DBA1721

M B A
(DISTANCE MODE)
DBA 1721
SERVICES MARKETING
III SEMESTER
COURSE MATERIAL
Centre for Distance Education
Anna University Chennai
Chennai 600 025
Author
Mr. N. Senthil Kumar,
Lecturer,
Department of Management Studies,
Anna University Chennai,
Chennai - 25
Reviewer
Dr. K. Chitra
Assistant Professor,
Department of Management Studies,
KCT Business School,
Kumaraguru College of Technology,
Coimbatore - 641 006.
Dr.T.V.Geetha
Professor
Department of Computer Science and Engineering
Chennai - 600 025
Dr.H.Peeru Mohamed
Professor
Department of Management Studies
Chennai - 600 025
Dr.C. Chellappan
Professor
Chennai - 600 025
Dr.A.Kannan
Professor
Chennai - 600 025
Copyrights Reserved
(For Private Circulation only)
Editorial Board
ii
iii
iv
ACKNOWLEDGEMENT
The author has drawn inputs from several sources for the preparation of this Course Material, to meet the
requirements of the syllabus. The author gratefully acknowledges the following sources (in alphabetical order):
Alternative approached to Market Segmentation @ www. Marketsegmentation.co.uk
Amit Garg, Play Aladdin not Genie, The Hindu Business Line, 5 March 2003.
Balachandran. S. Customer Driven Services Management. New Delhi: Response books, 1999.
Balaji, Service Marketing, S.Chand, New Delhi, 2002
Berry L L and a Parasuraman, 1991, Marketing Services: Competing Through Quality, New York: Free
Press.
Berry, L L (1980), Service Marketing is Different Business, 30 (May June), 24-29.
Bhattacharjee, Services Management, An Indian Respective Jaico Publishing House, Chennai, 2005.
Cengiz Hawksever etal, Service Marketing
Chiristropher H.Lovelock, Jochen Wirtz, Services Marketing, Pearson Education, New Delhi, 2004.
Christian Gronroos, Services Management and Marketing a CRM Approach, John Wiley and sons
England 2001.
Doblie Mai (1999) Improving Quality of Healthcare: Journal of Health Management.
Garfield ,Paul J., and Lovejoy, Wallace,F., Public Utility Economics24 , Printice Hall Inc., New Jersey(1964)
Gronroos, C (1990) Services Management and Marketing, Lexington, USA.
Growth in services will drive manufacturing sector N. Ramakrishnan , dt March 05,
2005www.thehindubusinessline.com
Halen Woodroffe, Services Marketing, McMillan Publishing Co, New Delhi 2003.
Hotels in India, http://www.hotelsresortsindia.com/theme-hotels.html
http://www.bseindia.com
http://www.consultavalon.com
http://www.indiafirstfoundation.org
http://www.netmba.com/mgmt/
http://www.networkadvertising.org
http://www.pathfinder.com/.
http://www.prenhall.com/
http://www.resourcesconnection.com/
http://www.smartbiz.com
http://www.top-education.com/Management/
Indias Economic Prospects: The Promise of Services ,Swaminathan S. Anklesaria Aiyar
Indias Advancements In The IT Sector, dt march 2004,www.pib.nic.in
Information Technology in Services Sector- A Vision for India S. Biswas.
JHA S.M (2001) Hospital Management in India, Himalaya publishing house, Mumbai.
v
Kenneth E Clow, et. al Services Marketing Operation Management and Strategy Biztantra, New Delhi,
2004.
Kerala Techno park on World IT Map, August 19,2002, http://www.indiainfoline.com/ cyva/featlkera.
html
Kumar B. Das and Mohanty. P, 1994, Global of Tourism in India, Indian Journal of Marketing, New
Delhi, Vol. XXI, No. 11, Pg.3
Nimit Chowdhary and Monika Choudhary, Text book of Marketing of Services, the Indian experience,
MacMillan Publishing Co, New Delhi, 2005.
Philip Kotler (2003) Marketing for Non Profit Organisations, Prentice Hall of India, New Delhi.
Rajiv Mistra, Sujatha Rao, Indian Health Report (2003) Oxford University Press, New Delhi.
RamaMohana Rao, Services Marketing, Pearson Education,2005.
Rampal Gupta, Service Marketing, Galgotia Publishing Company, New Delhi
Rathmall, J M (1974) Marketing in the Service Sector Cambridge, MA: Winthrop Publishers, Inc.
Ravi Shankar et al., Services Marketing: The Indian Experience. Delhi: Manas Publications, 2003.
Recessions have become tamer,Swaminomics/Swaminathan S Anklesaria Aiyar, May 13, 2004 , The
Times of India.com
Schiffman, L g and L L Kanuk (2000), Consumer Behaviour, Printice Hall, NJ
Services sector is the new economic growth engine , Deccan Herald, July 25, 2005
Silevestro, R L, f R Johnston, and C Voss 91992), Towards a Classification of Service Processes
International Journal of Service Industry Management, 3, 3, 62-75. Rathmell, J M (1966), What is Meant
by Services? Journal of Marketing, 30-32-6.
The stalling of Indias industrial engine ,S Sivakumar dt sept 2, 2004, Rediff.com
Vasanthi Venugopal, Service Marketing, Himalaya Publishing House
Why Segmentation?@ www.themanager.org
www.12manage.com
www.aa&a.com
www.adclubbombay.com
www.benefitslink.com
www.bharatmatrimony.com
www.bizjournals.com
www.businessline.com
www.businesstoday.com
www.coolavenues.com
www.edmunds.com
www.emarketer.com
www.epic.org
www.ficci.com
www.icmr.org
vi
www.indiainfoline.com
www.indianexpress.com
www.internethomealliance.com.
www.learning.about.com
www.learnmanagement2.com
www.managementparadise.com
www.managemore.com
www.marketingprofs.com
www.neoncarrot.co.uk
www.prenhall.com
www.rcw.raifoundation.org
www.rediff.com
www.tatamcgrawhill.com
www.thehinduonline.com
www.tourismindiaonline.com
www.tourismofindia.com
www.wikipedia.com
www.wilsonweb.com/
www.wttc.org
Zeithami, V A, A Parasuraman, and L L Berry (1985), Problems and Strategies in Services Marketing,
Journal of Marketing, 49, 3346.
Zeithami, Valarie A (1981) How Consumer Evaluation Processes Differ Between goods and Services in
Marketing of Services, Eds, James H Donnelly and William R George, Chicago, American Marketing
Association, 186-189.
Atmost care is taken to prepare the list of references, inspite any omission in the list is only accidental not
purposeful.
N.SENTHIL KUMAR
Author
vii
viii
DBA 1721 SERVICES MARKETING
UNIT I - INTRODUCTION
Service economy Evolution and growth of service sector nature and scope of services Characteristics-
Classification Service market potentials-Expanded marketing mix for services Service quality Introduction to
gaps model and SERVQUAL dimensions.
UNIT II FOCUS ON CUSTOMERS
Assessing service marketing opportunities Customer expectations and perceptions of services Customer
behaviour specific to usage of services Service markets segmentation Market targeting and selection.
UNIT III SERVICE DESIGN
Levels of service product Service life cycle New service development Service blueprinting - -Physical
evidence and service scape Competitive differentiation of services Service positioning strategies-Developing
positioning maps-Pricing of services Methods and specific issues.
UNIT IV SERVICE DELIVERY
People in services Services process distributing service direct distribution, Channel functions, channels selection,
impact of information technology-designing communications mix for promoting services- building service customer
relationships and service recovery role of internal marketing in service delivery.
UNIT V MARKETING STRATEGIES FOR DIFFERENT SERVICES
Formulating service marketing strategies for health, hospitality, tourism, logistics financial, information technology,
educational, entertainment and public utility services.
REFERENCES:
1. .Kenneth E clow, et.al Services Marketing Operation Management and StrategyBiztantra, New Delhi,
2004.
2. Chiristropher H.lovelock, Jochen wirtz,Services Marketing , Pearson Education, New Delhi, 2004.
3. Halen Woodroffe,Services Marketing , McMillan Publishing Co, New Delhi 2003.
4. Nimit Chowdhary and Monika Choudhary, Text book of Marketing of Services , the Indian experience,
Macmillan Publishing Co, New Delhi,2005.
5. Christian Gronroos,Services Management and Marketing a CRM Approach, John Wiley and sons
England 2001.
6. Bhattacharjee,services Management, An Indian Respective Jaico Publishing House, Chennai, 2005.
ix
x
CONTENTS
UNIT -I
INTRODUCTION
1.0 SERVICES ECONOMY 2
1.1 DIFFERENTIATING GOODS FROM SERVICES 3
1.1.1 Tangibility Spectrum 4
1.2 SERVICES DEFINED 6
1.3 INTRODUCTION TO SERVICES MARKETING 8
1.4 CHARACTERISTICS OF SERVICES 8
1.4.1 Intangibility 9
1.4.2 Inseparability 10
1.4.3 Variability 10
1.4.4 Perishability 11
1.4.5 Customer Participation 11
1.4.6 No Ownership 12
1.5 EVOLUTION OF SERVICES SECTOR 14
1.5.1 Evolution of Service Marketing 15
1.5.2 Service Based Economy 17
1.6 GROWTH OF SERVICES SECTOR 21
1.6.1 Reasons for Growth in Services Sector 21
1.6.2 Reasons for Growth of Services in India 22
1.7 CLASSIFICATION OF SERVICES 27
1.7.1 Classification based on Degree of Involvement of the Customer 27
1.7.2 Classification based on the Service Tangibility 29
1.7.3 Classification based on Skills and Expertise Required 30
1.7.4 Classification based on the Business
Orientation of Service Provider 30
1.7.5 Classification based on the Type of End-User 31
1.8 SERVICE MARKET POTENTIAL 31
1.9 EXPANDED MARKETING MIX FOR SERVICES 32
1.10 SERVICE QUALITY 38
1.10.1 Service Quality Dimensions 42
xi
1.10.2 GAP Analysis 44
1.10.3 SERVQUAL Dimensions 46
UNIT II
FOCUS ON CUSTOMERS
2.1 ASSESSING SERVICE MARKETING OPPORTUNITIES 55
2.2 CUSTOMER EXPECTATIONS AND
PERCEPTIONS OF SERVICES 56
2.2.1 Understanding Customer Requirements 57
2.2.2 Customer Expectations 59
2.2.3 How Do Consumers Develop Expectations 60
2.2.4 Factors That Influence Customer Expectations of Service 62
2.2.5 Criteria to Evaluate a Service Based on
Customers Service Expectations 66
2.3 CUSTOMER BEHAVIOR SPECIFIC TO USAGE OF SERVICES 69
2.3.1 Importance of Consumer Behavior 71
2.3.2 Consumer Decision Making Process 73
2.3.3 Perceived Risk 75
2.3.4 External Factors Influencing Consumer Behavior 77
2.3.5 Implications for Service Providers 78
2.3.6 Service Provision as Drama. 80
2.4 MARKET SEGMENTATION 85
2.4.1 Market Segmentation In Services 85
2.4.2 Bases for Services Market Segmentation 88
2.4.3 Requirements for Effective Segmentation 97
2.5 MARKET TARGETING AND SELECTION 100
2.5.1 Market Targeting In Services 101
2.5.2 On What Basis do Marketers Target the Identified Segments? 102
2.5.3 Targeting Strategies 104
2.5.4 Guidelines for Selecting Target Market 106
2.5.5 Mass Customization 109
xii
UNIT - III
SERVICE DESIGN
3.0 INTRODUCTION: SERVICE DESIGN- FIRST P THE PRODUCT 114
3.1 SERVICE PRODUCT LEVELS 115
3.1.1 The Flower of Service 118
3.2 SERVICE LIFE CYCLE 120
3.3 NEW SERVICE DEVELOPMENT 122
3.3.1 Development of a New Service 123
3.3.2 What Is a New Service Product? 123
3.3.3 Steps in the Development of a New Service 124
3.4 SERVICE BLUEPRINT 130
3.4.1 Elements of Blueprinting 131
3.4.2 Reading a Service Blueprint 132
3.5 PHYSICAL EVIDENCE AND SERVICE SCAPE 133
3.5.1 Service Scape 134
3.5.2 Elements of Physical Evidence 135
3.6 COMPETITIVE DIFFERENTIATION OF SERVICES 142
3.7 INTRODUCTION - POSITIONING STRATEGIES 147
3.7.1 The Importance of Positioning of Services 148
3.7.2 Service Positioning Strategies 149
3.7.3 Developing Positioning Maps 151
3.8 PRICING OF SERVICES 154
3.8.1 Characteristics of Pricing in Services 155
3.8.2 Key Pricing Concepts of Services 157
3.8.3 Value Strategies in Pricing of Services 160
3.8.4 Total Customer Value of the Services Delivered 164
3.9 ISSUES IN PRICING OF SERVICES 171
UNIT IV
SERVICE DELIVERY
4.0 INTRODUCTION- THE PEOPLE THE FIFTH P 180
4.1 CLASSIFICATION OF SERVICE PERSONNEL 180
4.2 ROLE OF SERVICE PERSONNEL 183
xiii
4.2.1 Job Characteristics 184
4.2.2 Control Issue 184
4.2.3 Dealing with Conflicts 185
4.2.4 Staff Selection and Recruitment 188
4.2.5 Training and Development 190
4.2.6 Human Resources Management Issues 192
4.3 SERVICE PROCESS 195
4.3.1 Designing Service Processes 196
4.3.2 Spectrum of Service Processes 198
4.3.3 Planning a Service Process 200
4.4 DISTRIBUTION OF SERVICES THE PLACE THE FOURTH P 202
4.4.1 Service Transactions 204
4.4.2 Service Location 205
4.4.3 Service Providers 211
4.5 CHANNEL FUNCTIONS OR FUNCTIONS OF
SERVICE INTERMEDIARIES 212
4.6 CHANNEL DECISIONS 212
4.6.1 Direct Distribution 215
4.6.2 Franchising 217
4.6.3 Agents and Brokers 219
4.6.4 Electronic Channels 220
4.7 DESIGNING COMMUNICATIONS MIX FOR
PROMOTING SERVICES 224
4.7.1 Need for External Marketing 225
4.7.2 Steps in Effective Communication 226
4.7.3 The Promotional Mix 229
4.7.4 Word-Of-Mouth Communication (WOM) 234
4.7.5 Steps for Success in External Marketing 236
4.8 BUILDING SERVICE CUSTOMER RELATIONSHIPS 237
4.8.1 What is CRM? 238
4.8.2 Traditional Marketing Vs Relationship Marketing 238
4.8.3 Essentials of Relationship Marketing 240
4.8.4 Customer Retention 240
4.8.5 Lifetime Value of Customers 242
4.8.6 Reason for the Customers to Look for Relationship 243
4.9 CUSTOMER RESPONSE TO SERVICE FAILURES 244
xiv
4.9.1 Service Recovery Following Customer Complaints 245
4.10 THE SERVICES TRIANGLE 248
4.10.1 Role of Internal Marketing in Service Delivery 250
4.10.2 The Internal Marketing Process 251
UNIT V
MARKETING STRATEGIES FOR
DIFFERENT SERVICES
5.0 INTRODUCTION 258
5.1 HEALTHCARE SERVICES 258
5.1.1 Indias Competitiveness in Healthcare Services 261
5.1.2 Strategies to Achieve Excellence in Global Health Care Services 262
5.1.3 Services Marketing Mix of HealthCare Services 265
5.2 HOSPITALITY SERVICES 269
5.2.1 Hotel Services 270
5.2.2 Tourism Services 275
5.2.3 Logistics Services Industry 282
5.3 FINANCIAL SERVICES 288
5.3.1 New Challenges of Financial Service Sector 289
5.3.2 Banking Services 291
5.3.3 Insurance Services 301
5.4 INFORMATION TECHNOLOGY SERVICES 315
5.4.1 The Indian Scenario of the IT Services 316
5.4.2 Importance of IT Services 317
5.4.3 Services Marketing Mix of IT Services 318
5.5 EDUCATIONAL SERVICES 322
5.5.1 Services Marketing Mix of Educational Services 325
5.6 ENTERTAINMENT SERVICES 334
5.6.1 FICCI report on the Indian Entertainment Industry 336
5.6.2 Glimpses of the Indian entertainment Industry 336
5.6.3 Services Marketing Mix of Entertainment Industry 343
5.7 PUBLIC UTILITY SERVICES 347
5.7.1 Telecommunication Services 349
5.7.2 Indian Postal Services 355
xv
OVERVIEW OF THE COURSE MATERIAL
Marketing is not an event, but a process . . . It has a beginning, a middle, but never an end, for it is a
process. You improve it, perfect it, change it, even pause it. But you never stop it completely.
- Jay Conrad Levinson
Economic value, like the coffee bean, progresses from commodities to goods to services to experiences.
Joseph B. Pine II & James H. Gilmore, The Experience Economy
Today, the service sector contributes more than 50 percent to Indias GDP. This is a far cry from the
situation a few decades back, when India was basically an agricultural economy. This shift from manufacturing
and agriculture to services is being witnessed in countries all over the world. With the increasing prominence of
services in the global economy, Services Marketing has become a subject that needs to be studied separately.
Marketing of services is different from marketing of goods because of the unique characteristics of services,
namely intangibility, heterogeneity, perishability and inseparability, which was explained in the last semester course
on Marketing Management, in nutshell. These characteristics also require the marketing mix of services to be
extended, to include Process, People, Physical evidence and Productivity & Quality, in addition to the four
traditional Ps of Product, Price, Place and Promotion. Services marketing is a people-dependent activity,
owing to the fact that there is often no tangible product that is delivered to customers.
The importance of concepts like relationship marketing cannot therefore be ignored in marketing services.
The supplementary services attached to a core service, add value to it and help in differentiating it from the
service offered by a companys competitors. These also help in branding the service. Services marketing discuss
the unique features of services and their significance to marketing, and examine each of the eight elements of the
marketing mix. The final unit of this course material contains different service industries in India like Tourism,
logistics, financial services Information Technology and Retailing, which have been experiencing tremendous
growth in the recent years.
xvii
DBA 1721
NOTES
2 ANNA UNIVERSITY CHENNAI
1.0 SERVICES ECONOMY
Services have increasingly assumed an important role in the economic development
of many countries, including India. Almost all developed countries and many developing
countries are emerging as service economies or service societies. An economy is called a
service economy when the contribution of the service sector to the GDP of the nation is
more than 50 per cent. USA was the first economy to be declared as a service economy
way back in 1948 with about 53 per cent contribution of the service sector to the GDP of
the nation. There is an argument that the statistics of the service sectors contribution in
many countries is a gross underestimation of the truth, since the value of the services
produced by manufacturers of goods in the industrial sector is not included in service
output value. As such, there is a large hidden service sector that is not classified under the
service sector. Services are becoming a critical source of wealth in many ways to the
economies. Economies experienced increase in employment with the growth in service
sector. While employment in the manufacturing sector is receding every year, employment
in the service sector is rising. Even in times of economic recession, unlike in the manufacturing
sector, the service sector has kept employment up.
All human beings are service producers as well as consumers. We cannot imagine
our life in the absence of services. Transportation, education, communication, health care,
hospitality, entertainment, banking, information technology, electricity and a host of services
have become a part of our lives. In fact, the concept of service is as old as humankind and
began when man started serving himself (self-servicing). When a part of the society became
affluent, it started utilizing the services of others at a price. Then services became a business
proposition. Over the years, services have grown in different ways throughout the world.
However, until the beginning of the 20th century, the focus of the economies was to produce
more and more tangible goods and sell agricultural and manufactured products. Services
such as accounting, banking, insurance and transportation were considered as support to
the manufacturing units.
In the beginning, throughout the world most services were in the public sector.
Most organizations enjoyed the status of monopoly. The situation of excessive demand
over supply and absence of competition or negligible competition led many service
organizations to be insensitive to the marketing concept. The management and the marketing
literature developed until the 1970s depicted manufacturing organizations and suggested
that the same philosophies and technology be applied to the service organizations also.
DBA 1721
NOTES
between the goods and service may not be equal in all restaurants though both are
important for the consumers. In a five-star hotel, service takes a prominent place
when compared to food items, whereas in ordinary restaurants the proportion
may be more or less equal. In case of fast food centres, food may take dominant
position as compared to services. Therefore, there is a possibility of having a
hybrid category of products, but it is uncommon to have a significant portion of
such products in any economy.
4. Service with accompanying tangible goods: This is a marketing offer, in which
the intangible part is dominant. People buy services but not the tangible goods
involved in the production of services. The accompanying goods playa major role
in the value assessment of service by the consumer. For example, people buy
mobility service from a transport organization. To provide such service, transport
organizations really need tangibles like buses, trucks, trains, helicopters, aeroplanes
and the like. Although consumers of the mobility service do not buy the tangibles,
the condition of the vehicle, interior and exterior, facilities, comfort, speed and so
on, will playa major role in assessing the value of the service. The vast majority of
the service products fall under this category.
5. Pure service: Pure service is a marketing offer, where consumers confine themselves
to valuing only the service they receive and nothing else. Service without any support
of goods can serve the purpose of the users and is capable of giving satisfaction to
the consumers. Teaching, consultancy, idea selling and the like fall under pure
service category.
1.1.1 Tangibility Spectrum
The major factor that differentiates a service from a product is its intangibility.
However, it should be noted that the line separating products and services is fast thinning
down. Marketers today try to attach an element of service even to the products, to attract
customers and enjoy their loyalty. For example, when a customer buys a car, he enjoys a
free service for the first 3 years from the car company.
According to Zeithaml and Bitner, intangibility plays a key role in determining
whether an offering made by a marketer is a product or service. In some cases, the service
provider also gives the customer a tangible element bundled together with his service. For
DBA 1721
NOTES
1.2 SERVICES DEFINED
The following definitions present the perception of various personalities and
associations responsible for contributing significant work over the last four decades, that
is, from 1960 onwards, in services management and marketing.
The American Marketing Association (1960): The American Marketing Association
has taken a lead in defining services as activities, benefits or satisfactions which are offered
for sale or provided in connection with the sale of goods. This definition provides a limited
view of services. However, this was the first major attempt to identify services differently in
valuing the output of a society. The definition does not provide for valuing services involved
in producing the tangible goods.
Regan (1963): Regan in his definition classified services into two categories. According
to him services represent either tangibles, yielding satisfaction directly (transport, housing)
or intangibles, yielding satisfaction jointly when purchased either with commodities or other
services credit delivery. An attempt is made through this definition to give a distinctive
focus for such services that are offered directly to the consumers as products.
Robert Judd (1964): According to Robert Judd, service is a market transaction by an
enterprise or entrepreneur where the object of the market transaction is other than the
transfer of ownership of a tangible commodity. In this definition three broad areas of
services are recognized. They are:
1. Right to possess and use a product (rented goods business).
2. The custom creation, repair or improvement of a product (owned product services).
3. No product element, but an experience (non-goods services).
An attempt was made through this definition to give an independent status to more and
more services and to focus the attention of the researchers for further development.
William J. Stanton (1974): A comprehensive view of services was provided by Stanton.
According to him services are separately identifiable, intangible activities which provide
want satisfaction when marketed to consumers and/or industrial users and which are not
necessarily tied to the sale of a product or another service. This definition focuses upon
several issues for recognition. They are:
DBA 1721
NOTES
Services may be defined as intangible activities performed by persons or machines
or both for the purpose of creating value perceptions among consumers. Since services
are intangible activity (ies) or benefit(s) produced by the service provider, in association
with the consumer, its quality results in perception and value assessment by the consumer.
1.3 INTRODUCTION TO SERVICES MARKETING
The basic questions that confront everyone is why should there be a separate
learning on services marketing? Are the marketing concepts and techniques that are
developed (studied in the last semester course on marketing management) for the
manufacturing sector not applicable to services? Do services require distinctive strategies
in marketing? The answers to the questions provide the basic platform for an understanding
of services marketing.
A different marketing approach is necessary for services marketing, because services
differ from goods in many respects. The following are the differences between physical
goods and services.
Services are intangible. Goods are tangible.
Services are heterogeneous whereas goods are homogeneous.
Services are produced in buyer-seller interactions. Goods are produced in the
factory.
Production, distribution and consumption take place simultaneously in the case of
services. In the case of goods, the three are separate and independent functions.
Consumers are co-producers in services. Customers do not generally participate
in the production of goods.
Services cannot be stored. Goods can be stored.
In the sale of services, transfer of ownership will not take place whereas in the
case of goods it does take place.
Considering the core differences between goods and services, several characteristics
of services can be identified.
1.4 CHARACTERISTICS OF SERVICES
Services have basically six characteristics that greatly effect the design of marketing
programmes. They are:
DBA 1721
NOTES
1.4.2 Inseparability
A service is consumed by the customer as soon as it is delivered by the employee.
Thus, production and consumption occur simultaneously in case of services as opposed to
products which are manufactured, inventoried and then consumed. Services cannot be
inventoried and need to be consumed immediately. Since the delivery and consumption of
a service are inseparable, there has to be interaction between customers and employees of
a service organization. For example, the interaction between patient and doctor is essential
if the patient has to be treated for an illness. In the case of a hotel, the interaction between
a server and a customer is essential for the former to take the order for food and serve it to
the customer for consumption. As a result, customers tend to equate the quality of service
offered by the organization with their interaction with its front-line employees. Therefore,
service organizations should take special care in training and motivating employees. Front-line
employees should be trained to be professional in their approach; courteous in the way
they talk to customers and patient in dealing with queries.
1.4.3 Variability
Services cannot be separated from the service provider. In fact, the production,
delivery and consumption of a service takes place simultaneously in the buyer-seller
interactions. This characteristic of a service creates problems to the marketer, particularly
in the case of market expansion. Wherever the service provider intends to offer services,
he should have a service production unit that offers the same service quality standards.
However, some service organizations are able to reduce direct interactions by introducing
new technologies. For example, banking organizations have introduced the cheque facility,
the credit card facility, tele banking and ATM to minimize direct buyer-seller interactions.
Services are highly variable. It is almost impossible to have the same service from
the same seller the second time. No two customers can have exactly similar service even
though they experience it simultaneously. For example, the experiences of bus travelers
vary with the seats they occupy. The experiences of passengers sitting on the window side,
inner side, front rear and rear of the bus will not be similar, though they take the service
simultaneously. A receptionist of a hotel cannot extend the same kind of smile to the customers
during all her working hours. Service organizations face major problems in standardizing
and communicating the service standards because of this characteristic. While customers
look for communication from the company relating to service standards for arriving at a
DBA 1721
NOTES
is necessary. Customization is one of the key strategies the service firms adopt to ensure
efficient and effective participation of customers. Customer participation is active in services
such as medical treatment, hairdressing, health clubs, colleges and beauty care centres.
1.4.6 No Ownership
Service consumers will have experiences but not ownership. Since the services
are intangible and perishable, the question of ownership doesnt arise. But this characteristic
will add to the problems of the service marketer. Convincing the customer with tangible
goods on which he will have ownership through transfer of title is much easier than selling
an experience where nothing remains after consumption, except the memory of it. Customer
dissonance (discussed in the last semester course on marketing Management) would be
higher in the case of services than of goods.
Due to the above mentioned characteristics of services, service providers face
varied problems and challenges in marketing, when compared to producers of goods. The
marketing challenges and strategic options due to service characteristics are presented in
Table 1.1. The strategic options listed in the table forms the essence of strategies practiced
by the services marketers and they will be discussed in detail in due course of this course
material.
The characteristics described above distinguish services marketing from goods
marketing approach. The marketing challenges over and above the scope of goods marketing
need to be addressed by the service firms with a different strategic approach. This does
not mean that traditional marketing philosophies, methods and techniques are totally irrelevant
to the service sector. In fact, the fundamentals of marketing which you have studied in the
last semester are the same to both the sectors. What is required is to develop an adaptable
mechanism to a different environment, keeping in view the service characteristics. Thus,
services marketing is nothing but application of traditional marketing philosophies to the
service sector with changes required wherever.
Table 1.1: Marketing Challenges and Strategic Options in Services Marketing
Service Char- Marketing Problems/ Strategic Options
acteristics Challenges
Intangibility Cannot be communicated Making the service
easily. process tangible to the
DBA 1721
NOTES
Customers are evaluating at Effective interactive
every stage of service marketing
production Management of
movements of truth
Effective internal
marketing
No Ownership Nothing remains after Making communication
consumption tangible
Very less time to the Customer relationship
consumer to evaluate the marketing
product Managing high level of
High consumer dissonance company image
1.5 EVOLUTION OF SERVICES SECTOR
Adam Smith, a well-known economist of the late eighteenth century, has defined
the important concept of value generation. In his original theory, he proposed the following
schematics:
Thus, he proposed that the production of goods leads to tangible output. This
output or the finished product is consumed by the users. Consumption leads to value
generation, as the customers overt or latent needs are satisfied. However, Smith dismissed
the contribution of services to the process of value generation. He emphatically stated that
the generation of services is unproductive and thus devoid of any value creation. It is
indeed difficult to convey the concept of value generation when no tangible ownership of a
product seems to have been transferred. Alfred Marshall, another famous economist, in
the late nineteenth Century, corrected this notion of the role of services. Doubts about the
ability of the services sector to contribute significantly to the economic development and
well-being of societies, however, continued to exist till the twentieth century. Today we are
aware that both goods and services satisfy different needs of customers, and hence, both
are value contributors.
DBA 1721
NOTES
1) Crawling out stage - took place prior to 1980
2) Scurrying stage - between 1980 to 1986
3) Walking erect stage - from 1986 to 2000
4) Galloping Stage - From 2000 to till date
Crawling out Stage - took place prior to 1980
In this stage discussion centered around the need for a separate body of literature
to deal with the specific problems of the services sector.
Donnelly highlighted differences between the marketing channels used for services
and those used for physical goods and implications for marketing strategy. Marketing
traditionalist argued that service organization did not need a separate body of theory, and
that existing marketing theories could, and should, be applied to service organizations.
They considered services as an offer tied up with physical product. Services marketing
academics and practitioners argued that services required special treatments as a result of
their distinctive characteristics.
Scurrying Stage - between 1980 to 1986
Efforts were made to classify services more clearly and attention focused heavily
on the crucial issue of managing quality in service operations. Zeithaml, Berry and
Parasuraman developed their pioneering gaps model. Booms and Bittner developed their
expanded marketing mix for services which took into account the distinctive characteristics.
They add three more Ps to the original marketing mix. They are people, process and
physical evidence. For the first time text books on services marketing began to be produced.
Walking erect Stage- from 1986 to 2000
Since 1986 there has been almost no discussion of whether services are different
from goods, but rather the literature has focused on specific marketing problems on service
organizations. They include consideration of service encounters, service design, perceived
service quality and customer satisfaction, internal marketing and relationship marketing.
DBA 1721
NOTES
the third quarter (October-December) of 2005-06, real gross domestic product (GDP)
registered a sharp increase in the fourth quarter (January-March) of 2005-06 benefiting
from a pick-up in almost all segments of agriculture, industry and services. According to
the revised estimates released by the Central Statistical Organization (CSO) in May 2006,
real GDP accelerated from 7.5 per cent in 2004-05 to 8.4 per cent during 2005-06. The
Indian economy has, thus, recorded an average growth of over 8 per cent in the latest
three years (2003-04 to 2005-06).
Growth Rates of Real GDP
(Base Year: 1999-2000) (Per cent)
DBA 1721
NOTES
faced with foreign competition, including the threat of cheaper Chinese imports. It has
since handled the change by squeezing costs, revamping management, focusing on designing
new products and relying on low labor costs and technology.
Services:
India is fifteenth in services output. It provides employment to 23% of work force,
and it is growing fast, growth rate 7.5% in 19912000 up from 4.5% in 195180. It has
the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950. Business
services (information technology, information technology enabled services, business process
outsourcing) are among the fastest growing sectors contributing to one third of the total
output of services in 2000. The growth in the IT sector is attributed to increased
specialization, availability of a large pool of low cost, but highly skilled, educated and fluent
English-speaking workers (a legacy of British Colonialism) on the supply side and on the
demand side, increased demand from foreign consumers interested in Indias service exports
or those looking to outsource their operations. Indias IT industry, despite contributing
significantly to its balance of pyments, accounted for only about 1% of the total GDP or 1/
50th of the total services. Excellent infrastructure in the service sector and the lowest
communication cost has helped India to be a dominant player in these sectors.
Environmental Trend and Emerging Service markets
DBA 1721
NOTES
of service functions such as selling, marketing research, advertising, labor welfare, HRD,
financial advisers strategic advisers, etc. With the growth of competition and the pace of
change in consumer exposure and expectations forced organizations to look for specialized
services.
Companies started unbundling the organizations and taking the services from
outside, where highly professional and specialized services are available at a relatively low
price. As a result, a number of service organizations have come up in the world. The
concept of self reliance by way of minimizing or avoiding dependence on others was used
by the firms to reduce uncertainties, to maintain confidentiality and to grow big. The wave
of specialist services during the last three decades changed management philosophies and
encouraged them to outsource many services. Hence, the demand for special services has
gone up.
Final Demand from Customers
There is a growth in direct demand from customers for a variety of services. The
marginal utility from goods has diminished, atleast in a relative sense and services have
grown in importance. People spend more and more on services. The demand for health
services, polybion laser services, travel, entertainment, sports and the like registered a
significant growth in recent years. The following are the reasons identified for the growth in
demand for services directly from customers:
Increase in affluence
More leisure time
Increasing proportion of working woman
Growth in the population of DINKS (Double Income No Kids)
Greater complexities of products
Greater complexities in life
Greater concern for resource scarcity and ecology
Increasing number of new products
Increasing proportion of earning younger generation
1.6.2 Reasons for Growth of Services in India
The following are the reasons for growth of services in India.
DBA 1721
NOTES
Cultural Changes
Culture is an embodiment of values, knowledge, traditions, taboos, habits and
behavior that passes from generation to generation. The influence of culture on the lifestyles
of people is significant. Culture is not static; in fact, it is a process of development. Change
is the underlying philosophy of culture. Some societies change faster, some at a medium
pace and the others at a slower pace. The pace of change in Indian culture is not uniform.
However, during the last century the factors of change are prominent. The changed role of
women is one example and the change in the family systems is another. The emergence of
the nuclear family system in place of the traditional joint family system creates a demand
for a host of servicesentertainment, education, healthcare, hospitality, telecommunications,
posts, transport and tourism, to mention a few. There has been a marked change in the
thought process relating to expenditure, investment, leisure time perception, childrens
education, time management and so on, which has created a market for services.
IT Revolution
India has been occupying a vital position in the area of information technology for
the last fifteen years. Indians have proved their supremacy in the field to the world. IT
became one of the key service businesses of the country. India has the largest software
skilled population in the world. The domestic market as well as the international market
has grown substantially. Many state governments realizing the potential for this area, have
made IT as their most prioritized segment. States such as Karnataka, Andhra Pradesh,
Madhya Pradesh, Tamilnadu, Maharashtra and Delhi have already achieved substantial
progress in information technology. It is expected that the IT-enabled services will have a
bright future in the years to come.
Conservation of Natural Resources
The growth of population, greater industrialization and indiscriminate consumption
has affected the natural resources, environment and ecological balance. The government
and social organizations realize the negative effects of the environmental pollution, resource
scarcity and the imbalance of the ecology. They have promoted several service organizations
to take up social marketing. Thousands of crores of rupees are being spent on forestation,
safeguarding rare animals and birds, protecting air, water pollution, conserving of oil and
energy and on research to develop new technologies that can promote very effective use
of natural resources and safeguard the environment.
DBA 1721
NOTES
Increased Consciousness of Health Care
The health care market has grown substantially in India. The increased life
expectancy is the result of the consciousness of people regarding health issues. The growth
of health centres, fitness clubs, diagnostic centres, medical counseling, psychological
counseling, health-related information sites are the reflections of the growing demand for
health care services. The government as well as social organizations has taken up mass
campaigns through different media to create awareness among illiterate persons and rural
population on health care. Immunization campaigns, childcare campaigns, campaigns on
preventive medicine and family planning are some of the programmes intended to promote
health care in rural India.
Economic Liberalization
The economic liberalization process which started in 1991 brought in many changes
in the Indian business scenario. Multinationals were permitted to enter the Indian market.
