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Unit-I: Services Management & Services Marketing
Unit-I: Services Management & Services Marketing
George S. Day
Robert Johnton Model of Service Segmentation
Strategy
Focus Underlies for the Competitive
Advantages
• Intensifying competition makes it important to
differentiate products
• In mature market, only way to grow may be to take
a share from competitors
• Must be selective in targeting customers
• Rather than compete in an entire market, firm must
focus efforts on customers it can serve best
• Emphasize competitive advantage on those
attributes that will be valued by customers in target
segment(s)
Risk and Opportunities of a Fully Focused
Strategies
• Opportunities
– Developing recognized expertise in a well-defined niche
may provide protection against would-be competitors
– Allows firms to charge premium prices
• Risks
– Market may be too small to generate needed volume of
business
– Demand for a service may be displaced by generic
competition from alternative products
– Purchasers in chosen segment may be susceptible to
economic downturn
Market Segmentation Forms the
Basis for Focused Strategies
• Firms vary widely in ability to serve different types of customers
– Adopt strategy of market segmentation, identifying
those parts of market that can be served best
– A market segment is composed of a group of buyers
sharing common:
• Characteristics
• Needs
• Purchasing behavior
• Consumption patterns
Market and Micro Segmentation
Creation of customer databases and sophisticated analytical software
enable firms to adopt:
―Micro segmentation strategies target small groups of
customers sharing certain relevant characteristics at a
specific point in time
Identifying and Selecting
Target Segments
• A target segment is one that a firm has selected
from among those in the broader market and may
be defined on the basis of multiple variables
• Must analyze market to determine which segments
offer better opportunities
• Target segments should be selected with reference
to
– Firm’s ability to match or exceed competing offerings
directed at the same segment
– Not just profit potential
• Some “underserved” segments can be huge,
especially poor consumers in emerging economies
Developing Right Service Concept for a
Specific Segment
• Use research to identify and prioritize which
attributes of a given service are important to
specific market segments
• Individuals may set different priorities according to:
– Purpose of using the service
– Who makes decision
– Timing of use
– Whether service is used alone or with a group
– Composition of that group
Four Principles of Positioning Strategy
• Must establish position for firm or product in
minds of customers
• Position should be distinctive, providing one
simple, consistent message
• Position must set firm/product apart from
competitors
• A company cannot be all things to all people—must
focus its efforts
By Jack Trout
Principles of Positioning
• What does our firm currently stand for in the
minds of current and prospective customers?
• What customers do we serve now, and which
ones would we like to target in the future?
• What is value proposition and target segment
for each of our current service offerings?
• How do our service offerings differ from
competitor’s?
• What changes must we make to our offerings
to strengthen our competitive position?
The 4 I’s of Service Marketing
Intangibility: Unlike products, services cannot be held, touched, or
seen before the purchase decision therefore, they should be made
tangible to a certain extent. Marketers should “tangibilize the
intangible” to communicate service nature and quality.
Inconsistency: Service quality is often inconsistent. This is because
service personnel have different capabilities, which vary in
performance from day to day. This problem of inconsistency in
service quality can be reduced through standardization, training
and mechanization.
Inseparability: Services are produced and consumed simultaneously.
Consumers cannot not separate the deliverer of the service from
the service itself. Interaction between consumer and the service
provider varies based on whether consumer must be physically
present to receive the service.
Inventory: No inventory can be maintained for services. When the
service is available but there is no demand, cost rises as, cost of
paying the people and overhead remains constant.
The Three R’s of Service Quality
• Reliability
Whether product or service, the foundation of any strong brand is
reliability. The customer must know that when they interact with the
service offering that they will receive reliable service. That can only be
controlled through training, quality standards, and measurement. A
service-based brand can only survive based on a reliable offering.
• Responsiveness
A service offering necessarily requires a back-and-forth between the
customer and the supplier. The supplier must ensure that the
customer’s expectations for responsiveness are met, or the customer
will start to look for alternatives. A service-based brand doesn’t need
to be the fastest, but it must be consistent.
• Respect
Once a service offering is consistently reliable and responsive, it is the
‘respect’ that separates the premium service offerings from the rest of
the field. A customer who feels respected will be more satisfied and
loyal.
Need for Services Marketing
The growing consumer demand for more services
has brought forth an accelerated effort on the
part of marketer to satisfy these consumer
needs and to broaden their own customer base
and add to revenues and profitability.
Nearly half of the consumer service budget is
related to utilities and other house hold
operations, such expenditures have been
growing rapidly in recent years reflecting a
substantial growth which has been expanding at
a faster rate than the nation’s total population.
Challenges faced by the Service Industry
It is a challenging task to manage a service or product
industry. These challenges however are different and
unique for each industry. Some of the points related to it
are as under.
