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SERVICES MARKETING
MODULE – II
Quality Issues and Models, Gap Analysis, SERVQUAL, Application of
SERVQUAL, Service product, New service development, Branding, Packaging,
Pricing, Promotion, Service delivery channels, direct channels, franchising,
agents, brokers, internet channels, channel conflicts and resolution.
SERVICE QUALITY
Quality means the degree of excellence in service performance. One of the
major ways a service firm can differentiate it is by delivering consistently
higher quality than its competitors do. Service Quality offers a way of achieving
success among competing services. Consumers perceive the quality of a service
by experiencing the consumption process and by comparing the experience with
their expectations. Many companies are finding that outstanding service quality
can give them a potent competitive advantage that leads to superior sales and
profit performance. The key is to exceed the customers’ service-quality
expectations. These expectations are based on past experiences, word of mouth,
and service firm advertising. If perceived service of a given firm exceeds
expected service, customers are apt to use the provider again. Customer
retention is perhaps the best measure of quality-a service firm’s ability to hang
onto its customers depends on how consistently it delivers value to them. Thus,
whereas the manufacturer’s quality goal might be “zero defects,” the service
provider’s goal is “zero customer defections” The service provider needs to
identify the expectations of target customers concerning service quality.
Unfortunately, service quality is harder to define and judge than
Service Quality Management
Managing the quality of products and services is very important to ensure that
the business excels in meeting the customer requirements and achieves
organizational goals. Whether it’s a manufacturing firm producing hardware or
a software company providing services to clients, quality management is the
very essence of continuous improvement and business growth. We can trace
back the origins of modern quality management principles to Henry Ford’s
process and quality management practises that he used in the company’s
production lines. However, after the Second World War, it was Japan that

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emerged as the strongest proponent of Quality Management as they rebuilt their

economy with the help of great statisticians and engineers like Shewhart,
Deming and Juran. By combining quality control techniques and statistical
process control methods, several quality management principles were
formulated that are to this day used in industries across the world While product
quality is measured through its ability to meet the user’s requirement and the
value of its features and characteristics, service quality is more of a comparison
of the customer expectations and the service performance. Though the
principles of improving product quality are applicable to services as well, it’s
very important to know the focus areas of improvement with respect to
increasing customer satisfaction when it comes to service quality management.
This can be done by measuring the gap between customers’ expectations and
how they perceive the services offered to them. The larger the gap size, the
more improvements to be made.
Dimensions of Service Quality
The dimension of service quality is listed below,
1. Tangibles: The physical appearance of the facilities, staff, buildings, etc.,
e.g. Does the equipment appear modern? How clean is the waitress’s
apron.
2. Reliability: The ability to reproduce the same level of service again and
again e.g. Is feedback regarding student progress always given? Are
messages always passed on?
3. Responsiveness: The speed with which queries etc. and dealt with e.g..
Are letters replied to by return of post, or does it take a month? Is
feedback on assignments given within a week in time for students to
assimilate the information, or does the feedback come too late, after the
examination has been taken?
4. Communication: The clarity and understandability of the information
given to the client, e.g. Does the doctor take the time to explain in terms
the patient can understand, what is going to happen next? Does the
solicitor explain clearly what the legal jargon means?
5. Credibility: The trustworthiness of the service provider, e.g. Does the
newspaper reporter report all the facts or only those which support his/her
argument? Does the financial adviser present all the options or only those
which earn him/her the most commission.

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6. Security: The physical safety of the customer or privacy of client

information, e.g. Are the medical records of patients kept confidential?
Are the stands in the football ground strong enough to support the weight
of all the supporters?
7. Competence: The actual technical expertise of the service provider, e.g. Is
the doctor really qualified to perform heart surgery? Does the financial
adviser have sufficient knowledge of all the relevant tax regulations?
8. Courtesy: The attitude of the service provider and manner adopted by the
server, e.g. Is the receptionist friendly, helpful, and polite? Does the
doctor treat the patient as an inferior being?
9. Understanding: How well the provider of the service understands the
client’s needs e.g. Does the bank recognize that most clients cannot get to
the bank in working hours? Are there mirrors positioned in the hotel
bathrooms which allow guests to see the back of their hair?
10. Access: How easy is it to reach the service provider, geographically or
by phone, e.g. Are there car parking facilities close to the solicitor’s
office? Does it always take five attempts to get the solicitor on the phone?

Generic Dimensions Customers Use to Evaluate Service Quality

Valarie and her associates developed a survey research instrument called

“SERVQUAL” to measure customer satisfaction with different aspects of
service quality. This instrument assumes that the customers can measure a
firm’s service quality by comparing their perceptions of its service with their
own expectations. “SERVQUAL” can be applied across a broad spectrum of
service industries as a generic measurement tool.

Reflecting the five important dimensions of service quality such, Tangibles,

Reliability, responsiveness, Assurance & Empathy, the scale contains 21
perception items in its basic form and a series of expectation items. On a wide
range of specific service characteristics, the respondents complete a series of
scales that measure their expectations of companies in a particular industry.
Respondents are subsequently asked to record their perceptions, using those
same characteristics of a specific company whose services they have used.
When perceived performance ratings are lower than expectations, this is a sign
of poor quality. The reverse indicates good quality.

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The Tangibles Dimension

In forming the evaluations, the consumers often rely on the tangible evidence
that.
surrounds the service because of the absence of a physical product. The
tangibles dimension of ‘SERVQUAL’ compares consumer expectations with
the firm’s performance regarding the firm’s ability to manage its tangibles. A
firm’s tangibles consist of a variety of objects such carpeting, desks, lighting,
wall colours, brochures, daily correspondence, and the appearance of the firm’s
employees. The tangibles component in ‘SERVQUAL’ is two-dimensional—
one focusing on equipment and facilities, the other focusing on HR &
communications materials.

The tangibles component of ‘SERVQUAL’ is obtained via four expectations

questions i.e., E1 to E4 and four perception questions i.e., P1 to P4. The
perception questions apply to the specific firm under investigation whereas the
expectations questions apply to excellent firms within a particular industry.
Comparing the perception scores with the expectation scores provides a
numerical variable that indicates the tangibles gap. The smaller the number, the
smaller the gap, and the closer consumers’ perceptions are to their expectations.
The items that pertain to the tangibles dimension are given below.

