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INTRODUCTION TO SERVICES MARKETING
SERVICES AND SERVICES MARKETING INTRODUCTION
Service Marketing is a sub-field of marketing that deals
specifically with the marketing of services. Services marketing
typically refer to both business to consumer (B2C) and business to
business (B2B) services, and include marketing of services like
telecommunications services, financial services, all types of
hospitality services, car rental services, travel services, health
care services and other professional services .
In simple terms, Services are deeds, processes, andperformances provided or coproduced by one entity or person for
another entity or person. For example IBM Company offers
services like repair and maintenance for its equipment, web
design and hosting, IT consulting services and other services to its
clients, who are business institutions as well as individual person.
In Nepal, similar IT related services are provided by companies
like Worldlink Communication, Mercantile Communication, etc.
Services and Service Sector of the economy has been defined in
subtly different ways by different experts, hence there is no single
concrete approach for defining services. A practical and simple
broad definition of Services can be as follows:
Services refer to all economic activities whose output is not a
physical product or construction, is generally consumed at the
time it is produced, and provides added value in forms (such as
convenience, amusement, timeliness, comfort or health) that areessentially intangible concerns of its first purchaser.
Forms of Services
Services generally take following forms, which are distinct from
each-other:
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Service Industries and Companies include those institutions
whose core product is a service. For Example: Standard
Chartered Bank (Banking), BB Airways (Transportation), Soaltee
Hotel (Lodging and dining), Club Platinum (Recreation), Om
Hospital (Healthcare), etc.
Services as products represent a wide range of intangible
product offerings that customer value and are provided along
with the main product at certain price. Example Flower shops
sell flowers as well as provide vehicle or venue decoration service
at extra cost, Computer Stores also provide networking and
installation service to its clients, etc.
Customer Support Service is the supplementary serviceprovided free of cost to customers in support of the companys
core products. The objective of Customer Support Service is to
delight the customer and build strong customer relationships.
Customer Service can occur on-site ( as when a retail employee
helps a customer find a desired item or answers a question), or it
can occur over the phone or via the Internet (e.g. Dell computer
provides real-time chat sessions to help customers diagnose
hardware problems). Many international companies operatecustomer service call centers, often staffed around the clock
(hence, rise of BPO companies in South East Asia). (Bike n
Sevicing)
Derived Service refers to the particular benefits that consumers
derive from a product. Its an entirely different and abstract
approach to look at what service means. It suggests that all
products and physical goods are value for the services or benefits
they provide to consumers. For example Momo provides aservice of good taste and appetite, Coke provides the service of
refreshment, razor provides barbering services, and computer
provides information and data manipulation services,
Tangibility Spectrum/Continuum
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The broad definition of services implies that intangibility is a key
determinant of whether an offering is service. More the
intangibility feature in a product offering more it is referred as a
service. For example Fast food outlets are generally referred as
service business though there are tangible items like food, plates,furniture, etc. Whereas, Automobile showrooms are viewed as
product business, though there are intangible factors like
servicing, transportation, etc. Its the proportion of intangibility
factor in a business that determines the general classification of
that business as service or product.
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IMPORTANCE OF SERVICE MARKETING
Service Marketing has become one of the most important fields of
marketing today primarily due to following factors:
Rise of Service Based Economies
There is a growing market for services and increasing dominance
of services in economies worldwide. More and more countries are
shifting from manufacturing based economies to serviced based
economies. A good example is the neighboring country India,
which was historically a manufacturing and agriculture based
economy. However, at present after its economical reformation,
India's large service industry accounts for 57.2% of the country's
GDP while the industrial and agricultural sectors contribute 28.6%
and 14.6% respectively.
The top five countries, which have highest percentage of GDP
dominated by Service Industry, are as follows:
S.
No
.
Country Service %
of GDP
1. Hong
Kong
91
2. United
States
79
3. France 77
4. Netherla
nds
74
5. United
Kingdom
73
Source: The World Factbook, 2007
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In Nepal also, 50% of GDP is attributed to Service Sector as per
economic Survey in 2011. Break-up of the 50% share of Service
Sector in Nepal as follows;
The growth of service sector has drawn increasing attention to
the challenges of service sector world-wide, hence significantlyincreasing the importance of Service Marketing.
Growing Demand for Service in Traditional Manufacturing
and Technology Industries
Traditional manufacturing and technology industries like
automobiles, computers, electronic products, etc have also
recognized the need to provide quality customer service and
revenue producing services in order to be competitive worldwide.