Disinvestments and privatization policies made an end to the state owned monopolies in
many service areas. Delicensing policies encouraged many entrepreneurs to establish
business wherever they wanted. Liberal lending policies and lower interest rates motivated
many people to become self-employed. These changes led to a major shift in the competitive
scenario. The banking sector, insurance, telecommunications, power projects, advertising
agencies, marketing research, hospitality services, courier services and air transport
witnessed intense competition due to the entry of multinational companies. The flow of
time-tested service technology from various parts of the world changed the attitude of the
Indian consumer towards service.
Migration
Rural to urban and semi-urban migration has been one of the reasons for the
growth of services in India. Migration to urban areas for want of jobs and livelihood resulted
in the expansion of cities and townships. Due to this, businesses like real estate, rentals,
transportation and infrastructure services are expanding rapidly. Urban placement services
and personal services have also found increased demand.
DBA 1721
NOTES
People Processing: The customer is highly involved in the service process and needs
to be physically present in order to experience the service. In people processing, the
service is directed at the customer. For example, at a school or training center for
dance, the students availing the services have to be present in person. Other examples
of services that involve people processing are health care centers. Passenger transport
services, beauty saloons, lodging and boarding services, educational services and fitness
centers.
Possession Processing: The customer doesnt require to be present to experience
the service but has to submit his property to the service provider for the latter to
deliver the service. In possession processing, the service is directed at the possession
and not at the customer. For example, if a person wants his car to be serviced, he has
to leave it with the mechanic for some time to enable the mechanic to change the oil,
check the gears, brakes, etc. and wash and clean it thoroughly. Laundry and dry-
cleaning services, postal service, courier service and freight transportation are other
examples of such services.
Mental Stimulus Processing: In mental stimulus processing, the attention of the
customer must be directed on the service in order to experience the service. In this
case, the service is directed at the mind of the customer. For example, a person taking
career counseling from a professional counselor gets stimulated mentally to take the
right decision or develop the right attitude. Other examples of such services are
advertising, entertainment, and education and consultancy services.
Information Processing: This type of service requires service personnel to collect
information, analyze it, interpret and offer appropriate advice to the client. For example,
a market research firm hired by a company collects information from customers to
know their opinion about the companys products or services, customer expectations
and suggestions to improve the products/services. The employees of the firm then
analyze the information and prepare reports in a way that allows the management of
the company to formulate strategies to improve its sales. Information processing also
takes place in services such as accounting, insurance, legal services. Programming,
data processing and data transmission.
DBA 1721
NOTES
food and magazines to passengers, and market research firms provide clients with
a detailed report of the research results.
Highly intangible: These are the services which do not provide customers with
any tangible product. For example, at a massage parlor, the customer might not
get anything tangible, except for the relaxing experience. He might smell the aromatic
oils or feel relaxed while undergoing the massage. But does not get any tangible
product.
1.7.3 Classification based on Skills and Expertise Required
Services can be categorized as follows based on the skills and expertise required by
the service provider to offer the service.
Professional services: These services require the service provider to be formally
trained to deliver the service. The service rendered by a doctor. A pilot, an IT
consultant or a corporate trainer are examples of professional services.
Non-professional services: These services do not require the service provider
to undergo any training to deliver the service. For example, baby-sitting and
housekeeping are examples of non-professional services and can be delivered
without the need for formal training.
1.7.4 Classification based on the Business Orientation of Service Provider
Services can be categorized based on the service providers purpose of doing business:
Not-for-profit organizations: These are the services in which the main objective
of the service provider is to serve society and not to make profits. For example,
government schools and social service organizations are not in the business to
make a profit.
Commercial organizations: These are services in which the main objective of
the service provider is to earn revenues and make profits. Airlines, insurance firms
and restaurants charge customers for the services they offer and attempt to
continuously improve their services and profitability.
DBA 1721
NOTES
Business analysis involves defining the target market, its size, its structure, and the
existing customer trends. Present and future demand forecasts can prove to be extremely
useful in helping the organization decide whether to launch the new service. In addition,
information about the effects of external environmental factors is essential for the organization
to develop measures to tackle any problems that may arise in the course of developing and
launching the new service. Further, the existing competition and their strategies should also
be analyzed. At this stage, an organization also designs the service process through service
blueprinting (will be discussed in the following units).
Take a stand question: A restaurant customer asks the waiter if the fish on
the menu is fresh. Although the fish was frozen, the waiter answers yes
because he knows it tastes great and the customer will love the chefs sauce.
Take a stand.
Suggested answer: This is a clear ethical lapse. It violates all norms of trustworthi-
ness and honesty. The waiters reasoning in effect is a rationalization that the ends
justify the means. This reasoning has historically been used to justify the most hei-
nous behavior. In accordance with Kants categorical imperative, when enough people
do it, language loses its meaning. Noone feels good when tricked into doing some-
thing. Also, the customer might have some kind of aversion to frozen food. It would
be better for the waiter to be honest with the customer but try to turn the fishs
disadvantage into an advantage by emphasizing the special sauce.
1.9 EXPANDED MARKETING MIX FOR SERVICES
Strategies to market manufactured goods usually address the four elements of the
marketing mix product, price, place and promotion (Which you have studied in detail in
the last semester course on Marketing Management). But the distinctive characteristics of
services, including the lack of inventories and customer involvement in production, require
attention to additional strategic elements. The 8 Ps model highlights eight strategic decision
variables for managers of service organizations, including: product elements (all
components of the service performance that create value for customers; place, cyberspace
and time (when, where and how to deliver services to customers); process (the method
and sequence in which an operating system works); productivity (how efficiently service
inputs are transformed into value-added outputs) and quality (the degree to which customer
needs, satisfactions and wants are met); people (customers and employees involved in
DBA 1721
NOTES
elements in response to changing market circumstances and needs. Inevitably there is
much overlap and interaction between the various components of a marketing mix. Decisions
cannot be made on one component of the mix without considering their impact upon the
other components. Also the precise elements and their importance within any marketing
mix at any point in time will vary. The outline that follows therefore indicates some of the
key areas to which marketing managers need to devote their attention in formulating their
marketing mixes for services markets. It is illustrative not comprehensive. Service
organizations will almost certainly need to adapt it in their strategy planning. Each element
is considered in more detail in the following units.
Traditional Marketing Mix
Product
The service product requires consideration of the range of services provided, the
quality of services provided and the level of services provided. Attention will also need to
be given to matters like the use of branding, warranties and after-sale service. The service
product mix of such elements can vary considerably and may be seen in comparisons of
service range between a small local building society and one of the largest in the country;
or between a small hotel offering a limited menu range and a four star hotel offering a wide
range of meals.
Price
Price considerations include levels of prices, discounts allowances and commissions,
terms of payment and credit. Price may also pay a part in differentiating one service from
another and therefore the customers perceptions of value obtained from a service and the
interaction of price and quality are important considerations in many service price sub
mixes.
Place
The location of the service providers and their accessibility are important factors in
services marketing. Accessibility relates not just to physical accessibility but to other means
of communication and contact. Thus the types of distribution channels used (e.g. travel
agents) and their coverage are linked to the crucial issue of service accessibility.
DBA 1721
NOTES
People
All human actors who playa part in service delivery and thus influence the buyers
perceptions; namely, the firms personnel, the customer, and other customers in the service
environment. All of the human actors participating in the delivery of a service provide cues
to the customer mg the nature of the service itself. How these people are dressed, their
personal appearance their attitudes and behaviors all influence the costumers perceptions
of the service.
Physical Evidence
The environment in which the service is delivered and where the firm and customer
interact, and any tangible components that facilitate performance or communication of the
service. The physical evidence of service includes all of the tangible representations of the
services such as brochures, letterhead, business cards, report formats, signage, and
equipment. In some cases it includes the physical facility where the service is offered, for
example, the retail bank branch facility. In other cases, such as telecommunication services,
the physical facility maybe irrelevant. In this case other tangibles such as billing statements
and appearance of the repair truck may be important indicators of quality. Especially when
consumers have little on which to judge the actual quality of service they will rely on these
cues, just as they rely on the cues provided by the people and the service process. Physical
evidence cues provide excellent opportunities for the firm to send consistent and, strong
messages regarding the organizations purpose, the intended market segments, and the
nature of the service.
Customers who come to a service factory experience the most powerful physical
evidence or servicescape (will be discussed in detail in the following units). The servicescape
involves the style and appearance of the physical surroundings where customers and service
employees interact. Servicescapes can create powerful impressions on customers by
positively affecting one or more of their five senses. Scenery, lighting, music and other
sounds, special effects, and the appearance of employees and other customers all help
create the atmosphere in which a service is delivered. In certain types of businesses,
servicescapes are enhanced (or diminished) by sounds, smells, tastes, and textures of
physical surfaces. For first-time customers in particular, the servicescape helps frame
expectations about both the style and quality of service to be provided. Because services
are intangible performances that are hard to evaluate in advance (or sometimes even after
service delivery), customers tend to rely on clues provided by the servicescape to judge
quality.
DBA 1721
NOTES
a large role in increasing the speed and convenience of service delivery and enhancing
productivity. Developments in telecommunications and computer technology continue to
have a significant impact on the way services are produced and delivered. The growth of
mail order (via catalogs) and telephone sales has increased productivity for some service
firms, who can conduct transactions with customers at arms-length without having to
maintain an elaborate servicescape. The same is true for merchants who are using the
Web for e-commerce. Customers in all of these cases appreciate the speed and convenience
of service delivery, while suppliers are happy with the reduction in costs and subsequent
increases in productivity. Classical methods in measuring productivity often focus on outputs
rather than outcomes, stressing efficiency but neglecting effectiveness. The focus of
productivity can be shifted from its traditional focus on volume of output to one emphasizing
value of output. If the same volume can be sold at higher prices without a comparable
increase in input costs, then the transformation of inputs into outputs will be more productive.
Under these circumstances, the productivity goal shifts from efficiency to effectiveness.
The former is operations and finance oriented. The latter is marketing and customer oriented.
Because higher quality service creates more value for customers, the effectiveness approach
to productivity is closely allied to service quality. Productivity helps to reduce costs and
quality is essential for differentiation and building customer satisfaction and loyalty.
The four new marketing-mix elements (people, physical evidence, process and
productivity) are included in the marketing mix as separate elements because they are
within the control of the firm and any or all of them may influence the customers initial
decision to purchase a service, as well as the customers level of satisfaction and repurchase
decisions. The traditional elements as well as the new marketing mix elements will be
explored in depth in the following units. Certainly marketing managers in services markets
need to undertake research about the markets and market segments for which their
respective marketing mixes are shaped. Wherever possible the services marketing manager
will need to research and analyses the characteristics of the markets served.
1.10 SERVICE QUALITY
There are many definitions of quality, and in many senses quality is subjective. To
many people, quality implies luxury or excellence; a Rolls Royce rather than a Ford. However,
quality can also be measured in terms of fitness for purpose, and a Ford Escort is regarded
by many owners as a quality family car, while McDonalds provide a quality fast food
service.
DBA 1721
NOTES
in the service production, thus impacting on the quality of the service delivery process. The
actual output of the service may be judged by the customer in terms of their expectations
of the outcome or benefit.
The customers overall judgment of service quality can be an evaluation of both
the process and the outcome, compared with the customers own expectations and desired
benefits. This leads to an important idea in assessing quality from a services marketing
perspective: perceived service quality.
Perceived service quality represents the customers judgment of an organizations
service based on their overall experience of the service encounter. Understanding how
customers arrive at this judgment - that is to say, how they decide whether or not they are
satisfied with a particular service - is very important for services marketing management.
Research has indicated that consumers make these decisions using a number of key criteria
to judge the service.
The evolution of quality concepts and movement had been the subject of operational
managers in the manufacturing industry. Recently, quality has gained relevance in context
of service industry with reference to customer needs and expectations. The importance of
quality is recognized every where the concept seems to refer to several different areas,
namely, quality of the product, quality of the process, quality of the delivery system and
quality as a general philosophy of the organization.
Quality is a difficult concept to define in a single definition. Quality can be viewed
from two points of view:
1. From the point of the service provider to set up standards or specifications in the
manufacturing process as well as the output which is totally objective and technical
in nature?
2. From the point of view of the customer service quality occurs only when the
service firm provides services to the specifications that satisfy their needs. The
idea of quality here is subjective and will be strongly linked to the needs and
expectations of the customer.
The three underlying themes of service quality are that service quality is more
difficult to evaluate for services than for goods, service quality is based on consumers
DBA 1721
NOTES
the consumer, it is difficult to evaluate the level of service received.
1.10.1 Service Quality Dimensions
Berry, Parasuram, and Zeithaml conducted extensive research in service quality
and identified 10 dimensions used by consumers.
DBA 1721
NOTES
the issues which impact on quality. Two of the most important components of internal
marketing which are critical for any organization seeking to implement quality service are:
Communication
Communication internally may need to be improved to ensure that there are no
breakdowns in communication between the elements within the organization which make
up a particular service. Communications should be designed to foster co-ordination and
integration, enabling employees to be responsive to their internal customers and suppliers.
Internal communications can also be a useful tool in engendering a team spirit and in
motivating personnel. This can be very important in the drive for service quality. Management
should end self that every employee knows what the organizations objectives are, what
desired quality goals have been set and what their individual role is in achieving these
targets.
Training
Training needs to be undertaken to develop employees understanding of how
they can deliver service quality. This training might include customer care programmes,
and specific technical training to develop expertise in advising customers about the services
offered. Training for personal development is also important, as motivation and job
satisfaction are key elements in the provision and maintenance of quality service.
1.10.2 GAP Analysis
In 1985, Parasuram, Zeithaml, and Berry developed a model of service quality.
Their model claims that the consumer evaluates service quality experience as the outcome
of the gap between expected and perceived quality. The model emphasizes n the key
requirements for a service provider delivering the expected service quality.
The model (shown in figure 1.2) identifies five gaps that can cause unsuccessful
service delivery. By learning the flow of the model, it is possible to exercise greater
management control over the consumer relationships. The study of this model should lead
to an improved realization of the key issues at which service providers can influence the
satisfaction of consumers.
DBA 1721
NOTES
Gap 4 (Gap between service delivery and external communication)
Gap 5 (Gap between expected quality and perceived quality)
1.10.3 SERVQUAL Dimensions
SERVQUAL is a 44-item scale that measures customer expectations and
perceptions regarding five service quality dimensionstangibles, reliability, responsiveness,
assurance, and empathy. SERVQUAL consists of two sections: a 22-item section that
records customer expectations of excellent firms in the specific service industry, and a
second 22- item section that measures customer perceptions of a particular company in
that service industry. Results from the two sections are then compared to arrive at gap
scores for each of the five dimensions.
The Tangibles Dimension
The SERVQUAL assessment of a firms ability to manage its tangibles Obtained
via four expectations questions (E1-E4)
Example:
a. E1. Excellent companies will have modern-looking equipment.
b. E2. The physical facilities at excellent companies will be visually appealing.
c. E3. Employees of excellent companies will be neat in appearance.
d. E4. Materials associated with the service will be visually appealing in an excellent
company.
Obtained via four perception questions (P1-P4)
DBA 1721
NOTES
Example:
a. E10: Employees of excellent companies will tell customers exactly what services
will be performed.
b. E11: Employees of excellent companies will give prompt service to customers.
c. E12: Employees of excellent companies will always be willing to help customers.
d. E13: Employees of excellent companies will never be too busy to respond to
customer requests.
Perception Questions (P10-P13)
The Assurance Dimension
The SERVQUAL assessment of a firms competence, courtesy to its customers,
and security of its operations.
Expectation Questions (E14-E17)
Example:
a. E14: The behavior of employees of excellent companies will instill confidence in
customers.
b. E15: Customers of excellent companies will feel safe in their transactions.
c. E16: Employees of excellent companies will be consistently courteous with
customers.
d. E17: Employees of excellent companies will have the knowledge to answer
customer questions.
Perception Questions (P14-P17)
The Empathy Dimension
The SERVQUAL assessment of a firms ability to put itself in its customers place.
Expectations Questions (E18-E22)
DBA 1721
NOTES
Third, SERVQUAL is based on Gap Theory, which can lead to biased results. Since both
expectations and service evaluation are measured after the service experience, measurement
of the expectations component will be biased. To reduce these problems, services should
modify SERVQUAL to fit the specific industry being used. Consumer expectations should
be measured prior to the service while the experience evaluation should be measured after
the service.
Case I: WILL YOU VISIT AGAIN
Kumar booked a table in a restaurant for 12 people at the beginning of the Diwali
period to celebrate the festive season with his family and friends. He had been a regular
visitor to Royal Restaurant and had developed loyalty for this place famous for South
Indian food. Most of his friends were from the South so he preferred to treat them at Royal
Restaurant.
Another reason for his selection was that the patron of Royal Restaurant, Ganesh
knew him well. Since he was regular visitor, he was quite confident that this dinner would
be a success.
Three days before the scheduled get-together dinner Kumar spoke to Ganesh and
asked him to increase the booking to 16. He looked busy but informed Kumar it would be
quite in order and he looked forward to seeing Kumar and party later that week.
As per programme, all Kumars friends met at his residence at 7 p.m. on the
appointed day and after having a cup of coffee left for Royal Restaurant to be there at the
scheduled time of 8.30 p.m. They were all relaxed and exchanged jokes on their way and
reached the restaurant at 8.20 p.m. With slight difficulty, they located parking place at
three different locations for the four cars in which they were traveling.
The guests arrived at the restaurant on time and Kumar was taken aback to find
that the table has been set only for 12 persons. Ganesh came over seeing a large group
gathered around the small table laid in one corner of the dining room. Kumar reminded
Ganesh of his earlier conversation which he had with him three days ago. He asked him to
recollect that the booking had been increased from 12 to 16, and suggested that it may be
an oversight that he had forgotten to set the table for 16 people. Kumar then asked him to
reset the table immediately for 16 people to avoid any embarrassment to him and his
guests.
DBA 1721
NOTES
SUMMARY
A service firm, unlike a manufacturing firm, does not manufacture but rather performs
something for the customer. It delivers an experience that is intangible, heterogeneous,
inseparable and imperishable in nature. Thus, marketing of services is different from the
marketing of products and goods. In this unit different distinguishing characteristics of
services: intangibility, inseparability, variability, and perishability are discussed. Changes in
demographic, social and economic factors, as well as institutional and policy changes are
some of the major factors that influence the growth of the service sector. The services
marketing mix is the mix of marketing elements that help service firms to successfully operate
the business. In addition to the 4 Ps of marketing goods (product, price, place and
promotion), service firms are characterized by four additional Ps, namely people, physical
evidence, process and productivity. Services can be classified based on the degree of
customer involvement in the service delivery process, service tangibility, skills and expertise
required, business orientation of the service provider, and type of end-user. Lovelock
suggested that firms can market services better by dividing them into meaningful categories.
According to Philip B. Crosby, Quality is conformance to requirements. However, service
organizations should strive to enhance the quality of their service to exceed customers
Improving service quality enables organizations to win credibility, enhance customer
satisfaction, obtain repeat customers and even charge a premium price. To measure the
quality of service offered, service organizations have to measure both the technical and
functional components of the service. According to a research conducted by Zeithaml,
Berry and Parasuraman, five important dimensions of service (as viewed by customers)
that need to be evaluated are tangibles, reliability, responsiveness, assurance and empathy.
REVIEW QUESTIONS
1. Cite examples of the differences between marketing products and marketing
services.
2. List the reasons for the growth of the services sector.
3. Identify the unique characteristics of services and give examples of each.
4. Identify the five elements of the services marketing mix and explain how each is
different from the marketing of products.
5. How would you classify the Olympics using the service classification scheme?
6. What are the underlying themes of service quality? Suggest illustrations of each
theme.
7. Define the five dimensions of service quality. Give an example of each dimension.
8. Explain the SERVQUAL model. How is it used by service marketers?
DBA 1721
NOTES
2.0 INTRODUCTION: FOCUS ON CUSTOMERS
Over the years excellent companies have been known for adapting and responding
to a continually changing marketing plan. They practice the art of market oriented
management. Services marketing management represents marketing concept in action I.e.
a preplanned demand management under consumer oriented marketing philosophy. Service
firms need to think more consistently in marketing terms and the marketing concept. The
service firm must be customer-oriented and must develop a competitive marketing strategy.
Their strategy formulation, like that of the product-oriented firm consists of two steps:
Identifying target markets and their needs and
Developing a marketing mix that satisfies the unique needs of these target markets.
Marketing Management Process for Services:
Philip Kotler defines marketing Management as Analysis, planning, implementation,
and control of programmes, designed to create build and maintain beneficial exchange
with target buyers for the purpose of achieving organizational goals.
In general terms, the marketing management process is the same in the marketing
of services and tangible products (Figure 2.1). This unit very briefly explains the marketing
management process, the foundation on which corporate and functional strategy is built.
Figure. 2.1 Marketing Management Process
DBA 1721
NOTES
The immediate external environment includes suppliers and distributors with
whom the organization deals directly and also its competitors whose activities would have
a direct effect on its market position.
The uncontrollable external environment comprises of all those factors outside
the organization, which impinge on its activities:
Economic factors like inflation, exchange rates have impact on banking services, also
on prices set by tour operators for their overseas holidays etc.
Social factors have an effect on the customers and employees, their attitude to life and
their expectations and values.
Political and legal factors can have an impact on the whole range of organizational
activities through tax incentives, privatization! nationalization of industries.
Finally, technical factors can influence the improvisation of services, e.g. home-banking,
barcode scanning in retailing business, etc.
The process of identifying and evaluating services marketing opportunities gives
rise to many new ideas. Each of these opportunities must be studied in relevance to the
companys resources.
2.2 CUSTOMER EXPECTATIONS AND PERCEPTIONS OF SERVICES
The consumers mind is still closed to us; it is a black box that remains sealed.
We can observe inputs to the box and the decisions made as a result, but we can
never know how the act of processing inputs (information) truly happens.
John E. G. Bateson
Satisfaction is the level of a customers felt state resulting from comparing
a products or service perceived performance standard against the customers
expectations. Philip Kotler
Over the past few years, marketing of services has picked up pace and became
popular worldwide. Service organizations largely compete on the basis of the quality of
service provided by them. While some companies successfully deliver quality service to
their customers, others are just clueless. Why is it that some companies are successful in
providing quality service while others are not? Providing quality service is based on a
DBA 1721
NOTES
Business Insight 2.1: Insuring Your Childs Future
The opening up of the insurance sector in India has paved the way for private and
foreign players to enter the Indian insurance industry. Insurance companies are trying
to understand customer expectations and design their policies accordingly.
Insurance companies have realized the difficulties faced by middle-class individuals
to pay for their childs education, marriage and so on. Identifying and grabbing the
opportunity available in the field of childrens education, many insurance companies
have come up with policies that cater to the needs of children. Allianz Bajajs Child
Care, Birla Sun Lifes My Child, ICICI Prudentials Smart Kid, AMP Sanmars
Yuva Shree, HDFCs Childrens Policy, and LICs Komal Jeevan, Jeevan Sukanya
and Jeevan Kishore are some of the childcare plans available in the market.
These policies can be differentiated on the basis of the life insured. While some
policies require the parents life to be insured, the others need the childs life to be
insured. However, most of the plans offer benefits to the child in case of the parents
untimely death. In addition, some insurance companies have introduced a critical
rider in the form of Waiver of Premium to address the needs of policyholders during
unforeseen adversities. According to this rider, the insurance policy will continue to
be in force even if some calamity occurs. BLSI, and LICs Komal Jeevan offer this
as a rider while HDFC, ING Vysya have built this within their policies.
Insurance companies have understood customer expectations clearly and most of
them offer policyholders the sum assured (SA) along with a bonus at the time of
maturity. There is little difference in the pay-out-structure of the policy. Most of the
policies have surrender value and some of them allow policyholders to take loans on
the policies. On the other hand, unit-linked plans like the one offered by ICICI
Prudential provide the policyholder with an option to withdraw sums of money at
important junctures during the course of the childs education or to avail the benefits
during the last 5 years of the policy.
Unlike earlier times, present-day parents have many options to provide security for
their children and to meet the demands of their childrens future. They can choose a
policy after deciding on the sum assured (SA) and comparing various schemes
available on the basis of the pay-out structure and premium payments. Thus, in
order to survive in the market and retain customers, insurance companies are willing
to customize their policies according to the needs of their customers.
DBA 1721
NOTES
2.2.3 How Do Consumers Develop Expectations
Customers will have different types of expectations about a service. Service
marketers should know what the expectations of the customers are. The knowledge of
customer expectations helps the marketers to design comprehensive service packages
that are capable of delivering satisfaction. At least two levels of expectations of service
customers can be identified.
They are:
Maximum level and
Minimum level.
In the process of service production and consumption, five levels of performance might
result.
Maximum service level is a blend of what the customer believes can be and
should be. For example, if you take the services of your UG college placement cell, your
expectations in all likelihood would be a right job in a right location for the right salary.
However, you are also aware of the constraints in obtaining jobs-the vacancy positions in
various companies, the competition and the changing expectations of the market. Due to
this reason you may hold a lower level expectation for the acceptance of the service. This
lower expectation is called as minimum service level.
Minimum service level represents the lowest tolerable expectation or the bottom
level of performance acceptable to the customer. As shown in Fig. 2.2 there is a zone of
tolerance which will be between the desired service and adequate service.
A customers expectations of adequate service change with his perception of the
available alternatives for the particular service. Customers expectations of adequate service
increase in situations of an emergency. For instance, train commuters in large cities such as
Mumbai, tend to get frustrated at even the slightest delay in the arrival of local trains when
they need to move fast. However, when there is a service failure during heavy rains, the
DBA 1721
NOTES
Figure 2.3 Factors that Influence Customer Expectations of Services
The basic objective of any organization, whether it is in manufacturing sector or in
service sector, is to develop and provide market offerings that satisfy consumers needs
and wants and thereby ensure its own economic survival. Towards this end, organizations
need to fill the gap between customer expectations and customer perceptions. The marketers
should have proper understanding of the behavioral characteristics of the consumers, their
expectations, evaluation processes and purchase decision processes.
There is an argument that consumers behavior would not be different in the case
of services. But services specialists do not agree with this argument. Though the basic
determinants of behavior may be common for both goods and services as far as expectations,
evaluation and selection of services are concerned, the behavior of consumers will definitely
be different. Service characteristics such as intangibility, inseparability, variability and
customer participation, lead to differences in the consumer evaluation process in all stages
of the buying process.
2.2.4 Factors That Influence Customer Expectations of Service
Service providers should have knowledge of the factors that influence customer
expectations of service. These factors can be studied under various heads, namely
Factors that influence customer expectations of desired service,
Factors that influence customer expectations of adequate service and lastly,
DBA 1721
NOTES
Factors that Influence Customer Expectations of Adequate Service
Customer expectations of adequate service are influenced by various factors such as
transitory service intensifiers, perceived service alternatives, customer self-perceived
service role, situational factors, and predicted service.
Transitory service intensifiers are the factors, which intensify or heighten the
level of adequate service expectations of customers. These factors include personal
emergencies, failure of a service provider to offer quality service the first time, or
factors that push customers to take the help of a service. For example, suppose a
customer who is very hungry decides to try the service of a home-delivery provider
of pizza who claims to deliver a pizza anywhere in the city limits within 20 minutes.
However, the pizza is delivered at the customers doorstep an hour after he has
ordered for it and that too, with a topping different from the one he had ordered.
The first- time service failure by the pizza home delivery service will increase the
service recovery expectations of the customer the next time he orders a pizza from
the same service provider. This time, the customer will expect the service provider
to deliver the pizza of his choice within the promised time.
Consider a situation where a customer wants to purchase medicines urgently on
his credit card and the credit card company refuses to give acceptance, though there is
credit amount available on the card. This will raise the adequate service level expectations
of the customer. Presence of transitory service intensifiers reduces the zone of tolerance
and increases the adequate service expectations of a customer.
Perceived service alternatives include customer perceptions of available
alternatives that offer similar service. The adequate service expectations of
customers increase when they think that there are alternatives available to fulfill
the need. For example, a customer in a big city who needs a loan to buy a house
knows that he can get a loan from any of the nationalized or private banks or
housing finance companies in the city. Hence, he will have high adequate service
expectations than a customer who lives in a rural town with only a nationalized
bank providing the requisite service.
A customers self-perceived service role also affects his/her adequate service
level expectations. The self-perceived service role of a customer is the extent to
which the customer perceives he is capable of shaping the service encounter and
DBA 1721
NOTES
made by a service provider through advertisements, personal selling, brochures and
so on, heighten the desired and predicted service expectations of customers. For
example, if a software-training institute advertises that doing a specific course at the
institute can help one get a, Plum job in the IT Valley Bangalore, candidates enrolling
for the course will have increased desired and predicted service expectations. All
those who enroll for the software course at the institute will desire to obtain a job in
the Bangalore city soon after they complete it. Further, the candidates doing the course
begin to believe that the service provider will help them in getting a job in the Bangalore
city.
Implicit service promises: Implicit service promises are not explicit statements made
by a service provider but are tangible clues that give a customer an idea of how the
service will be. Tangibles related to a service are in the form of personnel of the
service provider, process, and physical evidence. For example, the price that is set
for a Taj Holiday package serves as an implicit service promise by the hotel group.
Through its pricing, the Taj group promises to deliver to the customer his/her moneys
worth and influence both desired and predicted service expectations of the customer.
The customer desires service that is commensurate with the pricing of the package. In
addition, customers predict to receive service of a particular standard due to the high
price associated with it
Word-of-mouth publicity: These include views or opinions of customers who have
already used the service, or surveys conducted by experts. For example, the positive
or negative opinion given by friends or relatives about a travel agency will influence a
customers desired and predicted service expectations.
Past experience: A customers past experience influences his current expectations
of service. For example, a customer who has visited a McDonalds outlet in New
York, USA will desire and predict to receive service of the same standard at a
McDonalds outlet in Chennai, India.
2.2.5 Criteria to Evaluate a Service based on Customers Service Expectations
Customer service expectations involve evaluation of how a service provider delivers
the service. That is, a customers opinion of a good, terrible, or bad service lies in his
service experience. A customers service experience is controlled by his sensory impressions
coupled with his intentions and mood at the time of the service encounter. However, recent
DBA 1721
NOTES
Knowledge of the factors that influence customer expectations and the criteria on
which customers base their evaluation of a service experience, help service providers take
measures to manage customer expectations. Business Insight 2.2 describes how the
Madurai-based Aravind eye hospital created a special image for itself by educating its
patients on eye care and giving a meaning to their life.
Business Insight 2.2: Aravind Eye Hospitals
Imagine an organization providing eyesight to 13 million people, an organization
performing nearly 1.8 million surgeries in a span of 26 years. The organization in
question is the Madurai based Aravind Eye Hospital (Aravind). This organization
was the single largest cataract surgery provider in the world in 2003. While a cataract
surgery costs US$ 1650 in a US hospital, Aravind performed the same quality
surgery in India, at US$ 10. The manufacturing division of the hospital, Aurolab,
was one of the leading manufacturers of intraocular lenses (IOLs) in the world. In
2003, the division held a 10 percent share of the global market in 10Ls. While other
manufacturers such as American Ophthalmic Laboratories, US IOL Inc sold these
lens at $100-$150 a piece, Aurolab sold the same quality of lens at US $4 - $6 per
lens.
C K Prahalad, a leading management thinker, has studied Aravinds operations over
the years. He observed that Aravind generated a 200 per cent return on capital
employed. We have a good medicine school at the University of Michigan, and
they are amazed by what they saw at Aravind. It is better than the best, he said, in
appreciation of the functioning of Aravind. According to him, Aravind was a market-
driving entity as it served the most unserved market - the poor. The poor in India
could rarely afford good eye health care, leave alone eye surgeries. For them a
cataract meant blindness, and often, great suffering in their lives. They did not know
that they could regain their eyesight with a I5-minute surgery (at Aravind a cataract
surgery on an average took 10 to 20 minutes.) Dr.Govindappa Venkataswamy (Dr.
V), founder of Aravind Eye Hospitals, explained his marketing philosophy Give
people a new experience, one that deeply changes their lives, make it affordable,
and eventually you change the whole world. And your customers become your
marketers.
DBA 1721
NOTES
behavior requires inputs from various disciplines such as sociology, psychology and
economics. Consumer behavior deals with the study of the factors that influence a customer
in purchasing a product/service, and the process that he/she goes through, to evaluate the
product/service prior to and even after its purchase and use.
The main challenge for a service provider is to tangiblize the intangible characteristic
of services. Offering customized and quality services is another challenge for service
providers of today. Technological advances in the new millennium have helped service
providers to offer customized services to their customers.
In this part of this unit, we discuss the differences between the process through
which a consumer evaluates goods and the one he/she uses for evaluating services. We
examine each step involved in the consumer decision-making process and the environmental
factors that influence consumer behavior.
The four broad categories of service presented in Figure 1.1 in the last unit have
very different implications for marketing, operations, and human resource management.
People processing involves tangible actions to peoples bodies. To receive this
type of service, customers must physically enter the service factory and cooperate
actively with service personnel and/or systems. This means that managers must be
aware of the effects of the physical environment, and the effects front-line employees
have on customers. They also need to educate customers to participate effectively
and efficiently in co-producing the service.
Possession processing involves physical actions to goods and other physical
possessions belonging to the customer. These activities are quasi-manufacturing
operations, and do not always involve simultaneous production and consumption.
Customers are less physically involved with this type of processing than with people-
processing services. Thus, their co-production role is not as great
Mental stimulus processing refers to intangible actions directed at peoples
minds. The customer must invest time and mental effort to receive these services,
but may not need to be physically present in the service providers factory. Because
these services have the capability to shape attitudes and influence behaviors,
managers must establish and enforce high ethical standards in service delivery.
DBA 1721
NOTES
This shows that there is always an attempt on the part of the marketer to understand
and study consumer behavior .
With the opening up of the markets or the post liberalization period has resulted in
many companies entering the markets with offerings of their goods and services. This has
made each marketer to realize that he has to constantly upgrade the consumers knowledge
about his products by finding new dimensions. This is because there has been a change in
the physical behavior of the consumer. The consumer of yesteryears was a silent person
who uncomplainingly purchases the goods from the market place. There is a new customer
emerging today. He is the choice empowered customer who will be the decider of the fate
of the product or service at the market place.
There is a change in the social environment of the customer especially with the rising
consumer earnings and the sharply dropping savings rate resulting in increasing amounts
of disposable income to be spent on product or service.
Marketers have also observed a change in the psychological behavior of consumers.
There is an increasing awareness among the consumers to the changes taking place
around them resulting in an urge to purchase various goods and services.
On the other hand producers have realized that customers cannot be taken for granted
and hence are putting all their efforts at manufacturing products tailored to met the
consumers needs.
A satisfied customer will do the word of mouth advertising for the company and vice
versa.
Thus identifying customer needs and directing all marketing efforts at delivering customer
value than competitors is the motto of the companies today.
They are continuously engaged in trying to probe and understand the complex consumer
behavior better and respond by offering goods and services desired by them and then
communicating about the same through the various communication media.
The challenge to the marketers is to determine the relative influence of the various
factors and to adapt and apply skillfully the so called information to a proper marketing
DBA 1721
NOTES
The Buying Process begins long before and continues long after the actual purchase.
It encourages the marketer to focus on the entire buying process rather than just the purchase
decision. There are five basic stages through which consumers pass. However, certain
variables may influence the process. A relatively large purchase may slow the process,
extending the information or evaluation stages. Routine purchases may not require all five
stages. The five stages are:
Need Recognition: The buying process starts when the buyer recognizes a
problem or need. The buyer senses a difference between his or her actual state
and a desired state. The need can be triggered by internal and external stimuli.
Internal stimuli like hunger, thirst, or sex may initiate this need recognition. External
stimuli like the smell of fresh bread initiates hunger or a commercial for Goa initiates
the need for a vacation. At this stage, marketers must determine the factors and
situations that trigger consumer problem recognition. They should research
consumers to find out what kinds of needs or problems led them to purchase an
item, what brought these needs about, and how they led consumers to choose this
particular product. Marketers can also show how their product is a solution to a
problem. For example, T.G.I. Fridays advertised its gift certificates as a solution
to Christmas shopping.
