Global Services

Chap

ter

13

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Outline

Characteristics of ServicesServices as ProductsService Globalization PotentialForeign Entry Modes of ServicesService Quality and Cultural DifferencesTwo special cases: Fast Food and Professional ServicesTakeaways.

• Accounting

• Advertising

• Banking

• Broadcasting

• Computer services

• Consulting

• Data processing

• Design & engineering

• Distribution

• Education

• Entertainment

• Health care

• Insurance

• Investment banking

• Leasing

• Legal Services

• Lodging

• Media

• Reservation systems

• Restaurants

• Tourism

• Telecommunications

• Transportation

• Utilities

The Service Industries

• INTANGIBILITY – you cannot easily touch a service

• HETEROGENEITY – the service is not exactly the same each time

• INSEPARABILITY – services are produced when they are consumed

• PERISHABILITY – you cannot store a service

Characteristics of Services

CORE SERVICE: IS WHAT THE BUYER IS REALLY BUYING. FOR EXAMPLE, AN OIL CHANGE AND TUNE-UP FOR YOUR CAR PROVIDES TROUBLE-FREE OPERATION.

FORMAL SERVICE PACKAGE: SPECIFIC SERVICES OFFERED TO THE CUSTOMER INCLUDING PRICE, SERVICE FEATURES, THE PACKAGING, GUARANTEES.

AUGMENTED SERVICE: THE TOTALITY OF THE BENEFITS A CUSTOMER RECEIVES OR EXPERIENCES THEY HAVE WHEN BUYING THE PRODUCT.

The Service “Product”

Generic benefits

Provider’s behavior

Physicalsurroundings

Provider’s appearance

Brand image

Features

Quality

Packaging

After-salessupport

Price

Warranty

Core service

Formalservice package

Augmentedservice

The service as a “product”

• Stage in the Life Cycle – potential is highest during the maturity stage because then the service is fully developed and can be blueprinted.

• Infrastructure barriers – service applicability depends on availability of infrastructure, as when, for example, warehouse stores require customers to take home large items in their own cars.

• Idiosyncratic Home Markets – special regulations induce domestic service providers to develop practices that are not applicable elsewhere, as when, for example, advertising agencies in Japan produce television programs whose sponsorship the agency controls.

Three factors that influence the globalization potential of services

Service Globalization Potential

Reasonable similarity to the home country situation

Distilling exactly what the key features of the product/service concept are

Localization of the key features to another environment while still maintaining the FSA's of the firm

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Keys to Successful Service Globalization

1. EXPORTING – where services can be transferred via communications media or personal travel to countries

2. LICENSING – when local involvement is important, where the service can be standardized (e.g. franchising)

3. STRATEGIC ALLIANCES – when a local presence is necessary but where government regulations are restrictive to foreigners

4. FOREIGN DIRECT INVESTMENT – when a local presence is feasible, where foreign ownership is permitted

The Four Service Entry Modes

Foreign Entry of Services

Tourism exports provide an illustration of foreign trade in services, as when Americans visit France.

A franchising expansion by McDonalds provides an illustration of a licensing mode of service entry.

In marketing research, it is common to strike up alliances with research firms in other countries to be able to provide global coverage to clients.

In consulting services, foreign direct investment is sometimes necessary, as when Price-Waterhouse opens an office in Brussels.

1. MARKET SEGMENTATION – typically new services from abroad target very specific segments or audiences

2. POSITIONING – the customer benefit of the service needs to be identified clearly to position the service accordingly

3. PRODUCT LINE – a service provider that fits the local infrastructure

4. BRANDING – is always important given the intangibility of services.

The Local Marketing of a Service

5. PRICING – competitive parity, costs, demand, and the value of time spent by customers must be factored in

6. PROMOTION – many professional services have restrictions on promotional activities that differ across countries

7. DISTRIBUTION – since a service is produced & consumed at the same time, service delivery is identical to service production; consequently, distribution becomes the “critical incident” or “moment of truth.”

The Local Marketing of a Service (cont’d)

CRITICAL INCIDENTS/MOMENTS OF TRUTH – the period of time during which an individual consumes the service

Desired Service – highest or ideal quality

Predicted or Expected Service – lies somewhere between the desired & the adequate service

Adequate Service – forms the lower limit below which the service quality is unacceptable

Perceived Service –must lie between the desired & the adequate service levels to make sure customer is

satisfied

Service Quality

Desired Service

Predicted/Expected Service

Adequate Service

(Perceived Service low)

Surprise

Acceptable

Dissatisfaction

Zone of tolerance

Performance Gap

Service Quality:The Gap and the Zone of Tolerance

(Perceived Service high)

Inadequate Service

•Since services are intangible, service quality is more difficult to quantify, allowing for a more subjective

view

•Different cultures have different habits and preferences and therefore different definitions of

service quality

•So culture affects perceived service quality & customer satisfaction strongly

•And what is considered high service quality in one country is not necessarily high in another country.

Culture and Service Quality

• Asking • Listening

JapaneseAmericans

• Expressing doubt • Expressing sympathy

• Explain what cannot be done • Explain what can be done

• Defending company policy • Apologize for company policy

• Responsibility of the buyer • Responsibility of the seller

• “We’ll fix it, but…” • “I’m very sorry”

• Low customer satisfaction • High customer satisfaction

Personal Service Quality:Differences in Complaint Handling

ADVANTAGES – allows franchisee to start a business with limited capital, benefiting from local experience of franchiser

DISADVANTAGES – franchiser’s ability to dictate many facets of the business may seem overly intrusive

• Has been growing in the last two decades

• Mitigates risk of financial exposure in other country markets

• Common method of penetrating new markets, leveraging existing brand names

• Firms provide pre-planning tools to entice local investors

E.g. McDonalds, KFC, Wendy’s, Dunkin Donuts, Pizza Hut

Close-up: Fast Food Franchising

• Professional services are expanding globally despite idiosyncratic local regulations

• A gradual move toward making regulations more homogeneous benefits this expansion (e.g. EU certification of

lawyers & doctors)

• Accounting standards are converging, allowing accounting firms to go global, with clients outside their home countries

• Increased sophistication in creating strategic alliances aid global service expansion

E.g. lawyers, doctors, accounting firms

Close-up: Professional Services

Services have become an increasingly important part of the economy, especially in developing countries.

Like manufacturers of products, service providers are turning increasingly to foreign markets for growth.

Takeaway

Services have characteristics that make foreign expansion different from products. Intangibility of many services makes

the mode of entry different from physical goods.

Takeaway

Globalizing a service means identifying what the core advantages of the service are & whether they can be

reproduced in a foreign market.

This usually means that foreign expansion of services occurs in the mature life cycle stage.

Takeaway

The barriers to entry for services tend to be greater than for goods, because of restrictive government regulation & the

need for localized delivery.

Takeaway

Because of the human factor, the way services are marketed locally & the trade-off between standardization & adaptation

hinge very much on cultural factors.

Takeaway