Services BusinessManagement

(1st Year MBA, Semester III)(Strictly as per the Choice Based Credit System and Grading System of

Savitribai Phule Pune University w.e.f. 2016-2017)

Dr. Abhay KulkarniDirector,

IICMR, Pune.

Dr. Sudhir HasamnisAdjunct Professor,

IICMR, Pune.

ISO 9001:2008 CERTIFIED

© AuthorsNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of thepublisher.

First Edition : 2017

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.Phone: 022-23860170, 23863863; Fax: 022-23877178E-mail: himpub@vsnl.com; Website: www.himpub.com

Branch Offices :

New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj,New Delhi - 110 002. Phon e: 011-23270392, 23278631; Fax: 011-23256286

Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018.Phone: 0712-2738731, 3296733; Telefax: 0712-2721216

Bengaluru : Plot No. 91-33, 2nd Main Road Seshadripuram, Behind Nataraja Theatre,Bengaluru-560020. Phone: 08041138821, 9379847017, 9379847005

Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda,Hyderabad - 500 027. Phone: 040-27560041, 27550139

Chennai : New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai - 600 017.Mobile: 9380460419

Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth(Near Prabhat Theatre), Pune - 411 030. Phone: 020-24496323, 24496333;Mobile: 09370579333

Lucknow : House No. 731, Shekhupura Colony, Near B.D. Convent School, Aliganj,Lucknow - 226 022. Phone: 0522-4012353; Mobile: 09307501549

Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847

Ernakulam : 39/176 (New No. 60/251), 1st Floor, Karikkamuri Road, Ernakulam,Kochi - 682011. Phone: 0484-2378012, 2378016; Mobile: 09387122121

Bhubaneswar : 5 Station Square, Bhubaneswar - 751 001 (Odisha).Phone: 0674-2532129; Mobile: 09338746007

Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,Kolkata - 700 010. Phone: 033-32449649; Mobile: 7439040301

DTP by : Sunanda

Printed at : M/s. Aditya Offset Process (I) Pvt. Ltd., Hyderabad. On behalf of HPH.

FOREWORD

The Service Industry is growing in India and globally at much faster rate than theearlier decades. The factor ‘Service’ has become a real differentiator when you areselling your products and services in the marketplace. This book has been written toserve as a resource and reference book for professionals in service organisations. Thechapters and sections have been written from a multidisciplinary perspective.

Discussions of topics blend concepts, theory, and practice from fields such asOperations, Marketing, International Management, Information Technology, Economics,Strategy, Human Resources and Management Science. The authors believe amultidisciplinary approach is best for efficient and effective management of serviceorganisations and their operations.

While this book is written as a textbook for Service Management or ServiceOperations Management, it will be useful for the professionals in this field as referencebook while designing new services or improving existing services and referring industrypractices for changing existing current practices. It is also suitable for a traditionaloperations management course with special emphasis on services. This will also help tosome extent if new services are emerging and need to be developed.

This book is divided into three major parts, Overview of Services Management,Services Business Management, and Research, Growth and Technology in ServicesManagement. Each chapter has detailed discussions, Key terms, Notes, Quick tips,relevant questions and case studies for preparation. (Learning outcome – 5W and 2HAnalysis, Introduction, References, Questions, Keywords and Exercise)

I am sure that this reader-friendly book will help you achieve your educational andprofessional objectives as successful manager and decision-maker in any serviceorganisation.

Thanks again,

Dr. P.C. ShejwalkarEx Dean, Faculty of Management,

Professor Emeritus of Commerce and Management Sciences,University of Pune.

PREFACE

We have seen the ‘Information Age’ in recent times and have started witnessing the‘Service Age’ now. While product has still the importance in all strategies, the emphasishas now shifted to ‘Services’ as it has become the real differentiator in marketplace. Therecent examples are Maruti Nexa showrooms or Reliance Jio shops specifically designedto service the specialised products. It will be the customer-facing employees will makethe real difference in this age.

Due to increasing contribution of service industry in GDP of the world, it isnecessary to understand the critical success factors of various sectors in serviceindustry by management professionals.

Services are required not only in various service sectors but in various categoriesand income level of the consumers. Therefore, the challenge lies in satisfying, delightingand enchanting the customer to improve service loyalty. This will give remarkablefootprint in the minds of the customer to improve customer loyalty in the particularService Providing Organisation.

The challenge lies in understanding the voice of customer and accordingly meetingthe customer demand. The ever-increasing competition and technology in the field ismaking customer more aware of availability of services and resources.

This book will help management professionals in understanding what goes in theservice process and meeting the customer requirements, how to align our resources todelight customer.

Every chapter include specific thought process necessary to make student awareabout unit discussed and explore and understand importance of service requirements.The case study, illustrations and learning outcome will increase the understanding anddevelop out-of-the-box thinking to know more about service process components. At theend, we have narrated Information Technology Services Management and InfrastructureLibrary, which leverages service effectiveness and efficiency and economy. The toolkit inUnit 7 will give identification of problem and quick fix to the issues and solutions. Thiswill fulfil economic aspect of service business function.

We have used 5S technique to explore the thought process of the reader tounderstand Strategy, Scope, System and Skeleton of service business process. This willsurface out the key process input factors of service business.

Main purpose of this book is to know more and more about service businessprocesses and implement the tools and techniques, learning from success stories andfailure stories narrated in the case studies of this book.

