Module 1

Introduction
Service is an activity that has an element of
intangibility associated with it and which involves the service providers interaction either with customers or with the property belonging to the customer. - Adrian Payne

Services are deeds, processes and performance Intangible, but may have a tangible component Generally produced and consumed at the same time

Examples of Service Industries

Health Care
hospital, medical practice, dentistry, eye care

Professional Services

accounting, legal, architectural

Financial Services
Hospitality

banking, investment advising, insurance restaurant, hotel/motel, breakfast ski resort, rafting

Travel

airlines, travel agencies, theme park

Others:

hair styling, pest control, plumbing, lawn maintenance, counseling services, health club

Definition
According to Kotler, Any activity or benefit that is essentially intangible & does not result in the ownership of anything. Its production may or may not be tied to physical product
Service clients are paying for expertise, experience, advice, skills, knowledge & the benefits they bring. The benefits may last but service itself is of limited duration.

Service Sector in India

India is fast dashing towards its dream of conversion into developed country by 2020.
Many of the highly paid software wizards in

the globe have their origins in India, and hence the emergence of service sector has taken a steep positive slope in India. A well developed country needs a well established service sector.

History:
Since 1960s, there has been a steady

decline in the contribution of agriculture and primary sector to Gross Domestic Product (GDP), and its place has been taken by service based enterprises.
Thus, service sector encompasses the

major areas of trade, finance, insurance, communications, public utilities, transportation, health care, education, business and personal services.

Economies of advanced contries like USA, UK, Germany, Japan, Canada, & Australia have changed from goods dominated to services dominated. In several countries including India, the service sector accounts for more employment in comparison to other sectors.
Country % of GDP Manufacturing % of GDP Services % of Employment in Service Sector

USA Japan UK Australia Canada India

21 29 32 22 24 29

74 58 69 72 70 47

80 60 77 75 79 60

A statistics concerning the growth of India's service sectors are listed below:
The software services in Indian economy increased by 33% which registered a revenue of USD 31.4 billion
Business services grew by 82.4% Engineering services and products exports grew by 23% and earned a revenue of USD 4.9 billion Services concerning personal, cultural, and recreational had a growth of 96% Financial services had a rise of 88.5% Travel, transport, and insurance grew by 23%

According to recent estimation & forecastination, it was visualized that by March-April, 2012 the contribution of Service sector to the Indias GDP would be at 60%. This makes clear that we are living in Service Imperative Era. The enormous growth potential in the service sector has lead to the great visualization of Developed India 2020 by many Indians.

Reasons for the growth

Demographic Changes Three Phases-decreased mortality so people live longer, increased proportion of younger people, increased aged people (India is in the 2nd phase) Social Changes Improved std. of living Increased women workforce Economic Changes Inflow of Capital Economic policy changes RBIs banking measures on interest rate

Contd..
LPG Effect MNCs Open and free market Technological Changes Advances in IT, telecom, outsourcing Political and Legal Changes FDI Policy Free Trade Areas Policy Changes Exim Policy Exim Bank

Importance of service sector

S.No.

1. 2. 3.

4. 5. 6.

7. 8.

Physical Goods Tangible Homogeneous Product and distribution separated from consumption A thing Core value produced in factory Customers do not participate in the production process Can be kept in stock Transfer of ownership

Services Intangible Heterogeneous Production, distribution and consumption are simultaneous process An activity Core value produced in buyer-seller interaction Customers participate in production Cannot be kept in stock No transfer of ownership

Table 1-2

Services are Different

Goods
Tangible

Services
Intangible

Resulting Implications
Services cannot be inventoried. Services cannot be patented. Services cannot be readily displayed or communicated. Pricing is difficult.

Standardized

Heterogeneous Service delivery and customer satisfaction depend on employee actions. Service quality depends on many uncontrollable factors. There is no sure knowledge that the service delivered matches what was planned and promoted. Simultaneous production and consumption Customers participate in and affect the transaction. Customers affect each other. Employees affect the service outcome. Decentralization may be essential. Mass production is difficult. It is difficult to synchronize supply and demand with services. Services cannot be returned or resold.

