DBA1721 Service Marketing

M B A(DISTANCE MODE)

DBA 1721

SERVICES MARKETING

III SEMESTER

COURSE MATERIAL

Centre for Distance EducationAnna University Chennai

Chennai – 600 025

Author

Mr. N. Senthil Kumar,

Lecturer,

Department of Management Studies,

Anna University Chennai,

Chennai - 25

Reviewer

Dr. K. Chitra

Assistant Professor,

Department of Management Studies,

KCT Business School,

Kumaraguru College of Technology,

Coimbatore - 641 006.

Dr.T.V.Geetha

Professor

Department of Computer Science and Engineering

Anna University Chennai

Chennai - 600 025

Dr.H.Peeru Mohamed

Professor

Department of Management Studies


Chennai - 600 025

Dr.C. Chellappan

Professor



Chennai - 600 025

Dr.A.Kannan

Professor



Chennai - 600 025

Copyrights Reserved

(For Private Circulation only)

Editorial Board

ii

ACKNOWLEDGEMENT

The author has drawn inputs from several sources for the preparation of this Course Material, to meet the

requirements of the syllabus. The author gratefully acknowledges the following sources (in alphabetical order):

• Alternative approached to Market Segmentation @ www. Marketsegmentation.co.uk

• Amit Garg, “Play Aladdin not Genie,” The Hindu Business Line, 5 March 2003.

• Balachandran. S. Customer Driven Services Management. New Delhi: Response books, 1999.

• Balaji, “Service Marketing”, S.Chand, New Delhi, 2002

• Berry L L and a Parasuraman, 1991, Marketing Services: Competing Through Quality, New York: Free

Press.

• Berry, L L (1980), “ Service Marketing is Different” Business, 30 (May June), 24-29.

• Bhattacharjee, “Services Management, An Indian Respective” Jaico Publishing House, Chennai, 2005.

• Cengiz Hawksever etal, “Service Marketing”

• Chiristropher H.Lovelock, Jochen Wirtz, “Services Marketing”, Pearson Education, New Delhi, 2004.

• Christian Gronroos, “Services Management and Marketing a ‘CRM Approach”, John Wiley and sons

England 2001.

• Doblie Mai (1999) Improving Quality of Healthcare: Journal of Health Management.

• Garfield ,Paul J., and Lovejoy, Wallace,F., Public Utility Economics24 , Printice Hall Inc., New Jersey(1964)

• Gronroos, C (1990) “Services Management and Marketing”, Lexington, USA.

• Growth in services will drive manufacturing sector’ N. Ramakrishnan , dt March 05,

2005www.thehindubusinessline.com

• Halen Woodroffe, “Services Marketing”, McMillan Publishing Co, New Delhi 2003.

• Hotels in India, http://www.hotelsresortsindia.com/theme-hotels.html

• http://www.bseindia.com

• http://www.consultavalon.com

• http://www.indiafirstfoundation.org

• http://www.netmba.com/mgmt/

• http://www.networkadvertising.org

• http://www.pathfinder.com/.

• http://www.prenhall.com/

• http://www.resourcesconnection.com/

• http://www.smartbiz.com

• http://www.top-education.com/Management/

• India’s Economic Prospects: The Promise of Services ,Swaminathan S. Anklesaria Aiyar

• India’s Advancements In The IT Sector, dt march 2004,www.pib.nic.in

• Information Technology in Services Sector- A Vision for India S. Biswas.

• JHA S.M (2001) Hospital Management in India, Himalaya publishing house, Mumbai.

v

• Kenneth E Clow, et. al “Services Marketing Operation Management and Strategy” Biztantra, New Delhi,

2004.

• Kerala Techno park on World IT Map, August 19,2002, http://www.indiainfoline.com/ cyva/featlkera.

html

• Kumar B. Das and Mohanty. P, 1994, “Global of Tourism in India”, Indian Journal of Marketing, New

Delhi, Vol. XXI, No. 11, Pg.3

• Nimit Chowdhary and Monika Choudhary, “Text book of Marketing of Services”, the Indian experience,

MacMillan Publishing Co, New Delhi, 2005.

• Philip Kotler (2003) Marketing for Non Profit Organisations, Prentice Hall of India, New Delhi.

• Rajiv Mistra, Sujatha Rao, Indian Health Report (2003) Oxford University Press, New Delhi.

• RamaMohana Rao, “ Services Marketing”, Pearson Education,2005.

• Rampal Gupta, “Service Marketing”, Galgotia Publishing Company, New Delhi

• Rathmall, J M (1974) “ Marketing in the Service Sector” Cambridge, MA: Winthrop Publishers, Inc.

• Ravi Shankar et al., Services Marketing: The Indian Experience. Delhi: Manas Publications, 2003.

• Recessions have become tamer,Swaminomics/Swaminathan S Anklesaria Aiyar, May 13, 2004 , The

Times of India.com

• Schiffman, L g and L L Kanuk (2000), “Consumer Behaviour”, Printice Hall, NJ

• Services sector is the new economic growth engine , Deccan Herald, July 25, 2005

• Silevestro, R L, f R Johnston, and C Voss 91992), “Towards a Classification of Service Processes”

International Journal of Service Industry Management, 3, 3, 62-75. Rathmell, J M (1966), “What is Meant

by Services?” Journal of Marketing, 30-32-6.

• The stalling of India’s industrial engine ,S Sivakumar dt sept 2, 2004, Rediff.com

• Vasanthi Venugopal, “Service Marketing”, Himalaya Publishing House

• Why Segmentation?@ www.themanager.org

• www.12manage.com

• www.aa&a.com

• www.adclubbombay.com

• www.benefitslink.com

• www.bharatmatrimony.com

• www.bizjournals.com

• www.businessline.com

• www.businesstoday.com

• www.coolavenues.com

• www.edmunds.com

• www.emarketer.com

• www.epic.org

• www.ficci.com

• www.icmr.org

vi

• www.indiainfoline.com

• www.indianexpress.com

• www.internethomealliance.com.

• www.learning.about.com

• www.learnmanagement2.com

• www.managementparadise.com

• www.managemore.com

• www.marketingprofs.com

• www.neoncarrot.co.uk

• www.prenhall.com

• www.rcw.raifoundation.org

• www.rediff.com

• www.tatamcgrawhill.com

• www.thehinduonline.com

• www.tourismindiaonline.com

• www.tourismofindia.com

• www.wikipedia.com

• www.wilsonweb.com/

• www.wttc.org

• Zeithami, V A, A Parasuraman, and L L Berry (1985), “Problems and Strategies in Services Marketing”,

Journal of Marketing, 49, 3346.

• Zeithami, Valarie A (1981) “How Consumer Evaluation Processes Differ Between goods and Services” in

Marketing of Services, Eds, James H Donnelly and William R George, Chicago, American Marketing

Association, 186-189.

Atmost care is taken to prepare the list of references, inspite any omission in the list is only accidental not

purposeful.

N.SENTHIL KUMAR

Author

vii

DBA 1721 SERVICES MARKETING

UNIT I - INTRODUCTION

Service economy –Evolution and growth of service sector –nature and scope of services –Characteristics-

Classification –Service market potentials-Expanded marketing mix for services –Service quality –Introduction to

gaps model and SERVQUAL dimensions.

UNIT II – FOCUS ON CUSTOMERS

Assessing service marketing opportunities –Customer expectations and perceptions of services –Customer

behaviour specific to usage of services –Service markets segmentation –Market targeting and selection.

UNIT III – SERVICE DESIGN

Levels of service product –Service life cycle – New service development – Service blueprinting - -Physical

evidence and service scape –Competitive differentiation of services –Service positioning strategies-Developing

positioning maps-Pricing of services –Methods and specific issues.

UNIT IV –SERVICE DELIVERY

People in services –Services process – distributing service direct distribution, Channel functions, channels selection,

impact of information technology-designing communications mix for promoting services- building service customer

relationships and service recovery –role of internal marketing in service delivery.

UNIT V – MARKETING STRATEGIES FOR DIFFERENT SERVICES

Formulating service marketing strategies for health, hospitality, tourism, logistics financial, information technology,

educational, entertainment and public utility services.

REFERENCES:

1. .Kenneth E clow, et.al “Services Marketing Operation Management and Strategy”Biztantra, New Delhi,

2004.

2. Chiristropher H.lovelock, Jochen wirtz,”Services Marketing “, Pearson Education, New Delhi, 2004.

3. Halen Woodroffe,”Services Marketing “, McMillan Publishing Co, New Delhi 2003.

4. Nimit Chowdhary and Monika Choudhary, “Text book of Marketing of Services “, the Indian experience,

Macmillan Publishing Co, New Delhi,2005.

5. Christian Gronroos,”Services Management and Marketing a ‘CRM Approach”, John Wiley and sons

England 2001.

6. Bhattacharjee,”services Management, An Indian Respective” Jaico Publishing House, Chennai, 2005.

ix

CONTENTS

UNIT -I

INTRODUCTION

1.0 SERVICES ECONOMY 2

1.1 DIFFERENTIATING GOODS FROM SERVICES 3

1.1.1 Tangibility Spectrum 4

1.2 SERVICES DEFINED 6

1.3 INTRODUCTION TO SERVICES MARKETING 8

1.4 CHARACTERISTICS OF SERVICES 8

1.4.1 Intangibility 9

1.4.2 Inseparability 10

1.4.3 Variability 10

1.4.4 Perishability 11

1.4.5 Customer Participation 11

1.4.6 No Ownership 12

1.5 EVOLUTION OF SERVICES SECTOR 14

1.5.1 Evolution of Service Marketing 15

1.5.2 Service Based Economy 17

1.6 GROWTH OF SERVICES SECTOR 21

1.6.1 Reasons for Growth in Services Sector 21

1.6.2 Reasons for Growth of Services in India 22

1.7 CLASSIFICATION OF SERVICES 27

1.7.1 Classification based on Degree of Involvement of the Customer 27

1.7.2 Classification based on the Service Tangibility 29

1.7.3 Classification based on Skills and Expertise Required 30

1.7.4 Classification based on the Business

Orientation of Service Provider 30

1.7.5 Classification based on the Type of End-User 31

1.8 SERVICE MARKET POTENTIAL 31

1.9 EXPANDED MARKETING MIX FOR SERVICES 32

1.10 SERVICE QUALITY 38

1.10.1 Service Quality Dimensions 42

xi

1.10.2 GAP Analysis 44

1.10.3 SERVQUAL Dimensions 46

UNIT II

FOCUS ON CUSTOMERS

2.1 ASSESSING SERVICE MARKETING OPPORTUNITIES 55

2.2 CUSTOMER EXPECTATIONS AND

PERCEPTIONS OF SERVICES 56

2.2.1 Understanding Customer Requirements 57

2.2.2 Customer Expectations 59

2.2.3 How Do Consumers Develop Expectations 60

2.2.4 Factors That Influence Customer Expectations of Service 62

2.2.5 Criteria to Evaluate a Service Based on

Customers’ Service Expectations 66

2.3 CUSTOMER BEHAVIOR SPECIFIC TO USAGE OF SERVICES 69

2.3.1 Importance of Consumer Behavior 71

2.3.2 Consumer Decision Making Process 73

2.3.3 Perceived Risk 75

2.3.4 External Factors Influencing Consumer Behavior 77

2.3.5 Implications for Service Providers 78

2.3.6 Service Provision as Drama. 80

2.4 MARKET SEGMENTATION 85

2.4.1 Market Segmentation In Services 85

2.4.2 Bases for Services Market Segmentation 88

2.4.3 Requirements for Effective Segmentation 97

2.5 MARKET TARGETING AND SELECTION 100

2.5.1 Market Targeting In Services 101

2.5.2 On What Basis do Marketers Target the Identified Segments? 102

2.5.3 Targeting Strategies 104

2.5.4 Guidelines for Selecting Target Market 106

2.5.5 Mass Customization 109

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UNIT - III

SERVICE DESIGN

3.0 INTRODUCTION: SERVICE DESIGN- FIRST P – THE PRODUCT 114

3.1 SERVICE PRODUCT LEVELS 115

3.1.1 The Flower of Service 118

3.2 SERVICE LIFE CYCLE 120

3.3 NEW SERVICE DEVELOPMENT 122

3.3.1 Development of a New Service 123

3.3.2 What Is a New Service Product? 123

3.3.3 Steps in the Development of a New Service 124

3.4 SERVICE BLUEPRINT 130

3.4.1 Elements of Blueprinting 131

3.4.2 Reading a Service Blueprint 132

3.5 PHYSICAL EVIDENCE AND SERVICE SCAPE 133

3.5.1 Service Scape 134

3.5.2 Elements of Physical Evidence 135

3.6 COMPETITIVE DIFFERENTIATION OF SERVICES 142

3.7 INTRODUCTION - POSITIONING STRATEGIES 147

3.7.1 The Importance of Positioning of Services 148

3.7.2 Service Positioning Strategies 149

3.7.3 Developing Positioning Maps 151

3.8 PRICING OF SERVICES 154

3.8.1 Characteristics of Pricing in Services 155

3.8.2 Key Pricing Concepts of Services 157

3.8.3 Value Strategies in Pricing of Services 160

3.8.4 Total Customer Value of the Services Delivered 164

3.9 ISSUES IN PRICING OF SERVICES 171

UNIT IV

SERVICE DELIVERY

4.0 INTRODUCTION- THE PEOPLE – THE FIFTH P 180

4.1 CLASSIFICATION OF SERVICE PERSONNEL 180

4.2 ROLE OF SERVICE PERSONNEL 183

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4.2.1 Job Characteristics 184

4.2.2 Control Issue 184

4.2.3 Dealing with Conflicts 185

4.2.4 Staff Selection and Recruitment 188

4.2.5 Training and Development 190

4.2.6 Human Resources Management Issues 192

4.3 SERVICE PROCESS 195

4.3.1 Designing Service Processes 196

4.3.2 Spectrum of Service Processes 198

4.3.3 Planning a Service Process 200

4.4 DISTRIBUTION OF SERVICES – THE PLACE – THE FOURTH P 202

4.4.1 Service Transactions 204

4.4.2 Service Location 205

4.4.3 Service Providers 211

4.5 CHANNEL FUNCTIONS OR FUNCTIONS OF

SERVICE INTERMEDIARIES 212

4.6 CHANNEL DECISIONS 212

4.6.1 Direct Distribution 215

4.6.2 Franchising 217

4.6.3 Agents and Brokers 219

4.6.4 Electronic Channels 220

4.7 DESIGNING COMMUNICATIONS MIX FOR

PROMOTING SERVICES 224

4.7.1 Need for External Marketing 225

4.7.2 Steps in Effective Communication 226

4.7.3 The Promotional Mix 229

4.7.4 Word-Of-Mouth Communication (WOM) 234

4.7.5 Steps for Success in External Marketing 236

4.8 BUILDING SERVICE CUSTOMER RELATIONSHIPS 237

4.8.1 What is CRM? 238

4.8.2 Traditional Marketing Vs Relationship Marketing 238

4.8.3 Essentials of Relationship Marketing 240

4.8.4 Customer Retention 240

4.8.5 Lifetime Value of Customers 242

4.8.6 Reason for the Customers to Look for Relationship 243

4.9 CUSTOMER RESPONSE TO SERVICE FAILURES 244

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4.9.1 Service Recovery Following Customer Complaints 245

4.10 THE SERVICES TRIANGLE 248

4.10.1 Role of Internal Marketing in Service Delivery 250

4.10.2 The Internal Marketing Process 251

UNIT V

MARKETING STRATEGIES FOR

DIFFERENT SERVICES

5.0 INTRODUCTION 258

5.1 HEALTHCARE SERVICES 258

5.1.1 India’s Competitiveness in Healthcare Services 261

5.1.2 Strategies to Achieve Excellence in Global Health Care Services 262

5.1.3 Services Marketing Mix of HealthCare Services 265

5.2 HOSPITALITY SERVICES 269

5.2.1 Hotel Services 270

5.2.2 Tourism Services 275

5.2.3 Logistics Services Industry 282

5.3 FINANCIAL SERVICES 288

5.3.1 New Challenges of Financial Service Sector 289

5.3.2 Banking Services 291

5.3.3 Insurance Services 301

5.4 INFORMATION TECHNOLOGY SERVICES 315

5.4.1 The Indian Scenario of the IT Services 316

5.4.2 Importance of IT Services 317

5.4.3 Services Marketing Mix of IT Services 318

5.5 EDUCATIONAL SERVICES 322

5.5.1 Services Marketing Mix of Educational Services 325

5.6 ENTERTAINMENT SERVICES 334

5.6.1 FICCI report on the Indian Entertainment Industry 336

5.6.2 Glimpses of the Indian entertainment Industry 336

5.6.3 Services Marketing Mix of Entertainment Industry 343

5.7 PUBLIC UTILITY SERVICES 347

5.7.1 Telecommunication Services 349

5.7.2 Indian Postal Services 355

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OVERVIEW OF THE COURSE MATERIAL

“Marketing is not an event, but a process . . . It has a beginning, a middle, but never an end, for it is a

process. You improve it, perfect it, change it, even pause it. But you never stop it completely.”

- Jay Conrad Levinson

“Economic value, like the coffee bean, progresses from commodities to goods to services to experiences.”

Joseph B. Pine II & James H. Gilmore, The Experience Economy

Today, the service sector contributes more than 50 percent to India’s GDP. This is a far cry from the

situation a few decades back, when India was basically an agricultural economy. This shift from manufacturing

and agriculture to services is being witnessed in countries all over the world. With the increasing prominence of

services in the global economy, Services Marketing has become a subject that needs to be studied separately.

Marketing of services is different from marketing of goods because of the unique characteristics of services,

namely intangibility, heterogeneity, perishability and inseparability, which was explained in the last semester course

on Marketing Management, in nutshell. These characteristics also require the marketing mix of services to be

extended, to include Process, People, Physical evidence and Productivity & Quality, in addition to the four

traditional Ps of Product, Price, Place and Promotion. Services marketing is a people-dependent activity,

owing to the fact that there is often no tangible product that is delivered to customers.

The importance of concepts like relationship marketing cannot therefore be ignored in marketing services.

The supplementary services attached to a core service, add value to it and help in differentiating it from the

service offered by a company’s competitors. These also help in branding the service. Services marketing discuss

the unique features of services and their significance to marketing, and examine each of the eight elements of the

marketing mix. The final unit of this course material contains different service industries in India like Tourism,

logistics, financial services Information Technology and Retailing, which have been experiencing tremendous

growth in the recent years.

xvii

DBA 1721

NOTES

2 ANNA UNIVERSITY CHENNAI

1.0 SERVICES ECONOMY

Services have increasingly assumed an important role in the economic development

of many countries, including India. Almost all developed countries and many developing

countries are emerging as service economies or service societies. An economy is called a

service economy when the contribution of the service sector to the GDP of the nation is

more than 50 per cent. USA was the first economy to be declared as a service economy

way back in 1948 with about 53 per cent contribution of the service sector to the GDP of

the nation. There is an argument that the statistics of the service sector’s contribution in

many countries is a gross underestimation of the truth, since the value of the services

produced by manufacturers of goods in the industrial sector is not included in service

output value. As such, there is a large ‘hidden service sector’ that is not classified under the

service sector. Services are becoming a critical source of wealth in many ways to the

economies. Economies experienced increase in employment with the growth in service

sector. While employment in the manufacturing sector is receding every year, employment

in the service sector is rising. Even in times of economic recession, unlike in the manufacturing

sector, the service sector has kept employment up.

All human beings are service producers as well as consumers. We cannot imagine

our life in the absence of services. Transportation, education, communication, health care,

hospitality, entertainment, banking, information technology, electricity and a host of services

have become a part of our lives. In fact, the concept of service is as old as humankind and

began when man started serving himself (self-servicing). When a part of the society became

affluent, it started utilizing the services of others at a price. Then services became a business

proposition. Over the years, services have grown in different ways throughout the world.

However, until the beginning of the 20th century, the focus of the economies was to produce

more and more tangible goods and sell agricultural and manufactured products. Services

such as accounting, banking, insurance and transportation were considered as support to

the manufacturing units.

In the beginning, throughout the world most services were in the public sector.

Most organizations enjoyed the status of monopoly. The situation of excessive demand

over supply and absence of competition or negligible competition led many service

organizations to be insensitive to the marketing concept. The management and the marketing

literature developed until the 1970s depicted manufacturing organizations and suggested

that the same philosophies and technology be applied to the service organizations also.

DBA 1721

NOTES


between the goods and service may not be equal in all restaurants though both are

important for the consumers. In a five-star hotel, service takes a prominent place

when compared to food items, whereas in ordinary restaurants the proportion

may be more or less equal. In case of fast food centres, food may take dominant

position as compared to services. Therefore, there is a possibility of having a

hybrid category of products, but it is uncommon to have a significant portion of

such products in any economy.

4. Service with accompanying tangible goods: This is a marketing offer, in which

the intangible part is dominant. People buy services but not the tangible goods

involved in the production of services. The accompanying goods playa major role

in the value assessment of service by the consumer. For example, people buy

mobility service from a transport organization. To provide such service, transport

organizations really need tangibles like buses, trucks, trains, helicopters, aeroplanes

and the like. Although consumers of the mobility service do not buy the tangibles,

the condition of the vehicle, interior and exterior, facilities, comfort, speed and so

on, will playa major role in assessing the value of the service. The vast majority of

the service products fall under this category.

5. Pure service: Pure service is a marketing offer, where consumers confine themselves

to valuing only the service they receive and nothing else. Service without any support

of goods can serve the purpose of the users and is capable of giving satisfaction to

the consumers. Teaching, consultancy, idea selling and the like fall under pure

service category.

1.1.1 Tangibility Spectrum

The major factor that differentiates a service from a product is its intangibility.

However, it should be noted that the line separating products and services is fast thinning

down. Marketers today try to attach an element of service even to the products, to attract

customers and enjoy their loyalty. For example, when a customer buys a car, he enjoys a

free service for the first 3 years from the car company.

According to Zeithaml and Bitner, intangibility plays a key role in determining

whether an offering made by a marketer is a product or service. In some cases, the service

provider also gives the customer a tangible element bundled together with his service. For

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NOTES


1.2 SERVICES DEFINED

The following definitions present the perception of various personalities and

associations responsible for contributing significant work over the last four decades, that

is, from 1960 onwards, in services management and marketing.

The American Marketing Association (1960): The American Marketing Association

has taken a lead in defining services as “activities, benefits or satisfactions which are offered

for sale or provided in connection with the sale of goods.” This definition provides a limited

view of services. However, this was the first major attempt to identify services differently in

valuing the output of a society. The definition does not provide for valuing services involved

in producing the tangible goods.

Regan (1963): Regan in his definition classified services into two categories. According

to him “services represent either tangibles, yielding satisfaction directly (transport, housing)

or intangibles, yielding satisfaction jointly when purchased either with commodities or other

services “credit delivery”. An attempt is made through this definition to give a distinctive

focus for such services that are offered directly to the consumers as products.

Robert Judd (1964): According to Robert Judd, service is “a market transaction by an

enterprise or entrepreneur where the object of the market transaction is other than the

transfer of ownership of a tangible commodity.” In this definition three broad areas of

services are recognized. They are:

1. Right to possess and use a product (rented goods business).

2. The custom creation, repair or improvement of a product (owned product services).

3. No product element, but an experience (non-goods services).

An attempt was made through this definition to give an independent status to more and

more services and to focus the attention of the researchers for further development.

William J. Stanton (1974): A comprehensive view of services was provided by Stanton.

According to him services are “separately identifiable, intangible activities which provide

want satisfaction when marketed to consumers and/or industrial users and which are not

necessarily tied to the sale of a product or another service.” This definition focuses upon

several issues for recognition. They are:

DBA 1721

NOTES


Services may be defined as intangible activities performed by persons or machines

or both for the purpose of creating value perceptions among consumers. Since services

are intangible activity (ies) or benefit(s) produced by the service provider, in association

with the consumer, its quality results in perception and value assessment by the consumer.

1.3 INTRODUCTION TO SERVICES MARKETING

The basic questions that confront everyone is why should there be a separate

learning on services marketing? Are the marketing concepts and techniques that are

developed (studied in the last semester course on marketing management) for the

manufacturing sector not applicable to services? Do services require distinctive strategies

in marketing? The answers to the questions provide the basic platform for an understanding

of services marketing.

A different marketing approach is necessary for services marketing, because services

differ from goods in many respects. The following are the differences between physical

goods and services.

Ø Services are intangible. Goods are tangible.

Ø Services are heterogeneous whereas goods are homogeneous.

Ø Services are produced in buyer-seller interactions. Goods are produced in the

factory.

Ø Production, distribution and consumption take place simultaneously in the case of

services. In the case of goods, the three are separate and independent functions.

Ø Consumers are co-producers in services. Customers do not generally participate

in the production of goods.

Ø Services cannot be stored. Goods can be stored.

Ø In the sale of services, transfer of ownership will not take place whereas in the

case of goods it does take place.

Considering the core differences between goods and services, several characteristics

of services can be identified.

1.4 CHARACTERISTICS OF SERVICES

Services have basically six characteristics that greatly effect the design of marketing

programmes. They are:

DBA 1721

NOTES


1.4.2 Inseparability

A service is consumed by the customer as soon as it is delivered by the employee.

Thus, production and consumption occur simultaneously in case of services as opposed to

products which are manufactured, inventoried and then consumed. Services cannot be

inventoried and need to be consumed immediately. Since the delivery and consumption of

a service are inseparable, there has to be interaction between customers and employees of

a service organization. For example, the interaction between patient and doctor is essential

if the patient has to be treated for an illness. In the case of a hotel, the interaction between

a server and a customer is essential for the former to take the order for food and serve it to

the customer for consumption. As a result, customers tend to equate the quality of service

offered by the organization with their interaction with its front-line employees. Therefore,

service organizations should take special care in training and motivating employees. Frontline

employees should be trained to be professional in their approach; courteous in the way

they talk to customers and patient in dealing with queries.

1.4.3 Variability

Services cannot be separated from the service provider. In fact, the production,

delivery and consumption of a service takes place simultaneously in the buyer-seller

interactions. This characteristic of a service creates problems to the marketer, particularly

in the case of market expansion. Wherever the service provider intends to offer services,

he should have a service production unit that offers the same service quality standards.

However, some service organizations are able to reduce direct interactions by introducing

new technologies. For example, banking organizations have introduced the cheque facility,

the credit card facility, tele banking and ATM to minimize direct buyer-seller interactions.

Services are highly variable. It is almost impossible to have the same service from

the same seller the second time. No two customers can have exactly similar service even

though they experience it simultaneously. For example, the experiences of bus travelers

vary with the seats they occupy. The experiences of passengers sitting on the window side,

inner side, front rear and rear of the bus will not be similar, though they take the service

simultaneously. A receptionist of a hotel cannot extend the same kind of smile to the customers

during all her working hours. Service organizations face major problems in standardizing

and communicating the service standards because of this characteristic. While customers

look for communication from the company relating to service standards for arriving at a

DBA 1721

NOTES


is necessary. Customization is one of the key strategies the service firms adopt to ensure

efficient and effective participation of customers. Customer participation is active in services

such as medical treatment, hairdressing, health clubs, colleges and beauty care centres.

1.4.6 No Ownership

Service consumers will have experiences but not ownership. Since the services

are intangible and perishable, the question of ownership doesn’t arise. But this characteristic

will add to the problems of the service marketer. Convincing the customer with tangible

goods on which he will have ownership through transfer of title is much easier than selling

an experience where nothing remains after consumption, except the memory of it. Customer

dissonance (discussed in the last semester course on marketing Management) would be

higher in the case of services than of goods.

Due to the above mentioned characteristics of services, service providers face

varied problems and challenges in marketing, when compared to producers of goods. The

marketing challenges and strategic options due to service characteristics are presented in

Table 1.1. The strategic options listed in the table forms the essence of strategies practiced

by the services marketers and they will be discussed in detail in due course of this course

material.

The characteristics described above distinguish services marketing from goods

marketing approach. The marketing challenges over and above the scope of goods marketing

need to be addressed by the service firms with a different strategic approach. This does

not mean that traditional marketing philosophies, methods and techniques are totally irrelevant

to the service sector. In fact, the fundamentals of marketing which you have studied in the

last semester are the same to both the sectors. What is required is to develop an adaptable

mechanism to a different environment, keeping in view the service characteristics. Thus,

services marketing is nothing but application of traditional marketing philosophies to the

service sector with changes required wherever.

Table 1.1: Marketing Challenges and Strategic Options in Services Marketing

Service Char Marketing Problems/ Strategic Options

acteristics Challenges

Intangibility Ø Cannot be communicated ü Making the service

easily. process tangible to the

DBA 1721

NOTES


Ø Customers are evaluating at ü Effective interactive

every stage of service marketing

production ü Management of

movements of truth

ü Effective internal

marketing

No Ownership Ø Nothing remains after ü Making communication

consumption tangible

Ø Very less time to the ü Customer relationship

consumer to evaluate the marketing

product ü Managing high level of

Ø High consumer dissonance company image

1.5 EVOLUTION OF SERVICES SECTOR

Adam Smith, a well-known economist of the late eighteenth century, has defined

the important concept of value generation. In his original theory, he proposed the following

schematics:

Thus, he proposed that the production of goods leads to tangible output. This

output or the finished product is consumed by the users. Consumption leads to value

generation, as the customer’s overt or latent needs are satisfied. However, Smith dismissed

the contribution of services to the process of value generation. He emphatically stated that

the generation of services is unproductive and thus devoid of any value creation. It is

indeed difficult to convey the concept of value generation when no tangible ownership of a

product seems to have been transferred. Alfred Marshall, another famous economist, in

the late nineteenth Century, corrected this notion of the role of services. Doubts about the

ability of the services sector to contribute significantly to the economic development and

well-being of societies, however, continued to exist till the twentieth century. Today we are

aware that both goods and services satisfy different needs of customers, and hence, both

are value contributors.

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1) Crawling out stage - took place prior to 1980

2) Scurrying stage - between 1980 to 1986

3) Walking erect stage - from 1986 to 2000

4) Galloping Stage - From 2000 to till date

Ø Crawling out Stage - took place prior to 1980

In this stage discussion centered around the need for a separate body of literature

to deal with the specific problems of the services sector.

Donnelly highlighted differences between the marketing channels used for services

and those used for physical goods and implications for marketing strategy. Marketing

traditionalist argued that service organization did not need a separate body of theory, and

that existing marketing theories could, and should, be applied to service organizations.

They considered services as an offer tied up with physical product. Services marketing

academics and practitioners argued that services required special treatments as a result of

their distinctive characteristics.

Ø Scurrying Stage - between 1980 to 1986

Efforts were made to classify services more clearly and attention focused heavily

on the crucial issue of managing quality in service operations. Zeithaml, Berry and

Parasuraman developed their pioneering gaps model. Booms and Bittner developed their

expanded marketing mix for services which took into account the distinctive characteristics.

They add three more P’s to the original marketing mix. They are people, process and

physical evidence. For the first time text books on services marketing began to be produced.

Ø Walking erect Stage- from 1986 to 2000

Since 1986 there has been almost no discussion of whether services are different

from goods, but rather the literature has focused on specific marketing problems on service

organizations. They include consideration of service encounters, service design, perceived

service quality and customer satisfaction, internal marketing and relationship marketing.

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the third quarter (October-December) of 2005-06, real gross domestic product (GDP)

registered a sharp increase in the fourth quarter (January-March) of 2005-06 benefiting

from a pick-up in almost all segments of agriculture, industry and services. According to

the revised estimates released by the Central Statistical Organization (CSO) in May 2006,

real GDP accelerated from 7.5 per cent in 2004-05 to 8.4 per cent during 2005-06. The

Indian economy has, thus, recorded an average growth of over 8 per cent in the latest

three years (2003-04 to 2005-06).

Growth Rates of Real GDP

(Base Year: 1999-2000) (Per cent)

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faced with foreign competition, including the threat of cheaper Chinese imports. It has

since handled the change by squeezing costs, revamping management, focusing on designing

new products and relying on low labor costs and technology.

Services:

India is fifteenth in services output. It provides employment to 23% of work force,

and it is growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has

the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950. Business

services (information technology, information technology enabled services, business process

outsourcing) are among the fastest growing sectors contributing to one third of the total

output of services in 2000. The growth in the IT sector is attributed to increased

specialization, availability of a large pool of low cost, but highly skilled, educated and fluent

English-speaking workers (a legacy of British Colonialism) on the supply side and on the

demand side, increased demand from foreign consumers interested in India’s service exports

or those looking to outsource their operations. India’s IT industry, despite contributing

significantly to its balance of pyments, accounted for only about 1% of the total GDP or 1/

50th of the total services. Excellent infrastructure in the service sector and the lowest

communication cost has helped India to be a dominant player in these sectors.

Environmental Trend and Emerging Service markets

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of service functions such as selling, marketing research, advertising, labor welfare, HRD,

financial advisers strategic advisers, etc. With the growth of competition and the pace of

change in consumer exposure and expectations forced organizations to look for specialized

services.

Companies started unbundling the organizations and taking the services from

outside, where highly professional and specialized services are available at a relatively low

price. As a result, a number of service organizations have come up in the world. The

concept of self reliance by way of minimizing or avoiding dependence on others was used

by the firms to reduce uncertainties, to maintain confidentiality and to grow big. The wave

of specialist services during the last three decades changed management philosophies and

encouraged them to outsource many services. Hence, the demand for special services has

gone up.

Final Demand from Customers

There is a growth in direct demand from customers for a variety of services. The

marginal utility from goods has diminished, atleast in a relative sense and services have

grown in importance. People spend more and more on services. The demand for health

services, polybion laser services, travel, entertainment, sports and the like registered a

significant growth in recent years. The following are the reasons identified for the growth in

demand for services directly from customers:

ü Increase in affluence

ü More leisure time

ü Increasing proportion of working woman

ü Growth in the population of DINKS (Double Income No Kids)

ü Greater complexities of products

ü Greater complexities in life

ü Greater concern for resource scarcity and ecology

ü Increasing number of new products

ü Increasing proportion of earning younger generation

1.6.2 Reasons for Growth of Services in India

The following are the reasons for growth of services in India.

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ü Cultural Changes

Culture is an embodiment of values, knowledge, traditions, taboos, habits and

behavior that passes from generation to generation. The influence of culture on the lifestyles

of people is significant. Culture is not static; in fact, it is a process of development. Change

is the underlying philosophy of culture. Some societies change faster, some at a medium

pace and the others at a slower pace. The pace of change in Indian culture is not uniform.

However, during the last century the factors of change are prominent. The changed role of

women is one example and the change in the family systems is another. The emergence of

the nuclear family system in place of the traditional joint family system creates a demand

for a host of services—entertainment, education, healthcare, hospitality, telecommunications,

posts, transport and tourism, to mention a few. There has been a marked change in the

thought process relating to expenditure, investment, leisure time perception, children’s

education, time management and so on, which has created a market for services.

ü IT Revolution

India has been occupying a vital position in the area of ‘information technology’ for

the last fifteen years. Indians have proved their supremacy in the field to the world. IT

became one of the key service businesses of the country. India has the largest software

skilled population in the world. The domestic market as well as the international market

has grown substantially. Many state governments realizing the potential for this area, have

made IT as their most prioritized segment. States such as Karnataka, Andhra Pradesh,

Madhya Pradesh, Tamilnadu, Maharashtra and Delhi have already achieved substantial

progress in information technology. It is expected that the IT-enabled services will have a

bright future in the years to come.

ü Conservation of Natural Resources

The growth of population, greater industrialization and indiscriminate consumption

has affected the natural resources, environment and ecological balance. The government

and social organizations realize the negative effects of the environmental pollution, resource

scarcity and the imbalance of the ecology. They have promoted several service organizations

to take up social marketing. Thousands of crores of rupees are being spent on forestation,

safeguarding rare animals and birds, protecting air, water pollution, conserving of oil and

energy and on research to develop new technologies that can promote very effective use

of natural resources and safeguard the environment.

