Services Marketing - Definition and Characteristics Introduction The world economy nowadays is increasingly characterized as a service economy. This is primarily due to the increasing importance and 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 tells us 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. Definition and characteristics of Services 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 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. 1. Heterogeneity/Variability: Given the very nature of services, each service offering is unique and cannot be exactly repeated even by the same service provider. While products can be mass produced and be homogenous the same is not true of services. eg: All burgers of a particular flavor at McDonalds are almost identical. However, the same is not true of the service rendered by the same counter staff consecutively to two customers.
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Services Marketing - Definition and Characteristics Introduction
The world economy nowadays is increasingly characterized as a service economy. This is primarily due to the increasing importance and 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 tells us 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.
Definition and characteristics of Services
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 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.
1. Heterogeneity/Variability: Given the very nature of services, each service
offering is unique and cannot be exactly repeated even by the same service
provider. While products can be mass produced and be homogenous the same is
not true of services. eg: All burgers of a particular flavor at McDonalds are almost
identical. However, the same is not true of the service rendered by the same
counter staff consecutively to two customers.
2. 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. eg: A customer
dissatisfied with the services of a barber cannot return the service of the haircut
that was rendered to him. At the most he may decide not to visit that particular
barber in the future.
3. Inseparability/Simultaneity of production and consumption: This refers to
the fact that services are generated and consumed within the same time frame.
Eg: a haircut is delivered to and consumed by a customer simultaneously unlike,
say, a takeaway burger which the customer may consume even after a few hours
of purchase. Moreover, it is very difficult to separate a service from the service
provider. Eg: the barber is necessarily a part of the service of a haircut that he is
delivering to his customer.
Types of Services
1. Core Services: A service that is the primary purpose of the transaction. Eg: a
haircut or the services of lawyer or teacher.
2. Supplementary Services: Services that are rendered as a corollary to the sale
of a tangible product. Eg: Home delivery options offered by restaurants above a
minimum bill value.
Difference between Goods and Services
Given below are the fundamental differences between physical goods and services:
Goods Services
A physical commodity A process or activity
Tangible Intangible
Homogenous Heterogeneous
Production and distribution are
separation from their consumption
Production, distribution and consumption are
simultaneous processes
Can be stored Cannot be stored
Transfer of ownership is possible Transfer of ownership is not possible
Differences between service marketing and product marketing
1. When you are marketing a service, you are really marketing relationship
and value. This relationship and value needs to be marketed differently than
if you are marketing actual products.
2. Another major difference between marketing services and marketing
products is that when a buyer purchases a service, the buyer is purchasing
something that is intangible, instead of a tangible product, like a computer
or a sprinkler system or a web page.
3. Consumers' concept of a service is often times based on just the
reputation of only one single person. Instead of building a reputation based
on the quality of a number of different products, a service is built on how
well a particular person delivers on a service, such as how well a stock
advisor does with your stock portfolio.
4. It is pretty easy to compare the quality of different products. It's easy for
you to see if one computer works more quickly than another computer, or if
one TV has a better picture than another picture, or if your child can break a
toy more easily than another toy. However, it is much more difficult to
compare the quality of similar services that are provided.
5. Products are returnable. However, services are not returnable.
Importance of Service Marketing by Leigh Richards, Demand Media
The U.S. economy has evolved into a service economy with services like health care, education
and consulting making up a larger part of the overall economy. Marketing such services is an
important skill--and a tough one--for businesses to have. Without a tangible product to show and
tell customers about, service marketers must be adept at pulling together all the pieces of the
marketing mix to create value for their intended consumers.
Relationships Are Key
In service marketing, because there is no tangible product, relationships are key. Service
marketers must listen to and understand the needs of customers and prospective customers to
build loyalty and trust. Ultimately, effective relationships in service marketing will lead to repeat
sales and positive word of mouth.
Multiple Touchpoints
Service marketing involves many touchpoints for the consumer. Interactions with multiple
people and experiences that are less tangible than when buying an actual product all impact the
consumer's perspective of the purchase process. These touchpoints work together to establish a
perception in the consumer's mind.
Services Proliferate
Consumers have many service options to choose from, and because the product is intangible, the
challenge for the service marketer is to somehow make her services stand out from the crowd.
Because service marketing is so prolific, marketers must think of ways to communicate the
benefits of the service they offer in language that reflects consumer need and value.
