1 Introduction to

SERVICES MARKETING

WIRTZ LOVELOCK
 Learning Objectives

1.1 Understand how services contribute to a country’s

economy.
1.2 Know the principal industries of the service sector.
1.3 Identify the powerful forces that are transforming
service markets.
1.4 Understand how B2B services improve the
productivity of individual firms and drive economic
development.

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 Learning Objectives

1.5 Define services using the non-ownership

framework.
1.6 Identify the four broad “processing” categories of
services.
1.7 Be familiar with the characteristics of services and
the distinctive marketing challenges they pose.
1.8 Understand the components of the traditional
marketing mix applied to services.

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 Learning Objectives

1.9 Describe the components of the extended

marketing mix for managing the customer interface.
1.10 Appreciate that marketing, operations, and human
resource management functions need to be closely
integrated in service businesses.
1.11 Understand the implications of the Service–Profit
Chain for service management.
1.12 Know the framework for developing effective
services marketing strategies.

Copyright © 2018 Pearson Education Ltd. 2-4

Introduction to Services Marketing

1.1
Understand how services contribute to
a country’s economy.

WIRTZ LOVELOCK
 How services contribute
to a country’s economy
• Services dominate most economies and are
growing rapidly:
INTRODUCTION TO SERVICES MARKETING

o Services account for almost two-thirds of GDP

worldwide
o Almost all economies have a substantial service sector
o Most new employment is provided by services
o Strongest growth area for marketing
• Understanding services offers you a personal
competitive advantage

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 How services contribute
to a country’s economy
• Contribution of Services Industries to Global GDP
INTRODUCTION TO SERVICES MARKETING

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 How services contribute
to a country’s economy
• Estimated Size of Service Sector in Selected Countries
INTRODUCTION TO SERVICES MARKETING

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Introduction to Services Marketing

1.2
Know the principal industries of the
service sector.

WIRTZ LOVELOCK
 Principal industries of the
service sector
INTRODUCTION TO SERVICES MARKETING

Copyright © 2018 Pearson Education Ltd.

Introduction to Services Marketing

1.3
Identify the powerful forces that are
transforming service markets.

WIRTZ LOVELOCK
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES MARKETING

Government Social Advances in

Business Trends Globalization
Policies Changes IT

New markets and product categories

Increase in demand for services
More intense competition

Innovation in service products & delivery systems, stimulated by

improved technology

Customers have more choices and exercise more power

Success hinges on:

Understanding customers and competitors
Viable business models
Creation of value for customers and firm
Increased focus on services marketing and management

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 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES MARKETING

Government Social Advances in

Business Trends Globalization
Policies Changes IT

• Changes in regulations

• Privatization

• New rules to protect customers, employees, and the environment

• Focus on quality and customer satisfaction

• New agreements on trade in services

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2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES MARKETING

Government Social Advances in

Business Trends Globalization
Policies Changes IT

• Rising consumer expectations

• More affluence

• More people short of time

• Increased desire for buying experiences vs. things

• Rising consumer ownership of computers, cell phones, and high-tech

equipment

• Ubiquitous social networks

• Easier access to more information

• Immigration

• Growing but aging population

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2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES MARKETING

Government Social Advances in

Business Trends Globalization
Policies Changes IT

• Push to increase shareholder value

• Emphasis on productivity and cost savings

• Manufacturers add value through service and sell services

• More strategic alliances and outsourcing

• Focus on quality and customer satisfaction

• Growth of franchising
• Marketing emphasis by nonprofits

Copyright © 2018 Pearson Education Ltd.

2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES MARKETING

Government Social Business Trends Advances in

Policies Changes IT Globalization

• Growth of the Internet

• Wireless networking and technology

• Digitalization of text graphics, audio, and video

• Cloud technology

• User-generated content

• Location-based services

• Big data

• Artificial intelligence
• Improved predictive analysis

• Internet of Things

Copyright © 2018 Pearson Education Ltd.

2-1
 Powerful forces that are
transforming service markets
• Forces Transforming the Service Economy
INTRODUCTION TO SERVICES MARKETING

Government Social Advances in

Business Trends Globalization
Policies Changes IT

• More companies operating on a transnational basis

• Increased international travel

• International mergers and alliances

• “Offshoring” of customer service

• Foreign competitors invade domestic markets

Copyright © 2018 Pearson Education Ltd.

2-1
Introduction to Services Marketing

1.4
Understand how B2B services improve
the productivity of individual firms and
drive economic development.

WIRTZ LOVELOCK
 How B2B drives economic
development
• Many manufacturing firms outsource their non-
core support activities to independent service
INTRODUCTION TO SERVICES MARKETING

providers
• This leads to an increased specialization with
significant improvements in overall productivity
and standards.

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Introduction to Services Marketing

1.5
Define services using the non-ownership
framework.

WIRTZ LOVELOCK
 What are services?
• Services involve a form of rental, offering
benefits without transfer of ownership
INTRODUCTION TO SERVICES MARKETING

o Include rental of goods

o Marketing tasks for services differ from those
involved in selling goods and transferring ownership

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 What are services?
Definition of Services
INTRODUCTION TO SERVICES MARKETING

• Services
o are economic activities offered by one party to
another
o most commonly employ time-based performances to
bring about desired results

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 What are services?
Definition of Services
INTRODUCTION TO SERVICES MARKETING

• In exchange for their money, time, and effort,

service customers
o expect to obtain value from access to goods, labor,
facilities, environments, professional skills, networks,
and systems
o normally do not take ownership of any of the physical
elements involved

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Introduction to Services Marketing

1.6
Identify the four broad “processing”
categories of services

WIRTZ LOVELOCK
 Four broad categories of services
• Based on differences in nature of service act
(tangible/intangible) and who or what is direct
INTRODUCTION TO SERVICES MARKETING

recipient of service (people/possessions), there

are four categories of services:
o People processing
o Possession processing
o Mental stimulus processing
o Information processing

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 Four broad categories of services
INTRODUCTION TO SERVICES MARKETING

Copyright © 2018 Pearson Education Ltd.

 Four broad categories of services
People Processing
INTRODUCTION TO SERVICES MARKETING

• Customers must:
• physically enter the service factory
• co-operate actively with the service operation
• Managers should think about process and
output from customer’s perspective
• to identify benefits created and non-financial costs:
Time, mental, physical effort

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 Four broad categories of services
Possession Processing
INTRODUCTION TO SERVICES MARKETING

• Customers are less involved compared to people

processing services.
• Involvement may be limited to just dropping off
the possession.
• Production and consumption are separable.

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 Four broad categories of services
Mental Stimulus Processing
INTRODUCTION TO SERVICES MARKETING

• Ethical standards required when customers who

depend on such services can potentially be
manipulated by suppliers.
• Physical presence of recipients not required.
• Core content of services is information-based.
• Can be “inventoried”

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 Four broad categories of services
Information Processing
INTRODUCTION TO SERVICES MARKETING

• Information is the most intangible form of

service output.
• May be transformed into enduring forms of
service output.
• Line between information processing and mental
stimulus processing may be blurred.

Copyright © 2018 Pearson Education Ltd.

