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Services Marketing
Chapter 1:
Introduction to Services
Marketing
Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 1 – Page 1
Learning objectives
Chapter 1
• Explain the need for special services marketing concepts and
why the need has developed and is accelerating.
• Explain what services are and identify important trends in
services.
• Introduce the concept of service dominant logic.
• Explore the profound impact of technology on service.
• Outline the basic differences between goods and services and
the resulting challenges and opportunities for service
businesses.
• Introduce the expanded marketing mix for services and the
philosophy of customer focus, as powerful frameworks and
themes that are fundamental to the rest of the text.
• Introduce the concept of the services triangle.
Why Study Services?
Why Study Services?
Services Marketing
 Services dominate the Economy in most Nations The
size of the service sector is increasing around the
world.
➔ Services account for more than 60% of GDP worldwide
➔ Almost all economies have a substantial service sector
➔ Most new employment is provided by services
➔ Strongest growth area for marketing
Services Dominate the Global
Economy
Services Marketing
Contribution of Service Industries to GDP Globally
In 2021, agriculture
contributed 4.3 percent,
industry contributed
approximately 27.59
Manufacturing
percent and services
30%
contributed about 64.43
Services percent to the global gross
63%
domestic product.
Agriculture
6.4% https://www.statista.com/statistics/2565
63/share-of-economic-sectors-in-the-
global-gross-domestic-product/
Source: World GDP-composition by sector-
Economy.url-2017
Why Study Services?
Services Marketing
 Most New Jobs are generated by Services.

➔ Fastest growth expected in knowledge-based
industries
➔ Significant training and educational qualifications
required, but employees will be more highly
compensated
➔ Will service jobs be lost to lower-cost countries?
Yes, some service jobs can be exported
 Understanding Services Offers Personal Competitive
Advantage .
Why Study Services?
Services Marketing
What are the factors causing this rapid growth of the service sector?
 Powerful forces are transforming service markets

➔ Government policies, social changes, business trends,
advances in IT, internationalization
 Forces that reshape:

➔ Demand
➔ Supply
➔ The competitive landscape
➔ Customers’ choices, power, and decision making
Transformation of the
Service Economy
Services Marketing
Social Business Advances
Changes Trends In IT
Government Globalization
Policies
▪ New markets and product categories
▪ Increase in demand for services
▪ More intense competition
Innovation in service products & delivery systems, stimulated by better

technology
Customers have more choices and exercise more

power
Success hinges ▪ Understanding customers and competitors

on:
▪ Viable business models
▪ Creation of value for customers and firm
▪ Increased focus on services marketing and
management
Services Marketing
Chapter 1:
Introduction to Services
Marketing, cont’d
Lec 2
Learning objectives
Chapter 1
• Explain the need for special services marketing concepts and
why the need has developed and is accelerating.
• Explain what services are and identify important trends in
services.
• Introduce the concept of service dominant logic.
• Explore the profound impact of technology on service.
• Outline the basic differences between goods and services and
the resulting challenges and opportunities for service
businesses.
• Introduce the expanded marketing mix for services and the
philosophy of customer focus, as powerful frameworks and
themes that are fundamental to the rest of the text.
• Introduce the concept of the services triangle.
What Are Services?
Services Marketing
 The historical view

➔ Smith (1776): Services are different from goods because they
are perishable
➔ Say (1803): As services are immaterial, consumption cannot be
separated from production
 A fresh perspective: Benefits without Ownership