Information Search: An aroused consumer may or may not search for more
information. How much searching a consumer does will depend upon the strength
of the drive, the amount of initial information, the ease of obtaining more information,
the value placed on additional information, and the satisfaction one gets from
searching. Information may come from any of several sources including:
Personal sources like friends, family, and neighbors;
Commercial sources like advertising packaging and sales people; and
Public sources like restaurant reviews, editorials in the travel section,
consumer-rating organizations.
Experiential: product-trial, observing, handling, examining, etc.
With hospitality and travel products personal sources and public sources of
information are more important than advertisements. This is because a customer
does not know what they are going to receive until they have received it. A company
must design its marketing mix to make prospects aware of and knowledgeable
about the features and benefits of its products or brands.
DBA 1721
NOTES
Physical risk: Physical risk involves the risk to the physical safety of the customer
by using the product/service. For example, when a customer purchases a pressure
cooker, the decision involves a physical risk that its use may result in an accident.
As an example of physical risk involved in consumption of services, employing the
services of an eye surgeon for correction of vision can be a good example, as the
patient may be at the risk of losing his sight after undergoing the operation.
Psychological risk: Psychological risk is the risk of causing harm to ones self
image by making a bad product/service choice. For example, the experience of a
young couple hiring the services of a baby sitter for their baby involves psychological
risk. Further, they would be worried about the well-being of their child and the
effects of hiring a baby sitter on the young mind. Similarly, in case of products like
alcohol or cigarette, first-time users will experience psychological risk of getting
addicted to them. However, there is also an element of physical risk also involved
in this case.
Social risk: This is the risk of having to face social embarrassment as a result of
making a poor product/ service choice. For example, a customers decision to
purchase a dress that does not suit her personality involves a social risk. Similarly,
when a customer decides to approach a psychiatrist for treatment, this decision of
the customer involves social risk of becoming an object of ridicule among his
acquaintances.
Time risk: This is the risk that the time spent to search and locate a product/
service prior to its purchase may have been wasted, if the product/service does
not conform to the customers expectations. For example, there is a time risk
involved in a customers decision to purchase a music system after having made an
extensive search of all the- models available in the market before purchasing it.
Purchase Decision: In the evaluation stage, the consumer ranks brands in the
choice set and forms purchase intentions. Purchase intention is influenced by attitudes
of others and unexpected situations. For example, Mary selected a Chinese
restaurant since her boyfriend liked Chinese food. Marys choice depended on
the strength of another persons attitudes toward her buying decision and on her
motivation to comply with those wishes. At the same time, Mary may have an
unexpected car problem that will cost Rs.5000 for repairs. This may cause her to
cancel dinner reservations and select a less expensive gift.
DBA 1721
NOTES
iii. Social class: People having similar lifestyles, interests, values, behaviors, and norms
are grouped under a social class. Their similarity in beliefs forms the basis for market
segmentation, and affects their shopping patterns or the kind of products or services they
purchase. Thus, marketers offer products and services aimed at a social class of people.
For example, hotels such as the Sheraton, the Hyatt and some Taj group hotels cater to the
tastes of the elite class.
iv. Reference groups: An individual uses the perspectives of a reference group as the
basis for his actions, judgment and opinion. Marketers make use of reference group
influences to develop advertisements by associating products, services, or some behaviors
with some types of reference groups. For example, Sahara group in India uses the Indian
Cricket team in its advertisements.
v. Family: Purchases are often not made by individuals alone, but a whole lot of other
people too have a say in the purchase decision. Marketers need to recognize the role
played by these various individuals in the purchase decision, in order to target their marketing
message at them. The various individuals who play an important role in the decision making
process include the initiator (a person who first gets the idea of purchasing a particular
product or service), information provider (a person who collects the information required
to make a purchase decision), influencer (a person whose opinions are given preference
in making the [mal decision), decision maker (a person who takes the final decision),
purchaser (a person who purchases the product) and user or consumer (a person who
actually uses the product).
2.3.5 Implications for Service Providers
Knowledge of the factors influencing consumer behavior has several implications
for service providers, which are as described below.
Customers gather and rely on information obtained from personal sources when
making service purchase decisions. Therefore, marketers should be careful in
satisfying existing customers by meeting or exceeding their expectations. Otherwise,
customers might spread negative word-of-mouth publicity.
Services are intangible in nature. Customers require the assistance of the service
provider to assess the value of a service with high credence qualities. This provides
an opportunity for service providers to market services having high credence
DBA 1721
NOTES
able to charge lower interest rates on loans and offer higher interest rates on savings
accounts, all because most of their transactions are now done electronically. The
cost per transaction through the Internet is 27 times less than a transaction via an
ATM (Automatic Teller Machine), 54 times less than a transaction over the telephone,
and 107 times less than a physical face-to-face transaction.
How will customers react to these changes? Customers are slowly accepting and
understanding the benefits of e-banking. Today, the nationalized banks too have
converted most of their records into computerized forms, which enable them to
retrieve data and offer quick services to the customers. Customers can now open
an account, check their balance, transfer funds, pay bills, and obtain loans with a
click of the mouse. They need not go personally to the bank for getting these done,
unless they need to deal with high-end products like loans or savings investments,
which require personal contact with the banker. The concept of anytime banking,
anywhere banking, anyplace banking improves customer convenience. Transactions
are processed in much less time.
Further, to improve and offer better services to customers, banks like HDFC Bank
have tied-up with cellular phone companies such as Airtel, Aircel, Vodofone, etc.,
enabling their customers to pay their bills through telephone or internet directly.
However, the challenge for these banks lies in convincing and winning the trust of the
customer.
2.3.6 Service Provision as Drama.
Researchers and managers of service businesses have compared service provision
with drama, observing that both aim to create and maintain a desirable impression before
an audience, and both recognize that the way to accomplish this is by carefully managing
the actors and the physical setting of their behavior. In fact, the service marketer must play
many drama-related roles (including director, choreographer, and writer) to be sure the
performances of the actors are pleasing to the audience. The Walt Disney Company
explicitly considers its service provision a performance, even using show-business terms
such as cast member, onstage, and show to - describe the operations at Disneyland
and Walt Disney World.
DBA 1721
NOTES
to deliver the best possible service (i.e., if he or she is reading from the same script), the
service performance is -likely to be successful.
One of the factors that most influences the effectiveness of role performance is a
script-, coherent sequence of events expected by the individual, involving her either as a
participant or as an observer. Service scripts consist of a set of ordered actions, actors,
and objects that, through repeated involvement, define what the customer expects
Conformance to scripts is satisfying to the customer, while deviations from the script lead
to confusion and dissatisfaction.
Consider the script that you hold for the first day of class in a college course.
Among the actions you expect are the following: (1) enter the classroom; (2) see other
students in the room who are taking the class; (3) see the professor in the front of the
room; (4) listen to the professor describe the course; (5) get a syllabus of the class; and (6)
leave class early and start the actual education on the second class day. If a professor
performs in accordance with the script you hold, you feel comfortable, familiar, and satisfied
with the service encounter. Experiencing a script that is incongruent with this expected
pattern leads to confusion and dissatisfaction. What if you showed up and there were no
other students in the class with you the first day? What if the professor sent a graduate
student instead of coming herself? Suppose the professor told you she hadnt had time to
write a syllabus? In these and other situations, negative departures from the customers
expected script will detract from service performance.
Positive discrepancies from the script are not as easy to specify-they may also de-
tract or could surprise and add -to the service encounter. Suppose the college class we
just discussed was filled to capacity on the first day. Would you interpret that as positive (a
sure sign that the class was popular) or negative (a signal that personal attention from the
professor may be reduced)? What if the professor was unusually friendly and so engaged
students that they stayed to the end of the period on the first day of class? While some
students might be delighted because the friendliness of the professor exceeded expectations,
others might be disgruntled, having counted on more free time between classes. Still others
may be suspicious, not trusting the friendliness because it doesnt follow the expected
pattern. More personalization or attention is not always better. In summary, departures
from the customers expected script including provision. Of more of an attribute than
expected, may detract from or add to the service experience.
DBA 1721
NOTES
serve the lunch, said Mahesh. But we are working so hard in the kitchen despite
the climate, said Radha. We really cannot serve any faster, she added. Its not
your fault, said Ramesh kumar, our business has grown by leaps and bounds in a
year. However, I have just heard that a new restaurant is going to open in the
neighboring building. Therefore, we may have to think of expanding and improving
our facilities to stay in the competition. We should go in for top class decor, fancy
designer furniture, and swanky chairs. That would really push us up-market, said
Ramesh kumar. Moreover, we will be able to charge much better prices for the
food we serve. We can even buy new monogrammed ceramic cutlery to give us that
distinct look, and have a well-dressed cashier with a computerized machine to take
care of the money transactions. We can buy some new kitchen equipment with
electric stoves, stainless steel pots and pans and perhaps even the new Italian design
smoke extractor. Many a time, customers do tend to complain about the charcoal
smoke, added Radha. We can hardly afford to do all these things without borrowing
a large sum of money from a financer. Even if we managed to do all that, we would
have no choice but to either increase the charges considerably or reduce the food
portions and economize in many other ways. We may even have to charge extra for
the additional portions of rice or sambar that is currently free of charge for the
limited meals customers, said Ramesh kumar. I wonder if the crowd of office-goers
who are our main customers will be able to afford all that. I always thought their
main need was to be fed a substantial meal, as they are all very young and work long
hours. I think they like our food because we serve healthy home-like food at prices
that they can afford at their salary level. Deciding how to go about this expansion is
a real problem.
Comment on the above case and if you were Ramesh kumar, briefly list
down the immediate steps you would take to fulfill the expectations of the
customers. Also identify the desired and adequate levels of service. What
level of service would you plan to deliver?
Based on your analysis and given the shortage of the funds, can you suggest
what should be the main elements of the planned investment? Which
investments can be avoided and for what reasons?
Can you identify any services marketing opportunities that can be exploited
by Ramesh kumar in the near future with out making further investment.
DBA 1721
NOTES
marketers realized that although similarities existed between certain customer groups, the
customers differed in terms of age, economic positions, lifestyles, occupations, expectations,
etc. For instance, an airlines customers comprised business travelers, tourists, students,
and their needs differed on various fronts like the time factor, the fare, the food served, etc.
While the tourists wanted a good deal and a great ambience, businessmen looked for a
serene atmosphere and sharp maintenance of schedules. Offering a single type of service
to cater to all their needs would not be a feasible option and would also result in a dissatisfied
customer base. This realization paved the way for marketers to define their market segment
in the total market.
What constitutes a marketers market segment? A marketers market segment
consists of his existing as well as prospective customers whose needs, desires, and
expectations are different from the customers of other segments and match the resource-
constraint set of the marketer. The resources and constraints of a marketer define the set
of products/services that he can market for the consumption of the customers. Kotler and
Armstrong defined a market segment as a group of consumers who respond in a similar
way to a given set of marketing stimuli and market segmentation as the process of dividing
a market into distinct groups of buyers with different needs, characteristics, or behavior
who might require separate products or marketing mixes. As given in the definition, a
marketer should identify and select a segment that he is confident of serving better than his
competitors, given his resources and constraints and thus emerge as a leading player in that
segment. Business Insight 2.4 shows the segmentation of the Indian insurance sector and
how the private players are targeting the untapped rural markets.
Business Insight 2.4: Segmentation of the
Indian Insurance Sector
The life insurance market in India is divided into two customer segments: individual
and corporate. The segment comprising individual customers is further divided into
four sub-segments -protection, investment, savings and pension. Protection products
offer the customer only protection from risk. They do not provide any savings facility
to the policy holder. Investment products offer long-term investment growth and
insurance cover. It was reported that in the individual insurance segment, the
investment products segment was growing rapidly as it provided long-term investment
growth and insurance cover. Savings products like endowment and money back
policies provide a combination of protection and investment benefits. Pension policies
are products offered to customers as income during their years of retirement.
DBA 1721
NOTES
2.4.2 Bases for Services Market Segmentation
Markets can be segmented on the basis of demographics, geography,
psychographics, behavioral analyses of customers at large. Table 2.1 gives a schematic
representation of the bases for segmentation. Let us discuss each of these bases in detail.
2.4.2.1 Demographic Segmentation
Demographic segmentation is carried out on the basis of age, sex, size and structure
of family, income and educational levels.
Age
Marketers believe that people of the same age group behave in a similar manner
and this belief has led them to segment the market according to age and market their
products or services accordingly. For example, a couple aged around 60 may not have as
much fun at an amusement park like MGM Dizee World, Queensland, as children below
12 years or teenagers would have. Marketers believe that customer wants and expectations
change with age and as also their capacity to process information. For example, when a
marketer talks of the benefits of a health food, it might not appeal to a 10-year old, but a
20-year old would certainly be attracted.
Sex
Marketers can segment the market depending on the gender they would like to
serve. Products or services can be designed for a single segment or both the segments.
Size and structure of family.
In India, the family size has decreased to just 3-4 members from 5-6 members a
few decades ago. Therefore, marketers can design their products or services to serve the
needs of families with 3-4 members while providing the flexibility to serve more members
if required. Further, with the increasing educational and job opportunities in cities, young
individuals are moving to the cities and marketers have an opportunity for designing their
services accordingly. For example, a restaurant can plan its seating arrangement by having
more tables that can accommodate four members, and yet be flexible enough to be combined
when they have to serve more than four customers.
DBA 1721
NOTES
Business Insight 2.5: What women want in Rajasthan
The Bhaskar Group has conducted a recent survey in the three cities of Rajasthan.
This includes Jaipur, Kota and Jodhpur. The new series is branded as Revelations.
The group believes that this study will give a better understanding of the women folk
in the state. The study was conducted on urban married and unmarried women in
the SEC A and B segment. The women were in the age group of 20-35 years. The
research study has been conducted by Q Market Research, a division of Quantum
Market Research. It was found that there have been various changes in the
infrastructure of the country, which have supported further transformations in present
day Rajasthani woman. All over the country today, the self-worth of women has
been enhanced because they have become more economically independent. There
is mass mobilization against the exploitation of women and increasing opportunities
for education. The culture has become more relaxed, nuclear families have evolved,
and love marriages are being accepted.
The group says that one of the prime reasons to conduct this survey in Rajasthan
was this sector can be said to be least understood by the media planners and
advertisers. The main aim was to help them to understand the women better here so
that it could help design accurate communications for the specific brands. The study
has divided the Rajasthani women in three broad categories. These include ambivalent,
the fusionist and the rooted.
Elaborating the terms, the study says that the ambivalent women are conflicted and
confused. They are at the crossroads of accepting new influences and new challenges.
They are confused because they like some of the past practices, but sometimes find
them restrictive as well. They seek guidance to make the right decisions in life. In
their pre-marriage days, they have had the opportunity to study further, yet keep
family values in mind while pursuing their dreams. They read newspapers, watch TV
and listen to radio. Their relationships with their husbands and children are important
to them. They want to increase their social circle, but their family takes up a lot of
their time. The fusionist women are balanced and practical. They have high aspirations
in life. They are aware of their surroundings and regularly read to keep up with the
current scenario. These women want to work, but do not make work a priority.
They are critical of practices such as dowry, early marriage and discrimination against
DBA 1721
NOTES
a national basis. Further, markets can be segmented on the basis of density of population
or the climatic conditions across regions. For example, people are migrating from rural
areas to cities due to the increasing education and career opportunities in cities, leading to
an increase in the population of the metros in the country. This will make a difference to
marketers of specific services or products. In addition, marketers should also analyze the
behavioral changes of the population that has migrated.
2.4.2.3 Psychographic Segmentation
Through psychographic or life-style segmentation, marketers aim to find out the
basic characteristics of a consumer that could influence his purchase decisions. In this type
of segmentation, marketers divide the market on the basis of the life-style and personality
of their customers.
Life-style
Marketers can gain valuable insights into the buying behavior of their customers by
analyzing their lifestyles. Business Insight 2.6 shows how leading handset manufacturers
segment the Indian market based on the lifestyle of their customers.
Further, they will be equipped with an understanding of their customers way of
life, their activities, interests, opinions and beliefs. This in turn will help them design their
products or services accordingly. This type of segmentation also helps marketers to effectively
design their marketing mix for the customers. For example, the lifestyle of a young and
single professional will be entirely different from that of a person who has just retired from
service. In this example, the young professional might be more keen on spending than
saving, while the retired person might think of investment options that will provide him with
a steady income.
Personality
Marketers can design products or services that appeal to the personality types of
their customers. For example, a customer who seeks to have a quiet and relaxing vacation
will be attracted by a holiday package that offers yoga, body massage etc., in a serene
setting like the backwaters of Kerala. Similarly, a customer looking for fun and frolic will
be attracted to a holiday that provides entertainment in a place like Goa, which is full of life
DBA 1721
NOTES
high-profile celebrities, industrialists and other high net worth individuals.
The fact that the members of this segment cannot do without a mobile phone
makes it the assured segment.
Motorola has a segmentation model which is quite similar to that of Nokia.
Accompli: Early adopters (Trendsetters in Nokia) are referred to as Accompli
by Motorola and all advanced models are aimed at this segment.
Time port: This segment, similar to Nokias Hi-fliers, primarily uses the mobile
phone to enhance productivity at work and in business.
Talk about: This segment again is similar to Nokias Social Contact segment,
which uses the mobile phone predominantly to keep in touch.
V: Individuals who view their mobile phones as an extension of their personality
and, therefore, prefer a model that makes a strong statement, define the V -
segment.
Ericsson has a straightforward and simple segmentation.
A-Segment: Individuals who are using the mobile for the first time and prefer
an easy-to-use instrument are classified under the A-segment. This is primarily
the entry-level segment.
R-Segment: Similar to Nokias Trendsetters and Motorolas Accompli, this
segment comprises tech-savvy individuals who prefer their instruments to be
feature rich and trendy.
T-Segment: Finally, the T-segment is defined by individuals who require their
instruments to have some class and style. Similar to Motorolas V, users
view the handset as an extension of their personality.
2.4.2.5 Benefit Segmentation
This segmentation divides the customer base on the basis of the benefits sought.
That is, the customers are grouped according to the benefits that they are looking for when
consuming a product or service. Marketers should gather adequate information on the
various benefits that different types of people are looking for and then assess the ability of
their product or service to deliver those benefits. For example, when a couple decides to
go in for an insurance policy, it could look at interim benefits and long-term benefits. However,
DBA 1721
NOTES
Loyalty Segmentation
This segmentation divides customers on the basis of the degree of their loyalty
toward a certain product or service. Marketers should consider price and product or
service availability while segmenting the market based on customer loyalty.
Buyer readiness and marketing factors
Market segmentation based on buyer readiness divides customers based on their
willingness to buy and likelihood of purchasing a certain product or service. Marketers
identify people under different segments based on various factors like their awareness or
knowledge for the product or service, their liking and preference for it and their conviction
to purchase it. For example, a young music fan might know every detail of an upcoming
Bryan Adams show and be determined to attend it. His father, though a music lover, might
not have any knowledge about this and might not like going for the show.
2.4.2.6 Technographic Segmentation
The market for technology related services has been on a tremendous rise during
the last one-and-a-half decade. Marketers are trying to identify the customer groups that
have the willingness as well as the ability to use the latest technology. Forester Research
Incorporation has developed a ten-category segmentation scheme, which is also called
technogrality. Identification of segments was based on the interaction of three variables.
These are attitude towards technology, application of technology and the financial position
of the consumers.
Table 2.2 shows the nine segments identified by the Forester Research Inc. The
tenth group is called sidelined citizens. The sidelined citizens are those individuals who
have no interest at all in technology.
DBA 1721
NOTES
like frequency, mode of payment, volume, and product groups, from their existing customer
database.
Accessibility
This refers to a firms ability to effectively reach out to the market segments through
various distribution and promotion channels. The marketers should develop a marketing
mix that is economical and reaches the chosen segment effectively. For example, if a service
is aimed at attracting the teenager segment, then the advertisements should be developed
keeping the target segment in mind. In addition, marketers should also study the factors
influencing buyer behavior in terms of individual and group behavior and family lifestyles.
Substantiability
Marketers should choose their market segments in such a way that the returns on
investment are earned quickly. For example, a very niche segment like young graduates
working in shifts (especially those in the BPO and related sectors), might not be a good
choice. Ideally, a large segment that has the capability of earning and sustaining profits
should be targeted.
Actionability
This refers to the ability of firms to effectively design and manage marketing mixes
in order to attract and serve different segments. Marketers should use those bases that can
track the segments with varying preferences or needs. Further, these segments should
exhibit variations in their market behavior and respond differently to marketing mixes that
are designed on an individual basis. Figure 2.5 illustrates these requirements.
DBA 1721
NOTES
Differentiated Marketing Approach
The differentiated marketing approach, also known as the product-variety marketing
approach, aims at targeting consumers of various segments by offering different products
or services for each segment. For example, the airlines from the earlier example may opt to
serve the business traveler segment, domestic traveler segment, and international traveler
segment, and might design its marketing mix to cater to the needs of the consumers of all
the three segments. A company aims to tap the entire market by serving each segment and
thus become a market leader. This approach might prove to be successful if the brand
name is well-known in the market and consumers from each segment identify the product
or services offered with the brand. The company has to bear the higher costs involved in
developing separate marketing mixes for each segment in terms of higher production costs,
additional research and development expenditure, engineering expenses, higher market
research costs, and higher promotional costs due to specific advertising targeted at each
segment. However, the benefits associated with this approach are numerous as it increases
total sales when compared to the undifferentiated marketing approach. It also helps a
company gain the overall industry leadership as it caters to different segments of the market.
Companies adopting this approach try to satisfy the consumers of each segment by
identifying their buying patterns and designing their products or services accordingly.
Enhanced customer satisfaction ensures repeat purchases and brand loyalty.
Concentrated Marketing Approach
The concentrated marketing approach, also known as the single-segment strategy,
aims to serve limited segments in the total market. A company with limited resources adopts
this approach and aims to serve only a few segments by catering to the specific needs of
customers in those segments. This approach also reduces the production, distribution and
promotional costs due to the specialization of operations.
2.5 MARKET TARGETING AND SELECTION
Target market is a group of customers (people or organizations) for whom a seller
designs a particular marketing mix. Following guidelines may be observed when selecting
a target market.
DBA 1721
NOTES
Marketers compare the segments based on their attractiveness in terms of their
ability to earn and sustain profits, and their compatibility with the objectives and resources
of the company. For example, a fitness and beauty center that targets young women who
are figure and health conscious is likely to earn more profits than just offering services to
women of all ages.
Targeting is an essential part of marketing because of its ability to group customers
with similar needs and serve them even at individual levels. Lately however, targeting has
been exposed to some criticism on ethical lines and this is due to its intense focus on certain
customer groups without considering aspects like product harmfulness and consumer
vulnerability. For example, companies those are manufacturing products like weight-loss
pills that are targeted at the figure conscious women segment are being criticized for the
side effects of such pills. Researchers say that the purpose for which targeting is used has
certain limitations and it should be used keeping customer safety and well-being at the top
of the priority list.
2.5.2 On What Basis do Marketers Target the Identified Segments?
We shall now discuss the criteria used by marketers to evaluate market segments
for targeting. To a large extent, marketers use segment size and growth potential, its structural
attractiveness, and the company objectives and resources as the bases to decide their
target markets.
Segment size and growth potential
The size of the different segments in the market should be compared on the basis
of their present capacity and their future potential as well. For example, an educational
institution should collect the current data for full-time students, part-time students, and
distance-education students and then compare the data based on their ability to earn profits
for the institution to choose its target segment. On the other hand, if the segments are not
large enough or currently not profitable, the institution should go a step further to identify
which segment has high growth potential, and would be beneficial for it in the long-run.
DBA 1721
NOTES
demand a superior quality of products or services. This situation increases the competition
between the players as they try to produce better quality products or services than their
competitors in order to attract new customers and retain existing ones. However, this
situation might affect the profitability of the players in the industry.
Company objectives and resources
Evaluation of a segment alone, based on its size, growth potential and structural
attractiveness is insufficient while choosing the target segment. It is essential that the segment
features match the company objectives and resources. A segment should match the
companys long term objectives in terms of its growth potential and structural attractiveness,
and the company should have the required human, financial and other resources necessary
for effective operation in the segment. For example, an airline that aims to serve the business
class and to top the list in the business traveler segment nationally and internationally,
should have the necessary resources to serve the needs of business travelers. It might need
to have the requisite number of trips between business destinations and the ability to operate
smoothly at peak business hours and other similar facilities.
2.5.3 Targeting Strategies
Once the segmentation exercise is complete and the company has completed the
analysis of the different segments in terms of their attractiveness, growth potential and their
fit with the company objectives and resources, it has to identify how it is going to target the
segments. The company has to decide on its target and the strategy to be adopted. A firm
may use any of the following targeting strategies discussed below:
Single-segment strategy
This is also known as the concentrated approach of targeting the market segments.
The firm following this approach targets only - one segment, develops a single marketing
mix and eventually gains specialization in that segment. However, the company will have
immense knowledge about the specific wants and needs of the customers and eventually
serve them better than those targeting various segments. For example, a software firm
catering to the needs of only those players in the logistics business, understands their needs
better and gains greater expertise, when compared to a firm that caters to all segments.
DBA 1721
NOTES
movie is released for the overseas market with the local language subtitles, it is an example
of adopting a differentiated marketing mix to cover those segments of the market.
2.5.4 Guidelines for Selecting Target Market
The target market should be consistent, should meet the goals of the organization.
For example
A tourism organization which is leading in group tours can not suddenly target
individuals as their target effectively.
Organization should look for markets that are consistent with the resources. If an
organization offering can be reached through mass media advertising like TV or press
campaigns and the expenditure can not be afforded, the offering will not take off. If a target
market requires high level of knowledge and sales skills by the service provider and it has
not taken steps to provide knowledge and sales skills, it should not target this market.
For example
A small tourism organization might be successful in targeting corporate customers
with six figure salaries who need high level of personal care. It will be highly expensive for
this organization to compete with an organization which is catering to mass market.
An organization should look for markets which will generate not sufficient sales
volume but profit volume.
For example
The courier service that targets the cost-conscious customers by offering them
heavy reductions might find it self doing a brisk-business but losing money on eighty percent
of its accounts. While targeting market-the basic concept of customer satisfaction at a
profit should always be kept in mind.
An organization should look for a target market where the number and size of
competitor is small.
DBA 1721
NOTES
Business Insight 2.8 provides you how a new matrimonial site establishes its place
in the market by adopting a new targeting strategy.
DBA 1721
NOTES
SUMMARY
Delivering quality service consistently gives a competitive edge to service
organizations. It requires an understanding of customer expectations and the types of
expectations. Further, knowledge of factors influencing the desired service level, adequate
service level, and zone of tolerance will help service organizations consistently meet and
exceed service expectations of customers.
While evaluating service offered by an organization, customers compare perceived
quality of service with the expected quality of service. Therefore, service organizations
should have knowledge about customer perceptions and the influence of factors such as
service encounter, service evidence, image of the service organization, and price of the
service on customer perceptions.
The intangibility property of services makes it difficult for customers to search for
information, make a purchase decision, or even evaluate the service experience. This is
due to the presence of more experience and credence qualities than search qualities in
services. Hence, service providers need to deliver value added services to their customers
to provide them a superior service experience. Decision-making is involved in every
purchase decision, whether it is to purchase a product or a service. The decision making
process in thee purchase of a service involves various steps such as need perception,
search for information and the perceived risk, evaluation of the generated alternatives, the
purchase decision and the post-purchase evaluation. Further, the decision making process
of the customer is influenced by external factors like his family, culture, subculture, reference
groups and tile social class to which he belongs.
Marketers are innovating several ways to make service experiences memorable
for the customer. They are also trying to retain old customers since this is more profitable
to the company than attracting new customers. Observing buyer behavior patterns helps
marketers to target customers in a better way. The technological advances and globalization
of economy make it possible for service providers to design new ways of providing their
services.
Companies have realized that though no two customers have the same preferences
or needs at the same time, some of their purchasing patterns are similar. Therefore, marketers
identify groups of customers who exhibit similar needs and offer products and services to
DBA 1721
NOTES
DBA 1721
NOTES
3.0 INTRODUCTION: SERVICE DESIGN- FIRST P THE PRODUCT
The term product is widely used to refer to a market offering of any kind. In its
broadest sense this may be anything from the physical- a tin of baked beans or a television
set - to the abstract-an idea or a moral issue. As discussed in the earlier units Generally,
most products are made up of a combination of physical elements and services. This is
true in services marketing, where the service offering can include tangible features, such
as food in a restaurant, or be a pure service, intangible in nature. Services as already
discussed in the first unit cannot be photographed, touched, verified and tried out. A
service product is a bundle of features and customer benefits. It is very difficult to describe
what a service product is.
According to Lynnshostack, there are four risks of attempting to describe services
in words alone. They are
Over simplification
Incompleteness
Subjectivity (based on personal experience and exposure) and
Biased interpretation.
Service consumers generally tend to express the service experience in a simple
form. It is often incomplete because the customer experience cannot be translated into
words. Differences in attitudes, exposure and ability to participate and perceive make the
consumers subjective and biased while describing a service. When asked to describe the
experience of a two-and-a-half hour motion picture, no customer can describe every
movement in detail. While designing the product, service organizations have to consider
these four risks which influence both the customers and the service providers (contact
employees). Unless the employees of the organizations as well as the customers understand
the service product properly, it is not possible to produce quality service. Designing new
services is a challenging task because it requires thinking about processes, people and
experiences as well as outputs and benefits (Christopher Lovelock, 2001). This
understanding portrays the wider scope of a services product and its management.
A product can be defined as an idea, a service, or a good that involves a mix of
tangible and intangible elements, which aim to satisfy consumers. It is traded for money or
any other trading unit which has some value attached to it. Why doesnt a customer hesitate
DBA 1721
NOTES
The Core Benefit
The core benefit of any product is to satisfy the basic needs of a customer. Therefore,
marketers should first decide on the core benefits the company has to offer its customers.
For example, when a customer hires the services of a tax consultant, he expects the consultant
to calculate the tax to be paid on his income. This is the core service offered by the
consultant. However, due to heavy competition and very little to differentiate between
different players, marketers have designed products that offer multiple and customized
benefits in order to attract and retain customers. For example, the tax consultant might
offer to file the tax returns on behalf of the customer and spare him the trouble of waiting in
long queues. He may even offer suggestions on various investment tools to increase the
customers tax savings.
The Actual Basic Product
The tangible aspects attached to the service, along with the service, constitute the
actual basic product. This facilitates the delivery of core benefits to the customers. Therefore,
marketers should develop the actual product after the core benefit has been decided. The
characteristics of actual products are features, design, quality level, packaging, and brand
name. For example, when a company hires the services of a reputed Consultant like
McKinsey, quality, some special features and design, the packaging and the brand name
accompany the core service of consultation.
The Expected Product
At the third level, the marketer prepares an expected product, a set of attributes
and conditions buyers normally expect when they purchase this product. Hotel guests
expect a clean bed, fresh towels, working lamps, and a relative degree of quietness. Because
most hotels can meet this minimum expectation, the traveler normally will settle for whichever
hotel is most convenient or least expensive.
The Augmented Product
The intangible aspects that support a service constitute the augmented product
along with the actual product. These are developed around the actual and core products
to satisfy the customer. Warranty, installation support, delivery, customer service, etc., are
DBA 1721
NOTES
3.1.1 The Flower of Service
Christopher Lovelock developed the flower of service, which indicates the core
service surrounded by a cluster of supplementary services. The flower consisting of eight
petals; four of them are facilitating supplementary services and the other four are enhancing
supplementary services. The facilitating supplementary services include information, order
taking, billing and payment whereas consultation, hospitality, caretaking and exceptions
are enhancing supplementary services (Fig. 3.2).
Figure 3.2 The Flower of Service
Information
Customers need information on various elements of a service, for evaluation and
purchase decision making. Service firms also need to educate the market, and prepare
and persuade the potential buyers for taking purchase decisions, in favor of the service
provider. Sometimes the information is required by law, for example, conditions for sale,
warnings, reminders and notification of changes. The following are the examples of
information elements: Sign boards to service site, Service performance hours, Charges for
services, Directions on using core and supplementary services, Alerting people, Notices,
Conditions of sale / service, Indicating the changes, Documentation, Reservation information,
Activity summaries, Bills and receipts.
DBA 1721
NOTES
Safe keeping includes: Baby care and pet care service, Parking facilities, Storage
and baggage handling services, Security and safe deposit services, Goods packaging,
Pick up, Transportation, Delivery, Installation of goods, Cleaning and ensuring a healthy
ambience.
Exceptions
Service providers may be required to provide supplementary services that fall
outside the routine to the customers, on special considerations. Exceptions may be allowed
on special requests by the customers for advance delivery of service in special circumstances.
Exceptions also need to be granted to facilitate problem solving. Many a time, service
firms face unexpected situations. Frontline employees of the service firm should respond
quickly by deviating from the normal procedures to handle such a situation. In case of
accidents and emergencies, exceptions need to be granted.
Billing
Billing is important from the companys as well as the customers point of view.
Customers expect accuracy, completeness and legibility in bills prepared by the service
providers. Companies may provide periodic statements of account to customers or allow
customers to complete bills by themselves (self billing) for greater transparency in the
process.
Payment
After the billing is done, customers have to take action on payment. Activities such
as cash handling, cheque handling, credit system and coupon system are part of the payment
system. The payment system should facilitate customers to get easy and convenient payment
of their dues.
3.2 SERVICE LIFE CYCLE
As discussed in the last semester course on Marketing Management, the stages in
the product life cycle and the possible strategies that can be adopted by the marketers in
the different stages of the life cycle, the services is also no exception. The Marketers
believe that every service product that takes birth will die after some time, though there is
DBA 1721
NOTES
to the company. The profit curve goes upwards and reaches its peak during the period.
The end of the period indicates declining growth rate in sales and increased intensity of
competition. Profit starts declining at the end of the period. Service firms strive hard to
stretch this period to the longest possible.
Maturity stage
This stage of the service life is marked by stabilization in turnover and downward
tendency of profit curve. Competition will be severe and the firms need to invest heavily to
face competitive threats in the areas of service modernization and sales promotion. The
increased expenses on these areas reduce the profit margin and, as a result, the profit
curve will experience a downward slide. Sales reach their peak with the beginning of the
period and then slowly slide down. The end of the period is marked by an increased rate
of decline in sales and the profit curve reaches its lowest level. Service firms try to extend
the maturity period of the service as it could generate some profit to the organization.
Decline stage
During this stage, the sales curve slides down at a faster rate, profits evaporate
and soon the service becomes a loss generating one. As soon as the service product
reaches this stage, service firms seriously consider dropping the service product.
Although service life cycle concepts help in planning and control of the life of a
service, they have very limited application in formulating a future oriented service strategy.
The pace of change in the environment and market dynamics does not permit any service
organization to plan and manage the various stages in the service life cycle. As a result of
the change dynamics, the life of a service is becoming shorter and shorter. Most service
firms try to terminate the service packages in the fastest possible timeframe to introduce a
new service in its place. The software industry is the best example for indicating this style.
The concern of the firms now is to maximize the benefits from a new product in the shortest
possible time rather than to visualize or to work on strategies for an extended life.
3.3 NEW SERVICE DEVELOPMENT
Managing the organizations service portfolio, and developing and positioning new
services, are functions critical to the organizations success. The new product development
DBA 1721
NOTES
According to Booz, Allen and Hamilton, there can be six categories of new products.
New to the world products
The products are really innovative and the world has not witnessed such products earlier.
These products create an entirely new market.
New product lines
The products are not new to the market but new to the company. A company may add a
new business to the existing one and enter an established market for the first time.
Additions to the existing product line
A company may add new products to the established product lines in order to strengthen
the product lines.
Improvements and revisions of existing products
A company may modernize its products by adding new values or replacing the existing
products with improved ones.
Repositioning
The existing products of a company may be targeted to new markets or new market
segments.
Cost reductions
Companies may develop new products that are capable of providing similar performances
at a lower cost than that of earlier products.
