CHAPTER ONE: Introduction to Service Marketing

The concept of services

Most organizations provide a service of some sort or another. For organizations such as airlines, trains,
universities, car rental, health or government agencies service represents a major part of what they have
to offer. They are known as service organizations. Others whose business is the manufacture of
products, e.g. computers, mobile phones, washing machines, service is of lesser, albeit significant
importance. There are particular problems and challenges in managing services, namely intangibility,
inseparability, variability and perishability. In particular, services have to contend with uncertainties
over customer involvement and what they expect. Given the difficulties of providing a service, it is not
surprising there is ongoing debate over the variability of its quality.
Services have been around for a long time. They, however, have assumed significance since the 1980s
due to service sector becoming more and more competitive following privatization and deregulation of
the service industries in the western markets. Services have increasingly assumed an important role in
the economic development of many countries, including Ethiopian. Almost all developed countries and
many developing countries are emerging as service economies or service societies. An economy is
called a service economy when the contribution of the service sector to the GDP of the nation is more
than 50 per cent. USA was the first economy to be declared as a service economy way back in 1948
with about 53 per cent contribution of the service sector to the GDP of the nation. There is an
argument that the statistics of the service sector’s contribution in many countries is a gross
underestimation of the truth, since the value of the services produced by manufacturers of goods in the
industrial sector is not included in service output value. As such, there is a large ‘hidden service sector’
that is not classified under the service sector.

Services Defined
Because of their diversity, services have traditionally been difficult to define. The way in which
services are created and delivered to customers is often hard to grasp since many inputs and outputs are
intangible. Most people have little difficulty defining manufacturing or agriculture, but defining service
can elude them. Defining services is therefore not a simplistic task. Over the years service marketing
literature has provided readers with an assortment of service definition
 According to the American Marketing Association (1960): defines services as “activities,
benefits or satisfactions which are offered for sale or provided in connection with the sale of
goods.”

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 Philip Kotler and Bloom (1984): defined service as “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 a physical product.” The focus was given to the absence of
ownership as a special feature of services, which has significant business implications.
 Zeithmal and Bitner (1996): claim that in the simplest terms services are deeds, processes, and
performances. Their broader definition states that services include all economic activities whose
output is not a physical product, is generally consumed at the time it is produced, and provides
added value in forms that are essentially intangible concerns of the purchaser.
The conclusion derived from the above definition is that services deal with intangible components. The
purchase of services dos not necessarily result in physical transfer or ownership but still created idle of
benefits during or after the service interaction or experience.
Differentiating Goods from Services
Not all services are pure. They do contain elements of tangibility, meaning something in its physical
form is associated with the service. Fast food restaurants are categorized as part of the service sector.
The fact is that food and its packaging are very tangible in nature. Similarly, there are tangible goods
that are associated with services without the support of which those goods are not complete in
economic and marketing terms. Sale of industrial and highly specialized technical equipment has to be
supported by technical support from the supplier and hence carry an important element of service.
In short, not all services may be pure services and not all goods can be pure goods. What is of
importance is to understand the service aspect without which something purely intangible or partially
intangible cannot be effectively sold.
It is very difficult to draw a clear, demarcating line between goods and services in a marketing offer.
According to Theodore Levitt a renowned marketing specialist, in almost every tangible pure physical
product an intangible service component is associated. Therefore, everybody is in service. He
classified products into two categories, namely, search goods and experience goods. Search goods
are those which are packaged and the customers can see, evaluate and go for a trail before making a
purchase. For example, scooters, fans, lock and so on. Experience goods are those which can be
evaluated only after purchase and consumption. For example, a holiday, travel and so on.
To have a clear understanding of the level of tangibility and intangibility, following is a
classification of goods-service relationship as given by Kotler :
1. Pure tangible goods: These are like commodities that are identical or homogeneous and to the
purchase of which consumers do not attach importance to the service element. Differentiating these
goods with supplier identify is difficult. Customers do not attach any specific value to the little
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 service that is associated. Agricultural produce and unbranded goods (mostly from the tiny and
small scale sectors) fall under this category.
2. Tangible goods with accompanying service: In this case consumers give greater weightage to the
tangible part of the marketing offer. However, the services accompanying the tangible goods will
also become part of the value assessment of the buyers. The buyers will get the title of the tangible
goods transferred and get ownership over the goods. The accompanying services, though,
accounting for a minor share in the total offer, provide competitive advantage to the seller. In the
light of significant developments that took place in technology development, most producers are
unable to find technical advantage on tangible factors and find enormous sources of differentiation
in accompanying services. The vast majority of the manufacturing goods fall under this category.
The role services under the category are to support the tangible product. Services are identified and
valued only in association with the tangible goods.
3. Hybrid: This is a typical marketing offer where the tangible goods and services may be given
equal weightage by the consumers. For example, people patronize restaurants for both food and
service. However, the proportion or weightage between the goods and service may not be equal in
all restaurants though both are important for the consumers. In a five-star hotel, service takes a
prominent place when compared to food items, whereas in ordinary restaurants the proportion may
be more or less equal. In case of fast food centers, food may take dominant position as compared to
services. Therefore, there is a possibility of having a hybrid category of products, but it is
uncommon to have a significant portion of such products in any economy.
4. Service with accompanying tangible goods; this is a marketing offer, in which the intangible part
is dominant. People buy services but to the tangible goods involved in the production of services.
The accompanying goods play a major role in the value assessment of service by the consumer. For
example, people buy mobility service form a transport organization. To provide such service,
transport organizations really and tangible like buses, trucks, trains, helicopters, aeroplanes and the
like. Although consumers of the mobility service do not buy the tangibles, the condition of the
vehicle, interior and exterior facilitates, comfort, speed and so on, will play a major role in
assessing the value of the service. The vast majority of the service products fall under this
category.
5. Pure service: Pure service is a marketing offer, where consumers confine themselves to valuing
only the service they receive and nothing else. Service without any support of goods can serve the
purpose of the users and is capable of giving satisfaction to the consumers. Teaching, consultancy,
idea selling and the like fall under pure service category.
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Characteristics of services Vs Products

