Unit 1: Introduction to service marketing

Chapter outline
A. Role of service in modern economy

B. Marketing challenges of service

C. Service marketing environment

D. Goods v/s service marketing

E. Goods – service continuum

F. Consumer behavior

G. Service marketing triangle

H. Classification of services

Format for answering

10 mks 3 pages
5 mks 1-1.5 pages
University exam questions
Concepts (3 mks)

1. Intangibility and inseparability in services

2. Goods and Services Continuum
3. Consumer behavior
4. Service marketing trinity/triangle
5. Service encounter
6. Zone of tolerance
7. Buying roles
8. Perishability of services
9. Credence quality
10. Convergence
11. Heterogeneity
12. Service guarantee

Answers (10 mks)

1. Do you think classification of services can help in developing the marketing mix? How?
2. It is said that service marketing is different from product marketing. Explain the elements of service
marketing mix with reference to hospitals.
3. Explain the distinctive characteristics of services and its implication
4. Describe the factors stimulating growth in services

Definition of Services
• A service is any act of performance that one party can offer another that is essentially intangible
and does not result in the ownership of anything; its production may or may not be tied to a
physical product – Philip Kotler

• Services are deeds, processes and performances. Here, deeds are actions of the service
providers, processes are the steps in the provision of service and performance is the customers’
understanding of how the service has been delivered - Zeithaml & Bitner
A. Role of service in modern economy
a) Significance of services
b) Growth of service sector
c) Role of services in modern economy

Services are going to move in this decade to being the front edge of the industry – Louis Gerstner, 2001,
IBMs former CEO

The growth of services is directly proportional with the growth of the economy. It is observed without
exceptions that as a country progresses, the contribution of services in the GDP increases. The following
figures prove this point –

Japan the most developed country in Asia gets more than 72% of its GDP from services. Even China with
its focus on manufacturing the services contribution stands at more than 43%. India with maximum
number of people engaged in agriculture, services contribute more than 58% in GDP and ranks 10 in the
world in terms of service contribution to GDP(Asia development bank, 2014). US with more than 78%
services contribution and UK with 76% prove the importance of services in the economy (Indian union
budget document 2012-2013)

The role of services in Indian economy can be highlighted by the following economic indicators –

FDI inflow in services stood at USD 39,400 million during the period of April 2000 – Feb 2014.
India’s share of service sector exports stood at 3.3% in 2011, up from 0.6% in 1990.
Employment – 25% in 2010, 68% in urban India

The following aspects are responsible for growth of services in India –

• Upward trend in disposable income - More disposable income indicates more spending in
services. The real household disposable income has doubled since 1985
• Changing lifestyle – the lifestyles have come to change with more spending attitude as
supposed to more savings in previous generations. The lifestyles have become more outgoing
and concepts like grooming, fashion, convenience have gained importance, thereby increasing
demand for services.
• Increasing specialization – With changing lifestyles the increase in demand for specialized
services has given rise to many service ideas. For instance there are specialized services like car
spa, designer garments, nail spa, priority banking services etc
• Increasing literacy rates – Higher literacy rates indicate more aware consumers, better job
prospects, more demanding customers. In India literacy rates have increased from about 15% in
1950 to 74% in 2011 and the contribution of services have also increased in the same period
highlighting a directly proportional relationship
• Increase in government activities – Government activities like MGNREGA, Right to education
etc results in better infrastructure and higher disposable incomes.
 • Greater life expectancy – Greater life expectancy indicates higher spends on health care apart
from other industries as more life means more usage of services. India has progressed from a
life expectancy of 41.38 years in 1960 to 66.21 years in 2012.
• Changing social patters – With family patterns and social circles changing, the consumption
patterns also changes, thereby increasing the needs for more service products. The traditional
joint family systems are now replaced with Nuclear families, DINKS, Working women, single
child etc.
• Cultural change – Culture is an embodiment of values, knowledge, traditions, habits and
behavior that passes from one generation to other, its not static and in modern times has
become more open minded and inclusive. This leads to celebration of other cultures and there
by increases spending on services. For ex celebration of Diwali, Christmas and Ed by all
communities.
• Increase in new product launches – Companies regularly launch new products to cater to
specific needs and the life products and services are shrinking. Every new service attracts more
people meaning more revenue. Ex – TATA Owned Indian Hotels Company ltd (IHCL) recently
launched Ginger chain in the budget hotels category apart from the existing Taj group that
caters to the luxury segment.
• Technology penetration – more technology penetration enables – smoother functioning of
services, access to larger audience and customer convenience. The booming to e-commerce has
give a push to many services. Internet penetration in India is 16%, 243 million more that US 207
million, second largest internet base after china (300 mln), 82 mln active fb users, more than
50% access internet through cell phones
• Young population – India is set to become the youngest country by 2020, today every 3 Indian is
a youth. Young people being open to more services with a more disposable income are a boon
to the sector.
• Revenue to government – A major role that services play in an economy is to contribute to
Government through taxes. In 2010-11 the government collected Rs 71,390 crs in service tax
that formed 9% of total government revenue.

