Indira Gandhi National Open University School of Management Studies

Marketing of Services



UNIT 1 Marketing of Services: Conceptual Framework UNIT 2 Role of Services in Economy UNIT 3 International Trade in Services, The WTO, and India UNIT 4 Consumer Behaviour in Services 5 20 37 53


Marketing of Services: An Introduction

Course Preparation Team*
Prof. L.M. Johari FMS, Delhi University Delhi Prof. J.D. Singh IMI New Delhi Prof. P.K. Sinha IIM Bangalore Mr. Amrish Sehgal Bhutan Tourism Dev. Corpn. Bhutan Mr. D. Ramdas Management Consultant New Delhi Prof. M.L. Agarwal XLRI Jameshedpur Mr. Arun Shankar Citi Bank New Delhi Dr. V. Chandrashekhar Mahindra Days Hotels & Resorts, Bangalore Ms. Sudha Tewari Parivar Seva Sansthan New Delhi Mr. Pramod Batra EHIRC New Delhi Ms. Rekha Shetty Apollo Hospitals Madras Ms. Malabika Shaw AIMA New Delhi Mr. Saurabh Khosla Tulika Advertising Agency New Delhi Mr. Sanjeev Bhikchandani Sanka Information Pvt. Ltd., New Delhi Prof. J.B. Nadda Goa University Goa Mr. M. Venkateswaran Transportation Corporation of India, Hyderabad Prof. Rakesh Khurana School of Management Studies IGNOU, New Delhi Prof. Madhulika Kaushik School of Management Studies IGNOU, New Delhi Mr. Kamal Yadava School of Management Studies IGNOU, New Delhi

* The course was initially prepared by these experts and the present material is the revised version. The profile of the Course Preparation Team given is as it was on the date of initial print.

Course Revision Team (2004)
Prof. Ravi Shankar Course Editor IIFT, New Delhi Dr. Tapan K. Panda IIM, Khozikode Calicut Prof. B.B. Khanna Director School of Management Studies IGNOU, New Delhi Dr. Kamal Yadava Course Coordinator and Editor School of Management Studies IGNOU, New Delhi

Prof. Madhulika Kaushik School of Management Studies IGNOU, New Delhi Prof. Rajat Kathuria IMI, New Delhi

Dr. Rupa Chanda IIM, Bangalore

Print Production
Mr. A.S. Chhatwal, Asstt. Registrar (Publication), Sr. Scale, SOMS, IGNOU Mr. Tilak Raj S.O. (Publication), SOMS, IGNOU Ms Sumathy Proof Reader SOMS, IGNOU

June, 2004 (Revision) © Indira Gandhi National Open University, 2004 ISBN-81-266-1276-2 All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other means, without permission in writing from the Indira Gandhi National Open University. Further information about the Indira Gandhi National Open University courses may be obtained from the University’s Office at Maidan Garhi, New Delhi-110 068. Printed and published on behalf of the Indira Gandhi National Open University, New Delhi, by Director, School of Management Studies. Paper Used: Agro-based Environment Friendly Cover Design by: H.D. Computers, Inderpuri, New Delhi. Laser Composed by: ICON Printographics, B-107 Fateh Nagar, New Delhi-110 018


Printed at: Akashdeep Printers, Darya Ganj, New Delhi.



The first block of the course is concerned with the conceptual framework regarding services marketing and also gives the role of services in national economies as well as international trade. The block consists of four units. The first unit entitled ‘Marketing of Services : Conceptual Framework’ explains as to why marketing practices and applications need to be specifically evolved for services, as they are in certain characteristics distinct from goods. The unit deals with the concept of a service and its classifications, the difference between goods and services, the marketing implications of these differences and the service marketing mix. The second unit on ‘Role of Services in Economy’ brings about the importance of service sector in the national economies. The unit outlines details of international as well as Indian scenario. It also brings out brief details of some important service sectors in India. The next unit is on ‘International Trade in Services, The WTO, and India’. It outlines recent trends in international trade in services, provides an overview of GATS and India’s negotiating strategy and domestic reforms. The last unit of the block gives details of consumer behaviour in services.


Marketing of Services: An Introduction

MS-65: MARKETING OF SERVICES Course Components

1. 2. 3. 4. Marketing of Services: Conceptual Framework Role of Services in Economy International Trade in Services, the WTO, and India Consumer Behaviour in Services

5. 6. 7.

Product and Pricing Decisions Place and Promotion Decisions Extended Marketing Mix for Services

8. 9. 10.

Service Quality Managing Capacity/Demand Retaining Customers

11. 12. 13. 14.

Financial Services Tourism and Hospitality Services Health Services Case Study: Serving the Global Indian Issues in Social Destination Marketing India Marketing of Health Services

15. 16. 17. 18. 19.

Educational Services Professional Support Services: Advertising Agencies Telecommunication Services Product Support Services Case Studies 1. Is the Customer Always Right? 2. The Case of Dosa King.


After going through this unit you should be able to: define the concept of services, identify the reasons for growth of the service sector, explain the characteristics that distinguish services from products, explain the implications of these characteristics in terms of designing a marketing strategy, explain the ways in which services can be classified so as to develop frameworks for managing them, and identify the services marketing mix.

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 Introduction The Concept of Service Reasons for Growth of the Service Sector Characteristics of Services Services Classified The Services Marketing Mix Summary Self Assessment Questions Further Readings References

Economists have divided all industrial and economic activities into three main groups: primary, secondary, and tertiary. Primary activities include agriculture, fishing and forestry. Secondary activities cover manufacturing and construction; tertiary activities refer to the services and distribution. In the pre-industrialised era, primary activities were the mainstay of the economy. The Industrial Revolution marked the beginning of increasing importance of secondary activities and the gradually decreasing the status of agriculture and allied activities. The period following World War II saw USA become the world’s first ‘service economy’ with more than 50 per cent of the working population employed in producing services and today 80 per cent of the US economy is service-oriented. This led a New York Congressman to remark that America is becoming a nation of people who are “serving each other hamburgers or taking in each others’ laundry”. However, the US service industry is a very technical and sophisticated one comprising computer and software development, business consultancy, telecommunication, banking and insurance. This pattern of economic development is not universally applicable to all countries. In many African and Asian countries the agricultural sector is till the dominant one. In countries like India, we can observe the growing importance of the manufacturing and service sectors while agriculture still continues to retain its stronghold on the economy. The manufacturing and service sectors are growing not only in volume but also in sophistication and complexity. The


Marketing of Services: An Introduction

wide array of services found in the metropolitan cities in India compare favourably with those found anywhere in the world. Deniel Bell, in his book ‘The Coming of the Post-industrial Society’ called this period of dominance by the service sector as the post-industrial society1 . According to him: “if an industrial society is defined by the quantity of goods as marking a standard of living, the post-industrial society is defined by the quality of life as measured by the services desirable and possible for everyone.”

Widespread interest in the effective management and marketing of services as well as the inconclusive debate on how distinct is the marketing of intangible services from that of the tangible products, have enriched the literature by highlighting the service characteristics as that of intangibility, immediacy, individuality, perishability, heterogeneity, ownership, inseparability of production from consumption, and being experimental. In common parlance, these characteristics are also referred as: Services are performed, not produced. Services are more people-based than technology-based. Services supply cannot be easily changed to meet the suddenly changed market needs. Service demand has greater elasticity. Services face unique quality control issues and a larger number of problems in customer servicing. Service quality is an amalgam of services. Activity 1 If we take tangibility and intangibility as the opposite ends of a continuum, can you by looking around identify services which can be classified along this continuum? Think of the services utilized by you as an individual, as a family and as an organisation. ............................................................................................................................ ............................................................................................................................ ............................................................................................................................ ............................................................................................................................ The term service is rather general in concept, and it includes a wide variety of services. There are the business and professional services such as advertising, marketing research, banking, insurance, computer-programming, legal and medical advice. Then there are services which are provided by professionals but consumed for reasons not of business, rather for leisure, recreation, entertainment and fulfillment of other psychological and emotional needs such as education, fine arts, etc. Faced with such a broad spectrum we need to define the concept of service from a marketing view-point. Kolter offers one such definition: A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything.2 . Its production may or may not be tied to physical product. W.J. Stanton views services as fulfilling certain wants and states that, “services are those separately identifiable, essentially intangible activities which provide want-satisfaction, and are not necessarily tied to the sale of a product or


Table 1. there is no transfer of title (permanent ownership) to these tangible goods. since this will provide the clue for designing the most appropriate marketing strategy. Banking. However. A restaurant provides satisfaction to its customers on the basis of type and quality of its food. beautifully liveried waiters and a high-price menu. Recreation Cinema.1: List of Selected Services Marketing of Services: Conceptual Framework Utilities Electricity Water Supply Law Enforcing. It is important to correctly identify the particular want(s) which your service is fulfilling. Heinemann. when such use is required. ‘The Marketing of Services’. expensive meals to a ‘fast-food’ outlet providing quick. Finance Banks Share and Stock Brokers Business. Hotels Video Game Parlors Casinos Self-improvement Courses Miscellaneous Beauty Parlors Health Clubs Domestic Help Drycleaning Matrimonial Service Source: Adapted from Donald Cowell. The venture was a flop right from the start. To produce a service may or may not require the use of tangible goods. another service. London. Gymnasiums Restaurants.”3 As in the case of a product. in the case of services also your starting point for understanding the marketing dynamics is the want satisfaction of the customers. Professional and Scientific Activities Advertising Marketing Research Consultancy Accountancy Legal Medical Educational Research Maintenance and Repairs (of plants. On the advice of its marketing consultant. Civil. Theatre Clubs. For instance. Administrative and Defence Services Police Army Air Force Navy Judiciary Civil Administration Municipal Services (Sewage. machinery and equipment) Leasing Computer Programming Employment Agencies Leisure. ‘Class Touch’ was started as a restaurant serving exclusive Western and Chinese cuisine with an expensive decor. a live band. reasonably priced meals 7 . its decor and environment and the behaviour of its staff and its location in a busy commercial-cum office complex. the restaurant changed over from serving elaborate. maintenance of roads parks and public buildings) Transport and Communication Railways (Passenger and Freight) Air Transport (Passenger and Freight) Post and Telegraph Telephone and Telecommunication Broadcasting (All India Radio) Telecasting (Doordarshan) Distributive Trades Wholesale Distribution Retail Distribution Dealers. Agents Insurance.

................... Located in a predominantly office complex........................................ the growth of a specific service industry is the result of a combination of several reasons.................................... Thus....... ........ Sometimes.............. Increasing affluence combined with increasing complexity of life and increasing insecurity has led to the phenomenon of credit cards and travelers cheques which have proved to be almost perfect substitutes for money. As the basic need was fulfilled there was demand for improved satisfaction..................... you have to firstly.. The nature of services which these organisations are providing.............. It was the correct identification of the want-satisfaction which helped the restaurant become successful..... and this led to a proliferation of variations of the same product and a number of companies involved in its manufacture....... A clue to this can be provided by looking into the reason for the phenomenal growth of the service sector in recent times.................... To be successful.... with minimum frills and fancy................. .... They have limited time at their disposal and want a quick clean meal at a reasonable price......... the restaurant was satisfying the basic hunger need.................... Table 1........ Today this restaurant is a big success... the owners realised that in lunch-break................................... In our earlier example of the restaurant it was only after the basic need had been correctly identified that the restaurant could adopt an appropriate marketing strategy and turn the corner....... shelter and clothing.................... Activity 2 Study an organisation engaged in Marketing of Education and Training Services to describe: i) ii) iii) The need or want that these services satisfy. as a marketing manager involved in the marketing of services your first concern should be the identification of the customers’ needs.3 REASONS FOR GROWTH OF THE SERVICE SECTOR Manufacturing industries grew because they produced tangible goods which satisfied people’s physiological needs of food.........................................2 presents the reasons for growth of service industries.. How the services of these organisations are differentiated from those of their competitors? .Marketing of Services: An Introduction for consumption both within and outside the restaurant. In fact............ convenience is proving to be a key concept in the provision of services... find ways and means to differentiate it from that of the competitors so that you can increase your number of customers and also command their loyalty......... people do not visit a restaurant for relaxation or status satisfaction. In this case............... 8 ................. .................... and secondly........... These credit cards provide convenience and safety....... identify the basic need which is being fulfilled by your service... 1. Increasing affluence coupled with the desire to utilise leisure time for leisure rather than for doing odd repair jobs in the house had led to the growing tribe of plumbers and electricians.. The growth of service industries can be traced to the economic development of society and the socio-culture changes that have accompanied it..... but was catering to a very specific class of customer (office-goers) with a special kind of constraint (that of time and money)............

and J. Greater demand for recreation and entertainment facilities. employment services.2: Reasons for Growth of Service Industries Marketing of Services: Conceptual Framework Reasons 1 Increasing affluence Types of services required Greater demand for services (activities which consumers used to perform themselves) such as interior decoration. home computers. baby sitting. care of garden etc. The computer-sparked development of such service industries as programming. resort to time sharing rather than ownership basis.Table 1. 1. cars. Greater demand for purchased or leased services. K. adult education and self-improvement courses. 2 More leisure time 3 Higher percentage of women in labour force Greater life expectancy 4 5 Greater Complexity of products 6 Increasing complexity of life 7 Greater concern about ecology and resource scarcity 8 Increasing number of new products Source: Schoell. car rental. travel resorts. Ivy. Greater demand for specialists in income-tax. Greater demand for crèches. repair and time sharing. care of household products such as carpets. 1981 “Marketing : Contemporary Concepts and Practices. Some of the most commonly accepted characteristics are: a) Intangibility b) Inseparability c) Heterogeneity d) Perishability e) Ownership 9 . legal affairs. labour laws. travel.“ Allyn and Bacon. laundry. household domestic help Greater demand for nursing homes and health care services Greater demand for skilled specialists to provide maintenance for complex products such as airconditioners.T.F. Boston.4 CHARACTERISTICS OF SERVICES Services have a number of unique characteristics that make them so different from products. marriage counseling.

The distinguishing feature of a service is that its intangible aspect is dominant. American Marketing Association. But when you pay fees for a term in college. Figure 1. These intangible features are: A service cannot be touched Precise strandardisation is not possible There is no ownership transfer A service cannot be patented Production and consumption are inseparable There are no inventories of the service Middlemen roles are different The consumer is part of the production process so the delivery system must go to the market or the customer must come to the delivery system. A service is provided by a person who possesses a particular skill (singer).1: Goods Services Continuum Salt Soft drinks Detergents Automobiles Fast-food Cosmetics outlets Intangible Dominant Tangible Dominant Fast-food outlets Advertising agencies Airlines Investment Consulting Teaching management Source: G. by using equipment to handle a tangible product (dry cleaning) or by allowing access to or use of physical infrastructure (hotel. When you travel by an aeroplane. touch.Marketing of Services: An Introduction Intangibility When you buy a cake of soap. Inseparability In most cases a service cannot be separated from the person or firm providing it. Figure 1. feel. In this case the service has both a tangible and intangible aspect as compared to teaching which has hardly any tangible aspect.1 presents the tangible-intangible dominant aspect on a goods-service continuum. A plumber has to be 10 . Bateson has described the intangible characteristics of services which make them distinct from products4. “Breaking Free From Product Marketing. This continuum highlights the fact that most services are in reality a combination of products and services having both tangible and intangible aspects. There are only a few truly pure tangible products or pure intangible services. you are paying for the benefit of deriving knowledge and education which is delivered to you by teachers. Teaching is an intangible service. the benefit which you are deriving is a service (transaction) but it has some tangible aspects such as the particular plane in which you fly (and the food and drink which is served).” Journal of Marketing 41 (April 1977): 73-80. train). smell and use it to check its effectiveness in cleaning. In contrast to the soap where you can immediately check its benefits. J. there is no way you can do so in case of the teachers who are providing you the benefits. Lynn Shostack. you can see.

comfortable environment. the facilities may be all perfect. A service is purchased for the benefits it provides. refrigerator or car. but it is the people interacting with you who make all the difference between a favourable and unfavourable perception of the hotel. book. Human contact is minimal in the computerised reservation systems. restaurants. Thus. There is a peak demand time for buses in the morning and evening (office hours).physically present to provide the service. shirt. This is in direct contrast to products which can be produced in the factory today. You have to reserve a room in a hotel and this is a straight forward procedure for which all the steps are clearly defined. The doctor who gave you his complete attention in your last visit may behave a little differently the next time. Perishability Services cannot be stored and are perishable. Airlines. This is despite the fact that rules and procedures have been laid down to reduce the role of the human element and ensure maximum efficiency. a mixer-cum-grinder provides convenience. The only difference between products and services is that in the latter. However. spare berths on a train. the payment is not for purchase. hotels have large number of standardised procedures. Heterogeneity The human element is very much involved in providing and rendering services and this makes standardisation a very difficult task to achieve. the intangible component is greater than in the former. The successful marketing of both requires market research. If we closely examine the reasons why products are purchased. or unsold seats in a cinema hall represent a service capacity which is lost forever. the beautician has to be available to perform the massage. by paying wages you can hire the services of a chauffeur who will drive your car. From a marketing view-point. three or more months and sold when an order is procured. but only for the use or access to or for hire of items or facilities. This fluctuating demand pattern aggravates the perishability characteristic of services. etc. promotion and distribution. by paying the required charges you can have a marketing research firm survey into the reasons for you product’s poor sales performance. but when you go to the hotel there will be a person at the reception to hand over the key of your room. stocked for the next two. In case of a service. In the case of a service. Detergent powder provides the primary benefit of cleanliness. the other dimension of this perishability aspect is that most services may face a fluctuating demand. product design. banks. we find that they are bought because they provide certain intangible benefits and satisfactions. Apart from the fact that a service not fully utilised represents a total loss. By buying a ticket you can see the evening film show in the local cinema theater. the marketing Marketing of Services: Conceptual Framework 11 . The way this person interacts with you will be an important factor in your overall assessment of the service provided by the hotel. The rooms. for marketing services. The new bank clerk who cashed your cheques may not be as efficient as the previous one and you have to spend more time for the same activity. air-conditioners provide the benefit of a cool. Certain train routes are always more heavily booked than others. A car mechanic who has no cars to repair today. the food. the same concepts and techniques are applicable for both products and services. pricing. product planning and development. you may pay for its use but you never own it. Ownership When you buy a product you become its owner-be it a pencil. services can be treated as a special kind of product.

Work faster.g........ Mechanise and automate maximum possible operations. its physical representation) 2 Inseparability Learn to work in larger groups. Not possible to patent or have copyright Relatively difficult to promote. Increase tangibility (e..... Professionals such as doctors and lawyers have traditionally been opposed to the idea of marketing.. Activity 3 Looking at inseperability of the service and its producer as a major characteristic that distinguishes products and services. never felt the need for actively marketing their services.... Personalise service. Reduce role of human element..... musicians.. Donald.. 4 Perishability Cannot be stored.... are some other factors which have inhibited the active marketing of services. barber shops etc. Use brand names. Table 1. Geographically limited market Difficult to standardise quality.... Develop reputation.. therefore. Direct sale... hospitals and.... Heinemann............ Source: Cowell....3 describes the implications of characteristics of services and how the marketing strategy can be focused to overcome these constraints. These institutions have........ Table: 1. Train more service performers 3 Heterogeneity Careful selection and training of personnel..... The small size of many service organisations such as beauty parlours..3...... also limits the use of marketing techniques which can be successfully used in larger organisations and then there is the case of service organisations such as schools. Define behaviour norms.3: Implication of service characteristics and ways of overcoming them Service characteristics 1 Intangibility Implications Sampling difficult... you can imagine the implications for marketing the services of consultants............... . Besides the constraints highlighted in Table 1.. 12 ..... stage performers and advertising creatives.Marketing of Services: An Introduction manager must understand the nature of the five characteristics of services and the manner in which they impinge on the marketing strategy.... London..... ‘The Marketing of Services’. universities which enjoy more demand than they can cope with.. rather they have relied on the word of mouth of satisfied customers for increasing their clientele....... Means of overcoming characteristics Focus on benefits.... repair shops.. Better match between supply and demand by price reduction in low demand season Stress advantages of nonownership such as easier payment scheme. Limited scale of operations......... Requires presence of performer/producer.... Talk to some of these people or organisations to find out in what ways have they tried to overcome the marketing implications of inseparability. Difficult to judge quality and value in advance......... Problem of demand fluctuation 5 Ownership Customer has access to but not ownership of facility or activity.

..................... Table 1..................................... Transportation Intangible Action Services directed at peoples minds.. Table 1.............. Services can therefore be classified on the basis of whether the nature of the relationship is continuous or intermittent and whether a consumer needs to get into a membership relationship with the service organisation to access and utilise the service......... Utilizing different bases.......... Relationship between Service Organisation and Customers In the service sector both institutional and individual customers may enter into continuing relationships with service providers and opt for receiving services continually... physical possessions or assets.............. Salons.... ... these schemes allow us to understand the nature of the service act........ The Nature of the Service Act Using two dimension of tangibility of the service act and to whom services are directed at............ Let us discuss the schemes briefly.................................... Marketing of Services: Conceptual Framework 1.............. at minds..........................................................4 Nature of the Service Act Tangible Action People Services Directed At Possession Directed at goods....... the relationship between service organisation and its customers............. 1......................... Education Broadcasting Information Museums 2.5 SERVICES CLASSIFIED A larger number of classification schemes for services have been developed to provide strategic insights in managing them.... Lovelock5 has classified services according to whether services are directed at people or possessions......................... the nature of service demand and the attributes of a service product............5: Services and Customer Relationships Type of Relationship Nature of Delivery Continuous Membership Insurance Education Banking Theatre seat subscription commuter tickets Non Membership Police protection Public highway Discrete Car rental Pay telephone Restaurant 13 ...............................4 will help you understand this classification scheme....... Physical possessions Transportation Laundry/Dry cleaning Lawn care Services directed at intangible assets Banking Legal Services Insurance Accounting Services directed at peoples bodies Healthcare........... . Table 1. Restaurants...........

Proportion of Tangibility and Intangibility Using the characteristic of intangibility of services.6. Shostack6 proposed that all goods and services can be placed on a tangibility intangibility continuum. How the Service is delivered Lovelock has used two issues of number of delivery sites (whether single or multiple) and the method of delivery to classify services in a 2 × 3 matrix.Marketing of Services: An Introduction 3. Service Inputs Services based on this criterion have been classified as primarily equipment based or primarily people based service depending upon which input is primary applied to get service outputs. to getting access at convenient locations. the degree of convenience can go on rising. parks and museums etc. having very high intangibility content (Education. The equipment based services can be further classified according to whether they are fully automated. (Table 1. delivery van personnel) or need the presence of skilled personnel to man the equipment (quality control. educational and vocational institution.) Table 1.6 Service Delivery Modes Nature of Interaction between Customer and Organisation Customer goes to service organisation Service organisation comes to the customer Customer and organisation transact business at arms length Availability of outlets Single site Theatre Lawn care Pest control Credit cards Local TV station Multiple site Bus Service Fast Food Chain Mail delivery Emergency auto repair Telephone company Broadcasting 4. the marketing implication in this case being the necessity of physical presence of the provider as well as need to manage desired quality of personnel in case of high contact services. drycleaning and broadcasting while high contact services are education. from being able to choose desirable sites. Accordingly. diagnostics services). Examples of low contact services are telecommunications. Profit and Public vs Private Services Service can also be classified on the basis of whether they are primarily directed at public at large or primarily at individuals7. hospitality. Contact between the Consumer and the Service Provider Services also differ in the extent of contact that needs to be maintained between the User and Provider. Then implications here are that the convenience of receiving the service is the lowest when the customer has to come to the service and must use a single or specific outlets. On this basis all services can be classified as high contact or low contact services. services can be classified as those with a low intangibility content (a fast food restaurant) and a pure service. consultancy. As his options multiply. 6. The public services include utilities and infrastructural services like transport and communication. or consist of equipment monitored by unskilled persons (lift operators. 5. The private services on the other hand include the whole gamut of service designed 14 . theatre performance. depending upon the time a user needs to spend with the service organization/provider in order to utilize/acquire the service. 7. Medical advice). They also include services provided by the state for public welfare like hospitals. with services clustering towards low to high intangibility.

These are: People All human actors who play a part in service delivery and thus influence the buyer’s perceptions. volume and distribution of services when they are designed as public services. restaurants.e. 1981 15 . beauty care and medical advice. the process – on which a lot depends with regards to the final outcome as well as the overall perception of the service by the customer. The actual physical surroundings during these encounters have also a substantial bearing on the service delivery.H. (eds). Allowances Commissions Payment terms Consumer’s perceived value Quality/ Price relationships Location Accessibility Distribution channels Distribution coverage Advertising Personal Selling Sales Promotion Publicity Public relation Training Discretion Commitment Incentives Appearance Inter personal behaviour Attitudes Other customers Degree of involvement Customer contact Environment Polices Furnishings Procedures Colour. M. namely. Place and Promotion though essential. and Bitner.6 THE SERVICES MARKETING MIX The unique characteristics of services make the traditional 4 P marketing mix seem inadequate. It is during these encounter of service providers and customers i.J.g. Careful management of these 4 Ps – Product. in Donnelly J and George W.2: The Marketing Mix for Services PRODUCT PRICE PLACE PROMOTION PEOPLE PHYSICAL EVIDENCE PROCESS Range Quality Brand name Warranty Post Transaction service Level discounts. depending upon the marketing objectives to be pursued in the exchange of services. Physical evidence Figure 1. the firm’s personnel. and other customers in the service environment The environment in which the service is delivered and where the firm and customer interact. the contact personnel or the service delivery personnel become extremely important. are not sufficient for successful marketing of services. Since services are produced and consumed simultaneously. AMA. Marketing of Services: Conceptual Framework 1.for and consumed by customers as individuals for e. Price. B. Services have also been classified by Kotler8 as services designed for profit and non profit services. Marketing of Services. Mechanisation Layout Employee Noise levels customer Facilitating involvement goods Flow of Tangible clues activities Source: Booms. Involved here are issues of process. Marketing Strategies and Organisation Structure for Services Firms.R. and any tangible components that facilitate performance or communication of the service. Further the strategies for the four Ps require some modification while applying to services. the customer. private consumption.. All these facts lead to the development of an expanded marketing mix with three new P’s added to the traditional mix. The implications underlined by this classification manifest themselves in issues regarding planning and design of service for public vs.

16 . Usually. but not necessarily all marketing activities performed by the firm) can plan and implement most of the marketing activities i. Figure 1. it doesn’t have the necessary authority to manage the buyer/seller interaction. 1. The reasons for growth in service industries include increasing affluence. However. The marketing department. The total marketing in services include three different types of marketing as shown in Figure 1. Marketing of services need a different treatment because of the unique characteristics of services that distinguish them from tangible goods. all three sides are critical to successful services marketing and the triangle can’t be supported in the absence of any one of the sides.the service delivery and operating system Because of the simultaneous production/delivery and consumption of services. These characteristics are intangibility. the nature of marketing departments and marketing functions become quite different as compared to goods.7 SUMMARY The term service is rather general in concept and includes a wide variety of services.3. the traditional marketing mix and marketing departments basically address to ‘External Marketing’ only. cannot plan and implement activities pertaining to interactive marketing function. mechanisms and flow of activities by which the service is delivered .Marketing of Services: An Introduction Process The actual procedures. Therefore the marketing function. which is a key function in service sector require a special treatment. A traditional marketing department in services can only control a minor part of the marketing function. The service sector has grown substantially in all the developed economies as well as in India. Services are essentially performance. more leisure time. marketing departments (the organizational entity which is responsible for some. the marketing department is able to control almost the total marketing function. greater life expectancy. The marketing function all activities which influence the preferences of the consumers towards the offerings—is mainly handled by marketing departments in case of goods. In the service sector the situation is entirely different. increasing complexity of life etc.3: The Services Marketing Triangle Company (Management) Internal Marketing Enabling the Promise External Marketing Setting the Promise Providers Interactive Marketing Delivering the Promise Customers As can be seen from the triangle. therefore. Here as far as consumers are concerned.e.

Direct sale Q. price. Limited scale of operations 2. A number of classification schemes for services have been identified and discussed to provide strategic insights in managing them.inseparability. Primary. except: 1. The unit ends with the identification of the service marketing mix which includes product. Sampling difficult 2. 5) Attempt the following objective type questions: Q. heterogeneity. USA and Japan 4. process and physical evidence. Relatively easy to promote 4. Those countries which participated in the World War-II 2.2: The first service economy of the world was/were: 1. Primary only Q. people. promotion. Secondary and Tertiary 4. 2) How do services differ from products? What are the marketing implications of service characteristics? 3) Explain the different classification schemes for services giving suitable examples. place.5: The marketing solution to the problems posed by service characteristic “Intangibility” are all of the following. Requires presence of performer 4. The unit discussed their marketing implications and means of overcoming them. Not possible to patent or to have copyright Q.4: Marketing implications of the service characteristic “Inseparability” are all of the following. Primary and Secondary 2. Create “world-of-mouth” 17 .1: In the pre-industrialised era which activity/activities are/were the mainstay of the economy? 1. 4) Briefly discuss the services marketing mix and the services marketing triangle.3: Marketing implications of the service characteristic “Intangibility” are all of the following.8 SELF–ASSESSMENT QUESTIONS 1) What do you understand by the term ‘service? Describe the reasons behind the rapid growth of service sector. Japan and United States Q. Marketing of Services: Conceptual Framework 1. Increase the production of service 4. USA 3. Use of brand name 2. except: 1. Geographically distributed market 3. Secondary and Tertiary 3. except: 1. perishability and ownership. Russia. Difficult to judge quality and value in advance 3. Increase the tangibility 3.

2 8. 2000. 1998. banking services are examples of: 1.10: From the point of view of the service delivery and type of relationship fast food outlets are the examples of: 1. 1 1. 2 5. Beauty Parlors 3. Develop reputation 2.8: Which one out of the following is not the example of the services organisations where service provided is a tangible action directed at the customer’s bodies: 1. Service Management and Marketing. Education 4. Information 4. None of the above Q.Marketing of Services: An Introduction Q. Principles of Services Marketing. Work faster 3. Non continuous and non-membership 3. Match demand to supply 3. New York. Continuous and membership Q. 4 7. 3 3. John Wiley. Continuous and membership Q.7: The marketing solution to the problems posed by service characteristic “Perishability” are all of the following. Health Service Answers: 1. Continuous and non-membership 4.9: From the point of view of service delivery and type of relationship. 1 2. Discrete delivery and membership 2.6: The marketing solution to the problems posed by service characteristic “Inseparability” are all the following. Discrete delivery and membership 2.9 FURTHER READINGS Adrian Palmer. except: 1. Increase tangibility 2. Train more service performances 4. . 4 4. Continuous and non-membership 4. Theatre 2. Differential pricing to create demand during low demand periods 4. Hospital 2.11: Out of the following. 3 9. which one is the example of a service delivery mode in which the service organisation goes to the customer: 1. 2 10. Learn to work in large groups Q. 3 11. 18 Christian Groonross. Mail Delivery 3. (New York: McGraw Hill).2 6. Non continuous and non-membership 3. Transportation Q. except: 1.

Cowell. London 2. “Do We Need Services Marketing”.J. 41. Ravi Shanker. Prentice Hall Englewood Cliffs. (New Delhi: Prentice Hall of India).Lynn. 2000. Strategy. Christopher H.2000. Marketing Consumer Services. 19 . Shostack. No. Hinemann. (Oriando: Dryden Press). Philip Kotler. 8. 4. 1977. (III ed). The Marketing of Services. 1995. Bell. Payne: Essence of Services Marketing. Marketing of Services: Conceptual Framework 1. Technology. Vol. Douglas Hotfman John E. Managing Services Marketing. Bateson. Donald W. Ibid. (New Jersey: Pearson). N. New York. Bateson.2. (7).” (New Delhi: Excel Books. McGraw Hill. G. 1989. 1991. “Marketing Management – Analysis Planning and Control”. 1985. Valarie A. Boston 1977. Love lock. (Orlando: Harcourt College Publishers).Christopher H. 3. “Journal o f Marketing”. Teresa A. 2002). “Services Marketing”. Stanton. Prentice Hall of India Private Limited: New Delhi.J.10 REFERENCES 1. 2001. Lovelock. Daniel “The Coming of the Pass Industrial society” as qusted in Cowel Donald. The Marketing of Services. 6. Piet Van Helsdinger and Wonter de Vries Jr. “Services Marketing: Text and Readings.. Swartz and Dawn Iacobncci. Services Marketing: People. 1981. W. Report 75-115. John E. Breaking Free from Product Marketing. Hans Kaper. Marketing Science Institute. Philip. Batesou J. 7. New Insights.G. (New Delhi: Sage). Services Marketing Management (New York: John Wiley). Kotler. Tata McGraw-Hill). Essentials of Services Marketing. “Fundamentals of Marketing”. K. G. 1991. Handbook of Services Marketing and Management. Zeithaml and Mary Jo Bitner. 5. 2002. 1999. 1996. (New Delhi. Services Marketing. (London: Heineman).

increased specialization has led to greater reliance on specialist service providers at international level e. health services and information technology.3 2. especially after the end of World War II. This has been fuelled by the rapid changes brought by new information technology. the international scenario showing the contribution of services sector. and identify key service sectors and discuss their present scenario. In addition to these factors. advertising and market research.Marketing of Services: An Introduction UNIT 2 ROLE OF SERVICES IN ECONOMY Objectives After going through this unit you should be able to: explain the International scenario regarding service sector and trends in service trade.5 2.7 Introduction International Scenario Service Sector in India Analysis of Specific Service Sectors Summary Self Assessment Questions Appendix : Service Tax in India 2. There are number of reasons for this growth in service sector which have been discussed in the previous unit (Unit 1). The next section of this unit details the Indian scenario and the growth in specific sectors like. Today services are increasingly being used by corporate as well as household sector. 20 . market research to maintenance services. From education to entertainment.1 INTRODUCTION The unit beings with an introduction on how globalization has given a boost to the services sector. travel and information services. and the emerging national scenario on services. Services are extensively used by people day to day in all aspects of life. understand how India is also becoming a service economy. Today households as well as firms are demanding more services as well as services of increasing quality and sophistication. Structure 2. travel to telephone.6 2. This resulted in a number of new projects fuelling the demand for financial services. and retailing to recreation…and so on. Thereafter. role of WTO and the share of services sector in the world trade. employment in service sector. Globalization of economies has led to an increased demand for communication. advertisement to amusement parks. financial services. had to be carried out to bring the war torn economies back to strength. to the GDP of various countries across the globe. The explosive growth in this sector started in the 20th century.. finance to fast food.4 2. Due to large scale destruction during the war lot of economic activities. as against agriculture and industry. Also. has been described. globalization has resulted in growth of service sector as well. tourism. telecom services.1 2. This section also covers Service sector liberalization.g. Globalization has also made increased and new demands on legal and other professional services.2 2.

1: The growing importance of service sector in industrial societies 100 % of Output and Employment Primary Primary Manufacturing Manufacturing Services Services 0 1700 1800 YEAR 1900 2000 Source: J. sale of computers leads to demand for training services and after sales services. Geruhuny and I. exports of any manufactured goods would require sale of insurance. 21 . As the economies shift from developing to developed stage they will show more and more shift towards services. Role of Services in Economy Figure 2. that of service sector has been increasing at a fast pace. The New Service Economy. The economies of other developed countries are also dominated by services. However. financial services and transportation services. In fact services and manufacturing are positively linked to each other. 1983. Service industries depend a lot on manufacturing firms for a significant share of their sales. An automobile manufacturer may outsource number of service activities like transportation. The sale of consumer durables require ongoing need for servicing. At times it is argued that growth in services is at the expense of manufacturing sector of the economy. In US economy. warehousing. London. information processing etc. it is not true. marketing research. This trend of growing dominance of services has been so strong that some people term it as the Second Industrial Revolution.1 that while the role of agriculture has been reducing in the economies of industrial societies. legal services. ‘The Competitive Advantage of Nations’ identified three distinct links between manufacturing and services as explained below: i) Buyer/supplier relationship: Many service industries have come into existence through the de-integration of service activities by manufacturing firms. ii) Services tied to the sale of manufactured goods: Sale of a wide variety of manufactured goods creates demand for associated services. education and training of its employees. Miles.It is quite obvious from Figure 2. Micheal Porter in his book. the fastest growing segment is services.

Trade in services also benefits developing countries greatly.A Taiwan Services 71 71 68 50 54 59. a 1/3rd cut in global barriers to trade in services would increase US annual income by $150 billion ($ 2.2 INTERNATIONAL SCENARIO The tremendous growth of service sector has resulted in its increased importance to the world economies. Australia. Also provision of a service requires a lot of manufactured goods. Total elimination of barriers in services would raise US annual income gain by over $ 450 billion ($ 6. The benefits of a modern services sector reverberate across an entire economy. The infrastructure of modern and growing economies and the gains made from liberalizing trade in services and agriculture are enhanced with open service sectors. 2. 2002 (Estimates) GDP Country Denmark France Germany India South Korea Russia Nigeria Switzerland U. US service sector contributed 54% of GDP.Marketing of Services: An Introduction iii) Manufactured goods tied to the sale of services: This link is reverse of the previous one. Table 2. leaders of major global service industry associations representing the EU.6 20 34 18 31 Agriculture 3 3 1 25 4. Highly developed countries all have more than 50% of GDP and employment derived from services. Hong Kong. and with the increasing trend in the use of services it now generates 80% of the GDP.4 5. According to University of Michigan study. and Japan called for urgent progress in the multilateral liberalization of trade in services.8 45 2 12 2 Source: The World Fact Book 2003. up from 55% in 1950.6 35 64 80 67 Industry 26 26 31 25 41. touching 22 . As countries develop. Most of the absolute growth in number of jobs in US in recent years is in service sector.380 per family of four).6 34.100 per American family of four).gov Service sector dominates the economies of other developed nations as well. A particular characteristic of the development of service employment over time is that it is less sensitive to business cycle fluctuations than other types of employment.1: Sectoral Distribution of GDP (in %). As early as in 1948. the role of agriculture in the economy declines and that of services rises.cia. for example sale of engineering or management consulting from a nation can lead to demand for equipment and other associated manufactured goods from that nation. The sale of certain services leads to demand for manufactured goods. www. Apart from US.S. The service sector comprises 80% of US employment.

governments are spending more than 15 per cent of GDP.esf. in health and education alone. 1. the WTO. services account for a larger portion of virtually all the world’s economies. Disputes Settlement Procedure The WTO disputes settlement procedure allows one member state to challenge the domestic laws of another and provides a mechanism for changing the ways in which governments regulate and subsidize public services. More than half of all global flows of foreign direct investment are now in the services sector. services. 2.1%. The WTO hopes to open the public funding streams which pay for public services for commercial exploitation. services account for 69% of economic output. As profits in manufacturing industry are falling. For example. In many European countries. Modernizing services can help developing countries jump start the economic growth necessary for reducing poverty. for example) is essential to growth and development in any country. Role of Services in Economy 23 . The broad objective of the summit was to expand private markets by removing barriers to the global movement of goods. The WTO is devising the international laws and regulatory frameworks which will enable to open up public funding pools and public services to the market. US and European governments use the WTO to promote the commercial interests of their transnational corporations. The service sector is the fastest growing part of the economy in many developing countries. with a major focus on public services. the corporate lobby is targeting the proportion of gross domestic product that governments spend on public services. often with local partners. Even in low income countries. to direct foreign competition and ownership. services. The next unit of this block discusses the issues related to international trade in services. European Commission proposals focus to unlock ‘new potential markets’ by extending private firms’ involvement with public services and by creating contracting rules to ensure ‘acceptable returns for investors’. liberalization of services trade is therefore clearly in the interest of developing countries. while agriculture accounts for 2. services account for an average of nearly 50% of GDP. like education and health care. and capital. Access to modern services (financial. which they see as the source of economic prosperity. professional and infrastructure services. This investment is normally in the form of investment in local companies. The US is committed to making mandatory a disputes system which outlaws subsidies and regulations which are not market-friendly. Procurement Reform WTO devised it to supply the legal and regulatory framework within which public bodies contract for goods. the WTO has two other devices crucial to opening up public services and their funding pools.every product. (Source: http://www. In addition to GATS. with agriculture representing 23%. Procurement reform is a primary mechanism for opening up public services to international competition. and India in Service Sector — Role of WTO WTO’s 134 trade ministers met in Seattle Summit (1999). and investment funds. idea and consumer. While the value of trade in services is well below that of merchandise trade. with the World Bank reporting that services account for 54 per cent of their GDP. WTO commitments are vital to attracting this investment. The General Agreement on Trade in Services (GATS) opens up service provision. In the OECD countries.

Table 2.4 21. Japan.5 10.0 18...7 2..3 141.1 . 15 -5 12 0 6 . Germany...2 2... As per 1999 figure India ranked 25th in exports of commercial services valued at U.2 4. 15 -2 28 6 2 ..2 65. 5 5 -3 16 1 -3 .2 560.6 3. The Third World countries are net service importers too.6 47.. Table 2.0 8.7 11 13 3 1 -3 1 .3 30.5 ..4 2. You may visit the WTO website to find out further details on the regional shares in world trade in services..9 3. 4 -1 4 -8 2 21 .2: World exports of commercial services by category.2 and Table 2.. 6 15 20 3 9 11 23 2 5 . 1.0 Annual percentage change 1995-00 2000 2001 2002 16..3 28..$ 17....4 5. 19.2 billion.8 17.5 13 5 12 -2 8 8 11 -1 24 Germany .2 7.4 34.4 7.S. valued at U.5 9.6 12. 8 9 38 8 14 ..S.7 7.3 75. 12 11 41 3 -1 ...Marketing of Services: An Introduction Leading Exporters and Importers in commercial services Besides the US most of the West European countries as well as Mediterranean countries are net exporters of services. -2 10 .0 22. China Belgium Spain Canada India Austria Singapore Above 15 Importers United States 86...9 billion and ranked 21st in imports.0 Annual percentage change 1995-00 4 3 3 6 2000 6 7 4 7 2001 0 -1 -2 2 2002 6 4 4 9 Table 2.8 19.5 2. 20 0 ..5 0.4 23..1 54.0 3.4 2.1 4.7 23.7 2.. 2002 ($ bn and percentage) Share in world exports/imports 1995 2002 Value 2002 Exporters United States United Kingdom Germany Japan France Netherlands Ireland Italy Hong Kong.3 give details of international trade in services..2 33.9 2.8 7.3: Leading exporters and importers of other commercial services.0 25.. 8.7 18..2 84. most of the South East Asian countries.1 11.7 41.7 37.5 3.5 .2 3. 2002 (Billion dollars and percentage) Value 2002 All commercial services Transportation Travel Other commercial services Source: WTO 1570 350 480 740 Share 1995 100.$ 13. 4. and Canada are net importers.1 19.1 2002 100.4 2.1 17. -5 17 ..6 2.

Accounting. 1 -6 7 2 5 6 1 .0 21.. However.1 2. 25 .4 34. Entertainment Specialty Stores..0 10.1 3.9 3.. -4 8 . 14 10 10 10 5 2 12 . Advertising. 5.0 15...7 0 10 . 0 -2 5 10 6 8 2 .. services today are the largest and most dynamic component of both developed and developing country economies..9 34.. p 225.9 4.4 12.. Health Care Services and Hospital Management.2 2. Table 2..5 . 1990..5 .3 3. Money Management Trading.K. -1 -4 . 1 8 14 5 16 9 14 12 -4 24 . For most of these countries service sectors are recognized as strategic to their development and consequently.0 17..4 shows pattern of international leadership in different service industries. -6 6 .4 485. Republic of Sweden Above 15 Source: WTO 48. Education and Training..7 5..6 4. 2.6 30.0 5.5 2..2 3...2 1.1 4.5 2.7 21. are subjected to intensive regulations. Hotels. Money Management. Auctioneering..4 21.8 70. Car Rental..9 30.2 2. 9 0 .. Trading.. Table 2. Switzerland Italy Germany Source: Adapted from ‘The Competitive Advantage of Nations’.. Advertising...4 2. 7. for most developing countries service industries are at various stages of development ranging from low to intermediate. 10 11 .. Information.1 5. Michael Porter.4 4.. Ranging from architecture to telecommunications.5 4..1 17. in his work “The Competitive Advantages of Nations” has suggested that nations exhibit strikingly different patterns of national competitive advantages in services as they do in manufactured goods. Commercial Banking. For a greater number of developed countries services industries have grown to a level of definite competitiveness in international trade whereas their competitive advantage in merchandise has started to recede. Commercial Banking.Japan United Kingdom Ireland Italy France Netherlands Spain Austria Canada China Belgium Korea. 26 7 . financial to health services and beyond.0 1. Money Management Design Services Money Management U.. Michael Porter. Role of Services in Economy The composition of service exports is very different from country to country.4: Estimated leading positions of National Competitive Advantage in International Service Industries Country USA Leading Position in Industry Fast Food.8 30.4 . Trading.

1% in 2002-03 (RE).1 per cent in the respective years.90 5. Table 2.63 1192. and grown quite impressively through the 1990s (except in 1998-99).5: World Service Exports and India’s Share Year Total world India’s service India’s share in service exports exports in $ bn world services $ bn exports 807.57 0. otherwise the service sector grown will not be sustainable.60 4. Manmohan Singh.57 0.99 1250.33 1435.38 per cent to 21.20 17. But.60 20.67 0.51 0.00 6. the service sector’s contribution in GDP has sharply risen and that of industry has fallen.79 943. The agricultural sector’s share has fallen from 30. Service sector growth must be supported by proportionate growth of the industrial sector. India’s service exports are recorded $ 20.00 1540. The details of service tax in India have been given in Appendix at the end of this unit. In 2002. it is equally true that the industrial sector too has grown.40 1.80 7.125 crores. The growth in the services sector has averaged 8. The corresponding increase in revenues from services tax has been from Rs.43 1321. In contrast.57 0.90 4.93 per cent to 22.01 844. Three times between 1993-94 and 1998-99.30 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: WTO The share of services in the country’s GDP was 56.80 11.70 0. industry surpassed the 26 .53 0.40 20.58 0.00 1460.00 4. economic growth can be distorted.40 1052.3 SERVICE SECTOR IN INDIA The service sector is also assuming increasing importance in Indian economy.00 8.8 per cent in 1990-91 and 2002-03 respectively.20 1.Marketing of Services: An Introduction 2.60 bn in 1990.10 13.5 per cent during the period 1994-2000.84 0. a growth of 350%.00 6. It is true that. the industrial sector’s share in GDP has declined from 25. 410 crores to 4.43 1333. The rise in the service sector’s share in GDP marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy. the then Union Finance Minister.70 bn. as against $ 4. in his budget speech for the year 1994-95 introduced the new concept of Service Tax. up from the 51. The number of services being taxed has increased from 3 in 1994-95 to 51 in 2002-03. In line with the global trend. If the service sector bypasses the industrial sector. the services sector in India is growing rapidly.00 1313.56 0. Dr.83 960. in India.5% recorded in 1998-99 and 36% in 1980-81.99 1.

from 1993-94 to 1999-2000. police officers and public servants contribute to their daily lives.3% Financing. Insurance Real Estate and Business Services 12.36 crore from 98 lakh. All this – and more – is India’s service economy. In the hotel and restaurant sector employment increased to 3. insurance.68 crore and in the transport. real estate and business services sector. Hotels. Social and Personal Services 13. Source: Rohit Saran. They go to beauty salons for hair cuts.8% Construction 5.2 gives the major groupings and their relative share in Indian economy. They take their clothes to dry cleaners. An INDIA TODAY – ORG MARG poll shows that a majority of middle class families want their children to work in the services sector. India Today. their cars to mechanics.2: Service Share by Sub-sectors % of GDP. One in every two Indians earns his livelihood by providing services. India is a signatory to the General Agreement on Trade in Services. electricians. accountants. Lawyers. To maintain their health and well being they turn to doctors. including unemployment and poverty. February 19. nurses and dentists.1%) Trade. 46 lakh from 33 lakhs in this period. Figure 2. school teachers. India should explore all possibilities to export services which might solve its economic problems. gardeners. their dogs to veterinarians. employment increased to over. 27 . The service sector is further subdivided into several groupings.75 crore from 2. Transport and Communication 24. The rise of the service sector therefore does not distort the economy. and is actively engaged in seeking full opportunities for free movement of “natural persons” on a temporary basis as non-residents across borders to enable it to supply services globally. it increased to 1.3% Source: RBI Annual Report 2002-03 Employment in Indian Service Sector Exhibit 2. Role of Services in Economy Figure 2. the financial. Restaurants. interior decorators and architects. 2002-03 (Revised Estimates) Service Sector (56. Thus. 2001 The importance of service sector in Indian economy can be further gauged by the fact that the majority of new employment in the organized sector has come in the service sector only. Growth Engine. According to economic survey.1 Services Sector : The growth Engine Indians eat out more than ever. plumbers. storage and communication services sector.7% Community. the service sector has grown at a higher rate than industry which too has grown more or less in tandem. Outside the home. stock brokers and insurance agents help keep finances and personal affairs in order. For home they hire maids.growth rate of GDP.

The higher growth of employment in service sector is partly because with the growth of economy and technological developments. Russia and in South East Asia and are now penetrating the Western world. super-specialty hospitals specializing in both modern and traditional Indian medical systems like Ayurveda. The entertainment industry.4 ANALYSIS OF SPECIFIC SERVICE SECTORS The fact that the service sector now accounts for more than half the GDP probably marks a watershed in the evolution of the Indian economy.167 Table 2. Total employment in the organized sector in the last 30 years has increased by around 59%. and also export of manpower even to the western world. Total Agriculture etc. gas and water etc Construction Services 2001 27790 1433 954 6443 987 1138 16835 1991 26734 1447 1099 6333 945 1222 15689 1981 22879 1321 948 6047 718 1161 12684 1971 17473 1074 586 4761 481 1019 9552 Source: Statistical Outline of India. are attracting patients from across the world. are well known.6 gives statistics of employment in organized sector in India. but also a foreign exchange earner by way of NRIs and foreign students enrolled in major medical. There is immense scope for India to undertake project and management consultancy. Mining and quarrying Manufacturing Electricity. and R&D in various disciplines. Indian films are popular across West Asia. With the changing pattern of Indian economy. the increase in employment in service sector in the corresponding period has been around 76%. particularly films and TV.6: Employment in organized sector by industry division (Figure in ‘000) For the year ending March 31. and its booming IT software exports which now account for 2% of the GDP. and constitute a significant segment of India’s services sector. technological and other institutions in India. 2003-04. and interested parties from across the world are welcome to tap these and other capabilities available in abundance in the country. manned by highly qualified and experienced personnel.cure supported by state-of-the-art equipment. Afghanistan. India’s high capabilities in Information Technology. Central Asia. which happen to be among the fastest growing in the world. has been providing varied consultancy and other services to the world. a smaller proportion of work force is needed by the manufacturing sector. Tata Services Limited p. and nature. The tourism industry in the country is well equipped.Marketing of Services: An Introduction Table 2. Education is another field which is not only a huge segment of the services sector within the country. the second largest scientific and technical manpower in the world. repair and maintenance work pre-publishing services. Unani. 2. and also fast growing to offer 28 . a shift in employment pattern is bound to happen. India. India’s health services.

Indian banks have repositioned themselves as universal finance solution provider with capabilities ranging from investment banking to project financing. A distinct feature of Indian Financial System is the dominance of public sector institutions in practically all areas like banking.54 Earnings (US$ Billion) 1. Financial Services The role of financial services in stimulating and sustaining economic growth is well known. At the end of March 2002.tourists with diverse interests and means. and export financing on the corporate side. Table 2. p. and liberalized regulatory norms followed by RBI.107 crores in 2001-02. One of the most important segments of the financial system is commercial banking. We will now discuss some of the prominent service sectors in brief. 279.7 gives the details of foreign tourist arrival in India and earnings from tourism. and from providing loans to selling 29 .861 crores in 1995-96 to Rs.936. With an emphasis on retail finance and growing use of new technologies.3 percent over 2002. India is a one-stop destination for any tourist wanting a kaleidoscopic experience of life in its entirety.04 Source: Statistical outline of India 2003-2004 . The saving deposits with the commercial banks have shown a steady rise from Rs. A record 2. all the services needed to make their visit memorable.8 million tourists made their way from various parts of the world to India in calendar 2003. the private banks have been using technological advances in every sphere of banking to up the performance levels. term lending and insurance. India. registering a rise of 15. This sector is today second largest foreign exchange earner for India. 196 Regional rural banks.51 2. Table 2. 101.5 million Indians traveled abroad accounting for a rough 30 percent growth. cultural.490 in 2002 bringing in a corresponding increase in number of hotel rooms available from 21.80 1. TSL.98 Marketing issues specific to Hospitability and Tourism services and detailed data regarding this sector will be covered in Unit 12.40 1. 52 scheduled urban co-operative banks and 16 scheduled state co-operative banks were operating.581 to 80. as a subcontinent with varied geographical. while as many as 4. ethnic.71 2. climatic. Hospitality and Tourism Tourism has become the world’s largest employer and this sector is one of the world’s largest economic forces with more than 200 trillion dollar yearly.29 2.96 3. The last two blocks of this course are devoted to sectoral applications of services marketing concepts discussed in the first three blocks. The number of government approved hotels increased from 348 in 1980 to 1.7: Foreign Tourist Arrivals and Earnings from Tourism Role of Services in Economy Year 1980 1990 1996 2001 Foreign Tourist Arrivals (Million) 0. religious and social strands intertwined. 97 commercial banks. With the opening of the banking sector to the foreign competition.

3: Investment in Telecom in Plan Periods Telecom plan outlay 450 400 350 300 250 200 150 100 50 0 % of National Plan Outlay 14 12 10 8 6 4 2 0 Rs. 1996. Vol. Figure 2. retailing. At the beginning of the seventh five year plan in 1985. the growing use of telecom in services like banking. Indian Banks 99347 112570 136770 160889 187173 217452 272119 Foreign Banks 2514 2875 3194 3836 4727 5530 6988 Total 101861 115445 139964 164725 191900 222982 279107 insurance and mutual funds on the retail side. health. 406 billion. p. 990 billion. maintenance and development of telecom services. The outlays on communication (including IT) during tenth plan was Rs.9 per cent in the eighth plan amounting to a whopping Rs.8: Saving Deposits with Commercial Banks (Rs. More details about the financial services sector will be taken up in Unit 11. Crores) Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 Source: India infoline.Marketing of Services: An Introduction Table 2. which was 2.5 per cent of national plan outlay during the sixth plan. trading. The plan outlay for telecom sector. Today. the then government decided to focus on improving the telecommunication sector and constituted the Telecommunication Board and the Department of Telecommunication (DOT) within the Ministry of Commerce to oversee operations. 115 Ip la n 51 II -5 P 6 la n 56 III -6 An P n u lan 1 al 61 P -6 la 6 n 66 IV -6 P 9 la n 69 V -7 P An 4 n u lan 74 al -7 P la 8 n 78 VI -8 P 0 la VI n 8 I P 0-8 An 5 n u lan 85 al P -9 la 0 VI n 9 II 09 Pl an 2 92 -9 7 . an advanced telecom system is a necessity for a nation’s manufacturing as well as service industries. Billion 30 Source: The India Infrastructure Report. The emphasis on this sector increased further with liberalization initiative taken by government in the current decade. was increased substantially to 11. Telecommunication Services Telecommunication sector has witnessed a total transformation throughout the world in the last two decades due to rapid technological advances. education and transportation. Consider for example.

4 566 1992 13. India’s healthcare industry grew by 13 per cent per annum over the last decade and is currently growing at 17 percent annually.2 810 394 20. During 1990 to 1996. The growth of fixed and mobile subscribers during 2003-2004 is shown below in Table 2.7 154 1971 3. Table 2.16 40 You will study the details of telecommunication sector and the marketing issues related to it in Unit 17 of this course. P. India can reach a size of $ 40 billion by 2005-06.58 million (Fixed including WLL-F) in 2003-04.The number of fixed lines has increased from 5.6 36 Source: Statistical Outline of India 2000-2001. a number of changes in the last few years like more consumer awareness.7 835 411 20.48 13.7 385 1991 11. Table 2.9 349 151 5.8 569 269 5.00 42. Presently the industry size is $18 billion. Mobile telephony has brought about a revolution in Indian telecom sector.10: Health Services in India during last four decades (Figure in ‘000) 1996/97 Hospitals Hospital Beds Doctors Primary Health Nurses 15. The growth is being propelled by an increasingly affluent and more consumer oriented middle class population of 100 million. TSL.1 870 484 22. increasing purchasing powers and especially setting up of corporate hospitals with huge capital investment has led to more competition and marketing efforts.48 76. 212 However. With the growing population and other factors cited above. According to the report.9: Fixed and Mobile Subscribers (in Million) in India Role of Services in Economy Service March 2003 March 2004 % growth during the year 3 160 Fixed including WLL(F) Mobile including Cellular and WLL(M) Gross Total Source: TRAI 41. who are seeking and willing to pay for a higher standard of healthcare.1 81 1961 3. 31 .58 33.9. the middle and higher income group has increased from 14% to 20%. In Unit 13 we will be taking up details related to the health services sector. During the year 2003-04 it witnessed a growth of 160% over 2002-03.1 230 84 2. the health services are going to increase at a fast pace with more participation coming from the private sector.4 340 1981 6.8 million in 1991-92 to 42. Health Services According to The economic Times healthcare 2001-02 report.58 54.

health services and IT sector. Explain the trends in international trade in services and identify the key exporting and importing nations? 3. 810 bn in 2008. Select any three major service industries in India and explain the trends of growth in them. $ 20. in line with worldwide trends. Japan. Companies are also able to generate higher free cash flows due to reduced investments in physical infrastructure. 113 bn (US $2. The Indian ITES industry is estimated to grow to Rs. and Ireland were the leading importers. Do you feel India is following the trend displayed by developed economies in this regard? 2. Germany.S.6 billion during FY 2003-04. The unit also gave you brief details of hospitality and tourism. a jump of 30% from the previous year. All the developed economies have more than sixty percent of their GDP contributions from the service sector. Germany. Discuss the international scenario of role played by services sector in national economies. As the economies develop. growing by a phenomenal 90% in last financial year. The software sector logged in a revenue of Rs. “Outsourcing to India has helped companies achieve 40-50 per cent cost savings. Indian companies entered in to high value segments such as system integration.47. IT outsourcing.S. ITES-BPO segment registered a growth of 59% to reach Rs. Similarly. telecom and equipment.7 billion in 2002. telecommunication services.” (Source: India Infoline) 2.570 billion in 2003 with U. Outsourcing of IT requirements by leading global companies to Indian majors picked up pace during 2002-03.Marketing of Services: An Introduction IT and BPO The Indian IT sector has proved to be the country’s fastest growing segment. financial services. The ITES contributed 25% to the total IT Software and Service exports from India during FY03.A. 2. India continues to offer great value proposition for the ITES companies.6 SELF ASSESSMENT QUESTIONS 1. Services are used by individual as well as corporations. the role of agriculture declines and that of service rises.K. The world exports of commercial services was valued at U. even in troubled times in the globally challenging economic environment of 2001-03.500 crore during 2002-03. 32 . France being the leading exporters while U. The revenue contributions by the US market continued to rise on account of the large number of ITES / BPO projects getting outsourced to India. package implementation.S. The share of services in India’s GDP is more than half and the growth in employment in organized sector has been greater in service sector. $ 1.S. offshore project revenues grew by blazing 49%.K. U.5 SUMMARY This unit explained the role of services in national economies and their significance in international trade. U. India’s service export stood at U.3 billion).A. and IT consulting. In India. Captive ITES-BPO players have almost doubled their share in Indian software exports. ITES-BPO segment is projected to register a growth of 54% to clock revenues of US $ 3. Japan.

brought under the tax net in the year 1994-95 . Courier agencies 6. 1997. service tax was introduced in India for the first time in 1994. Radio pager Telephone 2. non-life insurance and stock brokers. The services. Pandal and Shamiana Contractors. Bringing services under taxation is not simple as the services are intangible and are provided by large groups of organized as well as unorganized service providers including retailers who are scattered across the country. 1996. and Mechanized Slaughter Houses). 1998. to begin with on the pattern of advanced economies. the then Union Finance Minister. Raja Chelliah. share broking and telecom etc.. Manmohan Singh. General Insurance The Finance Act (2) 1996 enlarged the scope of levy of Service Tax covering three more services. insurance. The Finance Acts of 1997 and 1998 further extended the scope of service tax to cover a larger number of services rendered by the following service providers.2. therefore. Outdoor Caterers. The basic objective of Service Tax is broadening the tax base. 2. The Committee also recommended charging of tax on services such as advertising.7 APPENDIX SERVICE TAX IN INDIA* 1. augmentation of revenue and larger participation of citizens in the economic development of the (part of CBEC website) 33 . 1997) Role of Services in Economy * www.’’ Service Tax had been levied on the recommendations made in early 1990’s by the Tax Reforms Committee headed by Dr. from the dates indicated against each of them. total number of services on which Service Tax is levied has gone upto 58 despite withdrawal of certain Services from the tax net or grant of exemptions (Goods Transport Operators. It extends to whole of India except the state of Jammu & Kashmir.servicetax. viz. INTRODUCTION OF SERVICE TAX IN INDIA Dr. The low level of education of service providers also poses difficulties to both-tax administration and assessees. Stockbroker 3. 4. SERVICES COVERED UNDER SERVICE TAX The provisions relating to Service Tax were brought into force with effect from 1st July 1994. Consulting engineers (7th July. The Finance Acts of 1996. 2001. there are several services. I propose to make a modest effort in this direction by imposing a tax on services of telephones. in his Budget speech for the year 1994-95 introduced the new concept of Service Tax and stated that ‘’ There is no sound reason for exempting services from taxation. But tax on these services was made applicable from 1st November. Advertising agencies 5. 1994. Further. As stated earlier.are as below: 1. 7. 2002 and 2003 added more services to tax net by way of amendments to Finance Act. which are of intermediate nature. As of 2003.

2000 Vide Notification No. 1997) (1st July.2000) (exempted upto 31.2001.2000 Notification No.49/98. 26. 10.3/99 Dt. 11.e. 28. since exempted.f.Marketing of Services: An Introduction 8. the levy of service tax has been extended to 14 more services. 30. 32. 9. vide Notification No. outdoor caterers and pandal shamiana contractors were brought under the tax net in the budget 1997-98. 22.2000) (1st July. 20. 1998.52/98. reintroduced w. Government of India has notified imposition of service Tax on twelve new services in 1998-99 union Budget. the rate of Service Tax was used to be a specific rate based on per animal slaughtered. 1997) (1st July. These services listed below were notified on 7th October. Rent-a-Cab Operators 14.4. 15. 2nd June. 8th July.e. 1998.99. 34 Scientific and technical consultancy services Photography Convention Telegraph Telex Facsimile (fax) Online information and database access or retrieval . 25. 29.3.1998. 12.f. 33. 1.1998.3. 17. which are listed below. 16.f. 19. Manpower recruitment Agency Mandap Keepers The services provided by goods transport operators.e. 24.07. 1997) (exempted upto 31. This levy is effective from 16. 31. from the dates as notified and indicated above. In the Finance Act’2001. 1998 and were subjected to levy of Service Tax w. The Service Tax is leviable on the ‘gross amount’ charged by the service provider from the client. 07. Architects Interior Decorators Management Consultants Practicing Chartered Accountants Practicing Company Secretaries Practicing Cost Accountants Real Estates Agents/Consultants Credit Rating Agencies Private Security Agencies Market Research Agencies Underwriters Agencies In case of mechanized slaughter houses.2. reintroduced w.10. 1997) 13.4.58/98 dtd. 23. 1997) (15th June. 21. but abolished vide Notification No. 18. Custom house agents Steamer agents Clearing and forwarding agents Air travel agents — Tour operators (15th June. 28. 16th October. 1. 27. 1997) (16th July.

36. 37. Video-tape production Sound recording Broadcasting Insurance auxiliary activity Banking and other financial services Port Authorised Service Stations Leased circuits Services Role of Services in Economy In the Budget 2002-2003. 35. 47. Technical testing and analysis (excluding health and diagnostic testing) technical inspection and certification service. Maintenance and repair services 4. This levy is effective from 16. 14. 39. Foreign Exchange broking services 2. 35 . Internet café 7.f. Business auxiliary services.e. The levy of service tax on these services is effective from 1st July. Minor ports (other than major ports) The rate of Service Tax has also been increased from 5% to 8% on all the taxable services w. and these services have been notified on 1-8-2002 and were subject to levy of Service Tax w.2003. Dry cleaning services.5.2002. 50. 40. 46. 42.08. Service Tax is administered by the Central Excise Commissionerates working under the Central Board of Excise and Customs. coaching centres and private tutorials 2.34. namely business promotion and Support services (excluding on information technology services) 6. 45. 48. 2003. In the Budget 2003-04 seven more services along with extension to three existing services have been added to the tax net which are listed below. 38. Auxiliary services to life insurance Cargo handling Storage and warehousing services Event Management Cable operators Beauty parlours Health and fitness centres Fashion designer Rail travel agents. 44. 10 more services have been added to the tax net which are listed below. Commission and Installation Services 5. Commercial vocational institute. Franchise Services The extension to following three service was given in the Budget 2003-04 as aforesaid. Maxicab repair services 3. 1. 1.e.f. 51. Department of Revenue. 43. 41. 16-8-2002. 49. 3.

The revenue and assessee statistics from the year 1994-95 to 2002-03 are shown in Table 1.07. of assessees 3. 4125 crores (2002-03).495 1. Government of India.32.87.servicetax.22. of Services taxed 3 3 6 18 30 27 26 41 51 No. 3. Rs. primarily through voluntary compliance.45 5.866 13.048 % Growth Base year 19 187 228 133 (Part of CBEC website). SERVICE TAX REVENUE The Service Tax collections have shown a steady rise since its inception in 1994.982 45. The unique feature of Service Tax is reliance on collection of tax.479 1.991 1.577 2. They have grown almost to 10 folds since 1994-95 i.326 1.e.91 53 24 Source: www. 36 . Crores 410 846 1022 1515 1787 2072 2540 3305 4125 % Growth Base year 101 24 49 18 16 23 26 25 No. 410 crores (1994-95) to Table 1 Financial year 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Revenue Rs.Marketing of Services: An Introduction Ministry of Finance.943 4.

environmental.1 3.4 3. 37 .6 3.9 Introduction Global Trends in Services India’s Opportunities and Constraints in the Service Sector GATS: An Overview Negotiating Strategy and Domestic Reforms Summary Self Assessment Questions Further Readings References 3. and tourism to new and dynamic areas such as software and information technology services. 3. accounting for 40 per cent or more of total output in some countries and also constituting a significant share of total employment. The WTO negotiations on services under the General Agreement on Trade in Services or GATS is thus of great significance as it provides India with a multilateral negotiating forum to address its trade and investment interests and concerns in the service sector.5 3.3 3.2 3. to provide an overview of the GATS and recent developments in the GATS negotiations. THE WTO. insurance.UNIT 3 INTERNATIONAL TRADE IN SERVICES. Over the past two decades. services have similarly risen in importance. communication.2 GLOBAL TRENDS IN SERVICES Around the world. and to discusses India’s broad sectoral as well as cross-sectoral negotiating strategy in the GATS negotiations and associated domestic reform issues that need to be addressed if India is to realize its potential in services. transport. It extends beyond the traditional areas of finance. there has been a structural shift away from primary activities and manufacturing towards services.7 3. Structure 3. and distribution alone accounting for 20 per cent of GDP. In developing countries. Given the growing role of services in the Indian economy and India’s emergence as a global player in services like software and health.1 INTRODUCTION The service sector today encompasses a wide range of areas and activities. and consultancy services. the service sector has expanded rapidly and has come to play an increasingly important role in national economies and in the international economy. communication. globalization of services presents new opportunities and challenges for India. AND INDIA Objectives After studying this unit you should be able: to outline recent trends in service sector trade and investment flows with particular focus on India’s prospects in this sector. Services today account for over 70 per cent of production and employment in many advanced countries with producer services such as transport.8 3.

...... consumers..... The GATS conceives of services as being traded through four modes of supply. Overall. from $ 358 billion in 1980 to US $ 933 billion in 1990 to $1... the growing presence of multinational corporations and outsourcing of activities.... Telecommunication Services or Healthcare Services and find out the trends of growth in that sector........... According to the WTO.. geographic... including transborder data and information flows and movement of capital........................ However. By the end of the 1990s................... mode 1 is represented mainly by services minus travel and government services........ (mode 2) commercial presence.. and sectoral profile.. although this is not fully accurate due to overlap with other modes of services trade......1 per cent of world GDP and 13 percent of total world exports of goods and 38 .... Activity 1 Select any one service out of Financial Services..............3 Even this latter estimate is likely to underestimate the true value of services trade as it excludes the value of cross-border intrafirm services transactions..................... Hospitality Services........... sectors.... movement of natural persons (mode 4)... and deregulation of services....................... The following discussion highlights some of the main characteristics of services trade in terms of its modes of delivery. Characteristics of Services Trade4 Services have traditionally been viewed as being nontradable...... which have been rising rapidly in recent years... It consistently exceeded FDI in manufacturing during the 1990s..... and is transmitted via telecom links.....2 FDI in services has also expanded considerably in the past decade... cross border trade in services accounted for 3. and goods embodying services...1..... driven by rapid advances in information and communication technology. namely: cross border supply (mode 1) consumption abroad.. ...........Marketing of Services: An Introduction The growth in service sector output and employment has also been accompanied by increased internationalization of service sector transactions............... Internet or any other Source)..................... A) Four Modes of Service Delivery Services can be traded through various forms and modes of delivery... computer diskettes............. recent trends clearly indicate that services are tradable in various forms and that services trade is concentrated among certain countries..... In this mode. at an average rate of 6 percent per year... .. Between 1990-2000.......................... the service is embodied in a transportable media such as paper documents. (mode 3) and.... in large part due to advancements in information technology and increased scope for transmission of information and transborder data flows..... world exports of commercial services kept pace with the growth in merchandise exports................ intangible.................. or digital form........4 trillion in 2000 while trade in merchandise goods recorded a fivefold increase over this same period..... In the balance of payments (BoP). (You may refer to business magazines........... FDI in services constituted about 40 per cent of the global stock of FDI..... labour..................... It grew faster than world GDP between 1985 and 1997............. and activities........ Mode 1 based services trade has grown rapidly in recent years... i) Cross-border Trade: Mode 1 Cross-border trade is similar to the traditional notion of goods trade................. and nonstorable..................................................................... the value of commercial services exports grew sevenfold between 1980 and 1999... By 1997.............. .. ....... services trade represents about 20 per cent of global trade flows........

An important supplementary measure of mode 3 based services trade is provided by the Foreign Affiliates Trade in Services (FATS) statistics. the value of its services is not recorded in the BoP. and e-banking. Inward FATS statistics deal with the value of services provided by foreign affiliates established in the home country while outward FATS statistics deal with the value of services provided by foreign affiliates owned abroad by residents of the home country5. It is analogous to foreign direct investment. or 1 per cent of total services trade and a meagre 0. These values are International Trade in Services. iv) Movement of Natural Persons: Mode 4 This mode involves the delivery of the service through the temporary crossborder movement of service suppliers as in the case of software and construction services. mode 4 based services trade is captured in the BoP accounts under compensation for those established abroad. world income from the compensation of employees stood at $ 30 billion in 1997. Given the growing potential for services trade via means such as e-commerce. partnerships. The self employed are individual foreign service suppliers who go overseas on their own to supply services. the WTO.5 per cent of world GDP and 6. mode 1 based services trade is likely to expand significantly in future. In existing BoP statistics. For instance. The value of production by foreign affiliates constituted 2. By this measure. exports of travel services have increased faster than for mode 1. Even for countries with modest service exports.9 per cent of world GDP and 12. and value added of majority owned enterprises located in foreign countries. Mode 2 refers mainly to travel services. as given in the BoP. FDI information alone does not provide an accurate picture of the total value of operations by service firms overseas. and representative offices and branches.3 per cent of global exports of goods and services. Employees are foreign natural persons employed by service suppliers to provide services. There are two categories of such service providers. telemedicine. In value terms. although there is likely to be some underestimation due to reasons such as e-commerce which make it difficult to separate out modes 1 and 2. However. where the employer could be from the home or third countries. The FATS collects both inward and outward information on commercial presence through indicators such as sales. crossborder services trade features importantly. Gross output of foreign affiliates for 1997 is estimated at $ 820 billion. iii) Commercial Presence: Mode 3 Commercial presence is when services trade involves the establishment of service operations in the consuming country as in the case of setting up bank branch offices or law offices overseas.1 percent of world GDP.1 per cent of world exports of goods and services. Mode 3 covers juridical persons and legal entities that share characteristics of corporations. At present. from US $ 270 billion in 1985 to $890 billion in 1997. rising from US $120 billion in 1985 to US $ 430 billion. or 20 per cent of total services trade. as in the case of tourism. ii) Consumption Abroad: Mode 2 Consumption abroad refers to services trade where the consumer of the service moves to the country that produces the service. Consumption abroad as measured by the travel services component of the BoP accounted for 1. it increased threefold during this period. employment. joint ventures. if a foreign affiliate is treated as a resident in the host country. or about 38 per cent of total services trade. the self-employed and employees. In and India 39 . commercial presence is recorded in the form of data on international FDI flows and income stocks in financial accounts. if one looks at indicators of relative specialization (ratio of mode 1 based services trade to total exports of goods and services).

......... finance............................. and other supporting services (many of which go unreported) account for 50 per cent of trade. B) Geographic Profile Services trade is highly concentrated among a few developed countries and a few regions of the world........ A look at the relative growth performance of the three sub sectors further indicates a shift in composition towards “other” services and away from transport and travel services. and insurance occupy a much smaller share of trade in this category.............. D) Data Issues in Services While existing data clearly indicate the predominance of certain countries.. Within the miscellaneous “other” services category.......... Telecommunication Services ....... it is also due to problems in capturing the extent of such trade... C) Sectoral Composition Trade data on commercial services is collected in the BoP for three broad categories of services........................... 40 .....Marketing of Services: An Introduction small relative to those associated with other modes of supply. transportation services account for about one quarter of total services trade.. legal............ which include a variety of professional services such as advertising.............. as per the classification given above: Financial Services ...... with the former category recording relatively higher annual growth rates in recent years... Mode 4 based services trade is less than 4 per cent of the value of cross border trade in services........................ namely........... respectively...... transport.................. repair and maintenance........................... Measures of mode 4-based services trade are the most problematic. Services trade between developed and developing countries occurs mostly in the context of modes 3 and 4 which relate to cross border flows of capital and labour.................................... other business services.................. travel....... The latter reflects the importance of capital and labour endowments in determining comparative advantage and the direction of trade and factor flows in services.... due to various restrictions on cross-border labour mobility........................................................ and forms of delivery in services trade........ While the relative insignificance of mode 4 based trade reflects the smaller volume of trade via movement of natural persons..... since by the BoP definition........ This lends a downward bias to the estimates. technical................ such persons are defined as residents of the host country....... travel services for about one third.... Based on available BoP statistics... and other services.............. The compensation category does not capture compensation to service providers who are temporarily abroad for more than one year.............. Developed countries account for 70 per cent or more of global services trade and this predominance holds across all four modes of supply.... Activity 2 Classify the following services......................... it is important to note that service sector data are subject to many shortcomings due to statistical... Hospitality Services ........ Individual activities such as communication.. 6Developing countries are relatively smaller players in services trade than in merchandise trade.. accountancy..... subsectors..... and other commercial services for the remaining 40 per cent........ Healthcare Services ........

