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

PRINCIPLES OF SERVICE
MARKETING AND MANAGEMENT 2/E

Christopher Lovelock and
Lauren Wright

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Lovelock and Wright Principles of Service Marketing and Management 2/E Slide 2002 by Lovelock Associates 2
PART I
UNDERSTANDING
SERVICES
Lovelock and Wright Principles of Service Marketing and Management 2/E Slide 2002 by Lovelock Associates 3
The Service Management Decision Framework
(Fig. I-1)
What Business Are We In?
What Service Processes Can Be Used in
Our Operation?
Who Are Our Customers and How Should
We Relate to Them?
What Price Should We Charge
for Our Services?
How Should We Communicate What
Our Service Has to Offer?
What Are the Options for Delivering
Our Service?
How Can We Balance Productivity
and Quality?
What Should be the Core and Supplementary
Elements of Our Service Product?
How Should We Match Demand and Productive Capacity?
What Are Appropriate Roles for People and Technology?
How Can Our Firm Achieve Service Leadership?
Lovelock and Wright Principles of Service Marketing and Management 2/E Slide 2002 by Lovelock Associates 4
Chapter 1
Distinctive Aspects of
Service Management
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What is a Service? Defining the Essence
An act or performance offered by one party to another
(performances are intangible, but may involve use of
physical products)
An economic activity that does not result in ownership
A process that creates benefits by facilitating a desired
change in customers themselves, physical possessions,
or intangible assets
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The Service Sector
Includes businesses, government agencies, nonprofits
Jobs range from high-paid professionals and technicians
to minimum-wage positions
Service organizations can be any size--from huge global
corporations to local small businesses
In most countries, adds more economic value than
agriculture, raw materials and manufacturing combined
In the USA -- worlds largest economy -- services account
for 73% of GDP and 76% of jobs

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Fig. 1.1: GDP by Industry in the USA, 1999
Source: Bureau of Economic Analysis, December 2000
S
E
R V I C
E
S
Agriculture, Forestry,
Fishing and Mining
7%
Manufacturing
16%
Government
(Mostly Services)
12%
Other Services
10%
Business
Services
5%
Health
5%
Transport, Utilities
and Communications
8%
Wholesale and
Retail Trade
17%
Finance, Insurance
and Real Estate
20%
Lovelock and Wright Principles of Service Marketing and Management 2/E Slide 2002 by Lovelock Associates 8
Changing Structure of Employment
as Economic Development Evolves (Fig. 1.2)
Time, per Capita I ncome
Industry
Services
Agriculture
Source: IMF
Lovelock and Wright Principles of Service Marketing and Management 2/E Slide 2002 by Lovelock Associates 9
Some Industries in the Service Sector
Banking, stockbroking
Lodging
Restaurants, bars, catering
Insurance
News and entertainment
Transportation (freight
and passenger)
Health care
Education
Wholesaling and retailing
Laundries, drycleaning
Repair and maintenance
Professional (e.g., law,
architecture, consulting)

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Internal Services
Service elements within an organization that facilitate
creation of--or add value to--its final output
Includes:
accounting and payroll administration
recruitment and training
legal services
transportation
catering and food services
cleaning and landscaping
Increasingly, these services are being outsourced
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Basic Differences between
Goods and Services (Fig. 1.3)
Customers do not obtain ownership of services
Service products are intangible performances--not objects
Customers often actively involved in production process
Other people may form part of product experience
More variability in operational inputs and outputs--harder
to improve productivity, control quality
Often difficult for customers to evaluate
Absence of inventories after production
Time factor is more important--speed may be key
Delivery systems include electronic and physical channels
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Value Added by Tangible versus Intangible
Elements in Goods and Services (Fig. 1.4)
Fast food restaurant
Plumbing repair
Lawn care
Oil change on car
House cleaning
Airline flight
Teaching
Investment mgt.
Salt
Soft drinks
VCR
Tennis racquet
New car
Custom-made clothes
Furniture rental
Lo
Hi
Hi
Intangible Elements
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The 8Ps of Integrated Service
Management vs. the Traditional 4Ps
(Fig. 1.5)
1. Product elements
2. Place, cyberspace,
and time
3. Process
4. Productivity and
quality
5. People
6. Promotion and
education
7. Physical evidence
8. Price and other
user outlays
1. The Evidence : Core,
Added Benefit,
Competitiveness
2. To Reach and Control :
Channel, Schedules,
Network
3. To Create : Actions, Cust.
Involvement, Techno
based Role
4. Performance measured : Effectivity, Efficiency,
Trust, Speed, Humanistic
5. Employees are Prepared Well : Motivation, Fit to
Goals, Behavior
6. Waking Up the Customers : Informing, Educating,
Persuading, Reminding,
7. Entertainment : Interior, Clothes, Vehicles, and also
Tangible Metaphors
8. Trade Off between Customer Value vs Price :
barter/negotiation process
Lovelock and Wright Principles of Service Marketing and Management 2/E Slide 2002 by Lovelock Associates 14
8Ps:
(1) Product Elements
All Aspects of Service Performance that Create Value
Core product features
Bundle of supplementary service elements
Performance levels relative to competition
Benefits delivered to customers
Guarantees