Introduction to Services Marketing

1.7
Be familiar with the characteristics of
services and the distinctive marketing
challenges they pose.

WIRTZ LOVELOCK
 Characteristics of services and
marketing challenges
• Marketing management tasks in the service
sector differ from the manufacturing sector:
INTRODUCTION TO SERVICES MARKETING

o Most service products cannot be inventoried

o Intangible elements usually dominate value creation
o Services are often difficult to visualize and understand
o Customers may be involved in co-production
o People may be part of the service experience
o Operational inputs and outputs tend to vary more
widely
o The time factor often assumes great importance
o Distribution may take place through nonphysical
channels
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 Characteristics of services and
marketing challenges
• Differences, Implications, and Marketing-Related Tasks (1)

Difference Implications Marketing-related Topics

Most service products cannot be Customers may be turned away Use pricing, promotion,
inventoried reservations to smooth demand;
Harder to evaluate service & work with ops to manage capacity
Intangible elements usually distinguish from competitors
dominate value creation Emphasize physical clues, employ
Greater risk & uncertainty perceived metaphors and vivid
Services are often difficult to images in advertising
visualize & understand Interaction between customer &
provider; but poor task execution Educate customers on making good
Customers may be involved in co- could affect satisfaction choices; offer guarantees
production
Develop user-friendly equipment,
facilities & systems; train
customers, provide good support

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 Characteristics of services and
marketing challenges
• Differences, Implications, and Marketing-Related Tasks (2)

Difference Implications Marketing-related Topics

People may be part of Behavior of service personnel & Recruit, train employees to
service experience customers can affect satisfaction reinforce service concept

Operational inputs and Hard to maintain quality, Shape customer behavior

outputs tend to vary consistency, reliability
more widely Redesign for simplicity and
Difficult to shield customers from failure proofing
Time factor often failures
assumes great Institute good service recovery
importance Time is money; customers want procedures
service at convenient times
Distribution may take Find ways to compete on speed of
place through Electronic channels or voice delivery; offer extended hours
nonphysical channels telecommunications
Create user-friendly, secure
websites and free access by
telephone

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Introduction to Services Marketing

1.8
Understand the components of the
traditional marketing mix applied to
services.

WIRTZ LOVELOCK
 The traditional marketing mix
The 7 Ps of services marketing
INTRODUCTION TO SERVICES MARKETING

• Product elements (Chapter 4)

• Place and time (Chapter 5)
• Price and other user outlays (Chapter 6)
• Promotion and education (Chapter 7)
• Process (Chapter 8)
• Physical environment (Chapter 10)
• People (Chapter 11)

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (1)
INTRODUCTION TO SERVICES MARKETING

• Product elements
o Service products are at the heart of services
marketing strategy
o Marketing mix begins with creating service concept
that offers value
o Service product consists of core and supplementary
elements
▪ Core products meet primary needs
▪ Supplementary elements are value-added enhancements

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (2a)
INTRODUCTION TO SERVICES MARKETING

• Place and time

o Service distribution can take place through physical
and non-physical channels
o Some firms can use electronic channels to deliver all
(or at least some) of their service elements
o Information-based core services can be delivered
almost instantaneously electronically

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (2b)
INTRODUCTION TO SERVICES MARKETING

• Place and time

o Delivery Decisions: Where, When, How
o Time is of great importance as customers are
physically present
o Convenience of place and time become important
determinants of effective service delivery

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (3a)
INTRODUCTION TO SERVICES MARKETING

• Price and other user outlays

o From the firm’s perspective, pricing generates income
and creates profits
o From the customer’s perspective, pricing is key part of
costs to obtained wanted benefits
o Marketers must recognize that customer costs involve
more than price paid to seller

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 The traditional marketing mix
Applying the 4 Ps of Marketing to Services (3b)
• Price and other user outlays
INTRODUCTION TO SERVICES MARKETING

o Identify and minimize non-monetary costs incurred by

users:
▪ Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting,
etc.)
▪ Time expenditures, especially waiting
▪ Unwanted mental and physical effort
▪ Negative sensory experiences
• Revenue management is an important part of
pricing.
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Introduction to Services Marketing

1.9
Describe the components of extended
marketing mix for managing the
customer interface.

WIRTZ LOVELOCK
 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (1)
INTRODUCTION TO SERVICES MARKETING

• Process
o How a firm does things may be as important as what
it does
o Customers often actively involved in processes,
especially when acting as co-producers of service
o Operational inputs and outputs vary more widely
o Customers are often involved in co-production
o Demand and capacity need to be balanced
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 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (2a)
INTRODUCTION TO SERVICES MARKETING

• Physical environment
• Design servicescape and provide tangible evidence of
service performances
• Manage physical cues carefully—can have profound
impact on customer impressions

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 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (2b)
INTRODUCTION TO SERVICES MARKETING

• Physical environment
o Identify and minimize non-monetary costs incurred by
users:
▪ Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting,
etc.)
▪ Time expenditures, especially waiting
▪ Unwanted mental and physical effort
▪ Negative sensory experiences
• Revenue management is an important part of
pricing Copyright © 2018 Pearson Education Ltd.
 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (2c)
INTRODUCTION TO SERVICES MARKETING

• Physical environment
o Create and maintain physical appearances:
▪ Buildings/landscaping
▪ Interior design/furnishings
▪ Vehicles/equipment
▪ Staff grooming/clothing
▪ Sounds and smells
▪ Other tangibles

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 The traditional marketing mix
Extended Mix for Managing the Customer
Interface (3)
INTRODUCTION TO SERVICES MARKETING

• People
o Interactions between customers and contact
personnel strongly influence customer perceptions of
service quality
o Well-managed firms devote special care to selecting,
training and motivating service employees
o Other customers can also affect one’s satisfaction
with a service

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Introduction to Services Marketing

1.10 Appreciate that marketing, operations,

and human resource management
functions need to be closely integrated
in service business.
WIRTZ LOVELOCK
 Integration with Other
Management Functions

• Marketers must work closely with managers in

INTRODUCTION TO SERVICES MARKETING

other central functions

• Operations:
o involved in the design of products and processes
o implementation of programs for improving
productivity and quality

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 Integration with Other
Management Functions

• HR:
INTRODUCTION TO SERVICES MARKETING

o responsible for quality front-line service providers

• IT:
o provides real-time information at every customer
touch-point to create value with updated customer
data

Copyright © 2018 Pearson Education Ltd.

Introduction to Services Marketing

1.11
Understand the implications of the
Service–Profit Chain for Service
Management

WIRTZ LOVELOCK
 The Service–Profit Chain
• The service–profit chain demonstrates the links in a
managerial process that are essential for success in
INTRODUCTION TO SERVICES MARKETING

service businesses.

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 The traditional marketing mix
• Links in the Service Profit Chain
o Customer loyalty drives profitability and growth.
INTRODUCTION TO SERVICES MARKETING

o Customer satisfaction drives customer loyalty.

o Value drives customer satisfaction.
o Quality and productivity drive value.
o Employee loyalty drives service quality and
productivity.
o Employee satisfaction drives employee loyalty.
o Internal quality as delivered by operations and IT
drives employee satisfaction.
o Top management leadership underlies the chain’s
success.
Copyright © 2018 Pearson Education Ltd.
Introduction to Services Marketing

1.12
Be familiar with the characteristics of
services and the distinctive marketing
challenges they pose.

WIRTZ LOVELOCK
 Service marketing strategies
• Integrated model of services marketing.
INTRODUCTION TO SERVICES MARKETING

Copyright © 2018 Pearson Education Ltd.

 Thank You.

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2 Consumer Behavior
IN A SERVICES CONTEXT

WIRTZ LOVELOCK
 Learning Objectives
2.1 Understand the three-stage model of service
consumption.
2.2 Use the multi-attribute model to understand how
consumers evaluate and choose between alternative
service offerings.
2.3 Learn why consumers often have difficulty
evaluating services, especially those with many
experience and credence attributes.
2.4 Know the perceived risks customers face in
purchasing services and the strategies firms can use to
reduce consumer risk perceptions.
Copyright © 2018 Pearson Education Ltd. 2-2
 Learning Objectives
2.5 Understand how customers form service
expectations and the components of these
expectations.
2.6 Know the “moment of truth” metaphor.
2.7 Contrast how customers experience and evaluate
high- versus low-contact services.
2.8 Be familiar with the servuction model and
understand the interactions that together create the
service experience.

