CH 1 Serv
CH 1 Serv
1.0 .. OBJECTIVES
Economists have divided all industrial and economic activities in to three main groups:
Primary, secondary, and tertiary. Primary activities include agriculture, fishing and forestry.
Secondary activities cover manufacturing and construction; tertiary activities refer to the
services and distribution. In the pre-industrialized era, primary activities were the main stay
of the economy. The industrial Revolution marked the beginning of increasing importance of
secondary activities and the gradually decreasing the status of agriculture and allied activities.
The period following World War II saw USA become the world’s first “service economy”.
The term service is rather general in concept, and it includes a wide variety of services. Faced
with such a broad spectrum we need to define the concept of service from a marketing view
1
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
point. Kotler offers one such definition: a service is any activity or benefit that one party can
offer to another that is essentially intangible and does not result in the ownership of anything.
Its production may or may not be tied to physical product. W.J.Stanton views services as
fulfilling certain wants and states that “services are those separately identifiable, essentially
intangible activities which provide want-satisfaction and are not necessarily tied to the sale of
a product or another service. In common services have the following characteristics
services are performed, not produced
services are more people-based than technology- based
services supply cannot be easily changed to meet the suddenly changed market needs
service demand has greater elasticity
services face unique quality control issues and a larger number of problems in
customer servicing
service quality is an amalgam(combination ) of services
WWII marked a milestone in the explosive rise of service industries. at the end of the war
major social and economic changes transformed western economies.
Philip Kotler has distinguished four categories of offer, varying from a pure good to a
pure service:
A pure tangible good such as soap, tooth paste or salt. no services accompany the
product
a tangible good with accompanying services to enhance its consumer appeal.
computers are an example
A major service with accompanying minor goods and services such as first class
airline travel
a pure service like baby-sitting and psychotherapy.
This categorization starts to make it clear why it is difficult either to define or generalize
about services. Services vary considerably over a range of factors, including whether they are
directed at businesses or individual consumers; whether they require a customer’s physical
presence; and whether they are equipment intensive or people intensive (involve).
2
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
Services have a number of unique characteristics that make them so different from products.
Some of the most commonly accepted characteristics are:
A. Intangibility
When you buy soap, you can see, feel, touch, smell and use it to check its effectiveness in
cleaning. But when you pay fees for a term in college, you are paying for the benefit of
deriving knowledge and education which is delivered to you by teachers. In contrast to the
soap where you can immediately check its benefits, there is no way you can do so in case of
the teachers who are providing you the benefits.
The distinguishing feature of a service is that its intangible aspect is dominant. J.Bateson has
described the intangible characteristics of services which make them distinct from products.
These intangible features are:
a service cannot be touched
precise standardization is not possible
there is no ownership transfer
a service cannot be patented
production and consumption are inseparable
there are no inventories of the service
middlemen role are different
the consumer is part of the production process so the delivery system must go to the
market or the consumer must come to the delivery system
B. Inseparability
In most cases a service cannot be separated from the person or firm providing it. a service is
provided by a person who possesses a particular skill ( Singer) by using equipment to handle
a tangible product ( dry cleaning or by allowing access to or use of physical infrastructure
( hotel, train). A plumber has to be physically present to provide the service; the beautician
has to be available to perform the message. This is in direct contrast to products which can be
produced in the factory today, stocked for the next two, three or more months and sold when
an order is procured.
3
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
C. Heterogeneity
The human element is very much involved in providing and rendering services and this
makes standardization a very difficult task to achieve. The doctor who gave you his complete
attention in your last visit may behave a little differently the next time. The new bank clerk
who cashed your cheques may not be as efficient as the previous one and you have to spend
more time for the same activity. This is despite the fact that rules and procedures have been
laid down to reduce the role of the human element and ensure maximum efficiency. Airlines,
restaurants, banks, hotels have large number of standardized procedures.
D. Perishability
Services cannot be stored and are perishable. a car mechanic who has no cars to repair today
or unsold seats in a cinema hall represent a service capacity which is lost forever. Apart from
the fact that a service cannot fully utilized represents a total loss, the other dimension of this
perishability aspect is that most services may face a fluctuating demand. There is a peak
demand time for buses in the morning and evening (office hours). Certain train routes are
always more heavily booked than others. This fluctuating demand pattern aggravates the
perishability characteristics of services.