Quick pace of developing technologies and increasing competition
make it difficult to gain strategic competitive advantage through
physical products alone. Plus, customers are more demanding.
Not only do they expect excellent, high-quality goods and
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technology, they also expect high levels of customer service and
total service solutions along with them.
Example:
Automobile companies like Maruti, Yamaha, Bajaj, Hyundai
etc provide certain number of free servicing and
maintenance. Some even provide free fuel coupons or
vouchers.
LG provides mobile maintenance service for repairing its
equipments at customers residence.
As manufacturing and technology companies strive to become
more service oriented, the need for special concepts and
approaches for managing and marketing services is increasingly
apparent.
Demand for Better Quality in Service Industry
In case of traditional service industry like airlines,
telecommunication, hotels, restaurants, beauty parlors, etc,
where key market offering is a service, customers are ever
demanding better quality service. The business needs to regularlyraise the standards of its service to stay competitive in the
market. Hence, the increased focus on Service Marketing has
been absolutely essential for Service-Sector as well.
Example:
Success of NCell has raised the standard of
telecommunication service in Nepal and has forced the old
Nepal Telecom to improve its service as well.
The success of modern hair cutting saloons like Niel David,
Easy Cuts has raised the service quality standard for hair
cutting saloons in Kathmandu.
Professional Service Needs
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Providers of professional services (such as doctors, lawyers,
accountants, engineers, teachers, architects) have also
demanded new concepts and approaches for their businesses as
these industries have become increasingly competitive and as
professional standards have been modified to allow advertising.Whereas, traditionally the professions avoided even using the
word marketing, they are now seeking better ways to understand
and segment their customers, to ensure the delivery of quality
services, and to strengthen their positions amid a growing
number of competitors. Example Advertisement of colleges with
introduction of reputed professors as Board of Advisors,
Advertisement of health camps in hospitals with introduction of
reputed doctors.
Deregulated Industries Service Needs
In the past several decades, most of the industries which used to
be tightly regulated and controlled by national governments have
been deregulated and privatized in many countries. For example
India adopted liberalization policy after 1991 and encouraged
deregulation and privatization in industries like power, fuel,
airlines, etc. In Nepal also, airline industry and telecom industryhave been already privatized and discussion is in process for
privatizing power and fuel industry.
As a result, marketing decisions that used to be tightly controlled
by the government are now partially, and in some case totally,
within the control of individual firms. This has dramatically
increased the level of competition and need for such
organizations to focus on service quality, hence focus on service
marketing.
Service Marketing is Different
As the forces described above coincided and evolved, business
people realized that marketing and managing services presented
issues and challenges not faced in manufacturing and packaged
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goods companies. For example, when a firms core offering is a
deed performed by an employee (such as educational
consultancy), how can the firm ensure consistent product quality
to the market place.
Experiences in the marketing of packaged goods and
manufacturing were not enough to deal with issues and dilemmas
faced in marketing services. Hence, people realized the need for
new concepts and approaches, which led to the development of
Service Marketing as a separate sub-field of marketing. As the
field evolved, it expanded to address the concerns and needs of
any business in which service is an integral part of the market
offering.
Service Equals Profits
In the final decades of the 20th Century, many firms jumped on
the service bandwagon, investing in service initiatives and
promoting service quality as ways to differentiate themselves and
create competitive advantage. Their belief that quality-service
makes good business sense has been proved right as most of top
profitable companies in the world today are also rated high in
service quality index. (But Nepalseems to be an exception)
Academic and business researches also support that service
strategies, implemented appropriately, can be very profitable.
Work sponsored by the Marketing Science Institute suggests
that corporate strategies focused on customer satisfaction,
revenue generation and service quality may actually be more
profitable than strategies focused on cost cutting or strategies
that attempt to do both simultaneously. Research out of theHarvard Business School builds a case for the service-profit
chain linking internal service and employee satisfaction to
customer value and ultimately to profits.
Service Stinks
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However, despite the importance and improvement of services,
consumers worldwide normally perceive the quality of service of
the businesses to be low. Its a very difficult task for the business
to completely satisfy its customers and more difficult to keep
them satisfied. Hence, for managers, students, and teachers ofservices marketing and management, the message is clear:
Challenge is immense and there is plenty of work to be done.
CHARACTERISTICS OF SERVICES COMPARED TO GOODS
There is a general agreement that difference between goods and
services exist and that the distinctive characteristics of services
implies challenges for managers of services. It is also important to
realize that differences between goods and services are not blackand white by any means. Its better to be viewed on a continuum
similar to tangibility spectrum i.e. services tend to be more
intangible than goods. Further the distinctive characteristics
should not be viewed as unique to services but that they are also
relevant to goods to some extent.
