Page 167 - DMGT510_SERVICES_MARKETING

Services Marketing

Notes Growth

There will be a surge in demand for the service offer when customers make repeat purchases and
potential customers come in due to recommendations made by the formers and by the generally
positive publicity floating around. Entertainment products like theatres, concerts, operas, plays,
movies, and circus etc. are highly vulnerable to such publicity.
Why does the profit curve peak (Time period TP) much before the peaking of the sales curve
(Time period TS)?

It is to be noted that the peak of the profit curve does not coincide with the peak of the sales
curve. The reasons are due to normal market dynamics. Surging sales, high voltage publicity,
increasing awareness and profits are all indications of success. But success breeds imitators;
direct competition enters the fray, hoping to harvest from the successful formula. To beat them,
the service firm has to fight in two ways: spend more money on brand promotions like
advertisements and publicity and by offering price cuts. Although effective in slowing down the
onslaught of competition, the added expenditures cut deeply into its profits.
There is a ‘bandwagon effect’ with the increase in sales, size of the consumer market, and
number of competitive players.

CAUTION: Bandwagon Effect refers to the situation where an individual does a thing because
other also does it. With increase in market volumes and competition, price tends to drop.
The service marketer has to invest in promotions to establish consumer attitudes, increase
market penetration and accessibility through wider distribution reach in order to bandwagon
effect.

Maturity

Sales at the maturity stage flatten and slow down. Most possible product benefits are usually
developed and the market has reached the dreaded point of saturation. There is now an obvious
over-capacity, with more players in the fray. Price cutting becomes the norm for attracting
customers. The shakeout had enabled only the strong players to be around. The cost of doing
business increases and the market becomes stable. Sales growth can slow down to as low as zero
indicating complete saturation of the market.
At this stage, if any new player entered the market, they would only steal business from each
other. The Indian hotel industry, especially the five star luxury segment was witness to such a
scenario in the sluggish early nineties as well as post 9/11.
Most of the products available today are at this stage of the life cycle; many service offers are
spread amongst Maturity (supermarkets), early Growth (deep discounters) and Introduction
(e-retailing, e-auctions) stages. At the beginning of this cycle, profits are likely to be at their
peak; there is an inevitable decrease as competition hot up and prices fall. Many small brands
swiftly head for the next stage, decline.

Decline

In the decline stage, there is a downturn in revenues, customer acquisition and retention. This
could be due to a number of factors:
Direct Competitors: could be doing a better job in offering the same service with more

value.

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