➔ Rental of goods:
(a) Payment made for using or accessing something – usually for a
defined period of time – instead of buying it outright and
(b) Allows participation in network systems that individuals and
organizations could not afford
Definition of Services
Services Marketing
 Services
➔ are economic activities offered by one party to another
➔ most commonly employ time-based performances to bring
about desired results
 In exchange for their money, time, and effort, service

customers expect to obtain value from
➔ access to goods, labor, facilities, environments, professional
skills, networks, and systems;
➔ normally do not take ownership of any of the physical
elements involved.
What Are Services?
Services Marketing
Five broad categories within non-ownership framework
of which two or more may be combined
Defined space
Labor, skills, and Rented goods and place
expertise rentals services rentals
(Boats, Fancy-dress (a seat in an aircraft, a suite
(car repair, medical check
costumes, construction in an office building, a
up, management consulting)
equipment) storage container in a
warehouse)
Access to and
Access to shared usage of systems
physical and networks
environments (telecommunications, utilities
(theme parks, golf clubs) and banking, social online
networks and games)
What are Services?
Services Marketing
 Services are deeds, processes, and

performances provided, coproduced, or
cocreated by one entity or person for and/or
with another entity or person.
Service Products vs. Customer
Service & After-Sales Service
Services Marketing
 A firm’s market offerings are divided into core product

elements and supplementary service elements
 Need to distinguish between:

➔ Marketing of services – when service is the core product
➔ Marketing through service – when good service increases
the value of a core physical good
 Manufacturing firms are reformulating and enhancing

existing added-value services to market them as stand-
alone core products
Value Creation is Dominated by
Intangible Elements
Services Marketing
Physical Elements
High
Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing Plumbing Repair
Fast-Food Restaurant Health Club

Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking
Low High
Intangible Elements
Source; Adapted from Lynn Shostack
SERVICE DOMINANT LOGIC
Services Marketing
Value is not something that is simply created and

delivered to the customer; the value is co-created
in a process that requires the active participation
of the producer, its customers and possibly other
stakeholders (of the producer and the customer).
McGraw Hill 2021

VALUE IN USE
Services Marketing
Value is created not at the time of the exchange between

the producer and the customer but when the customer
integrates, applies and uses the resources of a particular
producer.
A car has limited value unless it can provide a way of

getting people to work; or it can provide a way of
communicating a person’s self image; or it provides a
sense of freedom for some.
McGraw Hill 2021

Services Pose Distinctive
Marketing Challenges
Services Marketing
 Marketing management tasks in the service sector
differ from those in the manufacturing sector.
 Four common differences between services and goods

but they do not apply equally to all services.
➔ Intangibility, for example, ranges from tangible-dominant to
intangible-dominant
➔ The frequently cited four characteristics are: (IHIP)
• Intangibility
• Hetrogenity (variability of quality)
• Inseparability of production and consumption
• Perishibiity of output
What are marketing implications of these differences?

Characteristics of Services
Compared to Goods
Services Marketing
Intangibility Heterogeneity
Simultaneous
Production
and Perishability
Consumption
Comparing Goods and Services
(Table 1.1)
Services Marketing
Service – A Process Perspective
Services Marketing
 Differences exist amongst services depending on what

is being processed
 Classification of services into

➔ People processing
➔ Possession processing
➔ Mental stimulus processing
➔ Information processing
4 Categories of Services
Services Marketing
People Processing
Services Marketing
 Customers must:
➔ physically enter the service factory
➔ cooperate actively with the service operation
 Managers should think about process and output from

the customer’s perspective
➔ to identify benefits created and non-financial costs: Time,
mental and physical effort
Possession Processing
Services Marketing
• customers ask a service

organization to provide
treatment for some physical
possession
 Involvement of customers is limited (may be limited to

dropping off or colleting the item.
 Less physical involvement
 Production and consumption are separable
Mental Stimulus Processing
Services Marketing
• Services that interact with
people's minds (include
education, news and
information, professional advice,
psychotherapy, entertainment,
and certain religious activities).
 Ethical standards required:
➔ Customers might be manipulated
 Physical presence of recipients not required
 Core content of services is information-based
➔ Can be ‘inventoried’
Information Processing
Services Marketing
➢ Information is the most
intangible form of service
output.
 but it may be transformed:
➔ Into enduring forms of service output such as letters,

reports, books, tapes, or CDs.
 Line between information processing and mental

stimulus processing may be unclear
Services Require
An Extended Marketing Mix
Services Marketing
 Marketing can be viewed as:

