MK0006 – Services Marketing and Customer

Relationship Management

Assignment Set- 1

1a. Point out the distinctive characteristics of services with

examples.

Answer: Stanton points out that the special nature of services stems form several distinctive
characteristics and he singles out four for particular comment. They

1. Intangibility

2. Inseparability

3. Heterogeneity (Kotler terms this as variability), and

4. Perishability and fluctuating demand.

These four have been identified by Kotler also as the major characteristics greatly affecting the design of
marketing programmers for services.

1. Intangibility

Services are essentially intangible. Because services are performances or actions rather than objects,
they cannot be seen, felt, tasted, or touched in the same manner that we can sense tangible goods. For
example, health-care services are actions e.g. surgery, diagnosis, examination, treatment performed on
the patient, although the patient may be able to see and touch certain tangible components of the
service e.g. equipment, hospital room. In fact, many services such as health care are difficult for the
consumer to grasp even mentally. Even after a diagnosis or surgery has been completed, the patient
may not fully comprehend the service performed.

Marketing Implications

Intangibility presents several marketing challenges. Services cannot be inventories, and therefore
fluctuations in demand are often difficult to manage. For example, there is tremendous demand for
resort accommodations in Simla/Ooty in May, but little demand in December. Yet resort owners have
the same number of rooms to sell year-round. Services cannot be patented legally, and new service
concepts can therefore be communicated to competitors. Services cannot be readily displayed or easily
communicated to customers, so quality may be difficult for consumers to assess. Decisions about what
to include in advertising and other promotional materials are challenging, as is pricing. The actual cost of
a “unit of service” is hard to determine and the price/ quality relationship is complex.
2. Inseparability

Services are created and consumed simultaneously and generally they cannot be separated from the
provider of the service. The service provider customer interaction is a speciality of service marketing.

Unlike the tangible goods, service cannot be distributed using conventional channels. Inseparability
makes direct sales as the only possible channel of distribution and thus delimits the markets for the
seller’s services. This characteristic also limits the scale of operation of the service provider. For
example, a doctor can give treatment to limited number of patients only in a day.

This characteristic also emphasizes the importance of the quality provided to clients in services. This
poses another management challenge to the service marketer. For example, an airline company may
provide excellent fight service, but a discourteous onboard staff may keep the customer permanently off
that company.There are exemptions also to the inseparability characteristic. A television coverage,
travel agency or stock broker may represent and help marketing the service provided by another service
firm.

Marketing Implications

Because services often are produced and consumed at the same time, mass production is difficult if not
impossible. The quality of service and customer satisfaction will be highly dependent on what happens
in “real time”, including actions of employees and the interactions between employees and customers.

3. Heterogeneity

This characteristic is referred to as variability by Kotler. We have already seen that services cannot be
standardized. They are highly variable depending upon the provider, the time and place where they are
provided. A service provided on a particular occasion is somewhat different from the same service
provided on other occasions. Also the standard of quality perceived by different consumers may differ
accordingly. For example, the treatments given in a hospital to different persons on different occasions
cannot similar. Consumers of services are aware of this variability and by their interaction with other
consumers they also get influenced or influence others in the selection of service provider.

Marketing Implications

The services are heterogeneous across time, organizations, and people ensuring consistent service is
fully controlled by the service supplier; such as the ability of the consumer to articulate his or her needs,
the ability and willingness of personnel to satisfy those needs, the presence (or absence) of other
customers, and the level of demand for the services.

4. Perishability and Fluctuating Demand

Perishability refers to the fact that a seat in an airplane or in a restaurant, an hour of a lawyer’s time, or
telephone line capacity not used cannot be reclaimed and used or resold at a later time. This is in
contrast to goods that can be in inventory or resold another day, or even returned if the consumer is
unhappy.

Marketing Implications

A primary issue that marketers face in relation to service perishability is the inability to inventory.
Demand forecasting and creative planning for capacity utilization is therefore important in challenging
the decision areas. The fact that services cannot typically be returned or resold also implies a need for
strong recovery strategies when things do go wrong. For example, while a bad haircut cannot be
returned, the hairdresser can and should have strategies for recovering the customer’s goodwill if and
when such a problem occurs.

1b. Discuss briefly the significance of process and physical evidence in services marketing.

Answer: Process

The process by which the service is created and delivered to the customer is critical to the service
operations as customer often perceive the service delivery system as part of the service itself.Process
means all work activities. Process involve the procedures, tasks schedules, mechanisms, activities and
routines by which a product or service is delivered to the customer. It involves policy decisions about
customer involvement and employee discretion.