Characteristics of Services compared to Goods
Intangibility
As services are performances or actions rather than objects, they
cannot be seen, felt, tasted, or touched in the same manner as
sensing tangible goods. For example, Healthcare services are
actions (such as surgery, diagnosis, examination, and treatment)
performed by providers and directed towards patients and their
families. These services cannot actually be seen or touched by
the patient, although the patient may be able to see and touch
certain tangible components of the service (like the equipment or
hospital room).
Resulting Marketing Implications:
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Services cannot be inventoried, and therefore
fluctuations in demand are often difficult to manage.
Services cannot be easily patented, hence new service
concepts can therefore be easily copied by competitors.( Eg. Electronic token system in banks)
Services cannot be readily displayed or easily
communicated to customers, so quality may be difficult
for consumers to assess.
Actual costs of a unit of service are hard to determine,
and the price-quality relationship is complex.
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Heterogeneity
Because services are performances, frequently produced by
humans, no two services will be precisely alike. Whereas,
goods of standardized and homogenous quality/ features canproduced through standardized production method.
The employees delivering the service frequently are the service in
the customers eyes and people may differ in their performance
from day to day or even hour to hour. Heterogeneity also results
because no two customers are precisely alike and have different
perceptions for same level of service. Example: A relationship
manager at a bank may provide a different service experience to
different customers on the same day depending on theirindividual needs and personalities and on whether the manager is
dealing with them in the morning or tired at the end of a long day.
Resulting Marketing Implications:
Because services may vary across time, organizations and
people, ensuring consistent service quality is
challenging.
Service quality depends upon many uncontrollable
factors such as the ability of consumers to articulate his or
her needs, the ability and willingness of personnel to satisfy
those needs, etc.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Simultaneous Production and Consumption
Whereas most goods are produced first, then sold and consumed,
most services are sold first, and then produced and consumed
simultaneously. For example Yamaha Motorcycles are first
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produced in factories in India, transported to Nepal, sold few
months later and consumed over a period of years. But restaurant
services cannot be provided until they have been sold, and the
dining experience is essentially produced and consumed at the
same time. Service providers find themselves playing a role as apart of the product itself and as an essential ingredient in the
service experience for the consumer. (Eg. Restaurant
owner/manager).
Resulting Marketing Implications:
Because services often are produced and consumed at the
same time, mass production is difficult.
The quality of service experience and customer satisfaction
will be highly dependent on what happens in real time,
including actions of employees and the interaction between
employees and customers. Real time nature of services also
provides opportunity to customize offerings forindividual customers.
Customers will frequently interact with each-other during the
service production process and thus may affect each others
experiences. For example a business class passengers
experience of an airlines service can be ruined, if his nearby
seats are occupied by noisy family.
Service operations need to be relatively decentralized sothat the service can be delivered directly to the consumer in
convenient locations. Hence, it is not usually possible to
gain significant economies of scale through centralization.
Perishability
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Perishability refers to the fact that services cannot be saved,
stored, resold or returned. A seat on an airplane or in a
restaurant, an hour of a lawyers time, etc not used or purchased
cannot be reclaimed and used or resold at a later time.
Perishability of services is in contrast to goods that can be storedin inventory or resold another day, or even returned if the
consumer is unhappy. (Would it not be nice to if a bad haircut
could be returned or resold to another customer?)
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Resulting Marketing Implications
As services are perishable and cannot be inventoried, it is
very important for managers to carefully forecast
demand and synchronize supply to match the demand.
The fact that services cannot be typically be returned or
resold also implies a need for strong recovery
strategies when things do go wrong. For example, a bad
haircut cannot be returned; the hairdresser can and should
have strategies for recovering the customers perception of
the service. He can offer next haircut for free or provide free
shaving, or highlight the hair for free or at heavy discount.
Comparison of Goods and Services
Goods Services
Tangible Intangible
Standardized/Ho
mogeneous
Heterogeneous
Production
separate from
Consumption
Simultaneous
production
And
Consumption
Non Perishable Perishable
Other characteristics of service can be:
Customers do not obtain ownership of Services
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Distribution Channels take different forms (Production and
distribution at same outlet or distribution through
electronic media)
Services are difficult for consumers to evaluate (A clientmay not know how well the lawyer has advised him as he
doesnt have may not be have much knowledge in legal
matters)
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SERVICES MARKETING MIX
Service marketing mix includes tools of Traditional
Marketing Mix (4 Ps: Product, Price, Place, Promotion) and
Expanded Mix for Services (People, Physical Evidence andProcess), popularly referred as Service Marketing Mix.