Feedback Improves Service
Unlike the marketing process for a tangible product, service marketing actually involves the
consumer in the marketing process. He is engaged in the process and contributes to a positive
outcome. For this reason, it is important to seek consumer feedback and to use that feedback to
improve service marketing effectiveness.
Technology Impacts
Technology is having a major impact on the service economy. You can use technology to
streamline service activities and provide do-it-yourself options for consumers. Internet-based
services, for instance, allow consumers to participate actively in the service marketing process,
often never involving contact with another human being. Having a website is important, because
people like to get information about service providers before deciding which one to use.
The Service Economy
The world economy is increasingly characterized as a service economy. This is primarily due to the increasing importance and 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 an indicator of a country's economic progress. Economic history tells us that all developing nations have invariably experienced a shift from agriculture to industry and then to the service sector as the mainstay of the economy. This shift has also brought about a change in the definition of goods and services themselves. Service organizations vary widely in size. At one end of the scale are huge international corporations operating in such industries as airlines, banking, insurance, telecommunications, and hotels. At the other end of the scale are a vast array of locally owned and operated small businesses, such as restaurants, laundries, optometrists, beauty parlors, and numerous business-to-business services.
The service sector is going through revolutionary change, which dramatically affects the way in which we live and work. New services are continually being launched to satisfy our existing needs and to meet needs that we did not even know we had. Nearly fifty years ago, when the first electronic file sharing system was created, few people likely anticipated the future demand for online banking, website hosting, or email providers. Today, many of us feel we can't do without them. Similar transformations are occurring in business-to-business markets.
The Role Of the Service Economy In Development As of 2008, services constituted over 50% of GDP in low income countries. As their economies continue to develop, the importance of the service sector continues to grow. For instance, services accounted for 47% of economic growth in sub-Saharan Africa over the period 2000–2005, while industry only contributed 37% and agriculture only 16% in that same period. This means that recent economic growth in Africa relied as much on services as on natural resources or textiles, despite many of those countries benefiting from trade preferences in primary and secondary goods.
As a result of these changes, people are leaving the agricultural sector to find work in the service economy. This job creation is particularly useful as often it provides employment for unskilled workers in the tourism and retail sectors, which benefits the poor and represents an overall net increase in employment. The service economy in developing countries is most often made up of the following industries: financial services, tourism, distribution, health, and education. ______________________________________________________________________________
Growth of service sector in india-
Services Sector Growth Rate in India GDP has been very rapid in the last few years. The Services Sector contributes the most to the Indian GDP. The Growth Rate of the Services Sector in India GDP has risen due to several reasons and it has also given a major boost to the Indian economy.
The Indian economy is the second fastest major growing economy in the whole world with the growing rate of the GDP at 9.4% in 2006- 2007. The economy of India is the twelfth biggest in the world for it has the GDP of US$ 1.09 trillion in 2007. The real reason for the growth of the service sector is due to the increase in urbanization, privatization and more demand for intermediate and final consumer services. Availability of quality services is vital for the well being of the economy. Along with the global trends, Indian service sector has witnessed a major boom and is one of the major contributors to both employment and national income in recent times. The activities under the purview of the service sector are quite diverse. Trading, transportation and communication, financial, real estate and business services, community, social and personal services come within the gambit of the service industry.
The Information Technology industry has achieved phenomenal growth after liberalization. The industry has performed exceedingly well amidst tough global competition. Being knowledge based industry; India has been able to leverage the global markets, because of the huge pool of engineering talent available and the proficiency in English language among the middle class.
Retailing
Before liberalization, India had one of the most underdeveloped retail sectors in the world. After liberalization the scenario changed dramatically. Organized retailing with prominence on self service and chain stores has changed the dynamics of retailing. In most of the tier I and tier II cities supermarket chains mushroomed, catering to the needs of vibrant middle class. This indirectly contributed to the growth of the packaged food industry and other consumer goods.
Banking
The three major changes in the banking sector after liberalization are:
Step to increase the cash outflow through reduction in the statutory liquidity andcash reserve ratio.
Nationalized banks including SBI were allowed to sell stakes to private sector and private investors
were allowed to enter the banking domain. Foreign banks were given greater access to the domestic
market, both as subsidiaries and branches, provided the foreign banks maintained a minimum assigned
capital and would be governed by the same rules and regulations governing domestic banks.
Banks were given greater freedom to leverage the capital markets and determine their asset portfolios.
The banks were allowed to provide advances against equity provided as collateral and provide bank
guarantees to the broking community.
