After experiencing over a decade of double digit economic growth, China's economy has begun to show signs of trouble as the growth rate as slowed down to 7.7% in the first quarter of this year. The potential for infrastructural investment is contracting, exports are sluggish, and overcapacity is rising. However, the key to igniting the next stage of explosive economic growth lies in China's service sector. 

 

Today's world economy is increasingly being characterised as a service economy. This is mostly due to the importance and share of the service sector of most developed countries. For many years now, the growth rate and size of the service sector have long been indicators of a country's economic progress. As of the end of 2012, the world economy's service sector has reached 63.6% of global GDP.  If we look at most developed countries we will find their service sector to comprise of as much as 80% of GDP in countries such as the US and France. China's service sector on the other hand makes up only 44.6% of their economy- leaving plenty of opportunity for growth in this sector. If we look at the top 35 largest economies in the world, only three other countries have an economy where their service sector makes up a lower percentage than China; Saudi Arabia (31.1%), Indonesia (38.8%), and the United Arab Emirates (39.8%). However, as the Chinese economy continues to grow, the government is increasing its focus on trying to drive up the consumption component of GDP in order to maintain a sustainable level of economic growth. In April of this year, China's service sector eclipsed its industrial sector for the first time. This shift towards a more developed service industry is good for the people as services tend to be labour-intensive which leads to faster job-creation, higher wages and greater household spending.  

 

In order for a service to be successful, it must have a well planned, detailed, and executed marketing mixture. Many people are familiar with the traditional marketing mix which consists of four elements also known as the Four Ps (Product, place, price and promotion). However, given the nature of services, in that you do not have a physical product which can be stored, there are an additional three Ps that are unique to services (People, process, and physical evidence). 

 

1) Product: Product refers to the product being offered. For a service, the product is intangible, heterogeneous, and perishable and its production and consumption are inseparable. The nature of services allows for personal customizations according to customer requirements. However, it is important not to offer too much customisation as that could compromise the standard delivery of the service and negatively affect quality. Particular attention needs to be taken while designing the product.
 

2) Price: Pricing for a service is generally more difficult than pricing for a good. With a good, you can generally set the price according to raw materials and overheads. With a service, you must also factor in certain intangible aspects such as ambience and level of service that are hard to put a number on. 
 

3) Place: Since service delivery occurs at the same time as its production and it cannot be stored and transported, location is critical for any service's success. When setting up a service it is important to do demographics research in the neighbourhood you are looking to setup in. Other important factors to consider when choosing a site are visibility (back alley versus a prominent city corner), the area’s volume of traffic, ease of accessibility, parking, area zoning, and real estate value. 
 

4) Promotion: Services are generally easy to replicate and reproduce compared to goods. This makes promotion an important way for differentiating your product offering in the minds of consumers. Airlines, banks, and insurance providers offer identical services and must advertise their services differently in order to attract certain segments of the market. Building a strong brand is important and crucial for surviving into today's competitive market which is why service companies spend so much money on advertising.
 

 

5) People: People are a pivotal part of the service delivery process as a service is inseparable from the person providing it. This is because people are often one of the only elements of a service which the customer can see and interact with (for example, as in insurance and banking). This can lead to situations whereby, for instance, a restaurant may be just as well known for its food, as its level of service provided by the staff. This is true across all different services including banks, department stores and hairdressers. It is no surprise, then that many companies today are spending more time and money on finding the right qualified staff and training them not just on how to do their job, but how to deliver the best customer experience possible.
 

6) Process: Process of service delivery is a crucial part of any service because it ensures that the same standard of service is repeatedly delivered to the customers. Many companies follow a service blue print that provides the details of the service delivery process down to the finest details including scripts on what to say to the customers. When ordering a Big Mac in China you expect it to look and taste the same as back home. This is because McDonalds goes to great lengths to ensure that the process and materials used to make a Big Mac are the same at every location in every country. All services need to have underlying and clearly defined and efficient processes in order to be successful. In other words, this means that everybody knows what to do and how to do it. 
 

7) Physical Evidence: Because services are intangible in nature, service providers must incorporate some kind of tangible element into their offerings in order to enhance the customer experience. Many service providers will have well designed waiting areas, often with various things to do while you are waiting. For example, Haidilao, the delicious Hot Pot restaurant that is known for its exceptional service, has a spacious waiting area where, for free, you can play a game of chess, receive a massage, eat light snacks, and get your nails painted; all whilst sitting on plush couches. It is very common to see restaurants and other service providers invest a lot of money on interior design and decorations in order to provide a more tangible and unique experience. Physical evidence can be used to differentiate a company's product offering and can also be used in order to justify charging premium prices. For example, hotels all offer a bed to spend the night on. However, the quality and the condition of the room will affect not only the price but also the customer's perception of the level of quality.
 

 
 

By Justin Toy