MBA Sem – 4 Service and Relationship Marketing

Module 1
Chapter 1 - Basic Concept of Service Marketing

 What Is Marketing :
The shortest definition of Marketing Management is “Meeting Needs
Profitably”.
The American Marketing Association’s formal definition – “Marketing is
an organisational function and a set of processes for creating, communicating
and delivering value to customers and for managing customers’ relationship in
ways that benefit the organisation and its stock holders”.
General definition – “Marketing Management as the art and science of
choosing target markets and getting, keeping and growing customers thru
creating, delivering and communicating superior customer value”.
Social definition – “Marketing is a societal process by which individuals
and groups obtain what they need and want thru creating, offering and freely
exchanging products and service of value with others”.

 What Is Marketed :
1. Goods – physical products, consumer products, consumer durables
2. Services – transport, repair & maintenance, legal, financial, consultancy, hotel,
specialised skills
3. Experiences – theatres, opera, Disney-world, ocean cruise, cinema, music
concerts
4. Events – trade shows, sports, world cups, vintage car rally, fashion shows, artistic
performance shows
5. Persons – celebrity marketing, film stars, politicians, artists, performers,
advertisers
6. Places – cities, states, countries for tourism, leisure & place for industrialisation
& business
7. Properties – ownership of tangible properties like real estate, house, apartment,
farm house, precious metals and intangible properties
8. Organisations – building up identity, image, reputation, and value in the minds
of consumers

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9. Information – can be packaged & marketed as a product – text books,

encyclopaedias, magazines & journals on literature, science, technology,
medicine space, now available thru internet
10.Ideas – concept regarding a utility, business opportunity, advertising / marketing
ideas, scientific & technical, social, financial, psychological etc.

 The Three Major Sectors of development of economy are :

1. Agriculture – Providing employment to the large part of the population, also
contributes to the GDP.
2. Manufacturing – Because of the technological advancements, people need
things & they are available thro manufacturing. Also factories need more
technology to be set up, and need manpower to run them. It increases the
purchasing power of the population, and also GDP increases.
3. Services – The traditional class based society divided along the lines of family
trade fades away and people need services in increasing volume & quality. They
have to be catered thro’ organised sector. The study begins here.

 Factors influencing the growth of service sector :

1. GOVERNMENT POLICIES: It is Govt. which makes mandatory for price levels,
distribution strategies, defining procedure attributes. Another important action
taken by the Govt.‟s “Privatization” means the policy of transform companies.
The transformation of such operations like telecoms, airlines has led to
restructuring cost cutting and more market focused.
PROS OF PRIVATIZATION: a. Increase the efficiency b. Increase in profits
New change will require services firm to change their marketing strategy,
operational procedures, and HR policies.

2. SOCIAL CHANGES : Now a day there is a drastic change, two members are
working, which requires to hire individuals to perform tasks that used to be
performed by a house hold member. E.g. Child care, Laundry, Food preparation
Combinations of changing life styles like , Higher income, Declining prices for
many high technology products –made for people to by computers. Mobile
phone etc. Increased imaginations into countries –U.S, Canada and Australia.

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3. BUSINESS TRENDS : Many professional associations have been forced by

Govt. to remove long-standing bars on adv and promotional activities.
Franchising has become wider spread in many service industries.
Licensing of independent entrepreneurs to produce and sell a branded service
according to tightly specified procedures.

4. ADVANCES IN IT : Changes come from the integration of computers and tele-

communication
More powerful software enables firm to create databases that combine
information about customers with details of all their transaction, so that they
can be used to predict new trends, segment the market, new marketing
opportunities.
The creation of wireless networks and transfer of electronic equipments such as
cell phones to lap tops and scanners, to allow sales and customer service
personnel to keep in touch.

5. INTERNATIONALISATION AND GLOBALIZATION: A strategy of international

expansion may be driven by a sector for new markets or by the need to respond
to existing customers who are traveling abroad in greater numbers.
When companies set up operations in other countries they often prefer to deal
with just a few international suppliers rather than numerous local firms.
The net effect is to increase competition and to encourage the transfer of
innovation in both products and processes from country to country.

