Services Business

Management
(1st Year MBA, Semester III)
(Strictly as per the Choice Based Credit System and Grading System of
Savitribai Phule Pune University w.e.f. 2016-2017)

Dr. Abhay Kulkarni

Director,
IICMR, Pune.

Dr. Sudhir Hasamnis

Adjunct Professor,
IICMR, Pune.

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 FOREWORD

The Service Industry is growing in India and globally at much faster rate than the
earlier decades. The factor ‘Service’ has become a real differentiator when you are
selling your products and services in the marketplace. This book has been written to
serve as a resource and reference book for professionals in service organisations. The
chapters and sections have been written from a multidisciplinary perspective.
Discussions of topics blend concepts, theory, and practice from fields such as
Operations, Marketing, International Management, Information Technology, Economics,
Strategy, Human Resources and Management Science. The authors believe a
multidisciplinary approach is best for efficient and effective management of service
organisations and their operations.
While this book is written as a textbook for Service Management or Service
Operations Management, it will be useful for the professionals in this field as reference
book while designing new services or improving existing services and referring industry
practices for changing existing current practices. It is also suitable for a traditional
operations management course with special emphasis on services. This will also help to
some extent if new services are emerging and need to be developed.
This book is divided into three major parts, Overview of Services Management,
Services Business Management, and Research, Growth and Technology in Services
Management. Each chapter has detailed discussions, Key terms, Notes, Quick tips,
relevant questions and case studies for preparation. (Learning outcome – 5W and 2H
Analysis, Introduction, References, Questions, Keywords and Exercise)
I am sure that this reader-friendly book will help you achieve your educational and
professional objectives as successful manager and decision-maker in any service
organisation.
Thanks again,

Dr. P.C. Shejwalkar

Ex Dean, Faculty of Management,
Professor Emeritus of Commerce and Management Sciences,
University of Pune.
 PREFACE
We have seen the ‘Information Age’ in recent times and have started witnessing the
‘Service Age’ now. While product has still the importance in all strategies, the emphasis
has now shifted to ‘Services’ as it has become the real differentiator in marketplace. The
recent examples are Maruti Nexa showrooms or Reliance Jio shops specifically designed
to service the specialised products. It will be the customer-facing employees will make
the real difference in this age.
Due to increasing contribution of service industry in GDP of the world, it is
necessary to understand the critical success factors of various sectors in service
industry by management professionals.
Services are required not only in various service sectors but in various categories
and income level of the consumers. Therefore, the challenge lies in satisfying, delighting
and enchanting the customer to improve service loyalty. This will give remarkable
footprint in the minds of the customer to improve customer loyalty in the particular
Service Providing Organisation.
The challenge lies in understanding the voice of customer and accordingly meeting
the customer demand. The ever-increasing competition and technology in the field is
making customer more aware of availability of services and resources.
This book will help management professionals in understanding what goes in the
service process and meeting the customer requirements, how to align our resources to
delight customer.
Every chapter include specific thought process necessary to make student aware
about unit discussed and explore and understand importance of service requirements.
The case study, illustrations and learning outcome will increase the understanding and
develop out-of-the-box thinking to know more about service process components. At the
end, we have narrated Information Technology Services Management and Infrastructure
Library, which leverages service effectiveness and efficiency and economy. The toolkit in
Unit 7 will give identification of problem and quick fix to the issues and solutions. This
will fulfil economic aspect of service business function.
We have used 5S technique to explore the thought process of the reader to
understand Strategy, Scope, System and Skeleton of service business process. This will
surface out the key process input factors of service business.
 Main purpose of this book is to know more and more about service business
processes and implement the tools and techniques, learning from success stories and
failure stories narrated in the case studies of this book.
This book also explains simple quality and management tools to use in the
business situation to do the root cause analysis and thinking from system approach to
meet the objectives of the service business.
It is important to use these tools and techniques by service professionals as the
variety and complexity is the main challenge of service business. Every service provider,
sectorwise, can leave a good footprint in the mind of the customer by listening voice of
the customer and rendering services professionally.
So, listen to Voice of Customer, use this reference textbook, apply your Unique
‘Thoughtware’ to become successful in today’s competitive services business world.
All the Best and Give the Best.

