503 – Service Management

Unit 1: Introduction to Service

Industry (20%)
• Introduction to Services
• Unique characteristics of Services (Implications & Solutions)
• Difference between Goods & Services
• Classification of Services
• Challenges confronted by Service sector in India
• Factors responsible for growth of Service Economy
• Consumer Behavior in Services: Search, Experience and
Credence Properties.
 DEFINITION OF SERVICE
• According to Kotler “A service is any activity or benefit
that one party can offer to another which is essentially
intangible and does not result in transfer of ownership.”
Its product may or may not be tied to a physical product.
• According to Lovelock “An act or performance offered
by one party to another, all though the process may be tied
with physical product, performance is transitory, often
intangible in nature and does not result in transfer of
ownership.”
• According to the American Marketing Association
(AMA) “Activities, benefits and satisfaction which are
offered for sale or are provided in connection with the
sale of goods.”
NATURE OF THE SERVICE
• It is an economic activity that does not result in transfer or promotion.
• The benefits are created by action or promotion.
• Service are the production of essentially intangible benefits and experience either
alone or as part of tangible product through exchange of value for satisfying
needs, wants and desire of the customer.
• Internal services include accounting, recruitment, training, transportation,
cleaning and legal activities. Nowadays these services are being outsources.

Example of services:-
• Financial service: - Insurance, Banking, Broking, Accounting.
• Transportation service: - Railway, Airline, Road transportation, Marine, Currier
service.
• Consultancy service
• Health care service:- Hospital, Fitness club
• Education services: - Coaching class, Training center, institutes.
• Entertainment services: - Multiplex, Water-park, Theme park.
• Hospitality services: - Restaurant, Hotel, Saloon parlor.
• Communication services: - STD&ISD, Communication network.
 Difference between Physical Goods and Services
Physical Goods Services
• Tangible • Intangible
• Homogeneous • Heterogeneous
• Production and distribution are • Production, distribution and
separated from consumption consumption are simultaneous
processes
• A thing • An activity or process
• Core value processed in factory • Core value produced in the buyer-
seller interaction
• Customers do not participate in • Customers participate in production
the production process
• Can be kept in stock (inventory) • Cannot be kept in stock

• Transfer of ownership • No transfer of ownership

 UNIQUE CHARACTERISTICS OF SERVICES

There are four distinct characteristics of services

given below,
1. Intangibility
2. Heterogeneity/variability
3. Inseparability
4. Perishability
5. Non ownership
 1. Intangibility
• Service is intangible and do not have a physical existence like product.
• Services are ‘experiences’ created for customer. Service cannot be seen,
felt, touched or heard before purchasing. If individual wants to evaluate
performance or get experience then first individual must have to purchase
services.
• Ex: If individual wants to evaluate quality of foods (pizza) then individual
have to buy the food and then only he is able to evaluate or judge quality of
foods & services.
• Buying decision depends on staff, equipment, place, price and past
performance of service provider.

• Ex: It is very easy for customer to evaluate sample flat (A ready house)
rather than blue-print of the projects.

• Because of intangibility it is difficult to evaluate services.” marketer or

service provider must have to tangibles the intangible.
 Challenges & Strategies
Challenges
• Service cannot be stored
• Difficult to evaluate services
• Customer cannot get ownership
• Difficult to advertise and promotions (displayed)
• Difficult to decide price of the services
• Not protectable by patent (protected legally)
• It is less efficient then goods production
• Design of total service package is not possible.