 Services Defined :
IN SIMPLE TERMS : Services are Activities, Experiances, Deeds,
Performances & Processes.
ADRIAN PAYNE’S DEFINITION : A service is an activity that has an element
of intangibility associated with it and which involves the service provider’s
interaction either with the customers or with the property belonging to the
customers. The service activity doesn’t involve the transfer or ownership of the
output.
PHILIP KOTLER’S DEFINITION : A service is any activity of benefit that one
party can offer to another that is essentially intangible & doesn’t result in the

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ownership of anything. Its production may or may not be tied to a physical

product.
Thus services are those activities which satisfy wants. Some services are
offered individually while some others are offered as a supplement to a product
purchased or a major service consumed by the customer. The detailed
categorisation is discussed in subsequent pages.

 Tangibility Spectrum : Essentially services are intangible, but sometimes

they may involve the use of some tangible goods. In such cases the title of goods
doesn’t change from the service provider to the customer. But again some
services do have a tangible component. The key factor which differentiates a
service from a product is its intangibility. This line of demarcation is thinning
down day by day and now marketers attach a service to the product, and vice
versa. Thus we see that there are four types of offer involving goods & services

PURE TANGIBLE GOODS : These include physical products, consumer products,

consumer durables, which don’t have any service component attached to the
product.
TANGIBLE GOODS WITH ACCOMPANYING SERVICES : These goods need repair
& maintenance from time to time, and the company provides after sales service
to improve customer satisfaction.
MAJOR SERVICES ACCOMPANYING MINOR GOODS : These services include a
small or minor amount of goods for consumption or use. E.g. Air Travel includes
foods, drinks, confectioneries, etc.
A PURE SERVICE : These are only services where the element of intangibility &
non-transfer of ownership is maintained. E.g., consultancy, teaching, medical
treatment, legal advice, etc.

Let’s put a set of products & services in order from pure tangible goods to pure
services as follows :

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 Characteristics of Services :
1. INTANGIBILITY : The basic difference between a product & a service is their
tangibility, i.e., products have tangible attributes & services have intangible
attributes. Goods’ attributes can be defined, tested and measured, where as
these can’t be tested for services – one can know only when he has experienced
or consumed it. Also the satisfaction can be felt but not measured.
2. HETEROGENEITY : Normally machines manufacture the physical goods which
can be controlled or programmed to produce the products of similar or same
quality parameters. But as the service involve persons directly, it is difficult to
maintain the level of uniformity. This varies from time to time, place to place,
mood to mood, condition to condition, etc.
3. INSEPARABILITY : Generally, the goods are produced & stocked before selling
& consumption. But, in contrast the services are consumed at the time of
production, i.e., they can’t be stocked or kept on the shelf before consumption.
Since, the production & consumption happen simultaneously, and there is an
interaction between the consumer & the marketer or its representatives, hence
the provider and the service become inseparable.
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4. PERISHABILITY : Certain consumables, like ripe fruits perish in the course of

time if they are not consumed, and become unfit for consumption, which is a
loss to the seller. Similarly, here, some kinds of services if not consumed when
it is available, are lost for ever, which is a loss to the marketer.

 Generic Differences between Goods & Services :

The above characteristics which differentiate goods & services are very general
in nature are not strictly applicable in some cases. Some marketing gurus like C
Lovelock tried to use certain other attributes to differentiate between the two,
as follows :
1. NATURE OF THE PRODUCT : According to L L Berry, goods can be physical
objects, equipment, devices, or things where as services can be deeds,
performances, activities, experiences. In most cases the market offerings are
some combination of the two in different proportions. The marketers adopt
different strategies for different combinations.
2. PROBLEMS IN QUALITY CONTROL : The intangible nature of the services makes
it difficult for the quality definition, measurement, setting standards & delivery.
In fact they are all inside the mind of the consumer, which differs from person
to person according to their perception. The other problem is that the quality
can’t be improved once it is delivered for it gets consumed on delivery. So the
marketer has to be very careful about the quality at the time of delivery.
3. INVOLVEMENT OF CUSTOMER IN PRODUCTION & DELIVERY : Goods are
produced & stored till some buyers buy them. In contrast most services are
designed, produced & delivered in the presence of buyers according to their
need & order. So not only the buyers decide the quality & other attributes of a
service, they also influence or create an environment for the delivery with
interaction with the servers. This may be pleasant / favourable or unpleasant /
unfavourable which again tell upon the final delivery quality. To eliminate the
interaction with the servers and to enhance the buyer involvement, today many
automation have taken place, like ATMs, Tele banking etc.
4. ABSENCE OF INVENTORIES : Services can’t be stored unlike goods, when
demand is less more goods can be produced & stored to meet the increased
demand at a future date. Services are not available later if they are not utilised
at the time of availability. Also in case of mass or group service, the capacity
can’t be exceeded.