Copyright © 2018 Pearson Education Ltd. 2-3

 Learning Objectives
2.9 Obtain insights from viewing the service encounter
as a form of theater.
2.10 Know how role, script, and perceived control
theories contribute to a better understanding of
service encounters.
2.11 Describe how customers evaluate services and
what determines their satisfaction.
2.12 Understand service quality, its dimensions and
measurement, and how quality relates to customer
loyalty.

4
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 Consumer Behavior
in a Services Context

2.1
Understand the three-stage model of
service consumption.

WIRTZ LOVELOCK
 The three-stage model of service
consumption
• Overview
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

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 The three-stage model of service
consumption
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

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 The three-stage model of service
consumption
• Need awareness
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Information search
• Evaluation of alternatives
o Multi-attribute model
o Service attributes
o Perceived risk
o Service expectations
• Purchase decision

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 The three-stage model of service
consumption
Need Awareness
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• A service purchase is triggered by

an underlying need (need arousal)
• Needs may be due to:
o People’s unconscious minds (e.g.,
aspirations)
o Physical conditions (e.g., chronic back
pain)
o External sources (e.g., marketing
activities)
• When a need is recognized, people
are likely take action to resolve it
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 The three-stage model of service
consumption
Information Search
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• When a need is recognized,

people will search for
solutions.
• Several alternatives may
come to mind, and these
form the evoked set
o Evoked set: set of possible services or brands that a
customer may consider in the decision process
• When there is an evoked set, the different
alternatives need to be evaluated before a final
choice is made
Copyright © 2018 Pearson Education Ltd. 2-10
 Consumer Behavior
in a Services Context

2.2
Use the multi-attribute model to
understand how consumers evaluate
and choose between alternative service
offerings.
WIRTZ LOVELOCK
 The Multi-attribute Model
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

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 Consumer Behavior
in a Services Context

2.3
Learn why consumers often have
difficulty evaluating services, especially
those with many experience and
credence attributes.
WIRTZ LOVELOCK
 Service Attributes
• Search attributes help customers evaluate a product
before purchase
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Experience attributes cannot be evaluated before

purchase—must “experience” product to know it
o Vacations, sporting events, medical procedures
• Credence attributes are product characteristics that
customers find impossible to evaluate confidently even
after purchase and consumption
o Quality of repair and maintenance
work

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 Consumer Behavior
in a Services Context

2.4
Know the perceived risks customers
face in purchasing services and the
strategies firms can use to reduce
consumer risk perceptions.
WIRTZ LOVELOCK
 Perceived Risks
• Functional―unsatisfactory performance
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

outcomes
• Financial―monetary loss,
unexpected extra costs
• Temporal―wasted time,
delays leading to problems
• Physical―personal injury,
damage to possessions
• Psychological―fears and negative emotions
• Social―how others may think and react
• Sensory―unwanted impact on any of five senses
Copyright © 2018 Pearson Education Ltd. 2-16
 Perceived Risks
How Do Consumers Handle Them?
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Seeking information from respected personal

sources
• Using Internet to compare service offerings and
search for independent reviews and ratings
• Relying on a firm that has a good reputation
• Looking for guarantees and warranties
• Visiting service facilities or trying aspects of
service before purchasing
• Asking knowledgeable employees about
competing services
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 Perceived Risks
Strategies for Firms to Manage Consumer Perceptions of
Risk
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Preview service through brochures, websites, videos

• Encourage visit to service facilities before purchase
• Free trial (for services with high experience attributes)
• Advertise (helps to visualize)

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 Perceived Risks
Strategies for Firms to Manage Consumer
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

Perceptions of Risk
• Display credentials
• Use evidence management (e.g., furnishing,
equipment etc.)
• Give customers online
access to information
about order status
• Offer guarantees

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 Consumer Behavior
in a Services Context

2.5
Understand how customers form
service expectations and the
components of these expectations.
WIRTZ LOVELOCK
 Service Expectations
• Customers evaluate service quality by
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

comparing what they expect against what

they perceive
o Situational and personal factors also
considered
• Expectations of good service vary from
one business to another, and differently
positioned service providers in same
industry
• Expectations change over time
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 Service Expectations
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

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 Service Expectations
Components of Customer Expectations
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Desired Service Level:

o Wished-for level of service quality that customer
believes can and should be delivered
• Adequate Service Level:
o Minimum acceptable
level of service

Copyright © 2018 Pearson Education Ltd. 2-23

 Service Expectations
Components of Customer Expectations
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Predicted Service Level:

o Service level that customer believes firm will actually
deliver
• Zone of Tolerance:
o Range within which customers
are willing to accept variations
in service delivery

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 Service Expectations
Purchase Decision
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• When possible alternatives have been compared

and evaluated, the best option is selected
• Can be quite simple if perceived risks are low
and alternatives are clear
• Very often, trade-offs are involved. The more
complex the decision, the more trade-offs need
to be made
• Price is often a key factor in the purchase
decision

Copyright © 2018 Pearson Education Ltd. 2-25

 Consumer Behavior
in a Services Context

2.6
Know the “moment of truth” metaphor.

WIRTZ LOVELOCK
 Moments of truth
• The “moment of truth”
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

is when the customer

directly interacts with
the service firm.
• It involves the skills,
motivation and tools
employed by the firm
to prove to the customer that they are the best
alternative for them.

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 Consumer Behavior
in a Services Context

2.7
Contrast how customers experience
and evaluate high- versus low-contact
services.
WIRTZ LOVELOCK
 High- versus low-contact services
• Service Encounters Range from High-contact to Low-
contact
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

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 High- versus low-contact services
• High-contact Services
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

o Customers visit service facility and remain throughout service

delivery
o Active contact between customers and service personnel
o Includes most people-processing services
• Low-contact Services
o Little or no physical contact with service personnel
o Contact usually at arm’s length through electronic or physical
distribution channels
o New technologies (e.g. Web) help reduce contact levels
• Medium-contact services lie in between these two

Copyright © 2018 Pearson Education Ltd. 2-30

 Consumer Behavior
in a Services Context

2.8
Be familiar with the servuction model
and understand the interactions that
together create the service experience.
WIRTZ LOVELOCK
 The Servuction System
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

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 The Servuction System
• Visible front stage and invisible backstage
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Service Operations system

o Technical core where inputs are processed and
service elements created, usually backstage
o Includes facilities, equipment, and personnel
• Service Delivery System (front stage)
o Where “final assembly” of service elements takes
place and service is delivered to customers
o Includes customer interactions with operations and
other customers

Copyright © 2018 Pearson Education Ltd. 2-33

 Consumer Behavior
in a Services Context

2.9
Obtain insights from viewing the
service encounter as a form of theatre.

WIRTZ LOVELOCK
 Theatrical Metaphor
• Good metaphor as service delivery is a series of
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

events that customers experience as a

performance
• Service facilities
o Stage on which drama
unfolds
o This may change from
one act to another
• Personnel
o Front stage personnel are like members of a cast
o Backstage personnel are support production team
Copyright © 2018 Pearson Education Ltd. 2-35
 Consumer Behavior
in a Services Context

2.10
Know how role, script, and perceived
control theories contribute to a better
understanding of service encounters.
WIRTZ LOVELOCK
 Role, script, and perceived control
theories
• Roles
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

o Like actors, employees have

roles to play and behave in
specific ways
• Scripts
o Specifies the sequences of
behavior for customers and
employees

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 Role, script, and perceived control
theories
• Behavioral control
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

o Allows the customer to change the service situation

by asking the firm to customize its typical offerings
• Decisional control
o The customer can choose between two or more
standardized options without changing either option
• Cognitive control
o Exercised when the customer understands why
something is happening and knows what will happen
next

Copyright © 2018 Pearson Education Ltd. 2-38

 Consumer Behavior
in a Services Context

2.11
Describe how customers evaluate
services and what determines their
satisfaction.
WIRTZ LOVELOCK
 How customers evaluate services and
what determines their satisfaction
• Expectancy-disconfirmation model of
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

satisfaction.