................... and methodological difficulties in measuring this sector......... transport.......3 INDIA’S OPPORTUNITIES AND CONSTRAINTS IN THE SERVICE SECTOR Over the past two decades........ Several categories.... insurance....... at home and abroad.............................. the WTO....... including.................................................................... with services exports and imports each constituting about 25 per cent of total exports and total imports........... .................. and recreational services.......................................................... health services.... particularly during 1990s.... and India 3.........8 The service sector accounts for about one quarter of total trade in goods and services.................. .................... Characteristics of India’s Service Sector Trade Trade statistics for India’s service sector are highly aggregate in nature............ .. .......conceptual.. ........ Net inflows of invisibles stood at $16 billion in 2002-03........ .... Tables 3.... India has witnessed considerable growth in service sector trade...... respectively... cultural... The share of manufacturing has remained stagnant at about 22 per cent of GDP.......... computer and information services................................................. Such measurement problems and the resulting lack of comprehensive and accurate data on services are a major constraint to analysing services trade and investment flows. India’s presence as well as its future potential in the global software industry is well recognized..................... and financial services..............8 billion in 2002-03.. Activity 3 Identify those Services in India which have grown during the last 4-5 years................................. In several other areas such as construction and engineering services............. the service sector has replaced agriculture as the dominant sector in India.. there is growing recognition in India and abroad of the country’s trade and investment potential... including important sectors such as communication. and personal............................. There are major discrepancies between national income accounts and balance of payments statistics for the service sector.............. construction........................10 Today...... are not covered in India’s BoP statistics or are subsumed within broader categories................ and other business services including software services..... BoP data are available for only a few services................. from 38 per cent to 24 per cent........... and other business services. International Trade in Services.. travel...........7 This aspect has been discussed in detail in the previous unit...1 show trends in the value of India’s service sector exports and imports... Also think about the possible reasons for growth............9 The most notable expansion has been in the software services sector.. 41 ........................ Exports of software services have risen from a few hundred million US dollars in the early 1980s to around $ 9......... telecommunications.... Net invisibles receipts from non-factor services were an estimated $ 6 billion and net receipts from software services stood at $8........ travel.. The service sector’s share in India’s GDP has risen from 36 per cent in 1980-81 to around 56 percent in 2002-03 while the share of the primary sector has fallen over this period........... finance..6 billion in 2003-03 and are expected to reach $ 50 billion by 2008........................................................... Close to 80 per cent of this trade is in transport...... reflecting the problems in collecting information on specific service activities.....

093 23 111 88 161 1.011 2.411 3.546 2.750 6. and in particular. N. reflecting its comparative advantage in exporting labour-intensive services. N.846 2000-01 294 3. This expansion. N. The composition of India’s services trade has shifted away from traditional service activities such as travel and transport towards other services. Cross border supply or mode 1 is also important given the recent growth in business process outsourcing and back office activities in India and the growing scope to deliver services cross border through electronic and telephonic means.064 1.A. N.544 2. Using the mode-wise classification of services trade.rbi.A. The latter shift is due in large part to the growth in information technology and software services with their enabling impact on many business activities. This structural change in India’s services trade mirrors the structural changes in global services trade where there has been a similar shift from traditional sectors towards business and professional services. The importance of cross border labour mobility is evident from the growing role of other business services in total services trade.341 591 8. net Receipts Payments 1990-91 1. The BoP figures also exclude FDI in India’s service sector. N.511 18. net Receipts Payments Miscellaneous.3 2. since many of these professional services require movement of professional service providers to the overseas market. net Receipts Payments Of Which : Software Services. as noted The data clearly indicate that India’s services trade has undergone a major expansion during the last few years. all four GATS modes appear to be important in India’s service trade. towards other business services.1: India’s Services Trade (US $ million) Items 1) Travel.986 1.467 . transport.168 2.547 57 371 314 6.167 -158 2. the BoP statistics should be interpreted with caution.A.825 1995-96 1.913 3. There is considerable overlap across activities and sectors and many services may be altogether excluded from India’s BoP statistics for lack of information and systematic compilation of data.885 2002-03 -438 3. has not been uniform across subsectors.Marketing of Services: An Introduction Table 3. net Receipts Payments Insurance. However. and financial services where FDI plays a greater role.990 12. however.713 1.257 1. The share of transport and travel services in total services trade has declined considerably.A.600 737 Source: RBI Annual Reports (www.170 135 257 122 2.A.874 -1.456 392 -110 983 1. which is likely to result in under-representation of subsectors such as communications.169 36 179 143 -1.029 3. The predominant 42 .405 2.A.735 12. India also relies heavily on movement of natural persons for its services exports. Consumption abroad or mode 2 is an important mode of supply given the significant share of travel services in both services exports and imports. 5.863 9. The categories are very broad and heterogeneous.224 2) 3) 4) N. net Receipts Payments Transportation.875 9.

For instance. there are again numerous domestic regulatory barriers. financial and telecommunications services account for the bulk of FDI. which affect market access by foreign firms and individual service providers. which either requires them to undergo further training in the host country or restricts their scope of practice. Indian professionals are subject to entry quotas. Nevertheless. and nationality and residency conditions. authorization and approval requirements. subsidies. India’s imports in key infrastructure services such as energy. indicating the role of cross-border labour mobility in India’s services exports. Data available from the RBI’s Annual Report indicate that services receive a large share of FDI in the country. and the scope for technology and skill transfer in such services. Such barriers not only affect competitiveness and efficiency in the sector concerned. FDI inflows totalled $16. given their vital input role. and government procurement policies. credentials of Indian professionals are not recognized in major countries due to the absence of mutual recognition agreements. Through the 1990s. and restrictions on the scope of activity and form of legal entity. telecommunications. and telecommunications are constrained by restrictions on foreign equity participation. inflows amounted to a significant $12 billion in 2001-02 and $14. $10. It is difficult. and air transport. to gauge the significance of this mode in India’s services trade since data on compensation of employees and on transfers and remittances and the usual proxy measures for mode 4 are not available separately for service activities and because there is no separation of temporary from permanent movement of labour. the role of FDI in India’s services trade is likely to grow. and relaxation of foreign equity norms in view of the need for major capital investments in many areas.8 billion in 2002-03 while outflows have been very small in comparison at $ 67 million and $ 367 million respectively. On the import front. and other constraints to India’s trade in services. Constraints to India’s Trade in Services There are many policy-related. and accountancy services. regulatory barriers in the air transport services sector affect India’s export potential in tourism services. banking. however. infrastructural.7 billion in the financial sector. recognition and licensing provisions.subsector within this segment is software services which relies on cross border movement of software service providers to provide on-site and customized software services in overseas markets. On the export front. For example. the WTO. wage parity requirements. consequently hurting quality. cost competitiveness. cumbersome administrative procedures for issuance of visas and work permits. if private transfers and remittances are any indicator of the importance of revenues from cross border labour mobility. the main mode of interest to India is commercial presence. There are also licensing and nationality based restrictions arising from regulatory capture in various professional services. and discriminatory treatment with respect to taxes. International Trade in Services. For instance.5 billion in the telecommunications sector. On the import side. For instance. economic needs tests. between August 1991 and upto July 2000. or mode 4. and India 43 . Given impending deregulation and liberalization of many state monopoly sectors such as insurance. insurance. but also have larger economy-wide implications for export prospects in other sectors. Within services. India has been a net recipient of labour income as indicated by positive net transfers. India’s exports of professional services are adversely affected by external barriers such as immigration and labour market regulations. In professions like health. Deficiencies in domestic standards of training and infrastructure and quality of manpower also affect India’s’ exports of professional services. and $ 6 billion the transport sector. architecture.

business. was to broaden the scope of world trade rules to cover services. education. Countries make commitments on market access and national treatment for specific sectors in sectoral schedules of commitments and across sectors in horizontal schedules of commitments. This modal breakdown addresses the complex nature of international transactions in services and the diverse forms in which services are embodied. General principles applicable to all services to advance overall liberalization in services. Some of the key provisions include obligations concerning transparency.. which are applicable across the board to measures affecting trade in services. or qualify the sectoral commitments. The GATS’ commitment structure and framework is distinct from that of other WTO agreements. The GATS defines services trade as occurring through four modes of supply. energy.Marketing of Services: An Introduction 3. and rules. It excludes services supplied in the exercise of governmental functions. i. financial. Key features of the GATS The GATS is a comprehensive legal framework of rules and disciplines covering 161 service activities across 12 classified sectors. and information. These include activities as wide ranging as telecommunications. GATS. In addition. and distribution-related activities and in the form of goods. under the aegis of the Group for Negotiations on Services (GNS). principles. and Most Favoured Nation (MFN) treatment. Services negotiations were conducted on a separate track from those on goods. table for negotiations. The latter has also been termed as a positive list approach to liberalization. and 3.e.. National schedules to enable countries to proceed at their own pace in liberalizing services. environmental. These market access and national treatment commitments are made for each of the four modes of supply.12 The GATS has three main elements. and distribution services. The former are applicable to the particular sector at hand while the latter relate to all sectors and could compliment. countries 44 . This three tier structure reflects the need to have: 1. domestic regulation. maritime. override. regulatory issues concerning investment policies and immigration and labour market legislation. 2. hitherto outside the domain of the multilateral trading system. and thus subject to market access and national treatment disciplines.4 GATS : AN OVERVIEW One of the most significant achievements of the Uruguay Round of negotiations from 1986-1993. The third important element TS is a series of attachments including annexes to the agreement which pertain to sectoral specificities and Ministerial Declarations regarding GATS’ implementation. production. The first is a set of general concepts. It also brings into the purview of GATS.13 The second element is a set of sector-specific or cross-sectoral commitments on national treatment and market access which are applicable to those activities listed in a country’s schedule of commitments.11 The resulting agreement. there are in all eight commitments per subsector or activity in both the sectoral and the horizontal schedules. in consumption. establishes multilateral rules and disciplines to govern international trade and investment in services. Sectoral agreements to ensure that trade liberalization in some sectors is supported by the establishment of compatible regulatory regimes or modification of existing ones. restrictive business practices. i. modes as discussed earlier. human capital.e. Countries are free to decide which service sectors they wish to schedule. behavior of public monopolies.

g.g. “Unbound” except for the following: Intra-corporate transferees of executives and senior managers.g. “Unbound. “Unbound.g. “Unbound” E.e. a country must accord treatment to foreign service providers which is no less favourable than that provided for under the terms. and the extent of foreign capital participation. Approval required for equity stake over 25 percent.g.g. the limitations and exceptions they wish to maintain which violate market access and national treatment. “Unbound” except for categories of natural persons referred to in the market access column. “None” Temporary entry of natural persons Specific commitment E.) W. the total quantity of services output. “25 percent of senior management should be nationals E... Under the market access obligation. and India Table 3. the type of legal entity. Countries may also choose to inscribe additional limitations or qualifying conditions to their commitments. “None” E. Architectural services Cross-border supply Consumption abroad Commercial presence Temporary entry of natural persons E.also specify in their schedules. across all sectors) Cross-border supply Consumption abroad “None” Commercial presence E.2: Sample Schedule of GATS Commitments Commitments Mode of supply Conditions and limitations on market access “None” Conditions and qualifications on national treatment E.g. “Unbound” E. Winters (1995). Table 3.g. the number of natural persons who may be employed.. “Unbound” for subsidies..g. “Unbound” for subsidies. and conditions specified in its commitment schedule. “None” other than tax measures that result in differences in treatment with respect to R&D services. limitations..g. Source: Hoekman in (eds. independent of the sector concerned.. service sellers for upto three months E... 45 .g. tax incentives. again by mode of supply...g.. E. These limitations take the form of restrictions on the number of foreign service suppliers. except as indicated in Horizontal Commitments E.g..g.. “Maximum foreign equity stake of 49 percent” E. the WTO. except as indicated in Horizontal Commitments”.2 below illustrates the typical format of the horizontal and sectoral schedules of commitments.. Horizontal commitments (i. “Commercial presence is required” E. International Trade in Services. and tax credits E. specialist personnel subject to economic needs test for stays longer than one year. which restrict the use of a mode of supply by foreign suppliers. Limitations listed in the horizontal schedules typically include general laws and policies.. the value of transactions or assets. Martin and A.

Unbound implies that no commitment is made for a particular mode of supply. Moreover. accountancy. reflecting the fact that India did not try to address sector-specific interests and concerns and took a conservative approach to the negotiations. More commitments have been forthcoming in sectors like tourism and software which are relatively open and unregulated as opposed to services like education. and differential treatment in terms of taxes. especially through cross border movement of semi-skilled and unskilled service providers. It did not schedule major sectors like energy. 46 . Its commitments in modes 1. its commitments did not extend to subsectors like life insurance. namely modes 1 and 4. Liberalization in mode 1 has also been limited as commitments in this mode are mostly unbound for reasons of technical infeasibility. and provision of various benefits. even these horizontal commitments have been subject to a large number of restrictions relating to immigration and labour market policies. Moreover. and procurement policies. except as specified in its limitations and conditions under its national treatment commitments. Overall. Commitments are mostly partial in nature and tend to bind less than the status quo. the GATS not only gives countries the discretion to choose sectors for negotiations but also gives them the flexibility to decide the degree of liberalization which they wish to commit in these tabled sectors. India’s commitments are largely uniform across sectors and are more restrictive than existing policies. health. and 4 are mostly unbound and commitments in mode 3 are subject to a foreign equity ceiling and local incorporation requirement. taxes. and government monopoly related considerations. recognition requirements. GATS Commitments Liberalization has been limited thus far under the GATS. India has made limited commitments in the Uruguay Round. The rest of the entries. existing policies have often not been locked in through commitments. Typical violations of national treatment include differential treatment of foreign service providers in the case of subsidies. Given the discretionary nature of the commitment process. the most strikingly limited liberalization has been in the case of mode 4 where countries have refrained from making sector specific commitments and have made broad horizontal commitments for select categories of service suppliers. often the coverage of subsectors and activities is quite limited. employment. government procurement policies. namely those associated with commercial presence and at higher skill and professional levels. nationality and residency conditions. countries have typically not scheduled the more sensitive and regulated service sectors. These are also termed full commitments. has been completely unmet. However. distribution. especially in the case of developing country commitments on commercial presence. Thus. the interest of developing countries in exporting labour based services. 2. which violate market access and national treatment for a specific sector and mode of supply. which include specification of some conditions and limitations are known as partial commitments.Marketing of Services: An Introduction The national treatment obligation requires a country to accord treatment to foreign service suppliers which is no less favourable than that accorded to its domestic service providers. Thus. which it did schedule. even in sectors that have been scheduled. An entry of “none” in the above schedule means that a member binds himself not to have any measures. Hence. It has also not benefited from greater market access in other countries given the limited liberalization in its key modes of interest. and legal services and even in sectors like financial services. distribution. subsidies. India has not used the GATS negotiations to lock in its existing policies in various service sectors. indicating the uncertainty about telecom based delivery of services and e-commerce at the time of the Uruguay Round. and transport where there may be equity.

and independent professionals for a uniform one year period. This visa would be distinct from normal immigration visas. Requests by developing countries are mainly focused on labourintensive services and on improving market access under mode 4. India has in turn made requests to all its major trading partners. India has made a bold proposal on mode 4. requirements. telecommunications. The objective of this round is to deepen the existing commitments through a request-offer process. Easier renewal and transfer procedures. the WTO. to strengthen and develop various provisions in the GATS. business visitors. financial. delays. and distribution services through improved market access commitments in mode 3. Safeguard mechanisms to prevent entering permanent labour market and abuse. wage parity requirements. The thrust of these requests has been to commit to full market access in a variety of infrastructure services like insurance. Developed country requests largely reflect their interest in liberalizing capital-intensive sectors like telecommunications. who are de-linked from commercial presence. Scope to challenge rejections. and energy services and to reflect India’s FDI liberalization and regulatory reforms in these sectors in its commitments. Transparent and streamlined application process. and India India has also requested due recognition of qualifications for its service providers and improved enforcement of GATS provisions for facilitating entry into Mutual Recognition Agreements. and unfair practices under the dispute settlement mechanism. and to establish mechanisms for better implementation of these provisions. Mechanisms to find status of application. The GATS or service provider visa would be characterized by: i) ii) iii) iv) v) vi) vii) Strict time frame for issuance (2-4 weeks maximum). rejection. also endorsed by several other developing countries. to institute a streamlined GATS or service provider visa for intracompany transferees. International Trade in Services. contractual service providers. Flexibility in issuance on shorter notice for select categories of providers and border availability. India has received requests from all major developed countries. economic needs test and other such restrictions be eliminated for those qualifying for a service provider visa. 2002. The request-offer process and India As of June 30. as well as their interest in improving transparency in regulation and in administrative procedures in developing countries. energy. In this regard. so as to effectively separate temporary from permanent movement of labour. many countries have put forward their sectoral and horizontal requests to other member countries. This is of significance to India as it ensures liberal and predictable market access through cross border supply and thus for 47 . There are more full commitments in mode 1. These requests have mainly focused on India’s export interests in mode 4. through coverage of a wider range of skill categories and of independent and contractual service providers.GATS 2000 Negotiations Talks resumed in GATS 2000 as mandated during the Uruguay Round and are currently underway. Greater market access has also been sought for commercial presence and movement of intracompany transferees and business visitors in business services like legal and accountancy services. Initial offers have been forthcoming as of March 31. banking. 2003. social security taxes. India has further proposed that entry quotas.

.......... Although the initial commitments to date show only marginal improvements in terms of market access and conditions of operation relative to the earlier Uruguay Round commitments....... and discretionary application of recognition norms continue to hold.... to foreign direct investment.. differential taxes and subsidies....... keeping in mind needs such as capital infusion. There is also some improvement in the offers on commercial presence....... India should consider liberalizing its earlier commitments on market access and national treatment.... 3....... cover new categories of service providers such as graduate trainees........ technology upgradation... and (e) identify the domestic reforms and measures it would need to implement to support its negotiating strategy..... Hence............................... so far.......................... independent professionals..... (c) determine what it could concede in turn... weaknesses................ . The thrust of India’s strategy in infrastructure services......... and the realized comparative advantage in selected services....5 NEGOTIATING STRATEGY AND DOMESTIC REFORMS In order to benefit from the GATS negotiations...... has to be on opening up the domestic market to greater competition and in particular........... such as by the EU and Canada........... India.... They continue to subject GATS related movement which is temporary to the usual immigration and labour market regulations which are applicable to permanent migration.. where it is primarily an importer.......... It needs to: (a) identify the country’s strengths......... These offers also increase the length of stay and relax associated conditions on stay and entry........................ its wider implications for growth and productivity............. India needs to have a coherent external and domestic strategy... This shift in position on services reflects the growing awareness of the significance of this sector to the country’s overall reform and liberalization agenda.....Marketing of Services: An Introduction business process outsourcing and back office service exports by India......................................... However. India does not have much to gain from the offers in this mode.............. there has been much greater willingness on the part of developing countries to negotiate further liberalization of services.. However............ ........................... limitations in the form of entry quotas.......... which had earlier resisted the inclusion of services in the multilateral trading system........................... Activity 4 Write your understanding of GATS in 50 words..................................... .............. Moreover.............. with removal of limitations such as economic needs tests and authorization/approval requirements and relaxing of limits on foreign equity participation....................... (b) identify the concessions India would like to obtain in specific service sectors and from specific markets.............. (d) recognize the political economy constraints and limitations it would face in liberalizing services..... and contractual service suppliers that are of export interest to developing countries like India.. .......... and trade potential and requirements in individual service sectors. A few offers.......... is today one of the most vocal proponents of improving multilateral guidelines under the GATS and for increasing market access for developing country service providers..... 48 ........ economic needs tests. improvements in mode 4 have been very limited. It is expected that the offers would be finalized by the end of 2004 and would become part of a new round of WTO negotiations........ these offers still do not distinguish between temporary and permanent movement of labour.

for the institution of a separate GATS or service provider visa and its model schedule of commitments for mode 4. Bind the status quo at a minimum so as to reflect the current regulatory environment and recent reforms. the WTO. This approach has been motivated by the protectionist backlash to BPO and back office services in developed countries and would help pre-empt future protectionism in the private domain by guaranteeing unrestricted market access under mode 1. particularly where the course of future policy and a timetable for phasing in has been declared and use the transition period to undertake necessary domestic measures on regulatory capacity and institutional frameworks. signal predictability of its policies. and by increasing the scope of the existing commitments by removing or relaxing various limitations. The commitments have to be framed in the larger context of ongoing regulatory reforms and liberalization in these sectors and must reflect policy intentions. economic needs and other necessity tests. In this regard. and reduce the scope for backtracking. It needs to assess the market access implications of government procurement restrictions. 4. 3. On the domestic side. In view of India’s recent emergence as an outsourcing hub. India’s strategy in the area of professional services has to be both outward and inward oriented since these are services where India has both export and import interests. it needs to re-think its position on government procurement under the WTO. it would be India’s interest to advance the proposals on both modes 1 and 4 through a quid pro quo negotiating strategy of offering greater market access in sectors of commercial interest like banking and insurance through commercial presence for improved market access in these two modes. Expand the coverage of its commitments by including new subsectors and activities which were previously not bound. and the larger economy-wide impact on efficiency and competitiveness. BPO. and India 49 . Given its comparative advantage in labour and knowledgeintensive services. barring those like financial services where there may be concerns of financial stability and fraudulent practices arising from unrestricted cross border flows of capital. India needs to advance with its proposal on mode 4 through its developing country coalition.synergies with other sectors. “Friends of mode 4”. India should also consider scheduling more professional service sectors and opening up these services to foreign commercial presence International Trade in Services. and other restrictions. its negotiating strategy also needs to put sufficient emphasis on liberalizing market access through cross border supply. India would also need to insist on discussing issues relating to classification of service providers and transparency in administrative procedures. Although India cannot challenge the latest US bill which bans offshoring of US government contracts. particularly for modes 1 and 4. it must: 1. India has proposed a horizontal formula for mode 1 whereby countries would make a full commitment in this mode across all sectors. Leverage across sectors by offering greater market access through FDI in sectors like insurance and telecommunications which are of interest to major developed countries like the EU and the US in return for improved market access under cross border supply and movement of natural persons for services like IT. Overall. 2. The introduction of a GATS visa to separate temporary from permanent labour would also facilitate the removal of social security taxes. Recently. As noted earlier. given the carve out clause for government services under the WTO. Pre-commit to further liberalization so as to signal future intentions. health. and others where it has export potential. In addition. India needs to obtain more liberal commitments from key export markets. by including more sectors which were not previously scheduled.

........ and regulatory mechanisms to enforce standards. This would require liberalization of FDI policies............... India will not be able to realize its export potential unless it undertakes steps to improve quality............. fairness..... India has taken a very cautious and conservative approach to the GATS negotiations...... which can be strategically exported.......... What is your understanding of GATS and its implications for India? 3... The fallout in terms of displacement of labour and associated reforms in labour laws and in legal and institutional frameworks........... India is likely to emerge as an important player in both exports and imports of services....Marketing of Services: An Introduction and service suppliers........ The GATS framework provides countries with the opportunity to lock in their liberalization in the service sector..................... Activity 5 Talk to some corporate people from a service organization and ask them about their understanding of implications of GATS for India...... and a level playing field without jeopardizing consumer and national interests.. in the case of professional and manpower based services.................................. 50 ............ would also need to be addressed............ standards of training and infrastructure.....7 SELF ASSESSMENT QUESTIONS 1........ India has core competence................... ... Summarize your interviews in 50 words.... .............. Give Justifications.. The prospects for further liberalization of these flows are also promising given heightened awareness about the importance of a competitive and efficient service sector and much greater willingness on the part of governments across developed and developing countries to deregulate and liberalize services autonomously.. But if India is to realize significant market access gains in sectors and modes of interest..........................6 SUMMARY Service sector trade and investment are likely to grow rapidly in the coming years. So far......................................... ....... .............. 3.......... More liberal market access conditions in infrastructure services need to be supported by initiatives to encourage private participation in such services......... then it must also be willing to make substantial market access commitments in services and to overcome its defensive posture in these negotiations........... What are the four modes of service delivery? Explain by taking examples..... 2........ competition.......... 3.................. Such an approach would be conducive to the needs of greater efficiency............................................... Similarly................ higher quality and standards in many of these services and would help overcome the regulatory capture that exists in the home market in some of these professions... Investments in telecom infrastructure and supporting facilities and amendments to domestic laws and acts affecting competitiveness in such services may also be required.............................. divestment of the government’s share in related public sector enterprises. and creation of an appropriate regulatory structure to ensure transparency......................... In what specific Services sector........ These negotiating strategies have to be supported by various domestic reforms and measures..............

The latest available estimates are for 1997 for such a mode-wise allocation of services trade. Centre for Business and Government. NASSCOM.5. DC. “Just How Big are the Stakes? An Assessment of Trade in Services by Mode of Supply”. New Delhi. Special Session. 2000. World Bank Discussion Papers. and R.). Martin and A. and India 3. p. 2003. Oxford University Press.” in Sauve and Stern (eds. R. 2. 2000. P. IMF. Government of India. S. Stern (eds. 307. “Movement of Natural Persons and the GATS”. Vol. Communication from India. And C. A Mattoo. Chaudhuri. 3.8 FURTHER READINGS Chanda. World Economy. DC. Estimates for the different modes of supply were obtained from Karsenty (1999). Geneva. G. Self. “Liberalizing Mode 4: A Possible Approach”. “Movement of Natural Persons and Trade in Services: Liberalizing Temporary Movement of Labour under the GATS”. Stern and Sauve (2000) and Karsenty (1999). April 1994. November 1999. 2000. Sauve. Initial Offers and Requests. WTO.. “Proposed Liberalization of Movement of Professionals under the General Agreement on Trade in Service”. Washington. however. Economic Survey 2002-03. 1999. pp.. 2003. WTO. S/CSS/W/12. Warren. GATS covers services provided by service and manufacturing companies while the FATS covers the output of companies by primary activity. GATS refers to all foreign affiliates while the FATS only refers to the majority owned affiliates.3. There are differences. Geneva. Balance of Payments Statistics. 2000. New Delhi. Findlay. and R. International Trade in Services. Geneva. May 2001. The Uruguay Round and the Developing Economies. 2002 and 2003. July 29-31. New Delhi. 24. Geneva. Washington. T. between the GATS and the FATS concepts of foreign affiliates and related service trade statistics. 1999. B. Harvard University and Brookings Institution Press. prepared for the UNCTAD Expert Group Meeting on Movement of Natural Persons. Washington. WTO.). “How Significant are the Barriers? Measuring Impediments to Trade in Services. Hoekman.. 4. New Delhi. 631-654. WTO Annual Report (1999 and 2000). 24 November. 5. General Agreement on Trade in Services. Geneva. Council for Trade in Services..9 REFERENCES 1. DC. 5. 1995. the WTO. DC. Warren and Findlay (2000). Annual Reports. World Bank. ICRIER Working Paper No. GATT. Geneva. Since FATS proxies service products with total production of companies in service sectors and leaves out the value of service activities undertaken by 51 . No. 51. “”Assessing the General Agreement on Trade in Services” in W. WTO. Washington. Winters (eds. GATS 2000-New Directions in Services Trade Liberalization: An Overview. Karsenty.). 2002. The IT Software and Services Industry in India: A Strategic Review. Globalization of Services: India’s Opportunities and Constraints.

consumer interests. it may result in some underestimation. and privacy. law and order. However. 12. During the course of the discussions. 52 . and licensing procedures are based on objective and transparent criteria. i. 6. 13. and would be subject to the same principles. and experience and calls for equal opportunities to other countries to negotiate accession to bilateral or plurilateral mutual recognition agreements. it was decided.e. Statistics on the geographic profile of services trade are from the WTO Annual Report (2000). This carve out clause would apply to sectors such as health and education services which are typically in the public sector domain. and do not constitute restrictions in themselves. and administrative practices with bearing on services trade. that services would be part of a single legal undertaking. however. technical standards. IMF.Marketing of Services: An Introduction companies in agriculture or manufacturing. since the service sector also produces goods. Article III on transparency requires countries to establish enquiry points to provide specific information on laws. national treatment. regulations. FATS may overestimate the value of service activity. 11. At the same time. security. 7. Article VII on recognition which establishes procedures for mutual recognition of licenses. Ibid 7. 8. are not more burdensome than required for ensuring the quality of the service. RBI Annual Report (2002-03). Balance of Payments Statistics (1999). those of Most-Favoured Nation treatment. the WTO. education. and transparency. There are also several safeguard type provisions which permit a country to introduce restrictions for BoP reasons or to safeguard public morals. due to lack of clear terminology in this carve out provision and given the growing role of private delivery in even such sectors. 10. 9. Article VI on domestic regulation establishes disciplines to ensure that regulations such as qualification requirements. Nasscom (2000).. it is often difficult to determine which activities can be covered by GATS and which are excluded.

5 4. There are women who don’t go to beauty parlors at all. One person may prefer to go to a restaurant for good food while the other may opt for an exclusive restaurant.4 4. both individual or organizational.2 4.8 4. while the other may prefer to read the same newspaper after coming back from the office. there are many such examples telling us that people show different behavior in buying and using different products and services. For a marketing person. these roles are played by more than one person. Experience and Credence Quality Summary Self Assessment Questions Further Readings 4. But generally. We have developed an appreciation that the meaning of marketing orientation is that a firm should aim all its efforts at satisfying its customers. for status. Similarly.9 Introduction Decision Making Roles Classification of Buyers Consumer Decision Making Factors Influencing Buyer Behaviour Search. Structure 4.1 INTRODUCTION All of us buy different services for various reasons.UNIT 4 CONSUMER BEHAVIOUR IN SERVICES Objectives After studying this unit you should be able to: review the basic concepts of Consumer Behaviour. it is important to know who plays what role in the purchase decision. and understand the concepts of search.7 4. outline the stages in consumer decision making process.1 4. experience and credence qualities and their implications on consumer decisions making process for services.2 DECISION MAKING ROLES It is being said. And to keep customers satisfied it becomes essential to have a deeper knowledge regarding the behavior of the buyer.3 4. 4. that for the purchase decision some other people might also be involved and they may have different roles to play. One person may prefer to read ‘The Times of India’ early in the morning. 53 . explain the factors influencing buyer behaviour. The discipline of marketing which helps in developing a deeper insight in these behavioral differences is called “Buyer Behaviour”. and more often for services. so as to adapt the service format and promotional efforts to these key players. whereas there are others who go regularly.6 4.

.............. At a confectionery shop visited by a family to buy bread...... The travel agency......... while buying household grocery items a housewife plays all the roles and makes the purchases... one member of the family may dominate in the purchase decision...... Identify the people you would come across and also the roles they are likely to play.... It could be even secondary reference group like word of mouth or media............ To summarize........ The finance office may put restrictions on economy class and that too in the state run airlines. the consumer decision making roles are best exhibited by the following example...... both primary and secondary. Gatekeepers: The person or organization or promotional material which act as a filter on the range of services which enter the decision choice set.... a child asks his parents for a candy. let us take the example of a business traveler who is asked by his superior to visit a particular branch office.. which handles that company’s travel booking............... Decider: The person who makes the buying decision......... In organizational buying the dynamics of these six roles becomes much different and while selling to an organization due care should be taken in identifying who is playing what role......... hotel room.......................... At times more than one persons are involved (as we have seen in the above example) and at times only one person plays all the six roles. It can be other than the buyer................. The administrative division which makes the booking and handles the bills may become the buyer and finally the executive... it has been observed that users are also the influencers................... iii) iv) v) vi) The number of persons who play these six distinct roles is not fixed.. User: The person who actually uses or consumes the product.................... more typically in house hold or family or individual related services.......... playing the role of ‘decider’ and ‘buyer’................ These could be reference groups.................... Finally....... You are planning to make a visit for institutional sales.... In the purchase of any particular service six distinct roles are played..... 54 .. These are: i) ii) Initiator: The person who has a specific need and proposes to buy a particular service.... which means that he plays the role of ‘user’..................... May be in this case the boss works as the initiator.... For example......... hospital... who was not left with any choice...... The father orders for one piece of ‘X’ brand and pays for it........................... The child becomes the ‘initiator’...... It has been observed at times.......... irrespective of whether he executes the purchase himself or not........ Influencer: The person or the group of people who the decision maker refers to or who advise.... with its limited resources may work as a gatekeeper.... may work as influencer.. Activity 1 You are the sales manager for credit cards in your bank and you have learnt that a company is setting up a branch office in your city...... The mother suggests that only one piece may be purchased of ‘X’ brand....................... . etc...... who travels is the user............... which can influence the decision maker............................ she plays the role of ‘influencer’. In a number of services.............. Buyer: The person who makes the actual purchase or makes bookings for a service like travel....... ............. diagnostic lab.Marketing of Services: An Introduction Conceptually..... ..... He may instruct others to execute......... ..................................... the candy is eaten away by the child......

It signifies whether the marketing strategy has been wise. the importance of confidence in service supplier increases. irrespective of the type of buyer. culture etc. The combined effect of firm’s marketing efforts. influence of family and friends. The other category of buyers is called organizational buyers. reliability. Marketers are therefore interested in the consumer decision-making process by which a consumer selects one alternative amongst the lot available. The process components deals with the consumer decision making which involves need recognization . quality. Because of large number of people working as influencers. insightful. and effective.4.1. As the complexity of the service offer increases. Another example can be of a hospital which may buy beds for the use of patients. The decision not to buy is also an alternative. For example. etc. The decision model has three distinct components input . Process.3 CLASSIFICATION OF BUYERS Typically. in B-2-B purchases. In organization purchases. Figure 4. The elements which are reviewed in the evaluation process might range from price. Consumer Behaviour in Services 4. prepurchase search and evaluation of alternatives. Input component of the model include firm’s marketing efforts (marketing mix activities) which communicate the benefits of the products and services to potential consumers and the non-marketing socio-cultural influences. A simple consumer decision-making model.1: Input. Sociocultural influences include family. though the number of persons who play these roles may vary. a government department may buy a similar AMC for the office computers. However. The organizational buyers are those who buy the goods or services for the organizational use. social class. also called B-2-B (Business to Business) purchases more people are involved and typically they fall under influencer’s category. generally the B-2-B purchases take longer time to minimize on perceived risks. process . social and cultural concepts into an easily understood framework. as shown in Figure 4. subculture and culture. or whether it was poorly planned and missed the mark. friends. Personal buyers are those who buy a particular item for his or her own consumption or use. Output Model of Consumer Behaviour External Influences Firm’s Marketing Efforts Socio-cultural Environemtn Psychological Purchase Post purchase Evaluation Decision Making Field INPUT PROCESS OUTPUT 55 .4 CONSUMER DECISION MAKING The consumer’s decision to purchase or reject a product or service is the moment of final truth for the marketer. and output. affect what consumers purchase and how they use them. buyers can be classified into two categories: Personal and Organizational. the buying roles remain the same. ties together the psychological. For example you may like to buy an Annual Maintenance Contract (AMC) for you personal computer installed in your house.

wants and beliefs. They prefer to be rich and not poor. To want a particular product or service is nothing but to have a preference and desire to use it or possess it. entertained and not bored. price. As far as general intentions are concerned. This positive and preferred vision in pursuit of better life is also called as the set of goals to which a buyer strives. These set of goals. who divided the purchase behavior into three distinct stages viz. Standing wants are those wants which are related to permanent goals and the current wants are those reflecting our existing circumstances. namely: buyers goals. learning. differently. This arises if outcome of the prepurchase stage is a decision to buy a certain brand of service. This stage is therefore called the service encounter stage. perhaps. Pre-consumption Phase. A more comprehensive purchase model was suggested by Fisk3. 56 . purchase behaviour and post purchase evaluation. A more acceptable and positive condition gives rise to a vision which the consumer tracks in the pattern of purchase for a better life. which results in a decision whether to purchase the same service again or not. clean and not dirty. For the purpose of convenience. hence leaving a scope for the firm to influence the goals of a buyer.e. Figure 4. Finally. etc. The second stage is called the consumption stage.2: The Three-stage model of consumer behaviour Pre Consumption Consumtion Post Consumption The reasons why people buy or the motives of buying can be put into three categories. keeping in view a set of variables.Marketing of Services: An Introduction The decision making is affected by the psychological field i. On the other hand. all of us have the basic need for food when we are hungry while the choice of a restaurant will be made by different people. wants are classified into two. The other aspect of these goals is that they also keep on changing as the time passes. fed and not starved etc. like type of food. perception. information search on various alternatives and evaluation of alternatives to select the best of them. For example. atmosphere. The first stage called the pre-purchase stage includes activities which take place before the actual purchase decision. In this stage the expectations of the pre-consumption stage are compared with the actual service delivery. the individual recognizes a need or problem whose solution usually involves a potential purchase. He searches for information from various sources-both internal and external and arrives at a set of possible solutions – ‘The evoked set’. The output portion of consumer decision making model includes two associated activities i. At this stage. These influences include motivation. wants emerge from the buyer’s goals.e. people prefer to be in good or positive conditions and not otherwise. problem/need recognition. personality and attitudes. Consumption Phase (Service Encounter) and Post-consumption Phase. the internal influences. healthy and not sick. At this stage a clarification may be noted that the needs are common to all but wants are socially and culturally oriented. standing wants and a current wants. the post-purchase stage. These activities are typically called. cannot be achieved simultaneously and therefore priorities are being set to attain these goals. quality of food.

.............................. other demographic factors like....... buyer’s socio-cultural factors................... ... ........ For example..... attitudes..... namely: situational factors.. Socio Cultural Factors Buyers or consumers do not take buying decision or the decision not to buy...... Reference Groups.......................3 1........ there are other factors which affect the buying decision................... Similarly.. they are strongly influenced by Socio Cultural factors.................... Figure 4.......................................... 2.......................Activity 2 In continuation to Activity 1...... marketing stimuli P sy ch o l og i ca l F act o r s P er s o n al F a ct o rs Perception.. if you are traveling.... which he does not visit normally... These factors can be classified into four major categories...................... A person may visit an exclusive restaurant during ‘happy hours’............ For example. ............. ... occasion of purchase etc....... the atmosphere of the retail outlet................. Rather......... Situational Factors The situational factors influencing the buying behaviour are............... in a vacuum... age................5 FACTORS INFLUENCING BUYER BEHAVIOUR There are a number of factors or variables which affect the buying behaviour..... so “tax payer” becomes a variable.................................. store's atmosphere. occupation etc.. In this case the marketing efforts of the organization (sales person and the scheme) becomes the factor influencing to buy........ life style... Consumer Behaviour in Services 4.......... then demand for lodging and boarding will obviously be there..... Family Socio-Cultural Factors 57 ..... Similarly....... personal factors and psychological factors..... the influence of time pressure in product and brand choice.............. gender.. These have been summarized in the Figure 4................. Culture..........................3: Factors Influencing Buyer Behaviour Situational Factors Time..... people go on holiday during the vacation time so vacations become a variable... a person may not buy any of the saving schemes till he comes in the tax bracket...... If the branch manager of this new office is considering to give ‘Corporate Card’ to his executives............. motivation Buying Decision Personality..... what decision process he is likely to go through? Discuss. carry out this activity........

e. The various sub-categories within a culture can be identified based on religion. c) Motivation: Motivation is the driving force within individuals that compel them to action. b) Attitude: An attitude is a learned predisposition to respond in a consistently favourable or unfavorable manner with respect to a market offer ( i. the ‘innate needs’ 58 . post-parenthood and dissolution. organize and interpret information into a meaningful impression in their mind. Peer groups and the peer pressure has generally been observed to play an important role in the purchase of credit cards. The stages in family life cycle include bachelorhood. values and customs go deeper and deeper as a person grows. occupation. age. newly married. This driving force is subconscious and the outcome of certain unfulfilled need. it is sometimes said that culture is learnt as a part of social experience. To elaborate. a particular shop or retail outlet.Marketing of Services: An Introduction a) Cultural Factors: Children acquire from their environment a set of beliefs values. Buyer’s perception of a particular product greatly influences the buying behaviour. gender.). parenthood with growing or grown up children. c) Family: The family is another major influence on the consumer behaviour. Attitude is a dispositional term indicating that attitudes manifest themselves in behaviour only under certain conditions. a brand. etc. It is important to note that there are ‘negative’ reference groups also and some persons don’t want to associate themselves with these groups. cell phones. First. The family consumption behaviour to a large extent depends on the family life cycle. b) Reference Groups: There are certain groups to which people look to guide their behaviour. let us come back to our earlier example of people buying hospitality and tourism services. someone may have a highly favourable attitude towards car insurance but stays away from buying it since he has no use for it. geographical location etc. For example. These reference groups may guide the choice of a product but may not be the brand. social class. Perception is also selective in which only a small part is perceived out of the total what is perceptible. The knowledge of reference group behaviour helps in not only offering substitutes but also in pricing and positioning them. for example it’s the teenage children who influence the parents to decide on a destination and middle aged buy more of insurance services than the younger ones. This classification is significantly relevant from the consumer behaviour point of view. 3. Therefore. an advertisement. The negative reference groups guide the behaviour in terms of “what not to do”. and customs which constitute culture. Knowing a buyer’s attitude towards a product without knowing the personal goals is not likely to give a clear prediction of his behavior. etc. Often family members play a significant role in the purchase of a particular service. For example. Psychological Factors a) Perceptions: It is the process by which buyers select. Knowledge of these stages helps greatly in knowing the buying process. Eating out is a very common phenomenon in the north of India. if the buyer’s perception of a product is not positive it requires much harder efforts from the marketing or sales person to convince the buyer on the qualities of the product and thus suggesting him to purchase it. These beliefs. It has been observed that people from Gujarat go out on vacations more often. Needs are basically of two types. as he doesn’t own a car.

There are a number of products which are preferred more by extroverts rather than introverts. clothing.those needs an individual is born with and are mainly physiological. Each personality trait denotes two absolute points and a person’s personality characteristics can be identified somewhere between those two absolute points. indicating the proximity to either of the two. shelter. shies away from social gatherings. b) Life Style: Lifestyle as distinct from social class or personality is nothing but a person’s pattern of living and is generally expressed in his/her activities. Perhaps the products suggesting status are purchased more by the extroverts than the others. The specific goal selected is dependent on the experiences. First. Some of the dimensions of life style are as follows: Activities Work Hobbies Entertainment Shopping Interests Family Home Job Fashion Media Achievements Life styles suggests differences in the way people opt to spend on different products differently. careful about his appearances and doesn’t like reading books or confining to the four walls of a room. Life style variables (psychographics variables) help a firm to identify the ‘Inner consumer’ or the feelings of the consumer about their products which needs to be stressed in advertising campaigns. food.. They include all the factors required to sustain physical life e. rationalization etc. Personal Factors a) Personality: Personality can be described as the psychological characteristics that determine how an individual will react to his or her environment. etc. the ‘acquired needs’ those which a person acquires as he/she grows and these needs are mainly psychological. water. Some of the traits are as follows: Personality Trait Rigidity Leadership Neuroticism Extroversion Dependability Achievement Behavioural Dimensions Rigid—————–––––––– Flexible Leader————————– Follower Stable————————–– Neurotic Extrovert———————– Introvert Independent——————– Dependent High achiever—————– Low achiever Consumer Behaviour in Services Let us examine how buyer behaviour is affected by the personality of an individual and for this we take the example of extroversion. Opinions Themselves Special issues Products Future 59 . likes meeting people. fear. interests and opinions. like love. 4. called the defense mechanism. Failure to achieve a goal generate two types of responses. making more friends. would like to read books rather than making friends. Extrovert is a person who is more sociable. esteem. On the other hand an Introvert is a person who prefers to be left alone. For any given need. and second is called search for substitute. There are a number of dimensions (personality traits) against which an appreciation of an individual’s personality can be developed. which includes withdrawal.g. there could be a variety of goals. (apart from other characteristics) of the individual. prefers to move about. cultural norms and values. acceptance etc. Secondly.

also have influence on the purchase behaviour. characteristics which the consumer can not evaluate even after the consumption. fit. In sum. etc. In nutshell. experience and credence qualities. These factors are very much significant in the study of behaviour of buyers. is the credence qualities i. Services Marketing. education. For example.e. which are the attributes which can only be determined after the purchase. air travel is more used by the executives than the factory workers-examples of occupation as a factor. like auto repair or medial diagnosis. the following important aspects related to consumer decisions making process need to be understood. For example colour. it may be difficult for a patient to assess whether or not a hospital provided appropriate services. Search qualities are those attributes of a product which the consumer can determine before the purchase. 4. AND CREDENCE QUALITIES One of the most significant differences between goods and services is that in goods “Search Qualities” dominate while services are dominated by “Experience and Credence Qualities”. Figure 4. style. The third. smell etc.3 gives a continuum of evaluation for different types of products based on search. or during the process of consumption. This is more common in physical goods.6 SEARCH.3: Continuum of evaluation for different types of products Most goods Most Services Easy to evaluate Restaurant meals Root canal Furniture Houses Jewelry Medical diagnosis Television repair Vacation Legal services Automobiles Clothing Child care Auto repair Haircuts Difficult to evaluate High in search qualities High in experience qualities High in credence qualities Source: Zeithaml and Bitner. Tata McGraw-Hill. knowledge of all such dimensions of the buyer will help you in understanding his needs and wants and also help you in integrating all those elements in your product offer which the consumer wants. feel. occupation. Figure 4. Such characteristics exist invariably in services.example of age as a factor.Marketing of Services: An Introduction c) Demographic Factors: Buyer’s demographic factors like age. For example. 60 . EXPERIENCE. fast food outlets are more patronized by the teenagers than the elderly persons. most goods are high in search qualities and most services are high in experience or credence qualities. As services are rich in experience and credence qualities. gender. The second is the experience qualities.

Most services are not standardized even if they are provided by the same provider because a lot depends on the person’s caliber and ability to customize it based on the need of the consumer. Innovation Diffusion: Consumer adoption of innovations is much slower in case of services than in products. ii) The consideration set is small as very little information is available prior to purchase. ii) Fewer substitutes are available for services. Another important reason is that unlike in goods most services do not come with guarantees/warranties. This is because consumers have to find a distinct benefit in the offering of the competitor to shift to that. As such he holds himself partly responsible if the service provided is not up to his requirements and hence complains less frequently. Brand Loyalty: Brand switching is lesser with services as compared to services. iv. iii. Same holds good for physical facilities. Consumer Behaviour in Services Criteria for Evaluating Quality: Consumers normally tend to evaluate the quality of a service offering through its price and physical facilities provided by the service provider. Perceived control theory is based on the premise that customers 61 . Complexity of services makes it difficult to evaluate the ability of the provider and indivisibility does not allow trying the service before consumption. ii. consumers rely more on personal sources of information for pre purchase evaluation. Some of the reasons for this are: i. they are able to exercise in a given situation. Attribution of Dissatisfaction: The provision of the service is based on the requirements stated by the consumer. Also they indulge in more post purchase evaluation than pre purchase evaluation and as a result the amount of post purchase evaluation done in services is much higher that in case of goods. Evoked Set of Alternatives: In services the customers’ “evoked set of offering” is small. iii) The rapport that a consumer creates with a service provider prevents him from moving to a new provider as there is always a possibility that the new provider may not understand his needs as well as the previous one did. This is especially true when other cues for evaluating quality are not available. Shared advertising is rare as the producer and retailer are the same in services. Mass communication conveys very little about experience qualities. e. housekeeping. Also it is highly uncommon to find more than one provider of a service in a given area. This is due to the following: i) Differences in retailing: In services the offerings of the competitors are rarely exhibited unlike in case of goods. In case of Non-professional services the evoked set includes self provision of services. Perceived Risk: Consumers associate greater risk with buying services than with goods. Higher the price better is the quality perceived. Perceived Control: The model proposed by Bateson emphasizes that consumers evaluate services control.g. This is on account of intangibility of services which makes it difficult to get information about the offering. Most of the service providers are local/independent and therefore lack the financial or marketing acumen to promote their offering. Very few attributes of services could be discovered prior to purchase. This is due to the following factors: i) Greater search and monetary cost associated with moving to another service provider.Information Search: In the case of services. laundry etc.

However. R. if the employees also think the same way. satisfaction drawn from the job is higher. (Health: Lexington Mass). input variables.9 FURTHER READINGS 1. in (Donnelly and George. communicating the same to the consumers. The buyer behaviour for services is quite different from goods as services are rich in experience and credence qualities unlike goods. which are rich in search qualities. Fisk. J. 4. These include socio-cultural factors. they two may not co-exist. Solomon.191-195) pp. This notion is useful when designing new services Similarly. 4. Sheth. Toward a Consumption/Evaluation Process Model for Services. Simultaneously. 5.87 2. Howard and J. Michael R. 1969 3. the three stages of consumer decision making. “Perceived Control and the Service Encounter. ‘experience’ and ‘credence’ qualities? Explain with the help of examples. it is difficult to evaluate them before the purchase. Valarie A. The Theory of Buyer Behaviour. eds. Principles of Services Marketing. Zeithaml. Briefly describe the buying process taking the example of ‘Home-Loan Financial Services’. 4.Marketing of Services: An Introduction feel more satisfied with a service if they believe that they have greater control over the service delivery.N. personal factors and situational factors. in Donnelly and George. therefore. by developing adequate service standards. it is important for the organization to balance out between the two. in. 4. Marketing of Services. Since the services are intangible.39-47. but in services.Czepiel. p.7 SUMMARY The buying process of services are typically different from the manufactured goods. and Carol F. In what ways the buying process differs between individual buyer and the organizational buyer? 2. Adrian Palmer. 1998. Suprenanat. 67-82. Though similar to manufactured goods. John E.191-195. 1981 pp. New York. 4.A. What are the differences between ‘search’ . Marketing of Services.. to deliver the services adhering to those standards and developing systems for operational efficiency. 1981 pp. The Service Encounter. 62 . 3. the process variable differs significantly. How Consumer Evaluation Processes Differ Between Goods and Services.G.P. Why do consumers of services perceive higher levels of risks associated with their purchases? Discuss with the help of examples.8 SELF ASSESSMENT QUESTIONS 1. London: McGraw Hill. process variables and output variables are the same. Bateson. psychological factors. There are a number of factors which influence buyer behaviour. John Wiley and Sons. John A.

Harper Collins. Service Marketing.). Dryden. and D. 1995 C. 1995 L.L. Sage Publications. A.E. Service Breakthroughs Changing the Rules of the Game. Hart. New Delhi. H. Parasuraman. Berry and A. Carson and A. 1990 V. Prentice Hall A. 2002 C. 2002 T. Tata McGraw-Hill. Zeithaml and M. 1996 W. Bitner.J. 1997 V. John Wiley. Cowell. Prentice Hall of India. Bateson. Zahorik and T. Glynn and J.The Indian Perspective. 2003.W. Iacobucci (eds. Mercury Publications.FURTHER READINGS : BOOKS ON SERVICES MARKETING Given below is a list of books on “Marketing of Services” which you may find useful for further reading for this course. 63 . Barnes (eds. Heskett. Services Marketing.). Woodruffe. A. Service Marketing. The Free Press.Text and Readings.L. 1996 D. 1996 Ravi Shanker.G. Clow. Lovelock. John Wiley and Sons. Sasser. Parasuraman and L.A.L. Zeithaml .). Handbook of Services Marketing and Management. Marketing Services : Competing Through Quality.L. Services Marketing. Excel Books.L. 1996 R. W. Kurtz and K. Swartz. Palgrave. Groonross.T.A. Heinemann.E. Jr. Service Marketing. and C. Baron and K. Managing Services Marketing: Text and Readings. 1991 D. Macmillan India. The Free Press. .L. 1990 J. Services Marketing – Text and Cases . Delivering Quality Service – Balancing Customer Perceptions and Expectations. Service Management and Marketing. Keiningham.J. Payne. 1990 D. Services Marketing. The Marketing of Services. Rust. Lexington Books. 2000 H. S. Services Marketing. Essence of Services Marketing.J. Harris. Gilmore (eds. Understanding Service Management. The Free Press. Berry. 2003 J.A.

Indira Gandhi National Open University School of Management Studies MS-65 Marketing of Services Block 2 SERVICES MARKETING MIX UNIT 5 Product and Pricing Decisions UNIT 6 Place and Promotion Decisions UNIT 7 Extended Marketing Mix for Services 5 17 29 1 .

New Delhi Ms. by Director.B. New Delhi-110 018 2 Printed at: . L.. Sanjeev Bhikchandani Sanka Information Pvt. Sudha Tewari Parivar Seva Sansthan New Delhi Mr.L. B-107 Fateh Nagar. Registrar (Publication). without permission in writing from the Indira Gandhi National Open University. Kamal Yadava Course Coordinator and Editor School of Management Studies IGNOU. Rakesh Khurana School of Management Studies IGNOU. V. Bhutan Mr. Printed and published on behalf of the Indira Gandhi National Open University. Madhulika Kaushik School of Management Studies IGNOU. Kamal Yadava School of Management Studies IGNOU.B. Johari FMS. Course Revision Team (2004) Prof. Paper Used: Agro-based Environment Friendly Laser Composed by: ICON Printographics. M.D. New Delhi Dr. Amrish Sehgal Bhutan Tourism Development Corpn.Services Marketing Mix Course Preparation Team* Prof. D. 2004 ISBN-81-266-1263-0 All rights reserved. Sinha IIM Bangalore Mr. Delhi University Delhi Prof. New Delhi. Hyderabad Prof. Saurabh Khosla Tulika Advertising Agency New Delhi Mr. Ramdas Management Consultant New Delhi Prof. Chhatwal. SOMS. Singh IMI New Delhi Prof. B. Sr. 2004 (Revision) © Indira Gandhi National Open University. Nadda Goa University Goa Mr. Khanna Director School of Management Studies IGNOU. Arun Shankar Citi Bank New Delhi Dr. by mimeograph or any other means. J. Ravi Shankar Course Editor IIFT. Rekha Shetty Apollo Hospitals Madras Prof. New Delhi-110 068. Asstt. New Delhi Prof. Madhulika Kaushik School of Management Studies IGNOU. New Delhi Dr.K. New Delhi Mr. New Delhi Dr. A. No part of this work may be reproduced in any form. Tapan K. New Delhi Prof. New Delhi Prof.S. Further information about the Indira Gandhi National Open University courses may be obtained from the University’s Office at Maidan Garhi.M. P. Rupa Chanda IIM Bangalore Print Production Mr. Rajat Kathuria IMI. Scale. M. Pramod Batra EHIRC New Delhi Ms. Malabika Shaw AIMA New Delhi Mr. Chandrashekhar Mahindra Days Hotels & Resorts Bangalore Ms. New Delhi * The course was initially prepared by these experts and the present material is the revised version. School of Management Studies. The profile of the Course Preparation Team given is as it was on the date of initial print. Agarwal XLRI Jameshedpur Mr. J. Ltd. IGNOU June. Panda IIM Khozikode Calicut Prof. Venkateswaran Transportation Corporation of India.

In unit 1 of the course you were introduced to the marketing mix for services. As you are now aware, in addition to the traditional 4Ps of marketing mixProduct, Price, Place and Promotion, marketing mix for services includes three additional elements - People, Physical Evidence and Process. In this block we will be discussing these seven marketing mix elements. Unit 5 on Product and Pricing decisions explains the concept of the service product, issues involved in developing new services offerings, service branding and positioning, and pricing of services. Unit 6 details out issues related to Place and Promotion decisions. In this unit different methods of distribution have been discussed alongwith the various elements of promotional mix. The last unit of this block covers the extended marketing mix elements of People, Physical Evidence and Process.


Services Marketing Mix

MS-65: MARKETING OF SERVICES Course Components



1. 2. 3. 4. Marketing of Services: Conceptual Framework Role of Services in Economy International Trade in Services, the WTO, and India Consumer Behaviour in Services

5. 6. 7.

Product and Pricing Decisions Place and Promotion Decisions Extended Marketing Mix for Services

8. 9. 10.

Service Quality Managing Capacity/Demand Retaining Customers

11. 12. 13. 14.

Financial Services Tourism and Hospitality Services Health Services Case Study: Serving the Global Indian Issues in Social Destination Marketing India Marketing of Health

15. 16. 17. 18. 19.

Educational Services Professional Support Services: Advertising Agencies Telecommunication Services Product Support Services Case Studies 1. Is the Customer Always Right? 2. The Case of Dosa King.


After studying this unit, you should be able to: Define the service product concept , describe the various elements of the total service package and suggest how to go about developing a new service offering. Understand the concepts of service branding and positioning. Describe how characteristics of the services influence the pricing decisions. Discuss the pricing strategies that may be used to sell services.

5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 Introduction The Service Product Developing New Service Offerings Service Branding and Positioning Pricing Summary Self Assessment Questions References

In practice the core of marketing is considered to be the marketing mix. Neil Borden1, while quoting from an article of James Culliton2, wrote that a marketer is viewed as a "decider", or an "artist" or a "mixer of ingredients" who plans various means of competition. "He may follow a recipe prepared by others, or prepare his own as he goes along, or adopt a recipe to the ingredients immediately available, or experiment with or invent ingredients no one else has tried." If a marketer was a "mixer of ingredients", what he designed was a marketing mix. Borden further wrote that "it was logical to proceed from a realization of the existence of a variety of marketing mixes to the development of a concept that would comprehend not only this variety, but also the market forces that cause managements to produce a variety of mixes. It is the problems raised by these forces that lead marketing managers to exercise their wits in devising mixes or programmes to fight competition." As discussed in Unit1, the marketing mix in services includes 7 Ps. This unit covers two of the marketing mix elements i.e. Product and Price.

Product, in the marketing context is anything which is offered to the market for exchange or consumption. In goods marketing we always say that there is a tangible component to which some intangibles like style, aftersales service, credit, etc., are integrated. In the case of services, on the contrary, the tangible component is nil or minimal.


Services Marketing Mix

Conventionally, we describe a product as an object, which is developed, produced, delivered and consumed. However, in services there is no or a little tangible element. Therefore, the services are considered to be as benefits which are offered to the target market. There are two important things to note. First, a service is a bundle of features and benefits and secondly, these benefits and features have relevance for a specific target market. Therefore, while developing a service product it is important that the package of benefits in the service offer must have a customer's perspective. Kotler3 has identified five levels of a product, as listed in Table 5.1. The example given in the table is that of a hotel. It is the core and the basic which might be the same for most of the competing products and it is the other levels which make them different. Table 5.1
FIVE PRODUCT LEVELS 1 2 3 CORE BENEFIT BASIC PRODUCT EXPECTED PRODUCT The fundamental benefit or service the customer is buying (Hotel : Rest / Sleep) Basic, Functional Attributes (Room; Bed; Bath…) Set of attributes / Conditions the buyer normally expects (clean room, large towel, quietness) That meets the customers' desires beyond expectations(Prompt Room Services, and Check in / out, Music, Aroma) The possible evolution to distinguish the offer (all-suite hotel)





Activity 1 For any 3 brands of a particular service (say Hospitals), prepare a comparative table of all the 5 product levels.

Gronroos4 construed that the services a product offers consist of three levels. As shown in Figure 5.1, the first level is that of the basic service package which includes core service, facilitating services and supporting services. The second level is that of an augmented service offering where accessibility, interaction and customer participations is given equal importance in delivering the service product. The third level is that of the market communication of the service offering as in its absence the augmentation service package does not have any relevance to the customer. 1. The Service Package The 'package' concept of service product suggests that what you offer to the market is a bundle of different services, tangible and intangible but there is a


main or substantive or 'core' service and around it are built the auxiliary or peripheral or facilitator services. It is important to note that facilitating services are mandatory, and if they are left out, the entire service would collapse. In the service package there are yet other types of services called supporting services. The basic difference between these services from facilitating services is that these services do not facilitate the consumption of core service, but are used to increase the value, and, thus, differentiate it from competition. For example, in a 500-room hotel the core service is lodging and room service, bell boy service is facilitating service, and health club, car rental are supporting services. However, it may not be always possible to draw a line of distinction between facilitating and supporting services. For example, in a typical city hotel, business center might be the supporting service, but in a business and convention hotel, the same service would be facilitating service. Figure 5.1: The Service Product

Product and Pricing Decisions



Accessibility of the Services

Core Service Facilitating Services Supporting Services

Consumer Participation


Source: Christian Gronroos, Service Management and Marketing, Lexington Books, 1990

Nevertheless, it is important while developing the service product package to consider all the three levels of service: core, facilitating and supporting. 2. The Augmented Service Offering It has been said that the basic service package is not equivalent to the service product the customer perceives, which is, in fact based on customer's experience and evaluation. Therefore, there is a need to involve the customer in the production of service offering and thereby reinforcing that the basic service package has to be expanded to a more holistic model of augmented service offering. Here the suggestion is that issues related to the accessibility of the service, interaction with the service organization and consumer participation are also integral elements of the service product. Gronross identified the relevance of these issues in relation to the augmented services offering. The details are summarized in the Table 5.2. Some of these aspects are covered in the Unit on extended marketing mix. 7

Services Marketing Mix

Table 5.2: Elements of Augmented Service Offer
Accessibility of the Service – – – – – – Interaction with service organization – – Number and skills of personnel Working hours and time used in performing various tasks Location of service outlet Exterior and interior of service outlet Infrastructure, hardware, documentation The number and knowledge of consumers simultaneously involved in the process. Interactive communication between employees and customers Interactions with the physical and technical resources of the organization needed in the service production process Interaction with other customers involved in the process How well the customer is aware about the process of service delivery and his or her role How well the customer is prepared to share information How well the customer is willing to share information or use service equipment

– Customer participation – – –

Source: Christian Gronross, Services Management and Marketing, Lexington Books, 1990, pp 76-80.

3. Market Communication of the Service Offering It is true that a favorable image enhances the service experience, and a bad image may even destroy it. Therefore, the issue of management of image through communication becomes an integral part of developing the service product. But the important point to note here is that apart from the conventional methods of promotion, corporate image and word of mouth are, if not more, equally important. A negative comment from a fellow customer is more than adequate to neutralize the effect of your efforts of mass media advertising, media blitz and direct promotions. You will study more about communication in the next unit. Activity 2 For any service organization, identify all the levels of service offer, as suggested in the Gronroos model and also study the marketing implications. ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ...........................................................................................................................

In order to develop a service product, as a manager you will have to follow the following stages: i) ii) 8 the customer benefit concept; the service concept;

musical concerts. and changing expectations. This change in customers may come about by a satisfactory or unhappy experience in utilising the service. the Product and Pricing Decisions ii) iii) iv) v) 9 . music. But in practice. service forms. The cheque or withdrawal slip and the clerk constitute the delivery system. 'What business are we in?' Service Offer: Having defined the business in which you are operating. While these represent the intangible items of the service offer.iii) iv) v) i) the service offer. musicians cannot be controlled. the benefits sought may also change. The tangible aspects can be controlled by offering the best possible benefit. drama. Hindustani or Western. and dance. the next step is to give a specific shape and form to the basic service concept. A centre for the performing arts may offer entertainment and recreation. But within this broad framework. provision of air-conditioning. brief introduction before each dance item. The service offer is concerned with the specific elements that will be used to provide entertainment: drama. quality and acoustics. Defining the service concept helps answer the fundamental question. but the quality and performance of the actors. dance etc. To refer to the example of the centre for the performing arts. who after verifying the details. with a higher priced ticket for a well-known performance? Service form refers to the various options relating to each service element. snack bar and toilets are the tangible items. and the service delivery system Customer Benefit Concept: The service product which you offer in the market place must have its origin in the benefits which the customers are seeking. poetry recitation. through increased sophistication in service use and consumption. etc. you either use a cheque or a withdrawal slip in which you fill all the particulars and hand it over to the clerk . mime. gives you money. At the generic level the service concept refers to the basic service which is being offered.g. Service Delivery System: When you go to your bank to withdraw money from your account. there can be specific choice paths for satisfying the entertainment objective. maximum duration of recital. he can control only the tangible components and lay down norms for the intangible components (e. the service concept is to provide entertainment. comfortable seats. In the category of musical concerts the choice may be vocal or instrumental. Should all the shows of the centre be available in a package deal against a yearly membership fee or seasonal ticket? Should there be daily tickets with the consumer having the freedom to watch any one or more performances being staged on that particular day? Or should each performance have a separate entrance ticket. But the problem is that customers themselves may not have a clear idea of what they are seeking or they may find it difficult to express or it may be a combination of several benefits and not a single one. mime. All these make the issue of marketing a service product very complex. Theoretically. Service Concept: Using the customer benefits as the starting point. In a restaurant.) Service Forms: In what form should the services be made available to the customers is another area of decision-making. with vocal whether light or classical. poetry recitation. The manner in which they are combined gives shape to the service form. Over a period of time. the service concept defines the specific benefits which the service offers. the physical infrastructure of the centre. such as. singers. in terms of its seating capacity. a manager must control both the tangible and intangible components.

Table 5. The competence and public relations ability of a lawyer represents the 'people' component. You would need to take decisions on the length and width of the range of services. letterhead.3: Examples of Range of Service Customer Groups Children Swimming lessons Badminton lessons Indoor games Library Film shows Mixed Adults Swimming lessons Badminton.Services Marketing Mix waiters are the elements of the delivery system. Table 5. facilities etc. and how well they face up to the competitor's offerings. using the example of a club. while his office building. are all elements of the 'physical evidence'.2: Conceptualisation of the Service Product Level 1 Consumer Benefit Concept Concerned with what benefits do customers seek Translated into Service Concept Level 2 Translated into Level 3 Service Offer Concerned with what general benefits will the service offer Concerned with greater detailed shaping of the service concept decision on: service elements (tangible and intangible) service forms (in what way and how) service levels (quality and quantity) Translated into Level 4 Service Delivery System Creation and delivery of service using guidelines built into the service offer. you would like to market not just one service but a range of services. etc.3 illustrates the concept of a range of services. office door. The two main elements in a delivery system are the people and the physical evidence. Figure 5. Tennis lessons Card rooms Billiards Facilities for parties & receptions Only women or men Beauty parlor/Massage facility Yoga/Judo Lessons Tournaments Kitty parties Business groups Conference rooms Secretarial assistance Video coverage 10 . Concerned with people processes. Figure 5.2 presents a graphical conceptualisation of the service product. The physical evidence components have also been called 'facilitating goods' and 'supporting goods'. As a manager marketing services. These are the tangible elements of the service and they exert an important influence on the quality of the service as perceived by the consumers. the manner in which they complement and support each other.

................ term.. ...........' Though branding has received considerable attention from marketers and academicians................. relevance and memorability.............................. .. The Economic Times......... the service concept...................................... The American Marketing Association defines a brand as follows: 'A brand is a name ................. For a service brand to be effective it should possess distinctiveness.... Keeping in view the transition of Indian economy to one which is dominated by services. However....................... A well chosen brand name can provide a number of specific advantages to the organisation........ The target market segment must have a definite need for the service... The intangibility factor associated with services has led to the suggestion that branding and image creation may be even more critical for services..........4: Top Service Brands of India 2003 Category Rank 1 2 3 Reliance Indian India Mobile Airlines BSNL Airtel Air Sahara Jet Airways Pizza Hut McDonalds Café Coffee Day Taj Hotels Oberoi Hotels ITC Hotels ICICI Bank LIC UTI Bank HDFC Bank ICICI Prudential HDFC Standard Life Telecom Airlines Food Services Hotels Pvt... Analyse the services offered by the hotel or restaurant at the five levels studied by you....... or a combination of these... The Economic Times in its survey of India's most trusted brands has started including a separate category of service brands................ confidence........3 the recreation facilities for children would succeed only if the parents of the children perceive a definite advantage in the trade-off of money versus time...................4 SERVICE BRANDING AND POSITIONING Choosing a brand name for a consumer product or service is one of the most important decisions.... while at a restaurant or a hotel....... 17 Dec 2003 11 ..... intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors................ The parents must perceive it worthwhile to spend money on the children to keep them busy rather than spending their own time..................................... In the illustration of the club in Table 5......... evoking feeling of trust................ Sector Life Banks Insurance Source: Brand Equity..... Activity 3 You have studied that a service product can be analysed at the level of the customer benefit concept.... security and simplifying shopping...... symbol........... These include suggesting product benefits............ services branding has started to receive considerable attention lately...... sign............ the service offer and the service delivery system........................................................................ ............. According to its survey Table 5........The service or services which you offer must be targeted at specific market segment.... Try to recapitulate the services that you have enjoyed..... the main focus has been on physical goods rather than services.... or design............... . Product and Pricing Decisions 5............

building etc.e. clothes. Psychographic (lifestyle. This requires the companies to examine their markets.the top services in different service categories were as given in Table 5. but in the case of services.2003. advertising. brand name etc. On the other hand competition in speciality branded services is based on the other elements of the marketing mix including customer service. The market segmentation can be done on the basis of a number of variables like Geographic ( region.5: Price Terminology for Selected Services Terminology Admission Commission Fare Fee Interest Premium Rent Salary Tariff Tuition 12 Service Theatre entry Brokerage service Transport Legal service Use of money Insurance Property usage Employee services Utilities Education Source: Donald Cowell. usage rate etc. income. determine the structure and nature of markets segments. Segmentation.5 represents the term used for some selected services.). computers.fruits.). Table 5.Services Marketing Mix of most trusted brands . Service managers should keep their focus on branding and differentiation in order to avoid the shift to commodity status where competition is primarily on price and terms. education. occupation. family size. London . personality) and Behavioural (benefits. Service Positioning Positioning is the act of designing the company's offering and image to occupy a distinctive place in the target market's mind. Demographic (age. Table 5. climate etc. occasions of use. social class etc. "The Marketing of Services" Heinemann. gender. different terms are used for different services. It is important to learn that brand can be a major determining element in the purchase of services and a means of adding differentiation.). 5. The various steps in determining a positioning plan include: i) ii) iii) iv) v) vi) vii) Define a market's segments Decide which segment to target Understand what the target consumers expect and value Develop a service which caters to these needs Evaluate consumer perceptions of competing services Select an image for the product matching the aspiration of the targeted consumers Communicate with the determined customers and make the product suitable available. Targeting and Positioning . the term 'price' is used for all kinds of goods.5 PRICING In the case of products. You will appreciate that service positioning involves three basic steps i.4 below.

such as fees of doctors. Such a pricing strategy is effective in restricting entry and aiming at minimum profit targets. fare for rail and air transport in India are controlled by the government. most of them would require direct participation of the consumer i. the more difficult it is to calculate cost and greater the tendency towards nonuniform services. the price may be regulated by the government or industry association on the basis of the cost incurred by the most efficient unit. other than monetary costs. the producer has no freedom to determine his own price. when buying and using a service. International air fares are regulated by international agreement of airlines. the consumer is not only spending his money but also sacrificing his time. the more unique a service the greater the freedom to fix the price at any level. management consultants. either by the government or by trade associations. Services being rich in experience and credence qualities are rarely displayed on shelves in service outlets for Product and Pricing Decisions 13 . The market-oriented pricing may either be a result of the competition or customer-oriented. Therefore. in services such as dry cleaning.e. the trade or industry association may regulate prices in order to avoid undercutting and to maintain quality standards. Many a times the non monetary costs may become even more important than monetary costs. electricity and water rates. Often the price may be fixed according to the customer's ability to pay. i) Time Costs: Because services are inseparable. ii) Search Costs: These involve the efforts put in by the consumer in searching information. sea freight fares may be regulated by shipping conferences. Another characteristic of services that creates a problem in price determination is the high content of the intangible component. or fixed lower to increase market share. In general. B) Role of Non-monetary Costs Non-monetary costs refer to the sacrifices perceived by the consumers. the one characteristic which has great impact is their perishability and the fact that fluctuations in demand cannot be met through inventory. The higher the intangibility. In case of competition-oriented pricing. and the service provided is homogeneous. It is easier to calculate the cost on a unit basis and have a uniform pricing policy. finding out alternatives and evaluating them. At times the consumer may be required to travel to a service which may involve time as well as additional monetary cost. In such cases price may be used as an indicator of quality. In all such cases. Hotels and airlines offering low rates in off-season are examples of how pricing strategy can be used to offset the perishable characteristics of services. the price may be fixed at the level which the competitor is charging. lawyers. the tangible component is higher. In the former. Customeroriented pricing varies according the to customer's ability to pay. the price may sometimes be settled through negotiation between the buyer and seller. Typically search costs are far greater in case of services as compared to goods. they involve time. Bank charges. The two methods which a service organisation may use to determine prices are cost-based pricing and market-oriented pricing. In many other cases. In such cases. the prices are subject to regulations. The time required by a consumer would include actual time of interaction with the service provider as well as the waiting time. On the other hand.A) Pricing and Service Characteristics In determining the prices of services. The third characteristic to be kept in mind while determining prices is that in many services. The nonmonetary costs can be broadly divided into the following categories. There are a number of reasons for this.

and place differential used in rent of property-theatre seat pricing (balcony tickets are more expensive than front row seats) and houses in better located colonies command high rent. g) Offset pricing. b) Discount Pricing refers to the practice of offering a commission or discount to intermediates such as advertising agencies. In fact by reducing non-monetary costs. Employment agencies charge their fee only when a person actually gets a job. d) Guaranteed pricing. stock brokers. Thus he may end up buying more than just the basic meal. f) Loss leader pricing. b) Discount pricing. As marketers you should not concentrate just on monetary costs alone as consumer make decisions based on monetary as well as non-monetary costs. on line trading etc. lawyers). property dealers for rendering a service. airlines. d) Guaranteed Pricing refers to pricing strategy in which payment is to be made only after the results are achieved. For example. e) High Price Maintenance Pricing strategy is used when the high price is associated with the quality of the service. Many doctors. a property dealer charges his commission only after the deal is actually transacted. price time differentials (used in hotels. e) High price maintenance pricing. A restaurant may offer a basic meal at a low price but one which includes no soft drink or sweet dish. c) Diversionary pricing. while applying for a bank loan the customer has a fear of the loan application being rejected. Also in many services it is difficult to know the price in advance. Differential price implies charging different prices according to: 1) 2) 3) customer's ability to pay differentials (as in professional services of management consultant. C) Pricing Strategies The pricing strategies that may be used to sell services are: a) Differential or flexible pricing. c) Diversionary Pricing refers to a low price which is quoted for a basic service to attract customers. It may also be used as a promotional device to encourage use during low-demand time slots or to encourage customers to try a new service (such as an introductory discount). lawyers and other 14 . iii) Psychic Costs: These include fear of not understanding or fear of rejection or fear of uncertainty. At times. customer may find the service product difficult to understand like various options in life insurance or difficult to use like ATMs. telephones where there is the concept of season and off season and peak hours). Once the customer is attracted because of the initial low price he may be tempted to buy a drink or an ice-cream or an additional dish. and h) Price bundling.Services Marketing Mix customers to evaluate them. it may be possible for you to increase monetary price. a) Differential or Flexible Pricing is used to reduce the 'perishability' characteristic of services and iron out the fluctuations in demand.