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5. STRUCTURE & NATURE OF DISTRIBUTION CHANNELS : For the goods there are
distribution channels which make them available with the buyers. But services
normally don’t have one as these are consumed at the time & point of
production, so this is like direct marketing of goods. The services come directly
from the service provider or its franchise.
6. IMPORTANCE OF PROMPT SERVICE : Time plays an important role in providing
service. People don’t like to wait for the service to be delivered, and look for
that elsewhere. In case of goods, the time tolerance limit is more in general.
7. DIFFICULTY IN EVALUATING SERVICE QUALITY : It’s very difficult to assess or
evaluate a service before consuming or experiencing it. The best method
available for this purpose is to go by others who have used the service – word-
of-mouth, opinion of the experiencers. But again the experience or the level of
satisfaction varies from person to person, so one has to be careful in selecting.

 Basic Differences Between Goods & Services :

1. Customers don't obtain the ownership of services
2. Service Products are ephemeral (transitory & perishable) and can't be
inventoried.
3. Intangible elements dominate value creation.
4. Customers may be involved in the production process,
5. Other people may form part of the product.
6. There's is greater variability in operational inputs & outputs.
7. Many services are difficult for customers to evaluate.
8. The time factor assumes a great importance.
9. Distribution channels take different forms.

 SERVICE TANGIBILITY : Here the degree of tangibility (the tangibility spectrum)

has been taken into consideration, with the same no. of classes (namely four) :
1. Highly Tangible : The service includes a physical product (highly tangible) for
use during the contract period, like the cell phone or a house on rent.
2. Service Linked To Tangible Goods : These are the guaranty or warranty
periods, during which the sellers provide free or subsidised service to the
customer, like machines, vehicles, gadgets, etc.

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3. Tangible Goods Linked to Services : Here some physical goods are given to
the customer as the part of a service, like food with a train/air ticket, hotel
accommodation includes morning breakfast, etc
4. Highly Intangible : Here no products are offered as a part of the services, like
haircuts, body-massage, cinema, etc.

 SKILLS & EXPERTISE REQUIRED : This is on the basis of the level of skills required
to render a set of services, as :
1. Professional (High Skill) Services : These services require a high level of
qualification & training to provide the services, like doctors, lawyers, pilots, IT
professionals, etc.
2. Non-Professional (Low Skill) Services : These services don’t require any
special prerequisites in skills, and can be performed by anybody with some
practice, like office security guards, baby sitting, courier delivery boys, etc.

 The 8 Ps of Services Marketing

Services can range from financial services provided by the banks to technology
services provided by the IT company or hospitality services provided by hotels
and restaurants or even a blog where an author provides a service (information
presentation, interesting reading etc) to his audience.

1. Product elements: all components of the service performance that create value
for customers Managers must select the features of both the core product and
the bundle of supplementary service elements surrounding it, with reference to
the benefits desired by customers and how well competing products perform

2. Place, : management decisions about when, where, and how to deliver services
to customers. Delivering product elements to customers involves decisions on
both the place and time of delivery and may involve physical or electronic
distribution channels (or both), depending on the nature of the service being
provided.

3. Process: a particular method of operations or series of actions, typically

involving steps that need to occur in a defined sequence Creating and delivering
product elements to customers requires the design and implementation of

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effective processes. A process describes the method and sequence in which

service operating systems work

4. Productivity & Quality : how efficiently service inputs are transformed into
outputs that add value for customers. These elements, often treated separately,
should be seen as two sides of the same coin. No service firm can afford to
address either element in isolation. Improved productivity is essential to keep
costs under control but managers must beware of making inappropriate cuts in
service levels that are resented by customers.

5. People: customers and employees who are involved in service production. Many
services depend on direct, personal interaction between customers and a firm's
employees (like getting a haircut or eating at a restaurant). The nature of these
interactions strongly influences the customer's perceptions of service quality.

6. Promotion And Education: all communication activities and incentives designed

to build customer preference for a specific service or service provider. No
marketing program can succeed without an effective communication program.
This component plays three vital roles: providing needed information and
advice, persuading target customers of the merits of a specific product, and
encouraging them to take action at specific times.