Dr. Abhay Kulkarni

Dr. Sudhir Hasamnis
 ACKNOWLEDGEMENTS
In the last two decades, many professionals in academic and corporate world
provided valued insights in management and service business functions through write-
ups, conference and seminar discussions and brainstorming conversations. Both of us,
exchanged during before and after our corporate experience. We continued to work in
corporate and academia simultaneously. Last couple of years while working in academia,
we came across Board of Study members of Production Operations and Services
Management, SP Pune University. We appreciate the contribution of Board members in
developing the thought process of this book.
Though it is impossible to mention everyone who directly and indirectly contributed
in our thinking for Services Business Management book, we want to express our
appreciation and thank them for making this book happen.
We also gained important insights from our co-authors on international adaptions
of Service Management related books such as Service Marketing – People, Technology
and Strategy by Christopher Lovelock and Jochen Wirtz; Service Marketing – Integrating
Customer Focus across the Firm by Valarie Zeithaml, Mary Bitner, Dwayene Gremler
and Ajay Pandit; Services – Marketing, Operations and Management book by Vinnie
Jauhari and Kirti Dutta; Service Marketing – Concepts, Applications and Case book by
M.K. Rampal and S.L. Gupta; Services Marketing and Management book by Dr. B.
Balaji & S. Chand; Services Sector Report by Government of India, Part of Financial
Budget Report 2016-17; Introduction to Service Management by Paolo Gaiardelli and
Giuditta Pezzotta; Managing Service Operations – Design and Implementation by Bill
Hollins and Sadie Shinkins; Service Management: Operations; Strategy, Information
Technology by James A. Fitzsimmons and Mona J. Fitzsimmons; Frontier of Electronic
Commerce by R. Kalakota and A.B. Whiston; Management Control Systems by R.N.
Anthony and V. Govindarajan; Essentials of Services Marketing by K.D. Hoffmann and
J.E.G. Bateson.
We would like to express our heartfelt gratitude to number of institutions,
publications, researchers and individuals without whose support and encouragement
we would have not been able to complete this huge task of this book.
We are obliged to the management and staff of ATSS-IICMR, Pune for supporting us
with their infrastructure, library and research facilities where this work took shape in
the form of book.
 We are thankful to the organisations such as HDFC Life, Ginger Hotel, Veena World,
Axis Bank, Reliance Jio and University of Birmingham for the case studies. Most of the
references are picked up from visiting the facilities and public domain.
We are thankful to Dr. P.C. Shejwalkar for his support and foreword.
We would like to thank Himalaya Publishing House Pvt. Ltd. for guiding us on the
whole format and publishing this work.
Finally, we must thank our family members and friends whose constant support
enabled us in completion of this book in time.
We thank in advance, to all students, professionals and faculty members who will
be using this book in Service business endeavour.

Dr. Abhay Kulkarni

Dr. Sudhir Hasamnis
 SYLLABUS
Course Objectives:
1. To introduce Services as a business function
2. To emphasise the importance of understanding internal and external
environment in service decision-making
3. To expose students to a systematic services framework
Unit Contents
No.
1 Understanding Various Aspects of Services – Introduction of Services
concept, Classification of Services, Identifying and analysing the unique
characteristics of Services, Ways and means to address associated Service
challenges.
The New Revolution in Services – Process, professionalism and quality,
Service Triangle Marketing Model, Service Encounter and Moment of Truth
(MOT).
Service Expectation – Expectation – Expected services: Two levels of
Experience – The Zone of Tolerance – Sources of desired service expectation –
A model of customer service expectation.
The Service Product – Recent trends, Service culture, Contemporary
services, Service Life Cycle (SLC), New Service Development (NSD), Relevance
of branding in services.
Service Location – Flexibility – Classification by location – Accessibility
through co-production – Service channel development, Locations decision,
Basic Location Models.

2 Services Mix Elements – Introduction, Elements of Services mix.

Product – The Service Product, Service product life cycle strategies, Service
product range, Failure of new Service products, Achieving success in
development of new Service products, Service product elimination.
Place – Managing distribution channels in Service industry, Factors affecting
choice of distribution channel, Strategies for distribution, Effect of internet –
Global distribution system in services.
Pricing for Services – Price terminologies, Understanding the cost of Service
incurred by customers, Understanding value, Pricing objectives, Methods of
pricing services.
Promotion – Promotional objectives, Selection criteria, developing the
promotion mix, Sales promotion tools, promotion planning and strategy.
Physical Evidence – Introduction, Elements, Role of physical evidence,
Managing physical evidence as a strategy.
3 Service Environment – External versus Internal marketing, Micro and
Macro service environment, PESTEL analysis of service sector, Six Market
Model.
Market Analysis and Segmentation – Planning process, Rethinking the
customer service function, Focusing and positioning target customers,
Relationship of service employees and internal marketing.
Service Design – Introduction, design methodology, Service Design and
Management Model, Overview of model stages, Building a service blueprint,
Benefits of service blueprinting.

4 Consumer in Service Industry – Buyer characteristics, Buyer decision-

making process (EKB Model), Customer involvement in service process,
Customer behaviour in service settings.
Relationship Marketing – Evolution of relationship marketing, Degree of
relationship building, The importance of customer retention, Enhancement of
internal and external relationship change.
7S Framework – Determining the value of customer, Lifetime value of
customer, Customer relationship management strategies, Customer delight,
Customer loyalty.
Framework Linking Employee Satisfaction, Customer Satisfaction and
Profitability.