This book also explains simple quality and management tools to use in thebusiness situation to do the root cause analysis and thinking from system approach tomeet the objectives of the service business.

It is important to use these tools and techniques by service professionals as thevariety and complexity is the main challenge of service business. Every service provider,sectorwise, can leave a good footprint in the mind of the customer by listening voice ofthe customer and rendering services professionally.

So, listen to Voice of Customer, use this reference textbook, apply your Unique‘Thoughtware’ to become successful in today’s competitive services business world.

All the Best and Give the Best.

Dr. Abhay KulkarniDr. Sudhir Hasamnis

ACKNOWLEDGEMENTS

In the last two decades, many professionals in academic and corporate worldprovided valued insights in management and service business functions through write-ups, conference and seminar discussions and brainstorming conversations. Both of us,exchanged during before and after our corporate experience. We continued to work incorporate and academia simultaneously. Last couple of years while working in academia,we came across Board of Study members of Production Operations and ServicesManagement, SP Pune University. We appreciate the contribution of Board members indeveloping the thought process of this book.

Though it is impossible to mention everyone who directly and indirectly contributedin our thinking for Services Business Management book, we want to express ourappreciation and thank them for making this book happen.

We also gained important insights from our co-authors on international adaptionsof Service Management related books such as Service Marketing – People, Technologyand Strategy by Christopher Lovelock and Jochen Wirtz; Service Marketing – IntegratingCustomer Focus across the Firm by Valarie Zeithaml, Mary Bitner, Dwayene Gremlerand Ajay Pandit; Services – Marketing, Operations and Management book by VinnieJauhari and Kirti Dutta; Service Marketing – Concepts, Applications and Case book byM.K. Rampal and S.L. Gupta; Services Marketing and Management book by Dr. B.Balaji & S. Chand; Services Sector Report by Government of India, Part of FinancialBudget Report 2016-17; Introduction to Service Management by Paolo Gaiardelli andGiuditta Pezzotta; Managing Service Operations – Design and Implementation by BillHollins and Sadie Shinkins; Service Management: Operations; Strategy, InformationTechnology by James A. Fitzsimmons and Mona J. Fitzsimmons; Frontier of ElectronicCommerce by R. Kalakota and A.B. Whiston; Management Control Systems by R.N.Anthony and V. Govindarajan; Essentials of Services Marketing by K.D. Hoffmann andJ.E.G. Bateson.

We would like to express our heartfelt gratitude to number of institutions,publications, researchers and individuals without whose support and encouragementwe would have not been able to complete this huge task of this book.

We are obliged to the management and staff of ATSS-IICMR, Pune for supporting uswith their infrastructure, library and research facilities where this work took shape inthe form of book.

We are thankful to the organisations such as HDFC Life, Ginger Hotel, Veena World,Axis Bank, Reliance Jio and University of Birmingham for the case studies. Most of thereferences are picked up from visiting the facilities and public domain.

We are thankful to Dr. P.C. Shejwalkar for his support and foreword.

We would like to thank Himalaya Publishing House Pvt. Ltd. for guiding us on thewhole format and publishing this work.

Finally, we must thank our family members and friends whose constant supportenabled us in completion of this book in time.

We thank in advance, to all students, professionals and faculty members who willbe using this book in Service business endeavour.

Dr. Abhay KulkarniDr. Sudhir Hasamnis

SYLLABUS

Course Objectives:1. To introduce Services as a business function2. To emphasise the importance of understanding internal and external

environment in service decision-making3. To expose students to a systematic services framework

UnitNo.

Contents

1 Understanding Various Aspects of Services – Introduction of Servicesconcept, Classification of Services, Identifying and analysing the uniquecharacteristics of Services, Ways and means to address associated Servicechallenges.

The New Revolution in Services – Process, professionalism and quality,Service Triangle Marketing Model, Service Encounter and Moment of Truth(MOT).

Service Expectation – Expectation – Expected services: Two levels ofExperience – The Zone of Tolerance – Sources of desired service expectation –A model of customer service expectation.

The Service Product – Recent trends, Service culture, Contemporaryservices, Service Life Cycle (SLC), New Service Development (NSD), Relevanceof branding in services.

Service Location – Flexibility – Classification by location – Accessibilitythrough co-production – Service channel development, Locations decision,Basic Location Models.

2 Services Mix Elements – Introduction, Elements of Services mix.

Product – The Service Product, Service product life cycle strategies, Serviceproduct range, Failure of new Service products, Achieving success indevelopment of new Service products, Service product elimination.

Place – Managing distribution channels in Service industry, Factors affectingchoice of distribution channel, Strategies for distribution, Effect of internet –Global distribution system in services.

Pricing for Services – Price terminologies, Understanding the cost of Serviceincurred by customers, Understanding value, Pricing objectives, Methods ofpricing services.

Promotion – Promotional objectives, Selection criteria, developing thepromotion mix, Sales promotion tools, promotion planning and strategy.

Physical Evidence – Introduction, Elements, Role of physical evidence,Managing physical evidence as a strategy.

3 Service Environment – External versus Internal marketing, Micro andMacro service environment, PESTEL analysis of service sector, Six MarketModel.

Market Analysis and Segmentation – Planning process, Rethinking thecustomer service function, Focusing and positioning target customers,Relationship of service employees and internal marketing.