7. Physical Evidence The appearance of buildings, landscaping, vehicles, interior

physical evidence: visual furnishing, equipment, staff members, signs, printed
materials, and other visible cues all or other tangible clues that provide tangible
evidence of a firm's service style and quality. Service firms need to provide
evidence of service manage physical evidence carefully because it can have a
profound impact on quality, customers' impressions.

8. Price and Other User Outlays : This component addresses management of the
outlays incurred by customers in obtaining benefits from the service product.
Responsibilities are not limited to the traditional pricing tasks of establishing the
selling price to customers, which typically include setting trade margins and
establishing credit terms.

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Chapter 2 – Consumer Behaviour in Service Encounter

 Introduction :
In order to be able to make a clear and relevant classification of services, we
would first need to understand the concept of the word itself. Services usually
refer to processes and not physical products. To understand more, read this
article on difference between goods and services. Some services may
include peoplewhereas other services (like online services) may
including objects which are managed by people.
Examples of services which include people can be a hair salon, education,
theater, restaurants, public transportation. On the other hand services that
include objects include repairs and maintenance, dry cleaning, banking, legal
services, insurance, etc.

 Four Categories of services:

In services, there is an input and an output. Both, the input and output
can be intangible in nature because of which service processing is said to be a
complicated process.
Most commonly, service input involves customers, and whatever
customers may possess. For example – while visiting the restaurant, the
customer is the input. On the other hand, in a laptop repair centre, the laptop is
the object and is the input. In both these cases, the output is tangible in nature.
When you visit a restaurant, you get food to fill your stomach. Similarly, in a
laptop repair shop, you will receive parts and repair service which is again
tangible because you know the changes made in the physical parts of the laptop.
However, several services are intangible in nature and the service
processing is intangible as well. An example is education consulting which is
again a service where the customer is the input. But the quality of consultancy
given by the consultant and the understanding of the same by the customer is
intangible in nature. Hence, the quality of service processing can vary between
consultant to consultant.
Thus, in general like any other service factor, there are two types of
service processing – Tangible and intangible. Here are 2 processes each under
service processing types.

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 Tangible service processing : Which involves physically moving people or

objects.
1) Service processing involving people ; Some of the most common types of
service processing is the one involve people. Health care, lodging, Passenger
transportation, Fitness centres, Haircutting salon are all examples of service
processing involving directly the end customer. In this type of service processing,
the customer needs to be present physically for the service to be delivered.
2) Service processing involving objects : When the customer is not required to
be present while giving the necessary service, then it is a type of service process
involving objects. Repair and maintenance work, Warehousing, Recycling of
waste, Laundry or dry cleaning are procedures where the input is from the
customer, but the processing does not require the customer’s presence at all.
Again, objects are tangible in nature and hence this is a tangible type of
service processing. When you are shifting from one house to another, the
material is handled by the service provider, but your presence is not necessary.

 Intangible service processing : Intangible service processing : It occurs when

the net result is difficult to be compared or the process is in general intangible
in nature. The two types of intangible service processes are as below.
3) Mental stimulus : In this type of service processing, there is only mental work
involved. As this is very difficult to be measured, it is classified as intangible.
Theatre performance is one such activity which can be intangible. In a theatre
performance, each of your performance will be perceived differently by
different customers. At the same time, this theatre performance can also be
shown on TV or it can be a radio reading.
Overall, the customer is not required to be present at all and not even an
object of the customer is required. He just needs to understand what is
happening. Advertising, movies, religion, Education are some of the examples
which require a mental stimulus. Physical exchange of objects or people is not
necessary.
4) Information processing : The last type of service processing occurs where
information is being processed and there is no other processing involved. So
when you go to a bank, the customer is an input and he wants to deposit cash
to someone else’s account. After the instructions are given, the processing
involves basic information processing thereby ensuring the transfer of money

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from the customers account to the account number given by the customer. In
this case, neither customer nor the recipient is needed to be present. Only the
information is required. Hence it is information type of service processing.
Some examples of service processing where only information is processed
are Banking, KPO’s, Legal services, programming, website development,
Research and several others. In fact, since the rise of the internet, information
processing has become a big business.

Overall, there are the 4 types of service processing and a service business will be
either one of these types of servicing processing.

 The Purchase Process for Services

When customers decide to buy a service to meet an unfilled need, they go
through what is often a complex purchase process. This process has three
separate stages: the pre purchase stage, the service encounter stage, and the
post purchase stage, each containing two or more steps.

