Service Marketing (VTU) Module 1

Introduction to Services Marketing

Module 1

Introduction“Service is an activity that has an element of

intangibility associated with it and which involves

the service provider’s interaction either with

customers or with the property belonging to the

customer”.

- Adrian Payne

Services are deeds, processes and performanceIntangible, but may have a tangible componentGenerally produced and consumed at the same

time

Examples of Service IndustriesHealth Carehospital, medical practice, dentistry, eye care

Professional Servicesaccounting, legal, architectural

Financial Servicesbanking, investment advising, insurance

Hospitalityrestaurant, hotel/motel, breakfastski resort, rafting

Travelairlines, travel agencies, theme park

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

DefinitionAccording to Kotler, “ Any activity or

benefit that is essentially intangible & does not result in the ownership of anything. It’s 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.

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.

Service Sector in India

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.

Country % of GDP Manufacturing

% of GDP Services % of Employment in Service Sector

USAJapanUKAustraliaCanadaIndia

212932222429

745869727047

806077757960

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.

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 India’s 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 ChangesImproved std. of livingIncreased women workforce

Economic ChangesInflow of CapitalEconomic policy changesRBI’s banking measures on interest rate

Contd…..LPG Effect

MNCsOpen and free market

Technological ChangesAdvances in IT, telecom, outsourcing

Political and Legal ChangesFDI PolicyFree Trade Areas

Policy ChangesExim Policy Exim Bank

Importance of service sector

S.No. Physical Goods Services

1. Tangible Intangible

2. Homogeneous Heterogeneous

3. Product and distribution separated from consumption

Production, distribution and consumption are simultaneous process

4. A thing An activity

5. Core value produced in factory

Core value produced in buyer-seller interaction

6. Customers do not participate in the production process

Customers participate in production

7. Can be kept in stock Cannot be kept in stock

8. Transfer of ownership No transfer of ownership

Table 1-2

Services are DifferentGoods Services Resulting ImplicationsTangible Intangible 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 onemployee actions.Service quality depends on many uncontrollable factors.There is no sure knowledge that the service deliveredmatches what was planned and promoted.

Productionseparate fromconsumption

Simultaneousproduction andconsumption

Customers participate in and affect the transaction.Customers affect each other.Employees affect the service outcome.Decentralization may be essential.Mass production is difficult.

Nonperishable Perishable It is difficult to synchronize supply and demand withservices.Services cannot be returned or resold.

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

TangibleDominant

IntangibleDominant

SaltSoft Drinks

DetergentsAutomobiles

Cosmetics

AdvertisingAgencies

AirlinesInvestment

ManagementConsulting

Teaching

Fast-foodOutlets

Fast-foodOutlets

Classification of Services

Four Categories of Services Employing Different Underlying Processes

People Processing Possession Processing

Mental Stimulus Processing

Information Processing

(directed at intangible assets)

e.g., airlines, hospitals,haircutting, restaurants

hotels, fitness centers

e.g., freight, repair, cleaning, landscaping,

retailing, recycling

e.g., broadcasting, consulting,

education, psychotherapy

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

TANGIBLE ACTS

INTANGIBLEACTS

DIRECTED AT PEOPLE

DIRECTED AT POSSESSIONS

What is the Nature of the Service Act?

Who or What is the Direct Recipient of the Service?

Classification based on degree of involvementPeople 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 tangibilityHighly 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 onSkills and Expertise Business OrientationProfessional Services:

Requires a formal training for a service provider, Eg: Specialists medical practioners

Non-Professional Services: No need of formal training, housekeeping, baby sitting,

Not-for-profit organization: Govt Schools, NGOs

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

Classification based on the Type of End-UserConsumer 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

22

Myths About Services Services is a necessary evil for

manufacturing firmsService sector is labor-intensive and less

productive Service firms earn less revenue when

compared to other two sectorsGrowth in service economy is linked to

growth of the public sector services Marketing a service is not different from

marketing a productGrowth in service sector eliminates jobs

from the manufacturing

GE, Motorola

Wal-Mart & Microsoft

ICICI Prudential,HDFC, TATA-AIG

Examples

Power & telecom

Mrktng a car v/s airline service

Banking v/s IT & BPOs

1. Intangibility - “u can’t 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 can’t buy 2 haircuts

4 Characteristics of Services


• 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 can’t see them

• Prices are difficult to set - depends on customers expectations

Characteristics of Services


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”


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

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


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



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.