Insurance Sector
The Insurance Regulatory and Development Authority Act 1999 (IRDA Act) allowed the participation of private insurance companies in the insurance sector. The primary role of IRDA was to safeguard the interest of insurance policy holders, to regulate, promote and ensure orderly growth of the insurance industry. The insurance sector could invest in the capital markets and other than traditional insurance products, various market link insurance products were available to the end customer to choose from.
Future Trends
Globally outsourcing industry would continue to grow.
Following the success of US and UK, more countries in the European Union would outsource their
business.
Technological power shift from the West to the East as India and China emerge as major players.
Political backlash over outsourcing would come down as companies reap the benefit of outsourcing.
1. Personal needs – physical, social, psychological, and functional needs
2. Lasting service intensifiers – individual factors that lead the customer to a heightened sensitivity to
service
a. Derived service expectations- customer expectations driven by another person or group of people. Ex. Family, other people, managers or supervisors, or own customers in B2B.
b. Personal service philosophy – customer’s underlying generic attitude about the meaning of service and proper conduct of service providers
Sources of Adequate Service Expectations:
1. Temporary Service Intensifiers – short-term individual factors that make a customer more aware of the need for service EX. Personal emergency like car accident, car repair.
2. Perceived service alternatives – other providers from whom the customer can obtain service, do it yourself or have many or few choices (airport in small versus big towns)
3. Self-perceived service role – degree to which a customer exerts an influence on the level of service they receive (if customer does not show up regularly for allergy shots, customers more lenient with allergist)
4. Situational factors – service conditions beyond control of service provider (Katrina) 5. Predicted service – what customers think they are likely to get ( if predict good service,
the level of adequate service is high)
Sources of Both Desired and Predicted Service Expectations
1. Explicit – personal and nonpersonal statements made by the organization to customers 2. Implicit – service related cues other than explicit promises that lead to inferences about
what the service should and will be like (Price and tangibles) 3. Word of mouth 4. Past experiences
Services Marketing - Moment of Truth Every business knows that in order to thrive it needs to differentiate itself in the mind of the consumer. Price has proved inadequate since there is a limit to how much a firm can cut back on its margins. Product differentiation is also no longer enough to attract or retain customers since technological advances have resulted in products becoming almost identical with very few tangible differences from others in the same category.
Consequently, marketers have realized the importance of service differentiation as a sustainable strategy for competing for a portion of the customer’s wallet.
Service Encounter / Moment of Truth
A moment of truth is usually defined as an instance wherein the customer and the organization come into contact with one another in a manner that gives the customer an opportunity to either form or change an impression about the firm. Such an interaction could occur through the product of the firm, its service offering or both. Various instances could constitute a moment of truth - such as greeting the customer, handling customer queries or complaints, promoting special offers or giving discounts and the closing of the interaction.
Importance
In today’s increasingly service driven markets and with the proliferation of multiple providers for every type of product or service, moments of truth have become an important fact of customer interaction that marketers need to keep in mind. They are critical as they determine a customer’s perception of, and reaction to, a brand. Moments of truth can make or break an organization’s relationship with its customers.
This is more so in the case of service providers since they are selling intangibles by creating customer expectations. Services are often differentiated in the minds of the customer by promises of what is to come. Managing these expectations constitutes a critical component of creating favorable moments of truth which in turn are critical for business success.
Moments of Magic and Moments of Misery
Moments of Magic: Favorable moments of truth have been termed as ’moments of magic’. These are instances where the customer has been served in a manner that exceeds his expectations. Eg: An airline passenger being upgraded to from an economy to a business class ticket or the 100th (or 1000th) customer of a new department store being given a special discount on his purchase. Such gestures can go a long way in creating a regular and loyal customer base. However, a moment of magic need not necessarily involve such grand gestures. Even the efficient and timely service consistently provided by the coffee shop assistant can create a moment of magic for the customers.
Moment of Misery: These are instances where the customer interaction has a negative outcome. A delayed flight, rude and inattentive shop assistants or poor quality of food served at a restaurant all qualify as moments of misery for the customers. Though lapses in service cannot be totally avoided, how such a lapse is handled can go a long
way in converting a moment of misery in to a moment of magic and creating a lasting impact on the customer.
Service Failure and Recovery
Service Failures
Even with the best service organizations, failures can just happen – they may be
due to the service not available when promised, it may be delivered late or too
slowly (some times too fast??), the outcome may be incorrect or poorly executed,
or employees may be rude or uncaring. All these types of service failures bring
about negative experiences. If left unfixed they can result in customers leaving,
telling others about the negative experiences or even challenging through
consumer courts. Research has shown that resolving the problems effectively has a
strong impact on the customer satisfaction, loyalty, and bottom-line performance.