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ü Increased Consciousness of Health Care

The health care market has grown substantially in India. The increased life

expectancy is the result of the consciousness of people regarding health issues. The growth

of health centres, fitness clubs, diagnostic centres, medical counseling, psychological

counseling, health-related information sites are the reflections of the growing demand for

health care services. The government as well as social organizations has taken up mass

campaigns through different media to create awareness among illiterate persons and rural

population on health care. Immunization campaigns, childcare campaigns, campaigns on

preventive medicine and family planning are some of the programmes intended to promote

health care in rural India.

ü Economic Liberalization

The economic liberalization process which started in 1991 brought in many changes

in the Indian business scenario. Multinationals were permitted to enter the Indian market.

Disinvestments and privatization policies made an end to the state owned monopolies in

many service areas. Delicensing policies encouraged many entrepreneurs to establish

business wherever they wanted. Liberal lending policies and lower interest rates motivated

many people to become self-employed. These changes led to a major shift in the competitive

scenario. The banking sector, insurance, telecommunications, power projects, advertising

agencies, marketing research, hospitality services, courier services and air transport

witnessed intense competition due to the entry of multinational companies. The flow of

time-tested service technology from various parts of the world changed the attitude of the

Indian consumer towards service.

ü Migration

Rural to urban and semi-urban migration has been one of the reasons for the

growth of services in India. Migration to urban areas for want of jobs and livelihood resulted

in the expansion of cities and townships. Due to this, businesses like real estate, rentals,

transportation and infrastructure services are expanding rapidly. Urban placement services

and personal services have also found increased demand.

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Ø People Processing: The customer is highly involved in the service process and needs

to be physically present in order to experience the service. In people processing, the

service is directed at the customer. For example, at a school or training center for

dance, the students availing the services have to be present in person. Other examples

of services that involve people processing are health care centers. Passenger transport

services, beauty saloons, lodging and boarding services, educational services and fitness

centers.

Ø Possession Processing: The customer doesn’t require to be present to experience

the service but has to submit his property to the service provider for the latter to

deliver the service. In possession processing, the service is directed at the possession

and not at the customer. For example, if a person wants his car to be serviced, he has

to leave it with the mechanic for some time to enable the mechanic to change the oil,

check the gears, brakes, etc. and wash and clean it thoroughly. Laundry and dry-

cleaning services, postal service, courier service and freight transportation are other

examples of such services.

Ø Mental Stimulus Processing: In mental stimulus processing, the attention of the

customer must be directed on the service in order to experience the service. In this

case, the service is directed at the mind of the customer. For example, a person taking

career counseling from a professional counselor gets stimulated mentally to take the

right decision or develop the right attitude. Other examples of such services are

advertising, entertainment, and education and consultancy services.

Ø Information Processing: This type of service requires service personnel to collect

information, analyze it, interpret and offer appropriate advice to the client. For example,

a market research firm hired by a company collects information from customers to

know their opinion about the company’s products or services, customer expectations

and suggestions to improve the products/services. The employees of the firm then

analyze the information and prepare reports in a way that allows the management of

the company to formulate strategies to improve its sales. Information processing also

takes place in services such as accounting, insurance, legal services. Programming,

data processing and data transmission.

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food and magazines to passengers, and market research firms provide clients with

a detailed report of the research results.

Ø Highly intangible: These are the services which do not provide customers with

any tangible product. For example, at a massage parlor, the customer might not

get anything tangible, except for the relaxing experience. He might smell the aromatic

oils or feel relaxed while undergoing the massage. But does not get any tangible

product.

1.7.3 Classification based on Skills and Expertise Required

Services can be categorized as follows based on the skills and expertise required by

the service provider to offer the service.

Ø Professional services: These services require the service provider to be formally

trained to deliver the service. The service rendered by a doctor. A pilot, an IT

consultant or a corporate trainer are examples of professional services.

Ø Non-professional services: These services do not require the service provider

to undergo any training to deliver the service. For example, baby-sitting and

housekeeping are examples of non-professional services and can be delivered

without the need for formal training.

1.7.4 Classification based on the Business Orientation of Service Provider

Services can be categorized based on the service provider’s purpose of doing business:

Ø Not-for-profit organizations: These are the services in which the main objective

of the service provider is to serve society and not to make profits. For example,

government schools and social service organizations are not in the business to

make a profit.

Ø Commercial organizations: These are services in which the main objective of

the service provider is to earn revenues and make profits. Airlines, insurance firms

and restaurants charge customers for the services they offer and attempt to

continuously improve their services and profitability.

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Business analysis involves defining the target market, its size, its structure, and the

existing customer trends. Present and future demand forecasts can prove to be extremely

useful in helping the organization decide whether to launch the new service. In addition,

information about the effects of external environmental factors is essential for the organization

to develop measures to tackle any problems that may arise in the course of developing and

launching the new service. Further, the existing competition and their strategies should also

be analyzed. At this stage, an organization also designs the service process through service

blueprinting (will be discussed in the following units).

Take a stand question: A restaurant customer asks the waiter if the fish on

the menu is fresh. Although the fish was frozen, the waiter answers “yes”

because he knows it tastes great and the customer will love the chef’s sauce.

Take a stand.

Suggested answer: This is a clear ethical lapse. It violates all norms of trustworthi-

ness and honesty. The waiter’s reasoning in effect is a rationalization that the ends

justify the means. This reasoning has historically been used to justify the most hei-

nous behavior. In accordance with Kant’s categorical imperative, when enough people

do it, language loses its meaning. Noone feels good when tricked into doing some-

thing. Also, the customer might have some kind of aversion to frozen food. It would

be better for the waiter to be honest with the customer but try to turn the fish’s

disadvantage into an advantage by emphasizing the special sauce.

1.9 EXPANDED MARKETING MIX FOR SERVICES

Strategies to market manufactured goods usually address the four elements of the

marketing mix – product, price, place and promotion (Which you have studied in detail in

the last semester course on Marketing Management). But the distinctive characteristics of

services, including the lack of inventories and customer involvement in production, require

attention to additional strategic elements. The 8 P’s model highlights eight strategic decision

variables for managers of service organizations, including: product elements (all

components of the service performance that create value for customers; place, cyberspace

and time (when, where and how to deliver services to customers); process (the method

and sequence in which an operating system works); productivity (how efficiently service

inputs are transformed into value-added outputs) and quality (the degree to which customer

needs, satisfactions and wants are met); people (customers and employees involved in

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elements in response to changing market circumstances and needs. Inevitably there is

much overlap and interaction between the various components of a marketing mix. Decisions

cannot be made on one component of the mix without considering their impact upon the

other components. Also the precise elements and their importance within any marketing

mix at any point in time will vary. The outline that follows therefore indicates some of the

key areas to which marketing managers need to devote their attention in formulating their

marketing mixes for services markets. It is illustrative not comprehensive. Service

organizations will almost certainly need to adapt it in their strategy planning. Each element

is considered in more detail in the following units.

Traditional Marketing Mix

Ø Product

The service product requires consideration of the range of services provided, the

quality of services provided and the level of services provided. Attention will also need to

be given to matters like the use of branding, warranties and after-sale service. The service

product mix of such elements can vary considerably and may be seen in comparisons of

service range between a small local building society and one of the largest in the country;

or between a small hotel offering a limited menu range and a four star hotel offering a wide

range of meals.

Ø Price

Price considerations include levels of prices, discounts allowances and commissions,

terms of payment and credit. Price may also pay a part in differentiating one service from

another and therefore the customers perceptions of value obtained from a service and the

interaction of price and quality are important considerations in many service price sub

mixes.

Ø Place

The location of the service providers and their accessibility are important factors in

services marketing. Accessibility relates not just to physical accessibility but to other means

of communication and contact. Thus the types of distribution channels used (e.g. travel

agents) and their coverage are linked to the crucial issue of service accessibility.

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Ø People

All human actors who playa part in service delivery and thus influence the buyer’s

perceptions; namely, the firm’s personnel, the customer, and other customers in the service

environment. All of the human actors participating in the delivery of a service provide cues

to the customer mg the nature of the service itself. How these people are dressed, their

personal appearance their attitudes and behaviors all influence the costumers perceptions

of the service.

Ø 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. The physical evidence of service includes all of the tangible representations of the

services such as brochures, letterhead, business cards, report formats, signage, and

equipment. In some cases it includes the physical facility where the service is offered, for

example, the retail bank branch facility. In other cases, such as telecommunication services,

the physical facility maybe irrelevant. In this case other tangibles such as billing statements

and appearance of the repair truck may be important indicators of quality. 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 the cues provided by the people and the service process. Physical

evidence cues provide excellent opportunities for the firm to send consistent and, strong

messages regarding the organization’s purpose, the intended market segments, and the

nature of the service.

Customers who come to a service factory experience the most powerful physical

evidence or servicescape (will be discussed in detail in the following units). The servicescape

involves the style and appearance of the physical surroundings where customers and service

employees interact. Servicescapes can create powerful impressions on customers by

positively affecting one or more of their five senses. Scenery, lighting, music and other

sounds, special effects, and the appearance of employees and other customers all help

create the atmosphere in which a service is delivered. In certain types of businesses,

servicescapes are enhanced (or diminished) by sounds, smells, tastes, and textures of

physical surfaces. For first-time customers in particular, the servicescape helps frame

expectations about both the style and quality of service to be provided. Because services

are intangible performances that are hard to evaluate in advance (or sometimes even after

service delivery), customers tend to rely on clues provided by the servicescape to judge

quality.

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a large role in increasing the speed and convenience of service delivery and enhancing

productivity. Developments in telecommunications and computer technology continue to

have a significant impact on the way services are produced and delivered. The growth of

mail order (via catalogs) and telephone sales has increased productivity for some service

firms, who can conduct transactions with customers at arm’s-length without having to

maintain an elaborate servicescape. The same is true for merchants who are using the

Web for e-commerce. Customers in all of these cases appreciate the speed and convenience

of service delivery, while suppliers are happy with the reduction in costs and subsequent

increases in productivity. Classical methods in measuring productivity often focus on outputs

rather than outcomes, stressing efficiency but neglecting effectiveness. The focus of

productivity can be shifted from its traditional focus on volume of output to one emphasizing

value of output. If the same volume can be sold at higher prices without a comparable

increase in input costs, then the transformation of inputs into outputs will be more productive.

Under these circumstances, the productivity goal shifts from efficiency to effectiveness.

The former is operations and finance oriented. The latter is marketing and customer oriented.

Because higher quality service creates more value for customers, the effectiveness approach

to productivity is closely allied to service quality. Productivity helps to reduce costs and

quality is essential for differentiation and building customer satisfaction and loyalty.

The four new marketing-mix elements (people, physical evidence, process and

productivity) are included in the marketing mix as separate elements because they are

within the control of the firm and any or all of them may influence the customer’s initial

decision to purchase a service, as well as the customer’s level of satisfaction and repurchase

decisions. The traditional elements as well as the new marketing mix elements will be

explored in depth in the following units. Certainly marketing managers in services markets

need to undertake research about the markets and market segments for which their

respective marketing mixes are shaped. Wherever possible the services marketing manager

will need to research and analyses the characteristics of the markets served.

1.10 SERVICE QUALITY

There are many definitions of quality, and in many senses quality is subjective. To

many people, quality implies luxury or excellence; a Rolls Royce rather than a Ford. However,

quality can also be measured in terms of fitness for purpose, and a Ford Escort is regarded

by many owners as a quality family car, while McDonalds provide a quality fast food

service.

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in the service production, thus impacting on the quality of the service delivery process. The

actual output of the service may be judged by the customer in terms of their expectations

of the outcome or benefit.

The customer’s overall judgment of service quality can be an evaluation of both

the process and the outcome, compared with the customer’s own expectations and desired

benefits. This leads to an important idea in assessing quality from a services marketing

perspective: perceived service quality.

Perceived service quality represents the customer’s judgment of an organization’s

service based on their overall experience of the service encounter. Understanding how

customers arrive at this judgment - that is to say, how they decide whether or not they are

satisfied with a particular service - is very important for services marketing management.

Research has indicated that consumers make these decisions using a number of key criteria

to judge the service.

The evolution of quality concepts and movement had been the subject of operational

managers in the manufacturing industry. Recently, quality has gained relevance in context

of service industry with reference to customer needs and expectations. The importance of

quality is recognized every where the concept seems to refer to several different areas,

namely, quality of the product, quality of the process, quality of the delivery system and

quality as a general philosophy of the organization.

Quality is a difficult concept to define in a single definition. Quality can be viewed

from two points of view:

1. From the point of the service provider – to set up standards or specifications in the

manufacturing process as well as the output which is totally objective and technical

in nature?

2. From the point of view of the customer – service quality occurs only when the

service firm provides services to the specifications that satisfy their needs. The

idea of quality here is subjective and will be strongly linked to the needs and

expectations of the customer.

The three underlying themes of service quality are that service quality is more

difficult to evaluate for services than for goods, service quality is based on consumers’

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the consumer, it is difficult to evaluate the level of service received.

1.10.1 Service Quality Dimensions

Berry, Parasuram, and Zeithaml conducted extensive research in service quality

and identified 10 dimensions used by consumers.

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the issues which impact on quality. Two of the most important components’ of internal

marketing which are critical for any organization seeking to implement quality service are:

ü Communication

Communication internally may need to be improved to ensure that there are no

breakdowns in communication between the elements within the organization which make

up a particular service. Communications should be designed to foster co-ordination and

integration, enabling employees to be responsive to their internal customers and suppliers.

Internal communications can also be a useful tool in engendering a team spirit and in

motivating personnel. This can be very important in the drive for service quality. Management

should end self that every employee knows what the organization’s objectives are, what

desired quality goals have been set and what their individual role is in achieving these

targets.

ü Training

Training needs to be undertaken to develop employees’ understanding of how

they can deliver service quality. This training might include customer care programmes,

and specific technical training to develop expertise in advising customers about the services

offered. Training for personal development is also important, as motivation and job

satisfaction are key elements in the provision and maintenance of quality service.

1.10.2 GAP Analysis

In 1985, Parasuram, Zeithaml, and Berry developed a model of service quality.

Their model claims that the consumer evaluates service quality experience as the outcome

of the gap between expected and perceived quality. The model emphasizes n the key

requirements for a service provider delivering the expected service quality.

The model (shown in figure 1.2) identifies five gaps that can cause unsuccessful

service delivery. By learning the flow of the model, it is possible to exercise greater

management control over the consumer relationships. The study of this model should lead

to an improved realization of the key issues at which service providers can influence the

satisfaction of consumers.

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Gap – 4 (Gap between service delivery and external communication)

Gap – 5 (Gap between expected quality and perceived quality)

1.10.3 SERVQUAL Dimensions

SERVQUAL is a 44-item scale that measures customer expectations and

perceptions regarding five service quality dimensions—tangibles, reliability, responsiveness,

assurance, and empathy. SERVQUAL consists of two sections: a 22-item section that

records customer expectations of excellent firms in the specific service industry, and a

second 22- item section that measures customer perceptions of a particular company in

that service industry. Results from the two sections are then compared to arrive at “gap

scores” for each of the five dimensions.

Ø The Tangibles Dimension

The SERVQUAL assessment of a firm’s ability to manage its tangibles Obtained

via four expectations questions (E1-E4)

Example:

a. E1. Excellent companies will have modern-looking equipment.

b. E2. The physical facilities at excellent companies will be visually appealing.

c. E3. Employees of excellent companies will be neat in appearance.

d. E4. Materials associated with the service will be visually appealing in an excellent

company.

Obtained via four perception questions (P1-P4)

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Example:

a. E10: Employees of excellent companies will tell customers exactly what services

will be performed.

b. E11: Employees of excellent companies will give prompt service to customers.

c. E12: Employees of excellent companies will always be willing to help customers.

d. E13: Employees of excellent companies will never be too busy to respond to

customer requests.

Perception Questions (P10-P13)

Ø The Assurance Dimension

The SERVQUAL assessment of a firm’s competence, courtesy to its customers,

and security of its operations.

Expectation Questions (E14-E17)

Example:

a. E14: The behavior of employees of excellent companies will instill confidence in

customers.

b. E15: Customers of excellent companies will feel safe in their transactions.

c. E16: Employees of excellent companies will be consistently courteous with

customers.

d. E17: Employees of excellent companies will have the knowledge to answer

customer questions.

Perception Questions (P14-P17)

Ø The Empathy Dimension

The SERVQUAL assessment of a firm’s ability to put itself in its customers place.

Expectations Questions (E18-E22)

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Third, SERVQUAL is based on Gap Theory, which can lead to biased results. Since both

expectations and service evaluation are measured after the service experience, measurement

of the expectations component will be biased. To reduce these problems, services should

modify SERVQUAL to fit the specific industry being used. Consumer expectations should

be measured prior to the service while the experience evaluation should be measured after

the service.

Case I: WILL YOU VISIT AGAIN

Kumar booked a table in a restaurant for 12 people at the beginning of the Diwali

period to celebrate the festive season with his family and friends. He had been a regular

visitor to Royal Restaurant and had developed loyalty for this place famous for South

Indian food. Most of his friends were from the South so he preferred to treat them at Royal

Restaurant.

Another reason for his selection was that the patron of Royal Restaurant, Ganesh

knew him well. Since he was regular visitor, he was quite confident that this dinner would

be a success.

Three days before the scheduled get-together dinner Kumar spoke to Ganesh and

asked him to increase the booking to 16. He looked busy but informed Kumar it would be

quite in order and he looked forward to seeing Kumar and party later that week.

As per programme, all Kumar’s friends met at his residence at 7 p.m. on the

appointed day and after having a cup of coffee left for Royal Restaurant to be there at the

scheduled time of 8.30 p.m. They were all relaxed and exchanged jokes on their way and

reached the restaurant at 8.20 p.m. With slight difficulty, they located parking place at

three different locations for the four cars in which they were traveling.

The guests arrived at the restaurant on time and Kumar was taken aback to find

that the table has been set only for 12 persons. Ganesh came over seeing a large group

gathered around the small table laid in one corner of the dining room. Kumar reminded

Ganesh of his earlier conversation which he had with him three days ago. He asked him to

recollect that the booking had been increased from 12 to 16, and suggested that it may be

an oversight that he had forgotten to set the table for 16 people. Kumar then asked him to

reset the table immediately for 16 people to avoid any embarrassment to him and his

guests.

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SUMMARY

A service firm, unlike a manufacturing firm, does not manufacture but rather performs

something for the customer. It delivers an experience that is intangible, heterogeneous,

inseparable and imperishable in nature. Thus, marketing of services is different from the

marketing of products and goods. In this unit different distinguishing characteristics of

services: intangibility, inseparability, variability, and perishability are discussed. Changes in

demographic, social and economic factors, as well as institutional and policy changes are

some of the major factors that influence the growth of the service sector. The services

marketing mix is the mix of marketing elements that help service firms to successfully operate

the business. In addition to the 4 P’s of marketing goods (product, price, place and

promotion), service firms are characterized by four additional P’s, namely people, physical

evidence, process and productivity. Services can be classified based on the degree of

customer involvement in the service delivery process, service tangibility, skills and expertise

required, business orientation of the service provider, and type of end-user. Lovelock

suggested that firms can market services better by dividing them into meaningful categories.

According to Philip B. Crosby, “Quality is conformance to requirements.” However, service

organizations should strive to enhance the quality of their service to exceed customers’

Improving service quality enables organizations to win credibility, enhance customer

satisfaction, obtain repeat customers and even charge a premium price. To measure the

quality of service offered, service organizations have to measure both the technical and

functional components of the service. According to a research conducted by Zeithaml,

Berry and Parasuraman, five important dimensions of service (as viewed by customers)

that need to be evaluated are tangibles, reliability, responsiveness, assurance and empathy.

REVIEW QUESTIONS

1. Cite examples of the differences between marketing products and marketing

services.

2. List the reasons for the growth of the services sector.

3. Identify the unique characteristics of services and give examples of each.

4. Identify the five elements of the services marketing mix and explain how each is

different from the marketing of products.

5. How would you classify the Olympics using the service classification scheme?

6. What are the underlying themes of service quality? Suggest illustrations of each

theme.

7. Define the five dimensions of service quality. Give an example of each dimension.

8. Explain the SERVQUAL model. How is it used by service marketers?

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2.0 INTRODUCTION: FOCUS ON CUSTOMERS

Over the years excellent companies have been known for adapting and responding

to a continually changing marketing plan. They practice the art of market oriented

management. Services marketing management represents marketing concept in action I.e.

a preplanned demand management under consumer oriented marketing philosophy. Service

firms need to think more consistently in marketing terms and the marketing concept. The

service firm must be customer-oriented and must develop a competitive marketing strategy.

Their strategy formulation, like that of the product-oriented firm consists of two steps:

• Identifying target markets and their needs and

• Developing a marketing mix that satisfies the unique needs of these target markets.

Marketing Management Process for Services:

Philip Kotler defines marketing Management as “Analysis, planning, implementation,

and control of programmes, designed to create build and maintain beneficial exchange

with target buyers for the purpose of achieving organizational goals”.

In general terms, the marketing management process is the same in the marketing

of services and tangible products (Figure 2.1). This unit very briefly explains the marketing

management process, the foundation on which corporate and functional strategy is built.

Figure. 2.1 Marketing Management Process

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The immediate external environment includes suppliers and distributors with

whom the organization deals directly and also its competitors whose activities would have

a direct effect on its market position.

The uncontrollable external environment comprises of all those factors outside

the organization, which impinge on its activities:

ü Economic factors like inflation, exchange rates have impact on banking services, also

on prices set by tour operators for their overseas holidays etc.

ü Social factors have an effect on the customers and employees, their attitude to life and

their expectations and values.

ü Political and legal factors can have an impact on the whole range of organizational

activities through tax incentives, privatization! nationalization of industries.

ü Finally, technical factors can influence the improvisation of services, e.g. home-banking,

barcode scanning in retailing business, etc.

The process of identifying and evaluating services marketing opportunities gives

rise to many new ideas. Each of these opportunities must be studied in relevance to the

company’s resources.

2.2 CUSTOMER EXPECTATIONS AND PERCEPTIONS OF SERVICES

“The consumer’s mind is still closed to us; it is a “black box” that remains sealed.

We can observe inputs to the box and the decisions made as a result, but we can

never know how the act of processing inputs (information) truly happens.”

John E. G. Bateson

“Satisfaction is the level of a customer’s felt state resulting from comparing

a product’s or service perceived performance standard against the customer’s

expectations.” Philip Kotler

Over the past few years, marketing of services has picked up pace and became

popular worldwide. Service organizations largely compete on the basis of the quality of

service provided by them. While some companies successfully deliver quality service to

their customers, others are just clueless. Why is it that some companies are successful in

providing quality service while others are not? Providing quality service is based on a

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Business Insight 2.1: Insuring Your Child’s Future

The opening up of the insurance sector in India has paved the way for private and

foreign players to enter the Indian insurance industry. Insurance companies are trying

to understand customer expectations and design their policies accordingly.

Insurance companies have realized the difficulties faced by middle-class individuals

to pay for their child’s education, marriage and so on. Identifying and grabbing the

opportunity available in the field of children’s education, many insurance companies

have come up with policies that cater to the needs of children. Allianz Bajaj’s Child

Care, Birla Sun Life’s My Child, ICICI Prudential’s Smart Kid, AMP Sanmar’s

Yuva Shree, HDFC’s Children’s Policy, and LIC’s Komal Jeevan, Jeevan Sukanya

and Jeevan Kishore are some of the childcare plans available in the market.

These policies can be differentiated on the basis of the life insured. While some

policies require the parent’s life to be insured, the others need the child’s life to be

insured. However, most of the plans offer benefits to the child in case of the parent’s

untimely death. In addition, some insurance companies have introduced a critical

rider in the form of Waiver of Premium to address the needs of policyholders during

unforeseen adversities. According to this rider, the insurance policy will continue to

be in force even if some calamity occurs. BLSI, and LIC’s Komal Jeevan offer this

as a rider while HDFC, ING Vysya have built this within their policies.

Insurance companies have understood customer expectations clearly and most of

them offer policyholders the sum assured (SA) along with a bonus at the time of

maturity. There is little difference in the pay-out-structure of the policy. Most of the

policies have surrender value and some of them allow policyholders to take loans on

the policies. On the other hand, unit-linked plans like the one ‘offered by ICICI

Prudential provide the policyholder with an option to withdraw sums of money at

important junctures during the course of the child’s education or to avail the benefits

during the last 5 years of the policy.

Unlike earlier times, present-day parents have many options to provide security for

their children and to meet the demands of their children’s future. They can choose a

policy after deciding on the sum assured (SA) and comparing various schemes

available on the basis of the pay-out structure and premium payments. Thus, in

order to survive in the market and retain customers, insurance companies are willing

to customize their policies according to the needs of their customers.

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2.2.3 How Do Consumers Develop Expectations

Customers will have different types of expectations about a service. Service

marketers should know what the expectations of the customers are. The knowledge of

customer expectations helps the marketers to design comprehensive service packages

that are capable of delivering satisfaction. At least two levels of expectations of service

customers can be identified.

They are:

ü Maximum level and

ü Minimum level.

In the process of service production and consumption, five levels of performance might

result.

Maximum service level is a blend of what the customer believes ‘can be’ and

‘should be’. For example, if you take the services of your UG college placement cell, your

expectations in all likelihood would be a right job in a right location for the right salary.

However, you are also aware of the constraints in obtaining jobs-the vacancy positions in

various companies, the competition and the changing expectations of the market. Due to

this reason you may hold a lower level expectation for the acceptance of the service. This

lower expectation is called as minimum service level.

Minimum service level represents ‘the lowest tolerable expectation’ or the bottom

level of performance acceptable to the customer. As shown in Fig. 2.2 there is a zone of

tolerance which will be between the desired service and adequate service.

A customer’s expectations of adequate service change with his perception of the

available alternatives for the particular service. Customers’ expectations of adequate service

increase in situations of an emergency. For instance, train commuters in large cities such as

Mumbai, tend to get frustrated at even the slightest delay in the arrival of local trains when

they need to move fast. However, when there is a service failure during heavy rains, the

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Figure 2.3 Factors that Influence Customer Expectations of Services

The basic objective of any organization, whether it is in manufacturing sector or in

service sector, is to develop and provide market offerings that satisfy consumers needs

and wants and thereby ensure its own economic survival. Towards this end, organizations

need to fill the gap between customer expectations and customer perceptions. The marketers

should have proper understanding of the behavioral characteristics of the consumers, their

expectations, evaluation processes and purchase decision processes.

There is an argument that consumer’s behavior would not be different in the case

of services. But services specialists do not agree with this argument. Though the basic

determinants of behavior may be common for both goods and services as far as expectations,

evaluation and selection of services are concerned, the behavior of consumers will definitely

be different. Service characteristics such as intangibility, inseparability, variability and

customer participation, lead to differences in the consumer evaluation process in all stages

of the buying process.

2.2.4 Factors That Influence Customer Expectations of Service

Service providers should have knowledge of the factors that influence customer

expectations of service. These factors can be studied under various heads, namely

Ø Factors that influence customer expectations of desired service,

Ø Factors that influence customer expectations of adequate service and lastly,

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Ø Factors that Influence Customer Expectations of Adequate Service

Customer expectations of adequate service are influenced by various factors such as

transitory service intensifiers, perceived service alternatives, customer self-perceived

service role, situational factors, and predicted service.

ü Transitory service intensifiers are the factors, which intensify or heighten the

level of adequate service expectations of customers. These factors include personal

emergencies, failure of a service provider to offer quality service the first time, or

factors that push customers to take the help of a service. For example, suppose a

customer who is very hungry decides to try the service of a home-delivery provider

of pizza who claims to deliver a pizza anywhere in the city limits within 20 minutes.

However, the pizza is delivered at the customer’s doorstep an hour after he has

ordered for it and that too, with a topping different from the one he had ordered.

The first- time service failure by the pizza home delivery service will increase the

service recovery expectations of the customer the next time he orders a pizza from

the same service provider. This time, the customer will expect the service provider

to deliver the pizza of his choice within the promised time.

Consider a situation where a customer wants to purchase medicines urgently on

his credit card and the credit card company refuses to give acceptance, though there is

credit amount available on the card. This will raise the adequate service level expectations

of the customer. Presence of transitory service intensifiers reduces the zone of tolerance

and increases the adequate service expectations of a customer.

ü Perceived service alternatives include customer perceptions of available

alternatives that offer similar service. The adequate service expectations of

customers increase when they think that there are alternatives available to fulfill

the need. For example, a customer in a big city who needs a loan to buy a house

knows that he can get a loan from any of the nationalized or private banks or

housing finance companies in the city. Hence, he will have high adequate service

expectations than a customer who lives in a rural town with only a nationalized

bank providing the requisite service.

ü A customer’s self-perceived service role also affects his/her adequate service

level expectations. The self-perceived service role of a customer is the extent to

which the customer perceives he is capable of shaping the service encounter and

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made by a service provider through advertisements, personal selling, brochures and

so on, heighten the desired and predicted service expectations of customers. For

example, if a software-training institute advertises that doing a specific course at the

institute can help one get a, Plum job in the IT Valley Bangalore, candidates enrolling

for the course will have increased desired and predicted service expectations. All

those who enroll for the software course at the institute will desire to obtain a job in

the Bangalore city soon after they complete it. Further, the candidates doing the course

begin to believe that the service provider will help them in getting a job in the Bangalore

city.

ü Implicit service promises: Implicit service promises are not explicit statements made

by a service provider but are tangible clues that give a customer an idea of how the

service will be. Tangibles related to a service are in the form of personnel of the

service provider, process, and physical evidence. For example, the price that is set

for a Taj Holiday package serves as an implicit service promise by the hotel group.

Through its pricing, the Taj group promises to deliver to the customer his/her money’s

worth and influence both desired and predicted service expectations of the customer.

The customer desires service that is commensurate with the pricing of the package. In

addition, customers predict to receive service of a particular standard due to the high

price associated with it

ü Word-of-mouth publicity: These include views or opinions of customers who have

already used the service, or surveys conducted by experts. For example, the positive

or negative opinion given by friends or relatives about a travel agency will influence a

customer’s desired and predicted service expectations.

ü Past experience: A customer’s past experience influences his current expectations

of service. For example, a customer who has visited a McDonald’s outlet in New

York, USA will desire and predict to receive service of the same standard at a

McDonald’s outlet in Chennai, India.

2.2.5 Criteria to Evaluate a Service based on Customers’ Service Expectations

Customer service expectations involve evaluation of how a service provider delivers

the service. That is, a customer’s opinion of a good, terrible, or bad service lies in his

service experience. A customer’s service experience is controlled by his sensory impressions

coupled with his intentions and mood at the time of the service encounter. However, recent

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Knowledge of the factors that influence customer expectations and the criteria on

which customers base their evaluation of a service experience, help service providers take

measures to manage customer expectations. Business Insight 2.2 describes how the

Madurai-based Aravind eye hospital created a special image for itself by educating its

patients on eye care and giving a meaning to their life.

Business Insight 2.2: Aravind Eye Hospitals

Imagine an organization providing eyesight to 13 million people, an organization

performing nearly 1.8 million surgeries in a span of 26 years. The organization in

question is the Madurai based Aravind Eye Hospital (Aravind). This organization

was the single largest cataract surgery provider in the world in 2003. While a cataract

surgery costs US$ 1650 in a US hospital, Aravind performed the same quality

surgery in India, at US$ 10. The manufacturing division of the hospital, Aurolab,

was one of the leading manufacturers of intraocular lenses (IOLs) in the world. In

2003, the division held a 10 percent share of the global market in 10Ls. While other

manufacturers such as American Ophthalmic Laboratories, US IOL Inc sold these

lens at $100$150 a piece, Aurolab sold the same quality of lens at US $4 - $6 per

lens.

C K Prahalad, a leading management thinker, has studied Aravind’s operations over

the years. He observed that Aravind generated a 200 per cent return on capital

employed. “We have a good medicine school at the University of Michigan, and

they are amazed by what they saw at Aravind. It is better than the best,” he said, in

appreciation of the functioning of Aravind. According to him, Aravind was a market-

driving entity as it served the most unserved market - the poor. The poor in India

could rarely afford good eye health care, leave alone eye surgeries. For them a

cataract meant blindness, and often, great suffering in their lives. They did not know

that they could regain their eyesight with a I5-minute surgery (at Aravind a cataract

surgery on an average took 10 to 20 minutes.) Dr.Govindappa Venkataswamy (Dr.

V), founder of Aravind Eye Hospitals, explained his marketing philosophy “Give

people a new experience, one that deeply changes their lives, make it affordable,

and eventually you change the whole world. And your customers become your

marketers.”

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behavior requires inputs from various disciplines such as sociology, psychology and

economics. Consumer behavior deals with the study of the factors that influence a customer

in purchasing a product/service, and the process that he/she goes through, to evaluate the

product/service prior to and even after its purchase and use.

The main challenge for a service provider is to tangiblize the intangible characteristic

of services. Offering customized and quality services is another challenge for service

providers of today. Technological advances in the new millennium have helped service

providers to offer customized services to their customers.

In this part of this unit, we discuss the differences between the process through

which a consumer evaluates goods and the one he/she uses for evaluating services. We

examine each step involved in the consumer decision-making process and the environmental

factors that influence consumer behavior.

The four broad categories of service presented in Figure 1.1 in the last unit have

very different implications for marketing, operations, and human resource management.

µ People processing involves tangible actions to people’s bodies. To receive this

type of service, customers must physically enter the “service factory” and cooperate

actively with service personnel and/or systems. This means that managers must be

aware of the effects of the physical environment, and the effects front-line employees

have on customers. They also need to educate customers to participate effectively

and efficiently in co-producing the service.

µ Possession processing involves physical actions to goods and other physical

possessions belonging to the customer. These activities are quasi-manufacturing

operations, and do not always involve simultaneous production and consumption.

Customers are less physically involved with this type of processing than with people-

processing services. Thus, their co-production role is not as great

µ Mental stimulus processing refers to intangible actions directed at people’s

minds. The customer must invest time and mental effort to receive these services,

but may not need to be physically present in the service provider’s factory. Because

these services have the capability to shape attitudes and influence behaviors,

managers must establish and enforce high ethical standards in service delivery.

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This shows that there is always an attempt on the part of the marketer to understand

and study “consumer behavior “.

With the opening up of the markets or the post liberalization period has resulted in

many companies entering the markets with offerings of their goods and services. This has

made each marketer to realize that he has to constantly upgrade the consumers knowledge

about his products by finding new dimensions. This is because there has been a change in

the physical behavior of the consumer. The consumer of yesteryears was a silent person

who uncomplainingly purchases the goods from the market place. There is a new customer

emerging today. He is the choice empowered customer who will be the decider of the fate

of the product or service at the market place.

Ø There is a change in the social environment of the customer especially with the rising

consumer earnings and the sharply dropping savings rate resulting in increasing amounts

of disposable income to be spent on product or service.

Ø Marketers have also observed a change in the psychological behavior of consumers.

There is an increasing awareness among the consumers to the changes taking place

around them resulting in an urge to purchase various goods and services.

Ø On the other hand producers have realized that customers cannot be taken for granted

and hence are putting all their efforts at manufacturing products tailored to met the

consumers needs.

Ø A satisfied customer will do the word of mouth advertising for the company and vice

versa.

Ø Thus identifying customer needs and directing all marketing efforts at delivering customer

value than competitors is the motto of the companies today.

Ø They are continuously engaged in trying to probe and understand the complex consumer

behavior better and respond by offering goods and services desired by them and then

communicating about the same through the various communication media.

Ø The challenge to the marketers is to determine the relative influence of the various

factors and to adapt and apply skillfully the so called information to a proper marketing

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The Buying Process begins long before and continues long after the actual purchase.

It encourages the marketer to focus on the entire buying process rather than just the purchase

decision. There are five basic stages through which consumers pass. However, certain

variables may influence the process. A relatively large purchase may slow the process,

extending the information or evaluation stages. Routine purchases may not require all five

stages. The five stages are:

ü Need Recognition: The buying process starts when the buyer recognizes a

problem or need. The buyer senses a difference between his or her actual state

and a desired state. The need can be triggered by internal and external stimuli.