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8Ps:
(2) Place, Cyberspace, and Time
Delivery Decisions: Where, When, and How
Geographic locations served
Service schedules
Physical channels
Electronic channels
Customer control and convenience
Channel partners/intermediaries
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8Ps:
(3) Process
Method and Sequence in Service Creation and Delivery
Design of activity flows
Number and sequence of actions for customers
Providers of value chain components
Nature of customer involvement
Role of contact personnel
Role of technology, degree of automation

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8Ps:
(4) Productivity and Quality
Synergy in Value Creation for Customers and the Firm
Achieve productive transformation of inputs to outputs
efficiency (cost control, avoidance of waste)
effectiveness (value added, including quality and timeliness)
Attain customer-defined quality standards
reliability
responsiveness
competence/trust
human dimensions
tangibles

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8Ps:
(5) People
The Human Side of the Enterprise
The right employees performing tasks well
job design
recruiting/selection
training
motivation
evaluation/rewards
empowerment/teamwork
The right customers for the firms mission
fit well with product/processes/corporate goals
appreciate benefits and value offered
possess (or can be educated to have) necessary skills
firm is able to manage customer behavior
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8Ps:
(6) Promotion and Education
Informing, Educating, Persuading, and Reminding Customers
Marketing communication tools
media elements (print, broadcast, outdoor, retail, Internet, etc.)
personal selling, customer service
sales promotion
publicity/PR
Imagery and recognition
branding
corporate design
Content
information, advice
persuasive messages
customer education/training
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8Ps:
(7) Physical Evidence
Providing tangible evidence of service performances
Create and maintaining physical appearances
buildings/landscaping
interior design/furnishings
vehicles/equipment
staff grooming/clothing
other tangibles
Select tangible metaphors for use in marketing
communications

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8Ps:
(8) Price and Other User Costs
Managing Customer Outlays Relative to Corporate Revenues
Quoted price level and trade margins
Discount terms
Price-setting mechanism
determined by seller
negotiation/barter
auction/reverse auction
Credit terms
Strategies to minimize other user costs
out-of-pocket financial expenses (e.g., travel, phone)
time investments and mental/physical effort
negative sensory experiences
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Factors Stimulating Competition and
Innovation in the Service Economy (Fig. 1.6)
Government Policies (e.g., regulations, trade agreements)
Social Changes (e.g., affluent, time poor, seek experiences)
Business Trends
Manufacturers offer service
Growth of chains and franchising
Pressures to improve productivity and quality
More strategic alliances
Marketing emphasis by nonprofits
Innovative hiring practices
Advances in IT (e.g., speed, digitization, wireless, Internet)
Internationalization (travel, transnational companies)
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Some Impacts of Technological Change
Radically alter ways in which service firms do business:
with customers (new services, more convenience)
behind the scenes (reengineering, new value chains)
Create relational databases about customer needs and
behavior, mine databanks for insights
Leverage employee capabilities and enhance mobility
Centralize customer service, be faster and more responsive
Develop national/global delivery systems
Create new, Internet-based business models
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Relating the 8Ps to the
Service Decision Framework (Fig. 1.8)
WHAT BUSINESS ARE WE IN?
What Service Processes Can Be Used in
Our Operation? (PROCESS)
Who Are Our Customers and
How Should We Relate to Them?
What Price Should We Charge?
(PRICE AND OTHER USER OUTLAYS)
How to Communicate? (PROMOTION &
EDUCATION, PHYSICAL EVIDENCE)
Options for Delivery? (PLACE, CYBERSPACE
& TIME, PHYSICAL EVIDENCE)
How Can We Balance
? PRODUCTIVITY AND QUALITY
What Should be the Core and Supplementary Elements
of Our Service Product? (PRODUCT ELEMENTS)
How Should We Match Demand and Productive Capacity?
What Are Appropriate Roles for People and Technology? (PEOPLE)
How Can Our Firm Achieve Service Leadership?
Lovelock and Wright Principles of Service Marketing and Management 2/E Slide 2002 by Lovelock Associates 25
Service Decision Framework
What Business Are We In?
With what industry is our service associated?
With what other goods and services do we compete?
What forces for change do we face?
What solutions do we offer to meet customer needs?
(How do we create value?)

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