From the middle until the end of the twentieth century, the services sector’s rele-vance in the developed countries – measured by the services sector’s portion of the total employment or the value creation – increased continuously. The emer-gence and development of the services marketing concept in practice and the services marketing discipline in marketing academia were driven by these fig-ures. However, the services sector’s relevance in economic statistics has stabilised and market saturation can be observed.
When interpreting this tendency from the demand-side, one can conclude that the demand for services is not growing any more. This general and overall ten-dency in the services sector consisting of very heterogeneous industries can also be observed in single industries within this sector (see Services marketing in action 1.1). For example, the airline industry has experienced tough price compe-tition for several years. After years of steady growth during which flying
SERVICES MARKETING IN ACTION 1.1:
Strong competition in many service industries
Banking
The widely held view thus appears to be that European banks are heading for tur-bulent times. Several driving forces will lead to intensified competition not only among banks but also between banks and other, new financial intermediaries. This is generally expected to increase the need for a restructuring of the banking sector.
The general tenor seems to be that banks are specialised in an economic activity that can, to a growing extent, be performed by non-specialist players. If so, the demand for bank loans will decline and the structure of the balance sheets of banks will alter.
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Looking at simple capacity indicators like the number of banks or branches per inhabitant, it can be expected that consolidation will continue in the French, German, and Italian banking sectors in particular.
Source: BIS 1999.
Airline market
History suggests that the low-cost airline sector will experience market consolida-tion and increased market concentraconsolida-tion over the coming years. Because of the network economies of scale available to large-scale, low-cost airlines and other factors (including aggressive defence of existing profitable routes), the low-cost airline segment in the European market may eventually be dominated by just two carriers – easyJet and Ryanair. Numerous start-ups will come and go. Scale mat-ters in the aviation industry. EU airlines and their customers are failing to benefit from the full potential of the EU single market. On a global level, many European players are of a sub-optimal size, compared to their major international rivals.
Some traditional Flag Carriers are facing serious financial difficulties and need airline partners or new investment to improve their long-term commercial viability.
Source: Riley 2003.
Multiplex cinemas
Until recently a multiplex was often a monopoly supplier to its local catchment area. However as competition intensifies it is becoming increasingly common for multiplex operators to compete directly against one another within a locality. Some observers believe that as market saturation is reached cinemagoers will be swamped and operators forced to slash admission prices.
Source: McKosker 2001.
Multiplex operators are about to enter a period of savage competition, in which the big players will invest tens of millions of pounds into top of the range complexes on the doorstep of their competitors in a drive to kill or be killed.
Source: Newton 1998.
Tour operators
Europe's baseline has changed, especially in Germany where the 'new' Eastern Germans do not have their Western colleagues' spending power. Short coach tours are popular, or seven- or ten-day holidays, particularly if sport (cycling, riding, etc.) is in the package. For clients with money the world is their oyster and tour opera-tors look for more exotic far-flung destinations. Recession in Germany probably prompted the giant tour operators to buy up British companies; Britain's Thomson is now part of 'the world of TUI', and Thomas Cook has become Thomas Cook AG (part owned by Lufthansa). The Swiss company, Kuoni, with its own British arm, continues to provide holidays for a clientele spread across Europe.
Source: Collins 2004.
transformed from an elite means of transportation to a common one, a further market increase is improbable. Political events like 11 September 2001 did their part to narrow the market. Another example is the private banking market. The rise of the financial markets attracted many new private banking customers or at least new private banking money. Recent statistics show that this part of the banking market is declining.1
Due to the shrinking or at least stable services markets, the competition within the respective industries becomes more severe, and service providers must ask themselves how they respond to these developments. For a long time it seemed to be enough for service providers to offer a certain range of services at a certain quality level for competitive prices in order to attract demand. In some industries, especially in service markets that were characterised by a monopoly or monopoly-like market structure (e.g. telecommunications, energy, postal services or airlines) the customers did not really have choices. As a consequence the providers in these markets did not have to concentrate on market shares, etc. In other markets, the customers were locally oriented, such as travel agents or retailers. In these areas, new distribution channels, like the internet, have led to new market dynamics.
Severe competition in these markets has resulted in greater difficulties for the service providers to ensure and increase their firm value. Put simply, firm value is composed of revenues on the one hand and cost on the other hand. All inci-dents that lead to revenues generated above the cost for the service provision, i.e.
paid usage of the company’s services by its customers, increase value. Thus, firms aim at concentrating upon activities that increase that value. These activities again lead to cost. For example, a direct mailing campaign of a bank that offers a new investment product to its customers, aims at increasing value by inviting customers to purchase the new product. However, these activities also generate cost, i.e. the cost of developing the campaign, printing the letters and brochures as well as sending them out. Activities only increase a firm’s value when they generate more revenues than cost. Since revenue is generated by the customers’
behaviour, i.e. the purchase of the new investment product, the value creation of an activity depends on its ability to induce positive customer behaviour.
Customers only use a service when this usage promises to create value for the cus-tomer. In the banking example, the customer will only purchase the new product when it promises to increase his/her assets. The same condition is valid for other service industries: a customer only books a holiday when it promises to be inter-esting, fun or relaxing. These promises represent the value the customer perceives to receive from the provider and its services. Consequently, a service firm’s value depends on the services’ value perceived by the customer. These relationships will be explored in more detail in Chapter 2. For the time being, we emphasise the fact that service providers aim at delivering value to the customer in order to increase their firm’s value. In the banking example, we outlined that the market-ing activity ‘direct mailmarket-ing’ affects the firm’s value. Thus, service firms evaluate their activities according to their ability to create value. As we will explore later, these activities can be summarised to certain value processes that represent the value creation potential of a service firm.
In accordance with the development of services marketing in practice, a ten-dency towards a more value-oriented approach to services marketing can also be observed in academia and the literature.