Traditional Marketing Mix
One of the most basic concepts in marketing is the marketing
mix, defined as the elements an organization controls that can
be used to satisfy or communicate with customers. The
traditional marketing mix is composed ofthe four Ps:product,
price, place and promotion. The notion of the mix implies that
all the variables are interrelated and depend on each other to
some extent. The task of marketing people is to design the
optimal mix of the four factors for a given market segment at a
given time. Proper management of these traditional factors is
essential for successful marketing of services as well. However,
the strategies for four Ps require some modifications when
applied to services.
For example: tools of promotion traditionally includeadvertising, sales promotion, personal selling and publicity, but
in case of services, the service delivery people (like waiter in a
restaurant, relationship managers in a bank, etc) are also
important tools of promotion as they play major role in
communicating about the business to the customers.
The elements of traditional marketing mix are shown in thefollowing table:
Product Price Place Promotion
Physical
Features
Flexibility Channel
Type
Promotional Mix
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Quality
Level
Price Level Exposure Sales People(Selection,
Training,
Incentives)
Accessories
PricingTerms
Intermediaries
Advertising( Types ofMedia and Ads)
Packaging Price
Differentiati
on
Outlet
locations
Sales Promotion
Warranties Discounts Transportat
ion
Publicity
Product
Lines
Allowance Storage Internet/ Web Strategy
Branding Managing
Channels
Expanded Mix for Services
Considering the marketing challenges presented by the uniquecharacteristics of services like intangibility, simultaneous
consumption and production, perishability, heterogeneity, etc,
the concept of marketing mix has been expanded to include
three additional tools; People, Physical Evidence and Process.
Hence, the expanded mix of services includes 7ps of Marketing.
People
All human actors who play a part in service delivery and thusinfluence the buyers perceptions about the business: namely,
the firms personnel, the customer, and other customers in the
service environment.
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Customer perception or judgment about the business and its
service can be considerably influenced by its employees
attitudes, behavior, and physical appearance. For example a rude
response by waiter may lead to customers perception being
negative for a restaurant. In some professional businesses likeconsultants, lawyers, doctors, etc the providers are the service
and they themselves play the biggest role for the success of the
business.
In many service situations, customers themselves can also
influence the quality of service delivery and their own
satisfaction level. For example a client providing proper and
timely information about the business is likely to get better
service from a financial consultant than those clients who do not.
Sometimes customers not only influence their own service
outcomes, but they can influence other customers as well. For
example, in a theatre or discotheque or in class room, customers
can influence the quality of service received by others-either
enhancing or detracting from other customers experiences.
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Physical Evidence
The environment in which the service is delivered and where the
firm and customer interact, and any tangible components that
facilitate performance or communication of the service.As service businesses are more intangible, customers tend to
refer to physical evidences of the service to make their
judgment about the business.
The physical facility where the service is offered is referred as
Servicescape and it plays a significant role in influencing the
customers perception about service quality. For example; the
commercial banks in Nepal invest a lot to have a modern and
professional outlook to their branches and offices, whereas
government banks do not have such impressive looking
branches and offices. Among many other factors, the poor
physical appearance of government banks has led to the general
public opinion that private banks are better than government
banks.
The physical evidence of the service also includes all the tangible
representations of the service such as promotional materials,business cards, letter head, signage, equipments etc. Especially,
when consumers have little on which to judge the actual quality of
service, they will rely on these cues, just as they rely on cues
provided by the people and the service process.
Example: Ncell has better and more impressive physical
evidences (both Sevicescape as well as other tangible evidences)
than Nepal Telecom, which has contributed to NCells quality
perception being better in general public.
Process
The actual procedures, mechanisms, and flow of activities by
which the service is delivered-the service delivery and operating
systems.
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The actual delivery steps that the customer experiences, or the
operational flow the service, also give customers evidence on
which to judge the service. More the process is organized and
convenient for customers, better will be the perception of service
quality.
For example: Nepalese government offices have notorious
reputation about service delivery mainly due to the complexity of
steps involved in their operation. If one goes to the Central
District Office to make Citizenship or any other documents, the
person needs to go to different rooms located at different areas of
the building to get the job done. The whole task leaves the person
tired and frustrated. Not only in case of process, Nepalese
government offices have poor quality in terms of People and
Physical Evidence as well. Hence, its obvious for the
government offices to have such bad reputation. Though
government is trying to improve its service with introduction of
modern technology and one window policy, still lot needs to be
done.
