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The Service Sector

Sector Importance

For approximately 200 years since the advent of the Industrial Revolution, wealth generation and economic output in Western nations were dominated by the manufacturing industry. However in less than three decades after the end of World War II, manufacturing as a wealth generator had been overtaken by service sector organisations. The importance of the service sector in Western nations in terms of contribution to GDP and as a source of employment has continued to increase to the present day (Gerrath and Leenders 2013).

As service providers such as banks and insurance companies sought to achieve higher market share in the 1980s, many adopted marketing principles that relied heavily upon advertising and sales promotions that had proven effective for tangible goods companies such as Coca Cola, Proctor & Gamble and Unilever. Promotional spending in the service sector rose dramatically, but many service firms did not enjoy any real growth in market share in spite of their increased emphasis on the role of marketing. The failure of branded goods marketing techniques to be effective in the case of service sector firms led both practitioners and academics to © The Author(s) 2017

I. Chaston, Technological Entrepreneurship,

DOI 10.1007/978-3-319-45850-2_10

recognise the need for new concepts and approaches in the management of service operations (Raich and Crepaz 2009).

This awareness led to the recognition that services exhibit the following inherent differences relative to manufactured goods (Zeithmal and Bitner 1996):

  • 1. Intangibility, which reflects the fact that many services cannot be seen, tasted or touched in the same way that customers can sense tangible goods. As a consequence, customers face considerable problems in assessing the quality or probable satisfaction that a service will deliver prior to purchase and consumption.
  • 2. Heterogeneity, which results from the fact that customers often exhibit variations in the nature of their needs, Because service delivery often involves people, there might be signification variations in the quality of the service delivered by different employees. As a consequence a service provider is rarely able to ensure consistency in product performance as can be offered by a branded goods supplier.
  • 3. Perishability, which arises because services cannot be stored and saved for later sales. Hence, managing the fluctuations in supply and demand requires new approaches in the management of service delivery. The other important issue is that for many services, such as seats on an aircraft, represent potential revenue, the loss of which cannot be recovered at some later date.
  • 4. Simultaneous production and consumption, which reflects the fact that many services are produced and consumed with both the customer and the supplier requiring to be present in the same location. As a consequence there is a critical need for the supplier to ensure that employees perform in an adequate and consistent fashion during every interaction with customers because resolving quality problems at some later date is usually an impossible objective.

In addition to these identified unique characteristics, an even more fundamental problem is that in the case of many service goods such as banking, insurance and mass market retailing, there is often no way for a supplier to create differences in the service proposition which permits distinguishing their offering from other suppliers in the same market sector. In contrast, in the case of tangible goods, attributes such as design, appearance and superior performance permit suppliers to differentiate their products from those of their competitors. Hence it can be argued that exploiting entrepreneurship in a service sector business is more difficult than in a tangible goods business (Walker et al. 2013).

There is one more difficulty in differentiating a service firm from its competition. The commonality in the nature of the service being offered often means that in terms of utilising the 4Ps of marketing (i.e. product, promotion, price and place) in many markets suppliers can only rely on price as a way of distinguishing their proposition from that of their competition. Given the limitations in exploiting the 4Ps to build market share, additional variables to assist differentiation of benefit propositions in the market place have been recognised. The three common additional variables that provide an opportunity for entrepreneurial enhancement of the traditional marketing mix are as follows (Magrath 1986):

  • 1. People, which comprises all individuals associated with any aspect of supplying, delivering or interacting with the customer during the service provision process. This variable is often seen by premium price service suppliers as the most critical attribute in terms of exploiting the skills of a well-trained and strongly motivated work force to deliver a high quality service experience carefully designed to meet varying customer needs.
  • 2. Process, which comprises the procedures, mechanisms, activities and systems associated with the creation and delivery of a service. A service provider with superior process activities can exploit this differential by either charging a higher price for greater efficiency and effectiveness or providing the basis for offering services at a lower price than its less- efficient competitors.
  • 3. Physical evidence, which constitutes all physical elements of the environment in which customer interaction and service provision take place. For example, a full service department store provides a superior shopping experience that will permit the company to charge higher prices than for similar goods to be found in a discount warehouse outlet.
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