Tangibles Expectations
E1—Excellent firms will have modern-looking equipment.
E2—The physical facilities at excellent firms will be visually appealing.
E3—Employees of excellent firms will be neat in appearance.
E4— In an excellent firm, the materials associated with the service will be
visually appealing.

Tangibles Perceptions
P1—Firm ABC has modern-looking equipment.
P2—Firm ABC’s physical facilities are visually appealing.
P3—Firm ABC’s personnel are neat in appearance.
P4—Materials associated with the service are visually appealing at firm ABC.

The Reliability Dimension

The reliability dimension reflects the consistency and dependability of a firm’s
performance. Consumers perceive the reliability dimension to be the most
important of the five ‘SERVQUAL’ dimensions. Failure to provide reliable
service generally translates into an unsuccessful firm. “SERVQUAL’ measures
the reliability gap as shown below:

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Reliability Expectations
E5— When excellent firms promise to do something by a certain time, they will
do so.
E6— When customers have a problem, excellent firms will show a sincere
interest in solving it.
E7—Excellent firms will perform the service right the first time.
E8—Excellent firms will provide their services at the time they promise to do
so.
E9—Excellent firms will insist on error-free records.
Reliability Perceptions
P5—When firm ABC promises to do something by a certain time, it does so.
P6— Firm ABC shows a sincere interest in solving your problem whenever you
have a problem.
P7—Firm ABC performs the service right the first time.
P8—Firm ABC provides its services at the time it promises to do so.
P9—Firm ABC insists on error-free records.
The Responsiveness Dimension
A Service firm’s commitment to provide its services in a timely manner is
reflected in responsiveness. The concern of the responsiveness dimension of
“SERVQUAL’ is the willingness &/or readiness of personnel to provide a
service. Sometimes the customers may face a situation in which the employees
are busy in their own talk with their other colleagues while ignoring the needs
of the customers. This is an example of unresponsiveness. The preparedness of
the firm to provide the service is reflected in responsiveness. The
‘SERVQUAL’ expectation and perception items that address the responsiveness
gap are given below:
Responsiveness Expectations
E10— Employees of excellent firms will inform the customers exactly when
services.
will be performed.
E11—Employees of excellent firms will give genuine service to customers.
E12—Employees of excellent firms will always be willing to help customers.
E13— Employees of excellent firms will never be too busy to respond to
customer.
requests.
Responsiveness perceptions
P10— Employees of ABC firm will inform their customers when the service
will be
performed.
P11—Employees of ABC firm will give prompt & genuine service to
customers.
P12—Employees of ABC firm are always willing to help customers.

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P13—Employees of ABC firm are never too busy to respond to customer

requests.
The Assurance Dimension
The competence of the firm, the courtesy it extends to its customers and the
security.
of its operatives are addressed by the assurance dimension of ‘SERVQUAL’.
Competence in this context is the firm’s knowledge & skill in performing its
service courtesy refers to how the firm’s employees deal with the customers &
with their possessions. Courtesy includes such aspects as politeness,
friendliness, and consideration for the customer’s property. Security is also an
important component of the assurance dimension. Security reflects a customer’s
feelings that he is free from risk, danger, and doubt. The ‘SERVQUAL’ items
used to address the assurance gap are given below.

Assurance Expectations
E14— The behaviour of personnel of excellent firms will instil confidence in
customers.
E15—Customers of excellent firms will feel safe in their transactions.
E16—Personnel of excellent firms will be consistently courteous to customers.
E17— Personnel of excellent firms will have the knowledge to answer
customer
questions.
Assurance Perceptions
P14—The behaviour of personnel of ABC firm instil confidence in customers.
P15—Customers feel safe in their transactions with firm ABC.
P16—Personnel of firm ABC are consistently courteous to their customers.
P17—Personnel of firm ABC have the knowledge to answer the customer
questions.

The Empathy Dimension

The ability to experience another’s feelings as one’s own is called as empathy.
Empathetic firms have not lost touch with what it is like to be a customer of
their own firm. Empathetic firms understand the needs of their customers and
make the services accessible to their customers. Firms that do not provide their
customers individualized attention and that offer operating hours convenient to
the firm and not to its customers fail to demonstrate empathetic behaviour. The
empathy dimension of ‘SERVQUAL’ addresses the empathy gap in the
following manner.

Empathy Expectations
E18—Excellent firms will give individual attention to its customers.
E19—Excellent firms will have operating hours convenient to all their
customers.

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E20—Excellent firms will have personnel who give customers personal

attention.
E21—Excellent firms will have the customers’ best interest at heart.
E22— The specific needs of the customers will be understood by the employees
of excellent firms.

Empathy Perceptions
P18—Firm ABC gives individual attention to customers.
P19—Firm ABC has operating hours convenient to all its customers.
P20—Employees of firm ABC give personal attention to all its customers.
P21—Firm ABC has customers’ best interest at heart.
P22—Employees of firm ABC understand their customer’s specific needs.

Limitations of ‘SERVQUAL’

‘SERVQUAL’ is an excellent instrument for measuring service quality is not

free from several limitations. The service providers must be well versed with
the limitations of the instrument and the gap theory methodology on which it is
based. The major limitations of the ‘SERVQUAL’ instrument are discussed
below:

1. The ‘SERVQUAL’ measures the expectations of the customers in an ideal

firm in a service industry. This may or may not be relevant to the capabilities of
a particular service firm or the group of service firms available to a customer.

2. Another frequent criticism of the ‘SERVQUAL’ instrument is its generic

nature. Since it is not industry, it does not assess variables which may be
industry specific.

3. Length of the ‘SERVQUAL’ questionnaire is another major issue of

criticism. A combination of perception and expectation items of ‘SERVQUAL’
results in a 44-item survey instrument. The argument is that the 44 items are
highly repetitive and unnecessarily increase the length of the questionnaire.
Further argument is that the expectations section of the instrument is of no real
value and that the perceptions section along should be used the measure the
service quality.

4. Another limitation of ‘SERVQUAL’ instrument related with the gap

methodology used for assessing the level of service quality. Evaluating
consumer expectations after a service has been provided will bias the responses
of consumers. If the customers had a positive experience, they would tend to
report lower scores for their expectations, so there is a measurable gap between
what they expected and the service they received. If customers had a negative

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experience, the opposite occurs. Customers tend to report higher scores for their
expectations, so there would be a negative gap between expectations and
perceived level of service.