Customers who experienceservice failures, but are ultimately satisfied based on
recovery efforts by the firm, will be more loyal.
The Recovery Paradox.
It is suggested that customers who are dissatisfied, but experience a high level of
excellent service recovery, may be more satisfied and more likely to repurchase
than are those who are satisfied at the first place. For example, a hotel customer
who arrives & finds there is no room available. In an effort to recover, the front-
desk person immediately upgrades this guest to a better room at the same price.
The customer is so thrilled with this compensation that he is extremely satisfied
with this experience, is even more impressed with the hotel than he was never
before, and vows to be loyal into future. The logical, but not very rational,
conclusion is that companies should plan to disappoint customers so they can
recover &gain even greater loyalty from them as a result. This idea is known to be
as Recovery Paradox. The recovery paradox is more complex than it seem. First
of all it is expensive to fix mistakes and would appear ridiculous to encourage
service failure-as reliability is the most important aspect of service quality.
According to a research it is observed that a customer weight their recent
experiences heavily in their decision to buy again. If the experience is negative,
Similar to a tangible product’s package, the service-scape and other elements of physical
evidence essentially “wrap” the service and convey an external image of what is “inside” to
consumers. The service-scape is the outward appearance of the organization and thus can be
critical in forming initial impressions or setting up customer expectations – it is a visual
metaphor for the intangible service.
This packaging role is particularly important in creating expectations for new customers and for
newly established service organizations that are trying to build a particular image. The physical
surroundings offer an organization the opportunity to convey an image in a way not unlike the
way an individual chooses to “dress for success”.
2. Facilitator:
The service-scape can also serve as a facilitator in aiding the performances of persons in the
environment. How the setting is designed can enhance or inhibit the efficient flow of activities
in the service setting, making it easier or harder for customers and employees to accomplish
their goals.
A well-designed, functional facility can make the service a pleasure to experience from the
customer’s point of view and a pleasure to perform from the employee’s. On the other hand,
poor and inefficient design may frustrate both customers and employees.
3. Socializer:
The design of the service-scape aids in the socialization of both employees and customers in the
sense that it helps to convey expected roles, behaviours, and relationships. For example, a new
employee in a professional services firm would come to understand her position in the
hierarchy partially through noting her office assignment, the quality of her office furnishings,
and her location relative to others in the organization.
The design of the facility can also suggest to customers what their role is relative to employees,
what parts of the service-scape they are welcome in and which are for employees only, how
they should behave while in the environment, and what types of interactions are encouraged.
4. Differentiator:
The design of the physical facility can differentiate a firm from its competitors and signal the
market segment the service is intended for. Given its power as a differentiator, changes in the
physical environment can be used to reposition a firm and/or to attract new market segments.
In shopping malls the colours used in decor and displays and type of music wafting from a store
signal the intended market segment. The design of a physical setting can also differentiate one
area of a service organization from another. This is commonly the case in the hotel industry
where one large hotel may have several levels of dining possibilities, each signed by differences
in design.
While it is useful from a strategic point of view to think about the multiple roles of the service-
scape and how they interact, making actual decisions about service-scape design requires an
understanding of why the effects occur and how to manage them.
Service quality(SQ) is a comparison of expectations (E) with performance (P)
SQ=P-E.[1]
A business with high service quality will meet customer needs whilst remaining
economically competitive.[2] Improved service quality may increase economic
competitiveness.
This aim may be achieved by understanding and improving operational
processes; identifying problems quickly and systematically; establishing valid and
reliable service performance measures and measuring customer satisfaction and
other performance outcomes.
The GAP Model
The Service Quality Model, also known as the GAP Model, was developed in 1985. It highlights the main requirements for delivering a high level of service quality by identifying five ‘gaps' that can lead to unsuccessful delivery of service.
The diagram shows the different gaps in the model, including the
Knowledge Gap discussed here.
Customers generally have a tendency to compare the service they 'experience' with the service they 'expect' to receive; thus, when the experience does not match the expectation, a gap arises.
GAP 1:
Gap between consumer expectation and management perception: This gap arises when the management or service provider does not correctly perceive what the customer wants or needs. For instance – hotel administrators may think guests want better food or in-house restaurant facilities, but guests may be more concerned with the responsiveness of the staff or the cleanliness of their rooms.