Internal stimuli like hunger, thirst, or sex may initiate this need recognition. External

stimuli like the smell of fresh bread initiates hunger or a commercial for Goa initiates

the need for a vacation. At this stage, marketers must determine the factors and

situations that trigger consumer problem recognition. They should research

consumers to find out what kinds of needs or problems led them to purchase an

item, what brought these needs about, and how they led consumers to choose this

particular product. Marketers can also show how their product is a solution to a

problem. For example, T.G.I. Friday’s advertised its gift certificates as a solution

to Christmas shopping.

ü Information Search: An aroused consumer may or may not search for more

information. How much searching a consumer does will depend upon the strength

of the drive, the amount of initial information, the ease of obtaining more information,

the value placed on additional information, and the satisfaction one gets from

searching. Information may come from any of several sources including:

Ø Personal sources like friends, family, and neighbors;

Ø Commercial sources like advertising packaging and sales people; and

Ø Public sources like restaurant reviews, editorials in the travel section,

consumer-rating organizations.

Ø Experiential: product-trial, observing, handling, examining, etc.

With hospitality and travel products personal sources and public sources of

information are more important than advertisements. This is because a customer

does not know what they are going to receive until they have received it. A company

must design its marketing mix to make prospects aware of and knowledgeable

about the features and benefits of its products or brands.

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Ø Physical risk: Physical risk involves the risk to the physical safety of the customer

by using the product/service. For example, when a customer purchases a pressure

cooker, the decision involves a physical risk that its use may result in an accident.

As an example of physical risk involved in consumption of services, employing the

services of an eye surgeon for correction of vision can be a good example, as the

patient may be at the risk of losing his sight after undergoing the operation.

Ø Psychological risk: Psychological risk is the risk of causing harm to one’s self

image by making a bad product/service choice. For example, the experience of a

young couple hiring the services of a baby sitter for their baby involves psychological

risk. Further, they would be worried about the well-being of their child and the

effects of hiring a baby sitter on the young mind. Similarly, in case of products like

alcohol or cigarette, first-time users will experience psychological risk of getting

addicted to them. However, there is also an element of physical risk also involved

in this case.

Ø Social risk: This is the risk of having to face social embarrassment as a result of

making a poor product/ service choice. For example, a customer’s decision to

purchase a dress that does not suit her personality involves a social risk. Similarly,

when a customer decides to approach a psychiatrist for treatment, this decision of

the customer involves social risk of becoming an object of ridicule among his

acquaintances.

Ø Time risk: This is the risk that the time spent to search and locate a product/

service prior to its purchase may have been wasted, if the product/service does

not conform to the customer’s expectations. For example, there is a time risk

involved in a customer’s decision to purchase a music system after having made an

extensive search of all the models available in the market before purchasing it.

ü Purchase Decision: In the evaluation stage, the consumer ranks brands in the

choice set and forms purchase intentions. Purchase intention is influenced by attitudes

of others and unexpected situations. For example, Mary selected a Chinese

restaurant since her boyfriend liked Chinese food. Mary’s choice depended on

the strength of another person’s attitudes toward her buying decision and on her

motivation to comply with those wishes. At the same time, Mary may have an

unexpected car problem that will cost Rs.5000 for repairs. This may cause her to

cancel dinner reservations and select a less expensive gift.

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iii. Social class: People having similar lifestyles, interests, values, behaviors, and norms

are grouped under a social class. Their similarity in beliefs forms the basis for market

segmentation, and affects their shopping patterns or the kind of products or services they

purchase. Thus, marketers offer products and services aimed at a social class of people.

For example, hotels such as the Sheraton, the Hyatt and some Taj group hotels cater to the

tastes of the elite class.

iv. Reference groups: An individual uses the perspectives of a reference group as the

basis for his actions, judgment and opinion. Marketers make use of reference group

influences to develop advertisements by associating products, services, or some behaviors

with some types of reference groups. For example, Sahara group in India uses the Indian

Cricket team in its advertisements.

v. Family: Purchases are often not made by individuals alone, but a whole lot of other

people too have a say in the purchase decision. Marketers need to recognize the role

played by these various individuals in the purchase decision, in order to target their marketing

message at them. The various individuals who play an important role in the decision making

process include the initiator (a person who first gets the idea of purchasing a particular

product or service), information provider (a person who collects the information required

to make a purchase decision), influencer (a person whose opinions are given preference

in making the [mal decision), decision maker (a person who takes the final decision),

purchaser (a person who purchases the product) and user or consumer (a person who

actually uses the product).

2.3.5 Implications for Service Providers

Knowledge of the factors influencing consumer behavior has several implications

for service providers, which are as described below.

ü Customers gather and rely on information obtained from personal sources when

making service purchase decisions. Therefore, marketers should be careful in

satisfying existing customers by meeting or exceeding their expectations. Otherwise,

customers might spread negative word-of-mouth publicity.

ü Services are intangible in nature. Customers require the assistance of the service

provider to assess the value of a service with high credence qualities. This provides

an opportunity for service providers to market services having high credence

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able to charge lower interest rates on loans and offer higher interest rates on savings

accounts, all because most of their transactions are now done electronically. The

cost per transaction through the Internet is 27 times less than a transaction via an

ATM (Automatic Teller Machine), 54 times less than a transaction over the telephone,

and 107 times less than a physical face-to-face transaction.

How will customers react to these changes? Customers are slowly accepting and

understanding the benefits of e-banking. Today, the nationalized banks too have

converted most of their records into computerized forms, which enable them to

retrieve data and offer quick services to the customers. Customers can now open

an account, check their balance, transfer funds, pay bills, and obtain loans with a

click of the mouse. They need not go personally to the bank for getting these done,

unless they need to deal with high-end products like loans or savings investments,

which require personal contact with the banker. The concept of ‘anytime banking,

anywhere banking, anyplace banking’ improves customer convenience. Transactions

are processed in much less time.

Further, to improve and offer better services to customers, banks like HDFC Bank

have tied-up with cellular phone companies such as Airtel, Aircel, Vodofone, etc.,

enabling their customers to pay their bills through telephone or internet directly.

However, the challenge for these banks lies in convincing and winning the trust of the

customer.

2.3.6 Service Provision as Drama.

Researchers and managers of service businesses have compared service provision

with drama, observing that both aim to create and maintain a desirable impression before

an audience, and both recognize that the way to accomplish this is by carefully managing

the actors and the physical setting of their behavior. In fact, the service marketer must play

many drama-related roles (including director, choreographer, and writer) to be sure the

performances of the actors are pleasing to the audience. The Walt Disney Company

explicitly considers its service provision a “performance,” even using show-business terms

such as “cast member,” “onstage,” and “show” to - describe the operations at Disneyland

and Walt Disney World.

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to deliver the best possible service (i.e., if he or she is reading from the same script), the

service performance is -likely to be successful.

One of the factors that most influences the effectiveness of role performance is a

script-, “coherent sequence of events expected by the individual, involving her either as a

participant or as an observer.” Service scripts consist of a set of ordered actions, actors,

and objects that, through repeated involvement, define what the customer expects

Conformance to scripts is satisfying to the customer, while deviations from the script lead

to confusion and dissatisfaction.

Consider the script that you hold for the first day of class in a college course.

Among the actions you expect are the following: (1) enter the classroom; (2) see other

students in the room who are taking the class; (3) see the professor in the front of the

room; (4) listen to the professor describe the course; (5) get a syllabus of the class; and (6)

leave class early and start the actual education on the second class day. If a professor

performs in accordance with the script you hold, you feel comfortable, familiar, and satisfied

with the service encounter. Experiencing a script that is incongruent with this expected

pattern leads to confusion and dissatisfaction. What if you showed up and there were no

other students in the class with you the first day? What if the professor sent a graduate

student instead of coming herself? Suppose the professor told you she hadn’t had time to

write a syllabus? In these and other situations, negative departures from the customer’s

expected script will detract from service performance.

Positive discrepancies from the script are not as easy to specify-they may also de-

tract or could “surprise” and add -to the service encounter. Suppose the college class we

just discussed was filled to capacity on the first day. Would you interpret that as positive (a

sure sign that the class was popular) or negative (a signal that personal attention from the

professor may be reduced)? What if the professor was unusually friendly and so engaged

students that they stayed to the end of the period on the first day of class? While some

students might be delighted because the friendliness of the professor exceeded expectations,

others might be disgruntled, having counted on more free time between classes. Still others

may be suspicious, not trusting the friendliness because it doesn’t follow the expected

pattern. More personalization or attention is not always better. In summary, departures

from the customer’s expected script including provision. Of more of an attribute than

expected, may detract from or add to the service experience.

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serve the lunch,’ said Mahesh. ‘But we are working so hard in the kitchen despite

the climate,’ said Radha. ‘We really cannot serve any faster,’ she added. ‘It’s not

your fault’, said Ramesh kumar, ‘our business has grown by leaps and bounds in a

year. However, I have just heard that a new restaurant is going to open in the

neighboring building. Therefore, we may have to think of expanding and improving

our facilities to stay in the competition.’ ‘We should go in for top class decor, fancy

designer furniture, and swanky chairs. That would really push us up-market’, said

Ramesh kumar. ‘Moreover, we will be able to charge much better prices for the

food we serve. We can even buy new monogrammed ceramic cutlery to give us that

distinct look, and have a well-dressed cashier with a computerized machine to take

care of the money transactions.’ ‘We can buy some new kitchen equipment with

electric stoves, stainless steel pots and pans and perhaps even the new Italian design

smoke extractor. Many a time, customers do tend to complain about the charcoal

smoke’, added Radha. ‘We can hardly afford to do all these things without borrowing

a large sum of money from a financer. Even if we managed to do all that, we would

have no choice but to either increase the charges considerably or reduce the food

portions and economize in many other ways. We may even have to charge extra for

the additional portions of rice or sambar that is currently free of charge for the

limited meals customers’, said Ramesh kumar. I wonder if the crowd of office-goers

who are our main customers will be able to afford all that. I always thought their

main need was to be fed a substantial meal, as they are all very young and work long

hours. I think they like our food because we serve healthy home-like food at prices

that they can afford at their salary level. Deciding how to go about this expansion is

a real problem.

µ Comment on the above case and if you were Ramesh kumar, briefly list

down the immediate steps you would take to fulfill the expectations of the

customers. Also identify the desired and adequate levels of service. What

level of service would you plan to deliver?

µ Based on your analysis and given the shortage of the funds, can you suggest

what should be the main elements of the planned investment? Which

investments can be avoided and for what reasons?

µ Can you identify any services marketing opportunities that can be exploited

by Ramesh kumar in the near future with out making further investment.

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marketers realized that although similarities existed between certain customer groups, the

customers differed in terms of age, economic positions, lifestyles, occupations, expectations,

etc. For instance, an airline’s customers comprised business travelers, tourists, students,

and their needs differed on various fronts like the time factor, the fare, the food served, etc.

While the tourists wanted a good deal and a great ambience, businessmen looked for a

serene atmosphere and sharp maintenance of schedules. Offering a single type of service

to cater to all their needs would not be a feasible option and would also result in a dissatisfied

customer base. This realization paved the way for marketers to define their ‘market segment’

in the total market.

What constitutes a marketer’s ‘market segment’? A marketer’s ‘market segment’

consists of his existing as well as prospective customers whose needs, desires, and

expectations are different from the customers of other segments and match the resource-

constraint set of the marketer. The resources and constraints of a marketer define the set

of products/services that he can market for the consumption of the customers. Kotler and

Armstrong defined a market segment as “a group of consumers who respond in a similar

way to a given set of marketing stimuli” and market segmentation as “the process of dividing

a market into distinct groups of buyers with different needs, characteristics, or behavior

who might require separate products or marketing mixes.” As given in the definition, a

marketer should identify and select a segment that he is confident of serving better than his

competitors, given his resources and constraints and thus emerge as a leading player in that

segment. Business Insight 2.4 shows the segmentation of the Indian insurance sector and

how the private players are targeting the untapped rural markets.

Business Insight 2.4: Segmentation of the

Indian Insurance Sector

The life insurance market in India is divided into two customer segments: individual

and corporate. The segment comprising individual customers is further divided into

four sub-segments protection, investment, savings and pension. Protection products

offer the customer only protection from risk. They do not provide any savings facility

to the policy holder. Investment products offer long-term investment growth and

insurance cover. It was reported that in the individual insurance segment, the

investment products segment was growing rapidly as it provided long-term investment

growth and insurance cover. Savings products like endowment and money back

policies provide a combination of protection and investment benefits. Pension policies

are products offered to customers as income during their years of retirement.

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2.4.2 Bases for Services Market Segmentation

Markets can be segmented on the basis of demographics, geography,

psychographics, behavioral analyses of customers at large. Table 2.1 gives a schematic

representation of the bases for segmentation. Let us discuss each of these bases in detail.

2.4.2.1 Demographic Segmentation

Demographic segmentation is carried out on the basis of age, sex, size and structure

of family, income and educational levels.

Ø Age

Marketers believe that people of the same age group behave in a similar manner

and this belief has led them to segment the market according to age and market their

products or services accordingly. For example, a couple aged around 60 may not have as

much fun at an amusement park like MGM Dizee World, Queensland, as children below

12 years or teenagers would have. Marketers believe that customer wants and expectations

change with age and as also their capacity to process information. For example, when a

marketer talks of the benefits of a health food, it might not appeal to a 10-year old, but a

20-year old would certainly be attracted.

Ø Sex

Marketers can segment the market depending on the gender they would like to

serve. Products or services can be designed for a single segment or both the segments.

Size and structure of family.

In India, the family size has decreased to just 3-4 members from 5-6 members a

few decades ago. Therefore, marketers can design their products or services to serve the

needs of families with 3-4 members while providing the flexibility to serve more members

if required. Further, with the increasing educational and job opportunities in cities, young

individuals are moving to the cities and marketers have an opportunity for designing their

services accordingly. For example, a restaurant can plan its seating arrangement by having

more tables that can accommodate four members, and yet be flexible enough to be combined

when they have to serve more than four customers.

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Business Insight 2.5: What women want in Rajasthan

The Bhaskar Group has conducted a recent survey in the three cities of Rajasthan.

This includes Jaipur, Kota and Jodhpur. The new series is branded as ‘Revelations’.

The group believes that this study will give a better understanding of the women folk

in the state. The study was conducted on urban married and unmarried women in

the SEC A and B segment. The women were in the age group of 20-35 years. The

research study has been conducted by Q Market Research, a division of Quantum

Market Research. It was found that there have been various changes in the

infrastructure of the country, which have supported further transformations in present

day Rajasthani woman. All over the country today, the self-worth of women has

been enhanced because they have become more economically independent. There

is mass mobilization against the exploitation of women and increasing opportunities

for education. The culture has become more relaxed, nuclear families have evolved,

and love marriages are being accepted.

The group says that one of the prime reasons to conduct this survey in Rajasthan

was this sector can be said to be least understood by the media planners and

advertisers. The main aim was to help them to understand the women better here so

that it could help design accurate communications for the specific brands. The study

has divided the Rajasthani women in three broad categories. These include ambivalent,

the fusionist and the rooted.

Elaborating the terms, the study says that the ambivalent women are conflicted and

confused. They are at the crossroads of accepting new influences and new challenges.

They are confused because they like some of the past practices, but sometimes find

them restrictive as well. They seek guidance to make the right decisions in life. In

their pre-marriage days, they have had the opportunity to study further, yet keep

family values in mind while pursuing their dreams. They read newspapers, watch TV

and listen to radio. Their relationships with their husbands and children are important

to them. They want to increase their social circle, but their family takes up a lot of

their time. The fusionist women are balanced and practical. They have high aspirations

in life. They are aware of their surroundings and regularly read to keep up with the

current scenario. These women want to work, but do not make work a priority.

They are critical of practices such as dowry, early marriage and discrimination against

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a national basis. Further, markets can be segmented on the basis of density of population

or the climatic conditions across regions. For example, people are migrating from rural

areas to cities due to the increasing education and career opportunities in cities, leading to

an increase in the population of the metros in the country. This will make a difference to

marketers of specific services or products. In addition, marketers should also analyze the

behavioral changes of the population that has migrated.

2.4.2.3 Psychographic Segmentation

Through psychographic or life-style segmentation, marketers aim to find out the

basic characteristics of a consumer that could influence his purchase decisions. In this type

of segmentation, marketers divide the market on the basis of the life-style and personality

of their customers.

Ø Life-style

Marketers can gain valuable insights into the buying behavior of their customers by

analyzing their lifestyles. Business Insight 2.6 shows how leading handset manufacturers

segment the Indian market based on the lifestyle of their customers.

Further, they will be equipped with an understanding of their customers’ way of

life, their activities, interests, opinions and beliefs. This in turn will help them design their

products or services accordingly. This type of segmentation also helps marketers to effectively

design their marketing mix for the customers. For example, the lifestyle of a young and

single professional will be entirely different from that of a person who has just retired from

service. In this example, the young professional might be more keen on spending than

saving, while the retired person might think of investment options that will provide him with

a steady income.

Ø Personality

Marketers can design products or services that appeal to the personality types of

their customers. For example, a customer who seeks to have a quiet and relaxing vacation

will be attracted by a holiday package that offers yoga, body massage etc., in a serene

setting like the backwaters of Kerala. Similarly, a customer looking for fun and frolic will

be attracted to a holiday that provides entertainment in a place like Goa, which is full of life

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high-profile celebrities, industrialists and other high “net worth” individuals.

The fact that the members of this segment cannot do without a mobile phone

makes it the ‘assured’ segment.

Motorola has a segmentation model which is quite similar to that of Nokia.

• Accompli: Early adopters (Trendsetters in Nokia) are referred to as Accompli

by Motorola and all advanced models are aimed at this segment.

• Time port: This segment, similar to Nokia’s Hi-fliers, primarily uses the mobile

phone to enhance productivity at work and in business.

• Talk about: This segment again is similar to Nokia’s Social Contact segment,

which uses the mobile phone predominantly to keep in touch.

• V: Individuals who view their mobile phones as an extension of their personality

and, therefore, prefer a model that makes a strong statement, define the V -

segment.

Ericsson has a straightforward and simple segmentation.

• A-Segment: Individuals who are using the mobile for the first time and prefer

an easy-to-use instrument are classified under the A-segment. This is primarily

the entry-level segment.

• R-Segment: Similar to Nokia’s Trendsetters and Motorola’s Accompli, this

segment comprises tech-savvy individuals who prefer their instruments to be

feature rich and trendy.

• T-Segment: Finally, the T-segment is defined by individuals who require their

instruments to have some class and style. Similar to Motorola’s V, users

view the handset as an extension of their personality.

2.4.2.5 Benefit Segmentation

This segmentation divides the customer base on the basis of the benefits sought.

That is, the customers are grouped according to the benefits that they are looking for when

consuming a product or service. Marketers should gather adequate information on the

various benefits that different types of people are looking for and then assess the ability of

their product or service to deliver those benefits. For example, when a couple decides to

go in for an insurance policy, it could look at interim benefits and long-term benefits. However,

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Ø Loyalty Segmentation

This segmentation divides customers on the basis of the degree of their loyalty

toward a certain product or service. Marketers should consider price and product or

service availability while segmenting the market based on customer loyalty.

Ø Buyer readiness and marketing factors

Market segmentation based on buyer readiness divides customers based on their

willingness to buy and likelihood of purchasing a certain product or service. Marketers

identify people under different segments based on various factors like their awareness or

knowledge for the product or service, their liking and preference for it and their conviction

to purchase it. For example, a young music fan might know every detail of an upcoming

Bryan Adams show and be determined to attend it. His father, though a music lover, might

not have any knowledge about this and might not like going for the show.

2.4.2.6 Technographic Segmentation

The market for technology related services has been on a tremendous rise during

the last one-and-a-half decade. Marketers are trying to identify the customer groups that

have the willingness as well as the ability to use the latest technology. Forester Research

Incorporation has developed a ten-category segmentation scheme, which is also called

‘technogrality’. Identification of segments was based on the interaction of three variables.

These are attitude towards technology, application of technology and the financial position

of the consumers.

Table 2.2 shows the nine segments identified by the Forester Research Inc. The

tenth group is called ‘sidelined citizens’. The sidelined citizens are those individuals who

have no interest at all in technology.

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like frequency, mode of payment, volume, and product groups, from their existing customer

database.

Ø Ø Ø Ø Ø Accessibility

This refers to a firm’s ability to effectively reach out to the market segments through

various distribution and promotion channels. The marketers should develop a marketing

mix that is economical and reaches the chosen segment effectively. For example, if a service

is aimed at attracting the teenager segment, then the advertisements should be developed

keeping the target segment in mind. In addition, marketers should also study the factors

influencing buyer behavior in terms of individual and group behavior and family lifestyles.

Ø Ø Ø Ø Ø Substantiability

Marketers should choose their market segments in such a way that the returns on

investment are earned quickly. For example, a very niche segment like young graduates

working in shifts (especially those in the BPO and related sectors), might not be a good

choice. Ideally, a large segment that has the capability of earning and sustaining profits

should be targeted.

Ø Ø Ø Ø Ø Actionability

This refers to the ability of firms to effectively design and manage marketing mixes

in order to attract and serve different segments. Marketers should use those bases that can

track the segments with varying preferences or needs. Further, these segments should

exhibit variations in their market behavior and respond differently to marketing mixes that

are designed on an individual basis. Figure 2.5 illustrates these requirements.

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Ø Ø Ø Ø Ø Differentiated Marketing Approach

The differentiated marketing approach, also known as the product-variety marketing

approach, aims at targeting consumers of various segments by offering different products

or services for each segment. For example, the airlines from the earlier example may opt to

serve the business traveler segment, domestic traveler segment, and international traveler

segment, and might design its marketing mix to cater to the needs of the consumers of all

the three segments. A company aims to tap the entire market by serving each segment and

thus become a market leader. This approach might prove to be successful if the brand

name is well-known in the market and consumers from each segment identify the product

or services offered with the brand. The company has to bear the higher costs involved in

developing separate marketing mixes for each segment in terms of higher production costs,

additional research and development expenditure, engineering expenses, higher market

research costs, and higher promotional costs due to specific advertising targeted at each

segment. However, the benefits associated with this approach are numerous as it increases

total sales when compared to the undifferentiated marketing approach. It also helps a

company gain the overall industry leadership as it caters to different segments of the market.

Companies adopting this approach try to satisfy the consumers of each segment by

identifying their buying patterns and designing their products or services accordingly.

Enhanced customer satisfaction ensures repeat purchases and brand loyalty.

Ø Ø Ø Ø Ø Concentrated Marketing Approach

The concentrated marketing approach, also known as the single-segment strategy,

aims to serve limited segments in the total market. A company with limited resources adopts

this approach and aims to serve only a few segments by catering to the specific needs of

customers in those segments. This approach also reduces the production, distribution and

promotional costs due to the specialization of operations.

2.5 MARKET TARGETING AND SELECTION

Target market is a group of customers (people or organizations) for whom a seller

designs a particular marketing mix. Following guidelines may be observed when selecting

a target market.

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Marketers compare the segments based on their attractiveness in terms of their

ability to earn and sustain profits, and their compatibility with the objectives and resources

of the company. For example, a fitness and beauty center that targets young women who

are figure and health conscious is likely to earn more profits than just offering services to

women of all ages.

Targeting is an essential part of marketing because of its ability to group customers

with similar needs and serve them even at individual levels. Lately however, targeting has

been exposed to some criticism on ethical lines and this is due to its intense focus on certain

customer groups without considering aspects like product harmfulness and consumer

vulnerability. For example, companies those are manufacturing products like weight-loss

pills that are targeted at the figure conscious women segment are being criticized for the

side effects of such pills. Researchers say that the purpose for which targeting is used has

certain limitations and it should be used keeping customer safety and well-being at the top

of the priority list.

2.5.2 On What Basis do Marketers Target the Identified Segments?

We shall now discuss the criteria used by marketers to evaluate market segments

for targeting. To a large extent, marketers use segment size and growth potential, its structural

attractiveness, and the company objectives and resources as the bases to decide their

target markets.

Ø Ø Ø Ø Ø Segment size and growth potential

The size of the different segments in the market should be compared on the basis

of their present capacity and their future potential as well. For example, an educational

institution should collect the current data for full-time students, part-time students, and

distance-education students and then compare the data based on their ability to earn profits

for the institution to choose its target segment. On the other hand, if the segments are not

large enough or currently not profitable, the institution should go a step further to identify

which segment has high growth potential, and would be beneficial for it in the long-run.

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demand a superior quality of products or services. This situation increases the competition

between the players as they try to produce better quality products or services than their

competitors in order to attract new customers and retain existing ones. However, this

situation might affect the profitability of the players in the industry.

Ø Ø Ø Ø Ø Company objectives and resources

Evaluation of a segment alone, based on its size, growth potential and structural

attractiveness is insufficient while choosing the target segment. It is essential that the segment

features match the company objectives and resources. A segment should match the

company’s long term objectives in terms of its growth potential and structural attractiveness,

and the company should have the required human, financial and other resources necessary

for effective operation in the segment. For example, an airline that aims to serve the business

class and to top the list in the business traveler segment nationally and internationally,

should have the necessary resources to serve the needs of business travelers. It might need

to have the requisite number of trips between business destinations and the ability to operate

smoothly at peak business hours and other similar facilities.

2.5.3 Targeting Strategies

Once the segmentation exercise is complete and the company has completed the

analysis of the different segments in terms of their attractiveness, growth potential and their

fit with the company objectives and resources, it has to identify how it is going to target the

segments. The company has to decide on its target and the strategy to be adopted. A firm

may use any of the following targeting strategies discussed below:

ü ü ü ü ü Single-segment strategy

This is also known as the concentrated approach of targeting the market segments.

The firm following this approach targets only - one segment, develops a single marketing

mix and eventually gains specialization in that segment. However, the company will have

immense knowledge about the specific wants and needs of the customers and eventually

serve them better than those targeting various segments. For example, a software firm

catering to the needs of only those players in the logistics business, understands their needs

better and gains greater expertise, when compared to a firm that caters to all segments.

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movie is released for the overseas market with the local language subtitles, it is an example

of adopting a differentiated marketing mix to cover those segments of the market.

2.5.4 Guidelines for Selecting Target Market

Ø The target market should be consistent, should meet the goals of the organization.

For example

A tourism organization which is leading in group tours can not suddenly target

individuals as their target effectively.

Ø Organization should look for markets that are consistent with the resources. If an

organization offering can be reached through mass media advertising like TV or press

campaigns and the expenditure can not be afforded, the offering will not take off. If a target

market requires high level of knowledge and sales skills by the service provider and it has

not taken steps to provide knowledge and sales skills, it should not target this market.

For example

A small tourism organization might be successful in targeting corporate customers

with six figure salaries who need high level of personal care. It will be highly expensive for

this organization to compete with an organization which is catering to mass market.

Ø An organization should look for markets which will generate not sufficient sales

volume but profit volume.

For example

The courier service that targets the cost-conscious customers by offering them

heavy reductions might find it self doing a brisk-business but losing money on eighty percent

of its accounts. While targeting market-the basic concept of customer satisfaction at a

profit should always be kept in mind.

Ø An organization should look for a target market where the number and size of

competitor is small.

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Business Insight 2.8 provides you how a new matrimonial site establishes its place

in the market by adopting a new targeting strategy.

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SUMMARY

Delivering quality service consistently gives a competitive edge to service

organizations. It requires an understanding of customer expectations and the types of

expectations. Further, knowledge of factors influencing the desired service level, adequate

service level, and zone of tolerance will help service organizations consistently meet and

exceed service expectations of customers.

While evaluating service offered by an organization, customers compare perceived

quality of service with the expected quality of service. Therefore, service organizations

should have knowledge about customer perceptions and the influence of factors such as

service encounter, service evidence, image of the service organization, and price of the

service on customer perceptions.

The intangibility property of services makes it difficult for customers to search for

information, make a purchase decision, or even evaluate the service experience. This is

due to the presence of more experience and credence qualities than search qualities in

services. Hence, service providers need to deliver value added services to their customers

to provide them a superior service experience. Decision-making is involved in every

purchase decision, whether it is to purchase a product or a service. The decision making

process in thee purchase of a service involves various steps such as need perception,

search for information and the perceived risk, evaluation of the generated alternatives, the

purchase decision and the post-purchase evaluation. Further, the decision making process

of the customer is influenced by external factors like his family, culture, subculture, reference

groups and tile social class to which he belongs.

Marketers are innovating several ways to make service experiences memorable

for the customer. They are also trying to retain old customers since this is more profitable

to the company than attracting new customers. Observing buyer behavior patterns helps

marketers to target customers in a better way. The technological advances and globalization’

of economy make it possible for service providers to design new ways of providing their

services.

Companies have realized that though no two customers have the same preferences

or needs at the same time, some of their purchasing patterns are similar. Therefore, marketers

identify groups of customers who exhibit similar needs and offer products and services to

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3.0 INTRODUCTION: SERVICE DESIGN- FIRST P – THE PRODUCT

The term ‘product’ is widely used to refer to a market offering of any kind. In its

broadest sense this may be anything from the physical- a tin of baked beans or a television

set - to the abstract-an idea or a moral issue. As discussed in the earlier units Generally,

most products are made up of a combination of physical elements and services. This is

true in services marketing, where the service offering can include tangible features, such

as food in a restaurant, or be a ‘pure’ service, intangible in nature. Services as already

discussed in the first unit cannot be photographed, touched, verified and tried out. A

service product is a bundle of features and customer benefits. It is very difficult to describe

what a service product is.

According to Lynnshostack, there are four risks of attempting to describe services

in words alone. They are

Ø Over simplification

Ø Incompleteness

Ø Subjectivity (based on personal experience and exposure) and

Ø Biased interpretation.

Service consumers generally tend to express the service experience in a simple

form. It is often incomplete because the customer experience cannot be translated into

words. Differences in attitudes, exposure and ability to participate and perceive make the

consumers subjective and biased while describing a service. When asked to describe the

experience of a two-and-a-half hour motion picture, no customer can describe every

movement in detail. While designing the product, service organizations have to consider

these four risks which influence both the customers and the service providers (contact

employees). Unless the employees of the organizations as well as the customers understand

the service product properly, it is not possible to produce quality service. Designing new

services is a challenging task because it requires thinking about processes, people and

experiences as well as outputs and benefits (Christopher Lovelock, 2001). This

understanding portrays the wider scope of a services product and its management.

A product can be defined as an idea, a service, or a good that involves a mix of

tangible and intangible elements, which aim to satisfy consumers. It is traded for money or

any other trading unit which has some value attached to it. Why doesn’t a customer hesitate

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Ø The Core Benefit

The core benefit of any product is to satisfy the basic needs of a customer. Therefore,

marketers should first decide on the core benefits the company has to offer its customers.

For example, when a customer hires the services of a tax consultant, he expects the consultant

to calculate the tax to be paid on his income. This is the core service offered by the

consultant. However, due to heavy competition and very little to differentiate between

different players, marketers have designed products that offer multiple and customized

benefits in order to attract and retain customers. For example, the tax consultant might

offer to file the tax returns on behalf of the customer and spare him the trouble of waiting in

long queues. He may even offer suggestions on various investment tools to increase the

customer’s tax savings.

Ø The Actual Basic Product

The tangible aspects attached to the service, along with the service, constitute the

actual basic product. This facilitates the delivery of core benefits to the customers. Therefore,

marketers should develop the actual product after the core benefit has been decided. The

characteristics of actual products are features, design, quality level, packaging, and brand

name. For example, when a company hires the services of a reputed Consultant like

McKinsey, quality, some special features and design, the packaging and the brand name

accompany the core service of consultation.

Ø The Expected Product

At the third level, the marketer prepares an expected product, a set of attributes

and conditions buyers normally expect when they purchase this product. Hotel guests

expect a clean bed, fresh towels, working lamps, and a relative degree of quietness. Because

most hotels can meet this minimum expectation, the traveler normally will settle for whichever

hotel is most convenient or least expensive.

Ø The Augmented Product

The intangible aspects that support a service constitute the augmented product

along with the actual product. These are developed around the actual and core products

to satisfy the customer. Warranty, installation support, delivery, customer service, etc., are

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3.1.1 The Flower of Service

Christopher Lovelock developed the flower of service, which indicates the core

service surrounded by a cluster of supplementary services. The flower consisting of eight

petals; four of them are facilitating supplementary services and the other four are enhancing

supplementary services. The facilitating supplementary services include information, order

taking, billing and payment whereas consultation, hospitality, caretaking and exceptions

are enhancing supplementary services (Fig. 3.2).

Figure 3.2 The Flower of Service

Ø Information

Customers need information on various elements of a service, for evaluation and

purchase decision making. Service firms also need to educate the market, and prepare

and persuade the potential buyers for taking purchase decisions, in favor of the service

provider. Sometimes the information is required by law, for example, conditions for sale,

warnings, reminders and notification of changes. The following are the examples of

information elements: Sign boards to service site, Service performance hours, Charges for

services, Directions on using core and supplementary services, Alerting people, Notices,

Conditions of sale / service, Indicating the changes, Documentation, Reservation information,

Activity summaries, Bills and receipts.

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Safe keeping includes: Baby care and pet care service, Parking facilities, Storage

and baggage handling services, Security and safe deposit services, Goods packaging,

Pick up, Transportation, Delivery, Installation of goods, Cleaning and ensuring a healthy

ambience.

Ø Exceptions

Service providers may be required to provide supplementary services that fall

outside the routine to the customers, on special considerations. Exceptions may be allowed

on special requests by the customers for advance delivery of service in special circumstances.

Exceptions also need to be granted to facilitate problem solving. Many a time, service

firms face unexpected situations. Frontline employees of the service firm should respond

quickly by deviating from the normal procedures to handle such a situation. In case of

accidents and emergencies, exceptions need to be granted.

Ø Billing

Billing is important from the company’s as well as the customer’s point of view.

Customers expect accuracy, completeness and legibility in bills prepared by the service

providers. Companies may provide periodic statements of account to customers or allow

customers to complete bills by themselves (self billing) for greater transparency in the

process.

Ø Payment

After the billing is done, customers have to take action on payment. Activities such

as cash handling, cheque handling, credit system and coupon system are part of the payment

system. The payment system should facilitate customers to get easy and convenient payment

of their dues.

3.2 SERVICE LIFE CYCLE

As discussed in the last semester course on Marketing Management, the stages in

the product life cycle and the possible strategies that can be adopted by the marketers in

the different stages of the life cycle, the services is also no exception. The Marketers

believe that every service product that takes birth will die after some time, though there is

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to the company. The profit curve goes upwards and reaches its peak during the period.

The end of the period indicates declining growth rate in sales and increased intensity of

competition. Profit starts declining at the end of the period. Service firms strive hard to

stretch this period to the longest possible.

Ø Maturity stage

This stage of the service life is marked by stabilization in turnover and downward

tendency of profit curve. Competition will be severe and the firms need to invest heavily to

face competitive threats in the areas of service modernization and sales promotion. The

increased expenses on these areas reduce the profit margin and, as a result, the profit

curve will experience a downward slide. Sales reach their peak with the beginning of the

period and then slowly slide down. The end of the period is marked by an increased rate

of decline in sales and the profit curve reaches its lowest level. Service firms try to extend

the maturity period of the service as it could generate some profit to the organization.

Ø Decline stage

During this stage, the sales curve slides down at a faster rate, profits evaporate

and soon the service becomes a loss generating one. As soon as the service product

reaches this stage, service firms seriously consider dropping the service product.

Although service life cycle concepts help in planning and control of the life of a

service, they have very limited application in formulating a future oriented service strategy.

The pace of change in the environment and market dynamics does not permit any service

organization to plan and manage the various stages in the service life cycle. As a result of

the change dynamics, the life of a service is becoming shorter and shorter. Most service

firms try to terminate the service packages in the fastest possible timeframe to introduce a

new service in its place. The software industry is the best example for indicating this style.

The concern of the firms now is to maximize the benefits from a new product in the shortest

possible time rather than to visualize or to work on strategies for an extended life.

3.3 NEW SERVICE DEVELOPMENT

Managing the organization’s service portfolio, and developing and positioning new

services, are functions critical to the organization’s success. The new product development

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According to Booz, Allen and Hamilton, there can be six categories of new products.

Ø New to the world products

The products are really innovative and the world has not witnessed such products earlier.

These products create an entirely new market.

Ø New product lines

The products are not new to the market but new to the company. A company may add a

new business to the existing one and enter an established market for the first time.

