The Importance of Services Marketing

The Importance of Services

The Service Economy

The world economy is evolving into a service-driven economy as reliance on value-based service increases.

LEARNING OBJECTIVE

Define the role of a service economy in developed and developing countries

KEY TAKEAWAYS

Key Points

  • The growth of the service sector has long been considered as an indicator of a country’s economic progress.
  • Services are continually being launched to satisfy our existing needs and to meet needs that we did not even know we had.
  • Service organizations can vary in size from large corporations to small, locally owned businesses.

Key Terms

  • primary: The primary sector of the economy is the sector of an economy making direct use of natural resources.
  • secondary: The secondary sector of the economy or industrial sector includes those economic sectors that create a finished, tangible product, such as production and construction.
  • Service: Action or work that is produced, then traded, bought or sold, and then finally consumed.

EXAMPLE

The way consumers handle financial transactions with banks, such as Chase Bank in this image has evolved as our needs as a society have evolved. Fifteen years ago, no one would have anticipated the need for online banking and yet today many of us feel we can’t live without it. This is a service that has continually changed to satisfy existing needs.

The Service Economy

The world economy is increasingly characterized as a service economy. This is primarily due to the increasing importance and share of the service sector in the economies of most developed and developing countries. In fact, the growth of the service sector has long been considered as an indicator of a country’s economic progress. Economic history tells us that all developing nations have invariably experienced a shift from agriculture to industry and then to the service sector as the mainstay of the economy. This shift has also brought about a change in the definition of goods and services themselves.

Service organizations vary widely in size. At one end of the scale are huge international corporations operating in such industries as airlines, banking, insurance, telecommunications, and hotels. At the other end of the scale are a vast array of locally owned and operated small businesses, such as restaurants, laundries, optometrists, beauty parlors, and numerous business-to-business services.

The service sector is going through revolutionary change, which dramatically affects the way in which we live and work. New services are continually being launched to satisfy our existing needs and to meet needs that we did not even know we had. Nearly fifty years ago, when the first electronic file sharing system was created, few people likely anticipated the future demand for online banking, website hosting, or email providers. Today, many of us feel we can’t do without them. Similar transformations are occurring in business-to-business markets.

The Role Of the Service Economy In Development

As of 2008, services constituted over 50% of GDP in low income countries. As their economies continue to develop, the importance of the service sector continues to grow. For instance, services accounted for 47% of economic growth in sub-Saharan Africa over the period 2000–2005, while industry only contributed 37% and agriculture only 16% in that same period. This means that recent economic growth in Africa relied as much on services as on natural resources or textiles, despite many of those countries benefiting from trade preferences in primary and secondary goods.

A Chase Bank building

Banking Services: Most financial transactions within a bank can be done online. The service was not available 15 years ago.

As a result of these changes, people are leaving the agricultural sector to find work in the service economy. This job creation is particularly useful as often it provides employment for unskilled workers in the tourism and retail sectors, which benefits the poor and represents an overall net increase in employment. The service economy in developing countries is most often made up of the following industries: financial services, tourism, distribution, health, and education.

Services as Solutions

Firms need to understand their service and their customers to ensure that their services will be viewed as solutions to consumer needs.

LEARNING OBJECTIVE

Demonstrate knowledge of the skills required to sell services as solutions to customers and prospects

KEY TAKEAWAYS

Key Points

  • If you want customers to buy your services, you need offer them a solution that costs less than the problem is costing them.
  • No customer will renew a subscription service or buy more consulting services if they don’t see genuine value in these services as it relates to fulfilling their business objectives.
  • Selling services as solutions is different from solution selling because instead of defining the solution and then looking for applicable problems, you are tailoring your services to fit your prospective customer’s day-to-day problems.

Key Term

value: a customer’s perception of relative price (the cost to own and use) and performance (quality)

EXAMPLE

The use of technological advances in service and product offerings can be very beneficial to a company. For example, Visa has embedded security chips, such as the one displayed in this picture, into their Visa credit cards. This chip will ensure the card cannot be duplicated and provides extra security measures to consumers who use the credit cards and reduces the threat of identity theft. Applying this technology is just one of the many services Visa can implement to protect their consumer product offerings against identity theft. It may not be the only solution, but it is a fairly effective one. Visa was able to change their marketing strategy due to the changing nature of the environment.

If you want customers to buy your services, you need offer them a solution that costs less than the problem is costing them. Your solution might:

  • Save your customer money;
  • Save your customer time: or
  • Improve your customer’s productivity.

This is different from solution selling because instead of defining the solution and then looking for applicable problems, you are tailoring your services to fit your prospective customer’s day-to-day problems. In essence, you are in the problem-solving business and if you can prove that you can solve your customer’s present problems, you’ll have a long-term customer who will come back for more and more.

In order to accomplish this task you, and anyone involved in selling your services, need to:

  • Have an excellent understanding of the services you’re offering and what can and can’t be tailored to a customer’s requirement;
  • Have an solid understanding of the common problems your prospects face and those that your services can solve; and
  • Prepare 20-25 questions to identify possible problems and generate credibility and confidence in your company’s abilities.

Selling Services As Solutions

An illustration called "Honoré Daumier" that's displayed at the Brooklyn Museum. A man is pushing a large bag labeled "budget" up a hill.

Budgets: Services have to be priced fairly in order to attract customers. People aren’t willing to pay for services that are too expensive or that they do not need.

Without genuinely valuable services for your customer, you have no revenue. While “what’s the value proposition? ” is an over-used term, below is a more specific definition of value, particularly as it applies to application software (in contrast with infrastructure software).

It’s about selling a meaningful solution bundle

When selling services rather than technology, the focus should be on people and organizations—listening to and understanding their internal projects, and being considerate of their timelines and budgets. It is important to listen and provide a fair offer for services that genuinely meet a customer’s need. Budgets are much too constrained these days for anyone to buy services they don’t really need. This model can be a good foundation for a company, leading to a sustainable revenue stream that can help to further fund the development of the product.

In other words, create revenue that can sustain and grow the business, to make the product better in the long run, and to enable customers to better deploy the software. This only happens if the software and the services provide real value to an organization.

It’s about customer engagement

Years ago, the Red Hat Network offered a valuable service for those who purchased a software subscription. If you passively wait for the renewal, you can expect that some customers will ask themselves, “Do we use this subscription service or not? Do we really need to continue to pay for it? ” A proactive approach in this scenario is to demonstrate ongoing value by regular customer engagement, showing the customer new features they can access via their subscription, reviewing their current use of the product, and offering add-on services to help them be better trained or better able to use more of the product for more of their organization.

The fundamental principle here is value. No customer will renew a subscription service or buy more consulting services if they don’t see genuine value in these services as it relates to fulfilling their business objectives, whether that be better customer service, better IT responsiveness, or better IT management.