Copyright © 2018 Pearson Education Ltd. 2-40

 How customers evaluate services and
what determines their satisfaction
Customer Satisfaction Is Central to the Marketing Concept
• Satisfaction defined as attitude-like judgment following a
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

service purchase or series of service interactions

• Customers have expectations prior to consumption,
observe service performance, compare it to expectations
• Satisfaction judgments are based on this comparison
o Positive disconfirmation if better than expected
o Confirmation if same as expected
o Negative disconfirmation if worse than expected

Copyright © 2018 Pearson Education Ltd. 2-41

 Consumer Behavior
in a Services Context

2.12
Understand service quality, its
dimensions and measurement, and how
quality relates to customer loyalty.
WIRTZ LOVELOCK
 Understand service quality
• Service quality is the high standard of performance that
consistently meets or exceeds customer expectations.
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Customer satisfaction and service quality are determined

by comparing customers’ expectations with their
performance perceptions.
o Satisfaction is an evaluation of a
single consumption experience
o Service quality refers to relatively
stable attitudes and beliefs about
a firm
• Transaction quality and attribute
satisfaction are also transaction-
specific and determine overall
customer satisfaction.
Copyright © 2018 Pearson Education Ltd. 2-43
 Understand service quality
• 10 dimensions used by consumers in evaluating
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

service quality

Copyright © 2018 Pearson Education Ltd. 2-44

 Understand service quality
CONSUMER BEHAVIOR IN A SERVICES CONTEXT

Copyright © 2018 Pearson Education Ltd. 2-45

Thank You.

2-46
11 Promoting Services
AND EDUCATING
CUSTOMERS
WIRTZ LOVELOCK
 Learning Objectives
11.1 Explain why service employees are so important
for the success of a firm.
11.2 Understand the factors that make the work of
front-line staff demanding and often difficult.
11.3 Describe the cycles of failure, mediocrity, and
success in human resources for service firms.
11.4 Understand the key elements of the Service Talent
Cycle for successful human resource management in
service firms.

Copyright © 2018 Pearson Education Ltd. 11-2

 Learning Objectives
11.5 Know how to attract, select, and hire the right
people for service jobs.
11.6 Explain the key areas in which service employees
need training.
11.7 Understand the role of internal marketing and
communications.
11.8 Understand why empowerment is so important in
many front-line jobs.

Copyright © 2018 Pearson Education Ltd. 11-3

 Learning Objectives
11.9 Explain how to build high-performance service
delivery teams.
11.10 Know how to integrate teams across
departments and functional areas.
11.11 Know how to motivate and energize service
employees so that they will deliver service excellence
and productivity.
11.12 Understand what a service-oriented culture is.

Copyright © 2018 Pearson Education Ltd. 11-4

 Learning Objectives
11.13 Know the difference between service climate and
culture, and describe the determinants of a climate for
service.
11.14 Explain the qualities of effective leaders in
service organizations.
11.15 Understand different leadership styles and
realize the importance of role modeling and focusing
the entire organization on the front line.

Copyright © 2018 Pearson Education Ltd. 11-5

Promoting Services and Educating
Customers

11.1
11.1
Explain why service employees are so
important for the success of a firm.

WIRTZ LOVELOCK
 The importance of service
personnel
PROMOTING SERVICES AND EDUCATING
CUSTOMERS

Copyright © 2018 Pearson Education Ltd. 11-7

 The importance of service
personnel
• Help maintain firm’s positioning. They are:
o A core part of the product
PROMOTING SERVICES AND EDUCATING

o The service firm

o The brand
o Affects sales
CUSTOMERS

o Is a key driver of
customer loyalty
o Determine productivity

Copyright © 2018 Pearson Education Ltd. 11-8

Promoting Services and Educating
Customers

11.2
Understand the factors that make the
work of front-line staff demanding and
often difficult.

WIRTZ LOVELOCK
 Frontline work is difficult and
stressful
• Boundary spanners link inside
of organization to outside
PROMOTING SERVICES AND EDUCATING

world and often experience

role stress from multiple roles
they have to perform
CUSTOMERS

• 3 main causes of role stress:

o Organization vs. Client: Dilemma
whether to follow company rules
or to satisfy customer demands
o This conflict is especially acute in organizations that are not customer
oriented
o Person vs. Role: Conflicts between what jobs require and
employee’s own personality and beliefs
o Client vs. Client: Conflicts between customers that demand
service staff intervention
Copyright © 2018 Pearson Education Ltd. 11-10
 Frontline work is difficult and
stressful
Emotional Labor
• “The act of expressing socially desired emotions during service
PROMOTING SERVICES AND EDUCATING

transactions” (Hochschild, The Managed Heart)

• Occurs when there is gap between what employees feel
inside, and emotions that management requires them to
CUSTOMERS

display to customers
• Performing emotional labor in response to
society’s or management’s display rules can
be stressful
• Good HR practice emphasizes selective
recruitment, training, counseling,
strategies to alleviate stress

Copyright © 2018 Pearson Education Ltd. 11-11

 Frontline work is difficult and
stressful
Service Sweatshops
• Deployment of new technology and methods can change the nature
PROMOTING SERVICES AND EDUCATING

of the work environment

• In many firms, face-to-face contact is replaced by the use of the
internet or call-center services
• Such jobs can offer flexible working hours and part-time employment
CUSTOMERS

• The work is often intense, with a high level of monitoring

• Motivated agents suffer less customer stress

Copyright © 2018 Pearson Education Ltd. 11-12

Promoting Services and Educating
Customers

11.3
Describe the cycles of failure,
mediocrity, and success in human
resources for service firms

WIRTZ LOVELOCK
 The cycles of failure, mediocrity,
and success
Cycle of Failure
PROMOTING SERVICES AND EDUCATING
CUSTOMERS

Copyright © 2018 Pearson Education Ltd. 11-14

 The cycles of failure, mediocrity,
and success
The employee cycle of failure
• Narrow job design for low skill levels
PROMOTING SERVICES AND EDUCATING

• Emphasis on rules rather than service

• Use of technology to control quality
CUSTOMERS

• Bored employees who lack ability to respond to

customer problems
• Dissatisfied with poor service attitude
• Low service quality
• High employee turnover

Copyright © 2018 Pearson Education Ltd. 11-15

 The cycles of failure, mediocrity,
and success
The customer cycle of failure
• Repeated emphasis on attracting new customers
PROMOTING SERVICES AND EDUCATING

• Customers dissatisfied with employee performance

• Customers always served by new faces

• Fast customer turnover

CUSTOMERS

• Ongoing search for new customers to maintain sales

volume

Copyright © 2018 Pearson Education Ltd. 11-16

 The cycles of failure, mediocrity,
and success
Costs of short-sighted policies are ignored
• Constant expense of recruiting, hiring, training
PROMOTING SERVICES AND EDUCATING

• Lower productivity of inexperienced new workers

• Higher costs of winning new customers to replace those
CUSTOMERS

lost—more need for advertising and promotional

discounts
• Loss of revenue stream from dissatisfied customers who
go elsewhere
• Loss of potential customers who are turned off by
negative word-of-mouth

Copyright © 2018 Pearson Education Ltd. 11-17

 The cycles of failure, mediocrity,
and success
Cycle of Mediocrity
PROMOTING SERVICES AND EDUCATING
CUSTOMERS