Conclusion – Services play a pivotal role in a country’s economy, as it is evident in the facts quoted
above. As India is touted to be the next super power, it will have to focus on providing great
infrastructure and support to services. There are steps already taken in this direction, for instance PM
Narendra Modi’s pet project GIFT city in Gujarat is all set to create 10 lakh jobs in the coming years in
the financial services industry.
B Marketing challenges of service
D Goods v/s service marketing
• Characteristics of services
• Marketing challenges of services
• Goods v/s service marketing
• Distinctive characteristics of services

Quote
Though all the principles of marketing goods remain true for services; owning to the unique
characteristics of services there are additional challenges that are inherent. Services posses unique
characteristics as compared to goods, these were largely ignored till the 80’s. But recently it has been
suggested that these are also relevant for goods and the view that all businesses are in the business of
services is being realized.

Myntra.com is an Indian online shopping retailer of fashion and casual lifestyle products, headquartered
in Bangalore, Karnataka. It’s a strong player in the country’s booming ecommerce industry. It explains
how a company can overcome the unique challenges that services posses, Myntra was recently sold to
ecommerce major flipkart for $ 300 mln.

The challenges posed by services can be grouped 4Is -

 Intangibility – is the most basic distinguishing characteristics of services. Services are

performances or actions rather than objects, they cannot be seen, felt, tasted or touched in the
same manner that you can sense tangible goods.

Marketing implications:

― Services cannot be inventoried

― Cannot be easily patented
― Cannot be readily displayed
― Difficult to put a price.

Ex – To reduce this challenge Myntra.com has a feature called Style Studio where the customers
can upload their picture and virtually try the apparels they shortlist.

 Inconsistency, Heterogeneity – since services are performances and are frequently produced by
humans, no two services will be precisely alike. Heterogeneity in services is largely the result of
human interaction.

Marketing implications:

― Satisfaction depend on the employee and customer actions

― Quality depends on uncontrollable factors
 ― Delivery depends on actual performance

Ex – Myntra.com has to bear the brunt of this aspect of services as different consumers perceive
the service differently and they post negative reviews about the brand, Myntra tries to reduce
this by recovering genuine service failure and replying to negative comments.

 Inseparability, Simultaneous Production and Consumption – most services are sold first and
then produced and consumed simultaneously.

Marketing implications:

― Customers participates and affect the transactions

― Customers affect each other
― Employees affect the service outcome
― Decentralization may be essential
― Mass production is difficult

Ex – Myntra again faces negative reviews even if the problem was at the customers end, like
they didn’t mention the correct size or not mentioned the address correctly etc.

 Inventory, Perishability - refers to the fact that services cannot be saved, stored, resold, or
returned.

Marketing implications:

― Synchronization of supply and demand is difficult

― Services cannot be returned or resold.

Ex – Myntra regularly comes up with innovative sales promotion techniques to reduce its
inventory, like republic day sales of upto 65% and free shipping etc.