E. Ownership
When you buy a product you become its owner- be it a pencil, book, shirt, refrigerator or car.
in the case of a service, you may pay for its use but you never own it. by buying a ticket you
can see the evening film show in the local cinema theater; by paying wages you can hire the
services of a chauffeur who will drive your car; by paying the required charges you can have
a marketing research firm survey in to the reasons for you product’s poor sales performance,
etc. in case of a service, the payment is not for purchase, but only for the use or access to or
for hire of items or facilities.
A service is purchased for the benefit it provides. If we closely examine the reasons why
products are purchased, we find that they are bought because they provide certain intangible
benefits and satisfactions. From a marketing view-point, the same concepts and techniques
are applicable for both products and services.
4
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
P h y s i c a l G o o d s S e r v i c e s
A t h i n g A n a c t i v i t y o r p r o c e s s
T a n g i b l e I n t a n g i b l e
H o m o g e n e o u s H e t e r o g e n e o u s
Production and distribution are separated from consumption. Production, distribution and consumption are simultaneous process.
Core value produced in factory Core value produced in buyer-seller interactions.
Customers do not participate in the production process. Customer may participate in the production
C a n b e k e p t i n s t o c k . C a n n o t b e k e p t i n s t o c k .
T r a n s f e r o f o w n e r s h i p . No transfer of ownership.
5
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
element
Mechanise and
automate maximum
possible operations
4. P e r i s h a b i l i Cannot be
t y stored
Problem of demand
fluctuation
5. O w n e r s h i Custmer has access to but not ownership of facility or Stress advantages of non-ownership such as easier payment
p activity scheme
There are various reasons for the growth of the service sector. These can be divided in to
demographic, social, economic, political and technological changes
A. Demographic Changes
The study of population reveals a general increase in the world population, high birth rate has
give scope for childcare centers, education institutions etc. as the baby boom generation
began entering its years of prime capacity in the late eighties, it became a prime target for a
variety of services- fast food, entertainment etc. the considerable increase in life expectancy
indicated expanding market in the age group over 55 years-this has created a new market for
health care, leisure and tourism. There has been a movement of population from rural to
urban areas for over century, and also shift from city to suburbs. This again causes the need
for infrastructures and support services.
B. Economic Changes
The growth of corporate market and stock market is usually an indicator of growth of an
economy. With an overall economic liberalization, resource mobilization through capital
market has reached unprecedented heights. The growth of large firms has brought about
greater dependence on special service providers like market research, and advertising
agencies. The economic reforms have ushered consumerism. Moreover, there have been
6
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
changes in the consumer purchasing power and spending patterns with middle class explosion
which is now emerging as the ‘consumption community’
C. Political and Legal Changes
De-regulation has opened many service industries (airlines, banking) to more intense
competition generating greater innovation and expansion. At the same time, many countries
continue to strengthen consumer protection laws to improve public security and to protect the
environment.
To increase in government interaction in the trade sector has increase trade relationships
between nations leading to development tourism and hotel industry. Trading blocs such as
North American Free Trade Agreements (NAFTA), European Common Market, etc.
D. Social Changes
The increase in single person household, smaller families and working women mean more
discretionary income, more time for travel and entertainment and also need for child care
services. Changing life styles of the masses due to cultural exchange and communication
networks has resulted in continued emphasis on services.
E. Technological Changes
Recent development in computer science and information technology has brought about
convergence of various technologies like telecommunication, entertainment, and data
transmission. The influence of internet has resulted in creasing mobility of educated labor
force among countries, and paradigm shift in many service industries like travel, banking,
education, financial services, insurance etc. Classification of Services
Classifying a service offers several benefits, such as:
providing a better understating of the particular service under consideration,
highlighting the similarities as well as the differences between the service being
classified and other services, and
Assisting in the development of marketing strategies and tactics.
Services in the same categories will face the same types of challenges and the same
marketing strategy will normally work for all services in a given category. However
application of the strategy may have some variation within each category. The same is true
for marketing activities such as promotion, pricing, and distribution; the same tactics tend to
work for all services within a single category.