4. Perishability - cannot be put in inventory or stored for later use ie. You can’t buy 2 haircutsDemand 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 - 1No 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 personnelCan’t own people (no slavery!) but can hire expertise and

labor

Services cannot be inventoried after productionService performances are ephemeral—transitory,

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

strategyKey to profits: target right segments at right times at right

priceNeed to determine whether benefits are perishable or

durable

Marketing Implications - 2Customers may be involved in production

processCustomer involvement includes self-service and

cooperation with service personnelThink 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 creationUnderstand value added by labor and expertise of

personnelEffective HR management is critical to achieve service

qualityMake highly intangible services more “concrete” by

creating and communicating physical images or metaphors and tangible clues

Marketing Implications - 3Other people are often part of the service

productAchieve competitive edge through perceived quality of

employeesEnsure job specs and standards for frontline service

personnel reflect both marketing and operational criteriaRecognize that appearance and behavior of other customers

can influence service experience positively or negativelyAvoid inappropriate mix of customer segments at same timeManage customer behavior (the customer is not always

right!)

Greater variability in operational inputs and outputsMust work hard to control quality and achieve consistencySeek to improve productivity through standardization, and

by training both employees and customersNeed to have effective service recovery policies in place

because it is more difficult to shield customers from service failures

Marketing Implications - 4Often difficult for customers to evaluate

servicesEducate customers to help them make good choices, avoid

riskTell customers what to expect, what to look forCreate trusted brand with reputation for considerate,

ethical behaviorEncourage positive word-of-mouth from satisfied customers

Time factor assumes great importanceOffer convenience of extended service hours up to 24/7Understand customers’ time constraints and priorities Minimize waiting timeLook for ways to compete on speed

Distribution channels take different formsTangible activities must be delivered through physical

channelsUse 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 4PsProduct elementsPlace and timePromotion and educationPrice and other user outlays

Adding Three New ElementsPhysical environmentProcessPeople

The 7Ps: (1) Product ElementsAll Aspects of Service Performance that

Create ValueCore product features—both tangible and

intangible elementsBundle of supplementary service elementsPerformance levels relative to competitionBenefits delivered to customers (customers

don’t buy a hotel room, they buy a good night’s sleep)

Guarantees

The 7Ps:(2) Place and TimeDelivery 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 EducationInforming, Educating, Persuading, and Reminding

CustomersMarketing communication tools

media elements (print, broadcast, outdoor, retail, Internet, etc.)personal selling, customer servicesales promotionpublicity/PR

Imagery and recognitionbrandingcorporate design

Content information, advicepersuasive messagescustomer education/training

The 7Ps:(4) Price and Other User OutlaysMarketers Must Recognize that Customer Outlays

Involve More than the Price Paid to SellerTraditional 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 effortNegative sensory experiences

The 7Ps:(5) Physical EnvironmentDesigning the Servicescape and providing tangibleevidence of service performancesCreate and maintaining physical appearances

buildings/landscaping interior design/furnishingsvehicles/equipmentstaff grooming/clothingsounds and smellsother tangibles

Select tangible metaphors for use in marketing communications

7Ps:(6) ProcessMethod 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) PeopleManaging 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 firm’s 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 PromisesUnderstanding customer needsManaging expectationsTraditional marketing communicationsSales and promotionAdvertisingInternet and web site communication

Keeping PromisesService delivery

Reliability, responsiveness, empathy, assurance, tangibles, recovery, flexibility

Face-to-face, telephone & online interactionsThe Customer ExperienceCustomer interactions with sub-contractors

or business partnersThe “moment of truth”

Enabling PromisesHiring the right peopleTraining and developing people to deliver

serviceEmployee empowermentSupport systems Appropriate technology and equipmentRewards and incentives

The three forces of service triangleExternal Marketing: “Setting the Promise”

Marketing to END-USERSPricing 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 EmployeesTraining, motivational and teamwork programsEnable employees to perform better, use reinforcement for a

repeated behavior

Interactive Marketing: Moment of Truth, Service EncounterOn the spot treatment during delivery of serviceFront line employees and relationship with the customer

Seattle’s CLICK!