Ø Additions to the existing product line

A company may add new products to the established product lines in order to strengthen

the product lines.

Ø Improvements and revisions of existing products

A company may modernize its products by adding new values or replacing the existing

products with improved ones.

Ø Repositioning

The existing products of a company may be targeted to new markets or new market

segments.

Ø Cost reductions

Companies may develop new products that are capable of providing similar performances

at a lower cost than that of earlier products.

3.3.3 Steps in the Development of a New Service

One of the distinctive characteristics of service is that the production and

consumption of a service should take place simultaneously. The production process is

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Ø Idea Generation

The first step in the new service development process is the generation of new

ideas. An idea is the fundamental base for any product. The most scarce product in today’s

competitive world, undoubtedly, is a good idea. Ideas generally do not have a character of

good or bad. The character develops only when an idea is applied to an organization or to

a situation. The need for more and more new ideas is pressing in a service firm. The

frontline people, who are in direct contact with the customers and who involve themselves

physically and psychologically in the production of services, are a major source for

developing new ideas. Next to these sales personnel, customers occupy the chief position

as sources of ideas. Generally, customers buying services are more expressive than those

buying manufactured goods because they have direct interaction with the service provider.

Relationship marketing( will be discussed in section 4.8 in the fourth unit) contributes a lot

in this direction. The other sources of ideas include support personnel, competitors,

professional organizations, researchers and social organizations. Service firms should design

channels to receive ideas from various sources. Proper motivational and reward schemes

also need to be designed for the purpose. While collecting ideas, managers concerned

should have an open mind and should not be evaluative at this point. They should look for

a maximum number of ideas from various sources; pooling of ideas should be the only

objective. Very often it is difficult to get breakthrough ideas. Service firms are pressurized

to introduce new service packages. Therefore, they have to depend upon ideas that improve

existing offerings. Service attribute analysis is one technique that helps service organizations

to get ideas for further improvement in the process. Under this approach, the number of

attributes-facilitating service attributes and supporting service attributes-will be listed out

in detail and the possible improvements for each attribute will be explored. A combination

of changes in a few attributes of a service package generates a noticeable difference in

consumers’ value perception.

Figure 3.4 New Service Development Process

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µ Concept Testing

The new service concept developed could be tested by presenting the concept

through appropriate target consumers and by eliciting their views and opinions. Besides

customers, the concept has to be tested with the employees of the organization, so as to

assess their understanding, ability and willingness in performing the service. The results of

the concept testing will help the management to find out the need gap level, purchase

intention level, the broad and strong consumer appeals, the shortcomings in the concept,

the preferential order of influence of various processes and so on. It will provide an

opportunity to develop a service package close to the expectations of the target consumers.

Ø Marketing Strategy Development

After the successful testing of the concept, a preliminary marketing strategy has to

be developed. The strategic plan will find out answers to the following questions:

ü Who are the target consumers?

ü What is the size of the market?

ü What is the competitive structure and their behavior?

ü What is the positioning strategy?

ü What is the pricing strategy?

ü What is the distribution strategy?

ü What are the long term sales?

ü What is the expected market share?

ü What are the profit goals-long term as well as short term?

Ø Business Analysis

The management of a service firm would like to know the business attractiveness

of the service proposal. Business analysis includes estimation of first time sales and

repeat sales, sales in the introductory, second, third, fourth and fifth year, product life

cycle analysis, cost estimation, estimation of profits, projected profit and loss account

for the first five years, pay back period and risk analysis. Business analysis helps

managers to rank the screened ideas.

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Business Insight 3.1: Airtel unveils new services

Bharti Group’s cellular brand Airtel has launched free multimedia messaging

services (MMS) for its subscribers and a pan-India GPRS (General Packet Radio

Services) for corporate customers. Airtel users can also now avail of full roaming

facility on its pre-paid card at no extra activation fee. Until now pre-paid card

users could only get roaming on incoming calls and had to pay Rs 50 as activation

fee. Airtel customers also will have to pay no charge for sending an MMS till April

end.

The scheme will allow Airtel’s 2.8 million subscribers to send and receive free

messages in the form of voice, picture or video. For its GPRS services, Airtel is

focusing on corporate customers exclusively. These services will enable subscribers

to access e-mail and surf the Internet on laptops using their GPRS mobile phone.

The package comes for Rs 600 a month. Bharti as yet does not have a GPRS

package for the entry-level retail subscribers unlike Hutch and BPL which have

introduced basic GPRS services at Rs 99 and Rs 200 a month respectively.

3.4 SERVICE BLUEPRINT

A service blueprint is a picture or map that portrays the service accurately. It is

intended to provide a clear picture of the service process to different people involved in

the service production and consumption process. It helps the people involved to understand

various processes of service without any confusion or ambiguity and enables them to act

accordingly with confidence. The blueprint visually depicts the roles of customers and

employees. It also depicts a systematic arrangement of different service points and the

means by which services are performed. A service blueprint also provides evidence to the

customers on the basis of which they develop service expectations.

In designing a service blueprint, managers often make use of the decision theory.

The decision theory provides an analytical approach to describe such processes that require

judgment in relation to choices to be provided for personalized or customized services.

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services. For example, a hotel may provide training for its service personnel (both

onstage and backstage) on the aspects of service creation and delivery. This training

is a support process.

3.4.2 Reading a Service Blueprint

Some standards have to be followed in preparing a service blueprint so that there

is consistency in developing and reading it. If no standards are followed, it might be difficult

for an organization to understand a blueprint prepared a few months/years earlier. The

various elements discussed in the above section are separated in a service blueprint by

three horizontal lines (Refer Figure 3.5). This notation helps in understanding a blueprint.

µ Line of interaction: The first horizontal line shows the points of interaction

between the service personnel and the customer. If a vertical line passes through a

horizontal line, it shows that a direct contact between a customer and service

provider has taken place.

µ Line of visibility: The second horizontal line, line of visibility, divides the service

processes that are visible to the customer from those that take place backstage.

This line divides the onstage and backstage employee actions.

µ Line of internal interaction: The third horizontal line is the line of internal

interaction, which divides the internal processes that assist the service personnel in

producing and delivering the service when a vertical line passes through a horizontal

line, it represents an internal service encounter.

Figure 3.5 Simplified Example- Blueprinting a Hotel Visit

(extract only)

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These illustrations clearly establish the importance of tangibles or physical evidence

in the services sector. In this part of this unit we will discuss the elements of physical

evidence and their significance for service providers.

Physical Evidence

Physical evidence is everything that a company physically exhibits to the customer.

It includes the physical environment of the service outlet, the exterior, the interior, all tangibles

like machinery, furniture, vehicles, stationery, signboards, communication materials,

certificates, receipts, service personnel, and so on. Physical evidence provides tangible

cues to customers to develop service quality expectations. The physical environment

facilitates performance of service by the service provider as well as the service customers.

3.5.1 Service Scape

A service represents the physical environment designed in a service outlet. Research

studies have proved that the design of the service scape influences customer’s choice,

expectations, satisfaction, and other behavior. The nature of the service activity and service

consumption experience sought by consumers will influence the design of a service scape.

The basic principle that guides the design is user friendliness. Therefore, service companies

should first identify the users of the service scape. Based on usage, services scapes can be

classified into three types self service, interpersonal service and remote service.

µ Self-service

In a self-service environment, the customer performs most of the activities and

very few employees are involved. ATMs, fast-food centres and movie theatres are

examples of self-service environments. If the service firm is focusing on a self-service

environment, it has to attract the right market segment and offer easy-to-use facilities.

µ Interpersonal services

In this type of service scape, both employees and customers will be given adequate

importance. In the case of hospitals, educational institutions and banks, the service

scape must be planned to attract, satisfy and facilitate both employees and customers

simultaneously. The service scape should contribute to social interactions between and

among customers and employees.

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µ Physical environment

µ Modes and content of communication

µ Price of the service

µ Appearance and conduct of service personnel,

µ Tangible elements accompanying service

µ Brand

Business insight 3.2 explains how the well known bookstore, Landmark, enhances

customer experience by using physical evidence.

Business insight 3.2: Physical Evidence at Landmark

Landmark is one of the most well-known retail bookstores in the country. It has

around 40,000 titles at any given point of time. Its monthly newsletter is mailed to

over 17,000 customers. Landmark organizes customer experience enhancing

promotions and interactive sessions with authors like Arundhati Roy. Let us see

how the store offers “physical evidence” to its customers.

The store conducts activities, like “pictionary” contests and an annual fair with

Santa Claus, aimed at making the place reader-friendly. One can grab a coffee,

browse through books and music, all in an air-conditioned environment, with

soothing music playing in the background. The store does not believe in aggressive

marketing, but by offering promotions targeted at loyal customers, creating more

value for the customer’s time, increasing significantly the store’s offerings, providing

areas to sit and browse, little baskets and trolleys to hold books they provide

value-added services.

For the store, customer preferences and comfort are the first priority. A lot depends

on details like how books are placed to suit customer needs. This reduces the

brush aspect significantly. It irritates customers when spaces are crowded and

someone constantly brushes against them. Another interesting aspect is

‘adjacencies’. For instance, travel books are placed next to management books,

as many businesspersons are frequent travelers.

At Landmark, the marketing team has a clear program - coming up with a certain

number of events at every store every year. Bringing up something new constantly

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reactions from the people. An assurance of pollution-free air can also

become a selling proposition for service companies.

Ø Noise: The noise level ranging from absolute silence to high-decibel sounds

will have an influence on the behavior. Noise may be from inside or outside.

If the noise is from inside, but unavoidable (noise generated in operating

machines for service processes), care must be taken to reduce the effect

by using sound-proof material or keeping the customer contact point away

from the sound generator place. If it is from outside, it is better to avoid

such a location or to use sound-proof material to minimize the disturbance.

Ø Music: Music is a very powerful stimulator of feelings in human beings.

People have different preferences in music. Some like classical, some like

western, some like old, and some like new. If music is arranged, while

taking into consideration the preferences of the customer groups, positive

behavior can be expected.

Ø Smell: People have different likings as far as smell is concerned. A right

combination will make the environment pleasant.

Figure 3.7 Service scape Dimensions

µ Space/function

The living space and functional support facilities form an important part of the

service scape. The following are the influencing factors with regard to space/ function

on the behavior of employees and customers;

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The quality of the materials used in the construction of physical structures at work,

the presence of certificates and photographs, the floor coverings and architectural values

communicate symbolic meanings and create an aesthetic impression.

Signs, symbols and artefacts influence the forming of the firs impressions of

customers. When customers are not familiar with the service environment, they look for

environmental clues for initial help.

The physical environment will have an impact on the behavior of both customers and

employees. Three kinds of internal responses get generated in them. They are:

cognitive responses, emotional responses and physiological responses.

Ø Cognitive responses are influenced by beliefs, the way in which the

individual categorizes the stimulation and the symbolic meanings he

develops for the stimuli.

Ø Emotional responses are influenced by the mood of the individual and

also the attitude he has developed against the service firm.

Ø Physiological responses include pain, comfort, movement and physical

fitness. The interplay of these factors finally result in customer response or

employee response.

Social interaction is an important dimension of physical environment. The service

scape influences the nature and quality of customer-employee interactions. Environmental

variables such as physical proximity and seating arrangements have an influence on customer-

employee interactions and also customer-customer interactions. Research studies have

confirmed that the environmental conditions will influence such social behaviors as small

group interactions, friendship formation, participation, aggression, withdrawal and helping.

The appearance, behavior and number of service personnel and the quality and quantity of

other customers have a psychological impact on the social behavior of the customers.

Dowell and Gamble described service environment in the following ways:

Ø An environment surrounds, enfolds and engulfs and one can only participate in it.

Ø The environment has a definite impact on the senses in more than one way.

Ø It is impossible to build an environment which does not have any impact.

Ø Peripheral and central information is always present in the environment.

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Goa for a holiday, it also offers suitable facilities for business people. Its conference

hall accommodates 200 people and has facilities like microphones, overhead

projector screen, VCR TV and Slide Projector.

Mumbai is known as the commercial capital of India. The Oberoi Hotel in Mumbai

is located at the centre of the city and offers a beautiful view of the Arabian Sea.

It has 337 rooms that are centrally air-conditioned and have facilities like fax

machine, voice mail, color TV, Internet, mini-bar and hair dryer. It has a tastefully

designed Mediterranean restaurant with a display kitchen. It has banquet halls

offering the most modern facilities and a recreation and health centre.

From these examples, it can be observed that hotels in India concentrate on both

aesthetics and utilitarian functions to suit their businesses.

3.6 COMPETITIVE DIFFERENTIATION OF SERVICES

A business must set itself apart from its competition.

To be successful it must identify and promote itself as the best provider of

attributes that are important to target customers- GEORGE S. DAY

Every individual has different needs and wants. Therefore, markets are bound to

be heterogeneous. However, people do not expect hundred per cent suitability and tend to

compromise on minor issues. Market segmentation has thus become a possibility. Consumers

prefer such products that closely match their needs and wants. Companies that make

attempts to meet customer needs closely are likely to win the market. Service differentiation

facilitates this. Service differentiation means providing meaningful changes in service offer

that add value to the customer and are capable of generating quality perceptions distinct

from competitive offers. Service companies can go closer to the customer through service

differentiation and can offer delightful experience. The major service differentiators are: the

Basic Service Package (BSP), accessibility, interaction, customer participation, tangibles

used, service personnel, service channel, service image and service recovery (Table 3.3).

ü Basic service package: One of the key areas of service differentiation is the

design of the BSP itself. There is an enormous scope for differentiating the facilitating

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ü Service personnel: Human resource plays a pivotal role in service production.

Though some services can be provided through machines, they cannot be viewed as

perfect substitutes to the human resources. The variables listed in Table 3.3 build or

are capable of building a distinctive image of the organization.

ü Service channel: The choice of channels such as agents, brokers, franchisees or

electronic channels; the extensive, exclusive and selective coverage of the channel;

the skill and expertise of channel members and their performance are the areas

where differentiation is a possibility.

ü Service image: The image of the company at the corporate level and also at the

local level differentiates in value perception by the customers.

ü Service recovery: Inspite of a careful and cautious approach, deficiencies in service

is not an exception to any service organization. Successful companies adopt recovery

strategies to win the customers and also use such strategies to differentiate their

service offerings from that of their competitors.

As mentioned earlier, the differentiated advantage of an organization will add to its

profit margin. In fact, with today’s cut-throat competition, companies should differentiate

their products / services from those of their competitors to survive in the market. A company

can use various differentiation strategies when it aims to uniquely position its products/

services in its customer’s mind. Business Insight 3.4 gives an example of how an Internet

service provider has differentiated its services from the rest in the market. The first step

towards differentiation is to decide the number of benefits and attributes on which a firm

wants to differentiate its products/services from those of its competitors. For example, a

hotel offering free pick up and drop facility at the airport is differentiating its service based

on the convenience and price factors as the customers have to hire a taxi otherwise.

Business Insight 3.4: Satyam’s i-way

Sify is a part of Satyam Computers Pvt Ltd. (Satyam), one of India’s premier IT

companies. Sify launched its cyber cafes in the metros first to tap the ‘largest

segment of Internet surfers (or ‘Netizens,’ as it called them) through its iWay

centers, and provided cyber cafe visitors with a whole new experience of browsing

the Internet. Unlike the ordinary crowded cyber cafes, iWay centers provided a

soothing ambience and friendly service. The iWay centers sported a plush look

and had ergonomically designed cubicles that were sufficiently closed to provide

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and distribution. Differentiating attributes for a product service should meet the following

criteria:

ü Important: Customers in the target group view the difference offered by the firm as

very important and attach high value to it.

ü Distinctive: The product/service attribute offered by a firm is not offered by its

competitors, or the value of the differential attribute offered is unique when compared

to that offered by its competitors.

ü Superior: The firm makes the product/service an obvious choice for the customers

to opt for, as no other firm offers the differential benefit in such a way.

ü Communicable: The difference in the offer of the firm should be easily explained and

communicated to the customers.

ü Preemptive: The difference offered by a firm should be such that it cannot be copied

by its competitors easily.

ü Affordable: Customers should be able to pay for the difference in service/product

being offered by the firm.

ü Profitable: A firm should be able to offer the difference to the customer without

losing out on its own profitability.

Offering differentiation to service customers is a major challenge to the service

providers because of the intangible nature of services. Therefore, companies use their

reputation in order to differentiate their services from that of their competitors. For example,

McDonalds has a global presence and when it is entering a new market, it can use its

reputation to attract the customers. On the other hand, the service personnel can also

create differentiation of service in the minds of customers. For example, customers can

easily differentiate between the services of a pleasant, well-mannered customer care

executive at a bank and that of a harsh and ill-mannered customer care executive.

Another challenge for service providers is to sustain the differentiation advantage

by not allowing competitors to imitate the advantage. Therefore, service providers should

choose differentiation strategies that cannot be copied by competitors easily.

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wants its customers to perceive its products or services in relation to those of its competitors.

Companies that are not well positioned suffer in the competitive market with a low market

share and low profit margins. Therefore, companies are striving to learn the secrets behind

successful positioning.

3.7.1 The Importance of Positioning of Services

Positioning involves both launching new brands into the marketplace (new brand

positioning), and repositioning old brands. It is concerned with the differentiation of products

and services and ensuring that they do not degenerate into a commodity. To maximize its

potential a company should position itself in its core market segments, where it is objectively

or subjectively differentiated in a positive way over competing offerings.

Positioning is particularly important for services in the market of the 1990s. As a

result of competitive pressure the consumer is becoming increasingly confused by the huge

offering of services within each market sector. These offerings are communicated by a vast

number of advertising messages promoting different features of the services. The key to a

successful positioning strategy is to promote the feature which the company is best at and

which exactly matches the needs of the customer.

Because of intangibility and other features associated with services, consumers

find that differentiation of services can be more difficult and complex. Successful positioning

makes it easier for the customer to see a company services as being different from others

and exactly what is wanted.

Positioning is a strategic marketing tool which allows managers to determine what

their position is now, what they wish it to be and what actions are needed to attain it. It

permits market opportunities to be identified, by considering positions, which are not met

by competitors’ products. It therefore helps influence both product development and the

redesign of existing products. It also allows consideration of competitors’ possible moves

and responses so that appropriate action can be taken. The concept is often considered at

the product level although it is also relevant at the product sector and organizational level.

Positioning involves giving the target market segment the reason for buying your services

and thus underpins the whole marketing strategy. It also offers guidelines for development

of a marketing mix with each element of the mix being consistent with the positioning.

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µ Quality/price positioning: A service is positioned in the market as possessing a

certain quality standard or at a particular price. For example, some of the Oberoi

Hilton hotels are positioned as high quality, high-price hotels. The Taj group is trying

to position some of its hotels in the ‘value for money’ category.

Companies, however, have to be careful in designing their positioning strategies

and avoid some of the associated pitfalls. Some brands are under positioned when they fail

to provide a strong benefit or reason for the customer to choose them. On the other hand,

some brands are over positioned for a very narrow segment and so many potential

customers fail to notice it. When a brand communicates two or more contradicting features/

benefits, it is termed confused positioning. Irrelevant positioning is when the brand fails

to attract any customers because of offering irrelevant and redundant features/benefits. It

is termed doubtful positioning when a company promises something and the customer

doubts its capacity or the brand’s capacity.

Business Insight 3.5 shows how a particular state tourism board in India has positioned its

state to the global tourists.

Business Insight 3.5: God’s Own Country

In the early-1990s, advertisements featuring the tagline, ‘God’s Own Country,’

began appearing in the print and electronic media in India. The campaign was run

by the Kerala Tourism Development Corporation (KTDC) and was intended to

promote the South Indian state of Kerala as a tourist destination.

The advertisers projected Kerala as ‘the place to be’ and highlighted its natural

beauty and cultural heritage as its unique selling propositions. Further, they marketed

every aspect of the state from the towns, cities, beaches, backwaters, cultural

heritage, food, wildlife and even the centuries old tradition of health care through

Ayurveda.

Over the next few years, the organization’s efforts to ‘sell’ Kerala to Indians as

well as foreigners began paying off. The state reportedly became one of the places

with the ‘highest brand recall,’ thanks to its unique positioning and targeting efforts.

During the early and mid 1990s, Kerala’s government concentrated on marketing

attractions such as lagoons, lakes, canals, backwaters, boathouses and its 600-

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feature. But many airlines have similar standards of safety, so passengers’ choice of airline

will actually be based on other characteristics such as comfort, convenience of flight times

and standards of food and beverage. Thus research needs to identify the salient attributes

which determine the selection of a service. This will form the basis of the positioning.

First, research needs to be undertaken to identify the salient attributes and specific

benefits required by the target market segment. A number of approaches can be used to

identify salient attributes which can then be used to develop a positioning map. What is

important here is the customer’s perception of the benefits that are delivered by these

relevant attributes. An express parcel service scoring high on the speed dimension is one

that is perceived as fast. The reality is that other service providers in the express parcel

industry may provide a faster service but may be perceived as being slower.

A range of analytical research techniques, most of them computer based, can be

used to identify the salient attributes. These include perceptual mapping, factor analysis,

discriminate function analysis, multiple correlation and regression analysis, and trade off

and conjoint analysis. These tools are in the province of the market researcher, rather than

the services marketing manager, so will not be discussed further here.

3.7.3.1 Identification and Location of Attributes on Positioning Map

The positioning process involves the identification of the most important attributes

and location of various companies’ services, for these attributes, on a positioning map.

Where a range of attributes are identified, statistical procedures exist for combining these

attributes into aggregate dimensions. Such dimensions are referred to by various names

such as principal components, multi-dimensional scales, factors, etc., depending upon how

the data were elicited and which statistical procedures were used.

Usually two dimensions are used on positioning maps and these often account for

a large proportion of the ‘explanation’ of the customer’s preferences. For example, in a

marketing study, the analysis showed that two factors accounted for 86 per cent of the

discrimination amongst 14 figures.

Products or services are typically plotted on a two dimensional positioning map

such as figure 3.8 as given below:

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produce a positioning map that reflects the perceived extent of psychological distance

between them. This technique does not explicitly identify the axes used and these need to

be inferred, or derived from further research. Often a second group of respondents is

used, to avoid possible bias, in determining what characteristics they use to evaluate the

services offered. The positioning map can be used to identify potential gaps in the market

including where there is a demand but little competition (if such a position exists). It should

be noted that the existence of a vacant space in a positioning map does not necessarily

infer a viable positioning. Positioning maps can be based on either objective attributes or

subjective attributes. Maps can also use a combination of objective and subjective

attributes. A positioning study for; a bank used a positioning which positioned three banks

on an objective dimension of ‘best interest rates on loans’ and a subjective attribute ‘friendly/

courteous service’. In addition to identifying where different companies’ products are

positioned on the map we are also concerned with where are the areas of core demand.

3.8 PRICING OF SERVICES

“A customer perception of what is a ‘reasonable price’ is more important

than what you want to charge for your product or service. And the customer

decides what’s reasonable based on perceived value for money, not price.

It’s creating this perception of value that tells the customer - the price is

right. “

Noel Peebles, Author, “Sell your Business the Easy Way”

“Only by reducing their costs can any of the major airlines rationally afford

to reduce their prices. If airlines reform pricing first, it will be a financial

disaster.”

Scott Gillespie, CEO, Travel Analytics

An important element of the marketing mix and the one that brings in revenue for a

company is pricing. The pricing strategy developed by a company can either help the

company reap the maximum profits or throw it out of business. Companies must ensure

that their pricing structure covers the costs incurred to produce a service, earns profitable

margins for the company and at the same time, provides the maximum value to the customers.

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µ No ownership of services

It is more difficult to calculate the costs involved in creating an intangible service

than in producing a physical good. The absence of ownership transfer compels the customer

to assess the value of the service before its production and consumption. In the case of

goods, consumers can leisurely verify and compare with substitutes and can take a purchase

decision after production.

µ Input and output variability

The invariable change in the combination of service provider, customer, tools and

equipment used, time taken, and so on makes the output of the service variable. Therefore,

price output relations vary significantly.

µ Price value relations

Often customers are not aware of costs of services and are unable to assess price-

value relationship. Often customers use personal reference prices. Personal reference price

consists of the price last paid, the price most frequently paid or the average of all prices

paid for similar service offerings. Service firms generally explore the variable nature of the

services to have greater flexibility in the configurations of service. A large number of varieties,

combinations and permutations lead to complex price structures. An LIC agent cannot

quickly tell you the premiums of various policies without referring to the price table. A

railway clerk cannot immediately tell you the cargo tariffs for various goods. He has to

refer to the price list of the Indian Railways. Under these circumstances, reference prices

cannot provide adequate clues to the customer.

Reference prices may not be accurate for the customers due to the following reasons:

ü The needs of individual customers vary from time to time, place to place and situation

to situation. As such, accuracy of reference prices is not possible.

ü Unlike goods, similar services cannot be offered at a single outlet.

If customers want to compare prices, they must go to individual outlets. Alternative services

cannot be compared simultaneously.

µ Influence of non-monetary costs

The role of non-monetary costs is very significant in services. Non-monetary costs

are the sources of sacrifices perceived by customers. They include time costs, search

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new market situations where a proportion of consumers are always prepared to pay

more for new, innovative goods. The price skimming approach can help speed up the

payback period. Frequently, the price reduces after a period as the products become

more popular and sales volume increases. Mobile telephones are an example of this;

the actual product (the telephone) has reduced in price over time since initial introduction

to the market and the service (mobile communications) charges have also reduced,

bringing the mobile phone within reach of ordinary consumers.

ü Penetration pricing

In this case the price is set at a low level in order to attract high volume sales, thus

penetrating the market and gaining substantial market share. For new products and

services the payback period is lengthy but with the advantage of establishing a strong

market position, the strategy is especially suitable for use when entering highly

competitive markets, such as the fast food restaurant business in India by the MNC’s

in the initial stages, or international airlines. New entrants would be unlikely to succeed

by charging high prices; pricing would have to be attractive in comparison with the

competition to penetrate the market.

ü Mixed pricing

This is based on the above two pricing strategies; begin with a price skimming policy

then reduce the price as competitors enter the market to defend the organization’s

position and attract new customers. The example given previously of mobile

communications typifies this approach.

ü Cost-plus pricing

Here pricing is based on the costs of producing the good or providing the service. The

total costs are computed then the price determined by adding on some required margin

or ‘mark up’. This approach has a number of weaknesses in that it considers neither

the competitive situation nor the market potential. Prices may be set too high against

those of competitors to attract customers or may not be set high enough to exploit

demand, especially if the product or service is innovative, new, or distinctive in some

way from competitive offerings.

ü Variable pricing

This is particularly relevant in industrial and business-to-business markets where

individual contracts are priced according to specification. Service providers such as

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ü Differential pricing

Another form of promotional pricing of particular concern to service marketers is

differential pricing, where different prices are charged for the same service at different

times or to different customers. This tactic is used to attract more business in slack

periods or to attract particular groups of customers to make up demand at particular

times. Differential pricing may be seasonal, reflecting the different prices charged for

the same holidays in low-, mid- and high-season or by time period, hence the price of

rail fares in peak periods compared with off-peak periods. Hairdressers or theatres

might offer reduced prices to senior citizens or students on certain days or for certain

shows, when demand is likely to be low. In these circumstances, the differential price

charged may be based on marginal pricing, demonstrating again how more than one

approach may be combined in creating the ideal pricing strategy for an organization.

3.8.3 Value Strategies in Pricing of Services

How can a service provider improve his pricing strategies so that they reflect the

value delivered to the customers? In order to answer this question, service providers should

be in a position to determine what constitutes value for their target customers.

They should then communicate this value to the customers through their pricing

structure. There are four strategies that can be used to create and communicate value to

the customers. These strategies can be used in isolation or in combination.

ü Satisfaction-based pricing,

ü Relationship pricing,

ü Efficiency pricing, and

ü Convenience pricing are the four strategies and are discussed in detail here.

ü Satisfaction Based Pricing

This pricing method is adopted by service companies to remove the uncertainty in

the minds of customers caused by the intangible characteristic of services. Service companies

try to remove this uncertainty by adopting the strategies of service guarantees, benefit

driven pricing, and flat rate pricing. Let us now discuss these three:

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new customers and nurturing a good relationship with them. The service provider is assured

of repeat business and the customers are also benefited in the process as they find a

dependable service provider. However, most of the strategies used by service providers

are copied by their competitors. Therefore, service providers should closely analyze

customers’ needs and competitors’ moves to decide on the incentives they would like to

offer to the customers. Long term contracts and price bundling are two methods that are

followed by service providers under this strategy.

µ Long term Contracts

Service providers often adopt this strategy to maintain relationships with existing

customers and to attract new ones. In this strategy, service providers often offer price and

non-price incentives to customers for entering into long term contracts with them. For

example, Shopper’s Stop offers a (First Citizen) membership to its regular customers,

which entitles them to special discounts and schemes offered by the retail store. The retail

store gets repeat business, with customers going back to them to avail of their special

offers and discounts.

µ Price Bundling

Companies that adopt the price bundling strategy offer two or more services at a

time to their customers. This enables service providers to reduce the costs involved in

delivering a second service to another customer. Further, it offers convenience to customers

as they need not go through the whole process or visit another service .

Business Insight 3.6 –Bharat matrimony.com - Find your Dream Partner!!

Bharat Matrimony.com is a website that provides matrimonial services to Indian

singles settled worldwide. Its services have tied up many singles around the world

in marriage. It provides services on a regional basis. It serves people speaking

Telugu, Kannada, Tamil, Bengali, Assamese, Marwadi, Oriya, Parsi, Punjabi,

Sindhi and Gujarathi, among others. People residing anywhere in the world can

access its services with just a click of the mouse.

It provides basic matrimonial services like match making where a member can

register for free on the website and can search through other profiles of his choice.

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3.8.4 Total Customer Value of the Services Delivered

Total Customer Value (TCV) is the sum of variables that the customers attach

specific values in relation to a service. The following are some of the values consumers

generally try to measure in a service:

µ Core service value

This value is commonly assessed in every service. The assessment of the value

depends upon the intensity of the need of a customer or a group of customers at a given

situation.

Figure 3.9 Components of Customer Delivered Value ( CDV)

µ Supporting services value

The additional services associated with the core service, without much effort, is a

value to the customers. Support services provide an opportunity to gain competitive

advantage for service providers.

Business Insight 3.7 & 3.8 provides how the marketers of mobile phones & Marketer of

ISP are trying their level best for value addition to their service products.

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Business Insight 3.8: Internet comes round the corner

Smile Interactive Technology Group is all set bring the e-commerce business in

the facilities. The group plans to have 900 Internet kiosks in the first phase of its

launch. These kiosks will come up in the grocery stores in the neighbourhood

store. The service will enable the individual to pick up a ticket to the most recent

movie. You could also pick up the flight ticket that you had to take. The kiosk will

also be able to print a picture that has been kept in your digital camera or phone

for some time. The company says that it wants to help the consumers to make use

of the e-commerce option that is available to the consumer today.

The company further states that Indians are not always comfortable using the

Internet. The Internet at present has around 14 million connections in the country,

which is still less considered with the world proportion. The company plans to

overcome this fear that the consumer has for using the Internet. Smile Interactive

will put up kiosks — 900 across the country, for a start it will have the kiosk

inside grocery stores, malls, petrol pumps and other retail points. The kiosks will

offer music downloads on your mobile or ipod, this will be transferred through a

bluetooth but the consumer will have to pay a price. It will also house railway and

airline tickets as well. The company says that the service is popular with consumers

who wish to buy stuff off the Net but are shy of using their credit cards. The

company is entering into revenue share tie-ups with e-commerce players for the

business. The company plans to have around 97,000 assisted e-commerce kiosks

across the country in the next three years. Besides retail opportunity in the digital

world, Smile Interactive is looking at offering healthcare services online.

The company further says that group wants to promote medical tourism. They

further clarify by saying that there is a lot of information on hospitals on the Internet.

The service will allow the foreigners can search for information and even book

their hospitals and surgeries online. Smile Interactive Technology was known as

Smile Studio earlier, it was launched as a complete web solutions company and

an incubation centre for entrepreneurs keen to do business in the digital space.

Two of the companies that it incubated — Quasar, the digital marketing and

online advertising agency, and Tyroo, the self-serve ads outfit have already attracted

strategic investors.

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in for obtaining adequate or satisfactory information is a cost for consumers. Search costs

may be monetary or non-monetary or sometimes partly monetary and partly non-monetary.

µ Time cost

Consumers may be required to wait for some time for some services. This is an

inevitable factor for many services, because the service provider cannot control the length

of time it will take for a customer to be serviced and the number of customers to serve.

Time definitely carries some opportunity cost. The total waiting time of customers will add

to the cost of the service from the customer’s point of view.

µ Energy cost

The energy costs include the loss of physical energy in traveling to the service

outlet, waiting, participating in a crowd of other customers, weight being carried and so

on. Service customers may add energy cost as non-monetary cost to the total customer

cost.

µ Psychic cost

Psychological costs are the most painful non-monetary costs incurred while receiving

services. While selecting a service, consumers may have some fears-fear of not

understanding the service, fear of rejection, fear of uncertainty and so on. All these anxieties

constitute psychic costs. When vending machines were introduced by the Southern Railways

in Chennai, most people preferred to obtain tickets by waiting in a queue at manned counters

due to the psychological fear relating to operations, accuracy of result, and the image cost

(in case of failure, how will the other customers rate their abilities?) in operating the machine.

µ Other costs

Apart from the above, consumers may perceive other non-monetary costs related

to a specific service. For example, the convenience costs may be more in a particular

means of transport service when compared to other means of transport.

The TCV will be compared with the TCC by each and every customer. Though customers

may not know or have the methodology to measure the cost items as well as value items in

accurate terms, the assessment will be automatic for them. Customers may not identify all

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Business Insight 3.9: Broadband to be redefined by TRAI

The Telecom Regulatory Authority of India (TRAI) has taken a tough stance

responding to complaints from harassed consumers who are offered “broadband”

at speeds much slower than those stipulated by the government.

This has come as good news to a lot of subscribers of broadband. This will be

especially useful for consumers who have been complaining that their broadband

connection of 256 kilo bites per second (kbps) is not fast enough to play video

games or download movie clips quickly.

The TRAI has asked the operators to reform their ads, which suggest the wrong

speed. The organization has written to operators saying they can no longer advertise

broadband services that say they offer up to 256 kbps speeds, thereby

circumventing the rules by offering services at far lower speeds.

There has been a paper released by the regulator as well which discusses the

whether the present level of 256kbps, which is defined as the minimum broadband

connection speed in India can be raised to bring it at par with the international

standards. At present in countries like France and others the minimum broadband

speed is defined with 512kbps. In US the speed is limited to 200 kbps, in Hungary

to 256 kbps, while in China all internet users other than dial-up and wireless are

considered broadband users.

TRAI to meet the grievances of the consumer as directed all operators to clearly

mention the minimum guaranteed download speeds in various packages. The

organization has mentioned that there has been promise by operators saying that

they will abide by the law.

If the directive by TRAI is able to achieve the desired results then this will be

good news for the subscribers of broadband in India. One of the biggest

advantages for the subscriber will be that he will be able to achieve a lot of high

definition services which requires a minimum speed of four to six mbps. This will

include the services like movies, tele-medicine and video streaming and others.

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µ Competitor pricing:

As discussed earlier in the unit, service providers should have an idea of the pricing

structure of competitors, especially in the case of price sensitive services. For example, if

a photographer charges Rs.100 for developing and printing a roll and another a few yards

away charges RS.110, not many would bother about the difference. However, when a

bank offers a housing loan at an 8 percent interest rate and another offers it at 9 percent,

customers would certainly be attracted to the former. Service companies also focus on

other elements of the marketing mix to win over customers. At the same time, a company

cannot set very high prices for its services unless its offering is unique and distinct from

those of competitors.

µ Marketing mix:

The other elements of the marketing mix have an influence on the price. The price

should be an indication of the value derived by the customer, as already discussed. Price

sensitive services should be communicated properly to the customers through suitable

promotional activities. Further, price discounts, sales, price-cuts, etc., should also be

communicated to the customers. The place where premium services are offered is also

linked to the price a company can charge as also the quality of service offered by service

personnel. For example, the staff at the Ritz Carlton offer premium customer service and

also charge high prices. Finally, the process and the physical evidence should reflect the

price charged and the value offered by the service.