1. Services are intangible and so customers cannot see or
hold them before they buy it. Buyers are therefore
uncertain about the quality of service and feel they are
taking a risk.
2. Defining and improving quality in the service industry is a
major challenge. Unlike products very often services are
produced and consumed simultaneously. As a result
service quality management faces challenges. During
service production the customer is right in front. To
guarantee customer satisfaction in this scenario is a major
challenge.
3. The customer first needs to develop trust in the
service organization before he buys their services.
4. Service industry faces competition not only from
fellow service industry but also from their clients
who often question themselves whether or not they
should engage a service at all. (This is related to
something of new in the service delivery & style)
5. Most of the product companies have dedicated sales
staff while in the service industry the service
deliverers often do the selling. Coordinating
marketing, operations and human resource efforts is
a tedious task.
6. While testing new services is a constant challenge
communicating about these services simultaneously
is also not easy.
7. Setting prices does not come easily for service
industry.
8. Standardization versus personalization is another
major issue the service industry has to face because
you need an expertise for it to deliver customized
services successfully. Also there is one advantage in
case of personalization/customization, means we
can develop a good relationship with customers
which ultimately helps in retaining him and also the
WOM for others which leads to revenue generation
so the profitability. Customization gives you an
opportunity to to get premium service charges.
Indian Scenario of Service Sector
The services sector is contributing significantly in India’s GDP,
and also attracting foreign investment flows, contributing
significantly to exports as well as provided large-scale
employment.
India’s services sector covers a wide variety of activities such as
trade, hotel and restaurants, transport, storage and
communication, financing, insurance, real estate, business
services, community, social and personal services, and services
associated with construction.
Market Size: The services sector is the key driver of India’s
economic growth. The sector is estimated to contribute around
54.0 per cent of India’s Gross Value Added in 2017-18 and
employed 28.6 per cent of the total population. Net Services
exports from India grew 14.98 per cent year-on-year to US$
77,562.89 million in 2017-18.
Investments: The top 10 categories of Indian services sector
attracted FDI equity inflows in the period April 2000-December
2017, amounting to about US$ 22,095.51 billion according to the
Department of Industrial Policy and Promotion (DIPP).
Some of the developments and major investments by companies
in the services sector in the recent past are as follows:
The domestic and foreign logistic companies are optimistic
about prospects in the logistics sector in India, and are actively
making investments plans to improve earnings and streamline
operations.
Leisure and business travel and tourism spending are expected
to increase to Rs. 14,127.1 billion (US$ 216.9 billion) and Rs
806.4 billion (US$ 12.4 billion) in 2018, respectively.
Market share of private banks in advances is expected to
increase from 27.7 per cent in 2017-18 to nearly 35 per cent in
2019-20.^
Government Initiatives: The Government of India recognizes the
importance of promoting growth in services sectors and provides
several incentives in wide variety of sectors such as health care,
tourism, education, engineering, communications, transportation,
information technology, banking, finance, management, among others.
Prime Minister Narendra Modi has stated that India's priority will be
to work towards trade facilitation agreement (TFA) for services,
which is expected to help in the smooth movement of professionals.
The Government of India has adopted a few initiatives in the recent
past. Some of these are as follows:
Under the Mid-Term Review of Foreign Trade Policy (2015-20), the
Central Government increased incentives provided under Services
Exports from India Scheme (SEIS) by two per cent.
Government of India is working to remove many trade barriers to
services and tabled a draft legal text on Trade Facilitation in Services
to the WTO in 2017.
Road Ahead: Services sector growth is governed by both
domestic and global factors. The Indian facilities
management market is expected to grow at 17 per cent
CAGR between 2015 and 2020 and surpass the US$19
billion mark supported by booming real estate, retail, and
hospitality sectors.
The implementation of the Goods and Services Tax
(GST) has created a common national market and
reduced the overall tax burden on goods. It is expected
to reduce costs in the long run on account of
availability of GST input credit, which will result in the
reduction in prices of services.
Reasons for the Growth of Service Sector in India
The growth of service industry is the result of
combination of several reasons and some of
them are explained below:
1. Increasing affluence(wealth): there has been
an increase in the demand for those services,
which the customers used to perform by
themselves. If we talk about 30 years back,
generally having a driver for car means a very
rich person to afford the same.
For example, service provided by the gardener,
servants, car driver etc.
2. Greater life expectancy(hope): With increase in the
average life of the people, there has been an increase in
the service which is related to field of health care, for
example medical services, pathology laboratory, nursing
homes. Health care services etc.
3. Greater complexity of the product: (Complicated)
With the growing complexity of the product, there has
been an increase in the services which are indirectly
supporting the maintenance of these complex products.