3.3.3 Steps in the Development of a New Service
One of the distinctive characteristics of service is that the production and
consumption of a service should take place simultaneously. The production process is
DBA 1721
NOTES
Idea Generation
The first step in the new service development process is the generation of new
ideas. An idea is the fundamental base for any product. The most scarce product in todays
competitive world, undoubtedly, is a good idea. Ideas generally do not have a character of
good or bad. The character develops only when an idea is applied to an organization or to
a situation. The need for more and more new ideas is pressing in a service firm. The
frontline people, who are in direct contact with the customers and who involve themselves
physically and psychologically in the production of services, are a major source for
developing new ideas. Next to these sales personnel, customers occupy the chief position
as sources of ideas. Generally, customers buying services are more expressive than those
buying manufactured goods because they have direct interaction with the service provider.
Relationship marketing( will be discussed in section 4.8 in the fourth unit) contributes a lot
in this direction. The other sources of ideas include support personnel, competitors,
professional organizations, researchers and social organizations. Service firms should design
channels to receive ideas from various sources. Proper motivational and reward schemes
also need to be designed for the purpose. While collecting ideas, managers concerned
should have an open mind and should not be evaluative at this point. They should look for
a maximum number of ideas from various sources; pooling of ideas should be the only
objective. Very often it is difficult to get breakthrough ideas. Service firms are pressurized
to introduce new service packages. Therefore, they have to depend upon ideas that improve
existing offerings. Service attribute analysis is one technique that helps service organizations
to get ideas for further improvement in the process. Under this approach, the number of
attributes-facilitating service attributes and supporting service attributes-will be listed out
in detail and the possible improvements for each attribute will be explored. A combination
of changes in a few attributes of a service package generates a noticeable difference in
consumers value perception.
Figure 3.4 New Service Development Process
DBA 1721
NOTES
Concept Testing
The new service concept developed could be tested by presenting the concept
through appropriate target consumers and by eliciting their views and opinions. Besides
customers, the concept has to be tested with the employees of the organization, so as to
assess their understanding, ability and willingness in performing the service. The results of
the concept testing will help the management to find out the need gap level, purchase
intention level, the broad and strong consumer appeals, the shortcomings in the concept,
the preferential order of influence of various processes and so on. It will provide an
opportunity to develop a service package close to the expectations of the target consumers.
Marketing Strategy Development
After the successful testing of the concept, a preliminary marketing strategy has to
be developed. The strategic plan will find out answers to the following questions:
Who are the target consumers?
What is the size of the market?
What is the competitive structure and their behavior?
What is the positioning strategy?
What is the pricing strategy?
What is the distribution strategy?
What are the long term sales?
What is the expected market share?
What are the profit goals-long term as well as short term?
Business Analysis
The management of a service firm would like to know the business attractiveness
of the service proposal. Business analysis includes estimation of first time sales and
repeat sales, sales in the introductory, second, third, fourth and fifth year, product life
cycle analysis, cost estimation, estimation of profits, projected profit and loss account
for the first five years, pay back period and risk analysis. Business analysis helps
managers to rank the screened ideas.
DBA 1721
NOTES
Business Insight 3.1: Airtel unveils new services
Bharti Groups cellular brand Airtel has launched free multimedia messaging
services (MMS) for its subscribers and a pan-India GPRS (General Packet Radio
Services) for corporate customers. Airtel users can also now avail of full roaming
facility on its pre-paid card at no extra activation fee. Until now pre-paid card
users could only get roaming on incoming calls and had to pay Rs 50 as activation
fee. Airtel customers also will have to pay no charge for sending an MMS till April
end.
The scheme will allow Airtels 2.8 million subscribers to send and receive free
messages in the form of voice, picture or video. For its GPRS services, Airtel is
focusing on corporate customers exclusively. These services will enable subscribers
to access e-mail and surf the Internet on laptops using their GPRS mobile phone.
The package comes for Rs 600 a month. Bharti as yet does not have a GPRS
package for the entry-level retail subscribers unlike Hutch and BPL which have
introduced basic GPRS services at Rs 99 and Rs 200 a month respectively.
3.4 SERVICE BLUEPRINT
A service blueprint is a picture or map that portrays the service accurately. It is
intended to provide a clear picture of the service process to different people involved in
the service production and consumption process. It helps the people involved to understand
various processes of service without any confusion or ambiguity and enables them to act
accordingly with confidence. The blueprint visually depicts the roles of customers and
employees. It also depicts a systematic arrangement of different service points and the
means by which services are performed. A service blueprint also provides evidence to the
customers on the basis of which they develop service expectations.
In designing a service blueprint, managers often make use of the decision theory.
The decision theory provides an analytical approach to describe such processes that require
judgment in relation to choices to be provided for personalized or customized services.
DBA 1721
NOTES
services. For example, a hotel may provide training for its service personnel (both
onstage and backstage) on the aspects of service creation and delivery. This training
is a support process.
3.4.2 Reading a Service Blueprint
Some standards have to be followed in preparing a service blueprint so that there
is consistency in developing and reading it. If no standards are followed, it might be difficult
for an organization to understand a blueprint prepared a few months/years earlier. The
various elements discussed in the above section are separated in a service blueprint by
three horizontal lines (Refer Figure 3.5). This notation helps in understanding a blueprint.
Line of interaction: The first horizontal line shows the points of interaction
between the service personnel and the customer. If a vertical line passes through a
horizontal line, it shows that a direct contact between a customer and service
provider has taken place.
Line of visibility: The second horizontal line, line of visibility, divides the service
processes that are visible to the customer from those that take place backstage.
This line divides the onstage and backstage employee actions.
Line of internal interaction: The third horizontal line is the line of internal
interaction, which divides the internal processes that assist the service personnel in
producing and delivering the service when a vertical line passes through a horizontal
line, it represents an internal service encounter.
Figure 3.5 Simplified Example- Blueprinting a Hotel Visit
(extract only)
DBA 1721
NOTES
These illustrations clearly establish the importance of tangibles or physical evidence
in the services sector. In this part of this unit we will discuss the elements of physical
evidence and their significance for service providers.
Physical Evidence
Physical evidence is everything that a company physically exhibits to the customer.
It includes the physical environment of the service outlet, the exterior, the interior, all tangibles
like machinery, furniture, vehicles, stationery, signboards, communication materials,
certificates, receipts, service personnel, and so on. Physical evidence provides tangible
cues to customers to develop service quality expectations. The physical environment
facilitates performance of service by the service provider as well as the service customers.
3.5.1 Service Scape
A service represents the physical environment designed in a service outlet. Research
studies have proved that the design of the service scape influences customers choice,
expectations, satisfaction, and other behavior. The nature of the service activity and service
consumption experience sought by consumers will influence the design of a service scape.
The basic principle that guides the design is user friendliness. Therefore, service companies
should first identify the users of the service scape. Based on usage, services scapes can be
classified into three types -self service, interpersonal service and remote service.
Self-service
In a self-service environment, the customer performs most of the activities and
very few employees are involved. ATMs, fast-food centres and movie theatres are
examples of self-service environments. If the service firm is focusing on a self-service
environment, it has to attract the right market segment and offer easy-to-use facilities.
Interpersonal services
In this type of service scape, both employees and customers will be given adequate
importance. In the case of hospitals, educational institutions and banks, the service
scape must be planned to attract, satisfy and facilitate both employees and customers
simultaneously. The service scape should contribute to social interactions between and
among customers and employees.
DBA 1721
NOTES
Physical environment
Modes and content of communication
Price of the service
Appearance and conduct of service personnel,
Tangible elements accompanying service
Brand
Business insight 3.2 explains how the well known bookstore, Landmark, enhances
customer experience by using physical evidence.
Business insight 3.2: Physical Evidence at Landmark
Landmark is one of the most well-known retail bookstores in the country. It has
around 40,000 titles at any given point of time. Its monthly newsletter is mailed to
over 17,000 customers. Landmark organizes customer experience enhancing
promotions and interactive sessions with authors like Arundhati Roy. Let us see
how the store offers physical evidence to its customers.
The store conducts activities, like pictionary contests and an annual fair with
Santa Claus, aimed at making the place reader-friendly. One can grab a coffee,
browse through books and music, all in an air-conditioned environment, with
soothing music playing in the background. The store does not believe in aggressive
marketing, but by offering promotions targeted at loyal customers, creating more
value for the customers time, increasing significantly the stores offerings, providing
areas to sit and browse, little baskets and trolleys to hold books they provide
value-added services.
For the store, customer preferences and comfort are the first priority. A lot depends
on details like how books are placed to suit customer needs. This reduces the
brush aspect significantly. It irritates customers when spaces are crowded and
someone constantly brushes against them. Another interesting aspect is
adjacencies. For instance, travel books are placed next to management books,
as many businesspersons are frequent travelers.
At Landmark, the marketing team has a clear program - coming up with a certain
number of events at every store every year. Bringing up something new constantly
DBA 1721
NOTES
reactions from the people. An assurance of pollution-free air can also
become a selling proposition for service companies.
Noise: The noise level ranging from absolute silence to high-decibel sounds
will have an influence on the behavior. Noise may be from inside or outside.
If the noise is from inside, but unavoidable (noise generated in operating
machines for service processes), care must be taken to reduce the effect
by using sound-proof material or keeping the customer contact point away
from the sound generator place. If it is from outside, it is better to avoid
such a location or to use sound-proof material to minimize the disturbance.
Music: Music is a very powerful stimulator of feelings in human beings.
People have different preferences in music. Some like classical, some like
western, some like old, and some like new. If music is arranged, while
taking into consideration the preferences of the customer groups, positive
behavior can be expected.
Smell: People have different likings as far as smell is concerned. A right
combination will make the environment pleasant.
Figure 3.7 Service scape Dimensions
Space/function
The living space and functional support facilities form an important part of the
service scape. The following are the influencing factors with regard to space/ function
on the behavior of employees and customers;
DBA 1721
NOTES
The quality of the materials used in the construction of physical structures at work,
the presence of certificates and photographs, the floor coverings and architectural values
communicate symbolic meanings and create an aesthetic impression.
Signs, symbols and artefacts influence the forming of the firs impressions of
customers. When customers are not familiar with the service environment, they look for
environmental clues for initial help.
The physical environment will have an impact on the behavior of both customers and
employees. Three kinds of internal responses get generated in them. They are:
cognitive responses, emotional responses and physiological responses.
Cognitive responses are influenced by beliefs, the way in which the
individual categorizes the stimulation and the symbolic meanings he
develops for the stimuli.
Emotional responses are influenced by the mood of the individual and
also the attitude he has developed against the service firm.
Physiological responses include pain, comfort, movement and physical
fitness. The interplay of these factors finally result in customer response or
employee response.
Social interaction is an important dimension of physical environment. The service
scape influences the nature and quality of customer-employee interactions. Environmental
variables such as physical proximity and seating arrangements have an influence on customer-
employee interactions and also customer-customer interactions. Research studies have
confirmed that the environmental conditions will influence such social behaviors as small
group interactions, friendship formation, participation, aggression, withdrawal and helping.
The appearance, behavior and number of service personnel and the quality and quantity of
other customers have a psychological impact on the social behavior of the customers.
Dowell and Gamble described service environment in the following ways:
An environment surrounds, enfolds and engulfs and one can only participate in it.
The environment has a definite impact on the senses in more than one way.
It is impossible to build an environment which does not have any impact.
Peripheral and central information is always present in the environment.
DBA 1721
NOTES
Goa for a holiday, it also offers suitable facilities for business people. Its conference
hall accommodates 200 people and has facilities like microphones, overhead
projector screen, VCR TV and Slide Projector.
Mumbai is known as the commercial capital of India. The Oberoi Hotel in Mumbai
is located at the centre of the city and offers a beautiful view of the Arabian Sea.
It has 337 rooms that are centrally air-conditioned and have facilities like fax
machine, voice mail, color TV, Internet, mini-bar and hair dryer. It has a tastefully
designed Mediterranean restaurant with a display kitchen. It has banquet halls
offering the most modern facilities and a recreation and health centre.
From these examples, it can be observed that hotels in India concentrate on both
aesthetics and utilitarian functions to suit their businesses.
3.6 COMPETITIVE DIFFERENTIATION OF SERVICES
A business must set itself apart from its competition.
To be successful it must identify and promote itself as the best provider of
attributes that are important to target customers- GEORGE S. DAY
Every individual has different needs and wants. Therefore, markets are bound to
be heterogeneous. However, people do not expect hundred per cent suitability and tend to
compromise on minor issues. Market segmentation has thus become a possibility. Consumers
prefer such products that closely match their needs and wants. Companies that make
attempts to meet customer needs closely are likely to win the market. Service differentiation
facilitates this. Service differentiation means providing meaningful changes in service offer
that add value to the customer and are capable of generating quality perceptions distinct
from competitive offers. Service companies can go closer to the customer through service
differentiation and can offer delightful experience. The major service differentiators are: the
Basic Service Package (BSP), accessibility, interaction, customer participation, tangibles
used, service personnel, service channel, service image and service recovery (Table 3.3).
Basic service package: One of the key areas of service differentiation is the
design of the BSP itself. There is an enormous scope for differentiating the facilitating
DBA 1721
NOTES
Service personnel: Human resource plays a pivotal role in service production.
Though some services can be provided through machines, they cannot be viewed as
perfect substitutes to the human resources. The variables listed in Table 3.3 build or
are capable of building a distinctive image of the organization.
Service channel: The choice of channels such as agents, brokers, franchisees or
electronic channels; the extensive, exclusive and selective coverage of the channel;
the skill and expertise of channel members and their performance are the areas
where differentiation is a possibility.
Service image: The image of the company at the corporate level and also at the
local level differentiates in value perception by the customers.
Service recovery: Inspite of a careful and cautious approach, deficiencies in service
is not an exception to any service organization. Successful companies adopt recovery
strategies to win the customers and also use such strategies to differentiate their
service offerings from that of their competitors.
As mentioned earlier, the differentiated advantage of an organization will add to its
profit margin. In fact, with todays cut-throat competition, companies should differentiate
their products / services from those of their competitors to survive in the market. A company
can use various differentiation strategies when it aims to uniquely position its products/
services in its customers mind. Business Insight 3.4 gives an example of how an Internet
service provider has differentiated its services from the rest in the market. The first step
towards differentiation is to decide the number of benefits and attributes on which a firm
wants to differentiate its products/services from those of its competitors. For example, a
hotel offering free pick up and drop facility at the airport is differentiating its service based
on the convenience and price factors as the customers have to hire a taxi otherwise.
Business Insight 3.4: Satyams i-way
Sify is a part of Satyam Computers Pvt Ltd. (Satyam), one of Indias premier IT
companies. Sify launched its cyber cafes in the metros first to tap the largest
segment of Internet surfers (or Netizens, as it called them) through its iWay
centers, and provided cyber cafe visitors with a whole new experience of browsing
the Internet. Unlike the ordinary crowded cyber cafes, iWay centers provided a
soothing ambience and friendly service. The iWay centers sported a plush look
and had ergonomically designed cubicles that were sufficiently closed to provide
DBA 1721
NOTES
and distribution. Differentiating attributes for a product service should meet the following
criteria:
Important: Customers in the target group view the difference offered by the firm as
very important and attach high value to it.
Distinctive: The product/service attribute offered by a firm is not offered by its
competitors, or the value of the differential attribute offered is unique when compared
to that offered by its competitors.
Superior: The firm makes the product/service an obvious choice for the customers
to opt for, as no other firm offers the differential benefit in such a way.
Communicable: The difference in the offer of the firm should be easily explained and
communicated to the customers.
Preemptive: The difference offered by a firm should be such that it cannot be copied
by its competitors easily.
Affordable: Customers should be able to pay for the difference in service/product
being offered by the firm.
Profitable: A firm should be able to offer the difference to the customer without
losing out on its own profitability.
Offering differentiation to service customers is a major challenge to the service
providers because of the intangible nature of services. Therefore, companies use their
reputation in order to differentiate their services from that of their competitors. For example,
McDonalds has a global presence and when it is entering a new market, it can use its
reputation to attract the customers. On the other hand, the service personnel can also
create differentiation of service in the minds of customers. For example, customers can
easily differentiate between the services of a pleasant, well-mannered customer care
executive at a bank and that of a harsh and ill-mannered customer care executive.
Another challenge for service providers is to sustain the differentiation advantage
by not allowing competitors to imitate the advantage. Therefore, service providers should
choose differentiation strategies that cannot be copied by competitors easily.
DBA 1721
NOTES
wants its customers to perceive its products or services in relation to those of its competitors.
Companies that are not well positioned suffer in the competitive market with a low market
share and low profit margins. Therefore, companies are striving to learn the secrets behind
successful positioning.
3.7.1 The Importance of Positioning of Services
Positioning involves both launching new brands into the marketplace (new brand
positioning), and repositioning old brands. It is concerned with the differentiation of products
and services and ensuring that they do not degenerate into a commodity. To maximize its
potential a company should position itself in its core market segments, where it is objectively
or subjectively differentiated in a positive way over competing offerings.
Positioning is particularly important for services in the market of the 1990s. As a
result of competitive pressure the consumer is becoming increasingly confused by the huge
offering of services within each market sector. These offerings are communicated by a vast
number of advertising messages promoting different features of the services. The key to a
successful positioning strategy is to promote the feature which the company is best at and
which exactly matches the needs of the customer.
Because of intangibility and other features associated with services, consumers
find that differentiation of services can be more difficult and complex. Successful positioning
makes it easier for the customer to see a company services as being different from others
and exactly what is wanted.
Positioning is a strategic marketing tool which allows managers to determine what
their position is now, what they wish it to be and what actions are needed to attain it. It
permits market opportunities to be identified, by considering positions, which are not met
by competitors products. It therefore helps influence both product development and the
redesign of existing products. It also allows consideration of competitors possible moves
and responses so that appropriate action can be taken. The concept is often considered at
the product level although it is also relevant at the product sector and organizational level.
Positioning involves giving the target market segment the reason for buying your services
and thus underpins the whole marketing strategy. It also offers guidelines for development
of a marketing mix with each element of the mix being consistent with the positioning.
DBA 1721
NOTES
Quality/price positioning: A service is positioned in the market as possessing a
certain quality standard or at a particular price. For example, some of the Oberoi-
Hilton hotels are positioned as high quality, high-price hotels. The Taj group is trying
to position some of its hotels in the value for money category.
Companies, however, have to be careful in designing their positioning strategies
and avoid some of the associated pitfalls. Some brands are under positioned when they fail
to provide a strong benefit or reason for the customer to choose them. On the other hand,
some brands are over positioned for a very narrow segment and so many potential
customers fail to notice it. When a brand communicates two or more contradicting features/
benefits, it is termed confused positioning. Irrelevant positioning is when the brand fails
to attract any customers because of offering irrelevant and redundant features/benefits. It
is termed doubtful positioning when a company promises something and the customer
doubts its capacity or the brands capacity.
Business Insight 3.5 shows how a particular state tourism board in India has positioned its
state to the global tourists.
Business Insight 3.5: Gods Own Country
In the early-1990s, advertisements featuring the tagline, Gods Own Country,
began appearing in the print and electronic media in India. The campaign was run
by the Kerala Tourism Development Corporation (KTDC) and was intended to
promote the South Indian state of Kerala as a tourist destination.
The advertisers projected Kerala as the place to be and highlighted its natural
beauty and cultural heritage as its unique selling propositions. Further, they marketed
every aspect of the state from the towns, cities, beaches, backwaters, cultural
heritage, food, wildlife and even the centuries old tradition of health care through
Ayurveda.
Over the next few years, the organizations efforts to sell Kerala to Indians as
well as foreigners began paying off. The state reportedly became one of the places
with the highest brand recall, thanks to its unique positioning and targeting efforts.
During the early and mid 1990s, Keralas government concentrated on marketing
attractions such as lagoons, lakes, canals, backwaters, boathouses and its 600-
DBA 1721
NOTES
feature. But many airlines have similar standards of safety, so passengers choice of airline
will actually be based on other characteristics such as comfort, convenience of flight times
and standards of food and beverage. Thus research needs to identify the salient attributes
which determine the selection of a service. This will form the basis of the positioning.
First, research needs to be undertaken to identify the salient attributes and specific
benefits required by the target market segment. A number of approaches can be used to
identify salient attributes which can then be used to develop a positioning map. What is
important here is the customers perception of the benefits that are delivered by these
relevant attributes. An express parcel service scoring high on the speed dimension is one
that is perceived as fast. The reality is that other service providers in the express parcel
industry may provide a faster service but may be perceived as being slower.
A range of analytical research techniques, most of them computer based, can be
used to identify the salient attributes. These include perceptual mapping, factor analysis,
discriminate function analysis, multiple correlation and regression analysis, and trade off
and conjoint analysis. These tools are in the province of the market researcher, rather than
the services marketing manager, so will not be discussed further here.
3.7.3.1 Identification and Location of Attributes on Positioning Map
The positioning process involves the identification of the most important attributes
and location of various companies services, for these attributes, on a positioning map.
Where a range of attributes are identified, statistical procedures exist for combining these
attributes into aggregate dimensions. Such dimensions are referred to by various names
such as principal components, multi-dimensional scales, factors, etc., depending upon how
the data were elicited and which statistical procedures were used.
Usually two dimensions are used on positioning maps and these often account for
a large proportion of the explanation of the customers preferences. For example, in a
marketing study, the analysis showed that two factors accounted for 86 per cent of the
discrimination amongst 14 figures.
Products or services are typically plotted on a two dimensional positioning map
such as figure 3.8 as given below:
DBA 1721
NOTES
produce a positioning map that reflects the perceived extent of psychological distance
between them. This technique does not explicitly identify the axes used and these need to
be inferred, or derived from further research. Often a second group of respondents is
used, to avoid possible bias, in determining what characteristics they use to evaluate the
services offered. The positioning map can be used to identify potential gaps in the market
including where there is a demand but little competition (if such a position exists). It should
be noted that the existence of a vacant space in a positioning map does not necessarily
infer a viable positioning. Positioning maps can be based on either objective attributes or
subjective attributes. Maps can also use a combination of objective and subjective
attributes. A positioning study for; a bank used a positioning which positioned three banks
on an objective dimension of best interest rates on loans and a subjective attribute friendly/
courteous service. In addition to identifying where different companies products are
positioned on the map we are also concerned with where are the areas of core demand.
3.8 PRICING OF SERVICES
A customer perception of what is a reasonable price is more important
than what you want to charge for your product or service. And the customer
decides whats reasonable based on perceived value for money, not price.
Its creating this perception of value that tells the customer - the price is
right.
Noel Peebles, Author, Sell your Business the Easy Way
Only by reducing their costs can any of the major airlines rationally afford
to reduce their prices. If airlines reform pricing first, it will be a financial
disaster.
Scott Gillespie, CEO, Travel Analytics
An important element of the marketing mix and the one that brings in revenue for a
company is pricing. The pricing strategy developed by a company can either help the
company reap the maximum profits or throw it out of business. Companies must ensure
that their pricing structure covers the costs incurred to produce a service, earns profitable
margins for the company and at the same time, provides the maximum value to the customers.
DBA 1721
NOTES
No ownership of services
It is more difficult to calculate the costs involved in creating an intangible service
than in producing a physical good. The absence of ownership transfer compels the customer
to assess the value of the service before its production and consumption. In the case of
goods, consumers can leisurely verify and compare with substitutes and can take a purchase
decision after production.
Input and output variability
The invariable change in the combination of service provider, customer, tools and
equipment used, time taken, and so on makes the output of the service variable. Therefore,
price output relations vary significantly.
Price value relations
Often customers are not aware of costs of services and are unable to assess price-
value relationship. Often customers use personal reference prices. Personal reference price
consists of the price last paid, the price most frequently paid or the average of all prices
paid for similar service offerings. Service firms generally explore the variable nature of the
services to have greater flexibility in the configurations of service. A large number of varieties,
combinations and permutations lead to complex price structures. An LIC agent cannot
quickly tell you the premiums of various policies without referring to the price table. A
railway clerk cannot immediately tell you the cargo tariffs for various goods. He has to
refer to the price list of the Indian Railways. Under these circumstances, reference prices
cannot provide adequate clues to the customer.
Reference prices may not be accurate for the customers due to the following reasons:
The needs of individual customers vary from time to time, place to place and situation
to situation. As such, accuracy of reference prices is not possible.
Unlike goods, similar services cannot be offered at a single outlet.
If customers want to compare prices, they must go to individual outlets. Alternative services
cannot be compared simultaneously.
Influence of non-monetary costs
The role of non-monetary costs is very significant in services. Non-monetary costs
are the sources of sacrifices perceived by customers. They include time costs, search
DBA 1721
NOTES
new market situations where a proportion of consumers are always prepared to pay
more for new, innovative goods. The price skimming approach can help speed up the
payback period. Frequently, the price reduces after a period as the products become
more popular and sales volume increases. Mobile telephones are an example of this;
the actual product (the telephone) has reduced in price over time since initial introduction
to the market and the service (mobile communications) charges have also reduced,
bringing the mobile phone within reach of ordinary consumers.
Penetration pricing
In this case the price is set at a low level in order to attract high volume sales, thus
penetrating the market and gaining substantial market share. For new products and
services the payback period is lengthy but with the advantage of establishing a strong
market position, the strategy is especially suitable for use when entering highly
competitive markets, such as the fast food restaurant business in India by the MNCs
in the initial stages, or international airlines. New entrants would be unlikely to succeed
by charging high prices; pricing would have to be attractive in comparison with the
competition to penetrate the market.
Mixed pricing
This is based on the above two pricing strategies; begin with a price skimming policy
then reduce the price as competitors enter the market to defend the organizations
position and attract new customers. The example given previously of mobile
communications typifies this approach.
Cost-plus pricing
Here pricing is based on the costs of producing the good or providing the service. The
total costs are computed then the price determined by adding on some required margin
or mark up. This approach has a number of weaknesses in that it considers neither
the competitive situation nor the market potential. Prices may be set too high against
those of competitors to attract customers or may not be set high enough to exploit
demand, especially if the product or service is innovative, new, or distinctive in some
way from competitive offerings.
Variable pricing
This is particularly relevant in industrial and business-to-business markets where
individual contracts are priced according to specification. Service providers such as
DBA 1721
NOTES
Differential pricing
Another form of promotional pricing of particular concern to service marketers is
differential pricing, where different prices are charged for the same service at different
times or to different customers. This tactic is used to attract more business in slack
periods or to attract particular groups of customers to make up demand at particular
times. Differential pricing may be seasonal, reflecting the different prices charged for
the same holidays in low-, mid- and high-season or by time period, hence the price of
rail fares in peak periods compared with off-peak periods. Hairdressers or theatres
might offer reduced prices to senior citizens or students on certain days or for certain
shows, when demand is likely to be low. In these circumstances, the differential price
charged may be based on marginal pricing, demonstrating again how more than one
approach may be combined in creating the ideal pricing strategy for an organization.
3.8.3 Value Strategies in Pricing of Services
How can a service provider improve his pricing strategies so that they reflect the
value delivered to the customers? In order to answer this question, service providers should
be in a position to determine what constitutes value for their target customers.
They should then communicate this value to the customers through their pricing
structure. There are four strategies that can be used to create and communicate value to
the customers. These strategies can be used in isolation or in combination.
Satisfaction-based pricing,
Relationship pricing,
Efficiency pricing, and
Convenience pricing are the four strategies and are discussed in detail here.
Satisfaction Based Pricing
This pricing method is adopted by service companies to remove the uncertainty in
the minds of customers caused by the intangible characteristic of services. Service companies
try to remove this uncertainty by adopting the strategies of service guarantees, benefit
driven pricing, and flat rate pricing. Let us now discuss these three:
DBA 1721
NOTES
new customers and nurturing a good relationship with them. The service provider is assured
of repeat business and the customers are also benefited in the process as they find a
dependable service provider. However, most of the strategies used by service providers
are copied by their competitors. Therefore, service providers should closely analyze
customers needs and competitors moves to decide on the incentives they would like to
offer to the customers. Long term contracts and price bundling are two methods that are
followed by service providers under this strategy.
Long term Contracts
Service providers often adopt this strategy to maintain relationships with existing
customers and to attract new ones. In this strategy, service providers often offer price and
non-price incentives to customers for entering into long term contracts with them. For
example, Shoppers Stop offers a (First Citizen) membership to its regular customers,
which entitles them to special discounts and schemes offered by the retail store. The retail
store gets repeat business, with customers going back to them to avail of their special
offers and discounts.
Price Bundling
Companies that adopt the price bundling strategy offer two or more services at a
time to their customers. This enables service providers to reduce the costs involved in
delivering a second service to another customer. Further, it offers convenience to customers
as they need not go through the whole process or visit another service .
Business Insight 3.6 Bharat matrimony.com - Find your Dream Partner!!
Bharat Matrimony.com is a website that provides matrimonial services to Indian
singles settled worldwide. Its services have tied up many singles around the world
in marriage. It provides services on a regional basis. It serves people speaking
Telugu, Kannada, Tamil, Bengali, Assamese, Marwadi, Oriya, Parsi, Punjabi,
Sindhi and Gujarathi, among others. People residing anywhere in the world can
access its services with just a click of the mouse.
It provides basic matrimonial services like match making where a member can
register for free on the website and can search through other profiles of his choice.
DBA 1721
NOTES
3.8.4 Total Customer Value of the Services Delivered
Total Customer Value (TCV) is the sum of variables that the customers attach
specific values in relation to a service. The following are some of the values consumers
generally try to measure in a service:
Core service value
This value is commonly assessed in every service. The assessment of the value
depends upon the intensity of the need of a customer or a group of customers at a given
situation.
Figure 3.9 Components of Customer Delivered Value ( CDV)
Supporting services value
The additional services associated with the core service, without much effort, is a
value to the customers. Support services provide an opportunity to gain competitive
advantage for service providers.
Business Insight 3.7 & 3.8 provides how the marketers of mobile phones & Marketer of
ISP are trying their level best for value addition to their service products.
DBA 1721
NOTES
Business Insight 3.8: Internet comes round the corner
Smile Interactive Technology Group is all set bring the e-commerce business in
the facilities. The group plans to have 900 Internet kiosks in the first phase of its
launch. These kiosks will come up in the grocery stores in the neighbourhood
store. The service will enable the individual to pick up a ticket to the most recent
movie. You could also pick up the flight ticket that you had to take. The kiosk will
also be able to print a picture that has been kept in your digital camera or phone
for some time. The company says that it wants to help the consumers to make use
of the e-commerce option that is available to the consumer today.
The company further states that Indians are not always comfortable using the
Internet. The Internet at present has around 14 million connections in the country,
which is still less considered with the world proportion. The company plans to
overcome this fear that the consumer has for using the Internet. Smile Interactive
will put up kiosks 900 across the country, for a start it will have the kiosk
inside grocery stores, malls, petrol pumps and other retail points. The kiosks will
offer music downloads on your mobile or ipod, this will be transferred through a
bluetooth but the consumer will have to pay a price. It will also house railway and
airline tickets as well. The company says that the service is popular with consumers
who wish to buy stuff off the Net but are shy of using their credit cards. The
company is entering into revenue share tie-ups with e-commerce players for the
business. The company plans to have around 97,000 assisted e-commerce kiosks
across the country in the next three years. Besides retail opportunity in the digital
world, Smile Interactive is looking at offering healthcare services online.
The company further says that group wants to promote medical tourism. They
further clarify by saying that there is a lot of information on hospitals on the Internet.
The service will allow the foreigners can search for information and even book
their hospitals and surgeries online. Smile Interactive Technology was known as
Smile Studio earlier, it was launched as a complete web solutions company and
an incubation centre for entrepreneurs keen to do business in the digital space.
Two of the companies that it incubated Quasar, the digital marketing and
online advertising agency, and Tyroo, the self-serve ads outfit have already attracted
strategic investors.
DBA 1721
NOTES
in for obtaining adequate or satisfactory information is a cost for consumers. Search costs
may be monetary or non-monetary or sometimes partly monetary and partly non-monetary.
Time cost
Consumers may be required to wait for some time for some services. This is an
inevitable factor for many services, because the service provider cannot control the length
of time it will take for a customer to be serviced and the number of customers to serve.
Time definitely carries some opportunity cost. The total waiting time of customers will add
to the cost of the service from the customers point of view.
Energy cost
The energy costs include the loss of physical energy in traveling to the service
outlet, waiting, participating in a crowd of other customers, weight being carried and so
on. Service customers may add energy cost as non-monetary cost to the total customer
cost.
Psychic cost
Psychological costs are the most painful non-monetary costs incurred while receiving
services. While selecting a service, consumers may have some fears-fear of not
understanding the service, fear of rejection, fear of uncertainty and so on. All these anxieties
constitute psychic costs. When vending machines were introduced by the Southern Railways
in Chennai, most people preferred to obtain tickets by waiting in a queue at manned counters
due to the psychological fear relating to operations, accuracy of result, and the image cost
(in case of failure, how will the other customers rate their abilities?) in operating the machine.
Other costs
Apart from the above, consumers may perceive other non--monetary costs related
to a specific service. For example, the convenience costs may be more in a particular
means of transport service when compared to other means of transport.
The TCV will be compared with the TCC by each and every customer. Though customers
may not know or have the methodology to measure the cost items as well as value items in
accurate terms, the assessment will be automatic for them. Customers may not identify all
DBA 1721
NOTES
Business Insight 3.9: Broadband to be redefined by TRAI
The Telecom Regulatory Authority of India (TRAI) has taken a tough stance
responding to complaints from harassed consumers who are offered broadband
at speeds much slower than those stipulated by the government.
This has come as good news to a lot of subscribers of broadband. This will be
especially useful for consumers who have been complaining that their broadband
connection of 256 kilo bites per second (kbps) is not fast enough to play video
games or download movie clips quickly.
The TRAI has asked the operators to reform their ads, which suggest the wrong
speed. The organization has written to operators saying they can no longer advertise
broadband services that say they offer up to 256 kbps speeds, thereby
circumventing the rules by offering services at far lower speeds.
There has been a paper released by the regulator as well which discusses the
whether the present level of 256kbps, which is defined as the minimum broadband
connection speed in India can be raised to bring it at par with the international
standards. At present in countries like France and others the minimum broadband
speed is defined with 512kbps. In US the speed is limited to 200 kbps, in Hungary
to 256 kbps, while in China all internet users other than dial-up and wireless are
considered broadband users.
TRAI to meet the grievances of the consumer as directed all operators to clearly
mention the minimum guaranteed download speeds in various packages. The
organization has mentioned that there has been promise by operators saying that
they will abide by the law.
If the directive by TRAI is able to achieve the desired results then this will be
good news for the subscribers of broadband in India. One of the biggest
advantages for the subscriber will be that he will be able to achieve a lot of high
definition services which requires a minimum speed of four to six mbps. This will
include the services like movies, tele-medicine and video streaming and others.
DBA 1721
NOTES
Competitor pricing:
As discussed earlier in the unit, service providers should have an idea of the pricing
structure of competitors, especially in the case of price sensitive services. For example, if
a photographer charges Rs.100 for developing and printing a roll and another a few yards
away charges RS.110, not many would bother about the difference. However, when a
bank offers a housing loan at an 8 percent interest rate and another offers it at 9 percent,
customers would certainly be attracted to the former. Service companies also focus on
other elements of the marketing mix to win over customers. At the same time, a company
cannot set very high prices for its services unless its offering is unique and distinct from
those of competitors.
Marketing mix:
The other elements of the marketing mix have an influence on the price. The price
should be an indication of the value derived by the customer, as already discussed. Price
sensitive services should be communicated properly to the customers through suitable
promotional activities. Further, price discounts, sales, price-cuts, etc., should also be
communicated to the customers. The place where premium services are offered is also
linked to the price a company can charge as also the quality of service offered by service
personnel. For example, the staff at the Ritz Carlton offer premium customer service and
also charge high prices. Finally, the process and the physical evidence should reflect the
price charged and the value offered by the service.
Regulatory factors:
Government policies and guidelines of trade associations have an effect on the
prices charged by companies in the industry. For example, the Department of
Telecommunications (DoT) regulates the prices charged by BSNL for telecommunications
in India.