Levels of Classification of Services
1. Nature of the organization
The first level of classification system deals with the nature of the organization. At this level
the purposes, structure, and type of their service is identified. Who is the target customer- a
7
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
8
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
intangibility content (a fast food restaurant) and a pure service, having very high intangibility
content (Education, consultancy, medical advice)
Intangible elements
Babysitting
Education
Legal services
Air travel
Fast foods
Cosmetics
Soft drinks
Clothing
Sugar
Tangible elements
The total marketing in services includes three different types of marketing. These are:
External Marketing
External marketing goes from your business organization out to customers and prospective
customers. This is the traditional form of business marketing, showing customers how the
services provided by your business benefit them. External marketing includes advertising,
your website and your company's social media efforts. The purpose of external marketing is
to fill the business pipeline with future business.
Interactive Marketing
The side of the triangle between your employees and customers is called interactive
marketing. This form of marketing revolves around how your employees deliver the services
your company provides. The goal is to have highly satisfied customers who become long-
term, repeat customers. The effectiveness of the interactive marketing relates back to the
internal marketing efforts of your business. Interactive marketing is also how your employees
keep the promises made by your external marketing efforts.
Internal Marketing
9
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
Internal marketing is the side of the triangle between your organization and your employees
who provide your services to customers. Marketing issues include adequate training on the
services to be delivered and customer satisfaction service techniques. Internal marketing
requires you to be involved with your employees and let them know the goals and even
problems facing the business. Internal marketing also can include a performance rewards
system for employees who deliver the highest level of customer service.
As can be seen from the triangle, the traditional marketing mix and marketing departments
basically address to “External Marketing” only. However, all three sides are critical to
successful services marketing and the triangle cannot be supported in the absence of any one
of the sides
10
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
some key themes. We will weave these general themes re-lated to technology and service
throughout our discussion of the individual service quality gaps and strategies to close them.
1. Inspiring Service Innovation
Technology has been a basic force behind many service innovations now taken for granted,
such as automated voice mail, interactive voice response systems, Internet-based services,
and various smart services—for example the “connected car,” smart meters for monitoring
energy consumption, and remote health monitoring services. Internet-based companies like
Amazon, e-Bay, and Second Life have sprung up, offering radically new services for
consumers. And, established companies have developed brand new services based on
information technology. For example, the Wall Street Journal offers an interactive edition
that allows customers to organize the newspaper’s content to suit their individual preferences
and needs. Advances in information technology are also making it possible for entire suites of
services including phone, Internet, video, photography, and e-mail to be available through
one device such as the iPhone and similar products.
2. Providing Options for Service Delivery
Technology is also providing new opportunities for delivering existing services in more
accessible, convenient, and productive ways. Technology facilitates basic customer service
functions (bill paying, answering questions, checking account records, tracking orders),
purchase transactions (both retail and business-to-business), and learning or information
seeking. Over the past few decades, companies have moved from face-to-face service to
telephone-based service to widespread use of interactive voice response systems to Internet-
based customer service and now to wireless service. Technology also facilitates transactions
by offering a direct vehicle for making purchases and conducting businesses. Finally,
technology provides an easy way for customers to learn, do research, and collaborate with
each other. Access to information has never been easier. For example, more than 20,000
websites currently offer health-related information, resulting in consumers having increasing
involvement in their health decisions and care.
3. Enabling Customers and Employees
Technology enables both customers and employees to be more effective and productive in
receiving and providing service. Through self-service technologies, customers can now serve
themselves more effectively. Via online banking, for example, customers can access their
accounts, check balances, apply for loans, and take care of just about any banking need they
might have—all without the assistance of the bank’s employees. These online banking
services are just one example of the types of self-service technologies that are proliferating
11
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
across industries. For employees, technology can provide tremendous support in making
them more effective and efficient in delivering service. Customer relationship management,
sales support, and product information software are broad categories of technology-based
information that can aid frontline employees in providing better service. These types of
software also allow employees to customize and co-create services to fit customer needs.
4. Expanding Global Reach
Technology also results in the potential for reaching out to customers around the globe in
ways not possible when, in the not-so-distant past, services were limited to local provision.
The Internet itself knows no boundaries, and therefore information, customer service, and
transactions can move across countries and across continents, reaching any customer who has
access to the Web. Technology also allows employees of international companies to stay in
touch easily—to share information and serve on virtual work team’s together, thus allowing
employees to work remotely and services to be provided by global workers.
The Gap model of service quality was developed by Parasuraman, Berry and Zeithaml
(1985), and more recently described in Zeithaml and Bitner (2003). It has served as a
framework for research in services marketing, including hospitality marketing, for over two
decades. The model identifies four specific gaps leading to a fifth overall gap between
customers.’ expectations and perceived service.