➔ A strategic and competitive thrust pursued by top
management
➔ A set of functional activities performed by line managers
➔ A customer-driven orientation for the entire organization
 Marketing is only function to bring operating revenues into a

business; all other functions are cost centers
 The “8 Ps” of services marketing are needed to create viable

strategies for meeting customer needs profitably
Services Marketing
Figure 1.3
The Services Marketing Triangle
McGraw Hill 2021

Chapter 1-22
Traditional Marketing Mix
▪Elements an organization controls that can

be used to satisfy or communicate with
customers:
▪ Product
▪ Price
▪ Place
▪ Promotion
Copyright © 2018
Chapter 1-23
Expanded Mix for Services –

The 7 Ps
The 4 Ps plus…
People
All human actors who play a part in service delivery and thus influence
the buyer’s perceptions: namely, the firm’s personnel, the customer,
and other customers in the service environment.
Physical Evidence
The environment in which the service is delivered and where the firm
and customer interact, and any tangible components that facilitate
performance or communication of the service.
Process
The actual procedures, mechanisms, and flow of activities by which
the service is delivered—the service delivery and operating systems.
Copyright © 2018
Marketing to be Integrated with
Other Management Functions
Services Marketing
Management functions play central and interrelated roles in
meeting needs of service customers
Operations Marketing
Management Management
Customers
Information
Technology
Human Resources
Management
The Service-Profit Chain is a conceptual framework that shows how these
functions are integrated in high-performance organizations.
The Service-Profit Chain
Services Marketing
• puts “hard” values on “soft” measures.
• helps managers target new investments to develop service and
satisfaction levels for maximum competitive impact
• workplace design • Quality and • Attractive value • Lifetime value

• Job design/decision making productivity • Service designed • Retention
latitude improvements and delivered to • Repeat business
• Selection and development yield higher meet targeted • Referral
• Rewards and recognition quality and customers’ needs
• Information and lower cost
communication
• Adequate “tools” to serve
customers
The Service-Profit Chain
Services Marketing
Links in the Service-Profit Chain
1 Customers loyalty drives profitability and growth

2 Customer satisfaction drives customer loyalty
3 Value drives customer satisfaction
4 Quality and productivity drive value
5 Employee loyalty drives service quality and productivity
6 Employee satisfaction drives employee loyalty
7 Internal quality as delivered by operations and IT drives
employee satisfaction
8 Top management leadership underlies the chain’s success
Services Marketing
Developing Effective
Service Marketing
Strategies
Integrated model of services
marketing Services Marketing
Understanding Service Products, Consumers and
Markets
Applying the 4 P’s of Marketing to

Services
The Extended Services Marketing Mix

for Managing the Customer Interface
Implementing Profitable Service Strategies
Services Marketing
Chapter 2:
Consumer Behavior
in a Services Context
Learning Objectives
Services Marketing
After reading this chapter, you should be able to:
 explain the purchase process for services
 describe the three different types of attributes that consumers use to
evaluate products and how they relate to service offerings
 discuss why service characteristics like intangibility affect consumer
evaluation processes
 describe the relationship between customer expectations and customer
satisfaction
 explain the different levels of customer contact and their impact on
service design and delivery
 discuss critical incidents and their implications for customer satisfaction
 understand the elements of the total service system
 describe why service delivery can be viewed as a form of theater
 recognize the potential role of customers as coproducers of services
Overview Of Chapter 2
Services Marketing
Customer Decision Making: Pre-purchase Stage