Copyright © 2018 Pearson Education Ltd. 11-18

 The cycles of failure, mediocrity,
and success
Cycle of Mediocrity
• Most commonly found in large, bureaucratic organizations
PROMOTING SERVICES AND EDUCATING

• Service delivery is oriented towards:

o Standardized service
o Operational efficiencies
CUSTOMERS

o Promotions based on long

service
o Successful performance
measured by absence of
mistakes
o Rule-based training
o Little freedom in narrow and repetitive jobs

Copyright © 2018 Pearson Education Ltd. 11-19

 The cycles of failure, mediocrity,
and success
Cycle of Mediocrity
• Customers find organizations frustrating to deal with
PROMOTING SERVICES AND EDUCATING

• Little incentive for customers to cooperate with

organizations to achieve better service
CUSTOMERS

• Complaints are often made to already unhappy

employees
• Customers often stay because of lack of choice

Copyright © 2018 Pearson Education Ltd. 11-20

 The cycles of failure, mediocrity,
and success
Cycle of Success
PROMOTING SERVICES AND EDUCATING
CUSTOMERS

Copyright © 2018 Pearson Education Ltd. 11-21

 The cycles of failure, mediocrity,
and success
Cycle of Success (1)
• Longer-term view of financial performance; firm seeks to
PROMOTING SERVICES AND EDUCATING

prosper by investing in people

• Attractive pay and benefits attract better job applicants
CUSTOMERS

• More focused recruitment, intensive training, and higher

wages make it more likely that employees are:
o Happier in their work
o Provide higher quality, customer-pleasing service

Copyright © 2018 Pearson Education Ltd. 11-22

 The cycles of failure, mediocrity,
and success
Cycle of Success (2)
• Broadened job descriptions with empowerment
PROMOTING SERVICES AND EDUCATING

practices enable front-line staff to control quality,

facilitate service recovery
• Regular customers more likely to remain loyal because:
CUSTOMERS

o Appreciate continuity in service relationships

o Have higher satisfaction due to higher quality

Copyright © 2018 Pearson Education Ltd. 11-23

Promoting Services and Educating
Customers

11.4
Understand the key elements of the
Service Talent Cycle for successful
human resource management in
service firms.
WIRTZ LOVELOCK
 The Service Talent Cycle for
Service Firms
PROMOTING SERVICES AND EDUCATING
CUSTOMERS

Copyright © 2018 Pearson Education Ltd. 11-25

Promoting Services and Educating
Customers

11.5
Know how to attract, select, and hire
the right people for service jobs.

WIRTZ LOVELOCK
 Hiring the right people
• Be the Preferred Employer:
o Create a large pool: “Compete for Talent Market Share”
PROMOTING SERVICES AND EDUCATING

o What determines a firm’s applicant pool?

o Positive image in the community as place to work
o Quality of its services
o The firm’s perceived status
CUSTOMERS

• Select the right people:

o There is no perfect employee
o Different jobs are best filled by
people with different skills, styles
or personalities
o Hire candidates that fit firm’s core
values and culture
o Focus on recruiting naturally warm personalities for customer-contact jobs

Copyright © 2018 Pearson Education Ltd. 11-27

 Hiring the right people
Tools to Identify the Best Candidates (1)
• Employ multiple, structured interviews:
PROMOTING SERVICES AND EDUCATING

o Use structured interviews built around job requirements

o Use more than one interviewer to reduce
“similar to me” biases
CUSTOMERS

• Observe candidate behavior:

o Hire based on observed behavior, not words
you hear
o Best predictor of future behavior is past
behavior
o Hire those with service excellence awards and
complimentary letters

Copyright © 2018 Pearson Education Ltd.

 Hiring the right people
Tools to Identify the Best Candidates (2)
• Conduct personality tests:
PROMOTING SERVICES AND EDUCATING

o Willingness to treat co-workers and customers with courtesy,

consideration and tact
o Perceptiveness regarding
customer needs
CUSTOMERS

o Ability to communicate
accurately and pleasantly
• Give applicants a realistic
preview of the job:
o Chance for candidates to
“try on the job”
o Assess how candidates respond to job realities
o Allow candidates to self select themselves out of the job
Copyright © 2018 Pearson Education Ltd. 11-29
Promoting Services and Educating
Customers

11.6
Explain the key areas in which service
employees need training.

WIRTZ LOVELOCK
 Training service employees actively
• Service employees need to learn:
o Organizational culture, purpose and strategy
PROMOTING SERVICES AND EDUCATING

o Get emotional commitment to core strategy and core values

o Get managers to teach “why”, “what” and “how” of job

o Interpersonal and technical skills

o Both are necessary but neither alone is enough for performing a job well
CUSTOMERS

o Product/service knowledge
o Staff’s product knowledge is a
key aspect of service quality
o Staff must explain product
features and help consumers
make the right choice

Copyright © 2018 Pearson Education Ltd. 11-31

Promoting Services and Educating
Customers

11.7
Understand the role of internal
marketing and communications.

WIRTZ LOVELOCK
 Internal marketing and
communications
• Especially necessary in large
service businesses that operate
in widely dispersed sites
PROMOTING SERVICES AND EDUCATING

• Employees need to be kept

informed about new policies,
changes in service features, and
CUSTOMERS

new quality initiatives

• Nurtures team spirit and support
common corporate goals across
national frontiers
• Can complement training
o ensures efficient and satisfactory service delivery
o achieves productive and harmonious working relationships
o builds employee trust, respect, and loyalty

Copyright © 2018 Pearson Education Ltd. 11-33

Promoting Services and Educating
Customers

11.8
Understand why empowerment is so
important in many front-line jobs.

WIRTZ LOVELOCK
 The importance of empowerment
• Empowerment is most appropriate when
o the firm’s business strategy is based on personalized, customized
PROMOTING SERVICES AND EDUCATING

service and competitive differentiation

o emphasis is on extended relationships rather than short-term
transactions
o complex and non-routine
CUSTOMERS

technologies are used

o service failures are non-routine
and cannot be designed out of
the system
o the business environment is
unpredictable
o managers are comfortable letting employees work
independently for the benefit of firm and customers

Copyright © 2018 Pearson Education Ltd. 11-35

 The importance of empowerment
• Requirements for Empowering the Front Line
o Information about organizational, team, and individual
PROMOTING SERVICES AND EDUCATING

performance
o Knowledge that enables employees to understand and
contribute to organizational, team, and individual performance
o Power to make decisions that influence work procedures and
CUSTOMERS

organizational direction at the higher level and transaction-

specific decisions at the micro level
o Rewards based on organizational, team, and individual
performance

Copyright © 2018 Pearson Education Ltd. 11-36

 The importance of empowerment
Levels of Employee Involvement
• Suggestion involvement
PROMOTING SERVICES AND EDUCATING

o Employee make recommendation through formalized programs

• Job involvement
o Jobs redesigned
CUSTOMERS

o Employees retrained, supervisors reoriented to facilitate performance

• High involvement
o Information is shared
o Employees skilled in teamwork,
problem solving, etc.
o Participate in management
decisions
o Profit sharing and stock
ownership

Copyright © 2018 Pearson Education Ltd. 11-37

Promoting Services and Educating
Customers

11.9
Explain how to build high-performance
service delivery teams.

WIRTZ LOVELOCK
 Building high-performance service
delivery teams
• Many service require cross-functional coordination for excellent
service delivery
PROMOTING SERVICES AND EDUCATING

• Teams, training and empowerment go hand-in-hand

• Creating Successful Service Delivery Teams
o Emphasis on cooperation, listening, coaching and encouraging one
another
CUSTOMERS

o Understand how to air differences, tell hard truths, ask tough questions
o Management needs to set up a structure to steer teams towards
success

Copyright © 2018 Pearson Education Ltd. 11-39

Promoting Services and Educating
Customers

11.10
Know how to integrate teams across
departments and functional areas.

WIRTZ LOVELOCK
 Integrating teams across
departments and functional areas
• Ways to reduce conflict and break down the barriers between
departments
PROMOTING SERVICES AND EDUCATING

o Transferring individuals internally to other departments and functional

areas.
o Establishing cross-departmental and cross-functional project teams.
o Having cross-departmental and cross-functional service delivery teams.
CUSTOMERS

o Appointing individuals whose job is to integrate specific objectives,

activities, and processes between departments.
o Carrying out internal marketing, training, and integration programs.
o Having top management’s commitment to ensure that the overarching
objectives of all departments are integrated.