Identification of process management as a separate activity is a must for service quality improvement.
Its importance in service businesses is evident because of the inseparability of production and
consumption. The customer not only thinks about the service product alone but also attaches
importance to the manner in which it is delivered. Under these circumstances, a poorly designed service
process leads to poor service quality. Banks provide a good example of this. By reconfiguring the way
they deliver service through the introduction of automatic teller machines (ATMs) banks have been able
to free staff to handle more complex customer needs by diverting cash only customers to the
ATMs.Processes are seen as structural elements that can be engineered to help deliver a desired
strategic positioning. They can be analyzed according to the complexity and divergence. Processes can
be changed to reinforce the positioning. A clear understanding of the configuration processes in terms
of this complexity and divergence, on a balance of marketing and operations activities are important
factors for improving service systems. Processes are thus a marketing mix element which can have a
substantial role in reinforcing positioning and in product development.

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 is known as physical
evidence in service.The physical evidence of service includes all of the tangible representations of the
service such as brochures, letterhead, business cards, report formats, signage, and equipment. In some
cases, it includes the physical facility. 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.

2. Briefly explain the gaps model in service marketing.

Answer: A model has been developed by Parasuraman and his

colleagues which helps to identify the gaps between the perceived

service qualities that customers receive and what they expect. The

model identifies five gaps:

1. Consumer expectation – management perception gap.

2. Management perception – service quality expectation gap.

3. Service quality specifications – service delivery gap.

. Service delivery – external communications to consumer’s gap.

5. Expected service – perceived service gap.

Gap – 5 is the service quality shortfall as seen by the customers,

and gaps 1-4 are shortfalls within the service organization. Thus

gaps 1-4 contribute to gap – 5. These gaps are given in the following

figure:

The first gap is the difference between consumer expectations and

management perceptions of consumer expectations. Research

shows that financial service organizations often treat issues of

privacy as relatively unimportant, whilst consumers consider them

very important.

The second gap is the difference between the management

perceptions of consumer expectations and service quality

specifications. Managers will set specifications for service quality

based on what they believe the consumer requires. However, this is

not necessarily accurate. Hence many service companies have put

much emphasis on technical quality, when in fact the quality issues

associated with service delivery are perceived by clients as more

important.

The third gap is the difference between service quality specification

and the service actually delivered. This is of great importance to

service where the delivery system relies heavily on people. It is

extremely hard to ensure that quality specifications are when a

service involves immediate performance and delivery in the

presence of the client. This is the case in many service industries:

for example, a medical practice is depending on all the

administrative, clerical and medical staff performing their tasks

according to certain standards.

The fourth gap is the difference between service delivery intention

and what is communicated about the service to customers. These

established expectations within the customer may not be met. Often

this is the result of inadequate communication by the service

provider.

The fifth gap represents the difference between the actual

performance and the customer perception of the service. Subjective

judgement of service quality will be affected by many factors, all of

which may change the perception of the service which has been

delivered. Thus a guest in a hotel may receive excellent service

throughout his stay, apart from poor checking out facilities. But this

last experience may damage his entire perception of the service,

changing his overall estimation of the quality of the total service

provided from good to poor.

The gap model outlined above provides a framework for developing

a deeper understanding of the causes of service quality problems,

identifying shortfalls in service and determining the appropriate

means to close the gaps.

3. What are the bases for segmenting in services marketing?

Explain with examples.

Answer

Bases for Segmentation

Market segments are formed by grouping customers who share

common characteristics that are in some way meaningful to the

design, delivery, promotion, or pricing of the service. Common

segmentation bases for customer markets are demographic

segmentation, geographic segmentation, psychographic

segmentation and behavioural segmentation. Segments may be

identified on the basis of one of these characteristics or a

combination.

Demographics and Socio-economic Segmentation

Demographic segmentation includes a number of factors including

sex, age, family size etc. Socio-economic variables may also be

considered here including income, education, social class and ethnic

origins. Many retail stores target different customer groups.

An interesting example of market segmentation is seen in the

banking patterns of consumers based on the lifecycle of the

household. Whilst other factors such as socio-economic level are

also important, the age and family composition of the lifecycle

concept are particularly valuable predictors of a household’s

propensity to either save or borrow.