µ Regulatory factors:

Government policies and guidelines of trade associations have an effect on the

prices charged by companies in the industry. For example, the Department of

Telecommunications (DoT) regulates the prices charged by BSNL for telecommunications

in India.

µ Positioning:

The customer perceptions of a service, his evaluation of the service standards and

his assessment of the service value also depend on the positioning strategy adopted by a

company. For example, if a company positions its services in the premium range, then

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Mr. Pathak initiated the efforts. He talked to teachers, who expressed their

wholehearted cooperation in his efforts. He got the same promise of cooperation

from the students. Mr. Pathak offered all supporting facilities liberally.

The director reasonably expected that there would be some improvement.

He reviewed the condition after a month. There was no improvement at all. He

talked informally again with both the students and faculty. The teachers informally

complained that students are not there though they are ready to take up the

classes. On the other hand, students complained that teachers are not coming to

the classes. Both the parties are not willing to give a formal complaint to the

director on the issue.

Mr. Pathak realized that the serious attempt is required for the purpose.

As a first step he started understanding the development in the institute over a

period of time. After a thorough analysis he found that the following factors are

important.

1. Increase in the number of teaching faculty. Workload per teacher has reduced

from 12 hours a week to 6 hours a week.

2. Increase in research, consultancy and extension services of the faculty.

3. Change in the qualification of the students – the percentage of engineering

graduate getting admission has increased each year.

4. Promotion to a higher position at young age.

However, the director could not find anything about placement as there was no

record available in this respect. Having gone through all these details the director

decided to refer this case to a marketing professional. This director thought that

external consequences needed to be emphasized more to take corrective actions.

Marketing orientation is required to strengthen and develop the institute.

µ Can you identify any services marketing problems?

µ Comment on the approach of Mr. Pathak

µ Suppose the case were referred to you how would you help Mr. Pathak.

Summary

An understanding of the various product levels namely, core benefit, basic product

level,, actual product level, augmented product level, and potential product level helps a

company to recognize and meet the customer needs at each level. Further, when developing

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competitor pricing, the other elements of the marketing mix, namely product, place,

promotion, people, process and physical evidence, regulatory factors, and positioning are

some of the issues that should be considered when developing a pricing strategy.

Concept application questions

µ Review recent bills that you have received from service businesses,

such as those for telephone, car repair, cable TV, credit card, etc.

Evaluate each one against the following criteria: (a) general

appearance and clarity of presentation, (b) easily understood terms

of payment, (c) avoidance of confusing terms and definitions, (d)

appropriate level of detail, (e) unanticipated (“hidden”) charges, (f)

accuracy, and (g) ease of access to customer service in case of

problems or disputes.

µ Choose a service with which you are familiar and create a simple

flowchart for it. Define the front stage and back stage activities.

µ Select a service organization and determine its pricing policies. In

what respects are they similar to or different from what has been

discussed in this unit?

µ Choose an industry you are familiar with (like fast food restaurants

or grocery stores) and create a Positioning Map (perceptual map),

showing the competitive positions of different companies in the

industry.

Review Questions

1. With illustrations explain the different levels of service product.

2. Bring out the different stages in the new product development of services with examples.

3. In a short essay, describe the Flower of Service and list the clusters into which almost

all supplementary services can be classified. Which clusters are considered facilitating

services and which are considered enhancing services?

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4.0 INTRODUCTION- THE PEOPLE – THE FIFTH P

In organization manufacturing tangible foods, the personnel perform their duties in

the factories, away from customers. In services, personnel come in contact with the customers

in the process of production and consumption of services. The inseparable nature of

service emphasizes the point that the human element forms an important aspect in the

service industry. According to some authors “people”, the fifth element in the service

marketing mix applies not only to personnel but it recognizes the role of the participants

both employees and customers in the service delivery process. But, as we look at a

marketing mix variable as controllable element, we deal with management of people within

the organization as a key task. They are particularly important in those situations where, in

the absence of clues from tangible products the customer will form an impression of the

organization from the behavior and attitudes of its staff.

In service business, the service personnel reflect the organizational realities, it is

through the interaction with the staff, and the customer forms an opinion of the organization.

A service firm may have all equipment and technical facilities, and yet may not able to

provide satisfactory customer service. This may be due to the lack of interpersonal

relationship between the service provider and customer. In such cases, the customer

develops negative attitude towards the firm. Therefore, service marketers need to develop

a high level of interpersonal skills and customer oriented attitude in employees. According

to Zeithaml and Bittner “the service employees are – the service, the organization in the

eyes of the customer and they are the marketer”.

4.1 CLASSIFICATION OF SERVICE PERSONNEL

Ø Though all service organizations are characterized by an interaction between their service

personnel and customers, the level of interaction varies from one organization to another

and from one executive to another within the same organization. This level of interaction

can be one of the bases for the classification of service organizations as well as service

personnel. The classification of organizations based on this criterion is as follows:

µ Low contact service:

In this kind of service, the interaction between the service organization and a customer

lasts for a short period. Fast food outlets, beauty clinics, mechanic shops, etc. involve low

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and try to solve their problems. An example of contact personnel are the

customer care executives of a service organization.

µ Moderate contact personnel: These personnel interact with customers only

occasionally. Their primary function is to design and create a tangible or

intangible product/service to suit customers’ requirements. Therefore, they

interact with customers only in special cases, For example, a chef in a restaurant

does not usually interact with customers, However, when presenting a new

dish for special guests, the chef may personally interact with the guests to

explain the preparation, the ingredients and the nutritional value of the dish.

µ Back office staff: The primary function of these personnel is to perform all

those activities that enable the front-line service personnel to deliver quality

service to customers. However, they might interact with customers under some

special circumstances. For example, a technician who repairs the air

conditioning systems at a company showroom does not usually interact with

the customers, However, if a customer finds it difficult to explain the problem

in technical terms to the front-office personnel, the technician may be called to

talk to him/her customer and understand the problem better.

µ Support staff: These personnel perform support functions and do not come

into contact with customers at all. For example, customers do not interact with

an accountant or an HR executive in a hotel.

µ Management: The management of an organization rarely interacts with

customers directly. Interaction happens only in exclusive situations when the

management wants to get customer feedback or when the customer is a high

net worth important person like a corporate customer. For example, the

Chairman of an airline might interact with customers on flight to gather feedback

about its services. Otherwise, he might meet a corporate customer who

contributes a good percentage of revenues to the airline and whose relationship

is critical for its business.

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4.2.1 Job Characteristics

Customer contact employees in the service industry serve in a boundary spanning

role or a role of linking an organization or business with its environment through interaction

between members of the organization and members of the environment. Support personnel

to be motivated to perform consistent, high quality work for the success of the service

firms.

In designing service jobs, firms must be aware of some important motivational job

characteristics. These characteristics are:

Skill Variety: Degree or range of abilities required by an employee to do a job

Task identity: Degree that a job has identifiable units of work with visible outcomes

Task significance: Degree of impact an employee perceives his or her job has on the

lives of others inside or outside of the organization

Autonomy: Degree of freedom and discretion an employee has in his or her work design

Feedback: Degree of direct clear information an employee receives from superiors

concerning the effectiveness of his or her performance.

Empathy: Ability of an employee to identify with the feelings or thoughts of another

employee or customer.

4.2.2 Control Issue

A critical element in the customer contact position is the issue of control. Individuals

want control over their and the things that happen to them. Within the service setting,

customers must surrender some control of their lives in order for the service to be performed.

Purchasing of nonprofessional services requires customers to surrender some control during

the service encounter, although usually not as much. To perform the service properly,

customer contact personnel would like to have maximum control. To ensure they get the

service they want, customers want to keep as much control as they can. In addition to

these two participants in the service setting, the firm has an interest in how the service is

performed. To ensure the employees perform the service properly, the firm would like to

control the service situation. By controlling the service encounter, the firm can increase

productivity of employees and the cost efficiency of its operation. The result is a three-

way fight for control.

Increasing firm and service personnel control

Firms and service personnel must have some control of a service encounter to

ensure the service is performed properly. As already stated the amount of control desired

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Table 4.1: Types of Conflict in Service Organization

µ Employee conflict:

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4.2.4 Staff Selection and Recruitment

As the value of staff rates so highly in service organizations, careful recruitment of

the right kind of personnel is an important step. Internal marketing1, recognizes that

employees and potential employees are customers of the organization’s internal market

and their needs and wants should be considered in the same light as those of external

clients. Marketing activities should be aimed at these internal markets in the same way as

when marketing to external clients.

Organizations seeking to attract excellent service personnel can consider using the

same tools and techniques that they use to attract customers. Recruitment should not be

left solely to the human resources management function but should be seen as a powerful

tool in itself for enhancing and maintaining the organization’s standing and image. The human

resources management function can support advice and guide line management in this

area. Programmes designed to generate interest in the organization, through sponsorship

and PR( Public Relations), for example, can also be used to attract the people who share

the organization’s ideals and standards. While many sources of information exist detailing

approaches and techniques for recruitment, the basic steps are as follows: (they have been

listed only in nutshell owing to the reason that you have studied in detail in the last semester

course on Human Resources Management)

Ø Preliminary stage

µ Identification of vacancy (may be a new post or replacement.

µ Develop job profile - review job description and person specification. The person

specification can be adapted to place emphasis on customer and service orientation,

a desirable or even essential quality for all jobs.

µ Consider internal sources

µ Consider using specialist recruitment agency

µ Advertise - internally and externally

µ Process applications

µ Screen applications for shortlist

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low- paid sectors so a sense commitment may be desirable personal attributes. Charities

have sometimes experienced difficulties in attracting experienced managerial staff as

applicants are sensitive to the moral issues involved in receiving high salaries from charitable

bodies. To recruit appropriately qualified personnel, however, in, say, accountancy and

marketing management, charities have to offer competitive salaries. Some services obviously

require staff with certain qualifications, such as teachers and lawyers. The degree of

specialization required will govern the potential marketplace for recruits. In a situation

where demand for certain skills outstrips supply, which sometimes occurs, or in highly

specialized areas, a different approach to recruitment may need to be found, such as in-

service training for potential applicants, to bring them to the required standard.

The rate of legislative changes, for example, affecting organizations in the public

sector brought about by compulsory competitive tendering, privatization and the introduction

of a quality culture geared to customer care has led to different personnel requirements.

Such organizations have to compete more and more in the external marketplace, not just in

terms of maintaining their services against competing private service providers, but also in

recruitment. They are often hampered or constrained in their strategy by existing practices

which may be outdated or inappropriate and other influences including:

µ Traditional low rates of Pay

µ Cutbacks

µ Tightly structured pay scales

µ Conditions of service.

4.2.5 Training and Development

Training is needed on more than one level; at its basic level it may be needed to

impart knowledge about a particular aspect of the organization or job; at a broader level,

it gives focus and direction for the future to employees and also plays a communications

role within the organization. The training opportunities offered by an organization may be

influential in attracting and retaining personnel. Additionally, it can help create personal job

satisfaction and can overcome difficulties associated with change, for example when

introducing new technologies. Essentially there are three stages in managing the training of

the human resources - the staff - of the organization. These are:

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Resources Management even though the commitment and initiation of such programmes

must be led by top management and involve all line management and employees.

4.2.6 Human Resources Management Issues

When the people in an organization represent its most valuable asset, then the task

of looking after those people is equally important as financial, operations or marketing

management. The managers who look after the people within an organization may be

grouped under the headings: personnel, industrial relations, or training and development.

They are all concerned with human resources management.

Typically, the responsibilities of human resources managers include the following:

µ Recruitment and selection

µ Training and development

µ Setting up new modes of operation, e.g. quality circles

µ Management of change

µ Team briefings, communications strategies

µ Staff suggestion schemes

µ Internal communications Administration (pensions, insurance) Appraisal schemes

µ Pay structures

µ Staff development and support

µ Trade Union liaison

µ Conditions of service

µ Discipline and grievance procedures

µ Termination issues (redundancy, ill-health) Capability

µ Additionally, human resources management plays a very central role within an

organization. If the human resource task is to be handled effectively, managers need:

ü A thorough understanding of the needs of the directors, managers and

employees throughout the organization

ü Clear identification with organizational goals and objectives Understanding of

the needs and wants of external customers Close co-operation with other

functional managers.

In practical terms, there are a number of ways in which these wide-ranging aspects

of human resources management can be translated into effective strategies for service

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Ø Training and development

µ Identification of training needs.

µ Development and implementation of training programmes. Integration between training

and other functions.

µ Support for individual staff development.

µ Management development programme evaluation.

Ø Pay structure and benefits

µ Establishment of salary structure and reviews.

µ Reward systems for competence/ qualifications/performance.

µ Provision and communication of benefits packages, pensions.

Ø Communications

µ Internal marketing.

µ Publication of staff magazine and other internal communications.

µ Ensuring that staff are always kept informed and in touch, allowing for feedback from

staff.

µ Transmission of new ideas and initiatives.

Ø Quality

µ Liaison with functional managers on quality initiatives. Involvement in implementing

programmes for quality.

µ Communicating to employees the nature of responsibility for quality; instilling ownership

for quality issues.

The above list contains suggestions for human resources management; the actual

task will differ between organizations.

The broad nature of the function is clear, however, and its close relationship with

customer service can be seen. Suggested elements for a customer service audit include

evaluation and review of personnel issues and performance measures, together with

personal and job goal specification - all areas where integration with human resources

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process design and implementation, the types of processes and the steps involved in planning

a service processes.

4.3.1 Designing Service Processes

The principles by which service delivery processes can be designed, implemented

and monitored are really no different from those mentioned relating to the fields of

manufacturing, computing and so on( Studied in the last semester course on Production

Management). There are certain specific characteristics of service process design and

implementation however which should be considered. These include:

µ Customer participation in the process

The level of involvement or participation of the customer in the service process - in

a self-service restaurant, for example, as opposed to waitress service.

µ Location of service delivery

Should the process be carried out at the service provider’s premises or at the

customer’s home? For some services, this seems a simple decision - plumbing or carpet

cleaning should be carried out at the customer’s home, while dry cleaning or a theatrical

performance will be carried out at a specialist outlet or venue. In other cases, traditional

practices may no longer be applicable as telephone banking and insurance services have

shown, without the need for any branches on the high street. Travel arrangements can be

made without visiting a travel agent and services as diverse as hair dressing, take-away

food and financial consultancy can all be delivered to the customer at home if required.

µ The service itself

The service itself - is it process dependent (usually the case with highly intangible

services such as legal representation) or equipment based (such as vending machines or

dry cleaning).

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ü To ensure that the service is carried out in the fastest, most efficient and cost-

effective manner possible

ü To enable service quality to be monitored and benchmarks to be put in place

thus allowing accurate measurement of both quality and productivity

ü To facilitate staff training and enable individuals to carry responsibility for individual

stages of the service transaction and delivery

ü To reduce the amount of divergence thus enabling accurate budgeting and

Manpower planning etc. to take place.

4.3.2 Spectrum of Service Processes

Much as we have thought of manufacturing enterprises in terms of different kinds

of production processes, we can also think of service operations in terms of distinct

processes. Process has been defined differently by various disciplines like computer

programming, decision theory, operations management, etc., in addition to marketing.

Though the technology used differs, the basic idea or the core concept remains the same.

According to all these disciplines, including marketing, a process should involve logical

steps that can be broken down to increase efficiency. It should have an element of flexibility,

which would help in achieving different results to produce the desired outputs. Business

Insight 4.1 shows how the process of reserving a ticket against frequent flier miles has

become simple over the years.

Business Insight 4.1 Simple Processes

With increasing competition, all service companies have made efforts to increase

convenience for their customers. Earlier, to book a ticket against frequent flier

programs, a passenger was required to submit an application to the branch office.

The employees at the branch office would process the application and get the

ticket. The whole process would take upto 10-days and involved a lot of

documentation, leading to inconvenience to customers and increasing the possibility

of errors.

Later, the head offices integrated their databases with the branch offices, which

made the process easier. The new process takes only 10 minutes and requires

less documentation, leading to low costs and very little possibility of error.

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ü The Service Shop

As the degree of interaction with - or customization for - the consumer increases,

the service factory gives way to the service shop, much as a line flow operation gives way

to a job shop operation when customization is required in manufacturing. Hospitals and

repair services of all types are prime examples of service shops.

ü Mass Service

Mass service processes have a high degree of labor intensity, but a rather low

degree of interaction with or customization for the consumer. Retail operations, retail banking,

schools, and wholesaling are examples of mass services.

ü Professional Service

If the degree of interaction increases or customization becomes the watchword,

mass service gives way to professional service, as provided by doctors, lawyers,

consultants, architects, and the like.

4.3.3 Planning a Service Process

A service provider has to take many decisions regarding the use of technology,

people, materials, and equipment in serving his clientele. Most of these decisions are taken

while planning the service process, which is in turn determined by the type of service

offered and customer requirements. Let us now discuss the important decisions to be

taken by a service provider in planning a service process.

µµµµµ Technology:

A service provider needs to look into different aspects of the available technology

and the extent to which it needs to be upgraded for delivering the desired services at the

expected quality. For example, banks that are planning to introduce Internet banking should

analyze the available technologies, and upgrade their systems to offer services through the

Internet.

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µ Service location:

As services are intangible in nature, customers attach importance to the service

location. They perceive it as an evidence of the quality of service offered. Therefore,

service providers should choose a location that is easily accessible to customers, has a

good infrastructure and the right atmosphere. For example, foreign banks and private

banks in India today look entirely different from the old nationalized banks.

µ Layout design:

Layout involves decisions regarding both production process and front office layout.

An ideal design uses the space available to the maximum extent, minimizing the movement

of goods/people, and increasing customers’ convenience. Finally, it should be pleasant and

encouraging for the service employees as well as the customers. For example, the layout at

an airport should place the luggage weighing equipment, ticketing counters, check-in

counters, security check equipment, passenger and visitor lounges, and coffee shop in

such a way that it increases the productivity of airport personnel by reducing the time and

efforts involved, and also offers convenience to customers.

µ Organizational structure:

Decisions under organizational structure determine the element to which processes

need to be standardized. They also determine whether an informal or formal organizational

structure is to be adopted, whether decision-making is to be centralized or decentralized

and how the organization is to be structured.

4.4 DISTRIBUTION OF SERVICES – THE PLACE – THE FOURTH P

Place, the ‘fourth P’ of the marketing mix, deals with the development of distribution

strategies. The main aim of these strategies is to make the products and services available

and accessible to customers whenever they want to make a purchase. As part of ‘place’,

company needs to make decisions relating to the channels of distribution like its geographical

coverage, location of the service outlets, inventory, and transportation.

The factors influencing distribution of services differ significantly from those of

tangible goods. In the case of tangible goods, production is separate from consumption.

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In this part of this unit we will discuss the significance of location in services and

the various channels available for distribution of services. We will also discuss the concept

of direct distribution and methods to distribute through key intermediaries. Finally, we will

study the strategies for effective service delivery through intermediaries.

4.4.1 Service Transactions

Transactions in services can be broadly categorized into three groups.

µ Customers calling service outlets

In this type of transaction, customers have to go to service outlets to avail of the

service. The service provider creates a conducive environment with good service care and

infrastructural facilities to facilitate service production and consumption. For example,

educational institutions, theatres, beauty care centres, health clubs and so on.

µ Service firms calling customers

In such a transaction, consumers need not move from their premises whether it is

home or office to avail of the service. The employees of the service organization call on the

customers and perform the service at the desired location. For example, postal services,

security services, personal services and so on.

µ Service provider and consumer transact at arms length

In such a transaction, there is no need to have personal contact and face-to-face

encounter between the service provider and the service consumer. Services can be produced

and consumed with the help of tangibles and equipment provided for the purpose. For

example, telecom services, cellular services, credit card services and so on.

Service companies may adopt different strategies depending upon the service

product, the market and the objectives of the company. There are three distribution strategies

available to service organizations. They are: ‘extensive distribution’, ‘selective distribution’

and ‘exclusive distribution’.

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µ Parking facility

Parking facility is becoming an important locational factor, particularly in cities and

metros. A service outlet without adequate parking facilities is less likely to attract customers.

µ Convenience

The location of the service outlet should be convenient for customers. Convenience

is often measured in terms of public transport, other shopping facilities, safety and security

and so on.

µ Accessibility to other services

A service outlet requires a host of other services and infrastructural facilities such

as electricity, telecommunications, water and sanitation. The location that provides an

adequate qualitative supply of these services is more suitable for service organizations.

µ Competitive advantage

The effect of the competition cannot be ignored while taking any decision in services.

The location that provides competitive advantage can be preferred.

The Business Insight 4.2 provides a classic view of the excellence in distribution of

services products, the meals in the lunch boxes to the office goers in Mumbai.

Business Insight 4.2 Mumbai’s amazing Dabbawallahs

Four thousand five hundred semi-literate Dabbawallahs collect and deliver 175,000

packages within hours. What should we learn from this unique, simple and highly

efficient 120-year-old logistics system?

Hungry kya? What would you like: pizza from the local Domino’s (30 minute

delivery) or a fresh, hot meal from home? Most managers don’t have a choice.

It’s either a packed lunch or junk food grabbed from a fast food outlet. Unless

you live in Mumbai, that is, where a small army of ‘Dabbawallahs’ picks up 175,000

lunches from homes and delivers them to harried students, managers and workers

on every working day. At your desk. 12.30 pm on the dot. Served hot, of course.

And now you can even order through the Internet.

The Mumbai Tiffin Box Suppliers Association is a streamlined 120-year-old

organization with 4,500 semi-literate members providing a quality door-to-door

service to a large and loyal customer base.

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can carry no more than 35-40 tiffins.

During the earlier sorting process, each Dabbawallahs would have concentrated

on locating only those 40 tiffins under his charge, wherever they come from, and

this specialization makes the entire system efficient and error-free. Typically it

takes about ten to fifteen minutes to search, assemble and arrange 40 tiffins onto

a crate, and by 12.30 pm they are delivered to offices.

In a way, MTBSA’s system is like the Internet. The Internet relies on a concept

called packet switching. In packet switched networks, voice or data files are

sliced into tiny sachets, each with its own coded address which directs its routing.

These packets are then ferried in bursts, independent of other packets and possibly

taking different routes, across the country or the world, and re-assembled at their

destination. Packet switching maximizes network density, but there is a downside:

your packets intermingle with other packets and if the network is overburdened,

packets can collide with others, even get misdirected or lost in cyberspace, and

almost certainly not arrive on time.

Elegant logistics

In the Dabbawallahs’ elegant logistics system, using 25 kms of public transport,

10 km of footwork and involving multiple transfer points, mistakes rarely happen.

According to a Forbes 1998 article, one mistake for every eight million deliveries

is the norm. How do they achieve virtual six-sigma quality with zero documentation?

For one, the system limits the routing and sorting to a few central points. Secondly,

a simple color code determines not only packet routing but packet prioritizing as

lunches transfer from train to bicycle to foot.

Who are the Dabbawallahs?

Descendants of soldiers of the legendary Maharashtrian warrior-king Shivaji,

Dabbawallahs belong to the Malva caste, and arrive in Mumbai from places like

Rajgurunagar, Akola, Ambegaon, Junnar and Maashi. “We believe in employing

people from our own community. So whenever there is a vacancy, elders

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Their key responsibility is sorting tiffins but they play a critical role in resolving

disputes; maintaining records of receipts and payments; acquiring new customers;

and training junior Dabbawallahs on handling new customers on their first day.

Each group is financially independent but coordinates with others for deliveries:

the service could not exist otherwise. The process is competitive at the customers’

end and united at the delivery end.

Each group is also responsible for day-to-day functioning. And, more important,

there is no organizational structure, managerial layers or explicit control mechanisms.

The rationale behind the business model is to push internal competitiveness, which

means that the four Vile Parle groups vie with each other to acquire new customers.

Building a clientele

The range of customers includes students (both college and school), entrepreneurs

of small businesses, managers, especially bank staff, and mill workers.

They generally tend to be middle-class citizens who, for reasons of economy,

hygiene, caste and dietary restrictions or simply because they prefer whole-some

food from their kitchen, rely on the Dabbawallahs to deliver a home cooked mid-

day meal.

New customers are generally acquired through referrals. Some are solicited by

Dabbawallahs on railway platforms. Addresses are passed on to the Dabbawallahs

operating in the specific area, who then visits the customer to finalize arrangements.

Today customers can also log onto the website www.webrishi.com to access the

service.

Service charges vary from Rs 150 to Rs 300 per tiffin per month, depending on

location and collection time. Money is collected in the first week of every month

and remitted to the mukadam on the first Sunday. He then divides the money

equally among members of that group. It is assumed that one Dabbawallahs can

handle not more than 30-35 customers given that each tiffin weighs around 2 kgs.

And this is the benchmark that every group tries to achieve.

Typically, a twenty member group has 675 customers and earns Rs 100,000 per

month which is divided equally even if one Dabbawallahs has 40 customers while

another has 30. Groups compete with each other, but members within a group do

not. It’s common sense, points out one Dabbawallahs.

One Dabbawallahs could collect 40 tiffins in the same time that it takes another to

collect 30. From his earnings of between Rs 5,000 to Rs 6,000, every

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provide time, place and convenience utilities to the target customers. The intermediaries

may perform services of many service principals and thereby provide a retailing function

for customers.

4.5 CHANNEL FUNCTIONS OR FUNCTIONS OF SERVICE

INTERMEDIARIES

Two service marketers are involved in delivering service through the intermediaries-

the service principal (the service firm) and the service deliverer/distributor (the intermediary).

The service provider creates the service concept and the service distributor interacts with

the customer in the actual execution of the service.

Though the service distributor does not perform the normal functions of the product

distributor like storing, transporting, after-sales service etc, the following can be the functions,

which a service distributor can perform:

1. As a co-producer of a service, an intermediary assists in making the service available to

customers at a place and time that is convenient to them. More so in the case of franchisee

where he represents the service firm.

2. The intermediaries often share the risk of providing the service when they contribute

their own capital to acquire the equipment and deliver the service.

3. The intermediaries provide sales support at the point of sale. They collect feedback

from the customers regarding the service rendered.

4. Often intermediaries provide wider choice of services including that of the competitors.

5. They offer advice to the customers and guide them to choose the service that matches

their need. E.g. Tour operators and financial service agents.

6. Intermediaries provide after sales support to the customers making the service more

accessible.

E.g. An insurance agent who gives advice about making a claim and handles much of the

paper work involved in making the claim.

4.6 CHANNEL DECISIONS

In situations where direct marketing of services is not feasible, service providers

use intermediaries to market and sell their services. These intermediaries used are known

as distribution or marketing channels. Thus, there are three participants in the service

delivery process, namely, the service provider, customer, and the intermediaries.

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Some service providers continue to sell their services directly to the customer, as

in management consulting, and hotel businesses or through agents or brokers as in insurance,

travel, real estate, etc. Services are distributed through sellers’ and buyers’ agents or brokers

as in stock broking and portfolio management; or through franchises as in education and

fast food etc. NIIT and Aptech for example, operate through their franchisees across the

world. Figure 4.2 gives a diagrammatic representation of various channels available to the

service providers.

Figure 4.2: Channel Options for Service Providers

Intermediaries also playa role in co-producing the service. However, they have to

maintain the service standards developed by the principal owner. For example, McDonald’s

franchisees follow the service standards set by the franchiser, i.e., McDonald’s.

Intermediaries also form a bridge between the company and the customers. A customer’s

perception of a company depends on the relationship that the intermediaries maintain with

him. For example, if a customer is not happy with the service provided at the franchisee of

a training institute, he would not only avoid that institute in future, but will also advises

friends and colleagues against opting for its services.

Intermediaries benefit the customers by saving them time and offering than the

convenience of utilizing the services. For example, many cellular companies like Airtel,

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µ Control:

A service company enjoys greater control on its operations and services through

direct distribution. It can also maintain high quality and greater consistency in its service

offerings when compared to a franchise. The service provider can monitor the operations

directly and check their compliance with the service standards. Further, the company can

have direct control over the recruitment of staff, their motivation and their performance.

µ Healthy customer relationships:

Direct distribution helps in maintaining healthy and strong relationships with

customers. It improves clarity in communication between the service personnel and the

customers, bridging gaps and removing any scope for misunderstanding. The company

can ensure a strong relationship with the customers, thereby enjoying the different benefits

of loyal customers, like repeat business and positive word-of-mouth publicity.

µ Flexibility and confidentiality:

In distribution channels like franchising, the franchisee has to strictly follow the

rules’ laid by the franchiser to maintain the set service standards. This might result in a few

dissatisfied customers moving away or shifting to competitors. In direct distribution, the

service provider is free to make changes to the service or the service location according to

his convenience or the customers’ desires. This flexibility in service delivery helps to customize

the service. In addition, direct distribution helps the service providers maintain the

confidentiality of their core competencies without the need to share them with other

distributors.

Direct distribution is disadvantageous in the following ways:

µ Financial risk:

Service companies face financial challenges when they desire to expand their

business without the support of franchisees or agents. They are required to make huge

capital investments and may be forced to compromise on some aspects like promotion or

research and development for new services, due to budgetary constraints.

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ü Knowledge of local markets

Greater reach of the market provides adequate information back through the

franchisee, relating to specific issues of local markets. This information helps the organization

to develop market-oriented service packages. Also service companies can get feedback

from customers through franchisees on various dimensions of service quality, quickly and

with useful interpretation. Such feedback helps improve the performance of the company.

ü Sharing financial risk and less investment burden

Franchisees invest money and other resources to arrange for the required equipment

and personnel for performing service as per the specifications of the franchiser. Therefore,

the franchiser’s investment burden gets reduced significantly.

Business Insight 4.4 provides how Philips opted to go for franchisee expansion to

increase the presence in the market.

Business Insight 4.4: Philips goes in for more

franchisee operated showrooms

The Rs 1,667-crore Philips India Ltd is planning to expand the number of

franchisee-operated showrooms called ‘Philips Arena’ from 12 to 25 in all major

cities to promote its entire range of products across the country within a year. The

company is currently talking to the Benzer Group of Companies (BGC) to set up

a Philips outlet within their ‘Centre-One’ Mall.

The company has already set up a Philips outlet at Big Bazaar. The company

is also planning to extend the integration of its ‘Eye-Fi’ technology from 21-inch

and above category to the entry levels - such as 14-inch and 20-inch CTV bracket

from this month. In order to promote these products, the company is also planning

to beef up its distribution network across the country.

The company plans to increase the number of small retailers from 7,000 to

12,000 and direct dealers from 2,500 to 3,000 within a year who will cater to 75

distributors across the country as the Eye-Fi tech products are targeted at the

mass market. The company proposes to invest Rs 25 crore on releasing

advertisements on Philips’ CTVs this year compared to the previous year’s ad

spends of Rs 16 crore.

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ü Low selling and distribution cost

Agents and brokers work on commission basis. Service companies need not

employ permanent sales force for the purpose. Selling and distribution costs are directly

linked with sales revenue when agents and brokers are used.

ü Specialized skills and knowledge of the agents and brokers

Persons who choose to be agents and brokers will generally possess specialized

skills in persuading people. Such skills are mostly inherent and inherited. Service companies

can exploit those skills in their favor without any additional cost.

ü Wider representation in the market

Service companies can appoint many brokers and agents and can have a wider

representation in the market. The agency network of LIC of India is an example of this.

Knowledge of local markets Agents and brokers operate within specific locations, have

knowledge on various local issues and possess the talent to exploit their knowledge for

making sales. Through agents and brokers, the company can get required information

relating to local markets. The information provided by these intermediaries, naturally, is

more reliable.

ü Customer choice

There may be a number of authorized agents and brokers relating to a service in a

location. Customers may chose known intermediaries for providing service. Customer

confidence will be high when they take service through a known broker or agent.

However, there are some challenges service organizations have to face in using

agents and brokers as intermediaries. There will be loss of control, in pricing and other

aspects of marketing when the agents and brokers interfere and prevail over the producers

as well as consumers (for example, real estate business). Some of the brokers and agents,

generally, represent multiple service principals and as such special focus may not be provided

to anyone of the service principals.

4.6.4 Electronic Channels

Service companies that adopt electronic channels for distribution do not require

direct interaction with customers. Telephone and television have been the original channels

of distribution through the electronic media; new additions to this distribution channel include

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Let us now discuss the benefits of the electronic channels of distribution:

µ Lower costs:

Electronic channels of distribution cost less to the service provider than personal

selling. Further, they also provide instant answers to customer queries online. For example,

if a customer decides to book flight tickets online, he will reduce the stress on the service

provider and get the relevant information and tickets online.

µ Increased customer convenience:

Electronic channels of distribution have increased the convenience of customers.

For example, online reservation of movie tickets saves the time of customers and the

efforts involved in getting the tickets.

µ Increased bargaining power of the customer:

The customer can refer to the prices and services offered by different service

providers online, compare them and make the purchase decision. This has increased the

bargaining power of the customer.

µ Extensive distribution:

Electronic channels of distribution allow a company to contact many customers as

well as intermediaries. Further, franchisers find that electronic communication with

franchisees motivates the franchisees better, in addition to being cost effective.

µ Ability to customize services and gain quick feedback:

Electronic channels of distribution enable service companies to offer customized,

services to the customers. Further, the service providers can get feedback from customers

faster than from other channels. They are also a cost efficient way of getting feedback.

The disadvantages involved in electronic channel of distribution are as follows:

µ Uncontrolled price competition:

Electronic channels of distribution have enabled the customer to purchase services

for the price he/she wants to pay. This has increased price competition among the service

providers and the bargaining power of the customer.

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It is not only the website that is going through a change, there is an increase in the

digital ad spending by the group, which it has announced recently. The group says

that about 12-15 per cent of the total marketing spends in 2007 went to digital

media, and in 2008, they are planning to raise it to 20 per cent.

The revamped site will have a product information section called Lee Collection

and a Download section which will allow users to download wallpapers, jingles

and the Lee television commercial. The current Lee site has user generated blogs,

which will also be there in the revamped version. Apart from providing brand

related information to consumers, Lee is planning to introduce business oriented

networking among its dealers in India. The new site will have an Intranet blog,

which will be accessible only to dealers. It will be used to share information related

to products and sales among various dealers. The dealers will also be allowed to

upload pictures and videos in this section.

The new website will be promoted through Lee’s TVC and radio spots. Online

promotion of the website will be done by search marketing, which will drive the

eyeballs on the site.

The company plans to endorse e-commerce on the revamped site. A link will be

created on the site, which will take users to Indiatimes.com, where an online retail

store to sell Lee products will be set up.

4.7 DESIGNING COMMUNICATIONS MIX FOR PROMOTING

SERVICES

“I know half of my advertising is wasted, I just don’t know which half.”

JohnWanamaker

To successfully market a service, organizations must have a fully integrated

communications programme. Communications within the marketing context involves

informing, persuading and influencing consumer behavior. An Integrated communications

program is the coordinated use of the various communication mediums to accomplish is

central objective. Communications include the promotional options of advertising, sales

promotions, and personal selling.

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4.7.2 Steps in Effective Communication

Communication is an interactive dialogue between the company and its customers

that takes place during the pre-selling, selling, consuming, and post consuming stages.

Companies can now communicate through traditional media (newspapers, radio, telephone,

television), as well as through newer media forms (computers, fax machines, cellular phones,

and pagers.) By decreasing communication costs, the new technologies have encouraged

more companies to move from mass communications to more targeted communication

and one-to-one dialogue.

There are six steps in developing effective communications. (Dealt only in nutshell

owing to the reason that the same is discussed in detail in the last semester course

on marketing management)

Ø Identifying the target audience:

The audience may be potential buyers or current users, those who make the

buying decision, or those who influence it.

Ø Determine the communication objectives:

Once a target audience has been defined, the marketing communicator must

decide what response is sought. The target audience may be in any of six buyer

readiness states: awareness, knowledge, liking, preference, conviction, or

purchases

(a) Awareness of the product can be in several stages and will take time to

establish. Awareness must be a continuous process to solicit new

customers.

(b) Knowledge follows the awareness stage and is the connection of the

advertising to the branded product or service. The customer must know

that such product will serve particular needs.