The Three-Stage Model of Service
Consumption
Service Encounter Stage
Post-encounter Stage
Pre-purchase Stage - Overview
Services Marketing
Pre-purchase Stage  Customers seek solutions to

aroused needs
 Evaluating a service may be
difficult
 Uncertainty about outcomes
Increases perceived risk
Service Encounter  What risk reduction strategies
Stage can service suppliers develop?
 Understanding customers’
service expectations
 Components of customer
expectations
Post-encounter Stage  Making a service purchase
decision
Need Arousal
Services Marketing
 Decision to buy or use a service is triggered by need arousal
 Triggers of need:
➔ Unconscious minds (e.g., personal identity and aspirations)
➔ Physical conditions (e.g., hunger )
➔ External sources (e.g., a service firm’s marketing activities)
 Consumers are then motivated to find a solution for their need
Courtesy of Masterfile Corporation
Information Search
Services Marketing
 Need arousal leads to attempts to find a solution
 Evoked set – a set of products and brands that a consumer

considers during the decision-making process – that is
derived from past experiences or external sources
 Alternatives then need to be evaluated before a final

decision is made
Types of Information Sought
Services Marketing
Example of Decision Alternatives for Laptop Computers
Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e 15-77

Chapter 2 – Page
Evaluating Alternatives –
Service Attributes
Services Marketing
 Search attributes – tangible characteristics help customers better

understand and evaluate a product before purchase and reduce
uncertainty or risk.
➔ E.g., type of food, location, type of restaurant and price
 Experience attributes cannot be evaluated before purchase
➢ The consumer will not know how much s/he will enjoy the
food, the service, and the atmosphere until the actual
“experience”
Evaluating Alternatives –
Service Attributes Services Marketing
 Credence attributes are those that customers find impossible

to evaluate confidently even after purchase and consumption,
because the customer is forced to trust that certain tasks have
been performed from which benefits will result
➔ E.g., hygiene conditions of the kitchen and the healthiness

of the cooking ingredients
How Product Attributes Affect
Ease of Evaluation
Services Marketing
Most Goods Most Services
Easy Difficult
To Evaluate To evaluate
Clothing Restaurant Meals Computer Repair
Chair Lawn Fertilizer Education
Motor Vehicle Haircut Legal Services
Foods Entertainment Complex Surgery
High In High In High In

Search Experience Credence
Attributes Attributes Attributes
Source: Adapted from Valarie A. Zeithaml , “How Consumer Evaluation Processes Differ Between Goods & Services,” in J.H. Donelly and W. R. George, Marketing of
Services (Chicago: American Marketing Association, 1981)
Perceived Risks of Purchasing and
Using Services Services Marketing
 Functional–unsatisfactory performance 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
How Might Consumers Handle
Perceived Risk?
Services Marketing
 Seek information from respected personal sources
 Compare service offerings and search for independent reviews

and ratings via the Internet
 Relying on a firm with good reputation
 Looking for guarantees and warranties
 Visiting service facilities or going for trials before purchase and

examining tangible cues or other physical evidence
 Asking knowledgeable employees about competing services
Strategic Responses to Managing
Customer Perceptions of Risk
Services Marketing
Free trial (for

services with Advertise (helps Display
high experience to visualize) credentials
attributes)
Use evidence
Encourage visit
management
Offer guarantees to service
(e.g., furnishing,
facilities
equipment etc.)
Give customers
online access
about order
status
Services Marketing
Chapter 2:
Consumer Behavior
in a Services Context
Learning Objectives
Services Marketing
After reading this chapter, you should be able to:
 explain the purchase process for services
 describe the three different types of attributes that consumers use to
evaluate products and how they relate to service offerings
 discuss why service characteristics like intangibility affect consumer
evaluation processes
 describe the relationship between customer expectations and customer
satisfaction
 explain the different levels of customer contact and their impact on
service design and delivery
 discuss critical incidents and their implications for customer satisfaction
 understand the elements of the total service system
 describe why service delivery can be viewed as a form of theater
 recognize the potential role of customers as coproducers of services
Pre-purchase Stage - Overview
Services Marketing
Pre-purchase Stage  Customers seek solutions to

aroused needs
 Evaluating a service may be
difficult
 Uncertainty about outcomes
Increases perceived risk
Service Encounter  What risk reduction strategies
Stage can service suppliers develop?
 Understanding customers’
service expectations
 Components of customer
expectations
Post-encounter Stage  Making a service purchase
decision
Understanding Customers’
Service Expectations
Services Marketing
 Customers evaluate service quality by comparing what they expect

against what they perceive
➔ 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
Factors Influencing Customer
Expectations of Service
Services Marketing
Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of
Service,”Journal of the Academy of Marketing Science 21, no. 1 (1993): 1-12
Components of Customer Expectations
Services Marketing
Desired Service Level