An analysis of the stages within the customer lifecycle determines

what kinds of banking relationship are needed to meet the demands

of the household. These needs change significantly from a bachelor

who wants easy credit facilities and convenient transactions, young

married requiring higher levels of credit facilities, through to older

families at the peak of their earning and spending potential, and

then older families at the peak of their earning and spending

potential, and then older people without children at home who have

a higher propensity to save. A financial institution can therefore,

direct various service offerings to individuals based on their stage

within the lifecycle model.

Psychographic Segmentation

This form of segmentation cannot be explained in clearly defined quantitative measures. It is concerned
with people’s behaviour and ways of living. Psychographic segmentation is concerned with analyzing
lifestyle characteristics, attitudes and personality. Often these elements are examined in conjunction
with demographic variables. Service companies are increasingly starting to look at Psychographic
segmentation.

Geographic Segmentation

Geographic segmentation divides customers according to where they live or work and correlates this
with other variables. This is appropriate where customers’ needs vary in different areas, or where local
and regional trends favour particular types of services offerings.As geographic analysis is a relatively
simple means of segmenting a market, it is frequently one of the first segmentation variables to be
considered by a service firm. Geographic segmentation dimensions are typically grouped into market
scope factors and geographic market measures.

1. Market Scope Factors: include a consideration of where the

markets to be served are located: this maybe local, national,

regional or global. To be a major player in some service businesses

requires a regional or global presence for example, airlines wishing

to be significant players are recognizing this. Many airlines are

seeking increased scale of operations through mergers and strategic

alliances.

2. Geographic Market Measures: include examination of

population density, climate-related factors, and standardized market

areas. Geographic measures are especially important in the

selection of specialized mass communications media. Most mass

circulation media profile geographic coverage of standardized

market areas in detail as well as providing media circulation by type

of reader and other variables. Geographic market measures are

used to determine relative sales potential in different geographic

areas.

Benefit Segmentation

The segmentation variables listed above focus on the personal

attribute of the customer. Segmentation can also be carried out on

the basis of the customer’s response.

Benefit segmentation assumes that the benefit that people are

seeking from a given product or service is the basic reasons why

they buy the product. This differs from psychographic segmentation

which focuses on who will buy product. Identifying segments

seeking a common benefit permits the service provider to develop a

relevant offering. For example, various benefits are sought within

offer of a full range of service for varying needs. Another segment

looks for advantageous loans that can be borrowed easily at low

interest. A third segment may seek high savings interest with quick

service and a personal banking relationship. A fourth segment might

seek a one-stop bank with a wide variety of service, convenient

hours and quick service. A bank can direct its service to satisfying

one or more of these segments and gain a reputation for offering a

distinct package.

Benefit segmentation is applicable to almost all services as it

focuses on the underlying reasons for purchasing them. For

example, within the education market, consumers can be analyzed

based on the primary benefits they seek from the education

experience. An example of benefit segments used for categorizing

prospective MBAs can be identified from a survey of candidates.

Usage Segmentation

Usage segmentation focuses on the type and usage patterns.

Consumers are typically divided into heavy users, medium users,

occasional users or non-users of the service being considered. Many

services marketers are concerned with focusing on the heavy user

segment, who may consume many times more of the service than

occasional user. This is the basis of many fast food restaurants

which cater for high volume usage by providing speedy, low-cost

food.

Banks and building societies are concerned with heavy, medium,

light and non-users of their services. They wish to understand the

nature, behaviour and identity of heavy users and attract them to

their bank.

Promotional Response Segmentation

Promotional response segmentation considers how customers

respond to a particular form of promotional activity. This may

include response to advertising, sales promotions, in-store displays

and exhibitions. Users of mail order catalogues tend to be good

users of credit cards and will have a higher response rate to other

direct mail offerings. This information can be used by service

companies to ensure that this segment receives frequent

communication by direct mail, thus building a relationship with the

customer as well as obtaining a high response rate to promotions.

With loyalty segmentation, customers are categorized according to

the extent of the loyalty they exhibit to the particular product or

service being offered. Customers can be characterized according to

their degree of loyalty in the channels of distribution or outlets.

Some customers are very loyal to the services organization.

They are currently with the service provider even if they are not

happy with the service they are receiving. Customers are

sometimes divided into four categories according to consumer

loyalty patterns, ‘hard-core loyals’ (consumers who buy their brand

all the time); ‘soft-core loyals’ (who are loyal to two or three

brands); ‘shifting loyals’ (who shift from favouring one brand to

another); and ‘switchers’ (who show little sustainable loyalty to one

brand). The underlying reasons for these different behaviour

patterns need further analysis.