1. Pre purchase Stage : The first stage in the service purchase process, where
customers identify alternatives, weigh benefits and risks, and make a purchase
decision. The decision to buy and use a service is made in the pre purchase
stage. Individual needs and expectations are very important here because they
influence what alternatives customers will consider. If the purchase is routine
and relatively low risk, customers may move quickly to selecting and using a
specific service provider.
But when more is at stake or a service is about to be used for the first
time, they may conduct an intensive information search (contrast how you
approached the process of applying to college versus buying a pizza or a
hamburger!). The next step is to identify potential suppliers and then weigh the
benefits and risks of each option before making a final decision
This element of perceived risk is especially relevant for services that are
high in experience or credence attributes and thus difficult to evaluate prior to
purchase and consumption. First-time users are especially likely to face greater
uncertainty. Risk perceptions reflect customers' judgments of the probability of
a negative outcome. The worse the possible outcome and the more likely it is to
occur, the higher the perception of risk.

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When customers feel uncomfortable with risks, they can use a variety of
methods to reduce them during the pre purchase stage. In fact, you've probably
tried some of the following risk-reduction strategies yourself before deciding to
purchase a service:
 Seeking information from respected personal sources (family, friends,
peers)
 Relying on a firm with a good reputation
 Looking for guarantees and warranties
 Visiting service facilities or trying aspects of the service before purchasing
 Asking knowledgeable employees about competing services
 Examining tangible cues or other physical evidence
Using the Web to compare service offerings One strategy to help reduce the
risk perceived by customers is to educate them about the features of the
service, describe the types of users who can most benefit from it, and offer
advice on how to obtain the best results

2. Service Encounter Stage : After deciding to purchase a specific service,

customers experience one or more contacts with their chosen service provider.
The service encounter stage often begins with submitting an application,
requesting a reservation, or placing an order. ontacts may take the form of
personal exchanges between customers and service employees, or impersonal
interactions with machines or computers. In high contact services, such as
restaurants, health care, hotels, and public transportation, customers may
become actively involved in one or more service processes. Often, they
experience a variety of elements during service delivery, each of which may
provide clues to service quality.
Service environments include all of the tangible characteristics to which
customers are exposed. The appearance of building exteriors and interiors; the
nature of furnishings and equipment; the presence or absence of dirt, odor, or
noise; and the appearance and behavior of other customers can all serve to
shape expectations and perceptions of service quality.
Service personnel are the most important factor in most high-contact
service encounters, where they have direct, face-to-face interactions with
customers. But they can also affect service delivery in low-contact situations like
telephone-based service delivery. Knowledgeable customers often expect

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employees to follow specific scripts during the service encounter; excessive

deviations from these scripts can lead to dissatisfaction. Handling service
encounters effectively on the part of the employee usually combines learned
skills with the right type of personality.
Support services are made up of the materials and equipment plus all of
the backstage processes that allow front stage employees to do their work
properly. This element is critical, because many customer-contact employees
can't perform their jobs well without receiving internal services from support
personnel. As an old service-firm axiom goes: "If you aren't servicing the
customer, you are servicing someone who is.
Other Customers When customers use people-processing or mental
stimulus processing services, they often find themselves in close proximity to
other customers. Waiting rooms at a medical clinic may be filled with other
patients; trains, buses, or aircraft are usually carrying many passengers at once,
requiring travelers to sit next to strangers. Similarly, restaurants serve many
patrons simultaneously, and a successful play or film will attract a large audience
(in fact, the absence of an audience is a bad sign!).
Unfortunately, some of these other customers occasionally behave badly,
thus detracting from the service experience. Managers need to anticipate such
incidents and have contingency plans in place for how to deal with the different
types of problems that might occur.

3. Post purchase Stage : During the post purchase stage, customers continue a
process they began in the service encounter stage—evaluating service quality
and their satisfaction/dissatisfaction with the service experience. The outcome
of this process will affect their future intentions, such as whether or not to
remain loyal to the provider that delivered service and whether to pass on
positive or negative recommendations to family members and other associates.
Customers evaluate service quality by comparing what they expected
with what they perceive they received. If their expectations are met or
exceeded, they believe they have received high-quality service. If the
price/quality relationship is acceptable and other situational and personal
factors are positive, then these customers are likely to be satisfied.
As a result, they are more likely to make repeat purchases and become
loyal customers. However, if the service experience does not meet customers'

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expectations, they may complain about poor service quality, suffer in silence, or
switch providers in the future.

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