It basically means pricing and selling services as a group rather than individually. In addition to deciding on what to charge.professionals follow this pricing strategy. A gynecologist may charge a low fee for the nine months of pregnancy through which she regularly checks her patient.) Product and Pricing Decisions 5. Service Product was explained to you with the help of Kotler's five product level concept and Gronroos's three level concept. 3. The unit also explained the issues related to service branding and positioning While determining the prices of services it is important to consider the perishability and intangibility aspects. Differentiate between core. timings) How should payment be made ? (Cash. A number of pricing strategies can be used by services marketers.7 SELF ASSESSMENT QUESTIONS 1. In addition a number of other decisions related to pricing have to be undertaken like who should collect the payment. h) Price Bundling: Some services are consumed more effectively in combination with other services. The steps in developing a new service were identified and discussed. 2. message content etc. where. loss leader pricing etc. g) Offset Pricing is quite similar to diversionary pricing in which a basic low price is quoted but the extra services are rather highly priced. the pricing strategy of a service firm should also address the following issues: Who should collect payment? (Organisation or a specialist intermediary) Where should payment be made? (Location of service delivery or a convenient outlet or customer's home) Where should payment be made? (Before or after delivery. Service concept then helps the organisation in detailed designing of the service offer which is to be translated into the service delivery system. taking each service characteristic. when and how. facilitating and supporting services. price bundling is an appropriate strategy.6 SUMMARY This unit covered two elements of the seven marketing mix elements for service . but many charge extra for performing the actual delivery and post-delivery visits. giving suitable examples. The danger is that the initial low price may become the price for all times to come.) How should prices be communicated to the target market? (Communication medium. a number of services are subject to price regulations by the government. Discuss the various stages in the development of a new service offering. 15 . Also. These include differential pricing. When customer perceive value in package of services that are interrelated. third party payment etc. f) Loss Leader Pricing is one in which an initial low price is charged in the hope of getting more business at subsequently better prices. discount pricing.Product and Price. credit card . 5. What are the basic differences between pricing of goods and pricing of services? Does characteristics of services influence their pricing? Discuss. one by one. These include developing a consumer benefit concept which should be translated into service concept.

1987. pp. 2. (Boston : Graduate School of Business Administration. Add Value to Your Services. Marketing Management : Millenium Edition.Culliton. 4. Enlist those services. June 1964. Identify reasons. "The Concept of Marketing Mix". 3. Think about some of the services that you use frequently. Neil H. Philip Kolter.8 REFERENCES 1. in which there is a price competition. "Developing the Service Offering . 1948. for example restaurant or out-door catering.Susprenant (ed). 16 .Borden. The Management of Marketing Costs. (Chicago : American Marketing Association). 2000).A Source of Competitive Advantage. Harvard University). Read the case on "Dosa King" given in the last unit (Unit 19) of this course and answer the questions asked in the case. 5. James W. (New Delhi : Practice Hall of India. 6. 2-7." in C. Journal of Advertising Research. thereafter. for suchpricing strategies in these two categories of services.83. p. Also enlist some of those services in which there is non-price competition. identify how the price of these services are expressed? How does the price reflect the other elements of the total service offer? 5. From the lowest end eating out joint to a most exclusive restaurant you visited. Christian Gronross.Services Marketing Mix 4.

We will also be taking up another marketing mix element .7 Introduction Place or Distribution Methods of Distribution in Services Promotion Summary Self-Assessment Questions References and Further Readings 6. The first decision variable in planning the distribution strategy relates to the location of the service.3 6.1 INTRODUCTION Distribution means 'PLACE' decisions and like manufactured goods such decisions are important in service industries as these decisions relate to Location.2 6. teachers. The 17 .5 6. Though it might be easy to understand these concepts for 'physical items'.advertising.2 PLACE OR DISTRIBUTION The most important decision element in the distribution strategy relates to the issue of location of the service so as to attract the maximum number of consumers. The other characteristic of services which affects the distribution strategy is the fixed location of services such as universities. sales promotion. To propose guidelines for advertising. and hospitals which necessitates the customer to go to the service location rather than vice-versa. restaurants. however we have examples of unsold or spare seats in Airlines sectors. 6. you should raise the following questions as they would help you arrive at the right decision. mechanics etc. consultants. Delivery and Coverage. i) How important is the location of the service to the customers? Will an inconvenient location lead to purchase being postponed or being taken over by a competitor? The answer is 'yes' in case of services such as dry cleaning. Structure 6.Promotion. unsold rooms in hotels and unsold table covers in restaurants. fast food outlets where convenience is the most critical factor. sales promotion and other promotional methods for service industries. In deciding where to locate your service. localised market. poses a distribution constraint since they are able to serve only a limited. To identify the methods of distribution for service industries. The inseparability characteristic of service such as those of doctors.4 6. The various components of 'promotion mix' viz.1 6. The service characteristics have direct impact on distribution decisions and in this unit we shell examine the same.UNIT 6 PLACE AND PROMOTION DECISIONS Objectives The objectives of this unit are: To examine how service characteristics influence distribution decisions.6 6. publicity and public relations will be discussed in relation to services. .

Services Marketing Mix answer is no in case of services provided by doctors and beauty parlors. The following table provides examples of both of these categories. McDonald's Quasi Retailing 1) Direct Sales Direct sales has specific marketing advantages as they help in maintaining better control over how the service is provided or performed and also in obtaining direct feedback from customers. 6.g. The third decision variable in the distribution strategy is how to provide the service to a maximum number of customers in the most cost-effective manner (if the service is not of the kind that is inseparable).3 METHODS OF DISTRIBUTION IN SERVICES Distribution in services can be broadly classified into two categories.. property. In case of services which are inseparable form the performer. direct sale is the only possible way of reaching the consumer. Online courses Franchisees e. problems of expanding the business and coping with high workloads where the services of a particular individual may be in demand or direct sale means limited geographic market coverage... where the customer's involvement with the provider of the service is very high and the decision is made on the basis of reputation. life sales and sales via intermediaries. Some of the recent innovations in the area are rental or leasing. airlines. franchising and service integration. There are obvious problems also in direct sales. The typical benefits the companies see in electronic distribution of services are: Consistent delivery for standardized services Low cost Customer convenience Wide distribution 18 Sales via Intermediaries Agents & Brokers e.g. The second decision variable in the distribution strategy is whether to sell directly to the customers or through intermediaries. travel / insurance agents . a) Direct Sales Through Electronic Channel To overcome such problems companies are exploring possibilities of direct sales through electronic channels. they may operate through middlemen. technology-based or people-based? How flexible is the service? Can the equipment and people be moved to another location without any loss in quality? iii) How important are complementary services to the location decision? Can the clientele be increased by locating services where complementary products or services already exist? Garages and mechanic shops located next to petrol stations are examples of complementary location decision. In case of other services such as hotels. ii) Is the service. competence and past experience. like. ATMs. Direct Sales Electronic channels e.

..... 2.... packers and movers. car rentals........... it does not have to develop as large a bureaucracy to govern the business.......... travel agencies................. .... etc................. a secret process or specialised piece of equipment and the goodwill associated with it.. ........ The service tasks.................... Franchising is the granting of rights to another person or institution to exploit a trade name...... an idea............... There is often less risk attached to franchise expansion than with the creation of new service ventures that may not have been tested as well... and many of the potential problems with the operations have already been identified and ironed out.. 7........................ couriers........ A franchiser's overhead is lower because the franchisee does hiring........... There are economies of scale to advertising and promotion....... local promotions. c) Quasi Retailing The quasi-retail outlets....... d) The payment by the licencee of a royalty or some other consideration for the rights that are obtained......... idea process or equipment and the goodwill associated his rights........ and service delivery systems are usually well defined and structured.......... 4..................... etc.Customer choice and ability to customize Quick customer feedback Activity 1 Compare the advantages (or disadvantages) of online railway reservation system with conventional reservation window system....................................... The advantages provided by a franchising arrangement are as follows: 1........ ........ Expansion through franching can proceed quickly...... office services........... ................. Franchises usually have a better record for staying viable business than the typical service business startup........... beauty parlours....... 8......................... 6............... fast food outlets..... for both franchisees and their workers.. c) The inclusion in the licence agreement of regulations relating to operation of the business in the conduct of which the licencee exploits his rights....... b) The grant of a licence by that person to another permitting the exploitation of such name.. In service Industries franchises operate in the area of hotels.. Local operators are committed because they have their own capital at risk.. restaurants............... 3... business centres.......... like- Place and Promotion Decisions 19 .. trade mark or product in return for a lump-sum payment or a royalty... sell services rather than goods............ and thus they work well.... pest control.. The franchisee is responsible for most of the cost control..... b) Franchising The other recent trend in distribution of services is that of franchising........... 10.... There are usually training materials already developed.. They have been prototyped............ The franchiser need apply only minimal controls..... collections. 5..... Franchise is characteristed by the following features: a) Ownership by one person of a name... service standards.................... 9..............................

..... There are some suggestions for quasi retail establishments to succeed.... photograph processing....................... banks on Saturday) and too many quasi-retail outlets in a centre can reduce the range of conventional retail store choice.............. For example users of facilities like banks and building societies may use shops selling goods on the same shopping trip......... Some service outlets may be closed on peak shopping days (e................ Service Channel tends to be direct......... The third suggestion which can be considered is to centralize service production facilities but decentralize customer contact facilities (e.........g................ etc..... Firstly...... therefore........... ....... all extra-corporate entities between producer and prospective users that is utilized to make the service available and/or convenient......... 2) Sales via Intermediaries To the extent the middlemen exist in a service channel. This can be done by special promotions and displays.... they are typically sales agents.... Service outlets can have imaginative window displays to encourage window shopping... A Distribution Channel for a service organization is................ if the quasi retail establishments are closed or otherwise.............. they should encourage customers to travel longer distances............ Place decisions are therefore...........g..............................)..... Activity 2 Do you think that a specialty hospital like Escorts or Apollo can cater to the requirements of the public through one main hospital in a particular region of the country? If no................. this Production/Distribution house should be located...... to 'sell' whatever you have in the inventory where it is possible.... is a sequence of firms (or units) involved is moving a service from producer to consumer......................... brokers since there are no inventories to be purchased or distributed..... . Therefore.. There could be many more suggestions and therefore each service organization must evaluate how it can be benefited from quasi retailing............. pathological labs.............. Also they may create dead frontages which discourage window shopping............................... then what relative advantages you see in "Quasi Retail Outlets" of the health care organization? ..................................Services Marketing Mix – – – – Hairdressers Travel Agents Car hire agencies Restaurants – – – – Amusement arcades Employment agencies Hotels Driving Schools Arguments against Quasi-Retailing are that they can push up property values... 20 ............... as the retail radius of the outlet might otherwise remain small.......... The second suggestion is to locate service outlets near complementary facilities.......................... The Golden arch of McDonald's can be seen from a distance and can help the people to identify it........ ............................ For example the Apollo Clinics are not the full service hospitals but they help in market coverage and delivery of services............. The fourth suggestion is to reduce the range of service offer at individual service outlets to match the market requirements and also to reduce the overheads............... which will help in expansion of the market and reduction in service production cost.. Arguments for Quasi-Retail are that many complement other retail businesses................ like: multiple theatre complexes and entertainment centers..

exclusivity and sales commissions. or for a principal. for which he may charge fee for assistance. Broker: A broker is an independent intermediary between buyer and seller who bring parties together to facilitate the conclusion of sales contract. such intermediary's possess special skills 21 . Firstly. Secondly.1. there are distinct channel configurations. There are obvious benefits in distributing services through Agents and Brokers. His contract will define these provisions along with territorial rights. which one can notice in service sector.Key Issues Involving Intermediaries The following are the major issues which should be addressed before hand in deciding the distribution strategy involving intermediaries: conflict over objectives and performance conflict over costs and rewards control of service quality empowerment versus control channel ambiguity A service organization can develop an effective channel system if it helps the intermediary to develop customer-based service processes by providing the required support. Keeping in view the characteristics of services and the potential management problems in retailing of services. A broker may have continuing relationship for his client under a contract period. Alternately.1: Channel Configurations of Services Place and Promotion Decisions Product or Creator of Service Agent or Broker (Selling) Agent or Broker Agent or Broker (Buying) Customer or Industrial Customer Agent: An agent is an independent intermediary. Rathmell has suggested the dominant channel configuration in the service sector where agents and brokers play the key role in distribution of services. Figure 6. Also through training it may develop the intermediary to deliver service quality and gradually move to a cooperative management system and controls. who may act in the name of. they help in reducing the selling and distribution costs besides a wider representation in the market. as shown in Fig 6. a broker may be for a special job to be undertaken.

...... The example of this kind of channel is transportation (travel agents) and office or factory workers (employment agencies)............ For example representation of multiple service principals may lead to poaching in territories of others resulting in loss of control over pricing and other aspects of marketing... mobile banking apart from opening branches in rural areas........................................... Functions of Agents and Brokers The major function of these agents and brokers is... actual product is not transferable and therefore tangible representations are created and transferred............. are of the view that location considerations along with personal sources of information are two of the critical factors in final purchase decision of many services. These agents can be compared with the agents for goods and they are classified as brokers or sales agents....................... There are guidelines suggesting that to open a single branch in any urban area................... Activity 3 What services a travel agent can provide to a customer? List them out by taking the example of any travel agency about which you are familiar: . where a contact document exists as a physical and tangible representation of the services............... However in some cases the agents may be trained in the creation and production of service and then franchised to sell it (eg................................. Duane David et.... Irrespective of whether one uses agents or middlemen or direct sales channel the factor of location keeping in view the potential markets will be the most significant factor in channel selection decision. In India these logistical problems are always overshadowed by the Government policy or interventions....... In case of certain services................................. The problem of standardization and uniformity restrains the service organization to use middlemen to any great extent and limit the geographical area which the service organisations propose to reach and cover............. Banking organizations have started reliving this fact and introduced extension counters. ........................... This type of channel is used for marketing insurance services.... Another characteristic of services is that the services are generally not delivered to the buyer and the creation of time and place utilities is a vital function in the services marketing....................... This lays emphasis on the significance of good selection to attain maximum coverage at the market place........ However these agents and brokers also pose some challenges also................................................... to bring the producer of service and the user or consumer together.. agents can be identified and deployed with selling as the chief function to be performed by Marketing Mix and expertise and also the knowledge of local markets........ etc. a nationalized bank has to first open a fixed number of branches in rural areas... For certain services........................... like any other intermediary..... For promoting the concept of smaller family and immunization a number of Primary Health Centers have been opened but neither have they had the required staff nor the 22 ... ............................................ it could be the issue of locating a site for the new branch of a bank or delivering health care facilities or location of educational institutions.............. ...... Logistics in Services The field of logistics has not been recognized as an area of consideration for effective distribution of services................ Shahnaz Hussain Beauty Parlors).....................

. Therefore..... the basic characteristics of services have implications for communication strategy... Secondly................. ... Manage to maintain a fine image by positive word of mouth........ In service sectors there is a direct contact between the person who provides the service and the customers........... The other set of target audience are similar to that of goods where the target audience may not necessarily be the buyer or user but also the influencer..................... 3.............. some amount of promotion should be targeted at the employees so as to motivate them to serve the customer better........... 23 .. more than their service offer)....... Therefore........................ ......................... you should also be clear about the target audience................................ Make a strong impression of competency.4 PROMOTION It is now established that there are clear differences in information usages between goods and services.. Should be able to use indirect selling techniques (creating derived demand or act as a buying consultant).............................. What would be the possible advertising objectives for there services? .................... Promotion Objectives Although there could be a variety of objectives to promote... the above three differences influence the decisions with regard to with regard to (a) the communications objectives (b) target audiences and (c) planning of each of the sub elements of the promotion mix.................. The significance of logistics is increasingly felt in the services sector as the field of logistic is gaining importance in the manufacturing industries......... Packaging and customization.................................... decider or user of the buying cycle.... Place and Promotion Decisions 6.. ..................... but the basic objectives of the promotion mix for services may fall under one of the following: 1..... Target Audience While you are defining the objectives of your communication campaign................. 4.. Develop personal relations with client (personal relations might result in satisfaction.. First........ honesty and sincerity (professional orientation to service transaction so as to win buyers confidence in sellers abilities to deliver the services)......... 5...................... in hospitality industry the intangible service offer is tangibalized and represented in the promotional material and customers decide to buy or not to buy on the strengths of the descriptions and representations of the service offer in the promotional material....infrastructure........ Activity 4 SBI has recently launched Credit Cards and Insurance services... 2.......................... the consumer of services will prefer personal sources over impersonal sources of information........... In such communications the objective can also be to educate the employees about how to handle operational problems so as to increase their performance level............................ the difference is that consumers of services are less likely to purchase without information than those of buying goods......... And thirdly.............................. For example...............

The Guidelines which can be kept in mind while promoting services are as follows: a) use simple. while listing the various objectives of promotion and types of promotions which a service provider can 24 . – The advertising should make the service offering easily understood. d) build on word-of-mouth communication by using testimony of actual consumers in advertisements. They proposed the following six basic guidelines to help design effective advertising programmes. TV to promote greater usage and attract more customers. hotel. proposed that in the case of services a customers is buying the performance of the service personnel and therefore the advertising in service industries should not only restrict itself to encouraging consumption. trains). These advertisements may also carry the message 'Honorary doctor to the President of India's or ex-director of a prestigious medical college or institution. magazines.Services Marketing Mix Planning the Promotion Mix i) Advertising: Advertising is any kind of paid. In these types of services. the objectives of advertising have been identified as: a) creating an understanding of the company in the customers' minds by describing the company's services. have rarely used advertising as a means of increasing their clientele. However. One other aspect which is of importance in designing an appropriate advertising strategy is the high level of consumer-organisation interaction required in certain types of services (beauty saloons. management consultant. c) promise only that which can be delivered and do not exaggerate claims. ii) Consumer Promotions: Lovelock and Quelch. Certain services such as entertainment (cinema. keeping in view the intangibility of services. doctor). – The advertising should provide tangible clues to the customers. and e) provide tangible clues to services by using well-known personalities or objects to help customers identify the service. certain service professionals such as doctors. These groups have traditionally relied on word-ofmouth for attracting new customers. insurance have been advertising heavily in newspaper. radio. passenger and freight transport (roadways. theatre). but also it should encourage employees to perform well. clear messages. b) emphasise the benefits of service. Such messages help create a positive image and credibility. activities and its areas of expertise b) creating a positive image for the company c) building a strong sense of identification with the customer by turning his needs. But this situation is changing and you can see advertisements in the daily newspapers giving information about the location and timings that a particular doctor is available for consultation. – The advertising should capitalize on the word of mouth. accountants. airlines. and lawyers. – The advertising should have positive effects on contact personnel. – The advertising should promise what is possible. George and Berry. non-personal method of promoting by an identified organisation or individual. – The advertising should contribute to the continuity. tourism and travel. values and attitudes d) creating a positive background for the sales people to sell the services by providing all relevant information about the company.

... identification of the beneficiary and protection against competition........... And lastly... – Refunds and future discounts not much in practice........ For example.................. First............ Commercial Banks b................... one should carefully consider the six basic elements..... group rates for hotels........................... a service seller sells services and not a service.. then one must pay more attention to its organizational structure..... ............. – Price/quantity promotion can help generating long term commitment from consumers e... At any given point Place and Promotion Decisions 25 ......................................... market scope.g......... as what he/she is promoting is an intangible......... iii) Guidelines for Selling Services: Much has been written on the sales management..................... Multiplex Cinema Houses .......... ........................ We will specifically take up this issue at the end of this section. namely. It is therefore important that a service sales person must make a strong impression of competency. They further suggested that unlike physical goods the varieties of schemes available as consumer sales promotion schemes are highly limited........... it is suggested that one must adopt a professional orientation as the key to most service transactions is the buyer's confidence in the seller's ability to deliver the desired results................................... The public opinion plays a greater role in marketing a service......... Johnson observed that for a service sales personnel the following do's and don'ts should be followed.. therefore managing wordof-mouth publicity is important...... – Sampling cannot be used frequently because of the cost of service........ Most hotels first sell the location and then their hotel to the customer...... – Prize Promotions can be used effectively and add excitement and involvement. product scope. the service sales person should develop a personal relationship with the client.......... – Premiums are frequently used to give an element of tangibility.. This can be done either by creating a derived demand or by playing the role of buying consultant.. If there is a distinct need for a high quality personalized service............ Thirdly......................... – Coupons are lesser in use............ honesty and sincerity.. Retail Chains d............................. a service sales personnel has to use indirect selling techniques............. they have to build and maintain a favourable image... Fourthly........... Quite often it is the personal relationship rather than the service itself that results in satisfaction or dissatisfaction with the service....................... Hospitals c... . value... Activity 5 Identify promotions which you have recently seen offered by a..................... timing.... Secondly. emphasized that in execution of any type of consumer promotion scheme.....use................. primarily in the context of product marketing...................

Vol. 2000 iv) Public Relations and Publicity: In certain service industries it is not possible to use the conventional promotion tools with success. Attempt to match employees' manner of dress with customers' expectations. Provide continuous feedback and periodic reminders to staff about the importance of nonverbal communication. They may dress more causally when interacting with a lower-class clientele. where quality is especially difficult for the average consumer to assess.5. Arising out of these reasons the conventional promotional tools have a limited use. Customers who are complaining or seeking retribution are likely to pay particularly close attention to an employee's nonverbal communication. Duncan suggested that the services sector industries have to think about other promotional tools like public relations and publicity. For example. a service seller is dealing with a host of services rather than one. Conduct periodic surveys to assess customers' perceptions of service employees' nonverbal behaviour. For example. Consider using mystery shoppers to achieve a similar end. cool colours might be used when wanting to project an image of friendliness. and warm colours to project an image of activity and excitement.the form of communicating thoughts and emotions without using words. Exhibit 6. There are some services where the size of the operation is not large enough that one can afford heavy promotional budgets. For example in advertising industry mass media advertising is really rare. Employees should normally dress formally in professional services and when interacting with upper-class customers. for example. 6) 7) Source: Sundaram and Webster. Nonverbal communication is also particularly important when customers attempt to evaluate services such as health-care and legal services.are at least as important as the verbal components in shaping the way a customer feels about his or her dealing with an employee. Their thoroughness on each and ability to package them to suit each customer's needs would determine the success. Journal of Services Marketing. There are still others who find it difficult to advertise or promote as it might lead to a bad taste. where delivering the service involves a high degree of person-to. a hospital might find it very difficult to promote abortion services. Provide incentives to encourage employees to adopt the recommended changes in nonverbal behaviour. poise and warmth. role playing and showing videotapes of actual service delivery. so they speak with a voice which displays warmth and trust. In other words the ability of seller to customize the service offering is very important. 14. Similar could be the case for open-heart surgery or other services. Train service employees to be sensitive to nonverbal cues through. The authors suggest that service managers should: 1) 2) 3) 4) 5) Ensure that service employees understand that nonverbal communication is at least as important as verbal communication. The nonverbal aspects of interpersonal communication . Interpersonal communication is especially important in the so-called "pure" services.Services Marketing Mix of time.1 Role of Non Verbal Communication in Service Encounters The delivery of most services involves considerable interpersonal contact between service provider and customer. Offer voice training to employees who need it. 26 .person interaction and no exchange of tangible objects. There are other who cannot afford to cope up with their existing workload. "The Role of Nonverbal Communication in Service Encounters". No.

.....5 SUMMARY When it comes to distribution of services the channels are direct or short............ Therefore promotional activities like community relations.......... 27 .....There are very successful examples like a medical doctor specializing in eye care running his own clinic-cum-nursing home and organizing free eye camps in all over the region....... Services are adopted. However. ..... ............ stories or ideas........ What are the relative advantages (or disadvantages) of direct sales vs............6 SELF-ASSESSMENT QUESTIONS 1................. word of mouth plays an important role in promoting services........... with maximum of one-to-two level......... discount or other reward to customers who bring in new customers..... event management.............. Services can also be distributed through intermediaries like agents or brokers............. Place and Promotion Decisions 6..... people seldom pass on information about a product or service without some reasons.... The local newspapers might carry stories about such camps to give further boost to the promotion.......... This community service not only spread his name but also proved his competence................... Reward your regular customers with some freebies....... 2........ Activity 6 Identify the role of PR for Delhi Police.............. v) Word of Mouth: Services being rich in experience qualities................... Managers who want to take advantage of word of mouth communication should make specific efforts in this direction....... if not more.. as applicable in the Services Sector.. sales via intermediaries? Give specific examples in support.... 6.................... Explain both these concepts in the context of a courier company..... corporate identity programmes have relevance and they should be used innovatively and effectively.... Do you think any other communication tool can be more effective: ................................. Promotional issues are also unique in service industries and typically public relations takes a front seat... Given below are some suggestions for stimulating a positive word of mouth (apart from providing excellent service quality) Offering a gift..... Direct distribution of services can be through electronic channels....... while advertising is more of 'corporate advertising......................................................................... Contribution may be in terms of letters... Differentiate between the channels of distribution and distribution logistics. media blitz..........' The unit provides you guidelines on different elements of promotional mix.... to tell their friends............ Target opinion formers......... as much because of word of mouth communications as because of active promotion by marketers...... franchising or retailing.. .... Asking customers who express satisfaction............................... This can also be done through website............ Running a newsletter and asking customers to contribute............................................

7. 6. rather than theirs own outlets? 4. 7. p. Ravi Shanker. “The Selling of Services” In :Victor P. (muncie.Lovelock and John A. 2. A Study of How Manufacturers and Service Companies Perceive and Use Marketing Public Relations. “Consumer Promotions in Service Marketing. Suggest marketing situations where such members of intermediaries are important. Marketing in Service Sector (Cambridge Mass: Winthrop publishers). 1974.125 4. What guidelines you would follow for developing an advertising campaign for a service organization? Discuss by taking the example of a commercial bank or an insurance company. 1986. 1983. pp. Quelch. Discuss how franchise operations are beneficial to a service organization.Nuell. 28 . “Distribution of Services”. p.Johnson. Business Horizons. 5. Consumer Research. You may be aware that NIIT decided to go for an extensive franchise network. “Service Characteristics. What is the concept of Quasi Retailing? Identify at least three organizations where Quasi retailing is a must. March-April. December 1985. “Megamarketing”. Handbook of Modern Marketing. 3. and the Classification of Retail Services”. Ind :Ball State University). Eugene M. William R. Managing Distribution. 1981. Journal of Retailing. Fall 1979. 5. George and Leonard L Berry :”Guidelines for the Advertising of Services”. (New Delhi : Manas Publication). 117-124. July-August. 3-23. 6. Discuss. Philip Kotler.Guiltinan and Wesley H. Harvard Business Review.” Business Horizons. Duane L. eds.Rathmell.7 REFERENCES AND FURTHER READINGS 1. It is been said that PR Tools are more relevant in service organizations. Joseph P. 1987.Jones. Differentiate between agents and brokers. Tom Duncan. (New York : Mc Graw Hills).110. Also enumerate the advantages of Quasi Retailing for these organizations. 6. John M. pp. 1992.Services Marketing Mix 3.David. 8. Christopher H. May-June.

it was observed that the traditional marketing mix was inadequate because of three main reasons.7 7. patented or transferred.UNIT 7 EXTENDED MARKETING MIX FOR SERVICES Objectives The objectives of this unit are: To introduce the extended marketing mix for services To describe the fifth ‘P’ of the marketing mix called ‘People’ and emphasize on the need for internal marketing in a service organization To discuss the relevance and roles of ‘Physical Evidence’ in service marketing To explain the meaning and significance of ‘Process Management’ in marketing of services and the issues involved therein. Structure 7.4 7. to be developed in direction of the service sector.1 INTRODUCTION For service industries. Booms and Bitner though without any empirical work suggested a ‘7 P’ marketing mix model arising out of the above three observations. The first reason was that the original marketing mix was developed for manufacturing industries. McGrath and 29 . The above three criticisms suggest that a revised framework for service marketing mix is required and dimension of each of the mix elements should be redefined. The third reason was that since services are basically different in comparison to physical products the marketing models and concepts have. which in turn have marketing implications (as discussed in Unit 1).5 7.6 7. These additional Ps are added to meet the marketing challenges posed by the characteristics of services. therefore. which implies that the services offered by service companies ought to be changed in a more product like manner so that the existing marketing tools can be applied. This was practically difficult.3 7.2 7. The second reason was that the marketing practitioners in the service sector found that the marketing mix does not address to their needs.8 Introduction People Internal Marketing Physical Evidence Process Summary Self Assessment-Questions References and Further Readings 7. For example there is a problem as regard to maintaining the quality due to lack of standardization or services can’t be inventoried. They observed that the services have certain basic characteristics. The marketing mix has extended beyond 4Ps for marketing of services.1 7.

As a marketing manager your primary concern is the visible service personnel and especially so if yours is a high contact organisation. schools represent a high contact organisation. and d) reducing the importance of personal contact by introducing automation and computerisation wherever possible. a) Service Personnel: Service personnel are important in all organisations but more so in an organisation involved in providing services. The other important distinction of service personnel is between those that are visible to the customer and those that are not. The behaviour and attitude of the personnel providing the service is an important influence on the customer’s overall perception of the service and he can rarely distinguish between the actual service rendered and the human element involved in it.2 PEOPLE People constitute an important dimension in the management of services in their role both as performers of services and as customers. “A customer sees a company through its employees. The rice dish which is not cooked properly is the cook’s fault but it is the waiter who will have to bear the brunt of the customers’ anger. By this definition. How often have you had the experience of holding onto a telephone receiver after dialing for Assistance or Trunk Booking and receiving no response? What do you think has been the role/contribution of the telephone operators towards giving our telephone system the image which it has today? The case of telephone operators is still controllable because the telephone system presents a low contact organisation. restaurants. c) ensuring consistent appearance. High or low contact is defined on the basis of percentage of total time the customer has to spend in the system compared with the relative time it takes to service him. The importance of customers in services stems from the fact that most services imply active and involved customerorganisation interface. You have to be concerned with ways in which you can improve the quality and performance of your service personnel. This can be done through: a) careful selection and training of personnel. The firm must recognise that each employee is a salesman for the company’s service”. In a restaurant. and a number of marketing research studies supplement the relevance of each of the ‘7 Ps’. They must. since they have greater responsibility in maintaining relations with the customer. We will discuss these aspects in the next section on Internal Marketing (Section 7. The employees represent the first line of contact with the customer.3) 30 . therefore. People as performers of services are important because. be well informed and provide the kind of service that wins customer approval. The manner in which the waiter behaves with the customer will be an important determinant in the restaurant losing that customer forever or retaining him as a regular client. As a marketing manager you have to devote more time training the visible personnel.Services Marketing Mix others endorsed such an approach. hospitals. b) laying down norms. A detailed account of each of the additional ‘P’ of the services marketing mix is as follows: 7. rules and procedures to ensure consistent behaviour. the waiters are visible while the cook in the kitchen is not.

You have to decide about the class of customers you would like to have and work towards providing your service organisation an image which will fetch you your future customers. where a variety of activities are used internally in an active. campaigns. “The internal marketing concept states that the internal market of employees is best motivated for service-mindedness and customer-oriented performance by an active marketing like approach. the employees must understand why they are expected to perform in a certain manner. In the case of doctors. It was Gronross who suggested that internal marketing should be broader than the traditional marketing. The kind of customers that you attract exerts an important influence on prospective customers. According to him. The prospective customer may feel attracted towards the organisation (it may be a restaurant. marketing like and coordinated way. Table 7. Such traditional marketing efforts should be used internally. college) because it has his ‘type’ of customer or the customer may turn away if he perceives the existing customers to be of a kind with whom he would not like to associate.1. His point of view has been summarized in Table 7. then it has strategic as well tactical implications. consultants one satisfied customer will lead to a chain reaction. Tactical Level Objective To sell services. or in a certain situation.3 INTERNAL MARKETING Although the discussion on significance of employees in the business activity started in mid-seventies the concept of internal marketing was introduced only afterwards.b) Customers: Customers are important because they are a source of influencing other customers.1: Strategic and Tactical Objectives of Internal Marketing Overall Objective Strategic Level Objective To develop motivated and customer-conscious personnel. your first task should be to ensure complete satisfaction of the existing customers. If this is the case.” The starting point in internal marketing is that the employees are the first internal market for the organization. supporting services (used as means of competition). bringing in his wake a number of other customers.· Personnel policy. a) Strategic and Tactical Objectives of Internal Marketing Gronrooss clarified that the basic objective of internal marketing is to develop motivated and customer conscious employees. Planning and control procedures. He suggested that internal marketing should be viewed as a managerial philosophy. Thus as a marketing manager. Extended Marketing Mix for Services 7. and marketing efforts to the employees based on these principles: the personnel are the first market of the service company. school. One school of advocates of this concept initially suggested that the employer should apply market research. To create an internal environment that supports customerconsciousness and sales-mindedness among the personnel through supportive: Management methods. market segmentation and traditional marketing activities like advertising in order to attract employees and make them perform in the desired way. lawyers. club. actively support a given 31 .

offer a vision that brings purpose and meaning to the workplace. 3.people who will make a strong impression. leverage the freedom factor. 6. Do we compete as hard for employees as we do for end-customers? Are we imaginative in how we compete for talent? Are we bold? Do we experiment and try new strategies? Do we use a variety of media? Do we use the right people to recruit and interview. George. nurture achievement through measurement and rewards. and it is usually difficult to separate the performance from the people. a service must be fully developed and internally accepted before it is launched.. Marketing of Services.H. and retention of qualified employees. Parsuraman and Berry suggested that a service company can only be as good as its people. people who can sell? Does our company stand for something worthwhile? Do we offer our employees vision that they can grab hold of and believe in? Do we have a reason for being that makes our company as special place to work? Do we communicate our vision well? Do we weave it into our company culture at every opportunity? Do we prepare our people to perform excellently? Do we view skill and knowledge development as an investment rather than an expense? Do we view it as an ongoing process rather than an event? Do we view it as a confidence builder and a motivator? Do we teach our people “why” and not just “how?” Do we go beyond training and educate as well? Do we stress team play? Do our organizational structure. Investing in people quality in a service business means investing in product quality. “Internal Marketing: An Integral Part of Marketing Theory.” In: J. (Chicago: American Marketing Association). then neither does the service. Internal marketing paves the way for external marketing of services. a firm must realise its potential in internal marketing-the attraction. equip people with the skills and knowledge to perform their service roles excellently. bring people together to benefit from the fruits of team play. too. training and educational efforts foster teamwork? Do our 2. 4. which is given in Table 7. Table 7. personnel selling is needed internally. base job-product design decisions on research. Donnelly and W. and the internal information channels must work. Eds.2: Action checklist on Internal Marketing 1. Source: Christian Gronross. If the people don’t meet customers’ expectations. The companies that practice internal marketing most effectively will: 1. motivation. as indicated above lend us to an action checklist. Compete aggressively for talent market share. The seven components of internal marketing practice. development. and 7. b) Elements of Internal Marketing To realize its potential in services marketing. 5. 1981. 2. the employees must accept the services and other activities of the company in order to support the service in their contact with the consumers. A service is a performance. 32 . 3.2. 4.Services Marketing Mix service or supporting service.R. physical work environment.

........................................... more specifically......................... c) Importance of Internal Marketing in Organizational Success or Failure A successful service firm implies a significant level of internal marketing also.........1 and 7......... 1991................ Figure 7..... concerns............ .... when due importance is not given to caring of employees........................ traps the service into a cycle of failure......... Parsuraman..... Source: Adapted from Leonard L.............. Do we allow our employees the freedom to come through for their customers? Do we make rules that fit the aspirations of our best employees rather than protect us from our worst employees? Do we work at keeping our policy and procedure manuals thin? Do we work at building empowerment into our culture? Do we measure and reward that which is important? Do we measure and reward employee performance that contributes most to our vision? Do we use multiple methods to measure and to reward? Do we emphasize fairness in the methods we use? Do we give all employees the opportunity to be recognized for their excellence? Do we listen to our employees? Do we use formal and informal research techniques to investigate their attitudes..... pp........... where you operate your Savings Account.. In fact...................... Activity 1 From the table 7.......1: Cycle of Failure High customer turnover Repeat emphasis on attracting new customers Failure to develop customer loyalty Low profit margins High employee turnover........ the front line employees or the contact persons................ Berry and A.. identify those activities which are important in a commercial bank.........2 show the cycles of failure and success......... a service strategy has to be focused internally also.... 171-172.employees understand where they fit in the company team? Do they understand the big picture? 5.. customer poor service attitude Narrow design of jobs to accommodate low skill level Customer dissatisfaction Employees become bored Employees can’t respond to customer problems Minimization of pl Em selection effort Minimization of training le yc rC er m me sto so Cut oy ee C yc le Use of technology Emphasis on to control quality rules rather than service Payment of low wages C yc le Cu Source: Source: Schlesinger and Heskett 33 ...... 7........... In such a case...... Free Press.. A complete strategic vision...... The employees of a service firm have to share the same concern as the conceptualizer of the service........ poor service quality No continuity in relationship for Employee dissatisfaction........................ Marketing Services: Competing Through Quality........................ ... Figure 7. .... the service has to be marketed first to the intermediate customers who are the employees of the firm............ and needs? Do we proactively solicit their input? Do we act on what we learn? Do we use the data to improve the job-product? Extended Marketing Mix for Services 6....................2....

high service quality Continuity in relationship with customer Employee satisfaction. positive service attitude Train. 3. Empower and motivate your staff: This is the only way that total quality management can be fully integrated into every aspect of the hospital. Remove the barriers: Once the CEOs have a strategic plan.4 PHYSICAL EVIDENCE Cleanliness in a doctor’s clinic. It requires a service orientation which is more of a software to excellence. 2.2: Cycle of Success Low customer turnover Repeat emphasis on customer loyalty and retention Customer loyalty Higher profit margins Broadened job designs Lowered turnover. 6. management team and support staff. the comfort of the seating arrangement in a cinema hall. empower frontline personnel to control quality ee Cy cle Cu High customer satisfaction Extensive training y Above average wages plo Em Intensified selection effort le yc rC me er m sto Custo Cy cle Source: Schle Source: Schlesinger and Heskett It is clear from these cycles that proper selection. constantly assess its performance and ways that performance can be improved. Develop a process of continual improvement: Once you have translated your strategy into action. For service industries. 7. medical staff. Overcome differences: CEOs need to create a compelling vision of the future for the board. 1991). personnel hold the key to success and the process needs sharing of values by every employee in the organisation. diagnosis and recovery. For example. they need to tackle organisational elements that will inhibit its success. Implementation of such a strategy is fairly difficult task. Identifying key strategic initiatives like realising physician and hospital financial incentives: Focusing on the complete range of health care. the exterior appearance and interior decor of a restaurant.Services Marketing Mix Figure 7. making the hospital campus more user-friendly and tailoring ambulatory care program to consumer needs. Identify information needs for decision making: Make sure that information needs are met at all levels of the hospital-from CEO to clerk. training and the development of employees ensures success (Schlesinger & Heskett. are there too many layers of management? Do incentives and compensation plans mesh with the strategic goal? 4. adequate 34 . including prevention. An implementation process for a hospital for example could involve the following six steps: 1. 5.

Specific information about the various dimensions of the service should be provided to prospective customers . A cheque book is of value only if you have money in the bank-without that is of no significance. sophisticated decor of lobby) with that of a fast food outlet (with bright colours. complimentary flowers and drinks. You can use physical evidence to build a strong association in the customers’ mind and also to differentiate your service from the competition. As a marketing manager it is your responsibility to manage the physical evidence in order to create the ideal environment for your service. Credit cards have a physical entity and are identifiable by their brand name (American Express. Peripheral evidence adds on to the value of essential evidence. BOB. logo and equipments etc. tangible and controllable aspects of a service organisation. i. In a hotel you may find a matchbox. the building. by making it easier for the customer to grasp the concept of the service. Indian Airline’s white and orange colour combination is well-recognised. Promoters of package tours may provide detailed information about the hotel. These are representations of peripheral evidence. They constitute the physical evidence of the service. loud music. Extended Marketing Mix for Services 35 . interior layout and decor. interior decor. Contrast the essential evidence of a five-star hotel (its long driveway. Bank of Baroda) and distinct looks of the card. You can do this in two ways: one by making the service more tangible. colour scheme etc. or receipts for a confirmed reservation in a hotel are examples of peripheral evidence. the essential evidence cannot be possessed by the customer. are constituents of the essential evidence. with easily perceived objects and ideas.facility for personal needs at the airport all contribute towards the image of the service (organisation) as perceived by the customer. pen. The essential evidence is a very critical input in determining the atmosphere and environment of the service organisation. a cheque book. writing pad. Whereas peripheral evidence is possessed and taken away by the customer. and bright lights) and judge the kind of rich and formal atmosphere of the former with the relaxed and casual atmosphere of the latter. food and transport facility they would be using to help the customers understand the concrete dimensions of the tour and thus reduce their anxiety arising out of uncertainty. One obvious way of making the service more tangible is by developing a tangible representation of the service as is done in the case of credit cards.. Such evidence must be designed keeping in mind the overall image which the organisation wishes to project and the reminder value of the evidence in its ability to remind the customer about the organisation. its size and design. The second way is to make it easier for the consumer to understand the concept of the service which you are offering. Advertising agencies assign one account executive or a team to a particular client to help him identify with the agency. Other ways by which a service can be made more tangible is by standarising the physical attributes such as location. There may be two kinds of physical evidence: a) peripheral evidence b) essential evidence Peripheral evidence is actually possessed as a part of the purchase of service but by itself is of no value. As a marketing manager you can help the customers to understand the service you are offering by stressing the organisation and customer relationship. Visa. and two. grand entrance manned by a liveried doorman. An airline ticket. Similarly. Diners. Most airlines use a uniform for all their staff to help create a sense of identification. The common element in these is that they all physical.e. which you may take away.

............................................................. identified six specific roles of evidence as represented in Figure 7........................ ................................. ........................................... ... ... Interestingly.... She accordingly termed these three factors as ambient factors............. Roles of Physical Evidence The primary role of evidence management is to support the organisation’s marketing programme by making it possible to manage both intended and unintended cues which can give adequate evidences to customers and thereby influence perceptions.............Services Marketing Mix Activity 2 What are the components of physical evidence in case of a) Railways b) Banks c) Theatre performances? ................4................................ Ð ................ design factors and social factors..................................................... ................. The design factors on the contrary are those visual stimuli that exist at the forefront of a customer’s awareness... As summarized in Figure 7.... al............................................................................. ................... ........................................................................................... Activity 3 For a specialty restaurant identify the ambient....................................................... ..................................3 the ambient factors relate to the background conditions below the level of a customers immediate awareness................................... Ð ... Ð .................... The social factors relate to interactive environment comprising of people.................... Ð .......3: Ambient...................................................................... ) .... design and social factors which are important from the customer’s point of view: ........................................ 36 .................... Figure 7.......................................... Design and Social Factors of Physical Environment PHYSICAL ENVIRONMENT Ð ( ........................ ........ Ð Ð .... Julie Baker in her doctoral work theorized that the physical environment is a composite impression of ambience.......................... ......... design and social relationships........................................ Parsuraman et...................... the physical evidences also influence employees who interact with customers during the service delivery......

Alternately. For example. you create tangible representations of the service to symbolize. tools aim at tangibalizing the message by creative use of evidence in messages. By tangibalizing the message the service organization makes the advertising message less abstract and more credible through the use of physical evidence. The second step of marketing communication. ‘comfort’ in air travel can be tangiblized using comfortable seats with extra leg-space. DHL courier service is advertised with a visual of an airport showing a fleet of their aircrafts and Benz trucks. For example. “Personal Point” is giving physical evidences as regard to the weight loss of their customers. For example. they can equally be applicable in service industries. a service organization then can possibly guarantee it to gain competitive advantage. Hart suggested that though warranties are effectively used in manufacturing goods quite successfully. 37 .4: Role of Evidence in Services Marketing Extended Marketing Mix for Services Shaping first impression Socializing employees Managing trust ROLE OF EVIDENCE Providing sensory stimuli Changing the image Facilitating quality of service Depending on the competitive situation. Arising out of the above reasons the services organization are expected to use a two prong marketing communication strategy aimed at not only tangibalizing the message but also the service. The other method of tangibalizing the message is to guarantee the service. marketing objective and the resources. If the quality of the service and the service delivery of an organization are excellent. We will discuss the issues related to service guarantees in the next block. an organization can use evidence for some or all of the above roles. some of the private airlines emphasize on a higher percentage of on time arrivals and departures. though these roles are not mutually exclusive. by guaranteeing the service and by encouraging positive word of mouth. This can also be emphasized in advertising. For example. Tangibalizing the service implies that tangibles associated with the service are emphasized in communication as if they themselves form the service.Figure 7.

job shop operations and intermittent operations. In a hospital. When the consumers require a combination of services using different sequences. Hospitals. Intermittent operations are useful when the type of service is rarely repeated. combined or rearranged to form a smoother sequence? d) What are the steps in which the consumer is involved? e) Can the consumers’ contact be reduced or totally eliminated? f) Can we introduce automation to speed up the delivery process? 38 . In service sector the consequences of selecting a wrong service supplier are invariably higher and as a result the customers invariably seek the opinion of others. restaurants and educational institutions usually have this type of delivery process. 7. The three kinds of delivery processes that are applicable in case of service products are line operations. some patients need only consultation in the Out Patient Department. In fast food outlets the process comprises buying the coupons at one counter and picking up the food against that at another counter. This kind of delivery process is relevant when the service you are providing is fairly standard and the consumers’ requirement is of a routine nature. Self-service restaurants and shops are examples of line operations. In a self-service departmental store. It is in this context the word of mouth is important in giving tangible clues to customers. The consumer moves through logically arranged operations which are arranged in a sequence. Advertising agencies also use the intermittent delivery system since each advertising campaign requires a unique set of input factors. All these categories of consumers require a different combination of dishes. can some steps be eliminated. Rather it is the process of adding ‘value’ or ‘utility’ to system inputs to create outputs which are useful for the customers.5 PROCESS In a service organisation. the system by which you receive delivery of the service constitutes the process. some patients require hospitalisation for surgery. The process of a delivery function which can be compared with that of operations management implies the conversion of input into the finished product.Services Marketing Mix The third method of tangibalizing the message is to create and encourage a favourable word of mouth. Some of the critical questions you need to focus upon are: a) What are the steps involved in delivering the service to the consumer? b) Are they arranged in the most logical sequence? c) If not. the job shop type of operation is more useful. As a manager you are interested in optimising the efficiency of your organisation without sacrificing the qualitative aspect. some others may need consultation as well as medication or X-ray. But in a service organisation there is no clear cut input or output. medication or investigations. Firms offering consultancy for projects use this kind of delivery system. A college may offer courses for full-time students as well as for working people through correspondence. the consumer starts picking up the items he needs and pays for them near the exit. Services can be described on the basis of the types of processes used in the delivery of the services.

Detailing the timings at which service operations should be completed by agreed delivery promises within available resources and with their economic utilization. it becomes essential to find out ways and means to handle peak load to optimize different customer needs with varied expertise levels within the service organization. logistics in distribution are vital to satisfy the customer needs. 3. operations management has been recognized as an integral function. Cowell identified that the issues in operations management or process management are many. Similarly in services sector. Finally. Area of Operations Process Planning and Control Explanation Operation specifications to achieve service output in terms of quantity. as summarized in Table 7. In marketing management. there are more than one available options of processes in which output may differ. the interactive experience that would deliver the service benefits to the consumers. 7.3: Issues in Process Management S. or in other words. where there is no tangible product. Shostack further observed that in marketing literature no description on process is found although concepts. Table 7. layout. Without sound process management. 1. 6. balancing service demand with service supply is extremely difficult. are frequently mentioned. However. Secondly. 4. a process can be broken down in logical steps to facilitate analysis and control. Detailed specification of each sub system. Extended Marketing Mix for Services 2. therefore. Design. Quality standards are attained in each service system. which relate to process like ‘standardization’ and ‘customization’. In her article Shostack described processes in two ways.No. but functions within a norm. the operations management is vital to deliver satisfaction because here the operations management would decide how the process of service delivery would function. materials handling and maintenance. First. each system includes the concept of deviation or tolerance standards in recognition that the processes are ‘real time’ phenomena that do not conform perfectly to any model or description.You will appreciate that the importance of process management is that it assures service availability and consistent quality. Service cannot be inventoried. Operations Planning Facilities Design Scheduling 5. for example. Planning and controlling the inventory of people and capacity. quality. Inventory Planning and Control Quality Control Operations Control 8. locations. In manufacturing sector. Information flows into and out of service systems and ensures that operations are undertaken at specific tunes as per schedule. 39 . delivery and costs. Forecasting and Long Term Planning Shostack gave a much-simplified version and described the ‘process’ in three stages. the degree to which these issues are successfully managed would decide or determine not only the satisfaction but it might also give a competitive edge to an organization. Anticipating demands and forecasting capabilities that need to be inducted in the system.3.

as summarized in Table 7. On the other hand. housing loan from any financial institution. – Less dependence on volume. niche positioning strategy. – Limited number of – More margins as market may customers may be respond positively to available who are willing personalization and thus to pay the price that prestige. an understanding of above described phenomenon is essential as complexity and divergence are not fixed rather they are factors that can be changed or adjusted for efficiency in the process. Such services are called standardized services. taking a structural approach can help increase their control over some of the critical elements of the service system management. In reality there could be services where process can be of high complexity and low divergence. Any service process is a combination of bothcomplexity and divergence. – Increase perceived reliability. When we are developing clarity on understanding of process management. For example. control and distribute. – Lower customization and thus consumer rejection inspite of low cost. – Highly complex service system may be vulnerable to inroads by competitors who specialize. Too much complexity can be confusing as a result overall quality may fall. Disadvantages – Inflexibility in operating procedures. customization demands. – – Reduced Complexity – Increased Complexity – – One can observe that how changes in complexity and divergence influenced their market position. more extensive full-service alternative. Reduced complexity can also be perceived as stripped down service. process design may be a tool that can substantially increase their impact and role in marketing their services.4 Table 7. uniform service quality and greater service availability. Perceived positively in the market provided it stands out. Therefore. improve productivity and make distribution easier. 40 . Analyzing the number can identify a service’s complexity and intricacy of the steps required and the degree of freedom inherent or allowed in a process step or sequence can be called its divergence. Higher complexity usually indicates a strategy to gain greater penetration in the market by adding more services. – – Reduced complexity indicates a specialization strategy.Services Marketing Mix The first way is according to the steps and sequences that constitute the process and she termed it as ‘complexity of process’. Increasing complexity can increase efficiency by maximizing the revenue generated from each customer. A change in overall complexity or divergence generally indicates one of the four overall strategic directions.4: Alternative Directions of Structural Changes Strategic Options Reduced Divergence Advantages – Uniformity would reduce cost. For managers in service industries. Such services can be called customized services. Increased Divergence – Greater customization and thus – Difficult to manage. for marketers in service industries. which she called ‘divergence’. The second is according to the exceptional latitude or variability of those steps and sequences. there could be services with low complexity and high divergence. each with positive consequences and also the risks. Narrowing the service offering makes distribution and control easier. – It can be competitively risky if other providers continue to offer a broader.

..... b) Indian Airlines and any private airlines............ The unit provided you an action checklist on internal marketing.......... Extended Marketing Mix for Services 7................... Can varied process management be followed in marketing the same service? Discuss by taking an example............ It is said that services marketing strategy calls not for external marketing but also for internal marketing to motivate the employees and interactive marketing to create skills in the service provides..... But this is now changing........... The next element of extended marketing mix discussed in the unit is Physical Evidence..6 SUMMARY Service industries have typically lagged behind manufacturing firms in adopting and using marketing concepts........ ...........Activity 4 Compare the relative advantages and disadvantages of “Conventional token system in retail banking with the teller system and ATM system.......... a) Nationalized bank and a foreign bank operating in India...........................” ....7 SELF-ASSESSMENT QUESTIONS 1.................... The unit outlines the role of physical evidence as well...... .... These include process planning and control........................................... The various aspects involved in process management were outlined... scheduling inventory planning and control................................. ............................. quality control.. 6... operations control and forecasting................. which includes both peripheral as well as essential evidence........................................... The last part of the unit was devoted on ‘process management’.................................... Write short notes on the following: a) Physical evidence as an element of Marketing Mix............................ Compare and contrast the employee’s attitude and behavior towards customers amongst the following organization....... ..................... In the above organizations identify the various physical evidences and suggest ways to improve upon them................................. The importance of internal marketing was highlighted using cycle of success and cycle of failure.................. facilities design.. c) Super bazaar and a private department store......... design factors and social factors...................................................... 7.. 41 ..................... 3............. Do you think that physical evidence really matters in marketing of services? Discuss with the help of examples....................... b) Significance of Internal Marketing........... 5........................................ Do you see the significance of employees in servicing the customers better? Identity how a motivated employee can provide higher customer satisfaction in these organizations............ operations planning................................................ ............. 4........................................... The various elements of physical evidence are ambient factors.. What do you think are the main reasons for including the element of people in the marketing mix for services? 2........

Services Marketing Mix

1. B.H.Booms and M.J.Bitner, “Marketing Strategies and Organisation Structure for Service Firms,” in J.Donnelly and W.R.George (eds.), Marketing of Services, (Chicago :American Marketing Association), 1981. Christian Gronross, “The Internal Marketing Function,”Strategic Management and Marketing in The Service Sector, Report No. 83104, (Cambridge : Marketing Science Institute), 1983. Christian Gronross, “Internal Marketing : An Integral Part of Marketing Theory,” In, J.H.Donnelly and W.R. George, eds, Marketing of Services, (Chicago : American Marketing Association), 1981. V.C.Judd “Differentiate with the 5th P:People”, Industrial Marketing Management, No 16, p.241-247. Leonard L.Berry and A.Parsuraman, Marketing Services : Competing Through Quality, (New York : Free Press), 1991, pp.152, 171-172. G.Lyan Shostack, “Service Positioning Through Structural Changes, Journal of Marketing, Vol 51, Jan. 1987, pp 34-43) A. J. Mcgrath, “When Marketing Services 4Ps Are Not Enough”, Business Horizons, May-June, 1986, pp.44-50. Leonard L.Berry and A.Parsuraman, Marketing Services : Competing Through Quality, (New York : The Free Press) p.94,1991. S.Majaro, Marketing in Perspective, (London : George Allen), 1982. Julie Baker, “The Role of the Environment in Marketing Services: The Customer Perspective, in John A.Crepiel, Carole Congram and James Shanahan (eds), The Service Challenge: Integrity for Competitive Advantage, (Chicago : American Marketing Association), 1987, p.80. R.Doswell and Paul Gamble, Marketing and Planning Hotel and Tourism Projects, (London : Hutchinson), 1979. Christopher W.L.Hart, “The Power of Unconditional Service Guarantees,” Harvard Business Review, July-Aug, 1988 pp-54-62. Donald W. Cowell, The Marketing of Services, (London : Heinemann), 1984, p.243. G.Lynn Shostack, “Service Positioning through Structural Changes”, Journal of Marketing, Vol 51, Jan 1987 p.34-43.



4. 5. 6. 7. 8. 9. 10.

11. 12. 13. 14.


Given below is a list of books on “Marketing of Services” which you may find useful for further reading for this course. S. Baron and K. Harris, Services Marketing – Text and Cases , Palgrave, 2003 J. Bateson, Managing Services Marketing: Text and Readings, Dryden, 1995 L.L. Berry and A. Parasuraman, Marketing Services : Competing Through Quality, The Free Press, 1991 D. Carson and A. Gilmore (eds.), Service Marketing- Text and Readings, Mercury Publications, 1996 D. Cowell, The Marketing of Services, Heinemann, 1996 W.J. Glynn and J.G. Barnes (eds.), Understanding Service Management, John Wiley and Sons, 1995 C. Groonross, Service Management and Marketing, Lexington Books, 1990 J.L. Heskett, W.E. Sasser, Jr. and C.W.L. Hart, Service Breakthroughs Changing the Rules of the Game, The Free Press, 1990 D.L. Kurtz and K.E. Clow, Service Marketing, John Wiley, 2002 C. H. Lovelock, Services Marketing, Prentice Hall A. Payne, Essence of Services Marketing, Prentice Hall of India, 1996 R.T. Rust, A.J. Zahorik and T.L. Keiningham, Service Marketing, Harper Collins, 1996 Ravi Shanker, Services Marketing- The Indian Perspective, Excel Books, 2002 T.A. Swartz, and D. Iacobucci (eds.), Handbook of Services Marketing and Management, Sage Publications, 2000 H. Woodruffe, Services Marketing, Macmillan India, 1997 V.A. Zeithaml , A. Parasuraman and L.L. Berry, Delivering Quality Service – Balancing Customer Perceptions and Expectations, The Free Press, 1990 V.A. Zeithaml and M.J. Bitner, Services Marketing, , Tata McGraw-Hill, New Delhi, 2003

Extended Marketing Mix for Services


Indira Gandhi National Open University School of Management Studies

Marketing of Services



UNIT 8 Service Quality UNIT 9 Managing Demand and Capacity UNIT 10 Customer Retention 5 24 38


Strategic Issues

Course Preparation Team*
Prof. L.M. Johari FMS, Delhi University Delhi Prof. J.D. Singh IMI New Delhi Prof. P.K. Sinha IIM Bangalore Mr. Amrish Sehgal Bhutan Tourism Development Corpn. Bhutan Mr. D. Ramdas Management Consultant New Delhi Prof. M.L. Agarwal XLRI Jameshedpur Mr. Arun Shankar Citi Bank New Delhi Dr. V. Chandrashekhar Mahindra Days Hotels & Resorts Bangalore Ms. Sudha Tewari Parivar Seva Sansthan New Delhi Mr. Pramod Batra EHIRC New Delhi Ms. Rekha Shetty Apollo Hospitals Madras Prof. J.B. Nadda Goa University Goa Mr. M. Venkateswaran Transportation Corporation of India, Hyderabad Prof. Rakesh Khurana School of Management Studies IGNOU, New Delhi Prof. Madhulika Kaushik School of Management Studies IGNOU, New Delhi

Ms. Malabika Shaw AIMA New Delhi Mr. Saurabh Khosla Tulika Advertising Agency New Delhi Mr. Sanjeev Bhikchandani Sanka Information Pvt. Ltd., New Delhi

Mr. Kamal Yadava School of Management Studies IGNOU, New Delhi

* The course was initially prepared by these experts and the present material is the revised version. The profile of the Course Preparation Team given is as it was on the date of initial print.

Course Revision Team (2004)
Prof. Ravi Shankar Course Editor IIFT, New Delhi Dr. Tapan K. Panda IIM Khozikode Calicut Prof. B.B. Khanna Director School of Management Studies IGNOU, New Delhi Dr. Kamal Yadava Course Coordinator and Editor School of Management Studies IGNOU, New Delhi

Prof. Madhulika Kaushik School of Management Studies IGNOU, New Delhi Prof. Rajat Kathuria IMI, New Delhi

Dr. Rupa Chanda IIM Bangalore

Print Production
Mr. A.S. Chhatwal, Asstt. Registrar (Publication), Sr. Scale, SOMS, IGNOU
June, 2004 (Revision) © Indira Gandhi National Open University, 2004 ISBN-81-266-1264-9 All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other means, without permission in writing from the Indira Gandhi National Open University. Further information about the Indira Gandhi National Open University courses may be obtained from the University’s Office at Maidan Garhi, New Delhi-110 068. Printed and published on behalf of the Indira Gandhi National Open University, New Delhi, by Director, School of Management Studies. Paper Used: Agro-based Environment Friendly Laser Composed by: ICON Printographics, B-107 Fateh Nagar, New Delhi-110 018


Printed at:

Block 3 of this course deals with strategic issues concerning services marketers. The block consists of three units. The first unit (Unit 8) deals with Service Quality. In the last two decades interest in the issues related to service quality has increased tremendously and a number of researchers have been working on it. In this unit you will be acquainted with a wide range of topics on Service Quality including service quality models and measurement of service quality. Unit 9, the second unit of this block, discusses management of demand and capacity. Because of the perishability aspect of services, services marketers face a major challenge in matching demand and capacity. In this unit strategies for matching capacity and demand and for managing customer waiting have been discussed. The last unit of the block titled ‘Customer Retention’ highlights the importance of retaining customers for service firms and outlines issues related to customer retention and loyalty including service recovery and service guarantees.


Strategic Issues

MS-65: MARKETING OF SERVICES Course Components


1. 2. 3. 4. Marketing of Services: Conceptual Framework Role of Services in Economy International Trade in Services, the WTO, and India Consumer Behaviour in Services

5. 6. 7.

Product and Pricing Decisions Place and Promotion Decisions Extended Marketing Mix for Services

8. 9. 10.

Service Quality Managing Capacity/Demand Retaining Customers

11. 12. 13. 14.

Financial Services Tourism and Hospitality Services Health Services Case Study: Serving the Global Indian Issues in Social Destination Marketing India Marketing of Health

15. 16. 17. 18. 19.

Educational Services Professional Support Services: Advertising Agencies Telecommunication Services Product Support Services Case Studies 1. Is the Customer Always Right? 2. The Case of Dosa King.


increasing global competition forced many manufacturing companies to develop and adopt quality management practices aimed at increasing competitiveness by eliminating waste. explain the determinants of service quality.5 8. Another reason for the rising importance of service quality is that it is proving to be a winning competitive strategy. in India also service sector is the largest contributor to GDP. identify the reasons for a different approach to service quality. understand the linkage between service quality and profitability. The term ‘Service Quality’ has been defined in different ways. Structure 8. increasing efficiencies. The conceptualization and measurement of service quality perceptions have been one of the most debated and controversial topics in the service marketing literature.7 8.1 8.3 8.1 INTRODUCTION Quality came to the service literature at the beginning of the 1980’s. ahead of agriculture as well as industry sector. from 1980’s the interest in service quality has increased tremendously. One reason why service quality is becoming an important issue is that all the developed countries as well as a number of developing countries have become service economies.2 8. and measure service quality. This is quite in contrast to the manufacturing sector wherein quality management has a long and rich history. reducing costs.6 8.4 8.10 Introduction Reasons for Different Approach to Service Quality Service Quality Models Benefits of Service Quality to the Organisation Measuring Service Quality Communicating with Customers about Service Quality Case Study Summary Self Assessment Questions Further Readings 8.UNIT 8 SERVICE QUALITY Objectives After studying this unit you should be able to: define service quality.9 8. especially the second half. understand service quality models and their application. In the twentieth century. However. More and more companies are emphasizing on providing excellent service quality in order to have a distinctive competitive advantage over their competitors in a world where establishing a long term technology based competitive advantage is becoming increasingly difficult. As explained in Block 1.8 8. Given below are some of the definitions : 5 . improving customer satisfaction and involving every member of the organisation in doing so.

it is not possible to have exact specifications for them.2 REASONS FOR DIFFERENT APPROACH TO SERVICE QUALITY You may recollect the characteristics of services that distinguish them from goods.attributes that can only be discerned after purchase or during consumption. ii) 6 The interaction between production and consumption in services as shown in Figure 8. 1996) Quality of a service. This nature of services whereby customer often has to be in service factory makes it difficult for service providers to ensure quality before service is rendered to the customers. produced and quality . and the quality of particular product or service is whatever the customer perceives it to be (Buzzel and Gale. there are certain services which consumers find difficult to evaluate even after purchase and consumption i. That means services are low in ‘search qualities’. are not sufficient for ‘Service Quality’. ‘credence qualities’. trunk call through telephone exchange. can be defined as ‘the extent of discrepancy between customers’ expectations or desires and their perceptions’ (Zeithaml. acts and experiences. as explained in Unit 1.1 may be broad e. 1987) Service quality is the delivery of excellent or superior service relative to customer expectations (Zeithaml and Bitner. This is because of some basic differences between goods and services with regards to how they are produced. television set etc. Since services are performances. Therefore.g. The principles and practices as applied to goods quality. 1982) You will notice that all these definitions revolve around the fact that service quality is essentially what customers perceive. the ultimate aim of an excellent service quality system is to satisfy the customer’s need and go beyond to delight the customers. restaurants or air travel or it may be thin e. Only customers judge quality and all other judgments are irrelevant. experience and credence quality).1990) Quality is whatever customers say it is. as explained below: i) Services are predominantly intangible in nature. consumed and evaluated. It is in this interaction where usually the quality is judged by the customer.g.e. Another very important aspect requiring separate treatment of service quality is the ‘inseparability’ aspect of services. This would help you in understanding the reasons for different approach to service quality. the criteria customers use to evaluate services is more complex. This is quite opposite to goods where they are engineered. services can’t be tested prior to sale to determine its quality. as perceived by the customer is the result of a comparison between the expectations of the customer and his real-life experiences (Gronroos. The inseparability of production and consumption in services reflect the more active part required from the service provider as well as the consumer. Parasuraman and Berry. 8.attributes that a consumer can determine before purchasing a product and stronger in ‘experience qualities’ . Also. for which exact specifications can be set and communicated.Strategic Issues Service quality as perceived by customers. Further. Therefore. unlike physical objects like automobile. thereby increasing the difficulties of marketers. machine tools. (Please refer Unit 4 giving the continuum of goods and services high in search.

Service quality evaluations are not made solely on the basis of the outcome of service.3 SERVICE QUALITY MODELS Considering the complex nature of how customers judge service quality. However.1: Interaction of buyer and seller ‘Service Encounter’ Service Quality Production GOODS Consumption Production SERVICES controlled prior to sending them to customer for consumption. ensuring consistent service quality is a big challenge to organizations. A patient will judge the services of a hospital not only on the basis of cure element (technical quality) but on care element (functional quality) as well.8. what the customers get and a functional or process related dimension i. a restaurant customer will judge the service on the basis of his perception of the food (what is being delivered-technical quality) as well as how the food was served (functional quality). For example. Zeithaml & Berry (1985): Service quality is more difficult for the consumer to evaluate than goods quality. 8. Service quality perceptions result from a comparison of consumer expectations with actual service performance. iii) Services are ‘heterogeneous’ in nature.e. a technical or outcome dimension i. The first is the ‘Nordic’ perspective (Gronroos) which defines the dimensions of service quality in broad terms consisting of functional and technical quality. Based on what you have studied so far in this unit you will appreciate the following underlying themes about service quality as highlighted by Pasasuraman. number of researches have been done in the area and models have been developed to explain the nature of service quality evaluation. The two models are discussed in detail here below: Gronroos Model This model suggests that the quality of a service as it is perceived by customers has two dimensions. namely. how the process and service encounter are perceived.e. two major works have received widespread attention and acceptance. Zeithaml and Berry) uses five service quality dimensions. the ‘American’ perspective (Parasuraman. Gronroos postulated that as long as the outcome or the 210987654321 210987654321 210987654321 210987654321 210987654321 210987654321 Consumption 7 . These two have been termed as ‘technical quality’ and ‘functional quality’. they also involve evaluation of the process of service delivery. The second. The service performance may vary from producer to producer for the same service from customer to customer even with the same producer from day to day for the same producer Therefore.

if the image of the service provider is good in the minds of the customer. in certain cases the technical quality or the outcome may be difficult for the customers to judge (remember credence quality discussed in the Block 1 and referred earlier in this unit) and in such cases the quality perceptions will be based to a large extent on functional quality. if the expectations of the customers are very high or unrealistic. few of which are directly under firm’s control and others only indirectly controlled. Delivering on promises is an important aspect of 8 . Fig 8.Strategic Issues technical quality is acceptable. Also. The quality perception process includes much more than just the two dimensions of service quality. if the customer has very low expectation. sales campaign etc. the total perceived quality may still be low. market communication) whereas factors like image. but rather by the gap between the expected and experienced quality. Conversely. public relations. (1988) : Service Quality : The Six Criteria of Good Service Quality. 12. Review of Business 3. that is. word-of-mouth and customer needs are not directly under firm’s control but can be influenced. The marketers should understand from this not to overpromise.e. the total perceived quality may be high even if experienced quality is not very good. p. The expected quality depends on a number of factors like market communication. the expected quality. It works as a filter i. Good perceived quality is obtained when the experienced quality meets or exceeds the expectations of the customer. (i. image.e. The image of the company doesn’t only have an impact on the expected quality but also on perception of the quality experienced. the process dimension. Factors under firm’s direct control include advertising. This means that even if the experienced quality is good. C. word of mouth communication.2: Expected Quality Total Perceived Quality Experienced Quality Image Market Communication Image Word-of-Mouth Customer Needs Technical Quality: What Functional Quality: How Source: Gronroos. corporate image and customer needs. direct mail. minor errors or mistakes are likely to be overlooked and conversely if the image is negative the impact of a mistake is likely to be greater than it otherwise would be. frequently may be more critical to consumer’s overall quality perception. 8. or functional quality.2 brings about the perceived service quality model. The model suggests that the total perceived quality is not determined by the level of the technical and functional quality dimensions only.

......................................................................... Gaps Model of Service Quality Parasuraman..... as given below: Reliability: Ability to perform the promised service dependably and accurately (example: flights depart and arrive on schedule). It refers to the company delivering on its promises.... it should be appreciated that customer expectations are not static but keep on changing over period of time...................... PZB further focused on finding the deficiencies within companies that result in poor quality perceptions by customers........g......... The reasons for gap between customers’ perceptions and expectations (Gap5 – Customer Gap) were identified as : 9 .... In a competitive market place it is absolutely essential for a firm to be reliable in order to attract customer loyalty.......................... they identified that customers consider five dimensions in their assessment of service quality.perceived service quality.................... Perceived Service Quality = Perceived Service – Expected Service............... .......................... According to them Perceived Service Quality can be defined as ‘the extent of discrepancy between customers’ expectations or desires and their perceptions.................. Activity 1 Consider the following services and identify the Technical Quality and Functional Quality elements a) Airlines b) Retail Banking – savings account c) Hotels d) Health Care ........... Employee’s knowledge and courtesy and their ability to inspire trust and confidence........... acknowledges customer by name). Caring.............. Tangibles may be given great importance by new customers to judge service quality especially when other cues may not be available........................... reliability is considered to be the most important one......... equipment.................. complaints or problems........... personnel and written materials (example: seating and air conditioning in a theatre)... Service Quality Responsiveness: Assurance: Empathy: Tangibles: Of the five dimensions................................. ............................ ........................ Willingness to help customers and provide prompt service (example : no waitings at the hospital).............. Zeithaml and Berry (PZB) have done extensive work in the area of service quality..... (example : knowledgeable mechanics at auto service centre)...................... Appearance of physical facilities.......... individualized attention given to customers (example: specific type of room provided to the guest based on his previous stay.......Based on their research work.............. ............................ Assurance dimension is likely to be of great importance in case of services perceived to be of high risk by the customers or services which are rich in credence qualities e................................................... By focusing on empathy a service company can make the customer feel unique and special whereas responsiveness dimension emphasizes promptness in dealing with customer’s requests.. health services.. Also.................................. Put simply....................................

8. The variability in employee performances makes it hard to maintain standardized quality. Provider Gap1 : Not knowing what customers expect: This gap is the difference between customer expectations of service and company understanding of these expectations. Failure to match demand and supply. Service firms executive may not always understand what features connote high quality to consumers in advance. a high quality service delivery is not a certainty. Also availing of other factors like resources constraints. The main reason for this gap is involvement of human beings in the service delivery – especially the role of contact personnel. what features a service must have in order to meet customer needs and what levels of performance on those features are needed to deliver high quality service.3. customers not fulfilling their roles and problem with service intermediaries may also result in creating this gap. Even if there are customer driven service standards. 2. Provider Gap 3: Not delivering the service standards: This is the gap between service quality specifications and actual service delivery.Mouth Communication ( ) Personal needs Past Experience CUSTOMER Expected Service GAP 5 Perceived Service GAP 4 External Communications to Customers (Customer Gap) COMPANY GAP 1 GAP 3 Service Delivery Translation of Perceptions into Service Quality Specifications GAP 2 Perception of Customer Expectations 1.Strategic Issues Provider Provider Provider Provider Gap Gap Gap Gap 1 2 3 4 : : : : Not Not Not Not knowing what customers expect selecting the right service designs and standards delivering the service standards matching performance to promises Based on the above. 10 . market conditions and/or management indifference – may result in discrepancy between company perception of consumer expectation and the actual specification established for a service.3: Word – Of . 3. a gap analysis model was developed as shown in Figure 8. Provide Gap 2 : Not selecting the right service designs and standards: A company might correctly perceive the customers’ needs but may not set a specificied performance standard. This may occur because management sometimes believes that customer expectations are unreasonable or unrealistic.

......... But how does it have a positive impact on the bottom lines of 11 .......... Training Synchronize demand & capacity Communicating with customers Gap 4 Avoid propensity to overpromise Increase horizontal communication Managing customer expectations The Gaps Model thus helps in finding out the reasons for the quality problems and the ways to close the gaps........................................................... 8.... Empowerment.............................. GAP Gap 1 CAUSES OF GAP Lack of marketing research orientation Inadequate upward communication Too many levels of management Inadequate management commitment to service quality Perception of infeasibility Absence of goal setting Absence of customer-driven standards Resource constraints Deficiencies in human resource policies Failure to match supply and demand Customers not fulfilling roles Overpromising Ineffective management of customer expectations Inadequate horizontal communication STRATEGIES TO REDUCE GAP Communication with customers Conduct marketing research Encourage upward communication Service Quality Gap 2 Top management commitment Develop Service Quality goals Standardization of tasks Address feasibility of customer expectations Gap 3 Teamwork. Promising more than what can be delivered will raise initial expectations but lower perception of quality when the promises are not fulfilled.............................................................................................................................. In order to bridge the gap between customers’ perceptions and expectations................................. ... .......................... Provider Gap 4: Not matching performance to promises: This is essentially a gap between what you deliver and your external communication.......................................... the provider gaps 1 to 4 are required to be filled.........4........... Role clarity....................... a company must be certain not to promise more in communication that it can deliver in reality.. The key contributing factors leading to Provider Gaps and strategies to reduce the gaps have been highlighted below..............................4 BENEFITS OF SERVICE QUALITY TO THE ORGANIZATION A good or excellent service quality would result in customer satisfaction or customer delight. Media advertising and other communication by a firm can affect consumer expectations.. Activity 2 Choose any service organization you are familiar with and using the gaps model of service quality identify the gaps the organisation suffers from and the possible reasons for these gaps................ Therefore..... ............................ .......................................