Service Design – Introduction, design methodology, Service Design andManagement Model, Overview of model stages, Building a service blueprint,Benefits of service blueprinting.

4 Consumer in Service Industry – Buyer characteristics, Buyer decision-making process (EKB Model), Customer involvement in service process,Customer behaviour in service settings.

Relationship Marketing – Evolution of relationship marketing, Degree ofrelationship building, The importance of customer retention, Enhancement ofinternal and external relationship change.

7S Framework – Determining the value of customer, Lifetime value ofcustomer, Customer relationship management strategies, Customer delight,Customer loyalty.

Framework Linking Employee Satisfaction, Customer Satisfaction andProfitability.

5 Research in Service Industry – Changing dynamics and challenges ofsectors.

Growth in Service Sector – Importance, Growth and development of Servicesector in India, Environmental changes ushering the services boom.

New Economic Policy and its Impact on Service Sector

DETAILED CONTENTS

Introduction of Services Management 1-11Learning Outcome 2Overview of Services 3Growth in Manufacturing Sector 3What is a Service? 4Importance to Public Services 6Importance to Charities 6Features of a Service 7Who are the Customers? 7Services Management in India 8Latest Industry Best Practices 8Government Initiatives 9Road Ahead 10Summary 11

1. Overview of Services Business Management 12-83Introduction 13Service 15Understanding Various Aspects of Services 15Introduction of Services Concept 16Classifying Services in Different Ways 16Classification of Services 17Identifying and Analysing the Unique Characteristics of Services 21Ways and Means to Address Associated Service Challenges 23The New Revolution in Services 24Competitive Trends for the New Millennium 29Service as Process 31Professionalism 33Quality 35Service Triangle Marketing Model 39Service Encounter and Moment of Truth (MOT) 41Service Expectation 42Expected Services 45Two Levels of Experience – The Zone of Tolerance and Sources ofDesired Service Expectation 45Sources of Desired Expectations 46A Model of Customer Service Expectation 47The Service Product 48Recent Trends 52

Service Culture 54Contemporary Services 55Service Life Cycle (SLC) 56New Service Development (NSD) 59Relevance of Branding in Services 63Service Location 64Classification by Location 66Accessibility through Co-production 68Service Channel Development 68Locations Decision 69Basic Location Models 69Case Study of HDFC Life 79

2. Services Mix Elements 84-139Introduction 86Services Mix Elements – Introduction and Elements of Service Mix 86Product 88Service Product Range 89Failure of New Service Products 89Achieving Success in Development of New Service Products 90Product Life Cycle Strategies 92Place 96Managing Distribution Channels 97Factors Affecting Choice of Distribution Channel 98Strategies for Distribution 102Effect of Internet – Global Distribution System 103Pricing for Services 105Pricing Terminologies 106Understanding the Cost of Service Incurred by Customers 106Understanding Value 108Pricing Objectives 110Methods of Pricing Services 114Promotion 116Promotional Objectives 117Selection Criteria 118Developing the Promotion Mix 119Sales Promotion Tools 122Promotion Planning and Strategy 125Physical Evidence 127Elements 127Role of Physical Evidence 128Managing Physical Evidence as a Strategy 130Case Study on Ginger Hotels 135

3. Services Environment 140-204Service Environment 141External vs. Internal Marketing 145External Marketing 146Micro and Macro Service Environment 147PESTEL Analysis of Service Sector 152SWOC Analysis – Analytical Tool 156Six Market Model 157Market Analysis and Segmentation 159Planning Process 161Rethinking the Customer Service Function 164Focusing and Positioning Target Customers 164Service Employee and Internal Market 168Service Design 183Design Methodology 185The Service Design and Management Model 185Overview of Model Stages 186Building a Service Blueprint 187Benefits of Service Blueprinting 191Case Study on Veena World Travel. Explore. Celebrate 197

4. Consumer in Service Industry 205-265Consumer in Service Industry and Buyer Characteristics 206Buyer Decision-making Process (EKB Model) 209Customer/Consumer Involvement in Service Process 212Customer Behaviour in Service Settings 217Relationship Marketing 230Evolution of Relationship Marketing 231Degree of Relationship Building 233The Importance of Customer Retention 234Enhancement of Internal and External Relationship Change 2357-S Framework 237Determining the Value of Customer 240Lifetime Value of Customer 242Customer Relationship Management Strategies 244Customer Delight 249Customer Loyalty 250Case Study on Axis Bank 257

5. Research and Growth in Service Industry 266-313Research in Services Industry 267Research Plan and Implementation 269Growth in Service Sector 274Importance of Research 275Growth and Development of Service Sector in India 278

Environmental Changes Ushering the Services Boom 298New Economic Policy and its Impact on Service Sector 300Case Study on Reliance Jio 307

6. IT Service Management (ITSM) and IT Infrastructure Library (ITIL) 314-337Introduction 316ITSM and ITIL 316Information Technology Service Management (ITSM) 317History of ITSM 317Base of ITSM 318General Framework of ITSM and its Implementation 318Information Technology Infrastructure Library (ITIL) 319History of ITIL 320ITIL 2007 Five Volumes 323Who Uses ITIL? 328Why ITIL is Required? 328What are the Benefits and Advantages of ITIL? 328UCISA ITIL Case Study on the University of Birmingham 330