5. Another frequent criticism of the ‘SERVQUAL’ instrument is that the five

proposed dimensions of service quality - reliability, responsiveness, assurance,
empathy, and tangibles- do not hold up under statistical scrutiny. Consequently,
opponents of ‘SERVQUAL’ question the validity of the specific dimensions in
the measurement instrument.

6. The sixth major criticism of ‘SERVQUAL’ related to the instrument’s ability

to predict consumer purchase intentions. Research has indicated that the
perception section alone of the ‘SERVQUAL’ scale is a better predictor of
purchase intentions than the combined expectations-minus-perception
instrument. The ‘SERVQUAL’ instrument is criticized on the point that the
satisfaction has a more significant effect on purchase intentions than does
service quality.

Concluding Remarks about ‘SERVQUAL’ instrument

1. The Relevance of Employees of Customer Relations Department

The ‘SERVQUAL’ instrument highlights many important points that service
providers should consider while examining service quality. The attitudes and
performance of customer relations executives heavily determine the perceptions
of customers about the services. The interaction between employees and the
customers directly determines the responsiveness, empathy, and assurance
dimensions. The tangible dimension depends partly on the appearance & dress
of the employees of the service provider.

2. Process is Equally Important as Outcome

The customers judge the service based on the outcome and the process through
which the service passes through. The nature and frequency of the service is
also important in addition to its delivery. Finally, the customer satisfaction
depends on the production and consumption of the services.

3. Difficulty in Predicting Consumer Perceptions

There are several factors outside the control of the organization that may not be
readily apparent, but the ratings of service quality dimensions will be influenced
to a large extent by such factors.

Despite its limitations ‘SERVQUAL’ continue to be a frequently used

instrument to measure service quality. When used with other forms of

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measurement, ‘SERVQUAL’ provides a valuable diagnostic tool for measuring

the firm’s service quality performance.

A Model of Service Quality

Consumers compare the service they received with the service with the
expected.
in the process of assessing the quality of service. The mathematical formula to
calculate the service quality can be expressed as P-E, where “P” is the consumer
perceived level of service received and “E” is consumer expectations prior to
the service encounter. A positive number would indicate consumer expectations
were exceeded. A ‘zero’ would indicate the consumer expectations were met. A
negative number would indicate that expectations were not met. The figure
given below presents a model of service quality that identified Five potential
gaps.

GAP ANALYSIS OF SERVICE QUALITY

Managers must match perceived services with expected service or customer

expectations with customer perceptions to successfully achieve customer
satisfaction. GAP analysis helps the managers to analysis the gaps between
customer expectations of services and customer perception of service. This
model was developed by Parasuram, Berry, and Zeithaml in 1985.

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Gap 1:
• 1. Inadequate market research
• 2. Lack of upward communication in the organization
• 3. Insufficient focus on customer relationships
• 4. Not knowing what customer expects
• 5. Inadequate service recovery

Gap 1: is the distance between what customers expect and what managers think
they expect - Clearly survey research is a keyway to narrow this gap.
Reasons:
This cap can be narrowed through adequate research programmes to find
customer needs and the sources of their expectations and to improve the
communication system.

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Gap 2: is between management perception and the actual specification of the

customer experience - Managers need to make sure the organization is defining
the level of service they believe is needed.
Reasons:
1. Poor service design
2. Absence of customer driven standards
3. Lack of management commitment to satisfy the customer
4. Lack of intangible evidence
This gap can be closed by standardizing service delivery process wherever
possible and setting proper organizational goals and to realize that customer is
of prime important.
Gap 3: is from the experience specification to the delivery of the experience -
Managers need to audit the customer experience that their organization
currently delivers to make sure it lives up to the spec.
Reasons:
1. Human resource problem
2. Failure to match market demand and market supply
3. Customers are unaware of their roles and responsibilities
4. Service intermediaries’ problems

This gap can be closed through employee questionnaire, that address their
perceived ability to deliver to established standards.

Gap 4: is the gap between the delivery of the customer experience and what is
communicated to customers - All too often organizations exaggerate what will
be provided to customers or discuss the best case rather than the likely case,
raising customer expectations and harming customer perceptions.
Reasons:
1. Lack of integrated service marketing communications
2. Ineffective management of customer expectations by managers
3. Over promising by the organization
4. Inadequate horizontal communication within the organization.

This can be reduced by efficient and effective communication system and also
by not inflating promises to customers leading to higher expectations.

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Gap 5: is the gap between a customer's perception of the experience and the
customer's expectation of the service - Customers' expectations have been
shaped by word of mouth, their personal needs, and their own past experiences.
Routine transactional surveys after delivering the customer experience are
important for an organization to measure customer perceptions of service.
Reason for the gap 5 is the association of the gap 1 to 4 and can be bridged by
closing all the above four gaps.

Service quality management

Service quality narrow down the goals of service quality management as

1. To maintain a consistency in service delivery so that all elements are under

control and achieve the same desired results the first time and every time
2. To meet the customers rising expectation through the introduction of the new
services and enhancement of the existing ones.

The service quality management process involves.

1. Setting the right standard

2. Organizing and implementing quality service
3. Monitoring service quality

SETTING THE RIGHT STANDARD:

Setting right standard is vital for service-based business organization. Quality

standard is not just related to manufacturing, it covers all functions of the
organization as very function has impact on the customer satisfaction levels.
Apart from the national and international standards like ISO9000, service firms
set standards based on the market research conducted on focused customer
groups.
Some organizations use benchmarking as the quality standard of the firm, it
examines the service quality of the other firms and can help in achieving the
desired standards.

IMPLEMENTING THE QUALITY SERVICE

Once the quality standard is set then implementing the standards become vital
process of the business organization. Kotler outlines the following requirements
for successful implementations of service quality programme.

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1. Entire organization should be customer focused

2. Total commitment to quality by the management
3. Good internal communication system
4. Set methods for evaluating performance of the staff
5. Develop adequate feedback system form both external and internal customers

Total quality management: TQM allows an organization to make a critical

assessment of the services of the firm in terms of the process it adopts to deliver
the service and also the people involved in delivering the service.

TQM adopt the following four principles:

1. Definition of customer requirements – this can help in meeting the need and
wishes of the customer exactly
2. Prevention, not correction – it is better to prevent the errors in service
providing the customer rather than correction at delivery stage
3. Performance standards and zero defects – set quality standards which ensure
zero defects helps in reaching the customer
4. Measurement – measuring target performance with actual helps in improving
the service quality.