Strategies
• Provides tangible (cues) evidence like uniforms, logos, calendar, tickets, infrastructure, membership
card, certificate etc.
• Cleanliness of the infrastructure
• Design of infrastructure. Includes color, shapes, paints and layouts
• Provide welcome kits includes booklets, brochures, menu card
• Reduce perceived risks by emphasis on reputation, provide service guarantee, inform & evaluate
customer
• Use relationship marketing
• Create strong organizational image
2. Heterogeneity/Variability:-
• It cannot be exactly repeated same even by same service
provider.
• People based service is very from person to person.
Because of heterogeneity customers are likes to buy
services from specific service provider only. Because of
variability it is very difficult to make service
standardize.
• Equipment based service offered similar kind of
services to all the customers then there is a less chance
of heterogeneity. Quality of services depends on who
provide them, when, where and to whom.
• Ex: Two patients with similar disease have different
experience with same doctor after same surgery.
Challenges
• Quality of service and customer satisfaction depends on service
provider action
• Quality depends on many uncontrollable factors
• Difficult to match standard
• Difficult to improve productivity and quality
• Difficulty in communicating to the clients what exactly they would
get
Strategies
• Train service provider or employees
• Develop complete and suggestion system
• Increase control on service and other uncontrollable factor
• Switch from people based service and equipment base service
• Provide educations and information to customer
• Customize services
• Stress upon standardization and performance
3. Inseparability:
• Service cannot be separated from its
providers/producer. Services are provides only by
service provider/producer. (can not be stored like product)
• Customers frequently interact with other and may
influence each other thus service must be provided at the
right time, in right place and in right way.
Ex: A barber cannot give a hair cut without being present
on service encounter.
• Customer & service provider must be present at the
time of transaction. Other customers also presented at
the time of service encounter, So that the presence of
other customer affects on service quality performance and
customer satisfaction.
Challenges
• Customer affect each other
• Employee affects4 on service outcome
• Mass production is difficult (centralized)
• Providers and customer must be present
Strategies
• Try to provide low contact services
• Manage service encounter :
– Educated the customer
– Increase technical knowledge to the provider
• Manage customer service provider interaction
• Mange physical evidence
• Develop service recovery process
• Marketing multisided locations
 4. Perishability:
• This implies that “service cannot be stored, saved,
returned or resold”. If services are not consumed
when offered, it goes waste. If transaction cannot take
place, then provider loss value or profit. Service
cannot be recovered in future with incurred loss in
present. It is very difficult to balance between demand
and supply. Unused capacity lost is lost forever.
• Perishability does not pose too much problems when
demand for a service is steady, but in times
of unusually high or low demand service
organizations can have severe difficulties.
• Ex: Advance Airline ticket booking
Challenges
• Difficult to manage demand and supply
• Services cannot be return or resold
• Service cannot be store for future use
Strategies
A. Take action to manage demand & supply….

a. Service supply management:

• Perform only essential task during peak periods and know essential task
during slack periods
• Increase self service technologies
• Self equipment and staff with other services when capacity is unused
• Use part time employees during big periods

b. Service demand management:

• Use differential pricing to shift demand peak period to non-slack period
• Give priority to (urgency) customer differentiate your customer
• Try to shift excess demand to other period or with other service
FACTOR RESPONSIBLE FOR GROWTH OF
SERVICE ECONOMY:
 CLASSIFICATION OF SERVICES:

There are eight classification of service:

1. Based on degree of customer involvement
2. Based on end users
3. Based on degree of tangibility
4. People based services
5. Based on degree of expertise
6. Based on orientation toward profit
7. Based on product attributes
8. Based on degree of labor inventiveness
9. Based on degree of place and time
10. Based on degree of customization
1. Based on Degree of Customer Involvement
• Customer must have to physically present at the time of
service delivery. Customers are internal part of service
processing. Customer cannot get any benefit if they are absent
or not interacting or not co-operating with service providers.
What is the nature of the service action?
People Things
People processing Possession processing
Services directed at Services directed at goods
What is people’s bodies. and other physical
nature of Tangible action Exam:- airlines, hospitals, possessions.
the service hotels, restaurants, Exam:- freight, repair,
action? haircutting, fitness centers cleaning, landscaping,
retailing, recycling
Mental stimulus Information processing
processing Service directed at
Intangible action Services directed at intangible assets.
people’s minds. Exam:- accounting, banking,
Exam:- broadcasting, insurance, legal, research
consulting, education
A. People processing:
• “Services directed at people bodies”
• In people processing services The high level of involvement
requires from the customer it is also known as high contact
service. It helps managers to understand benefits given to
the customers it also helps to reduce non-monitory cost like
time cost, mental effort cost, and cost of physical efforts,
which customer faces during obtaining these services.
• Ex: Barber, surgery

• Management Implications: If manager thinks about the

process and output in terms of people or object being
processed, it helps them to identify the benefits being
created and the non-financial cost incurred like time cost,
physical efforts cost, psychological cost and sensory cost.
A. Possession processing:
• “Services directed at physical possession”
• In possession processing services Customer presence is not
necessary. Customers are less physically involves in these with
this type of services than people processing.
• In this type of service encounter customers involvement is
limited it is also known as low contact service.
• If the object is difficult to move like repairing of heavy
equipment, renovation of building then service provider come
to the customer and try to provide services.
• Ex: Repair and maintenance services, courier services.

• Management Implications: The manager should note that the

output generated in each instance must be a satisfactory solution
to the customer’s problem.
B. Possession processing:
• “Services directed at physical possession”
• In possession processing services Customer presence is not
necessary. Customers are less physically involves in these with
this type of services than people processing.
• In this type of service encounter customers involvement is
limited it is also known as low contact service.
• If the object is difficult to move like repairing of heavy
equipment, renovation of building then service provider come
to the customer and try to provide services.
• Ex: Repair and maintenance services, courier services.