Intangibility -This is the most basic and often quoted difference between goods and services. Service
cannot be seen, tasted, felt, heard or smelt before they are bought unlike physical products. Services
are abstractions which cannot be directly examined before it is purchased.
Inseparability (or simultaneous production and consumption)
Services cannot be separated from the service provider. In fact, the production, delivery and
consumption of a service take place simultaneously in the buyer-seller interactions.
The above implies that consumer interaction with the service provider enables the consumer to assess
the quality of service rendered. This characteristic of a service creates problems to the marketer,
particularly in the case of market expansion. Wherever the service provider intends to offer services,
he should have a service production unit that offers the same service quality standards. However, some
service organizations are able to reduce direct interactions by introducing new technologies. For
example, banking originations have introduced the cheque facility, the credit card facility, Tele-banking
and ATM to minimize direct buyer-seller interactions.
Variability (or heterogeneity) - This is an extension of the inseparability characteristic; it owes
basically to the human element that is involved in producing the service. Variability refers to the
unwanted or random variable levels of service quality customers receive when they support an
organization. Services are highly variable. The primary reason for variability is the human element
present in the service process. Different service employees will perform the same service process
differently and the same service employee will provide a varying service under different circumstances
or at different times. It is almost impossible to have the same service from the same seller the second
time. No two customers can have exactly similar service even though they experience it
simultaneously. It is quite very difficult to standardize a personal smile to every customer. For
example, the experience of bus travelers vary with the seats they occupy. The experiences of
passengers sitting on the window side, inner side, front rear and rear of the bus will not be similar,
though they take the service simultaneously. A receptionist of a hotel cannot extend the same kind of
smile to the customers during all her working hours. Service organizations face major problems in
standardizing and communicating the service standards because of the characteristic. While customers
look for communication for the company relating to service standards for arriving at a purchase
decision, the service providers often struggle to develop service standards.

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Perishability- Perishability is the inability of a service to be inventoried or stored. Services are
perishable. They cannot be stored. What is not sold today is not saleable tomorrow. The best example is
that of a flight that leaves with passengers making half the plane’s capacity. Once the flight leaves, the
unsold capacity goes waste. An unutilized service capacity cannot be used further. When the demand is
stable, perishability cannot be a problem to the service organization. But service firms face many
problems when demand fluctuates. The major challenge to these firms is to balance the supply demand
positions. Thus, demand management is one of the major tasks for the service firms.

To tackle peaks and depressions of demand service firms formulate strategies that are a combination of
attractive price and promotions to attract customers during slow periods of sales. This amounts to
adjusting demand by moving it into the slow period through temporary inducements. That is, managing
demand and supply in relation to peaks and troughs is a strategic challenge faced by the service firms.
Firms in different industries can get into such a strategic mode given the dynamics of their industry and
the makeup of their physical existence. For example, a theatre can increase the number of shows to take
more demand, whereas an airline may increase the number of flights during peak period. Both can get
into promotions to attract customers during lean times. The theatre can introduce a show during
working hours for non-working population at a lower price. The airline can offer a promotion during
lean period to attract customers from other areas of the transportation market. Demand forecasting and
planning capacity utilization are therefore important and challenging decision areas.