7. Tools and Techniques for Improving Services Management 338-359Introduction 339Tools and Techniques for Services Management 340Flow Diagram/Process Flowchart 342Brainstorming 344Cause and Effect Diagram 345Problem-solving Method 346Structure-tree Diagram 348Affinity Diagram 349Kano Model 350Process Management Chart 3515 Why Analysis 3523W and 1H Analysis 3535W and 2H Analysis 354Matrix Diagram 355Interrelationship Diagram 356Risk Analysis 357Answer Key for Multiple Choice Questions from All Units 360-360

LIST OF EXHIBITSExhibit

No.Exhibit Title Page

No.Intro-1 Typical Service Value Exchange 6

Unit 1 Introduction if Services Management1.1 Performance in Services: International Comparison 14

1.2 Comparison of Various Goods and Services 15

1.3 Classification of Services 17

1.4 Examples of Services 17

1.5 Classification of Services 18

1.6 Tangible Actions 19

1.7 Intangible Actions 19

1.8 Share of Services Sector in India 20

1.9 Challenges of Services and their Uniqueness 22

1.9b Fundamental Differences between Physical Goods and Services 22

1.10 Summary of Some of the Reasons for the Growth of ConsumerService Industries

26

1.11 Impact of Technology 28

1.12 Trends in Services 28

1.13 Resource Conversion Process 32

1.14 Professionalism in Services 34

1.15 Perceived Service Quality 37

1.16 Critical Factors of Customer-perceived Service Quality 39

1.17 Service Triangle or The Service Marketing Triangle 40

1.18 Hierarchy of Expectations 43

1.19 What Service Customers Want? 45

1.20 Nature and Determination of Customer Expectation of Service 47

1.21 The Total Product Concept 51

1.22 Product Level and Views from Customer and Organisation 51

1.22b Kano Model for Services, Views from Customer and Organisation 52

1.23 Service Life Cycle 58

1.24 Examples of Service Product Innovations 60

1.25 External Sources of New Service Ideas 61

1.26 Locational Flexibility in Production and Consumption ofInseparable Services

65

1.27 Service Location Patterns 67

1.28 Involvement of Agencies in Location Decision 69

1.29 Factors in Assessing Store Location 72

1.30 Location Checklist 72

Unit 2 Services Mix Elements2.1 7Ps of Services Marketing 88

2.2 Product Life Cycle 91

2.3 Four Stages of Product Life Cycle 91

2.4 Service Life Cycle and Stagewise Strategies 92

2.5 Characteristics of the Four-stage Product Life Cycle 95

2.6 Three Levels of Distribution Channel 97

2.7 Service Channels 98

2.8 Pricing Terminologies for Select Services 106

2.9 Cost of Service for Customer 107

2.10 The Price Pyramid 108

2.11 Two Aspects of Customer Value 109

2.12 The Customer Value Delivery Process 110

2.13 Pricing Objectives of Service Organisations: Quantitative andQualitative Objectives

111

2.14 Pricing Objectives 112

2.15 The Elements of the Marketing Communications Mix 117

2.16 Criteria for Promotional Techniques 118

2.17 Product Life Cycle to Decide Marketing Communication Mix 120

2.18 Marketing Communications Mix for Services 121

2.19 Sales Promotions 123

2.20 Promotional Tools 123

2.21 Consumer oriented Sales Promotion Methods 124

2.22 Trade-oriented Promotion Tools 124

2.23 Promotional Planning Process 125

2.24 Product Marketing Mix 127

2.25 Elements of Physical Evidence 128

2.26 Example of Service Blueprint in Hotel 131

Unit 3 Services Environment3.1 Servicescape 142

3.2 Common Associations and Human Response to Colours 144

3.3 External vs. Internal Marketing 146

3.4 Micro and Macro Environment 148

3.5 Micro and Macro Service Environment 151

3.6 PESTEL Analysis 153

3.7 Example of PESTEL Analysis 155

3.8 Six Market Model 157

3.9 Marketing Planning Process 162

3.10 Role of Customer Service Function 165

3.11 Elements of Service Strategy 166

3.12 Vision to Short-term Plans, Examples 166

3.13 Four Focus Strategies 167

3.14 Developing a Market Positioning Strategy 168

3.15 Strategy for Internal Marketing 169

3.16 Components of Flexible Firm 170

3.17 Cycle of Failure 172

3.18 The Cycle of Mediocrity 174

3.19 The Cycle of Success 175

3.20 Bowen and Lawler’s Dimensions Affecting the Need to EmpowerWorkers

179

3.21 The Two-state Expectancy Model of Motivation 180

3.22 Conger and Kanugo's Stages of Employee Empowerment 181

3.23 The Thomas and Velthouse Model 182

3.24 Design and Delivery Components 184

3.25 Five Principles for Total Design Methodology 185

3.26 Service Design and Management Model 186

3.27 Overview of Model Stages 186

3.28 Service Blueprint Components 188

3.29 Service Blueprint for Restaurant Service 190

Unit 4 Consumer in Service Industry4.1 EKB Model for Consumer Behaviour 210

4.2 High and Low Involvement – Consumer Decision 215

4.3 Pre-purchase Stage 218

4.4 Product Attributes Affect Ease of Evaluation 220

4.5 Managing Customer Perceptions of Risk 221

4.6 Factors Influencing Customer Expectations of Service 221

4.7 Components of Customer Expectations 222

4.8 Service Encounter Stage 222

4.9 The Servuction Model 223

4.10 Service Encounters Range from High-contact to Low-contact 225