Positioning:
The customer perceptions of a service, his evaluation of the service standards and
his assessment of the service value also depend on the positioning strategy adopted by a
company. For example, if a company positions its services in the premium range, then
DBA 1721
NOTES
Mr. Pathak initiated the efforts. He talked to teachers, who expressed their
wholehearted cooperation in his efforts. He got the same promise of cooperation
from the students. Mr. Pathak offered all supporting facilities liberally.
The director reasonably expected that there would be some improvement.
He reviewed the condition after a month. There was no improvement at all. He
talked informally again with both the students and faculty. The teachers informally
complained that students are not there though they are ready to take up the
classes. On the other hand, students complained that teachers are not coming to
the classes. Both the parties are not willing to give a formal complaint to the
director on the issue.
Mr. Pathak realized that the serious attempt is required for the purpose.
As a first step he started understanding the development in the institute over a
period of time. After a thorough analysis he found that the following factors are
important.
1. Increase in the number of teaching faculty. Workload per teacher has reduced
from 12 hours a week to 6 hours a week.
2. Increase in research, consultancy and extension services of the faculty.
3. Change in the qualification of the students the percentage of engineering
graduate getting admission has increased each year.
4. Promotion to a higher position at young age.
However, the director could not find anything about placement as there was no
record available in this respect. Having gone through all these details the director
decided to refer this case to a marketing professional. This director thought that
external consequences needed to be emphasized more to take corrective actions.
Marketing orientation is required to strengthen and develop the institute.
Can you identify any services marketing problems?
Comment on the approach of Mr. Pathak
Suppose the case were referred to you how would you help Mr. Pathak.
Summary
An understanding of the various product levels namely, core benefit, basic product
level,, actual product level, augmented product level, and potential product level helps a
company to recognize and meet the customer needs at each level. Further, when developing
DBA 1721
NOTES
competitor pricing, the other elements of the marketing mix, namely product, place,
promotion, people, process and physical evidence, regulatory factors, and positioning are
some of the issues that should be considered when developing a pricing strategy.
Concept application questions
Review recent bills that you have received from service businesses,
such as those for telephone, car repair, cable TV, credit card, etc.
Evaluate each one against the following criteria: (a) general
appearance and clarity of presentation, (b) easily understood terms
of payment, (c) avoidance of confusing terms and definitions, (d)
appropriate level of detail, (e) unanticipated (hidden) charges, (f)
accuracy, and (g) ease of access to customer service in case of
problems or disputes.
Choose a service with which you are familiar and create a simple
flowchart for it. Define the front stage and back stage activities.
Select a service organization and determine its pricing policies. In
what respects are they similar to or different from what has been
discussed in this unit?
Choose an industry you are familiar with (like fast food restaurants
or grocery stores) and create a Positioning Map (perceptual map),
showing the competitive positions of different companies in the
industry.
Review Questions
1. With illustrations explain the different levels of service product.
2. Bring out the different stages in the new product development of services with examples.
3. In a short essay, describe the Flower of Service and list the clusters into which almost
all supplementary services can be classified. Which clusters are considered facilitating
services and which are considered enhancing services?
DBA 1721
NOTES
DBA 1721
NOTES
4.0 INTRODUCTION- THE PEOPLE THE FIFTH P
In organization manufacturing tangible foods, the personnel perform their duties in
the factories, away from customers. In services, personnel come in contact with the customers
in the process of production and consumption of services. The inseparable nature of
service emphasizes the point that the human element forms an important aspect in the
service industry. According to some authors people, the fifth element in the service
marketing mix applies not only to personnel but it recognizes the role of the participants
both employees and customers in the service delivery process. But, as we look at a
marketing mix variable as controllable element, we deal with management of people within
the organization as a key task. They are particularly important in those situations where, in
the absence of clues from tangible products the customer will form an impression of the
organization from the behavior and attitudes of its staff.
In service business, the service personnel reflect the organizational realities, it is
through the interaction with the staff, and the customer forms an opinion of the organization.
A service firm may have all equipment and technical facilities, and yet may not able to
provide satisfactory customer service. This may be due to the lack of interpersonal
relationship between the service provider and customer. In such cases, the customer
develops negative attitude towards the firm. Therefore, service marketers need to develop
a high level of interpersonal skills and customer oriented attitude in employees. According
to Zeithaml and Bittner the service employees are the service, the organization in the
eyes of the customer and they are the marketer.
4.1 CLASSIFICATION OF SERVICE PERSONNEL
Though all service organizations are characterized by an interaction between their service
personnel and customers, the level of interaction varies from one organization to another
and from one executive to another within the same organization. This level of interaction
can be one of the bases for the classification of service organizations as well as service
personnel. The classification of organizations based on this criterion is as follows:
Low contact service:
In this kind of service, the interaction between the service organization and a customer
lasts for a short period. Fast food outlets, beauty clinics, mechanic shops, etc. involve low
DBA 1721
NOTES
and try to solve their problems. An example of contact personnel are the
customer care executives of a service organization.
Moderate contact personnel: These personnel interact with customers only
occasionally. Their primary function is to design and create a tangible or
intangible product/service to suit customers requirements. Therefore, they
interact with customers only in special cases, For example, a chef in a restaurant
does not usually interact with customers, However, when presenting a new
dish for special guests, the chef may personally interact with the guests to
explain the preparation, the ingredients and the nutritional value of the dish.
Back office staff: The primary function of these personnel is to perform all
those activities that enable the front-line service personnel to deliver quality
service to customers. However, they might interact with customers under some
special circumstances. For example, a technician who repairs the air
conditioning systems at a company showroom does not usually interact with
the customers, However, if a customer finds it difficult to explain the problem
in technical terms to the front-office personnel, the technician may be called to
talk to him/her customer and understand the problem better.
Support staff: These personnel perform support functions and do not come
into contact with customers at all. For example, customers do not interact with
an accountant or an HR executive in a hotel.
Management: The management of an organization rarely interacts with
customers directly. Interaction happens only in exclusive situations when the
management wants to get customer feedback or when the customer is a high
net worth important person like a corporate customer. For example, the
Chairman of an airline might interact with customers on flight to gather feedback
about its services. Otherwise, he might meet a corporate customer who
contributes a good percentage of revenues to the airline and whose relationship
is critical for its business.
DBA 1721
NOTES
4.2.1 Job Characteristics
Customer contact employees in the service industry serve in a boundary spanning
role or a role of linking an organization or business with its environment through interaction
between members of the organization and members of the environment. Support personnel
to be motivated to perform consistent, high quality work for the success of the service
firms.
In designing service jobs, firms must be aware of some important motivational job
characteristics. These characteristics are:
Skill Variety: Degree or range of abilities required by an employee to do a job
Task identity: Degree that a job has identifiable units of work with visible outcomes
Task significance: Degree of impact an employee perceives his or her job has on the
lives of others inside or outside of the organization
Autonomy: Degree of freedom and discretion an employee has in his or her work design
Feedback: Degree of direct clear information an employee receives from superiors
concerning the effectiveness of his or her performance.
Empathy: Ability of an employee to identify with the feelings or thoughts of another
employee or customer.
4.2.2 Control Issue
A critical element in the customer contact position is the issue of control. Individuals
want control over their and the things that happen to them. Within the service setting,
customers must surrender some control of their lives in order for the service to be performed.
Purchasing of nonprofessional services requires customers to surrender some control during
the service encounter, although usually not as much. To perform the service properly,
customer contact personnel would like to have maximum control. To ensure they get the
service they want, customers want to keep as much control as they can. In addition to
these two participants in the service setting, the firm has an interest in how the service is
performed. To ensure the employees perform the service properly, the firm would like to
control the service situation. By controlling the service encounter, the firm can increase
productivity of employees and the cost efficiency of its operation. The result is a three-
way fight for control.
Increasing firm and service personnel control
Firms and service personnel must have some control of a service encounter to
ensure the service is performed properly. As already stated the amount of control desired
DBA 1721
NOTES
Table 4.1: Types of Conflict in Service Organization
Employee conflict:
DBA 1721
NOTES
4.2.4 Staff Selection and Recruitment
As the value of staff rates so highly in service organizations, careful recruitment of
the right kind of personnel is an important step. Internal marketing
1
, recognizes that
employees and potential employees are customers of the organizations internal market
and their needs and wants should be considered in the same light as those of external
clients. Marketing activities should be aimed at these internal markets in the same way as
when marketing to external clients.
Organizations seeking to attract excellent service personnel can consider using the
same tools and techniques that they use to attract customers. Recruitment should not be
left solely to the human resources management function but should be seen as a powerful
tool in itself for enhancing and maintaining the organizations standing and image. The human
resources management function can support advice and guide line management in this
area. Programmes designed to generate interest in the organization, through sponsorship
and PR( Public Relations), for example, can also be used to attract the people who share
the organizations ideals and standards. While many sources of information exist detailing
approaches and techniques for recruitment, the basic steps are as follows: (they have been
listed only in nutshell owing to the reason that you have studied in detail in the last semester
course on Human Resources Management)
Preliminary stage
Identification of vacancy (may be a new post or replacement.
Develop job profile - review job description and person specification. The person
specification can be adapted to place emphasis on customer and service orientation,
a desirable or even essential quality for all jobs.
Consider internal sources
Consider using specialist recruitment agency
Advertise - internally and externally
Process applications
Screen applications for shortlist
DBA 1721
NOTES
low- paid sectors so a sense commitment may be desirable personal attributes. Charities
have sometimes experienced difficulties in attracting experienced managerial staff as
applicants are sensitive to the moral issues involved in receiving high salaries from charitable
bodies. To recruit appropriately qualified personnel, however, in, say, accountancy and
marketing management, charities have to offer competitive salaries. Some services obviously
require staff with certain qualifications, such as teachers and lawyers. The degree of
specialization required will govern the potential marketplace for recruits. In a situation
where demand for certain skills outstrips supply, which sometimes occurs, or in highly
specialized areas, a different approach to recruitment may need to be found, such as in-
service training for potential applicants, to bring them to the required standard.
The rate of legislative changes, for example, affecting organizations in the public
sector brought about by compulsory competitive tendering, privatization and the introduction
of a quality culture geared to customer care has led to different personnel requirements.
Such organizations have to compete more and more in the external marketplace, not just in
terms of maintaining their services against competing private service providers, but also in
recruitment. They are often hampered or constrained in their strategy by existing practices
which may be outdated or inappropriate and other influences including:
Traditional low rates of Pay
Cutbacks
Tightly structured pay scales
Conditions of service.
4.2.5 Training and Development
Training is needed on more than one level; at its basic level it may be needed to
impart knowledge about a particular aspect of the organization or job; at a broader level,
it gives focus and direction for the future to employees and also plays a communications
role within the organization. The training opportunities offered by an organization may be
influential in attracting and retaining personnel. Additionally, it can help create personal job
satisfaction and can overcome difficulties associated with change, for example when
introducing new technologies. Essentially there are three stages in managing the training of
the human resources - the staff - of the organization. These are:
DBA 1721
NOTES
Resources Management even though the commitment and initiation of such programmes
must be led by top management and involve all line management and employees.
4.2.6 Human Resources Management Issues
When the people in an organization represent its most valuable asset, then the task
of looking after those people is equally important as financial, operations or marketing
management. The managers who look after the people within an organization may be
grouped under the headings: personnel, industrial relations, or training and development.
They are all concerned with human resources management.
Typically, the responsibilities of human resources managers include the following:
Recruitment and selection
Training and development
Setting up new modes of operation, e.g. quality circles
Management of change
Team briefings, communications strategies
Staff suggestion schemes
Internal communications Administration (pensions, insurance) Appraisal schemes
Pay structures
Staff development and support
Trade Union liaison
Conditions of service
Discipline and grievance procedures
Termination issues (redundancy, ill-health) Capability
Additionally, human resources management plays a very central role within an
organization. If the human resource task is to be handled effectively, managers need:
A thorough understanding of the needs of the directors, managers and
employees throughout the organization
Clear identification with organizational goals and objectives Understanding of
the needs and wants of external customers Close co-operation with other
functional managers.
In practical terms, there are a number of ways in which these wide-ranging aspects
of human resources management can be translated into effective strategies for service
DBA 1721
NOTES
Training and development
Identification of training needs.
Development and implementation of training programmes. Integration between training
and other functions.
Support for individual staff development.
Management development programme evaluation.
Pay structure and benefits
Establishment of salary structure and reviews.
Reward systems for competence/ qualifications/performance.
Provision and communication of benefits packages, pensions.
Communications
Internal marketing.
Publication of staff magazine and other internal communications.
Ensuring that staff are always kept informed and in touch, allowing for feedback from
staff.
Transmission of new ideas and initiatives.
Quality
Liaison with functional managers on quality initiatives. Involvement in implementing
programmes for quality.
Communicating to employees the nature of responsibility for quality; instilling ownership
for quality issues.
The above list contains suggestions for human resources management; the actual
task will differ between organizations.
The broad nature of the function is clear, however, and its close relationship with
customer service can be seen. Suggested elements for a customer service audit include
evaluation and review of personnel issues and performance measures, together with
personal and job goal specification - all areas where integration with human resources
DBA 1721
NOTES
process design and implementation, the types of processes and the steps involved in planning
a service processes.
4.3.1 Designing Service Processes
The principles by which service delivery processes can be designed, implemented
and monitored are really no different from those mentioned relating to the fields of
manufacturing, computing and so on( Studied in the last semester course on Production
Management). There are certain specific characteristics of service process design and
implementation however which should be considered. These include:
Customer participation in the process
The level of involvement or participation of the customer in the service process - in
a self-service restaurant, for example, as opposed to waitress service.
Location of service delivery
Should the process be carried out at the service providers premises or at the
customers home? For some services, this seems a simple decision - plumbing or carpet
cleaning should be carried out at the customers home, while dry cleaning or a theatrical
performance will be carried out at a specialist outlet or venue. In other cases, traditional
practices may no longer be applicable as telephone banking and insurance services have
shown, without the need for any branches on the high street. Travel arrangements can be
made without visiting a travel agent and services as diverse as hair dressing, take-away
food and financial consultancy can all be delivered to the customer at home if required.
The service itself
The service itself - is it process dependent (usually the case with highly intangible
services such as legal representation) or equipment based (such as vending machines or
dry cleaning).
DBA 1721
NOTES
To ensure that the service is carried out in the fastest, most efficient and cost-
effective manner possible
To enable service quality to be monitored and benchmarks to be put in place
thus allowing accurate measurement of both quality and productivity
To facilitate staff training and enable individuals to carry responsibility for individual
stages of the service transaction and delivery
To reduce the amount of divergence thus enabling accurate budgeting and
Manpower planning etc. to take place.
4.3.2 Spectrum of Service Processes
Much as we have thought of manufacturing enterprises in terms of different kinds
of production processes, we can also think of service operations in terms of distinct
processes. Process has been defined differently by various disciplines like computer
programming, decision theory, operations management, etc., in addition to marketing.
Though the technology used differs, the basic idea or the core concept remains the same.
According to all these disciplines, including marketing, a process should involve logical
steps that can be broken down to increase efficiency. It should have an element of flexibility,
which would help in achieving different results to produce the desired outputs. Business
Insight 4.1 shows how the process of reserving a ticket against frequent flier miles has
become simple over the years.
Business Insight 4.1 Simple Processes
With increasing competition, all service companies have made efforts to increase
convenience for their customers. Earlier, to book a ticket against frequent flier
programs, a passenger was required to submit an application to the branch office.
The employees at the branch office would process the application and get the
ticket. The whole process would take upto 10-days and involved a lot of
documentation, leading to inconvenience to customers and increasing the possibility
of errors.
Later, the head offices integrated their databases with the branch offices, which
made the process easier. The new process takes only 10 minutes and requires
less documentation, leading to low costs and very little possibility of error.
DBA 1721
NOTES
The Service Shop
As the degree of interaction with - or customization for - the consumer increases,
the service factory gives way to the service shop, much as a line flow operation gives way
to a job shop operation when customization is required in manufacturing. Hospitals and
repair services of all types are prime examples of service shops.
Mass Service
Mass service processes have a high degree of labor intensity, but a rather low
degree of interaction with or customization for the consumer. Retail operations, retail banking,
schools, and wholesaling are examples of mass services.
Professional Service
If the degree of interaction increases or customization becomes the watchword,
mass service gives way to professional service, as provided by doctors, lawyers,
consultants, architects, and the like.
4.3.3 Planning a Service Process
A service provider has to take many decisions regarding the use of technology,
people, materials, and equipment in serving his clientele. Most of these decisions are taken
while planning the service process, which is in turn determined by the type of service
offered and customer requirements. Let us now discuss the important decisions to be
taken by a service provider in planning a service process.
Technology:
A service provider needs to look into different aspects of the available technology
and the extent to which it needs to be upgraded for delivering the desired services at the
expected quality. For example, banks that are planning to introduce Internet banking should
analyze the available technologies, and upgrade their systems to offer services through the
Internet.
DBA 1721
NOTES
Service location:
As services are intangible in nature, customers attach importance to the service
location. They perceive it as an evidence of the quality of service offered. Therefore,
service providers should choose a location that is easily accessible to customers, has a
good infrastructure and the right atmosphere. For example, foreign banks and private
banks in India today look entirely different from the old nationalized banks.
Layout design:
Layout involves decisions regarding both production process and front office layout.
An ideal design uses the space available to the maximum extent, minimizing the movement
of goods/people, and increasing customers convenience. Finally, it should be pleasant and
encouraging for the service employees as well as the customers. For example, the layout at
an airport should place the luggage weighing equipment, ticketing counters, check-in
counters, security check equipment, passenger and visitor lounges, and coffee shop in
such a way that it increases the productivity of airport personnel by reducing the time and
efforts involved, and also offers convenience to customers.
Organizational structure:
Decisions under organizational structure determine the element to which processes
need to be standardized. They also determine whether an informal or formal organizational
structure is to be adopted, whether decision-making is to be centralized or decentralized
and how the organization is to be structured.
4.4 DISTRIBUTION OF SERVICES THE PLACE THE FOURTH P
Place, the fourth P of the marketing mix, deals with the development of distribution
strategies. The main aim of these strategies is to make the products and services available
and accessible to customers whenever they want to make a purchase. As part of place,
company needs to make decisions relating to the channels of distribution like its geographical
coverage, location of the service outlets, inventory, and transportation.
The factors influencing distribution of services differ significantly from those of
tangible goods. In the case of tangible goods, production is separate from consumption.
DBA 1721
NOTES
In this part of this unit we will discuss the significance of location in services and
the various channels available for distribution of services. We will also discuss the concept
of direct distribution and methods to distribute through key intermediaries. Finally, we will
study the strategies for effective service delivery through intermediaries.
4.4.1 Service Transactions
Transactions in services can be broadly categorized into three groups.
Customers calling service outlets
In this type of transaction, customers have to go to service outlets to avail of the
service. The service provider creates a conducive environment with good service care and
infrastructural facilities to facilitate service production and consumption. For example,
educational institutions, theatres, beauty care centres, health clubs and so on.
Service firms calling customers
In such a transaction, consumers need not move from their premises whether it is
home or office to avail of the service. The employees of the service organization call on the
customers and perform the service at the desired location. For example, postal services,
security services, personal services and so on.
Service provider and consumer transact at arms length
In such a transaction, there is no need to have personal contact and face-to-face
encounter between the service provider and the service consumer. Services can be produced
and consumed with the help of tangibles and equipment provided for the purpose. For
example, telecom services, cellular services, credit card services and so on.
Service companies may adopt different strategies depending upon the service
product, the market and the objectives of the company. There are three distribution strategies
available to service organizations. They are: extensive distribution, selective distribution
and exclusive distribution.
DBA 1721
NOTES
Parking facility
Parking facility is becoming an important locational factor, particularly in cities and
metros. A service outlet without adequate parking facilities is less likely to attract customers.
Convenience
The location of the service outlet should be convenient for customers. Convenience
is often measured in terms of public transport, other shopping facilities, safety and security
and so on.
Accessibility to other services
A service outlet requires a host of other services and infrastructural facilities such
as electricity, telecommunications, water and sanitation. The location that provides an
adequate qualitative supply of these services is more suitable for service organizations.
Competitive advantage
The effect of the competition cannot be ignored while taking any decision in services.
The location that provides competitive advantage can be preferred.
The Business Insight 4.2 provides a classic view of the excellence in distribution of
services products, the meals in the lunch boxes to the office goers in Mumbai.
Business Insight 4.2 Mumbais amazing Dabbawallahs
Four thousand five hundred semi-literate Dabbawallahs collect and deliver 175,000
packages within hours. What should we learn from this unique, simple and highly
efficient 120-year-old logistics system?
Hungry kya? What would you like: pizza from the local Dominos (30 minute
delivery) or a fresh, hot meal from home? Most managers dont have a choice.
Its either a packed lunch or junk food grabbed from a fast food outlet. Unless
you live in Mumbai, that is, where a small army of Dabbawallahs picks up 175,000
lunches from homes and delivers them to harried students, managers and workers
on every working day. At your desk. 12.30 pm on the dot. Served hot, of course.
And now you can even order through the Internet.
The Mumbai Tiffin Box Suppliers Association is a streamlined 120-year-old
organization with 4,500 semi-literate members providing a quality door-to-door
service to a large and loyal customer base.
DBA 1721
NOTES
can carry no more than 35-40 tiffins.
During the earlier sorting process, each Dabbawallahs would have concentrated
on locating only those 40 tiffins under his charge, wherever they come from, and
this specialization makes the entire system efficient and error-free.Typically it
takes about ten to fifteen minutes to search, assemble and arrange 40 tiffins onto
a crate, and by 12.30 pm they are delivered to offices.
In a way, MTBSAs system is like the Internet. The Internet relies on a concept
called packet switching. In packet switched networks, voice or data files are
sliced into tiny sachets, each with its own coded address which directs its routing.
These packets are then ferried in bursts, independent of other packets and possibly
taking different routes, across the country or the world, and re-assembled at their
destination. Packet switching maximizes network density, but there is a downside:
your packets intermingle with other packets and if the network is overburdened,
packets can collide with others, even get misdirected or lost in cyberspace, and
almost certainly not arrive on time.
Elegant logistics
In the Dabbawallahs elegant logistics system, using 25 kms of public transport,
10 km of footwork and involving multiple transfer points, mistakes rarely happen.
According to a Forbes 1998 article, one mistake for every eight million deliveries
is the norm. How do they achieve virtual six-sigma quality with zero documentation?
For one, the system limits the routing and sorting to a few central points. Secondly,
a simple color code determines not only packet routing but packet prioritizing as
lunches transfer from train to bicycle to foot.
Who are the Dabbawallahs?
Descendants of soldiers of the legendary Maharashtrian warrior-king Shivaji,
Dabbawallahs belong to the Malva caste, and arrive in Mumbai from places like
Rajgurunagar, Akola, Ambegaon, Junnar and Maashi. We believe in employing
people from our own community. So whenever there is a vacancy, elders
DBA 1721
NOTES
Their key responsibility is sorting tiffins but they play a critical role in resolving
disputes; maintaining records of receipts and payments; acquiring new customers;
and training junior Dabbawallahs on handling new customers on their first day.
Each group is financially independent but coordinates with others for deliveries:
the service could not exist otherwise. The process is competitive at the customers
end and united at the delivery end.
Each group is also responsible for day-to-day functioning. And, more important,
there is no organizational structure, managerial layers or explicit control mechanisms.
The rationale behind the business model is to push internal competitiveness, which
means that the four Vile Parle groups vie with each other to acquire new customers.
Building a clientele
The range of customers includes students (both college and school), entrepreneurs
of small businesses, managers, especially bank staff, and mill workers.
They generally tend to be middle-class citizens who, for reasons of economy,
hygiene, caste and dietary restrictions or simply because they prefer whole-some
food from their kitchen, rely on the Dabbawallahs to deliver a home cooked mid-
day meal.
New customers are generally acquired through referrals. Some are solicited by
Dabbawallahs on railway platforms. Addresses are passed on to the Dabbawallahs
operating in the specific area, who then visits the customer to finalize arrangements.
Today customers can also log onto the website www.webrishi.com to access the
service.
Service charges vary from Rs 150 to Rs 300 per tiffin per month, depending on
location and collection time. Money is collected in the first week of every month
and remitted to the mukadam on the first Sunday. He then divides the money
equally among members of that group. It is assumed that one Dabbawallahs can
handle not more than 30-35 customers given that each tiffin weighs around 2 kgs.
And this is the benchmark that every group tries to achieve.
Typically, a twenty member group has 675 customers and earns Rs 100,000 per
month which is divided equally even if one Dabbawallahs has 40 customers while
another has 30. Groups compete with each other, but members within a group do
not. Its common sense, points out one Dabbawallahs.
One Dabbawallahs could collect 40 tiffins in the same time that it takes another to
collect 30. From his earnings of between Rs 5,000 to Rs 6,000, every
DBA 1721
NOTES
provide time, place and convenience utilities to the target customers. The intermediaries
may perform services of many service principals and thereby provide a retailing function
for customers.
4.5 CHANNEL FUNCTIONS OR FUNCTIONS OF SERVICE
INTERMEDIARIES
Two service marketers are involved in delivering service through the intermediaries-
the service principal (the service firm) and the service deliverer/distributor (the intermediary).
The service provider creates the service concept and the service distributor interacts with
the customer in the actual execution of the service.
Though the service distributor does not perform the normal functions of the product
distributor like storing, transporting, after-sales service etc, the following can be the functions,
which a service distributor can perform:
1. As a co-producer of a service, an intermediary assists in making the service available to
customers at a place and time that is convenient to them. More so in the case of franchisee
where he represents the service firm.
2. The intermediaries often share the risk of providing the service when they contribute
their own capital to acquire the equipment and deliver the service.
3. The intermediaries provide sales support at the point of sale. They collect feedback
from the customers regarding the service rendered.
4. Often intermediaries provide wider choice of services including that of the competitors.
5. They offer advice to the customers and guide them to choose the service that matches
their need. E.g. Tour operators and financial service agents.
6. Intermediaries provide after sales support to the customers making the service more
accessible.
E.g. An insurance agent who gives advice about making a claim and handles much of the
paper work involved in making the claim.
4.6 CHANNEL DECISIONS
In situations where direct marketing of services is not feasible, service providers
use intermediaries to market and sell their services. These intermediaries used are known
as distribution or marketing channels. Thus, there are three participants in the service
delivery process, namely, the service provider, customer, and the intermediaries.
DBA 1721
NOTES
Some service providers continue to sell their services directly to the customer, as
in management consulting, and hotel businesses or through agents or brokers as in insurance,
travel, real estate, etc. Services are distributed through sellers and buyers agents or brokers
as in stock broking and portfolio management; or through franchises as in education and
fast food etc. NIIT and Aptech for example, operate through their franchisees across the
world. Figure 4.2 gives a diagrammatic representation of various channels available to the
service providers.
Figure 4.2: Channel Options for Service Providers
Intermediaries also playa role in co-producing the service. However, they have to
maintain the service standards developed by the principal owner. For example, McDonalds
franchisees follow the service standards set by the franchiser, i.e., McDonalds.
Intermediaries also form a bridge between the company and the customers. A customers
perception of a company depends on the relationship that the intermediaries maintain with
him. For example, if a customer is not happy with the service provided at the franchisee of
a training institute, he would not only avoid that institute in future, but will also advises
friends and colleagues against opting for its services.
Intermediaries benefit the customers by saving them time and offering than the
convenience of utilizing the services. For example, many cellular companies like Airtel,
DBA 1721
NOTES
Control:
A service company enjoys greater control on its operations and services through
direct distribution. It can also maintain high quality and greater consistency in its service
offerings when compared to a franchise. The service provider can monitor the operations
directly and check their compliance with the service standards. Further, the company can
have direct control over the recruitment of staff, their motivation and their performance.
Healthy customer relationships:
Direct distribution helps in maintaining healthy and strong relationships with
customers. It improves clarity in communication between the service personnel and the
customers, bridging gaps and removing any scope for misunderstanding. The company
can ensure a strong relationship with the customers, thereby enjoying the different benefits
of loyal customers, like repeat business and positive word-of-mouth publicity.
Flexibility and confidentiality:
In distribution channels like franchising, the franchisee has to strictly follow the
rules laid by the franchiser to maintain the set service standards. This might result in a few
dissatisfied customers moving away or shifting to competitors. In direct distribution, the
service provider is free to make changes to the service or the service location according to
his convenience or the customers desires. This flexibility in service delivery helps to customize
the service. In addition, direct distribution helps the service providers maintain the
confidentiality of their core competencies without the need to share them with other
distributors.
Direct distribution is disadvantageous in the following ways:
Financial risk:
Service companies face financial challenges when they desire to expand their
business without the support of franchisees or agents. They are required to make huge
capital investments and may be forced to compromise on some aspects like promotion or
research and development for new services, due to budgetary constraints.
DBA 1721
NOTES
Knowledge of local markets
Greater reach of the market provides adequate information back through the
franchisee, relating to specific issues of local markets. This information helps the organization
to develop market-oriented service packages. Also service companies can get feedback
from customers through franchisees on various dimensions of service quality, quickly and
with useful interpretation. Such feedback helps improve the performance of the company.
Sharing financial risk and less investment burden
Franchisees invest money and other resources to arrange for the required equipment
and personnel for performing service as per the specifications of the franchiser. Therefore,
the franchisers investment burden gets reduced significantly.
Business Insight 4.4 provides how Philips opted to go for franchisee expansion to
increase the presence in the market.
Business Insight 4.4: Philips goes in for more
franchisee operated showrooms
The Rs 1,667-crore Philips India Ltd is planning to expand the number of
franchisee-operated showrooms called Philips Arena from 12 to 25 in all major
cities to promote its entire range of products across the country within a year. The
company is currently talking to the Benzer Group of Companies (BGC) to set up
a Philips outlet within their Centre-One Mall.
The company has already set up a Philips outlet at Big Bazaar. The company
is also planning to extend the integration of its Eye-Fi technology from 21-inch
and above category to the entry levels - such as 14-inch and 20-inch CTV bracket
from this month. In order to promote these products, the company is also planning
to beef up its distribution network across the country.
The company plans to increase the number of small retailers from 7,000 to
12,000 and direct dealers from 2,500 to 3,000 within a year who will cater to 75
distributors across the country as the Eye-Fi tech products are targeted at the
mass market. The company proposes to invest Rs 25 crore on releasing
advertisements on Philips CTVs this year compared to the previous years ad
spends of Rs 16 crore.
DBA 1721
NOTES
Low selling and distribution cost
Agents and brokers work on commission basis. Service companies need not
employ permanent sales force for the purpose. Selling and distribution costs are directly
linked with sales revenue when agents and brokers are used.
Specialized skills and knowledge of the agents and brokers
Persons who choose to be agents and brokers will generally possess specialized
skills in persuading people. Such skills are mostly inherent and inherited. Service companies
can exploit those skills in their favor without any additional cost.
Wider representation in the market
Service companies can appoint many brokers and agents and can have a wider
representation in the market. The agency network of LIC of India is an example of this.
Knowledge of local markets Agents and brokers operate within specific locations, have
knowledge on various local issues and possess the talent to exploit their knowledge for
making sales. Through agents and brokers, the company can get required information
relating to local markets. The information provided by these intermediaries, naturally, is
more reliable.
Customer choice
There may be a number of authorized agents and brokers relating to a service in a
location. Customers may chose known intermediaries for providing service. Customer
confidence will be high when they take service through a known broker or agent.
However, there are some challenges service organizations have to face in using
agents and brokers as intermediaries. There will be loss of control, in pricing and other
aspects of marketing when the agents and brokers interfere and prevail over the producers
as well as consumers (for example, real estate business). Some of the brokers and agents,
generally, represent multiple service principals and as such special focus may not be provided
to anyone of the service principals.
4.6.4 Electronic Channels
Service companies that adopt electronic channels for distribution do not require
direct interaction with customers. Telephone and television have been the original channels
of distribution through the electronic media; new additions to this distribution channel include
DBA 1721
NOTES
Let us now discuss the benefits of the electronic channels of distribution:
Lower costs:
Electronic channels of distribution cost less to the service provider than personal
selling. Further, they also provide instant answers to customer queries online. For example,
if a customer decides to book flight tickets online, he will reduce the stress on the service
provider and get the relevant information and tickets online.
Increased customer convenience:
Electronic channels of distribution have increased the convenience of customers.
For example, online reservation of movie tickets saves the time of customers and the
efforts involved in getting the tickets.
Increased bargaining power of the customer:
The customer can refer to the prices and services offered by different service
providers online, compare them and make the purchase decision. This has increased the
bargaining power of the customer.
Extensive distribution:
Electronic channels of distribution allow a company to contact many customers as
well as intermediaries. Further, franchisers find that electronic communication with
franchisees motivates the franchisees better, in addition to being cost effective.
Ability to customize services and gain quick feedback:
Electronic channels of distribution enable service companies to offer customized,
services to the customers. Further, the service providers can get feedback from customers
faster than from other channels. They are also a cost efficient way of getting feedback.
The disadvantages involved in electronic channel of distribution are as follows:
Uncontrolled price competition:
Electronic channels of distribution have enabled the customer to purchase services
for the price he/she wants to pay. This has increased price competition among the service
providers and the bargaining power of the customer.
DBA 1721
NOTES
It is not only the website that is going through a change, there is an increase in the
digital ad spending by the group, which it has announced recently. The group says
that about 12-15 per cent of the total marketing spends in 2007 went to digital
media, and in 2008, they are planning to raise it to 20 per cent.
The revamped site will have a product information section called Lee Collection
and a Download section which will allow users to download wallpapers, jingles
and the Lee television commercial. The current Lee site has user generated blogs,
which will also be there in the revamped version. Apart from providing brand
related information to consumers, Lee is planning to introduce business oriented
networking among its dealers in India. The new site will have an Intranet blog,
which will be accessible only to dealers. It will be used to share information related
to products and sales among various dealers. The dealers will also be allowed to
upload pictures and videos in this section.
The new website will be promoted through Lees TVC and radio spots. Online
promotion of the website will be done by search marketing, which will drive the
eyeballs on the site.
The company plans to endorse e-commerce on the revamped site. A link will be
created on the site, which will take users to Indiatimes.com, where an online retail
store to sell Lee products will be set up.
4.7 DESIGNING COMMUNICATIONS MIX FOR PROMOTING
SERVICES
I know half of my advertising is wasted, I just dont know which half.
JohnWanamaker
To successfully market a service, organizations must have a fully integrated
communications programme. Communications within the marketing context involves
informing, persuading and influencing consumer behavior. An Integrated communications
program is the coordinated use of the various communication mediums to accomplish is
central objective. Communications include the promotional options of advertising, sales
promotions, and personal selling.
DBA 1721
NOTES
4.7.2 Steps in Effective Communication
Communication is an interactive dialogue between the company and its customers
that takes place during the pre-selling, selling, consuming, and post consuming stages.
Companies can now communicate through traditional media (newspapers, radio, telephone,
television), as well as through newer media forms (computers, fax machines, cellular phones,
and pagers.) By decreasing communication costs, the new technologies have encouraged
more companies to move from mass communications to more targeted communication
and one-to-one dialogue.
There are six steps in developing effective communications. (Dealt only in nutshell
owing to the reason that the same is discussed in detail in the last semester course
on marketing management)
Identifying the target audience:
The audience may be potential buyers or current users, those who make the
buying decision, or those who influence it.
Determine the communication objectives:
Once a target audience has been defined, the marketing communicator must
decide what response is sought. The target audience may be in any of six buyer
readiness states: awareness, knowledge, liking, preference, conviction, or
purchases
(a) Awareness of the product can be in several stages and will take time to
establish. Awareness must be a continuous process to solicit new
customers.
(b) Knowledge follows the awareness stage and is the connection of the
advertising to the branded product or service. The customer must know
that such product will serve particular needs.
(c) Liking is the third stage. Here the message of the advertising is to create
an acceptance of the product to the evoked set of responses. For example,
if a customer were considering a steakhouse for dinner, the object of the
advertising might be for the restaurant to become one of the options for
this customer.
(d) Preference would be the next advertising objective. The customer may
like the product but not prefer it. Here the producer will strive to identify
DBA 1721
NOTES
Personal influence carries great weight for products that are expensive
or risky.
Companies can take several steps to put personal communication
channels to work by selling their products to well-known people or
companies, who may in turn influence others to buy. Or they can create
opinion leaders and manage word-of-mouth.
b. Non personal communication channels affect buyers directly and include
media, atmosphere, and events.