In fact. A summary of results of some of the researches which prove a positive relationship between service quality and profitability is given below. 60. “The Behavioural Consequences of Service Quality”. Behavioural intention can be viewed as indication that signal whether customer will remain with or defect from the Company. this may be categorized into two parts. There was a dramatic difference between the quality perception of customers who would and those who would not recommend their service companies to their friends. Increased customer satisfaction in turn leads to 12 . the positive relationship between perceived quality and profitability has been documented empirically. Broadly. Positive and significant relation exists between customers perception of service quality and their willingness to recommend the company. Buzzell and Gale in ‘The PIMS (Profit Impact of Marketing Strategies) Principles’ (Free Press. pp 31-46) Companies offering superior service achieve higher than normal market share Mechanism by which quality influences profits include increased market share and premium prices. return on investment and profit per new vehicle sold. The customers who showed their intention to recommend had a significantly high score of perceived service quality than those who mentioned that they wouldn’t recommend (scores of . have mentioned that in the long run. superior quality yields increased profits via premium prices and in the longer run. Improved service quality increases favourable behaviour intention and decreases unfavourable intention of customers. it is the more effective way for business to grow. Zahorik and Keiningham have developed a model showing relationship between service quality improvement and profitability as shown in Figure 8. One is the improved ability of the firm to attract new customers .2. (Extracted from Zeithaml. its ability to retain existing customers. Business in the top quintile of relative service quality on average realize an 8% higher price than their competition. 1987). Secondly. The model shows relationship between the two as a chain of effects. in the short run.5 and . who feel satisfied with the service offering and become repeat customers. Berry and Parasuraman. Rust. A successful improvement effort results in an improvement in service quality which in turn results in increased perceived quality and customer satisfaction and probably reduced costs. Ford Motor Company has demonstrated that dealers with high service quality scores have higher than normal profit. NY.3 respectively). The Hospital Corporation of America found a strong link between perceived quality of patient care and profitability across its many hospitals.either through positive word of mouth or due to advertising of its superior quality offering. Quality leads to both market expansion and gains in market share.Strategic Issues the companies. Positive co-relation exists between service quality and repurchase intention and willingness to recommend.4. April 1996. PZB in their research have found out relationship between customers’ perception of the quality of service rendered by a company and their willingness to recommend the company to their friends. This would ultimately help in greater revenues and profits.’ A quality edge boosts performance in two ways. Journal of Marketing. the most important single factor affecting a business unit’s performance is the quality of its products and services relative to those of competitors. Vol.0.

New customers attracted by positive word of mouth coupled with retention of existing customers result in higher revenues and market share.Mouth Customer Retention Customer Retention Attraction of New Attraction of New Customers Customer Revenues and Market Share Revenues and Market Share Cost Reduction Cost Reduction Profitability Profitability Source: Return on Quality : Making Service Quality Financially Accountable. p-60 higher level of customer retention and also positive word of mouth. Journal of Marketing. document. which is difficult to measure in practical business situation. lead to greater profitability. is thus shown in dotted lines.of . April. Human resources play an extremely critical role in service firms and therefore proper attention has to be given to employee motivation. The service organization should develop. training and development. The increased revenues combined with the decreased costs. The resources include personnel as well as material resources. The effect of word of mouth. Successful implementation of this policy depends upon management commitment to the development and effective operation of a quality system. 13 . Regular communication within the service organization should be a feature at all levels of management.8. Rust. but is now being used successfully in service sector as well. The quality system should emphasize preventive action that avoid the occurrence of problems while not sacrificing the ability to respond to and correct failures. It should establish a policy for service quality and customer satisfaction.4: Improvement Effort Improvement Effort Service Quality Service Quality Improvement Service Quality Improvement Perceived Service Quality and Perceived Service Quality and Customer Satisfaction Customer Satisfaction Word-of-Mouth Word . Zahorik and Keiningham. services and practices against the toughest competitors or those companies recognized as industry leaders’. It should also provide sufficient and appropriate resources to implement the quality system and achieve the quality objectives. should they occur. implement a quality system as a means by which stated policies and objectives for service quality may be accomplished. The quality system elements should be structured to establish adequate control and assurance over all operational processes affecting service quality. This concept was originally developed in the manufacturing sector. 1995. Services companies can also benefit by benchmarking which is defined as the ‘continuous process of measuring products. establish. The biggest responsibility for a good service quality system rests with the management of the organization.

Strategic Issues CEOs’ Views on Benefits of Service Quality OBEROI HOTEL CHAIN It you want to be ahead of your competitors. It measures the service quality on the five service quality dimensions discussed earlier in this unit viz. Assurance. Servqual scores are expressed as the difference between expectations and perceptions i. 1995 p. The developers of the scale acknowledge that the five service quality dimensions are general dimensions that relate to most of the services. When perceived performance ratings are lower than expectations this is sign of poor quality. Jan 7-21. you have to improve it. it measures the gap between the service that consumer think should be provided and what they think actually has been provided. The nature and quality of our service will determine our reputation in the market. according to which customer assessment of service quality results from a comparison of service expectations and actual performance. 259 & 268 8. Zeithaml and Berry. The other four dimensions relate to the process of service delivery or how the service was delivered. 3rd Anniversary Issue. your quality has to be monitored all the time.5 MEASURING SERVICE QUALITY The most widely-used measure for service quality has been the ‘SERVQUAL’ measure of Parasuraman. credit cards. you can charge a higher price because customers are willing to pay. The main objectives of the TQM drive is to achieve maximum possible customer satisfaction and employee satisfaction because only a happy staff member will go out of his way to offer satisfying services to the customer and improving the bottom line. 238. Empathy and Tangibles. maintenance of quality is not enough. securities brokerage and product repair and maintenance. This scale was developed and validated using service providers in four service sectors : retail banking. Reliability. they are asked to record their perceptions of that company’s performance on those same dimension.e. Reliability largely concerns whether the outcome of service delivery was as promised. which measure their expectations on five service quality dimensions and subsequently. Respondents complete a series of scale. Example: A) Expectation Statements (E) Strongly Disagree The physical facilities at banks should be visually appealing Banks should give customers individual attention 14 1 1 2 2 3 3 4 4 5 5 Strongly Agree 6 6 7 7 . In today’s competitive scenario. If you have quality not only will your customer not leave you. Responsiveness. VYSYA BANK HDFC Source: Business Today. The SERVQUAL scale was first published in 1988 and has undergone numerous improvements and revisions since then. the reverse indicates good quality.

The SERVQUAL scale can be used i) ii) iii) iv) v) To determine a company’s service quality along each of the five service quality dimensions. 15 . 4 on responsiveness. a set of 22 statements covering expectations and a set of 22 corresponding statements covering perceptions. selected at random. feeling of safety in transactions. (iii) prompt service. As mentioned earlier the SERVQUAL instrument has been used with modifications in a number of studies. materials associated with the service like pamphlets or statements (tangibles) ii) timely provision of service. some researchers have also identified problems in using the instrument as well as the gap theory methodology.per interview. performing the service right the first time. Knutson and Patton. employees understanding specific needs of customers (empathy). 4 on assurance and 5 on empathy) – i. measurement of performance alone would be enough for measuring service quality. To track customers’ expectations and perceptions over time To compare a company’s SERVQUAL score against those of competitors. The servqual instrument has been used extensively. meeting the promises. with or without some modifications. which takes into account the relative importance of each dimension as well.per” for continual assessment of customers’ perceptions regarding service quality of restaurants and suggested that it could be administered every two to three months to 50 to 100 recent customers. willingness to help.B) Corresponding Perception Statements (P) Strongly Disagree The physical facilities at XYZ Bank are visually appealing XYZ bank gives customers individual attention 1 1 2 2 3 3 4 4 5 5 6 6 Strongly Agree 7 7 Service Quality Service quality scores would be expressed as P-E The original SERVQUAL instrument consisted of 22 statements covering the five service quality dimensions (4 questions on tangibles. 5 on reliability. To compute overall weighted SERVQUAL score. Though it is a widely used instrument. Exhibit 8. Expectations and perceptions statements includes aspects like (i) equipments. Stevens. based in the servqual instrument developed an interview schedule – ‘Dineserv. appearance of employees.1 gives the details of the Dineserv. (iv) behaviour of employees instilling confidence. employees never too busy to respond to customer requests (responsiveness). They have suggested that the performance based scale developed (SERVPERF) is efficient in comparison with the SERVQUAL scale as it reduces by 50% the number of items that must be measured. Cronin & Taylor suggest that instead of measuring expectations and perceptions. employees having knowledge to answer the questions (assurance) and (v) individual attention to customers. To find out relative importance of service quality dimensions as considered by the customer. physical facilities.e. sincere interest in solving the problems (reliability). In addition to expectations and perceptions section the SERVQUAL contained a “point allocating question” which was used to ascertain the relative importance of the five dimensions by asking respondents to allocate a total of 100 points among the dimensions.

19) has employees who can answer your questions completely. The loyalty issue can be addressed by asking questions on the customer’s repurchase intention and also his likelihood or willingness to recommend the company and brand to other people (a positive word-of-mouth).1 The “DINESERV. 17) provides prompt and quick service. neat. ask them to indicate their position on each of the 29 statements by assigning a number from seven (strongly agree) to one (strongly disagree). 21) has personnel who are both able and willing to give you information about menu items. rather than always relying on policies and procedures. 14) provides an accurate guest check. 23) has personnel who seem well-trained. 29) seems to have the customer’s best interest at heart. April 1995. 15) serves your food exactly as you ordered it. about reliability. items 16-18.. 27) anticipates your individual needs and wants. 9) has dining areas that are thoroughly clean. 26) makes you feel special. about responsiveness. The restaurant…. say that you’re trying to measure the quality of the service at your restaurant. If their feeling is between those extremes. some of the other methods which service organizations use to obtain information about their service quality are briefly explained below: a) Transaction Surveys: This type of research involves tracking the information about one or all of the key service encounters with the customer. 24) seems to give employees support so that they can do their jobs well. We will discuss more about issues related to customer loyalty in the last unit of this block. 6) has a visually attractive menu that reflects the restaurant’s image. p. competent. 2) has a visually attractive dining area. 13) is dependable and consistent. The first ten items are about tangibles.PER” Interview Introduce yourself. 22) makes you feel personally safe. 18) gives extra effort to handle your special requests. This is usually done with the help of a small questionnaire 16 . 28) has employees who are sympathetic and reassuring if something is wrong. and that this will take only about ten minutes. “Dineserv: A tool for measuring Service Quality in Restaurants. 3) has staff members who are clean. If they agree. and items 25-29. 16) during busy times has employees shift to help each other maintain speed and quality of service. items 19-24. 20) makes you feel comfortable and confident in your dealings with them. Cornell Hotel and Administration Quarterly”.Strategic Issues Exhibit 8. 10) has comfortable seats in the dining room. These surveys are also called ‘trailer calls’ or ‘post transaction surveys’. and methods of preparation. about assurance. 1) has visually attractive parking areas and building exteriors. 5) has a menu that is easily readable. their ingredients.59 While conducting surveys to assess the service quality it will always be beneficial to ask some additional questions on customer satisfaction and loyalty with regards to the service provider. 11) serves you in time in the dining room. items 11-15. and experienced. 25) has employees who are sensitive to your individual needs and wants. they should assign an intermediate number. about empathy Source: Steven. 8) has rest rooms that are thoroughly clean. since you’re always trying to improve. 4) has a décor in keeping with its image and price range. and appropriately dressed. 7) has a dinning area that is comfortable and easy to move around in. 12) quickly corrects anything that is wrong. Knutson and Patton. Apart from conducting customer surveys like the one using SERVQUAL as described above. Ask if you may have their time and cooperation.

which includes perceptions about the service quality as well is to form customer panels i. Stating how much the service will cost. can be a very effective way of reinforcing service quality standards. Service Quality 8. These surveys also provide the management a tool for monitoring the performance of individual service contact personnel. The marketing function should recognize the liability. The mystery shopper is unknown to the service provider. its scope. We will discuss the issue of complaint management in detail in the last unit of this block. This involves : Describing the service. Mystery shopping. The need for proper communication is highlighted by the fact that the customers’ perceptions of service quality are acquired often through communication with the service organization’s personnel and facilities. survey of airlines passengers while disembarking or that of a hotel guest while checking out. The ISO standard brings about the various elements of an effective communication with customers. This primarily concerns with the expectation aspect. An analysis of the complaints can help in identifying quality failure points. A slight variation of this. c) Mystery Shopping: In this method outside research companies are used by the service organization who send people posing as customers in order to judge the service quality. Ensuring that customers are aware of the contributions they can make to service quality.immediately after a service transaction has taken place e. e ) Intermediary Research: This form of research is useful in services where intermediaries form an important part of the service delivery process and have a major direct contact with customers.g. This can be very effective in business – to – business situation. Explaining to customers the effect of any problems. Explaining the inter-relationship between service delivery and cost. This is a popular method in the retail sector. Determining the relationship between the service offered and the real needs of the customer.e. also termed as Ghost Shopping. Also advertisements of the service should reflect the service specification and take account of the customer perception of the quality of service provided. 17 .6 COMMUNICATING WITH CUSTOMERS ABOUT SERVICE QUALITY Communication with customers involves listening to them and keeping them informed. Providing adequate and readily accessible facilities for effective communication. risks and financial implication of offering exaggerated or unsubstantiated claims for a service. b) Complaint Solicitation and Analysis: Customers tend to voice their dissatisfaction through complaints. d) Asking Customers: This involves asking customers directly what they would like to be done to increase the quality of service and their satisfaction. and how they will be resolved. ongoing groups of customers who are assembled to provide perceptions about a service over a period of time. should they arise. In such situation intermediaries can provide valuable feedback to the service firm regarding quality of service as perceived by the customers. its availability and timeliness of delivery. It is here that importance of linkages between operations and marketing come into picture.

... So........ customer expectations are more realistic than when these functioning do not interact........... the more willing they will be to provide service..... the load factor consistently improved and the shareholders’ worth increased multifold.............................. ............... Advertising that features actual employees doing their jobs is more effective in communicating excellence than advertising that uses professional talent... When marketing and operations interact to create external communications.......................... The more vivid the advertisement....................... In a number of passenger surveys............. Since most of 18 ............... ......... titled “Turnaround through Service Quality — British Airways” has been presented below to demonstrate as to how service quality can be a real winner in transforming an ailing organization into industry leader and the way British Airways succeeded in achieving it......................... Some of the propositions developed by him regarding advertising for services include : Focusing on the most important dimension of service quality will result in more effective communication than focusing on other dimensions................................................................................................................................Strategic Issues Valarie Zeithaml suggests that communicating service quality begins with an understanding of the importance to customers of the various aspects of service quality... 8............ The more positive employees feel about the advertising that the company runs......... what were the reasons for this extraordinary turnaround of an ailing airline into an industry leader and how this was achieved? After deregulation of airline industry in the west...... BA was rated as the world’s best airline. the stronger the effect in influencing customer expectations about quality...... Isolating quality dimensions that are most important to customer provides a focus for advertising efforts..... to succeed airlines have to think themselves as service companies that happen to fly airplanes.......... a number of carriers became too focused on prices and lowering them that they simply overlooked the fact that the industry was basically built on service. ........ Some airlines made the mistake of thinking themselves as simply transportation companies which took people from one airport to another........ However................................ During this period (80’s & 90’s) the airlines was privatized...... Activity 3 Collect a few print advertisements of different service companies and identify the service quality dimensions(s) being emphasized in them............ A case study... was truly remarkable and spectacular................... The transformation of BA from a state owned airlines making huge losses in early 80’s and known for its indifference to passengers to the highest profit making airline in the world in 90’s and famous for its excellent quality of service.............................. ....7 CASE STUDY: TURNAROUND THROUGH SERVICE QUALITY — BRITISH AIRWAYS Introduction This illustrative case study has been developed to highlight the importance of service quality in achieving success for an airline and to determine the ways and means by which this could be achieved by British Airways (BA)...............................

BA. To be a truly customer oriented company required a lot of changes and initiatives to be taken ranging from restructuring to empowerment of employees. More than a hundred teams were set up and out of thousands of ideas generated. Since this involves a lot of interaction between employees and customers . Through all these programmes. environment and culture they experienced with the airlines. to expose them to think about customer service and the critical role they play in achieving the goal of being a service oriented organization. BA’s researches confirmed this. Since services management requires a great deal of co-ordination between marketing and operations. The aim of this programme was to involve each of the 30. Chief Executive. They were shown how to train and support their sub-ordinates and be good leaders. motivating the employees. It was emphasized that it takes the dedication of each employee to succeed in delivering quality. who was appointed in 1983. The turnaround strategy revolved around a focus on its customers and an obsession with improving service quality. over 700 were followed through and implemented. Programmes undertaken The first major initiative taken in early 80’s was the “PUTTING PEOPLE FIRST” programme which was gigantic in scope. it was Service Quality 19 . “CUSTOMER FIRST TEAMS” were established whereby employees in small groups were encouraged to give their ideas for improving customer service. finding that a customer’s view of the airline depended not solely on product.e.000 employees (The number was reduced from 59. the functional quality. BA recognized the important role which the employees play in overall success of the airline and major initiatives were taken for training. Further a training course “MANAGING PEOPLE FIRST “ was introduced for all managers.the airlines operate same planes. This course was aimed to help the employees in improving their skills as service providers. The Road to success Much of the success of BA is attributed to the policies and strategies initiated by Sir Colin Marshall. This gave a good opportunity to the employees to understand the working of each department and knowing each other better. Good service.‘the moments of truth’ . this effort helped in achieving a finer fit between the two. This programme was just the starting point and was followed by number of the quality initiatives. The airline recognized that instead of being in the business of flying airplanes. delivered on a continuous and consistent basis is definitely a competitive advantage for any business and surely so for airlines. In April 1992. To achieve consistent quality. BA launched another customer initiative entitled “WINNING FOR CUSTOMERS”. it was in fact in the business of satisfying passenger requirements. to distinguish it has to be done through quality of service. every individual in the organization must believe that success depends on how well he or she serves the customer.the quality of these interactions have a great impact on overall perception of quality judged by the customers.000 in 1979 to reduce the costs) of BA and it actually did so. charge quite similar prices. organized a programme called “A DAY IN THE LIFE” in which employees from different departments appraised each other of their activities and functions. realizing the importance of internal marketing and the internal customers. Airline industry is a service industry in which the quality of the offering is not just dependent on the outcome (safe and timely arrival) but also on the way in which the service is delivered i. Their was absolute commitment from the top management to make the effort a success and this can be gauged by the fact that Sir Colin Marshall himself attended ninety seven per cent of the courses. bur their reaction to the ambience.

service quality requires a different approach as compared to goods quality. when they finish their journey on one of our aircrafts. improvement in service quality was the focus of all the initiatives. You have also learnt the underlying themes of service quality that it is more difficult for the consumers to evaluate than goods quality. together with initiatives on employee improvement. marketing alliances and code share deals. In order to provide the customer a choice of schedules and networks. Saatchi and Saatchi developed a series of outstanding global TV commercials aimed at relationship marketing which helped in building BA’s image as world’s favourite airline. better reservation and information services .e. Benchmarking with the best service in the industry and customer feedback were also vigorously taken. 20 . Because of some basic differences between goods and services with regards how they are produced. “We like passengers to feel. all helped the airline in not only increasing profits but also improvement in all major areas . Growth. This. The airline remained profitable when others were making losses (including the year of the first Gulf War) and the industry was in recession in early 90s. better inflight and ground services. The significant aspect of all its communication was the credibility. focus on internal marketing. In fact. All these were properly communicated to the customer. provided the customers a world class service. The customer service orientation of the airline is rightly highlighted in the following statement of a cabin services manager of BA. Providing world class service went simultaneously with cost savings through increased efficiency. which are quite famous now. an overall improvement in service quality. foundation was laid for a world network through a web of stakes. BA delivered what it promised to the customers. The term service quality can be described as the delivery of excellent or superior service relative to customer expectations. Two specific models of service quality.8 SUMMARY The unit described the concept of service quality to you. expansion and use of technological developments were undertaken. BA put emphasis on building the infrastructure and tangible elements of service as well. that extra piece of information. customer feedback initiatives etc.Strategic Issues successful in dismantling the bureaucratic style of working and moving towards being a customer friendly airline. that extra smile. consumed and evaluated.i. Conclusion BA’s efforts in employee training.” 8. fewer complaints.more on time arrivals and departures. Adequate importance was placed on customer retention through programmes like ‘Air Miles and Latitude’ (Frequent Flyer Programme). The marketing mix and market segmentation were carefully developed and number of new brands were created. This was one area which helped to raise its total productivity by fifteen per cent in three years during the beginning of 90s. that we have delivered that extra drink. Simultaneously. business efficiency programme. that we have gone that extra mile for them. that service quality evaluations are made on the basis of outcome as well as process of service delivery and that service quality perceptions result from a comparison of consumer expectations with actual service performance. Gronroos Model and Gaps Model developed by Parasuraman.

Assurance. namely a technical or outcome dimension and a functional or process related dimension. The final section of the unit give an illustrative case study of British Airways to demonstrate the importance of service quality in achieving success for an organization and highlights the ways and means by which it was achieved. The five dimensions of service quality . This unit also explained to you the linkage between service quality and profitability. 6) Customer’s expectations are influenced by word-of-mouth. Gronroos models suggests that the quality of a service as it is perceived by the customer has two dimensions. Responsiveness. Empathy and Tangibles were also explained to you. The gaps model identifies the four provider gaps which are responsible for the gap between customer’s perceptions and expectations (customer gap).Zeithaml and Berry have been discussed. Service quality can be broken into a) b) c) d) Internal and External Quality Technical and Functional Quality Goods and service quality None of the above 2) The knowledge and courtesy of employees and their ability to convey trust describes which of the service quality dimensions? a) b) c) d) Assurance Empathy Reliability Responsiveness 3) The gap between expected service and company perception of consumer expectations can be because of a) b) c) d) poor service design failure to match demand and supply inadequate marketing research orientation overpromising 4) Which of the four service provider gaps can be closed in the marketing function alone? a) b) c) d) ii) Gap 1 Gap 2 Gap 3 Gap 4 True or False 5) Technical quality refers to the outcome whereas functional quality refers to the process. Servqual – a scale to measure service quality has been discussed along with its possible applications. Service Quality 8.9 SELF ASSESSMENT QUESTIONS A) Objectives Type Questions i) Multiple Choice Questions 1) According to Gronroos. personal needs.Reliability. past experience and external communication 21 .

Vol. FURTHER READINGS Cronin and Taylor . 2nd Edn. 5. pp. 8. “Strategic Management and Marketing in the Service Sector”. Finland.” Measuring Service Quality: A Reexamination and Extension”. April 1996. Swedish School of Economics and Business Administration. In the gaps model of service quality which of the four service provider gaps do you believe in the most difficult to close and why? Is good service quality a cost or a revenue producer? Discuss with the help of examples. Rust. 2002. New Delhi.Strategic Issues iii) Directions for questions 7-10.31-46. Briefly describe the gaps model and explain the significance of the five gaps that the model identifies. 1987. Given below are examples of specific questions raised by customers regarding different dimensions of service quality. pp 41-50 R. Service Marketing. 2. Gale. April. July 1992. Free Press NY. John Wily & Sons. 1982. 1995. Zahorik and Keningham. Journal of Marketing. 49. 8. Tata McGraw Hill.D. 2000. create a questionnaire for a service firm that you patronize or are familiar with.10 1.” Journal of Marketing. Identify the service quality dimensions.Making Service Quality Financially Accountable”. does the bank resolve them quickly? Answers 1) 5) 9) b True Empathy 2) a 6) True 10) Responsiveness 3) c 7) Tangibles 4) a 8) Reliability B) Discussion Questions 1) 2) 3) 4) 5) 6) What do you understand by the term Service Quality? What are the underlying themes of service quality? Define the five dimensions of service quality. Kurtz & Clow. Gronroos. 7. Vol. Zeithaml and Berry.58-70 Zeithaml. 22 . “The Behavioural Consequences of Service Quality. “Return on Quality . “Service Marketing”.T. Using SERVQUAL scale. Berry and Parasuraman. “A Conceptual model of Service Quality and its Implications for Future Research” Journal of Marketing. 3. Give suitable examples of each dimension. Parasuraman. 1995.60. 6. Zeithaml and Bitner. Buzzell and B. Journal of Marketing. 4. “The PIMS Principles”. 7) Do the tools used by the service engineer look modern? 8) Is my bank statement free of errors? 9) Does some one in the bank recognize me as a regular customer? 10) When there is a problem with my bank statement. pp.

369-383. Zeithaml. Chase and Cummings. Parasuraman and Berry.” Free Press. 1990. Jossey Bass. Bowen. San Francisco. 1990. Ed. Service Quality 10.9. “Communicating with Customer about Service Quality in Service Management Effectiveness”. pp. “Delivering Quality Service Balancing Customer Perceptions and Expectations. NY. Zeithaml V. 23 .

many service businesses frequently find it difficult to match supply (capacity) and demand. At times there may be too much of demand (movie halls or restaurants on weekend evenings) and sometimes too little demand may exist (low weekend occupancies in business hotels). Develop strategies for matching demand and capacity.2 9. Inability to synchronize supply and demand has a significant impact on the service organization’s bottom line through lost opportunity (when demand is greater than capacity) and through high costs (when demand is low in relation to fixed capacity resulting in under utilization of capacity) Zeithaml. While marketers of physical goods hold inventories to buffer fluctuations in demand and supply.8 9. a theater owner or a restaurant cannot take an empty seat from Thursday night and add it to the capacity on Friday or Saturday night. it is difficult or impossible for services marketers to do so. Therefore.A (in 1980’s) covering 1. Similarly a hospital bed or an airline seat left vacant is a loss for ever.5 9.3 9. A low occupation for a business hotel on weekends is an irretrievable loss. This problem received a score of 3. 24 .1 INTRODUCTION In the first unit of this course you have studied the characteristics of services which distinguish them from goods.Strategic Issues UNIT 9 MANAGING DEMAND AND CAPACITY Objectives After studying this unit.7 9.received a mean score exceeding the mid-point on the 5 point scale (1 indicating no problem at all to 5 indicating a major problem). Structure 9. you should be able to Explain the importance of managing demand and capacity for service organizations. Identify the demand patterns and their underlying reasons. Understand the concept of yield management. One of the characteristics is perishablity which means that services cannot be saved or stored. Parasuraman and Berry conducted an exhaustive survey in U.4 9.S.6 9. Out of the eight commonly cited difficulties unique to services. Provide strategies for managing customer waiting. However.9 Introduction Understanding Demand Patterns Strategies for Matching Capacity and Demand Yield Management Managing Customer Waiting Managing Demand and Waiting Lines : Case of an Amusement Park Summary Self Assessment Questions Further Readings 9.000 service firms to find out the extent to which problems reported to be associated with services actually presented problems for the sample firms.27 and another important finding was the absence of any significant difference across different types of services firms with regard to this problem. only one problem area – ‘The demand for services fluctuates’ .1 9.

.. while the maximum capacity of the rooms may be 60-70............ received a mean score of 3............... equipments and human resources...94 with regard to problem area that service quality is difficult to control................. customers may perceive deterioration in the quality of service delivered. while no one is turned away... Excess capacity : Demand is less than optimum capacity and therefore resources are underutilized........................................... customers and the company.......................66 with 60 percent of the airlines indicating a score of 4 to 5........... 9. no one is overworked in the staff and customers receives quality service.............. This results in some customers being turned away.. .............. Managing Demand and Capacity 9.... Demand and supply are balanced at the optimum capacity: This is the ideal situation................ 4................. Demand exceeds the optimum capacity level: Optimum capacity refers to the best use of capacity from the perspective of both............ The first step in finding out ways to manage demand and capacity is to understand the demand patterns and the factors which affect it.. 2............... in the counseling session at your study centre............ In this unit we will discuss various issued related to managing demand/capacity (supply) imbalances........ The demand patterns may have a regular and predictable cycle or in some cases it may be largely random in nature and difficult to predict............................2 UNDERSTANDING DEMAND PATTERNS A service organization with a fixed capacity may be faced with one of the following four conditions: 1...............g.......... Also................. The capacity of the service organization includes physical facilities. car repair and maintenance service with an automobile manufacturer)............................................ the optimum capacity for conducting the session may be 30-40 only for ensuring proper interaction..... even for the customers receiving the service..Perception of demand fluctuation as a somewhat serious problem appeared to be universal..... For example........ 3................ Excess demand: The demand exceeds the maximum available capacity..1... Better knowledge of demand patterns leads to better managerial decision making. This may happen because of overcrowding and/or overstretching of resources... Activity 1 Compare a service organization with a manufacturing firm in terms of inventory capacity (e........... A similar study conducted in India in 1996-97 with reference to passenger airline industry covering more than a dozen airlines operating in India revealed similar results......................... . In most of the cases it is less than the maximum capacity. In the situation when demand exceeds optimum capacity. The problem area that the demand fluctuates......... the quality of service may get affected (refer service delivery gap in the gaps model discussed in the previous unit).... 25 ......................... .. In certain cases this may also pose the risk that customers may have doubts about the service provider........... The next highest score was 2............ All the above four possibilities have been given in Fig..... Can you identify the implications for the service organization? ...... No one is turned away..................

For example bad weather may result in an unexpectedly low customer turnout at a movie hall or an amusement park. salary dates.1: Maximum Available capacity Demand Exceeds Capacity (business lost) Demand Exceeds Optimum Capacity (Service quality declines) Optimum capacity Ideal Use Excess Capacity (wasted resources. Some degree of random variation in demand is faced by virtually all service firms. Managing Services. If it is so. b) Random Demand Fluctuations: At times the demand pattern may appear to be random with no apparently predictable cycle.Marketing Operations and Human Resources. may result in higher demand for health services and telecommunication services. it may be useful to do a segmentation analysis.155) a) Predictable Demand Variations: Many businesses are subject to periodic cycles. A hotel may also witness seasonal variation with high demand during a particular season due to large inflow of tourists. (happy hours being offered by many restaurants during these times. monthly. p. then you must find out and analyze the causes of these cyclical demand variations. These cycles may be daily (variations by hour). with large price discounts). in case of a hotel there may be variation in demand on different days with business travelers going back on weekends. In order to understand the demand patterns and underlying causes. A disaster like accident. Different segments of customers may reveal different patterns as well as causes. A proper understanding of the underlying causes will prepare you to deal with such random demand fluctuations. weekly (variation by day). For example.Strategic Issues 9. Prentice Hall. A restaurant faces hourly variations with low demand during 3. Do these happen because of seasonal change. thereby reducing the demand. public or regional holidays etc? A proper analysis of these causes will help you in devising suitable strategy for managing the demand fluctuations. Amusement parks have greater demand during weekends as compared to weekdays and also greater demand is witnessed during school vacations. may send bad signals) TIME (Source: Christopher Lovelock. Although such variations cannot be predicted. floods etc. Such an analysis will help you in pinpointing underlying causes of demand fluctuations and in identifying certain 26 . employment schedule. marketers should nevertheless understand the underlying causes that typically cause them. school vacations.00 – 7. 2nd Edn. As marketers you must find out if such predictable cycles exist in your business.00 pm. Try to identify services which may exhibit these types of predictable demand variations. seasonal and/or yearly.

................................ a) Product: As a service provider you can alter the service offering to even the demand......... A hotel for example may focus on weekend family entertainment and recreation package to cope up with low demand from business executives during weekends. Many service marketers reduce price during the periods of low demand to increase the demand...................................................................................... ...................... it can vary its marketing mix elements of product......... The changes in service offering may be seasonal or based on days of the week or time of the day depending on the nature of demand fluctuations........................................ This may help you in identifying certain segments which could be easily diverted to off-peak periods. .... ............... Activity 2 Select a restaurant in your neighborhood and find out its demand patterns and also identify the underlying reasons.................................. restaurants and many retail outlets offer happy hours wherein discounts are offered.......... However.................. place and promotion to change demand in line with the capacity.................. A management institute may offer more management development programmes during the vacation period of its regular management programme students........ price....... as marketers you must ensure that by offering different types of services the image or positioning of the service firm is not diluted or confused................. Pricing: The demand curve suggests that quantity of product demanded varies with the price... Airlines offer low fares during odd hours like late night flights. ............ Once you properly understand the above issues you can suitably device strategies for matching demand and capacity.......... This requires a clear understanding of demand patterns as well as the organization’s capacity constraints... at least during peak periods.. The strategies to be adopted can be broadly divided into two categories : 1) 2) Changing demand to fit supply (capacity) – marketing mix strategies Changing supply (capacity) to fit demand – input scheduling strategies Let us discuss the above two strategies in detail.............peaks of specific customer categories.. movie theaters offer a lower price ticket for the morning show.......................... Once this has been determined...................... Managing Demand and Capacity 9....................... Using price as an effective tool for managing b) 27 ............................ Increasing demand during slack period doesn’t mean that you should take business from any segment that is available... You may also discourage segments that are not profitable or are inconsistent with the service image.......... hotels offer large discounts during off seasons and also higher than normal prices during say Christmas or New year...............3 STRATEGIES FOR MATCHING CAPACITY AND DEMAND Managers can use a wide variety of strategies for matching capacity and demand.................... 1) Strategies for Managing Demand The organization should determine the optimum level of demand for its given capacity.

. higher turnover etc have to be properly addressed. This requires putting in certain usage conditions (for example for availing low priced fares in airlines customers have to book in advance and there are higher cancellation charges) and/or providing value enhancement to higher paying customers. facilities......... The same b) c) 28 ........... Service firms can also use sales promotion to manage demand............... This can be done by putting signages at the service outlets (like banks) or advertising............................................. By making changes in these components you can achieve a better match between demand and capacity...... Employees Working Overtime: Some of the concerns raised above regarding part time employees can be eliminated by having employees work over time...... 2) Strategies for Managing Capacity Managing capacity involves changes in different components of the resources of a firm like people....... d) Activity 3 Select any service organization and analyze how it uses it marketing mix elements to influence demand....... hospitals like Apollo have created satellite clinics to deal with routine consultations.... c) Place (Distribution): Many service firms modify their time and place of delivery as a strategy to match demand and capacity................... Also. They should also be properly informed about changes in product......................... Proper promotional strategy can help the service organization in shifting demand from high to low period as well as stimulating demand during low periods............... This helps in increasing capacity as well as reducing costs................................. time etc............... tests and medical services........... However... However.......... equipments.... ........... pricing and distribution. service firm may hire additional part-time employees... Many airlines offer free ticket for companion in the business class.................... training concerns.. a) Using Part-time Employees: During periods of peak demand....... ............... ................... finance companies use mobile vans for distribution and collection of forms............ The customers should be made aware of the peak timings of the demand and also the benefits they can get in availing the service during non-peak timings... .............. Bank may change its timings on specific days or during specific period......... wherein employees can perform several different jobs..................................... slope etc............... you should appreciate the existence of different demand curves for different segments during the same time period..... working for longer hours may have adverse impact on service quality and also involves higher costs as overtime charges are generally at higher rates.................... As marketers you may also face an additional challenge when multiple segments are served at the same time and these segments have paid different prices.................Strategic Issues demand would require a proper understanding of the demand curve – its shape.. issues like attitude of part time employees......... Cross Training Employees: Cross training of employees results in a flexible capacity....................... Southwest Airlines strongly believes in this philosophy...................... some business hotels offer free stay for spouse during the weekend stay................... Promotion: You can also shift the demand by properly communicating with your customers..

repairs. self-service in restaurants). This helps in avoiding underutilization of resources and also increasing the efficiency of the employees. v) when demand 29 . Yield can be increased by an organization by a properly planned differential pricing strategy. reconfiguring hotel rooms). Similarly.g. The strategies discussed above for managing demand and capacity have been summarized in Table 9.1: High Demand/Slack Supply Managing Demand (Changing demand to fit capacity) Educate customers to curtain usage during peak periods (through signages or advertising) Offer incentives for usage during non-peak periods Charge full price–no discounts or premium pricing Take care of regular customers first Hire part-time employees Keep employees overtime Cross train employees Outsource. Yield management has gained widespread acceptance in airline and hotel industry. facilities and equipments also require proper maintenance. sales promotion schemes Modify hours of operations Bring service to the customers Managing Capacity (Changing capacity to match demand) Schedule training of employees Maintenance. at the right time for the right price. Yield = Actual revenue Potential revenue = Actual capacity used X Average actual price . and equipments are used at full capacity. This can be scheduled during periods of low demand. It helps a firm sell the right capacity to the right type of customer. outsourcing. Yield management techniques are useful and appropriate: i) when a firm is operating with a relatively fixed capacity.1 9. It extensively uses computer based technology to study patterns in consumer behaviour in order to manage differential pricing. for human resources. service firms can also meaningfully manage its capacity by increasing customer participation (customers can be used as productive resources e. and taking a subcontract work. However. modifying the capacity (e. iv) when the product is sold in advance. off-peak periods can be used for training purposes as well as for granting vacations. Total capacity X Maximum Price It is a measure of the extent to which an organization’s resources are being used to their full revenue generation potential. ii) when demand can be segmented. iii) when inventory is perishable.4 YIELD MANAGEMENT Yield management is a method for managing demand and capacity profitably by service organizations. Managing Demand and Capacity In addition to the above.employee may move from ticketing to gate counters. d) Scheduling: During peak demand periods people. renovations Schedule employee vacations Take on subcontract work 9. facilities. renting facilities or equipments. rent facilities/ equipments Slack Demand/Over Supply Modify service offerings Offer discounts. Put in simple terms.g.

Employee Morale Problem: Yield Management seems to take away discretion from sales and reservation people. Yield in case of hotel would be = room – nights sold X actual average room rate room – nights available X published room rate Take a hypothetical example of a 100 room hotel with a rate of Rs. short term profit maximization may over shadow long term competitive advantages. it may result in neglecting important issues like service quality.e. While yield management may give a firm competitive advantage. 2. Same is the case with hotels. 1. 1989). However.200 per night. 30 . Customer Alienation : A customer who pays a higher price for a service than other customers may feel alienated and dissatisfied. ⎜ ⎟ ⎝ ⎠ In order to make yield management successful. Therefore. They should understand its objectives as well as its operation and how its affects their jobs.000 per night i. He may consider it to be unfair to him. Once an aircraft takes off with vacant seats. economic models and expert systems. but capacity change costs are high (Sherly Kimes. These steps should be done on a continuous basis so as to adjust to the changing market conditions as well as making use of greater information available about segment wise demand patterns. that capacity is lost for ever. In this case the yield ⎛ 1200 × 100 ⎞ becomes 60% ⎜ 2000 × 100 ⎟ ⎜ ⎟ ⎝ ⎠ However.Strategic Issues fluctuates substantially. Considering that incremental cost of taking additional passengers is low. and vi) where marginal sales cost is low. 1. the marketers should identify the main market segments being served / those can be served. On the other hand if the room rates are reduced by 40% i. potential revenue is Rs.000 ⎞ Rs.200 would result in higher yield ⎜ 200. Oct. it should be properly structured to allow for some judgment on the part of the employees. a combination of the two can be a better alternative for the hotel. This may result in a number of seats remaining vacant. 2 lakh per night. 1989) has identified a number of management issues to be taken into account while implementing a yield management system. The next step would be to do a proper sales forecast for each segment at particular price levels.000 ⎟ of 80 percent. airlines offer discounted / apex fares with certain conditions. That is to say.e. it could also result in the following : Loss of competitive focus : As most yield management systems focus on maximizing revenue or yield. It may not be in a position to sell all its seats at full prices. Selling 50% of the rooms at full tariff and remaining 50% at reduced tariff of ⎛ 160. it doesn’t get full occupancy at these rates and attract only 50% occupancy. Lack of Employee Training : A yield management system will require extensive training of all employees. it attracts 100% occupancy. Based on this forecast a proper mix of different customer segments at different times can be suggested for maximizing the yield. Managerial Implications Sherly Kimes in her widely quoted article “Yield management – A tool for capacity constrained service firms (Journal of Operations Management. to Rs. Yield management may require a lot of mathematical programming. Therefore proper customer education should be an integral part of any yield management system to be effective. in order to bring in more revenues and increase the yield. resulting in a yield of 50 percent. Take the example of an airline.

On normal days. urgency of the job. Thus service waits can be controlled by two broad techniques viz. Lastly. Special Darshan and other paid darshan/sevas. banks. Thirdly. A slight variation of single queue system can be that each customer on arrival is given a number and waits at the reception area enabling the customer to sit. The Sudarsanam token system was introduced to minimize the waiting time for Sarvadarsanam. about 18 hours are allotted for Sarvadarsanam and on peak days it is open for 20 hours. Fourthly. 1) Operations Management : It involves reducing the amount of time customers have to wait. There is also a provision of ‘Special Darshan’ on purchase of tickets.1. as marketers you can also differentiate waiting customers wherein some customers may wait for more time while others receive a quicker service. Firstly the firm should analyze its operational processes in order to identify and remove inefficiencies or bottlenecks. duration of the service transaction and payment of a premium price.5 MANAGING CUSTOMER WAITING In the previous sections you have learnt about demand patterns and strategies to match demand and capacity. greater use of information technology can be made wherein customers can use telephone. relax and mix up with other customers. Tirupati More than fifty thousand pilgrims visit the Sri Venkateswara Temple every day. in case waiting cannot be avoided. This will help in getting the customer out of a queue.Also in order to make the yield management successful a strong information system within the organization as well as commitment from the top management is essential. If a customers perceived waiting time is less. banks can deploy ATMs. ‘Sarvadarsanam’ (darshan for all) timings are different on different days of week. Another option is to have a single queue system wherein first cum first serve rule applies to everyone. restaurants. Pilgrims can enter the Vaikuntam Queue Complex at Tirumala at the time indicated on 31 . if any. customers can be encouraged to use the facilities during non-peak hours. Operations Management and Perception Management. While reducing waiting time is important for marketers. computers. Secondly. Some of its features: The tokens are available free of cost at a number of convenient places in the town. provide phone banking and internet banking to reduce pressure at the branches. The time for darshan is indicated on the token. Exhibit 9. Managing Waiting Lines at Sri Venkateswara Temple. There are number of possibilities in this regard. However sometimes it is not possible to match demand and capacity and waiting by customers become inevitable. the organization has to decide on the type of queuing system to be adopted. hair cutting saloons etc. This queue merges with the Sarvadarsanam queue at a fixed point and the darshan timings are the same as that for Sarvadarsanam. Waiting is a common phenomenon at hospitals. Pilgrims who use the queue for Special Darshan have a shorter waiting time. Managing Demand and Capacity 9. Take for example the computerized railway reservation centres wherein there are multiplequeues and the customer has the option to join whichever queue he wants to and can also switch over to other queue if the wait appears to be shorter in that. For example. In such situations waiting time becomes one of the key factors in consumer’s evaluation of service. he will be more satisfied with the service. The differentiation can be done on the basis of a number of factors like importance of the customer. etc to conduct business. important to reduce the customer’s perceived waiting time. This can be done in a number of ways. In case queues cannot be avoided. a reservation system can be used. it is equally if not more.

However.2 provides an interesting illustration in this regard. Simple things like providing a glass of water or a cup of tea to the waiting customer can 2) Perception Management: Limited success of operations management in waiting line management has led to increased interest in managing the perceptions of wait experience. In case of intermediate waits. Solo waiting feels longer than group waiting. 1) Determine the acceptable waiting time for your customers. 3) Provide ‘waiting duration information’ i. In order to keep a track of the number of pilgrims and ensure their smooth flow. however. Uncertain waits are longer than known. This can be done by keeping idle employees out of view and conducting activities that do not involve customer interactions out of the customer’s sight. Maister has proposed following eight principles that you can use as service marketers to influence customer’s perception of waits and their satisfaction with waiting lines Unoccupied time feels longer than occupied time. This helps in reducing uncertainty and customer irritation. in case of long waits. while developing strategies for waiting lines you should never overlook the effects of perceptions management. 4) If unexpected delays occur.Strategic Issues the tokens. For example. 2) Since unoccupied time feels longer than occupied time.tirumala. finite waits. waiting duration information may be less effective then queuing information. Preprocess waits feel longer than in-process waits. For example. If you cannot control the actual wait duration. with continuous updates. a consumer’s position in the queue. television sets can be installed in the waiting areas. Exhibit 9. Therefore. Also providing queuing information is more important as compared to waiting duration information when service organization has difficulty in accurately estimating the length of wait or when the waiting line is not visible to customers. no information is needed. it provides pilgrims with enough time to visit temples in the vicinity. The following suggestions can be used in order to make waiting fun or at least tolerable. Source: www. menu cards may be . keep customers occupied by installing distractions that entertain and physically involve them. 6) Keep resources not serving customers out of sight. Michael Hue & David Tse suggest that in short waits. Anxiety makes waits seem longer. 5) Try to modify customer arrival behaviour. As this system saves on waiting time. Unexplained waits are longer than explained waits. 32 7) Try to reduce pre-service waiting by transferring some of the pre-service waiting to the service encounter phase. magazines or reading materials related to the service can be provided. one token is issued per head.e. Collective tokens for groups are not issued.e. waiting duration information appears to be a better choice than queuing information. They can have darshan within two hours of entering the Queue Complex. the longer the people will wait. Unfair waits are longer than equitable waits The more valuable the service. then control the customer’s perception of it. explanation should be given to the customers. you should appreciate that though operations management techniques are important. The key is to impress upon the customer that he has not been forgotten. information about the expected length of a wait and/or ‘queuing information’ i.

the bank through a research also concluded that a branch with more than a thousand households in its customer base would be able to recoup up the cost of installing T. “Waiting in line : Experiment by Bank of America” Bank of America through their review of data realized that there might be opportunities to reduce perceived wait times without reducing actual wait times.6 MANAGING DEMAND AND WAITING LINES: CASE OF AN AMUSEMENT PARK Introduction: In this section we are giving you a brief case situation concerning an amusement park. sets in less than a year because of increased customer purchases and retention due to higher customer satisfaction.14 minutes. This growth is primarily a result of higher disposable incomes and an increasing willingness on the part of the customers to consider new forms of entertainment. (Based on the study analysis that every one point improvement in bank’s customer satisfaction index added $1. Presently the leading players in the Indian market include Appu Ghar in Delhi and Essel World near Mumbai with a lot of new players like Sammy’s Dreamland in Bangalore also coming up. In India the industry is in the growth stage with around 1000 crore said to have been invested in the last few years. Foreign companies like Universal Studio. In the summer of 2001 the bank installed television sets over the teller booths at one of its branches to test its hypothesis that “if you entertain people in line by putting television sets in the transaction zone – above the row of tellers in a branch lobby – you will reduce perceived wait times by at least 15%”. a five minute wait may feel like a ten-minute wait. 33 . Average perceived time : 7. Also given are the comments and possible solutions to the problems raised.provided to the customers while waiting. Therefore. After the installation of monitors in the bank lobby these overestimates for the same customer groups dropped to 15% (Average actual time : 6. let us fist take a brief look at the amusement park industry as such. training and incentives / rewards for providing good service should be made. In the last part of this section we have also brought out some of the innovative practices adopted by successful amusement parks with regards to managing demand and waiting lines.76-77.40 in annual revenue per household and that the reduction in perceived wait times would translate into a 5. psychological studies have revealed that if you distract a person from a boring chore. “R&D Comes to Service: Bank of America’s Path breaking Experiments.V.04 min). (Average actual time : 6.9 point increase in overall banking-centre customer satisfaction) Source: Stefan Thomke. p. April 2003. While a two-minute wait may usually feel like a two-minute wait.V. The results obtained were significant. Before the implementation of this experiment. Before we move over to the case situation. Average perceived time : 8. After the installation of the T. Considering that long waits have direct impact on customer satisfaction.16 min). Also. 8) A smiling service person who knows his job well can be very helpful in overcoming many negative effects of waiting. medical information may be collected from the patient prior to actually meeting the doctor. significantly overestimated their waiting time by 32%. given by top executives of service companies (The case situation and the comments / solutions have been excerpted from a Harvard Business Review Case Study – details given in sources at the bottom of this section).17 minute. Time Warner and Disney are eyeing the Indian market. to decide on their orders. a wide gap opens between actual and perceived times. Managing Demand and Capacity 9. Exhibit 9. customers who waited longer than five minutes. sets the degree of overestimation of wait times dropped from 32% to 15% at the test branch. The industry has it origin about 400 years ago in the Danish capital Copenhagen. time seems to pass much faster.” Harvard Business Review.2. An earlier study by market researchers had also revealed (the study was conducted by intercepting some 1000 customers standing in bank lines) that after a person stands in line for more than three minutes.

And by making it possible to spend less time in queues. attracting new customers required new value proposition. visitors could pay an additional fee to get free rein of the park: Card Holders would enter the ride through separate lines which would give them first crack and they would be seated immediately at any in-park restaurant. analyze the above situation and identify possible solutions. Some Practices in Successful Amusements Parks: Disney lands offer a form of reservation – Fastpass – by which guests may go up to one of the rides offering the Fastpass service and obtain reservation to come at a certain 34 . iii) A former CEO of large Airlines: Service differentiation at an amusement park must be subtler than what has been proposed. The park had three ways to bring in more revenues: increase visit per customer. Before moving on to the next part. high-income professionals and their families. The key is to do it discreetly and in a way that does not degrade the quality of service to the basic customer. If the ‘preferred guest card’ scheme was not implemented the park might be forced to raise price across the board. Who want to feel all that animosity diverted at them? The key to this business is the customers feeling good while they are here. As pulling in people from broader geographical areas seemed an unlikely proposition due to the wide availability of such parks. The park can offer all its guests the opportunity to reserve a time slot for a particular ride. the guest card will also attract a different type of customer – time starved.A) all three were hard to do. Raise the admission price instead ii) Chief Marketing office of a leading bank: It makes good business sense to segment customers and to offer a different level of service-at a higher price-to those at the upper end of the market.S. increase average spending per visit or attract new customers. A fixed number of seats may be allocated to reservation (say a third or a half) and then give the customers lining up an option to wait or to make ride reservation for later in the day. Because of a mature industry (U. However. it was proposed to offer a “preferred guest card” to win more business from moneyed and time pressed group of people. certain objections were raised against such a scheme. With this scheme neither side’s coming back” commented an executive. It had its first money losing year last year followed by another one now. “I don’t even think it’s a great experience for the preferred guests. The expedited line should be hidden from the view of those waiting in longer one.Strategic Issues Case Situation: The amusement park with a successful history was now facing problems. With this background. A possible solution given to this was to separate the lines and limiting the percentage of special tickets issued on any given day. It was hoped that this plan will help to up-sell the people who are already coming to the park. What Experts Say : In this part comments of three senior executives from different service industries have been briefly given i) A cofounder of a premium health care service: Creating two types of service at different prices will create problem for the park. who might otherwise avoid the whole experience. Under this plan.

....... .................... Sources i) ii) iii) iv) Economic Times........ “Marketing for Hospitality and Tourism”........ At the specified time they come back and bypass the waiting line saving an hour or more in waiting............................... The first step towards developing strategies for matching demand and capacity is to study the demand patterns and the underlying causes. April 1994........................... Journal of Marketing.$39 per person entrance fees – without hesitation as this is a small portion of their vacations.... 2003 – “Foreign majors eye amusement park industry” by Rahul Sachitanand.... Because of Fastpass..............66................ weekends............ Dreamworld offers a separate package to local customers involving yearly passes at much lower prices........ demand fluctuation is considered to be a somewhat serious problem for services marketers.. Subsequently yield management technique for managing demand and 35 ...... Dreamworld in Australia caters to both international as well as local customers.... Considering different price sensitivities of local and international customers (while a Japanese couple will pay $78 ....................” by Shirley Taylor...... Considering the fact that services are perishable..................................................... It is a common practice for tourist attractions such as Dreamworld to offer special rates for local residents. Nov.................... A service organization with a fixed capacity may be faced with four different situations viz............... Harvard Business Review...... 2003 – page 418................. The strategies for matching demand and capacity can be broadly divided into two categories – changing demand to fit supply and changing supply to fit demand.... rather than waiting in line....... p.... HBR Case Study “ Are Some Customers More Equal Than Others ?” by Nunes and Johnson....... 9..... Managing Demand and Capacity Activity 4 Visit any amusement park and/or talk to your friends about their experience at amusement parks......................$39 adult charge and $ 29 charge for children — amounts to a large portion of their entertainment expenses). line management at Disney also involves continuously entertaining waiting customers and providing them with the information regarding the duration of their waits...... Identify strategies adopted by the parks to manage demand (e.... the customers are limited to one Fastpass every four hours in order to ensure that the rides are able to accommodate both Fastpass and regular customers. on weekdays vs..... Bowen and Makens.. 3rd edn... .... ....................... .... Further....... special package for specific customers groups etc............ Prentice Hall....... pp 37-50..... It is however very important for the parks to know its customer mix.....................g............. “Waiting for Services : The Relationship between Delays and Evaluations of Service. by Kotler....time. demand exceeding the optimum capacity level. excess demand..7 SUMMARY This unit deals with issues related to managing demand and capacity in service organizations....... 2001...... stating the expected time until service commencement... New Delhi – Dec 16.. Signs are posted at intervals in the queue......... demand and supply being balanced at the optimum capacity and excess capacity.. However.. customers spend more money in the restaurant and shops. 459-460..... a local family of four looking for weekend entertainment may view $136.....) and waiting lines................. These two strategies have been discussed in detail in this unit......

Strategic Issues capacity profitably has been explained. demand exceeds optimum capacity c. This unit outlines certain suggestions which can help you in better management of waiting lines. excess demand b.8 SELF ASSESSMENT QUESTIONS A) Objective Types Questions 1. in-process waits feels longer than the pre-process waits d. perform maintenance. all of the above 2. The last section of the unit gives you a brief case situation concerning demand management and waiting lines issues in an amusement park. Which of the following strategies for flexing capacity to match demand would be appropriate when demand is too low? a. schedule employee training 36 d. excess capacity 5. ability to segment markets b. payment of premium price c. product sold in advance c. 4. unexplained waits are longer than explained waits c. Service waits can be controlled by operations management and perceptions management. fluctuating demand d. all of the above . Providing separate check-in lines for first class passengers by an airlines is an example of differentiating waiting customers on the basis of a. 9. Which of the following strategies would you recommend to manage demand when it is too high? a. repairs b. uncertain waits are longer than known waits b. offer discounts b. none of the above 3. offer incentive to customers for usage during non-peak times d. unoccupied time feels longer than occupied time. schedule vacations c. waiting by customers becomes inevitable in a number of service industries. duration of service transaction d. Despite strategies for matching demand and capacity being in place. In which of the following demand conditions would you witness the situation in which no customer is being turned away but the quality of service may still suffer due to crowding or staffing being pushed beyond their abilities to deliver consistent quality? a. Appropriate situation for effective yield management application includes: a. Which of the following is not true regarding waiting by customers? a. all of the above 6. demand and supply are balanced at the level of optimum capacity d. bring the service to the customers c. urgency of the job b.

Jr. c 6. 9.7. b 7. Explain the significance of determining the demand patterns. “What to tell customer in waits of Different Lengths: An Integrative Model of Service Evaluation”. Describe the strategies for matching supply and demand giving suitable examples. Vol. perishable b. Nunes and Brain A. 3. variable c. Kimes. What are the implications of a mismatch between the two? 2. No. Select a service organization you are familiar with. Develop a waiting line strategy for the organization. Several major restaurant chains offer discounts on days when business is normally slow. Spring 1985. where customers have to wait in line for service. Sherlyl E. Explain the term ‘Yield Management’. Valarie Zeithaml. This strategy is employed because service are a. Harvard Business Review. A. Jr. “Waiting for Service: The relationship between delays and evaluation of services” Journal of Marketing. Discussion Questions 1. Winter 1991. d 2. 60. intangible Answers 1. April 1996. b 5. Micheal Hui and David Tse. “Services Marketing Strategies for coping with demand/supply imbalances” Journal for Services Marketing. 1989. Johnson. April 1994. 2001. Harvard Business Review. “Yield Management: A Tool for Capacity-Constrained Service Firms” Journal of Operations Management. 4. Vol. 4. Karen Katz. “Perceptions for the waiting-in line blues: Entertain. HBR Case Study “Are Some Customers More Equal Than Others”. Richard Larson. “R & D Comes to Services: Bank of America’s Pathbreaking Experiments”. April 2003. Joseph Cronin. 8. 5. Identify some of the managerial issues to be taken into account while implementing a yield management system. Enlighten and Engage” Sloan Management Review. Parasuraman & Leonard Berry “Problems and Strategies in Services Marketing”. c 4. 4. Stefen Thomke. Journal of Marketing. Journal of Marketing. 1994.9 FURTHER READINGS Donald J Shemwell. a 3. Vol. Nov. Paul F. inseparable d. 37 . Blaire Larson. Shirley Taylor. Explain why is it important for service organizations to match demand and capacity. 8 No. Select any service organization of your choice and describe its demand patterns and its underlying causes. And J. d Managing Demand and Capacity B.

You need a list of numbers and you work your way through them. and puts the crumpled paper pack in his pocket. I was a salesman for twenty years and a good one.1 10.” “And I tell you. Gupta’s house”.9 Introduction Importance of Customer Retention Customer Switching Complaining and Service Recovery Service Recovery Strategies Service Guarantees Summary Self Assessment Questions Further Readings 10. 38 . explain the significance of service guarantees. understand the need and importance of complaints handling. He pulls out a crumpled piece of paper from his pocket and dials the number on it. Gupta” says Ramesh. “But.7 10. Ramesh walks out of the booth and heads for the door. I can’t let you walk out without saying something. Further.3 10. discuss strategies for effective service recovery after a service failure. I offer A. Gupta house or anyone else’s with the attitude you’ve Services marketers understand that having customers. Oh. I see.8 10. Thanks. maybe I’ll call again next summer to see if you’re still happy with them. Gupta. The PCO owner stops wiping and says :”My Dear Friend.Strategic Issues UNIT 10 CUSTOMER RETENTION Objectives After studying this unit you should be able to: explain significance of retaining customers for service companies.” says Ramesh solemnly.C. maintenance services at Mrs. identify the reasons of customer switching and ways of managing it. you’ve got someone who does that every year and you’re happy with them. You’ll never get the work of Mrs. Mrs. “Hello. The PCO owner can’t help but listen in . Well.” “Thanks for the advise” says Ramesh to PCO owner. There is a direct link between customer retention over a period of time and profitability and growth. maintenance services and was wondering if you need someone to provide you the services this year.6 10. (Based on an anecdote of Don Peppers at ecustomerserviceworld. Structure 10.2 10. “There’s nothing else needs doing that they don’t do? OK.1 INTRODUCTION Ramesh walks into an empty PCO to make a phone call. not merely acquiring customers is crucial for service companies. list the components of a good service guarantee.5 10.C.4 10. you’ll get nowhere making one call and giving up. Really. I already do A. it’s OK. You see. is that Mrs.

The unit further explains the details of a complaint management system and service recovery process. It is the cornerstone of a successful service. Service marketing literature also suggests that offering well designed service guarantees help in attracting and retaining customers.2 IMPORTANCE OF CUSTOMER RETENTION The importance of retaining customers should be properly understood by the services marketers. Longer the customer stays with an organization. Employee retention and loyalty results in high quality of services which leads to customer satisfaction and delight which makes the customer stay with the organization and increases its profitability which in turn brings employee loyalty. Complaints are a natural part of any service activity as mistakes are an unavoidable feature of all human endeavour and thus also of service delivery. It also produces profits that influence share holder loyalty. p. which is extremely effective in case of services for attracting new customers. The last part of the unit deals with service guarantees. 10. It is said that it costs five times more to attract a new customer then retaining one.1. they tend to purchase more over a period of time. which enables it to offer customized services which makes it difficult for the customer to defect. to acquire a customer a company incurs promotional costs like advertising. Tata McGraw Hill.customer retention to a great extent depends on service quality and customer satisfaction.1: Customer Satisfaction Customer Retention and Increased Profits Quality Services Employee Loyalty Source: Zeithaml and Bitner. It influences employee and supplier loyalty as well. Service recovery is the process of putting things right after something goes wrong in service delivery. sales promotion. This sequence is shown diagrammatically in Figure 10. The operating costs decrease when a customer stays. Generally. it takes some time for customers to get accustomed to it and once they are used to the service and are satisfied with a service provider. 2nd Edn. This unit begins with a discussion on the importance of retaining customers for service firms. In fact this all results in a positive spiral. the longer a customer stays with a company the more that customer is worth. 2000. This may even provide opportunities to the organization to charge price premium by offering 39 . more the organization knows about him. 143) Why are customers more profitable for service firms over period of time? There are a number of reasons for this. It also depends on the ability of the firms to encourage customers to complain and then recover when things go wrong. personal selling etc. Customer Retention 10. Services being rich in experience and credence qualities. As they remain satisfied with a service provider they will spread a positive word of mouth. as people like to work for companies where customers are loyal. Services Marketing. To begin with.

000. only when customer #75 came on board did a flight become profitable. the quality revolution in services will create a new set of winners and losers. It is well known in the industry for its service quality and customer focus. Consider a simple example of a telephone company. 4 Nov. he brings just one more customer to the organization his value to the organization doubles. For example. his average life time value for the company will be Rs. Reichheld & Sasser coined a term ‘Zero defection’.Strategic Issues individualized services which may be difficult for the competitors to offer. Sept. put customer service in perspective with the following piece on profitability: “How important is every Customer to our future? The break-even customers per flight was 74. You must therefore understand the lifetime value of a customer.310. on average. if by a positive word-of-mouth. Considering the importance of retaining customers in service business. When you divide last year’s annual profit by total flights flown. The company newsletter. they will treat the customer accordingly and will focus on building relationship with the very people who keep them in business. divide profit per flight by Southwest’s systemwide average one-way fare of $58 : 40 . The data on our annual profit and total flights flown to clearly illustrate how vital each customer is to our profitability and our very existence. 2002). In their pathbreaking article “Zero Deflections: Quality comes to services” (Harvard Business Review. LUV lines. You should appreciate as services marketers that when you lose a single customer you do not lose a single order but a lifetime opportunity of profitability with that individual. 500 X 12 X 20= Rs. Once they understand it. – Oct.20. it is important for all the employees within an organization to understand the lifetime value of their customers. if on an average customer pays Rs. Further. it will enable us to gain new customers through word-of-mouth” says ICICI Bank General Manager (Business World.5.. the company encourages them to think about how their individual behaviours influence customer service. 1990) they conclude that “Just as the quality revolution in manufacturing had a profound impact on the competitiveness of companies. Therefore.S. Southwest Airlines is amongst the most profitable US airlines and have made profits all through its existence. Southwest Airlines communicates the importance of every single customer by educating employees about how many customers the company actually need to make a profit. 500 a month and stays with the company for 20 years. which means that. Indian service companies are increasingly recognizing the importance of retaining existing customers. The following is an interesting illustration of Southwest Airlines of U. By demonstrating to employees how just a few people can make the critical difference. As part of its effort to keep employees informed.476 (total flights flown) = $287 (profit per flight) Then. They highlighted that companies can boost profits by almost 100% by retaining just 5% more of their customers.A. 1. “We believe that if we are able to satisfy existing customers. you get profit per flight : $179.000 (annual profits) divided by 624. The winners will be those who lead the way in managing towards zero defection”.

That’s how valuable each Customer is to Southwest and you!” Source: www. What were the specific reasons for your reaction? Was it because of perception of poor quality or failure of a service encounter? Susan Keavenly identified following reasons for customer switching in service industries. Consider when you were last dissatisfied with a service provider or changed a service provider. reluctant response) f) Competition (found better service) g) Ethical problem (cheating. billing errors) d) Service encounter failures (uncaring. Therefore.ecustomerserviceworld. only 3 million of the 40 million Customers we carried meant the difference between profit and loss of our airline. you will have well appreciated that in service business having customers. 41 . unresponsive. unsafe) h) Involuntary switching (customer moved. to have lost the business of only one Customer per flight would have meant a 20 per cent reduction in profit on that flight. a) Pricing (high price. it becomes important to understand what actions of service companies or their employees make customers switch from one service provided to another. Some of the aspects to be examined and action be taken to stop customer switching would include philosophy to deliver a technically correct service every time (Recollect issues related to providing quality services as discussed in Unit 8). unfair pricing . wait for service) c) Core service failure (service mistakes. We will discuss this aspect in detail in subsequent and Kevin Freiberg & Jackie Freiberg. provider closed) An important aspect of the above to be understood by you is that six of the eight service switching factors are controllable from a service organization’s point of view. So. impolite. waiting line strategies and strategies for management of demand and capacity (discussed in detail in Unit 9). However. “NUTS! Southwest Airlines’ Crazy Recipe for Business and Personal Success”) Customer Retention 10. deceptive pricing) b) Inconvenience (location /hours. wait for appointment. unknowledgeable) e) Response to service failures (negative response. Customers leave a provider for a wide variety of reasons. price increase. To take a step further. In order to reduce inconvenience the organization should have effective queue management. in case some thing goes wrong there should be strategies in place for effective service recovery. not merely acquiring them is crucial. Customer defection caused by unsatisfactory service encounters – employee customer interactions can be reduced by proper training of employees. no response. listening to customers and keeping the customers informed.$287 (profit per flight) divided by $58 (average one-way fare) = 5 (one-way fares – Customers!) The bottom-line: only five Customers per flight accounted for our total profit last year.3 CUSTOMER SWITCHING By now.

..... we have focused more of our marketing efforts on retaining those customers and increasing our share of business................... keeping the refrigerator stuffed with eatables as per customer choice ....... Another way is to create customizable services which can be customized by the customers themselves................. Another important aspect of keeping customers is the market segmentation............ A hotel while offering a standardized room may customize it to individual tastes by offering personalized stationary... They aim at locking on the consumer by rewarding him for patronizing a particular service for a period of time.... credit card companies.................e........... individualized service........... in order to build customer loyalty... hotels. airlines. British Airways’ CEO Sir Collin Marshall highlighted the importance of segmentation for service business (HBR.................... ... providing room location based on customer choice ... “Even in a mass market business....... Unless you properly segment your customers and understand their buying behaviour.............. Nov-Dec 1995).............. For maintaining customer relationship you have to deliver quality services including service recovery and continuously monitor the relationship to find out customer satisfaction and loyalty............ you don’t want to attract and retain everyone.. expectations and perceptions........................... Analyze whether something could have been done by the organization to prevent them from switching. retail outlets etc.... Using database marketing technique........ ...... Loyalty Programmes Loyalty programmes are often used in service industries like cellular companies... rather it can be done in number of ways... That is why our advertising spending is proportionately smaller than that of our competitors”... The key is first to identify and attract those who will value your service and then to retain them as customers and win the largest possible share of their life time business.... (You have to have a good customer database in order to do so)............. health care etc..... In an interview to Harvard Business Review .... The important thing to understand is that it is not required to individualize services right from design to delivery in order to be differentiated....... Joe Pine in his book Mass Customization has suggested different approaches towards mass customization........ This can be done when customers can combine different components or modules of a service product in unique ways suited to their individual requirements........................ The service provider can also offer point of delivery customization wherein the provider allows the customer to communicate what they need at the point of service delivery e.............. you can customize a standardized core by combining it with customized peripherals..... Now-a-days the segments are becoming smaller and smaller to the extent that even for mass services we talk of segments of one i....... In fact number of similar terms like relationship marketing programme.............. you will not be able to meet their needs and can’t retain them........ Please note that service offerings themselves are standardized....... For example................... frequency programme.... continuity programme....Strategic Issues Activity 1 Discuss among your friends and colleagues the reasons why they have switched service provider(s).................... .. though is a standardized offering yet you can customize it in terms of the courses you want to opt and their timings...... This is referred to as Mass Customization............... points programme and loyalty programme are often used interchangeably..... One of the most visible form of loyalty programmes is the 42 ...... professional services.............g................ The IGNOU management programme.................... .......... for example......................................... This aspect has been touched upon in Unit 5 of this course..

companies can learn to recover from them. Researches have shown that excellent complaint management service recovery can significantly influence customer satisfaction & loyalty. errors are bound to happen. When an error or service failure occurs the customer may or may not complain. classify their root cause(s). Jet Privilege programme (of Jet Airways).frequent flyer schemes offered by airlines which reward customers with a free flight on accumulating a certain number of points. service provider has to make specific efforts to encourage customers to voice their concerns. these should be published on a continuous basis and the customers should be made to feel that their feedback is invaluable and their opinions are wanted. Mistakes are critical part of every service. While loyalty programmes are primarily aimed at ensuring that a customer stays loyal and buys more. frustrated customers into loyal ones. and customer contact point with service personnel.4 COMPLAINING AND SERVICE RECOVERY As highlighted in the introductory part of this unit. the more formal the system for 43 . The company should treat a complaint as a gift and the one who complains as a friend. two potentially positive things happen for a service provider. Further. The First Citizen club (of retailer Shopper’s Stop). 1) The provider gets the chance to fix the problem and retain the customer (service recovery) 2) Complaints can point to areas of the business that need improvement. As a rule of thumb. customers who have been successfully recovered not only remain loyal but can become advocates for the organisation spreading a positive word-of-mouth. they can also be used as a marketing tool to attract new customers and maximize their use of the particular service. This can be done by providing multiple means of contact like toll free numbers. A customer who doesn’t complain is less likely to come back to the service provider. Complaint Management Bill Dee (Convener of the ISO Technical Committee ISO/TC 176 subcommittee 3 working group on complaint handling) opines that any worthwhile complaints management system has to have certain basis features : a) Visibility : b) Accessibility : Customers should know where to complain Customer should know how to complain. Tad and Brown define Service recovery “as a process that identifies service failures. complaints are a natural consequence of any service activity. ‘Service Recovery’ refers to the action taken by the service provider in response to a service failure. effectively resolves customer problems. Complaints provide feedback on how the service provider is performing in the market place. website. A good complaint culture and good complaint process may well lead a service provider to improved financial performance. When customers complain. hotels award regular customers with points. Further more. While it may not be possible to prevent all the errors. Customer Retention 10. Therefore. Taj’s Inner Circle are all examples of programmes which offer incentives for customer loyalty. which can be redeemed for free meals or stay. and yields data that can be integrated with other measures of performance to assess and improve the service system. Similarly. Since services are generally performed in the presence of customers.” A good recovery can turn angry. The service provider in order to improve solicitation of complaints should make it easy for the customers to get in touch.

... Vol.................... Nov........ Someone in the organization has to take responsibility for complaint handling............... ...............2........” International Journal of Service Industry Management .............. .............. “Linking Complaint Management to Profit................. concluded that “It is not the complaint processes per se that leads to financial benefit but how organizations manage 10.. ................................................2 : Customer satisfaction Customer retention Complaint culture Complaint processes Process improvement Financial performance Employee attitude Employee retention 44 Source: Robert Johnson.......... d) Customer-focused approach: e) Accountability: f) Continuous improvement: A good complaint management system must ensure that the complainant is kept informed...................................... employees are empowered to deal with the situation and there are follow-up procedures to check with customers after resolution..................... through an empirical study. c) Responsiveness: Complains need to be dealt with quickly.................. The quicker the complains are dealt with................ the less accessible it is to customers.... 2001 ............. Activity 2 Send a complaint letter to a service provider you are not satisfied with........................... Robert Johnston has developed a conceptual model linking complaint management and financial performance as shown in Figure 10................. ............... 12................................. This is about looking at the root causes and fixing them........... The author........... the higher the customer satisfaction................ A service provider who adopts customer focused approach invites complaints and indicates commitment to resolving complaints by its words and actions in all fairness.... the staff understands the complaint processes.............................................. Analyse the response to your letter (or no response) and its impact on you as a service customer....Strategic Issues lodging complaints......... complaints are taken seriously........................................

................ “The flight attendant not only did everything that was routine – offered to have the customer’s garments cleaned or replaced and made sure that a customer relations representative contacted the customer later to demonstrate that we genuinely cared – but also made special gesture by offering the passenger a complimentary choice of certain tax-free goods”.....5 SERVICE RECOVERY STRATEGIES The above discussion gives you a fair idea of need for complaint management..... All this is contingent upon the organization’s complaint culture........... able to regain their balance instantly after a slipup and continue their routine............. What steps you would have taken in such a situation? Now let us see what was actually done by the service provider................. Harvard Business Review....... its components and the importance of service recovery.... Now imagine that you were a part of the airlines............... it will get due attention as it is said that what gets measured is truly what gets managed..................... .............................e..................... This has been highlighted in the earlier part of this unit as well..................... Heskett and Sasser suggest that service companies must become gymnasts..... Let us now focus on strategies for service recovery........... Measure the costs: As services marketers you should not underestimate the profits lost when a customer departs unhappily...................... Excellent service companies will go that extra mile to cover the costs a failure incurs.... 1) Measure the costs of effective service recovery 2) Break customer silence and listen closely for complaints 3) Anticipate needs for recovery 4) Act fast 5) Train and Empower employees 6) Close the customer feedback loop Let us briefly discuss the above strategies.............. The company should also keep in mind the costs the customer has to incur when service failure occurs... .. .................................... Customer Retention 10.....” Activity 3 Contact any service organization and find out the mechanism through which it encourages customer feedback and complaints......... or if the inconvenience is so great that the company cannot completely compensate the customer ............ Consider the following incident regarding an airlines (British Airways)...................the intervening variables i. Nov-Dec 1995) Hart....................... Once this is appreciated........... the tone of the response must signal the company regret.......... Financial benefits accrue from satisfying and retaining dissatisfied customers through service recovery........................ “ An aircraft door was left open in a rainstorm before take off and a passenger near the door unfortunately got showered”.... According to them companies that want to build the capability of recovering from service problems should do the following things.......... by using information from complaints to improve both operational and organization-wide processes and by satisfying and retaining employees................................................................................ satisfying and retaining the customer /employee and/or improving the product or bringing out process improvement............ .. 45 . (Source: “Competiting on Customer Service: An Interview with British Airways’ Sir Colin Marshall...................