MONITORING SERVICE QUALITY:

It is very important to monitor the implemented standards of service to achieve

goals of the firm. To monitor service quality firms, use certain tools and
techniques some of them are:

Statistical tools: punctuality, waiting time, delivery status etc are very much
difficulty to monitor. In this case firms can measure the quality by using simple
statistical tools and display the results in the form of a chart.
Ex: scheduling models for telephone response centres can predict staffing levels
needed to maintain, say a three-second response.

Quality function deployment: it is a disciplined approach to transform

customer requirements, the voice of the customer into product/service
development requirement. It brings together what customers want and how their
requirements can be delivered.
Internal performance analysis: It is undertaken by all organizations to
measure the success of their planning and quality of service. Sales figures,
internal reporting data, job appraisal and levels are key indicators to quality
performance.

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Customer satisfaction analysis: This is the most important analysis and is

collected in the form of feedback and follow up survey. Focused group
discussions and other market research techniques can be utilized to ask
customer directly about their satisfaction of the service quality.

PROBLEMS OF SERVICE QUALITY CONTROL

Quality management concepts are basically simple but, managing service

quality is a difficult task. Service businesses are blamed to miss out on quality
more often than manufacturers. Here are the some important areas why service
firms fail to provide quality service.

People Oriented: The delivery of service involves both the service provider
and customer. The mood, emotions and willingness play a vital role in
delivering services and sometimes these factors become barriers in delivery of
services.

Lack of support: The front-line staff plays a significant role in interacting with
customers and they must be motivated and supported by the backstage
supervisors. Front line staff should be sufficiently trained and well managed
while meeting with customers because they are the first impressive factor in
customer and as well as firm mind.

Lack of communication: There should be a two-way communication in service

providing firms. Sometimes customers who are not satisfied with the service
will not complain and they may annoy to visit again, and this forces firms into a
vicious circle of quality deterioration.

Lack of quality behaviour: Quality maintenance should be maintained for

lasting rather confined to limited framework of time. It will reflect in business
success.

SERVICE PRODUCT
Service is an intangible product. It cannot be photographed, touched, verified,
and tried out. A service product is a bundle of features and customer benefits. A
product is an overall concept of objects or processes which provide some values
to customers. To understand a service ‘product’, it is necessary to understand
different levels of product within a service. Unless the employees of the
organizations as well as the customers understand the service product properly,
it is not possible to produce quality service.

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According to Philip Kotler, a marketer needs to think through five levels of the
service ‘product’. The five levels of the product constitute a customer value
hierarchy. Each level of hierarchy adds more customer value.

CUSTOMER VALUE HIERARCHY

Successful companies add benefits to their offerings, that not only satisfy
customers , but also surprise and delight them. Delighting customers is a matter
of exceeding the expectations.
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.

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 favour of the service provider. Sometimes the information is

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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
Consultation: Consultation involves a dialogue with the customers to probe their
requirements to design and develop a tailored solution. Consultation often helps
customers to understand their own situation better and encourages them to come
up with their own solutions and action programmes. Consultation is offered
generally in the following areas.
 Providing advice
 Helping customers to use the service.
 Clarifying doubts
 Counselling personally
 Offering management/Technical consultancy
Order taking: Order taking is the first step in transaction. Some organisations
such as banks and insurance companies require prospective customers to fill an
application form. Some organisations make order entry, and some others make
reservations. The following are examples of order taking elements:
• Filling applications: For membership in associations, for becoming a
subscriber
• For reservation of seats, tables, rooms, and rentals
• Entry of orders-online mail or telephone order

Hospitality: Customers may be required to stay at the service outlet for a long
time due to the nature of the service process. Hence, hospitality becomes a part
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of service offerings. The hospitality extended to customer during the service

process contributes significantly to quality perceptions. Many service
companies treat their customers as guests and provide facilities to make
customers comfortable. Hospitality includes:
• Greeting
• Enquiry and reception
• Waiting facilities
• Bathroom kits
• Foods and beverages
• Transportation

Safe keeping: It is likely that service customers may carry personal possessions
to the service outlet and participate in service production process. Service
organisations must make arrangement for the safe keeping of the customer
property. This support service has the capability of creating additional value to
the service package. 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 company's as well as the customer's point
of view. Customers expect accuracy, completeness and legibility in bills

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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 must act 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.

NEW SERVICE PRODUCT DELEOPMENT

One of the challenges that service firms face is new service product
development. According to Phillips Kotler, every company must develop new
products. New service(product) development shapes the future of the company.

What is a new service product?

A service can be termed as a new service when it is totally innovative and is

created and offered by the company to the world for the first time Some new
services are adaptive replacements. They are the improved versions of the
existing service products either in technology, style, state or performance.

 1. Idea Generation: The ideas can be generated through internal sources

like sales staff, front line employees and market research department and
external sources like customers, experts in the field, market information
system and trade journals, seminars and conferences.
 2. Idea Screening: In this stage those ideas are identified that are
promising and have potentials to be successful. The evaluation committee
screens various service ideas rigorously in order to ensure that the ideas
are consistent with the company’s mission, image and capability.
 3. Concept Testing: Concept testing involves translating the service idea
into service concept with specific need satisfying aspects. Testing is done
through presenting the idea to a consumer panel with the help of
brochure, literature and other visual presentations to test the reactions of
the group.
 Service Development: The business proposal must then be converted into
the actual service that will be delivered to the customer. All tangible
elements and service delivery process must be designed.

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 Launch: The final stage of the new service development process is

launching the service. The life cycle of the service begins. The new
service will now start earning revenue for the firm.
 Market Testing: Market testing helps the service firm to ‘re-mix’ the
marketing mix elements to reduce the risk of launch.

Product Life Cycle (PLC) Concept

Products and services, like people, pass through stages as they age. Humans
progress from infancy to childhood to adulthood to retirement to death, and
successful products progress through four basic stages, namely,
➢ Introduction – a period of slow sales growth as the product is being
introduced into the market. Profits are non-existent at this stage because of the
heavy expenses of product introduction. Also, the introduction takes time, and
sales growth is apt to be slow. Some product may linger in the introduction
stage for many years before they enter a stage of rapid growth. For instance, the
small and independent beauty parlours have been around quite sometime. But
with so many rapid changes in the social climate, even big names like HLL and
Marico industries have entered this market in a big way. In the introductory
stage, there are only a few competitors who produce basic versions of the
product, because the market is not ready for product refinements. The firms
focus on selling to buyers who are ready to buy, usually the higher-income
groups. Prices tend to be on the high side because of low output, production
problems and high promotion and other expenses.