• Management Implications: The manager should note that the

output generated in each instance must be a satisfactory solution
to the customer’s problem.
C. Possession processing:
• “Services directed at physical possession”
• In possession processing services Customer presence is not
necessary. Customers are less physically involves in these with
this type of services than people processing.
• In this type of service encounter customers involvement is
limited it is also known as low contact service.
• If the object is difficult to move like repairing of heavy
equipment, renovation of building then service provider come
to the customer and try to provide services.
• Ex: Repair and maintenance services, courier services.

• Management Implications: The manager should note that the

output generated in each instance must be a satisfactory
solution to the customer’s problem.
D. Information processing:
• “Service directed at intangible assets”
• Information is intangible form of services but represented
tangible format like statement, letter, report, book or disk.
• Customer involvement depends on customer willingness.
Customer personal contact is not necessary service delivery
like banking or insurance.
• Customer can get benefit without visiting service factory
through e-mail, telephone, websites and internet.

• Management Implication: Information is the most

intangible form of service output but can be transformed
into more enduring tangible forms such as reports, books,
tapes, diskettes, etc.
2. Based on end users:
• Individual consumer: Services which are consumed by
individual only are included in this classification.
Ex: Haircutting, surgery, package of holiday tour, personal
finance.

• Business to business end user: One business organisation

renders services from another business organisation.
Ex: training institution and tourism.

• Industrial end user: Plant and factories are the end user of
service. They might require very unique service that
equally technique.
Ex: Advisory services, maintenance services.
3. Based on degree of tangibility:
• Highly tangible services: They have high degree of tangibility.
This is mainly because the services are rendered over certain
tangible goods. Services are given or provides with only
tangible goods of product. Ex: rental services, no car and no
service exist.
• Services linked to tangible goods: Services linked to tangible
goods-independent or part of the total product. Ex: Auto-
mobile [bike + after sales services]
• Videocon the home appliance company includes repair as part
of its marketing mix. [ TV + Repair ]
• Highly intangible services: Service is highly intangible.
Service cannot be touched, felt or seen. It includes services
that cannot be touch felt or seen. Ex: education services,
consultancy services
4. Based on degree of customer contact:
a. High contact service: These kinds of services are very much
people based. Service providers have high degree of contact with the
customers. Ex: teaching. Surgery, counseling.
Low contact service: Providers interact very less with the customers.
Its machines that do the interaction Service providers have low
degree of contact with the customers. Ex: entertainment services &
broad casting services.
5. Based on degree of expertise:
1. Highly professional services: The service firm could be classified as
highly professional organisation. Service requires high skill or expertise.
Ex: The lawyers have passed out from recognized colleges and practice in
court.
2. Non professional services: Service can be provided by unskilled labor.
Ex: These could include tailors, masons in housing or construction project,
and utility services like garbage cleaners from the municipal corporation.

6. Based on orientation toward profit:

3. Profit oriented organisation: These Service forms exist to earn maximum
profit. They are owned both by the government as well as by public at
large.
Ex: Private bank, Hotel
2. Non Profit organisation: Organisations exist not to earn profit. They are
mainly owned by the government or NGOs.
Ex: Public Park, Public library
7. Based on product attributes:
• Search attributes: It includes products which can also
evaluate before purchasing. Customer can evaluate style,
color, texture, test and sound purchase product. Ex: Cloths,
car, furniture.
• Experience attributes: Experience attributes are those that
cannot be evaluated before purchase. Evaluate only after
purchase or evaluate. Customer must have to “experience”
the service before they can assess attributes such as
reliability, ease of use and customer support. Ex: Restaurant,
hotel.
• Credence attributes: Product characteristics that customer
find hard to evaluate even after consumption are known as
credence attributes. Customer cannot evaluate/judge even
after purchasing. Ex: surgery
8. Based on degree of labor intensiveness:
a. Equipment based services: Services which are given with the use of
equipment or machineries are included in this category. Ex: ATM
b. People based services: People based services which are given with the use of
individual or labor.
• This can be classified also two categories.
I. Highly skill labor
II. Unskilled labor

9. Based on Degree of Place and time

a. Customer Site: Service delivered at customer site (home) (Pizza delivery).
b. Service Site: Customer needs to visit the place. (Hair Salon, Watching
movie)

10. Based on Degree of Customization

c. Customized: (Taxi service, Hair cut, Doctor, Interior Designer) several
option or choices are there.
d. Standardized: (Insurance Policy, bus route) Pre-determined or pre-designed
• CHALLENGES CONFRONTED BY THE SERVICE SECTOR:
• Challenges confronted by service sectors related to
following aspects like
• Infrastructure
• Technology
• Employees
• Consumers
• Competition
• Suppliers
1. Infrastructure:
• Growth of the any sector depends on good & adequate infrastructure.
• Some of the services like consultancy services, transportation services are
heavily depends on well manage infrastructure like road facility, power,
water, buildings & bandwidth.
• The biggest challenge in India is creation of world class infrastructure to
match demand of the growing economy.