Media Print media (newspapers, magazines, and direct mail),
broadcast media (radio and TV) and display media (billboards, signs,
posters).
Atmosphere - Designed environments that create or reinforce the
buyers learning toward purchasing a product, such as hotel and
restaurant lobbies.
Events - Occurrences staged to communicate messages to target
audiences. For example, like press conferences and public tours staged
to communicate messages to the target audience.
Non personal communication affects buyers in a two-step flow. First,
flow from television, magazines, and other mass media to opinion
leaders and then to the less active sections of the population.
Select the message sources:
Messages delivered by highly credible sources are persuasive. Three factors
make a source credible: expertise, trustworthiness, and likeability.
Measure the communications results:
The communicator must evaluate the effect of the message on the target
audience. The following are some examples the communicator can use to
measure the results, such as whether they remember the message, how many
times they saw it, what points they recall, how they felt about the message, and
their past and present attitudes toward the product and company, how many
people bought a product, talked to others about it, or visited the store.
DBA 1721
NOTES
Role of Advertising:-
1) Informative advertising:- It provides information to an audience about a
service.
Eg:- A service retailer advertises its operating hours and store locations
2) Persuasive Advertising:- It involves an effort by the advertiser to convince
consumers of a particular point of view.
Eg:- A service retailer advertises it offers the highest quality service of anyone in town.
3) Reminder Advertising:- It involves the use of cues in an advertising to
enhance brand and firm recall.
Eg:- A service retailer uses a billboard to promote the brand name and prove the
location of the facility
4) Action inducing advertising:- It attempts to persuade viewers to either
purchase a service or inquire about it.
Eg:- A service retailer offers a 40% off coupon in its advertisements to encourage customers
to patronize the store.
Advertising and Service Characteristics:
Services possess four unique characteristics. Advertising can be used to reduce
the negative impact of these characteristics. Decreasing intangibility, perishability,
inseparability, and variability can be beneficial to service firms in the following ways:
It can increase the probability of a purchase by the consumer
Consumer expectations are more clearly defined and understood by the consumer
The perceptions of service quality are normally enhanced since the consumer know
what to except
The level of customer satisfaction with the service increases since consumer go
into the service experience with more knowledge about what will happen.
Business Insight 4.7 provides an illustration about the marketers adopting new novel
ways of reaching the message to the public. Table 4.2 shows the options available to
the services marketers with the advertising tool in the promotion mix.
DBA 1721
NOTES
does not attract much attention after a certain time, mobile outdoor methods can
help retain interest given the fact that it can be seen at different places and can
also help reach a larger number of people.
A Mumbai-based outdoor advertising agency, M Cons, has come up with this
new channel of mobile advertising using a number of trucks. Industry analysts say
this trend will increase in 2003 as it is cost-effective.
Personal selling
If organizations establish communication channels through their sales force with
the target market, it is called personal selling. Personal selling is face-to-face communication.
Feedback can be spontaneous and customers can clarify doubts on the spot. However,
this approach has a limited application as it is very costly as well as difficult to reach the
mass market. There are, of course, some exceptions. Life Insurance Corporation of India
uses personal selling to reach the market that comprises millions of customers. A large
agency network is an extraordinary strength and distinctive competency of the corporation.
Inspite of the market being flooded with private organizations and MNCs, the sales force
of LIC protect its unique position. It may not be possible for any other organization to
build such a large sales force and manage it in a short period. Not all service firms can
afford to have such a large network of sales personnel. In the case of service firms, sales
personnel are not the contact employees involved in service production and delivery. The
sales force is used to attract the market to the service outlet and/or to build the image of the
organization. However, it is difficult to draw a line that divides the employees as sales
personnel and others. All employees in a service organization are marketing employees.
Some sell on a full-time basis and some on part-time basis. But everyone contributes to
sales.
Sales promotion
Sales promotion includes techniques that stimulate demand in a market during a
short period and has measured responses. Sales promotion can be implemented through
other components of promotional mix. Discounts, gifts, coupons, premiums, exhibitions,
trade shows and so on, are some of the techniques of sales promotion. Service firms use
sales promotion techniques, generally, to manage demand to the level of supply. They are
also used to stimulate customer needs beyond the threshold level and thereby generate
new demand for the service.
DBA 1721
NOTES
Direct marketing
When intermediaries are not involved between producers and consumers, it is
called direct marketing. Direct marketing is not a recent concept. It is one of the alternatives
for the producer to reach the market. The inclusion of direct marketing as a component in
promotional mix is a recent phenomenon. The revolutionary changes that took place in the
areas of communication system and networking information technology, transport and
technology in recent years promoted the direct marketing concept as one of the promotional
tools. Direct sales offers through sky shops on television, direct contact of customers
through mail, e-commerce and so on are examples. Service providers can use direct
marketing for promoting services. By transmitting the service process and other features
and options through the electronic media, customers can be motivated and their doubts
about the service offer clarified. Direct mail to a prospect initiates need gratification process.
Each of the five components of promotional mix have distinctive capabilities( that
you have discussed in detail in the last semester course on marketing management)and
also limitations of suitability. The major task for service firms is to design a proper mix of
these components. The effectiveness of a promotional campaign depends upon how
efficiently the mix is designed.
4.7.4 Word-Of-Mouth Communication (WOM)
Word-of-mouth communication is considered the most powerful communication
channel in services marketing. It has the capability of creating excellent results for the
company and if not handled properly may create disastrous results. Word-of-mouth
communication is not a controllable variable. Organizations can influence the sources, either
directly or indirectly, to generate a positive market image. Marketers should identify the
sources of word-of-mouth and develop appropriate strategies. The following are the sources
for generating word-of-mouth communication:
Contact employees
Contact employees of the service generally engage in informal discussion with the
customers. They provide information by taking into consideration the anxiety levels of
the customer. Customers tend to give greater importance to the informal information
provided by contact employees.
DBA 1721
NOTES
4.7.5 Steps for Success in External Marketing
Service companies need to follow certain guidelines in the development of
communication programmes. Thad D. Peterson and K. Shelly Porges in their article on
Marketing and Communication Tools for Service Marketers suggest the following ten
guidelines for communication campaigns, with special reference to services:
1. Define your goal clearly and focus on it.
Make sure your goal is actionable and measurable.
Write it down.
Ask your employees to read it and then restate it in their own words to be sure
they understand it.
Make sure everyone in your organization knows what the goal is.
Limit the number of major goals you have each year.
2. Put yourself in the customers shoes.
Shop from your company anonymously, if possible, to see how the average
customer is treated.
Have friends do the same and give you an honest feedback.
Read and respond to customer letters and phone calls.
Put yourself on all your mailing lists.
3. Dont forget the emotional side of decision making. Anatole France once said, It is
human nature to think wisely and act foolishly. Packaging, graphics, casting, music-
all can effectively influence the emotional side of a decision.
4. Make sure youre not talking to yourself in your ads.
You know what you mean, but will the customer? Have your ads been reviewed
by someone who is not familiar with your services?
After developing your ad, put it aside for a few days. Then review it. Does it
still make sense?
5. Time is a sales tool-limit it.
Making time-limited offers is one of the best spurs to sales.
Use special occasions, such as national holidays and company anniversaries,
to limit the time of the offer.
6. Dont starve your media budget.
If two-thirds or three-quarters of your ad budget is not available to place your
ad after production costs, rethink your advertising plan.
DBA 1721
NOTES
4.8.1 What is CRM?
In marketing literature, the term Customer Relationship Management (CRM) and
Relationship Marketing (RM) are used interchangeably. These two terms are used to reflect
a variety of themes and perspectives relating to customer management. The following are
some of the definitions of CRM. CRM is marketing-oriented towards strong lasting
relationships with individual accounts (Jackson). Relationship marketing is attracting,
maintaining and enhancing customer relationships (Berry). Relationship marketing is an
integrated effort to identify, maintain and build a network with individual consumers, and to
continuously strengthen the network for the mutual benefit of both sides through interactive,
individualized and value-added contacts over a long period of time (Shani and Chalasani).
(The purpose of) ... relationship marketing is to identify and establish, maintain
and enhance, and when necessary terminate relationships with customers (and other parties)
so that the objectives regarding economic and other variables of all parties are met. This is
achieved through a mutual exchange and fulfillment of promises (Christian Gronroos).
Relationship marketing is attracting, maintaining and - in multi-service organizations -
enhancing customer relationships.(Berry and Parasuraman).
4.8.2 Traditional Marketing Vs Relationship Marketing
Traditional marketing is transaction oriented and as such it is also called transaction
marketing. The method of marketing in which a service organization or its employees
communicate with the customer only when he approaches it for service is called transaction
marketing. In this kind of marketing, a service representative of the organization provides
only the service sought by the customer. He does not make any effort to get to know
whether the customer is satisfied with the service, whether he needs some other service, or
would like to come back again for the service. He is not interested in gaining the loyalty of
the customer. Organizations which adopt the transactional style of marketing can be said
to be lacking foresight. Their employees attempt to sell their service considering it to be a
one time process. Even though they may offer quality service, the fact that the personal
touch and focus on the customer is lacking affects the organizations and they often end up
losing their customers. For example, most people would like a bank which understands
their personal needs and suggests suitable investment options. They would prefer it to a
bank which provides excellent service, but treats them as just one of its many customers.
DBA 1721
NOTES
4.8.3 Essentials of Relationship Marketing
In order to make relationship marketing workable, service companies need to do
the following:
Identify the need for relationships in different areas of business operations
Collect data and information relating to the prospects
Carefully scrutinize the list of prospects
Design programmes for building relationships
Develop plans for approach and re-approach
Develop packages for maintaining relationships
Develop packages for enhancing relationships
Train personnel in relationship marketing
Design the system, infrastructure and support services that facilitate relationships
Execute the programme
Design a feedback system
Collect feedback and make necessary improvements
4.8.4 Customer Retention
The trend in marketing towards building relationships with customers continues to
grow and marketers have become increasingly interested in retaining customers over the
long run. Marketing analysts have identified satisfaction as a key determinant in a consumers
decision making, relating to keeping or dropping a given product or service relationship.
Companies do spend a lot of money through different media to attract new customers to
the business. Attracting new customers requires substantial skill and effort. However, these
skillful efforts will be of little use if the company suffers from high customer churn (gaining
new customers only to lose many of them).
The key to customer retention is to offer continuous satisfaction to customers.
According to Philip Kotler, a highly satisfied customer
1. Stays loyal longer
2. Buys more as the company introduces new products and upgrades
existing products
3. Talks favorably about the company and its products
DBA 1721
NOTES
are customized to fit individual needs. Marketers are looking for ways to keep in touch
with their customers by providing a personal touch and building informal relationships.
Financial, social and structural bonds
The strategy is to develop structural bonds along with financial and social bonds.
Structural bonds are created by providing highly customized service to the clients.
Specific customer needs are brought into the organizational system to design new
ways and to improve the offerings to the clients.
In service business, sometimes, there is a possibility of things going wrong. Under
such circumstances, a recovery strategy needs to be designed for retaining customers.
Effective recovery is essential to save and even build relationships. Therefore, service
firms should track and anticipate recovery opportunities. They should develop an orientation
that the customer who complains is your friend. Quick problem solving and empowering
the frontline to solve problems are very important directions for the service organizations
to follow.
4.8.5 Lifetime Value of Customers
In relationship marketing (RM) every customer is considered as a special target.
Relationship marketers leverage their databases to convert potential buyers into customers
and then build a long-term alliance with them through a range of insightful targeted
programmes. Powering RM is the concept of lifetime value of a customer. It means if a
customer keeps buying the same product over his entire lifetime, it adds up to a tidy sum.
Hindustan Thomson Associates research shows that the lifetime value of a one-cigarette
smoker is Rs. 1.10 lakh over a 10 year period, that is, roughly 7,000 times the value of a
single pack of cigarettes. According to the agency, the lifetime value of all the consumer
products and services you will personally use over the next 25 years is worth Rs. 1.4 crore
and if you add the value of the products whose buying you will influence, it adds upto Rs.
25 crore over the same period of time.
The continuing relationship with customers over a long period helps an organization
to gain values in four different parameters:
DBA 1721
NOTES
Reliability
Customers want to build relations to find a reliable source of supply and service.
Time
When consumers find a reliable seller they need not waste time searching for various other
sellers.
Search
The information search costs and energy costs gets minimized.
Exchange
A known seller accepts return of defective goods or executes recovery in the case of
service without any difficulty.
Support
Many a time, customers seek sellers support in taking purchase decisions. The advice of
a known seller provides greater support to the consumer.
In absentia purchase
A continuous rapport with the seller enables the customer to communicate his/her likes,
dislikes or preferences. He may manage to get the products at home, without personally
going out for the service.
Credit
Customers may seek liberal credit without security from a known seller.
4.9 CUSTOMER RESPONSE TO SERVICE FAILURES
What options are open to customers when they experience a service failure? Figure
4.4 depicts the courses of action available. This model suggests at least four major courses
of action:
Do nothing
Complain through some means to the service firm.
Take action through a third party (consumer protection group, consumer affairs or
regulatory agencies, civil or criminal courts).
Abandon this supplier and discourage other people from using the service (negative
word-of mouth).
Following through the sequence of possible reactions, we can see a variety of
end-results, leav-ing the customer anything from furious to delighted. The risk of defection
is high, especially when there are a variety of competing alternatives.
DBA 1721
NOTES
when things go wrong for the customer (unfortunately, firms dont always react in ways
that match their advertised promises). Effective service recovery requires thought-ful
procedures for resolving problems and handling disgruntled customers. It is critical for
firms to have effective recovery strategies, because even a single service problem can
destroy a customers confidence in a firm under the following conditions:
The failure is totally outrageous (for instance, blatant dishonesty on the part of the supplier).
The problem fits a pattern of failure rather than being an isolated incident.
The recovery efforts are weak, serving to compound the original problem rather
than correct it.
Figure 4.5 Components of an effective Service Recovery System
4.9.1.1 Guidelines for Effective Problem Resolution
According to Tax and Brown, Service recovery is a process that identifies service
failures, effectively resolves customer problems, classifies their root cause(s), and yields
data that can be inte2grated with other measures of performance to assess and improve
the service system. By adopting a service recovery system, service organizations get a
second chance to rectify any mistake that occurred during the delivery of service in the first
instance. If the problem is resolved and the customer is satisfied, he may give up his attempts
to switch to competitors. If the company continues to provide high quality service, it might
succeed in earning a loyal customer. This loyal customer could tell his friends and relatives
DBA 1721
NOTES
Clarify the steps needed to solve the problem.
When instant solutions arent possible, telling customers how the organization plans
to proceed shows that corrective action is being taken. It also sets expectations as to the
time frame (so dont over promise!).
Keep customers informed of progress.
Nobody likes being left in the dark. Uncertainty breeds anxiety and stress. People
tend to be more accepting of disruptions if they know what is going on and receive periodic
progress reports.
Consider compensation.
When customers did not receive the service outcomes that they paid for, or suffered
serious inconvenience and/or loss of time and money because the service failed, then either
a monetary payment of offer of equivalent service in kind is appropriate; such action may
also help to reduce the risk of legal action by an angry customer. Service guarantees often
layout in advance what such compensation will be. In many cases, what customers want
most is an apology and a commitment to avoid similar problems in the future.
Persevering to regain customer goodwill
When customers have been disappointed, one of the biggest challenges is to restore
their confidence and preserve the relationship for the future. This may require perseverance
and follow through, not only to defuse their anger but also to convince them that actions
are being taken to avoid a recurrence of the problem. Outstanding recovery efforts can be
effective in building loyalty and referrals.
4.10 THE SERVICES TRIANGLE
One of the most popular strategic models for services marketing was developed
by Christian Gronroos. The model is called the service triangle model. Fig. 4.6 presents
the services marketing model. Gronroos has identified three important groups that play
critical roles in successfully accomplishing organizational goals. They are company (top
management), employees and the customers. The model proposes a three-dimensional
approach for the development of the overall marketing strategy. It suggests the design of
three marketing programmes as the integral parts of the services marketing programme.
The model calls for a special marketing programme between the company and its employees
which is termed as internal marketing. The second marketing programme is between the
DBA 1721
NOTES
problems) if any, in the process of service production and consumption should also be
mentioned. The customers need to play an active role in the service production process. If
necessary, consumers should be given training so as to promote qualitative participation
and high level of customer perceived quality. The ultimate aim of external marketing is to
prepare the customer to participate in the service production and consumption,
simultaneously and efficiently. ( Dealt in detail in the section 4.7)
Interactive Marketing
Internal marketing and external marketing prepare the stage for actual interaction
between employees and customers. The interaction between employees and service firms
and their customers are also called service encounters. This is an important phrase in
services marketing. The service process needs to be facilitated between the two parties,
with adequate support services, tangibles, systems, techniques and other support materials.
The goal of interactive marketing is to facilitate efficient production and consumption process
and to create positive and satisfactory experiences, if possible, for both customers and
employees. ( Dealt in detail in the previous units)
4.10.1 Role of Internal Marketing in Service Delivery
Marketing aimed internally at the firms employees. Internal marketing is marketing
by a service firm to train effectively and motivate its customer-contact employees and all
the supporting service people to work as a team to provide customer satisfaction. Internal
marketing can make or break a company. The Services industry is unique in that employees
are part of the product. The hotel must have a staff who will perform well during moments
of truth. Marketing in the Services industries must be embraced by all employees; it cannot
be left up to the marketing or sales department. Marketing should be part of the philosophy
of the organization, and the marketing function should be carried out by all line employees.
Internal marketing has two benefits: customer satisfaction and employee satisfaction.
There is a two-way relationship between customer satisfaction and employee satisfaction.
When customer satisfaction decreases, employee satisfaction decreases; however, when
customer satisfaction increases, employee satisfaction increases. There is considerable
evidence that employee retention and customer retention are related. In addition, there is
also a relationship between quality and employee satisfaction. Some employees who leave
companies do so because of the poor level of service being given to customers and the
DBA 1721
NOTES
to demonstrate appreciation for employees, and to emphasize that all employees are
empowered to do what is necessary to meet guest expectations. Furthermore, in a
conventional organizational structure is that everyone is working for their bosses. The
problem with this type of organization is that everyone is concerned with satisfying people
above them in the organization, and very little attention is paid to the customer. When a
company has a service culture, the organizational chart is turned upside down. The customers
are now at the top of the organization and corporate management is at the bottom of the
structure. In this type of organization, everyone is working to serve the customer.
Development of a Marketing Approach to Human Resource Management.
Creating jobs that attract good employees: Managers must use the principles
of marketing to attract and retain employees. They must research and develop an
understanding of their employees needs, just as they examine the needs of customers.
For employees, the marketing mix is the job, pay, benefits, location, transportation,
parking, hours and intangible rewards, such as prestige and perceived advancement
opportunities. Additionally, flexible working hours, good health insurance, child-
care facilities are attractive attributes as well. Advertising should be developed with
prospective employees in mind, building a positive image of the firm for present and
future employees and customers. Using a marketing approach to develop positions
and company benefits helps to attract and maintain good employees. The cost of
employee turnover is undoubtedly high. Managers should examine the problem of
burnout to reduce the turnover rate. For example, McDonald examined the problem
of burnout at management levels and reduced this problem from 36% to 21% annually.
A hiring process: The service product is, at least in part, the attitude the employee
displays as he or she delivers the service experience. Hence, service organizations
need to hire for attitude and train for skills. This idea means that service firms place
more emphasis on personality, energy, and attitude than on education, training, and
experience in their recruitment, selection, and training strategies. For example,
Southwest Airlines strongly believes inherent attitudes cannot be changed in people.
To test for behaviors such as a sense of humor, ability to work with others, and
friendliness, Southwests interview process includes group interviews where applicants
tell jokes and role-play a variety of situations to demonstrate team work and the
capacity to act spontaneously.
Teamwork: In companies that practice internal marketing, if one employee makes
an error, other employees try to cover it before the guest notices. For example, In
DBA 1721
NOTES
communicating with customers is through customer-contact employees. Hospitality
organizations can communicate with their employees by employee newsletter, in-house
newsletter, personal communication, technology (database which is readily accessible to
employees), and encouraging employees to try the companys products and services.
Implementation of a Reward and Recognition System.
Employees must know how they are doing to perform effectively. Communication must
be designed to give them frequent feedback on their performance. An internal marketing
program includes service standards and methods of measuring how well the organization is
meeting these standards. The results of any service measurement should be communicated
to employees. For example, Sheraton, Marriott, Taj and other major hotel companies
survey their guests to determine their satisfaction level with individual attributes of the
hotel. Most reward systems in the hospitality and travel industry are based on meeting
cost objectives and achieving sales objectives. A few companies are now starting to give
rewards based on customer satisfaction.
Review Questions
1. Why is the people element of the marketing mix so important in services marketing?
2. Compare and contrast the role of customer contact personnel and support
personnel.
3. Identify the conflicts faced by employees of a service firm. Discuss why these
conflicts occur.
4. Discuss how a service business can develop customer-focused personnel.
5. What is meant by distributing services? How can an experience or something
intangible be distributed?
6. Cite the advantages and disadvantages of franchising as a distribution growth
strategy Specify the ways a service firm or service personnel can increase their
control during the service encounter.
7. What marketing and management challenges are raised by the use of intermediaries
in a service setting?
8. In what ways do the objectives of services communications differ substantially
from those of goods marketing?
9. Define internal marketing and discuss how a firm can use it.
DBA 1721
NOTES
determines how a service should be created and delivered to the customer. The
characteristics of service process include complexity, divergence, service location, customer
participation and the service itself -whether it is technology based or process based. The
fourth element of the marketing mix, namely, place, involves various efforts made by the
service organizations to make the services accessible and available to the customers. Service
location plays an important role in service delivery. Further, it conveys the service quality
provided by the service provider, and stamps an image of the service company in the
customers mind.
Service organizations aim to deliver services through direct distribution, where a
service provider visits the customer or a customer visits a service provider. When service
providers cannot deliver services through direct distribution, they opt for various forms of
intermediaries. Franchisees, agents and brokers, and electronic channels are the main types
of distribution channels of a service provider. Communication strategy is one of the key
components of a firms overall marketing mix. Its role is to inform, persuade, and/or
remind consumers about the services being offered. The objectives of a firms
communication mix often relates directly to the service offerings stage within the PLC. A
variety of special considerations that pertain to services must be addressed when developing
the communication mix. The complete communication programs of an organization constitute
promotional mix. These are personal selling, advertising, sales promotion, publicity, public
relations, and direct marketing. Berry and Parasuraman defined relationship marketing as
a process of attracting, maintaining and enhancing relationships with customers. Relationship
marketing benefits customers as well as organizations. Customers can reduce their time
and search costs and avoid anxiety by selecting services from a known supplier.
Organizations can also save on the time and effort involved in attracting new customers.
Internal marketing is a process in which organizations consider employees as internal
customers and strive to satisfy their needs and requirements at work so that they, in turn,
offer quality service to external customers. Internal marketing plays an active role in retaining
customers as well as employees, enhancing corporate image, implementing change
management and ensuring the organizations success.
DBA 1721
NOTES
5.0 INTRODUCTION
As discussed in the earlier units the services sector has registered a substantial
growth during the last two decades in India. Its growth prospects are very high, as per the
expectations of industrialists and economists. With the change in government policy, leading
to privatization and private participation in service sectors, competition has intensified. The
entry of multinational corporations, directly and in collaboration with the private corporate
giants of India, has further forced the sector to be market oriented. Under these
circumstances, service companies of India have no other option but to adopt the marketing
approach to achieve organizational objectives. They also have to recognize the distinctions
between marketing approaches followed by manufacturing organizations and service
organizations. The application of modern services marketing principles will certainly enhance
the internal and external efficiency of service companies and enable them to deliver quality
services to the customers. This unit examines some important services in India and analyses
the services operations from the marketing point of view so that you will enhance you level
of understanding and can make use of the concepts discussed in the earlier units to improve
your organizations in future.
5.1 HEALTHCARE SERVICES
Healthcare services have changed tremendously. Gone are the days when doctors
were very few and patients were treating them like gods. Initially when only doctors were
available at far-flung places or only in government hospitals, they could afford to choose
their patients and how to treat them. But now with mushrooming of private clinics, nursing
homes and private hospitals, they can ill afford to treat them with disdain. With increase in
competition, the role of healthcare marketing has increased. There was a time when
healthcare meant only hospitals, and, in a developing country like India, healthcare was
provided mainly by the Government. Considering healthcare a commercial industry was
beyond imagination even for the best business analysts. In those times, healthcare meant a
government hospital or a private dispensary that provides medical facilities. Today, the
word healthcare encompasses a much broader meaning and embraces many other allied
services like diagnostic services, pathological labs, physiotherapy centers, ambulance
services, fitness centers, health clinics etc. Though it emerged as a full-fledged industry in
the West a long time ago, corporate hospitals in India have just started making their mark.
DBA 1721
NOTES
corporate hospitals in Tamilnadu. The uniqueness of the Indian healthcare system is the
presence of various streams of alternate medicine, like Homeopathy, Naturopathy,
Ayurveda, Unani, Nature cure, Pranic healing, Reiki etc. Interestingly, alternate medicine,
which has always been in the hands of private people, is still conventional in its approach.
In contrast, the mainstream medicine, popularly known as Allopathic/English medicine,
which till recently was a state monopoly, is moving towards corporatization at full throttle.
Today, healthcare is not just a profession, but also a commercial activity and comes under
the purview of the Consumer Protection Act, 1986. However, government and other hospitals
where services are provided free of cost are exempted from the purview of the Act. Business
insight 5.1 provides, owing to the tremendous growth potential, how a fitness clinic VLCC
decided to expand through franchisee mode which is discussed in the earlier units.
Business Insight 5.1: VLCC in expansion mode
Vandana Luthra Curls and Curves (VLCC) Group plans to expand its healthcare
chain through the franchisee route and is focusing on smaller towns with a population
of between 100 million and 500 million. Company officials said the franchisee
model outlets are likely to come up in towns like Rohtak, Karnal, Phagwara,
Moga, Udaipur, Meerut, Trichy, Coimbatore etc.
The company plans to have 55 outlets in the first phase and another 145 by the
end of 2009. It currently has 100 company-owned centres across the country.
The proposed franchisee model will involve an investment of between Rs 30 and
Rs 40 lakh depending upon the city and the size of the outlet. The company will
invest in training the staff, technology and R&D support.
The awareness among people to be fit and look good is more in tier II and tier III
cities in comparison with what it was a few years ago. Even the personal care
spend in those areas is going up. People are willing to spend more on healthcare
services company officials said.
This is the first time that VLCC has chosen the franchisee route for expansion. It
said it has created all necessary backbone infrastructure such as strong R&D,
training facilities, so that we can support our franchisee outlets well and ensure
their scalability.
DBA 1721
NOTES
C) Gurmit Singh Chugh, marketing manager, cardiology, of Boston Scientific International
BV, a subsidiary of the $3 billion Boston Scientific Corporation. Five-six years back,
there used to be a big gap between the launch of technology and the technical competence
of physicians in the West and India, he said. However, over a period of time, competence
level of physicians has surpassed that of their western counterparts.
D)Low cost of treatment is undoubtedly the other big attraction. For instance, an open-
heart surgery that run upto $70,000 in the United Kingdom, and upto $150,000 in United
States, cost $3,000 to $10,000 in the best of Indian hospitals. Medical treatment can be
done in India at a fraction of the cost at which it is done abroad - in Europe or America.
Besides providing you medical treatment, patient can visit different tourist destinations in
India. The complete package will cost less than what one has to pay for the medical
charges alone, in other European, Middle East or America.
Others say cost differentials in other treatments could get far more attractive going
upto any figure between 200 percent and 800 percent. In terms of costs, depending on
the types of procedures, patients can benefit by 30 percent to 50 percent in just tertiary
care procedures by visiting hospitals like ours, says Bali of Workhardt adding, even
patients from next-door South-East Asia countries coming to our hospitals for bypass
surgeries save 35 percent in spite of their airfare. tens of thousands of people travel to
Indian cities from neighboring countries for something as simple as a cataract removal to
complicated treatments like heart and kidney replacement surgeries.
Health Sectors in India has improved tremendously in the part 15 years. It is
identified as the next big foreign exchange earner attracting patients from South East Asia,
the Middle East and Africa. Multi-specialty hospitals in India offer a wide choice for the
patients.
5.1.2 Strategies to Achieve Excellence in Global Health Care Services
There has been no concerted efforts to market India as a healthcare destination
though it has always attracted thousands of patients from abroad. In the late 1980s and
early 1990s most medical traveler coming to India were from the Arab Countries, Africa
and South East Asia. But today there is a significant number from the US nations,
Afghanistan. To achieve excellence in healthcare services the following strategies need to
be employed.
DBA 1721
NOTES
Indian health care industry comprises roughly 4 percent of the countrys GDP, could achieve
a growth rate 13 percent annually in the next six years.
Indeed India has tremendous potential to become a healthcare destination, said
Reddy. We have great potential in terms of technical skills. We only need to work on the
perception of foreigners towards India to achieve our goals. Business Insight 5.2 provides
insight to the role of a non-profit organization in improving the quality of healthcare services
in India.
Business Insight 5.2: To streamline healthcare services
EAN India introduces barcode standards
Enhanced patient safety, reduced medication errors, speedier and accurate billing
and documentation, safer blood supplies, and updated hospital supplies inventories,
all these and more, will soon be a reality in India. EAN India, a non-profit
organization set up by various industry bodies and the Union Ministry of Commerce
to promote global supply chain standards, is introducing the universal EAN.UCC
barcode standards in the countrys healthcare sector. These barcode standards,
developed by EAN International (Brussels) in collaboration with the healthcare
sector, will help streamline healthcare supply chains across the country.
EAN India has already initiated discussions with various State and private hospitals,
pharmaceutical companies, drug stores and blood banks across the country and
major hospitals have expressed interest in adopting the globally recognized
EAN.UCC standards. Once implemented, the EAN.UCC system will enable
automated and unique identification of all hospital supplies, tracking and tracing
of pharma drugs, blood and blood products, surgical implants and medical
supplies. Patients in hospitals will also get identified through barcoded wristbands
that will carry a unique identifier which links to the hospital from where the patients
detailed medical history can be traced. This data can be instantly and accurately
accessed for rendering emergency treatment, thus reducing error and processing
time.
The system can also act as a damage containment tool by enabling fast recall of
harmful, expired or spurious products from the market. Medication errors are
one of the leading causes of deaths in hospitals. A report by the National Academy
of Sciences Institute of Medicine, US, (IOM) has estimated that as many as
DBA 1721
NOTES
services like maintenance of the case history of patients, registration, billing and support
operations like laundry, diet, pharmacy, stores, security etc. These services help give a
tangible effect to the intangible nature of the services provided.
Place Mix
Place is one of the key elements, in the sense that the service provider should be
easily accessible to the patients, but at the same time, should be adequately protected from
pollution. Corporate hospitals can distribute their services using the services of doctors
and private clinics. For example, doctors who have their private practice, work as visiting/
consultant doctors for corporate hospitals. They can refer their patients to these hospitals
for diagnosis, surgeries etc. Other doctors too can refer their patients to corporate hospitals,
as they do not have adequate facilities for specialized services.
Corporate hospitals can also use ambulances to offer immediate care to patients in
emergency conditions.
People Mix
Without people, healthcare as an industry cannot exist or survive. People include
patients, and the staff who treat and take care of those patients. Healthcare is also a
knowledge-based industry. Doctors and technicians, who take care of the diagnosis and
treatment of patients, form the core of this knowledge base. Therefore, it is important for
corporate hospitals to attract and retain doctors with excellent knowledge and skills, and
also the right attitude. The support and assurance of the doctor is the best medicine for the
patient and cures him largely. Patients prefer a friendly doctor who gives personal attention,
to a doctor who treats them as commodities and deals with all of them alike.
Patients should be provided utmost care as their recovery depends not just on the
medical treatment but also on the human touch provided by the support staff. So, apart
from being technically qualified, support staff like nurses and housekeeping personnel should
be well-mannered, gentle, hygienic and meticulous. In order to provide quality treatment
and support services, many hospitals run their own medical and nursing schools to train
staff according to their requirements. Apart from maintaining quality staff, many hospitals
also conduct customer education programs to enable patients and the attendants to
appreciate the value and quality of healthcare. Patients also play a role in service delivery.
It is impossible to have an efficient delivery if the patient is not either confident or supportive.
DBA 1721
NOTES
latest technologies like close circuit cameras. It should be remembered that mouth to mouth
publicity is the most important publicity. A satisfied and happy customer is the best
ambassador of healthcare marketing. Every person playing a part in the delivery of health
care services should understand that they are there because of the patients/customers and
not vice versa.
Process Mix
Services are provided under two broad categories, viz. services for inpatients and
those for outpatients. The processes for these two services are little different. The basic
process however starts with reporting at the reception at the appointed time and meeting
the doctor concerned for diagnosis and treatment. If the doctor says that simple medication
is required, the patient can avail of the services as an outpatient. However, if the doctor
says that the patient needs special continuous care and needs to be admitted to the hospital,
then the patient becomes an inpatient.
Services for inpatients are spread over operation theaters, intensive care units,
emergency units, regular wards etc. Administrative work like registration, stores, diet for
the in-patients, maintenance of the patient records, security etc. is carried on by the staff
assisting the line officers. Apart from the in-house treatment, some hospitals run mobile
clinics to provide patients easy access to their services. Providing online consultation is
also fast gaining popularity in the West, though in India, where technical awareness is
comparatively low, it may take some time for the masses to welcome such innovative
concepts. Corporate affairs are managed by professionals specially appointed for this
purpose. Affiliated academic institutions educate and train healthcare professionals and
research institutions concentrate on discovering and developing new concepts.
Price Mix
Pricing healthcare services is done keeping in view the cost of running the hospital,
the overheads, salaries and wages of the doctors, nurses and the administrative staff, cost
of equipment and infrastructure, bed occupancy, quality of service and the income levels of
the patients. Many hospitals follow differential pricing policies. Membership cardholders
are given treatment at concessional rates. Patients opting for general wards and private
wards are also charged different rates, depending on the facilities provided to them. Alternate
medicine is not yet fully commercialized, so services are provided for nominal prices.
DBA 1721
NOTES
of expectations of guests in the hotel industry is steadily increasing and they are becoming
harder to please and even harder to retain. Though most of the hotel operations are being
same, the aim of getting guests satisfaction can be achieved only through assured high
quality service. It is the key factor to attain success and to the very existence of the
industry. Personalized service is the only counting factor to improve the arrival of new
guests and make them as our guests for ever. In the parlance of hospitality industry,
customers are regarded as guests. The hotel industry is dependent on tourism and travel
industries, and together they constitute the hospitality industry. Now we will discuss each
industry with their significant role in developing the national economy strategies adopted
by them and their services marketing mix in detail.
5.2.1 Hotel Services
A hotel is a home away from home where all the facilities and services are available
on payment. Over the years, the hotel industry has grown in size. A number of hotels have
come up in various parts of the world to facilitate the people who are traveling. The growth
and development of the tourism sector is reflected in the development of hospitality services.
Hospitality is a commercial proposition. In countries where tourism is progressive, hospitality
services are also progressive.
The marketing of hospitality services includes designing the product, the physical
environment, pricing, place, promotion and process. The services offered are mostly market
segment specific. The segmentation of the market is largely based on the affordability of
the customer. The other criteria used by hotels include the purpose, occasion, individual or
group, loyalty and so on.
5.2.1.1 Services Marketing Mix of Hotel Industry
Keeping in mind the focused target segment, a hotel should design a marketing
mix strategy. The ultimate goal of the marketing programme is to offer quality services that
satisfy the customers and, if possible, delight them. The following are the basic dimensions
of the marketing mix of hotel services:
Product Mix
The core service offered in a hotel is hospitality. The facilitating services (or goods)
are: a well-constructed and secure building; rooms with beds and other facilities; toilets,
DBA 1721
NOTES
The exterior of the hotel creates the first impression on the customers. The design
of the exterior should be capable of attracting the attention of the prospective buyers of the
service. The exterior influences the expectations of the quality of services that customers
are likely to receive from the hotel. Hoteliers generally take special care while designing
the interiors. The architectural values, lighting, air quality, wall hangings, specialized furniture,
placing of articles, signage, and layout are all parts of the interior of the hotel. The management
of the hotel should be flexible and innovative while designing the interiors and introduce
modifications to add value perceptions without causing much disturbance to the routine.