➢ Growth – a period of rapid market acceptance and increasing profits.

Competitors will enter the market, attracted by the opportunity for profit. It
happened in the Indian domestic aviation industry with Air Deccan entering the
market as a lowcost carrier (LCC). Soon there was a rush of LCCs like SpiceJet,
GoAir, IndiGo and others. Prices remain where they are or fall only slightly.
Firms keep their promotion spending at the same or at a slightly higher level to
meet competition and continue educating the market. The firm users several
strategies to sustain rapid market growth as long as possible:
1. Improve product quality and add new product features and models.
2. Enter new market segments.
3. Enter new distribution channels.
4. Shift some advertising from building product awareness to building
product conviction and purchase
5. Lower prices at the right time to attract more buyers.

➢ Maturity – a period of slowdown in sales growth because the product has

achieved acceptance by most of its potential buyers. This slow down causes

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supply to exceed demand. The resulting overcapacity in the market leads to

greater competition. Profits level off or decline because of increased marketing
outlays to defend the product against competition. The only way to increase
sales significantly is to steal customers from the competition. Thus, price wars
and heavy advertising are often the means used to do this, both of which add to
the marketing cost.

➢ Decline – a period when sales decline quickly and profits drop. It may be
because of reasons like technological advances, shifts in consumer tastes and
increased competition. As sales and profits decline, some firms may withdraw
from the market. Those remaining may reduce the number of their product
offerings. They may drop smaller market segments and marginal trade channels.
They may cut the promotion budget and reduce their prices further. Carrying a
weak product can be very costly to the firm, and not just in terms of reduced
profit. Keep weak products delays the search for replacements, creates a
lopsided product mix, hurts current profits and weakens the company’s foothold
on the future. For these reasons, firms must pay attention to their ageing
products. Regularly reviewing sales, market shares, costs and profit trends for
each of its products will help to identify products in the decline stage.
The progression from introduction stage to decline stage, known as the product
life cycle, is depicted in Figure. Notice that the product life cycle concept
applies to products/ categories within an industry, not to individual brands. Also
some products may move rapidly through the product life cycle while others
pass through those stages over long time periods. In a global context, a product
may be seen in different stages of its life cycle in different markets. As an
illustration, in the current Indian market, digital handycams may be said to be in
the introduction stage, mobile phones in the growth stage, televisions in the
maturity stage and radio in the decline stage.

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Product Life Cycle

BRANDING

A brand is a critical component of what a company stands for. It implies trust,

consistency, and a defined set of expectations.
The strongest brands in the world own a place in the customer’s mind and when
they are mentioned almost everyone thinks of the same things.”

 Branding is a major strategic issue for service marketers.

 Branding begins with giving an identity to the service beyond the one it
has within trade circles.
 Consumers feel that they are getting more in a branded service than
otherwise.
 A brand creates a mental patent.
 It has become one of the strategic weapons of business.
 Brand building though expensive is profitable.

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 According to the American Marketing Association, a brand is a name,

term, sign, symbol or design or a combination of these, intended to
identify the goods or services of one seller or a group of sellers and to
differentiate them from those of their competitors.
 Service characteristics such as intangibility, variability and perishability
make branding a strategic requirement to promote beliefs and values in
the target market.
 Most service companies promote product brand names along with
corporate branding.
 Telecom companies BSNL, Airtel, Hutch, Tata Cellular and Reliance
Infocom, banking companies, insurance companies, transport companies
and courier services are all promoting corporate branding along with
individual names to specific service packages.

Benefits of Branding

 The following are the benefits of branding services:

 1. Provides corporate identity and recognition.
 2. Provides an opportunity to distinguish the competitive products.
 3. Helps customers to develop value perceptions.
 4. Helps in developing customer relationships.
 5. Builds up long term equity to the concern.
 6. Market penetration becomes easy.
 7. New service offers get quick response

Branding Decisions

 Service firms need to decide whether to brand their service packages or

not, because branding requires consistent quality performance and
accessibility.

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 The cost of branding must be less than the premium that a marketer can
get out of it.
 Keeping in view the competition from unbranded local service outlets,
the service firms should be able to provide greater value perceptions to
the customers in branded services.
 Once it is decided to brand a service, there are at least four important
decisions a company must make in branding. They are:
 Should the company's own brand be promoted or should a sponsor
be found for branding?
 What should be the quality of the brand?
 Should a corporate brand or an independent product brand or a mix
of the two be promoted?
 Should the existing brand name be extended or a new brand built?

Selection of a Brand Name

 While selecting a brand name, the company's vision, mission a objectives

are to be kept in mind.
 Generally, a committee which consists of product managers, other
marketing personnel, advertising agencies, branding consultants is
constituted for the selection of a brand.
 Keeping the company's objectives in mind, the committee carefully
reviews the BSP(Business Service Provider), its benefits, the target
market and the marketing strategies.
 A list of potential brand names ranging from 100 to 200 is prepared at the
first stage. Out of the preliminary list, 10 to 20 names are selected, after
careful screening, for further consideration.
 The committee studies the consumer reactions on the selected names and
trademarking possibilities.
 Finally, they recommend a brand name to the company.

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Qualities of a good brand

 A brand should possess the following qualities for greater effectiveness:

 1. The name should be associated with pleasant things and quality.
 2. The name should suggest something about the product's benefits
 3. It should be easy to pronounce and recall.
 4. It should lay stress on those characteristics of a service that are to be
impressed on the consumer.
 5. It should be distinctive and should have motivational value.
 6. The name should be capable of translation into foreign languages.
 7. The name should be free for registration and legal protection.

CLASSIFICATION OF BRANDING DECISIONS

A classification of branding decisions right from the decision to brand, who is

the brand sponsor, the decision concerning the brand name, the brand strategy
decision (to leverage on the brand name) and the brand reposition decision (to
give a new lease of life to an ageing product in its life cycle).

PACKAGING:
This role is particularly important in creating expectations of new customers
and for newly established service organizations, that are trying to build a

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particular image. Hence, the packaging takes into account the servicescape
factors, which offers an organization the opportunity to convey an image and
also it extends to the appearance of contact personnel through their uniforms or
dress and other elements of their outward appearance. The servicescape and
other elements of physical evidence essentially ‘wrap’ the service and convey
an external image of what is ‘inside’ to consumers.