Production separate from consumption

Nonperishable Perishable

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Problems and Strategies in Services Marketing, Journal of Marketing 49 (Spring 1985): 33-46.

Tangibility Spectrum
Salt

Soft Drinks Detergents Automobiles Cosmetics Fast-food Outlets

Fast-food Outlets

Intangible Dominant

Tangible Dominant

Advertising Agencies Airlines Investment Management Consulting

Teaching

Four Categories of Services Employing Different Underlying Processes

What is the Nature of the Service Act?
TANGIBLE ACTS

Who or What is the Direct Recipient of the Service?

DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS

People Processing
e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers

Possession Processing
e.g., freight, repair, cleaning, landscaping, retailing, recycling

INTANGIBLE ACTS

Mental Stimulus Processing

e.g., broadcasting, consulting, education, psychotherapy

Information Processing
(directed at intangible assets)

e.g., accounting, banking, insurance, legal, research

Classification based on degree of involvement

People Processing: customer is directly provided with

service. (teacher at a school or training centre, healthcare, beauty saloons, lodging etc) Possession Processing: customer need not present but has to submit his property to the service provider. (Car for service, laundry and dry-cleaning, logistic services) Mental Stimulus Processing: Service has to be directed at the mind of the customer. (Career Counseling, advertising, entertainment, consultancy services) Information Processing: A market research firm like accounting, insurance, legal and information processing

Classification based on the service tangibility

Highly tangible: possession for a small time (rental

services) Service linked to tangible goods: service extends to a certain period (free service during warranty) Tangible goods linked to services: airlines provide food and magazine, research firms provide report of the survey to the customer Highly intangible: haircutting, beauty saloons

Classification based on
Skills and Expertise
Professional Services:

Business Orientation
Not-for-profit organization:

Requires a formal training for a service provider, Eg: Specialists medical practioners
Non-Professional Services:

Govt Schools, NGOs

Commercial Organizations:

No need of formal training, housekeeping, baby sitting,

Focus is on profit and revenue generation. Airlines, Restaurant charges, insurance commissions

Classification based on the Type of End-User

Consumer Services: purchased for own consumption.

Beatytherapy, physiotherapy,
B2B Services: Purchased by organizations: market

research, consultancy, advertising etc

Industrial Services: Contract between organizations

and service providers. Machine installation, plant maintenance and etc

Myths About Services

Services is a necessary evil for

Examples
GE, Motorola Power & telecom

manufacturing firms Service sector is labor-intensive and less productive Service firms earn less revenue when compared to other two sectors Growth in service economy is linked to growth of the public sector services Marketing a service is not different from marketing a product Growth in service sector eliminates jobs from the manufacturing

Wal-Mart & Microsoft

ICICI Prudential, HDFC, TATA-AIG Mrktng a car v/s airline service Banking v/s IT & BPOs
22

4 Characteristics of Services
1. Intangibility - u cant touch this 2. Production (or performing the service) and Consumption (using the service) - happens at the same time Inseperability 3. Heterogeneity - services are not always
delivered the same way

4. Perishability - cannot be put in inventory or

stored for later use i.e. You cant buy 2 haircuts

Characteristics of Services 1. Intangibility - u cant touch this

Services cannot be stored Services cannot be protected through patents therefore a really great travel package and service can be copied Hard to explain and display Services if you cant see them Prices are difficult to set - depends on customers expectations

Characteristics of Services 1. Intangibility - u cant touch this

Marketing Strategies stress tangible cues, eg. Smiling face use personal information, sources, references use word-of-mouth contact customers after they buy to stimulate continued enthusiasm and hope they talk it up

Characteristics of Services 2. Inseparability of Production (or performing the service) and Consumption (using the service) - happens at the same time
Many people involved in delivering a service mass production of services is hard to do