And the key to organizational learning is grasping the 46 . NOW is the time to address the problem. Statements like “I can appreciate how you feel. When said sincerely. “The key to customer loyalty is the creation of value. Anticipate Needs for Recovery: Service providers can look for the weak links or the areas which tend to be problem prone and address them in their service recovery strategies. Then feel great about the positive difference you made in that person’s day! Source: Debra J. shouldn’t have happened that way. symbolic atonements should be made. Schmidt. The urgent resumption of service and an apology are often sufficient to make amends.” all convey empathy for the customer. (but not always). responsibility and incentives to follow with customer. Effective way of closing the loop include making timely telephone calls and letting the customer know that his suggestions might be implemented. Train and Empower Employees: The organization must train the front line people and empower them. EMPATHIZE with your customer’s concerns. the company should explain it to the customer. a ‘sorry’ note. But when a problem is fixed properly and stays fixed …. Active listening requires a lot of effort and cannot be accomplished when we are distracted. Also. managing failures & defection in the concluding comments of his article “Learning from Customer Defection (HBR. help make the transition smooth so the customer doesn’t have to tell his story more than once. customers loyalty actually increases! Here are five steps you can take to not only resolve the problem but actually build loyalty: LISTEN carefully to your customer. In the preceding pages we have discussed this issue in detail. free dessert by a restaurant. The key to value creation is organizational learning. Close the Loop: If a customer complaint leads to corrective measure the company should tell the customer about the improvement. The faster a mistake is fixed. It can be money. You need to stop everything you are doing and give your customer 100% of your attention. Let the customer know you are on his side and will do everything you can to help him get the problem resolved.Strategic Issues Break the Silence: This refers to soliciting and encouraging complaints from the customers. free upgrade in airlines etc. The speedy response to complaints /service failures requires appropriate system and procedures as well as trained and empowered employees. Empathise with customers. Let him know that you sincerely care about his problem even if you don’t agree with his comments.. Act Fast: Customers who complain want quick responses. If only an employee in another department can fix it. flowers. Even if something can’t be fixed.” You’re right”. RESOLVE the problem. Spectrum Consulting Group (Also the author of the Loyalty Builder – a free on-line monthly news letter) Frederick Reichheld very beautifully brings about the importance of customer loyalty. LEARN : Dissatisfied Customers Are Gold In every business. Simulated real life situations can be an effective way to develop recovery skills among employees. the words “I’m sorry” can diffuse as much as 95% of most people’s anger. mistakes happen and customers get angry. The best way to handle a situation in which the customer is angry or upset is to remember the acronym LEARN and apply the five steps listed above. March – April 96). The company should empower the front line employees to act and should give them the authority. “ It. APOLOGIZE even if you are not the cause of problem. the more likely it is that the customer will give your company another chance.

.” Wrong..... I thought. I was transferred to someone who picked up the phone and hung up........... ..................... But what about services? As compared to manufactured products........................................President . can be returned but can services be returned back if something goes wrong? However.......................... then I pressed “O” for an operator..” I can click on the buttons and get information............... now more and more service firms are offering service guarantees which may take the form of a satisfaction guarantee or guaranting specific aspect of service delivery.... A bank may offer a guarantee that an account will be opened or a credit card will be issued within a specified number of working days otherwise it will pay 47 ................................. so I followed his instructions and pressed 222 for someone else-more voice mail... Because of the intangible nature of services it was often thought as to what can be guaranteed........... Dear Mr...... ... Products being tangible. A....... I find myself needing to order for these services for a large international convention we are organizing in August 2004 and therefore decided to contact your company for information.............. Then I had a wait through another menu to get a sale person...................... I thought..... ............. ...................6 SERVICE GUARANTEES When you buy consumer durables like refrigerator......... Additionally.......... ABC Car Rentals Ltd...... they invariably came with a product warranty wherein the company agrees to replace or repair the product if something goes wrong...... So I tried to e-mail you from that site – didn’t work.............. Roy Vice....................” I told the lady who answered.... My next step was a phone call.... “Cool”... T... Review the communication and give a brief account of actions you would have taken if you ever receive such a mail............................ Okay.” Activity 4 Given below is a copy of a mail sent by an organization to M/s................................V........ I am totally frustrated...... there was no e-mail address on either letterhead or your website..... So I’ll go elsewhere for my requirements.. Mohan..... no help there............... I was contacted by Mr................... Try to recollect any service guarantee that you have come across as a consumer of services........... Ajay was a good choice................................. 2004 Customer Retention 10..... wrong............................ June 15...... Instead of obtaining information...... I called and got a menu................ guarantees in case of services are a more recent phenomenon. profit and grow...... S Mohan President ABC Car Rental Ltd........................ “All I want is talk to someone in sales...value of failure..... Mr.. First 1 went to your website....... He’s out of the office.. Washing machine etc....... Ajay Gupta in December 2003 regarding our requirements for car rentals and how your company might be able to serve us.................... I pressed the number for the sales department....... Customer defection is a unit of error containing nearly all the information a company needs to compete....................

analyzing information collected about why guarantees were invoked by customers can provide meaningful information for making improvements in service design and delivery. i) ii) Implementing a guarantee forces a company to focus on customers. 1996. The mechanism by which a guarantee is linked to profit is shown in Figure 10.Strategic Issues the customer a specified amount depending on the period of delay.3: Guarantee Advertising featuring the guarantee People invoking the guarantee + Increased sales from advertising message Increased repurchase Increased sales from positive word of mouth + + Market share and profitability improvement + Source: Rust.3 10. A hotel may offer a unconditional satisfaction guarantee. It also helps in cultivating and maintaining quality throughout an organization. iii) iv) v) vi) Rust. p. thereby retaining the customers. ‘Service Marketing’. Harper Collins. Service companies have a greater opportunity than manufacturers to differentiate themselves through a guarantee . In the long run.204 48 . Zahorik & Keiningham have brought about that a guarantee can be very profitable. failing which the customer may be given specified price-offs. A well designed service guarantee can lead to increased service quality expectations. A restaurant may offer home delivery within a guaranteed time. It encourages customers to complain and provides the opportunity to the organization to make amends. lower perceived risk and increased purchase intent. It can also increase employee morale and loyalty. Zahorik and Keiningham. Invoking of guarantee by the customer guarantees important and immediate customer feedback. Some of the benefits of an effective service guarantee are highlighted below. say 30 minutes. Why offer a Service Guarantee? More and more service firms have started to realize that a good guarantee can act as a marketing tool for attracting customers as well as help in retaining customers. Offering a guarantee provides employees with a service related goal and facilitates goal alignment between employees and the organization.

........ we don’t expect you to pay’........................................ there are certain features which make the guarantee effective......... For example................................ thereby attracting more customers....................................... can still be quite powerful........................................... People who invoke guarantee resulting in effective service recovery.... though smaller in scope................................................. .................. b) Critically evaluate the following service guarantee offered by a Delhi based multiple chain restaurant for its home delivery “30 MINUTES GUARANTEE 10% DISCOUNT ON DELAYED DELIVERY ORDERS* * DISCOUNTS NOT APPLICABLE FOR ORDERS OVER RS.......................... People invoking the guarantee come back which may not have been the case in its absence.. which attracts more customers....................... It should make the promise unconditionally........................... on the other hand .. Meaningful: The guarantee should be meaningful in terms of what is being promised (things that customers care about) as well as in terms of the payout..................................... easy and quick settlement should be ensured Customer Retention iii) iv) Activity 5 a) Identify a few service providers who offer a service guarantee. ............................................................................................. i) ii) Unconditional: A guarantee should not have “ifs” ...... advertising is more effective...................................................................................................... ........................ The message should be short and memorable and the standard clear........ Evaluate these guarantees on the characteristics of an effective guarantee discussed above................ 49 ........................................ a hotel guarantee states ‘if you are not completely satisfied................... or “buts”...................................................... Hart summarizes them into following main characteristics. will spread a positive word of mouth.. Service marketers should understand that once poor service has been delivered.......................................................................... Features of a Good Service Guarantee A service guarantee can take the form of an unconditional guarantee of satisfaction or specific outcome guarantees allowing a company to spell out exactly which elements of the service it wants to stand behind. .............................................................. .. Specific guarantees................ Unconditional guarantees are powerful and a company’s promise to meet all of its customer’s expectations............................. Easy to Invoke and Collect: A good guarantee should be easy to invoke..........500/-” .......... Whatever may be the type of guarantee.......................The above figure highlights that with a guarantee.................................................................. ............... ....... .................................................. “and”.................................... Easy to Understand and Communicate: It should be easy to understand for the customers as to what to expect as well as for the employees as to what to do...................................................... .................... For example a courier company offering a guaranteed delivery within 24 hours.............

that sells dental insurance in USA. 2002 are 4. The value of these new subscribers is $350 million (570. It may also becomes less meaningful to offer service guarantee if customers perceive little risk in the service or there is very small perceived variability in service quality among competitors. Kum & Lee. 1990.5% (1995-2002). Some researchers have even stated that an explicit guarantee by such firms may even be interpreted as a signal for potential quality problems. a low quality firm should not offer them.S. Not a bad return on $1. Compare that to the previous average of 92% (1987-1989)! Source: www. A sample : THE GUARANTEE: Accurate and quick turnaround of ID card. In 2003 they have 55 percent market share and NOT ONE competitor has copied their service guarantee. To begin with.668. .668. have given the following findings in this regard. The following illustration highlights the benefits gained by M/s. A complete and accurate identification card for each subscriber will be mailed to the group or subscriber’s home within 10 business days.000 x $614).com 50 An interesting issue related to service guarantees is whether a firm with a reputation for outstanding quality offer a service guarantee? This is because with such firms there is an implicit guarantee — an unsaid promise that the firm will do whatever is necessary to satisfy a customer. Delta Dental of Massachusetts. Delta Dental send money instead. it is generally believed that what inevitable cheaters cost a company most often amounts to very little as compared to the benefits derived from a strong guarantee. Delta Dental of Massachusetts would send the group a refund of $12. Delta Dental (A Dental Insurance company from Massachusetts. They track the refunds monthly and yearly. the employees of the organization.359.500.Strategic Issues It is often feared that a service guarantee especially an unconditional service guarantee may spell financial disaster for the company. On the I D cards they have had 2. They had 15% market share and lots of competition. U. Also there are situations which involve uncontrollable variables which can’t be guaranteed by a firm. Instead of saying we are sorry. However. The guarantees were put together after finding out in early 1990 from the organizations. making excuses. based on their research done in Singapore.359. no questions asked. the organization that selects their insurance and pays them. what was the most important thing Delta Dental needed to deliver. launched a Service Guarantee. 1990 – December 31. Delta promises money if they fail on any of their seven guarantees. They know exactly how many refunds they have paid out for each of the 7 guarantees. A Service Leader – DELTA DENTAL OF MASSACHUSETTS On April 1.543 occurrences and payouts of $89. Wirtz. This means if a firm signed up with 500 employees and someone got distracted and did not send the ID card out until 11 business days.customer-service.925. THE REFUND : $25 paid to the group per ID card. They have three types of customers. it should be noted that a service guarantee is not a panacea and will not be beneficial for all the service firms. Another big hurdle for many service managers in offering guarantee is customer cheating. However. and the dentists. Total occurrence from April 1.055 with payouts of $1.A) through the implementation of an effective service guarantee program. Customer retention had remained high at 96. They have added 570.000 new subscribers valued at $614 per subscriber since implementing the service guarantee.

Customer Retention 10. increased purchase b. easy to understand and communicate. Easy to Invoke 2. Easy to Understand c.7 SUMMARY Retaining customers is of great significance for a service company’s growth and profitability. The unit further discusses the significance of complaint management and key components of a good complaint management system. seeking customer feedback. The units explains the importance of keeping customers. act fast. Meaningful d. offering point of delivery customization d. A good service guarantee helps in creating customer focus. meaningful and easy to invoke. The service guarantee must be about things that customers care about! This reflects which of the following characteristics of a good service guarantee? a.Service provider with a good but not outstanding reputation for service quality has much to gain from the introduction of a well-designed service guarantee. The example of self service salad bars wherein customers can create salad as per their own individual need is an example of a. As the customer stays with the organization he becomes profitable by increase in purchasing. Customers are more profitable over the time because of a. but less so for an already highly reputed firms. Unconditional b. creating customizable service c. Therefore firms with a reputation for service excellence should carefully consider whether the costs of implementing a service guarantee are justifiable in terms of its market and/or operational impacts. Customer of even the best providers may prefer the certainty of an explicit guarantee over the uncertainty intrinsic in an implicit guarantee. Providing excellent service quality. train and empower employees and close the customer feedback loop. price-premium and through referrals. maintaining customer relationship and effective segmentation are key to building customer loyalty. all of the above 3. reduced operating costs. creating differentiation. lowering customer perceived risk and increasing purchase intent. There are a number of reasons why customers switch and most of these reasons are controllable for company’s point of view. reduced operating costs c. For a service guarantee to be effective. On receiving complaints or otherwise finding out a service failure the company should strive for an effective service recovery. Benefits of a guarantee would also be positive. it should be unconditional.8 SELF ASSESSMENT QUESTIONS A) Objectives Type Questions 1. increasing employee morale and loyalty. referrals through positive word-of-mouth 51 . 10. For this the company should anticipate need for recovery. customizing the service around an standardized core b. The last part of the units deals with Service Guarantees.

Mar-Apr 1996. Vol. Journal of Services Marketing. (b) 5. Christopher. Jul-Aug 1990. No.” ISO Management Systems – Jul-Aug 2002. Heskeet and Sasser . Hart. Customers leave for a variety of reasons most of which are not controllable from a company’s point of view 5. 10. Harvard Business Review. Service recovery refers to the action taken by the service provider in response to a service failure. April 1995. Describe the importance of service recovery to the firm and develop a service recovery strategy for it. 6. 6. True 3. 5) What are the benefits derived by a service firm in offering a service guarantee? Discuss the characteristics of a good service guarantee. Reichheld. Jul-Aug 1988. False B) Discussion Questions 1) What are the benefits to a service organization in retaining its customers? Discuss with the help of examples 2) Why do customers switch service providers? Can you do anything as a marketers to prevent the customers from switching? 3) What benefits do an organization derive in seeking customer complaints? Discuss the features of a good complaint management system.12. Kum & Lee. all of the above True or False 4. HBR. Vol. Harvard Business Review. “ The Profitable Art of Service Recovery”. Wirtz.9 FURTHER READINGS Bill Dee. 59. 14. Answers 1. “State-of-the-Art Complaint Handling. No. False 2. 52 .1. Hart. “ Learning from Customer Defections” . “Customer Switching Behaviour in Service Industries : An Exploratory Study. “ Zero defections: Quality comes to services”.(d) 6. “Should a Firm with a Reputation for Outstanding Service Quality offer a Service Guarantee”. 2000. (c) 4. 4) Consider a service firm you are familiar with. 2001. HBR. Reichheld & Sasser. Sept-Oct 1990. Susan Keavenly.Strategic Issues d. Vol. Robert Johnston. “Linking Complaint Management to Profit”. International Journal of Service Industry Management.” Journal of Marketing. “The Power of Unconditional Guarantees”. Service Guarantee benefits all service organizations alike.

Indira Gandhi National Open University School of Management Studies MS-65 Marketing of Services Block 4 SECTORAL APPLICATIONS-I UNIT 11 Financial Services UNIT 12 Tourism and Hospitality Services UNIT 13 Health Services UNIT 14 Case Study: Serving the Global Indian 5 23 46 62 1 .

P. Tapan K. by mimeograph or any other means. School of Management Studies. Madhulika Kaushik School of Management Studies IGNOU. New Delhi-110 068. D. B. Malabika Shaw AIMA New Delhi Mr. Agarwal XLRI Jameshedpur Mr. New Delhi Prof. IGNOU June. New Delhi Prof. New Delhi Dr. Ravi Shankar Course Editor IIFT. New Delhi * The course was initially prepared by these experts and the present material is the revised version. Amrish Sehgal Bhutan Tourism Development Corpn. Registrar (Publication). J. Nadda Goa University Goa Mr. Venkateswaran Transportation Corporation of India. 2004 (Revision) © Indira Gandhi National Open University. Scale. V. New Delhi Ms. Further information about the Indira Gandhi National Open University courses may be obtained from the University’s Office at Maidan Garhi. Sr. Delhi University Delhi Prof. by Director.B.B. New Delhi Dr.S. Johari FMS.L.M. Rupa Chanda IIM Bangalore Print Production Mr. Printed and published on behalf of the Indira Gandhi National Open University. New Delhi. Rekha Shetty Apollo Hospitals Madras Prof. Madhulika Kaushik School of Management Studies IGNOU. Ltd. Sanjeev Bhikchandani Sanka Information Pvt. SOMS. Saurabh Khosla Tulika Advertising Agency New Delhi Mr.D. L. Course Revision Team (2004) Prof. Ramdas Management Consultant New Delhi Prof. Pramod Batra EHIRC New Delhi Ms. No part of this work may be reproduced in any form. M. New Delhi Dr. M. New Delhi Prof. Khanna Director School of Management Studies IGNOU. Sudha Tewari Parivar Seva Sansthan New Delhi Mr.Sectoral Applications-I Course Preparation Team* Prof. Bhutan Mr. Kamal Yadava School of Management Studies IGNOU. Paper Used: Agro-based Environment Friendly Laser Composed by: ICON Printographics. Sinha IIM Bangalore Mr. A.K. 2004 ISBN-81-266-1265-7 All rights reserved. Chandrashekhar Mahindra Days Hotels & Resorts Bangalore Ms. New Delhi-110 018 2 Printed at: . Panda IIM Khozikode Calicut Prof. J. without permission in writing from the Indira Gandhi National Open University. B-107 Fateh Nagar. Kamal Yadava Course Coordinator and Editor School of Management Studies IGNOU. Arun Shankar Citi Bank New Delhi Dr. Hyderabad Prof. The profile of the Course Preparation Team given is as it was on the date of initial print. New Delhi Mr. Rakesh Khurana School of Management Studies IGNOU. Chhatwal. Rajat Kathuria IMI. Asstt. Singh IMI New Delhi Prof..

the 'health sector'. As you are aware. The remaining two blocks i. Unit 12 covers 'Tourism and Hospitality Services'. The last unit of the block is a case study on financial service marketing and relates to various issues concerning the banking industry in India. Unit 11 is on 'Financial Services'. Unit 13 is concerned with the application of principles of services marketing to one of the most vital services sectors in any society. This unit explains application of various marketing issues in Banking and Insurance services.e. marketing of tourism and hospitality services has special significance in terms of its economic contribution to the economy of any society today. Block 4 and Block 5. 3 . In the last couple of decades. India has witnessed a drastic change in the financial services sector. are geared towards exposing you to the actual application of marketing concepts in diverse service sectors.BLOCK 4 SECTORAL APPLICATIONS-I In the first three blocks of the course we have covered the concepts and theoretical framework underlying services marketing. It also discusses the marketing mix for hotels in detail. In this block three specific sectors will be covered. This unit explains the reasons behind the rapid development of this sector and the variables affecting the demand and supply of the tourism products.

SERVICES MARKETING MIX Product and Pricing Decisions Place and Promotion Decisions Extended Marketing Mix for Services 3. STRATEGIC ISSUES Service Quality Managing Capacity/Demand Retaining Customers 4. 2. 4 . 17. 8. 15. 9. 12. 13. 3. 16. 5. MARKETING OF SERVICES: AN INTRODUCTION 1. SECTORAL APPLICATIONS–I Financial Services Tourism and Hospitality Services Health Services Case Study: Serving the Global Indian Issues in Social Destination Marketing India Marketing of Health 5. Is the Customer Always Right? 2. 7. 4. UNIT TITLE AUDIO PROGRAMME VIDEO PROGRAMME BLOCK 1. SECTORAL APPLICATIONS–II Educational Services Professional Support Services: Advertising Agencies Telecommunication Services Product Support Services Case Studies 1. 18. 19. 11. the WTO. and India Consumer Behaviour in Services 2. 6.Sectoral Applications-I MS-65: MARKETING OF SERVICES Course Components UNIT NOS. 14. Marketing of Services: Conceptual Framework Role of Services in Economy International Trade in Services. 10. The Case of Dosa King.

Following is the list of some typical financial products available in the market: Savings and Recurring Account Current Account Fixed Deposits Retail Loan Products 5 . commercial banks.3 11. insurance companies. RBI and the Government of India monitor for the suitable sustained economic growth in the economy. businesses and governments.5 11. This facilitates liquidity management in consonance with the macro economic environment.UNIT 11 FINANCIAL SERVICES Objectives After studying this unit you should be able to : familiarise with the range of financial services available in India. explain the product. and understand the marketing strategies for the insurance services. In the Indian financial system funds flow into the main economy for growth.9 Introduction Buyer Behaviour for Financial Services Branding of Financial Products Channels for Distribution for Banking Pricing of Banking Products/Services Promotion of Banking Products/Services Insurance Summary Self Assessment Questions 11.8 11. brand and other elements of marketing mix for the banking services. from financial institutions. But the downside is that no brand can boast of a Unique Selling Proposition (USP) for long. Structure 11. Till early eighties. Of course the deposits and shares are mobilized from supplier of funds like individuals. given their respective roles as bankers or finance companies all offered absolutely the same products. provident funds. and from non banking finance companies.4 11.1 INTRODUCTION Financial services markets play a prominent role in the mobilization of savings from all quarters of economy for useful inputs and for necessary formulation and implementation of various policies. explain the consumer behaviour in the context of financial services.1 11. mutual funds. the safeguard to some extent here is the very branding of the product. no one in the highly regulated banking/finance industry showed any inclination to innovate or market new financial products.6 11. Product development or innovation of financial products interestingly requires very little or no additional investment. Regulators like SEBI.2 11. as it can be copied immediately. Of course.7 11.

....... the impact of environmental factors such as family......... In this unit we will be focusing on marketing issues related to banking and insurance.......... Many people are oriented towards the acquisition of material things while some people are motivated mainly by spiritual matters...... thereby making mass consumer behaviour patterns we see everyday: People vary in their persuability.. banks and finance companies provide a number of fee-based services such as merchant banking................. whereas others need the security of a crowd......... 1..................... we need to understand the variety of individual influences on consumer behaviour............. ....Sectoral Applications-I Commercial Loans Leasing and Hire Purchase Credit Cards Insurance Mutual Funds Beside these...... others are skeptical and difficult to convince... Each behaves differently. the consumer has an opportunity to see whether the product satisfies his or her needs........ personality.......... .. consumers go through a complicated mental process............................ 6 ............. If not......... including motivation... 11........................... and how these components are integrated in the consumer's mind... the consumer will discontinue the use of the product... This process is tempered by the individual influences on consumer behaviour.......... For us to appreciate the complexity of the consumer's buying decision.... but it is difficult to foresee the success of planned marketing programs because human beings are all individuals........... Activity 1 Visit a commercial bank in your city and enlist the financial services offered by it.................... Some people spend their money cautiously while others spend their money extravagantly...... Some people are loner................ Others are 'hot heads' and get angry easily..... issue management for raising equity from the market.................2 BUYER BEHAVIOUR FOR FINANCIAL SERVICES While making even the simplest purchase.... Some are easily persuaded to do something.. Individual Influences on Consumer Behaviour The effort of the all marketing is to influences people's buying behaviour........................ A firm's marketing efforts interacts with non-commercial sources of information to stimulate the purchase decision process. The process stops when the consumers lose interest or evaluates the product and decides not to make a purchase............. learning and perception........ .. Some people have very 'cool heads' and control their emotions........... social............. foreign exchange advisory services etc.. and cultural influences on the consumer............ If the purchase is made.............

.................. work status and age... 2... Second...... .......... Third... Family Influences on Buying Behaviour We are aware as to how our needs and expectations change over different stages of our lifecycle..................Many other contrasts in the behaviour of people could be noted such as interests in sports and hobbies... Financial Services Can you furnish some explanation for these changes? ....................... The family life cycle was developed in 1960 and was based on variables like martial status... people are often unable to explain their own behaviour......... they may fear expressing them........................................... consider these observations........ people's attitudes.......... Table 11.............................. activities and living conditions........... People often do not understand why they behave as they do. .. Expenditure priorities and need for money at different stages have interesting implication for the demand for various financial services....................... the empty nest and the solitary survivor stage........... goal orientation........... . 7 ..... been widely used as a segmentation tool........................... Because our age...... the family life cycle and identification of family needs over various stages of the FLC are useful inputs to the marketer............. A man may say he brought a shirt because he needed it and it was at a discount of 30%.................. individual behaviour is inconsistent and difficult to predict from one day to the next....... That includes products...................... To further complicate the marketer's goal of influencing consumer behaviour............. Activity 2 Talk to your colleagues about some of the purchases of financial services that they have been making............... but he may prefer to stay home tomorrow.. the full nest I. colour preference. It has since then............................. Your priorities as a teenager or a young adult or a family man are very different. The real reason may be different.. number and ages of children.... An individual may like to go out and have diner today........ except for the basic necessities change over time.......... The family life cycle consists of 5 stages.. income and family requirements...............1 gives you an idea of varying requirements of consumers for banking services....... For example.... What we have liked as children we may not like as adult..... a businessman who purchases a new Mercedes probably would be reluctant to admit it if the reasons for the purchase was his insecurity amongst his peer group.......................... These differences are important as they enable the marketer to fine tune his marketing effort by using family life cycle as a segmentation variable... the full nest II.. Ascertain how over a period of time...... Their buying patterns have changed. And if they do understand their true motivations............... beliefs and preferences change......... the young bachelor stage. First... i) ii) Their preferences have been changed............ All these affect consumers's buying decisions..

money market deposit accounts. Financial products aim to attract the investors to bring his savings into the market. These constitute the logo of the company. Branding. Citihome. Most of the financial instruments are very similar. low cost banking services Mortgage.g. A successful brand will be demanded by a consumer even if the price is slightly higher. “Jeevan Akshay”etc.4.. Branding can help in creating differentiation between the various financial products or public issues. helps the consumers to decide whether to buy a product when the new product quality cannot be determined prior to purchase. fixed or flexi-deposits. Mid career. Brand mark is that part of the brand which can be recognised but is not utterable e. Citibank’s distinctive lettering etc.g. Branding is of two types – individual branding which is one-time affair like the Reliance public issue “Khazana” or umbrella branding. Good financial position.income low as compared to future prospects Home buying a priority. Citibank’s “City” – schemes.. may be retired.1: Family Life Cycle and Banking Needs Stage Young Bachelor Stage Financial Situation Few financial burdens.. Brands command customer loyalty for the product. the LIC logo. This is quite a delicate task because the investor’s money is involved. The concept of branding of financial products offers several advantages. liquidity low. Overdraft saving accounts Housing and durables loans Home improvements loans Equity investment.Sectoral Applications-I Table 11. with children now not living at home. Citibank’s “Citihome. may have working couples situation Income stabilized. Brand name is that part of the brand which can be verbalized e. and LIC’s “Jeevan Dhara”. This is where the advantages of branding can be exploited. 8 . Canstar etc. Credit cards. 11. Canara Bank’s “Can”schemes. Brand is a broad term that includes practically all means of identifying a product e.Older couple.3 BRANDING OF FINANCIAL PRODUCTS Branding.g. In umbrella branding. “Citimoble”. The family life cycle and Banking needs "Marketing of financial Service". American Bankers Association. especially umbrella branding. Another strong advantage of branding is that good brands help to build the company’s corporate image. Ann Pezzullo. the LIC folded hands symbol.g. Significantly reduced income Source: Adopted from Exhibit 6. can be successfully used in the marketing of financial services too. which is a major input in the marketing strategy of commercial products. comfortable position. A good name evokes that trust and gives the investors confidence that their money will be safe. money involving matters Banking Needs Credit Cards. auto loans. the advertising and promotion costs of subsequent products can be reduced considerably. This is because the brand-name recognition and preference is already there. Each brand has a consumer franchise which can be used to its advantage. McMillan. Branding can also help to create some insulation from the competitor’s promotional strategy. health insurance services Full Nest I Married with young children Full Nest II Older married with older dependents children Empty nest . other investments services Social security services. certificate of deposits. Trust is the key element if people are expected to part with their money. per capita income high. the practice of labeling more than one product with a single brand name e. few loan services.

....... The company cannot control all the information revealed about its product.. There are a couple of things to be careful about while using umbrella branding..... ......... Also identify the reasons... For instance......Bindal Agro’s “Goldmine”.. Banks too have gone in for umbrella branding in big way.. ................ we have a series of Canara Bank’s schemes like....... This joint estimate of quality is used to evaluate product.. Thus.............................. Third. promotion etc. it should suggest something about the product’s benefits and qualities... A brand line should not be extended indiscriminately... “Canpep”. “Citihome”... Secondly..... Essar’s “Steel Bonds” and Larsen and Turbo’s “L&T Vision”....... the investors have seen Reliance PetroChemical’s “Khazana”...................... the series of Citibank’s schemes – “Citione”........ For instance...... All products under the umbrella contribute to the brand’s reputation....................... it is imperative to maintain the quality of all the products under the umbrella brand........ First.. ......... It is quite an expensive proposition and hence is worthwhile mostly for large public issues or long term plans like a bank’s schemes. if customers are dissatisfied by “Citimobile” – this dissatisfaction can spillover to “Citihome” and other Citi schemes. The importance of brand name is crucial in the branding exercise... Activity 3 Identify any financial services offered by bank........ which make you think that it is a successful brand. Ries and Trout have called it the line extension trap when the new products added to the brand does more damage to the previous products than good......... In other words. The company should know when to draw the line about introducing new products with the same brand name.......... Even institutions like LIC have jumped on to the branding bandwagon with their schemes like “Jeevan Dhara” and “Jeevan Akshay”... brand name should not be overused.. Usha Rectifier’s “Usha Lakshmi”.... if Canara Bank introduces fifteen more “Can” – schemes................ nor can it precisely determine how information will be shared by its umbrella-branded products.. The first example of the handling of a public issue was when NTPC came out with its “Power Bonds” in 1986... when a consumer accepts the new product as logical and would expect it from the brand...................................... or. Spillover occurs when information about one product affects the demand for other products with the same brand name....... Deepak Fertilizer’s “Mahadhan” and others.. it should be distinctive.. it should be easy to pronounce. branding can be as successful for public issues as it is for toothpastes or cigarettes.............. Spillovers can be positive or negative................ The brand name should not be a casual after thought but an initial reinforcer of the product concept............... Financial Services 9 . A “fit” is said to occur. Canstar” and “Canstock”.... Developing a brand requires a great deal of long term investment especially advertising........... recognise and remember.... With a little bit of caution and planning.......... “Citimobile”. For instance......... the investors will not only get confused but also begin to doubt the quality of the previous schemes... Nonetheless.. Since then.... where an attempt was made to create a successful brand.. Most of the major issues of 1989 were branded .. Any new product should be consistent with the established line. all the times.................Branding of financial products has arrived in India in a big way..... the advantage of branding can easily be exploited by the marketers of financial products..

telephone banking. The major investment involved – the amount of capital tied up in it. The design and development of the branch network will be affected by : Characteristics of the products – importance of service quality. Customer needs – convenience. The advantages of direct distribution channels – for example branches. as in the case of agencies. as well as advising customers. branches have essentially been retail outlets. financial services customers still regard convenience of delivery as being decisive when choosing a financial organisation. The staff costs. This market falls into two broad categories: 10 .Sectoral Applications-I 11. inseparability of the product. availability of ATM. location decisions involves long-term commitment of resources and as such have implications on the long term profitability of the bank. The Branch Network Bank’s major distribution outlets are their branches. Banks become accepted as an important member of the community. used to be lower operational costs and more efficiency. as follows: Sales and offer of services and products. In comparison. Competitors – if a branch network is efficient. In distributing financial services. It keeps a bank’s name in the public eye. Moreover. In distribution of banking services the marketer is faced with a huge market that should be duly served. Small branches can be difficult to enlarge when expansion is necessary. home banking and so on. It is old fashioned. Branch location and distribution As the roles and functions of financial services continue to grow in most countries. Advantages of the branch network includes: Its accessibility for customers. firms employ a number of channels. Although in the last few decades or so the roles of the branches have changed. Contact and liaison with advertising and public relations agencies to assist in designing more effective advertising/promotional campaigns. for financial services. the selling through indirect channels offers convenience to the customers and more “impartial” advice. pressures are building up for more efficient distribution systems. strategy decision and product development. development of information technology. Disadvantages of the branch network include: It is costly to maintain premises. it will be a competitive advantage keeping up to date with changes made by competitors. Gathering of information necessary for planning marketing activities. Environment factors – legislation.4 CHANNELS OF DISTRIBUTION FOR BANKS The channels of distribution in financial services perform a number of key functions. Historically. intangibility of the product. difficult to modernize. operating hours. The prime sites.

........ the uses and applications that they have been making of the electronic modes of banking. request cheque book and get printed account statements........... structure loans by asking a series of ‘what if’ questions and getting answers. The services being envisaged by Indian Banks include: View transactions in their accounts.................................................... exchange messages with the officers concerned in the bank through a mailbox... branches still continue to be the most important channel of distribution for banks....................................................... ... It spells out the requirements of geographical decentralization. planned and many staff have moved into the banking hall to tables.... Activity 4 a) Discuss with 15-20 bank customers.....07 as against US$ 0......01 for internet based banking............. banking halls are brighter and a friendly atmosphere has been created that is less daunting for customers....... to advise customers in a friendly way about financial matters. dull places that often intimidated customers.................. is one of the first international banks to go operational on the internet. b) Very large percentage of existing bank customers however....... solve problems or answering queries....27 for ATM full service................................... What are the specific advantages they perceive? .. can be offered to this market............ A study estimates that in a full service branch...... ............................................. Request for funds transfer between accounts.... standardized services................................. 1995 it garnered 5550 accounts and US$ 15 million deposits across the world.. Bank branches used to be serious............................... Now.. Banks are now changing the image of their branches.................... such as comprehensive financial advise. telebanking and internet banking is increasing...... Internet Banking Security First Network Bank..........015 for PC banking and US$ 0.. relatively inflexible in performance and cost. Within 10 months of its launch in October.............54 for telephone banking.............. the cost per transaction is US$ 1.......The mass (retail) market: Standard products............. ....... All the staff used to work behind security screens and this created an unfriendly atmosphere............................. opening of accounts. US$ 0............ US$ 0........................................................................ Though the importance of ATM’s...... .......... attractive services and above all cost effective processes........... It requires individualized services and counseling. do not avail of the electronic banking facilities............. issue stop payment requests and standing instructions and do deposit modelling Have on-line connectivity providing the customer with the ability to directly debit and credit the account without the bank’s intervention etc.. The individual (corporate) market: This market constitutes single orders of sufficient size of importance to be profitable singled out for individual treatment................ Newly designed branches are open............... an Atlanta (US) based saving bank......... heavy advertising and promotion................................... some security screens have gone....... Financial Services 11 ..................................... .. the availability of research services and negotiated terms and so on... Branches are more like a financial services shop..... Discuss with some of these customers to elicit the reasons for their non utilization..

3) Competition. the price has to be maintained at a particular level despite other factors as to ensure attaining that objective. Normally direct expenses which vary with volume of production/sales are variable costs and indirect expenses are fixed cost. 12 . product benefits. In short it can be said that the price is determined by cost. prices can be lowered to maintain sales or in the absence of it. These objectives can be: 1) Growth in Sales – A low price can achieve higher growth in sales volume but may affect the profit level adversely. demand and competition in the market. proper analysis of cost and proper decisions regarding profit level have direct impact on pricing decisions/strategy. seasonality and general trend of demand and supply. Therefore. Pricing affects the product cost and also plays a key role in decision making of the buyers (customers). Pricing can be strategically used as a tool to meet/reduce the competition.5 PRICING OF BANKING PRODUCTS/SERVICES No discussion on marketing mix for banking services can be complete without understanding the concept of pricing and its importance.The customer acceptance is reflected by market share of a product and is an indicator of acceptability of price.To face the competition. In a competitive market. Pricing decisions link the marketing actions with financial objectives of organisations. Pricing is affected by competition. in detail.Sectoral Applications-I 11. 4) Pre-determined Profit – If a profit level is pre-decided as a policy. A) Pricing Objectives The pricing strategy to be adopted depends on the objective to be achieved. package. service. delivery. 2) Market Share. price is determined by free play of demand and supply. Price will increase or decrease depending on increase or decrease in demand for product. credit extended etc. Price in the eyes of the consumer is the evaluation of the total product offering which includes the brand name. Pricing affects: 1) Sales volume 2) Profit margin 3) Rate of return on investment 4) Product position 5) Image of the organisation Price simply read can be described as “cost plus profit”. Price can be defined as the money value of a product or service agreed upon in a market transaction and can be shown as – PRICE = sum of expectations + satisfactions. prices can be revised but stable prices help in maintaining image or brand name and quality. 5) Corporate objectives to have pay-back in a specific period also can affect the pricing and price level.

100) or Rs. we should also take into account the market related pricing systems which adopt one or more of the following approaches: i) ii) iii) iv) i) Perceived value pricing Psychological pricing Promotional pricing Skimming Perceived value pricing: This is based on the belief the consumers have about the value of products and pricing is based on these assumptions. 11. 499. Skimming: This strategy is to ‘skim and cream’ i. This is supplemented by market research and if price is more than buyer – recognised value. it may affect sales whereas if price is less than buyer – recognised value. Many other times the price will be just below a round figure say Rs. the revenue will suffer. the price per unit per-se will be constant (uncharged) but it is advertised that on purchase of 4 units one unit will be free. not Rs.e. 13 .e. iii) iv) Promotional Pricing: This is used for promoting high level of sales or to clear excess stock which although is with a reduced profit margin.6 PROMOTION OF BANKING PRODUCTS / SERVICES Promotion is a generic term used for the communication efforts of the firm that are directed towards achieving the objectives of a marketing strategy. 500/or above). It can be either to set higher price initially and then to offer discounts known as ‘discount pricing’ or to significantly increase sales volume by competing with others already leading in the market by undercutting the prices significantly with the sole idea of penetrating the market.00 (i. 99. pricing is based on prestige – and can be kept higher to promote the idea of status and quality. Sometimes instead of giving a 20% discount. adopting a high price approach. Psychological Pricing: In many pricing systems.90 (to show it is less than Rs.B) Pricing Methods I) Market based pricing system In order to understand consumers based inputs on pricing system. When the product is new and innovative and in a monopolistic or less competitive market. Financial Services ii) II) Cost Based Pricing There are four main cost based pricing methods which are : 1) Standard cost pricing 2) Cost-plus pricing 3) Break-even analysis 4) Managerial pricing III) Competition Related Pricing Strategies The competitive pricing means pricing to compete with the leader in the market with respect to the price. the price will be higher (like in mobile phones) which can be progressively reduced with entry of more producers.

now or later. the service given through proper promotional channel makes all the difference between two Banks in marketing context. and the comparison of pre and post advertisement figures can reveal the visible effect of advertising campaigns. Promotion thus means the Bank’s well organized. to communicate a message to the public in general or to the desired segment of public/market in particular. This presupposes ensuring that such buyers become satisfied customers of the Bank. 3) Psychological Measurement: This can be measured through interviews. It ensures co-ordination and application of various batches of the art and profession to achieve a pre-determined end i. being more or less same. For this there cannot be any one criterion to assess the effectiveness.e. etc. In the service industry like Banking. This can reflect in the business figures like Deposits. 14 . Advertising is significant both as a social and economic force. interviewing consumers. planned and goal oriented communication efforts which must be in congruence with its overall business goals and objectives in the desired market area keeping specific needs of customer in mind.e. The success of advertising affects successful launching of product/schemes. customer’s positive response of increase in business share. promotion assumes all the more important position as what we really sell is ‘abstract’ thing i. 5) Measuring Awareness: This is done through YES/NO type questionnaires. 2) Measuring Recalls: This can be either unaided recall or aided recall – which assesses the extent to which advertisements are retained in customers’ mind. range of product etc. Profitability. in order to strengthen his attitudes that are favourable to the (Bank’s) sellers’ offering and to change his attitudes which are unfavourable to the sellers. Advances. You may note that promotion does not mean only advertisements but a Bank’s conscious communication efforts towards integrating its marketing strategies with business plans. etc. Promotion can thus mean ‘communicating with the buyers (customer). a) Advertising Although advertising is a very effective and most frequently used promotional tool in marketing of banking services. service with the interest rates. Normally below mentioned methods are used to measure effectiveness of advertising: 1) Usage Measurement: This is done through measuring business growth. 4) Attitude Measurement: This is done through structured interviews or attitude scales. It can thus be summed up that effective advertising is the technique of creative communication.Sectoral Applications-I The promotion efforts include the marketing communication through Advertising Sales Promotion Personal Selling Publicity Bank’s internal communication process. it is desirable to measure the effectiveness (impact) of an advertisement campaign. These elements of promotion serve as the link between the Bank and the target segment of its market (customers).

the importance of sales promotion cannot be undermined............. The employees and specialized staff promoting a scheme/product must have the through knowledge of both the advantages and disadvantages of the product..... Activity 5 Carefully look through bank advertisements on the television and newspapers............ to sell anything the buyer has to be made aware about the product and its advantages to the buyer............. sales promotion may not be necessary if there is only one seller and many buyers but in a competitive market place.......... b) Sales Promotion Advertising and Sales Promotion as parts of the marketing mix are integrated with the marketing objectives and they are often co-ordinated with other selling efforts............ public.................... ..... Any sales by an intending seller of a product presupposes a corresponding buyer and .. the product/scheme has to be launched with full details made available to staff before hand to promote this product in a better way...... As the name suggests................... Only after ensuring the market demand and specific needs of customers............................................................................................................................... private or foreign? ...... sales promotion is an important task........................................................................................................................................................................ Financial Services 15 ........ In simpler words..................................................................................... ........................................................................... ................................................................ sales promotion is a collective name given to all measures used to promote the sales.... The visible benefits of the product have to be demonstrated to facilitate buyer’s decision to buy that product................ ... ii) With the type of product being marketed? .......................e......... What are the major themes that have been used to promote the banks? List these themes.............. therefore.. motivation and reward............ ..Advertising serves as a ‘mouthpiece’ for the organisation’s objectives to be made public................. In Indian context in general and in marketing of banking services in particular during the launching of product......................... advertisement makes use of communication process with inbuilt psychological and sociological contents which influence the buyer’s behaviour in advertiser’s favour through a process cycle of – stimuli............. Before deciding the sales promotion strategy it is important to keep in mind following three essentials: i) Product Knowledge: This is first essential.................................................. ............................................................................ In a controlled economy and market if the competition is low or less................. ................................. response..................................................... Do the promotion efforts vary? How? i) With the type of Bank i.......................................................

product will be available at all probable locations of demand. Such a press release must i) ii) iii) give specific facts not give any sales promotion suggestion be accompanied by photograph 16 . While the latter has a more specific job to do i. publicity and personalized services it can bring rich dividends in promotional efforts. The pro-active approach of the staff and projecting a harmonious image of the bank taking keen interest in customers’ interest can do wonders to boost the image and increase business of the bank. With high customer expectations and presence of various consumer councils these days it is just possible that a branch of a bank can get wide bad publicity for some mistakes/flaws or inadequacies in giving service. publicity seeks to interest and draw attention.Sectoral Applications-I ii) Market information: This means knowing who will buy the product. in adequate quantity. should be looked at as an investment and not just another expenditure. c) Publicity The Oxford English Dictionary gives definition of word “Publicity” as : “The quality of being public. are some of the other special sales promotion measures taken by banks. b) APPEAL – to target audience. exhibitions. This also enables the seller to decide on the advertising through proper media keeping in view the specific needs of the potential buyers. branch anniversary etc. iii) Reaching the customer: After ascertaining the market and ensuring proper product knowledge to all concerned. In banking context. The publicity differs from advertising not in its aim but in its technique/s. the condition or fact being open to public observation or knowledge. eager to explain the schemes to the customer using smile. across the counter. Seminar. inform and motivate. when it’s time to reach the customer. courtesy and proper communication process can ensure successful sales promotion through personal selling. Sales promotion is a bridge between advertising and actual selling in the field. without essentially motivating or informing the public Publicity can be good or bad. it is the person at the counter who is the primary contact point with both existing and potential buyers (customers). like planned advertising. and c) GEOGRAPHICAL TIMING: to ensure that when the customers respond. A well thought strategy of sales promotion. Personal Selling: Sales promotion also can be done through personal selling. Like the sum 2 + 5 = 5.e. when proper advertising is added with sales promotion. The sales promotion is very important instrument which smoothens the process of selling a product to the customer successfully.the business of making goods or persons publicly known”. the campaign has to take into account : a) TIMING – to launch the product. Well informed and well-trained staff at the counter. when he will buy and why he will buy? This gives an idea about the probable market share and enables to decide promotion (selling) strategy to specific segment of the market. within the branch. The publicity handouts or press releases are the commonest form of publicity. deposit mobilization-month/fortnight.

traditional culture and religious background and tendency to leave everything to fate.O.iv) be prepared/sent well in advance of the function/event. letter for encouragement/appreciation 5) Posters etc. 17 . Motivational techniques and recognition measures are used in such an exercise of budget or business plan. The utilization of the top-bottom communication ensures positive feedback/response from bottom to top. 11. Publicity normally is not paid for by the organisations. The expectations of the CMD are conveyed with respect to corporate goals using past data and changes in economy and business environment appealing to the managers/staff to realistically assess the business potential in the common area of their branches and to arrive at revised business targets as expected by corporate goals based on analysis of market and potential of branches. – The demand unlike consumers products is not inbuilt. – The rural market is still untapped. e) Internal Communication Thus far we have seen the various promotional measures that are required in the communication process to achieve the corporate goals and objectives of the banks. It comes through good liaison with press reporters. objectives and targets during the financial year. This happens specially in rural areas. – Among the financial services too the insurance sector gets the least priority as other investments avenues provide immediate yields. – In case of life insurance the case is further complicated as in India people have belief. internal communication also involves: 1) House Journals 2) Circulars 3) Corporate objective/Business plan booklets 4) D. The need for marketing insurance services also arises due to following factors: – The insurance products have a distinct feature where benefits of the product comes at the later date and at times after a considerable time. Financial Services Publicity does the job of reducing ill effects of bad news and also increases positive effect of goods news if properly backed by proper public relations. most of the banks also have internal communication strategies in the form of an annual budget or business and corporate plan which spell out its goals. The insurance sector is yet to exploit this segment which have vast potentialities. journalists and column writers.7 INSURANCE a) Need for Marketing Insurance Services Thre is an enormous scope to exploit the potential market and raise per capita life premium. In order to supplement such external communication measures. Good public relation strategy usually compliments publicity to boost the bank’s image. The success of such an exercise largely depends on the realistic assessment of past data and realistic targets set. Besides business plan exercise.

. – The General insurance have wide scope for marketing as small and medium business entrepreneurs are yet to reap the benefits of general insurance schemes... .........................................................C..................... This will certainly expand the business dimensions...........Sectoral Applications-I – The concept of proper financial planning................. g) The process of privatization will bring in many customer friendly insurance products............... – Over the period of time the L................. 18 .. j) The Budgetary provision have provided additional tax saving opportunity to certain specified insurance products such as pension policies........... a) IRDA aims at promoting the regulating professional organizations connected with insurance and re-insurance business... regulating and strengthening the insurance sector.. ..... taxation and investment is still lacking among the middle class strata...... With such a positive development the marketing scope would further increase............................................................................ b) Scope for Growth of Marketing Insurance Services The scope for marketing insurance services is vast and thereby marketing of insurance services needs a re-look.....................I........................... The Insurance Regulatory and Development Authority (IRDA) has been established in 1999 for promoting.. There are number of impending changes that are likely to make this sector more dynamic......... i) Though the market of general insurance is smaller in comparison to life insurance nevertheless the scope of growth is ample.............. mutual funds.............. what do you think are the marketing implications for nationalist providers like LIC and GIC? ...... The following factors may further induce promotion of marketing activities in the insurance sector...... d) With the increased spirit of investment education and awareness there are already indications of increased participation.............................................. This trend will further enhance the scope of marketing insurance services................. c) There is also a move to specify the percentage of life insurance business as well as general insurance in rural and social sector.... This will give further fillip to marketing strategies......................... h) The marketing of insurance services would take together new shape once banking services......... insurance selling and fund management are all interrelated. other financial institutions............ ........................... have come out with multipurpose better yielding attractive terms insurance’s policies which certainly needs effective marketing to wipe of the synergic ideas in the minds of people that life insurance policies are mainly for death hazards......... f) Service standards are bound to improve and insurance premium should come down once the insurance reforms takes place.... Activity 6 Against the backdrop of recent opening up of the insurance sector.. b) The insurance sector is thrown open to private and corporate sector.............. capital market have come down and almost at par with insurance investments... e) The yield on other avenues of investments such as banks.

Therefore. the number of aged persons are on the increase every day. This assumes significant importance in case of insurance services. effective marketing strategies will have prominent role. They have crucial role in mobilising the business. the financial problems of longer retired life are no less than those of early death. He must be able to draw out the philosophy behind the launch of a product or insurance plan. The following aspects have to be considered in this regard. Ability to Convince: Imagine a situation where an agent says to his client “I will got to my office and find out. This makes it more difficult for customers to evaluate them (especially when they have no understanding of the service being provided and are relying on professional competence). it has the powers to convince others. ii) Restructuring of national economy has brought in its wake many Voluntary Retirement Schems. Therefore their professional approach to consumers assumes significant importance. What he is selling is an INTANGIBLE commodity. You are for him. Awareness about Demographic Changes: An agent must keep himself aware of latest trends. An agent. Consumer Orientation: A customer is always right because he is the cause of your profession. The majority of insurance business is undertaken by the agents nominated for the purpose. He should make it a habit to read daily the material connected with his profession. 3) Increased use of “Family Package” policies (A good product-mix) i) ii) iii) iv) Widowed mothers Un-married mothers Single parent family Multipurpose products Financial Services However to augment the business in this sector and exploit huge resources available in the markets. they are sold before production and consumption take place. Opening of insurance to private insurers has potential of increasing sales in different segments because of: 1) Sophisticated and knowledgeable selling by qualified agents. Goods are purchased first then sold and consumed.” Such a salesman will not be able to convince his prospects. 2) Cost effective products. in order to be successful must attain training sessions or seminars on insurance whether held by his company or outside agency. Why he should be interested in you only? Here lies the 19 . Product Knowledge: It is obvious that a life insurance agent must know the product he is selling. such as: i) With increase in “Average Life Span” in our country. There may be many agents who are interested in him.c) Strategies for Effective Marketing Selling of services are different from goods in that. In future insurance market of Annuity and Pension plans is going to expand significantly. an agent should not have superficial knowledge about various types of policies. The employees affected from these schemes form potential group of pension or Annuity Schemes. Therefore. Services also have particular characteristics such as their intangibility and variability where they are difficult to standardize. KNOWLEDGE IS POWER: Yes.

an agent has to so establish himself as to enable the client to think that Agent cares for his interests. always sell the right type of policy.......... Due to the rapidly increasing level of international competition there is a growing need for product innovation in banking and insurance 20 ...... Banking products offer insurance product through the banking channel will complement banking...... Selling Right Type of Policy: An agent should never go by his personal gains.. The benefit of the customer (life assured) should be uppermost in his mind........ d) Role of other Institutions in Marketing of Insurance Services An open entry has been permitted to private corporate sector.. foreign institutions....... the quality of services will improve significantly and so is the cost effective products.......... ..Sectoral Applications-I secret of your skills of salesman..... The financial sector is also recognizing the increasing importance of new products........... We may mention the possible out come benefits as under: a) Banking services............ e) There is also a need to expose institutional structure more particularly in the marketing segment to rural and semi-urban areas...................................... It will have positive development on marketing of insurance services.. The efficient and well organized marketing strategies will bring more number of investors to insurance services and large population uncovered so far will have advantage of access to this sector... d) The professional training institutes will also have important contribution in training the personnel and thereby sharpening their professional skills.............................................. note the kind of problems customers may face while collecting policy claims............. However. ......................e..... for an insurance agent a right advice brings nine opportunities........................ It is said a stitch in time saves nine........... banks and other financial institutions to the insurance sector....... i.................... ..... ii) Agent is considerate towards his difficulties..... Therefore.......... On the basis of their feedbak............. What is the advise that you would have for the marketers of insurance on the basis of the feedback collected by you.. b) With the entry of corporate sector with sophisticated technology.............. Activity 4 Contact at least 5 people who have tried to claim their motor insurance or household insurance policy in the event of a mishap... The systematic and planned marketing strategies by new entrants in the market will certainly give a different shape to marketing practices for various kinds of insurance services.. Therefore..... insurance selling and fund management are inter related synergies... i) Agent understands his needs................ Exhibit 11.1 Financial Services Firms and Product Innovations Developing new products is of prime importance for organisations.................. This will certainly widen the market horizons.......................... c) The regulations and controlling measures by IRDA would provide protection to investor.. Therefore insurance selling by banks are mutually beneficial to banks and insurance companies........

considerable attention has to be given to changes in the value system of the organisation. pricing. Role of IT in product innovations has also to be understood. Changing the perspective and investing in IT would help in increasing the innovations potential of many banks and insurances companies Source: Patrick Vermeulen. which means that people should work closely together in the development process. Also. reference groups and society affect buyer behaviour. In this unit you have been explained in details the branding. banks and insurance companies are diffused with stability. Becoming more innovative requires alterations at the deepest levels of the organisation. marketers of financial services must understand why and how people believe. sub-culture. Intensive communication is needed between the people involved in developing the new services. its target segment and its marketing mix. a number of individual variables like consumer learning. 11. Apart from needs and perceptions. so that the pricing. An important issue in becoming more innovative in the financial services is to designate explicitly a ‘place’ for product development.8 SUMMARY This unit explored the basic concepts for understanding the way a consumer believes in selecting and consuming financial products and services. Employees in these companies have to get used to a special product development function and its importance. In order to be able to manage their marketing effectively. “Managing Product Innovation in Financial Services Firms”. In practice. The service characteristics of intangibility and inseparability raise a number of issues related to new service development. marketers would thus need to go through a two steps process: First to select or identify its target market or markets and then to design a marketing mix to meet the needs of the target market better than its competition can. Vol. Generally. 21 . distribution and promotional strategies for banks. looking at the needs of the target market determines what is sold to whom (decision on the service product). They key changes that are required to become more innovative are concerned with the organisational structure.Financial Services products. The main problem regarding intangibility is that people cannot feel.1 pp. Prototype is hardly possible. The key elements in determination of the marketing strategies for financial services are the marketing objectives of the organisation. 43-50. the determination of these elements involves a thorough understanding of buyer preferences and company capabilities. distribution and communication of the organisation’s offer can be profitably offered to its target markets. Once the organisation. see or touch the product being developed. the underlying values and beliefs and information technology. In developing a marketing strategy for financial services. the pricing. European Management Journal.22 No. their personality and self concept as well as group variables like family culture. Feb 2004. promotion and distribution will be easier to determine. The process would involve the best possible selection of the elements of the marketing mix to enable the greatest degree of fit between the needs and wants of the selected target group and the organisation services offer such that the exchange process results in value creation for the consumer and the organisation. maybe even more than would be the case in manufacturing. The simultaneity of production and consumption (inseparability) warrants strong customer and user involvement in the process.

Define Promotion. 2. Explain briefly various methods of pricing financial products. 5. The operational difficulties encountered so far in effective marketing will altogether have a new look henceforth due to large number of players in the market. With the increased participation by various segments.9 SELF-ASSESSMENT QUESTIONS 1. Explain the importance of branding in marketing of financial services with the help of suitable examples. 4. for marketing banking services? 6. 11. Need and strategies for effective marketing of insurance services have been outlined in the unit. Discuss the individual and family influences on buyer behaviour for financial services. 22 . A large number of investors could be covered with effective marketing practices. 3. The professional skills to mobilize the business will have key role in competitive environment. Explain with the help of examples how effective marketing can be useful in enhancing the insurance business. Explain the development of different types of bank branches and other models of delivery of banking service.Sectoral Applications-I The insurance services in our country have wide scope for growth. What should be a ‘Good Promotion Blend’. the role of other institutes will also increase considerably.

discuss the factors governing tourism supply and demand. and discuss the components of the hotel marketing mix. food and beverage away from home.12 Introduction Factors Governing Tourism Demand and Supply Segmentation in the Tourism Market The Hotel Market The Hotel Product Hotel Pricing and Distribution Communications Extended Marketing Mix for Hotels Marketing Consortium or Cooperatives Summary Self-Assessment Questions References and Further Readings 12.1 12. business or family reasons.10 12. identify the levels of demand for hotels. A tourist is often defined as an individual spending at least 24 hours away from home for the purposes of pleasure. is also heavily dependent upon powerful persuasive communication both at the macro (country) level and the micro (enterprise) level. (b) accommodation sector (hotelling and catering). The 23 .1 INTRODUCTION The tourism and hospitality industry is identified by the products which are needed to satisfy the demand for travel. Tourism as a service industry comprises of several allied activities which together produce the tourism product. shopping and incidentals. The product in this case in not confined to travel and accommodation but includes a large array of auxiliary services ranging from insurance. sports. and (c) passenger transportation.9 12. apply the various segmentation criteria to the tourism market. three major subindustries. in addition to the consumer motivation.UNIT 12 TOURISM AND HOSPITALITY SERVICES Objectives After going through this unit you should be able to : describe the nature of tourism as a service industry and identify the participants in the tourism process. The annual average growth rate for the industry is estimated to be between 9% to 12% globally.7 12. They are: (a) tour operators and travel agents.5 12. a tourist spends 35% of his total expenditure on transportation. Tourism is one the major industries today. with over 720 million tourist traveling annually.2 12.11 12. accommodation. entertainment and shopping.6 12. We find involved in the tourism product development. Demand for accommodation is a function of travel and tourism.4 12. about 40% on lodging and food and the balance 25% on entertainment. Demand generation.3 12. According to international estimates. holiday.8 12. Structure 12.

both backward and forward. “Toursim and Development in the Third World”. Some of them transnational in character.1: Element of International Tourism Industry Travel demand influenced by: rising incomes increased mobility improved transport education marketing Tourist Industry Intermediaries travel agents tour companies hotel companies transport companies Travel destination influenced by: historical connections accessibility nature of tourist product search for foreign exchange Source: John Lea. social and technological factors. the prospective consumers have to travel to a foreign destination in order to consume the product. some of them exhibit vertical integration. The economic.2 FACTORS GOVERNING TOURISM DEMAND AND SUPPLY Because of the unique nature of the tourism product-it being an amalgam of the physical characteristics of a destination and the infrastructural as well as managerial efforts of the promoter. Chapman and Hall Inc.Sectoral Applications-I participants in the process of this service business can be illustrated by the Figure below (Figure 12. 12. and technological determinants of tourism demand include high and rising incomes. only the actual transaction of the service act would lead to realistic assessment of the product. through net generated images and rich information. Figure 12. social. Quite common is the existence of loose coalitions between intermediaries so that a more complete range of services can be offered to the consumer. good-education. While these do provide some basis for evaluation. with 1/8 of the market share being shared between the other world regions. 5) The major players in the tourism market include a number of intermediary companies. Not quite so apparent is the creation of tourism demand as result of sophisticated tourism promotion. Some of the important factors are discussed here. the determinants of tourism demand emanate from both individual. new. 1991 Some of the pointers to nature of tourism as a service industry are: 1) Tourism accounts for nearly 6% of world trade. 24 . 2) Bulk of the tourism business is located in Europe and North America. like most pure services. 3) The highest growth rate in tourism in recent years has been in the third world 4) Tourism. because of the characteristic of inseparability. exemplifies a product which cannot be sampled before purchase. Technology today provides the opportunity of some assessment of sorts.1). Routledge. increased leisure time. cheaper and faster modes of transport. tourist motivations and the economic. acquiring interests in all major sectors in this service industry.

making it easier for people to economically plan and execute trips aboard. tourism will not occur unless people have the motivation to take a trip. it would be possible to design tourism effort more effectively. e) Growth of Business Business travelers have always contributed to a large extent to the tourism traffic. thus allowing more money for activities like leisure travel. All this has resulted in a larger number of people having longer periods of leisure which could be allocated to travel. All too often tourism marketing is focused on advertising to the want and not addressing the underlying need. The increasing volume of transnational business and the attendant international travel has meant a spurt in the tourism business. Tourism and Hospitality Services 25 . d) Growth in Government Security Programmes and Employment Benefits The growth in government security programmes and well entrenched policies of employee benefits mean that quite a large number of families may have long term financial security and may be more willing to spend money for vacations. Faster modes of travel have cut down on travel time.a) Income Levels In the last 30 years. Consumer may know what they want but are frequently unaware of the need that underlines that want. and have brought both exposure and awareness of distant lands to large sections of potential tourists across the world. f) Tourism Motivation Even if the people have the time. Added to that is the component of social tourism. For example the couple who want the winter cruise may feel that they. on their return will be the envy of the entire neighbourhood (need for status) or a person may feel that he would like to see a monument and its surroundings for himself in order to truly appreciate its beauty (need for aesthetics). developing a whole range of services to cater to the needs of the business travelers. and the need for aesthetics. Motivation to travel may spring from a variety of needs. b) More Leisure time Increasing unionization of labour right from 1930 onwards has reduced the number of working hours per week. the money and the mobility to travel. c) Mobility Better transportation and communication services have made the world a smaller place. The dramatic rise of tourism in the last 50 years can be attributed in a large measure to the combined effect of more leisure time and rise in both real and disposable incomes. More and more women are entering the work force and in real terms the cost of the travel has fallen. the result would be a more effective marketing effort. A couple may want a winter cruise but may not be able to decipher why. Changing managerial orientations towards human resources have increased the level of pay and paid vacation time in most developed countries. Business travel is in fact such an important segment of the tourism market that many international airlines and hotel chains have targeted it as their key area of operation. disposable incomes around the world have shown upward trends. If such needs can be established and promoted. need for recognition as well as the need to know and understand. Smaller families have meant higher allocations per person in family. If such underlying motivation can be unearthed. in eastern European countries where the state often pays for the cost of holiday for certain classes of employees. and the extent measured. A variety of typologies developed for the tourists have classified tourists as those wanting to satisfy need for status and self–esteem.

As the destination gains popularity. different type of tourists are attracted to different tourist destinations depending upon their position between the two extremes of the continuum. Valerie Smith gave an interactive typology of tourists stressing the large variety of tourists and their behaviour at a destination. or a visit means to different people. leading to tourist enclaves abroad. as it . According to Plag. The destination draws most of its tourists from the midcentric section now. The new destinations generally appeal to the small number of allocentric adventurous tourists. Thus tourism could be : i) Recreational: One of the commonest forms. Existential: The type describes a tourist who actually acquires a new spiritual centre as a result of the travel experience. As the destination gives way to larger and larger number of arrivals. Mass: The general packaged tour market. developed world class facilities as possible. progressively. travelling alone or in small organized groups using some shared services. Offbeat: These are filled with a desire to get way from the usual humdrum life Unusual: Visitors who are looking forward to trips with peculiar objectives such as physical danger or isolation. According to her. Plag felt that psychographically all tourists can be viewed as being spread along a continuum. it goes through another change and becomes dependent upon foreign investment and manpower. who prefer to fit in the local culture and consequently make few demands. the objective of travel here is to relieve the tensions and strains of work. Charter: Mass travel to relaxation destinations which incorporate as many standardized. ii) iii) iv) v) 26 A different way of looking at tourists is by analyzing them psychographically. it loses its charm for the allocentric who moves away to untouched locales. Experimental: When the tourist wants to experiment with lifestyles other than his own. which classify tourists on the basis of reasons for travel. Experiential: The tourist here is a modern pilgrim looking for authenticity in the life of other societies because he has seemingly lost it in his own. Diversionary: When the visit is a true escape from the boredom and routine of home life. the more intensive effects. individually tailored trips to exotic places. being felt in each category down the list. Incipient Mass: A steady flow. The psychocentrics now feel at home in such place. involves no deeper significance. tourists can be classified into the following seven demand categories: i) ii) iii) iv) v) vi) vii) Explorer: Very limited in number.Sectoral Applications-I A clue to the motivations regarding travel. these tourists are looking for discovery and involvement with local people. Elite: People who favour special. The interesting fact is that each of these categories has a corresponding range of impacts on the host society and destination. At one end are allocentric tourists who want an independent vacation experience and at the other end are psychocentrics who become part of the mass tourism market. Erik Cohen has suggested a cognitive normal typology to describe what travel. apart for travelling for business is provided by the tourist typologies.

along with their major market characteristics. airports. art. sewage disposal and so on. Certain third world destinations and certain locations within these countries are rendered in an advantageous position. vacation. fauna) or man made (historic or modern) or by reason of cultural or sociological destinations (music. (c) income and education. Tourism and Hospitality Services 12. e) Physical and communication infrastructure: To make available the facilities noted above. Table 12.1 gives an idea of the tourism market as segmented by purpose of travel. holiday camps) and private residences or evencamping/canvassing sites. (d) purpose of the trip. purpose of the trip has been fairly extensively used by the major players in the tourism industry – hotels.e. The different elements in tourism marketing mix are then tailored to suit the different demand elasticities of these segments. c) Accommodation: A critical component of the supply factor. Other bases sometimes used to segment Tourism Market are: 27 . can be broadly classified into five broad types. Generalisations like these help tourism marketers to view tourism from he perspectives of both the tourists’ personal motivations (what does it do for me) and the host society. d) Support and auxiliary services: Cover a large array of supporting services such as shops. These are generally provided by government because of high capital costs. guest houses. The Tourism Products and the Supply Factors The supply factors. In contrast to the first three the last variable i. accommodation can be further divided into commercial sectors (hotels. tour operators and travel agents. for example. which incidentally change its identity from the natural geographic and social locales which initially lured the allocentrics. b) Transport: Tourism growth is closely related to the supply and extent of development in transport systems. Some governments may wish to maximize income from the industry by encouraging mass tourism with a minimum of local contact (as in case of beach resorts in Mexico). restaurants. by easy access to the world air routes. electricity. and airlines. banks and medical centres. folk lore). flora. visits to relatives and other types. a) Attractions: These may be natural (land forms. Using this criterion segments have been identified as travel for business. as the mix of destination. Others may wish to make their tourist trade upmarket to gain the same benefit from a smaller number of top spending investors (as in the case of Bali) while still others may want to encourage mass tourism with maximum visitor-host interaction by encouraging the use of village accommodation and hotels. Examples are roads.offers a range of facilities and services “just like back home”. facilities and services is usually called. the infrastructural requirements needed are covered under this head. personal emergencies. There is. (b) number of trips taken per annum/season. convention.3 SEGMENTATION IN THE TOURISM MARKET The tourism market can be segmented by using variables like: (a) age groups. evidence to show that the aspirations of westerns tourists (comprising a major chunk of tourism traffic today) may not tally with the priorities held by third world host countries for the development of their industry.

Seasonality High. identifying the kind of tourist who might be looking for each benefit and defining the tourist destination which come closest to delivering each benefit. Length of Stay Normally short and cannot be prolonged by advertising Prefer long stay. Ed. Normally at un-expensive hotels Airplane invariably. each segment can then be measured in terms of volume of consumption. Role of Advertising/ Marketing Communication Rather limited Quite important. but to a limited Normally the degree entertainment is part of the tourist package. Objective is to reach the destination as soon as possible 5.Sectoral Applications-I Table 12. Prentice Hall Englewood Cliffs N. Very sensitive (high price elasticity of demand) Very important Low price elasticity of demand 7. education. a) Benefit Segmentation: Based on the realization that different tourists seek different benefits from the tourism experience. Very much so. Time spent on the way to destination is part of the holiday or package tour. Hotel Accommodation User Requires Entertainment Yes. marketing mix can assist however in spreading demand levels Could be influenced by promotion/ communications No seasonality 3. Price Sensitivity Sensitive 8. Lovelock.J. The objective here is to find sizable groups of people all seeking same benefits from a tourism product. particularly sales promotions are important Limited appeal 9. Yes. This will be prolonged if the costs of additional stay are ‘reasonable’ The cheapest mode of transport 4. Mode of Transport Varied mode(s) of transport. Once different benefit segments have been identified and grouped. Tour Package(s) Importance Of great interest and demand Of no appeal at all Source: Meidan A. “The Marketing of Tourism in Marketing in Services Industries”. relatives.1: Some Major Tourist Segments and their Main Marketing Characteristics Main Tourist Segments Business Tourists Common Interest Tourists Big City Visit friends. benefit segmentation consists of identifying the benefits that the tourist might be looking for in a given product class. normally expensive hotels Only to a very limited degree No 6. frequency of consumption and possible growth prospects. Yes. pilgrimage Partial seasonality Marketing Characteristics 1. Typical Destination Holiday Tourists Resort-orientated 2. 28 .

fun-loving people seeking ‘up-to-date’ destinations and hedonistic living) c) Distance traveled: As a generalization. Created demand which does not exist so far. These segments are determined as per the needs of the people and the means they possess to pay for their satisfaction. A new hotel introduced in a particular segment of the hotel market may eventually be able to exploit all these levels of demand. created and future levels of demand promise well for an investment appraised on ’10 to 15 year basis’. may be divided into various segments. and arising from people who do not normally use hotel facilities.. Displacement demand arising from the clientele for other hotels where the customers’ needs are not fully met by the market package offered. etc. which consists of the total demand for hotel facilities. use differential marketing mix to attract both segments. ii. how it is provided. If the basic demand is absent but if the displacement. new industrial complexes). Secondary level i.g. rise in the standard of living and per capita income (‘green revolution’ areas. Basic demand which exists for hotel facilities but not being served at present. Marketers depending upon their marketing objectives and the need to balance margins and volumes. due to certain socio-economic or sociopsychological factors or both. the 29 .b) Psychographic Segmentation: Using lifestyle and personality variations among consumers. Table 12. It is essential that there should be substantial basic demand which can be tapped by a new hotel. travel agencies and tour operators market differently to ordinary families seeking a relatively cheap summer holiday than to swingers (young unmarried. increase in population. Futuristic demand which may occur at sometime in the future. psychographic segmentation seeks to determine variance in consumer demand for tourism and then tailor or package the product to these demands. e. ii. the assessment of future demand relates to the continuing long-term prosperity of the hotel. or from people who do not use the hotel facilities in particular area. and for how much. to be able to assess the requirements on the supply side.4 THE HOTEL MARKET The total hotel market. Displacement and created levels of demand require a period of time and sustained sales effort to realise their potential. whereas. long distance travelers comprise the larger and more profitable segment in the tourism market while nearer travelers may be seen as representing the low margin high traffic consumer groups. The market for the hotel will be served according to what is provided. Tourism and Hospitality Services 12. For example. changing social systems and habits. it is relevant to conceptualise the demand for the hotel sector at both the primary and secondary levels.2: Primary and Secondary Levels of Demand Primary level i. At a managerial level.

refreshments. conferences. guests to weddings or other social functions. For accommodation. each segment of the hotel market contains varied categories of potential buyers of catering services which may also sometimes overlap. economic. for food and beverages. i. Similarly. Occupant customers staying in the hotel.. meetings. car rental service. i. each segment of the market. Catering 12. workshops. industrial. But of all these. shops.3: Potential Buyers for Accommodation and Catering Services Accommodation Transit tourists.. which may sometimes overlap. Conventions. refreshments. contains some or all of the potential buyers of hotel accommodation.e. and social characteristics of the location of each hotel. recreation and health. People on tour who step into the hotel for meals.e. the accommodation and food and beverage components are the primary ones. Transit or change customerspeople other than local residents of the areas patronising the hotel either by impulse of intentionally planned for meals. apart from others. together with its primary and secondary divisions. business or industrial employees for whom travel is an occasional part of their job. Organisation and societies consisting of members acting in unison. Traveling businessmen. Table 12.3. Terminal tourists. food and beverage. etc. etc. Meeting and conferences organised by agencies from outside areas. There may well be more types according to the geographical. Social visitors. Visiting personnel. for whom the location represents end of a journey. Organised tours.5 THE HOTEL PRODUCT The hotel product has a number of components like accommodation. passing through the particular location. where the location is pre-fixed by the organisers. 30 . Local business customers who patronise the hotel due to local industrial or commercial activity.Sectoral Applications-I decision to start a new hotel under such circumstances has perforce to be a long-gestation decision. as shown in Table 12.

customers who are part of groups either on business or on pleasure. MUSIC. CHECK IN/ OUT. The accommodation component of the hotel product requires a clear identification of the type of clientele the hotel wishes to attract and serve. Hence their experience of the hotel product will condition their future relationship with the hotel and the patronage afforded. LARGE TOWEL.4 below gives the various ways in which accommodation and food service products can be augmented. Between these two there are a variety of accommodation facilities-catering to customer whose accommodation is paid for. furnishings and fittings can be changed more easily to transform the image of a restaurant or dining room in either way. Qualitative differentials can be very wide and would range from high class a la carte high-price menu restaurants with complete table service to the medium or low-priced menu dining rooms. the possibility of variation is severely restricted. accommodation can be either of the luxury type almost regardless of the price. the hotel product decision for accommodation will depend entirely on the accuracy of selling rooms to the right type of customer. however. the economy type property cannot be moved up into a luxury one without considerable expense and time although a reversal from the luxury to the economy class is more feasible and less problematic. Availability of room service from either the hotel’s own kitchens or from outside is another area of flexibility. However. POTENTIAL PRODUCT From the above table it is quite clear that at the “Core” level all hotels are alike and the differentiation starts as you start moving up. BATH…) SET OF ATTRIBUTES/CONDITIONS THE BUYER NORMALLY EXPECTS (CLEAN ROOM. leisure customers who pay for their accommodation. It is obvious. Regardless of ‘star’ categorisation. or the economy type providing the essentials of shelter frugally.Philip Kolter has identified 5 levels of a hotel product. AROMA) THE POSSIBLE EVOLUTION TO DISTINGUISH THE OFFER (ALL-SUITE HOTEL) Tourism and Hospitality Services 2. On the other hand. hotel architects. the world over. Admittedly. the food and beverage component of the basic hotel product offers greater scope for flexibility. FUNCTIONAL ATTRIBUTES (ROOM. BASIC PRODUCT 3. as customers tend to graduate from one ‘star’ category to another. once the hotel property has been constructed to serve identified and specific customer segments. QUIETER LOCATION) THAT MEETS THE CUSTOMERS’ DESIRES BEYOND EXPECTATIONS (PROMPT ROOM SERVICE. To tide over the above difficulties. CORE BENEFIT THE FUNDAMENTAL BENEFIT THE CUSTOMER IS BUYING (HOTEL: REST/ SLEEP) BASIC. EXPECTED PRODUCT 4. that resident guests in a hotel know what exactly they are buying in room occupancy and in food and beverage sales. Table 12. AUGMENTED PRODUCT 5. 31 . These levels are: 1. are now designing properties with as much flexibility as possible to make multipurpose adjustable public rooms feasible. In the case of a hotel where such flexibility does not exist. Capital expenditure is relatively lower. BED.decor.

