Impact of Technology on Service Marketing
The rapid improvements in and diffusion of information technology and the use of the Internet have changed marketing in general and, specifically, services marketing, for three main reasons:
As mentioned earlier in this chapter, the use of the Internet has created a new channel of distribution ideally suited for certain kinds of services, particularly those involving travel and financial transactions and entertainment services.
Recall that an important feature of services is that because they are often delivered by people, their quality is variable both at one point in time and over time (Le., they are nonstandardized). Computerization, substituting capital for labor, provides uniform service delivery at a quality level people cannot match.
As in all product categories, companies are looking for new ways to differentiate their products from competitors. Information technology and the Internet have provided powerful, tangible opportunities for such differentiation.
~d earlier in this chapter, travel services is the largest category of e-commerce, with nearly $70 billion of bookings in 2005. In the United States, 54 percent of consumers start with an online travel agent before making travel reservations. Almost 40 percent of all airline reservations are made through the Internet. Most of the bookings are done through two kinds of sites: Internet travel companies and web sites run by the airlines, hotels, and car rental firms themselves. Although it is cumbersome to book complicated air itineraries, fares for simple travel plans can be easily compared and, in fact, some airlines offer lower fares on the web than through personal contact with airline or independent agents.
The major players in the online travel industry have been the industry leader Expedia (40 percent of online travel revenue in 2004), Travelocity (20 percent), ?nd Orbitz (18 percent). A quick profile of these companies is:
Expedia: Expedia had revenues of just over $13 billion in 2004. It was started by Microsoft in 1996 and later sold to InterActiveCorp. In 2005, the company became a separately traded public company containing other travel companies owned by InterActiveCorp such as Hotels.com, Hotwire, and TripAdvisor.
Travelocity: This company is owned by Sabre Holdings. At one time, Travelocity was the number one online travel company. However, a slowdown in innovation cost the company its lead in the market.
Orbitz: Orbitz was founded in 2001 by a group of American airlines: American, Continental, Delta, Northwest, and United. It was sold for $1.25 billion in 2004 to Cendant.
However, the airlines' own sites still account for nearly 60 percent of the online bookings. The discount airlines, Southwest, JetBlue, Virgin, EasyJet, and so on, do not sell through travel agents and motivate customers to use their web sites by offering incentives such as extra credits in their loyalty programs. Southwest.com attracted over 8 million unique visitors to its web site in April 2005, with 14 percent of them resulting in sales. One of the advantages of Southwest's site is that a visitor does not have to go through the tedious process of registration. Most of the airlines have significantly boosted their bookings through their web sites by moving the reservations part of the site to the home page.
A new breed of online travel service called aggregators attempt to look for the best air fares and hotel and car rates across all company sites, that is, it is a web site that searches across other web sites. The best-known example is a company called Kayak. Kayak does not sell anything like the travel sites, being purely a search service. Kayak connects customers with airlines, hoteliers, and car rental sites collecting a small fee per mouse click. The site uses a new technology called Rich Internet Application architecture (RIA), which allows it to look at more than 100 web sites continuously. Other aggregators include Yahoo! Travel, SideStep, and Cheapflights.
The financial services industry has been the other major beneficiary of increased consumer use of the Internet. This has occurred in four major areas:
Mortgages. In 2003, Americans took out $812 billion in home mortgages using online services, about 29 percent of the total market, up from 13 percent in 2001. The Internet-only leader is Quicken Loans, which closed $14 billion in direct-to-consumer loans in 2004. J. P. Morgan Chase and Washington Mutual, two of the top five U.S. mortgage lenders, have also been very successful in moving their application processes online.
Stock trading. This is, of course, probably the most active area of online finance. As of 2005, total assets in customer accounts at the major online discount-brokerage firms are estimated to be· about $1.3 trillion, up from $617 billion at the end of 1998. And this understates the amount of activity, as it does not include the online part of full-service firms like Merrill Lynch. The five largest firms in this business are Charles Schwab, Fidelity Investments, Ameritrade, E*Trade, and Scottrade Inc.
Online bill payment. In 1999, only 8 percent of households paid their bills online. This is projected to grow to 37 percent by 2008. This provides a large market opportunity for companies to provide bill-paying services to banks and other financial institutions. CheckFree is the market leader whose software powers 1,600 web sites and generates nearly $800 million in revenues.
Online payments. With the meteoric rise of eBay and iTunes and similar sites, customers have a concomitant need to make secure online payments directly to such vendors. The market leader is PayPal, now owned by eBay, which generated $19 billion in payment volume in 2004. The growing market in China is served by AliPay, a unit of the popular site Alibaba.com.
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