Marketing in the Service Industries

Marketing Service Inds

Gordon Foxall

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135174651
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

First Published in 1985. This is a collection of sixteen essays on the marketing of services industries covering such topics as professional services, banks, service firms, insurance services, freight transport, estate agencies, leisure, package holidays, urban public transport, tourism, customer service and also new technology in the industry.

Service Markets: The Effects of Competition Policy and Consumer Protection

by

Donald Cowell*

This article outlines the current status of Competition Policy (Monopolies and Mergers; Anti-Competitive Practices; Restrictive Trade Practices) and Consumer Protection (Legislation; Consumer Protection Agencies; Voluntary Codes of Practice) in services markets. The relative neglect of services markets until recently is reflected in the fragmented and patchwork systems, mechanisms and agencies available in this important sector of the economy and further developments are likely.

INTRODUCTION

Two features of government policy which affect services marketing are the measures taken to encourage competition and the measures taken to control practices which are considered to be restrictive or anti-competitive. Coupled with these are the policies employed to encourage fair trading and protect consumers. Competition policy and consumer protection are issues of great importance in the service sector of the economy. This paper gives an outline of how competition policy and consumer protection apply to services. Many government departments exercise some functions with regard to competition policy and consumer protection. However, the main department concerned with such matters is the Department of Trade and Industry. The Minister of State for Consumer Affairs, who is answerable to the Secretary of State for Trade and Industry, has special responsibilities for competition policy and on consumer matters. These include trading standards, fair trading, weights and measures, consumer credit and consumer safety. Significant agencies of government for whose work the Secretary of State is ultimately responsible include the Monopolies and Mergers Commission and the Office of Fair Trading. The latter is headed by the Director General of Fair Trading.

COMPETITION POLICY

Over the years the competition policies of different governments in Britain have led to the development of procedures and methods for examining and controlling monopolies and mergers, anti-competitive practices and restrictive trade practices. The current situation (1984) is that the Director General of Fair Trading administers the Fair Trading Act 1973 which regulates anti-competitive practices; and the Restrictive Trade Practices Acts 1976 and 1977 which regulate restrictive trading agreements. These three areas of competition policy – monopolies and mergers, Anti-Competitive Practices and Restrictive Trade Practices – are examined in turn with specific reference to services.

Monopolies and Mergers

The Secretary of State for Trade and Industry and the Director General of Fair Trading can refer monopolies for investigation to the Monopolies and Mergers Commission. A monopoly is defined in law as a situation where at least a quarter of a particular kind of goods or service is supplied by or to a single person or two or more people acting in a common manner. Local monopolies which prevent, restrict or distort competition as well as public monopolies can be referred to the Commission. Where a monopoly is found to operate against the public interest the Secretary of State for Trade has powers to make orders and to remedy and prevent the harm which may exist. Alternatively, the Director General of Fair Trading may be asked to negotiate undertakings to remedy the effects identified by the Commission. The Commission does not distinguish between goods and services and therefore service industries are not treated in any ‘special’ way.

During 1981, for example, the Monopolies and Mergers Commission reported on a number of services. These included Roadside Advertising Services where a monopoly was found to exist and remedial measures were adopted. The Commission also found that the monopoly position enjoyed by British Posters Ltd. and its ten-member companies operated against the public interest. The Commission recommended that the company should be broken up and not reformed. This occurred during 1982. Proposals for a merger may be referred to the Commission by the Secretary of State for Trade and Industry if it would result in a monopoly (25 per cent market share) or if gross assets taken over exceed £15 million (formerly £5 million until April 1980). If the Commission finds the merger to be against the public interest the Secretary of State can prevent it from taking place or reverse it if it has already taken place. Two recently approved mergers in the service sector have been that between British Rail Hovercraft and Hoverlloyd and that between Godfrey Davis Car Rentals with Europcar (both approved during 1981).

One effect of the increased assets criterion necessary for consideration by the Commission has been to reduce the number of mergers examined by the Office of Fair Trading. In 1980, for example, 182 mergers were examined by the office. Of these the largest number were in the Distributive Trades and the Insurance, Banking and Finance sectors. The service sector as a whole (roughly comparable to Standard Industrial Classification (SIC) orders 21 to 26) accounted for 88 out of the 182 examined or about 48 per cent of the total. In 1981, 164 mergers were considered. The financial and distribution sectors continued to be major areas for merger and the Director General reported that an increasing number had taken place in the leisure and entertainment fields.