• wished-for level of service quality that customer believes can and should
be delivered
Adequate Service Level

• minimum acceptable level of service
Predicted Service Level

• service level that customer believes firm will actually deliver
Zone of Tolerance
• Acceptable range of variations in service delivery. When service falls
outside this range, customers will react, either positively or negatively.
Purchase Decision
Services Marketing
 Purchase Decision: Possible alternatives are compared and

evaluated, whereby the best option is selected
➔ Simple if perceived risks are low and alternatives are clear
➔ Complex when trade-offs increase
 Trade-offs are often involved
 After making a decision, the consumer moves into the service

encounter stage
Services Marketing
Service Encounter Stage - Overview
Services Marketing
Pre-purchase Stage ● Service encounters range from high-

to low-contact
● Understanding the servuction

system
Service Encounter ● Theater as a metaphor for service

Stage delivery: An integrative perspective
➔ Service facilities
➔ Personnel
Post-encounter Stage ➔ Role and script theories
Services Marketing
 Service encounter – a period of time during which a customer

interacts directly with the service provider
➔ Might be brief or extend over a period of time (e.g., a phone call or visit
to the hospital)
 Models and frameworks:

1. “Moments of Truth” – importance of managing touchpoints
2. High/low contact model – extent and nature of contact points
3. Servuction model – variations of interactions
4. Theater metaphor – “staging” service performances
Moments of Truth
Services Marketing
“[W]e could say that the perceived quality is realized at the

moment of truth, when the service provider and the service
customer confront one another in the arena. At that moment they
are very much on their own… It is the skill, the motivation, and
the tools employed by the firm’s representative and the
expectations and behavior of the client which together will create
the service delivery process.”
Richard Normann
Service Encounters Range from
High-Contact to Low-Contact
Services Marketing
Distinctions between High-Contact and
Low-Contact Services
Services Marketing
 High-Contact Services  Low-Contact Services

➔ Customers visit service ➔ Little or no physical
facility and remain contact
throughout service ➔ Contact usually at arm’s
delivery length through electronic
➔ Active contact or physical distribution
➔ Includes most people- channels
processing services ➔ Facilitated by new
technologies
The Servuction System
Services Marketing
The service business is
viewed as a system that
integrates marketing,
operations, and customers.
The term servuction system
(combining the terms service
and production) is part of the service organization’s physical environment visible
to and experienced by customers. This model shows all the interactions that
together make up a typical customer experience in a high-contact service.
Customers interact with the service environment, service employees, and even
other customers who are present during the service encounter. Each type of
interaction can create value or destroy value.
The Servuction System:
Service Production and Delivery Services Marketing
 Servuction System: visible front stage and invisible backstage
 Service Operations
➔Technical core where inputs are processed and the elements of the
service product are created
➔Contact people
➔Physical environment
 Service Delivery
➔Where “final assembly” of service elements takes place and service is
delivered to the customer, often in the presence of other customers
➔Includes customer interactions with operations and other customers
Theater as a Metaphor for
Service Delivery
Services Marketing
“All the world’s a stage and all the men

and women merely players. They have
their exits and their entrances and each
man in his time plays many parts.”
William Shakespeare
As You Like It
Theatrical Metaphor:
an Integrative Perspective
Services Marketing
Good metaphor as service delivery is a series of events that
customers experience as a performance
Service facilities Personnel

• Stage on which drama • Front stage personnel are
unfolds like members of a cast
• This may change from • Backstage personnel are
one act to another support production team
Roles Scripts
• Like actors, employees • Specifies the sequences
have roles to play and of behavior for customers
behave in specific ways and employees
Implications of Customer Participation
in Service Delivery
Services Marketing
 Greater need for information/training