PRICING

 Price is the amount of money charged for a product or service.

 Price is a significant element of the marketing mix because it is the only
element that produces revenue whereas the other elements produce cost.
 Price reflects the value attached to the service by the service provider and
it must correspond with the customer’s perception of value.
 Service providers offer a range of service at different price levels to cater
to the needs of different target segments that may have different levels of
purchasing power.
 Prices have different names in services. Example – Insurance (Premium),
Banks (Interest), Transport (Fares), Credit card (Fees), Share / stock
services (Brokerages)

PRICING OF SERVICES

 Several factors make pricing of services different from that of pricing of

goods.
 The following are the factors that make services pricing different.
 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.

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 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.
 These are not accurate because, the needs of individual customers vary
from time to time, place to place and situation to situation.
 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.
 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.
 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 costs and
psychic costs, which may sometimes become more important for the
customers than monetary costs.
 Time costs refer to the spending of time by the service customer
on travel to reach the service outlet, waiting time, service process
time and so on.
 Search costs refer to the effort the service customer puts in
collecting information relating to the service and the service
provider takes for making a correct decision.

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 Psychic costs refer to the psychological pressure the service

customer undergoes in selecting a service provider.
 Price-quality relations: Buyers are likely to use price as an indicator of
both service cost and service quality. In the absence of complete
information on the service, price provides clues with regard to the quality
of the service.
 In credence services such as medical treatment or management
consultancy, price is surrogate for quality. As price is viewed as an
indicator of quality of service, service providers should be careful in
fixing prices.
 Apart from covering service costs and matching competitors, care should
be taken to convey quality through price. If the prices are set too low,
there is danger of indicating low quality of the service.
 On the other hand, if price is set high, it may raise consumer expectations
on quality; it then becomes difficult to match service delivery with
service expectations.
PRICING OBJECTIVES

 The first step in the pricing process is to decide the objectives of pricing.
 Christopher Lovelock classified the pricing objectives of service
organizations into three basic categories. They are:
 Revenue oriented objectives
 Operation oriented objectives
 Patronage oriented objectives
 Revenue-oriented objectives: Profit making is one of the goals of
business concerns. Companies are responsible for satisfying the stake of
stockholders and for expanding the business as per the expectations of the
stockholders. Firms will aim at a target return on investment to meet their
priorities. Even non-profit organizations look for revenues that at least
break-even.
 Operation-oriented objectives: Some service organizations are capacity
constrained. They try to match demand and supply in order to ensure
optimum use of their productive capacity at any given time. Hotels,
transport vehicles and other such services seek to fill vacancies because

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the unfilled position becomes an unproductive asset. Service firms may

need to change prices frequently to match demand and supply.
 Patronage-oriented objectives: Price may be used effectively to develop
loyalty and relationship with customers. Many companies are now
preferring patronage building to profit maximization as a future-oriented
strategic option. Companies can accrue multiple benefits through
relationship building.

METHODS OF PRICING OF SERVICES

 The approaches for services pricing are more or less the same as that of
pricing of goods. The three recognized pricing approaches are:
 • Cost-based pricing
 • Competition-based pricing
 • Demand-based pricing
 1. Cost-based Pricing: It is also called as cost-plus pricing. Under this
method the company determines the cost of service delivery as well as a
pre-determined rate of profit in order to arrive at a price. It is necessary to
analyze all costs accurately and differentiate between fixed and variable
costs in order to use cost as the basis for pricing decisions. In the service
industries it is complicated to identify and trace the cost to the particular
offering.
 2. Demand-based Pricing: Demand based pricing is generally used where
the services are price sensitive. The service providers tend to increase the
price of the service offering when demand is high. Whereas tend to lower
the price of the service offerings when demand is low.
 3. Competition-based Pricing: In this method of pricing the price is
determined on the basis of competitor’s price. Price under such situations
may be used to gain short-term competitive advantage over rivals.
Companies have three main choices under this approach: pricing above
the competition, below the competition and at par with competition.

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PRICING STRATEGIES
 1. Skimming strategy: In this the services are introduced at a high price. It
is assumed that the customers are more concerned about obtaining a
quality service rather than cost of the service. As the demand for the
services falls, the price level is reduced.
 2. Penetration pricing: In this, the new services are priced low. The prices
are kept low to stimulate trial and thereby ensure customer loyalty. Low
pricing is possible when the services are sensitive to price and it is
possible to achieve economies of large scale operations by operating at
large volumes.
 3. Market Segmentation Pricing: The pricing strategy adopted to
successfully cater to these groups is known as discriminatory pricing on
the basis of market segmentation. It may be done on the following basis.
a) Different time of consumption: Example travel and hotel tariffs are low
during off-season and high during peak season. b) Different point of
consumption: Example higher prices charged in cities than suburbs. c)
Group of buyers: Example children below 10 you are charged less in
amusement parks.

 4. Service - Mix Pricing

 a. Competing Services: The service provider may offer a new
service similar to the existing one but at a low price. The service
firm competes with its own offerings.
 b. Captive Service: In this strategy the customer has no choice but
to get additional service from the service provider along with the
core service.
 c. Optional additional: service In this, the service provider gives an
option to the customer to purchase the optional services along with
the core services.
 5. Price Bundling: Price bundling is a strategy whereby a seller bundles
together many different goods / services being sold and offers the entire
bundle at a single price.

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 6. Discount Pricing: It is used as a promotional device to encourage use

during low-demand time slots or to encourage customers to try a new
service (such as an introductory discount).
 7. Relationship Pricing : The main objective of this type of pricing is to
encourage customer loyalty by rewarding it. Thus, Relationship pricing
takes the lifetime value of the customer into account while deciding the
prices.
 8 Competitors Pricing: In this method of pricing the price is determined
on the basis of competitor’s price. Price under such situations may be
used to gain short-term competitive advantage over rivals.

PROMOTION OF SERVICES
 Promotion of Services: One of the key elements of the marketing mix is
promotion which is used for the purpose of encouraging sales and
conveys to the customer the position of the service.
 Promotion enables services firms to connect their brands to different
people, places, events, brands, experiences, feelings, and things.