Segmentation by Service

One area which has received relatively little attention is the

consideration of how customers respond to varying service

offerings. This may be considered a subset of benefit segmentation,

but it is of sufficient importance to be addressed separately. The

various elements of customer service that can be offered, and

possible differentiation in terms of service levels within these

elements, represent a considerable opportunity to design service

packages appropriate to different market segments.

Segmenting markets by service involves addressing the following

issues:

•Can groupings of customers be identified with similar service

requirements?

•Can we differentiate our service offering?

•Do all our products require the same level of service?

The types of segmentation outlined above are illustrative of the

main forms of segmentation used by services companies. They are,

however, by no means exhaustive. To a large extent the

identification of segmentation bases involves the element of

creativity and those marketing services should constantly be

considering alternative ways of segmenting the market and seeking

ways in which they can alternative advantage over their

competitors. This stage of the segmentation process should result in

the selection of the best bases(s) for segmentation.

The segmentation process should result in one of the four basis

decisions being reached:

1. The service firm may decide to target one segment of the market.

2. The service firm may decide to target several segments and so

will develop different marketing mix plans for each segment.

3. Management may decide not to segment the market but to offer

the service to the mass market. This may be appropriate if the

market is very small and single portion would not be profitable.

4. Analysis may show that there is no viable market niche for the

service offering.

The relevance of market segmentation is now being increasingly

recognized in the service sector. A number of studies have pointed

to the importance of market segmentation. One study ranked

‘problems in recognizing, defining, understanding and segmenting

markets’ as the most important problem facing the senior

executives surveyed. Another survey ranked the segmentation as

the third most important marketing tool. However, despite the

recognition of the importance of market segmentation methodology,

some service firms are still basing their marketing strategies

methodology, some service firms are still basing their marketing

strategies and tactics on either aboard approach to the market, or a

relatively unsophisticated approach to segmentation. Many service

firms need to be more disciplined in their focus on their

marketplace.

Segmentation is at the heart of marketing strategy and is concerned

with the development of a market position that minimizes

competitor’s strengths and maximizes the strength of the service

provide. Segmentation and the associated steps of positioning

provide the opportunity to tailor the service offered to better meet

the needs of specific segments.

MK0006 – Services Marketing and Customer

Relationship Management

Assignment Set- 2

1a. Explain briefly the six categories of service innovation.

Answer: Christopher Lovelock has suggested six categories of

service innovation including the following.

1. Major Innovations: These innovations represent major new

marketing Examples: Cellular telephones and Open University

(Distance education). The risk and reward profile of such major

innovations is typically large.

2. Startup Businesses: There are new and innovative ways of

addressing current needs of customers and increasing the range of

choices available to them. Examples: Video Cassette hires. Some

innovations could fit into either of the above two categories.

3. New Products for the Market Currently Served: This allows

the service provider to use the customer base to the best advantage

and cross-sell other products. For example, the Automobile

Association established a core range of products related to car

breakdown services. The customer base is now offered to a range of

other car-related services, including car insurance, travel insurance

and map books. The technological change has increased the range

of opportunities for innovation and creativity, and is also responsible

for creating a market for products and service which consumers

may not have considered that they require. For example, automated

teller machines, electronic mail and desk-top publishing have each

resulted from technological development and crated consumer

demands which previously did not exist.

4. Product Line Extensions: These offer customers greater

variety of choices within existing service lines. This is typical of a

business in maturity, which already has a core market segment

which the service provider seeks to maintain.

5. Product Improvements: This usually consists of altering or

improving the features of existing service products.

6. Style Changes: These involve cosmetic alternations or

enhancement of tangible elements of the service product. The

development of a new corporate image or the introduction of

uniforms for bank counter staffs is examples of style changes.

1b. What is relationship marketing?

Answer: Relationship marketing (or relationship management) is

philosophy of doing business, a strategic orientation that focuses on

keeping and improving current customers rather than on acquiring

new customers. This philosophy assumes that consumers prefer to

have an ongoing relationship with one organization than to switch

continually among providers in their search for value. Building on

this assumption and the fact that it is usually much cheaper to keep
a current customer than to attract a new one, successful marketers

are working on effective strategies for retaining customers.

2. Give a detail note on customer relationship marketing.

Answer: CRM (Customer relationship management) which means

“The relationship management of a customer by an organization”

CRM means “The Goal of keeping the customers for the long term

benefit of an organization”

CRM means “Acquiring, Developing and retaining satisfied royal

customer, achieving profitable growth and creating economic value

in company’s brand”.