Customer participation
Service production is not a one-sided activity. Customers are co-producers of service. The production
quality for the service greatly depends upon the ability, skill and performance of the employee as well
as the ability and performance of the customer. In the service interaction, although the employee and
the customers are not equal part of production, the role of the customer cannot be overemphasized.
Service firms should make the customers aware of the service package and the production process
through proper communication media. They should take necessary steps to train customers, if
necessary, to provide quality experience of the service. Perfection from the organization’s side in
service production cannot ensure positive results unless the consumers are involved with the process.
Therefore, specific and special orientation to different groups of customers is necessary.
Customization is one of the key strategies the service firms adopt to ensure efficient and effective
participation of customers. Customer participation is active in services such as medical treatment, hair
dressing, health club, colleges and beauty care centers.

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 No ownership- Service consumers will have experiences but not ownership. Since the services are
intangible and perishable, the question of ownership doesn’t arise. But this characteristic will add to
the problems of the service marketer. Convincing the customer with tangible goods on which he will
have ownership through transfer of tile is much easier than selling an experience where nothing remains
after consumption, except the memory of it. Customer dissonance would be higher in the case of
services than of goods.
The marketing challenges and strategies are summarized in the table below.

Service chxs. Marketing Problems/Challenges Strategic Options

 Cannot be communicated easily  Making the service process tangible to
 Consumer suspects due to absence of concrete the maximum possible extent
evidences  Managing and promoting word-of-
 Design of total service package not possible mouth communication
Intangibility  Comparative presentation is not possible  Strengthening internal and external
marketing
 Use of relationship marketing
 creating a strong corporate image
 Problems of market expansion  Minimization of customer interactions
 Maintenance of service quality  Innovating techniques of indirect
 Compulsory presence of consumer interaction
Inseparability  Limited production capacity  Standardization to the maximum
 Operation at limited capacity possible extent
 Developing distribution network with
quality control mechanisms
 Limited scope for standardization  More focus on standardization
 Not possible to communicate exactly what the  Internal marketing and employee
consumer is going to receive training
Variability
 Quality can be determined only after the service  Positioning variation as a strength of
is consumed innovation
 Promote research and innovation
 Storage of service is not possible  Demand management
 Sales volume continuously in relation to the  Capacity management
Perishability capacity  Tactical approaches
 Time pressure in sales  Continuous study on demand patterns
and competitive parameters
 Customers are not controllable  Effective external marketing
 Production quality also depends upon customers’  Customer education and training
Customer
knowledge and ability to participate  Effective interactive marketing
participation
 Customers are evaluating at every stage of service  Management of movements of truth
production  Effective internal marketing
 Nothing remains after consumption  Making communication tangible
No  Very less time to the consumer to evaluate the  Customer relationship marketing
Ownership product  Managing high level of company
 High consumer dissonance image

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Service Marketing Triangle
The services marketing triangle shows the three interlinked groups that work together to develop,
promote, and deliver services. These key players are labeled on the points of the triangle: the company,
the customers, and the providers/employees. Between these three points on the triangle, there are three
types of marketing that must be successfully carried out for a service to succeed: 1) External
marketing,2) Internal marketing, and 3) Interactive marketing
Company
(Management)

Internal External
Marketing Marketing
“enabling the “setting the
promise” promise”
Employees Customers
Interactive Marketing
“delivering the promise”

1. External marketing: Making Promise

“Anything that communicates to the customer before service delivery can be viewed as part of this
external marketing function”. The link between an organization and its customers is the external
marketing process. External marketing represents the promises which organizations make to their
customers with reference to products or services they offer.
The external communication activities of the service provider play a key role in the formation of
customers' expectations, because their expectations are affected by the service provider's direct and
indirect marketing messages.
Through its external marketing efforts, a company makes promises to its customers regarding what they
can expect, and how it will be delivered.
Traditional marketing activities such as advertising, sales, special promotion, and pricing facilitate this
type of marketing. The service employees, the design and décor of the facility, and the service process
itself also communicate and help to set customer expectations. Unless consistent and realistic promises
are set via all of these external communication vehicles, a customer relationship will be off to be a poor