Conclusion

These challenges that services provide are also opportunities for companies to create differentiation and
add value, hence a young service company like Myantra was valued at $300 Million and sold to Flipkart
which itself is valued at more than $5 Billion.
*If the question on marketing challenges for services is asked mention the following along with the
content above

Prominent services marketing experts Zeithaml & Bitner list the following questions to highlight major
challenges of marketing services –

• How can service quality be defined and improved when the product is intangible and non-
standardized (Heterogenous)?

• How can new services be designed and tested effectively when the service is essentially an
intangible process?

• How can the organization ensure the delivery of consistent quality service when both the
organization’s employees and the customers themselves can affect the service outcome?
(Inseparability)

• How does the firm accommodate fluctuating demand when capacity is fixed and the service
itself is perishable?

• How can the firm be certain it is communicating a consistent and relevant image when so many
elements of the marketing mix communicate to customers? (Mktg)

• How can the firm best motivate and select service employees who, because the service is
delivered in real-time, become a critical part of the product itself? (HR)

• How should prices be set when it is difficult to determine actual costs of production and price
may be intertwined with perceptions of quality? (Finance)

• How should the firm be organized so that good strategic and tactical decisions are made when
a decision in any of the functional areas of marketing, operations, and human resources may
have significant impact on the other two areas?

• How can the balance between standardization and personalization be determined to maximize
both the efficiency of the organization and the satisfaction of its customers?

• How can the organization protect new service concepts from competitors when service
processes cannot be legally patented?

E Goods-Service continuum
In reality most products are a combination of goods and services, i.e. goods and service offerings are
being intermingled in different proportions. The goods-service continuum categorizes products along a
scale from pure goods to pure services. A products placement on this continuum gives some guidance as
to which marketing issues are likely to be most relevant.
(* just mention slat, Automobile, Restaurants, Air travel and Teaching)

From the diagram 5 categories or groups of products emerge –

1. Pure tangible goods – The bottom part in the diagram which are dominated with physical elements
for example slat and most FMCG goods which has no or least scope for services.

2. Goods with accompanying services – more of goods, more towards the bottom side in the diagram,
but with elements of services. For example a car which is a good but is bundled with fair bit of services
like maintenance, insurance etc.

3. Hybrid – these goods fall almost exactly fall at the center of the diagram and are balanced between
goods and services for instance a restaurant where the food served which is a good and the ambience,
timing and behavior of the staff etc which are service elements are equally important.

4. Service accompanying goods – here the service element will be dominant but the goods are
important too, in the diagram they will be more towards the intangibles side. Like Airlines where the
service of flying is more important but the goods element like the food and other merchandises play a
part in the service offering.

5. Pure services – they will have no or little goods elements in its offering for example life insurance or
web services like Google.

The best companies use a combination and offer different combination of goods and services to serve
their customers better and to beat the competition.
G Service marketing triangle
“Services are about promises made and kept”

A strategic framework known as the services triangle reinforces the importance of people in the ability
of firms to keep their promises and succeed in building customer relationship.

1. External marketing – all efforts that the firm engages in to set up its customer expectations and make
promises to the customer as to what is to be delivered. So anything/anyone that communicates with the
customer, before the service is delivered can be viewed as external marketing.

Ex – Dominos advertising in all mediums about its guaranteed 30 minutes delivery is an instance of
external marketing.

2. Interactive Marketing – Here is where promises are kept or broken by the firms, employees,
subcontractors or agents. Client judge services not only by its technical quality (ex – was the surgery
successful) but also by its functional quality (did the surgeon show concern)

Ex – The Dominos pizza delivery boy being well dressed, hygienic and solves the queries of the
customers with patience and courtesy is an instance of interactive marketing carried out successfully.

3. Internal Marketing – It involves training and motivating employees to serve customers well. Unless
the service employees are able and willing to deliver the promise made the firm will not be successful
and the service triangle will not be complete.