5 Research in Service Industry – Changing dynamics and challenges of

sectors.
Growth in Service Sector – Importance, Growth and development of Service
sector in India, Environmental changes ushering the services boom.
New Economic Policy and its Impact on Service Sector
 DETAILED CONTENTS

Introduction of Services Management 1-11

Learning Outcome 2
Overview of Services 3
Growth in Manufacturing Sector 3
What is a Service? 4
Importance to Public Services 6
Importance to Charities 6
Features of a Service 7
Who are the Customers? 7
Services Management in India 8
Latest Industry Best Practices 8
Government Initiatives 9
Road Ahead 10
Summary 11
1. Overview of Services Business Management 12-83
Introduction 13
Service 15
Understanding Various Aspects of Services 15
Introduction of Services Concept 16
Classifying Services in Different Ways 16
Classification of Services 17
Identifying and Analysing the Unique Characteristics of Services 21
Ways and Means to Address Associated Service Challenges 23
The New Revolution in Services 24
Competitive Trends for the New Millennium 29
Service as Process 31
Professionalism 33
Quality 35
Service Triangle Marketing Model 39
Service Encounter and Moment of Truth (MOT) 41
Service Expectation 42
Expected Services 45
Two Levels of Experience – The Zone of Tolerance and Sources of
Desired Service Expectation 45
Sources of Desired Expectations 46
A Model of Customer Service Expectation 47
The Service Product 48
Recent Trends 52
 Service Culture 54
Contemporary Services 55
Service Life Cycle (SLC) 56
New Service Development (NSD) 59
Relevance of Branding in Services 63
Service Location 64
Classification by Location 66
Accessibility through Co-production 68
Service Channel Development 68
Locations Decision 69
Basic Location Models 69
Case Study of HDFC Life 79
2. Services Mix Elements 84-139
Introduction 86
Services Mix Elements – Introduction and Elements of Service Mix 86
Product 88
Service Product Range 89
Failure of New Service Products 89
Achieving Success in Development of New Service Products 90
Product Life Cycle Strategies 92
Place 96
Managing Distribution Channels 97
Factors Affecting Choice of Distribution Channel 98
Strategies for Distribution 102
Effect of Internet – Global Distribution System 103
Pricing for Services 105
Pricing Terminologies 106
Understanding the Cost of Service Incurred by Customers 106
Understanding Value 108
Pricing Objectives 110
Methods of Pricing Services 114
Promotion 116
Promotional Objectives 117
Selection Criteria 118
Developing the Promotion Mix 119
Sales Promotion Tools 122
Promotion Planning and Strategy 125
Physical Evidence 127
Elements 127
Role of Physical Evidence 128
Managing Physical Evidence as a Strategy 130
Case Study on Ginger Hotels 135
3. Services Environment 140-204
Service Environment 141
External vs. Internal Marketing 145
External Marketing 146
Micro and Macro Service Environment 147
PESTEL Analysis of Service Sector 152
SWOC Analysis – Analytical Tool 156
Six Market Model 157
Market Analysis and Segmentation 159
Planning Process 161
Rethinking the Customer Service Function 164
Focusing and Positioning Target Customers 164
Service Employee and Internal Market 168
Service Design 183
Design Methodology 185
The Service Design and Management Model 185
Overview of Model Stages 186
Building a Service Blueprint 187
Benefits of Service Blueprinting 191
Case Study on Veena World Travel. Explore. Celebrate 197
4. Consumer in Service Industry 205-265
Consumer in Service Industry and Buyer Characteristics 206
Buyer Decision-making Process (EKB Model) 209
Customer/Consumer Involvement in Service Process 212
Customer Behaviour in Service Settings 217
Relationship Marketing 230
Evolution of Relationship Marketing 231
Degree of Relationship Building 233
The Importance of Customer Retention 234
Enhancement of Internal and External Relationship Change 235
7-S Framework 237
Determining the Value of Customer 240
Lifetime Value of Customer 242
Customer Relationship Management Strategies 244
Customer Delight 249
Customer Loyalty 250
Case Study on Axis Bank 257
5. Research and Growth in Service Industry 266-313
Research in Services Industry 267
Research Plan and Implementation 269
Growth in Service Sector 274
Importance of Research 275
Growth and Development of Service Sector in India 278
 Environmental Changes Ushering the Services Boom 298
New Economic Policy and its Impact on Service Sector 300
Case Study on Reliance Jio 307
6. IT Service Management (ITSM) and IT Infrastructure Library (ITIL) 314-337
Introduction 316
ITSM and ITIL 316
Information Technology Service Management (ITSM) 317
History of ITSM 317
Base of ITSM 318
General Framework of ITSM and its Implementation 318
Information Technology Infrastructure Library (ITIL) 319
History of ITIL 320
ITIL 2007 Five Volumes 323
Who Uses ITIL? 328
Why ITIL is Required? 328
What are the Benefits and Advantages of ITIL? 328
UCISA ITIL Case Study on the University of Birmingham 330
7. Tools and Techniques for Improving Services Management 338-359
Introduction 339
Tools and Techniques for Services Management 340
Flow Diagram/Process Flowchart 342
Brainstorming 344
Cause and Effect Diagram 345
Problem-solving Method 346
Structure-tree Diagram 348
Affinity Diagram 349
Kano Model 350
Process Management Chart 351
5 Why Analysis 352
3W and 1H Analysis 353
5W and 2H Analysis 354
Matrix Diagram 355
Interrelationship Diagram 356
Risk Analysis 357
Answer Key for Multiple Choice Questions from All Units 360-360
 LIST OF EXHIBITS
Exhibit Exhibit Title Page
No. No.
Intro-1 Typical Service Value Exchange 6
Unit 1 Introduction if Services Management
1.1 Performance in Services: International Comparison 14
1.2 Comparison of Various Goods and Services 15
1.3 Classification of Services 17
1.4 Examples of Services 17
1.5 Classification of Services 18
1.6 Tangible Actions 19
1.7 Intangible Actions 19
1.8 Share of Services Sector in India 20
1.9 Challenges of Services and their Uniqueness 22
1.9b Fundamental Differences between Physical Goods and Services 22
1.10 Summary of Some of the Reasons for the Growth of Consumer 26
Service Industries