2. Technology:
• Technology introduces great changes in nature of the business. Like e-
commerce opened additional channel for sales in many organization.
Because of e-commerce now world market is converted in small market.
• It is beneficial for both consumer as well as seller. Consumers have more
option available, where it is not necessary to invest more capital for
seller.
• Firm\organisation can be benefited if availability of right technology.
India still behind of many countries to appropriate use of technology and
internet for e-commerce or online business.
3. Employees:
• Service encounter is depends on performance of front-line employees.
• It is a big challenge to find out right kind of people who can create
memorable experience for consumers.
• In India many sector faces problem of high turnover rate, so that firm failed
to retain talents workers.
• Employees’ attitude influence service experience. To the customer. so that
it beneficial for organization that they have right kind of employees with
right attitude and well trained to make the service standardize.

4. Consumer:
• Consumers are become more educated as the education rate is increasing. It
resulted in high awareness and high exception for service encounter.
• With competition increase, consumers are willing to experiment more to
get maximum value of their money.
• Because of technology consumers are become more aware about options
available in to the market.
• Because of establishment of consume court. Services are become more
challenges then before.
5. Competition:
• Competitions also become important challenge for service form.
With similar technology it is difficult to provide different
experience for different service encounter.
• Best way to get success is to go in co-operative manner with
other competitors instead of compete with each other.
• In many firms like information technology industry use these
strategy and also get success into the market.

6. Supplier:
• Suppliers are become more and more dynamic and that result in
establishment of healthy relationship in the service sector.
• The relationship of Intel and window processer establish
different & unique standard by maintain good relationship with
computer manufacture.
 SERVICE MANAGEMENT/ SERVICE
MARKETING MIX

• A term and concept of marketing mix for introduced in 1950 by Neil Borden. According to
Borden those activities that show similarity to overall process of marketing requiring
combination of individual elements is marketig mix.
• In 1960 macarythy develop the idea of 4 Ps , Which is also known as traditional market mix.

• In 1981 Booms & Bitner adding physical evidence, people and process which are known as
expanded market mix.

• Traditional Marketing Mix- Product, Price, Place, Promotion

• Expanded Marketing Mix- Physical Evidence, People, Process
1. Product:
• According to Kotler “Anything that can be offered into the market for attention acquisition
use or consumption and that might be satisfy a individual needs and wants its known as
product.”
• Product includes physical goods, services, personalities, places organizational services and
ideas.
• The service industry has to develop the right service package with including service
delivery process.

2. Price:
• According to Kotler “Price is the amount of money charge for a goods on services.”
• It is only a marketing mix element, which generate revenue in relation to other three
elements (product, place, promotion) and represent cost.
• Pricing is a difficult area because of such variables like capacity, efficiency,
• Competitors price, relationship with supplier, economic condition, company policy.

• 3. Promotion:
• Once the organization has decide to market their services they need to inform the public
about existence, varieties, unique features that can influence purchasing decision of the
customers.
• In order to offer effectively organizations have to combine promotion mix with marketing
mix to deliver message and inform company’s position into the market.
4. Place:
• Place talk about distribution of services. A customer interested for
purchasing if organization have good location.
• It includes: distribution channels, level of distribution, logistics.

5. Physical evidence:
• According to Zeithamal and Bitner “Physical evidence is the
environment in which the service is delivered and where firm and
customer interact with each other and tangible element facilitate
performance or communication of the services.”
• It is important because it provides tangibles clues for customer to
evaluate quality and performance of the services. Physical evidence
includes layout, equipment, employees’ uniform, and cleanliness.
Importance according to bitner
• -Helps to design emotional response.
• -Facilities customers’ behavior and make the service efficient.
• -Helps to differentiate services from competitors.
6. People:
• People include all the human actors involve in the service encounter
including firms’ personnel and other customers.
• Firms’ personnel are very important because they are only a
component who can deliver services. Other customers are also
important because the influence service delivery and service
performance.
• Bitner identify three types of service organization based on people.
a. Self service
b. Interpersonal service
c. Remote service
7. Process:
• Process is the actual manner in which the services are delivered.
When customer is present at the time of services delivery process,
there are various key factors which influence customer satisfaction.
It is only the element which make customer delight or dissatisfied.