Official figures are of course not an accurate reflection of all merger activity in Britain as there are special provisions relating to newspapers (like the Lonrho takeover of The Observer) and certain other mergers. The Director General of Fair Trading usually refers in his annual report to the work of the Monopolies and Mergers Commission. The 1980 Report, for example, referred to the investigation on UK credit card franchise services. In this case the Commission recommended that the ‘no discrimination’ policy between cash and credit being pursued was against the public interest. This was reflected in garages making an additional charge on petrol sales when a credit card was used to make a purchase. The Director also reported that previous reports from the Commission relating to services still to be considered by ministers included:

(a) whether individual solicitors should have greater freedom to advertise their services as he had recommended. (Certainly in the US where advertising restrictions have been lifted, the American Bar Association has reported that the profession’s new-found freedom has resulted in new clients and lower fees);

(b) that discussions were continuing on the removal of restrictions on advertising of veterinary surgeons’ services and accountants’ services. (In the 1981 report the Director General reported the progress made; the four main professional accountancy bodies had agreed to amend their rules to permit members to advertise their professional services in local newspapers and other local publications);

(c) in respect of other services the Director General reported that as far as architects’ services were concerned the Office of Fair Trading was having difficulty during 1980 in obtaining an undertaking from the professions for a more competitive fee system. (Interestingly, an internal poll during 1980 showed 28 per cent of the profession to be against advertising by architects);

(d) the Institute of Quantity Surveyors was reported to be moving towards a more competitive fee policy. (The conservatism of the profession at this time was reflected however in the opposition to the move by the Abbey National Building Society when it began to reveal the contents of surveyors’ valuations to prospective house-buyers. This practice has since been followed by other building societies.)

By the time of the 1981 report, the Director General was able to report that his discussions with the professional bodies representing veterinary surgeons, architects and surveyors were concluded and advice had been submitted to the Secretary of State.

Anti-Competitive Practices

The Competition Act has been on the statute book since 1980. This abolished the Price Commission, transferring some of its powers to the Director General of Fair Trading and the Monopolies and Mergers Commission. Subject to certain exemptions the Director General is now empowered to investigate anti-competitive practices in the public or in the private sector. Such practices should have, or are intended or likely, to have, the effect of restricting, distorting or preventing competition in the production, supply or acquisition of goods or services in Britain. The Director may also investigate particular prices and charges on reference by the Secretary of State. If, as a result of enquiries, an anti-competitive practice is found, then the Director General can either refer the matter to the Monopolies and Mergers Commission or accept an undertaking to remove the practice by the business under investigation. If the Monopolies and Mergers Commission finds the practice against the public interest it can recommend remedial action to the Secretary of State, who is ultimately empowered to make an order prohibiting the practice.

One novelty of the Act is that the Secretary of State may also refer to the Commission any question relating to the costs and efficiency of the services provided or the possible abuse of monopoly power by named bodies in the public sector (that is, nationalised industries). The Commission, however, cannot take account of the financial obligations and objectives imposed upon such a public body by statute or ministerial direction. Nor may it consider conduct permitted by the Restrictive Trade Practices Act. A recent illustration of the work of the Commission in its investigation of public bodies was the controversy raised over the hold British Gas had over the supply of gas appliances through over 200 gas showrooms in the United Kingdom. The Commission recommended that British Gas should discontinue its retailing function but implementation was fiercely opposed.

On the working of the Competition Act 1980, the Director General of Fair Trading concluded in his report for 1980 that, at that time, it was too early to assess its effects. However, he did report that the number of complaints received which had justified preliminary enquiries was smaller than might have been expected. He did, however, differentiate between those concerning goods and those concerning services.

Restrictive Trade Practices and Services

Restrictive Trade Practices have to be registered with the Director General of Fair Trading under the Restrictive Trade Practices Act 1976. Basically an agreement has to be registered if two or more parties to the agreement who are engaged in business in Britain accept some limitation on their actions in matters connected with such things as:

(a) charges to be made for services;

(b) the terms or conditions of supply of such services;

(c) the extent to which such services are made available;

(d) the form or manner in which such services are to be made available;

(e) the persons or classes of person for whom services are to be made available.

If an agreement is not registered any restrictions are void and the parties involved are liable to legal action. Equally, registered agreements may be referred to the Restrictive Practices Court by the Director General of Fair Trading to decide, according to criteria laid down in the Act, whether the agreement is against the public interest. The Act chiefly attempts to prevent ‘market sharing’.

In practice, however, many services are excluded from the provisions of the Act. These include:

(a) Professional services such as: legal services of barristers, advocates and solicitors; medical, dental and opthalmic services; veterinary services; nursing and midwifery services; architects services; accounting and auditing services; patent agents services; surveyors services; the services of ministers of religion; the services of professional engineers and technologists; financing terms (for example, making a loan);

(b) Services relating to: international sea transport; carriage by air; road passenger transport; building societies; financial control by the Treasury of the Bank of England; banking services (in Northern Ireland); insurance services; unit trust schemes; implementation of decisions of the city panel on takeovers and mergers.

In addition to the above, other exclusions to the Act may apply. These include agreements authorised by Statute; certain agricultural and marketing agreements; know-how agreements; and agreements affe...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Marketing is Service Marketing
• The Marketing of Professional Services
• Strategies for Managing Demand in Capacity-Constrained Service Organisations
• Service Markets: The Effects of Competition Policy and Consumer Protection
• Productivity and Effectiveness in Service Firms
• Marketing Bank Services
• Marketing Insurance Services: The Main Challenges
• Estate Agency: A Marketing Challenge
• Advertising and the Professions
• Marketing Freight Transport: The Need for Customer-orientation
• Development of the ‘Travelcard’ Concept in Urban Public Transport
• Local Authorities and the Marketing of Leisure Services
• The Marketing of Tourism
• Marketing Package Holidays
• The Impact of New Technology on Services Marketing
• The Strategy of Customer Service
• Notes on Contributors