1.11 Impact of Technology 28
1.12 Trends in Services 28
1.13 Resource Conversion Process 32
1.14 Professionalism in Services 34
1.15 Perceived Service Quality 37
1.16 Critical Factors of Customer-perceived Service Quality 39
1.17 Service Triangle or The Service Marketing Triangle 40
1.18 Hierarchy of Expectations 43
1.19 What Service Customers Want? 45
1.20 Nature and Determination of Customer Expectation of Service 47
1.21 The Total Product Concept 51
1.22 Product Level and Views from Customer and Organisation 51
1.22b Kano Model for Services, Views from Customer and Organisation 52
1.23 Service Life Cycle 58
1.24 Examples of Service Product Innovations 60
1.25 External Sources of New Service Ideas 61
 1.26 Locational Flexibility in Production and Consumption of 65
Inseparable Services
1.27 Service Location Patterns 67
1.28 Involvement of Agencies in Location Decision 69
1.29 Factors in Assessing Store Location 72
1.30 Location Checklist 72
Unit 2 Services Mix Elements
2.1 7Ps of Services Marketing 88
2.2 Product Life Cycle 91
2.3 Four Stages of Product Life Cycle 91
2.4 Service Life Cycle and Stagewise Strategies 92
2.5 Characteristics of the Four-stage Product Life Cycle 95
2.6 Three Levels of Distribution Channel 97
2.7 Service Channels 98
2.8 Pricing Terminologies for Select Services 106
2.9 Cost of Service for Customer 107
2.10 The Price Pyramid 108
2.11 Two Aspects of Customer Value 109
2.12 The Customer Value Delivery Process 110
2.13 Pricing Objectives of Service Organisations: Quantitative and 111
Qualitative Objectives
2.14 Pricing Objectives 112
2.15 The Elements of the Marketing Communications Mix 117
2.16 Criteria for Promotional Techniques 118
2.17 Product Life Cycle to Decide Marketing Communication Mix 120
2.18 Marketing Communications Mix for Services 121
2.19 Sales Promotions 123
2.20 Promotional Tools 123
2.21 Consumer oriented Sales Promotion Methods 124
2.22 Trade-oriented Promotion Tools 124
2.23 Promotional Planning Process 125
2.24 Product Marketing Mix 127
2.25 Elements of Physical Evidence 128
2.26 Example of Service Blueprint in Hotel 131
Unit 3 Services Environment
3.1 Servicescape 142
3.2 Common Associations and Human Response to Colours 144
3.3 External vs. Internal Marketing 146
3.4 Micro and Macro Environment 148
3.5 Micro and Macro Service Environment 151
3.6 PESTEL Analysis 153
3.7 Example of PESTEL Analysis 155
3.8 Six Market Model 157
3.9 Marketing Planning Process 162
3.10 Role of Customer Service Function 165
3.11 Elements of Service Strategy 166
3.12 Vision to Short-term Plans, Examples 166
3.13 Four Focus Strategies 167
3.14 Developing a Market Positioning Strategy 168
3.15 Strategy for Internal Marketing 169
3.16 Components of Flexible Firm 170
3.17 Cycle of Failure 172
3.18 The Cycle of Mediocrity 174
3.19 The Cycle of Success 175
3.20 Bowen and Lawler’s Dimensions Affecting the Need to Empower 179
Workers
3.21 The Two-state Expectancy Model of Motivation 180
3.22 Conger and Kanugo's Stages of Employee Empowerment 181
3.23 The Thomas and Velthouse Model 182
3.24 Design and Delivery Components 184
3.25 Five Principles for Total Design Methodology 185
3.26 Service Design and Management Model 186
3.27 Overview of Model Stages 186
3.28 Service Blueprint Components 188
3.29 Service Blueprint for Restaurant Service 190
Unit 4 Consumer in Service Industry
4.1 EKB Model for Consumer Behaviour 210
4.2 High and Low Involvement – Consumer Decision 215
4.3 Pre-purchase Stage 218
 4.4 Product Attributes Affect Ease of Evaluation 220
4.5 Managing Customer Perceptions of Risk 221
4.6 Factors Influencing Customer Expectations of Service 221
4.7 Components of Customer Expectations 222
4.8 Service Encounter Stage 222
4.9 The Servuction Model 223
4.10 Service Encounters Range from High-contact to Low-contact 225
4.11 Distinctions between High-contact and Low-contact Services 226
4.12 Post-encounter Stage 227
4.13 Expectancy-Disconfirmation Paradigm 228
4.14 Summary of All Stages 229
4.15 Changing Focus of Marketing 231
4.16 Transition to Relationship Marketing 232
4.17 Five Levels of Relationship Marketing 233
4.18 Type of Relationship Marketing for What Kind of Businesses 234
4.19 Relationship Management with Suppliers, Recruitment, and 236
Internal, Referral and Influence Markets
4.20 Hard and Soft Elements 237
4.21 7-S Framework by McKinsey 238
4.22 How to Calculate Customer Return on Asset (CRA)? 241
4.23 Martin Christopher’s Ladder of Customer Loyalty 243
4.24 Framework for Customer Relationship Strategy 245
4.25 Customer Loyalty Cycle 251
Unit 5 Research and Growth in Service Industry
5.1 Activity Processes of Manufacturing and Service Industries 268
5.2 Operations Research in Services 270
5.3 Share of Services Employment 2001-14 279
5.4 Growth of Merchandise and Services Trade: World and India 280
5.5 Share and Growth of the Services Sector in 2014-15 282
5.6 Export Performance of Major Services 283
5.7 WTO Services Negotiations and Bilateral Negotiations Including 285
Services Trade
5.8 Performance of India’s Services Sector: Some Indicators 286
5.9 Tourism Performance: International Comparison 2014 287
5.10 Global Competitiveness Index: R&D Innovation 291
 5.11 Selected Policy Issues and Suggestions for Some Major Services 295
5.12 Service Location Index 2016 304
Unit 6 IT Service Management (ITSM) and Infrastructure Library
ITSM
6.1 Traditional IT and ITSM 317
6.2 ITIL Framework 321
6.3 ITIL Five Volumes 323
6.4 Service Design 324
6.5 Service Transition 325
6.6 Service Operation 326
6.7 Continual Service Improvement 327
Unit 7 Tools and Techniques for Improving Service Management
7.1 Toolkit 340
7.2 Flowchart Symbols 343
7.3 Process Flowchart 343
7.4 Cross-functional Work 345
7.5 Cause and Effect Diagram 346
7.6 Usual vs. Preferred Problem-solving Method 347
7.7 Problem-solving Workflow 347
7.8 Structure-tree Diagram 349
7.9 Affinity Diagram 350
7.10 Kano Model 351
7.11 5 Why Analysis 352
7.12 3W and 1H Analysis 354
7.13 5W and 2H Analysis 355
7.14 Matrix Diagram 356
7.15 Interrelationship Diagram 357
7.16 Pareto Diagram 358
7.17 Risk Analysis 358
 UNIT
1
Overview of
Services Business Management