Traditional Organizational ChartManager

Supervisor

Front-lineEmployee

Customers

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Supervisor

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Customer-Focused Organizational Chart

Inverted Services Marketing Triangle

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 Employee Satisfaction Drives Productivity and Customer Satisfaction at Wegmans

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 QualityIt 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 organization’s 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 QualityCustomer gap:

Difference between expectations and perceptionsProvider gap 1:

Not knowing what customers expectProvider 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 GapIs the difference between customer

expectations and perceptions.Expectations are the standards or the

reference pointsPerceptions – subjective assessments of

actual serviceEg: Expected Service in an expensive

restaurant would be better than a fast food restaurant.

Expected Service

Perceived 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)

Provider GapsGap 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

Company Perceptions of

Consumer Expectations

Expected Service

CUSTOMER

COMPANY

GAP 1

Provider Gap 1

CUSTOMER

COMPANY

GAP 2

Customer-Driven Service Designs and Standards

Company Perceptions of

Consumer Expectations

Provider Gap 2

CUSTOMER

COMPANY Service DeliveryGAP 3


Provider Gap 3

Provider Gap 4CUSTOMER

COMPANYExternal

Communications to

CustomersGAP 4

Service Delivery

Gaps Model of Service Quality

PerceivedService

Expected Service

CUSTOMER

COMPANY

CustomerGap

Gap 1

Gap 2

Gap 3

External Communicatio

ns to Customers

Gap 4Service Delivery

Customer-Driven Service Designs and

Standards

Company Perceptions of Consumer 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 Expectatio

ns

Customer Perceptions

Key Factors Leading to the Customer Gap

CustomerGap

Customer Expectatio

ns

Company Perceptions of Customer Expectations

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

Key Factors Leading to Provider Gap 1

GAP1

GAP 1The 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


Management Perceptions of

Customer Expectations

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


GAP2

GAP 2: Not selecting the right standards or designDifficulty 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)

Service Delivery


Deficiencies in Human Resource PoliciesIneffective recruitmentRole ambiguity and role conflictPoor employee-technology job fitInappropriate evaluation and compensation systemsLack of empowerment, perceived control and teamwork

Failure to Match Supply and DemandFailure to smooth peaks and valleys of demandInappropriate customer mixOver-reliance on price to smooth demand

Customers Not Fulfilling RolesCustomers lack knowledge of their roles and responsibilitiesCustomers 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


GAP3

Gap3: Not delivering to Service Designs and StandardsDiscrepancy 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 suffersEmployees 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. Deepak’s Case)

Challenge to deliver the service through intermediaries (retailers, franchisers, agents and brokers) (FORD’s 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)

Service Delivery

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 ExpectationsNot managing customer expectations through all forms ofcommunicationNot adequately educating customers

OverpromisingOverpromising in advertisingOverpromising in personal sellingOverpromising through physical evidence cues

Inadequate Horizontal CommunicationsInsufficient communication between sales and operationsInsufficient communication between advertising and operationsDifferences in policies and procedures across branches or units

External Communications to

Customers


GAP4

Gap 4: Not matching Performance to PromisesCommunication to customers involve issues that

cross orgnl. boundaries called interactive marketingUnit linked Plans of Reliance Life Insurance were

over promisedAdvt. may be attractive, in reality customer may not

find it so, Ford’s Ecosports Model against Renault’s 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

Service Switchin

g Behavior

• High Price• Price Increases• Unfair Pricing• Deceptive Pricing

Pricing

• Location/Hours• Wait for Appointment• Wait for Service

Inconvenience

• Service Mistakes• Billing Errors• Service Catastrophe

Core Service Failure

• Uncaring• Impolite• Unresponsive• Unknowledgeable

Service Encounter Failures

• Negative Response• No Response• Reluctant Response

Response to Service Failure

• Found Better Service

Competition

• Cheat• Hard Sell• Unsafe• Conflict of Interest

Ethical Problems

• Customer Moved• Provider Closed

Involuntary Switching

GAP MODEL

Application of Gap Model

Documents

Service Marketing (VTU) Module 1