Customers perceptions of the ambience determine expectations of the quality of service.
The reception and the signage should be customer friendly.
Price Mix
Prices are fixed for various services as well as tangibles in hospitality services.
Room tariffs are fixed for various categories of accommodation such as single occupancy,
double occupancy, air-conditioned rooms, non- air-conditioned rooms, suites, conference/
function halls and so on. Prices are also fixed for various food items offered in the restaurants,
for special events and for special parties organized inside and outside the hotel.
The decision on pricing is very critical and complex because of the presence of a
large number of elements with individual features in the basic service product. The problems
are not only in arriving at pricing decisions, but also in communicating price to customers
and influencing them to develop value perceptions of the rates. Besides establishing price-
quality relationships, it is necessary to assess the impact of pricing of the competitive offers
on the consumer decision-making process. Though services are not closely comparable,
consumers definitely keep the pricing of the competitors as reference prices. Cost plus
pricing is not very relevant in hospitality services since consumers do not have an idea of
the various costs involved in the service offering and the level of efficiency of the management
in managing the costs. Consumers are likely to give more weightage to the value they
receive. Hence value pricing is highly appropriate for hospitality services. However, while
arriving at a price decision, the prices of similar offers from competition must also be
considered. Pricing can also be used to manage the demand fluctuations in this service.
During slack seasons, hotels may offer seasonal discounts. Special tariffs may be offered
to the customers fro business and trade to promote loyalty.
DBA 1721
NOTES
Recovery from service deficiencies is a major challenge in managing hospitality
services. On many occasions, employees are faced with problems, owing to uncontrollable
circumstances. A customer may reserve accommodation well in advance. When he arrives,
the accommodation may not yet be available. The existing customer may plead for an
extension of stay in the hotel for some personal reasons. The employees of the hotel are in
a tight situation since they cannot afford to displease either of the parties. They have to
explore the possibilities of satisfying both the parties and arrive at a decision on the spot
without losing much time. The customer who has arrived finds deficiency in service after
realizing that the reserved accommodation is not available and may pick up a quarrel with
the service personnel. Under such circumstances the contact service personnel are expected
to come out with a recovery strategy, by offering a better package, without any additional
financial commitment to the customer, and also tendering an apology for the deficiency in
service. Such situations, need service personnel who are courteous, exhibit empathetic
behavior and use common sense. Human resource policies are to be designed keeping in
view the requirement of the job and the challenges associated with it Employees should be
given a clear picture of their roles and responsibilities and team work has to be promoted.
Interactive marketing is of vital significance in hospitality services. Customers experience
many moments of truth during their stay in a hotel. Major as well as minor moments are
capable of influencing the quality perceptions of the customers. Interaction with employees
generate many moments of significance. An integration of internal an external marketing is
necessary for the process to be effective.
Promotion
In the marketing of hospitality services customers have to be drawn to the service
outlet. External marketing has a major share in the success of this service business. An
effective communication campaign for creating awareness and persuading customers to
visit and stay in the hotel is necessary, in the light of severe competition. Hoteliers use
advertisements, sales promotion, personal selling, publicity, public relations, and direct
marketing as the components of the promotion mix. Advertising in print media as well as
electronic media are widely used by large hotels. Sales promotion helps to create demand
during slack periods. Many hotels announce price discounts and other benefit packages
for individuals and families during weekends as room occupancy during weekends generally
low. Some hotels organize special events to attract customers. Sponsoring events, meetings
and special programmes are strategies to create publicity. Hotels try to build and maintain
relations with business houses so that official visitors make use of their hospitality services.
DBA 1721
NOTES
Year Tourist inflow (In lakhs)
1951 0.17
1961 5.2
1971 6.8
1981 12.8
1991 16.8
1997 23.74
2001 25.2
2003 27.5
2010(expected) >100
(Figures include visitors from Bangladesh and Pakistan and business travelers)
On an average, tourism at present is contributing to more than Rs. 37,000 crores
to the national economy foreign exchange earnings are Rs. 12,000 crores and goods and
services purchased worth Rs. 25,000 crores which includes transport, jewellery, silk
handloom, curios and handicrafts. It was Rs. 8640 crores in 1995 and just Rs. 1992
crores in the year 1988. It has an employment generation potential of 1.01 crores
accounting for 2.5% of the total labor force. The hotel industry which is directly linked to
tourism is responsible for 50% of foreign exchange earnings from tourism.
Business Insight 5.3: Tourism will improve
The Associated Chambers of Commerce has a strong belief in Indias tourism
industrys future, says V N Dhoot, chairman of ASSOCHAM.
The Indian tourism industry has worked very hard to put up tourism infrastructure
in the country for attracting overseas tourists in the last couple of years and its
result were noticeable in the year 2006-07 when the total tourist inflow stood
around less than five million. There have been gradual improvements of tourist
inflow which is a result of renovation works, repairs of all tourist sites wherever
possible through central assistance and many more similar initiatives will help the
trend continue.
According to ASSOCHAM estimates by 2010, the tourist inflow will exceed 10
million as result of smoother land connectivity by to the tourist sites and roads
leading to them would improve a great deal. Also a recent study by the Chambers
reveals that the aviation, hospitality and tourism sectors can leverage great potential
DBA 1721
NOTES
Price Mix
The price of a tourist package should be decided after the costs involved are
analyzed, including the hidden costs, the income level of the potential customers in the
market segment, the number of competitors existing in the market and their prices. Also,
the prices should cover the investments made in developing and attracting tourists to the
destination. However, pricing also depends on the demand patterns, and the objectives of
the tourism company, i.e. to penetrate into the market or to serve the up-market segment.
For example, some tourist companies target the elite and design luxury packages studded
with unique attractions. Others design economy packages to suit the needs of the average
traveler. In such cases, a low or reasonable price can be a winning proposition for the
tourist operator. The tourism companies should ensure that they effectively communicate
these prices to the target audience through appropriate promotional activities.
Promotion Mix
A tourism package can be promoted through the print media, television, radio, the
Internet, entertainment programs, etc. The print media may include advertisements in
newspapers, magazines, etc. These advertisements should include the various products
and facilities offered by the destination, remarks of the customers who have already visited
the place, and the ways in which a customer can reach the spot. Promoting via television
includes advertising in various national and international channels. Malaysia, Srilanka and
Singapore have, for example, use these two media extensively to promote their tourism
industry. In India too, different states try to promote their tourism industry using the print
and television media. For instance Indian Tourism Development Corporations concentrated
promotion effort is titled as Incredible India to attract foreign tourists. Special programs
like Destination India on Discovery Channel helps in promoting various tourist destinations.
Further, game shows telecast on TV offer complementary packages to various tourism
destinations as gifts to their participants.
Tourism companies normally tie-up with hotels and travel companies or airlines to
promote their services. They can also tie up with retail stores, credit card companies, etc.
and offer discounted packages to their loyal customers. This will increase awareness of the
tourist destination and also promote the services of the tourist operator.
DBA 1721
NOTES
People Mix
The people involved in promoting, managing, and guiding the tourists should be
pleasant and friendly. These people interact with customers and their behavior determines
how customers evaluate a tourist destination. An important aspect is that they should have
complete knowledge about their job and should provide information to the tourists whenever
required.
The government has an important role to play in ensuring that the right people
interact with the tourists. Especially in a country like India, the government should take
steps to prevent beggars and small time hawkers from pestering the tourists. For example,
in India, Varanasi or Kasi, considered by Hindus to be a holy place, is replete with pandas
or pandits who bargain and literally force tourists to pay them. Such unpleasant encounters
can put tourists off. The government should also take care to ensure that tourists are
provided proper guidance and information by tourism authorities.
Process Mix
A tourist expects that his/her tour programme right from the beginning to the end of
the programme should pass freely from stage to stage, without any hurdles. The management
of service process aims at simplifying customer interactions and customer participation in
the service process. The systems, policies, procedures, equipment, tools, people and other
support services need to be customer friendly. The way the entire service environment
responds to the customer needs and requirements reflects the efficiency of the process
management.
Tourists get away from their comfortable normal routine. Therefore, their
dependency on the service provider for generating a value experience will be very high.
They have to manage three stages in the process: They are: pre-tour preparatory process;
tour process; and return process. The service providers role in facilitating these three
processes is pivotal. These processes are influenced by economic, legal administrative and
infrastructural system of various regions and cultural, demographic and psychographic
factors of the tourists. It is Herculean task for the tourists, to make all the arrangements on
own. Therefore, they look for someone to relieve them from the burden. When service
firms take on the responsibility of these processes and perform much better than what an
individual tourist can do, it adds to -the value of the services provided to the customers.
The tourists feels relaxed and can concentrate on exploring new values in the programme.
DBA 1721
NOTES
The unique facility the train offers is its satellite supported television, which unlike
the other luxury trains, could provide the tourists with live feed of news and other
programmes beamed by various channels. The package will cost $350 a day,
which includes the travel, stay on land and food. Mapple Hotels, the managing
partner of the Golden Chariot, has appointed heritage-walks provider India Walks
as its cultural coordinator. India Walks will assist Mapple Hotels in designing and
conducting various off-board activities, including selection and training of guides.
5.2.3 Logistics Services Industry
The transport sector plays a key role in the socio economic development of a
country. The objective of the Public Transport Undertakings is to provide efficient, economic,
adequate and well coordinated passenger services to the public on sound business
principles. The transportation industry can be divided into roadways, railways, and airways.
Road transportation in India is governed by individual states. Some individual state
governments have given licenses to private travel service providers, who set their own
prices. On the other hand, the prices of the state government owned road transportation
services are set by the government with the publics interest in mind. The railways are the
second major mode of transportation chosen by the people in India. They are governed by
the Railway Ministry of the Government of India. The number of new trains or routes, the
frequency of trains, the prices charged, etc. are all the responsibilities of the central
government. Most of the lower and middle-class people travel by train in India. In cities
like Chennai and Mumbai, there are a number of local trains, which help the huge populations
to commute within the city. Recently, Delhi and Hyderabad have started metro trains for
the benefit of travelers commuting within the city. Airline travel is not within the reach of the
common man in India till the year 2003. Before liberalization, Air India and Indian Airlines
were the only airways operating in the country. There were also many restrictions on
foreign flights flying over the country and permission had to be obtained from the concerned
authorities for that. After liberalization, the scenario changed completely and the country
opened itself up to many private airways to operate their own fleet in the country. This
increased competition among the domestic airlines in the country and with the foreign
airlines.
The two dominant public transport modes in India are rail and road. Both possess
their respective strengths and weaknesses. While railways are more cost effective for
DBA 1721
NOTES
Indian Railways are the largest rail network in Asia and the worlds second largest
under one management. Its work force is 1.65 million and it runs some 11,000 trains
everyday, including 7,000 passenger trains. Freight traffic on Indian Railways has registered
an impressive growth in the last four decades. Increase in the last few years have been
particularly striking. From a mere 93 million tones of originating freight traffic in 1950-51,
Railways carried nearly 376 million tones in 1992-93, an increase of 304%.
This has been despite the ever increasing pressure of passenger traffic which increased
during the same period from 1.28 billion passengers carried to 4.2 billion, to make an
Indian Railways (IR) a leading passenger carrying railway in the world.
Table 5.2: Services Marketing Mix of Railways
Airlines in India an overview
For the airlines services domestic market size is expected to cross 60 million and
international traffic 40 million by the end of 2010. Domestic and international traffic have
seen an acceleration of growth in recent years. In the 12 months to 31
st
March, 2007,
airlines carried 35 million domestic passengers (up 39.5% year-on-year) and 22.4 million
international passengers (up 15.1%). This follows domestic traffic growth of 28% the
previous year and 20% the year before. Domestic traffic has consequently doubled in the
space of three years. The Centre for Asia Pacific Aviation, a special consulting and research
practice, projects domestic traffic will grow at 25-30% per annum and international traffic
at 15%, until 2010. The domestic market size is expected to cross 60 million and
international traffic 40 million by the end of 2010.
DBA 1721
NOTES
Air India-Indian Airlines Merger
The Government has merged the two state-owned carriers into a new company,
which will strengthen their operations. The new airline is the largest in the country, with a
fleet size of almost 120 comparable to other airlines in Asia, and a further 111 aircraft on
order. The merged entity will have an integrated national and international footprint, and
will enable these two airlines to pool their resources, achieve synergies, face competition
and establish new benchmarks for efficiency and reliability. The formal merger of the two
airlines has been completed in August 2007 and integration of operations will proceed in a
phased manner over the next two years. The merger is in keeping with the industry trend of
moving towards consolidation to achieve synergies and reduce costs. The merged airlines
will be able to offer an integrated schedule from interior points in India to various international
destinations and vice versa, offering seamless connectivity to passengers. A larger and
stronger public sector national carrier will also increase regional connectivity to hitherto
under-serviced and un-serviced destinations.
Freight and Logistics
Indias increasing international trade, combined with a strong domestic economy,
will continue to drive demand for airfreight and logistics. Meanwhile, all major international
express freight operators are reporting strong growth in the Indian market. New dedicated
cargo airlines are planning to launch shortly. Massive investment plans in the organized
retail sector, as well as in high-value manufacturing, will require the support of sophisticated
logistics facilities. Indias economic development will require the support of dedicated
freight cities with multi-modal interchanges, state-of-the-art cargo terminals, cold storage
facilities, and electronic data interchange systems. The Indian government is shortly expected
to grant permission for the development of a major cargo hub in centrally located Nagpur.
New Air Services Agreement
The signing of a new Air Services Agreement is the first milestone to achieve for
the purpose of establishing air connectivity with new countries. Recently, a number of new
Air Services Agreements have been initialed/signed based on modern practices in civil
aviation sector. Air Services Agreements with some countries were signed some time back
and required updating in view of the changing circumstances and developments in
international civil aviation, and with respect to newer standards and recommended practices.
DBA 1721
NOTES
Passengers will get to select their choice of programmes from over 250 hours of
video and 150 hours of audio programming. In First Class passengers will be
able to view video programmes on a 23-inch monitor; in Executive Class on a 15
inch monitor and in Economy Class on a 10.4 inch monitor. The NonStop service,
which will cut down travel time between the two cities, will in a way redefine air
travel.
Table 5.3: Services Marketing Mix of Airways
5.3 FINANCIAL SERVICES
In the changing economic scenario of India with deregulation, competition, free
market orientation and globalization there has been tremendous increase in inflows and
outflows of funds into and out of and Indian financial sector. Consequently, the activities in
financial service sector have witnessed rapid growth and have also led to the emergence of
innovative financial services and entry of new players in Indian financial system. The function
started playing a critical role in the success of the players, as their products and services
are more or less uniform and have less intrinsic difference. The financial service has assumed
greater significance, due to competitive environment, global trading practices, integration
of global, financial market, deregulation, growing volume of financial transaction, advanced
information technology volatility of markets, sophistication of market and customers,
increased choice of customers. These factors have posed new challenges to the financial
service sector. In this transaction period, the issue to be addressed by the financial services,
for an aggressive strategy for survival are financial research, innovation and introduction of
new financial product, branding and product advertising in all classes, pricing of financial
DBA 1721
NOTES
Deregulation in the financial service sector-gives rise to emergence of various
spurious companies and many malpractices in the stock and capital market has
badly affected the activities of the financial sector.
Increased competition from global market and domestic market has threatened
the survival of many industries.
Integration of global market and growing volume of financial transaction.
Coping with advanced information technology in the function.
High level of volatility of the financial market.
Coping with fast growth rate of communication, multimedia etc.
Many of the existing could not cope with new environment. Others have met the
challenges with better management talent, adoption of new organization structure
strengthening of the information system and technology and drastic changes in the financial
sector.
Business Insight 5.7 substantiates the growth and importance of financial services sector in
the coming years.
Business Insight 5.7: Growth of Financial Services sector
If you work in the financial services sector, chances are that 2008 is going to be
an especially fruitful year for you, adding heft to your wallet and desirability to
your profile. And you dont even need to stir a muscle for any of this.
Fact is, the financial sector is likely to witness a huge shortage of manpower in
2008 as a herd of new companies are slated to enter this lucrative market.
Take the insurance business, for instance. Apart from LIC, the rest of the 15
companies in this arena have been in existence for about nine years and are short
of talent at both entry and senior level positions. This can only get worse as the
insurance sector is likely to see 20 additional players entering the market (there
are 16 in the fray currently).
As Indias economy continues on a scorching growth path, more and more people
are saving money that needs servicing. As a result, companies in this sector are
thriving, with revenues growing at a 50-60 per cent clip. Moreover, new entrants,
especially those in the mutual fund and banking verticals, are not afraid to resort
to widespread poaching in order to fill their rosters.
DBA 1721
NOTES
The Indian banking has finally worked up to the competitive dynamics of the new
Indian market and is addressing the relevant issues to take on the multifarious challenges of
globalization. Banks that employ IT solutions are perceived to be futuristic and proactive
players capable of meeting the multifarious requirements of the large customers base.
Private Banks have been fast on the uptake and are reorienting their strategies using the
internet as a medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being just as applicable like in any
other marketing medium. The latest development in technological in computer and
telecommunication have encouraged the bankers to changes the concept of branch banking
to any time to anywhere banking. The use of ATM and internet banking have allowed
anytime anywhere banking facilities. Simple queries are now answered by automatic voice
recorders, currency accounting machines; self service counters are now encouraged. Credit
card facility has encouraged an era of cashless society. Today master card and visa card
are the two most popular cards used world over. The banks have now started issuing
smartcards or debit cards to be used for making payments. These are also called as
electronic purse. Some of the banks have also started home banking through
telecommunication facilities and computer technology by using terminals installed at
customers home and they can make the balance inquiry, get the statement of accounts,
give instructions for fund transfers, etcthrough ECS we can receive the dividends and
interest directly to our account avoiding the delay or chance of loosing the post.
Banking is as old as authentic history and the modern commercial banking are
traceable to ancient times. In India banking has been existed in one form or the other from
time to time. The present era in banking may be taken to have commenced with establishment
of bank of Bengal in 1808-09 under the government charter and with government
participation in share capital. Allahabad bank was started in the year 1865 and Punjab
national bank in 1895, etc The union budget affects the banking sector to boost the
economy by giving certain concessions or facilities. If in budget savings are encouraged
more deposits will attract the banks and in turn they can lend more money to the agricultural
sector and industrial sector, therefore booming the economy. If the FDI limits are relaxed
then more FDI are brought in India through banking channels.
Government and RBI policies affects the banking sector sometimes looking into
the political advantage in a particular party. The government declares some measures to
their benefits like waiver of short term agricultural loans, to attract the farmers votes. By
doing so the profits of the bank get lower down. Various banks in the cooperative sector
DBA 1721
NOTES
A product mix refers to all the products offered for customers by a particular
seller. The product mix of a large bank may include a large number of services, providing
the customers all the financial services under one roof. New and innovative products are
being offered to customers to meet their varying needs. Most of the following products are
commonly offered by todays banks-
Savings account, debit card
Salary savings account
Current account
Fixed deposits
Recurring deposits
Loans like two wheeler, home, personal, home-equity loans
Overdrafts, cash credits; credit, virtual, charge, smart cards
Payment services of utility bills
Advisory and consultancy services
Depository services
Selling or cross-selling of products like bancassurance, prospectus of other
institutions
Transfer of money through demand drafts, checks, challans
Public limited companies public issue services
To meet customer expectations and satisfy their needs, these basic products need
to be augmented with supplementary services. Some of these services are
Net, phone, mobile, ATM, mobile A TM banking, home banking
24-hour customer care service
Anytime and anywhere banking (where the customer is allowed to conduct
transactions in any of the banks branches)
Add-on debit and credit cards
In these days of intense competition in the banking sector, it is becoming increasingly

difficult for marketers to differentiate their service offerings from those of their competitors.
DBA 1721
NOTES
Mark up pricing
This is a pricing technique wherein the cost of the service is determined and a small
margin is added to it and then the final price is offered to the customers. This type of pricing
is the not very popular since in the banking sector it is not very easy to arrive at the cost of
the service. Thus most banks use a combination of mark up pricing and going rate
pricing.
Place Mix
Place mix is the location analysis for banks branches. There are number a factors
affecting the determination of the location of the branch of bank. It is very necessary a
bank to situated at a location where most of its target population is located.
Some of the important factors affecting the location analysis of a bank are:
1. The Trade Area: The trade area is a very important factor determining the place
where a bank branch should be set up. For example a particular location maybe a huge
trading place for textiles, diamonds or for that case even the stock market. Such locations
are ideal for setting up of bank branches.
2. Population Characteristics: The demography of a place is a very important factor.
This includes: The income level of the population, The average age, The average male
female population, The caste, religion, culture and customs, The average spending and
saving habit of the people. These factors are very important for a bank as the help them
decide the kind of business the branch will get.
3. Commercial Structure: The commercial structure refers to the level of commercial
activities i.e. business activities taking place at a particular location. The higher the level of
business activities taking place in a particular location the more preferable it is for setting
up a bank branch.
4. Industrial Structure: This is nothing but a combination of the trade area analysis and
the commercial structure. However the industrial structure focuses more on the kind of
industries operating in a particular location. For example an area like SIPCOT is marked
with a lot of electronic manufacturing units. Thus the industrial structure determines the
kind of financial transactions that could take place in a particular location.
DBA 1721
NOTES
Promotion Mix
Promotion is nothing but making the customer more and more aware of the services
and benefits provided by the bank. The banks today can use a lot of new technology to
communicate to their customers. Two of the fastest growing modern tools of communicating
with the customers are: Internet Banking and Mobile Banking
Different options of promotion mix commonly adopted for the banking services
are:
Public Relations: In todays competitive scenario developing strong public relations is
very important for any bank to be successful. Most banks today have a separate Public
Relations department. However primarily it is considered as a responsibility of the various
bank managers to develop a steady and strong relationship with their present customers as
well as potential customers. This can be done by a constant follow up action.
Personal Selling: Personal selling is found to be one of the most effective and popular
form of promoting bank business. The main reason for this is that banking is a service in
which trust plays a very important role. In personal selling a bank representative goes to
the customers and explains the scheme to the customers. Also he gives the customers any
kind consultation he might need. He provides the customers all the information seeked by
him. Representative tries to persuade the customers to go for the scheme provided by the
bank by telling him all the benefits.
Sales Promotion: Sales promotions are basically giving the customers some additional
benefits maybe at times just some small gifts in order to promote the schemes. The more
innovative the sales promotions the more positive are the results. Some of the most popular
sales promotions techniques are gifts, contests, fairs and shows, discounts and commission,
entertainment and traveling plans for bankers, additional allowance, low interest financing
etc. it is very important that the sales promotions benefits are designed in such a manner
that they are better than those of the competitors.
Word of mouth Promotion: This form of promotions is not only very effective in
banking services but in any kind of service. However it is more important in banking for the
only reason that this is a service where trust plays a very important role. If a particular
banks services are recommended by ones friends, relatives, or other well wishers the
DBA 1721
NOTES
words a process should be such that the customer is easily able to understand and easy to
follow. Today if particular banks formalities are long and the procedure very complicated
the overall process fails and the customer may not be inclined towards using that banks
services.
Lets take for example the process for application for a car loan.
Now this mainly involves 3 things.
Producing of proper documents
Filling up of application form
Paying for the initial down payment.
Here the process may fail in the following cases:
1. If the customer is asked to produce a number of forms out of which some may not
be necessary at all. He will try with some other service provider. Thus it is very necessary
that the customer is asked for the minimum but most necessary document and not
other unnecessary documents.
2. In case of application form, the application form must in a language best understood
by the customers and it should not be very lengthy one demanding a lot on unnecessary
information.
3. Finally the payment of initial amount. The customer should be given options as to
how he would like to pay by Cheques or by credit card. Once again the amount
should be very competitive not very high above the regular rates prevailing in the
markets.
The smaller and simpler the procedures the better the process and the customer will
be more satisfied.
Physical Evidence
Physical evidence is the overall layout of the place. How the entire bank has been
designed. Physical evidence refers to all those factors that helps make the process much
easier and smoother. For example in case of a bank the physical evidence would be the
placement of the customer service executives desk, or the location of the place for depositing
Cheques. It is very necessary the place is designed in such a manner so as to ensure
maximum convenience to the customer and cause no confusion to him.
DBA 1721
NOTES
9% for UK and France, it was only around 2% in India in 1999. Hence obviously the
penetration of the insurance is lowest here.
3) The penetration of insurance is also assessed by a ratio of the insurance premium to
the Gross Domestic Savings. While the insurance premium as a Percentage of GDP
was 52% for UK, 35% for other European and American Countries, It was only 9%
in India in 1999. Hence even this index indicates low level of insurance penetration in
India.
4) The share of India in world market in terms of gross insurance premium is again very
small for intance while Japan has 31%, European union 25%, South Africa 2.3%,
Canada 1.7% share of the Global Insurance Premium, it is only 0.3% for India.
5) In the sphere of Life insurance, only 25% insurance population of India estimated
around 314 millions in 1999 has been able to get Insurance Cover. Such Insurance
Cover in the developed countries of Europe & America has been extended to around
90 to 95 of the total population.
Business Insight 5.8 provides the tremendous potential available for the marketer in the
health insurance sector.
Business Insight 5.8: Give way to health Insurance
If you think that this is the new kid on the block, then you are not aware of the
slew of health insurance products that are available in the market. The market has
now seen Bajaj Allianz and Star Health in the realm. Prior to this it was just
MediClaim. Even ICICI prudential has decided to make some noise about its
health insurance products. ICICI Prudential Life Insurance has released a
commercial for its health plans, based on Jeetey Raho, a corporate thought
coined by its agency, Lowe, earlier in the year. The ad opens on the shot of a
couple watching television in their house. The soap opera they are watching has a
woman pleading with her husbands boss for a loan for a health-related emergency
in her family. Watching this on TV, the wife remarks that had she had health
insurance, the television character wouldnt have had to face any problems. The
husband starts looking thoughtful, and the wife teases him that its only a TV
show. Next, the husband presents his wife with ICICI Prudentials Health Insurance
Policy (with a health-care guarantee of 20 years) and the wife gets all misty eyed.
When her husband asks her why she is getting emotional, she blames it on the
DBA 1721
NOTES
Cattle & Livestock insurance
Engineering insurance
Marine-cargo insurance
The basic marketing strategy of marketers in a competitive market has been to
identify the special needs of customers and target them in the individual segment, most
customers see insurance as a means of security, investment or tax saving. If separate policies
are offered to customers to meet their different needs, it may not be very difficult to increase
volumes. For instance, a specially designed auto-accident insurance policy could be targeted
at drivers and mechanical workers who are exposed to accidents.
In a marked departure from the earlier scenario when most insurance players
were regarded as the same, todays insurance companies give due importance to brand
building. As the market has become highly competitive and the products have very little to
differentiate one from another, companies have resorted to brand building. Global insurance
majors like Allianz, AIG, MetLife and ING have put a lot of effort into this exercise. Not to
be left behind, traditional Indian players like LIC and GIC have also used brand building to
give the foreign players a tough fight.
Price Mix
In the insurance business, the pricing decisions are concerned with the premium
charged against the policies, interest charged for defaulting the payment of premiums &
credit facilities, commission charged for underwriting & consultancy services.
Premium: Premiums are the periodic payments usually monthly or quarterly that the policy
holder pays to the insurance company to purchase and keep a policy in force.
For example in case of life insurance according to the policy it may be the amount payable
during the endowment term of the policy or until the death of the life assured whichever is
earlier. The basis on which the insurance company decides the amount of premium to be
paid by each person is determined mainly by 3 factors:
Mortality Tables: All insurance companies refer to different mortality tables. These tables
differ from country to country. The mortality table indicates the probability of a person
dying in a particular age group. For e.g. in an age group of 25-30 years, the probability
might be just two, but this probability would increase for a higher age group of 45-50
DBA 1721
NOTES
Multiple cars or policies: When you have more than one car on an insurance policy,
most companies will give you what is known as a multiple line discount. Because you use
the company for all of your auto insurance needs, they reward you.
Distance and amount of driving you do: Most car insurance companies ask prospective
clients how far, and to where, they do most of their driving in a day. The thinking is that
further you have to drive, and the more often you do it, the more likely you are to have an
accident. The person who commutes 45 minutes to work every day is going to pay more
than the person who drives 10 minutes to work. Likewise, a college student who walks to
class, and drives home three or four times a year will cost less than the college student who
spends 30 minutes commuting to and from campus each day.
Location of your car: Car insurance companies rate areas according to the number of
accidents or thefts that occur in a specified amount of time in that area. Sometimes, the
company can even pinpoint a neighborhood. If you live in a large city, your rates will be
higher than if you live in a town.
Fire and Marine Insurance Pricing:
The principle of utmost good faith is applicable even for fire and marine insurance.
E.g.: If a trader while taking a fire insurance policy does not disclose the previous occurrence
of fire in the factory, and subsequently after taking policy, there is another fire, the insurance
company may refuse to pay the compensation if it learns about the previous occurrence of
fire which was not disclosed at the time of taking the policy.
The pricing in case of fire and marine insurance is done on the basis of:
Type of Building: In case of a building the rate of premium also depends on the type of
construction. If it is wood construction the insurance premium is low as the cost in
constructing a wood building is low in comparison to a concrete building which has higher
premium amount.
Past Experience: If a fire or marine insurance company has a past experience of settling
a claim successfully then, the credibility of the company increases and it charges higher
premium for similar policies. The customers are assured that the company will be able to
handle the claim well as it was done in past and hence they are ready to pay higher premium.
DBA 1721
NOTES
Partner Selling-
Bancassurance: In bancassurance, the insurance products are sold through the banks
network of branches.
Postal Department: Insurance companies can tie up with the postal department to sell
and distribute various insurance covers. This would certainly require upfront training costs,
as the postal employees in turn need to educate and sell the concept and benefits of insurance
to the people in rural areas.
Selling Through Corporates: Insurance can be sold through corporates too.
E.g.: When a customer purchases a Maruti car, he gets the insurance of the car free from
the Maruti Company itself. Thus this is termed as selling insurance through corporates.
Electronic Channels: In the last decade, numbers of technological advances have taken
place due to immense use of EDI (Electronic Data Interchange).
Business Insight 5.9 provides the glimpses of the various innovative practices adopted in
Indian Insurance services distribution.
Business Insight 5.9: Innovations in
Indian Insurance Services Distributions
The opening of Indian Insurance Market lead to many experiments and
innovations in Insurance Distributions. A few of which are discussed below.
I. Tie-Ups With Multiple Insurance Players:
Lord Krishna Bank (with ICICI Prudential and Bajaj Alliaz) and
Development Credit Bank (with Birla Sun Life and TATA AIG) entered into tie-
ups with multiple insurance players. The result of this channels popularity gained
a momentum: between 15 percent and 30 percent of aggressive insurance players
policy distributions are coming from this intermediary route.
II. Tie-Ups With FMCG Marketers:
Besides their own initiatives, players are also benefiting from intense
competition in other industries. A creative route it adopted was to tie-up with TATA
AIG, to offer Rs.25,000 personal accident cover with its 200 gram pack. For
TATA AIG, this was a new avenue, through an FMCG marketer, Pepsodent took
a cue and tied-up with New India Assurance for dental insurance for its customers.
DBA 1721
NOTES
VIII. Tie-Ups With Home Loan Providers :
Birla Sun Life provides insurance to Cititbanks Home Loan customers.
For SBI Life, LIC, ICICI Prudentials, HDFC Standard and ING Vysya, their
group presence in housing finance through subsidiary is a captive channel for cross-
promotion and distribution.
IX Tie-Ups With Banks:
Apart from bancassurance, several insurance marketers are entering into
agreement with banks to provide cover to their customers. Metilife, for example,
through its policy called Dhanam Life provides cover to Dhanalakshmi Banks
account holders.Similarly, AB Jeevan Abhaya, Birla Sun Lifes Policy insures savings
account holders of Andhra bank for annual premium ranging from Rs.250 to Rs.800.
X Tie-Ups For Rural Market :
To make up for lack of infrastructure in rural markets, players are entering
into a spate of partnerships with groups operating there. While Aviva has partnered
with Lakshmi Vilas bank to reach out to rural SHGs (Self-help Groups), ICICI
Prudential has tied-up with a spate of NGOs 9BASIX, Shepherded and CASPOR
amount others)/ Many of these SHGs and NGOs aid villagers to pool their resources
for everyones benefit.
To provide cover to Khadi weavers, the government owned KVIC (Khadi
and Village Industries Commission) has launched Khadi Karigar Janashree Bima
Yojana. Distributed and promoted by more than 30 Khadi Boards across the
country, the institution and government contribute 87.5 percent of the premium,
the balance being the insured artisans contribution.
XI Postal Insurance :
When it comes to rural reach, post office network is difficult to match. It is
expanding its portfolio of insurance products by adding money bank and single
premium policies to tits existing endowment ones. Hiring outside agents for the
first time, the department is targeting a seven-fold increase in rural premium income
within four years (it collected Rs.101 crore premium in 2002-2003).
XII Tie-Ups With State Government
Bajaj Allainz ventured to cover Amarnath Yatra pilgrims in association with
J&K Bank. National Insurance has entered into agreements with the state
government of Haryana, Jammu and Kashmir and Karnataka to provide insurance
to their government employees.
DBA 1721
NOTES
Underwriters: Underwriting is another important management and business and financial
occupation in insurance. Underwriters evaluate insurance applications to determine the
risk involved in issuing a policy. They decide whether to accept or reject an application,
and they determine the appropriate premium for each policy.
Insurance sales agents: About 15 percent of wage and salary employees in the industry
are sales workers, selling policies to individuals and businesses. Insurance sales agents,
also referred to as producers, may work as exclusive agents, or captive agents, selling for
one company, or as independent agents selling for several companies. Through regular
contact with clients, agents are able to update coverage, assist with claims, ensure customer
satisfaction, and obtain referrals.
Lawyers: The insurance industry employs relatively few people in professional or related
occupations, but those who are so employed are essential to company operations. For
example, insurance companies lawyers defend clients who are sued, especially when large
claims may be involved. These lawyers also review regulations and policy contracts. Nurses
and other medical professionals advise clients on wellness issues and on medical procedures
covered by the companys managed-care plan.
Computer systems analysts, computer programmers, and computer support
specialists: These are needed to analyze, design, develop, and program the systems that
support the day-to-day operations of the insurance company.
Actuaries: These represent a relatively small proportion of employment in the insurance
industry, but they are vital to the industrys profitability. Actuaries study the probability of
an insured loss and determine premium rates.
Customers: People mix not only includes employees but also customers. The customers
are to be treated with respect and courtesy.
Process Mix
In case of insurance sector, the process mix includes the various interactions that
take place between the insurance agent and the customer in the process of selling the
policy to the customer till the settlement of claims.
DBA 1721
NOTES
9. An average twelve days time is taken by the company to verify the submitted
documents. After the twelve days period, the insurance agent meets the customer to
provide him a policy document, which consists of the terms and conditions of the
policy. This is because terms and conditions of the policy differ for different customers
due to differences in medical conditions of customers in case of life insurance and due
to differences in nature of goods and mode of transportation in case of marine and
fire insurance.
10. Then, a reconfirmation is taken by the agent from the customer that he agrees with the
terms and conditions of the policy.
11. The insurance agent then regularly collects the premium from the customer whenever
the premium becomes due.
Promotion Mix
Advertising: It is a paid form of non-personal communication. It is used to create
awareness and transmit information in order to gain a response from the target market.
Forms of advertising used in insurance services are as follows:
News Papers and Magazines: LIC give ads in the news papers and magazines round the
year to continue its brand image and also when new products are introduced. Normally its
ads are published in leading newspapers and magazines.
Electronic media: Insurance companies also advertise its services in the Electronic media
like:
Internet (Websites): Companies like LIC (www.licindia.com) , ICICI
(www.iciciprudential.com) all have websites from which people can get the information
about their products, prices, various schemes, and lots of other information. People can
also purchase the product through this website.