Key Learning

Introduction, Service, Understanding Various Aspects of Services –

Introduction of Services Concept, Classification of Services, Identifying
and Analysing the Unique Characteristics of Services, Ways and
Means to Address Associated Service Challenges. The New Revolution
in Services – Process, Professionalism and Quality, Service Triangle
Marketing Model, Service Encounter and Moment of Truth (MOT).
Service Expectation – Expectation, Expected Services, Two Levels of
Experience: The Zone of Tolerance and Sources of Desired Service
Expectation, A Model of Customer Service Expectation, The Service
Product – Recent Trends, Service Culture, Contemporary Services,
Service Life Cycle (SLC), New Service Development (NSD), Relevance of
Branding in Services. Service Location – Flexibility, Classification by
Location, Accessibility through Co-production, Service Channel
Development, Locations Decision, Basic Location Models.
Overview of Services Business Management 13

Thought Map for Unit 1

Service as a Business Function

Product as a Service Compare and Contrast

Consumer Perspective of Services

Service Encounter Service Quality

Service Product and Process

Service Lifecycle Sectors in Services

What
Different aspects of Services Business Management

Why:
New revolutions in Services are coming. Overcoming
the challenges of Service Business

Where:
To decide Service locations

5W2H When:
Understanding Service expectations

Who:
Service providers after understanding customer
requirements

How:
Through Service Lifecycle

How much:
With case study of HDFC Life

Introduction
This is for giving feel of service industry in India before reading the chapter. This is a pre-cursor.
We can remove the source and just keep the statement.
‘Know what your customers want most and what your company does best. Focus on where
there those two meets.’ – Kevin Stritz
14 Services Business Management

The world economy in today’s world is increasingly characterised as a ‘Service economy’. This
is primarily due to the increasing importance and growing share of the service sector in the economies
of most developed and developing countries. In fact, the growth of the service sector has long been
considered as indicative of a country’s economic progress.
Economic history shows that all developing nations have invariably experienced a shift from
agriculture to industry and then to the Service Sector as the main stay of the economy.
This shift has also brought about a change in the definition of goods and services themselves.
No longer are goods considered separate from services. Rather, services now increasingly represent an
integral part of the product and this interconnectedness of goods and services is represented on
a goods-services continuum.
The table produced below from Indian Financial Budget shows the share of Services (Exhibit 1.1)
increasing over last decade.