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beginning. Further, if there is a tendency to over promise, the relationship may also be off to a weak
beginning.
2. Interactive marketing: Keeping Promises
The interactive marketing process is about keeping the promises made by the organization to the
customer along with delivering a quality service to the customer. Interactive marketing is the actual
contact between the service employees and the customers and is called the "moment of truth" or service
encounter.
External marketing is just the beginning for services marketers: promises made must be kept. Service
promises are most often kept or broken by the employees of the firm or by third-party providers, most
often in real time. Interactive marketing occurs in the moment of truth when the customer interacts with
the organizations and the service is produces and consumed. Interestingly, promises are kept or broken
and the reliability of service is tested every time the customer interacts with the organizations.
3. Internal marketing: Enabling Promises
Through internal marketing, the organization reveals that it consists of individuals and departments
who are considered to be each other's customers. Employees do not only provide a service to the
external customers but also to each other within the organization. Promises are easy to make, but unless
organizations have internal systems in place to ensure the delivery thereof, service processes cannot
succeed. The success of internal service systems is dependent on the relationship between the
organization and the employees.
Internal marketing hinges on the assumption that employee satisfaction and customer satisfaction are
interlinked thus internal marketing must precede external marketing. Organizations whose objective is
to deliver constant high service quality have to enable all employees to practice customer orientation
and marketing. Service organizations must recognize that achieving objectives and creating change can
only be achieved through employees. Service providers need to recruit, train, and provide tools to
employees to perform superior service. Kasper et al., (1999:480) state that people are valuable assets
to an organization. They should therefore be fully equipped to provide the best service to the external
and internal customers. Employees who understand their functions within the organization are more
likely to create a harmonious work environment that will pave the way for less role ambiguity, less
conflict, and more satisfied employees in the workplace.
The examples set by management for their employees are critical factors for the success of the internal
marketing process. There is a direct link between internal marketing and the actual delivery of the
service, because customers believe that "what you are is what matters not what you say'.

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The success of services relies on the three marketing activities to be carried out successfully and to be
aligned with each other. Each of the activities presents a challenge and it is important to find strategies
that support them all. Successful external relationships will be repeated internally

Rationality of studying Marketing of Service:

• Importance of service products in the walk of life of every classes and community
• Service quality and performance is needed to be improved
• Economy strength through the service industry adding more to GDP
• Job growth in the sector and employability for the countrymen is possible
• Need of knowledge update in the service sector
• Technological association in the service sector
Impact of Technology on services:
This dimension is concerned with the utilization of modern technology in creating a system for
excellent service delivery. Managers and employees give their level of agreement with statements such
as ‘we enhance our service capabilities through the use of state-of-the-art technology and technology is
used to build and develop higher levels of service quality’.
The elements that influence the service up gradation by technology are stated as following
• Best use of services in Daily walk of life with easiness
• Utilization of modern technology by all classes
• Excellent service delivery by all marketers
• Time and money saving as the technology serves with faster and economical
• Increasing service capabilities through techno- innovations
• Service quality in all elements influencing consumer behaviour
• Transparency of services which enable equality and no corruption
• Techno- centric behavior of customers aiming at technological devices
Service marketing mixes are:

1. Product: A product is anything an organization offers to potential customers that might satisfy a
need, whether tangible or intangible. Product mix decisions facing a service marketer can be very
different those dealing with goods. Most fundamentally, pure services can be defined only by using
process descriptions rather than tangible descriptions of outcomes. Quality becomes a key element
in define a product. Other elements of the product mix such as design, reliability, brand image, and
product Image, may sound familiar to a goods marketer but assume different roles. Another

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 significant difference from goods is that new service development cannot be easily protected by
patent.
2. Pricing: Pricing mix decisions include strategic and tactical decisions about the average level of
price to be charged, discount structures, terms of payment, and the extent to which price
discrimination between different groups of customers is taken place. The personal and non-
transferable nature of many services presents additional opportunities for price discrimination with
service market.
3. Promotion: the traditional promotional mix (advertising, sales promotion, public relations, and
personal selling) communicates the benefit of a service to potential customers. Also in the case of
services marketing, production personnel can themselves become an important element of promotion
mix.
4. Place: place decisions refer to the ease of access that potential customers have to a service. Place
decision includes physical location decisions (as in deciding where to place hotel), decisions about
which intermediaries to use in making a service accessible to consumer (e.g. whether a tour operator
uses travel agents or sells its vacations direct to consumers) and non-location decisions used to make
services available (e.g. the use of telephone delivery system).
5. People: For most services, people are vital elements of the marketing mix. In service industries,
everybody can be described as a “part-time marketer” in that their actions have a much more direct
effect on the output received by customers. People planning with in the marketing mix involve
developing a pattern of interaction between customers themselves, which can assume great
importance where service consumption takes place in public.
6. Physical Evidence: the intangible nature of most services means that potential customers are
unable to judge a service before it is consumed, increasing the riskiness inherent in a purchase
decision. An important part of marketing mix strategy, therefore, is to reduce this level of perceived
risk by offering tangible evidence about the nature of the service. Some of the evidence the service
marketer use is broachers that contain different pictures, the appearance of the staff, buildings, clean
and bright environment.
7.Process: services are best defined in terms of their production process rather than their tangible
outcomes. Whereas the process of production is usually of little concern to the consumer of
manufacturing goods, it is often of critical concern to the consumer of high contact services where
the customer can be seen as a co-producer of the service.

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