The nature of service delivery process depends upon the nature
of business and market positioning. For example a PremiumAirlines like Kingfisher, Singapore Airlines etc will have more
customized process tailoring to the needs of individual clients (eg
providing lunch menu and taking orders, extra cushion,
magazines on request etc) and employees will be empowered to
make the non standard/ exceptional decisions. Whereas budget
airlines like Spice Jet, Southwest Airlines etc follow a standardized
process providing standardized services to all customers and
employees are less empowered to make non standard decisions.Some services like taking loan from commercial bank or taking
claims from insurance companies are complex in nature, hence it
involves customer to follow a complicated and extensive series of
actions to complete the process.
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The elements of three additional tools in expanded mix for
services are:
People Physical Evidence Process
Employees(Recruiting, Training,
Motivation, Rewards,
Teamwork)
Facility Design Flow of Activities(Standardized and
Customized)
Customers
(Knowledge,
Education)
Equipment Number of Steps
(Simple and
Complex)
Signage CustomerInvolvement
Employee Dress
Other Tangibles
(Reports, Business
cards, Statements,
Guarantees)
The three new marketing mix elements (people, physical
evidence, and process) are included in the marketing mix as
separate elements because they are within the control of the firm
and because any or all of them may influence the customers
initial decision to purchase a service as well as customers level of
satisfaction and repurchase decisions.
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SERVICE AND TECHNOLOGY
The ever changing trends in technology-especially information
technology is currently shaping and profoundly influencing the
practice of services marketing. Technology has been influencingservice industry in following ways:
Potential for New Service Offerings
The advancement in technology over the years has enabled the
companies to introduce many new service innovations and
offerings. For example the growth of e-commerce and success of
online stores like eBay, Amazon, Muncha.com etc is primarily
attributed to development of internet. The recent rise in the
business of mobile applications worldwide is also due to
developments in mobile information technology.
New Ways to Deliver Service
Technology has also supported in delivering existing services in
more accessible, convenient and productive ways. For
example Automated Teller Machines (ATM) have made the
banking transactions accessible outside of banking offices and
more convenient to customers. Recently Nepalese commercial
banks like Laxmi Bank, Everest Bank, NMB Bank have introduced
the service of Mobile Money, which enables the customers to
make banking transactions like utility bill payments, account
transfers, balance enquiry etc through their mobile phones.
Enabling both Customers and Employees
Technology enables both customers and employees to be more
effective in getting and providing service. For example online
banking has enabled customers to access their accounts, check
balances, transfer balances among accounts, and make bill
payments, etc-all without the assistance of the banks employees.
In case of bank staffs also, the internal database system of banks
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have made it possible for them to access client account details
instantly, hence enabling them to provide faster service.
Extending the Global Reach of Services
The development in technology, especially communicationtechnology and internet, has made it possible for information,
customer service and transactions to move across countries and
across continents, reaching any customer who has access to the
web. Services of a company can be accessed from anywhere in
the world. Hence, the reach of services has been extended in
global scale.
For example, through Muncha.com a Nepali guy living in USA
can buy a Rose for his girl-friend in Nepal and present to her on
Valentines Day.
Example: Many American companies have their customer
service call centers based in India as it is more economical.
When a customer in USA makes a call to the customer care, it is
routed via internet/other technologies to India and a support staff
based in India will respond to his queries and assist him on
solving the problems that he is facing in USA.
The Internet Itself is the Service
The biggest development in technology that has greatly impacted
the service business worldwide is the rise of Internet and Internet
itself is one big service. All businesses and organizations that
operate on the Internet are essentially providing services-whether
they are giving information, performing basic customer service
functions or facilitating transactions.
Drawbacks of Technology in Service
Although there is clearly great potential for technology to support
and enhance services, there are potential negative outcomes as
well. Some general drawbacks are as follows:
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Loss of Privacy and Confidentiality of Customers (Eg.
Accessing defaulting bank customers through
Facebook)
Not all customers as well as employees are equallyinterested to use new technologies
With technology infusion comes loss of human contact
and face to face interactions with customers.
Payback in technology investment is often uncertain.
The Service Marketing Concepts have been developed bystaying focused on the CUSTOMER. Every chapter in the text
can be considered as a component needed to build a complete
Customer Relationship Management approach.
THE END of UNIT 1