........................ contract rates for airline crew........ specially cost of empty room-nights........ . and so on................... although to a lesser extent than that of the hotel product....4: Hospitality Product Augmentation Accommodation Reservation system convenience Reservation system simplicity Acknowledgement of reservations Lift attendants Room service Standard of housekeeping Courtesy Procedures for handling overbooking Information service Customer recognistion Credit provision Baggage handling Pet/child care Provision for disabled Group accommodation Discounts on club referrals................... Nevertheless................. credit policies and other factors.. by and large...... However............................ railways............................. to the amount of traffic being generated in the hotel location............. hotel pricing tends to follow or conform to pricing standards applicable to the particular city area or resort.. also have a bearing on tariffs and menu prices..............6 HOTEL PRICING AND DISTRIBUTION Pricing It is difficult for a hotel to exercise differential pricing except for certain specific purpose... These may typically be differentials in tariffs and prices during the peak and lean seasons.................................... international or national conference venue........ Distribution Hotel distribution relies on interdependence with other industries serving travellers and tourists such as the transportation industry (airlines. Cleaning/laundry Courtesy care Willingness to bill later Food and Beverage Speed of food service Ordering convenience Telephone Advance orders Order-taking table staff Complaints procedures Advance reservations Reliability of food/beverages quality Customer advice on wines Provision of special foods Cooking to order Acceptance of credit cards Variations in portions Home deliveries Extent of non-available menu items Fiber /calorie information Provision of doggy-bags Function-catering facilities Quality of table appointments Entertainment Privacy / discretions Source: Francis and Buttle...... etc.. . Also identify those services which may create a competitive differentiation for both types of hotels............................. “Hotel and Food Service Marketing” Activity 2 Compare the product mix of a city hotel with a resort hotel.............................. 32 ............. hotel pricing also suffers from a degree of lack of flexibility..... tourist location...... ..................Sectoral Applications-I Table 12.. The depreciated valuation of the hotel property..................... to competitive hotels........ fixed overheads.. 12.. group rates. its financial management efficiencies......... special conference rates or special concessions to attract customers etc....

... the franchiser’s distribution system is expanded and the franchisee is well motivated to succeed in his own business... tour operators........... Informative advertising is necessary for a new hotel or a hotel offering new facilities or services which are different from the past....... ...7 COMMUNICATIONS Perhaps this element of the hotel marketing mix is the most important one as it is directly responsible for bringing customers to the hotel. Appropriate messages are conveyed to those who are potential buyers of the hotel product and those who directly influence decisions to buy the hotel product.. The major elements of the hotel communication mix thus are – mass media advertising..... thus...................... airlines and special business clientele.. public relations........ he improves his own operational image and efficiency. In the process.. on a reciprocal basis............. The franchiser also benefits as his investment is not required in the franchisee’s properties............. ... Franchising may take various forms but it basically involves making available to the franchisee (the beneficiary) of a service.. sales promotion... .. The franchisee also benefits from the image of the franchiser.. Hotel distribution is. 33 ..... both of which may or may not form a part of the hotel’s marketing communication programme but may function independently.................. an important element of the marketing mix.................... professional advice and training provided by the franchiser.. giving details about the location and types of facilities offered. The second is the increasing development of franchising..... The direct communications are through personal selling............. a long-term effort to inform the customer about the existence of the property.......................... Indirect marketing communications for hotels include public relations and publicity..... In sum... Tourism and Hospitality Services 12... Persuasive advertising is aimed at a more competitive situation. those services which provide certain other facilities to the traveller or the tourist which are bought when accommodation and food are assured...... sales promotion and direct mail....... generally........... The first is cooperative distribution which operates in passing on traffic overflow from one hotel to its neighbour.......... and publicity... travel agents and tour operators.... 1) Advertising Hotel advertising is an effective and............... national and state tourism organisations............................ shipping lines)....... At the same time...... advertising..................roadways........... direct mail. Hotel marketing communications are either direct or indirect........................... without affecting regular business with the main intermediaries in the distribution system such as travel agents.............. shopping and entertainment providers..... The franchisee gets the advantage of being part of a reservation and sales system which ensures a certain level of business which may not be available otherwise........ Some interesting features of hotel distribution need critical examination....... It is also required where the level of business per customer is likely to be significant... Activity 3 Identify the role of a travel agent in marketing hotel services airlines......... system that is designed and controlled for quality standards by the franchiser. Advertising is also aimed at influencing the attitude of the customer to bring about his acceptance of the particular service offered...... Personal selling of the hotel product is effective when long-term relationship between the hotel and the customer is sought....

if the hotel product in the market-place can only be promoted on the strength of these descriptions and representations. while making an attempt to communicate with different target segments. they have different requirements. The purpose of advertising is indeed the same as the purpose of communication – it aims to inform and persuade the consumer or the travel trade to change. A flavour of showmanship and originality in concepts are required to make advertising efforts effective. then its competitive position is a direct result of the quality of those descriptions and representations. there should be a differentiated communication approach. in turn. to meet the competition. Effective advertising not only gains the attention of the prospective guest. it is essential to identify psychological motivation and try to motivate the prospective hotel guest through a message which promises a benefit – a benefit that will satisfy the guest’s psychological or other needs. to influence their attitude towards the advertiser’s product or organisation. it is normally purchased in advance and from a distance. special dinners. unlike sales promotion where the hotelier is aware of the identity of the target. Further. Hence. While communicating with the prospective hotel guest. conferences and meetings Room occupancies Reservations for various hotel facilities Good eating and top class food Family dinner Dining. The hotel product facilities and services can be advertised against a number of areas. the advertising campaign should be planned carefully and well in advance. Market segments are different because they have different needs. all advertising should have the touch of quality or class. need an effective advertising campaign. it cannot be taken to the market-place. advertising will be the first introduction of the area. they want to buy different products or they want to buy the same product. as mentioned below: Conventions.Sectoral Applications-I In advertising. dancing. and lunches Sophisticated entertainment Popular entertainment Weddings and special accommodations Festival and parties 34 . planning the advertising campaign is very important as the hotel product has certain unique characteristics: it being highly intangible cannot be exhibited. which. a hotelier is dealing with a non-personal contact with the target audience. Therefore. since it cannot be transported. In the hotel industry. effective advertising must stand out as superior to competing advertisements. distinctive. To ensure that this impression is favourable. location and the hotel itself. In communicating with the travel trade a hotel must provide the facts and figures in simple language whereas a consumer may like to listen to evocative language. and discotheques Bar and permit rooms Buffets. but for different reasons. The rationale behind identifying the target audiences and creating proper message is that there is a need to differentiate marketing communication or advertising approach to different target audiences. interesting and compelling. as there are different market segments. Hence one has to depend on the descriptions and the representations of the hotel product rather than the actual product in the market-place. The success of this introduction will invariably depend upon the impressions made. Additionally.

One may advertise keeping more than one objective or a mix of objectives in view..g. Individual facilities (rooms. STD telephone. e. prices.. Some of the objectives of hotel advertising are given in Table 12.. audio-visual equipped conference hall. atrium or special architectural features and any other specific feature – which would attract attention – Support regular travel/tour agent in selling the hotel To – – – create awareness or interest in ‘Facilities/services available’. etc. e. Qualitative.g. credit.) Group of facilities.5: Objectives of Hotel Advertising To – – – – – – – increase sales Induce potential guest/customers to visit the hotel Obtain enquiries through mail/telephone on a priority basis Promptly announcing special offers or any other attraction Secure enquiries from travel agents/tour operators/wholesalers Stimulate impulse action (e.. aesthetic Financial e. etc. size of guest rooms. specialty restaurants. health club. Table 12.g. guest room climate control. bar.. book a table for dinner) Induce conference buyers to contact hotel Publicise unique selling points of the hotel – location.Frigidaire in guest room “do-it-yourself” tea/coffee/breakfast kit in guest room Multipurpose meeting room-cum-wedding hall Collapsible bed-cum-divan/room convertible into meeting and private dining room “Wake-up call”-cum-”appointment reminder” device in guest room create awareness or interest in ‘Resources behind the hotel’.g. pool.. psychological. Quantitative. etc. full office-cum-secretarial services with internet.g. Mini. tangible. e. create awareness or interest in ‘Benefits to be gained by patronizing hotel’: Specific. Special facilities/services. etc. Stand-by generator for uninterrupted power supply Water purification system: “Drink from bathroom tap” “Take a tour of our kitchen”: latest equipment “Meet our managers”: quality of service-oriented staff effectively counter wrong impression created by: Competitors Media Public Opinion educate guests/customers on: Conveniences Atmosphere and general finesse New facilities/services provided create favourable image of hotel: Good employer Good corporate citizen Role in the community Foreign exchange earner Developing and supporting ancillary-supplier industries/business Tourism and Hospitality Services To – – – – – – – – – To – – – – To – – – To – – – To – – – – – 35 . e. wide range of items on menu To create awareness or interest in ‘Versatile advantage of hotel’. CCTV. discounts.g. fax.The objective of advertising in hotel industry vary from image building to immediate sale..5. e. suites. private balconies. etc.g. portions.

it is essential to know the job which has to be done. computers. An advertising copy is still incomplete – it needs more information. transport facilities. several decisions need to be taken. to know the hotel product. In a nutshell. so the advertisement copy must provide information regarding location of the hotel and how attractive it is. This takes no account of the real need for advertising. stenographers. track record with other conference buyers. computers etc. audio-visual projector. Another method is to take an ad hoc decision as to how much the hotel can afford to spend on advertising anticipating additional business. other services. typing. This would be an acceptable decision if necessary information was available as to how responsive the demand was to advertising expenditure. prices. In case of conference and convention market segment it is essential to provide technical information. etc. to know answers to the requirements of the potential customers. TV sets. would also help a conference buyer in taking decision whether to book a conference in a particular hotel or not. CD players. etc. one can say that while advertising it is necessary to remember what your advertising job is. So there is a need to have a professional approach while designing the specific advertising message. The conference buyer would also be interested in the configuration of seating arrangement – how many people can see the platform? How many people can see the screen on which some audio-visual presentation may be projected? Information regarding secretarial services. facts and figures in its communication. In fact. A third method is to undertake advertising expenditure if the current value of the extra revenue generated will be greater than the cost of advertising. what are the requirements of potential customers and what are the answers to the requirements of the potential customer. The advertising message thus becomes a connecting link with the advertiser. sound amplifiers. Very few companies can arrive at a sound investment decision approach of this 36 . to know the requirements of potential hotel customers. This is a very subjective approach and ignores the problem that advertising may be needed most when the business can least afford it. slide projector. Advertising Decisions: In the process of advertising. The conference buyer is also interested in getting information about the rest of the hotel or hotel organisation. whether conference can be held during a particular time of the year or throughout the year. The most important is – how much to spend? A common method is to allocate a percentage of the sales revenue. what your hotel product is. overhead projector. The conference buyer. How high your conference halls are? Whether the ceiling is flexible? It is important because if the ceiling is low and the conference buyer wants to have audio-visual presentation that may not be possible. for advertising expenditure. for example. the hotel or the hotel organisation (or the advertising agency on behalf of the hotel or hotel organisation) has the background to create messages that will interpret the want-satisfying qualities of the product in terms of consumer wants. simultaneous interpretation.Sectoral Applications-I Determining and Creating Specific Advertising Message With a penetrating knowledge of the consumer’s wants and the product’s qualities. So when a hotelier communicates with the conference buyer through the news media (like press release. either past or anticipated. needs certain specific information of particular interest and importance to him. with want-satisfying products or services and the potential hotel customer with wants to be satisfied. it may be essential to advertise heavily when sales revenue is low or in a situation of decreasing demand.) there is a need to differentiate between the communication approach. details of technical equipments. Therefore. microphones.

Consumer promotions are schemes to persuade the consumer. The fifth method is to develop an advertising budget to achieve a certain set of objectives or tasks. individual units will aim to spend as much on advertising as their competitors do. i.e. to buy a particular hotel product or service.. The term “travel trade” has been used in its generic form-to refer to all the available distribution channels or outlets to the hotel industry.e. Consumer promotions should be understood as the first definition of sales promotion schemes which are defined in terms of time and are finite. There are two ways in which one can examine sales promotion. posters.. First. the customer himself or his influencing agent.e. room sales or food and beverage sales. schemes which can be defined in terms of time. the specific part of the business which stands to benefit. resulting in an increase in the industry’s costs without any corresponding benefit. direct mail or handouts and beam the correct advertising message to the appropriate audience. show cards.... can be clearly identified to inform by answering the following four questions. A fourth method is to achieve competitive parity. and second. national or international customer? Lastly. radio/TV or cinema. as part of the promotion element in the marketing mix. consumer promotions. People who would normally not visit the hill station in winter will do so when presented with such an opportunity. therefore. schemes which are intended to induce or persuade the travel trade to sell more of the hotel product or hotel service and for this purpose a variety of incentives are given. For instance. has to be clearly identified and a promotion drive which will bring about the desired increase of sales must be launched. help keep in perspective the view that one can’t obviously display the actual hotel product or service at the point of sale and so one has to depend on the descriptions and representations of the actual product. i. whether a general increase in occupancy or food and beverage sales is expected. etc. First. alternatively if off-season facilities are to be utilised to be best advantage? If the advertising decision is based on the fifth method. local. or is it to consolidate or reinforce the existing customer-acceptance of the hotel? Second. i. a hill station hotel which normally has almost empty rooms during winter or offseason may promote its accommodation and other facilities when a famous winter sports festival is to be held in that area or a national or international conference is to take place or any other special convention or workshop where participating delegates also need relaxation. Trade promotions are. in a situation where hotel units have agreed against using price competition. display units. the potential hotel guest or the user of hotel services. is the advertising to reach habitual or impulse buyers. 2) Sales Promotion Sales promotion is aimed at generating immediate response in terms of a buying decision.e.kind towards advertising expenditure. It is in this method that the role of advertising. Tourism and Hospitality Services 37 . and displays. is the information to be conveyed through advertising general in nature or for promoting a special facility or service? Third. The third group of activities which include product display and related point-ofsale material. what will be the overall effect of advertising or revenues-in particular. Irrespective of these distinctions one can clearly identify three groups of activities under sales promotion: trade promotions. as an ongoing permanent activity/function. i. it is possible to select appropriate media – newspapers or magazines. existing or new customers. is advertising used to inform or persuade the customer. Trade promotions are schemes which are generally intended to induce or persuade the travel trade or the distribution channel to generate more demand. For a hotel which wishes to cash in on sales promotion. at a particular point of time.

. etc. free use of hotel recreation facilities. “X” sum of money off next booking if done within a certain period of time.Sectoral Applications-I Forms of Travel and Tourism Consumer and Trade Promotion Schemes: Hotel promotion. free excursions and sightseeing tours. airlines. Special package deals. as such. off-peak discounts: discounts for specific departure/hotel stay dates or times.g.6: Forms of Travel and Tourism Consumer and Trade Promotion Schemes Type of Promotions 1. Price-off Promotions Example Special terms for specific clients at specific time. tour operators or allied sectors. e. Cooperative Advertising 38 ..g. Trade Incentives/Discounts 8. Table 12. transport operators.. Acceptance of payment by credit card. The examples prove that most promotions of the hotel product are cooperative and the industry is dependent on the cooperation of other sectors. etc. e.. 2. discounts for petrol. Premium Offers 3. they depend upon one or more of the other sector(s) of the travel and tourism industry. bonuses. bad weather. override commissions. or other articles. as individual schemes. travel agents. etc. children free if accompanied by parents. Some schemes can be set up and operated by a hotel but a great deal of promotional schemes available to the hotel industry are dependent on the cooperation of other sectors of tourism and travel industry. tours failures. Credit Schemes 10. Money-back guarantees in case of cancellation of flights. e. usually products of the destination country concerned. The other reason is to enlarge the awareness of the opportunities available to the different sectors in the industry.g. Prizes awarded to travel trade winning special contests. more often than not are cooperative schemes. Pay later schemes”. The list is neither exhaustive nor are the examples given for each type of promotion listed. meant to be exhaustive. Purchase of tours on installment payment basis. e. etc.e. family plans.g. Guarantees 9. special introductory prices. e.g. normally extended by travel trade organisations with bank affiliations– “Travel now. 5. Couponing 4. Contests (consumer) Contests (trade) 6. Loyalty Schemes 7. Prizes awarded to consumers winning special contests. e. three weeks stay for the price of two. etc. quantity or volume discounts. i. namely. Offered to retailers/wholesalers for achieving specified sales volumes. discounts at shopping centres.6 different types of sales promotion methods have been listed. “Give away” to loyal customers. free holidays/stays. Coupons entitling the holder to special terms. In Table 12. Allowance or financial assistance given to a tour operator or travel retailer advertising specified hotel/product...g. These are some of the schemes available to the hotel as well as to the hotel industry. free holdings/stays.. etc.

. Honeymooners Return Trip 16.. hotels offer the first drink free as part of sales promotional efforts because after one drink the guest may well ask for more and thus give additional business to the hotel.. one can get good business.. a quiet weekend. Free display material and other selling aids offered to retailer/wholesaler as a part of the special campaign...................... If there is no sunshine the money paid is returned to the guest............. Some of the hotels give free tickets to their guest for sound and light shows conducted in their hotels...... etc....... namely.. Consumer Contests Activity 4 Identify how important it is for a hotel located at a Hill Station to use “Promotions” during off-season... 39 .. ... because business people go home............................... Free Ticket for Sound-n-Light Show 18.............. during these days.. Some of the beach resort hotels whose business depends on sunshine can give such type of guarantees to their guests during the off-season......... Welcome-cocktail 15................................. Travel sales promotional efforts help in developing good relations with the travel trade and may help in getting favourable publicity. And one can contact them either personally or through direct mailing............................... training seminars and briefings for sales personnel............. Sun-n-shine Guarantees 19... ................ because anything extra that one gets is really worthwhile...... ....... etc........ The hotel or hotel organisation can contact the people to organise fairs.... Training Schemes Free familiarisation tours for travel agents/ tour operators..... Some hotels give special coupons to honeymooners to come and celebrate their first or subsequent wedding anniversary.......... There is a particular pattern in all the commercial hotels around the world... How a hotel should go about for generating additional business. exhibitions.11.......... This promotional effort helps in developing and cementing good guest relations........... cultural sessions... Quiet Weekend 14................................... organise contests for joint promotion.. It also ensures permanent customer and future business......... This gives an aura and finesse to the hotel............... fashion shows..... Discount for Agents and Airlines’ Crew 17. Some hotels in collaboration with consumer goods organisations... To generate more demand for “Food and Beverage”.......... Tourism and Hospitality Services 12.......................... Also identify the possible sales promotion schemes it can offer.. If the hotel has some credible system of good weather forecast.... Merchandising Support 13................

public relations must be distinguished in terms of a ‘variety of public’ – guests. It is needless to say that a well researched and effective public relations mechanism will pay handsome dividends in the long run. This aspect of public relations is described as media relations or press relations. This factor dictates a need for good community relations. government agencies. media professionals. an important aspect to which a great deal of public relations activity. aims to supplement the total communications/promotional effort by helping to create and enhance a favourable image of the hotel or the hotel organisation. there is a need for community relations. The question of community relations is very important for certain hotels that are located in fairly remote areas of the country. or they want to reach some other group through the media. and by counteracting any adverse influence that may exist from time to time. and employees – which are of interest to the hotel as a unit or the organisation and therefore strategies should be evolved to exercise healthy relations with all such publics. have to be maintained whether they are city authorities. an industry which depends on the personalised and qualitative aspects of the product. must be directed. Also to those which cater to foreign tourists where there is a very sharp distinction in lifestyles and in the spending pattern of the community within which the hotel operates. This is probably the most important area of the total public relations of a hotel organisation and indeed any organisation in the tourism industry. high sense of motivation. state government or central government. as also by creating a proper goodwill for the hotel or hotel organisation. Community Relations: There is also the community within which the hotel operates. it is luxury) it is possible that the community may resent it. one’s effort to create consumer satisfaction may very well be 40 . unless one can generate the fullest enthusiasm. Employee Relations/Labour Relations: And finally. When it comes to operational levels. but for the people who live in and around that area where the hotel is being built. also because they influence public opinion. if a luxury resort is created (it may not be luxury from an industrial and technical point of view. In an underdeveloped area of the country. Media Relations: Hotels also deal with the media. This is important from the point of view of a hotel and therefore. on the part of a hotel. Relations with Government Agencies: These are the authorities with whom the best of relations. an industry in which a large proportion of the labour force comes into direct contact with the customers. community. in other words. and pride in the organisation. They all have a bearing on the operation of the hotel or hotel organisation. Employees relations or labour relations is very important because the hotel industry is a service industry. as a marketing communication function.Sectoral Applications-I 3) Public Relations Public relations can never be some kind of special sugar that can be sprinkled or coated on a sour or difficult situation to make it taste sweet or comparatively functionally easy. Hence. at various levels. At all times. Hotels need mass media either for their own sake because they are opinion leader. remain genuine and don’t attempt to oversell. local. with the press and with electronic media. with the mass media. Public relations ought to be a sustained ongoing affair and it should be harmoniously integrated into the total promotional effort. highest loyalty. is the group of employees of a hotel. Public relations. Guest Relations: There is an obvious public or group which is the customer and this form of public relations is termed guest relations.

environmental and social impact on the country. Newspapers present news of public interest to the readers. a constant and in-depth attempt is made. There can be a wide variation in the objectives of PR from one organisation to another. Training of employees to provide prompt. sales promotion and personal sales to create consistent. courteous. advertising appeal. Some of the public relations activities all of which may not be applicable in case of a hotel are as follows: Listening to the public to determine their attitude about the organisation and its policies. reacting. the type of target market segment. however. direct mail material. sales promotion. correcting the causes of the complaint or any irritants and making need based adjustments in the policies. Satisfying hotel customers or removing guest dissatisfaction through prompt handling of complaints. This occurs because every enterprise has an important and even direct bearing on the social. publicity is not a marketing function like marketing research. etc. adjusting. hotels and other business for news. Establishing open communications with other organisations. economic and sometimes political life of the community. honest and persuasive messages for all of the hotel or hotel organisation’s publics. Working with the personnel in advertising (can be the advertising agency). personnel and practices. products. depending on factors such as the size of the organisation and community within which it operates. 4) Publicity Another aspect of marketing communication is publicity which is the promotion not necessarily created by the organisation and usually generated by the media. The nature of the relationship between an organisation and public varies. Thus. pleasant. public relations. the product. local community. product planning. these can help to a great extent in promoting the hotel package of product and service. or total advertising campaigns. Assisting the managers and employees of the various departments of the hotel in improving their own communication and public relations efforts so that their is an air of efficiency. distribution system. sales letters. If. advertising. News media in every community do look upon industries. These are only few samples of the kind of objectives public relations personnel have established in a hotel or a hotel organisation. etc. tour operators and community leaders on matters relating to the organisation and its economic. Tourism and Hospitality Services 41 . and individual consumers.frustrated. Establishing a customer or travel trade correspondence function to answer enquiries about any matters regarding the hotel or hotel organisation. on phone or through correspondence. Conveying to society that the organisation is listening. effective. etc. Publicity is rather an objective of public relations as through good public relations one tries to get publicity and generate publicity. which are the marketing activities/techniques. So another area to exercise good public relations is employee relations. Some of these objectives may appear to be quite broad in their content and scope for operational purposes. programmes. types of services or faculties offered. accurate and friendly service to anyone who contacts the hotel organisation personally. and progressing in its attempts to promote optimum satisfaction to its diverse publics.. travel agents. government agencies. practices or products (as a package of services) of the hotel organisation. Getting feedback and creating/developing promotional material.

etc. It is being said that in hotel organisations the room to employee ratio is 1:2. a 100 room hotel may have about . an AMC provider goes to the customer to service the computer hardware. credit card.). Internal marketing and management of employees are also important in hospitality sector. The servicescape relates to the setting in which the service is delivered. we can identify how these servicescape elements and physical evidences are relevant in the hospitality industry Table 12. A willingness to share the news with the media will help a great deal in handling those situations where wrong published new would affect the hotel or hotel organisation. or even an unfavourable report that will adversely affect the image and the business of the hotel.8 EXTENDED MARKETING MIX FOR HOTELS The conceptual framework of the extended marketing mix. Like. restaurant. we go to a hotel. Let us see how these concepts are applicable in the hospitality sector. 12. First are those service organisations where customer goes. as applicable to services has been discussed in Unit 7. Hence newsworthy information should be made available to the press. (You may be aware that services can be classified into three broad categories. An indifferent attitude may unfortunately result in damaging coverage through an article. In the service organisations both internal marketing and selection of the right target customers are important. The first element of the extended marketing mix for services is physical evidence which includes servicescape as well as other tangibles. health club.Sectoral Applications-I Bad publicity is mostly the result of lack of information and often an indifferent attitude towards the press. bank.7: Servicescape and Other Tangibles in a Hotel Servicescape Facility exterior Exterior design Signage Hotel gate area Landscape Parking Surrounding environment Facility interior Interior design and equipments Lobby and other waiting areas Interior of rooms Room size Types of specialty Restaurants Pool area Layout of the various facilities Air quality/temperature Other Tangibles Business cards Stationery Billing statements Reports Employee dress Uniforms Brochures Internet/Web page 42 The second element of the extended marketing mix is people. Tangibles are those objects and physical clues which might represent the service. etc. review or appraisal of a situation or condition. The third type of service organisation are those in which neither the customer goes nor the organisation and both transact from the distance. For example. From Table 12. It is in the interest of the organisation to supply this information because it shows a willingness to cooperate. hospital. For example dress code of staff.7. This means. insurance services etc. like a mobile phone service provider. Servicescape issues are particularly significant in all services where “customer goes”. The second is those service organisations which go the customer.

............. Some hotels provide electric cattle................................................................................................. small and ordinary properties which are able to compete very well in the market place only on the efficiency in service delivery and high quality............. airlines getting into hotel and travel trade.............. .......................... etc.... It is likely that the service may suffer if this ratio is not maintained........ Similarly other areas are being identified for reducing the man-power costs while maintaining the quality of services............. . Integration of information technology is one such method....... In group marketing....................................... tea bags.... most hotel guests expect bed-tea and. room service staff requirements are very high...... For example....... on the other hand.. In ‘group marketing’..... ........ There can’t be any compromise on such issues and we have seen that in some of the excellent properties (hotels)................ Further.. .... ..... and they find that their costs are much less than hiring people to deliver bed-tea.... this cooperation can be extended to referrals and recommendations also. The rationale behind getting together is naturally ‘gain’.................. . Tourism and Hospitality Services 12..... one should be at the higher end and the other on the lower.............. the marketing of the hotel product has become a problem for the smaller hotel operators..................9 MARKETING CONSORTIUM OR COOPERATIVES There is need for cooperation among the small and medium independent hotel operators due to increase in the pressure put on them by chains and also by the travel and tourism industry as a whole – like................................................. On the other hand.......200 employees................ if hotels join together they can afford to send their sales representative to the travel agents to sell their hotels abroad........... 43 ................. sugar and milk powder in the room itself........... So............. the basis of cooperation is similarity in standards – the standards may be according to ‘Star’ categorisation............... A small operator operating a small hotel independently in a town cannot really afford to spend even on the minimum promotional effort that is required of a hotel (assuming that particular hotel is not in a monopoly situation)............................. Activity 5 a) Compare the servicescape and tangibles of two hotels in your city....................... The third element of extended marketing mix is the service delivery process. therefore............................................. similarity of attractions................... one way is for hotels to cooperate throughout the country thus offering a total India to a budget tourist or group of tourists........................... Some hotels have identified alternate options to reduce the labour cost.. b) Also study the relative importance of those aspects in marketing hospitality services............. similarity of services.. The solution to this problem perhaps lies in cooperative marketing efforts which could be either ‘group marketing’ or ‘area marketing’............................................... etc............... they do not attract many customers because of poor service delivery..................... tour operators getting integrated......

which is the product the hotel offers to the customers it wishes to serve on terms that are both acceptable to the customers and economically viable for the hotel. a resort. It is. the marketer can also vary the quantum and proportion of the elements of the marketing mix to achieve appropriate marketing goals and sales targets. public relations and publicity are not at cross-purposes. The unit began with an understanding of various elements of international tourism industry and the factors governing demand and supply. irrespective of the difference in standards or quality of the hotels. Describe the main participants in the international tourism process and discuss the factors responsible for growth of tourism industry. especially in these days of competition. Recall your experiences of staying in a particular hotel more than once. Area marketing could be a ‘cooperative’ of independent hotels in an area or destination – all hotels of the area get together and attempt to promote the market or the area together. unless the trends of such sales and connected transactions are monitored carefully over a period of time. Do you think that the concept of marketing mix is applicable to the hotel industry? If yes. A hotel where the product is already designed and fixed. What is a hotel product? Identify the support and facilitating services for a business hotel in a metropolitan city. sales promotion. how? 4. difficult to assess a marketing communication programme in terms of sales and revenue of t he operating departments. Explain the distribution strategy you would follow for a budget hotel located at a popular hill resort. distribution and marketing communication. Some of the key decisions relating to hotel marketing are: the products. In the ultimate analysis. it is marketing communication which is the most significant component of the marketing activity.10 SUMMARY Tourism and Hospitality is one of the major industries today.11 SELF-ASSESSMENT QUESTIONS 1. it is necessary to undertake an interrelated approach so that messages conveyed through personal selling. 5. These may tend to confuse rather than clarify the single important communication of the hotel. which could be a location. This unit explains you the various marketing aspects related to tourism and hotels. You were also explained the major tourist segments and their main marketing characteristics. The effort is to attract tourists to a particular destination. therefore. advertising. affect your satisfaction levels? Would you recommend some practical tips for standardisation? Also identify the marketing communication mix of the above hotel and recommend improvements in it. 12. Although the various marketing communication activities are undertaken separately. the marketing communication effort generates a conviction and confidence whether the hotel is worth patronising or not.Sectoral Applications-I The other form of cooperation for hotel marketing is called ‘area marketing’. each time you visited. one cannot change the prices quite often and the distribution is limited to a few selected outlets. 44 . 3. 12. a city. the price or tariffs. a state or a country. Just as the chef prepares varied and tasty dishes with the same basic ingredients. Subsequently marketing issues related to hotels have been discussed. Did the “Heterogeneity of Service”. 2.

Sept-Oct.J.12 REFERENCES AND FURTHER READINGS Apte. Ravi Shanker. Bukart. pp. 1975. Tourism and Hospitality Services 45 . Indian Journal of Marketing. 1985. Vol. “Tourism – Past.12. “Marketing Orientation in the Hotel and Catering Industry”. 1990. No. “Service Marketing”. Medilik. 1989. 2004. Hienemann London. XX. May-August. Asian Panorama. A. Present and Future”. Press. 2. Ravi Shanker. 17-23. Kotas. 28-33. (ed). R. Oxford University Press. G. 9-12. “Communication for Confidence”. pp. “Sales Promotion in Hotel Industry”. Surrey Univ. and S.

4 13.8 13.2 13. Setting up of Corporate Hospitals. Need to attract limited available specialists. the ‘marketing’ aspect in Indian Healthcare market is given a low level of importance.Sectoral Applications-I UNIT 13 HEATH SERVICES Objectives After going through this unit you should be able to: describe the types and segments of health services in Indian market. In India. the facilities available. importance of healthcare and hazards of ignoring these aspects. understand the strategic considerations in implementing the pricing policy. where medical care infrastructure is inadequate compared to the requirements.3 13. The demand far outstrips the supply. More consumer awareness. Some of the organisations which have started giving a thought to marketing are also more limited to ‘sales’ aspect or ‘image building’ exercise and not to total marketing approach.1 13. The major reasons necessitating a shift towards marketing approach in India are: In certain market segments. competition is becoming more intense. Structure 13. explain the concept underlying pricing of health services. and understand the role of marketing communication for health care services.7 13. though not as much as in developed countries (where demand/supply conditions and purchasing powers are totally different from ours).9 13. An educated citizen would mean better utilization of available facilities as well as prevention of many diseases. there will be changes in the near future towards acceptance of marketing activities as an essential part of health care organisations. proper attention has be to given to educate people about the nature of illnesses.1 INTRODUCTION The Indian Health Care Market is more of seller’s market.5 13.10 Introduction Types of Health Services Pricing of Health Services Implementing the Pricing Policy: Strategic Considerations Service Quality in Health Care Marketing Communication for Health Care Services Case Study Summary Self Assessment Questions Further Readings 13. As in case with any other product or industry in a seller’s market. Increasing purchasing power. explain the service quality issues in health services. thereby easing pressure on the scarce resources. 46 . However.6 13.

rural hospitals and dispensaries in rural areas. which were so far available in western countries only. Apollo Hospitals. During the last couple of decades a lot of private nursing homes. this is required in situations of dire necessity like accidents. 47 .1983 has the distinction of being the first corporate hospital in the country.2 TYPES OF HEALTH SERVICES The type of health services available in India can be broadly categorised into two : a) Government owned b) Privately owned / commercial The Government (both Central and State) has a network of institutions at primary. medical college hospitals and specialised hospitals. primary health centers. These include sub-centers. secondary. a Rs. The sheer variety of available price levels for similar services among different providers of medical and health services is indicative of the differential practices that are being used to arrive at the ultimate price for various services. These include ‘Life Stage Treatments’ (associated with events which people typically plan for at some stage in their life like permanent birth control procedures.). teeth removal in old age etc) and ‘Life Style Treatments’ (associated with activities that people undertake to improve their ‘Self’. cosmetic surgeries. The scheme provides both medical benefits as well as cash benefit like sickness benefits. 3) Elective Treatment: This is a medical procedure that a patient chooses to undertake on his or her own initiative. weight reducing treatments. most the these recent developments are again mainly targeted at middle and high income groups.24 crore public limited venture opened at Chennai on September 18. One important government health care scheme is the Employee State Insurance scheme designed for industrial workers. The scheme is mainly financed by contributions from employers and employees in the implemented areas.13. and tertiary levels. diagnostic centres and specialty hospitals have come up in urban areas. boost their image e. Raju and Joshi have classified the health care needs in India into three main categories: 1) Emergency Care: As the name suggests. sub-divisional and divisional hospitals . 10. However. 2) Routine Care: This refer to periodic patient visits to the medial professional involving checkups and for ailments where meeting a doctor is essential but an immediate meeting is not critical. Since large investments are required for setting up of such hospitals.3 PRICING OF HEALTH SERVICES Pricing is one of the most important decisions that you as a provider of health services will have to take. with their major market being middle and high income group people.g. Health Services 13. community health centers. These are the situations when the survival of the patient is in question. hair implantation etc. it was beyond the scope of an individual and the most viable alternatives was to have corporate hospitals. maternity benefits etc. disablement benefit. Life Style Treatment segment is likely to grow in India at a fast rate. The healthcare market has also witnessed the emergence of ‘Corporate Hospitals’ in India. This has resulted in some competition and better availability of advanced technologies/super specialties. fire. stroke etc. Medical care is now emerging as a big industry in the private sector.

. To recapitulate the three basic variables that are fundamental to any pricing decision are: how does my consumer define value for a given service..... Activity 1 Identify any basic hospital service like an X-ray analysis. ....................... the role of prices in indicating quality of services and the issue of non-monetary costs.......... what are my costs in providing that service.... but for the presence of a third variable........... depends on three basic fundamentals......... all costs must be recovered if the organisation is to earn profits................... or a 48 ..... simply because at that price level............. For example.............................. the competition.............. ask adult people around you a few questions about health services and their prices....... The prices that your competitors charge for a similar service will limit your freedom of setting prices between the two limits provided by the costs and the consumer’s concepts of value. There may be several other providers with similar or better services....Sectoral Applications-I The pricing strategy for any given serivce............... The costs represent the monetary value of everything that the organisation has to utilize in order to create and offer the service for the patients......................... In the short run or the long run.. you should be able to have an appreciation of what role does price play in the customers’ decisions to avail a given medical service or health plan..... These are costs..... in which pricing for hospital/clinical/medical services differ from pricing for goods are the issue of customer’s knowledge of prices............................ .......... how does my competitor price the same service... The three basic ways............. On the other hand...... Do you find any price variatins? What in your view are the reasons for these variations? ....... you cannot set the price... Between these two limits service organisations may have the freedom to charge whatever prices they determine...... Consumer’s perception of value of a given service would thus set the upper limit beyond which prices cannot be set....... exchanges (or purchse of service) will not take place.... Why is Pricing for Medical/Hospital Services Different from Pricing for Goods In order to realistically set your prices.. Costs thus represent the lowest limit below which in the long run... To take a simple exercise............ medical services included... The prices being charged by the competition would thus determine the actual level at which prices for a given treatment or service may finally be set in between these two limits.......... therefore........... You are not the only provider of health services in the market...... a complete health check examination or a medical consultation for suspected typhoid in three medical establishments in your city.................... what is the price for a medical checkup in your city? What is the price for a service like a root canal operation.. have a clear idea about how their prospective client population perceive prices and price changes of various medical services offered by them..... prices cannot be set.......... Health providers must.... value and competition.... beyond the value that your customers assign to the service............... a) Prices of Hospital Services and Customer Knowledge: How important is price to the customer when he/she tries to select a particular hospital/ practitioner for a particular treatment? Do customers have any idea at all about the costs associated with such services? Do customers really have clear awareness about the exact prices they would be required to pay for a given treatment before they decide to avail of a given treatment? Let us briefly look at these issues and their implication for pricing of health services...........

prices of health services are not really displayed except for routine services and consultation charges. because unlike retail outlets displaying prices on their merchandise. not strictly comparable. smelling. Hospitals. If a prospective customer wanted to have comparative assessments of prices for a Ceaserian section. Very few prospective patients have a clear reference price for the range of health services provided by hospitals and clinics. The first implication is that consumer uncertainty can be reduced by finding some ways of communicating prices at least for all routine services. customers tend to use prices as indicators of service quality. Prices are. such pre-purchase assessment is difficult. The second implication is that while the customer may not ‘know’ the final price until after he has been in the service transaction for sometime for his initial treatment. associated services provided). the level of services may vary (single vs. patient particulars may vary and necessitate price variation (complexities. she/he would find that the type of package varies (length of stay. Health services are intangible. therefore. double room. It is also comparatively difficult to gather accurate pricing information of all comparable hospitals. medical condition). at the very outset know what a given treatment would ultimately involve. In case of goods. It must now be clear to you that prospective customers often possess inaccurate information about prices of health services. prices become an important criterion for repurchase of the service as the customers’ knowledge of the service costs has now become more accurate.simple tooth extraction? What is the price one is likely to pay for a bone setting process after a fracture and so on. The price point in our memory for a product or service is called the ‘reference price’ for that product or service. b) Prices and Quality of Health Services: One of the interesting things about service prices is that because other cues to quality of service are seldom available. consumers use physical evidence and price as Health Services 49 . Research shows that in case of most services.) Few hospitals would offer exactly the same features or package of services. because other tangible indications to assess quality are not available. In case of health services. general medical condition. age. final prices. customer’s individuals needs also result in different prices being charged. resulting in complex pricing structures. may also be a function of individual needs of different patients. may often determine the course of action that would need to be taken for a given patient. age related health complications etc. creating of price visibility is an issue that many hospitals consider seriously. The problem becomes compounded on account of the fact that in quite a few cases medical providers may be unable to give an accurate price figure in advance as they may not. are able to create a number of permutations and combinations of a given treatment package. and can be offered in a variety of configurations with variation in accompanying services. Previous history. You will find that few people will be able to answer accurately on the basis of their memory alone. the tangible nature of the product and the possibility of physical examination by touching. therefore. Let us examine some of the reasons for this phenomenon. patient to nurse ratio etc. feeling enables a customer to have an assessment of the quality of the product before he buys it. because clear ideas about such prices are not available. The implication of the fact for your pricing strategy are important. In case of services which are intangible. therefore.

........ must be aware of not only the monetary costs like cost of time.. These costs include time costs....... Discuss with them their reason for selecting the hospital they chose................ Prices for medical services.... specially the costlier ones like a by pass surgery require the customers to go through a lot of information search to identify the best possible alternative offers are comparable... one variable may include apart from the prices.... Some health services.......... .. why inspite of high price. 50 .. fear of undesirable consequences like pain........................ Wherever pre-purchase assessment of quality is not easily assessable high prices in the consumer mind get associated with high perceived quality................ Providers of health services..... Health services require direct participation of the patient and thus require him to spend both waiting time and interaction time with the hospital subsystems – registration.............. If there are alternatives which are comparable on other variables mentioned earlier. How does their answer reflect the concepts studied above? .......... fear of uncertainty..................... ............ specific tests and of course the doctors.. therefore.... disability or loss of control are very important in the customer’s decision to avail or postpone a given medical transaction........... therefore..... c) Costs other than the Monetary Cost: There is an increasing realisation on part of service providers that apart from the monetary cost... such costs are sometimes considerable and also have to be borne by the customer.. was their choice made in favour of this hospital... Sometimes these costs affect consumer valuation and affect his choice of alternative service offers... location etc. where evaluation of service quality even after experiencing a given service (for example a by pass surgery) is difficult to make.. or are overcrowded customers may have to bear these costs..... prices must be set to convey an appropriate and desired quality image....... one of the most potent costs are the psychic costs – not understanding the service................. customer may like to avoid the sensory costs.....Sectoral Applications-I surrogate indicators of service quality..... Sensory costs are the other class of costs that may make a difference........ Time spent in availing a given service represents a specific cost to the customer....... In such situation consumers depend on prices as a cue to quality........... the expertise of the doctors.... cost of search...... Unpleasant sounds............. must be determined keeping in mind the fact that price and quality for such services are positively associated............... try to find out. even if they have to pay a little higher........ From the former... facilities offered. crowds are some of the sensations that most people are uncomfortable with........... In hospitals that are located in crowded or squalid neighbourhoods. Medical services are among the services which are high on credence qualities........... For health services..... customers have to bear several non monetary costs also while availaing a given service.......................... For any given appointment his time spent may comprise both waiting time and time with the doctor........ Activity 2 Talk to two patients of a premium private clinic/hospital in your town and to two patients from the Government hospital.......................... search costs and psychic costs........ noise. In addition to cost coverage and/or meeting the competition.. sensory and psyche costs because there costs offset consumer valuation significantly and should this be an input in pricing consideration............

heavy discounting may actually interfere with the valuation of the service in the eyes of the high paying customers. ii) On What Basis should Prices be Charged: As a complete service provider. dental fillings etc.g. yet for frequently availed routine services like medical checkups. demand and competition and the considerations of your own objectives in arriving at a pricing figure. While for a lot of health services. Lovclock has clearly focussed on these issues in terms of key questions that must be addressed while determining the pricing strategies. Hospital administrators on the other hand and sometimes customer as well may actually welcome the convenience of round price figures. 500. 490. Discounting over time. ultrasounds. there are certain issues which demand decision before you can implement and administer a pricing strategy. While offering specific price discounts to attract a given segment may create marketing opportunities in new segments. where understanding the customer reluctances to stay in a hospital over weekends some hospitals offset the dip in weekend utilisation of operating and post-operating services by offering substantial discount on operations during the weekend.4 IMPLEMENTING THE PRICING POLICY: STRATEGIC CONSIDERATIONS In addition to variables like costs. Price discounts should be carefully used. For the market/markets that you cater to. whether it has decided to allocate a share of the fixed costs across all priced services and is seeking to get them also covered? Is there a way in which costs of fixed goods such as land and building can be spread over all services or over a period of few years? Should the hospital have a basic package of core services priced at a certain level and then keep on adding to the price depending upon the combination of value added services availed along with the core service? Answers to these questions would depend upon the choices you make and will thus determine the actual figure you want to finalise as the price for a given service. wide price differential may make customers go to alternative providers unless they are supported by superior value through accompanying services. it gives the consumer the feeling of paying “somewhere around 400” rather than almost 500. you will need to identify the basis on which prices would be charged Health Services 51 . however. however is prevalent in the health sector. a sonography costing Rs. because of their necessity and expediency nature. The health service provider. The following discussion highlights these issues and the underlying decision that must be made in order to be able to define and implement your pricing strategy. All discounts affect the overall total revenue to the organisations and reduce the contribution margin from each transaction.95 as opposed to Rs. i) How Much to Charge: The issue of costs is important for the pricing decision. would need to decide upon the relevant costs that must be considered while arriving at the pricing decision.13. Since people rarely carry an absolute figure in their mind as the price for a given service this perception of the price as “somewhere around 400” is likely to give a substantial competitive pricing edge to your prices if odd pricing or psychological pricing is used. you would also need to assess the prospective customers’ sensitivity to prices. Advocates of psychological pricing suggest that when prices of services are in term of an odd figure e. Is the hospital trying to cover only the variable costs or all the costs. customer do not display high levels of price sensitivity.

the hospital must at a policy level decide how the prices are to be communicated to the customers. v) How should Prices be Communicated: Once the decision on how much a charge and how the payments are taken. very often in the beginning of the treatment. in services like health. even though the policy is to quote a package price to the customer. Policies allowing cheque payments for government employees may allow greater willingness for patients to choose one particular hospital over another. expensive resources may need to be appointed and scheduled in advance of the acutal treatment. fee could be charged for admission (or registration) and then on a time basis (duration of stay on a per day basis in the hospital) or on the basis of resources consumed (additional nurses hired for round the clock care). prudent to ask for an initial deposit and then identify the billing inputs as they accrue. Value can be enhanced by increasing the benefits that you give to your customers or by rendering costs. as a provider of health services you may follow two alternative strategies or follow a combination of both. Not only do customers need to have some information on prices in advance. Most prevalent in case of medical care is the practice of asking the customer for an initial advance deposit. with the balance being billed later as the treatment progresses or is completed. In addition. All these are example of facilitation provided especially if the payments are large. advisable to institutionally decide. Looking at this concept of value. You would recognise that in your case. the greater is the value that the customer would perceive in a given service. It is. This practice makes sense because specialist services or time of specialists may need to be allocated or services brought in. It is however a good practice to have a price figure for each service element. Decision on how public should know pricing information needs to be institutionally taken and then clear unambiguous communication of prices needs to be managed. the complication that may arise. Increasingly consumers today are using their credit cards to make payments. therefore. the service provider is rarely ever completely sure as to what costs the treatment will actually entail. where customers simply give their card number and ask for their account be billed directly. Different establishments also vary in their practices as to whether they should bill each element of the treatment separately or charge a single ‘package price’ for the whole transaction. iii) Where should Payment be Made: You must clearly indicate the payment procedures in terms of whether the payments should be made and receipts collected at the reception counter or at the Accounts and Billing department if you have a separate section like that. To enhance this perception of value in a given price category. apart from the monetary costs. For example. they also need to have information on how and when would they be required to pay. On the side of costs. creating information acces to prices can enable customer to minimise some of the uncertainty in decision making. the additional services that may need to be provided. therefore. To define the term in the most comprehensive way we can say value to the customer is the sum total of all perceived benefits minus the sum of all the perceived costs. other costs like cost of time 52 .Sectoral Applications-I in your hospital. therefore. iv) Where and How should the Payment be Made: The two alternative options that service organisations use are asking the customers to pay in advance or to ask for payment once the treatment is completed. there could be actually more than one basis on which price could be charged. Since prices constitute an important input in the purchase of at least some of the medical services. It is. how much information on prices is to be communicated and how? Should rate lists for various services be on display or the rate cards be given to customers once they seek that information. it must be clear to you that the larger the gap between perceived total benefits and perceived total costs.

.. Assurance: Employees’ knowledge and courtesy and their ability to inspire trust and confidence (Example – reputation................. Gabbott and Hogg suggest that evaluation of the clinical aspect of the service is particularly complex for individual patients but the impact of it upon overall satisfaction is unquestionable i............. it is suggested that patients take this aspect of the service for granted and evaluate their service provision on the other aspects of service delivery..... aspects of care can’t compensate sufficiently to result in overall satisfaction...........5 SERVICE QUALITY IN HEALTH CARE As discussed in Unit 8..... prepare a note on what needs to be done further looking at the customers need for information on the one hand and the peculiar nature of the health service on the other hand...... the difference between perceived benefits and perceived costs... before arriving at a monetary price figure for your services....... That means. cost on account of stress and sensory costs like fear are very relevant. cost of effort (in terms of access to location)..... Responsiveness: Willingness to help customers and provide prompt service (example – no waiting............... waiting for an appointment)....... consider carefully the perceived benefits that are associated with your hospital services and the perceived costs that the customer has to bear........ consumer would tend to make the assessment of the technically complex cure dimensions on the basis of the more familiar ‘care’ experience. ..... Reliability: Ability to perform the promised service dependably and accurately (example – doctor keeps the appointment on schedule.................................... For example for consumer of health care services the primary expectation is related to the response to the illness–‘cure’..................... the technical outcome is dfficult to evaluate.............e............. You must.............e........................... What you must appreciate is that while comparing alternative providers of health services........ therefore................... the consumer judges the quality not only on the basis of what is being delivered but also how that outcome is delivered........ Activity 3 Based on your knowledge of practices regarding communication of prices by clinics/hospitals...... if the patient considers the medical response to have been inadequate..........(waiting in the reception. If the provider can manage to reduce some of these costs............ As health care services are rich in credence qualities and................ credentials and skills..... Health Services 13.............. However.. The process of achieving this end is characterized by the delivery of service experience – ‘care’.. Let us apply them to the health care services.......... rather than just the figure of monetary prices..... ......... he can alter the customers perception of value of his own service......... Gronroos suggested that the quality of service as it is perceived by consumer has two dimensions – a technical or outcome dimension and a functional or process related dimension.. 53 .. diagnosis prove to be accurate)............ customers use this perception of ‘net’ value i... .... Recollect the five dimensions of service quality developed by Parasuraman. given the difficulties in adequately evaluating “cure” and the investment that a patient has in believing in the doctor’s ability to treat illness. therefore....... Zeithaml and Berry as discussed in unit 8........ doctor’s willingness to listen)...

in the not-too distant past. not selecting the right service design and standards. Finally. Research is not inexpensive. Hospitals should develop and fund annual research activities’.e. In the early stages of relationship. Some providers have. Zeithaml and Bitner suggest that since health care services involve some amount of uncertainty/high risk. but it can be one of the hospital’s best values because. Hospital’s administrators reported that satisfaction surveys of both inpatients and outpatients are the most widely used research applications with more than 80% of the respondents reported usage of these two methods within the last year. Loubean and Jantzen (1998) conducted a survey of 230 hospital executives in USA to assess the kind of marketing research activities being conducted by hospitals. they are choosing to use marketing research to help them understand marketing problems and opportunities. For this health care providers should use research techniques to map out the consumer decision making process and the relative importance consumers assign to expertise and hospitality. therefore. inability or unwillingness to meet the standards i. To provide quality services. personnel and written materials (Example – waiting room. Visible evidence of degree. premium and luxury levels. assurance dimension would be of great importance to the consumers. equipment. However. Poor service quality can be caused by a number of factors. the consumer may use tangible evidence to assess the assurance dimensions. Tangibles: Appearance of physical facilities. The researchers go on to suggest that “hospitals seeking effective marketing strategies need to recognize that a broad array of marketing research information is available to them. health care organisations had little first hand familiarity with marketing research. The next logical step would be to understand service features that relate to consumer perceptions of expertise and hospitality. Of the surveyed respondents 48% performed a competitive analysis of other institution within the last year and 78% performed the analysis within the last three years. analyzing and interpreting data relevant to a specific situation or problem facing an institution). . an organisation should first learn about consumer expectations through market research. examination room. Even in the developed countries. it leads to better decision making. These include organisations’s lack of understanding of customers expectations. Activity 4 54 Talk to different consumers of health care services and determine the relative importance of the five service quality dimensions as perceived by them. (Marketing Research is the objective and systematic process of gathering. equipment. report cards). as well as assuring that the hospital would provide all the requisite services prior to and after the treatment. developed capabilities for providing differential levels of service at regular. Raju and Joshi suggest that the hospitality level offered by the healthcare provider is more important for life stage and life style treatments and goes a long way in making the patient feel safe and secure about undergoing a procedure.Sectoral Applications-I Empathy: Caring individualized attention given to customers (Example – acknowledging patient as a person. Also patients from different strata of society are starting to have differing expectations from hospitals about the level of service they should be provided while being treated. not delivering as per the service standards. patience). honours and awards and special certifications may give new customer confidence in a professional service provider. if done properly. as hospitals increasingly have adopted a marketing orientation. the provider should understand the cost implications of making changes in these features and their relative impact on consumer choice and revenues. not matching performance to premises. remembers previous problems.

...... the employees know what is going on and why. since in case of services... In fact it is one of the elements of marketing mix i..................... .. public relations and personal selling............. in this section we are going to focus on word of mouth communication.... especially services which involve 55 ..... then distorted rumours start circulating...” The activities involved in internal marketing income competing for the talent.. despite being well developed.... Similarly Benoy mentions that for service business such as health care that are labour intensive and demand high levels of personal contact between the service provider and the customer. if you create an environment in which they feel comfortable enough.. co-opt and manage employees at all levels of the organisation to continuously improve the way they serve external customers and each other................ knowledgeable enough... Employees. He further goes on to define internal marketing as “the application of marketing... Internal Marketing and Service Quality As you would have noticed earlier in the service marketing triangle (unit 1) that internal marketing plays a critical role in services marketing.....6 MARKETING COMMUNICATION FOR HEALTH CARE SERVICES Communication is an essential part of marketing. training employees.... When customers and visitors ask. mobilize.. However..e.......... The role of employees in a service organisation is very dramatically highlighted by Hal Rosenbluth..... “They tell me nothing!” If you don’t tell them... promotion....... Internal marketing can be viewed as the building of customer orientation among employees by training and motivating both customer-contact and support staff to work as a team..... in his book titled “The Customer Comes Second” wherein he argues that a company’s first focus should be on its employees. Few goods or services.. .............. are well motivated and want to do well....... empowerment.. no marketing plan can be considered complete unless it includes strategies for reaching and winning over its internal customers.................................... if they don’t know......... 1991) Health Services 13. of course......................... It enables the employees to keep the promises that have been made to customers... (Rabkin and Avakian. in general. “Only when people know what it feels like to be first in someone else’s eyes can they sincerely share that feeling with them”........ Therefore. techniques and principles to motivate........ human resources management and allied theories..... You will study more about some of these aspects in the section on Human Resources Mangement.... Further more... persuades and reminds potential buyers of a product to influence an opinion or elicit a response... owner of a chain of successful travel agencies.. Also internal marketing was discussed in detail in Unit 7.............................. measuring and rewarding quality....... that their capacity to contribute is enhanced by a responsive upper structure of the organisation. they will contribute – providing. about the business to feel that they own the business in a sense......... they feel excluded and not a true part of the hospital..... no one knows the job better than individual employees themselves................... knowing employee needs...... Worse yet.. priced and distributed can sustain the market place without effective promotion.......... Effective internal marketing responds to employee needs as it advances the organisation’s missions and goals....................... rather than answering... They feel they are the hospital................. Knowledge is empowering........... good internal communication....... Promotion can broadly be understood as “communication by marketers that informs. sales promotion......” The various elements of promotional mix are advertising....

............... A marketer. Word of mouth increases as the level of satisfaction increases.......o......Sectoral Applications-I some amount of uncertainty or risk (like health services).........................m......... and satisfaction which in turn.........g.......... To be effective. but is also persuades and lead to action. .. than they are to complain to their health care provider. therefore. Favourable w...... communication can’t overcome personal negative experience.... ..) communication becomes a critical part of health care marketing....... It may be defined as “Oral........m............ An emotionally positive experience with a health care provider increases w......... Word of mouth communication not only increases awareness and knowledge. mass media).... Health care providers... communication in health care marketing: i) Word of mouth is more effective than advertising..... communication.” Though not under the direct control of marketer.... Besty and Madeline have highlighted a number of issues regarding w.......... health care providers can increase the level of perceived quality and thereby reducing the perceived risk. So......................o........... ii) iii) iv) v) vi) Activity 5 Find out the information acquisition activities undertaken by consumers for selecting a health care provider..o.........m...... health care marketers should seek a mandate to provide emotional highs to the patients and prevent strong emotional negatives.. ....... raises the odds that w.g....... Clow suggests that by incorporating the five dimensions of service quality (discussed earlier in this unit) – assurance...... word of mouth (w. even if these goals involve serious trade-off. has an opportunity to enhance experience that leads to positive w... in the hope that a source of word of mouth communication is listening..o...........m.. health care 56 ... Consumers of medical care are more likely to engage in negative w. responsiveness and tangibles into their advertising..m.........................m.. a product or a service..... it can be a significant means of communication to the customer.................. therefore.. what results can be expected.....................o. will be positive. ..........o... must make a greater effort than marketers in other industries to make complaining easy and acceptable... A health care marketer might ask how favourable word of mouth can be prompted... Before moving further let us study a definition of w........................ consumers tend to rely more on information from personal sources (e.............. unfavourable word of mouth reduced – and since either effort will likely require marketing expenditures. empathy.. Therefore...... The effectiveness of word of mouth applies across the board in terms of the kinds of responses marketers traditionally seek..................... such as actually choosing the provider one has heard about.. Health care organisations should encourage its employees...m...o........................ they can still influence it.................. person-to-person communication between a receiver and communicator whom the receiver perceives as non commercial regarding a brand....... And in the health care field......................m................ their spouses to become involved in community and neighbourhood groups and to educate them on what to say when they get there........... friends) than from nonpersonal sources (e. the difference is even more striking than in other purchase categories......o.... Advertising Though advertising is not being used substantially by hospitals in India.... reliability...............

advertisements must contain one or more of these dimensions in the form of headlines. As compared to western countries. socio-economic. To prevent clutter and confusion. well-illustrated using Indian scenarios. And each person is a patient! So the task of a salesman for health services is unlimited. regular patient clinics in satellite towns to educate and inform and to encourage to get the comprehensive cardiac check-up done. This has necessitated each hospital to identify and develop any function or service which can provide a competitive edge. They need information. Patients need education. The following can be used effectively in this regard : patient educational folders and leaflets which are interesting to read and absorb. CCTV and video films to inform the educated people and promote the institute. The Health Care Industry in USA has become very competitive and it is becoming increasingly more competitive. 57 . Even the age of onset of coronary artery disease is much lower so that many Indians are getting heart attacks at as young an age as 30 to 40 years. Pictures and drawings can also be used. In India. the type of coronary artery disease in India differs in its patterns. ethnic factors. copy or captions. an advertisement should focus on only one or two clues. This need not be so. so that our own environment. dietary. Health Services 13. EHIRC was setup in 1988 at a cost of Rs. can be modified to reduce heart attacks in our country. an open heart operation inclusive of all hospital costs. The costs of surgery and investigations in India are a fraction of costs incurred for similar services abroad. the incidence of heart disease is rising at an alarming rate.. treatment and prevention of heart diseases in India. Heart disease is recognised as one of the world’s largest killers. to some extent. We in India. use of TV. It has been proved that adequate preventive measures and early detection is extremely successful in reducing the incidence of heart attacks. 20 crores and has undergone a major expansion recently . etc.7 CASE STUDY Marketing of Cardiac Care at Ehirc Escorts Heart Institute and Research Centre (EHIRC) is the first comprehensive research facility dedicated to the study. many health care providers are now recognizing the important role that the sales function can play as an integral part of the total marketing mix. etc. This is due to our culture and heritage. It has been truly a quantum leap in the cardiac care field of health care in India. with the added advantage of continued after-care as well as cardiac patient being in his or her own environment and among his or her relatives. examinations. angioplasty. for the three weeks would cost at least 6 to 8 times in USA as compared to the cost at the institute. an attendant’s fare. more can be used by cycling several advertisements. and will do. boarding etc. Since the research data generated in the West is not totally applicable to the causes and factors of heart disease in India. The costs of other services like angiography. are significantly lower than in any foreign country. As a result. This is what marketing can do. feel uncomfortable in selling hospital services. in-depth investigation on a national level is vital. To accomplish this goal. Today.

colleges. Patient oriented polices and procedures: A hospital exists so long as the patients keep on coming. mass contact programmes – arranging public lectures by medical super stars. otherwise it will result in stinking publicity. The postcards can contain simple messages to help the patients. Patient oriented hospital: It is not a simple task. In our country with so many festivals for Devis and Devtaas. It may be difficult but it will mean more sales of hospital services. one can never have satisfied patients. 5. a health provider has several ‘excuses’ to send a postcard to his patients. only patience and persistence pays. 2. but they love coming to a great hospital where they will be given the best possible attention. on his anniversary and so on. Sometime should be spent every day thinking from the patient’s point of view. Also a big hospital does not necessarily make more profits than a great hospital. educational write ups in main line and regional newspapers to increase awareness of cardiac ailments. It is his money and he can spend it where he likes or the way he likes. health clinics and camps in companies. Listen to the patients Ask questions from them Do something extra for each patient Admit mistakes to the patients gracefully. He does not have to give reasons for his action. Many hospitals have succeeded without proper medical facilities. Each employee should be trained to be good listener to the patients when they come into the hospital or when they write to the hospital. 4. When does a hospital becomes patient oriented? As soon as the facility starts rendering. none without proper technicians. And when a patient comes in. This includes encouraging the patients to open up and express themselves clearly. Put yourself in your patient’s shoes: It is a basic and commonsensical concept . This is simple but often ignored fact. schools. through thoughts and actions. even if they have 58 . informing physicians. A promotional mailer can be so fine tuned that it can reach the individual on his birthday. he should really be helped. primary and secondary health centres in regard to facilities available. Patients do not like to come to a big hospital where they get lost. This way a hospital becomes great for its patients. How to achieve it? There is no magic wand in the world that will help achieve it.Sectoral Applications-I spread of insurance idea. but can be done by following the patient by patient approach. Twelve Noble ways to get More Patients 1. Technicians and assistants in the hospitals are people and if they are not satisfied. Patient Satisfaction: A patient can take away his business to a hospital wherever he gets better value for his money and better service. Continuous communication with the patients: Communication with the prospects and the patients is the core of good marketing. the best possible service to each of its patients. Employees with average intelligence and initiative. when treated with respect and dignity as individuals. given training and motivation will turn out to be good technicians. Hospital policies and procedures. and similar organisations. 3.

Listen. It simply means some extra and individual care to show that the business of patients mattes a lot for the hospital.than when they had come in the first place. should be done with the patients to find out how they feel about the hospital employees and how they are treated by them. Solve the small problems of patients today: A hospital is not a bed of roses. Patients must be given the best possible services: Patients should be given “USA” . A health facility that wants to earn a good reputation in the long run also ensures that the patients are encouraged to lodge complaints and each complaints is fully investigated. If so. Each of the employees should visit patients: In a health facility . are suicidal if they inconvenience the patients. May be the best equipment can be installed. 10. It also involves studying the competitors and to start serving the patients better. as least. A bit of additional consideration is all that is required to convince the patients that they are wanted at the hospital. or on the other hand can be turned into ashes by merely dropping a few drops of cold water in the form of an instant helpful attitude.Unique Service Advantage – and once they get it. chrome and chandeliers (3Cs) in the hospital. Patients want answers to their problems. complaints can be turned into opportunities. In the hospital . Patients are not impressed by the carpets. how is it that some of employees never see the faces of their patients. Patients with complaints must immediately get the feeling that they are still welcome – rather more welcome. Otherwise. may become huge fires. Checking with patients about employees attitude: Why customers (patients) quit? 1% Die 3% Move away 5% Form other friendships 9% For competitive reasons 14% Because of product dissatisfaction 68% Quit because of attitude of indifference towards customer by some employees Notice the last line carefully. 7. and so on. Very often.been given by the best business management professor. they will become repeat patients and bring more patients. therefore. every employee does something – directly or indirectly for the patients. If properly attended to. they are not impressed by the 3 Cs: A hospital where the patients get answers to their problems is a better “mousetrap” than a hospital where the patient’s problems don’t get solved. listen . most of us feel that it is a bed of roses when we see it Health Services 59 . 9. 6. A continuous follow up . 11. Of course. their complaints are like burning embers and if ignored. The 3Cs won’t help if they are shown the rules and regulations whenever they come with problems. not away form the hospital. he does not have a right to be on the payroll of hospital. A health provider should not only work harder to satisfy his patients but must also appear to be doing so. hospital be opened for longer hours for the convenience of patients. Patients will flock to that hospital which follows a more helpful attitude. listen …… to your patients: The patients should be given a proper hearing. a selling atmosphere should be created wherein every employee gets an opportunity to market the services. 8.

Sectoral Applications-I

from a distance. It is only when we touch the bush to pluck the roses that we get pricked by the thorns too. And every hospital must learn how to handle difficult patients with extra care. A difficult patient is like a dark cloud with a silver lining. He presents an opportunity in disguise to test the hospital’s orientation to him. Fortunately, patients are people and the rule of 80:20 applies to them too, i.e. 80 percent of patients are reasonable and they forgive very quickly while it is only 20 per cent who carry their grievances on and on. 12. Dissatisfied patients are best teacher: One can never please 100 percent of patients, 100 percent of the times and 100 per cent of the days. If one can do so it is either a sellers market or he is a genius or he is not taking takeable risks. Generally for an average hospital one-third of patients are very satisfied, another one-third are reasonably satisfied and the balance one third are not fully satisfied and, in fact may be 10 percent are fully dissatisfied. These dissatisfied patients should be searched for and once they are located, one- third of the problems are solved. Close attention should be paid to every word they say and it should be noted down. This conveys that personal interest is being taken in the matter. The objective is not to win the argument but to come to an agreement that satisfies a dissatisfied patient.

Application of marketing concepts in health care services in India is gaining widespread importance. This has happened because of a number of changes taking place like setting up of corporate hospitals, growing consumer awareness, increasing purchasing power, growing market for elective treatment. Pricing is one of the crucial issues in healthcare marketing. In this unit you have studied the basis for pricing and the ways in which pricing for health services differ from pricing for goods. The various strategic considerations in implementing the pricing policy have also been explained to you. For health care marketers it is crucial to appreciate the importance of not only what is being delivered but also how it is being delivered. That is, they have to take care of the ‘cure’ as well as the ‘care’ aspects. Further, for health care services, which involve some amount of uncertainty or risk from customers’ point of view, word of mouth communication plays an important role.

1. Why is pricing for health services unlike the pricing of a product? What difficulties can be envisaged while pricing health services? Discuss with the help of examples. 2. ‘Pricing strategy includes much more than determining what to charge’. Examine the statement with regards to pricing of health services. 3. What are the components of service quality? How would you apply these to health care services? 4. Discuss the importance of word of mouth communication for health care services. 5. What changes do you envisage in the Indian health care market with the emergence of corporate hospitals?

60 Benoy, J.W. (1996) “Internal Marketing Builds Service Quality”, Marketing Health Services, Chicago, Vol. 16, Issue 1, p. 54.

Besty, G. and Madeline, J. (1995) “Word of Mouth Communication: Causes and Consequences”, Marketing Health Services, Chicago, Vol. 15, Issue 3. Clow, K.E. (1995) “Advertising Health Care Services”, Marketing Health Services, Chicago, Vol. 15, Issue 2. Engelberg, M. and Neubrand, S. (1997) “Building Sensible Segmentation Strategies in Managed Care Setting”, Marketing Health Services, Chicago, Vol. 17, Issue 2, p. 50-55. Gabbott, M. and Hogg, G. (1996) “The Glory of Stories: Using Critical Incidents to Understand Service Evaluation in the Primary Health Care Context”, Journal of Marketing Management, 12, p. 490-503. Glynn, W.J. and Barnes, J.G. (1995) (Ed.) “Understanding Service Management”, John Wiley & Sons. Gronroos, C. (1990) “Service Management and Marketing”, Lexington Books p. 37-39. Loubean, P.R. and Jantzen, R. (1998) “Marketing Research Activities in Hospitals”, Marketing Health Services, Chicago, Vol. 18, Issue 1, p. 12-17. Rabkin, M.T. and Avakain, L. (1992) “Participatory Management at Boston’s Beth Israel Hospital”, Academic Medicine, Vol. 67, May, p. 289-294. Raju, J. and Joshi Y. “Come Health or High Water.” Brand Equity, The Economic Times, 25 June 2003. Rust, R.T., Zohorik, A.J. and Keiningham, T.L. (1996) “Services Marketing”, Harper Collins College Publishing. Zeithaml, V.A., and Bitner, M.J. (1996), “Services Marketing”, McGraw Hill International, p. 117-122. Zeithaml, V.A., Parasuraman A. and Berry, L.L. (1998) “Delivering Quality Service: Balancing Customers Perceptions and Expectations”, Free Press, NY. Zeithaml, V.A., Parasuraman A. and Berry, L.L. (1985) “Problems and Strategies in Services Marketing”, Journal of Marketing, Spring, p. 33-46.

Health Services


Sectoral Applications-I

This unit is a case study on financial services marketing and relates to various issues concerning the banking industry in India. After studying this case, you should be able to : understand the changes coming out in the Indian Banking Sector, examine different products being offered in retail as well as corporate segments of the banking industry, and explore strategies for globalization of Indian Banks.

14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 14.9 14.10 Introduction Changing Face of Indian Banking Industry Transformation in the Indian Banking Sector ICICI Bank Ltd Retail Banking Business of ICICI Bank Corporate Banking Business of ICICI Bank Organisation Structure of ICICI Bank The Global Growth Strategies of ICICI Bank Discussion Questions Appendix

Mr. Bhargava Dasgupta heads the international business operations of ICICI bank and he has to travel a lot these days. He is busy in building the ICICI bank’s next big platform- globalization. He feels that it is impossible to reach to the clients everywhere across the world physically for providing the financial services, so it will be strategically sound to leverage the relationships with other banks in serving the global consumer. The success of the bank in the domestic market is largely credited to the customer orientation, high quality of customer service, innovative financial product introductions and active involvement in serving the emerging and latent needs of the Indian consumer. They want to take their domestic market success to the global level. The recent spot of operations by the bank is an indicator of becoming a global financial service provider. ICICI bank has opened its first overseas branch in Singapore in 2003; in mid 2003, they opened the representative offices in London. They are close to acquire properties by the year 2003 end in Pundong and have already procured properties in East London to start their business operations including strategies to open offices in Toronto and Bahrain. They have to decide about how to reach out to the global Indian in the large part of the globe within their financial limits compared to global giants like ABN
* This case has been developed for academic purpose, for the students to have an understanding of financial services marketing. It has been prepared from the data available from public domain and interviews conducted in the bank by the author. This case is not to illustrate effective or ineffective handling of administrative situation.


AMRO, Citi Bank and other banks. Their global rollout expenditures are around Rs. 450 crores (100 Million USD) which they can fund from the domestic balance sheet. The subsidiaries in Canada and England have already used 70 million USD of this capita. They are also toying with an idea that some of the representative offices can be converted to subsidiaries where they will be looking for their own capital for operation in future period than relying on the parent company capital. Mr. Dasgupta is of the opinion that the entry strategy in different countries is a function of the local regulations. Many countries have the rules to run the bank as a representative office offshore branch before they are permitted to be a subsidiary of the parent company. ICICI bank’s biggest business was in the area of industrial lending and few years before they have derisked the portfolio in entering into the consumer finance business quite aggressively. They are in the process of next growth opportunity by serving the financial needs of the global Indian consumer. The banks target is to make this SBU (global business) contributing one third of the bank’s business in the coming five years (by 2008). Mr. Bhargav Dasgupta was pulled from the Venture capital subsidiary to head this global financial service initiative. Mr. Dasgupta is scheduled to give a presentation to the board about the strategy to make this initiative achieve its goal. Prior to preparing his plan for the proposed meeting, he thought of giving a bird’s eye view on the bank’s emergence and growth as a strong player in the domestic market and also evaluating the possible alternatives before him for serving the global Indian consumer.

Case Study: Serving the Global Indian

Financial sector reforms were initiated in India in early 90s with a view to improving efficiency in the process of financial intermediation; these reforms have facilitated greater choice for consumers, who have become more discerning and demanding, compelling banks to offer a broader range of products through diverse distribution channels. The traditional face of banks as mere financial intermediaries has since altered and risk management has emerged as their defining attribute. The Indian financial system is identified with two set of institutions viz. regulators and intermediaries. Regulatory Institutions are statutory bodies assigned with the job of monitoring and controlling different segments of the Indian Financial System (IFS). These Institutions are given adequate powers through the vehicle of their respective Acts to enable them to supervise the segments assigned to them. It is the job of the regulator to ensure that the players in the segment work within recognized business parameters maintain sufficient level of disclosure and transparency of operations and do not act against the national interests. At present, there are two regulators directly connected to Indian financial system. They are Reserve Bank of India and Security and Exchange Board of India. Intermediary financial institutions include banking and non banking financial institutions. The banking financial institutions participate in the economy’s payments mechanism, i.e., they provide transaction services, their deposit liabilities constitute a major part of the national money supply, and they can, as a whole, create deposits or credit, which is money. Banks, subject to legal reserve requirements, can advance credit by creating claims against themselves. Other 63

Sectoral Applications-I

financial institutions can lend only out of resources put at their disposal by the savers. Financial institutions are the primary source of long term lending for large projects. Conventionally, they raised their resources in the form of bonds subscribed by RBI, Public Sector Enterprises, Banks and others. With the drying up of concessional long term operations funds from the Reserve Bank in the early 1990s, financial institutions have increasingly raised resources at the short end of the deposit market. The Banking Segment in India functions under the regulation of Reserve Bank of India. This segment broadly consists of commercial banks and co-operative banks. Non-banking Financial Institutions carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these Institutions mobilize the public savings for rendering other financial services including investment. All such Institutions are financial intermediaries and when they lend, they are known as non-banking financial intermediaries (NBFIs) or investment institutions. Some of the major non-banking financial intermediaries include Unit Trust Of India, Life Insurance Corporation (LIC) and General Insurance Corporation (GIC). Apart from these NBFIs, another part of Indian financial system consists of a large number of privately owned, decentralized, and relatively small-sized financial intermediaries. Most work in different, miniscule niches and make the market more broad-based and competitive. While some of them restrict themselves to fund-based business, many others provide financial services of various types. The entities of the former type are termed as “non-bank financial companies (NBFCs)”. The latter type is called “non-bank financial services companies (NBFSCs)”. The commercial banking structure in India consists of two major set of players scheduled commercial banks and unscheduled banks. The scheduled commercial banks constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (60) of the Act. This sub sector broadly consists of private sector banks, foreign banks. The banking sector is dominated by Scheduled Commercial Banks (SCBs). As at end-March 2002, there were 296 Commercial banks operating in India. This included 27 Public Sector Banks (PSBs), 31 Private, 42 Foreign and 196 Regional Rural Banks. Also, there were 67 scheduled co-operative banks consisting of 51 scheduled urban co-operative banks and 16 scheduled state co-operative banks.

Financial sector reforms were initiated in India in early 90s with a view to improving efficiency in the process of financial intermediation, enhancing the effectiveness in the conduct of monetary policy and creating conditions for integration of the domestic financial sector with the global financial system. The first phase of reforms had an approach of ensuring that ‘the financial services industry operates on the basis of operational flexibility and functional autonomy with a view to enhancing efficiency, productivity and profitability’. The second phase, guided by Narasimham Committee II, focused on strengthening the foundations of the banking system and bringing about structural improvements. Among others, the important issues relate to corporate governance, reform of the capital structure (in the context of Basel II norms), retail banking, risk management technology and human resources development 64

The significant transformation of the banking industry in India is evident from the changes that have occurred in the financial markets, institutions and products. While deregulation has opened up new vistas for banks to augment revenues, it has entailed greater competition and consequently greater risks. Cross-border flows and entry of new products, particularly derivative instruments, have affected significantly on the domestic banking sector, forcing banks to adjust the product mix, as also to effect rapid changes in their processes and operations in order to remain competitive in the global environment. These developments have facilitated greater choice for consumers, who have become more discerning and demanding compelling banks to offer a broader range of products through diverse distribution channels. The traditional face of banks as mere financial intermediaries has since altered and risk management has emerged as their defining attribute.