Copyright © 2018 Pearson Education Ltd. 11-41

Promoting Services and Educating
Customers

11.11
Know how to motivate and energize
service employees so that they will
deliver service excellence and
productivity.
WIRTZ LOVELOCK
 Motivating and energize service
employees
Use full range of available rewards effectively, including
• Job content:
PROMOTING SERVICES AND EDUCATING

o People are motivated and satisfied knowing they are doing a

good job
• Feedback and recognition:
CUSTOMERS

o People derive a sense of identity and belonging to an

organization from feedback and recognition
• Goal achievement:
o Specific, difficult but attainable and accepted goals are strong
motivators

Copyright © 2018 Pearson Education Ltd. 11-43

Promoting Services and Educating
Customers

11.12
Understand what a service-oriented
culture is.

WIRTZ LOVELOCK
 What is a service-oriented culture?
• Organizational culture involves:
o Shared perceptions or themes regarding what is important in the
PROMOTING SERVICES AND EDUCATING

organization
o Shared values about what is right and wrong
o Shared understanding about what works and what doesn’t work
CUSTOMERS

o Shared beliefs and assumptions about why these beliefs are

important
o Shared styles of working and relating to others
• Service culture is defined by
o Shared perceptions of what is important in the organization
o Shared values and beliefs about why those things are important.

Copyright © 2018 Pearson Education Ltd. 11-45

Promoting Services and Educating
Customers

11.13
Know the difference between service
climate and culture, and describe the
determinants of a climate for service.

WIRTZ LOVELOCK
 Service climate and culture
• Organizational climate
o The shared perceptions of employees about the practices, procedures,
and types of behavior that get supported and rewarded in a particular
PROMOTING SERVICES AND EDUCATING

setting
o Employees form perceptions based on daily experiences with HR;
operations; marketing; and IT policies, practices, and procedures
o Essential features of a climate for service include clear marketing goals
CUSTOMERS

and a strong drive to be the best

Copyright © 2018 Pearson Education Ltd. 11-47

Promoting Services and Educating
Customers

11.14
Explain the qualities of effective
leaders in service organizations.

WIRTZ LOVELOCK
 Effective leaders in service
organizations
• Qualities of effective leaders in a
service organization:
PROMOTING SERVICES AND EDUCATING

o Leaders should love their business.

o Leaders should be driven by a set of
core values that are related to service
excellence and performance.
CUSTOMERS

o Leaders must recognize the key part

played by employees in delivering service.
o Effective leaders can involve the team in decision-making rather
than dominating the process.
o Leaders must be able to role model the behaviors they expect
o Effective leaders have a talent for communicating with others in
a way that is accessible.

Copyright © 2018 Pearson Education Ltd. 11-49

Promoting Services and Educating
Customers

11.15
Understand different leadership styles
and realize the importance of role
modeling and focusing the entire
organization on the front line.
WIRTZ LOVELOCK
 Leadership styles, role modelling,
and the front line
• There are two leadership styles in a service climate:
o management of the “basics”
PROMOTING SERVICES AND EDUCATING

o transformational leadership that sets strategy and drives change

However, both are important.
• Persistent management of the basics and endless details
CUSTOMERS

create a strong climate for service:

• Leaders create a strong climate for service when they :
o demonstrate commitment to service quality
o set high standards, recognize and remove obstacles
o ensure the availability of the resources required to do it
• A strong service culture is one where the entire
organization focuses on the front line.
Copyright © 2018 Pearson Education Ltd. 11-51
Thank You.

11-52
5 Distributing Services
THROUGH PHYSICAL AND
ELECTRONIC CHANNELS
WIRTZ LOVELOCK
 Learning Objectives
5.1 Know the four key questions that form the
foundation of any service distribution strategy: What?
How? Where? When?
5.2 Describe the three interrelated flows that show what
is being distributed.
5.3 Know how services can be distributed using three
main options, and understand the importance of
distinguishing between the distribution of core and
supplementary services.

Copyright © 2018 Pearson Education Ltd. 5-2

 Learning Objectives
5.4 Recognize the issues of delivering services through
electronic channels, and discuss the factors that have
fueled the growth of service delivery via cyberspace.
5.5 Understand the determinants of customers’ channel
preferences.
5.6 Know the importance of channel integration.
5.7 Describe the where (place) decisions of physical
channels, and be familiar with the strategic and tactical
location considerations.

Copyright © 2018 Pearson Education Ltd. 5-3

 Learning Objectives
5.8 Describe the when (time) decisions of physical
channels and the factors that determine extended
operating hours.
5.9 Understand the role, benefits, and costs of using
intermediaries in distributing services.
5.10 Know why franchising is such a common way of
delivering services to end users.
5.11 Understand the challenges of distribution in large
domestic markets.

Copyright © 2018 Pearson Education Ltd. 5-4

 Learning Objectives
5.12 Be familiar with the forces that drive service firms to
go international.
5.13 Appreciate the special challenges of distributing
services internationally.
5.14 Explain the determinants of international market
entry strategies.

Copyright © 2018 Pearson Education Ltd. 5-5

 Distributing Services through
Physical and Electronic Channels

5.1
Know the four key questions that form
the foundation of any service
distribution strategy.

WIRTZ LOVELOCK
 The foundation of any service
distribution strategy
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 5-7

 Distribution in a Services Context
• What is being
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

distributed?
• How should a service be
ELECTRONIC CHANNELS

distributed?
• Where should a service
facility be located?
• When should service be
delivered?

Copyright © 2018 Pearson Education Ltd. 5-8

 Distributing Services through
Physical and Electronic Channels

5.2
Describe the three interrelated flows
that show what is being distributed.

WIRTZ LOVELOCK
 What is being distributed?
• In a typical service sales cycle, distribution
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

embraces three interrelated flows:

o Information and promotion flow
o Negotiation flow
ELECTRONIC CHANNELS

o Product flow

Copyright © 2018 Pearson Education Ltd. 5-10

 Distributing Services through
Physical and Electronic Channels

5.3
How services can be distributed using
three main options; the importance of
distinguishing between the distribution
of core and supplementary services.
WIRTZ LOVELOCK
 How should a service be
distributed?
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 5-12

 Distributing Services through
Physical and Electronic Channels

5.4
Recognize the issues of delivering
services through electronic channels,
and discuss the growth of service
delivery via cyberspace.
WIRTZ LOVELOCK
 Delivering services through
electronic channels
• Information, consultation, order-taking, billing, and payment can all
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

be transmitted using online channels.

• Service businesses that involve physical core products are closing
physical branches and shifting delivery of many supplementary
services to the internet.
ELECTRONIC CHANNELS

• Factors that attract customers

to online services:
o Convenience
o Ease of search
o A broader selection
o Potential for better prices
o 24/7 service with prompt
delivery

Copyright © 2018 Pearson Education Ltd. 5-14

 Distributing Services through
Physical and Electronic Channels

5.5
Understand the determinants of
customers’ channel preferences.

WIRTZ LOVELOCK
 Channel Preferences Vary among
Customers
• For complex and high-perceived risk services, people
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

tend to rely on personal channels.