Ex – Dominos training its employees to deliver the pizzas quick to deliver on its promise of 30 minutes
and it motivating its employees by honoring displaying the names of employee of the month in every
store is an instance of internal marketing

Conclusion – all 3 sides of the triangle are essential to complete the whole and the sides should be
aligned. So what is promised should be same as to what is delivered and also be enabled.
F Consumer Behavior
People don't care how much you know until they know how much you care - about them and their
problems - Robert Cavett

People's behavior makes sense if you think about it in terms of their goals, needs, and motives - Thomas
Mann

Understanding consumer behavior lies at the heart of marketing. We need to understand how people
make decisions about buying and what determines their satisfaction after consumption. Without this
understanding no organisation can hope to create and deliver services that will result in satisfied
customers.

The huge success of Big Bazaar and especially its “Sabse Saste Din” sale days is a testimony to the fact
that if consumer behavior is understood success follows.

Service consumption can be divided in 3 stages –

1. Pre-purchase stage – this is the stage where the need for a solution is realized, the problem is felt.
Understanding this stage of consumer decision making process is crucial because it is at this stage the
customer is short listing the brands or solutions they consider best to solve their problem. Brands should
be present at this stage to communicate with its TG.

The following are the characteristics of this stage –

 Customers seek solutions to aroused needs

 Evaluating a service may be difficult
 Uncertainty about outcomes increases perceived risk
 Service providers should implement risk reduction strategies
 They should understanding customers’ service expectations and its components
 This stage ends at the customer making a service purchase decision

Ex – Kishore Biyani and team undertook a detailed research by spending time at chawls in Mumbai and
other parts of the country to understand how their TG arrives on a purchase decision; where they found
that for their TG which were low income people like crowd around when they shop and they always
touch the food grain before packing.

2. Service Encounter Stage – this is moment-of-truth when the customer has decided on the brand and
the encounter with the service provider happens. Although some of these encounters are very brief,
service providers need to design the process keeping in mind customer convenience and to satisfy them.

The following form the important part of this stage –

 Moments of truth – Importance of managing touch points

 High/low contact – extent and nature of contact points
  Theatre metaphor – ‘staging’ service performances

Ex – following the earlier stage Big Bazaar developed a store process where customers can touch and
feel the food grains; spend as much time selecting the right variety and then pack

3. Post encounter stage – During the post encounter stage the customers evaluate the service
performance they have received and compare it with their prior expectations.

It includes the following –

 Customer satisfaction – whether the customer is satisfied i.e. the service has matched her
expectation or dissatisfied i.e. the actual service performance was below the expectation or the
promise
 Customer Delight – if the actual service was much better than what was expected or promised,
the customer experiences a delight

Ex – the phenomenal success of Big Bazaar’s ‘sabse saste din’ and the fact that it is still running every
year from the past 7 years proves that it has achieved customer delight.

Conclusion – the success of marketing lies in the satisfaction of customers and that depends on
understanding the customer’s behavior, this becomes more challenging in case of service given its
unique characteristics. But once understood and acted upon the customer end up delighted and the
company profitable. Big Bazaar implemented the super sale day ‘sabse sasta din’ in 2006 purely based
on understanding the shopping emotions of its TG and in its first year itself earned a revenue of more
than 26 crore rupees.
Concepts in Consumer Behavior

a. How Product Attributes Affect Ease of Evaluation

This can be explained by using the goods-service continuum –

Evaluating a service may be difficult considering the following attributes

Search attributes help customers evaluate a product before purchase. Like Style, color, texture, taste,
sound

Experience attributes cannot be evaluated before purchase—must “experience” product to know it,
consider - Vacations, sporting events, medical procedures

Credence attributes are product characteristics that customers find impossible to evaluate confidently
even after purchase and consumption; like - Quality of repair and maintenance work

b. Perceived Risk in services

Owning to the unique characteristics of services the risk involved in purchasing and consuming a service
is more than that of a good, and most of the times the risk is perceived because till the time the service
is over the risk involved can be thought about. Risk in services can be dissected as follows –

 Functional—unsatisfactory performance outcomes. Ex . Will training course enhance my skills?