Characteristics of Services 2. Inseparability of Production (or performing the service) and Consumption (using the service) - happens at the same time
Marketing Strategies Emphasize how much you train your people - so their ability to give you good service will be high Have many locations so customers can get to you ie. Insurance sales come to your home

Characteristics of Services 3. Heterogeneity - services are not always

delivered the same way It is very difficult to standardize services eg. A machine can make ice cream cones a standard size 100% of the time A person filling an ice cream cone with a scoop cannot do it the same amount each time, unless you use a machine to dispense the ice cream

Characteristics of Services
3. Heterogeneity - services are not always
delivered the same way

eg. A Taxi driver cannot drive you to the office in exactly the same time each day because the traffic patterns change eg. A travel agent can sell you a vacation package - but cannot guarantee you will like the trip exactly the same way another tourist did.

Characteristics of Services
4. Perishability - cannot be put in inventory
or stored for later use ie. You cant buy 2 haircuts Demand fluctuates and changes, sometimes depending on the season, or weather eg. Taxi in the rain, vacation in summer

Distinguishing Characteristics of Services

Customers do not obtain ownership of services Service products are ephemeral and cannot be inventoried Intangible elements dominate value creation Greater involvement of customers in production process

Other people may form part of product experience

Greater variability in operational inputs and outputs Many services are difficult for customers to evaluate

Time factor is more important--speed may be key

Delivery systems include electronic and physical channels

Marketing Implications - 1
No ownership
Customers obtain temporary rentals, hiring of personnel, or access to

facilities and systems

Pricing often based on time Customer choice criteria may differ for renting vs. purchase--may

include convenience, quality of personnel

Cant own people (no slavery!) but can hire expertise and labor

Services cannot be inventoried after production

Service performances are ephemeraltransitory, perishable

Exception: some information-based output can be recorded in electronic/printed form and re-used many times
Balancing demand and supply may be vital marketing strategy Key to profits: target right segments at right times at right price Need to determine whether benefits are perishable or durable

Marketing Implications - 2

Customers may be involved in production process

Customer involvement includes self-service and cooperation with

service personnel Think of customers in these settings as partial employees Customer behavior and competence can help or hinder productivity, so marketers need to educate/train customers Changing the delivery process may affect role played by customers Design service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedules

Intangible elements dominate value creation

Understand value added by labor and expertise of personnel Effective HR management is critical to achieve service quality Make highly intangible services more concrete by creating and

communicating physical images or metaphors and tangible clues

Marketing Implications - 3
Other people are often part of the service product
Achieve competitive edge through perceived quality of employees Ensure job specs and standards for frontline service personnel reflect

both marketing and operational criteria Recognize that appearance and behavior of other customers can influence service experience positively or negatively Avoid inappropriate mix of customer segments at same time Manage customer behavior (the customer is not always right!)

Greater variability in operational inputs and outputs

Must work hard to control quality and achieve consistency

Seek to improve productivity through standardization, and by training

both employees and customers Need to have effective service recovery policies in place because it is more difficult to shield customers from service failures

Marketing Implications - 4
Often difficult for customers to evaluate services

Educate customers to help them make good choices, avoid risk Tell customers what to expect, what to look for Create trusted brand with reputation for considerate, ethical behavior Encourage positive word-of-mouth from satisfied customers

Time factor assumes great importance

Offer convenience of extended service hours up to 24/7 Understand customers time constraints and priorities Minimize waiting time Look for ways to compete on speed

Distribution channels take different forms

Tangible activities must be delivered through physical channels Use electronic channels to deliver intangible, information-based

elements instantly and expand geographic reach

Elements of The Services Marketing Mix: 7Ps vs. the Traditional 4Ps
Rethinking the original 4Ps
Product elements Place and time Promotion and education Price and other user outlays