Finally CRM means “the establishing, the developing, the

strengthening, and the trusting of good values among the customer

for company’s brand.

CRM is not a new concept but an age old practice, which is on the

rise because of the benefits it offers, especially in the present

market scenario.

So, CRM today is a discipline as well as set of discreet software and

technologies which focuses on automating and improving business

process associated with managing Customer Relationship in the

areas of sales, marketing, customer service and support. It helps the

companies understand, establish and nurture long term

relationships with clients as well as help in retaining current

customers.

The most important step that an organization has to take in the

direction of CRM is to create an interdisciplinary team to review how

the organization interacts with each customer and determines how

to extend and improve the relationship.

Emerging concepts in CRM

•Increase in customer partnering

•Expansion of customer base

•Reduction in advertisement and other sales promotion

expenses

•Generation of more and more loyal customers

•Easy introduction of new products

•Reduction in customer recruitment cost

•Increase in customer partnering

•Increase in the number of profitable customer

Another emerging concept in CRM is maintaining and creating a

relationship with the existing customers and new customers.

Customer problems solving and timely attention of their grievances

and the politeness for the acceptance of the mistakes are caused by

the company. Many managers believe that customers are the key to

profitability considering the traditional organization. Moreover the

customer’s timely help in their problems and product based

descriptions will be present trend in the customers. The customers

are the main focal point for the organizations to sort out the

problems of the products, its growth, and its competition and so on.

Hence the customer is the deciders of the growth of the company.

Benefits of CRM to firm and customer

Benefits to firm
1.The firm takes a chance of retaining the value for the products

2.They do get a chance of retaining the value among the

customers.

3.Firm plays role on the development of themselves

4.Firm takes an opportunity to bring the best products and

competitiveness among them.

5.Firm stands as whole when the customer values are

maintained well.

6.Firm provides a wide scope for the customers in this regard.

Benefits to Customers

1.Customers have variety of choices of the company based on

the best play made by a firm regard to CRM.

2.Customers have a lot of companies to choose among

themselves.

3.Customer get a large amount of products list from the

renowned firms

4.Firms are very much keen on customers, so customers are

highly valued.

5.Companies have choices of products to be displayed for the

customer’s knowledge, so customers have own preferences.

6.Products shall be negotiated at the large price deductions on

the products.

3. Advise a newly started tourism agency to expand its

business at the same time develop its service marketing

expertise.
Answer: Whenever a newly started tourism agency wants to grow,

there are a lot of things to consider which are all as listed below:

The following points emerge regarding tourism marketing:

•Tourism marketing is a process of creating a product or

providing a service.

•Tourism marketing comprises fact finding, data gathering,

analyzing (marketing research), communication to inform and

promote (promotion), ensuring and facilitating sales, selection

of marketing planning ( distribution), coordination, control and

evaluation (marketing planning and auditing), developing

professionally sound personnel (people).

•Tourism marketing is an integral effort to satisfy tourist and

more so, it is a device to transform the potential tourists into

the actual tourists.

•Tourism marketing is the safest way to generate demand,

expand market and increase the market share.

•Tourism marketing is a managerial process to promote

business.

Through market planning, segmentation and marketing research, a

tourism marketing mix can be developed to achieve the tourism

origination goals through strategic marketing.

This apart a tourism agency also has to take care of the price mix,

promotion mix.

In the promotion mix, one can bring the attention of the customers

by means of advertisements and by improving public relations.

Sales promotions through brochures, point of sale displays and

videos play an important role. In a tourism industry one can offer

their clients some compliments in the form of bags, and others that

will surely increase the public interest in our agency.

The hotels offer a number of facilities like shoe shine clothes, first

aid sewing kits and shampoo, further, the clients also get fruits and

flowers in their rooms. There is no double that almost all the

promotional measures generates goodwill and add value to the

product.

Personal selling: The travel and hotel business depend

considerably on the personal selling. The developing of travel and

tourism has been possible due to well educated and trained sales

personnel.

People: The tourism industry depends substantially on the

management of human resources. The travel agents and travel

guides plays an important role and therefore the management of

people helps in developing their credentials to deliver goods to the

tourist organizations.

Tactical pricing is found instrumental in promoting the hotel

business. There are number of ways for practicing this tool:

i) Seasonal discounts: to charge lower prices, especially during off

season.

ii) Trade discounts: This is offered to tour operators and travel

agents.

iii) Special discounts: special function room rates for overnight

conventions.

This apart there are lots of other strategies one can use to develop a

tourism company.