4.11 Distinctions between High-contact and Low-contact Services 226

4.12 Post-encounter Stage 227

4.13 Expectancy-Disconfirmation Paradigm 228

4.14 Summary of All Stages 229

4.15 Changing Focus of Marketing 231

4.16 Transition to Relationship Marketing 232

4.17 Five Levels of Relationship Marketing 233

4.18 Type of Relationship Marketing for What Kind of Businesses 234

4.19 Relationship Management with Suppliers, Recruitment, andInternal, Referral and Influence Markets

236

4.20 Hard and Soft Elements 237

4.21 7-S Framework by McKinsey 238

4.22 How to Calculate Customer Return on Asset (CRA)? 241

4.23 Martin Christopher’s Ladder of Customer Loyalty 243

4.24 Framework for Customer Relationship Strategy 245

4.25 Customer Loyalty Cycle 251

Unit 5 Research and Growth in Service Industry5.1 Activity Processes of Manufacturing and Service Industries 268

5.2 Operations Research in Services 270

5.3 Share of Services Employment 2001-14 279

5.4 Growth of Merchandise and Services Trade: World and India 280

5.5 Share and Growth of the Services Sector in 2014-15 282

5.6 Export Performance of Major Services 283

5.7 WTO Services Negotiations and Bilateral Negotiations IncludingServices Trade

285

5.8 Performance of India’s Services Sector: Some Indicators 286

5.9 Tourism Performance: International Comparison 2014 287

5.10 Global Competitiveness Index: R&D Innovation 291

5.11 Selected Policy Issues and Suggestions for Some Major Services 295

5.12 Service Location Index 2016 304

Unit 6 IT Service Management (ITSM) and Infrastructure LibraryITSM

6.1 Traditional IT and ITSM 317

6.2 ITIL Framework 321

6.3 ITIL Five Volumes 323

6.4 Service Design 324

6.5 Service Transition 325

6.6 Service Operation 326

6.7 Continual Service Improvement 327

Unit 7 Tools and Techniques for Improving Service Management7.1 Toolkit 340

7.2 Flowchart Symbols 343

7.3 Process Flowchart 343

7.4 Cross-functional Work 345

7.5 Cause and Effect Diagram 346

7.6 Usual vs. Preferred Problem-solving Method 347

7.7 Problem-solving Workflow 347

7.8 Structure-tree Diagram 349

7.9 Affinity Diagram 350

7.10 Kano Model 351

7.11 5 Why Analysis 352

7.12 3W and 1H Analysis 354

7.13 5W and 2H Analysis 355

7.14 Matrix Diagram 356

7.15 Interrelationship Diagram 357

7.16 Pareto Diagram 358

7.17 Risk Analysis 358

Overview ofServices Business Management

UNIT 1

Introduction, Service, Understanding Various Aspects of Services –Introduction of Services Concept, Classification of Services, Identifyingand Analysing the Unique Characteristics of Services, Ways andMeans to Address Associated Service Challenges. The New Revolutionin Services – Process, Professionalism and Quality, Service TriangleMarketing Model, Service Encounter and Moment of Truth (MOT).Service Expectation – Expectation, Expected Services, Two Levels ofExperience: The Zone of Tolerance and Sources of Desired ServiceExpectation, A Model of Customer Service Expectation, The ServiceProduct – Recent Trends, Service Culture, Contemporary Services,Service Life Cycle (SLC), New Service Development (NSD), Relevance ofBranding in Services. Service Location – Flexibility, Classification byLocation, Accessibility through Co-production, Service ChannelDevelopment, Locations Decision, Basic Location Models.

Key Learning

13Overview of Services Business Management

Thought Map for Unit 1

Service as a Business Function

Product as a Service Compare and Contrast

Consumer Perspective of Services

Service Encounter Service Quality

Service Product and Process

Service Lifecycle Sectors in Services

5 W 2 H

WhatDifferent aspects of Services Business Management

Why:New revolutions in Services are coming. Overcomingthe challenges of Service Business

Where:To decide Service locations

When:Understanding Service expectations

Who:Service providers after understanding customerrequirements

How:Through Service Lifecycle

How much:With case study of HDFC Life

IntroductionThis is for giving feel of service industry in India before reading the chapter. This is a pre-cursor.

We can remove the source and just keep the statement.

‘Know what your customers want most and what your company does best. Focus on wherethere those two meets.’ – Kevin Stritz

14 Services Business Management

The world economy in today’s world is increasingly characterised as a ‘Service economy’. Thisis primarily due to the increasing importance and growing share of the service sector in the economiesof most developed and developing countries. In fact, the growth of the service sector has long beenconsidered as indicative of a country’s economic progress.

Economic history shows that all developing nations have invariably experienced a shift fromagriculture 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 anintegral part of the product and this interconnectedness of goods and services is represented ona goods-services continuum.

The table produced below from Indian Financial Budget shows the share of Services (Exhibit 1.1)increasing over last decade.

