dominant   Fast-food Outlets  Advertising Agencies  Airlines  Investment Management  Consulting Teaching

Customer Evaluation as a Function of Tangibility

unlike products Intangibility Services cannot be experienced before purchase Inseparability Services cannot be separated from their providers unlike products Variability Quality of services depends on who provides them & when, where, & how Perish-ability Services cannot be stored for later sale or use

Intangibility Services mrktg: Describe the invisible Articulate the imaginary & Define the indistinct

Inseparability Performance & consumption of service - happens at same time (eating @ restaurant, staying @ hotel; getting haircut, etc) Customers participate in & affect the transaction Customers affect each other

Variability-Heterogeneity Difficult to standardize Delivery, Quality & Customer Satisfaction depend on employee actions Employees vary -attitudes, skills, mood, etc. No assurance service delivered matches what was planned/ promoted

Perishability Can not be inventoried Difficult to synchronize supply & demand with services Services cannot be returned or resold

Marketing Strategies that address “shortcoming” Intangibility use tangibles to create/convey identity -signs, uniforms, imagery Good hands of Allstate/ Traveler’s Umbrella/ Prudential Rock Inseparability simultaneous production & consumption importance of service provider selection, training and rewarding of staff avoid customer conflict Inseparability Increase professionalism of employees Intangibility “Tangibilize” the intangible Marketing Strategies that address “shortcoming” standardization difficult Constantly monitor- regularly evaluate staff Systemize/franchise production & marketing Variability Perish-ability consumption cannot be stored match supply and demand use of part-time staff differential pricing stimulation of off-peak demand comfortable waiting area reservation system Variability Systematize service production & delivery Perish-ability Match supply & demand

Re: service marketing – for decades this has been the thinking- But is it the

Do not distinguish services from goods The Four Service Marketing Myths: Remnants of a Goods-Based, Manufacturing Model The 4 characteristics: Do not distinguish services from goods Only have meaning from a manufacturing perspective, and Suggest inappropriate marketing strategies

Key Point- Product-service differentiation is result of industrial age-2nd wave thinking Re- Variabilty: Customizaton not standardization is the goal Re-Inseparability: “Customer-ization” not isolation = goal Re-Perishability: Services can be/are inventoried (ie-knowledge in databases & experts head) AND Inventory management not maximization is the objective; Everything is perishable—if not in substance certainly in style… Re: Intangibility: its not the product that people are buying. It’s the functions served & benefits rendered- as it is w/ services

Instead of focusing on product – service differences A shift in perspective Instead of focusing on product – service differences …Focus on consumer commonalities …in “consuming & evaluating” that which is purchased

Critical Questions What is the “debate” all about regarding how services should be defined / envisioned? How does the definition of a service affect your marketing strategy? 2. What are the key P’s to meeting service management challenges? 3. What are some of the factors & considerations affecting the near future of “services” marketing?

Challenges for Service Mgt Same as Product Mgt Creating & offering the consumer value Communicating a desired & distinct image Create, sustain & enhance customer relationships Defining- maintaining- improving quality Mind the gaps….

Service Quality Gaps Expectations Consumer Overpromising Marketer Word of Mouth Communications Personal Needs Past Experience Expected Service Expectations Consumer Perceived Service Overpromising Marketer External Communications to Consumers Service Delivery Performance Misunderstanding Service Quality Specs Communication Mgmt. Perceptions of Consumer Expectations

Closing the gaps by fine tuning 4 Service P’s ~People ~Process ~Physical Evidence ~Protocol

People are your Product In many instances-people performing the service are the product They are the service and/or organization in customer’s eyes. They are the brand.

Recruit, Hire, Train, Monitor, Motivate, Reward Why customer satisfaction starts with HR Delivering excellent service: Lessons from the best firms

Marketing-to personnel is as important as to consumers External Marketing Internal Marketing Employees Customers “enabling the promise” Services Mgt Triangle “setting promises” Performance/ Experience Management “delivering promises”

Process Trade-off between Standardization & Personalization Same as w/ Products Limiting the variability in your service by standardizing the process of delivery & level of consumer involvement will lower expenses but comes w/ a cost: “Although standardization may provide for manufacturing efficiency, this efficiency comes at expense of marketing effectiveness. .. the consumer orientation screams heterogeneity” Vargo & Lusch: The Four Service Marketing Myths