Guidelines for Service Communication

1. Provide Clues to tangible the Service Offer: Though services are
intangible, they still have tangible components. The customers generally
use these as a substitute to evaluate various service alternatives. The
tangible clues reduce the risk and eliminate the uncertainties associated
with a service not known to the customer.
2. Make the Service easy to understand: Due to the intangible nature of
the services it is generally difficult to comprehend what exactly
constitutes the offer of a service firm. The service provider has to use
tangible evidence so that the prospective customer may comprehend the
offer in a better way.
3. Promising what is possible Service may be difficult to grasp mentally
because of their intangibility. Tangible attributes of the service can be
used to help better understand the service offered, e.g. credit cards.
Services firms need to deliver on their promises.

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4. Use of Word of Mouth Publicity In professional services like doctors,

lawyers, teachers, hair dressers, schools, colleges, etc. Word of mouth
publicity that have already experienced the service holds weightage in
attracting prospective customers.
5. Maintain Communications Continuity It is imperative to maintain
continuity in communication for achieving differentiation and to portray a
unifying and consistent theme over a period of time. Continuous
advertising and publicity will enable the customer to get strongly attached
to the theme.

Various Tools used in Service Promotion

1. Advertising: Advertising is a paid form of non-personal presentation and
promotion of ideas, goods or services by an identified sponsor. Relevant and
consistent advertising is of great importance in services marketing because
advertising can build awareness of the service that may add to the customer’s
knowledge of the service. It can also be used to help persuade the customers to
buy and differentiate the service from other service offerings. In service the core
product is intangible and therefore it is difficult to promote services.
Advertising has a major role in helping to deliver the desired positioning for the
service. Therefore, service marketers frequently choose tangible elements
within the product for promotion. We, therefore, find most of the airlines
promote the quality of their cuisine, the width and pitch of their seats and the
quality of their in-flight services. In the recent times the advertising of financial
services, telecommunication services and retailing has grown dramatically.
There are a number of advantages of using advertising Effective communication
to the target audience Cost-effectiveness Mass communication Support other
elements of marketing-mix and build a strong brand image Create awareness
and stimulate demand
2. Sales promotion: Sales promotion is an activity intended to stimulate
purchases by adding an incentive to the inherent feature of the product or
services offered. A number of activities can be undertaken which aim at
providing incentives to encourage sales.
3. Personal selling: Personal selling means personally persuading or aiding a
prospective customer in purchasing a product or service or accepting or acting
on an idea. Personal selling is a powerful two-way form of communication that

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allows an interactive relationship to be developed between the buyer and the

seller.
4. Word of Mouth Communication: In services marketing, while promoting the
services greater importance is given to referral and word of mouth
communication. Customers are often closely involved in the delivery of a
service and then they talk to other potential customers and share their
experiences.
5. Public relations & publicity: Public relations (PR) can be defined as “The
planned and sustained effort to establish and maintain goodwill between an
organization and its public”.
6. Sponsorship: Sponsorship involves investments in events or causes so that an
organization can enhance its reputation. One important advantage of sponsoring
is that it allows a company to avoid the general media clutter usually associated
with advertising.
SERVICE DELIVERY CHANNELS
Distribution is the process of transferring goods from the place of production to
the place of consumption. In case of tangible goods, the distribution system
involves the use of a network of intermediaries for distribution. In some cases
the goods are distributed directly. In case of services, they are inseparable from
the service provider and can neither be stored nor transported nor is their
ownership or title passed along the channel line.
The importance of distribution can be traced in services marketing with its
presence in the name of place in service marketing mix. The basic objective of
distribution of services is to make services available at the right time and at the
right place and accessible to consumers with ease and convenience.

SERVICE TRANSACTIONS
Transactions in services can be broadly categorised into three groups.
1. 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.
Example: Educational institutes, beauty salons, theaters etc.

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2. Service Firms calling customers: In such a transaction, consumers need

not move from their premises whether it is home or office to avail of
service. The employees of the service organisation call on the customers
and perform the service at the desired location. For services, security
services, personal services and so on.
3. 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. Example: Telecom services, credit
card services and so on.
Service companies may adopt different strategies depending up the service
product, the market and the objectives of the company. There are three
distribution strategies available to service organisations. They are: 'extensive
distribution', 'selective distribution' and 'exclusive distribution'.
Extensive distribution makes the services available to as many as possible
through a wider distribution network. It is suitable for mass consumption
services such as transportation, electricity, telecommunications and primary
education.
Selective distribution offers services to an identified target segment through a
limited number of distribution outlets selected for the purpose. Selective
distribution is suitable for services that require to follow specified conditions
and regulations and special skills to the service provider. This type of
distribution may be more suitable to services such as higher and technical
education, tourism and courier services.

Exclusive distribution offers services to focussed segments through distribution

outlets established exclusively for the purpose. Exclusive distribution can be
used for services that reflect the corporate brand image and exclusivity in many
dimensions of the service package. This distribution may be suitable for health
care services, hospitality services retail networks and so on.

SERVICE LOCATION

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Where to locate a service outlet is a critical decision. Service location is

influenced by many factors. While selecting a location for service outlets
, the following factors are to be considered.
 Nature of Service: Services are perishable and inseparable from the
service provider. In such a case there is less flexibility, and more cost is
involved in setting the location.
 Nature of Interaction: The nature of interaction may differ from services
to services. The question here is where the service is to be delivered?
Whether at the place of service provider or at the place of customer.
 Customer Needs and Wants: According to a market segment, the
customer wants and needs may differ. There are customers who may rate
convenience as a major criterion for a service while some others may
want some special feature of the service and are willing to go to any
location.
 Convenience: The location of 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.
 Image:The image of the location should match the corporate image of the
service company. The level of acceptability of a location by the consumer
varies. If an air conditioned restaurant is established in a slum area , the
proximity factor does not work to attract customers.
 Natural Geographical Location: There are certain services that do not
have a choice of location. In case of holiday resorts in the hill – stations
or on a beach; are dependent on geographical locations rather than the
convenience factor of both the customer and the firm.
 Technological Advancement: Automation has advanced to such an extent
that there is a great reduction in the choice of location decisions. In case
of banking services with the introduction of ATMs it is possible to
separate the service provider from the customer.
 Dependency on Other Services: There are certain services like medical
services e.g. x-ray, diagnostic laboratories, pharmacy etc. That are
dependent on each other and therefore they are required in clusters of
associated services and products.

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 Infrastructure Facilities:(Accessibility to other services) There are certain

services, which require rapid communication facilities with the other
companies. Eg. Financial services. They are to be located in large and
highly developed cities with excellent communication.
 Target Market Decisions:(PROXIMITY) The location must be closer to
the largest customer taking into consideration the infrastructure facilities
available to access to the location. It should be easier for the target market
to reach the service outlet.
 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.