Exhibit 1.1: Performance in Services: International Comparison

Rank in Services growth rate Share of services in Services export growth

CAGR 2001-08

CAGR 2010-14

CAGR 2001-08

CAGR 2010-14
Services GVA

(per cent) Employ- Total (per cent)

Overall GDP

GVA
Country Y-o-Y ment exports Y-o-Y
2001*

2014*
2001

2009

2013

2014

2001

2014

2001

2014

2001

2009

2013

2014
US 1 1 2.0 2.0 0.6 2.3 2.2 1.8 77.4 78.4 75.0 81.2 27.2 29.8 –3.6 –4.2 5.1 3.7 9.5 6.1

China 2 2 10.2 11.1 8.2 8.0 11.7 8.4 40.9 47.7 12.7 47.0 11.0 9.0 9.1 –13.4 –3.9 12.4 25.9 7.9

Japan 3 3 1.3 –3.1 1.3 0.1 0.9 0.9 69.0 72.0 63.9 69.1 13.6 18.8 –6.9 –14.6 1.2 19.2 11.8 5.2

Germany 4 4 3.1 –3.0 0.4 1.3 1.4 1.3 68.7 69.0 64.6 70.4 12.8 15.0 5.6 –8.5 8.4 4.3 15.8 4.9

UK 5 5 3.5 –2.6 2.8 2.8 2.9 2.6 73.6 78.4 73.7 79.1 30.1 40.1 –0.8 –13.8 2.3 7.9 14.5 5.8

France 6 6 1.9 –2.0 0.8 0.7 1.8 1.2 74.7 78.9 69.9 75.8 19.8 31.4 –0.5 –13.6 7.4 5.3 15.8 7.4

Brazil 7 8 2.3 2.1 11.9 1.1 3.9 6.9 68.2 71.0 59.4 76.6 13.0 14.8 –2.7 –8.9 –1.7 4.7 18.6 6.8

Italy 8 7 2.3 –2.7 –1.1 0.0 0.8 –0.6 70.5 74.3 63.1 69.5 18.9 18.0 2.1 –16.3 4.8 3.6 10.5 3.0

India 9 10 7.2 10.7 8.9 10.3 9.3 8.6 45.2 53.0 24.0 28.7 27.9 32.6 4.8 –12.5 2.2 5.0 30.1 7.5

Russia 10 12 3.3 –5.1 2.2 1.0 7.6 2.6 55.9 60.0 58.6 65.8 9.9 11.5 17.3 –19.8 12.4 –6.1 26.0 7.5

Canada 11 9 3.5 1.2 1.9 2.4 2.9 2.3 65.9 69.9 74.8 78.2 12.7 15.2 –3.6 –8.7 –0.1 –4.0 9.9 3.0

Australia 12 11 3.8 1.8 2.8 2.6 3.4 2.8 69.9 70.1 67.9 69.5 21.8 18.1 –8.9 –7.6 –0.8 1.5 13.3 3.9

S. Korea 13 14 4.9 1.4 2.9 3.1 4.2 3.0 59.0 59.4 62.6 69.5 16.3 15.6 –4.9 –20.5 0.2 3.1 17.4 6.6

Spain 14 13 4.0 –0.9 –0.8 1.1 3.9 0.4 65.3 75.1 62.0 76.3 32.2 29.2 6.0 –14.8 5.0 4.3 13.2 4.6

Mexico 15 15 1.1 3.7 2.3 2.0 3.6 3.4 57.6 59.0 56.1 62.4 7.2 5.0 7.5 –16.1 24.6 4.6 5.3 8.4

World 2.6 –0.8 2.2 2.5 3.0 2.5 68.7 66.0 35.9 50.9 19.4 20.6 19.9 –10.9 5.4 4.9 15.0 6.4
Overview of Services Business Management 15

Service
A service is an act or performance offered by one party to another. Although the process may be
tied to a physical product, the performance is essentially intangible and does not normally result in
ownership of any of the factors of production.

Understanding Various Aspects of Services

Business services is a general term that describes work that supports a business but does not
produce a tangible commodity.
The real gains are achieved for humanity by adding value to the natural resources we have. We
excavate ores and raw materials from mother earth and then process it by adding value and convert
these into rough, semi-finished or finished goods or components. However, there are other
organisations which are involved in the production and distribution of goods and organisations that
add value to lives through a variety of intangibles they provide. Outputs of these are called services.

Exhibit 1.2: Comparison of Various Goods and Services

Source: Based on Earl W. Sasser. Jr., R.P. Olsen, and D. Daryl Wyckoff, Management of Service
Operations (Boston, Allyn and Bacon, 1978), p. 11.
Services can be defined as economic activities that produce time, place, form, or psychological
utilities (Exhibit 1.2). Services are acts, deeds, or performances; they are intangible. A maid servant
service saves the time from doing household chores for its consumers. Departmental stores and
Grocery stores create facilities for various commodities at one convenient point of sale. A Business
Intelligence Warehouse (BIW) service puts together information and its analysis in a form that can be
consumed by the operational managers and top management.
16 Services Business Management