Case Study: Serving the Global Indian

The Growth of Universal Banking
A universal bank is a supermarket for financial products. Under one roof, corporate can get loans and avail of other services, while individuals can bank and borrow. To convert itself into a universal bank, an entity has to negotiate several regulatory requirements. Therefore, universal banks in the Indian context have been in the form of a group offering a variety of services under an umbrella brand such as ICICI or HDFC. In universal banking, large banks operate extensive networks of branches, provide many different services, hold several claims on firms (including equity and debt), and participate directly in the corporate governance of firms that rely on the banks for funding or as insurance underwriters.

ICICI Bank is India’s second-largest bank with total assets of about Rs. 1 trillion and a network of about 540 branches and offices and over 1,000 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital, asset management and information technology. ICICI Bank’s equity shares are listed in India on stock exchanges at Chennai, Delhi, Kolkata and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). One of the biggest mergers in the Indian financial system has been the merger of the ICICI with ICICI bank, which helped them move towards the universal banking. The management was of the view that the merger of ICICI with ICICI Bank would create the optimal legal structure for the ICICI group’s universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity’s access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI’s strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments including fee-based services and access to the vast talent pool of ICICI and its subsidiaries. 65

Student Banking Services for students. the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail finance subsidiaries. 2002. strong processes and customer focus. 2003. Roaming Current Accounts for businessmen. with over 4. ICICI Bank has capitalized on the growing retail opportunity in India and has emerged as a market leader in retail credit. ICICI Personal Financial Services Limited and ICICI Capital Services Limited. commercial vehicle loans and personal unsecured loans. compared to only 6% at March 31.7 million deposit customers. parity pricing. both wholesale and retail are integrated as single entity. the ICICI group’s financing and banking operations. ICICI Bank is one of the leading providers of mortgage loans. In fiscal 2003. Retail Deposits During fiscal 2003. increasing affordability of retail finance and acceptance of use of credit to finance purchases. The dimensions of the retail strategy include innovative products. Cross-selling of the entire range of credit and investment products and banking services to customers is a critical aspect of ICICI’s retail strategy. In May 2003.5 RETAIL BANKING BUSINESS OF ICICI BANK Retail banking is a key element of ICICI’s growth strategy. Following a life stage segmentation strategy. IDFL is primarily engaged in providing distribution financing in the two-wheeler segment. Salary Accounts for salaried employees. ICICI Bank acquired the entire paid-up capital of Transamerica Apple Distribution Finance Private Limited (TADFL). and continues to maintain leadership in automobile finance. Retail credit constituted 18% of ICICI Bank’s balance sheet at March 31.Sectoral Applications-I In October 2001. The acquisition is expected to supplement the Bank’s retail franchise. Shareholders of ICICI and ICICI Bank approved the merger in January 2002. two-wheeler loans. ICICI Bank has further microsegmented various categories of customers in order to offer products catering to specific needs of each customer segment. ICICI Bank offers differentiated liability products to various categories of customers depending on their age group (Young Star Accounts for children below the age of 18 years. customer convenience. This has reduced its funding cost and has enabled it to create a stable funding base. Private Banking for high net worth individuals and Senior Citizens Accounts for individuals above the age of 60 years). ICICI Bank’s total retail disbursements in fiscal 2003 are approximately Rs. It has expanded the market significantly over the last few years by taking organized retail credit to a large number of high-potential markets in India. Consequent to the merger. which is renamed as ICICI Distribution Finance Private Limited (IDFL). cross selling accounted for about 20% of mortgage loans and auto loans and about 25% of credit cards issued. Cross selling has emerged as one of the significant drivers of retail credit growth. by penetrating deeper into existing markets and by offering customized solutions to meet the varying credit needs of the Indian consumer. like defence banking services for 66 . ICICI Bank offers a wide range of retail credit products. retail credit has emerged as a rapidly growing opportunity for banks that have the necessary skills and infrastructure to succeed in this business. ICICI continued its focus on retail deposits. the high court of Gujrat in March 2002 and the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. With upward migration of household income levels. 200 billion. 14. especially in the two-wheeler segment.

defence personnel. Electronic Channels During the year. previous transactions. Mobile Banking ICICI Bank’s mobile banking services provide the latest information on account balances.675. Seventy percent of customer induced transactions take place through electronic channels. ICICI Bank had issued over 3.0 million credit cards. can now be accessed by customers in over 355 cities across the country.4 million debit cards and 1. Service Delivery through Multi Channel Distribution Network With the foundation of a strong multi-channel distribution network. the Bank significantly strengthened its ATM network. United Kingdom. Reserve Bank of India (RBI) relief bonds. ATMs During fiscal 2003. who can undertake all their banking transactions (other than physical cash transactions) on the Internet. ICICI bank is also planning to share the network with other key players in financial services market to give a wider access to its customers. Its multi-channel distribution strategy provides its customers 24%7 accesses to banking services. Case Study: Serving the Global Indian Credit Cards ICICI Bank is also the largest incremental issuer of cards (including both debit and credit cards) in India.5 million customer contacts per month. 2003. The call center uses state-of-the-art voice-over-Internet-protocol technology and cutting-edge desktop applications to provide a single view of the customer’s relationship. The call centre services all retail customers across the ICICI group. ICICI has expanded its electronic channels and migrated large volumes of customer transactions to these channels. Phone Banking ICICI Bank considers phone banking to be a key channel of service delivery and cross-sell. Internet Banking ICICI Bank has about 3. ICICI Bank has also pioneered the concept of mobile ATMs to reach out to remote/rural areas. the largest domestic call centre in India. At March 31. The call centre handles more than 2.750-seat call centre. Middle East and Singapore. credit card outstanding and payment status and allow customers to request a cheque book or account statement. with market leadership in these areas. This distribution strategy not only offers enhanced convenience and mobility to the customer but also supports its customer acquisition and channel migration efforts. Other facilities offered through multilingual screen ATMs include bill payments and prepaid mobile card recharge facility. ICICI Bank’s 1.4 million customers with Internet banking access. it has successfully developed a robust model for distribution of third party products like mutual funds. and insurance products. This model also allows it to 67 . ICICI Bank’s Internet banking customers can also pay their bills for more than 45 billers and shop on 85 online shopping portals. This strategy has contributed significantly to the rapid growth in the retail liability base. taking the total number of ICICI Bank ATMs to 1. ICICI Bank has now extended its mobile banking services to all cellular service providers across the country and NRI customers in the United States.

The portal enables clients to conduct their banking business with ICICI Bank through the Internet in a secure environment. A dedicated product and technology group develops and manages back-office processing and delivery systems. ICICIdirect has a rating of “TXA1” from CRISIL. with complete end-to-end integration for seamless electronic trading on stock exchanges. credit and markets group. It set up centralized processing facilities for back office operations where technology is leveraged to benefit from economies of scale arising out of large transaction volumes.6 CORPORATE BANKING BUSINESS OF ICICI BANK ICICI Bank provides innovative financial solutions to its corporate clients. ICICI Bank’s dedicated structured finance. During the year it continued to expand the scope of its Web-based services. It has already been empanelled for collection of sales tax in eight is the market leader in Internet based share trading. transaction banking and non-fund based products.Sectoral Applications-I meet all customer needs by offering the customer the complete basket of financial products. while diversifying its revenue streams and generating adequate return on risk capital through risk-based pricing models and proactive portfolio management. it focusses on leveraging its relationships to expand the range of products and services to channel finance. Dedicated relationship groups for corporate clients and the government sector focusses on expanding the range and depth of its relationships in these sectors. This group is also responsible for managing the asset portfolio by structuring portfolio buy outs and sell-downs with a view to increase the risk-adjusted return on the capital. During the year. It also focused on leveraging its skills in originating and structuring transactions as well as on its ability to take large exposures to adopt an originate-and-sell-down strategy. actively supports the business groups in designing financial products and solutions. Online Trading ICICI direct (www. In the corporate segment. tailored to meet their requirements. while leveraging its distribution capability to earn fee income from third parties. During fiscal 2003. ICICI Bank focused on the agri-financing segment and developed several innovative structures for agri-business. Its focus in the financial year 2003 is on technology-driven enhancement of delivery capabilities to offer improved service levels to clients. with expertise in financial structuring and related legal. 14. ICICI Bank has strong relationships with several large public sector companies and state governments and it is leveraging these relationships to expand the range of transaction banking services. This not only increased the risk-adjusted return on the capital employed but also enabled it to offer a comprehensive solution to its corporate clients. structured transactions and channel ICICI Bank offers online foreign exchange and debt securities trading services. ICICI Bank provides corporate internet banking services through ICICIebusiness. including dairy 68 . a single point web-based interface for all corporate products. indicating highest ability to service broking transactions. It continued to focus on corporate lending transactions including working capital finance to highly rated corporate. ICICIdirect launched online trading in the derivatives segment of the NSE. accounting and tax issues.

farmer financing and warehouse-receipt-based financing. mobilization of resources from domestic institutions and banks and international multilateral and bilateral institutions and banks. retail liabilities (including own deposit accounts and services as well as distribution of third party liability products). managed interest-rate sensitivity by actively using rupee-interest-rate swaps as well as by adjusting the duration of the Government securities portfolio held for compliance with Statutory Liquidity Reserve (SLR) norms. International Business and Corporate Centre. and proprietary trading. It achieved robust growth in this segment and is working with state governments and agribased corporate to evolve viable and sustainable systems for financing agriculture. 14. with dedicated groups for corporate clients. Effective fiscal 2004. A focus area in fiscal 2003 is the delivery of market solutions to corporate clients in various areas such as foreign exchange. oil & gas and manufacturing sectors. The Wholesale Banking Group comprises ICICI Bank’s corporate banking business including credit products and banking services. financial institutions and rural and micro-banking and agri-business. Wholesale Banking. it has restructured its treasury operations to separate the balance-sheet management function (which now forms part of the finance group). government securities. thereby increasing the liquidity and depth of the market. interest-rate swap and foreign exchange markets. efforts are undertaken to make the bankingbook-interest-rate positions more liquid by selling illiquid loans and substituting them with marketable securities. Project Finance & Special Assets Management. the treasury leveraged its strong relationships with financial sector players to provide a wide range of banking services in addition to its liability products. It has also integrated its rural banking. As one of the largest players in the corporate debt market. broad-based market making in key markets including corporate bonds. and is flexible while at the same time seeking to ensure effective control. supervision. The Project Finance Group comprises our project finance operations for infrastructure. swaps and loan syndication. The Retail Banking Group comprises ICICI Bank’s retail assets business including various retail credit products. The organization structure is divided into five principal groups namely Retail Banking. There is a significant increase in both the volumes and profits from foreign exchange transactions. Government sector clients. 69 . fixed income and swaps. In fiscal 2003. The focus of trading operations was active. The Special Assets Management Group is responsible for large non-performing and restructured loans.farming. Structured finance. Case Study: Serving the Global Indian Treasury The principal responsibilities of the Treasury included management of liquidity and exposure to market risks. micro-finance and agrifinancing activity to offer integrated banking services in rural areas. Further. the balance sheet management function within treasury. and consistency in standards across business groups. the corporate markets business (which has been integrated into the structured finance. it offered two-way quotes for many corporate debt papers. Further. and credit products and banking services for the small enterprises segment. credit & markets group) and the proprietary trading activity (which is now housed in a separate proprietary trading group). credit portfolio management and proprietary trading also form part of this group.7 ORGANIZATION STRUCTURE OF ICICI BANK ICICI Bank’s organizational structure is designed to support its business goals.

Dasgupta was looking at the future proposition of earning one third of the total revenue from the international business operations by the year 2008. Bangladesh and Sri Lanka. The fourth strategy is to follow the customer. The first strategy is to build a regional base in neighboring countries like Nepal. There are four alternative strategies available for ICICI bank to provide financial services to the global Indian. This also needs a bigger balance sheet that the current balance sheet of ICICI bank for a high level of acquisition. including finance and balance sheet management. secretarial. The third strategy is to take a strong product and make it global. The internationalization of other global players have come only after 70 . Many Spanish banks followed this strategy to enter in to the Latina American market. There is a risk involved in the acquisition process in the foreign country from two points. The non resident Indian business is growing in countries like Dubai and Bahrain. The second strategy is to enter growth markets aggressively through the process of acquisitions. The legal procedures for acquisitions varies from country to country and secondly the issue of non performing assets of the existing banks may create problem to the ambitious growth plan of the bank. However. risk management. Mr. ICICI bank has a set of successful products but they do not have a solid financial product as the unique selling proposition for the global market. Standard Bank had used this strategy to expand its business in Africa. There are also traditional business interests in countries like USA and UK but there are also potential risks involved in the form of operating with international partners for some period until they establish the offshore subsidiaries. Some of the banks have followed this strategy in the past. legal. Citibank expanded in the recent decades by following such a strategy of building the credit card business as its core competency for entering in to new markets. the growing link with the ASEAN nations can be serviced from Singapore.Sectoral Applications-I The International Business Group is responsible for ICICI Bank’s international operations. 14. including its entry into various geographies as well as products and services for non-resident Indians (NRIs). human resources and corporate branding and communications. Mr Rana Talwar of Standard Chartered Bank followed this strategy by buying banks in Asia and Latin America. Identification of a core competitive advantage and then building a strategy on this particular advantage may also bring success to the banks global vision. there is a SinoIndian trade boom which can be financed from the Shanghai operations. Dasgupta has to consider other issues. Similarly selected market coverage may limit the scope and image of the bank as a global financial service provider. But he was sure some of these banks may serve as gold mine with higher return potential in developing nations. ICICI bank is still the number two bank in the country with ample scope for growing its business in the domestic market. but the neighbours around India are not economic powerhouses for which the opportunity to grow in these markets are limited. The Corporate Centre comprises all shared services and corporate functions.8 THE GLOBAL GROWTH STRATEGIES OF ICICI BANK Mr. investor relations. The complex financial service mix as well as the rapid change in level and type of technology as the enabler to the service provider brings doubt about such a strategy.

What recommendations will you make to Mr. it may hit the whole business proposition.00 1465.40 6972. In addition. Bhargava Dasgupta is facing in this case? 2. Dasgupta believes that it is right time to go global as major economies are still recovering from a recession. The recent spike in the NRI deposits is because of the higher interest rates in India compared to global rates. He was not sure which one. What do you mean by originate-and-sell-down strategy? 4. What are the strategic alternatives available for Mr. Bhargava Dasgupta? Should he go global? Give your reasons. an opportunity for cheaper deals and quality recruitment exists for the bank.20 8685. Explain the financial service mix portfolio of ICICI bank in retail sector? In corporate sector? 5. 14.00 71 Year 1998 1999 2000 2001 2002 Sales 1666.70 4556.70 867. Many financial experts are still of the opinion that the balance sheet of ICICI bank is still weighed down by problem loans to industries such as textiles. Case Study: Serving the Global Indian 14.securing the home business and channelizing the liquid funds from the domestic market for international operations.40 .10 APPENDIX ICICI Bank: Sales and Profit Analysis Operating Profit 723.20 8730. he has to decide about the strategies to handle global risk in the business and the structure of the global organization. ICICI is there to look after the Indian companies that are rapidly globalizing their operations. The decisions to enter in to International operation seem very complex for the bank.10 2908.00 732. As Reserve Bank of India is cutting down the interest rates to make it at par with global rates.90 69340. as he has to operate in a multi cultural environment.00 Net Profit 421. What problem Mr. Mr. K. steel and telecom. Kamath. Therefore. The motto should be to serve the customers at anywhere in the world with a correspondent relationship with other banks. One thing he was sure about the future of the International operations. HSBC bank moved out of Hong Kong when it had a substantial position in the domestic market for international shores.00 2014. The NRI as a business proposition has to be evaluated.60 1107. ICICI bank is going to concentrate on India related business in all these places rather than competing with global players with higher financial muscles and better service offers.00 14745. Dasgupta to serve the Global Indian Consumer? 3.V. the CEO of the company thinks that the global Indian consumer is not bothered about the exchange rate risks and NRI remittances can be a good business proposition with a mix of portfolio management to mortgages rather than ordinary deposits.9 DISCUSSION QUESTIONS 1. Mr. He was sure that one of the strategic options explained above could take ICICI bank to the global platform as a financial service provider.

79 13.38 76.69 45.91 8.907.168.542.62 10.79 46.77 383.214.157.66 51.09 10.960.54 7.26 120.08 16.66 97. in Units) Operating Income Income Per Employee Operating Profit Per Employee Personnel Expenses Per Employee Deposits Per Employee 1.71 40.91 92.021.704.50 ADEQUACY RATIO EARNING RATIOS Fund based income as a % of Op Income Fee based income as a % of Op Income 91.22 72.Sectoral Applications-I Ratio Analysis of ICICI and Other Players Bank SBI ICICI 11.95 100.08 7.95 32.83 3.73 PROFITABILITY RATIOS Cost of Funds Ratio Net Profit Margin Return on Net Worth DEPOSIT RATIOS Demand Deposit of Total Deposits Saving Deposit of Total Deposits Time Deposit of Total Deposits Deposits within India as % to Total Deposits 15.78 27.62 17.821.92 8.63 9.87 84.25 326.42 6.46 100.89 1.09 PER BRANCH RATIOS Operating Income Per Branch Operating Profit Per Branch Net Profit Per Branch Personnel Expenses Per Branch Borrowings Per Branch Deposits Per Branch PER EMPLOYEE RATIOS (Rs.12 317.13 11.37 89.95 2.49 4.53 17.10 HDFC 11.995.03 100.28 8.21 6.58 133.189.47 380.713.80 6.73 6.576.749.23 21.00 22.11 22.34 14.51 5.383.00 14.21 62.83 57.560.00 CAPITAL 13.39 45.594.46 10.05 9.211.09 100.84 6.325.26 8.20 364.21 72 .38 272.12 UTI Bank 9.211.370.851.096.65 7.442.83 15.90 968.38 1.259.75 93.04 105.17 1.526.43 18.65 8.963.741.70 33.285.43 1.87 98.24 6.00 6.12 20.

P Online Services Bill Payment Shopping Share Trading Charity Anywhere Banking Home Loans Home Search Online Stock Investment Customer Service Tax queries answered Donate2India Money2India IPO Account for Returning Indians Mutual Funds GI Bonds Rupee Savings Account High interest Fixed Deposits Debit cum ATM card ICICI Bank Bonds Credit Credit NRI Service Investments Cards Demat Product Mix Width (Personal Finance) Mobile Banking Banking Alerts Credit Card Alert r Banking Loans o Savings Account Home Loan d Fixed Deposit Personal Loan u c Easy FD Car Loan t Recurring Deposit Two Wheeler Loan L Private Banking Commercial Vehicle Loan i n Roaming Current Account Loans against Securities e Young Stars Farm Equipment Loans L Bank@campus Construction Salary Account Office Equipment e Women Medical n EEFC (Exchange) g Consumer Durables and t h Resident Foreign Currency (Domestic) Case Study: Serving the Global Indian 73 .

74 P Capital markets Securities Management Services Equities Equity Derivatives Forex VOSTRO Accounts Term loans Automated INR Payment Services Working capital finance International Banking Services Agri business business Product Mix Width (Corporate Finance) Corporate & Structured Finance Working Capital Financing Auto Loan Receivables Credit Card Receivables Sectoral Applications-I r Central Government Collecting Bankers Securities Treasury Bills – (T-Bills) Initial Public Offer (IPO) Funding GDR/ADR/Euro Issues and arbitrage Debt Trust & Retention Account Services INR Agency Clearing Services Cross Border Trade Services Escrow & Paying Bankers Transaction Banking Treasury Solutions Invesment Solutions o d Cash management services Forex markets General Banking Bond markets u Trade finance c t Repos/Reverse Repos Bonds and Debentures Bank Guarantees Clearing & Settlement Bankers Commodity markets Call Money/Notice Money. Transporter financing L e n g t h . Term Money and Fixed Deposit Lending rates Fertilizer Subsidy Receivables Export Receivables L i n Inter Corporate Deposits Certificates of Deposit Commercial Paper Bills Rediscounting Scheme (BRDS) Temporary Overdrafts Intra Day Funding DVP Funding Overdraft Against Shares SGL settlements through Constituent account with ICICI Bank e Dealer financing EPC Contract Financing Investment Monetisation Trade financing (long term) (REIT) / (REMIC) structures Brand financing Vendor financing.

000 500.000 4.439.650. 819 27.061.520 12.614 2.000 --440.68 19.519.020.000 960. 405 '000s) As on 31.900 13.PROFIT AND LOSS ACCOUNT Schedule I.139 113.717 44. 284 12.235 6. INCOME Interest earned Other Income Profit on sale of shares of ICICI Bank Ltd held by erstwhile ICICI Ltd TOTAL II. 591. 682.561 19. 265.910.297 5.867.770 2.61 3.000 600.746. 257.2002 Case Study: Serving the Global Indian 11.092 50. 591.990 8. 207.000 --160. APPROPRIATES/TRANSFERS Statutory Reserve Transfer from Debenture Redemption Reserve Capital Reserves Investments Fluctuations Reserve Special Reserve Revenue and other Reserves Proposed equity share Dividend Proposed preference share Dividend Interim dividend paid Corporate dividend tax Balance carried over to Balance sheet TOTAL Significant Accounting Policies and Notes to Accounts Cash Flow statement Earning per share (Refer Note B.989 20. EXPENDITURE Interest expended Operating expenses Provisions and contingencies TOTAL III.9) Basic (Rs.758 35 -589.791 195. 895 18 19 75 .953 195. PROFIT/LOSS Net profit for the year Profit brought forward TOTAL IV. 284 15 16 17 79.03. 268.225. 028 15.65 11.900 24.) 19.000.680.598 (Rs.589.000.000 140.000 1.61 11.677.) Diluted (Rs.000) 2. 405 650.294 2.597.582.741 21.000 (100. 257.517 125. 905 13 14 93.614 12.

623.625.2002 ASSETS Cash and balance with Reserve Bank of India Balances with banks and money at call and short notice Investments Advances Fixed Assets Other Assets TOTAL Contingent liabilities Bills for collection Significant Accounting Policies and Notes Accounts Cash Flow Statement 12 6 7 8 9 10 11 48. 063.569.661 42.070 13.794.472 56.756 1.693.Sectoral Applications-I BALANCE SHEET Schedule CAPITAL AND LIABILITIES Capital Reserves and Surplus Deposits Borrowings Other liabilities and provisions TOTAL 1 2 3 4 5 9.843 17.234. 041.144 40. 119. 011 394.118.080 320. 662 9. 011 (Rs.445 16.538 481.581 354.626.385.111 492.075.002 532. 041.216 1.443 41.063 343.184 18 76 '000s) As on 31. 068.611 1.607.348.03. 068. 119.910.203 170.367.186.505.858 13. 662 894.592 162.258 1.861.028. 063.797 470.817 358.274 75.744.024.546.206.324.682 110.851.600 63.

Indira Gandhi National Open University School of Management Studies MS-65 Marketing of Services Block 5 SECTORAL APPLICATIONS-II UNIT 15 Educational Services UNIT 16 Professional Support Services: Advertising Agencies UNIT 17 Telecommunication Services UNIT 18 Product Support Services UNIT 19 Case Studies 5 21 31 47 59 1 .

Paper Used: Agro-based Environment Friendly Laser Composed by: ICON Printographics. Singh IMI New Delhi Prof. Sr. Arun Shankar Citi Bank New Delhi Dr. Chandrashekhar Mahindra Days Hotels & Resorts Bangalore Ms. Bhutan Mr. Rakesh Khurana School of Management Studies IGNOU.S. P. New Delhi * The course was initially prepared by these experts and the present material is the revised version. Ramdas Management Consultant New Delhi Prof. Sanjeev Bhikchandani Sanka Information Pvt. D. Rupa Chanda IIM Bangalore Print Production Mr. Asstt. Amrish Sehgal Bhutan Tourism Development Corpn. Kamal Yadava School of Management Studies IGNOU. New Delhi Dr. SOMS. Sinha IIM Bangalore Mr. The profile of the Course Preparation Team given is as it was on the date of initial print. Hyderabad Prof. Venkateswaran Transportation Corporation of India. New Delhi Prof. Sudha Tewari Parivar Seva Sansthan New Delhi Mr.D. Registrar (Publication). Malabika Shaw AIMA New Delhi Mr. Printed and published on behalf of the Indira Gandhi National Open University.B. Agarwal XLRI Jameshedpur Mr. New Delhi-110 068. Tapan K. A. Panda IIM Khozikode Calicut Prof. School of Management Studies. Nadda Goa University Goa Mr. M. New Delhi Prof. L. Ltd. Kamal Yadava Course Coordinator and Editor School of Management Studies IGNOU. M. Course Revision Team (2004) Prof. New Delhi Dr. by mimeograph or any other means. New Delhi Dr. J. Pramod Batra EHIRC New Delhi Ms.B. Khanna Director School of Management Studies IGNOU. Chhatwal. Delhi University Delhi Prof. J. V.L. 2004 ISBN-81-266-1276-2 All rights reserved.. by Director. Johari FMS.Sectoral Applications-II Course Preparation Team* Prof. Rajat Kathuria IMI. New Delhi. Further information about the Indira Gandhi National Open University courses may be obtained from the University’s Office at Maidan Garhi. B-107 Fateh Nagar. Madhulika Kaushik School of Management Studies IGNOU. B. 2004 (Revision) © Indira Gandhi National Open University. New Delhi Prof. Madhulika Kaushik School of Management Studies IGNOU. No part of this work may be reproduced in any form. Rekha Shetty Apollo Hospitals Madras Prof. IGNOU June.K. New Delhi Mr. Saurabh Khosla Tulika Advertising Agency New Delhi Mr. New Delhi Ms. New Delhi-110 018 2 Printed at: .M. Scale. Ravi Shankar Course Editor IIFT. without permission in writing from the Indira Gandhi National Open University.

e. 3 . tariff issues and service quality parameters. The last unit of the block contains two small Case Studies. regulatory framework. Unit 17 covers the ‘Telecommunication Services’. advertising. The unit covers the growth of telecom sector in India. the changing market structure. In this last block of the course we will cover four more service sectors. which have witnessed a revolution in the last few years. Unit 15 on ‘Educational Services’ gives you an indepth exposure to the concept of education as a service. The first case presents an interesting study on customer expectation and customer orientation in an insurance company. and planning of the marketing mix for education. marketing strategy issues. The unit also includes a case study. Unit 16 on ‘Professional Support Services’ relates to one of the vital support services to commercial world i. various marketing options that can be exercised by agencies and the positioning strategies. The second case relates to service concept and distribution aspects. It discusses in detail services marketing applications for advertising agencies. You will appreciate that services marketing is not only relevant to services sector but to goods manufacturers as well. ‘hospitality and tourism services’ and ‘health services’. Unit 18 titled ‘Product Support Services’ explains the concept of product support services and describes the different categories of these services. the marketing implications of service characteristics in the context of education.BLOCK 5 SECTORAL APPLICATIONS-II In the previous block (Block 4) we have discussed marketing issues related to three specific service sectors namely ‘financial services’.

and India Consumer Behaviour in Services 2. 4 . 16. UNIT TITLE AUDIO PROGRAMME VIDEO PROGRAMME BLOCK 1. SERVICES MARKETING MIX Product and Pricing Decisions Place and Promotion Decisions Extended Marketing Mix for Services 3. STRATEGIC ISSUES Service Quality Managing Capacity/Demand Retaining Customers 4. Is the Customer Always Right? 2. 11. 14. 15. SECTORAL APPLICATIONS–II Educational Services Professional Support Services: Advertising Agencies Telecommunication Services Product Support Services Case Studies 1. MARKETING OF SERVICES: AN INTRODUCTION 1. 9. 5. 17. Marketing of Services: Conceptual Framework Role of Services in Economy International Trade in Services. 19. 6. 7. 13. 2. 3. SECTORAL APPLICATIONS–I Financial Services Tourism and Hospitality Services Health Services Case Study: Serving the Global Indian Issues in Social Destination Marketing India Marketing of Health 5. The Case of Dosa King. 10. 12.Sectoral Applications-II MS-65: MARKETING OF SERVICES Course Components UNIT NOS. the WTO. 18. 8. 4.

862 886 184 8. Apparently.8 15.5 15.7 15.1: College Education in India (Nos. Engg. discuss the service mix elements for educational services and draw generalisations for design of educational service.) 2000-01 7.3 15. apply the concepts developed for pricing.1 INTRODUCTION Marketing of education is a subject with very wide coverage if one considers that formal education begins at the school age and depending upon the choice. p. vocation and circumstance of the persuants. & Technology and Architecture.6 15. designing and delivering educational products. 124 244 1990-91 4. analyse the issues to be addressed in service strategy formulation for education.UNIT 15 EDUCATIONAL SERVICES Objectives After going through this unit you should be able to: classify education as a service along the various classification schemes.1 gives the details of growth in higher education in India. Structure 15. Not attempting to cover the marketing of education per se.2 15. describe the marketing implications of service characteristics in the context of educational services. 361 2. 169 251 2001-02 General Education Colleges Professional Colleges* Universities + 1999-00 7. benefits sought from higher and professional or vocational courses are more tangible or measurable in terms of entry qualifications to a chosen profession. Tata Services Ltd. 340 261 * Medicine. Teachers training colleges only + Including deemed universities and institutions of national importance Source : Statistical Outline of India 2003-2004. promoting.215 5 . 782 2. matures into intermediate and higher levels of learning including professional and specialised fields. Table 15. the scope of this unit is limited to the post school or higher education.1 15. 834 2.9 Introduction Service Classification and Education Service Characteristics and Implications for Marketing of Education Marketing Strategy and Education The Marketing Mix Conclusion Self Assessment Questions Further Readings References 15. Table 15.4 15. certification to enable practicing a profession or relative ease of access to a suitable form of livelihood.

However. All this has activated some interest in the hitherto neglected area of marketing of education services. Going by the AMA definition “services are those separately identifiable. Education as a service. education. as the objective is to develop a basic understanding of the concepts involved in the marketing of education as a special case of marketing of services. the unit deliberately seeks to keep the treatment of the subject general. relevant to marketing of education. Another classification scheme categorises services as equipment based and people based services. Swan and Pruden have suggested that establishing whether service is bought for instrumental motives (i. One of the simplest schemes classifies services as consumer. acquiring knowledge-providing an intangible benefit (increment in knowledge. Before going into the subject of education services marketing it is important to understand the concept of education as a service. product extention. the need to ‘market’ their services has not really been felt by the education sector.2 For majority of customers education may fulfill the instrumental function. there is no ownership transfer of these tangible goods in service buying transaction. have faced more demand than they could cope with.Sectoral Applications-II Without making specific commends about any particular discipline. diversification and service integration. Interestingly. Let us try to understand some of the basic services marketing concepts. essentially intangible activities. intermediate and industrial service. professional expertise. There is a basic concern with building and retaining organisational reputation for creating a ‘pull’ in the market. depending upon the type and level can be classified both as a shopping service and as a speciality service. when such use is required. as a means to an end) or an expressive motive (as an end in itself) provides a useful framework for service designers. Providing a service may or may not require the use of tangible goods. can be said to be fulfilling the need for learning. On the basis of the way in which services have been bought. Education is a service that is geared primarily to the consumer market. then.e. He may have tangible physical evidence to show for the service exchange transaction but the actual benefit accrued is purely intangible in nature. Even the institutions facing heavy demand have been confronted with the question of being able to choose the desired target customers. depending upon which resource is primarily used in the production of the service.2 SERVICE CLASSIFICATION AND EDUCATION A number of classification schemes have been developed to classify the whole array of services according to some chosen variables. but there is always a category of customer from whom education and the pursuit of knowledge are expressive motives. therefore it can be classified as a consumer service rather than an intermediate or industrial service. which provide want satisfaction and are not necessarily tied to the sale of a product or another service”1. education is essentially a people 6 . and therefore face issues like product differentiation. For specialised fields like management and computer education. skills) produced with the help of a set of tangible (infrastructure) and intangible components (faculty expertise and learning). though packages of industrial training are also designed for the organisational customers. as educational institutions. be they colleges or Universities or institutions catering to specific fields like ours. where the buyer of the service does not get any ownership. 15. competitive situation is changing. where attractive market potential has increasingly caused more and more institutions to be set up.3 By its very nature.

Shostack. Technical education is sought to be standardised through bodies like the All India Council for Technical Education. Intangibility Education like most ‘pure’ services is an intangible dominant service. cannot be easily replicated. finer distinction of intangibility into palpable and mental intangibility.6 For reasons of both mental and palpable intangibility: Education cannot be seen or touched and is often difficult to evaluate: It is therefore. see or feel.5 Accordingly education can be classified as a pure service with dominant intangibility content.3 SERVICE CHARACTERISTICS AND IMPLICATIONS FOR MARKETING OF EDUCATION 1. along a continuum of a pure tangible product with high tangibility dominance to a pure service with intangibility dominance. It also implies that as far as the service product features are concerned. postgraduate commerce and science programmes. it is often difficult to bring about standardisation of course design as resources/needs/objectives of different institutions may differ. need based course packages. who in her studies has stressed the intangibility characteristic of services has classified services on the bases of dominance of tangibility/intangibility. The consumer. Interestingly.A. Precise standardisation is difficult: For educational packages of same levels and bearing similar certification (e.based service though some service delivery systems may make heavy use of technology and equipment. suited to chosen target groups of customers or serving specialised/localised needs. Hence. the consumer gets something tangible to show for his efforts i. At the end of the service experience.4 Recent developments in open and distance learning systems have successfully countered the challenge of constantly maintaining high levels of contact.Sc.. impossible to touch. 7 .e. the added importance of faculty selection and motivation for educational institutions. Evaluation of this service however can be obtained by judging service content (curricula. by creating specialised kinds of user friendly course material and using multi-media technology to gain access to students. imperative to build in “service differentaition” in the basic product to enable competitive positioning. degree programmes. has implications for the marketing of the educational services. B. based on these evaluations. Institutions like Universities. constituent faculty) and the service delivery system.g. B.. opinions sought from others and of course a brand or corporate image of the organisation providing education. and B. the lack of standardisation also opens up the marketing opportunity of creating highly differentiated. has a number of alternative choices before him and may make selection on the basis of his own evaluation referrals. Only those discernible strengths which have their basis in the people resource. According to Bateson.Com. try to manage equivalence in standards through Boards of Studies which are generally inter-university bodies. Education as a service cannot be patented: This feature implies that courses designed or developed at one institution can be replicated and offered at other institutions. though. course material. Services have also been classified on the level of personal contact as low contact or high contact services. Educational Services 15. a certificate or a grade card denoting his level of proficiency at the given course/programme. management diploma and degree programmes) across universities and colleges. all advantages of a given competitor have an essentially perishable character. student workload.

level or variety or from the uniqueness of the delivery system. if there are no students enrolling for the course or to attend the lecture. like most other pure services. The benefit accruing to the student may emanate from the service product-its depth. like pure sciences and post graduate courses in languages. education displays this characteristic which results in certain features. to aid instant identification and recognition should be practiced. the capability of finding a better fit between the needs of the society and the design of the offering. Perishability Services are perishable and cannot be stored. when certain disciplines went out of vogue. ii) iii) 2. 8 . are designed to meet the challenge posed by the perishability character of services. width. Education. have made it possible for production and consumption of the service to be carried out at different times-the use of audio-video units and preparation of course materials sent to the students across the consumer population. would define the difference between an effective and a non effective institution. Branding through effective use of Institute/University acronym. Open and distance learning systems which make substantial use of technology.Sectoral Applications-II As these implications of intangibility become apparent to the service product designers and providers in the field of education. cannot be stored. No inventories can be build up: This is true of most services. To an extent. Course design and course offers need to be preceded by a need analysis of the target population before the decision to launch them is made. Courses need not be offered because the institutions have available expertise in an area or it is something that the institution has been traditionally doing. The marketing implications of perishability necessitate that a better match between supply and demand for educational packages would need to be made. In consonance with the marketing concept. or a lecture scheduled to be delivered. Nearly all universities at one time or the other have faced the problem of overstaffing. This points towards the use of marketing research techniques for service development (designing the course concept) and planning. citations and separate certificates for any special achievements or activities should be duly prepared and delivered in time to be meaningful. Concerted efforts at building up organisation’s reputation through performance as well as through skillful use of communication tools would need to be carried out to associate this ‘brand name’ with a desired ‘brand image’. but more than that it necessitates a shift from ‘institution orientation’ to a student or ‘customer orientation’. as well as education. Certifications for various levels of attainment. the evaluation system or the extremely high goodwill enjoyed by the institution. the following pointers to marketing planning emerge: i) Focus on account of intangibility should increasingly be on benefits delivered by the service system and the uniqueness of the package that is being offered. should be tangibalised so that the beneficiary has some physical evidence to show for his achievements. as an unutilised service like a course on offer. Production and consumption are simultaneous activities: This is true of most conventional teaching institutions where face to face teaching necessitates simultaneous production and consumption. however. This factor opens up the challenge of managing the service in the face of fluctuating demand.

............ it is difficult to ‘standardise’ individual performance i.................... Heterogenity Heterogenity in the context of services means that unlike product manufacturing situations where design specifications can be minutely standardised and followed........... perhaps...... which would force quality standards on education.... or the performance of the pass-outs at other competitive examinations.... the transfer of knowledge is directly from the provider to the learner.. In the context of education............ There is no transfer of the ownership of tangibles and intangibles which have gone into creation of the service product. it also means that the distribution mode is more often than not direct in the sense that no intermediaries are involved......... In terms of marketing implications.............................................. 4............................... 5................... a professional institution and a private college.3................ This heterogenity of performance renders service offers for the same basic “service product” from different institutes vastly different from each other...... but maintenance of a certain quality standard across ‘performers’ certainly is..................... open learning systems have overcome the characteristic of inseparability by incorporating the teacher into the material and bringing about a separation between the producer and the service... As noted before. Dwindling registrations in institutions.......... if possible let these include a University....... In the absence of accepted quality standardisation mechanisms in this context.. snatching away of “market shares” by more effective competitors is what is making institutions take a renewed look at quality of service delivery and mechanisms for maintenance of standards.......... Examples of these cues could be success rates of the placement programme........ This necessarily limits the scale of operations to the number of instructors available.e. That.. How do these institutions address the issue of standardisation of services? Do the processes to achieve standardisation vary with the type of institution? ... In the context of education........................... Payment of fees (price for the service) is just the consideration for access to knowledge and for the use of facilities for a given tenure...... constant and careful monitoring of standards which can provide cues to the prospective customers to aid choice of institutions... is not even a desirable goal in education.. the hetrogenity characteristic of educational services..... the absorption of the institutions product in the job market.... Educational Services 9 ...... Even though standardisation of courses according to some prescribed norms may be attained....... the customer only buys access to education. or derives the learning benefit from the services provided...... necessitates careful personnel selection and planning....... the standards of services. Activity 1 Study a few educational institutions around you.. Ownership Ownership or the lack of it also characterises service.. this translates into the need for the presence of the performer (the instructor) when the service is to be performed and consumed.... .... would depend upon who provides the service and how.......... that of the faculty resource person............ educational services included.... it is the market forces alone.. Inseparability Services are also characterised by the factor of inseparability in the sense that it is usually impossible to separate a service from the person of the provider......... A direct marketing implication of this inseparability is the need for obtaining/training more service providers as well as the need for more effective scheduling of operations.................... ...

for managment education. e) width of specialisation offered. Perishability may prevent storage of the service product and may add risk and uncertainty to the marketing of education. It is also important to develop an understanding of the criteria prospective students apply when they choose between competing institutions. In case of delivery systems where the performance of the service demands the presence of the instructor. The dominantly intangible nature of education service may make the consumer’s choice of competitive offers more difficult. and 10 g) fees. Some directions for marketing strategy for education may. specially in the event of fluctuating demand for courses/instructors/disciplines. A study in the Indian context. The basic question for strategic marketing planning that need to be answered are: i) What business are we in? In order to properly define the mission and the overall objective of the organisation it is essential to define what business we are in.4 MARKETING STRATEGY AND EDUCATION It has been pointed out in almost all studies on the subject of services marketing that strategic management and marketing strategy for each organisation needs to be unique in itself as it is organisation and situation specific. These are outlined below. f) infrastructural facilities. marketing of education would need to be localised and offer the consumer a more restricted choice. d) faculty expertise. c) past success rate of placement. consumers are willing to relocate themselves to avail of the service. 1. For an educational institution. high contact consumer service. be drawn keeping in mind the special characteristics of education as an intangible dominant. as well as the criteria they use to make choices. Who are our customers and what benefits do they seek? Identification of target markets and understanding the needs of customers. Are we in the business of transmission and propagation of knowledge? Are we in the business of creating new knowledge? Are we in the business of developing professional skills? Are we in the business of creating special skills or preparing people for a specific vocation? Or are we there to provide basic knowledge and training to people which will enable them to reach a level where they can make further choices? Answers to these questions will lead the institution to identify what it holds to itself as the organisational mission and overall objective. Of course. 2. b) number of applicants keen to enroll in the course. people based. or development of a specific kind of expertise or is accumulation of knowledge the real value sought? Since the purchaser of the educational service is primarily buying the expertise or knowledge he believes that the institution has at its disposal. 3. as institutions build up their “pull” in the market. reveals that some of the criteria used by students to choose between institutions were: a) reputation of the institution. Are they merely seeking a certification. it is important for the institution to be able to define the kind of expertise it is capable of producing. represents an important step in marketing strategy formulation. the task translates to determining what is the nature of the benefits sought by its set of ‘customers’. ii) . however.Sectoral Applications-II 15.

............ Examples can be found in the case of NIIT which identified the need for computer education and training in the Indian market and built up expertise to cater to clearly defined need segments in terms of basic learners........................................................................... to find out what are the precise benefits that each seeks from the experience........... Since education to an extent......................... task of positioning is a slightly more difficult proposition here. iii) How can we build or defend own competitive position? Every organisation has to consider an entry strategy into a market and then creation and protection of a competitive position............. .................................................................... Though a highly structured approach to research and development in a new service may be difficult...................................................... A preemptive approach to education planning suggests that ‘satisfiers’ to such needs be preemptively developed and offered before the need really becomes apparent to the consumers themselves.................................................................................................. Another example is that of Indian Institute of Management...... Ahmedabad..............Identification of criteria used to differentiate between competing offers may lead institutions to lay emphasis on developing competing strengths and creating perceived differences between their offers and the competitor’s offer........................................................... ......... job aspirants................. Activity 3 Identify educational institutions in your area which can be termed ‘highly successful’........................................ represents a derived demand dependent upon the final demand for desired qualifications for employment.............. ............................ What are the ingredients of their competitive strength? ..... ............. organisational customers needing customised packages and so on.......................... for generation of new service offer ideas...... ......... changing job scenarios............. Then................... Though a number of alternative positioning choices are possible for educational institutions... there is no reason why systematic organisational processes for generating and testing new course package concepts and weeding out old and unprofitable services shoud not be designed......... industry requirements and consequent need for qualifications may be one indicator to watch............................... iv) How should we offer new service offers that help/strengthen the competitive position? As needs and wants of the consumer population change............................................................................................................. ......... because of the absence of a strong tangible core to the service offer... study the programme/institute to find out how well the service product design and delivery at the institute are capable of delivering these benefits sought.... existing course packages or delivery systems may cease to satisfy them........................................................ These clearly differentiated positions enable these institutions to generate large number of aspirants and select the desirable quality of students.......... people needing to update their knowledge........................................ which through development and nurturance of highly specialised faculty resource and excellent industry interaction has built up formidable barriers to competition.......................... Activity 2 Talk to ten students of a computer education programme or institute........................ Educational Services 11 .. One of the basic ways to achieve a strong competitive position is to build up strong service differentiation which can generate a clearly focused organisational and product image in the consumer’s mind........... ..........................................

are the consumer benefit concept. Central to the idea of a service product. According to Groonroos. While the consumer benefit concept defines what benefits do consumer derive from a particular educational package offered. developing a basic service package.Sectoral Applications-II 15.5 THE MARKETING MIX As you know the traditional 4 P concept developed for marketing of products has been conceptually extended by Booms and Bitner to include 3 more Ps i. For decision making purposes it is essential to recognise this basic package as consisting of three elements. with respect to these elements of services marketing. the service concept defines the intentions of the organisation in respect of offering a certain benefit to the consumers.e. These are: the core service. It in imperative at the very outset of deciding the service product. Developing the education product. by considering these components. The Service Product-The Education Package While deciding on the education packages to be offered to a consumer population. the service concept has to be defined at two levels8. the starting point obviously has to be the consumer. the service concept is concerned with the definition of the general benefit the service organisation offers on the basis of the consumer benefits sought. The general service concept refers to the essential utility being offered (a computer training organisation offers solution to the problem of keeping up to date information flows within the organisation) while at the core of the service offer are specific offers (software training packages for bank employees). Let us try to elaborate the concept of service offer a little more as it has specific implications for marketing of education. according to the conceptualisation developed by Groonroos entails: developing the service concept. Let us. developing an augmented service offering and finally. as concepts of process and people have been integrated in the concept of the augmented service product. Physical evidence and Process. marketing orientation suggests that the offer should be fashioned as a response to the identification of the consumer benefits sought. Developing the right marketing mix for marketing of education would mean constantly fashioning and reshaping the components of the mix into the most effective combination of the components at any point of time. to outline the distinction between what an educational institution offers in terms of its service and what benefit does its larger population derive from it. Extending this to the education sector. People. the facilitating service (and goods). and 12 the supporting service . 1. (As explained in Unit 5 also) As already noted. Considerations of price and place have also been discussed. the service offer and the service delivery system. The ‘basic service package’ described the bundle of services that are needed to fulfill the needs of the target market. We shall mainly concentrate on the aspects of the service product and promotion. try to study what considerations do education planners and dispensers need to keep in mind. the service concept. and managing image and communication. the basic service package determines the entire package offer which is a designed to fulfill the learning needs of a target population. Thus at the very basic stage of the design of the education offer.

An efficient placement cell in the above mentioned example. The third element of service that goes to make the basic service package is the supporting services.The core service is the reason for being in the market. Supporting services which are essentially designed as a means of competition. An excellent basic education package. time used for other services 13 . interactions with the service organisation. the learning. in the form of books and prepared course notes. Educational Services Taking the example of a university. It is important for the planners to realise that if the facilitating services are not adequately provided. The basic service package. however. class and seminar schedules. A management institute exists because it equips people with skills and abilities to manage organisations. the facilitating services are necessary and the service package would collapse. it is important to make a distinction between facilitating and supporting services. The core benefit. along with its facilitating and support service elements may be made ineffective by the way students are handled or student interactions are managed. facilitating services should aspire to attain a quality level which enables them to become a competitive strength. A registration and admission service. in order to make it possible for students to avail these services.e. facilitating. Sometimes tangible goods are also required to avail the benefit of the core service. high quality residential facilities. and supporting service. Course material. accessibility of the service would depend upon: The number and skills of the persons associated with providing the core. However. if the facilitating services are not provided. How the whole service offer is perceived forms an integral part of the total product. good network of exchange relationships with business organisations. rather they are used to enhance the value of the core product and to differentiate the service offer from other comparable offers. From a managerial viewpoint. The Augmented Service Product integrates the concept of service process with the services offer. the core benefit cannot be consumed. do not facilitate the learning process but add value to the service offer by adding to the utility derived from the total offer. class schedules. they are also auxiliary to the core benefit but their objective does not lie in facilitating the use of core service. and library facility are required so that the students are facilitated in deriving the benefits of the core service i. counselling service. learning however. enabling students to make relevant specialisation choices. can still be derived if the supporting services are deficient or absent. Office hours. Faculty expertise and the accumulated experience at the institute represent the core resource for supplying this benefit. These services are called the facilitating services. diminish the value of the package if they are lacking. computers. Like facilitating services. instruction manuals. classrooms and class equipments are examples of facilitating goods that help access the core benefit. In order to effectively access the core package. additional services are required. The marketing strategy directive that can be developed here is that for highly intangible core service products like education. is not equal to the service perceived by the consumer. The basic service package and the elements that go into the service perception form what has been termed as the augmented service product. Three distinct elements which along with the basic offer go into the creation of the augmented service product as components of the perceived service process are: i) ii) iii) accessibility of the service. and consumer participation.

enquiries. attention. students inquiries. C. Tools. Interaction of the various subsystems with each other (faculty. Lexington Books. Lexington 1990. skill. study materials etc. In the above example the student is expected to fill in various forms.1: The Augmented Service Offer The Service Concept The Core Service Accessibility of the Service Facilitating Services Supporting Services Interaction Consumer Participation Source: Groonroos. The interaction between the service provider (the University) and its customer can be in terms of : Interaction with resource faculty (their expertise. office staff. results. quantity and aptitude levels of students involved in the learning process. The service rendered by the University would be dependent upon the quality of student participation in the above and allied activities. facilities. and to exercise choice options offered by the University? Are they reasonably aware of the time and flexibility dimensions offered to them? Are they prepared and willing to share information and feed back? Are there any quicker and more efficient ways of motivating participation? The augmented service offer can be diagramatically represented as shown in Figure 16. students welfare office. cleanliness. Reception-attitudes and willingness of response. payment receipts etc. 14 . facilities. accurate answers. equipments.1 Figure 16. Specifically the aspect of student participation that are relevant are : Are students knowledgeable enough to identify their need or problem. attitudes) Interaction with other service interfaces (admission. other service departments). “Services Management and Marketing”. noise levels) Interaction with accessory service system (waiting line for admission. evaluation.) Interaction between students and. The number.) Interaction with the physical environment (space.Sectoral Applications-II Exterior and interior of offices. exercise choices of disciplines and subject combinations and participate in the learning process through interaction and attention. maintenance. hostel wardens and proctors. classrooms. Customer participation is a concept which identifies the impact the receiver of the benefit has on the service he perceives. office personnel.

.. institutes of technology.. buyer need urgency........ computers and management tend to price their services on what the mrket would bear.. environmental and social considerations take priority over purely economic considerations...... Pricing of the educational offer however............... ......... typically in specialised fields like medicine............ engineering.............. instead it becomes a subject matter of public policy........ therefore the focus of the concern is not the course alone... prices charged depend upon economic condition.......................... the package has to be seen as a total offer along with its facilitating and supporting services............ Educational Services 2...In planning the total educational package offer. ........... the institutions like AICWA... In all such cases the price element is not controllable by the marketer... typically represented as ‘tution fees’......... (b) the training programmes offered to various cadres in your organisation................... so that the augmented education service offering can be effectively created and positioned..... the facilitating and the support services............ As most of these institutions operate in subject fields where demand far exceeds supply...... level of demand etc......... Pricing of the Education Service Pricing decisions for the service offer are of a major importance and shoud ideally be related to achievement of marketing and organizational goals......................... Most educational institutions..... in fact all public institutions like the Universities................................. where political.......... 15 ........... competition in the market place........ (c) the distance learning programme that you are undergoing now....... consumer feelings about prices...... in each case : (a) the university/college that you attended for your degree level...... interaction and consumer participation aspects as well as the basic service offer..... Activity 4 For the following products......... Autonomous institutions also subject themselves to formal self regulation of price for example............... on account of your familiarity with them identify the core service................... ......................... come under the category of services where price are subject to public regulation... Heterogenity of services and different pricing considerations used by different types of institutions make price a less important determinant of consumer choice in educational services. As planners identify that consumer perceptions are also affected by inputs other than the core service....... is subject to certain constraints and characteristics...... On the other hand private institutions........ medical and engineering colleges........... graduate courses in the basic disciplines) the more competitive would tend to be the pricing................... ............ the greater would be the ability of the providers to vary prices according to the buying capacity of the consumer population... attention needs to be focused on the accessibility.... and AICA are subject to institutional regulations relating to fee structures which they decide for themselves.................. Another generalisation that can be drawn from product marketing is that the more unique the education service offer.......... The more the services are homogenous (undergraduate................ Prices may be based on the ability to pay (fee structure relating to parents’ income in case of Universities) or some socially desirable goals (total fee exemption for women candidates in states like Rajasthan and Gujarat).....

For making their choices regarding a particular institution or a course package.Sectoral Applications-II Differential pricing. and to improve the quality of customers (students) seeking their services. the basic objective that promotion as a marketing tools is expected to play for marketing of education would include: Building awareness of the education offer package and organisation providing it. Eliminating perceived misconception. The nature of competition in case of educational institutions like Universities. technology and management institutes is such that they are unable to cope with their present demands and work loads. Promotion and the Education Services Offer The objective of promotion in education services is akin to its role in other marketing endeavours. Advising existing and potential customers of any special offers or modifications or new service offer packages. Professional and ethical considerations may prevent the use of certain forms of promotion. Accordingly. have not been able to use promotional tools effectively because of certain perceived notional barriers. What has to be realised however. Communicating and portraing the benefits to be provided. or use surrogate indicators of quality like the provider’s reputation or image. Persuading customers to use or buy the service. rather than as satisfiers of certain learning needs. supporting and augmented service offer. Creating and sustaining differentiation of the organisation and its offer from its competitors. prospective students rely mostly on subjective impressions of the institution. They perceive themselves as producers of certain educational programmes. They also tend to rely heavily on word of mouth referrals rather than published literature or material supplied by the institution. is that even such institutions need to use promotion for image creation and to sustain as well to maintain a secure market position. The practice of charging different fees for the sponsored candidates and the non sponsored ones is common in professional courses. This lack of marketing orientation. Some of these barriers are: i) Most educational institutions are product oriented rather than market or student oriented. Generating detailed information about core. Established educational institutions may regard the use of mass media advertising and sales promotion as being in bad taste. facilitating. The nature of consumer attitudes regarding education and their perception of mass media information sources may sometimes preclude the use of intensive promotion. so is the practice of charging differential fees from full time and part time evening participants of the study programme. ii) iii) iv) 16 . Educational institutions however. 3. based on the consumer’s willingness to pay may also be utilized for the education service. keeps those managing educational institutions from realising and exploiting the role that promotion could play in attaining their organisational objectives. They therefore may not feel the need to promote for demand generation purposes. Building and maintaining overall image and reputation of the service organisation.

as also because of prevailing ‘industry tradition. b) Emphasise Service Benefits Based on an identification of benefits sought. Restrictions on advertising for several professional services are being slowly relaxed. c) Make Realistic. Attainable Promises Education by its very nature is a high reliability service. Educational Services 17 . depth. quality and level of service offers by a given institution. records of attainments and past success figures.’ promotion of educational service has tended to rely more heavily on the component of publicity rather than any other element. advertising for the educational product should emphasise the benefits to be provided rather than the technical details of the offer. non marketer dominated sources in case of education marketing may be more important to the consumer. Growing competition and the threat of losing market shares has awakened many a institution to realise the importance of mass media tools like advertising for organizational as well as service offer promotion. consistent use of themes. Some guidelines that can be used while applying this powerful tool for generating awareness. Positions could be built around innovative teaching methods. so that their images are discernibly different in the eyes of the consumer population. f) Develop Continuity in Advertising Most successful institutions position themselves in different ways. provide the prospective target population with tangible clues to enable them to make choices. d) Build on Word of Mouth Communication and Referrals As noted earlier. delivery system. Promises in terms of performance of services therefore should be realistic. progressiveness. research and development possibilities. international orientation. Once a theme has been identified. tradition of quality. flexibility. where expectations are high. Educational organisational should therefore build upon the importance of word of mouth communication by persuading satisfied consumers to share their sense of satisfaction with others. Simple Messages The real challenge in advertising educational services lies in communicating the range. Unfulfilled promises create dissonnance. e) Provide Tangible Clues In terms of certification. range and depth of specialisations offered. directing ad campaigns at opinion leaders. in simple. supporting services or a combination of any of the above. faculty expertise. symbols and images enables recognition of the organisation and its association with the desired values.Due to some of the above considerations. interest and enrollment are summarised below: a) Create Clear. unambiguous form. Studies in the field of marketing of services indicate that the reluctance towards using mass media advertising or sales promotion is partly due to the inherent psychological barrier and partly due to the misunderstood role of these tools. and encouraging potential consumers to talk to existing consumers. formats. The need of giving pertinent information has to be balanced against the need to avoid wordy copy.

.......................................... being technology or people based......... distance learning in education) Can some competitive advantage be gained by developing alternate/different norms of service location and delivery? How do flexibility.. It is important......... it is not natural resources or natural wealth which distinguish an affluent society from a backward one. that a marketing orientation be applied to the conceptualisation.......... then.. in order to plan the service offer well and deliver it effectively...... residential and canteen facilities and so on) b) c) d) e) Answers to issues like the above underline the critical importance of the location decision and may result in more systematic approaches than in the past........... vocational training centres etc...... because of buyer need urgency and the nature of the utility derived..........g..... Also........................ and the criteria they use to exercise choice....... 15...................... however have a public relations office.............................. Place Decision and the Education Service In most cases the educational services represent the single location and direct distribution processes with no intermediary between the producer and the consumers of the service. Education planners..... Depending upon the competitive situation..... design and delivery of educational service....... where resources are scarce and a better match between needs and services provided needs to be attained.........6 CONCLUSION In the present era........ Talk to the public relations officer of a few public institutions to find out the type of ‘communication-mix’ used by the institutions.......... accessibility and convenience for educational service location are not as critical a factor as in case of.. The key to better delivery of the education 18 ...................... People however differ in the benefits they seek from the educational services offered to them.................................... say.....................) How critical are complementary services to the location decision? (Transport to and fro....... try to explore in each case why mass media advertising is not being used for market cultivation? . The learning process is usually accomplished by the user of the service going to the service provider......... public health education centres...g................... ... This is even more imperative in a developing country like India....... affect the educational service offer in terms of flexibility in location and relocation? Is there an obligation on part of the institution to be located in a convenient site? (e...............Sectoral Applications-II 4.. family planning training centres.. ............ it is the accumulation and development of the knowledge resource................ a banking service....... Education was never as important a utility as it is today. Most of the public institutions... the factors that have marketing implications in terms of location are: a) What is the market demand? Will the purchase of service be postponed or negated if the institution is not conveniently located? How critical are accessibility and convenience in service choice decision? Are competitors finding alternative ways to reach to the markets? (for e. in order to be able to satisfy these needs and wants effectively................................... Activity 5 Promotional activity in most educational institutions barring the private ones is noticeable by its absence.. However.................................. need to understand the behaviour of the target population..................................

The Marketing of Professional Service (London : McGraw Hill 1972). Prentice Hall. People therefore represent the starting point for analysis to precede conceptualising the service offer and developing it into a marketable service package.8 FURTHER READINGS 1) 2) 3) Kotler. Educational Services 15.9 REFERENCES 1) 2) AMA Definition of ‘Service’ as quoted in. N.7 SELF-ASSESSMENT QUESTIONS 1) What are the marketing implications of intangibility. Wilson. 7. no 1. Stanton. facilitating and supporting services for marketers of education? Discuss the concept of an augmented service products with the help of examples from the educational services. perishability and heterogenity for education services? Discuss with the help of suitable examples. Fundamentals of Marketing. W. 1977 Vol 11. Marketing Insights from a Classification of Services. New York. Describe the components of this ‘interaction’ for any educational institution of your choice. define the general service concept and specific service offer for a) A computer institute b) An in-house training programme for sales personnel c) Refresher courses for senior executives 4) What are the implications of core. The interaction between the provider of an educational service and its customers can be at various levels and in different forms. inseparability. july. Toward a Theory of Professional Service Marketing (Industrial Marketing Management.E. The education service offered by the institution must reflect the organisational response to the identified needs and wants of the target segment. Swan J.service is not that it is performed by people but that it is performed for people.. What are the major promotion objectives that an education service provider may seek? Are these objectives in any way different from those sought by product marketers? Comment. p. 1982).J. What are the levels at which a service concept has to be defined? Applying the generalisation developed by Groonroos.O..J. 15. 1978). Gummersson. Aubrey. 441. 1981. 2) 3) 5) 6) 7) 8) 15. 19 . Use examples to support your answer.. Philip. McGraw Hill. American Journal of Small Business. Evert. Identify the major barriers to effective use of promotion by educational institutions. What steps do you suggest could be taken to overcome these barriers? Evaluate the criticality of the location decision for educational service. Using the criteria of different benefits sought by target customers. Marketing for Non-Profit Organisations (Englewood Cliffs. in a given socio-economic context. Vol. how can educational institutions build or defend competitive positions. and Pruden H. Does the significance of location decision vary over types of educational services? Justify your answer with the help of examples.

Sectoral Applications-II

3) 4) 5) 6) 7)

Classification by Thomas T. from Levelock C.H., Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing, Summer pp. 11-12, 1983. Kotler, Philip, 1986 Marketing Management, Analysis Planning Implementation and Control. Prentice. Hall of India, New Delhi. Shostack G.L., Breaking free from Product Marketing, Journal of Marketing, Vol 41, no. 2, April 1971, p. 77. Bateson, J., Do we Need Service Marketing? Marketing Consumer Services: New Insights, Report 75-115, Marketing Science Institute, Boston 1977. Booms, B.H. and Bitner M.J., Marketing Strategics and Organisation Structure for Service firms in Donnelly J. and George W.R., (Eds), Marketing of Services AMA, 1981. Grooroos, C., Services Management and Marketing, Lexington Books, Lexington 1990. Cowell, D., The Marketing of Services. William Heinemann, London, 1984.

8) 9)


After going through this unit you should be able to: evaluate the importance of marketing applications to advertising agencies; apply the general concepts of marketing, to advertising industry; identify the various styles of growth in the context of advertising agencies; discuss the content of growth strategies for advertising agencies; explain the positioning and competitive strategies for advertising agencies.

16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 16.9 Introduction Application of the General Concepts of Marketing to an Agency Setup Agency Growth : Its Style and Content Agency Positioning How Does Strategy Vary with the Size of the Client? How Does Strategy Vary According to Size of Agency? Conclusion Self Assessment Questions Further Readings

The growth of study of modern medicine around 1700 witnessed a movement from panaceas to specific diagnosis and the search for specific remedies against specific ills. Similarly the study of services marketing can benefit more by concentrating on specifics, focussing at smaller sub-groups of services business and identifying what can be done with the marketing variables in each of these fields. With the advertising business in India growing rapidly, with many new small agencies entering the market, some even closing shop and brand casualties increasing, the need to look at the marketing concepts that apply in this industry is stronger than ever before. If advertising is looked upon as the brand building activity, then future brands need to be invested in by studying the marketing of professional advertising services. An attempt in this direction is being made in this unit. This attempt shall be broken up into three parts. a) b) c) Application of the general concepts of marketing of services to the advertising industry. Identifying the style & content of agency growth. Understanding Agency Positioning & Strategy.


Sectoral Applications-II

i) The 4 Ps : Kotler defines a generic marketeer as one creating value through configuration, valuation, symbolisation & facilitation. In an advertising agency scenario this includes the design of the advertising services package, whether the services offered are inhouse or from freelancers, the range of services offered and the intensity of service offering of each of the services in the range. Valuation is the media commission earnings of an agency which are fixed at 15% (until an agency offers unethical discounts). However, valuation of other services in its package can vary as can its art charges. Symbolisation is what the agency is perceived as by its target audience. Alternate sysmbolisation alternatives can include positioning by size, by creative talent, by auxiliary services, by markets etc. Facilitation has more to do with accessibility of service and ease with which client can tap each of the service offerings of the agency. The production consumption interaction in advertising allows for direct distrubution only. Three More Ps : The above four concepts corresponds broadly with the four Ps of marketing. However, in the marketing of services 3 more Ps are important. These are personnel, physical facilities and process management. Though these three Ps deal with the preparation of the service, they are as important as the other 4Ps. This is so because the consumer is very often taking part in the shaping of the service offering. The production and consumption interaction is a unique characteristic of the service industry. Consumers can influence not only accessibility of a service but also communication about it. A dissatisfied consumer, research proves, will influence a large number of people to abstain from using the service. The process management and physical facilities are critical as they work together every time to prepare the service for the consumer.


iii) Service : A Non-standardised Product : Factories have set formulas for ingredients so that the consumer knows exactly the type of product he is going to consume. For an advertising agency, there is usually no standardised product. When an agency is called by client for consultation on a problem, the solution to the client’s problem may well lie with the three other Ps (Product, Price, Place), than with promotion. Interaction between client and agency may bring out the fact that advertising is not the right tool to use at this point of time. Should the client’s problem lie in the area of promotion, the solution may demand market research or it may need a direct marketing campaign instead of media releases. Hence a good client servicing person in an advertising agency can not be given a predetermined product to sell. iv) Service : Where Product Quality needs Renewal on Every Purchase : While all products produced by a factory may meet predetermined quality norms, in the service industry giving the consumer consistent quality may not be as easy. This is because the service has to be renewed with every purchase. Because a service has to be created every time the customer demands it, there is a production consumption interaction while the demand is being fulfilled. As service is usually given personally, the interpersonnel dynamics between the people offering the service and the consumer has to be nurtured so that the renewal of the service meets certain norms of both service quality and consumer satisfaction. In advertising, agencies giving good creative inputs may also be changed by clients because servicing may not be able to create a positive experience in the client’s mind. The production consumption interaction in such a case does not meet client’s


demand of service quality, hence consumer dissatisfaction is expressed. An appreciation of the renewal aspect of service brings out the importance of people and process (Two of the three new Ps.) v) Service : An Intangible : With no physical ownership rights existing on the offering to the customer, no transfer of ownership can take place as in a tangible product. Also, unlike a physical product, they can’t be evaluated easily by taste, smell, feel etc. While the agency’s output may help to sell physical products (sometimes services too) of the client, the agency has no physical product itself to sell. Its physical products at best may be artworks, which by themselves have no value. Alternatively the agency could be considered as selling time and space on the air and in the press. Evaluation of its service, however, can only be done overtime by the response it generates. There are no tangible ways of measuring it today.

Professional Support Services : Advertising Agencies

Activity 1 Visit an advertising agency and collect information to analyse the way the 7Ps have been applied to the service. ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ...........................................................................................................................

A) Content/philosophy of Growth Agency growth is a dependent variable. The business philosophy of a good agency defines its growth, as a dependent variable of the client’s growth. Thus the primary task of an agency is to make its client’s products grow. In the long run when planning for growth of the agency, it becomes very important to develop skills that nurture and foster the growth of the client organisatioin. Though physically agencies may execute artworks, write copy, produce films, plan for media buying and provide routine servicing to clients, this is only the outer manifestation of its real business. The real job of the agency is to build brands, increase market shares, penetrate new markets, influence product development and planning, understand, participate in and may be, even influence marketing strategies. The job again may not end here. A client organisation is different from a brand. It may have needs of corporate communication which may have to be identified and then fulfilled. The client as a corporate identity may be evolving. The agency could participate in its process of identifying new markets, new products and new business. Thus an agency should grow not only with the brands that it helps to build but also evolve and grow with its client organisations. B) Style of growth As with marketing of any business firm, there are three objectives that professional firms also seek: sufficient demand, sustained growth and profitable volume. To achieve these objectives professional firms need to market themselves. The three styles of marketing for an agency (as for any professional firm) can be: minimal, hard-sell and professional marketing. 23

Sectoral Applications-II

Minimal Marketing : Minimal marketing is practiced by many firms offering professional services. These firms dislike thinking of themselves as businessmen, instead state that they are motivated by service. They think of marketing as a salesman’s job and look down on business solicitation. They believe that their good work will get more clients. Hard Sell Marketing : Hard sell marketing is at the opposite end of the spectrum to minimal marketing. It reflects a total sales orientation, offering price discounts, bad mouthing competition, offering referral commissions and indulging in practices bordering on violating professional codes of ethics. This approach forgets like any sales oriented approach, that there is more to business than attracting clients. Marketing involves a discipline of identifying and cultivating a market, choosing targets, developing services, formulating plans etc. Professional Marketing : This approach to marketing of professional services is in consonance with the professional code of ethics. Such an approach involves: planning for long-range marketing objectives and works out strategies to match; training staff to improve the efficiency and effectiveness of marketing and personal selling; allocating time and budget to support marketing activity; and ensuring that quality of professional services offered currently does not suffer as marketing activity is increased. Such effort is usually preceeded by gathering data about the market. Strategies are evolved thereafter. These strategies may include “service” or “market” sepecialisation. Specialisation in any particular service/range of services may give and agency a cutting edge with clients who are looking for those services. Similarly specialising in certain type of markets (say “public issues” market) may pre-empt segments of the market to the agency. Another strategy may be of expanding services to current clients. Activity 2 Study the advertising scene in India by looking at agency profiles reported in magazines like A & M, Business Today, Business India, etc. Analyse the patterns of agency growth to give examples of minimal marketing, hardsell marketing and professional marketing. ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ...........................................................................................................................

One way of defining Positioning of an advertising agency could be: “Bringing the right people together and making them work effectively for a brand”. This is an incomplete definition for it ignores the ‘consumer benefit’ approach or the client’s point of view. Clients have specific needs when searching for agencies. Agencies have more strengths in certain areas. Symbolisation (or positioning) is the ‘value added’ dimension agencies give to these strengths so that the client perceives them as fulfilling his specific needs.


Positioning by Size
A client may be looking at a “big” or a “small” agency. The positioning statement for a “big” agency includes “full infrastructural back up, many branches, the ability to think and act big, benefit of experience of handling many product categories etc.” Positioning staement for a “small” agency includes “flexibility, personalised service and attention, innovation, quick turnaround time and ability to go that extra mile for a client and his product etc.”

Professional Support Services : Advertising Agencies

Positioning by Talent
It must be remembered here that an agency has to offer full fledged services. However its positioning may be decided by the strength it creates in one particular area. Creative oriented : The client may be looking for agencies which are capable of delivering strikingly different creative output. This positioning can cut across the size barrier. The “small” agency too can position itself in this slot, earning the label as “creatives hot shot” for itself. Clients may find strikingly different creative output very suitable in product categories where technology has matured and no distinct product advantages exist. A client may need to bank upon creative to create a “communication difference”. Marketing input oriented : Some agencies may have strengths of having good brand thinkers. This, then, becomes the point of differentiation for the agency. Clients, too, may look for such agencies with whom they can discuss marketing strategies. The benefit offered by this positioning to the client is a better interpretation of the marketing concept into advertising. Others : Other alternatives could be based on talent in the agency. For example an agency may be able to offer good “servicing input”, another may have excellent “media planning” skills etc. Positioning by Auxiliary Services Agencies can position themselves by offering additional services like in-house “market research” services. Further alternatives are “Direct Marketing”, “Public Relations” etc. These package of services can help give and agency the extra edge with clients whose usage level of such services are high. The synergy of advertising with market research or direct marketing is the consumer benefit offered by agencies choosing this positioning alternative. Positioning by Markets It is possible for an agency to position itself by markets, too. Some agencies in India specialise in “public issue” advertising. Their positioning in this segment is so strong that few consumer product launches are done by these agencies while the bulk of the public issues business in the country is diverted to them. There are also some agencies whose bulk business comes through publishing “Tender Notices” of public sector undertakings. This is another example of specialisation by markets. It is possible for agencies to specialise in industrial products advertising or retail advertising. Positioning by Price Though professional code of ethics do not allow any discounting practices on media commission earnings, some agencies position themselves by offering discounts to clients.


................. Media Planning: Should focus on low cost.... “Create positioning” When the client is young and small and is launching a new product.................................. based on gut feel. 26 .... Creative: Client Focus: Should never let the focus shift from the brand positioning in the flood or ideas coming in....................... Even when a brand has succeeded in an enterpreneurial set-up. .... Quick responses of client and agency as they fine tune the positioning in the market place are critical.... Different expectations from agency in enterpreneurial.......... The demands from various departments of the agency for an enterpreneurial client are as follows: Servicing: Personalised to the enterpreneur........ The basic agency task is however to create a brand positioning strategy for the client.............. a) Client: Enterpreneurial Agency Task: “Nurturing of new brand”............. resources and markets? .. capable of thinking on his feet.......................... looking at its infrastructure.............. medium size and dominant brand positions are discussed here. Decision Making: Quick.......... Servicing person: Should be senior. Two scenarios are discussed here: i) When client’s growth is faster than the market growth Here the focus moves to one of strategic planning for a brand to become a leader.... Can you analyse the positioning the agency has sought to achieve? What are the alternative positions for this agency.... ....5 HOW DOES STRATEGY VARY WITH THE SIZE OF THE CLIENT? The nature of inputs required from an agency vary with the size of the client and the brand........................................ an agency must devote time to their needs which are usually unique and require an enterpreneurial decision making streak in the agency as well.....Sectoral Applications-II Activity 3 Look at the advertising agency that you studied for Activity 1.................. .................................................. Agency should understand this.............. this is an enterpreneurial phase for the client......... In early enterpreneurial phase may be survival.......... unconventional media........... 16...... if backed by sound marketing thinking at client/agency end usually lead to success and rising brand shares................ Must have knowledge of Account Planning...... The services the client demands of the agency must be able to comprehend the growth pangs of an enterpreneurial organisation and even though such brands usually bring low levels of billing......................... Quick decisions and quick reflexes of an agency are critical as enterprenuerial marketing is like guerilla warfare........................................... Such tactics...... Account Planning: Should be capable of evaluating if client’s gut feel meets marketing logic..................................... b) Client: Medium Size Agency Task: “Strengthen brand positioning” to build brand leader..........................

The brand positioning has to be guarded here against imitators. Where a medium-size brand has been dormant for a long period of time in a market which is otherwise growing at a healthy rate. Repositioning of a brand becomes the major brand building task of the agency. The client should be motivated to relook at pricing and distribution strategies by the agency. which. c) Client: Market Leader Agency Task: “Maintaining” dominant brands When brands are dominating ones in their product category.the agency for its next phase of growth may have to alter its style as the client may enter new markets and segments by now and even though servicing may still be personalised. It must be made long term here by agency advice. But agency should meet second line marketing people to receive market feedback directly (In nonenterpreneurial situation: It is heirarchial and partly personalised). Decision Making: Formalised Account planning: The key input to strategy here is Market Intelligence (what the competitors plan to do) as as to pre-empt. it may be useful for the agency to use some enterpreneurial concepts in both product and promotion design to make the brand an active player again. 27 . Defensive for brand position and share. Client’s marketing has to participate in this. to dilute focus on gut feel only. Account planning: Should be the key agency focus so as to heighten brand positioning or to “reposition”a slow moving brand. The focus is on “pre-emptive” strategies and not “attacking” strategies. Aggressive strategies at this stage may drain more financial resources than they can generate. it should use media differently or design the message differently. and market share can be increased only marginally. In other media. Creative: Media Planning: Client focus: Defensive strategy for brand position. with the category itself nearing maturity stage. account planning will need to be more formalised keeping many more variables in mind. reminder level to be maintained. following heirarchial structure. Professional Support Services : Advertising Agencies Decision Making: Agency should promote formalised decision making based on Account Planning recommendations. Focussed for those target audiences which competitors are planning to tap. Media planning: Has to think of using mass media judiciously. at an enterpreneurial risk-taking stage may have been ignored. offensive for competitive threats. the key function is of maintaining brand shares. Competitors’ strategies have to be preempted and defensive mechanisms worked out. For building brand leaders. ii) When market growth is faster than client’s growth rate. The basic agency task here is to sterngthen brand positioning to build a brand leader. Media Dominance Strategy has to be worked out. The focus for different departments of the agency for a medium size client are as follows: Servicing: May be personalised still. The focus of various departments of the agency for a large size client is outlined below: Servicing: Formal. Creative: Client focus: To make brand distinction totally different from others.