For example Air-conditioner, car, computer, and other
complex products require service every yearly of every
half yearly.
4. More leisure(free time) time: This factor has
lead to an increase in those services which are
related to entertainment, because of increase in
leisure time in today's people life. For example
tourism industry has grown because of more leisure
time available to the people.
5. Higher percentage of working women: With the
passage of the time, there has been an increase in
the working women. This has indirectly leaded to
increase in the growth in the services such as,
domestic servants, baby sittings, purchase of food
items etc.
6. Increasing complexity of life: This has lead to an
increase in the services of marriage bureau, legal
service, income tax consultants, placement services,
etc.
7. Increasing number of new products: There is
always a possibility of new product and so the
possibility of services accordingly. are certain
products which, if invented will lead to growth in
the service sector.
Computer being the invention of the 21st century
has lead to software industry which is totally a
service industry.
Global Scenario in Service Sector
• The tertiary sector of the economy (also known as
the service sector or the service industry) is one of
the three economic sectors, the others being the
secondary sector (approximately the same as
manufacturing) and the primary sector (agriculture,
fishing, and extraction such as mining).
• For the last 100 years, there has been a substantial
shift from the primary and secondary sectors to the
tertiary sector in industrialized countries. This shift is
called tertiarization. The tertiary sector is now the
largest sector of the economy in the world, and is
also the fastest-growing sector.
In the United States 70 percent of the workforce works
in the service sector; in Japan, 60 percent, and in
Taiwan, 50 percent. Many of them are in the
professional category. They are earning as much as
manufacturing workers, and often more.
According to the U.S. Department of Commerce, during
the last half of the 20th century, the service sector
became the largest and fastest-growing part of the
U.S. economy. During the first half of the century, the
service sector represented about 60 per cent of the
economy, but by the end of the 20th century, it
represented about 80 per cent. This has been a
significant shift and an ongoing transition from an
agrarian (farming) economy to manufacturing, and,
ultimately, to the service economy that we see today.
WORLD SCENARIO: Facts and Figures
• As economy shifts from developing to developed stage, they
will show more and more shift toward services.
• Today, the fastest growing segments of the US economy are
services.
• The US balance of trade in goods has remained in the red for
many years, but here has been a trade surplus in services.
• Today service sector dominates the economics of many
developed nations. As countries develop the role of
agriculture in the economy declines and that of services
increase.(China has 44.6% GDP from service, 45.5% from
industry, and 10% from agriculture).
• During recession it has been seen that service output declines
less than industrial output – the service employment is less
sensitive to business cycle fluctuation.
• Globalization as strategy for service firm is becoming more
important.
Source: Website of International Chamber for Service Industry
Service Differentiation
Differentiation is a basic business and marketing strategy,
by which a company focuses on distinct differences in
its offering to customers as the basis for establishing a
competitive advantage. For service-oriented
businesses, you can focus on quality differentiation as a
strategy to attract and retain core customers. To
succeed in this approach, you must typically distinguish
your business in a variety of service components.
1. Service performance- High quality service
2. Service experience- Improve the down time
3. Service resolution- Resolve issues
4. Service challenge- Human work
Services as Key Differentiator for Manufacturing
Industries
Manufacturing companies are redirecting their efforts
towards customer centricity and innovativeness, but also
from goods to services. Instead of only innovating
products, companies are investing in service
differentiation. Consequently, instead of services being
add-ons to the product, they become the center of the
total offering, with products as add-ons to the services.
Various terms describe this service differentiation in
manufacturing firms, including service business
development, servizitation, service infusion, high-value
solutions, and transition from products to services (Davies,
2004; Gustafsson et al., 2010; Oliva and Kallenberg, 2003;
Vandermerwe and Rada, 1988).
A common rationale involves using service differentiation to
take advantage of strategic, financial, and marketing
opportunities. The fact that services are less visible and
more labor-dependent makes them a strategic
opportunity and a sustainable source of competitive
advantage (Heskett et al., 1997). Services lead to co-
creation of value based on the competencies of the
company and the customer (Matthyssens et al., 2006;
Vargo and Lusch, 2008), which leads to resources that are
unique and hard to imitate (Wernerfelt, 1984). Financial
opportunities include additional service 3 revenues
throughout the product lifecycle (Potts, 1988; Wise and
Baumgartner, 1999). Marketing opportunities involve
using services to augment the product offering and
increasing the quality of the customer interaction
(Mathieu, 2001).
Reasons for Growth of Service Sector
1. Demographic Changes
2. Economic Changes
3. Social changes
4. Legal Changes
5. Technological Changes
Significance of Services Marketing
1. Generation of employment opportunities
2. Optimum utilization of resources
3. Capital formation
4. Increased standard of living
5. Use of environment-friendly technology
1. Generation of employment opportunities