(c) Liking is the third stage. Here the message of the advertising is to create

an acceptance of the product to the evoked set of responses. For example,

if a customer were considering a steakhouse for dinner, the object of the

advertising might be for the restaurant to become one of the options for

this customer.

(d) Preference would be the next advertising objective. The customer may

like the product but not prefer it. Here the producer will strive to identify

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• Personal influence carries great weight for products that are expensive

or risky.

• Companies can take several steps to put personal communication

channels to work by selling their products to well-known people or

companies, who may in turn influence others to buy. Or they can create

opinion leaders and manage word-of-mouth.

b. Non personal communication channels affect buyers directly and include

media, atmosphere, and events.

• Media – Print media (newspapers, magazines, and direct mail),

broadcast media (radio and TV) and display media (billboards, signs,

posters).

• Atmosphere - Designed environments that create or reinforce the

buyer’s learning toward purchasing a product, such as hotel and

restaurant lobbies.

• Events - Occurrences staged to communicate messages to target

audiences. For example, like press conferences and public tours staged

to communicate messages to the target audience.

• Non personal communication affects buyers in a two-step flow. First,

flow from television, magazines, and other mass media to opinion

leaders and then to the less active sections of the population.

Ø Select the message sources:

Messages delivered by highly credible sources are persuasive. Three factors

make a source credible: expertise, trustworthiness, and likeability.

Ø Measure the communications’ results:

The communicator must evaluate the effect of the message on the target

audience. The following are some examples the communicator can use to

measure the results, such as whether they remember the message, how many

times they saw it, what points they recall, how they felt about the message, and

their past and present attitudes toward the product and company, how many

people bought a product, talked to others about it, or visited the store.

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Role of Advertising:-

1) Informative advertising:- It provides information to an audience about a

service.

Eg:- A service retailer advertises its operating hours and store locations

2) Persuasive Advertising:- It involves an effort by the advertiser to convince

consumers of a particular point of view.

Eg:- A service retailer advertises it offers the highest quality service of anyone in town.

3) Reminder Advertising:- It involves the use of cues in an advertising to

enhance brand and firm recall.

Eg:- A service retailer uses a billboard to promote the brand name and prove the

location of the facility

4) Action inducing advertising:- It attempts to persuade viewers to either

purchase a service or inquire about it.

Eg:- A service retailer offers a 40% off coupon in its advertisements to encourage customers

to patronize the store.

Advertising and Service Characteristics:

Services possess four unique characteristics. Advertising can be used to reduce

the negative impact of these characteristics. Decreasing intangibility, perishability,

inseparability, and variability can be beneficial to service firms in the following ways:

Ø It can increase the probability of a purchase by the consumer

Ø Consumer expectations are more clearly defined and understood by the consumer

Ø The perceptions of service quality are normally enhanced since the consumer know

what to except

Ø The level of customer satisfaction with the service increases since consumer go

into the service experience with more knowledge about what will happen.

Business Insight 4.7 provides an illustration about the marketers adopting new novel

ways of reaching the message to the public. Table 4.2 shows the options available to

the services marketers with the advertising tool in the promotion mix.

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does not attract much attention after a certain time, mobile outdoor methods can

help retain interest given the fact that it can be seen at different places and can

also help reach a larger number of people.

A Mumbai-based outdoor advertising agency, M Cons, has come up with this

new channel of mobile advertising using a number of trucks. Industry analysts say

this trend will increase in 2003 as it is cost-effective.

µ Personal selling

If organizations establish communication channels through their sales force with

the target market, it is called personal selling. Personal selling is face-to-face communication.

Feedback can be spontaneous and customers can clarify doubts on the spot. However,

this approach has a limited application as it is very costly as well as difficult to reach the

mass market. There are, of course, some exceptions. Life Insurance Corporation of India

uses personal selling to reach the market that comprises millions of customers. A large

agency network is an extraordinary strength and distinctive competency of the corporation.

Inspite of the market being flooded with private organizations and MNCs, the sales force

of LIC protect its unique position. It may not be possible for any other organization to

build such a large sales force and manage it in a short period. Not all service firms can

afford to have such a large network of sales personnel. In the case of service firms, sales

personnel are not the contact employees involved in service production and delivery. The

sales force is used to attract the market to the service outlet and/or to build the image of the

organization. However, it is difficult to draw a line that divides the employees as sales

personnel and others. All employees in a service organization are marketing employees.

Some sell on a full-time basis and some on part-time basis. But everyone contributes to

sales.

µ Sales promotion

Sales promotion includes techniques that stimulate demand in a market during a

short period and has measured responses. Sales promotion can be implemented through

other components of promotional mix. Discounts, gifts, coupons, premiums, exhibitions,

trade shows and so on, are some of the techniques of sales promotion. Service firms use

sales promotion techniques, generally, to manage demand to the level of supply. They are

also used to stimulate customer needs beyond the threshold level and thereby generate

new demand for the service.

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µ Direct marketing

When intermediaries are not involved between producers and consumers, it is

called direct marketing. Direct marketing is not a recent concept. It is one of the alternatives

for the producer to reach the market. The inclusion of direct marketing as a component in

promotional mix is a recent phenomenon. The revolutionary changes that took place in the

areas of communication system and networking information technology, transport and

technology in recent years promoted the direct marketing concept as one of the promotional

tools. Direct sales offers through sky shops on television, direct contact of customers

through mail, e-commerce and so on are examples. Service providers can use direct

marketing for promoting services. By transmitting the service process and other features

and options through the electronic media, customers can be motivated and their doubts

about the service offer clarified. Direct mail to a prospect initiates need gratification process.

Each of the five components of promotional mix have distinctive capabilities( that

you have discussed in detail in the last semester course on marketing management)and

also limitations of suitability. The major task for service firms is to design a proper mix of

these components. The effectiveness of a promotional campaign depends upon how

efficiently the mix is designed.

4.7.4 Word-Of-Mouth Communication (WOM)

Word-of-mouth communication is considered the most powerful communication

channel in services marketing. It has the capability of creating excellent results for the

company and if not handled properly may create disastrous results. Word-of-mouth

communication is not a controllable variable. Organizations can influence the sources, either

directly or indirectly, to generate a positive market image. Marketers should identify the

sources of word-of-mouth and develop appropriate strategies. The following are the sources

for generating word-of-mouth communication:

ü Contact employees

Contact employees of the service generally engage in informal discussion with the

customers. They provide information by taking into consideration the anxiety levels of

the customer. Customers tend to give greater importance to the informal information

provided by contact employees.

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4.7.5 Steps for Success in External Marketing

Service companies need to follow certain guidelines in the development of

communication programmes. Thad D. Peterson and K. Shelly Porges in their article on

‘Marketing and Communication Tools for Service Marketers’ suggest the following ten

guidelines for communication campaigns, with special reference to services:

1. Define your goal clearly and focus on it.

Ø Make sure your goal is actionable and measurable.

Ø Write it down.

Ø Ask your employees to read it and then restate it in their own words to be sure

they understand it.

Ø Make sure everyone in your organization knows what the goal is.

Ø Limit the number of major goals you have each year.

2. Put yourself in the customer’s shoes.

Ø Shop from your company anonymously, if possible, to see how the average

customer is treated.

Ø Have friends do the same and give you an honest feedback.

Ø Read and respond to customer letters and phone calls.

Ø Put yourself on all your mailing lists.

3. Don’t forget the emotional side of decision making. Anatole France once said, “It is

human nature to think wisely and act foolishly”. Packaging, graphics, casting, music-

all can effectively influence the emotional side of a decision.

4. Make sure you’re not ‘talking to yourself’ in your ads.

Ø You know what you mean, but will the customer? Have your ads been reviewed

by someone who is not familiar with your services?

Ø After developing your ad, put it aside for a few days. Then review it. Does it

still make sense?

5. Time is a sales tool-limit it.

Ø Making time-limited offers is one of the best spurs to sales.

Ø Use special occasions, such as national holidays and company anniversaries,

to limit the time of the offer.

6. Don’t starve your media budget.

Ø If two-thirds or three-quarters of your ad budget is not available to place your

ad after production costs, rethink your advertising plan.

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4.8.1 What is CRM?

In marketing literature, the term Customer Relationship Management (CRM) and

Relationship Marketing (RM) are used interchangeably. These two terms are used to reflect

a variety of themes and perspectives relating to customer management. The following are

some of the definitions of CRM. CRM is marketing-oriented towards strong lasting

relationships with individual accounts (Jackson). Relationship marketing is attracting,

maintaining and enhancing customer relationships (Berry). Relationship marketing is an

integrated effort to identify, maintain and build a network with individual consumers, and to

continuously strengthen the network for the mutual benefit of both sides through interactive,

individualized and value-added contacts over a long period of time (Shani and Chalasani).

“(The purpose of) ... relationship marketing is to identify and establish, maintain

and enhance, and when necessary terminate relationships with customers (and other parties)

so that the objectives regarding economic and other variables of all parties are met. This is

achieved through a mutual exchange and fulfillment of promises” (Christian Gronroos).

“Relationship marketing is attracting, maintaining and - in multi-service organizations -

enhancing customer relationships.”(Berry and Parasuraman).

4.8.2 Traditional Marketing Vs Relationship Marketing

Traditional marketing is transaction oriented and as such it is also called transaction

marketing. The method of marketing in which a service organization or its employees

communicate with the customer only when he approaches it for service is called transaction

marketing. In this kind of marketing, a service representative of the organization provides

only the service sought by the customer. He does not make any effort to get to know

whether the customer is satisfied with the service, whether he needs some other service, or

would like to come back again for the service. He is not interested in gaining the loyalty of

the customer. Organizations which adopt the transactional style of marketing can be said

to be lacking foresight. Their employees attempt to sell their service considering it to be a

one time process. Even though they may offer quality service, the fact that the personal

touch and focus on the customer is lacking affects the organizations and they often end up

losing their customers. For example, most people would like a bank which understands

their personal needs and suggests suitable investment options. They would prefer it to a

bank which provides excellent service, but treats them as just one of its many customers.

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4.8.3 Essentials of Relationship Marketing

In order to make relationship marketing workable, service companies need to do

the following:

ü Identify the need for relationships in different areas of business operations

ü Collect data and information relating to the prospects

ü Carefully scrutinize the list of prospects

ü Design programmes for building relationships

ü Develop plans for approach and re-approach

ü Develop packages for maintaining relationships

ü Develop packages for enhancing relationships

ü Train personnel in relationship marketing

ü Design the system, infrastructure and support services that facilitate relationships

ü Execute the programme

ü Design a feedback system

ü Collect feedback and make necessary improvements

4.8.4 Customer Retention

The trend in marketing towards building relationships with customers continues to

grow and marketers have become increasingly interested in retaining customers over the

long run. Marketing analysts have identified satisfaction as a key determinant in a consumer’s

decision making, relating to keeping or dropping a given product or service relationship.

Companies do spend a lot of money through different media to attract new customers to

the business. Attracting new customers requires substantial skill and effort. However, these

skillful efforts will be of little use if the company suffers from high customer churn (gaining

new customers only to lose many of them).

The key to customer retention is to offer continuous satisfaction to customers.

According to Philip Kotler, a highly satisfied customer

1. Stays loyal longer

2. Buys more as the company introduces new products and upgrades

existing products

3. Talks favorably about the company and its products

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are customized to fit individual needs. Marketers are looking for ways to keep in touch

with their customers by providing a personal touch and building informal relationships.

ü Financial, social and structural bonds

The strategy is to develop structural bonds along with financial and social bonds.

Structural bonds are created by providing highly customized service to the clients.

Specific customer needs are brought into the organizational system to design new

ways and to improve the offerings to the clients.

In service business, sometimes, there is a possibility of things going wrong. Under

such circumstances, a recovery strategy needs to be designed for retaining customers.

Effective recovery is essential to save and even build relationships. Therefore, service

firms should track and anticipate recovery opportunities. They should develop an orientation

that ‘the customer who complains is your friend’. Quick problem solving and empowering

the frontline to solve problems are very important directions for the service organizations

to follow.

4.8.5 Lifetime Value of Customers

In relationship marketing (RM) every customer is considered as a special target.

Relationship marketers leverage their databases to convert potential buyers into customers

and then build a long-term alliance with them through a range of insightful targeted

programmes. Powering RM is the concept of lifetime value of a customer. It means if a

customer keeps buying the same product over his entire lifetime, it adds up to a tidy sum.

Hindustan Thomson Associates’ research shows that the lifetime value of a one-cigarette

smoker is Rs. 1.10 lakh over a 10 year period, that is, roughly 7,000 times the value of a

single pack of cigarettes. According to the agency, the lifetime value of all the consumer

products and services you will personally use over the next 25 years is worth Rs. 1.4 crore

and if you add the value of the products whose buying you will influence, it adds upto Rs.

25 crore over the same period of time.

The continuing relationship with customers over a long period helps an organization

to gain values in four different parameters:

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µ Reliability

Customers want to build relations to find a reliable source of supply and service.

µ Time

When consumers find a reliable seller they need not waste time searching for various other

sellers.

µ Search

The information search costs and energy costs gets minimized.

µ Exchange

A known seller accepts return of defective goods or executes recovery in the case of

service without any difficulty.

µ Support

Many a time, customers seek sellers’ support in taking purchase decisions. The advice of

a known seller provides greater support to the consumer.

µ In absentia purchase

A continuous rapport with the seller enables the customer to communicate his/her likes,

dislikes or preferences. He may manage to get the products at home, without personally

going out for the service.

µ Credit

Customers may seek liberal credit without security from a known seller.

4.9 CUSTOMER RESPONSE TO SERVICE FAILURES

What options are open to customers when they experience a service failure? Figure

4.4 depicts the courses of action available. This model suggests at least four major courses

of action:

µ Do nothing

µ Complain through some means to the service firm.

µ Take action through a third party (consumer protection group, consumer affairs or

regulatory agencies, civil or criminal courts).

µ Abandon this supplier and discourage other people from using the service (negative

word-of mouth).

Following through the sequence of possible reactions, we can see a variety of

end-results, leaving the customer anything from furious to delighted. The risk of defection

is high, especially when there are a variety of competing alternatives.

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when things go wrong for the customer (unfortunately, firms don’t always react in ways

that match their advertised promises). Effective service recovery requires thoughtful

procedures for resolving problems and handling disgruntled customers. It is critical for

firms to have effective recovery strategies, because even a single service problem can

destroy a customer’s confidence in a firm under the following conditions:

The failure is totally outrageous (for instance, blatant dishonesty on the part of the supplier).

The problem fits a pattern of failure rather than being an isolated incident.

The recovery efforts are weak, serving to compound the original problem rather

than correct it.

Figure 4.5 Components of an effective Service Recovery System

4.9.1.1 Guidelines for Effective Problem Resolution

According to Tax and Brown, “Service recovery is a process that identifies service

failures, effectively resolves customer problems, classifies their root cause(s), and yields

data that can be inte2grated with other measures of performance to assess and improve

the service system”. By adopting a service recovery system, service organizations get a

second chance to rectify any mistake that occurred during the delivery of service in the first

instance. If the problem is resolved and the customer is satisfied, he may give up his attempts

to switch to competitors. If the company continues to provide high quality service, it might

succeed in earning a loyal customer. This loyal customer could tell his friends and relatives

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µ Clarify the steps needed to solve the problem.

When instant solutions aren’t possible, telling customers how the organization plans

to proceed shows that corrective action is being taken. It also sets expectations as to the

time frame (so don’t over promise!).

µ Keep customers informed of progress.

Nobody likes being left in the dark. Uncertainty breeds anxiety and stress. People

tend to be more accepting of disruptions if they know what is going on and receive periodic

progress reports.

µ Consider compensation.

When customers did not receive the service outcomes that they paid for, or suffered

serious inconvenience and/or loss of time and money because the service failed, then either

a monetary payment of offer of equivalent service in kind is appropriate; such action may

also help to reduce the risk of legal action by an angry customer. Service guarantees often

layout in advance what such compensation will be. In many cases, what customers want

most is an apology and a commitment to avoid similar problems in the future.

µ Persevering to regain customer goodwill

When customers have been disappointed, one of the biggest challenges is to restore

their confidence and preserve the relationship for the future. This may require perseverance

and follow through, not only to defuse their anger but also to convince them that actions

are being taken to avoid a recurrence of the problem. Outstanding recovery efforts can be

effective in building loyalty and referrals.

4.10 THE SERVICES TRIANGLE

One of the most popular strategic models for services marketing was developed

by Christian Gronroos. The model is called the service triangle model. Fig. 4.6 presents

the services marketing model. Gronroos has identified three important groups that play

critical roles in successfully accomplishing organizational goals. They are company (top

management), employees and the customers. The model proposes a three-dimensional

approach for the development of the overall marketing strategy. It suggests the design of

three marketing programmes as the integral parts of the services marketing programme.

The model calls for a special marketing programme between the company and its employees

which is termed as internal marketing. The second marketing programme is between the

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problems) if any, in the process of service production and consumption should also be

mentioned. The customers need to play an active role in the service production process. If

necessary, consumers should be given training so as to promote qualitative participation

and high level of customer perceived quality. The ultimate aim of external marketing is to

prepare the customer to participate in the service production and consumption,

simultaneously and efficiently. ( Dealt in detail in the section 4.7)

Ø Interactive Marketing

Internal marketing and external marketing prepare the stage for actual interaction

between employees and customers. The interaction between employees and service firms

and their customers are also called ‘service encounters’. This is an important phrase in

services marketing. The service process needs to be facilitated between the two parties,

with adequate support services, tangibles, systems, techniques and other support materials.

The goal of interactive marketing is to facilitate efficient production and consumption process

and to create positive and satisfactory experiences, if possible, for both customers and

employees. ( Dealt in detail in the previous units)

4.10.1 Role of Internal Marketing in Service Delivery

Marketing aimed internally at the firm’s employees. Internal marketing is marketing

by a service firm to train effectively and motivate its customer-contact employees and all

the supporting service people to work as a team to provide customer satisfaction. Internal

marketing can make or break a company. The Services industry is unique in that employees

are part of the product. The hotel must have a staff who will perform well during moments

of truth. Marketing in the Services industries must be embraced by all employees; it cannot

be left up to the marketing or sales department. Marketing should be part of the philosophy

of the organization, and the marketing function should be carried out by all line employees.

Internal marketing has two benefits: customer satisfaction and employee satisfaction.

There is a two-way relationship between customer satisfaction and employee satisfaction.

When customer satisfaction decreases, employee satisfaction decreases; however, when

customer satisfaction increases, employee satisfaction increases. There is considerable

evidence that employee retention and customer retention are related. In addition, there is

also a relationship between quality and employee satisfaction. Some employees who leave

companies do so because of the poor level of service being given to customers and the

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to demonstrate appreciation for employees, and to emphasize that all employees are

empowered to do what is necessary to meet guest expectations. Furthermore, in a

conventional organizational structure is that everyone is working for their bosses. The

problem with this type of organization is that everyone is concerned with satisfying people

above them in the organization, and very little attention is paid to the customer. When a

company has a service culture, the organizational chart is turned upside down. The customers

are now at the top of the organization and corporate management is at the bottom of the

structure. In this type of organization, everyone is working to serve the customer.

µ Development of a Marketing Approach to Human Resource Management.

ü Creating jobs that attract good employees: Managers must use the principles

of marketing to attract and retain employees. They must research and develop an

understanding of their employees’ needs, just as they examine the needs of customers.

For employees, the marketing mix is the job, pay, benefits, location, transportation,

parking, hours and intangible rewards, such as prestige and perceived advancement

opportunities. Additionally, flexible working hours, good health insurance, child-

care facilities are attractive attributes as well. Advertising should be developed with

prospective employees in mind, building a positive image of the firm for present and

future employees and customers. Using a marketing approach to develop positions

and company benefits helps to attract and maintain good employees. The cost of

employee turnover is undoubtedly high. Managers should examine the problem of

burnout to reduce the turnover rate. For example, McDonald examined the problem

of burnout at management levels and reduced this problem from 36% to 21% annually.

ü A hiring process: The service product is, at least in part, the attitude the employee

displays as he or she delivers the service experience. Hence, service organizations

need to hire for attitude and train for skills. This idea means that service firms place

more emphasis on personality, energy, and attitude than on education, training, and

experience in their recruitment, selection, and training strategies. For example,

Southwest Airlines strongly believes inherent attitudes cannot be changed in people.

To test for behaviors such as a sense of humor, ability to work with others, and

friendliness, Southwest’s interview process includes group interviews where applicants

tell jokes and role-play a variety of situations to demonstrate team work and the

capacity to act spontaneously.

ü Teamwork: In companies that practice internal marketing, if one employee makes

an error, other employees try to cover it before the guest notices. For example, In

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communicating with customers is through customer-contact employees. Hospitality

organizations can communicate with their employees by employee newsletter, in-house

newsletter, personal communication, technology (database which is readily accessible to

employees), and encouraging employees to try the company’s products and services.

µ Implementation of a Reward and Recognition System.

Employees must know how they are doing to perform effectively. Communication must

be designed to give them frequent feedback on their performance. An internal marketing

program includes service standards and methods of measuring how well the organization is

meeting these standards. The results of any service measurement should be communicated

to employees. For example, Sheraton, Marriott, Taj and other major hotel companies

survey their guests to determine their satisfaction level with individual attributes of the

hotel. Most reward systems in the hospitality and travel industry are based on meeting

cost objectives and achieving sales objectives. A few companies are now starting to give

rewards based on customer satisfaction.

Review Questions

1. Why is the ‘people’ element of the marketing mix so important in services marketing?

2. Compare and contrast the role of customer contact personnel and support

personnel.

3. Identify the conflicts faced by employees of a service firm. Discuss why these

conflicts occur.

4. Discuss how a service business can develop customer-focused personnel.

5. What is meant by “distributing services”? How can an experience or something

intangible be distributed?

6. Cite the advantages and disadvantages of franchising as a distribution growth

strategy Specify the ways a service firm or service personnel can increase their

control during the service encounter.

7. What marketing and management challenges are raised by the use of intermediaries

in a service setting?

8. In what ways do the objectives of services communications differ substantially

from those of goods marketing?

9. Define internal marketing and discuss how a firm can use it.

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determines how a service should be created and delivered to the customer. The

characteristics of service process include complexity, divergence, service location, customer

participation and the service itself -whether it is technology based or process based. The

fourth element of the marketing mix, namely, ‘place’, involves various efforts made by the

service organizations to make the services accessible and available to the customers. Service

location plays an important role in service delivery. Further, it conveys the service quality

provided by the service provider, and stamps an image of the service company in the

customer’s mind.

Service organizations aim to deliver services through direct distribution, where a

service provider visits the customer or a customer visits a service provider. When service

providers cannot deliver services through direct distribution, they opt for various forms of

intermediaries. Franchisees, agents and brokers, and electronic channels are the main types

of distribution channels of a service provider. Communication strategy is one of the key

components of a firm’s overall marketing mix. Its role is to inform, persuade, and/or

remind consumers about the services being offered. The objectives of a firm’s

communication mix often relates directly to the service offering’s stage within the PLC. A

variety of special considerations that pertain to services must be addressed when developing

the communication mix. The complete communication programs of an organization constitute

promotional mix. These are personal selling, advertising, sales promotion, publicity, public

relations, and direct marketing. Berry and Parasuraman defined relationship marketing as

a process of attracting, maintaining and enhancing relationships with customers. Relationship

marketing benefits customers as well as organizations. Customers can reduce their time

and search costs and avoid anxiety by selecting services from a known supplier.

Organizations can also save on the time and effort involved in attracting new customers.

Internal marketing is a process in which organizations consider employees as internal

customers and strive to satisfy their needs and requirements at work so that they, in turn,

offer quality service to external customers. Internal marketing plays an active role in retaining

customers as well as employees, enhancing corporate image, implementing change

management and ensuring the organization’s success.

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5.0 INTRODUCTION

As discussed in the earlier units the services sector has registered a substantial

growth during the last two decades in India. Its growth prospects are very high, as per the

expectations of industrialists and economists. With the change in government policy, leading

to privatization and private participation in service sectors, competition has intensified. The

entry of multinational corporations, directly and in collaboration with the private corporate

giants of India, has further forced the sector to be market oriented. Under these

circumstances, service companies of India have no other option but to adopt the marketing

approach to achieve organizational objectives. They also have to recognize the distinctions

between marketing approaches followed by manufacturing organizations and service

organizations. The application of modern services marketing principles will certainly enhance

the internal and external efficiency of service companies and enable them to deliver quality

services to the customers. This unit examines some important services in India and analyses

the services operations from the marketing point of view so that you will enhance you level

of understanding and can make use of the concepts discussed in the earlier units to improve

your organizations in future.

5.1 HEALTHCARE SERVICES

Healthcare services have changed tremendously. Gone are the days when doctors

were very few and patients were treating them like gods. Initially when only doctors were

available at far-flung places or only in government hospitals, they could afford to choose

their patients and how to treat them. But now with mushrooming of private clinics, nursing

homes and private hospitals, they can ill afford to treat them with disdain. With increase in

competition, the role of healthcare marketing has increased. There was a time when

healthcare meant only hospitals, and, in a developing country like India, healthcare was

provided mainly by the Government. Considering healthcare a commercial industry was

beyond imagination even for the best business analysts. In those times, healthcare meant a

government hospital or a private dispensary that provides medical facilities. Today, the

word ‘healthcare’ encompasses a much broader meaning and embraces many other allied

services like diagnostic services, pathological labs, physiotherapy centers, ambulance

services, fitness centers, health clinics etc. Though it emerged as a full-fledged industry in

the West a long time ago, corporate hospitals in India have just started making their mark.

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corporate hospitals in Tamilnadu. The uniqueness of the Indian healthcare system is the

presence of various streams of alternate medicine, like Homeopathy, Naturopathy,

Ayurveda, Unani, Nature cure, Pranic healing, Reiki etc. Interestingly, alternate medicine,

which has always been in the hands of private people, is still conventional in its approach.

In contrast, the mainstream medicine, popularly known as Allopathic/English medicine,

which till recently was a state monopoly, is moving towards corporatization at full throttle.

Today, healthcare is not just a profession, but also a commercial activity and comes under

the purview of the Consumer Protection Act, 1986. However, government and other hospitals

where services are provided free of cost are exempted from the purview of the Act. Business

insight 5.1 provides, owing to the tremendous growth potential, how a fitness clinic VLCC

decided to expand through franchisee mode which is discussed in the earlier units.

Business Insight 5.1: VLCC in expansion mode

Vandana Luthra Curls and Curves (VLCC) Group plans to expand its healthcare

chain through the franchisee route and is focusing on smaller towns with a population

of between 100 million and 500 million. Company officials said the franchisee

model outlets are likely to come up in towns like Rohtak, Karnal, Phagwara,

Moga, Udaipur, Meerut, Trichy, Coimbatore etc.

The company plans to have 55 outlets in the first phase and another 145 by the

end of 2009. It currently has 100 company-owned centres across the country.

The proposed franchisee model will involve an investment of between Rs 30 and

Rs 40 lakh depending upon the city and the size of the outlet. The company will

invest in training the staff, technology and R&D support.

The awareness among people to be fit and look good is more in tier II and tier III

cities in comparison with what it was a few years ago. Even the personal care

spend in those areas is going up. People are willing to spend more on healthcare

services company officials said.

This is the first time that VLCC has chosen the franchisee route for expansion. It

said it has created all necessary backbone infrastructure such as strong R&D,

training facilities, so that we can support our franchisee outlets well and ensure

their scalability.

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C) Gurmit Singh Chugh, marketing manager, cardiology, of Boston Scientific International

BV, a subsidiary of the $3 billion Boston Scientific Corporation. “Five-six years back,

there used to be a big gap between the launch of technology and the technical competence

of physicians in the West and India,” he said. “However, over a period of time, competence

level of physicians has surpassed that of their western counterparts.”

D) Low cost of treatment is undoubtedly the other big attraction. For instance, an open-

heart surgery that run upto $70,000 in the United Kingdom, and upto $150,000 in United

States, cost $3,000 to $10,000 in the best of Indian hospitals. Medical treatment can be

done in India at a fraction of the cost at which it is done abroad - in Europe or America.

Besides providing you medical treatment, patient can visit different tourist destinations in

India. The complete package will cost less than what one has to pay for the medical

charges alone, in other European, Middle East or America.

Others say cost differentials in other treatments could get far more attractive going

upto any figure between 200 percent and 800 percent. “In terms of costs, depending on

the types of procedures, patients can benefit by 30 percent to 50 percent in just tertiary

care procedures by visiting hospitals like ours,” says Bali of Workhardt adding, “even

patients from next-door South-East Asia countries coming to our hospitals for bypass

surgeries save 35 percent in spite of their airfare.” “tens of thousands of people travel to

Indian cities from neighboring countries for something as simple as a cataract removal to

complicated treatments like heart and kidney replacement surgeries.”

Health Sectors in India has improved tremendously in the part 15 years. It is

identified as the next big foreign exchange earner attracting patients from South East Asia,

the Middle East and Africa. Multi-specialty hospitals in India offer a wide choice for the

patients.

5.1.2 Strategies to Achieve Excellence in Global Health Care Services

There has been no concerted efforts to market India as a healthcare destination

though it has always attracted thousands of patients from abroad. In the late 1980s and

early 1990s most medical traveler coming to India were from the Arab Countries, Africa

and South East Asia. But today there is a significant number from the US nations,

Afghanistan. To achieve excellence in healthcare services the following strategies need to

be employed.

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Indian health care industry comprises roughly 4 percent of the country’s GDP, could achieve

a growth rate 13 percent annually in the next six years.

“Indeed India has tremendous potential to become a healthcare destination, “said

Reddy. “We have great potential in terms of technical skills. We only need to work on the

perception of foreigners towards India to achieve our goals. Business Insight 5.2 provides

insight to the role of a non-profit organization in improving the quality of healthcare services

in India.

Business Insight 5.2: To streamline healthcare services

— EAN India introduces barcode standards

Enhanced patient safety, reduced medication errors, speedier and accurate billing

and documentation, safer blood supplies, and updated hospital supplies inventories,

all these and more, will soon be a reality in India. EAN India, a non-profit

organization set up by various industry bodies and the Union Ministry of Commerce

to promote global supply chain standards, is introducing the universal ‘EAN.UCC’

barcode standards in the country’s healthcare sector. These barcode standards,

developed by EAN International (Brussels) in collaboration with the healthcare

sector, will help streamline healthcare supply chains across the country.

EAN India has already initiated discussions with various State and private hospitals,

pharmaceutical companies, drug stores and blood banks across the country and

major hospitals have expressed interest in adopting the globally recognized

EAN.UCC standards. Once implemented, the EAN.UCC system will enable

automated and unique identification of all hospital supplies, tracking and tracing

of pharma drugs, blood and blood products, surgical implants and medical

supplies. Patients in hospitals will also get identified through ‘barcoded’ wristbands

that will carry a unique identifier which links to the hospital from where the patient’s

detailed medical history can be traced. This data can be instantly and accurately

accessed for rendering emergency treatment, thus reducing error and processing

time.

The system can also act as a damage containment tool by enabling fast recall of

harmful, expired or spurious products from the market. Medication errors are

one of the leading causes of deaths in hospitals. A report by the National Academy

of Sciences’ Institute of Medicine, US, (IOM) has estimated that as many as

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services like maintenance of the case history of patients, registration, billing and support

operations like laundry, diet, pharmacy, stores, security etc. These services help give a

tangible effect to the intangible nature of the services provided.

Ø Place Mix

Place is one of the key elements, in the sense that the service provider should be

easily accessible to the patients, but at the same time, should be adequately protected from

pollution. Corporate hospitals can distribute their services using the services of doctors

and private clinics. For example, doctors who have their private practice, work as visiting/

consultant doctors for corporate hospitals. They can refer their patients to these hospitals

for diagnosis, surgeries etc. Other doctors too can refer their patients to corporate hospitals,

as they do not have adequate facilities for specialized services.

Corporate hospitals can also use ambulances to offer immediate care to patients in

emergency conditions.

Ø People Mix

Without people, healthcare as an industry cannot exist or survive. People include

patients, and the staff who treat and take care of those patients. Healthcare is also a

knowledge-based industry. Doctors and technicians, who take care of the diagnosis and

treatment of patients, form the core of this knowledge base. Therefore, it is important for

corporate hospitals to attract and retain doctors with excellent knowledge and skills, and

also the right attitude. The support and assurance of the doctor is the best medicine for the

patient and cures him largely. Patients prefer a friendly doctor who gives personal attention,

to a doctor who treats them as commodities and deals with all of them alike.

Patients should be provided utmost care as their recovery depends not just on the

medical treatment but also on the human touch provided by the support staff. So, apart

from being technically qualified, support staff like nurses and housekeeping personnel should

be well-mannered, gentle, hygienic and meticulous. In order to provide quality treatment

and support services, many hospitals run their own medical and nursing schools to train

staff according to their requirements. Apart from maintaining quality staff, many hospitals

also conduct customer education programs to enable patients and the attendants to

appreciate the value and quality of healthcare. Patients also play a role in service delivery.

It is impossible to have an efficient delivery if the patient is not either confident or supportive.

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latest technologies like close circuit cameras. It should be remembered that mouth to mouth

publicity is the most important publicity. A satisfied and happy customer is the best

ambassador of healthcare marketing. Every person playing a part in the delivery of health

care services should understand that they are there because of the patients/customers and

not vice versa.

Ø Process Mix

Services are provided under two broad categories, viz. services for inpatients and

those for outpatients. The processes for these two services are little different. The basic

process however starts with reporting at the reception at the appointed time and meeting

the doctor concerned for diagnosis and treatment. If the doctor says that simple medication

is required, the patient can avail of the services as an outpatient. However, if the doctor

says that the patient needs special continuous care and needs to be admitted to the hospital,

then the patient becomes an inpatient.

Services for inpatients are spread over operation theaters, intensive care units,

emergency units, regular wards etc. Administrative work like registration, stores, diet for

the in-patients, maintenance of the patient records, security etc. is carried on by the staff

assisting the line officers. Apart from the in-house treatment, some hospitals run mobile

clinics to provide patients easy access to their services. Providing online consultation is

also fast gaining popularity in the West, though in India, where technical awareness is

comparatively low, it may take some time for the masses to welcome such innovative

concepts. Corporate affairs are managed by professionals specially appointed for this

purpose. Affiliated academic institutions educate and train healthcare professionals and

research institutions concentrate on discovering and developing new concepts.

Ø Price Mix

Pricing healthcare services is done keeping in view the cost of running the hospital,

the overheads, salaries and wages of the doctors, nurses and the administrative staff, cost

of equipment and infrastructure, bed occupancy, quality of service and the income levels of

the patients. Many hospitals follow differential pricing policies. Membership cardholders

are given treatment at concessional rates. Patients opting for general wards and private

wards are also charged different rates, depending on the facilities provided to them. Alternate

medicine is not yet fully commercialized, so services are provided for nominal prices.

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of expectations of guests in the hotel industry is steadily increasing and they are becoming

harder to please and even harder to retain. Though most of the hotel operations are being

same, the aim of getting guests satisfaction can be achieved only through assured high

quality service. It is the key factor to attain success and to the very existence of the

industry. Personalized service is the only counting factor to improve the arrival of new

guests and make them as our guests for ever. In the parlance of hospitality industry,

customers are regarded as guests. The hotel industry is dependent on tourism and travel

industries, and together they constitute the hospitality industry. Now we will discuss each

industry with their significant role in developing the national economy strategies adopted

by them and their services marketing mix in detail.

5.2.1 Hotel Services

A hotel is a home away from home where all the facilities and services are available

on payment. Over the years, the hotel industry has grown in size. A number of hotels have

come up in various parts of the world to facilitate the people who are traveling. The growth

and development of the tourism sector is reflected in the development of hospitality services.

Hospitality is a commercial proposition. In countries where tourism is progressive, hospitality

services are also progressive.

The marketing of hospitality services includes designing the product, the physical

environment, pricing, place, promotion and process. The services offered are mostly market

segment specific. The segmentation of the market is largely based on the affordability of

the customer. The other criteria used by hotels include the purpose, occasion, individual or

group, loyalty and so on.