Exhibit 1.1: Performance in Services: International Comparison

Country

Rank in Services growth rate Share of services in Services export growth

Ove

rall

GD

P

Serv

ices

GV

A (per cent)

Y-o-Y

CA

GR

2001

-08

CA

GR

2010

-14

GVAEmploy-

mentTotal

exports(per cent)

Y-o-Y

CA

GR

2001

-08

CA

GR

2010

-14

2001

2009

2013

2014

2001

2014

2001

*

2014

*

2001

2014

2001

2009

2013

2014

US 1 1 2.0 2.0 0.6 2.3 2.2 1.8 77.4 78.4 75.0 81.2 27.2 29.8 –3.6 –4.2 5.1 3.7 9.5 6.1

China 2 2 10.2 11.1 8.2 8.0 11.7 8.4 40.9 47.7 12.7 47.0 11.0 9.0 9.1 –13.4 –3.9 12.4 25.9 7.9

Japan 3 3 1.3 –3.1 1.3 0.1 0.9 0.9 69.0 72.0 63.9 69.1 13.6 18.8 –6.9 –14.6 1.2 19.2 11.8 5.2

Germany 4 4 3.1 –3.0 0.4 1.3 1.4 1.3 68.7 69.0 64.6 70.4 12.8 15.0 5.6 –8.5 8.4 4.3 15.8 4.9

UK 5 5 3.5 –2.6 2.8 2.8 2.9 2.6 73.6 78.4 73.7 79.1 30.1 40.1 –0.8 –13.8 2.3 7.9 14.5 5.8

France 6 6 1.9 –2.0 0.8 0.7 1.8 1.2 74.7 78.9 69.9 75.8 19.8 31.4 –0.5 –13.6 7.4 5.3 15.8 7.4

Brazil 7 8 2.3 2.1 11.9 1.1 3.9 6.9 68.2 71.0 59.4 76.6 13.0 14.8 –2.7 –8.9 –1.7 4.7 18.6 6.8

Italy 8 7 2.3 –2.7 –1.1 0.0 0.8 –0.6 70.5 74.3 63.1 69.5 18.9 18.0 2.1 –16.3 4.8 3.6 10.5 3.0

India 9 10 7.2 10.7 8.9 10.3 9.3 8.6 45.2 53.0 24.0 28.7 27.9 32.6 4.8 –12.5 2.2 5.0 30.1 7.5

Russia 10 12 3.3 –5.1 2.2 1.0 7.6 2.6 55.9 60.0 58.6 65.8 9.9 11.5 17.3 –19.8 12.4 –6.1 26.0 7.5

Canada 11 9 3.5 1.2 1.9 2.4 2.9 2.3 65.9 69.9 74.8 78.2 12.7 15.2 –3.6 –8.7 –0.1 –4.0 9.9 3.0

Australia 12 11 3.8 1.8 2.8 2.6 3.4 2.8 69.9 70.1 67.9 69.5 21.8 18.1 –8.9 –7.6 –0.8 1.5 13.3 3.9

S. Korea 13 14 4.9 1.4 2.9 3.1 4.2 3.0 59.0 59.4 62.6 69.5 16.3 15.6 –4.9 –20.5 0.2 3.1 17.4 6.6

Spain 14 13 4.0 –0.9 –0.8 1.1 3.9 0.4 65.3 75.1 62.0 76.3 32.2 29.2 6.0 –14.8 5.0 4.3 13.2 4.6

Mexico 15 15 1.1 3.7 2.3 2.0 3.6 3.4 57.6 59.0 56.1 62.4 7.2 5.0 7.5 –16.1 24.6 4.6 5.3 8.4

World 2.6 –0.8 2.2 2.5 3.0 2.5 68.7 66.0 35.9 50.9 19.4 20.6 19.9 –10.9 5.4 4.9 15.0 6.4

15Overview of Services Business Management

ServiceA service is an act or performance offered by one party to another. Although the process may be

tied to a physical product, the performance is essentially intangible and does not normally result inownership of any of the factors of production.

Understanding Various Aspects of ServicesBusiness services is a general term that describes work that supports a business but does not

produce a tangible commodity.

The real gains are achieved for humanity by adding value to the natural resources we have. Weexcavate ores and raw materials from mother earth and then process it by adding value and convertthese into rough, semi-finished or finished goods or components. However, there are otherorganisations which are involved in the production and distribution of goods and organisations thatadd value to lives through a variety of intangibles they provide. Outputs of these are called services.

Exhibit 1.2: Comparison of Various Goods and Services

Source: Based on Earl W. Sasser. Jr., R.P. Olsen, and D. Daryl Wyckoff, Management of ServiceOperations (Boston, Allyn and Bacon, 1978), p. 11.

Services can be defined as economic activities that produce time, place, form, or psychologicalutilities (Exhibit 1.2). Services are acts, deeds, or performances; they are intangible. A maid servantservice saves the time from doing household chores for its consumers. Departmental stores andGrocery stores create facilities for various commodities at one convenient point of sale. A BusinessIntelligence Warehouse (BIW) service puts together information and its analysis in a form that can beconsumed by the operational managers and top management.

16 Services Business Management

Introduction of Services ConceptServices also can be defined in contrast to goods. A good is a tangible object that can be created

and sold or used later. A service is intangible and perishable. It is created and consumed nearlysimultaneously. Although these definitions may seem straightforward, the distinction between goodsand services is not always clear-cut. For example, when we purchase a car, are we purchasing a goodor the service of transportation? A television set is a manufactured good, but it is of no use without theservice of television broadcasting. When we go to a fast-food restaurant, are we buying the service ofhaving our food prepared for us or are we buying goods that happen to be ready-to-eat food items?