Adding Three New Elements

Physical environment Process People

The 7Ps: (1) Product Elements

All Aspects of Service Performance that Create Value Core product featuresboth tangible and intangible elements Bundle of supplementary service elements Performance levels relative to competition Benefits delivered to customers (customers dont buy a hotel room, they buy a good nights sleep) Guarantees

The 7Ps: (2) Place and Time

Delivery Decisions: Where, When, and How
Geographic locations served Service schedules Physical channels Electronic channels

Customer control and convenience

Channel partners/intermediaries

The 7Ps: (3) Promotion and Education

Informing, Educating, Persuading, and Reminding Customers Marketing communication tools
media elements (print, broadcast, outdoor, retail, Internet, etc.)
personal selling, customer service sales promotion publicity/PR

Imagery and recognition

branding corporate design

Content
information, advice persuasive messages customer education/training

The 7Ps: (4) Price and Other User Outlays

Marketers Must Recognize that Customer Outlays Involve

More than the Price Paid to Seller

Traditional Pricing Tasks
Selling price, discounts, premiums Margins for intermediaries (if any) Credit terms

Identify and Minimize Other Costs Incurred by Users

Additional monetary costs associated with service usage (e.g., travel to

service location, parking, phone, babysitting,etc.)

Time expenditures, especially waiting Unwanted mental and physical effort Negative sensory experiences

The 7Ps: (5) Physical Environment

Designing the Servicescape and providing tangible evidence of service performances Create and maintaining physical appearances
buildings/landscaping

interior design/furnishings
vehicles/equipment staff grooming/clothing sounds and smells other tangibles

Select tangible metaphors for use in marketing

communications

7Ps: (6) Process

Method and Sequence in Service Creation and Delivery
Design of activity flows Number and sequence of actions for customers

Providers of value chain components

Nature of customer involvement Role of contact personnel Role of technology, degree of automation

The 7Ps: (7) People

Managing the Human Side of the Enterprise The right customer-contact employees performing tasks well
job design recruiting/selection training motivation evaluation/rewards empowerment/teamwork

The right customers for the firms mission

fit well with product/processes/corporate goals appreciate benefits and value offered possess (or can be educated to have) needed skills (co-production)

firm is able to manage customer behavior

The Services Marketing Triangle

Making Promises
Understanding customer needs
Managing expectations Traditional marketing communications

Sales and promotion

Advertising Internet and web site communication

Keeping Promises
Service delivery Reliability, responsiveness, empathy, assurance, tangibles, recovery, flexibility Face-to-face, telephone & online interactions
The Customer Experience Customer interactions with sub-contractors or

business partners The moment of truth

Enabling Promises
Hiring the right people
Training and developing people to deliver service Employee empowerment

Support systems
Appropriate technology and equipment Rewards and incentives

The three forces of service triangle

External Marketing: Setting the Promise Marketing to END-USERS Pricing strategy, promotional activities, communicating to the customer To arouse the interest in the service, to capture the attention

Internal Marketing: Enabling the Promise Marketing to Employees Training, motivational and teamwork programs Enable employees to perform better, use reinforcement for a repeated behavior
Interactive Marketing: Moment of Truth, Service Encounter On the spot treatment during delivery of service Front line employees and relationship with the customer

Seattles CLICK!

Traditional Organizational Chart

Manager Supervisor Supervisor

Front-line Employee

Front-line Employee

Front-line Employee

Front-line Employee

Front-line Employee

Front-line Employee

Front-line Employee

Front-line Employee

Customers

Customer-Focused Organizational Chart

Inverted Services Marketing Triangle

How Employee Satisfaction Drives Productivity and Customer Satisfaction at Wegmans

The grocery chain paid over $54 million for college scholarships for 17,500+ employees over the past 20 years. Wegmans did not hesitate to send cheese manager Terri Zodarecky on a ten-day sojourn to cheesemakers in Europe. The firm gives employees flexibility to deliver great customer satisfaction.

How can this be justified?