5.2.1.1 Services Marketing Mix of Hotel Industry

Keeping in mind the focused target segment, a hotel should design a marketing

mix strategy. The ultimate goal of the marketing programme is to offer quality services that

satisfy the customers and, if possible, delight them. The following are the basic dimensions

of the marketing mix of hotel services:

Ø Product Mix

The core service offered in a hotel is hospitality. The facilitating services (or goods)

are: a well-constructed and secure building; rooms with beds and other facilities; toilets,

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The exterior of the hotel creates the first impression on the customers. The design

of the exterior should be capable of attracting the attention of the prospective buyers of the

service. The exterior influences the expectations of the quality of services that customers

are likely to receive from the hotel. Hoteliers generally take special care while designing

the interiors. The architectural values, lighting, air quality, wall hangings, specialized furniture,

placing of articles, signage, and layout are all parts of the interior of the hotel. The management

of the hotel should be flexible and innovative while designing the interiors and introduce

modifications to add value perceptions without causing much disturbance to the routine.

Customers’ perceptions of the ambience determine expectations of the quality of service.

The reception and the signage should be customer friendly.

Ø Price Mix

Prices are fixed for various services as well as tangibles in hospitality services.

Room tariffs are fixed for various categories of accommodation such as single occupancy,

double occupancy, air-conditioned rooms, non air-conditioned rooms, suites, conference/

function halls and so on. Prices are also fixed for various food items offered in the restaurants,

for special events and for special parties organized inside and outside the hotel.

The decision on pricing is very critical and complex because of the presence of a

large number of elements with individual features in the basic service product. The problems

are not only in arriving at pricing decisions, but also in communicating price to customers

and influencing them to develop value perceptions of the rates. Besides establishing price-

quality relationships, it is necessary to assess the impact of pricing of the competitive offers

on the consumer decision-making process. Though services are not closely comparable,

consumers definitely keep the pricing of the competitors as reference prices. Cost plus

pricing is not very relevant in hospitality services since consumers do not have an idea of

the various costs involved in the service offering and the level of efficiency of the management

in managing the costs. Consumers are likely to give more weightage to the value they

receive. Hence value pricing is highly appropriate for hospitality services. However, while

arriving at a price decision, the prices of similar offers from competition must also be

considered. Pricing can also be used to manage the demand fluctuations in this service.

During slack seasons, hotels may offer seasonal discounts. Special tariffs may be offered

to the customers fro business and trade to promote loyalty.

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Recovery from service deficiencies is a major challenge in managing hospitality

services. On many occasions, employees are faced with problems, owing to uncontrollable

circumstances. A customer may reserve accommodation well in advance. When he arrives,

the accommodation may not yet be available. The existing customer may plead for an

extension of stay in the hotel for some personal reasons. The employees of the hotel are in

a tight situation since they cannot afford to displease either of the parties. They have to

explore the possibilities of satisfying both the parties and arrive at a decision on the spot

without losing much time. The customer who has arrived finds deficiency in service after

realizing that the reserved accommodation is not available and may pick up a quarrel with

the service personnel. Under such circumstances the contact service personnel are expected

to come out with a recovery strategy, by offering a better package, without any additional

financial commitment to the customer, and also tendering an apology for the deficiency in

service. Such situations, need service personnel who are courteous, exhibit empathetic

behavior and use common sense. Human resource policies are to be designed keeping in

view the requirement of the job and the challenges associated with it Employees should be

given a clear picture of their roles and responsibilities and team work has to be promoted.

Interactive marketing is of vital significance in hospitality services. Customers experience

many moments of truth during their stay in a hotel. Major as well as minor moments are

capable of influencing the quality perceptions of the customers. Interaction with employees

generate many moments of significance. An integration of internal an external marketing is

necessary for the process to be effective.

Ø Promotion

In the marketing of hospitality services customers have to be drawn to the service

outlet. External marketing has a major share in the success of this service business. An

effective communication campaign for creating awareness and persuading customers to

visit and stay in the hotel is necessary, in the light of severe competition. Hoteliers use

advertisements, sales promotion, personal selling, publicity, public relations, and direct

marketing as the components of the promotion mix. Advertising in print media as well as

electronic media are widely used by large hotels. Sales promotion helps to create demand

during slack periods. Many hotels announce price discounts and other benefit packages

for individuals and families during weekends as room occupancy during weekends generally

low. Some hotels organize special events to attract customers. Sponsoring events, meetings

and special programmes are strategies to create publicity. Hotels try to build and maintain

relations with business houses so that official visitors make use of their hospitality services.

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Year Tourist inflow (In lakhs)

1951 0.17

1961 5.2

1971 6.8

1981 12.8

1991 16.8

1997 23.74

2001 25.2

2003 27.5

2010(expected) >100

(Figures include visitors from Bangladesh and Pakistan and business travelers)

On an average, tourism at present is contributing to more than Rs. 37,000 crores

to the national economy – foreign exchange earnings are Rs. 12,000 crores and goods and

services purchased worth Rs. 25,000 crores which includes transport, jewellery, silk

handloom, curios and handicrafts. It was Rs. 8640 crores in 1995 and just Rs. 1992

crores in the year 1988. It has an employment generation potential of 1.01 crores –

accounting for 2.5% of the total labor force. The hotel industry which is directly linked to

tourism is responsible for 50% of foreign exchange earnings from tourism.

Business Insight 5.3: ‘Tourism will improve’

The Associated Chambers of Commerce has a strong belief in India’s tourism

industry’s future, says V N Dhoot, chairman of ASSOCHAM.

The Indian tourism industry has worked very hard to put up tourism infrastructure

in the country for attracting overseas tourists in the last couple of years and its

result were noticeable in the year 2006-07 when the total tourist inflow stood

around less than five million. There have been gradual improvements of tourist

inflow which is a result of renovation works, repairs of all tourist sites wherever

possible through central assistance and many more similar initiatives will help the

trend continue.

According to ASSOCHAM estimates by 2010, the tourist inflow will exceed 10

million as result of smoother land connectivity by to the tourist sites and roads

leading to them would improve a great deal. Also a recent study by the Chambers

reveals that the aviation, hospitality and tourism sectors can leverage great potential

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Ø Price Mix

The price of a tourist package should be decided after the costs involved are

analyzed, including the hidden costs, the income level of the potential customers in the

market segment, the number of competitors existing in the market and their prices. Also,

the prices should cover the investments made in developing and attracting tourists to the

destination. However, pricing also depends on the demand patterns, and the objectives of

the tourism company, i.e. to penetrate into the market or to serve the up-market segment.

For example, some tourist companies target the elite and design luxury packages studded

with unique attractions. Others design economy packages to suit the needs of the average

traveler. In such cases, a low or reasonable price can be a winning proposition for the

tourist operator. The tourism companies should ensure that they effectively communicate

these prices to the target audience through appropriate promotional activities.

Ø Promotion Mix

A tourism package can be promoted through the print media, television, radio, the

Internet, entertainment programs, etc. The print media may include advertisements in

newspapers, magazines, etc. These advertisements should include the various products

and facilities offered by the destination, remarks of the customers who have already visited

the place, and the ways in which a customer can reach the spot. Promoting via television

includes advertising in various national and international channels. Malaysia, Srilanka and

Singapore have, for example, use these two media extensively to promote their tourism

industry. In India too, different states try to promote their tourism industry using the print

and television media. For instance Indian Tourism Development Corporation’s concentrated

promotion effort is titled as ‘Incredible India’ to attract foreign tourists. Special programs

like “Destination India’ on Discovery Channel helps in promoting various tourist destinations.

Further, game shows telecast on TV offer complementary’ packages to various tourism

destinations as gifts to their participants.

Tourism companies normally tie-up with hotels and travel companies or airlines to

promote their services. They can also tie up with retail stores, credit card companies, etc.

and offer discounted packages to their loyal customers. This will increase awareness of the

tourist destination and also promote the services of the tourist operator.

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Ø People Mix

The people involved in promoting, managing, and guiding the tourists should be

pleasant and friendly. These people interact with customers and their behavior determines

how customers evaluate a tourist destination. An important aspect is that they should have

complete knowledge about their job and should provide information to the tourists whenever

required.

The government has an important role to play in ensuring that the right people

interact with the tourists. Especially in a country like India, the government should take

steps to prevent beggars and small time hawkers from pestering the tourists. For example,

in India, Varanasi or Kasi, considered by Hindus to be a holy place, is replete with pandas

or pandits who bargain and literally force tourists to pay them. Such unpleasant encounters

can put tourists off. The government should also take care to ensure that tourists are

provided proper guidance and information by tourism authorities.

Ø Process Mix

A tourist expects that his/her tour programme right from the beginning to the end of

the programme should pass freely from stage to stage, without any hurdles. The management

of service process aims at simplifying customer interactions and customer participation in

the service process. The systems, policies, procedures, equipment, tools, people and other

support services need to be customer friendly. The way the entire service environment

responds to the customer needs and requirements reflects the efficiency of the process

management.

Tourists get away from their comfortable normal routine. Therefore, their

dependency on the service provider for generating a value experience will be very high.

They have to manage three stages in the process: They are: pre-tour preparatory process;

tour process; and return process. The service providers’ role in facilitating these three

processes is pivotal. These processes are influenced by economic, legal administrative and

infrastructural system of various regions and cultural, demographic and psychographic

factors of the tourists. It is Herculean task for the tourists, to make all the arrangements on

own. Therefore, they look for someone to relieve them from the burden. When service

firms take on the responsibility of these processes and perform much better than what an

individual tourist can do, it adds to the value of the services provided to the customers.

The tourists feels relaxed and can concentrate on exploring new values in the programme.

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The unique facility the train offers is its satellite supported television, which unlike

the other luxury trains, could provide the tourists with live feed of news and other

programmes beamed by various channels. The package will cost $350 a day,

which includes the travel, stay on land and food. Mapple Hotels, the managing

partner of the Golden Chariot, has appointed heritage-walks provider India Walks

as its cultural coordinator. India Walks will assist Mapple Hotels in designing and

conducting various off-board activities, including selection and training of guides.

5.2.3 Logistics Services Industry

The transport sector plays a key role in the socio – economic development of a

country. The objective of the Public Transport Undertakings is to provide efficient, economic,

adequate and well coordinated passenger services to the public on sound business

principles. The transportation industry can be divided into roadways, railways, and airways.

Road transportation in India is governed by individual states. Some individual state

governments have given licenses to private travel service providers, who set their own

prices. On the other hand, the prices of the state government owned road transportation

services are set by the government with the public’s interest in mind. The railways are the

second major mode of transportation chosen by the people in India. They are governed by

the Railway Ministry of the Government of India. The number of new trains or routes, the

frequency of trains, the prices charged, etc. are all the responsibilities of the central

government. Most of the lower and middle-class people travel by train in India. In cities

like Chennai and Mumbai, there are a number of local trains, which help the huge populations

to commute within the city. Recently, Delhi and Hyderabad have started metro trains for

the benefit of travelers commuting within the city. Airline travel is not within the reach of the

common man in India till the year 2003. Before liberalization, Air India and Indian Airlines

were the only airways operating in the country. There were also many restrictions on

foreign flights flying over the country and permission had to be obtained from the concerned

authorities for that. After liberalization, the scenario changed completely and the country

opened itself up to many private airways to operate their own fleet in the country. This

increased competition among the domestic airlines in the country and with the foreign

airlines.

The two dominant public transport modes in India are rail and road. Both possess

their respective strengths and weaknesses. While railways are more cost effective for

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Indian Railways are the largest rail network in Asia and the world’s second largest

under one management. Its work force is 1.65 million and it runs some 11,000 trains

everyday, including 7,000 passenger trains. Freight traffic on Indian Railways has registered

an impressive growth in the last four decades. Increase in the last few years have been

particularly striking. From a mere 93 million tones of originating freight traffic in 1950-51,

Railways carried nearly 376 million tones in 1992-93, an increase of 304%.

This has been despite the ever increasing pressure of passenger traffic which increased

during the same period from 1.28 billion passengers carried to 4.2 billion, to make an

Indian Railways (IR) a leading passenger carrying railway in the world.

Table 5.2: Services Marketing Mix of Railways

µ Airlines in India – an overview

For the airlines services domestic market size is expected to cross 60 million and

international traffic 40 million by the end of 2010. Domestic and international traffic have

seen an acceleration of growth in recent years. In the 12 months to 31st March, 2007,

airlines carried 35 million domestic passengers (up 39.5% year-on-year) and 22.4 million

international passengers (up 15.1%). This follows domestic traffic growth of 28% the

previous year and 20% the year before. Domestic traffic has consequently doubled in the

space of three years. The Centre for Asia Pacific Aviation, a special consulting and research

practice, projects domestic traffic will grow at 25-30% per annum and international traffic

at 15%, until 2010. The domestic market size is expected to cross 60 million and

international traffic 40 million by the end of 2010.

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Ø Air India-Indian Airlines Merger

The Government has merged the two state-owned carriers into a new company,

which will strengthen their operations. The new airline is the largest in the country, with a

fleet size of almost 120 comparable to other airlines in Asia, and a further 111 aircraft on

order. The merged entity will have an integrated national and international footprint, and

will enable these two airlines to pool their resources, achieve synergies, face competition

and establish new benchmarks for efficiency and reliability. The formal merger of the two

airlines has been completed in August 2007 and integration of operations will proceed in a

phased manner over the next two years. The merger is in keeping with the industry trend of

moving towards consolidation to achieve synergies and reduce costs. The merged airlines

will be able to offer an integrated schedule from interior points in India to various international

destinations and vice versa, offering seamless connectivity to passengers. A larger and

stronger public sector national carrier will also increase regional connectivity to hitherto

under-serviced and un-serviced destinations.

Ø Freight and Logistics

India’s increasing international trade, combined with a strong domestic economy,

will continue to drive demand for airfreight and logistics. Meanwhile, all major international

express freight operators are reporting strong growth in the Indian market. New dedicated

cargo airlines are planning to launch shortly. Massive investment plans in the organized

retail sector, as well as in high-value manufacturing, will require the support of sophisticated

logistics facilities. India’s economic development will require the support of dedicated

freight cities with multi-modal interchanges, state-of-the-art cargo terminals, cold storage

facilities, and electronic data interchange systems. The Indian government is shortly expected

to grant permission for the development of a major cargo hub in centrally located Nagpur.

Ø New Air Services Agreement

The signing of a new Air Services Agreement is the first milestone to achieve for

the purpose of establishing air connectivity with new countries. Recently, a number of new

Air Services Agreements have been initialed/signed based on modern practices in civil

aviation sector. Air Services Agreements with some countries were signed some time back

and required updating in view of the changing circumstances and developments in

international civil aviation, and with respect to newer standards and recommended practices.

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Passengers will get to select their choice of programmes from over 250 hours of

video and 150 hours of audio programming. In First Class passengers will be

able to view video programmes on a 23-inch monitor; in Executive Class on a 15

inch monitor and in Economy Class on a 10.4 inch monitor. The NonStop service,

which will cut down travel time between the two cities, will in a way redefine air

travel.

Table 5.3: Services Marketing Mix of Airways

5.3 FINANCIAL SERVICES

In the changing economic scenario of India with deregulation, competition, free

market orientation and globalization there has been tremendous increase in inflows and

outflows of funds into and out of and Indian financial sector. Consequently, the activities in

financial service sector have witnessed rapid growth and have also led to the emergence of

innovative financial services and entry of new players in Indian financial system. The function

started playing a critical role in the success of the players, as their products and services

are more or less uniform and have less intrinsic difference. The financial service has assumed

greater significance, due to competitive environment, global trading practices, integration

of global, financial market, deregulation, growing volume of financial transaction, advanced

information technology volatility of markets, sophistication of market and customers,

increased choice of customers. These factors have posed new challenges to the financial

service sector. In this transaction period, the issue to be addressed by the financial services,

for an aggressive strategy for survival are financial research, innovation and introduction of

new financial product, branding and product advertising in all classes, pricing of financial

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ü Deregulation in the financial service sector-gives rise to emergence of various

spurious companies and many malpractices in the stock and capital market has

badly affected the activities of the financial sector.

ü Increased competition from global market and domestic market has threatened

the survival of many industries.

ü Integration of global market and growing volume of financial transaction.

ü Coping with advanced information technology in the function.

ü High level of volatility of the financial market.

ü Coping with fast growth rate of communication, multimedia etc.

Many of the existing could not cope with new environment. Others have met the

challenges with better management talent, adoption of new organization structure

strengthening of the information system and technology and drastic changes in the financial

sector.

Business Insight 5.7 substantiates the growth and importance of financial services sector in

the coming years.

Business Insight 5.7: Growth of Financial Services sector

If you work in the financial services sector, chances are that 2008 is going to be

an especially fruitful year for you, adding heft to your wallet and desirability to

your profile. And you don’t even need to stir a muscle for any of this.

Fact is, the financial sector is likely to witness a huge shortage of manpower in

2008 as a herd of new companies are slated to enter this lucrative market.

Take the insurance business, for instance. Apart from LIC, the rest of the 15

companies in this arena have been in existence for about nine years and are short

of talent at both entry and senior level positions. This can only get worse as the

insurance sector is likely to see 20 additional players entering the market (there

are 16 in the fray currently).

As India’s economy continues on a scorching growth path, more and more people

are saving money that needs servicing. As a result, companies in this sector are

thriving, with revenues growing at a 50-60 per cent clip. Moreover, new entrants,

especially those in the mutual fund and banking verticals, are not afraid to resort

to widespread poaching in order to fill their rosters.

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The Indian banking has finally worked up to the competitive dynamics of the ‘new’

Indian market and is addressing the relevant issues to take on the multifarious challenges of

globalization. Banks that employ IT solutions are perceived to be ‘futuristic’ and proactive

players capable of meeting the multifarious requirements of the large customer’s base.

Private Banks have been fast on the uptake and are reorienting their strategies using the

internet as a medium The Internet has emerged as the new and challenging frontier of

marketing with the conventional physical world tenets being just as applicable like in any

other marketing medium. The latest development in technological in computer and

telecommunication have encouraged the bankers to changes the concept of branch banking

to any time to anywhere banking. The use of ATM and internet banking have allowed

anytime anywhere banking facilities. Simple queries are now answered by automatic voice

recorders, currency accounting machines; self service counters are now encouraged. Credit

card facility has encouraged an era of cashless society. Today master card and visa card

are the two most popular cards used world over. The banks have now started issuing

smartcards or debit cards to be used for making payments. These are also called as

electronic purse. Some of the banks have also started home banking through

telecommunication facilities and computer technology by using terminals installed at

customers home and they can make the balance inquiry, get the statement of accounts,

give instructions for fund transfers, etc…through ECS we can receive the dividends and

interest directly to our account avoiding the delay or chance of loosing the post.

Banking is as old as authentic history and the modern commercial banking are

traceable to ancient times. In India banking has been existed in one form or the other from

time to time. The present era in banking may be taken to have commenced with establishment

of bank of Bengal in 1808-09 under the government charter and with government

participation in share capital. Allahabad bank was started in the year 1865 and Punjab

national bank in 1895, etc… The union budget affects the banking sector to boost the

economy by giving certain concessions or facilities. If in budget savings are encouraged

more deposits will attract the banks and in turn they can lend more money to the agricultural

sector and industrial sector, therefore booming the economy. If the FDI limits are relaxed

then more FDI are brought in India through banking channels.

Government and RBI policies affects the banking sector sometimes looking into

the political advantage in a particular party. The government declares some measures to

their benefits like waiver of short term agricultural loans, to attract the farmers votes. By

doing so the profits of the bank get lower down. Various banks in the cooperative sector

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A product mix refers to all the products offered for customers by a particular

seller. The product mix of a large bank may include a large number of services, providing

the customers all the financial services under one roof. New and innovative products are

being offered to customers to meet their varying needs. Most of the following products are

commonly offered by today’s banks-

ü Savings account, debit card

ü Salary savings account

ü Current account

ü Fixed deposits

ü Recurring deposits

ü Loans like two wheeler, home, personal, home-equity loans

ü Overdrafts, cash credits; credit, virtual, charge, smart cards

ü Payment services of utility bills

ü Advisory and consultancy services

ü Depository services

ü Selling or cross-selling of products like bancassurance, prospectus of other

institutions

ü Transfer of money through demand drafts, checks, challans

ü Public limited companies’ public issue services

To meet customer expectations and satisfy their needs, these basic products need

to be augmented with supplementary services. Some of these services are

ü Net, phone, mobile, ATM, mobile A TM banking, home banking

ü 24-hour customer care service

ü Anytime and anywhere banking (where the customer is allowed to conduct

transactions in any of the bank’s branches)

ü Add-on debit and credit cards

ü

In these days of intense competition in the banking sector, it is becoming increasingly

difficult for marketers to differentiate their service offerings from those of their competitors.

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Mark up pricing

This is a pricing technique wherein the cost of the service is determined and a small

margin is added to it and then the final price is offered to the customers. This type of pricing

is the not very popular since in the banking sector it is not very easy to arrive at the cost of

the service. Thus most banks use a combination of mark – up pricing and going rate

pricing.

Ø Place Mix

Place mix is the location analysis for banks branches. There are number a factors

affecting the determination of the location of the branch of bank. It is very necessary a

bank to situated at a location where most of its target population is located.

Some of the important factors affecting the location analysis of a bank are:

1. The Trade Area: The trade area is a very important factor determining the place

where a bank branch should be set up. For example a particular location maybe a huge

trading place for textiles, diamonds or for that case even the stock market. Such locations

are ideal for setting up of bank branches.

2. Population Characteristics: The demography of a place is a very important factor.

This includes: The income level of the population, The average age, The average male

female population, The caste, religion, culture and customs, The average spending and

saving habit of the people. These factors are very important for a bank as the help them

decide the kind of business the branch will get.

3. Commercial Structure: The commercial structure refers to the level of commercial

activities i.e. business activities taking place at a particular location. The higher the level of

business activities taking place in a particular location the more preferable it is for setting

up a bank branch.

4. Industrial Structure: This is nothing but a combination of the trade area analysis and

the commercial structure. However the industrial structure focuses more on the kind of

industries operating in a particular location. For example an area like SIPCOT is marked

with a lot of electronic manufacturing units. Thus the industrial structure determines the

kind of financial transactions that could take place in a particular location.

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Ø Promotion Mix

Promotion is nothing but making the customer more and more aware of the services

and benefits provided by the bank. The banks today can use a lot of new technology to

communicate to their customers. Two of the fastest growing modern tools of communicating

with the customers are: Internet Banking and Mobile Banking

Different options of promotion mix commonly adopted for the banking services

are:

Public Relations: In today’s competitive scenario developing strong public relations is

very important for any bank to be successful. Most banks today have a separate Public

Relations department. However primarily it is considered as a responsibility of the various

bank managers to develop a steady and strong relationship with their present customers as

well as potential customers. This can be done by a constant follow – up action.

Personal Selling: Personal selling is found to be one of the most effective and popular

form of promoting bank business. The main reason for this is that banking is a service in

which trust plays a very important role. In personal selling a bank representative goes to

the customers and explains the scheme to the customers. Also he gives the customers any

kind consultation he might need. He provides the customers all the information seeked by

him. Representative tries to persuade the customers to go for the scheme provided by the

bank by telling him all the benefits.

Sales Promotion: Sales promotions are basically giving the customers some additional

benefits maybe at times just some small gifts in order to promote the schemes. The more

innovative the sales promotions the more positive are the results. Some of the most popular

sales promotions techniques are gifts, contests, fairs and shows, discounts and commission,

entertainment and traveling plans for bankers, additional allowance, low interest financing

etc. it is very important that the sales promotions benefits are designed in such a manner

that they are better than those of the competitors.

Word – of – mouth Promotion: This form of promotions is not only very effective in

banking services but in any kind of service. However it is more important in banking for the

only reason that this is a service where trust plays a very important role. If a particular

bank’s services are recommended by one’s friends, relatives, or other well – wishers the

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words a process should be such that the customer is easily able to understand and easy to

follow. Today if particular banks formalities are long and the procedure very complicated

the overall process fails and the customer may not be inclined towards using that banks

services.

Let’s take for example the process for application for a car loan.

Now this mainly involves 3 things.

ü Producing of proper documents

ü Filling up of application form

ü Paying for the initial down payment.

Here the process may fail in the following cases:

1. If the customer is asked to produce a number of forms out of which some may not

be necessary at all. He will try with some other service provider. Thus it is very necessary

that the customer is asked for the minimum but most necessary document and not

other unnecessary documents.

2. In case of application form, the application form must in a language best understood

by the customers and it should not be very lengthy one demanding a lot on unnecessary

information.

3. Finally the payment of initial amount. The customer should be given options as to

how he would like to pay by Cheques or by credit card. Once again the amount

should be very competitive not very high above the regular rates prevailing in the

markets.

The smaller and simpler the procedures the better the process and the customer will

be more satisfied.


Physical evidence is the overall layout of the place. How the entire bank has been

designed. Physical evidence refers to all those factors that helps make the process much

easier and smoother. For example in case of a bank the physical evidence would be the

placement of the customer service executive’s desk, or the location of the place for depositing

Cheques. It is very necessary the place is designed in such a manner so as to ensure

maximum convenience to the customer and cause no confusion to him.

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9% for UK and France, it was only around 2% in India in 1999. Hence obviously the

penetration of the insurance is lowest here.

3) The penetration of insurance is also assessed by a ratio of the insurance premium to

the Gross Domestic Savings. While the insurance premium as a Percentage of GDP

was 52% for UK, 35% for other European and American Countries, It was only 9%

in India in 1999. Hence even this index indicates low level of insurance penetration in

India.

4) The share of India in world market in terms of gross insurance premium is again very

small for intance while Japan has 31%, European union 25%, South Africa 2.3%,

Canada 1.7% share of the Global Insurance Premium, it is only 0.3% for India.

5) In the sphere of Life insurance, only 25% insurance population of India estimated

around 314 millions in 1999 has been able to get Insurance Cover. Such Insurance

Cover in the developed countries of Europe & America has been extended to around

90 to 95 of the total population.

Business Insight 5.8 provides the tremendous potential available for the marketer in the

health insurance sector.

Business Insight 5.8: Give way to health Insurance

If you think that this is the new kid on the block, then you are not aware of the

slew of health insurance products that are available in the market. The market has

now seen Bajaj Allianz and Star Health in the realm. Prior to this it was just

MediClaim. Even ICICI prudential has decided to make some noise about its

health insurance products. ICICI Prudential Life Insurance has released a

commercial for its health plans, based on ‘Jeetey Raho’, a corporate thought

coined by its agency, Lowe, earlier in the year. The ad opens on the shot of a

couple watching television in their house. The soap opera they are watching has a

woman pleading with her husband’s boss for a loan for a health-related emergency

in her family. Watching this on TV, the wife remarks that had she had health

insurance, the television character wouldn’t have had to face any problems. The

husband starts looking thoughtful, and the wife teases him that it’s only a TV

show. Next, the husband presents his wife with ICICI Prudential’s Health Insurance

Policy (with a health-care guarantee of 20 years) and the wife gets all misty eyed.

When her husband asks her why she is getting emotional, she blames it on the

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ü Cattle & Livestock insurance

ü Engineering insurance

ü Marine-cargo insurance

The basic marketing strategy of marketers in a competitive market has been to

identify the special needs of customers and target them in the individual segment, most

customers see insurance as a means of security, investment or tax saving. If separate policies

are offered to customers to meet their different needs, it may not be very difficult to increase

volumes. For instance, a specially designed auto-accident insurance policy could be targeted

at drivers and mechanical workers who are exposed to accidents.

In a marked departure from the earlier scenario when most insurance players

were regarded as the same, today’s insurance companies give due importance to brand

building. As the market has become highly competitive and the products have very little to

differentiate one from another, companies have resorted to brand building. Global insurance

majors like Allianz, AIG, MetLife and ING have put a lot of effort into this exercise. Not to

be left behind, traditional Indian players like LIC and GIC have also used brand building to

give the foreign players a tough fight.

Ø Price Mix

In the insurance business, the pricing decisions are concerned with the premium

charged against the policies, interest charged for defaulting the payment of premiums &

credit facilities, commission charged for underwriting & consultancy services.

Premium: Premiums are the periodic payments usually monthly or quarterly that the policy

holder pays to the insurance company to purchase and keep a policy in force.

For example in case of life insurance according to the policy it may be the amount payable

during the endowment term of the policy or until the death of the life assured whichever is

earlier. The basis on which the insurance company decides the amount of premium to be

paid by each person is determined mainly by 3 factors:

Mortality Tables: All insurance companies refer to different mortality tables. These tables

differ from country to country. The mortality table indicates the probability of a person

dying in a particular age group. For e.g. in an age group of 25-30 years, the probability

might be just two, but this probability would increase for a higher age group of 45-50

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Multiple cars or policies: When you have more than one car on an insurance policy,

most companies will give you what is known as a multiple line discount. Because you use

the company for all of your auto insurance needs, they reward you.

Distance and amount of driving you do: Most car insurance companies ask prospective

clients how far, and to where, they do most of their driving in a day. The thinking is that

further you have to drive, and the more often you do it, the more likely you are to have an

accident. The person who commutes 45 minutes to work every day is going to pay more

than the person who drives 10 minutes to work. Likewise, a college student who walks to

class, and drives home three or four times a year will cost less than the college student who

spends 30 minutes commuting to and from campus each day.

Location of your car: Car insurance companies rate areas according to the number of

accidents or thefts that occur in a specified amount of time in that area. Sometimes, the

company can even pinpoint a neighborhood. If you live in a large city, your rates will be

higher than if you live in a town.

Fire and Marine Insurance Pricing:

The principle of utmost good faith is applicable even for fire and marine insurance.

E.g.: If a trader while taking a fire insurance policy does not disclose the previous occurrence

of fire in the factory, and subsequently after taking policy, there is another fire, the insurance

company may refuse to pay the compensation if it learns about the previous occurrence of

fire which was not disclosed at the time of taking the policy.

The pricing in case of fire and marine insurance is done on the basis of:

Type of Building: In case of a building the rate of premium also depends on the type of

construction. If it is wood construction the insurance premium is low as the cost in

constructing a wood building is low in comparison to a concrete building which has higher

premium amount.

Past Experience: If a fire or marine insurance company has a past experience of settling

a claim successfully then, the credibility of the company increases and it charges higher

premium for similar policies. The customers are assured that the company will be able to

handle the claim well as it was done in past and hence they are ready to pay higher premium.

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Partner Selling-

Bancassurance: In bancassurance, the insurance products are sold through the banks

network of branches.

Postal Department: Insurance companies can tie up with the postal department to sell

and distribute various insurance covers. This would certainly require upfront training costs,

as the postal employees in turn need to educate and sell the concept and benefits of insurance

to the people in rural areas.

Selling Through Corporates: Insurance can be sold through corporates too.

E.g.: When a customer purchases a Maruti car, he gets the insurance of the car free from

the Maruti Company itself. Thus this is termed as selling insurance through corporates.

Electronic Channels: In the last decade, numbers of technological advances have taken

place due to immense use of EDI (Electronic Data Interchange).

Business Insight 5.9 provides the glimpses of the various innovative practices adopted in

Indian Insurance services distribution.

Business Insight 5.9: Innovations in

Indian Insurance Services Distributions

The opening of Indian Insurance Market lead to many experiments and

innovations in Insurance Distributions. A few of which are discussed below.

I. Tie-Ups With Multiple Insurance Players:

Lord Krishna Bank (with ICICI Prudential and Bajaj Alliaz) and

Development Credit Bank (with Birla Sun Life and TATA AIG) entered into tie-

ups with multiple insurance players. The result of this channel’s popularity gained

a momentum: between 15 percent and 30 percent of aggressive insurance player’s

policy distributions are coming from this intermediary route.

II. Tie-Ups With FMCG Marketers:

Besides their own initiatives, players are also benefiting from intense

competition in other industries. A creative route it adopted was to tie-up with TATA

AIG, to offer Rs.25,000 personal accident cover with its 200 gram pack. For

TATA AIG, this was a new avenue, through an FMCG marketer, Pepsodent took

a cue and tied-up with New India Assurance for dental insurance for its customers.

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VIII. Tie-Ups With Home Loan Providers :

Birla Sun Life provides insurance to Cititbank’s Home Loan customers.

For SBI Life, LIC, ICICI Prudentials, HDFC Standard and ING Vysya, their

group presence in housing finance through subsidiary is a captive channel for cross-

promotion and distribution.

IX Tie-Ups With Banks:

Apart from bancassurance, several insurance marketers are entering into

agreement with banks to provide cover to their customers. Metilife, for example,

through its policy called Dhanam Life provides cover to Dhanalakshmi Bank’s

account holders.Similarly, AB Jeevan Abhaya, Birla Sun Life’s Policy insures savings

account holders of Andhra bank for annual premium ranging from Rs.250 to Rs.800.

X Tie-Ups For Rural Market :

To make up for lack of infrastructure in rural markets, players are entering

into a spate of partnerships with groups operating there. While Aviva has partnered

with Lakshmi Vilas bank to reach out to rural SHGs (Self-help Groups), ICICI

Prudential has tied-up with a spate of NGOs 9BASIX, Shepherded and CASPOR

amount others)/ Many of these SHGs and NGOs aid villagers to pool their resources

for everyone’s benefit.

To provide cover to Khadi weavers, the government owned KVIC (Khadi

and Village Industries Commission) has launched Khadi Karigar Janashree Bima

Yojana. Distributed and promoted by more than 30 Khadi Boards across the

country, the institution and government contribute 87.5 percent of the premium,

the balance being the insured artisan’s contribution.

XI Postal Insurance :

When it comes to rural reach, post office network is difficult to match. It is

expanding its portfolio of insurance products by adding money bank and single

premium policies to tits existing endowment ones. Hiring outside agents for the

first time, the department is targeting a seven-fold increase in rural premium income

within four years (it collected Rs.101 crore premium in 2002-2003).

XII Tie-Ups With State Government

Bajaj Allainz ventured to cover Amarnath Yatra pilgrims in association with

J&K Bank. National Insurance has entered into agreements with the state

government of Haryana, Jammu and Kashmir and Karnataka to provide insurance

to their government employees.

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Underwriters: Underwriting is another important management and business and financial

occupation in insurance. Underwriters evaluate insurance applications to determine the

risk involved in issuing a policy. They decide whether to accept or reject an application,

and they determine the appropriate premium for each policy.

Insurance sales agents: About 15 percent of wage and salary employees in the industry

are sales workers, selling policies to individuals and businesses. Insurance sales agents,

also referred to as producers, may work as exclusive agents, or captive agents, selling for

one company, or as independent agents selling for several companies. Through regular

contact with clients, agents are able to update coverage, assist with claims, ensure customer

satisfaction, and obtain referrals.

Lawyers: The insurance industry employs relatively few people in professional or related

occupations, but those who are so employed are essential to company operations. For

example, insurance companies’ lawyers defend clients who are sued, especially when large

claims may be involved. These lawyers also review regulations and policy contracts. Nurses

and other medical professionals advise clients on wellness issues and on medical procedures

covered by the company’s managed-care plan.

Computer systems analysts, computer programmers, and computer support

specialists: These are needed to analyze, design, develop, and program the systems that

support the day-to-day operations of the insurance company.

Actuaries: These represent a relatively small proportion of employment in the insurance

industry, but they are vital to the industry’s profitability. Actuaries study the probability of

an insured loss and determine premium rates.

Customers: People mix not only includes employees but also customers. The customers

are to be treated with respect and courtesy.

Ø Process Mix

In case of insurance sector, the process mix includes the various interactions that

take place between the insurance agent and the customer in the process of selling the

policy to the customer till the settlement of claims.

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9. An average twelve days time is taken by the company to verify the submitted

documents. After the twelve days period, the insurance agent meets the customer to

provide him a policy document, which consists of the terms and conditions of the

policy. This is because terms and conditions of the policy differ for different customers

due to differences in medical conditions of customers in case of life insurance and due

to differences in nature of goods and mode of transportation in case of marine and

fire insurance.

10. Then, a reconfirmation is taken by the agent from the customer that he agrees with the

terms and conditions of the policy.

11. The insurance agent then regularly collects the premium from the customer whenever

the premium becomes due.

Ø Promotion Mix

Advertising: It is a paid form of non-personal communication. It is used to create

awareness and transmit information in order to gain a response from the target market.