Most purchases of goods come with facilitating services and almost every service purchase isaccompanied by goods. The key to understand the difference between goods and services lies in therealisation that these items are not completely distinct, but rather are two poles on a continuum.

Services are economic activities that create value and provide benefits for customer’s specifictimes and places, as a result of bringing about a desired change in – or on behalf of – the recipient ofthe service. Service is those separately identifiable, essentially intangible activities which provide wantsatisfaction, and that are not necessarily tied to the sale of a product or another service. To producea service may or may not require the use of tangible goods. However, when such use is required, thereis no transfer of title (permanent ownership) to these tangible goods.

One common method of defining a service is to distinguish between the ‘core’ and ‘peripheral’elements of that service. The ‘core’ service offering is the ‘necessary outputs of an organisation whichare intended to provide the intangible benefits customers are looking for’. Peripheral services are thosewhich are either ‘indispensable for the execution of the core service or available only to improve theoverall quality of the service bundle’.

Services include all economic activities whose output is not a physical product or construction, isgenerally consumed at the time it is produced, and provides added value in forms (such asconvenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of itsfirst purchaser.

Classifying Services in Different WaysThe 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 classification of services based on various criteria is shown in Exhibit 1.3.

17Overview of Services Business Management

Exhibit 1.3: Classification of Services

Classification of ServicesIn order to be able to make a clear and relevant classification of services, we would first need to

understand the concept of the word itself. Services usually refer to processes and not physical products.Some services may include people whereas other services (like online services) may include objects orgadgets which are managed by people (refer the exhibit given below).

Exhibit 1.4: Examples of Services

Transportation and public utilities, hotels, motels, homestays and other lodging places, rail-roadtransportation, personal services, local and inter-urban passenger transit, business services, trucking andwarehousing, auto repair, services and garages or workshops, water transportation, miscellaneousrepairing services, air travel – both human and goods, movies, pipelines except natural gas, amusementand recreation services, health service, communication, legal services, telephone and telegraph,educational services, radio and television broadcasting, social services and membership organisations,electricity, gas, sanitary services, miscellaneous professional services, wholesale trade, privatehousehold services, retail trade, finance, insurance, real estate, banking, military, credit agencies otherthan banks, government enterprises security and commodity brokers, local government, real estate,education, holding and other investment companies and other services.

18 Services Business Management

Examples of services (Exhibit 1.4) which include people can be a hair salon, education, theatre,restaurants and public transportation. On the other hand, services that include objects include repairsand maintenance, dry cleaning, banking, legal services, insurance, etc.

Exhibit 1.5 explains the classification of services along with few examples for further elaboration.

Exhibit 1.5: Classification of Services

Source: Adapted from ‘Services – Marketing, Operations and Management’ (Vinnie Jauhari and Kirti Dutta)The service processes can be either manual or automated or digitised or both. It is possible to

carry out a classification of services based on two general dimensions such as what is being processed,whether is it a person or an object, and how is it being processed? In other words, what is the nature ofthe process (tangible or intangible actions)?

In terms of the people processing activities, the level of involvement of the people can varysignificantly. Managers must think about processes/outputs in terms of what happens to customers and

19Overview of Services Business Management

what is being created. For pricing this category of services, the non-financial costs, time, mental effortas well as fear and pain level must be identified.

For example, if your laptop or desktop is under repairs and you are giving it to Service Agencyfor repairs, it will be one example of service included in this category. In this category, customers areless involved on physical level and usually there is no real need for them to enter the service oncerequested the service, or explained their problem and made payment for the respective service.

Classification of services can be done based on two points. These two points or factors, arefurther subdivided into two further variables (Exhibits 1.6 and 1.7). All in all, service classificationconsiders four types of people or objects.

Exhibit 1.6: Tangible Actions

Tangible Actions

Services for People Services for Goods

Health Care Restaurants Salons

Transportation Repairs and Maintenance Dry Cleaning

1. Classification of service based on tangible action: Wherever people or products areinvolved directly, the service classification can be done based on tangibility.(a) Services for people: Where the service is delivered by people to people such as health

care, restaurants and salons.(b) Services for goods: Where services are given by people for objects or goods such as

transportation, repair and maintenance and others.

Exhibit 1.7: Intangible Actions

Intangible Actions

Services Directed at People’s Mind Services Directed at Intangible Assets

Education Theatres Information Services

Banking Legal Services Insurance

2. Classification of services based on intangibility: There are few things which cannot betangibly quantified. For example, the software programmes to execute salary/wage ofemployees correctly, or the value of life which is forecasted by insurance policies. Theseservices are classified on the basis of intangibility.(a) Services directed at people’s mind: Services sold through influencing the creativity

of humans are classified on the basis of intangibility.(b) Services directed at intangible assets: Banking, legal services and insurance services

are some of the services most difficult to price and quantify.The most intangible form of service output is information processing. The customer is not

involved in this type is service. Customers have a personal desire to meet face-to-face but as per

20 Services Business Management

operational process there is no need for this. For example, consultancy services where the relationshipcan be built or sustained on trust or telephone contact. At the same time, there is need to have a face-to-face relationship to understand the detail needs of the customer.