➔ Help customers to perform well, get desired results
 Customers should be given a realistic service preview in advance of

service delivery
➔ This allows them to have a clear idea of their expected role
and their script in this whole experience
➔ Manages expectations and emotions
Services Marketing
Post-Encounter Stage
Post-purchaseStage - Overview
Services Marketing
Pre-purchase Stage
● Evaluation of service
performance
Service Encounter
Stage ● Future intentions
Post-encounter Stage
During the post-encounter stage, customers evaluate the service

performance they have received and compare it with their prior
expectations.
Customer Satisfaction with
Service Experience
Services Marketing
 Satisfaction: attitude-like judgment following a service purchase or

series of service interactions
➔ Whereby customers have expectations prior to consumption,
observe service performance, compare it to expectations
 Satisfaction judgments are based on this comparison

➔ Positive disconfirmation (service is better than expected)
➔ Confirmation (same; it is as expected)
➔ Negative disconfirmation (service is worse than expected)
Customer Delight:
Going Beyond Satisfaction
Services Marketing
 Research shows that delight is a function of three components

➔ Unexpectedly high levels of performance
➔ Arousal (e.g., surprise, excitement)
➔ Positive affect (e.g., pleasure, joy, or happiness)
 Strategic links exist between customer satisfaction and corporate

performance
➔ By creating more value for customers (increased satisfaction),
the firm creates more value for the owners
Customer Delight:
Going Beyond Satisfaction
Services Marketing
 Best Practice in Action 2.1:

Progressive Insurance Delights
Its Customers
➔ Provided excellent
customer service which
allowed them to lower
costs and also increase
customer satisfaction and
retention
Getting Feedback during Service
Delivery
Services Marketing
 The importance of getting feedback during service

delivery is that when things are going badly for the
customer, there may still be an opportunity to practice
service recovery so that the customer leaves feeling
satisfied.
 Such an outcome improves the likelihood that the

customer will remain loyal.

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Services Marketing

 Most New Jobs are generated by Services.

 Powerful forces are transforming service markets

 Forces that reshape:

Innovation in service products & delivery systems, stimulated by better

Customers have more choices and exercise more

Success hinges ▪ Understanding customers and competitors

 The historical view

 A fresh perspective: Benefits without Ownership

 In exchange for their money, time, and effort, service

 Services are deeds, processes, and

 A firm’s market offerings are divided into core product

 Need to distinguish between:

 Manufacturing firms are reformulating and enhancing

Fast-Food Restaurant Health Club

Value is not something that is simply created and

McGraw Hill 2021

Value is created not at the time of the exchange between

A car has limited value unless it can provide a way of

McGraw Hill 2021

 Four common differences between services and goods

What are marketing implications of these differences?

 Differences exist amongst services depending on what

 Classification of services into

➔ cooperate actively with the service operation

 Managers should think about process and output from

• customers ask a service

 Involvement of customers is limited (may be limited to

 Less physical involvement

 Production and consumption are separable

➔ Customers might be manipulated

 Physical presence of recipients not required

 Core content of services is information-based

 but it may be transformed:

➔ Into enduring forms of service output such as letters,

 Line between information processing and mental

 Marketing can be viewed as:

 Marketing is only function to bring operating revenues into a

 The “8 Ps” of services marketing are needed to create viable

McGraw Hill 2021

Traditional Marketing Mix

▪Elements an organization controls that can

Expanded Mix for Services –

• workplace design • Quality and • Attractive value • Lifetime value

Links in the Service-Profit Chain

1 Customers loyalty drives profitability and growth

Applying the 4 P’s of Marketing to

The Extended Services Marketing Mix

Implementing Profitable Service Strategies

Customer Decision Making: Pre-purchase Stage

Service Encounter Stage

Pre-purchase Stage  Customers seek solutions to

 Decision to buy or use a service is triggered by need arousal

 Consumers are then motivated to find a solution for their need

Courtesy of Masterfile Corporation

 Need arousal leads to attempts to find a solution

 Evoked set – a set of products and brands that a consumer

 Alternatives then need to be evaluated before a final

Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e 15-77