Hotel administrators may think guests want better food or in-house
restaurant facilities, but guests may be more concerned with the
responsiveness of the staff.
Factors that affect the size of the knowledge gap include:
Market research Before introducing a new product or service into the market, a company must conduct market research to
understand whether there would be any demand for the product, and what features should be
incorporated. The better this process is conducted, the smaller the knowledge gap will be. There are methods of ensuring that customer desires are taken on board. These include: comprehensive
studies, gauging satisfaction after individual transactions (surveys immediately after a purchase is made),
customer panels and interviews, and through customer complaints.
Communication channels The fewer the layers between management and customer contact personnel, the more likely that customer
preferences will be incorporated into higher-level decision making on the product.
GAP 2 :
Gap between management perception and service quality specification: This is when the management or service provider might correctly perceive what the customer wants, but may not set a performance standard. An example here would be that hospital administrators may tell the nurse to respond to a request ‘fast', but may not specify ‘how fast'.
GAP 3:
Gap between service quality specification and service delivery: This gap may arise in situations pertaining to the service personnel. It could happen due to poor training, incapability or unwillingness to meet the set service standard. An example would be when a doctor's office has very specific standards of hygiene communicated but the hired staff may have been poorly trained on the need to follow these strict protocols.
GAP 4 :
Gap between service delivery and external communication: Consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of delivery of the service. For example – a hospital printed on its brochure may have clean and furnished rooms but in reality, it may be poorly maintained – in this case the patient's expectations are not met.
GAP 5:
Gap between expected service and experienced service: This gap arises when the consumer misinterprets the service quality. The physician may keep visiting the patient
quality service. The SERVQUAL authors originally identified ten elements of service quality, but in
later work, these were collapsed into five factors - reliability, assurance, tangibles, empathy and
responsiveness - that create the acronym RATER.
Businesses using SERVQUAL to measure and manage service quality deploy a questionnaire that
measures both the customer expectations of service quality in terms of these five dimensions, and
their perceptions of the service they receive. When customer expectations are greater than their
perceptions of received delivery, service quality is deemed low.
In addition to being a measurement model, SERVQUAL is also a management model. The
SERVQUAL authors identified five Gaps that may cause customers to experience poor service
quality.
Gap 3: between service quality specification and service delivery[edit]
This gap may arise through service personnel being poorly trained, incapable or unwilling to meet
the set service standard. The possible major reasons for this gap are:
Deficiencies in human resource policies such as ineffective recruitment, role ambiguity, role
conflict, improper evaluation and compensation system
Ineffective internal marketing
Failure to match demand and supply
Lack of proper customer education and training
Gap 4: between service delivery and external communication[edit]
Consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of delivery of the service. For example, the hospital printed on the brochure may have clean and furnished rooms, but in reality it may be poorly maintained, in which case the patients' expectations are not met. The discrepancy between actual service and the promised one may occur due to the following reasons:
Over-promising in external communication campaign
Failure to manage customer expectations
Failure to perform according to specifications
Gap 5: between expected service and experienced service[edit]
This gap arises when the consumer misinterprets the service quality. For example, a physician may
keep visiting the patient to show and ensure care, but the patient may interpret this as an indication
Six Sigma is a set of techniques and tools for process improvement. It was introduced by engineer Bill Smith while working at Motorola in 1986.
[1][2] Jack Welch made it central to his business strategy
at General Electric in 1995.[3]
Today, it is used in many industrial sectors.[4]
Six Sigma seeks to improve the quality of the output of a process by identifying and removing the causes of defects and minimizing variabilityin manufacturing and business processes. It uses a set of quality management methods, mainly empirical, statistical methods, and creates a special infrastructure of people within the organization, who are experts in these methods. Each Six Sigma
project carried out within an organization follows a defined sequence of steps and has specific value targets, for example: reduce process cycle time, reduce pollution, reduce costs, increase customer satisfaction, and increase profits.
The term Six Sigma originated from terminology associated with statistical modeling of manufacturing processes. The maturity of a manufacturing process can be described by a sigma rating indicating its yield or the percentage of defect-free products it creates. A six sigma process is one in which 99.99966% of all opportunities to produce some feature of a part are statistically expected to be free of defects (3.4 defective features per million opportunities), although this defect level corresponds to only a 4.5 sigma level. Motorola set a goal of "six sigma" for all of its manufacturing operations, and this goal became a by-word for the management and engineering practices used to achieve it.