The importance of Physical Evidence in the “Service Encounter” At Moment of Truth when service delivered & evaluated by consumer– everything in evidence contributes to the consumer's evaluation of the service… Be it a website, restaurant, office, hotel room or theme park…it needs to be designed & packaged as well as any product What the customer sees -- hears, smells, feels-is what s/he’ll believes they will get… Colors, textures, sounds, smells, décor, dress, demeanor…everything in evidence needs attention and management…

It’s the little things that count How you design your service encounter is critical in a highly competitive market where consumers hard pressed to discern a significant difference in service performance … Herein the design of your service encounter will prove the most critical variable in your marketing mix Again – a lesson proven equally valid for products---

Identifiable apparel: An image-making marketing tool By ~ 8-to-1 ratio, US consumers prefer employees wear identifiable apparel

A good uniform makes all the difference

Identifiable apparel: An image-making marketing tool 1. Improves your image: Customers equate a professional-looking worker w/ a well-run company 2. Increases employee commitment: Adding employee's name can boost morale & loyalty 3. Provides a popular employment "perk":. 4. Shows off your firm's experience and expertise: "certification" -job titles, slogans & performance emblems on shirts/ sleeves…

Instill Proper Protocol so as to avoid the air of indifference Most common aspect of service complaints is lack of respect for the customer.

Why services lose customers ~3 ______% move away _______% lost due to competitive reasons and/or unhappy w/ the service ______% suspend patronage because of an attitude of indifference from owner, manager or an employee ~30 ~67

What Customers Desire: 2500 shoppers said courtesy, knowledge & friendliness are most important components of customer service.

The Multiplier Effect When a customer has a minor service problem: In transactions >$100 - s/he will tell 9 to 10 people. In transactions over $100, s/he will tell 16 people. TARP statistics.

Percent of Customers That Will Not Buy Again Time is Money (Lost Customers) 20% 25% 45% 55% 80% 90 70 50 30 10 Percent of Customers That Will Not Buy Again Minutes Hours Days Weeks Months Time Taken to Resolve a Customer’s Problem *Source: Forum Corporation

Where and Who Complains Most complaints made to service provider (employee) at time & place of service Less than 5% of complaints about services ever reach corporate headquarters. High-income households, younger people, and service-knowledgeable customers are more likely to complain.

Actively Encourage Complaints Average company does not hear from 95% of its unhappy customers. Many complaints go unregistered because customers do not think it will help and/or do not know best way to register complaint Encouraging complaints is a good way to “break the silence.”

Attitude is Crucial Customers value acknowledged w/ every transaction… Customers lose confidence when: Complaints not readily or personally addressed

E-pologies? Email response should include options/names & telephone numbers for further assistance.. Tarp Research -

Service Guarantees Relatively new w/ respect to services. Service guarantees provide both consumer & business benefits:

Service Guarantee: Customer Benefits Customers perceive better value. Lower perceived risk. Higher perceived reliability Reinforces customer loyalty

Service Guarantee: Organizational Benefits Forces firm to focus on customer. States a clear performance goal. Provides measures for tracking poor service. Forces examination of service delivery system. Source of pride.

Critical Questions What is the “debate” all about regarding how services should be defined / envisioned? How does the definition of a service affect your marketing strategy? 2. What are the key P’s to meeting service management challenges? 3. What are some of the factors & considerations affecting the near future of “services” marketing?

Services Future

Exact nature of Future Changes- depends on nature of the Service Network Information Services: banking, credit card, insurance, telecom Retail Hospitality: travel, restaurants, lodging, leisure, hotels Labor & Expertise: Business Support: administration-processes, consulting, customer service Personal & Professional: medical, legal, financial, technical assistance UCT Enhanced Self-Service IncreasinglyOutsourced IncreasinglyVirtualized

Ubiquitious ComPunication Technologies 3G videophones w/ broadband – 2 meg per second – always online for self-service Mobile Kiosks AI Enhanced PDA devices w/ speech recognition & avatars RFID – everywhere & in everything

RFID- everywhere & in everything SmartCode making 0.25mm chips target cost 5-10 cents ..w/ 15-20 feet range Manufacturing capacity 10+ billion a year

UCT in Everything you wear- washable garments w/ miniaturized in-ear speakers /solar cells to provide energy. technology woven into fabric, components allowing many functions to be almost `built in' to our bodies, creating a `second skin'.