Forms of advertising used in insurance services are as follows:

News Papers and Magazines: LIC give ads in the news papers and magazines round the

year to continue its brand image and also when new products are introduced. Normally its

ads are published in leading newspapers and magazines.

Electronic media: Insurance companies also advertise its services in the Electronic media

like:

Internet (Websites): Companies like LIC (www.licindia.com) , ICICI

(www.iciciprudential.com) all have websites from which people can get the information

about their products, prices, various schemes, and lots of other information. People can

also purchase the product through this website.

Television: Companies like LIC, Met Life India, advertise on television to make people

aware of their products and services.

Radio: ICICI Prudential advertises on 92.5 red FM.

Hoardings: LIC put its hoardings where there is a mass flow of people, especially outside

the railway station or at the backside of the bus. When Met Life was introduced it has put

his hoardings on the side of the train, to target huge number of people.

Brochures: Companies provide brochures to the customers so that they can have a look

on various schemes and their prices.

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Indian IT industry alone has already crossed the 20 $billion mark. India’s share in the

world software and services market has increased to nearly 3.5 per cent in 2004-05 from

2.4 per cent in 2003-04 and 2.09 per cent in 2002-03 and this is growing fast. Considering

the huge potential of India’s IT and software service sector in the global market the growth

projection in this service segment is just mind boggling. Financial services have been the

major users of IT and communication technologies. IT expenditure by US banks has

recorded a compounded annual growth rate of 8.4 per cent. The main function of Information

Technology (IT) is to serve the information needs of society and thereby contribute to the

user’s productivity and efficiency. Marketing IT services should aim at providing quality

customer service and maximizing customer satisfaction at the lowest delivery cost.

The Management Information System (MIS), distributed computing devices, open

systems, high-speed data networks (LAN, WAN, ISDN etc.), RDBMS have been

important development milestones in IT with major impact on financial services.

5.4.1 The Indian Scenario of the IT Services

IT has been prevalent in India for a long time but the real importance and the

global recognition is has been a very recent phenomenon. India has a vast number of IT

professional with a very knowledge and also they are cheap as compared to labor from

other country. IT in India has been continuously growing after liberalization in 1991. A

large number of multinationals started setting up their software development centers in

India due to availability of good labor at a good price. Seeing this opportunity the Indian

software firms started offering their service from India dedicated to specific US clients. By

this time India was only preferred due low cost but now when most IT companies like

TCS, WIPRO, INFOSYS have been ISO 9001 certified, and SEI/CMM V level certified,

no one can doubt the quality. Year 2000 an important year for the Indian IT firms. Remember

the Y2K virus. US faced a big problem called the Y2K and due to shortage of good labor

they had to outsource the solution from India. Since then there is no looking back and

India is today known as the king of IT. Once again Indian firms proved that they were

indeed the best. The IT industry has gradually evolved from a product-based industry to a

service based one. It has become one of the most competitive industries in the global

economy. It is an economy-dependent industry in the sense that it performs well when the

economy experiences a boom and suffers when the economy is in recession. One of the

important characteristics of IT industry is that it is exclusively knowledge-based and has

thrived in countries with talented resources. However, the industry also needs good financial

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The industry will create enormous employment opportunities in the country. The

IT industry which currently employs 0.5 million people, will employ over 2 million people

directly and create indirect employment opportunities for at least an additional 2 million

people by 2008. In ITES exports, some of the segments creating the greatest number of

jobs will be customer care (contributing 37,000 to 390,000 jobs), HR (contributing

1,40,000 to 1,60,00 jobs) and administration (contributing roughly 80,000 to 1,00,000

jobs). Similarly, IT services will create employment for 4,50,000 people; the products and

technology services opportunity will contribute around 1,40,000 jobs and the domestic

market will employ about 650,000 people. Not only, will the industry provide direct

employment to 2 million people, it will also create significant entrepreneurial and employment

opportunities in support services.

5.4.3 Services Marketing Mix of IT Services

Keeping in view the rapid pace of development in technology and the short shelf

life of the products, fast and continuous product/service development, adoption of the

right processes, competitive pricing of products/services and promotion of these, along

with recruiting and training the right people, are very important in the IT industry. Keeping

in view the peculiarities of the industry, the pricing and process mechanisms differ from

other services. However, place is not a constraint for providing services, especially with

the latest developments in communication technology. At the same time, providing physical

evidence to the customer is very difficult. The brand name and existing products and clients

can be used to assure the customer and reduce the perceived risk.

Ø Product Mix

The products and services which make up the IT industry are many and varied,

being used by all manner of organizations in business, government, administrative, technical,

scientific, educational and manufacturing processes.

Components of IT:

ü Computer technologies

ü Communication technologies

ü Computer technologies

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Ø Promotion Mix

Promotion should stimulate demand by moving the product and services towards

customers. The means of promotion most commonly adopted by the IT industry is media

based advertising. For example, TCS, Oracle, Microsoft and NIIT use print media to

communicate with customers while IBM and Microsoft use the television extensively to

promote their services. Advertising through hoardings displayed at public places has also

become popular, especially in commercial cities and business centers. Web-based promotion

is also quite common in the IT industry.

In addition to media-based advertising, conducting seminars and workshops to

educate and train people in latest technologies, industrial exhibitions like IT expos etc. are

also gaining importance. More than all these measures, providing quality service to the

customer is the best promotional strategy, as word-of-mouth publicity and client appreciation

can bring more business for the customer. News items and press releases on introduction

of new services or on successful completion of projects also promote the services of a

company in the market.

Ø Process Mix

The process of manufacture and delivery of quality service at the lowest possible

cost is very important in the IT industry. In fact, it is true for any service industry. The

production process involves understanding the nature of the project, assessing and capturing

customer requirements, preparing a project plan, developing the software to meet the

objectives, testing it and delivering it to the customer. Delivery of services can be either on-

site or off-site depending on the project. Models like Capability Maturity Model (CMM)

are developed to test the efficacy of the process in an organization. Such models help

detect problem areas and take measures to correct them to ensure the quality of the product.

Other certifications like ISO also help to assure the quality of the manufacture and delivery

of services.

Ø People Mix

1) Employees – The service provider always has to do a perfect job analysis of each and

every job and accordingly select a person whose personality best suits the job. The service

quality totally depends upon the employee giving the service. That is the reason why job

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For Example: India Infoline it totally deals with information regarding any company’s working

share price, financials etc. it has a total corporate feel to it.

2. Companies going to software development: For example Infosys when a client wants to

develop a software for its information transfer or any other purpose it will personally go to

Infosys with its requirements and Specifications. Now when a customer goes to developer

it is the ambience of the office etc. that will pay a vital role in identifying the worthiness of

the company.

3. Developers comes to the Customer: This could be very well explained with the HP

example. HP does not actually believe in encounters with the customers. However at its

retail outlets it does. But mostly they are the ones who approach the customers where at

that point of time their dressing and their language and their voice quality is an important

cue through which the customers might judge the company as a whole. Hence the

representative of the company also have to absolutely formal in their behavior with the

customer and HP follows this rule.

5.5 EDUCATIONAL SERVICES

In the past, the marketing of education in India had little significance. This was

because of three reasons. The first was that the demand far exceeded the supply of service.

Second, it was the people’s perception that it was the duty of the government to provide

this service to the people. Last, but not the least, since the Indian economy was more

dependent on agriculture, people ignored the importance of education. The situation still

remains the same in most poor and lower middle-class families where earning their daily

bread takes priority over education.

However, over the years, radical changes have been taking place in the arena of

educational services. The reasons for this transformation are plenty. The growing awareness

of the importance of education among the masses, corporatization of education, innovations

in technology and privatization of educational services have led to dramatic changes in the

field.

Gone are the days when students joined the nearby school or college and decided

to earn a bachelor’s degree to secure jobs. Today’s youth are keen on having a good

career and making a mark. The importance of having a good education and building a

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The rise in the number of part-time teachers and the freeze on new full-time

appointments in many places have affected morale in the academic profession. The lack of

accountability means that teaching and research performance is seldom measured. The

system provides few incentives to perform. Bureaucratic inertia hampers change. Student

unrest and occasional faculty agitation disrupt operations. Nevertheless, with a semblance

of normality, faculty administrators are able to provide teaching, coordinate examinations,

and award degrees.

Even the small top tier of higher education faces serious problems. Many IIT

graduates, well trained in technology, have chosen not to contribute their skills to the

burgeoning technology sector in India. Perhaps half leave the country immediately upon

graduation to pursue advanced study abroad — and most do not return. A stunning 86 per

cent of students in science and technology fields from India who obtain degrees in the

United States do not return home immediately following their study. Another significant

group, of about 30 per cent, decides to earn MBAs in India because local salaries are

higher — and are lost to science and technology. A corps of dedicated and able teachers

work at the IITs and IIMs, but the lure of jobs abroad and in the private sector make it

increasingly difficult to lure the best and brightest to the academic profession.

Few in India are thinking creatively about higher education. There is no field of

higher education research. Those in government as well as academic leaders seem content

to do the “same old thing.” Academic institutions and systems have become large and

complex. They need good data, careful analysis, and creative ideas. In China, more than

two-dozen higher education research centres, and several government agencies are involved

in higher education policy.

India has survived with an increasingly mediocre higher education system for

decades. Now as India strives to compete in a globalized economy in areas that require

highly trained professionals, the quality of higher education becomes increasingly important.

So far, India’s large educated population base and its reservoir of at least moderately well-

trained university graduates have permitted the country to move ahead. But the competition

is fierce. China in particular is heavily investing in improving its best universities with the aim

of making a small group of them world class in the coming decade, and making a larger

number internationally competitive research universities. Other Asian countries are also

upgrading higher education with the aim of building world class-universities. Taiwan, which

is a major designer and producer of IT hardware, is considering merging several of its top

technological universities to create an “Asian MIT.”

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choose their marketing mix carefully to survive the tough competition and fluid market

conditions and eventually thrive in the market. Since education sector is a very broad area

as mentioned earlier, to narrow down the scope of education in this section the higher

education system of education is considered for discussion. You are advised to gain

understanding in the other systems of education also as mentioned in the earlier sections.

Ø Product Mix

The product in the education service market is the entire package offered to the

student in terms of the topics to be covered, the extent of coverage, number of classes, the

duration of the course, the attention given to each student, etc., For example, if an institute

offers a training program in hardware technology, it is essential that it offers courses on the

latest technologies in the industry. This would help the institute attract students and also

charge high fees. Therefore, offering the right product assumes a lot of significance.

An educational institution has to ensure that its syllabi are comprehensive and up-

to-date, covering the basics of the subjects and related current issues as well. As more

and more new and unconventional areas are offering job opportunities, education service

marketers are required to introduce the necessary changes in the curriculum to equip the

students suitably. For instance, service providers in India and Eastern Europe are including

courses on foreign languages, soft skills, personality development and communication skills

as part of their curriculum, sensing the huge opportunities in BPO industries. Marketers

also attach some supplementary services to augment the product and enhance the service

experience of the customers. For e.g. our CDE of Anna University provided you the

power point presentations ( PPTs) of the course material to enhance and ease the

understanding of the subject.

Ø Place Mix

Universities offer educational services not only on the campus but also through

affiliated colleges. The area coverage of a university is decided by the state government.

Within that area the university may establish education centres and/or give course-wise

recognition to the colleges promoted by the private sector or social and charitable

associations. The affiliated colleges are allowed to make admissions based on the prescribed

eligibility criteria and admission procedure. The course-wise intake and infrastructure is

also decided by the university. The affiliation committees appointed by the university (course-

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each other. Therefore, it is important for education marketers to safeguard their talent and

motivate them to remain committed. They can do this by providing incentives like attractive

consultancy assignments and encouraging them to go in for higher studies.

Ø Price Mix

The management committee of a university decides the fee structure for various

services, after considering the following facts: Demand for the course, Pricing of competitors,

Infrastructure requirement, Faculty requirement, Maintenance costs, and Development

costs. Universities under the public sector are not profit-oriented organizations. The

respective state governments and the funding organizations will contribute substantially to

the university finances. Hence, the services offered by the public sector universities are

highly subsidized. In order to provide quality education even to the economically weaker

sections of the society, the services are offered at reasonable prices when compared to

private institutions. However, in recent years universities all over the country are facing

serious financial crisis. Universities are forced to introduce self-finance courses, payment

seats and charge competitive market prices from the students for some professional courses.

The fee structure is decided by the management of the university for some courses and for

other courses the state level bodies such as State Council for Higher Education in consultation

with the universities and the colleges offering such courses decide the fees. In certain

professional courses like Engineering and Medicine the state government is fixing the fees

for the course. For example, Justice Raman Committee, appointed by the Government

of Tamilnadu is fixing the tuition fees for the different professional courses. The fee structure

of various courses is modified whenever the institutions feel it necessary, after considering

the demand of the course and the cost of executing the course. The payment system may

vary from university to university. Some universities collect fees annually, some collect

each semester and some collect the total fees at the beginning of the course.

Ø Promotion Mix

Promotion plays an important role in education services marketing today, when

there is immense competition in the sector. Effective promotion will act as an effective tool

for an education institution and help in

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Business Insight 5.10: Distance Education Programmes –

A Comparison of Advertisements

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etc., constitute the physical evidence. Please refer Business Insight 5.10 and try to identify

the physical evidence shown in the different advertisements.

5.6 ENTERTAINMENT SERVICES

Entertainment services include all those services, which help a person feel entertained

and relaxed. Entertainment services constitute a part of the media services and include

entertainment through movies, leisure, music, television shows, sports, etc. (See business

Insight 5.11). These include the services that are involved in the production, distribution

and marketing of movies, television shows, music, and animation. Also included in

entertainment services are the marketing of sports events such as cricket, hockey, tennis,

and football matches, competitions pertaining to indoor and outdoor games such as

badminton, swimming, chess and several others. Entertainment centers, theme parks,

Multiplexes, go-karting, Malls, live entertainment shows and bowling alleys, are more

recent and upcoming means of entertainment in India. Entertainment today, dictates our

lives. Post-food, clothing and shelter, the highest priority of the human being is how to get

entertained. Education, careers, earning money, all lead to the quest for higher and

sophisticated entertainment. One seeks knowledge to improve the quality of life. The quality

of life improves when the basic requirements of life are supplemented with entertainment in

some form or other.

Business Insight 5.11: ICL starts its campaign

Indian Cricket League has recently unveiled it new logo along with a campaign.

Indian Cricket league better known as ICL is an Essel Group venture. The campaign

has been released for the league’s first Twenty20 cricket tournament is slated to

begin on November 30 and carry on till December 16 2007. The position line for

ICL states: ‘Sapne Manzil Tak’. The advertising campaign will run in three phases

from November 7 till December 16. The first phase introduces the brand

proposition of ICL with Kapil Dev as the brand ambassador. It highlights the

journey that is possible from a small town or village to a cricket stadium and

encourages amateur cricketers to realize their dream. It stresses on the fact that it

may not be easy to find a chance to play cricket in the prevailing system, but ICL

recognizes individual talent and provides the wherewithal to nurture it. The outdoor

campaign has already broken and the TVC will be on air on November 8. The

outdoor campaign says, ‘Khel hai bada. Iraden hain pakke. ICL – Sapne Manzil

Tak’, and ‘Dum jigar main. Khel rag-rag main. ICL – Sapne Manzil Tak’. Once

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Thereafter, a number of incremental improvements took place within the motion picture

industry. Some of the industry players were able to graduate into the next phase of industry

evolution by reinventing themselves.

5.6.1 FICCI report on the Indian Entertainment Industry

A comprehensive survey conducted by the FICCI (Federation of Indian Chambers

of Commerce and Industry) reveals that the segment of service sector which is fast emerging

as a sunrise sector is the Entertainment Industry covering film, music, broadcast, television

and live entertainment. The entertainment industry is basically an intellectual property-

driven sector with small to large players spread across the length and breadth of the country.

A FICCI report on the industry, prepared by PricewaterhouseCoopers, estimates

that the industry could balloon to Rs 1 lakh crore by 2011, translating into a cumulative

growth of 18 per cent in the next five years. Among the segments in the industry, the

television sector is expected to continue to contribute the largest share, as was the trend in

the last three years. “The television industry revenues are expected to grow from the current

size of Rs 19,100 crore to Rs 51,900 crore by 2011, implying a 22 per cent cumulative

annual growth in the next five years,” the report said. The print media too is projected to

grow from the current size of Rs 12,800 crore to Rs 23,200 crore by 2011, mirroring a 13

per cent annual growth. This sentiment is boosted by the growing interest in India among

the global investor community, with the foreign media too evincing interest in investing in

Indian publications. The film industry, which is currently placed at Rs 8,400 crore, is

expected to touch the Rs 17,500-crore mark by 2011. “The industry is getting increasingly

corporatised. Several film production, distribution and exhibition companies are coming

out with initiatives to set up more digital cinema halls in the country.” Significantly, the

entertainment and media industry saw the maximum flow of foreign investment in 2006,

with 13 proposals cleared by the Ministry of Information and Broadcasting during the

year. Another 22 proposals are pending with the Ministry.

5.6.2 Glimpses of the Indian entertainment Industry

ü The Indian Film Industry

Films are the most popular form of entertainment. India is now the largest producer

of films in the world. Since 1931, the film industry has produced more than 75,000 films in

more than 30 different languages and dialects. The Indian film industry was not granted an

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India is home to two thriving entertainment clusters - Bollywood in Mumbai and

Kollywood in Chennai. The size of the South Indian film industry is bigger than the Hindi

film industry, in terms of number of films produced. A number of entertainment companies

are springing up in Mumbai. Chennai, being the second biggest entertainment cluster,

opportunities await for potential entrepreneurs to jump onto the bandwagon and reap the

first-mover advantage in a number of segments - ranging from content creation to actual

delivery of entertainment.

ü Radio

Till recently All India Radio (A.I.R.) had a monopoly in the radio industry, being

the only broadcaster. Then about a decade ago STAR India Pvt. Ltd. entered into the

privatization arena with Radio City in Bangalore. In Mumbai privatization of FM channels

was pioneered by the Times Group a year later who launched their station 98.3 Radio

Mirchi. Others were quick to follow suit and very soon there were four other private

channels that came about. These included STAR’s Radio City 91.0 FM, Mid-day’s Go

92.5, India Today’s 93.5 Red FM and Gautam Radia’s Win 94.6. Each of these stations

has a different positioning and caters to a different set of target audience:

Go 92.5 plays English music and Westernized Hindi music. It targets SEC A to B1 individuals

within the age group of 15-45yrs. The English MB (music buffs) perceive it as a radio

station that plays good English music and airs eloquent RJ’s whereas the Hindi MB dismiss

it because its too English centric in its approach.

Radio City on the other hand has a TG audience of SEC A, B, C, D and E between the

age group of 15-45yrs. The English MB see it as a station that plays only Hindi bollywood

music and the Hindi MB see it as a station that plays a good mix of Hindi music. This is a

fit in terms of content and TG.

Red FM targets an audience in the SEC A, B, C category in the 25+ age group. The brand

identity is all about hot music, English and Hindi, personality jockeys and late night talk

shows.

Radio Mirchi’s brand identity is defined by 95% Hindi music and 5% international music.

It targets SEC A, B, C category between the age group 18-35yrs.

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Business Insight 5.14: Indian music market eyes the online sales

The Indian music industry is gearing up to increase its online sales. The reasons

maybe for much the growing demand for the MP3 players and ipods can be

routed as one of them. This increase has now paved a way for the music industry

to look for making music available online. At present there are over 25,000 songs

will soon be available for download. Saregama India has been test marketing the

service for over two months now. By December end, it plans to make available

4.6 million tracks it has acquired, apart from the 0.3 million music tracks it owns

under its banner. The songs will be available on the company-owned website for

around Rs 12 for five minutes. If the song exceeds the time, then users will have to

pay an additional of Rs 12 for every extra five minutes. If we take the industry as

a whole then the companies like Sony BMG, Saregama India, T-Series have

made a total of over 5 million tracks available on their own websites and other

portals for full song downloads in a bid to monetise their content through the

internet, and fight piracy. Tips says that within the next year there will be over

25,000 songs will be available for the online download. The company hints that

there maybe a paid model also introduced soon. The number of Internet subscribers

is estimated to be around 35 to 50 million users. Currently, 27 per cent of the total

connections are broadband connections and are expected to account for 75 per

cent of the connections by 2010. Companies like T-Series and Sony BMG have

their tracks available in association with other portals like MSN, Sony Connect,

Hungama Mobiles among other portals. In most cases, the pricing for Internet

downloads vary. The user can either download the entire album or a few songs

depending on individual preferences. There are experts who believe that the

companies are opting for the Internet route as most of the sales in the music

industry is getting deeply affected by the piracy. According to PWC the Indian

music industry suffers a loss of 55 per cent, which is close to Rs 200 crore. In

2006, the total number of raids was over 250, during which nearly 1.4 million

CDs and over 2 million VCDs were seized. There are media experts who say

that the music companies would have to break the mindset of people to start

paying for the music rather than the free download.

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ü ü ü ü ü Live Events

Live events are a very popular form of entertainment in the developed world. They

work as a tool to promote specific individuals and organizations and are a great form of

publicity. Often held in large stadiums and auditoriums they attract large crowds.

Live events are very popular in India also. They vary from fashion shows to music

concerts to award ceremonies. India has seen a growth in all these events. Both international

and national artists use them as a vehicle to generate awareness. Some of the musical

events held in recent times include, Elton John, Roger Waters and Bryan Adams to name

a few. Award ceremonies include the Filmfare Awards, Screen Awards and The Indian

Television Awards.

ü Shopping Malls

The world of retail merchandising has come a long way since the days when general

stores, that stocked everything from groceries to stationery, and small shops that sold

limited varieties of products, reigned supreme. There is a movement now from the

unorganized to the organized sector. There are now more modern retail formats such as

supermarkets and malls. Several companies are setting up exclusive showrooms and large

format stores such as Westside and several others are expanding. The whole concept of

shopping has altered in terms of format and consumer buying behavior, ushering in a revolution

in shopping in India.

ü Theme Parks

Essel World, the first and foremost amusement park is located on Gorai Island on

64 acres of green lands. It offers thrilling and scintillating rides and games. Essel World

offers over 40 exciting rides, games, and attractions. The Water Kingdom is said to be the

largest of its kind in Asia. This international-style theme park and amusement centre situated

close to Gorai Beach is perfect for a one-day holiday. Special ferries get you across to the

park and the entrance fee normally takes care of a fixed number of rides, which include the

standard roller coaster and adventure themes, plus a water world section where kids can

literally run amok. Summer is usually crowded, but the place also offers low budget monsoon

packages and special deals on weekends.

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A recent upcoming media company to hit the markets is Mumbai-based Adlabs

Films. The firm is not strictly a media player in the sense that it does not produce films or

television content. It is connected to the media industry by virtue of it being one of the

foremost motion pictures processing company in the country with a market share of 60 per

cent in western India. The company intended to go one step further and get into the exhibition

of films. For this the company built a four-cinema multiplex in Mumbai and India’s first

IMAX dome theatre. The company came out with its maiden public issue aggregating Rs

52.80 crore. It is offering 44 lakh equity shares of Rs 5 each at a premium of Rs 115 per

share.

The Masterminds behind Adlabs in India

Adlabs has been promoted by Manmohan Shetty and Vasanji Mamania. The

company initially started out with the processing of advertising films from which it derived

its name and then moved on to processing feature films. Adlabs processes films for leading

production houses and has been conferred the National Award for Best Cinematography

four times. The company has to its credit some recent big budget films such as Mohabatein,

Fiza, Mission Kashmir, Zubeida and Kaho Na Pyar Hai among others. Adlabs has

been a consistent performer over the years and is highly profitable.

Ø Product Mix -Service Product / Service Package:

The Core Competency here is screening of movies. The supplementary products

/ services are enormous like the Video Games Parlor & the Food Court. Good options for

food like the Cafeteria where you get food made in hygienic conditions. The ambience is

pleasant with centrally air conditioning, well-illuminated layout. Fame Adlabs is well known

for its Dolby Digital Sound.

Ø Price Mix

Fame-Adlabs uses differential or flexible pricing for its Multiplex theatres.

Rates:

In the multiplex averages between Rs. 90 & Rs.120 depending upon the box office

performance of the movies screened. The prices are popularly estimated to be extremely

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Ambient factors

• Air conditioning

• Excellent ventilation

Design factors

• Uniform appearance

• Extensive parking lot

• Spacious interiors

Social factors

• Well dressed employees

• Courteous

• Genial

• Elite and up market crowd

• Family atmosphere

Ø Process Mix

The process is a sequence of actions to deliver the service to the customer. In this

case the following is the process followed by Fame. The customer arrives to Fame by car

and first goes to the ‘pay n park’ to park the car. The customer then moves on to the ticket

window to purchase the ticket for the movie he is interested to watch. Then the customer

enters the building. Here the usher at the door checks for the tickets. Then the customer

will move on to the screening area and watch the movie. In the interval the customer will

mostly come out to eat or drink something from the cafeteria. The customer goes back to

the screening area to continue the movie.

Ø Productivity & Quality

Undoubtedly, the Fame caters to the crème de la crème of the crowd in the

Mumbaikars that patronize the theater. Therefore, these people are treated to the best of

quality and productivity by the employees. The customer is the King there. The service for

the multiplex goes as far as actually delivering the tickets to the client’s home so as to limit

the customer’s trouble in actually booking the tickets in advance. The theater, keeping in

mind, its limited accessibility is very considerate towards the people that determine its

success.

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As mentioned above the scope of public utility services is very broad and includes

postal (including Courier and telegraph), transportation (rail, road, air, waterways…),

telecommunication, fire control services, electricity, banking services, Insurance services

and so on. Some of the services mentioned above have been discussed in the earlier

sections. To narrow down the scope of coverage of this particular section telecommunication

services and the Indian postal services are discussed in detail. For the other public utility

services the services marketing mix have been given in nutshell.

The special feature of public utility services is its pricing. The other marketing mix

variables are more or less similar to other services, where as it is entirely different for the

price mix which is discussed below.

Public Utility Services Pricing

Pricing of public utility services (like urban transport) differs, in many respects,

from the pricing of private goods. This is because, that it is generally expected to focus the

concerns more on promotion of the collective interest of the society, at large, than just

profit maximization, as is usually the case with the latter.

Principles of Public Utility Services Pricing

Most of the studies in economics of public utility agree on four major principles of

public utility pricing. These are cost of service, value of service, competitive price , and

social principles.

ü Cost of Service

Cost of service suggests that the public utility rates should be based on those relevant

costs, which are necessary, reasonable and prudently incurred.

ü Value of Service

Using cost as a sole criteria, for pricing public utilities, came under heavy criticism by

economists on the ground that it did not give enough weight to value of service to a customer,

which may largely vary from the cost. Hence, they argued that the rates charged should lie

somewhere in between cost of production and value of service.

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to compete with DOT (Department Of Telecommunication). An Independent Telecom

Regulatory Authority of India (TRAI) was setup in 1997. A new policy for Internet Service

Providers (ISPs) was announced in 1998 allowing independent services providers to enter

the sector ending the earlier monopoly of VSNL.

5.7.1.1 Services Marketing Mix of Telecommunication Services

Unlike manufacturing organizations that focus on the four P’s of the marketing mix,

service organizations need to concentrate on seven P’s. i.e. product, price, place, promotion,

people, physical evidence and process. Let us discuss how telecom service providers

attempt to design these seven P’s to constitute appropriate marketing mix

and face the challenges in the telecom industry:

Ø Product Mix

Technology and the changing needs of customers have prompted the telecom

industry to introduce different products, services and their variations to the customer. This

has also helped some of the players create a market for their services, instead of competing

with other players in the cluttered market. However, telecom players are forced to

continuously introduce innovative services to sustain and thrive in the highly competitive

market. The various products and services offered by telecom industry are discussed

below.

Fixed land line/wireless services

Fixed landline service allows customers to communicate only from a particular place. The

common landline connection offered by BSNL and other players is the basic service.

Fixed wireless service offers more mobility than the fixed landline but that also has its own

limits. Fixed land line/wireless services offer following services to customers:

µ Short distance services: These services allow users to communicate with people within

a given region.

µ Long Distance services: Long distance services can be further divided into NLD and

ILD services. NLD (National Long Distance) services allow a customer to communicate

with people residing anywhere in the country. ILD (International Long Distance) services

allow the customer to communicate with people residing anywhere in the world.

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Video telecom services

They include video conferencing, videophone, videotext, etc. They are used by various

service providers including road transportation, railways, airways, corporates, banks, hotels,

educational institutes and government departments.

Ø Price Mix

Service providers can use cost-based, competition based or demand-based pricing.

Most service providers in the telecom industry today are resorting to competition based

pricing, which has led to low prices of the services. This has proved to be quite beneficial

for the customers, but the telecom companies are struggling to make profits.

In the fixed line industry, customers have only one option of payment, that of post-

paid. That is, customers pay a fixed amount as rent and the usage charges at the end of the

billing period. In cellular industry, service providers offer two options to customers, pre-

paid and post-paid. In case of prepaid service, customers buy a card available from retail

outlets to activate or recharge their service. The price of the card covers the rent fixed by

the service provider plus the cost of certain amount of airtime. For example, Airtel offers

different cards with different amounts of airtime and allows its customers to choose from

them depending on their need. Though initially, prepaid service was available only for

mobile phone users. BSNL and Reliance is now making prepaid service available for

landline users also. In case of postpaid service, depending on the number of calls made by

the customer and other services used by him, a detailed bill is prepared and sent to the

customer. The total amount to be paid by a customer per month depends on the rent and

the services used by him. The customer can make the payment by cash/cheque/credit card

at one of the service provider’s outlets. Some service providers also allow online payment

through Internet. BSNL and MTNL for example allow their customers to make online

payment.

Ø Place Mix

When DOT/BSNL was the only service provider, customers had to go to different

locations for different services. Applications for new telephone connections or for transferring

a connection from one place to another were accepted only in one major telephone exchange

located in the city. Bill payments were accepted in local telephone exchange office located

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days together even after customers reported a problem. The fact that it was the only

service provider resulted in excessive load as well as complacency. However, with the

entry of private players like Tata Tele services into the industry, things changed. The new

private players emphasized customer satisfaction. They ensured that their service personnel

answer customer queries promptly and professionally and attend to their problems

immediately. This has brought a change in the working of the telecom industry as a whole.


Telecom service is intangible. A user cannot judge the quality of the service offered

by a service provider unless he uses it. Telecom service providers however offer some

tangible products to customers to service as physical evidence. They provide customers

with a telephone directory that includes names and addresses of all their subscribers. Every

year, an updated directory is provided to all subscribers free of cost. However, mobile

service providers do not provide such directory because mobile phones are considered

personal devices. Reliance Infocomm, however, makes the information about mobile

numbers and names and addresses of its subscribers available on reliance network. Telecom

service providers also focus on the voice instrument given to customer. When Tata

Teleservices entered telecom sector, it gave sleek and attractive looking phone instruments

to its subscribers to compete with the phone instruments supplied by BSNL at that time.

Later, BSNL also began to focus on the looks of phone instruments given to customers.

Telecom service providers also focus on ambience of their service outlets. Reliance Info

invests about Rs. 30 lakhs to one crore on building its service outlets.

Ø Process Mix

Telecom service providers should offer reliable, continuous, quality service to

customers. When Tata Teleservices entered the telecom industry, its sales executives visited

individual homes, shops and organizations identifying people in need of a phone connection

and quality service. If a customer asked for a phone connection, he got it within three days.

Now BSNL has also improved its service processes. It has a computerized system that

receives complaints from customers round the clock and service personnel attend the

customer within 24 hours. One can also obtain the bill information by contacting the number

provided for the purpose. Telecom service providers also send detailed bills on request,

describing the number called, amount of time spent on the call and the charges incurred.

They should however ensure that errors are not committed in billing. This can be a major

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Speed post and courier services

Till the late seventies in India, a consumer of mail transfer had no choice but to

depend on post office. One had to live with its postal imperfection and with no compensation

for the non delivery or misplacement of items. This monopoly was broken in 1980 when

SkyPak came in market and promised safe delivery of items. Soon, the SkyPak picked up

and by the mid-80s, after tie up with the international couriers, TNT, their profit jumped

from lakhs in 1985 to crores by 1987. By this time, many other companies, small and big,

mushroomed. Noticing the boom, the postal department also launched Speed Post in

1986. Courier services were launched in 1980 and promised to deliver packages and

urgent documents in time. In a decade the business grew at a phenomenal rate of 30-40%

annually. However, the business has grown, even without courier companies providing any

foolproof guarantee to the customer for the safe delivery of their documents.

Today the organized market is of around Rs 2500 crore. Major part 65% is

captured by organized sector, 25% by unorganized sector and 10% is with postal services.

Situation in market place has alerted considerably since the time when these big companies

enter the fray decade ago. First, number of player in arena has grown rapidly. Though,

there are still handful of companies in organized sector holding a major share of market,

over 4500 courier shops have mushroom in the past few years and begun to pose a threat.

Secondly, markets are increasingly realizing that age of the generic selling is over.

Although their advertising still harps on reach DHL and skyPak, reliability Blue Dirt and

caring Elbee. The organized sector has become conscious of need to curve our distinct

niches through strategic changes in their marketing game plan. Thirdly, recent business has

mostly entailed handling documents. But it was not long before companies become realizing

that there was money to be made from the non-document segment too. As a result each

courier companies are encashing on this market with innovative marketing strategies, like

value add-ons. The feasible route that most companies are adopting is to tie up with the

foreign affiliate. Today the major tie up includes DHL-Air Freight; SkyPak-TNT (Broken

up recently) Blue Dirt-Federal Express and Elbee-United Parcel Service. Tie up with the

international service provide a common identification in the global sense and consistency

internationally.

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Table 5. 6: Services Marketing Mix of Postal and Courier Services

The following tables 5.7 and 5.8 shows the services marketing mix of some other public

utility services.

Table 5.7: Services Marketing Mix of Fire Control Services

Table 5.8: Services Marketing Mix of Electricity Services

Summary

Earlier, healthcare in India was considered the responsibility of the government

and no private players ventured into the industry. Doctors had their small clinics and private

practices, but the idea of corporate hospitals was almost non-existent. However, the Indian

healthcare industry has come of age and has become quite competitive in recent times.

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of the banking industry. The insurance business is based on customers’ trust and confidence

as it deals with the finances of the customer. The scope of insurance has increased with

more private and foreign players entering the market. They have introduced many innovative

services targeted at different segments. Price plays an important role in marketing of insurance

as it determines the premium to be paid by the customer. Pricing of insurance products is

influenced by competitor strategy and the prevailing interest rate, but is basically determined

by the risk involved. As insurance needs to be ‘pushed’ in the market, the importance of

interaction between the service deliverer and the customer increases. Therefore, agents,

brokers and employees of the company become important channels of distribution for the

service. New distribution channels and innovative promotional strategies also evolved

because of the increased competition. All these led to the development of the insurance

industry and expanded the market in India.

The IT industry in India is one of the major contributors to the country’s economy.

The growth of the IT industry in India has supported the birth and development of ITES

(IT Enabled Services) sector in the country. The fast and continuous product/service

development, adoption of the right processes, competitive pricing of products/services

and promotion of these along with recruiting and training the right people, are very important

in the IT industry.

Marketing of education is gaining momentum with the entry of private institutions,

change in people’s attitude towards education and the changing scope for the different

courses being offered. The technological changes and shrinking global boundaries have

increased the significance of marketing for education services. The education service can

be described as a high contact, consumer and people based service. By offering education

with enhanced features like updated syllabus and industry interaction, they can improve

the quality of the product. With franchising and better infrastructure facilities and experienced

instructors, marketers can meet customer expectations. With the right mix of all the Ps,

tailor-made customer focused courses can be offered.

Entertainment services include all those services that help a person feel entertained

and relaxed. The various forms of entertainment include music, movies, sports, animation,

television shows, and the more modem forms such as go-karting, bowling alleys, theme

parks, Multiplexes, and family entertainment centers. An understanding of how entertainment

services influence consumer behavior is essential for marketers of entertainment services

to promote their services.

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DBA1721 Service Marketing

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