The five gaps
Customers have expectations for service experiences and they use them to measure against
the perceived service performance in their judgment of service quality. It is essential, then,
that managers determine what those expectations are when designing the service. The first
gap in service quality occurs when management fails to accurately identify customer
expectations. It is referred to as the knowledge gap. Specifically, it is the difference in
customer expectations and management’s perception of customer expectations. Hotel
managers, for instance, must know and understand what their guests expect from their stay,
including all tangibles (the room, amenities, lobbies features) and intangible components
(availability of additional services, ease of check-in and check-out procedures). The size of
the gap is dependent on:
the extent of upward communication (from customers to top management),
the number of layers of management,
12
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
13
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
Companies are competing strategically through service quality for greater differentiation in
today's competitive marketplace. Successful companies focus on the services-dominant
paradigm with investment in people, technology, human resources policies, and
compensation linked to service performance of employees. This is important because contact
employees’ attitudes and behaviors significantly influence the quality of service. They
present the “face and voice” of their organizations to customers.
The 4Ps marketing mix which represents Product, Process, Pricing and Promotion, have been
most widely employed as a model for product marketing. It shows the company preparing an
offer mix of the product and price, with an integrated promotion mix to reach the target
consumers through the selected distribution channels. The 4Ps of marketing have been the
14
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
key areas where marketing managers allocate scarce corporate resources to achieve the
business objectives. Services have unique characteristics: intangibility, heterogeneity,
inseparability and perishability. To discern the differences between services and physical
products, Booms and Bitner suggested the extension of the 4Ps framework to include three
additional factors: People, Physical evidence and Process as marketing mix variables for
services marketing:
(i) People refer to all people directly or indirectly involved in the consumption of a service,
Example employees or other consumers,
(ii) Physical evidence that related to the environment in which the service is delivered, and
the tangibles that help to communicate and perform the service, and
(iii) Process is the delivery and operating systems of procedures, mechanisms and flow of
activities which services are consumed. The additional 3Ps has gained widespread acceptance
in the services marketing literature. The 3Ps together represent the service and provide the
evidence that makes services more tangible.
i) 3Ps of Services Marketing - People
In Booms and Bitner’s 7Ps services marketing framework, people are all people directly or
indirectly involved in the service encounter, namely the firm's contact employees, personnel
and other customers. Due to the inseparability of production and consumption for services
which involves the simultaneous production and consumption of services, service firms
depend heavily on the ability of contact employees to deliver the service. Contact employees
contribute to service quality by creating a favorable image for the firm, and by providing
better service than the competitions.
Service providers (such as hair stylists, personal trainers, nurses, counselors and call centre
personnel) are involved in real time production of the service. They are the “service”. Much
of what makes a service special derives from the fact that it is a lived-through event. Service
firms must find ways in which they can effectively manage the contact employees to ensure
that their attitudes and behaviors are conducive to the delivery of service quality. This is
especially important in services because employees tend to be variable in their performance,
which can lead to variable quality i.e. heterogeneity in the performance of services. The
quality of a service (a visit to a hospital for medical check-up, having a meal at the restaurant,
accountancy and consulting services) can vary from service providers and customers among
many other factors. This lack of homogeneity in services creates difficulties for the service
firms. As delivery of services occurs during interaction between contact employees and
customers, attitudes and behaviors of the service providers can significantly affect customers
15
CHAPTER
U ONE: INTRODUCTION TO SERVICE MARKETING 2020
effective service processes are essential tasks for service firms. Managing the process factor
is essential due to the perishability of services which means that services cannot be
inventoried, stored for reuse or returned. Hotel rooms not occupied and airline seats not
purchased cannot be reclaimed. As services are performances that cannot be stored, it is a
challenge for service businesses to manage situations of over or under demand.
Another distinctive characteristics of the service process that provide evidence to the
customer is the standardized or customized approach based on customer’s needs and
expectations. Since services are created as they are consumed, and because the customer is
often involved in the process, there are more opportunities for customizing the service to
meet the needs of the customers. The first concerns the extent to which the characteristics of
the service and its delivery system lend themselves to the scope of customization; the second
relates to the extent of flexibility the contact employees are able to exercise in meeting the
needs of the customers. As services are dynamic and experiential, and frequently co-produced
in real time by customers and employees.
Service Marketing, Lecture Note Prepared by Cherinet S.
17