 Financial—monetary loss, unexpected extra costs . Ex. Will I lose money if I invest in this stock,
as recommended by my broker
  Temporal—wasted time, delays leading to problems. Ex. How long will I have to wait to get the
movie ticket?
 Physical—personal injury, damage to possessions. Ex. Will I get hurt if I go for diving at resort.
 Psychological—fears and negative emotions. Ex. Will the doctor’s diagnosis be effective?
 Social—how others may think and react
 Sensory—unwanted impact on any of five senses. Ex. Will the hotel bed be uncomfortable?

Following are the ways in which the customers handle perceived risk

 Seeking information from respected personal sources

 Relying on a firm that has a good reputation
 Looking for guarantees and warranties
 Visiting service facilities or trying aspects of service before purchasing
 Asking knowledgeable employees about competing services
 Examining tangible cues or other physical evidence
 Using the Internet to compare service offerings and search for independent reviews and ratings

Follwing are the strategic responses (that companies can undertake) to managing customer
perceptions of risk

 Offer performance warranties, guarantees to protect against fears of monetary loss

 For products where customers worry about performance, sensory risks:
― Offer previews, free trials (provides experience)
― Advertising (helps to visualize)
 For products where customers perceive physical or psychological risks:
― Institute visible safety procedures. Ex. Airline – O2 bags.
― Deliver automated messages about anticipated problems
― Websites offering FAQs and more detailed background
― Train staff members to be respectful and empathetic

c Zone of tolerance
Customers have two levels of expectation: Adequate - what they find acceptable and Desired -what
they hope to receive. The distance between the adequate and the desired levels is known as the 'zone of
tolerance'. The two levels may vary from customer to customer, and from one situation to
another for the same customer.
  Desired Service Level:
― Wished-for level of service quality that customer believes can and should be delivered.
Ex- in a quick service restaurant I don’t have to wait for more than 5 mins to get my
order
 Adequate Service Level:
― Minimum acceptable level of service. Ex – the maximum they may take is 10 mins
 Predicted Service Level:
― Service level that customer believes firm will actually deliver. Ex - Ive heard that they
normally deliver with in 5-7 mins
 Zone of Tolerance:
― Range within which customers are willing to accept variations in service delivery. Ex –
hence my zone of tolerance is 5 mins

d Theater as a Metaphor for Service Delivery

All the world’s a stage and all the men and women merely players. They have their exits and their
entrances and each man in his time plays many parts - William Shakespeare

Services are considered to be a art form like a theater play, as in services too there are scripts that
employees have to follow, they have to behave and act in a particular manner, there is a stage in which
the service is performed etc.

The following are the parallels that can be drawn –

 Service dramas unfold on a “stage”—settings may change as performance unfolds

 Many service dramas are tightly scripted, others improvised
 Front-stage personnel are like members of a cast
 Like actors, employees have roles, may wear special costumes, speak required lines, behave in
specific ways
  Support comes from a backstage production team
 Customers are the audience—depending on type of performance, may be passive or active
participants

e Customer satisfaction and customer delight

Customer satisfaction

Satisfaction defined as attitude-like judgment following a service purchase or series of service

interactions

 Customers have expectations prior to consumption, observe service performance, compare it to

expectations
 Satisfaction judgments are based on this comparison
― Positive disconfirmation if better than expected
― Confirmation if same as expected
― Negative disconfirmation if worse than expected
 Satisfaction reflects perceived service quality, price/quality tradeoffs, personal and situational
factors
 Research shows links between customer satisfaction and a firm’s financial performance

Customer delight

 Research shows that delight is a function of three components:

― Unexpectedly high levels of performance
― Arousal (e.g., surprise, excitement)
― Positive affect (e.g., pleasure, joy, or happiness)
 Is it possible for customers to be delighted by very mundane services?
 Strategic links exist between customer satisfaction and corporate performance.
 Getting feedback during service delivery help to boost customer loyalty

C Service marketing environment

All organizations operate within the marketing environment. The marketing environment is made up of
two parts – Macro environment, Micro environment

Micro Environment

The micro environment is the internal environment of the organization .The factors to be analyzed in the
internal environment will include the following :
In effect any person or organization which can influence the company’s marketing activities and
marketing success in way should be included here. The list is not absolutely comprehensive as individual
organizations may need to consider special influences.