Exhibit 1.8 shows how the changing share of services sector in India and how the growth ishappening.

Exhibit 1.8: Changing Share and Growth of Services Sector in India (GVA at basic price)

GVA (per cent) GCF (per cent)

2013-14 2014-15 2015-16# 2013-14 2014-15*

Total Services 50.9(7.8) 52.6(10.3) 53.3(9.2) 56.5(5.1) 58.3(8.7)

Trade, repair, hotels and restaurants 11.5(7.7) 11.8(10.7) 18.6(9.5)* 7.4(–6.9) 8.9(25.0)

Trade and repair services 10.5(7.7) 10.7(10.8) NA 6.7(–8.4) 7.5(18.9)

Hotels and restaurants 1.0(2.4) 1.1(9.5) NA 0.8(–0.6) 1.3(77.2)

Transport, storage, communication andservices related to broadcasting

6.7(8.7) 6.9(8.4) NA 8.9(24.2) 8.9(4.8)

Railways 0.8(6.0) 0.8(7.7) NA 1.2(6.9) 1.4(22.4)

Road transport 3.2(6.2) 3.2(6.3) NA 1.8(–6.4) 0.8(–0.4)

Air transport 0.1(8.7) 0.2(12.8) NA 0.1(–6.1) 0.2(94.1)

Financial services 5.8(4.8) 5.7(7.9) 20.6(10.3)^ 0.9(–3.4) 1.2(35.3)

Real estate, ownership of dwelling andprofessional services

14.3(12.5) 14.9(11.8) NA 25.3(7.2) 23.8(1.0)

Public administration and defence 5.9(3.2) 6.2(9.8) 14.1(6.9)* 8.6(14.9) 9.9(21.2)

Other services 6.7(5.6) 7.2(11.4) NA 5.3(19.0) 5.7(14.0)

Construction 9.0(4.6) 8.8(4.4) 8.2(3.7) 5.4(–28) 5.4(4.6)

Total services (+ construction) 59.8(7.3) 61.4(9.4) 61.5(8.4) 62.0(1.0) 63.7(8.4)

Total (All Sectors) 100.0(6.3) 100.0(7.1) 100.0(7.3) 100(2.1) 100(5.6)

GDP (market price constant 2011-12) (6.6) (7.2) (7.6)

Source: Computed from CSO data.Notes: Shares are in current prices and growth in constant 2011-12 prices; Figures in parentheses indicategrowth rate; First RE; # AE for 2015-16; * Also includes transport, storage, communication and servicesrelated to broadcasting; ^ Also includes real estate and professional services; @ Also includes otherservices.

A more general classification of services based on the type of function that is provided throughthem can be as follows:

Business services Communication services

21Overview of Services Business Management

Construction and related engineering services Distribution services Educational services Environmental services Financial services Health-related and social services Tourism and travel-related services Recreational, cultural and sporting services Transport services

Identifying and Analysing the Unique Characteristics of ServicesThe defining characteristics of a service are:

Intangibility: Services are intangible and do not have a physical existence. Hence, servicescannot be touched, held, tasted or smelt. This is most defining feature of a service and thatwhich primarily differentiates it from a product. Also, it poses a unique challenge to thoseengaged in marketing a service as they need to attach tangible attributes to an otherwiseintangible offering.

Heterogeneity/Variability: Given the very nature of services, each service offering isunique and cannot be exactly repeated (while it appears to be similar) even by the sameservice provider. While products can be produced in mass quantity and be homogenous, thesame is not true of services. For example, all pizzas of a standardised recipe at Pizza Centreare almost identical. However, the same is not true of the service rendered by the same PizzaCentre front-end staff consecutively to two customers.

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 toanother customer. For example, a client dissatisfied with the services of a hair stylist maynot return the service of the haircut that was rendered. At the most, he or she may decide notto visit that salon in the future.

Inseparability/Simultaneity of production and consumption: This refers to the fact thatservices are generated and consumed within the same time frame. E.g., for a femalecustomer a beauty makeup is done as requested, the consumption of service is immediatelyat that point of time, but in another example of say, Pizza which is bought at the counter, inthat case customer has choice to consume it even after a few minutes or hours of purchase.Moreover, it is very difficult to separate a service from the service provider. For example,the hair stylist is necessarily a part of the service of a haircut which is being made for theclient.

22 Services Business Management

Exhibit 1.9 explains challenges of services and their uniqueness.

Exhibit 1.9: Services Challenges

Types of ServicesCore Services: A service that is the primary purpose of the transaction, e.g., a haircut or the

services of lawyer or teacher.

Supplementary Services: Services that are rendered as an outcome to the sale of a tangibleproduct, e.g., home delivery options offered by restaurants above a minimum bill value, say ` 500/-.

Difference between Goods and ServicesGiven below are the fundamental differences between physical goods and services:

Exhibit 1.9(b): Fundamental Differences between Physical Goods and Services

Goods Services

A physical commodity A process or activity

Tangible Intangible

Homogenous Heterogeneous

Production and distribution are separate activitiesfrom the point of consumption as consumptionhappens once it is distributed

Production, distribution and consumption aresimultaneous processes

Can be stored Cannot be stored

Transfer of ownership is possible Transfer of ownership is not possible