SERVICE PROVIDERS
In case of service distribution through a middleman, there are two marketers-
one is the ‘service principal’and the other is ‘service deliverer’. The service
principal is the service originator and the service deliverer is the distributor. The
service deliverer becomes the co- producer of the service. The service deliverer
fulfils the promises the service provider has given to the customers. The service
intermediaries, apart from fulfilling promises, also provide time, place and
convenience utilities to the target customers.
DISTRIBUTION FLOWS OF SERVICES

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There are four choices available to any service provider. The first option is
direct marketing, wherein services are provided through the marketing, wherein
services are provided directly through the employees of the service
organization. The second option is to use use agents/brokers as distributors of
service. In this option two flows are possible. One is a direct channel and the
other is through agents. The third service choice involves two types of
intermediaries. They are agents/ brokers and service franchisers. Four
distribution flows are possible. The fourth choice involves three types of
intermediaries – agents/brokers, service franchisers and electronic channels.

DISTRIBUTORS FOR SERVICE DELIVERY

Franchising: Franchising is the most often used channel for the distribution of
services. It is like the retail selling of services. The franchisers are authorised to
distribute services to the end customers, on behalf of the service principal.
Franchising is mostly used in service businesses such as educational
institutions, film-processing companies, hotels and restaurants. Agreements and
contracts are essential documents in franchising. Generally, agreements and
contracts include a clear description of the following:
1. Nature of the service

2. The geographic territory

3. The percentage share to be paid to the franchiser on the revenue of the

franchisee

4. The time period of agreement

5. The instructions, interactions, and conditions

6. The support to be provided by the franchiser.

7. The roles and responsibilities of franchisee

8. The rules and regulations of termination of agreement

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The following are the benefits of franchising:

Business expansion and revenue gains: Service companies (franchiser) can

reach more markets without much effort through franchisees. The wider
distribution, thus achieved, results in increased revenues, larger market share,
brand name recognition as well as economies of scale.

Consistency in outlets: Service companies can ensure consistency in

performance of the franchisees with the help of agreements and contracts. By
way of providing standard specifications relating to exterior, interior and
process of service production, it is possible to maintain consistency in outlets.

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 organisation 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 for the required equipment and personnel for performing
service as per the specifications of the franchiser.Thus, franchiser’s investment
burden gets reduced significantly.
The challenges associated with franchisers:
Problems in maintaining and motivating franchisees: Most service companies
face problems in motivating their own employees. Maintaining franchisees
during slack periods may be very hard, as there is frustrations due to fall in the
revenues.
Quality inconsistency may affect company image: Many a times quality of
services offered by franchisees vary from the service specifications. Exercising
quality control devices by the service company may not yield good results in
the case of private operators. Even though the company is making money from
such a franchisee, there is a danger that the company may be losing future
business due to a negative market image. Therefore, the service firm should be
cautious in selecting and maintaining franchisees.
Control of customer relationship by the franchisee: Since franchisee
organisations are involved in managing service encounters, they have a chance

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to build relationships with the customers. Total customer information will be in

the hands of the franchisee organizations and the service firm will become
dependent on franchisees for such information.
Agents And Brokers
An agent is an intermediary who is authorised to negotiate on behalf of the
service principal with the customers. Brokers are middlemen who bring buyers
and sellers together and assist in negotiation. Either a buyer or a seller can hire
a broker. Although brokers and agents are two different kinds of intermediaries,
both of them perform similar function in service distribution.

BENEFITS OF USING AGENTS AND BROKERS

Low selling and distribution Cost: Agents and brokers work on commission
basis. Service companies need not employ permanent sales force for the
purpose.
Specialised skills and knowledge of the agents and brokers: Persons who
choose to be agents and brokers will generally possess specialised skills in
persuading people. Such skills are mostly inherent and inherited. Service
companies can exploit those skills in their favour 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 authorised 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.

ELECTRONIC CHANNELS

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Electronic channels are becoming more and more popular in distribution of

services. Electronic channels do not require direct human- to-human interaction.
The examples of the electronic channels are television, telephone, internet, e-
commerce and so on. Through electronic channels service firms are able to
provide movies on demand and banking and financial services, multimedia
libraries, database, distance learning modules, video conferencing facilities,
remote health services.
Benefits:
1. Quality Control
2. Low Cost
3. Wide distribution
4. Customer Convenience
5. Customer Choice

Challenges in using electronic channels:

1. No control on electronic environment
2. Inability to customise
3. Customer involvement

CHANNEL CONFLICT AND RESOLUTION

There are conflicts over:

 objectives and performance,
 difficulty controlling quality and consistency across outlets,
 tension between empowerment and control and
 channel ambiguity.
 Channel conflict over Objectives and Performances: The parties involved in
delivering services do not always agree about how the channel should operate.
Channel conflict can occur between the service provider and the service
intermediary, among intermediaries in a given area, and between different types of
channels used by a service provider (such as when a service principal has its own
outlets as well as franchised outlets).
The conflict most often centers on the parties having different goals, competing
roles and rights, and conflicting views of the way the channel is performing.
Sometimes the conflict occurs because the service principal and its intermediaries
are too dependent on each other.

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 Difficulty controlling Quality and consistency across Outlets: Delivering of

services always involves difficulties for both principals and their intermediaries, as
it involves the inconsistency and lack of uniform quality that result when multiple
outlets deliver services.
 Tension between Empowerment and control: The strategies framed by the service
provider makes sense only when the services are delivered in exactly the same
way as the successful company outlets provide it. There has to be empowerment
and control among the service principal and the service intermediaries.
 Channel Ambiguity: There are always doubts between the roles of the company
and the intermediary. The roles of the service principal and its intermediaries are
unclear leading confusion and conflict.

CONFLICT RESOLUTION

 Control Strategies: Standards are fixed both for revenues, service performance,
measures results, and compensates or rewards on the basis of performance levels.
Thus, with a control strategy, the service provider believes that the intermediaries
will perform their best.
 Empowerment Strategies: Service provider here allows greater flexibility to
intermediaries on the belief that their talents are best revealed in participation.
 Partnering Strategies: This involves partnering with intermediaries to learn
together about end customers, set specifications, improve delivery and
communicate honestly.

Chandramalli Mishra, Services Marketing