How does this affect performance? Wegmans labor costs are 15-17% of

sales, compared with 12% for industry. But annual turnover is just 6% (19% for similar grocery chains). 20% of employees have 10+ years of service. This in an industry where turnover costs can exceed annual profits by more than 40%. Wegmans operating margins are 7.5%, double what the big grocers earn. Sales per square foot are 50% higher than industry average.

Gap Model of Service Quality

It is an integrated gaps model of service quality, or a

framework for understanding and improving service delivery.

The gaps model positions the key concepts strategies and

decisions in services marketing in a manner that begins with the customer and builds the organizations tasks around what is needed to close the gap between customer expectations and perceptions.
Proposed by Parasuram and Zeithmal and his associates.

Gaps Model of Service Quality

Customer gap: Difference between expectations and perceptions Provider gap 1: Not knowing what customers expect Provider gap 2: Not selecting the right service designs and standards Provider gap 3: Not delivering to service standards Provider gap 4: Not matching performance to promises

Customer Gap
Is the difference between customer expectations and

perceptions. Expectations are the standards or the reference points Perceptions subjective assessments of actual service Eg: Expected Service in an expensive restaurant would be better than a fast food restaurant.
Expected Service Understanding customers is easy in a small setup, but in large orgns. Managers will not be in direct connection with the customers. The sources of customer expectations are marketer controlled factors (Pricing, advt. sales promise, as well as limited controlled factors (innate personal needs, word of mouth , competitive offerings)

Perceived Service

Provider Gaps
Gap 1: Not knowing what customers expect
Gap 2: Not selecting the right service designs & standards Gap 3: Not delivering to service standards Gap 4: Not matching performance to promises

Provider Gap 1
CUSTOMER

Expected Service

GAP 1
Company Perceptions of Consumer Expectations

COMPANY

Provider Gap 2
CUSTOMER

COMPANY

Customer-Driven Service Designs and Standards GAP 2

Company Perceptions of Consumer Expectations

Provider Gap 3
CUSTOMER

COMPANY GAP 3

Service Delivery
Customer-Driven Service Designs and Standards

Provider Gap 4
CUSTOMER

COMPANY

Service Delivery
GAP 4

External Communications to Customers

Gaps Model of Service Quality

CUSTOMER

Expected Service
Customer Gap

Perceived Service
Gap 4
External Communications to Customers

COMPANY
Gap 1 Gap 3

Service Delivery
Customer-Driven Service Designs and Standards

Gap 2
Company Perceptions of Consumer Expectations

Key Factors Leading to the Customer Gap

Customer Gap

Customer Expectations

Provider Gap 1: Not knowing what customers expect Provider Gap 2: Not selecting the right service designs and standards Provider Gap 3: Not delivering to service standards Provider Gap 4: Not matching performance to promises

Customer Perceptions

Key Factors Leading to Provider Gap 1

Customer Expectations

GAP 1

Inadequate Marketing Research Orientation

Insufficient marketing research Research not focused on service quality Inadequate use of market research

Lack of Upward Communication

Lack of interaction between management and customers Insufficient communication between contact employees and managers Too many layers between contact personnel and top management

Insufficient Relationship Focus

Lack of market segmentation Focus on transactions rather than relationships Focus on new customers rather than relationship customers

Company Perceptions of Customer Expectations

GAP 1
The primary cause is not meeting customers expectation as firms lacks

accurate understanding of exactly what those expectations are. Reasons are many
Unawareness Unwilling to ask the expectations Unprepared to address them

Frontline employees are the source of customer expectations as they

directly deliver the service, so management should encourage upward communication Lack of customer retention strategy and stressing on attracting new customers. Lack of service recovery: company should understand why customer complain? Techniques to fill the gaps are customer interviews, survey research, complaint system and customer panels