• Individuals with greater confidence and knowledge
about a service/channel tend to use impersonal and self-
ELECTRONIC CHANNELS

service channels
• Customers who are more technology savvy
• Customers with social motives tend to use personal
channels
• Convenience is a key driver of channel choice

Copyright © 2018 Pearson Education Ltd. 5-16

 Distributing Services through
Physical and Electronic Channels

5.6
Know the importance of channel
integration

WIRTZ LOVELOCK
 The importance of channel
integration
• A service that is delivered through multiple channels
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

requires a seamless and consistent user experience.

• New delivery channels are prone to inconsistent and
disjointed experiences for customers
ELECTRONIC CHANNELS

• Service providers need effective pricing strategies to deliver

value and capture it through the appropriate channel.

Copyright © 2018 Pearson Education Ltd. 5-18

 Distributing Services through
Physical and Electronic Channels

5.7
Describe the where (place) decisions of
physical channels, and be familiar with
the strategic and tactical location
considerations.
WIRTZ LOVELOCK
 Strategic and tactical location
considerations
• To develop a location strategy, a firm must understand customer
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

needs and expectations, competitive activity, and the nature of the

service operation.
• The following factors need to be considered for selecting a specific
site:
ELECTRONIC CHANNELS

o Population size and characteristics

o Pedestrian and vehicular traffic
and its characteristics
o Convenience of access for
customers
o Competitors in this area
o Nature of nearby businesses and
stores
o Availability of labor
o Availability of site locations, rental costs and contractual conditions, and
regulations
Copyright © 2018 Pearson Education Ltd. 5-20
 Strategic and tactical location
considerations
Places of service delivery
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

• Ministered:
o Creating many small service factories to maximize geographic
coverage (automated kiosks)
ELECTRONIC CHANNELS

o Separating front and back stages of operation (Taco Bell)

o Purchasing space from another provider in complementary field
(Dunkin Donuts with Burger King)
• Locating in Multipurpose Facilities:
o Proximity to where customers live or work (service stations)

Copyright © 2018 Pearson Education Ltd. 5-21

 Strategic and tactical location
considerations
Places of service delivery
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

• Cost, productivity and access to labor are key determinants to locating

a service facility.
• Locational constraints:
ELECTRONIC CHANNELS

o Operational requirements (airports)

o Geographic factors (ski resorts)
o Need for economies of scale (hospitals)

Copyright © 2018 Pearson Education Ltd. 5-22

 Distributing Services through
Physical and Electronic Channels

5.8
Describe the when (time) decisions of
physical channels and the factors that
determine extended operating hours.

WIRTZ LOVELOCK
 Time of Service Delivery
• Traditionally, schedules were
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

restricted.
o Service availability limited to daytime,
40–50 hours a week
ELECTRONIC CHANNELS

• Today:
o For flexible, responsive service
operations
o 24/7 service – 24 hours a day, 7 days a week,
around the world

Copyright © 2018 Pearson Education Ltd. 5-24

 Distributing Services through
Physical and Electronic Channels

5.9
Understand the role, benefits, and
costs of using intermediaries in
distributing services

WIRTZ LOVELOCK
 The Role of Intermediaries
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

• Challenges for original supplier:

o Act as guardian of overall process
o Ensure that each element offered by intermediaries fits overall
service concept
Copyright © 2018 Pearson Education Ltd. 5-26
 Distributing Services through
Physical and Electronic Channels

5.10
Know why franchising is such a
common way of delivering services to
end users.

WIRTZ LOVELOCK
 Franchising
• Popular way to expand delivery of effective service
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

concept, without a high level of monetary investments

compared to rapid expansion of company-owned and -
managed sites
ELECTRONIC CHANNELS

• Franchisor provides training, equipment and support

marketing activities. Franchisees invest time and finance,
and follow copy and media guidelines of franchisor
• Growth-oriented firms like franchising because
franchisees are motivated to ensure good customer
service and high-quality service operations

Copyright © 2018 Pearson Education Ltd. 5-28

 Franchising
• Study shows significant attrition rate among franchisors
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

in the early years of a new franchise system:

o One third of all systems fail within first four years
o Three fourths of all franchisors cease to exist after 12 years
ELECTRONIC CHANNELS

• Disadvantages of franchising:
o Some loss of control over delivery system and,
thereby, over how customers experience
actual service
o Effective quality control is important
but yet difficult
o Conflict between franchisees may
arise especially as they gain
experience

Copyright © 2018 Pearson Education Ltd. 5-29

 Franchising
• Alternative: license another supplier to act on
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

the original supplier’s behalf to deliver core

product, for example:
o Trucking companies
ELECTRONIC CHANNELS

o Banks selling insurance products

Copyright © 2018 Pearson Education Ltd. 5-30

 Distributing Services through
Physical and Electronic Channels

5.11
Understand the challenges of
distribution in large domestic markets

WIRTZ LOVELOCK
 Challenges of distribution in large
domestic markets
• There are special challenges in
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

federal nations covering a large

geographic area:
o the distances involved and the
ELECTRONIC CHANNELS

existence of multiple time zones

o multiculturalism is also an issue,
leading to segmenting issues
o there are differences between
the laws and tax rates of the
various states or provinces and
those of the respective federal
governments

Copyright © 2018 Pearson Education Ltd. 5-32

 Distributing Services through
Physical and Electronic Channels

5.12
Be familiar with the forces that drive
service firms to go international.

WIRTZ LOVELOCK
 Forces that drive service firms to
go international
• Factors favoring adoption of transnational strategies:
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

o Market Drivers
o common customer needs across many countries
o global customers who demand consistent service from suppliers around the
world
ELECTRONIC CHANNELS

o availability of international
channels
o Competition Drivers
o presence of competitors
from different
o Countries
o interdependence of countries
o transnational policies of the
competitors

Copyright © 2018 Pearson Education Ltd. 5-34

 Forces that drive service firms to
go international
• Factors favoring adoption of transnational strategies:
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

o Technology Drivers
o enhanced performance and capabilities in telecommunications,
computerization, and software
o miniaturization of equipment
ELECTRONIC CHANNELS

o digitization of voice, video, and text

o the growing availability of broadband telecommunication channels

o Cost Drivers
o economies of scale
o sourcing efficiencies
o improved performance and lower operating costs for telecommunications
and transportation

Copyright © 2018 Pearson Education Ltd. 5-35

 Forces that drive service firms to
go international
• Factors favoring adoption of transnational strategies:
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

o Government Drivers
o favourable trade policies
o compatible technical standards
o common marketing regulations
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 5-36

 Distributing Services through
Physical and Electronic Channels

5.13
Appreciate the special challenges of
distributing services internationally.

WIRTZ LOVELOCK
 Challenges of distributing services
internationally
• Airline access:
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

o If one country is willing to allow entry by a new carrier but the

other is not, access will be blocked
o Capacity limits at certain major airports lead to denial of new or
additional landing rights for foreign airlines
ELECTRONIC CHANNELS

• Financial, healthcare, and telecommunications service

markets are typically very highly regulated
• Companies that offer a global reservation service and
connect this with local facilities and/or micro
entrepreneurs often face regulatory roadblocks

Copyright © 2018 Pearson Education Ltd. 5-38

 Distributing Services through
Physical and Electronic Channels

5.14
Explain the determinants of
international market entry strategies

WIRTZ LOVELOCK
 Determinants of international
market entry strategies
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 5-40

Thank You.