Introduction of Services Concept

Services also can be defined in contrast to goods. A good is a tangible object that can be created
and sold or used later. A service is intangible and perishable. It is created and consumed nearly
simultaneously. Although these definitions may seem straightforward, the distinction between goods
and services is not always clear-cut. For example, when we purchase a car, are we purchasing a good
or the service of transportation? A television set is a manufactured good, but it is of no use without the
service of television broadcasting. When we go to a fast-food restaurant, are we buying the service of
having our food prepared for us or are we buying goods that happen to be ready-to-eat food items?
Most purchases of goods come with facilitating services and almost every service purchase is
accompanied by goods. The key to understand the difference between goods and services lies in the
realisation that these items are not completely distinct, but rather are two poles on a continuum.
Services are economic activities that create value and provide benefits for customer’s specific
times and places, as a result of bringing about a desired change in – or on behalf of – the recipient of
the service. Service is those separately identifiable, essentially intangible activities which provide want
satisfaction, and that are not necessarily tied to the sale of a product or another service. To produce
a service may or may not require the use of tangible goods. However, when such use is required, there
is no transfer of title (permanent ownership) to these tangible goods.
One common method of defining a service is to distinguish between the ‘core’ and ‘peripheral’
elements of that service. The ‘core’ service offering is the ‘necessary outputs of an organisation which
are intended to provide the intangible benefits customers are looking for’. Peripheral services are those
which are either ‘indispensable for the execution of the core service or available only to improve the
overall quality of the service bundle’.
Services include all economic activities whose output is not a physical product or construction, is
generally consumed at the time it is produced, and provides added value in forms (such as
convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its
first purchaser.

Classifying Services in Different Ways

The American Marketing Association defines services as “Activities, benefits and satisfactions
which are offered for sale or are provided in connection with the sale of goods.”
The classification of services based on various criteria is shown in Exhibit 1.3.
Overview of Services Business Management 17

Exhibit 1.3: Classification of Services

Classification of Services
In order to be able to make a clear and relevant classification of services, we would first need to
understand the concept of the word itself. Services usually refer to processes and not physical products.
Some services may include people whereas other services (like online services) may include objects or
gadgets which are managed by people (refer the exhibit given below).

Exhibit 1.4: Examples of Services

Transportation and public utilities, hotels, motels, homestays and other lodging places, rail-road
transportation, personal services, local and inter-urban passenger transit, business services, trucking and
warehousing, auto repair, services and garages or workshops, water transportation, miscellaneous
repairing services, air travel – both human and goods, movies, pipelines except natural gas, amusement
and recreation services, health service, communication, legal services, telephone and telegraph,
educational services, radio and television broadcasting, social services and membership organisations,
electricity, gas, sanitary services, miscellaneous professional services, wholesale trade, private
household services, retail trade, finance, insurance, real estate, banking, military, credit agencies other
than banks, government enterprises security and commodity brokers, local government, real estate,
education, holding and other investment companies and other services.
18 Services Business Management

Examples of services (Exhibit 1.4) which include people can be a hair salon, education, theatre,
restaurants and public transportation. On the other hand, services that include objects include repairs
and maintenance, dry cleaning, banking, legal services, insurance, etc.
Exhibit 1.5 explains the classification of services along with few examples for further elaboration.

Exhibit 1.5: Classification of Services

Source: Adapted from ‘Services – Marketing, Operations and Management’ (Vinnie Jauhari and Kirti Dutta)
The service processes can be either manual or automated or digitised or both. It is possible to
carry out a classification of services based on two general dimensions such as what is being processed,
whether is it a person or an object, and how is it being processed? In other words, what is the nature of
the process (tangible or intangible actions)?
In terms of the people processing activities, the level of involvement of the people can vary
significantly. Managers must think about processes/outputs in terms of what happens to customers and
Overview of Services Business Management 19

what is being created. For pricing this category of services, the non-financial costs, time, mental effort
as well as fear and pain level must be identified.
For example, if your laptop or desktop is under repairs and you are giving it to Service Agency
for repairs, it will be one example of service included in this category. In this category, customers are
less involved on physical level and usually there is no real need for them to enter the service once
requested the service, or explained their problem and made payment for the respective service.
Classification of services can be done based on two points. These two points or factors, are
further subdivided into two further variables (Exhibits 1.6 and 1.7). All in all, service classification
considers four types of people or objects.

Exhibit 1.6: Tangible Actions

Tangible Actions
Services for People Services for Goods
 Health Care  Transportation
 Restaurants  Repairs and Maintenance
 Salons  Dry Cleaning

1. Classification of service based on tangible action: Wherever people or products are

involved directly, the service classification can be done based on tangibility.
(a) Services for people: Where the service is delivered by people to people such as health
care, restaurants and salons.
(b) Services for goods: Where services are given by people for objects or goods such as
transportation, repair and maintenance and others.

Exhibit 1.7: Intangible Actions

Intangible Actions
Services Directed at People’s Mind Services Directed at Intangible Assets
 Education  Banking
 Theatres  Legal Services
 Information Services  Insurance

2. Classification of services based on intangibility: There are few things which cannot be
tangibly quantified. For example, the software programmes to execute salary/wage of
employees correctly, or the value of life which is forecasted by insurance policies. These
services are classified on the basis of intangibility.
(a) Services directed at people’s mind: Services sold through influencing the creativity
of humans are classified on the basis of intangibility.
(b) Services directed at intangible assets: Banking, legal services and insurance services
are some of the services most difficult to price and quantify.
The most intangible form of service output is information processing. The customer is not
involved in this type is service. Customers have a personal desire to meet face-to-face but as per
20 Services Business Management

operational process there is no need for this. For example, consultancy services where the relationship
can be built or sustained on trust or telephone contact. At the same time, there is need to have a face-
to-face relationship to understand the detail needs of the customer.
Exhibit 1.8 shows how the changing share of services sector in India and how the growth is
happening.