Key Factors Leading to Provider Gap 2

Customer-Driven Service Designs and Standards

GAP 2

Poor Service Design Unsystematic new service development process Vague, undefined service designs Absence of Customer-Driven Standards Lack of customer-driven service standards Absence of process management to focus on customer requirements Absence of formal process for setting service quality goals Inappropriate Physical Evidence and Servicescape

Management Perceptions of Customer Expectations

GAP 2: Not selecting the right standards or design

Difficulty in translating customers expectations into

service quality specifications. As Services are intangible thay are difficult to describe and communicate. Eg: Customer driven standards followed by Amazon.com Refer Techology Spotlight, Amazon.com ;Closes the Gap Pg.Nbr. 42, Services Marketing by A Neithmal) Physical Evidence: Communicating physical evidence becomes an essential part of industries like, Restaurant, Theme Park, Hospital, School, Health Club and Etc. Refer IKEA Furniture Store (Pg.Nbr38&39 in Services Mrketing by A Zeithmal)

Key Factors Leading to Provider Gap 3

Customer-Driven Service Designs and Standards

GAP 3

Deficiencies in Human Resource Policies

Ineffective recruitment Role ambiguity and role conflict Poor employee-technology job fit Inappropriate evaluation and compensation systems Lack of empowerment, perceived control and teamwork

Failure to Match Supply and Demand

Failure to smooth peaks and valleys of demand Inappropriate customer mix Over-reliance on price to smooth demand

Customers Not Fulfilling Roles

Customers lack knowledge of their roles and responsibilities Customers negatively impact each other

Problems with Service Intermediaries

Channel conflict over objectives and performance Channel conflict over costs and rewards Difficulty controlling quality and consistency Tension between empowerment and control

Service Delivery

Gap3: Not delivering to Service Designs and Standards

Discrepancy between development of customer-driven service

standards and actual service performed by company employees. In spite of existing guidelines, due to lack of resources service delivery suffers Employees are the critical part of service delivery (UID Staff ) If a customer is to failed to provide all the information then also the service quality suffers, therefore customer can negatively influence the service quality (Dr. Deepaks Case) Challenge to deliver the service through intermediaries (retailers, franchisers, agents and brokers) (FORDs CRM Training) Therefore the firms should develop the strategies to motivate the intermediaries and the employees to deliver right service quality, (Rewards and Recognition at Marriott and Aditya Birla)

Key Factors Leading to Provider Gap 4

Service Delivery

GAP 4

Lack of Integrated Services Marketing Communications Tendency to view each external communication as independent Not including interactive marketing in communications plan Absence of strong internal marketing program Ineffective Management of Customer Expectations Not managing customer expectations through all forms of communication Not adequately educating customers Overpromising Overpromising in advertising Overpromising in personal selling Overpromising through physical evidence cues Inadequate Horizontal Communications Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedures across branches or units

External Communications to Customers

Gap 4: Not matching Performance to Promises

Communication to customers involve issues that cross

orgnl. boundaries called interactive marketing Unit linked Plans of Reliance Life Insurance were over promised Advt. may be attractive, in reality customer may not find it so, Fords Ecosports Model against Renaults Duster, evidently cancelled orders Prices of Packaged Goods (MTR losing its demand for ready to eat food) Refer to Indian Service Strategy Insight: Jee Haan, HP Gas Promise Yahi Weight Yahi, Pg.Nbr 48, Service Marketing by A Zeithmal.

Causes Behind Service Switching

Pricing
High Price Price Increases Unfair Pricing Deceptive Pricing

Response to Service Failure

Negative Response No Response Reluctant Response

Inconvenience
Location/Hours Wait for Appointment Wait for Service

Competition

Core Service Failure

Service Mistakes Billing Errors Service Catastrophe

Service Switching Behavior

Found Better Service

Ethical Problems
Cheat Hard Sell Unsafe Conflict of Interest

Service Encounter Failures

Uncaring Impolite Unresponsive Unknowledgeable

Involuntary Switching
Customer Moved Provider Closed

GAP MODEL

Application of Gap Model