Unit 1 Intro to Services Marketing

7/30/2019 Unit 1 Intro to Services Marketing

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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.


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).


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

Unit 1 Intro to Services Marketing

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