Exhibit 1.8: Changing Share and Growth of Services Sector in India (GVA at basic price)

GVA (per cent) GCF (per cent)

2013-14 2014-15 2015-16# 2013-14 2014-15*
Total Services 50.9(7.8) 52.6(10.3) 53.3(9.2) 56.5(5.1) 58.3(8.7)
Trade, repair, hotels and restaurants 11.5(7.7) 11.8(10.7) 18.6(9.5)* 7.4(–6.9) 8.9(25.0)
Trade and repair services 10.5(7.7) 10.7(10.8) NA 6.7(–8.4) 7.5(18.9)
Hotels and restaurants 1.0(2.4) 1.1(9.5) NA 0.8(–0.6) 1.3(77.2)
Transport, storage, communication and 6.7(8.7) 6.9(8.4) NA 8.9(24.2) 8.9(4.8)
services related to broadcasting
Railways 0.8(6.0) 0.8(7.7) NA 1.2(6.9) 1.4(22.4)
Road transport 3.2(6.2) 3.2(6.3) NA 1.8(–6.4) 0.8(–0.4)
Air transport 0.1(8.7) 0.2(12.8) NA 0.1(–6.1) 0.2(94.1)
Financial services 5.8(4.8) 5.7(7.9) 20.6(10.3)^ 0.9(–3.4) 1.2(35.3)
Real estate, ownership of dwelling and 14.3(12.5) 14.9(11.8) NA 25.3(7.2) 23.8(1.0)
professional services
Public administration and defence 5.9(3.2) 6.2(9.8) 14.1(6.9)* 8.6(14.9) 9.9(21.2)
Other services 6.7(5.6) 7.2(11.4) NA 5.3(19.0) 5.7(14.0)
Construction 9.0(4.6) 8.8(4.4) 8.2(3.7) 5.4(–28) 5.4(4.6)
Total services (+ construction) 59.8(7.3) 61.4(9.4) 61.5(8.4) 62.0(1.0) 63.7(8.4)
Total (All Sectors) 100.0(6.3) 100.0(7.1) 100.0(7.3) 100(2.1) 100(5.6)
GDP (market price constant 2011-12) (6.6) (7.2) (7.6)
Source: Computed from CSO data.
Notes: Shares are in current prices and growth in constant 2011-12 prices; Figures in parentheses indicate
growth rate;  First RE; # AE for 2015-16; * Also includes transport, storage, communication and services
related to broadcasting; ^ Also includes real estate and professional services; @ Also includes other
services.
A more general classification of services based on the type of function that is provided through
them can be as follows:
 Business services
 Communication services
Overview of Services Business Management 21

 Construction and related engineering services

 Distribution services
 Educational services
 Environmental services
 Financial services
 Health-related and social services
 Tourism and travel-related services
 Recreational, cultural and sporting services
 Transport services

Identifying and Analysing the Unique Characteristics of Services

The defining characteristics of a service are:
 Intangibility: Services are intangible and do not have a physical existence. Hence, services
cannot be touched, held, tasted or smelt. This is most defining feature of a service and that
which primarily differentiates it from a product. Also, it poses a unique challenge to those
engaged in marketing a service as they need to attach tangible attributes to an otherwise
intangible offering.
 Heterogeneity/Variability: Given the very nature of services, each service offering is
unique and cannot be exactly repeated (while it appears to be similar) even by the same
service provider. While products can be produced in mass quantity and be homogenous, the
same is not true of services. For example, all pizzas of a standardised recipe at Pizza Centre
are almost identical. However, the same is not true of the service rendered by the same Pizza
Centre front-end staff consecutively to two customers.
 Perishability: Services cannot be stored, saved, returned or resold once they have been used.
Once rendered to a customer, the service is completely consumed and cannot be delivered to
another customer. For example, a client dissatisfied with the services of a hair stylist may
not return the service of the haircut that was rendered. At the most, he or she may decide not
to visit that salon in the future.
 Inseparability/Simultaneity of production and consumption: This refers to the fact that
services are generated and consumed within the same time frame. E.g., for a female
customer a beauty makeup is done as requested, the consumption of service is immediately
at that point of time, but in another example of say, Pizza which is bought at the counter, in
that case customer has choice to consume it even after a few minutes or hours of purchase.
Moreover, it is very difficult to separate a service from the service provider. For example,
the hair stylist is necessarily a part of the service of a haircut which is being made for the
client.
22 Services Business Management

Exhibit 1.9 explains challenges of services and their uniqueness.

Exhibit 1.9: Services Challenges

Types of Services
Core Services: A service that is the primary purpose of the transaction, e.g., a haircut or the
services of lawyer or teacher.
Supplementary Services: Services that are rendered as an outcome to the sale of a tangible
product, e.g., home delivery options offered by restaurants above a minimum bill value, say ` 500/-.

Difference between Goods and Services

Given below are the fundamental differences between physical goods and services:

Exhibit 1.9(b): Fundamental Differences between Physical Goods and Services

Goods Services
A physical commodity A process or activity
Tangible Intangible
Homogenous Heterogeneous
Production and distribution are separate activities Production, distribution and consumption are
from the point of consumption as consumption simultaneous processes
happens once it is distributed
Can be stored Cannot be stored
Transfer of ownership is possible Transfer of ownership is not possible