Micro Environment

The macro environment represents all the outside influences which have impact on an organization’s
marketing or business activity. It includes economic and political factors and socio-cultural trends, for
example the external environment influences will effect all organizations within a sector to a greater or
lesser degree. The internal environment relates to a particular organization and its publics.

Political –Legal Environment

There is considerable influence of the political –legal environment on service marketing . Service
industries are often more closely regulated than most other forms of private enterprise. Many service
firms are being subject to government regulations in addition to the usual taxes and legislation. Service
providers must understand and recognize the impact of such regulation on their competitive strategies.

Regulation generally influences service business in four ways.

• Regulation generally influences the range and type of competition.

• Regulation reduces the marketer’s array of options and introduces certain rigidities into the
marketing process.

• Decision of the regulatory agencies being the binding part of the marketing decision –making
process must be focused at understanding and predicting those agencies action

• Pressure groups may be established to lobby and effect change or modify , the directions being
taken by the regulatory bodies.

Economic Environment

In economic environment changing life style , changing world ,changing economies and changing
technological advances and changing consumer needs have contributed to increase spending on
consumer services. Technological innovations have also helped to create a higher standard of living for a
common man, who presently spends a larger portion of his or her increased disposable income of
services. But the role of technology has also aided in circumventing barriers to trade , especially in its
role in designing and delivering services. The urbanization has widened the demand for personal and
public services . The demographic shift towards an older population in some countries has resulted in
new service demands such as better healthcare , convenience products etc. In the global environment ,
due to cross country cultural issues , trade barrier ( both tariff and non-tariff) tend to become more
restrictive in marketing of services.

Socio-Cultural Environment

Socio- cultural forces are set factors including life style , social values and beliefs that affect the
marketing activities of an organization. These factors have significant impact on the marketing of
services . The marketers have found the intensive use of consultants and counselors in their personal
family and working lives. Health, Beauty, travel, culture, and higher education have partly replaced
durable goods as status symbols in the mind of many consumers . There had been an increasing trend in
the services like security , insurance, legal, medical and investment. Globally , the cultural dimensions
affect services in a more pronounced manner than do goods. Due to inseparability characteristic of
services the firms may need to adapt their offerings to suit local taste and preferences . KFC and
Mc’Donald’s had to adapt its products in India to suit local polates. Business negotiations are very much
subject to local norms and local systems. Language is a major cultural influence

Technological Environment

Technology has influenced our life styles, consumption pattern and our economic well being
tremendously. Just think of internet , worldwide web (www) , E-commerce , video conferencing. World
has become too small and boundary less. The service economies will be technologically driven soon.
Instead of expecting service providers to improve results ; management must see what kind of
organizational structure , incentives , technology and skills can improve overall productivity.

H Classification of Services
Do you think classification of services can help in developing the marketing mix? How?

Yes, the classification facilitates better decisions on developing the marketing mix.

Following are the bases on which Services can be classified –

By market segment By degree of tangibility

End customer B2B customer Highly intangible Balanced Highly Tangible
Salon Ad agency Website Restaurant Take away joints

By skill of the service providers By degree of regulation

Limited
Professional Non-Professional Highly Regulated regulation Non-regulated
Doctor Care taking Hospitals Catering House painting
 By business orientation By degree of customer contacts
NGO Commercial High contact Low contact
Red Cross Air Asia Colleges Web-sites

 The marketing mix for a business to consumer service like a Dominos will be different from that
of an ad agency which is a B2B modeled service. While developing the marketing mix for
Dominos the marketers will keep more resources in promoting and advertising the product and
communicate with the end consumers using multiple mediums like TV, print and radio. Whereas
for an ad agency promoting will be more to do with networking than advertising on TV
 In high contact services like Colleges the People mix (consisting of teaching and non-teaching
staff) in the overall marketing mix gains more importance as compared to low contact services
like web-sites where the product per se is gain more weightage

The same is true for all the bases on which services are classified above and go to prove that
classification helps developing an apt marketing mix for services owning to the various combinations
that services come in