5-41
6 Setting Prices
Distributing Services
IMPLEMENTING
THROUGH PHYSICAL AND
and

REVENUE MANAGEMENT
ELECTRONIC CHANNELS
WIRTZ LOVELOCK
 Learning Objectives
6.1 Recognize that effective pricing is central to the
financial success of service firms.
6.2 Outline the foundations of a pricing strategy as
represented by the pricing tripod.
6.3 Define different types of financial costs and explain
the limitations of cost-based pricing.
6.4 Understand the concept of net value and know how
gross value can be enhanced through value-based
pricing and reduction of related monetary and non-
monetary costs.

Copyright © 2018 Pearson Education Ltd. 6-2

 Learning Objectives
6.5 Describe competition-based pricing and situations
where service markets are less price-competitive.
6.6 Define revenue management and describe how it
works.
6.7 Discuss the role of rate fences in effective revenue
management.
6.8 Be familiar with the issues of ethics and consumer
concerns related to service pricing.

Copyright © 2018 Pearson Education Ltd. 6-3

 Learning Objectives
6.9 Understand how fairness can be designed into
revenue management policies.
6.10 Discuss the six questions marketers need to
answer to design an effective service- pricing strategy.

Copyright © 2018 Pearson Education Ltd. 6-4

 Distributing Services through
Physical and Electronic Channels

6.1
Recognize that effective pricing is
central to the financial success of
service firms.

WIRTZ LOVELOCK
 Effective pricing for financial
success
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-6

 Distributing Services through
Physical and Electronic Channels

6.2
Outline the foundations of a pricing
strategy as represented by the pricing
tripod.

WIRTZ LOVELOCK
 Foundations of a Pricing Strategy
• Pricing Strategy Stands on Three Legs
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-8

 Distributing Services through
Physical and Electronic Channels

6.3
Define different types of financial costs
and explain the limitations of cost-
based pricing.

WIRTZ LOVELOCK
 Cost-Based Pricing
• Set prices relative to financial costs (problem:
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

defining costs)
• Activity-based costing
• Pricing implications of cost analysis
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-10

 Distributing Services through
Physical and Electronic Channels

6.4
Understand the concept of net value
and know how gross value can be
enhanced.

WIRTZ LOVELOCK
 Value-based pricing
• Understanding Net Value:
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

o Customers weigh the perceived

benefits of the service against the
perceived costs they will incur.
o Value is a low price.
ELECTRONIC CHANNELS

o Value is whatever I want in a product.

o Value is the quality I get for the price I pay.
o Value is what I get for what I give.

• Managing the Perception of Value:

o Effective communications and even personal explanations are
needed to help customers understand the value they receive.

Copyright © 2018 Pearson Education Ltd. 6-12

 Value-based pricing
Reducing Related Monetary and Non-Monetary Costs
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

• Reduce related-monetary costs.

o Cut time spent searching for, purchasing and using service
ELECTRONIC CHANNELS

• Reduce non-monetary costs.

o Time Costs
o Physical Costs
o Psychological (Mental) Costs
o Sensory Costs (unpleasant sights,
sounds, feel, tastes, smells)

Copyright © 2018 Pearson Education Ltd. 6-13

 Value-based pricing
• Service users can incur costs during any of the
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

three stages of the service consumption model

ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-14

 Distributing Services through
Physical and Electronic Channels

6.5
Describe competition-based pricing
and situations where service markets
are less price-competitive.

WIRTZ LOVELOCK
 Competition-based pricing
• Non-price-related costs of using competing alternatives
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

are high
• Personal relationships matter
•
ELECTRONIC CHANNELS

Switching costs are high

• Time and location specificity reduces choice
• Managers should not only look at competitor’s prices
dollar for dollar, but should examine all related financial
and non-monetary costs

Copyright © 2018 Pearson Education Ltd. 6-16

 Distributing Services through
Physical and Electronic Channels

6.6
Define revenue management and
describe how it works.

WIRTZ LOVELOCK
 Define revenue management and
describe how it works
Maximizing Revenue from Available Capacity at a Given
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

Time
• Most effective when
o Relatively high fixed capacity
ELECTRONIC CHANNELS

o High fixed cost structure

o Perishable inventory
o Variable and uncertain demand
o Varying customer price sensitivity
• Revenue management is price customization
o Charge different value segments different prices for same
product based on price sensitivity

Copyright © 2018 Pearson Education Ltd. 6-18

 Revenue management
Maximizing Revenue from Available Capacity at a Given
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

Time
• Revenue management is price customization

o Charge different value segments different prices for same

ELECTRONIC CHANNELS

product based on price sensitivity

Copyright © 2018 Pearson Education Ltd. 6-19

 Revenue management
Maximizing Revenue from Available Capacity at a Given
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

Time
• Most effective when
o Relatively high fixed capacity
ELECTRONIC CHANNELS

o High fixed cost structure

o Perishable inventory
o Variable and uncertain demand
o Varying customer price sensitivity

Copyright © 2018 Pearson Education Ltd. 6-20

 Revenue management
Maximizing Revenue from Available Capacity at a Given
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

Time
• Revenue management uses mathematical models to
examine historical data and real time information to
ELECTRONIC CHANNELS

determine
o What prices to charge within each price bucket
o How many service units to allocate to each bucket
• Rate fences deter customers willing to pay more from
trading down to lower prices (minimize consumer
surplus)

Copyright © 2018 Pearson Education Ltd. 6-21

 Revenue management
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-22

 Distributing Services through
Physical and Electronic Channels

6.7
Discuss the role of rate fences in
effective revenue management.

WIRTZ LOVELOCK
 Role of rate fences
Key Categories of Rate Fences: Physical
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-24

 Role of rate fences
Key Categories of Rate Fences: Non-Physical (1)
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-25

 Role of rate fences
Key Categories of Rate Fences: Non-Physical (2)
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-26

 Role of rate fences
Key Categories of Rate Fences: Non-Physical (3)
DISTRIBUTING SERVICES THROUGH PHYSICAL AND
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-27

 Role of rate fences
Relating Price Buckets
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

and Fences to Demand

Curve
ELECTRONIC CHANNELS

Copyright © 2018 Pearson Education Ltd. 6-28

 Distributing Services through
Physical and Electronic Channels

6.8
Be familiar with the issues of ethics
and consumer concerns related to
service pricing.

WIRTZ LOVELOCK
 Issues of ethics and consumer
concerns
• Customers are vulnerable when service is hard to evaluate
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

as they assume that higher price indicates better quality

• Many services have complex pricing schedules
o Hard to understand
ELECTRONIC CHANNELS

o Difficult to calculate full costs

in advance of service
• Quoted prices not the only
prices
o Hidden charges
o Many kinds of fees
• Too many rules and regulations
o Customers feel constrained, exploited
o Customers face unfair fines and penalties
Copyright © 2018 Pearson Education Ltd. 6-30
 Distributing Services through
Physical and Electronic Channels

6.9
Understand how fairness can be
designed into revenue management
policies

WIRTZ LOVELOCK
 How fairness can be designed
• Design clear, logical and fair price schedules and fences
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

• Use high published prices and present fences as opportunities for

discounts (rather than quoting lower prices and using fence as basis
to impose surcharges
• Communicate consumer benefits of revenue management
ELECTRONIC CHANNELS

• Use bundling to “hide” discounts

• Take care of loyal customers
• Use service recovery to compensate for overbooking

Copyright © 2018 Pearson Education Ltd. 6-32

 Distributing Services through
Physical and Electronic Channels

6.10
Discuss the six questions marketers
need to answer to design an effective
service-pricing strategy.

WIRTZ LOVELOCK
 Putting Strategy into Practice
• How much to charge?
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

• What basis for pricing?

• Who should collect payment?
ELECTRONIC CHANNELS

• Where should payment be made?

• When should payment be made?
• How should payment be made?
• How to communicate prices?

Copyright © 2018 Pearson Education Ltd. 6-34

Thank You.

6-35