Television: Companies like LIC, Met Life India, advertise on television to make people
aware of their products and services.
Radio: ICICI Prudential advertises on 92.5 red FM.
Hoardings: LIC put its hoardings where there is a mass flow of people, especially outside
the railway station or at the backside of the bus. When Met Life was introduced it has put
his hoardings on the side of the train, to target huge number of people.
Brochures: Companies provide brochures to the customers so that they can have a look
on various schemes and their prices.
DBA 1721
NOTES
Indian IT industry alone has already crossed the 20 $billion mark. Indias share in the
world software and services market has increased to nearly 3.5 per cent in 2004-05 from
2.4 per cent in 2003-04 and 2.09 per cent in 2002-03 and this is growing fast. Considering
the huge potential of Indias IT and software service sector in the global market the growth
projection in this service segment is just mind boggling. Financial services have been the
major users of IT and communication technologies. IT expenditure by US banks has
recorded a compounded annual growth rate of 8.4 per cent. The main function of Information
Technology (IT) is to serve the information needs of society and thereby contribute to the
users productivity and efficiency. Marketing IT services should aim at providing quality
customer service and maximizing customer satisfaction at the lowest delivery cost.
The Management Information System (MIS), distributed computing devices, open
systems, high-speed data networks (LAN, WAN, ISDN etc.), RDBMS have been
important development milestones in IT with major impact on financial services.
5.4.1 The Indian Scenario of the IT Services
IT has been prevalent in India for a long time but the real importance and the
global recognition is has been a very recent phenomenon. India has a vast number of IT
professional with a very knowledge and also they are cheap as compared to labor from
other country. IT in India has been continuously growing after liberalization in 1991. A
large number of multinationals started setting up their software development centers in
India due to availability of good labor at a good price. Seeing this opportunity the Indian
software firms started offering their service from India dedicated to specific US clients. By
this time India was only preferred due low cost but now when most IT companies like
TCS, WIPRO, INFOSYS have been ISO 9001 certified, and SEI/CMM V level certified,
no one can doubt the quality. Year 2000 an important year for the Indian IT firms. Remember
the Y2K virus. US faced a big problem called the Y2K and due to shortage of good labor
they had to outsource the solution from India. Since then there is no looking back and
India is today known as the king of IT. Once again Indian firms proved that they were
indeed the best. The IT industry has gradually evolved from a product-based industry to a
service- based one. It has become one of the most competitive industries in the global
economy. It is an economy-dependent industry in the sense that it performs well when the
economy experiences a boom and suffers when the economy is in recession. One of the
important characteristics of IT industry is that it is exclusively knowledge-based and has
thrived in countries with talented resources. However, the industry also needs good financial
DBA 1721
NOTES
The industry will create enormous employment opportunities in the country. The
IT industry which currently employs 0.5 million people, will employ over 2 million people
directly and create indirect employment opportunities for at least an additional 2 million
people by 2008. In ITES exports, some of the segments creating the greatest number of
jobs will be customer care (contributing 37,000 to 390,000 jobs), HR (contributing
1,40,000 to 1,60,00 jobs) and administration (contributing roughly 80,000 to 1,00,000
jobs). Similarly, IT services will create employment for 4,50,000 people; the products and
technology services opportunity will contribute around 1,40,000 jobs and the domestic
market will employ about 650,000 people. Not only, will the industry provide direct
employment to 2 million people, it will also create significant entrepreneurial and employment
opportunities in support services.
5.4.3 Services Marketing Mix of IT Services
Keeping in view the rapid pace of development in technology and the short shelf
life of the products, fast and continuous product/service development, adoption of the
right processes, competitive pricing of products/services and promotion of these, along
with recruiting and training the right people, are very important in the IT industry. Keeping
in view the peculiarities of the industry, the pricing and process mechanisms differ from
other services. However, place is not a constraint for providing services, especially with
the latest developments in communication technology. At the same time, providing physical
evidence to the customer is very difficult. The brand name and existing products and clients
can be used to assure the customer and reduce the perceived risk.
Product Mix
The products and services which make up the IT industry are many and varied,
being used by all manner of organizations in business, government, administrative, technical,
scientific, educational and manufacturing processes.
Components of IT:
Computer technologies
Communication technologies
Computer technologies
DBA 1721
NOTES
Promotion Mix
Promotion should stimulate demand by moving the product and services towards
customers. The means of promotion most commonly adopted by the IT industry is media
based advertising. For example, TCS, Oracle, Microsoft and NIIT use print media to
communicate with customers while IBM and Microsoft use the television extensively to
promote their services. Advertising through hoardings displayed at public places has also
become popular, especially in commercial cities and business centers. Web-based promotion
is also quite common in the IT industry.
In addition to media-based advertising, conducting seminars and workshops to
educate and train people in latest technologies, industrial exhibitions like IT expos etc. are
also gaining importance. More than all these measures, providing quality service to the
customer is the best promotional strategy, as word-of-mouth publicity and client appreciation
can bring more business for the customer. News items and press releases on introduction
of new services or on successful completion of projects also promote the services of a
company in the market.
Process Mix
The process of manufacture and delivery of quality service at the lowest possible
cost is very important in the IT industry. In fact, it is true for any service industry. The
production process involves understanding the nature of the project, assessing and capturing
customer requirements, preparing a project plan, developing the software to meet the
objectives, testing it and delivering it to the customer. Delivery of services can be either on-
site or off-site depending on the project. Models like Capability Maturity Model (CMM)
are developed to test the efficacy of the process in an organization. Such models help
detect problem areas and take measures to correct them to ensure the quality of the product.
Other certifications like ISO also help to assure the quality of the manufacture and delivery
of services.
People Mix
1) Employees The service provider always has to do a perfect job analysis of each and
every job and accordingly select a person whose personality best suits the job. The service
quality totally depends upon the employee giving the service. That is the reason why job
DBA 1721
NOTES
For Example: India Infoline it totally deals with information regarding any companys working
share price, financials etc. it has a total corporate feel to it.
2. Companies going to software development: For example Infosys when a client wants to
develop a software for its information transfer or any other purpose it will personally go to
Infosys with its requirements and Specifications. Now when a customer goes to developer
it is the ambience of the office etc. that will pay a vital role in identifying the worthiness of
the company.
3. Developers comes to the Customer: This could be very well explained with the HP
example. HP does not actually believe in encounters with the customers. However at its
retail outlets it does. But mostly they are the ones who approach the customers where at
that point of time their dressing and their language and their voice quality is an important
cue through which the customers might judge the company as a whole. Hence the
representative of the company also have to absolutely formal in their behavior with the
customer and HP follows this rule.
5.5 EDUCATIONAL SERVICES
In the past, the marketing of education in India had little significance. This was
because of three reasons. The first was that the demand far exceeded the supply of service.
Second, it was the peoples perception that it was the duty of the government to provide
this service to the people. Last, but not the least, since the Indian economy was more
dependent on agriculture, people ignored the importance of education. The situation still
remains the same in most poor and lower middle-class families where earning their daily
bread takes priority over education.
However, over the years, radical changes have been taking place in the arena of
educational services. The reasons for this transformation are plenty. The growing awareness
of the importance of education among the masses, corporatization of education, innovations
in technology and privatization of educational services have led to dramatic changes in the
field.
Gone are the days when students joined the nearby school or college and decided
to earn a bachelors degree to secure jobs. Todays youth are keen on having a good
career and making a mark. The importance of having a good education and building a
DBA 1721
NOTES
The rise in the number of part-time teachers and the freeze on new full-time
appointments in many places have affected morale in the academic profession. The lack of
accountability means that teaching and research performance is seldom measured. The
system provides few incentives to perform. Bureaucratic inertia hampers change. Student
unrest and occasional faculty agitation disrupt operations. Nevertheless, with a semblance
of normality, faculty administrators are able to provide teaching, coordinate examinations,
and award degrees.
Even the small top tier of higher education faces serious problems. Many IIT
graduates, well trained in technology, have chosen not to contribute their skills to the
burgeoning technology sector in India. Perhaps half leave the country immediately upon
graduation to pursue advanced study abroad and most do not return. A stunning 86 per
cent of students in science and technology fields from India who obtain degrees in the
United States do not return home immediately following their study. Another significant
group, of about 30 per cent, decides to earn MBAs in India because local salaries are
higher and are lost to science and technology. A corps of dedicated and able teachers
work at the IITs and IIMs, but the lure of jobs abroad and in the private sector make it
increasingly difficult to lure the best and brightest to the academic profession.
Few in India are thinking creatively about higher education. There is no field of
higher education research. Those in government as well as academic leaders seem content
to do the same old thing. Academic institutions and systems have become large and
complex. They need good data, careful analysis, and creative ideas. In China, more than
two-dozen higher education research centres, and several government agencies are involved
in higher education policy.
India has survived with an increasingly mediocre higher education system for
decades. Now as India strives to compete in a globalized economy in areas that require
highly trained professionals, the quality of higher education becomes increasingly important.
So far, Indias large educated population base and its reservoir of at least moderately well-
trained university graduates have permitted the country to move ahead. But the competition
is fierce. China in particular is heavily investing in improving its best universities with the aim
of making a small group of them world class in the coming decade, and making a larger
number internationally competitive research universities. Other Asian countries are also
upgrading higher education with the aim of building world class-universities. Taiwan, which
is a major designer and producer of IT hardware, is considering merging several of its top
technological universities to create an Asian MIT.
DBA 1721
NOTES
choose their marketing mix carefully to survive the tough competition and fluid market
conditions and eventually thrive in the market. Since education sector is a very broad area
as mentioned earlier, to narrow down the scope of education in this section the higher
education system of education is considered for discussion. You are advised to gain
understanding in the other systems of education also as mentioned in the earlier sections.
Product Mix
The product in the education service market is the entire package offered to the
student in terms of the topics to be covered, the extent of coverage, number of classes, the
duration of the course, the attention given to each student, etc., For example, if an institute
offers a training program in hardware technology, it is essential that it offers courses on the
latest technologies in the industry. This would help the institute attract students and also
charge high fees. Therefore, offering the right product assumes a lot of significance.
An educational institution has to ensure that its syllabi are comprehensive and up-
to--date, covering the basics of the subjects and related current issues as well. As more
and more new and unconventional areas are offering job opportunities, education service
marketers are required to introduce the necessary changes in the curriculum to equip the
students suitably. For instance, service providers in India and Eastern Europe are including
courses on foreign languages, soft skills, personality development and communication skills
as part of their curriculum, sensing the huge opportunities in BPO industries. Marketers
also attach some supplementary services to augment the product and enhance the service
experience of the customers. For e.g. our CDE of Anna University provided you the
power point presentations ( PPTs) of the course material to enhance and ease the
understanding of the subject.
Place Mix
Universities offer educational services not only on the campus but also through
affiliated colleges. The area coverage of a university is decided by the state government.
Within that area the university may establish education centres and/or give course-wise
recognition to the colleges promoted by the private sector or social and charitable
associations. The affiliated colleges are allowed to make admissions based on the prescribed
eligibility criteria and admission procedure. The course-wise intake and infrastructure is
also decided by the university. The affiliation committees appointed by the university (course-
DBA 1721
NOTES
each other. Therefore, it is important for education marketers to safeguard their talent and
motivate them to remain committed. They can do this by providing incentives like attractive
consultancy assignments and encouraging them to go in for higher studies.
Price Mix
The management committee of a university decides the fee structure for various
services, after considering the following facts: Demand for the course, Pricing of competitors,
Infrastructure requirement, Faculty requirement, Maintenance costs, and Development
costs. Universities under the public sector are not profit-oriented organizations. The
respective state governments and the funding organizations will contribute substantially to
the university finances. Hence, the services offered by the public sector universities are
highly subsidized. In order to provide quality education even to the economically weaker
sections of the society, the services are offered at reasonable prices when compared to
private institutions. However, in recent years universities all over the country are facing
serious financial crisis. Universities are forced to introduce self-finance courses, payment
seats and charge competitive market prices from the students for some professional courses.
The fee structure is decided by the management of the university for some courses and for
other courses the state level bodies such as State Council for Higher Education in consultation
with the universities and the colleges offering such courses decide the fees. In certain
professional courses like Engineering and Medicine the state government is fixing the fees
for the course. For example, Justice Raman Committee, appointed by the Government
of Tamilnadu is fixing the tuition fees for the different professional courses. The fee structure
of various courses is modified whenever the institutions feel it necessary, after considering
the demand of the course and the cost of executing the course. The payment system may
vary from university to university. Some universities collect fees annually, some collect
each semester and some collect the total fees at the beginning of the course.
Promotion Mix
Promotion plays an important role in education services marketing today, when
there is immense competition in the sector. Effective promotion will act as an effective tool
for an education institution and help in
DBA 1721
NOTES
Business Insight 5.10: Distance Education Programmes
A Comparison of Advertisements
DBA 1721
NOTES
DBA 1721
NOTES
etc., constitute the physical evidence. Please refer Business Insight 5.10 and try to identify
the physical evidence shown in the different advertisements.
5.6 ENTERTAINMENT SERVICES
Entertainment services include all those services, which help a person feel entertained
and relaxed. Entertainment services constitute a part of the media services and include
entertainment through movies, leisure, music, television shows, sports, etc. (See business
Insight 5.11). These include the services that are involved in the production, distribution
and marketing of movies, television shows, music, and animation. Also included in
entertainment services are the marketing of sports events such as cricket, hockey, tennis,
and football matches, competitions pertaining to indoor and outdoor games such as
badminton, swimming, chess and several others. Entertainment centers, theme parks,
Multiplexes, go-karting, Malls, live entertainment shows and bowling alleys, are more
recent and upcoming means of entertainment in India. Entertainment today, dictates our
lives. Post-food, clothing and shelter, the highest priority of the human being is how to get
entertained. Education, careers, earning money, all lead to the quest for higher and
sophisticated entertainment. One seeks knowledge to improve the quality of life. The quality
of life improves when the basic requirements of life are supplemented with entertainment in
some form or other.
Business Insight 5.11: ICL starts its campaign
Indian Cricket League has recently unveiled it new logo along with a campaign.
Indian Cricket league better known as ICL is an Essel Group venture. The campaign
has been released for the leagues first Twenty20 cricket tournament is slated to
begin on November 30 and carry on till December 16 2007. The position line for
ICL states: Sapne Manzil Tak. The advertising campaign will run in three phases
from November 7 till December 16. The first phase introduces the brand
proposition of ICL with Kapil Dev as the brand ambassador. It highlights the
journey that is possible from a small town or village to a cricket stadium and
encourages amateur cricketers to realize their dream. It stresses on the fact that it
may not be easy to find a chance to play cricket in the prevailing system, but ICL
recognizes individual talent and provides the wherewithal to nurture it. The outdoor
campaign has already broken and the TVC will be on air on November 8. The
outdoor campaign says, Khel hai bada. Iraden hain pakke. ICL Sapne Manzil
Tak, and Dum jigar main. Khel rag-rag main. ICL Sapne Manzil Tak. Once
DBA 1721
NOTES
Thereafter, a number of incremental improvements took place within the motion picture
industry. Some of the industry players were able to graduate into the next phase of industry
evolution by reinventing themselves.
5.6.1 FICCI report on the Indian Entertainment Industry
A comprehensive survey conducted by the FICCI (Federation of Indian Chambers
of Commerce and Industry) reveals that the segment of service sector which is fast emerging
as a sunrise sector is the Entertainment Industry covering film, music, broadcast, television
and live entertainment. The entertainment industry is basically an intellectual property-
driven sector with small to large players spread across the length and breadth of the country.
A FICCI report on the industry, prepared by PricewaterhouseCoopers, estimates
that the industry could balloon to Rs 1 lakh crore by 2011, translating into a cumulative
growth of 18 per cent in the next five years. Among the segments in the industry, the
television sector is expected to continue to contribute the largest share, as was the trend in
the last three years. The television industry revenues are expected to grow from the current
size of Rs 19,100 crore to Rs 51,900 crore by 2011, implying a 22 per cent cumulative
annual growth in the next five years, the report said. The print media too is projected to
grow from the current size of Rs 12,800 crore to Rs 23,200 crore by 2011, mirroring a 13
per cent annual growth. This sentiment is boosted by the growing interest in India among
the global investor community, with the foreign media too evincing interest in investing in
Indian publications. The film industry, which is currently placed at Rs 8,400 crore, is
expected to touch the Rs 17,500-crore mark by 2011. The industry is getting increasingly
corporatised. Several film production, distribution and exhibition companies are coming
out with initiatives to set up more digital cinema halls in the country. Significantly, the
entertainment and media industry saw the maximum flow of foreign investment in 2006,
with 13 proposals cleared by the Ministry of Information and Broadcasting during the
year. Another 22 proposals are pending with the Ministry.
5.6.2 Glimpses of the Indian entertainment Industry
The Indian Film Industry
Films are the most popular form of entertainment. India is now the largest producer
of films in the world. Since 1931, the film industry has produced more than 75,000 films in
more than 30 different languages and dialects. The Indian film industry was not granted an
DBA 1721
NOTES
India is home to two thriving entertainment clusters - Bollywood in Mumbai and
Kollywood in Chennai. The size of the South Indian film industry is bigger than the Hindi
film industry, in terms of number of films produced. A number of entertainment companies
are springing up in Mumbai. Chennai, being the second biggest entertainment cluster,
opportunities await for potential entrepreneurs to jump onto the bandwagon and reap the
first-mover advantage in a number of segments - ranging from content creation to actual
delivery of entertainment.
Radio
Till recently All India Radio (A.I.R.) had a monopoly in the radio industry, being
the only broadcaster. Then about a decade ago STAR India Pvt. Ltd. entered into the
privatization arena with Radio City in Bangalore. In Mumbai privatization of FM channels
was pioneered by the Times Group a year later who launched their station 98.3 Radio
Mirchi. Others were quick to follow suit and very soon there were four other private
channels that came about. These included STARs Radio City 91.0 FM, Mid-days Go
92.5, India Todays 93.5 Red FM and Gautam Radias Win 94.6. Each of these stations
has a different positioning and caters to a different set of target audience:
Go 92.5 plays English music and Westernized Hindi music. It targets SEC A to B1 individuals
within the age group of 15-45yrs. The English MB (music buffs) perceive it as a radio
station that plays good English music and airs eloquent RJs whereas the Hindi MB dismiss
it because its too English centric in its approach.
Radio City on the other hand has a TG audience of SEC A, B, C, D and E between the
age group of 15-45yrs. The English MB see it as a station that plays only Hindi bollywood
music and the Hindi MB see it as a station that plays a good mix of Hindi music. This is a
fit in terms of content and TG.
Red FM targets an audience in the SEC A, B, C category in the 25+ age group. The brand
identity is all about hot music, English and Hindi, personality jockeys and late night talk
shows.
Radio Mirchis brand identity is defined by 95% Hindi music and 5% international music.
It targets SEC A, B, C category between the age group 18-35yrs.
DBA 1721
NOTES
Business Insight 5.14: Indian music market eyes the online sales
The Indian music industry is gearing up to increase its online sales. The reasons
maybe for much the growing demand for the MP3 players and ipods can be
routed as one of them. This increase has now paved a way for the music industry
to look for making music available online. At present there are over 25,000 songs
will soon be available for download. Saregama India has been test marketing the
service for over two months now. By December end, it plans to make available
4.6 million tracks it has acquired, apart from the 0.3 million music tracks it owns
under its banner. The songs will be available on the company-owned website for
around Rs 12 for five minutes. If the song exceeds the time, then users will have to
pay an additional of Rs 12 for every extra five minutes. If we take the industry as
a whole then the companies like Sony BMG, Saregama India, T-Series have
made a total of over 5 million tracks available on their own websites and other
portals for full song downloads in a bid to monetise their content through the
internet, and fight piracy. Tips says that within the next year there will be over
25,000 songs will be available for the online download. The company hints that
there maybe a paid model also introduced soon. The number of Internet subscribers
is estimated to be around 35 to 50 million users. Currently, 27 per cent of the total
connections are broadband connections and are expected to account for 75 per
cent of the connections by 2010. Companies like T-Series and Sony BMG have
their tracks available in association with other portals like MSN, Sony Connect,
Hungama Mobiles among other portals. In most cases, the pricing for Internet
downloads vary. The user can either download the entire album or a few songs
depending on individual preferences. There are experts who believe that the
companies are opting for the Internet route as most of the sales in the music
industry is getting deeply affected by the piracy. According to PWC the Indian
music industry suffers a loss of 55 per cent, which is close to Rs 200 crore. In
2006, the total number of raids was over 250, during which nearly 1.4 million
CDs and over 2 million VCDs were seized. There are media experts who say
that the music companies would have to break the mindset of people to start
paying for the music rather than the free download.
DBA 1721
NOTES
Live Events
Live events are a very popular form of entertainment in the developed world. They
work as a tool to promote specific individuals and organizations and are a great form of
publicity. Often held in large stadiums and auditoriums they attract large crowds.
Live events are very popular in India also. They vary from fashion shows to music
concerts to award ceremonies. India has seen a growth in all these events. Both international
and national artists use them as a vehicle to generate awareness. Some of the musical
events held in recent times include, Elton John, Roger Waters and Bryan Adams to name
a few. Award ceremonies include the Filmfare Awards, Screen Awards and The Indian
Television Awards.
Shopping Malls
The world of retail merchandising has come a long way since the days when general
stores, that stocked everything from groceries to stationery, and small shops that sold
limited varieties of products, reigned supreme. There is a movement now from the
unorganized to the organized sector. There are now more modern retail formats such as
supermarkets and malls. Several companies are setting up exclusive showrooms and large
format stores such as Westside and several others are expanding. The whole concept of
shopping has altered in terms of format and consumer buying behavior, ushering in a revolution
in shopping in India.
Theme Parks
Essel World, the first and foremost amusement park is located on Gorai Island on
64 acres of green lands. It offers thrilling and scintillating rides and games. Essel World
offers over 40 exciting rides, games, and attractions. The Water Kingdom is said to be the
largest of its kind in Asia. This international-style theme park and amusement centre situated
close to Gorai Beach is perfect for a one-day holiday. Special ferries get you across to the
park and the entrance fee normally takes care of a fixed number of rides, which include the
standard roller coaster and adventure themes, plus a water world section where kids can
literally run amok. Summer is usually crowded, but the place also offers low budget monsoon
packages and special deals on weekends.
DBA 1721
NOTES
A recent upcoming media company to hit the markets is Mumbai-based Adlabs
Films. The firm is not strictly a media player in the sense that it does not produce films or
television content. It is connected to the media industry by virtue of it being one of the
foremost motion pictures processing company in the country with a market share of 60 per
cent in western India. The company intended to go one step further and get into the exhibition
of films. For this the company built a four-cinema multiplex in Mumbai and Indias first
IMAX dome theatre. The company came out with its maiden public issue aggregating Rs
52.80 crore. It is offering 44 lakh equity shares of Rs 5 each at a premium of Rs 115 per
share.
The Masterminds behind Adlabs in India
Adlabs has been promoted by Manmohan Shetty and Vasanji Mamania. The
company initially started out with the processing of advertising films from which it derived
its name and then moved on to processing feature films. Adlabs processes films for leading
production houses and has been conferred the National Award for Best Cinematography
four times. The company has to its credit some recent big budget films such as Mohabatein,
Fiza, Mission Kashmir, Zubeida and Kaho Na Pyar Hai among others. Adlabs has
been a consistent performer over the years and is highly profitable.
Product Mix -Service Product / Service Package:
The Core Competency here is screening of movies. The supplementary products
/ services are enormous like the Video Games Parlor & the Food Court. Good options for
food like the Cafeteria where you get food made in hygienic conditions. The ambience is
pleasant with centrally air conditioning, well-illuminated layout. Fame Adlabs is well known
for its Dolby Digital Sound.
Price Mix
Fame-Adlabs uses differential or flexible pricing for its Multiplex theatres.
Rates:
In the multiplex averages between Rs. 90 & Rs.120 depending upon the box office
performance of the movies screened. The prices are popularly estimated to be extremely
DBA 1721
NOTES
Physical Evidence
Ambient factors
Air conditioning
Excellent ventilation
Design factors
Uniform appearance
Extensive parking lot
Spacious interiors
Social factors
Well dressed employees
Courteous
Genial
Elite and up market crowd
Family atmosphere
Process Mix
The process is a sequence of actions to deliver the service to the customer. In this
case the following is the process followed by Fame. The customer arrives to Fame by car
and first goes to the pay n park to park the car. The customer then moves on to the ticket
window to purchase the ticket for the movie he is interested to watch. Then the customer
enters the building. Here the usher at the door checks for the tickets. Then the customer
will move on to the screening area and watch the movie. In the interval the customer will
mostly come out to eat or drink something from the cafeteria. The customer goes back to
the screening area to continue the movie.
Productivity & Quality
Undoubtedly, the Fame caters to the crme de la crme of the crowd in the
Mumbaikars that patronize the theater. Therefore, these people are treated to the best of
quality and productivity by the employees. The customer is the King there. The service for
the multiplex goes as far as actually delivering the tickets to the clients home so as to limit
the customers trouble in actually booking the tickets in advance. The theater, keeping in
mind, its limited accessibility is very considerate towards the people that determine its
success.
DBA 1721
NOTES
As mentioned above the scope of public utility services is very broad and includes
postal (including Courier and telegraph), transportation (rail, road, air, waterways),
telecommunication, fire control services, electricity, banking services, Insurance services
and so on. Some of the services mentioned above have been discussed in the earlier
sections. To narrow down the scope of coverage of this particular section telecommunication
services and the Indian postal services are discussed in detail. For the other public utility
services the services marketing mix have been given in nutshell.
The special feature of public utility services is its pricing. The other marketing mix
variables are more or less similar to other services, where as it is entirely different for the
price mix which is discussed below.
Public Utility Services Pricing
Pricing of public utility services (like urban transport) differs, in many respects,
from the pricing of private goods. This is because, that it is generally expected to focus the
concerns more on promotion of the collective interest of the society, at large, than just
profit maximization, as is usually the case with the latter.
Principles of Public Utility Services Pricing
Most of the studies in economics of public utility agree on four major principles of
public utility pricing. These are cost of service, value of service, competitive price , and
social principles.
Cost of Service
Cost of service suggests that the public utility rates should be based on those relevant
costs, which are necessary, reasonable and prudently incurred.
Value of Service
Using cost as a sole criteria, for pricing public utilities, came under heavy criticism by
economists on the ground that it did not give enough weight to value of service to a customer,
which may largely vary from the cost. Hence, they argued that the rates charged should lie
somewhere in between cost of production and value of service.
DBA 1721
NOTES
to compete with DOT (Department Of Telecommunication). An Independent Telecom
Regulatory Authority of India (TRAI) was setup in 1997. A new policy for Internet Service
Providers (ISPs) was announced in 1998 allowing independent services providers to enter
the sector ending the earlier monopoly of VSNL.
5.7.1.1 Services Marketing Mix of Telecommunication Services
Unlike manufacturing organizations that focus on the four Ps of the marketing mix,
service organizations need to concentrate on seven Ps. i.e. product, price, place, promotion,
people, physical evidence and process. Let us discuss how telecom service providers
attempt to design these seven Ps to constitute appropriate marketing mix
and face the challenges in the telecom industry:
Product Mix
Technology and the changing needs of customers have prompted the telecom
industry to introduce different products, services and their variations to the customer. This
has also helped some of the players create a market for their services, instead of competing
with other players in the cluttered market. However, telecom players are forced to
continuously introduce innovative services to sustain and thrive in the highly competitive
market. The various products and services offered by telecom industry are discussed
below.
Fixed land line/wireless services
Fixed landline service allows customers to communicate only from a particular place. The
common landline connection offered by BSNL and other players is the basic service.
Fixed wireless service offers more mobility than the fixed landline but that also has its own
limits. Fixed land line/wireless services offer following services to customers:
Short distance services: These services allow users to communicate with people within
a given region.
Long Distance services: Long distance services can be further divided into NLD and
ILD services. NLD (National Long Distance) services allow a customer to communicate
with people residing anywhere in the country. ILD (International Long Distance) services
allow the customer to communicate with people residing anywhere in the world.
DBA 1721
NOTES
Video telecom services
They include video conferencing, videophone, videotext, etc. They are used by various
service providers including road transportation, railways, airways, corporates, banks, hotels,
educational institutes and government departments.
Price Mix
Service providers can use cost-based, competition based or demand-based pricing.
Most service providers in the telecom industry today are resorting to competition based
pricing, which has led to low prices of the services. This has proved to be quite beneficial
for the customers, but the telecom companies are struggling to make profits.
In the fixed line industry, customers have only one option of payment, that of post-
paid. That is, customers pay a fixed amount as rent and the usage charges at the end of the
billing period. In cellular industry, service providers offer two options to customers, pre-
paid and post-paid. In case of prepaid service, customers buy a card available from retail
outlets to activate or recharge their service. The price of the card covers the rent fixed by
the service provider plus the cost of certain amount of airtime. For example, Airtel offers
different cards with different amounts of airtime and allows its customers to choose from
them depending on their need. Though initially, prepaid service was available only for
mobile phone users. BSNL and Reliance is now making prepaid service available for
landline users also. In case of postpaid service, depending on the number of calls made by
the customer and other services used by him, a detailed bill is prepared and sent to the
customer. The total amount to be paid by a customer per month depends on the rent and
the services used by him. The customer can make the payment by cash/cheque/credit card
at one of the service providers outlets. Some service providers also allow online payment
through Internet. BSNL and MTNL for example allow their customers to make online
payment.
Place Mix
When DOT/BSNL was the only service provider, customers had to go to different
locations for different services. Applications for new telephone connections or for transferring
a connection from one place to another were accepted only in one major telephone exchange
located in the city. Bill payments were accepted in local telephone exchange office located
DBA 1721
NOTES
days together even after customers reported a problem. The fact that it was the only
service provider resulted in excessive load as well as complacency. However, with the
entry of private players like Tata Tele services into the industry, things changed. The new
private players emphasized customer satisfaction. They ensured that their service personnel
answer customer queries promptly and professionally and attend to their problems
immediately. This has brought a change in the working of the telecom industry as a whole.
Physical Evidence
Telecom service is intangible. A user cannot judge the quality of the service offered
by a service provider unless he uses it. Telecom service providers however offer some
tangible products to customers to service as physical evidence. They provide customers
with a telephone directory that includes names and addresses of all their subscribers. Every
year, an updated directory is provided to all subscribers free of cost. However, mobile
service providers do not provide such directory because mobile phones are considered
personal devices. Reliance Infocomm, however, makes the information about mobile
numbers and names and addresses of its subscribers available on reliance network. Telecom
service providers also focus on the voice instrument given to customer. When Tata
Teleservices entered telecom sector, it gave sleek and attractive looking phone instruments
to its subscribers to compete with the phone instruments supplied by BSNL at that time.
Later, BSNL also began to focus on the looks of phone instruments given to customers.
Telecom service providers also focus on ambience of their service outlets. Reliance Info
invests about Rs. 30 lakhs to one crore on building its service outlets.
Process Mix
Telecom service providers should offer reliable, continuous, quality service to
customers. When Tata Teleservices entered the telecom industry, its sales executives visited
individual homes, shops and organizations identifying people in need of a phone connection
and quality service. If a customer asked for a phone connection, he got it within three days.
Now BSNL has also improved its service processes. It has a computerized system that
receives complaints from customers round the clock and service personnel attend the
customer within 24 hours. One can also obtain the bill information by contacting the number
provided for the purpose. Telecom service providers also send detailed bills on request,
describing the number called, amount of time spent on the call and the charges incurred.
They should however ensure that errors are not committed in billing. This can be a major
DBA 1721
NOTES
Speed post and courier services
Till the late seventies in India, a consumer of mail transfer had no choice but to
depend on post office. One had to live with its postal imperfection and with no compensation
for the non delivery or misplacement of items. This monopoly was broken in 1980 when
SkyPak came in market and promised safe delivery of items. Soon, the SkyPak picked up
and by the mid-80s, after tie up with the international couriers, TNT, their profit jumped
from lakhs in 1985 to crores by 1987. By this time, many other companies, small and big,
mushroomed. Noticing the boom, the postal department also launched Speed Post in
1986. Courier services were launched in 1980 and promised to deliver packages and
urgent documents in time. In a decade the business grew at a phenomenal rate of 30-40%
annually. However, the business has grown, even without courier companies providing any
foolproof guarantee to the customer for the safe delivery of their documents.
Today the organized market is of around Rs 2500 crore. Major part 65% is
captured by organized sector, 25% by unorganized sector and 10% is with postal services.
Situation in market place has alerted considerably since the time when these big companies
enter the fray decade ago. First, number of player in arena has grown rapidly. Though,
there are still handful of companies in organized sector holding a major share of market,
over 4500 courier shops have mushroom in the past few years and begun to pose a threat.
Secondly, markets are increasingly realizing that age of the generic selling is over.
Although their advertising still harps on reach DHL and skyPak, reliability Blue Dirt and
caring Elbee. The organized sector has become conscious of need to curve our distinct
niches through strategic changes in their marketing game plan. Thirdly, recent business has
mostly entailed handling documents. But it was not long before companies become realizing
that there was money to be made from the non-document segment too. As a result each
courier companies are encashing on this market with innovative marketing strategies, like
value add-ons. The feasible route that most companies are adopting is to tie up with the
foreign affiliate. Today the major tie up includes DHL-Air Freight; SkyPak-TNT (Broken
up recently) Blue Dirt-Federal Express and Elbee-United Parcel Service. Tie up with the
international service provide a common identification in the global sense and consistency
internationally.
DBA 1721
NOTES
Table 5. 6: Services Marketing Mix of Postal and Courier Services
The following tables 5.7 and 5.8 shows the services marketing mix of some other public
utility services.
Table 5.7: Services Marketing Mix of Fire Control Services
Table 5.8: Services Marketing Mix of Electricity Services
Summary
Earlier, healthcare in India was considered the responsibility of the government
and no private players ventured into the industry. Doctors had their small clinics and private
practices, but the idea of corporate hospitals was almost non-existent. However, the Indian
healthcare industry has come of age and has become quite competitive in recent times.
DBA 1721
NOTES
of the banking industry. The insurance business is based on customers trust and confidence
as it deals with the finances of the customer. The scope of insurance has increased with
more private and foreign players entering the market. They have introduced many innovative
services targeted at different segments. Price plays an important role in marketing of insurance
as it determines the premium to be paid by the customer. Pricing of insurance products is
influenced by competitor strategy and the prevailing interest rate, but is basically determined
by the risk involved. As insurance needs to be pushed in the market, the importance of
interaction between the service deliverer and the customer increases. Therefore, agents,
brokers and employees of the company become important channels of distribution for the
service. New distribution channels and innovative promotional strategies also evolved
because of the increased competition. All these led to the development of the insurance
industry and expanded the market in India.
The IT industry in India is one of the major contributors to the countrys economy.
The growth of the IT industry in India has supported the birth and development of ITES
(IT Enabled Services) sector in the country. The fast and continuous product/service
development, adoption of the right processes, competitive pricing of products/services
and promotion of these along with recruiting and training the right people, are very important
in the IT industry.
Marketing of education is gaining momentum with the entry of private institutions,
change in peoples attitude towards education and the changing scope for the different
courses being offered. The technological changes and shrinking global boundaries have
increased the significance of marketing for education services. The education service can
be described as a high contact, consumer and people based service. By offering education
with enhanced features like updated syllabus and industry interaction, they can improve
the quality of the product. With franchising and better infrastructure facilities and experienced
instructors, marketers can meet customer expectations. With the right mix of all the Ps,
tailor-made customer focused courses can be offered.
Entertainment services include all those services that help a person feel entertained
and relaxed. The various forms of entertainment include music, movies, sports, animation,
television shows, and the more modem forms such as go-karting, bowling alleys, theme
parks, Multiplexes, and family entertainment centers. An understanding of how entertainment
services influence consumer behavior is essential for marketers of entertainment services
to promote their services.
DBA 1721
NOTES
NOTES

DBA1721

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

DBA1721

Uploaded by

Copyright:

Available Formats

M B A

In these days of intense competition in the banking sector, it is becoming increasingly

You might also like