UCT Enhanced Jewelry embed functional technology into jewelry & body accessories -- rings, necklaces, earrings, glasses and watches. - - for body adornment and for more intimate and discreet communication, information gathering and entertainment.

Invisible, intelligent wireless tickets Can be read in your pocket at 25 metres Ultra-wide band frequency “One-ticket fits all”

RFID Shopping App’s Future grocery shopping- integrated –info system

Exact nature of Future Changes- depends on nature of the Service Network Information Services: banking, credit card, insurance, telecom Retail Hospitality: travel, restaurants, lodging, leisure, hotels Labor & Expertise: Business Support: administration-processes, consulting, customer service Personal & Professional: medical, legal, financial, technical assistance UCT Enhanced Self-Service IncreasinglyOutsourced IncreasinglyVirtualized

Predicting a diverse future: Directions and issues in the marketing of services European Journal of Marketing ; Bradford; 2002; Angus Laing “Driven by technological developments, deregulation, and globalization - the service sector in post-industrial economies is facing unprecedented change”

Increasing importance of technological mediation… Virtual Experiences Redefining concept of- “Service Encounter” The Moment of Truth when a service is delivered & evaluated by consumer

Commodification… standardized "off-the-shelf" service packages Pre-Packaged, fill in the blank, instant-service forms & queries Some Computer generated…Expert-system managed… Responses

Professional Services To date-- characterized by high levels of limited/regulated interpersonal interaction NOW- 24/7 “access to specialist technical information, formerly the preserve of professionals, …fundamentally changed the informational asymmetries which have conventionally characterized the delivery of professional services” http://www.psychadvisor.com/counsel/index.cfm Free Advice on Any Topic Online From America's Elders Personal Reply to Each Request www.ElderWisdomCircle.org

“Technologically driven productivity growth is-most important factor in shaping employment in U.S. & every country in the world. Productivity growth substitutes technology &/or more efficient techniques for physical & mental labor Inventors & investors always figure out ways to replace people with machines” Automation- 1 ,2 ,3

Restaurants without waiters

Ultimately most all your service needs will be handled by & thru your AI enhanced PDA…

Recession creating a lost generation “With the ruthlessness of Skynet in "The Terminator," computerization in the tertiary sector is now committing mass Dilberticide, replacing receptionists with automated phone systems and travel agents with services like Priceline. Why Dilbert is doomed The jobs of tomorrow are not what you'd expect Recession creating a lost generation

mechanization of agriculture & mining -- freed up labor for factories… "primary production” mechanization of agriculture & mining -- freed up labor for factories… automation in manufacturing freed up workers for-office work Computers & AI in the office- -free up workers for…..? "secondary production "tertiary production" As it has always done in the past, labor will shift from more mechanized to less mechanized sectors…. But what will those jobs be?

The jobs of tomorrow are not what you'd expect The most numerous & stable jobs of tomorrow will be those that cannot be offshored cannot be automated require a high degree of creativity & rely on the human touch in face-to-face interactions these are called "proximity services" & include fastest-growing occupations, healthcare & education. Since the recession began, healthcare has added 559,000 jobs. Even more remarkable, the average monthly gain of 22,000 jobs during 2009 has been only slightly lower than the average increase of 30,000 jobs a month in 2008. Why Dilbert is doomed The jobs of tomorrow are not what you'd expect

Outsourcing of IT Services $10.8 billion The value of IT outsourcing contracts signed in the first quarter of 2005. Source: TPI Index 400,000 Number of service jobs sent overseas since 2000. Source: The Goldman Sachs Group Inc. 3% Percentage of last year's total layoffs due to offshoring. Source: U.S. Department of Labor 104,000 Number of IT jobs lost due to offshore outsourcing between 2000 and 2003, equaling 2.8% of U.S. IT jobs. Source: Information Technology Association of America 3.5 million Number of U.S. white-collar jobs moving offshore by 2015, averaging 200,000 a year. Source: Forrester Research Inc.

India graduates 300,000 IT engineers and 90,000 MBAs per year Where the Jobs Go! India graduates 300,000 IT engineers and 90,000 MBAs per year Source: Computer world and Interunity Group, Inc., April & May 2003 Base: Survey of 252 corporate IT managers in the U.S.; multiple responses allowed

The Other Side of Outsourcing

Services