......................... Analyse the‘Agency Task’ with respect to each type of client.......... if at all................ “Create Brand Positioning” Enterpreneurial needs in servicing..... ............... The opportunity is that the success of the brand is the key of the agency’s success.................................... Clients..................... the agency should catch the enterpreneur who has a good product.............................. Or If brand not moving well: “Reposition” it. “Strenghten Brand Position” Account planning needs dominant.................. At this stage. The success of the brand then becomes the sucess of the agency....... planning & execution..............Sectoral Applications-II Viewing the above analysis according to the stage of the product life cycle of the product would generate the following conclusion: A.......................... In case a small agency has a large brand. medium & large size agencies are discussed here........... i) The Small Size Agency Small agencies by their very size usually do not have very large brands to work on....... “Guard Positioning” Maintenence for dominant brands... The agency focus then largely becomes enterpreneurial... needing strengths in certain service areas would find such agencies useful............ ... where the agency should have an ability to select clients whose products have a USP which is capable of becoming a benefit................ C.. highly desirable to a particular target audience in the market..................... How would you say the task varies between clients.............. If the agency realises this fully and establishes a healthy professional working relationship with the client it could be mutually very beneficial.. Hence the agency could become overdependent on the brand.. giving a growing brand the attention it deserves........ 16....... Hence mortality rate of small agencies is higher than for medium and large scale agencies.......................... agencies having good studio facilities could cater to clients who have needs of printing or other work requiring high quality artwork..........e... However... Activity 4 Select an agency which caters to several clients............. B........... For example............ .............. . faulty selection and non-payment by the client is a risk....................... agency strategy involves a search for the right clients i......... The constraint is that the brand portfolio of the agency is very narrow... its revenues become largely dependent on the brand........ especially when it is unpleasant for the client.......... it 28 ....6 HOW DOES STRATEGY VARY ACCORDING TO SIZE OF AGENCY? The strategy options for small. The other alternative strategy for a small size agency could be to offer some specialised services........ In the long run...... The agency would devote its fullest energies to the success of the brand... Such dependence may hamper giving professional advice................. This is both a constraint and an opportunity..... irrespective of size...........

The advantage of the medium size agency is clear. Due to the size of such agencies. This leads the “innovator enterpreneurs” who are creating new product categories and attacking new markets to look elsewhere. The launch strategy for these “sister” agencies could well be a positioning stance that is the antithesis to the larger parent agency. Yet another strategy could be to create industry standards in auxiliary services like market reserach by setting up independent companies to handle these services. it is neither too big to be unaffected by a change in any client’s health neither is it too small to avoid offering comprehensive advertising services. unlike factories. Hence a large agency’s client list reads like a who’s who of brands. With more than a couple of brand leaders bringing the front. The advantages of such a scenario are obvious. The production consumption interaction not only calls for direct 29 . It therefore makes eminent sense for large agencies to set up smaller “sister” agencies who can not only handle such clients but can also pick up competitive brands to the parent agency’s brands. major brand players in their market and a handful of small clients who have a potential for becoming leaders tomorrow. Neither is it too small to avoid investing in full fledged infrustructural support services. manufacturers etc. advertising is a dynamic situation where every output of the agency is different from the previous one. A leading agency. “Another strategy is to help in creating better training facilities to train professionals for advertising. the sister agency could well be a maverick.would be advisable for the agency to diversify its client mix. The key benefit a medium size agency offers its clients (its positioning statement) is that it is not too big for its clients to lack personalised agency attention. should consist of “today’s bread winners” who are some large brands as well as “tomorrows bread winners” which are small brands the agency is nurturing to become brand leaders. “more time for client” etc. This creates goodwill as many students may move to client organisations. which have standardised products. This would get both type of clients and brands and diversify the product/client mix of the group. Professional Support Services : Advertising Agencies 16. iii) Large size agencies A large agency must heighten its positioning as a leader. This can be done by setting industry standards. The positioning also reflects itself in clients chosen: they could be smaller say retail v/s. ii) Medium Size Agencies A medium size agency should invest in tomorrow with small brands that it builds into leaders.7 CONCLUSION In short. Its product portfolio. It should have a balanced client mix. Therefore it can claim to offer the best of both worlds to a client. This could also be done through organising seminars for both agencies and clients. Such services can be used by both. produced an Urban Market Index and Rural Market Index which not only helps other agencies but also clients in their planning. for example. Such an anti-thesis positioning would be useful when a larger growing segment of brands have a potential of succeeding using such a positioning stance. clients and other agencies. hence preserving the pre-eminent place for the agency in the long run. for recessionary market conditions in the agency’s major brands market and a subsequent financial involvement would be unmanageable for a small agency. it becomes unviable to handle brands which generate turnovers below a certain size. The disadvantages need looking at. It also helps to attract the best talent. Usually the anit-thesis positioning of the smaller agency is “better servicing”. half a dozen or more. If the larger agency is perceived as one following classical rules of advertising. The latter is identical to a “multi branding” strategy used by dominant companies to maximise market share in large markets.

. on one hand and agency personnel on the other. MA: Maister Associates.J. in the final analysis is known by the brands it builds. and creating a USP for a brand. 16. Contrast the minimal marketing. An agency.9 FURTHER READINGS 1) 2) 3) Maister David H. The Marketing of Professional Service (London : McGraw Hill.8 SELF-ASSESSMENT QUESTIONS 1) 2) 3) How do the marketing mix elements relate to advertising agencies? Explain by giving specific examples. hardsell marketing and professional marketing approaches in the context of ad agencies. Advertising is a game of bringing out the differences among two products.. Advertising is a business of managing people: clients. Marketing Professional Services (Englewood Cliffs. 1972) Philip Kotler and Paul N. Which of them do you consider most relevant looking at the advertising scene in India today? What do you understand by ‘Positioning’? What are the positioning alternatives for ad agencies? Explain with the help of examples. That is what successful agency positioning and agency growth are all about. perishability and intangibility for ad agencies? Explain in detail. What is the significance of service characteristics like non-standardisation.Sectoral Applications-II distribution but is the prime determinant of the output. An agency must develop this ability to make a difference for a brand and therefore for itself. 30 . 4th ed. (Boston. Professional Service Firm Management. The key task is to maintain enthusiasm and a desire for excellence among all of them. Aubrey. 1989) Wilson. How do strategies and client focus vary according to the type of client and the agency size? Illustrate your answer with suitable examples. : Prentice-Hall. 4) 5) 16. N. 1984). Bloom.

1 17.8 17. This will not only help in the development of the IT industry. The Government of India has recognized that provision of world-class telecommunications infrastructure and information is the key to rapid economic and social development of the country.9 Introduction Growth of Telecom Sector in India Tariff Issues Sector Dynamics and Implications for Firm Level Competition The Changing Market Structure Service Quality Summary Self Assessment Questions Appendix Appendix 1 : Chronology of Indian Telecom Deregulation Appendix 2 : Key Features of NTP 99 17. Radio Paging. which operates through two government bodies — the Telecom Commission and the Department of Telecommunications (DoT).7 17. The Telecom Commission performs the executive and policy-making function.1 INTRODUCTION The telecom sector in India has witnessed rapid changes in the last few years.6 17. The Telecom Regulatory Authority of India (TRAI) is an independent regulator that reports to Parliament through the Minister.3 17.5 17. etc. The first step in this direction was the announcement of the National Telecom Policy in 1994 (NTP 94). This provided for opening up the telecom sector to competition in Basic Services as well as Value Added Services like Cellular Mobile Services. describe the service quality parameters for telecom service providers.4 17. the DoT is the executive and policy-implementing body while the TRAI 31 . consumer electronics and media industries across the globe. This was followed by a New Telecom Policy declaration in March 1999 (NTP 99) to remove some of the bottlenecks and push the liberalization process forward. It also set targets for provision of telephone on demand and opening up of long-distance telephony. but will also provide for widespread spillover benefits to other sectors of the economy. VSAT Services. Structure 17. understand the key issues related to pricing of telecom services.UNIT 17 Objectives TELECOMMUNICATION SERVICES After studying this unit you should be able to: understand the growth trends in the telecom sector in India. The policy maker for India’s telecommunications sector is the Ministry of Communications and Information Technology. There have been far reaching developments in Information Technology (IT).2 17. highlight the competitive structure in the telecom industry.

Table 17. Reliance Telecom Pvt. Secretary. now BSNL MTNL Bharti Telenet Ltd.. Haryana. the policy was changed to allow unlimited entry into each circle for basic services and subsequently 22 additional 32 . According to a report by Ernst and Young (E&Y) this teledensity is expected to cross 20 percent by 2008. MP. Bihar. the global wireless revolution has been the principal growth engine in India. Gujarat. As in the other parts of the world. number of phone connections per 100 persons in India was 2. DOT. According to the report the total telecom revenues in India are expected to almost triple from $9 billion in 2002 to $2325 billion by 2007.P. TN. the bidding process led to six new entrants in basic services. while the share for MTNL has dropped considerably. the entire country is divided into 21 telecom circles. Delhi. 2003. which are two metro license areas. In 1998. New entrants were allowed to offer intra-circle long distance services. Karnataka. while Table 17.2 GROWTH OF TELECOM SECTOR IN INDIA Telecommunications was not perceived as one of the key infrastructure sectors for rapid economic development during the formative years of the Indian economy. Table 17. TN Gujarat.e.2 presents the subscriber base corresponding to each operator..Sectoral Applications-II performs the function of an independent regulator. Delhi. AP. HP. while Mahanagar Telephone Nigam Limited (MTNL) serves Delhi and Mumbai. For the provision of basic services (fixed line). 1999). HFCL Shyam Telelink Ltd. quantity and range of services provided. Ltd. India restricted the number of licenses awarded for basic services. The market was divided into separate circles and the policy admitted one private operator in each to compete with the incumbent DoT (now BSNL) and MTNL. In the year 2001. Ltd. 1997 and March. UP(W). WB Punjab Rajasthan Name of Service Provider Department of Telecommunications. excluding Delhi and Mumbai. Punjab.) Tata Teleservices Pvt. Ltd. Initially. UP(E).P. (earlier Hughes Ispat Ltd. 17.. The relatively low levels of investment in this sector affected the quality. Rajasthan . Tata Teleservices Pvt. Delhi.1: List of Basic Service Providers and their Area of Operation Area of Operation All over India Delhi & Mumbai M. TN Maharashtra A. Kerala. Karnataka. ITU. BSNL’s market share has increased from about 80 per cent to 84 per cent between March. but DoT maintained its monopoly on inter-circle National Long Distance (NLD) telephony.2 while the world average was 14. Orissa. Haryana. is the exofficio Chairman of the Telecom Commission.26 (World Telecommunication Development Report. BSNL (erstwhile Department of Telecommunications (DoT)) provides basic services in the 21 telecom circles.1 shows the list of basic services operators in India . Bharat Sanchar Nigam Limited i. Mah. Karnataka. In the early years after liberalization.

489 26. Jammu and Kashmir.432.624 91.629. K orea Finland. fixed-lines and mobile.327.721 28. fixed -lines n Ca mb odia. were awarded in October 1994.e.926 4.1. (Circles have been classified as category A. 1999-2010 ITU Figure 17. For two circles.394. bidding resulted in the award of licenses in 18 Circles. with the current structural changes in the telecom sector including the move towards unified licensing it is more than likely that this will happen earlier.5 million 33 . no bids were received. y.973 233.913 13. Nil Tata Tele. B and C based on market characteristics and telephony potential in diminishing order of attractiveness). Hughes Ispat Ltd.080 370. A list of existing cellular operators and their area of operation is provided in Table 17.801. Table 17. In India.696 21.740 Nil Nil Nil Nil Nil Nil 3.012.709 180.031. and Andaman and Nicobar Islands.980 6. nd.e. Interestingly. 2003 BSNL controlled 84.534 82.963 In the year 2003-04 while the fixed lines including WLL (F) showed an increase of 3% over the previous year.212 69. Worldwide trends also confirm the same results i. two in each of the four metros.672 150.190 958.110 26.1: Actual and projected subscriber growth.135 32.Nil services Reliance STL HFCL Total Nil Nil Nil 14.526 22.989 160.479.158 115.652. millions.601. perhaps by 2005. For the list of basic service providers and their area of operation refer to Table 17. while for West Bengal and Assam.713 Nil Nil Nil 4.406.8%.932. However.967 22. As of December 31.6% of the fixed service market. higher growth in the mobile sector.397 365.877 MTNL 3.1 shows the prediction made by International Telecommunications Union (ITU) that mobile will overtake fixed worldwide.498 35. it is envisaged that by 2007 mobile phones will surpass fixed phones. MTNL 10.653.400 140 27. This trend is not unique to India. this has already happened in a few countries.542.108.229 38.license agreements have been signed.998 13. Eight cellular licenses.599 58.690. Private participation in the cellular-mobile market in India has been very successful.647 Bharti Nil Telenet Ltd.744.218.070 Nil Nil Nil Nil 4.976 33.484 42. 1990-2010 Mobile hashas ov ertake n Mobile overtaken fixed-lines in iCambodia. during the same period the mobile services including Cellular and WLL (M) showed a spectacular growth of 160% i. Subsequently.150 64.6% and other private operators 4.276 14.58 million subscribers.736 109 8. from 13 million to 33.530.3.600 17. only one bid each was made. Figure 17.2: Subscriber Base – Basic Services Service Provider 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Telecommunication Services DoT/BSNL 11.927. Finla Italy. The subscriber base crossed 3.324 3. I tal Korea Mobile subscribers to to Mobile s ubscri bers ov ertake fixed-line overtake fixed-line worl dwi de be fore 20 05? worldwide before 2005? Mobile rev enue Mobile revenue to to ov ertake fixed-line after overtake fixed-line after 2004? 2004? Fastes t gr owth Fastest growth in i n dev eloping coun tries developing countries 2'00 0 1'50 0 Fixed Mobile 500 1'00 0 0 199 0 200 0 201 0 Source: 1990-1998 data from ITU World Telecommunication Indicators Database.702.956 17.441 4.265 111.

296 882.34%).9%).094 42.943 3.446 March '00 795. B’ Circle Kerala Punjab Haryana U.B.Sectoral Applications-II by the last quarter of 2001.299 7.567.P.954 138. Hutchison (13. C’ Circle H.799 284.112.P. 2003 it reached to about 13 million and was more than 33 million by the end of March 2004.778 932.633 1. Table 17.154.333 1.134.4: Subscriber Base – Cellular Services Category All Metros ‘A’ Circle ‘B’ Circle ‘C’ Circle All India March '97 325. (Cellular and WLL – M combined).405 Source: www.543 354.coai.151 227.685 116.915 1.637 March '04 7.374. Bharti (19.165.687.884.814 March '03 4.757 2.362.592 1. BSNL (17.931 585.316 March '99 Operator 1 Bharti BPL RPG Bharti BPL Hutch IDEA Bharti BPL Escotel Spice Comm Escotel Escotel ADL ADL IDEA Reliance Bharti Reliance Reliance Operator 2 Hutch HMTL Bharti Hutch IDEA IDEA Bharti Spice Comm Aircel BPL ADL Hexacom Reliance Reliance Reliance Reliance Operator 3 Operator 4 MTNL MTNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL BSNL Batata Bharti Hutch Reliance Bharti Bharti Hutch Hutch Bharti Bharti Escotel Bharti Bharti Escotel Escotel Bharti Escotel - Table 17.501.766 9. Karnatka T.coai.573 6.632 12.189 36.941.273 26.524 4. The top five mobile operators (Cellular and WLL-M combined) as of December 2003 in terms of market shares were Reliance (21.N.402.E.26%) and Idea (7.439.538 508.195.000 366 339.698 3.040 3.309 15.095 March '02 2.34 %).P. at the end of March.577.430. Bihar Orissa Assam N. W.364.(E) Rajasthan M.311 March '01 1.698.3: List of Cellular Service Providers and their Area of Operation Category Metros City/Circle Delhi Mumbai Chennai Kolkatta A’ Circle Maharashtra Gujarat A.(W) U.653 460.4 gives the details of growth in subscriber base for cellular services.067 1.P.031 March '98 551.967 34 .P. Table 17. J&K Source: www.88%).757 176.

...1% of revenue...............000 call bi-monthly) 2...9 % (those making between 2.......... implying that 5.......... 1999. Thus...... for example............ For example......... a major departure in pricing of services involves cross-subsidization............7 % (those making more than 10.... 2.......3 TARIFF ISSUES It is now widely recognized that enhancing efficiency and investment in telecom requires the introduction of competition.... In order to promote desired efficiencies... .......1 % Source: Telecom Regulatory Authority of India (TRAI). Such a rationalization is required as a condition precedent to 35 ...001 and 2...... so that prices better reflect their likely levels in a competitive environment..........................2% of subscribers contribute 55.............. Table 17... therefore an important policy issue......8 % 13............000 call bi-monthly 7..............................5% of subscribers contributed 9.................... costoriented or cost-based prices)....... BSNL (DoT earlier) tariffs cross-subsidized the cost of access (as reflected by rentals) by domestic and international long-distance usage charges............... which in turn needs a regulatory mechanism to facilitate competition............................ re-balancing implies a reduction in the extent of cross-subsidisation in the fixedservices sector............. ‘re-balancing’ of tariffs is a necessity......... ............9% of revenue and so on.6 % 10 % 8. and.5: Revenue Contribution by Different Subscriber Groups Share of Total Subscribers 2........................000 calls bi-monthly) 51...................” Traditionally. .... The next 2.......5 shows that in 1998..... Cross subsidization involves providing one service such as monthly rental below cost and another such as Domestic Long Distance (DLD) and International Long Distance (ILD) above cost to recover cost and also to generate surplus for and find out the market positions of the various cellular service providers.1 % 9.......Activity 1 Visit the website www....................... This implies that those who made long distance calls were cross subsidizing those who used the telephone for only local calling.001 and 5.............3 % (those making between 501 and 1...5 % (those making between 5001 and 10.....5..7% of subscribers contributed 46.......................... 70 per cent of BSNL’s (then DoT) revenue was due to only 13 percent of the subscribers.... This can be estimated by calculating the cumulative distribution of subscribers and revenues from Table 17...4 % 11..... “Telecommunication Tariff Order..........coai.....000 calls bi-monthly) 14 % (those making between 1.......... Re-balancing of tariffs involves reducing tariffs that are above costs while increasing those below costs.........e.. .. In basic telecom........7 % (those making 0 to 500 calls bi-monthly) The Contribution of These Subscribers to Call Revenue 46....... One reason for this was the very high price of long distance calls compared to local calls... Telecommunication Services 17..... Empirical evidence shows that it was 90 times more expensive to make a long distance call from Delhi to Mumbai in 1998 compared to local call and the corresponding ratio for an ILD call to USA. The considerable difference between the price of a local call and that of DLD and ILD calls was policy driven.000 calls bi-monthly) 21......8% of revenue... An essential ingredient of transition from a protected market to competition is alignment of prices to costs (i............ Table 17..

any alternative tariff package has to be better in order to attract any customer. 36 .” This package must always be provided to the customer. Thus the standard tariff package could be viewed as a ceiling tariff. the service provider is left free to provide any “alternative tariff package. but the maximum call charge was reduced from a peak of Rs. In one sense. A small proportion of the subscribers account for a major share of call revenue. TRAI specified particular tariff levels while for several others it allowed forbearance.” Since the standard tariff package is always available to the customer. Thus. 600. Bharti in Madhya Pradesh acted likewise in the cities of Indore and Bhopal when it newly entered the market in 1996. Standard monthly rental for mobile cellular was increased from Rs 156 to Rs. Usually it is a practice followed in markets where there is substantial or adequate competition. Similarly. tariffs for long distance calls and for cellular mobile have seen dramatic declines within such a framework. Such a re-balancing exercise is common when preparing the situation for competition. 6 per minute. Forbearance is a feature that permits service providers to set their own tariffs without approval from the regulator. and these subscribers would be the subject of competitive churn when private sector operators enter the market. The methodology clearly included license fee as costs and showed that a high license fee translates into higher tariffs. tariffs for below-cost items need to be increased. Loss of high revenue customers will have a significant effect on the revenue situation of the incumbent. This resulted in a tariff structure that dissuaded usage and loaded the subscriber base. The methodology of specifying tariffs included the following feature to impart flexibility. Therefore.Sectoral Applications-II the conversion of a single operator system to a multi-operator one. The possibility of giving alternative tariffs provided a means of addressing several concerns. call charges were reduced and rentals were increased. with the alternative tariff packages being attractive only if the expenditure involved in them is lower than that for the standard tariff package.. tariffs were restructured because the prevailing rentals were low and call charges were high. In addition.80 per minute to Rs. cost efficient technologies. With the new service providers relying on more recent. The service providers were allowed to give alternative tariff packages which resulted in lower tariffs. the standard tariff package provides a minimum guarantee to the customer. the framework includes the possibility of providing alternative tariffs. Indian telecom market is emerging with very strong competitive pressure. Over time. This method of flexibility was adopted because of the growing tendency in telecom markets to provide different tariff combinations for various baskets of services. The tariffs specified by TRAI form a package that is termed the “standard tariff package. For example. while tariffs have to be reduced for the services that are priced much above cost (e. The reduction in tariffs has also been spurred by the introduction of wireless in local loop (with limited mobility) and the major cost reduction due to technological change. Even for those services for which tariff levels are specified. long distance and international calls). Thus. For certain services. making it difficult to meet its revenue objectives. with operators free to provide alternative tariffs that were below this level. competition will result in a decline in above cost prices without any compensating charge in the below cost prices. it specifies the peak expenditure level for the customer. Cost-based prices restrict the possibility of cream skimming by operators.g. Otherwise. For cellular mobile. with greater competition in the market. Such cream skimming or cherry picking is a commonly adopted pricing strategy for new entrants in telecommunication markets when facing entrenched incumbents. Hughes teleservices (now TATA) targeted the high revenue paying subscribers when it entered the market in Mumbai and made attractive offers to corporates and potential clients in the rich districts of Nariman point and Colaba. 16.

6: Extent of Competition as on 31st March 1997 Circle/City A&N AP Assam Bihar Gujarat Haryana HP J&K Kerala Karnataka Maharashtra MP NE Orissa Punjab Rajasthan TN U P (E) U P (W) WB Mumbai Kalkatu Delhi Chennai Number of Basic players 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Number of Cellular players 0 1 0 0 2 2 1 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 b) Cellular Services Licences were issued for Cellular Services for metros in November 1994. say network television services. During September 1994 guidelines were issued for private sector participation in basic services. move was made to include private participation in providing telecom services. consumers to benefit from scale and scope economies. based on the digitisation of all signal-transfer technology. Table 17. This has already been initiated in India with a move towards unifying the licenses for Basic and Cellular services. for example. Telecommunication Services 17. thus.The basic driving force of growing competition in what was once thought to be a natural monopoly is the increasing versatility with which services can be provided. Regulation will follow convergence rather than the other way around. As the manner in which signals are transferred from one location to another becomes common. In the year 1997 private operators started providing basic services. Convergence will eliminate the existing barriers between different types of services. say. 37 . Efforts to maintain barriers across such segments will eventually be overwhelmed by technology. to perform the functions of another. In January 1995 tenders (circle-wise) were invited for the 2nd operator in Basic service. In December 1994 tenders were invited for 19 circles apart from 4 metros. making the market a duopoly.4 SECTOR DYNAMICS AND IMPLICATIONS FOR FIRM LEVEL COMPETITION a) Basic Services After NTP 1994 was announced. the local phone company. it is possible for a service provider in one segment of telecommunication. In most of the circles/metros two operators began service. between basic and cellular and allow service providers and.

There was a steep and sudden decline in tariffs by the private operators in anticipation of entry of 3rd cellular service provider.34 Million 1. existence of private operators did not provide adequate competition to force down prices.5 THE CHANGING MARKET STRUCTURE Several parts of the sector have been liberalised and along with reforms the market structure has also undergone a significant change. Licence for 3rd Cellular operator was granted to the Government owned service providers.e. the market was fairly monopolistic. BSNL & MTNL. with a few private operators in the cellular mobile segment. share of private operator in basic service market was less than 5%. However. costs and extent of competition. BSNL as the 3rd entrant has had relatively more success achieving a 22% market share on an all India basis as of September 2003 (operating in 19 circles). MTNL’s share in Delhi was 6% and 8% in Mumbai. The fourth Cellular operator also started service along with BSNL in the year 2002. Cellular mobile has upto 4 operators in each service area. There was virtually no competition in Basic services. ISP and infrastructure businesses. In the year 2000 DTS was corporatised as BSNL. TRAI decided to introduce forbearance in the year 2002. MTNL started its Cellular services in 2001 while BSNL started its services in 2002. which is the name under which it operates today. ILD. There are 8 different operators in certain lucrative 38 . SMS. has acquired a larger share of the market. cricket updates. Its main objectives are shown in Appendix 2. In 1999. Based on the prevailing tariffs in the market. Until June 2001. the sector presents a very different picture from the one that obtained in 1997. DoT was divided into DTS (Department of Telecom Services) for service provision and DoT for policy making. Whereas. 17.56 Number of NLD players: 1 (BSNL) Number of ILD players: 1 (VSNL) The data shown above demonstrates that the telecom sector in 1997 was dominated by the government owned monopoly. Although the market had been opened to competition in the basic and cellular segments. tariff changes and value added services like roaming. Unlimited entry of new players has been allowed in basic. the structure remained concentrated i. stock market news etc. Thus cellular service providers are now free to determine the price of tariff offerings to subscribers. the entry of competition in cellular mobile has provided a boost to the market in terms of subscriber acquisition. An interesting fact is that the private operator that entered the markets of Delhi and Mumbai almost a year after MTNL. During this period.54 Million 0. As a result of these changes.Sectoral Applications-II c) State of Telecom Market as on 31st March 1997 Basic subscriber base Cellular Subscriber base Teledensity 14. Teledensity was low and prices were relatively high. NLD. In the year 1999. an analysis of market shares of cellular operators shows that MTNL has not been able to make a significant impact in the Cellular Market. NTP-99 was announced. As one would expect. An interesting development in cellular tariffs was witnessed at this time. As on 31st December 2003. there were only 6 private operators in operation apart from BSNL (operating all over India except Delhi and Mumbai) and MTNL (operating in Delhi and Mumbai). At the end of September 2003.

The Tata-VSNL team will now embark on its next challenge . VSNL fits in perfectly with the group’s plans of providing integrated telecom solutions. which have a significant presence across the value chain. Hutchison. With a 100 per cent share in the lucrative ILD business. Thus a number of tariff plans are available which subscribers choose according to their requirements. and a favourable NLD license. value added services etc. The Tata Group. on the other hand. The following graph shows the results of that study. The next section analyses this phenomena. There are 4 NLD and 5 ILD operators in India.ensuring a smooth transition at VSNL and integrating business plans for ILD. the message that comes through is that substantial declines in tariffs have occurred that can only be attributed to the intense competition in the market. There are many ways to estimate the decline in tariffs for telecom services and some may be subjective. Telecommunication Services 39 . Cellular and WLL (M) services. Bundling. a leading share in Internet services. ILD. The Reliance launch has been a catalyst not just in the ensuing price competition but even more significantly in attempting to alter the mindset of all the stake holders of the telecom business. TRAI did a study on trends in tariffs for Fixed. mobile services or local calls. Chennai.service areas such as Delhi. a) Trend in tariffs There can be no question about the direction of change in average tariff in the sector. In September 2003. NLD and Internet/data services to enhance value for its customers and shareholders. BSNL and MTNL. Karnataka etc. Another complexity in telecom is the widespread use of multi part pricing i. but has also resulted in substantial tariff declines. chosen by the subscriber. The trend has been consistently downward.e. The reason why estimates of tariff declines could vary is because prices vary depending on the nature of usage and the package of services viz. Reliance Infocom and Bharti Televentures have announced plans to emerge as integrated telecom companies offering end-to-end services to customers. Three to four leading private players are likely to emerge as competition to the incumbents. with no stated intention of entering other businesses. One early casualty is going to be the most conventional way of looking at the business: henceforth the services and the tariff on offer cannot be fitted so easily into neat compartments such as basic telephone services. The way in which the structure of the industry is changing at a phenomenal speed seems unending at the moment. a fixed monthly rental for access to the service and a variable charge depending upon usage and the nature of calls. which is examined later in this section is one example of this. appears to be focused on cellular services. While different methods may result in different estimates. Moreover service providers have attempted to segment the market according to subscriber types and have tried to customize tariff offerings to best meet the needs of different subscribers. The VSNL acquisition has catapulted the Tata Group to the leading position among private Indian telecom players. This increase in competition has not only increased the market size for telecom. local NLD. STD calls and so on.

NLD.Sectoral Applications-II Comparison of effective charge per minute for 400 MOU/month (Rs.89 0. c) Bundling of services Another interesting change in the sector is the multiple licenses owned by a single company.69 1.69 1.06 0.37 2.-01 Jun.67 1. As stated earlier.41 0.50 1. One manifestation of this competition has been examined in the previous section on tariff declines. As stated above. although different analysts could come up with different estimates depending on the methodology adopted for the purpose. In view of the fact that a single operator has acquired multiple licenses and can thus offer multiple services. CUG (Closed User Group) : Forming a group of customers where the calls within group are either not charged or are charged very low and the calls made outside the group are charged higher.71 1.) 3.69 0.69 1.-01 Dec.50 0. This enables the service provider to offer end-to-end services to the customer under its own brand name) can design more bundles and innovative schemes compared to a standalone operator. service providers are also designing innovative tariff plans to attract subscribers.37 1.71 1.12 MOU: Minutes of Use The above graph is based on the calculations performed on the minimum tariffs prevailing in the market at various points of time for average local usage of 400 minutes (outgoing + incoming).-03 Jun. one of the innovations that have occurred relates to bundled offers.37 1. ILD and ISP license.-02 Dec.-03 0.69 0.42 0.00 1.-01 Mar. viz. Cellular. An integrated operator (Integrated operator means that one business house possesses cellular or basic i. tariff decreases have been an unmistakable feature of the telecom market in India over the last few years. cellular and WLL (M).89 0.-02 Jun.70 0. service providers are striving to lock their customers for a longer period of time to prevent churn.71 1.69 1. NLD. India has issued separate licenses for Basic.69 1.70 0.-02 Sep. Acquiring subscribers is passé.00 2.69 0. Some of the bundled offers are described below.63 0.e.-01 Sep.50 2.00 0.69 1. b) Innovations in Tariff offerings Technological progress has blurred the boundaries between different platforms for access services. Thus. Further. access.00 Fixed WLL(M) Cellular Mar.37 2. ISP services. 40 . Another is the frequency of change in tariff plans offered by operators.06 0.25 2. Friends and Family : Unlimited free talktime to a selected number for a cost of a fixed monthly charge. competition is not only within the service but also between the services. Not only is the frequency of change high.37 2.78 0. customer retention has become vital. ILD.-02 Mar.

... in reality it is not so...... Unfortunately................ Unlimited usage free: Tariffs with high monthly rental and unlimited free usage.............. It is a perfect substitute of pager or may be one step ahead...... Regulator need not bother about QOS Parameters and competition will automatically take care of it........ 2000) mandates TRAI to “lay down the standard of quality of service (QOS) to be provided by the service provider and ensure the Quality of Service and conduct the periodical survey of such service provided by the service providers so as to protect interest of the consumer of Telecom Services”.............. TRAI issued a QOS Regulation on 5th July........ Such competition has been price-driven..... who want to own a phone but use it very rarely....... he can use VCC (Virtual Calling Card).... The immediate gainers are the consumers..................................... ......... the QOS is a major concern to protect consumer interest...................... customer gets a chance to use his net payout to the fullest........... which discourages the customer from exiting the plan.......... ............................... 2000 both for Basic as well as Cellular Services. where there has been competition in various telecom services for a long time.................... Prepaid plans with no administrative charges or plan fee: This ensures a fixed ARPU to the service provider......... Activity 2 Try to find out examples of bundling in other industries (sectors) in India.. Zero Rental: Packages with no or zero rental and high calls charges... Telecommunication Services 17................................ CLIP free with certain tariff plans............... After going through a consultation process through written comments and open house discussions............. especially users of mobile.......... This may attract the high callers and this type of packages also ensures a minimum ARPU (Average Revenue per User) to the service provider......... 70 to Rs......... One could argue that in a competitive environment................ 150.............. Even in the countries................ The intense competition witnessed in telecommunications has several implications that go well beyond the immediate sectoral interests................................ .. Plans to lock customers for a longer period of time: Tariff plan for minimum commitment of 3 years............. ............Free VAS (Value Added Services): such as SMS... with the existing service providers hoping to retain their market share through tariff cuts in the wake of strong emerging challenge.6 SERVICE QUALITY The Telecom.... This Regulation has laid down benchmarks for various QOS parameters with the following objectives: 41 ........ Also if someone wants to make outgoing calls......................... Also....... customer can receive any number of calls................. This type of package may attract very low users......... Plans with very low rental but outgoing calls are barred: At a very low monthly cost ranging between Rs..... Although it provides a facility to the customer to exit the plan but at a very high cost......... Regulatory Authority of India Act 1997 11(1) (b) (v) as amended by TRAI (Amendment Act......

1% Percentage of billing complaints resolved within 4 weeks: 100% Period of all refunds/payments due to customers from the date of resolution of complaints as in (ii) above: <4 weeks B) Network Performance C) Billing Complaints In a survey conducted by IMRB on behalf of TRAI to assess the quality of services provided by the service providers (for the period Oct. a) The basic services being provided are not upto the desired standards. Measure the Quality of Service provided by the Service Providers from time to time and to compare them with the norms so as to assess the level of performance. – Dec. The situation is particularly bad in respect of provision of new connection within 7 days. number of faults per 100 subscribers per month. 2003) following issues emerged. time taken to repair faults. ordinary <2 hours Customer Care (Promptness in attending to customers requests) 95% of requests: a) Shifts : <3 days b) Closures: <24 hours c) Additional facility : < 24 hours Percentage of repeat faults: <1% ix) QOS Parameters for Cellular Services On similar basis QOS Regulation have been laid out along with the benchmarks for cellular services. and time taken to shift connections and closures. Operator Assisted Trunk Calls: Urgent <1 hour. Fault incidences (No. 42 .Sectoral Applications-II i) Create conditions for customer satisfaction by making known the quality of service which the service provider is required to provide and the user has a right to expect. ii) iii) QOS Parameters for Basic Telecom Services The following key benchmarks have been set for basic services i) ii) iii) iv) v) vi) vii) viii) Provision of a telephone after registration of demand for exchange areas declared on demand : 100% within 7 days. A) Fault incidence and Repair i) ii) iii) i) ii) iii) iv) i) ii) iii) Fault incidence (Number of faults /100 subscribers/month): <1 Faults cleared with 24 hours : 100% Accumulated down time of Community isolation: <24 hours Call Success Rate (within licensees own network): >99% Service Access Delay : Between 9 to 20 Call Drop Rate : <3% Percentage of connections with good voice quality : >95% Billing complaints per 100 bills issues: <0. of faults / 100 subscribers / month): <3 Fault repair by next working day: >90% Mean Time To Repair (MTTR): <8 hours Call Completion Rate within a local network: >65% Metering and billing credibility: Not more than 0. To generally protect the interests of consumers of telecommunication services.1% of bills should be disputed.

There has been a significant growth in the Indian telecom market during the last few years...................................................................................................... 2........ in that order....................................... The unit outlines the steps taken and analyses the competitive structure prevailing in the industry.................. The performance of the CDMA operators on the remaining parameters is 3. ........ ................................................... The key concern areas for CDMA operators are billing complaint incidence.................... What are the important issues that should be kept in mind while deciding on the pricing issues for telecom services? Explain the nature of competition prevailing in the telecom industry in India........................................................... .............. ................................... The unit ends with the service quality parameters relevant to telecom service providers............8 SELF ASSESSMENT QUESTIONS Activity 3 As a user of telecom services...b) Cellular operators are providing much better quality of service than their basic counterparts...................................................... ........................ Fierce competition in the cellular market has forced operators to constantly keep improving their networks................................... Telecommunication Services The details of QOS regulation and detailed reports on surveys conducted are available on TRAI’s website : www............................. Discuss the major trends in the growth of telecom sector in India during the last few years................................................... try to evaluate the service quality of your service provider(s) based on the parameters given in this section....................................................trai............ resulting in acceptable levels of service........................... Issues related to pricing (tariffs) have been discussed in detail....... A number of steps have been taken by the Indian government which have resulted in a dynamic change in the competitive structure of the industry........................................ billing complaint resolution and fault incidence.... ....................................................... 17............. 4........... Do you think bundling is always in customer interest? Give Reasons.................................................................. ............. What are the service quality parameters for basic telecom services and for cellular mobile services? Why have such parameters been introduced by the regulatory authority? 43 5......... What are its implications for the telecom firms? What is bundling? Why do you think bundling has emerged as an important aspect of customer pricing.......... especially in context of telecom service provision inIndia.. ........ 17....................7 SUMMARY This unit gave you an overview of fixed line and cellular mobile industry in India. .........................................

New Telecom Policy announced. First basic telecom service company signs license and interconnect agreements with DoT for Madhya Pradesh Second basic service provider signs basic telecom license pact for Gujarat TRAI quashes DoT move to increase tariffs for calls from fixed-line telephone to cellular phones VSNL calls for global tenders to find a partner for its South Asian regional hub project Internet Policy cleared. 1996 After setting reserve prices for circles. Three more companies move court against DoT move to encash guarantees. license agreement for basic services in Maharashtra also becomes operational Basic service licensees for Andhra Pradesh and Punjab sign basic telecom agreements with DoT. electronic mail services. TRAI Issues First Regulation on Interconnection and Usage Charge Conditions for migration to revenue sharing from fixed license fee regime issued Cellular operators allowed the use of any digital technology. Licensees selected for five circles. 1999 TRAI Issued First Tariff Order. 2000 Ordinance promulgated divesting TRAI of adjudicatory role. Only on company bids . TRAI implements second phase of tariff re-balancing 44 . Selected bidder of first round refuses to extend bank guarantees for its four circles. cellular and PMRT services Most cellular operators in circles sign license agreements DoT announces cap on the number of circles basic operators can roll out services in. voice – mail and video – text services opened to private providers DoT guidelines for private sector entry into basic telecom services in the country Eight cellular licensees for four metros finalized after over two years of litigation 1995 DoT calls for proposal to operate basic.9 APPENDIX Appendix 1 : Chronology of Indian Telecom De-regulation Year 1992 1994 Event Bids invited for radio paging services in 27 cities Bids invited for cellular mobile services in four metro cities National Telecom Policy announced Radio paging. DoT invites fresh bids for basic services in 13 circles Five successful bidders short-listed for providing basic services Poor response to third round of basic telecom bidding.for Madhya Pradesh.MTNL given a license to provide cellular mobile service under these flexible technology conditions. Appeals against TRAI decisions to be heard by TDSAT. V-SAT data services. 1997 Telecom Regulatory Authority of India (TRAI) formed. cellular telecom services and public mobile radio trunked (PMRT) services DoT receives bids for basic. TDSAT created to settle disputes between licensor and licensee.Sectoral Applications-II 17. Challenges in court DoT move to encash guarantees.

PMRTS. e.. Voice Mail Government has allowed the setting up of international gateways to private internet operators Guidelines for Issue of Licence for National Long Distance Service Guidelines for Issue of Licence for Cellular Mobile Telephone Service 2001 Guidelines for Issue of Licence for Basic Telephone Convergence Commission of India Bill laid in Parliament. VSAT.g. Unified Messaging.Policies announced for easier entry/operation of new service providers in the various sectors. Radio Paging. service providers to notify their Reference Tariff plans TRAI introduces the Reference Interconnect Offer (RIO) regulation TRAI introduces Regulation on Quality of Service For VOIP Based International Long Distance Service 2003 TRAI introduces the Telecommunication INTERCONNECTION USAGE CHARGES (IUC) Regulation TRAI leaves NLD sector left under forbearance subject to a ceiling tariff TRAI leaves ILD sector left under forbearance TRAI mandates Basic Service Operators (BSO) to be non-discriminatory in provision of Infrastructure facilities to ISPs TRAI gives its recommendations on unified licensing for basic and cellular mobile services TRAI gives its recommendations on “WLL(M) Issues Pertaining To TRAI Based On HON’BLE TDSAT’S Order TRAI Forbears Basic Service Tariffs Except Rural Tariffs Telecommunication Services 45 . Open competition policy announced for International Telephony Service Usage of Voice Over Internet Protocol permitted for international telephony service First License for National Long Distance service signed Launch of WLL(M) services by Basic service provider in the market 2002 Guidelines for Issue of International Long Distance Licence First License for International Long Distance service signed First private operator begins ILD service TRAI revises tariffs for WLL(M) TRAI leaves Cellular tariffs to market forces.

Sectoral Applications-II Appendix 2 : Key Features of NTP 99 Some of the notable advances marked by the NTP 99 are as follows: Speeding up competition in long distance. the telecommunications sector to a greater competitive environment in both urban and rural areas providing equal opportunities and level playing field for all players. Disaster Management and Change in Legislation. Strengthening research and development efforts in the country and provide an impetus to build world-class manufacturing capabilities. Permission for ‘resale’ of domestic telephony. Undertaking to review interconnectivity between private-service providers of different service areas. Transforming. including usage of the existing backbone network of public and private entities in Rail transport. Human Resource Development and Training. Fixed Service Providers (FSP) shall be freely permitted to establish ‘lastmile’ linkages to provide fixed services and carry long-distance traffic within their service area without seeking an additional licence. long-distance voice communication when the latter is opened to competition from January 2000. Achieving efficiency and transparency in spectrum management. Interconnect between private-service providers in the same Circle and between service provider and VSNL along with introduction of competition in Domestic Long Distance. in consultation with TRAI. Direct interconnectivity between FSPs and any other type of service provider (including another FSP) in their area of operation and sharing of infrastructure with any other type of service provider shall be permitted. Emphasis on certain other issues including Standardisation. wherever justified. Clarity regarding number of licenses that each operator may be granted. government and community information systems etc. Commitment to restructure DoT. remote database access. This increases the scope for entry of a new category of ‘infrastructure providers’ or ‘carrier’s carrier’. in a time-bound manner. (This could lead to consolidation of industry operators over the long term). 46 . Power and Energy sectors for data (immediately) and for domestic. into Public Teleinfo centres having multimedia capability like Integrated Services Digital Network (ISDN) services. Policy to convert Public Call Offices (PCOs).

All these elements are more important to the consumer than the element of price in a post purchase situation. There are various myths about product support services and their lesser relevance in the Indian context.It should be the fundamental aspect of a business philosophy and should be a commitment to ensure that customers leave more excited than when they walked in the door. It is the job of every marketer to create satisfied customer. It 47 . Accountability is vital to customer service and in a successful service oriented organization every one is accountable for the customer satisfaction.6 18.1 18.UNIT 18 Objectives PRODUCT SUPPORT SERVICES After going through this unit you should be able to: understand the concept of product support services.1 INTRODUCTION In this unit. It should become a part of the corporate culture .3 18. availability.4 18. support services. Customer service is a philosophy in which all employees feel and act accountable for creating satisfied customer.5 18. Value added customer service is the responsibility of all the employees of the organization. ease of doing business. They are because Indian marketers think that good customer service is time consuming. The product support service is a value-added service to match the customer expectations. The research speaks otherwise. Structure 18. explain the service quality issues related to product support services. Customer services or after sales service should be an attitude of the organization. They can be grouped as quality. knowledge of the people with whom they work. It is also necessary to know what consumer’s value in the product support services. performance of the product. describe the different categories of product support services.2 18. A popular saying is that advertising brings customers to the stores where as poor customer service takes them away from the store and the brand. and apply the key learning to the case study given at the end of the unit. follow through by the people with whom they deal and the price.7 Introduction Characteristics of Product Support Services Classification of Product Support Services Goal of Product Support Services: Customer Satisfaction Summary Self-Assessment Questions Case Study 18. After sales Service is normally referred as customer service. In many organizations product support service or customer service is a department or a section where customers with complains are guided for a reactionary solution to the problem that he experiences with the use of the product. you will be able to understand the concept of product support services which is important for goods as well as services marketers. So though the performance of the product support service staff one can also increase the profitability and profit potential of the organization.

................................ presentation and communication to the consumers............ Some people are of the opinion that serving existing customers is expensive......... Develop and maintenance a continuous service process for the target customers................................................. Activity 1 Visit an after sales service station of any consumer durable....... In a surplus demand market.. 18..... which is a combination of the core product and a variety of service related activities.... The concept of an augmented product is an explanation of the package of services that are bundled with the core and tangible product as a complete offer to the consumer. ................................ Evaluate how well the organization is performing on each one....... with appropriate prices........... .............. Many a times companies have a philosophy of properly serviced...........Sectoral Applications-II says that getting a new customer takes more time than getting more business out of an existing and satisfied customer............ the marketer does not care for the concept of customer service as he realizes that the customers are going to come to them anyway........... Grouping of these actions in to core and support service elements.. A strategic outlook to the business will always goad managers to look at customer service as a strategic tool than a complaint management system in the organization.... These services provide the differentiation that separates successful firms from the also-rans................................................................ It means: Identify customer service needs requirements....... Performing well in service delivery requires modern marketers to understand............. Redesign existing service packages in order to offer customers in each target market segment a product offering and delivery system that meets their expectations for performance and value within the constraints of a price that will allow the service provider to have an allowable profit.............. channels of delivery...... and conduct an in depth interview of the customers on what constitutes ‘after sales service’ and how are they satisfied with their products ..2 CHARACTERISTICS OF PRODUCT SUPPORT SERVICES Most companies in manufacturing and service business offer their customers a package of a product called a solution..... ...................................................................... There is a high sense of gratification among managers and they often tend to forget that the expectation of the customers increase over a period of time.. Match the product to the needs................ What action and reaction consumer expect from the organization............................................... Develop appropriate products and services to meet those needs which are consistent with your business strategy and profit objectives..... According to Theodore Levitt “ We live in an age in 48 ......................... It is always prudent to benchmark against evolving customer service expectations than benchmarking against competitors in the industry..... Quality gurus are of the opinion that 35% of the customer complaints are about the poor quality of the service delivery than the customer complaints on product performance or the price of the product..............

The prospects in on line buying also need information that will guide them to move to the site that will provide information to them. the intangible elements include transportation itself. It includes pricing. The existing customers also need information regarding the usage.3 CLASSIFICATION OF PRODUCT SUPPORT SERVICES Product support services are broadly classified in to the following eight categories.which our thinking about what a product or a service is must be quite different from what it ever was before. The aircraft. Product Support Services 18.” According to Levitt. personality of the service people and so forth. Product Support Services Information Consultation Ordering Hospitality Safekeeping Exceptions Billing Payments 1. It is not so much the basic. appearance of facilities and personnel. The performance of each service influences the quality of the others. compact disks. service frequency and preflight. the total product concept consists of core or generic product. 49 . the inner band surrounding this core is termed as expected product. By highlighting the tangible components marketers can determine whether the organization is tangible dominant or intangible dominant. Management must decide what is the right set of support services to be offered to the customers. The area encircling the outermost concentric band is called the potential product. Traditional ways to provide information is through the support literature. touch screen video display. software driven tutorials. these may eventually turn to the expected product level. representing customer’s minimal expectations. Information: New customers and prospects need information to make decisions about a product. food and drinks that are served are tangible. For example in an airline business. as the market becomes accustomed to specific augmentations. brochures and instruction books. generic central thing we are selling that counts. in-flight and post flight services. added to enhance the appeal of the product. the product support services should contribute to the over all service perception. They want to know what product will best meet their needs. Decisions can also be made to unbundle the prices by charging for each set of services after the period of warranty is over for an extended product support service. flyers. Which consists of everything potentially feasible to attract and hold customers in contrast to the augmented product that means everything that has already been done to the product. Current methods include videotapes. The next encircling band is called the augmented product which includes further benefits. delivery. computer accessed bulletin boards and menu driven recorded telephone messages. but the whole cluster of satisfactions with which we surround it. It is necessary to obtain information about consumers over all satisfaction on core as well as split services. printed notices. maintenance of the product during the life of the product. Shostack distinguished between the tangible and intangible elements involved in service delivery.

Billing should be also done timely so that it will result in faster payments. The services under consulting covers advice. including lounges. Examples of hospitality elements include greeting. Handling of complaints/suggestions/complements requires well-defined procedures. Consultation: Providing information suggests a simple response to customers’ questions. Inaccurate. assembly. The examples of safekeeping include provisions for the coatrooms. weather protection. toilets and wash rooms. cinema halls. Unless the service organization is accessible to its customers the real business may not happen. This compensation may take the form of repairs under warranty. personal service providers follow this kind of an orientation in business. bathroom kits. tutoring and training in product usage. installation. offer suggestions for improvement. entertainment and newspapers. Hospitality: Certain service requires customers to enter the service factory and stay there till service delivery is complete. Order Taking: Once the selling process is over. Exceptions: It includes a group of services that fall outside the routine of the normal service delivery. illegible or incomplete bills offer an opportunity to disappoint customers. Well-managed businesses try to treat the customers as guests. safekeeping of the valuables and childcare and pet care. Consultations involve dialogue to probe customer requirements and then develop a tailored solution. Customers expect to be compensated for serious performance failures. legal settlements. The second category of safekeeping involved the physical delivery of goods when the consumers buy them over phone or Internet. Unless certain care taking services are provided. Airlines. 5. equipment failures or customers experiencing difficulty in using the product. personal counseling. A reservation is a special type of order taking which entitles customers to a special type of order taking. orders. waiting areas. seating facility. Problem Solving involves situations when normal service delivery fails to run smoothly as a result of accidents. Examples include the airlines. auditing. managing or technical consulting. they might find the support services infeasible. Safekeeping: While visiting a service site customers want assistance with their personal possessions. 4. and restaurant tables. transportation and securities. Various forms of billing procedures exist including verbal billing practices to machine driven billing procedures 3. baggage transport.Sectoral Applications-II 2. pick up. magazines. Restitution is the process by which the customers are redressed. When the consumer wants to express dissatisfaction. Support services of this nature may include packaging. an offer of free service in the future or other forms of payments in kind. delivery. 6. Billing: It is common to almost all services unless the service is provided free or as a part of the deal. Customers buying consumer durable are also looking for safekeeping in the form of maintenance and warranty and whether they can purchase the maintenance contract as a part of insurance. acceptance of applications. cleaning and inspection. The solution selling approaches by software measures is an example of technical consulting in software markets. reservations are components of order taking. Advance requests include personal concerns related to stages in life cycle or personal disabilities. or pass on compliments. credit card companies and clubs. food and beverages. 50 . The exceptions include special request where individual or corporate customer may request some degree of customized treatment that requires a departure from the normal operating procedures. delays. it should be easy for the customer to do so and the service provider should be able to respond at the earliest to these problems. refunds. waiting facilities and amenities. Service stations. Some service providers establish formal member relationships with customers like Insurance companies and utilities. 7. handling and storage.

...... invoices for individual transactions............... Product Support Services You will appreciate that the eight product support services explained above are important not only for the services marketers but for the marketers of tangibles goods as well (Also..... debit card handling..................................... mail a check..................... The ‘exceed’ definition is compatible with the definition of customer satisfaction – meeting the customer’s stated and latent requirements................................. It is possible to outsource many of these services)....... ............. with frequent new product introduction....... machine display of amount due..................... In mature industries the core product becomes a commodity... Activity 2 It is said that most of the Indian organizations provide very poor quality of after sales service.. 8.. credit charge.. 51 ..................................... direct to payee or intermediary......... .......... selfbilling by the customer and the online billing................... cash in machine with change returned. ........ insertions of tokens.. and invest in developing new products and processes that enhance customer value....... The competitive advantage is derived out of value creating support services that surround the core product and is used for creating differentiation.... a multi brand outlet of refrigerators and a company showroom of a motor cycle company and conduct an interview with each of the service managers by asking a question “what is the meaning of customer satisfaction for their organization and how do they measure it with their customers..... tokens and vouchers etc.......... Make it a point to visit a petrol pump.... Different kind of billing services include periodic statement of account activities. check handling......... coupon redemption....... The self service include exact change in machine..............” ..... cement loyalties........... automatic deductions from financial deposits and control and verifications.............................. Customers expect ease and convenience of payment including credit when purchasing goods......4 GOAL OF PRODUCT SUPPORT SERVICESCUSTOMER SATISFACTION Customer satisfaction occurs when the performance meets customer expectations........ insertion of prepayment cards... Control and verification include automated systems like machine-readable tickets at entry gates and personal systems like gate controllers and ticket inspectors..... In a competitive environment............ merely meeting expectation may not be sufficient Organizations that challenge themselves to exceed rather than meet expectations are more likely to pleasantly surprise their customers....................... The organization first identifies the components of product or service performance that are especially valued by its target customers and then deliver superior satisfaction on those dimensions.............. verbal statements of amount due............. Direct to payee or intermediaries include cash handling and change giving..................... Payments: A bill requires a customer to take action on payment either on personal basis or through the bank advice...... 18.. Customer satisfaction is the measure and goal of an effective customer service program................... Customer expectations are a function of the past experience with the company’s products and competitor’s products and communication messages from the company and its competitors. If expectations are hard to match then performance is much more within the company’s control for managing customer satisfaction level.and online billing procedures............. The payment elements include self service...................... electronic fund transfer.

Zeithaml and Berry suggested that the criteria used by consumers that are important in molding their expectations and perceptions have five dimensions viz. to bring a balance between the productivity of services and quality of services. Assurance. Zeithaml. 52 . External Communications: External communication like advertising. Productivity helps to keep the costs down as lowering prices helps in building the market and compete better.Sectoral Applications-II Quality is a concept related to the attitude of the customers and their comprehensive evaluation of the product support services. which may help customers in shaping their expectations of a support service Word of Mouth Communication: This is the communication that flows from one person to another in a social loop and helps in formulating service quality perceptions. The managerial task is to transform the service inputs in to outputs. The quality of a product support service can be only accessed after the service is consumed. service is perceived to be of exceptional quality and also to be a pleasant surprise.e. Efficiency is a comparison to a standard. There are four key factors that can influence a customer’s expectations. The assessment of the quality of the service is made during the delivery of the service and encounter of the customer with the service personnel. which is usually a time-based phenomenon that explains how long the employee. Parasuraman. The Gaps Model has been explained to you in Unit 8 (Block 3). They are efficiency. Quality helps in gaining competitive advantage particularly in a commodity market where every product looks similar. effectiveness and productivity. takes to perform the service function. Effectiveness is the degree to which the firm is meeting its goals where as productivity is the financial valuation of output to inputs i. consistent delivery of output desired by customers should command higher price. The quality of the product support service is measured by three parameters. Personal Needs and Preferences: The relative importance that the person gives to the product support service as an essential part of the offer also influences the service perception Past Experience: The customer expectations also depend upon past experiences with the service provider of the customer. Higher productivity helps in generating additional revenue that helps in enhancing marketing budget and program and rising profits helps in investing in innovative product support programs. Parasuraman and Berry developed a model which suggest that customers becomes dissatisfied when their perceptions about service performance don’t match their expectations and the model explains five gaps that can lead to customer dissatisfaction. Responsiveness. Empathy and Tangibles. Customer satisfaction with service quality can be defined by comparing perceptions of service received with expectations of service desired by the consumers. It also helps in increasing customer value that contributes towards improving the bottom line. When the expectations exceeded. These have been discussed in detail in Unit 8 on Service Quality. So dimensions of service quality refers to process quality as judged by consumers during service and output quality judged after a service is performed. It is built up from a series of evaluative experiences of the service delivery of the organization to the customers. Leading service and consumer durable companies measure the gap between the customer’s expected supports services against the perceived services as a routine feed back process. Reliability. public relation and other publicity tools also influence the quality of service perception There are various issues involved in the quality of product support service productivity. If the productivity will increase then there is a chance that the quality will be compromised.

... empathy and tangibility of services............... What is the goal of any product support services and what dimensions can lead to an effective service quality delivery? 18.. The complete product solution constitutes an intangible component to augment the physical product in the form of product support service.... billing and payments.........5 SUMMARY In this unit we have essentially looked in to the issue of product support services for the organizations............................................ ............ safekeeping......... 18..................................................... A suitable understanding of the service quality gaps can help a manager to develop strategies to maintain service quality and achieve greater customer satisfaction. They are reliability....... 2............................................ Research has identified five key and independent dimensions of service quality.. The company markets a wide variety of products in the market............. 53 .................7 CASE STUDY Customer Satisfaction Program Of DBCL DBCL is a multi crore company in Indian market.... office equipments and furniture.................................... edible oil...... Over the years the company has grown into a large corporate house and markets a range of products starting from the locks to refrigerators.. 3. These services help in building higher level of customer satisfaction.... A service provider has to give attention to these dimensions failing which there can be service quality delivery gaps........... The level of satisfaction largely depends on the type and quality of services provided to the customer................ hospitality.... ........ It started as a small company during pre-independence India and was marketing locks for the mass market............... The objective of any product support service is to create a satisfied and loyal set of customers who will rebuy the product as well as get involved in cross selling and up selling.............. exceptions.......... There are various types of product support services like information........ manual and electronic typewriters......................................... .. . the commercial capital of India... They manufacture and market both washing soaps and bathing soaps...........6 SELF-ASSESSMENT QUESTIONS 1. responsiveness............. Describe the concept of product support services? What is the importance of these services for marketers of tangibles? What are the various kinds of product support services? Discuss with the help of examples.... Product support services augment the core product by delivering higher quality.....Activity 3 From the activity 1 and activity 2 study build up the service quality diagram of the automobile company and identify the key gaps for the dealer... The company has a sister concern which concentrates in to soaps only and is a leading player in the Indian soap market.................... assurances. ordering.. Product Support Services 18................. store wells and computers in Indian market... The company has its headquarter in Mumbai................................ These customers will also play the role of an advocate for the product.

Compaq. huge investments in procuring the hardware and also for procurement of software. the level of adoption of computer education in the school and college curricula. HCL. They started an ambitious program to become the market leader in the office equipment and computer business in the early 1999. However there was a big change happening in the business area. They could find out from customer survey that the erstwhile customers are frustrated with the quality of services provided by the product support service staff in the company. 54 . DBCL could fight back the market share war and increased market share by 7% in the office equipment and computers division in three years period of time. They were the number one player in the typewriter market. There were takeovers and buyouts in Indian markets where the multinationals were buying Indian companies with substantial business presence for inorganic growth. Zenith and some local manufacturers. Taking quality and customer satisfaction as the strategic goal and undertaking cost reductions. These kinds of anthromorphic changes made the companies to invest substantially in information technology infrastructure. The Office Computer Market In India The penetration of personal computers in Indian market has been very slow at the household level. be it strategic or tactical. the typewriter market has undergone a change and there is a large-scale switch to computer typing and printing from the traditional typewriters. Companies were eager to leverage the benefits of the liberalization and working very fast to catch up business to cater to the global volumes. In June 2003 Mr Chintamani was reviewing the customer satisfaction program at DBCL and was seriously considering with ideas to make changes in the existing product support service and consumer satisfaction program or modify any of the existing programs for better service delivery. Recently the company has conducted a study and has identified that multinationals and some Indian joint ventures are making inroads in to its office equipment and furniture division. the concentration of the purchasing power in urban centers. The total sales were confined to the upper class Indians. They lost significant amount of the market share to the new multinationals like IBM. application of computers and computer related technology in the business domain are some of the factors that contributed to the poor penetration of personal computers at the household level.Sectoral Applications-II Mr Chintamani Rao is the CEO of the computer and office equipment division. They were in the process of gaining almost 2% market share every year since 1999. There were two kinds of investments seen in the organizations viz. be it electronic or manual but due to rapid adoption of computers. Traditionally they were the market leader in this segment and for long they have a premium image as the quality producer and supplier of the office equipments and furniture. Large corporate houses were either undergoing joint ventures or increasing their market presence by expanding and restructuring their organizations to suit to the liberalized competition. restructuring of the organization and introduction of new products. The company could foresee this well in advance and decided to launch computer and office equipments for this emerging market segment in Indian market. the career opportunities in the filed of computers. Many multinationals entered in to the Indian market through both organic and inorganic route. The disposable income level of average Indian. Various factors are attributed to this phenomenon. Leadership through quality service has been the motto of the company and customer satisfaction has become the mascot of the company over these years reflected in all the activities in the organization.

operating systems. These players targeted majority of small and medium business. Monosoft in the eastern Indian markets and few of the Korean majors (other than LG and Samsung) playing a mid price and average service game in this market. The customers were more sensitive to services and valued the quality and type of service as the key differentiator before making a purchase decision. They were giving high importance to the product support services in their purchase decision due to the simple fact that their business model was more driven on information technology platform. Mostly. A large number of national and Indian players were operating in this segment. Product Support Services 55 . DBCL looked in to this market for quality hardware provider because the company was perceived as a quality player when there were no computers in the office equipment market. Apple. Dell. Profit margins in this market were quite high. LG. industry treated them as also ran customers. Many companies were providing different kind of warranty schemes also to attract the customers including onsite service by the vendors. The companies were looking for quality product support services as the key differentiation in business due to high level of commoditization in the hardware product market. The mid tier consisted of offices whose requirements were more than ten but less than twenty-five personal computers. The total market for office equipment was largely divided in to three tiers. Piramals in western Indian market. The Nature of Competition The market was highly competitive. so also the demands of product support services. The companies were investing heavily and they were quality conscious. On the mid segment the customers were bargain hunters and expect everything under the sun as a part of the deal. not only by buying hardware but also investing substantially on software. At the low end were the unbranded local players who were providing excellent support services due to the small market size and closeness with the customer and the price advantage. So local small time vendors who were doing assembly of components and selling computers at a lower rate and providing after sales service locally were a big threat to the DBCL market which was selling products with a higher price tag compared to the assemblers in the local markets. Samsung. photocopying and was a captive market for DBCL for a long time. HCL and of course DBCL.Market Segments and their Characteristics It was this kind of investment on hardware where DBCL saw an opportunity to grow with its office equipment and computer business. These business houses were conscious about quality but were not ready to depart a large sum for the concept of product quality and superior service. There was a price advantage in these markets for the medium operators where their brand name did not play any role. so a longer downtime of the systems means loss of business and chaos in business operations. This market was purely a commodity market and decisions were made on the basis of price though they valued customer service and after sales support as important. The top end of the market was quality conscious and was mostly dominated by players like IBM. Compaq. servers and solution providers like SAP and other supply chain and customer relationship management software. But this market was price sensitive and gave lesser value to the concept of product support services. The top tier consisted of large corporate houses who were going for a large scale investment and information technology restructuring in their organizations. These are the people who were in to the business of providing services of typewriting. The low tier represented the market where people were buying computers to support their business. There were low end players like Zenith.

Each customer interaction was treated as an opportunity to enhance the experience of customers with DBCL. Mr Chintamani was convinced that customer satisfaction goal can itself bring more closer to the other two objectives. The external corporate goal was to cross all the competitive benchmarks in the industry and the internal goal was to improve the service quality five times over two years from the current level on all the dimensions of quality. The top managers were trained to become quality leaders and role models for the subordinates on service behavior to the customer. He was of the opinion that the best way to enter in to this market is to provide the computer related products to the existing customers who are using DBCL products in their offices. Operating units were asked to prepare their own strategies to achieve the goal of customer satisfaction through voluntary quality circles. asking different questions on the dimensions of service quality as briefed by Zeithaml. Customer relations groups were initiated at each level to have direct customer contact and do the follow up for finding out reasons of customer dissatisfaction and to resolve customer objections at the earliest.Sectoral Applications-II DBCL saw an opportunity to grow in this market and regain its market share but Mr Chintamani from his market visits was not sure about the perception of customers about the product support services provided by DBCL to the existing customers. He was sure they can use the same concept of “office face lift” that they were using for marketing office furniture including and cabinets and separators with a proposition of giving a modern look to the office for marketing computers. to all its operating units. He issued a set of guidelines and requirements to make customer satisfaction as the key goal of the organization. They should personally take the lead and satisfy customer requirements and resolve customer complaints by themselves. The research report revealed horrible stories about the company.Panda (TKP) of Indian Institute of Management Kozhikode (IIMK) to conduct a survey on the perception of customers on DBCL as a quality service provider. Historically the low wend of the market was serviced by the dealers and distributors and the high end of the market by the company service personnel. People perceived DBCL as a traditional organization still living in the preliberalization era. So the priorities for the company in its new vision statement was to achieve a higher return on investment. They are of the opinion that customer care department was not prompt enough to respond to their complains and the grievances were redressed after a long period of time. It was also the responsibility of all the executives in the hierarchy to develop a responsive mechanism and attitude at each level towards customer problems. He insisted that a common and uniform measure should be used across the country for measurement of customer satisfaction. He decided to conduct a marketing research on these issues and in order to get a neutral view contacted Prof Tapan K. He was curious to know what were the reasons for which DBCL was perceived the way it was. This has spoiled the goodwill of the company as a good service provider. The earlier customer satisfaction program brought this into light that customer satisfaction was not a priority of the company as they were operating in the same mindset of pre-liberalized era. The units were allowed to conduct their own market survey. The perceived benefits of the customer relations groups were to 56 . He had a faint idea that the customers don’t perceive the company was quality service provider. The perception of the customers about DBCL as a quality service provider has eroded over years. Parasuraman and Berry (See Unit 8). market share and customer satisfaction. He announced customer satisfaction as the sole goal of the organization in a series of meetings and discussions platforms in the organization.

Yet Mr Chintamani was sure that the board will definitely approve the idea that quality of the customer service should be the Product Support Services 57 . (You may also refer to Unit 10 wherein issues related to service guarantees have been discussed) Many senior managers are of the opinion that they should come out with money back guarantee program. then the whole unit shall be replaced at no charge. The customer satisfaction were measured by the external customer satisfaction data collected through a mail questionnaire method from the customers who had obtained services in a month time from the service personnel and internal quality workshop improvement programs done at various levels of the organization.stay closer to the customers. having a cross functional outlook to customer issues and having a closed loop process to identify problems. Attempts were also made to establish customer support teams for post sales follow up and customer complaint management systems across the organization. Others are of the opinion that service guarantee will be a better option which is based on a proposition that if the machines are not operating as per the promise then the customer will receive five to fifteen percent off in the next deal. and take back the money. which is based on a proposition that if one is not satisfied with the product or service. The fourth option is a product fit guarantee in which the proposition is that if the product does not fit to the promised level during the period of warranty then the customers can trade it in for full credit towards any other product as desired by the customers. The internal measure of the customer satisfaction and service delivery was done by analyzing and bench marking the processes and standards set for the purpose. This satisfaction guarantee program will lead to greater customer satisfaction and higher loyalty rate among its existing customers helping them for cross selling and up selling the new innovative products of the office equipment division. new establishment surveys. opinion of the decision makers as well as that of the users of the products collected across the industries to measure the universal application of the customer satisfaction program. The external data collection was done through periodic survey. All the research results were made available to the service employees to build their awareness and commitment to the customer satisfaction program and invite their recommendations to bring improvements in the level of customer satisfaction. he can return the product. The third option is a product performance guarantee in which the proposition is that if the machine does not perform as per the specifications for the period of warranty. All these options were quite unique in the Indian market and if the customer satisfaction programs are not properly executed then may cost very heavily to the company. Summer of 2003 and The Future Mr Chintamani could find out that the customer satisfaction program in DBCL has brought very good results but he was planning to take the strategy further and delight the customer by outsmarting the competitive benchmarks through the introduction of a new customer guarantee program. It wanted to come out with a guarantee program that will be difficult for the competitors to compete. The staffs at the local level were empowered to take collective action for enhancing customer satisfaction. and provide recommendations for avoidance and elimination of the customer problem. to conduct a root cause analysis.

The length of the guarantee is also an important factor. the performance guarantee was decided by the supplier and manufacturer. it is treated as a sales plea. The service guarantee should be linked to the response time and the performance guarantee to decider of the product performance standard. 2. He has to suggest what kind of customer guarantee program DBCL should offer to the market. The product fit guarantee was not found suitable among many customers. A guarantee program should not be a replacement program. they prefer the machines to function properly and without much trouble to the organization. Again the dissatisfied customer will walk to the competitor with the cash for a deal and companies will lose the opportunity of generating business from the customers. Mr. 3. which can be put to the market as a value differentiator for higher customer satisfaction. IIMK conducted research for DBCL on the above propositions. The product performance guarantee should be provided at the customer’s request than by the company policy and company should not ask any questions for the same service. as they do not want a machine replacement rather. Customers are of the opinion that any body can offer a guarantee program but customers will look at the credibility of the organization offering the guarantee in terms of its capability in delivering it and its past practices and intentions in delivering it to the customers. If the guarantee is for a year or two then in a durable like computers and office equipments. Chintamani for developing the customer guarantee program? Should Mr Chintamani decide in favor of performance guarantee program? If yes then develop a customer guarantee program for DBCL? What kind of internal orientation is necessary in the product support service department for making your suggestion a successful strategy in building customer loyalty and goodwill for DBCL? 58 . If it is offered for a longer period of time then the customer must be indirectly paying a premium for the purchase. They conducted both qualitative research through focus group and in depth interview of the existing customers and a personal survey in selected cities of India having corporate headquarters of large concerns. Mr Chintamani is thinking whether this can be left to the consumer to decide the level of the performance guarantee. What problem DBCL is facing in this case? What factors have contributed to such a situation for the company? Evaluate the options available to Mr. the time taken to respond to the customer’s problem and the down time of the machine at the customer’s point will be the deciding factor. Chintamani dropped the idea of money back guarantee as it shows a lower commitment to the service quality and he also decided against the product fit as it was not preferred by customers. 4.Sectoral Applications-II differentiator in the market where customers are quality conscious and market is slowly moving towards commoditization. It should be a strategy of building relationship and commitment being responsive to the customer problems. Some key issues came out of the study that include the credibility of a guarantee program. For the service guarantee. Questions 1. It is the over all experience of the solution and not the physical features of the product that will drive the brand value and business profit in the future. In majority of the Indian organizations. The money back guarantee is a low commitment from the supplier as the supplier wants to escape the route of providing the quality after sales service through paying the cash back to the consumers than solving the problem.

although your company’s Branch Office is far off from my place I opted doing business with you.‘Is the Customer Always Right?’ and Dosa King’. which have really put me off.was his conviction. I am angry. 2) Case On August 28. After reading the case. Since then. After reading the observations made by the ABM he raises his head and wonders–who is right? Where should the company draw the line on compensation and service? What is the best way to handle cases of complaining customers? He thinks for a while and then reacts. As he had risen through the ranks. to share his views on “Challenges for Insurance Industry”. Sir. I viewed your company to be the best. Chandigarh. Chawla who was disgusted with the working of the company and with the behaviour of an Assistant Branch Manager (ABM) of one of the branches of ABC Insurance Company. analyse the facts of the case to comment upon the issue in the case. all was going fine until he received an angry letter (Exhibit 1) from Mr. EXHIBIT 1 The Regional Manager ABC Insurance Company Ltd. Chandigarh. CASE 1: IS THE CUSTOMER ALWAYS RIGHT? Objectives After going through this case you should be able to: identify the main issue in the case. To respond the customer complaint he marked the letter to the ABM for his comments. Mr. He has a few challenges ahead. Gurucharan Singh joined as Regional Manager.UNIT 19 CASE STUDIES This unit consists of two cases. His recent two visits abroad had completely changed his perspective of services marketing. The reply came back (Exhibit 2). Not only have I insured my 59 . ABC Insurance Company (AIC). Discussion Questions 1) Do you think the customer in this case is justified in making the kind of complaints he did? How do you interpret the difference between the accounts rendered by the customer and the Assistant Branch Manager? Give suggestions to resolve the matter between the customer and the insurance company. With this objective in mind . “There is a lot to be done in the service sector in India” . Hence. frustrated and a disappointed ex-customer of your company. he called a meeting of all Divisional and Branch Managers. he had a lot of experience behind him. provide suggestions for decision making in relation to the main and attendent issues in the case.the day he joined as the Regional Manager. Prior to the recent set of events. try to attempt the following.

Mr. Although he escaped unhurt. Singh came to my place and informed me that the insurance policies of my car and scooter expire on July 30. I was told that the surveyor has not yet submitted his report. Singh. I was shocked. As I was satisfied with the service of your company I drew post dated cheques of July 30 in favour of the Branch Manager. and suggested the next morning 10. Sir.K. He informed me that although the surveyor has not yet submitted the report but has informed him that the loss is to the tune of Rs. have to be renewed. but am also a holder of your household and mediclaim policies. August 10: Sunday (Holiday) Surveyor did not come. I agreed to it.M. Singh had neither given us the covernote of our renewed insurance policy nor had he intimated us anything about it. Singh.m. Singh to hand over the cover note of the policy to my son as I was to be out of station between July 30 and August 5. 1500/. I thanked my stars that the policy was issued prior to the accident. R. and handed it over to Mr. Sir. 800/-.K. I also requested Mr. He was aware of the accident. He also promised to get the surveyor’s report by then. August 6: On my return to Chandigarh on 6th evening I enquired from my son about the cover note of my renewed policy. As Mr. R. hence. August 11: I visited your branch office again and met the Assistant Branch Manager. Can you understand my frustration? With a view to discuss the issue in detail I suggested a meeting with the ABM at 3 p. Singh showed up.Sectoral Applications-II vehicles—a car and a scooter—with your company. Singh assured me that the surveyor will reach my place the same evening.K. he very apologetically informed me that although the policy was drawn on the 30th of last month it could not be delivered. Promise was not kept. He said he was busy that day. 800/. if at all he was aware of the accident why did he not send the surveyor in the last three days? Anyway.K. Singh of the accident and requested him to send his surveyor to assess the loss. I was shocked because any one could look at my scooter and assess the loss to be over Rs. I was told that he has not received any policy or a cover note from Mr. August 27: I again rang up the Assistant Branch Manager and enquired about the progress. You know sir. Our mechanic had estimated the loss well over Rs. the surveyor did not come. I waited there for two hours until Mr. 60 . On enquiring whether my vehicles were insured on the 30th of July or not. August 20: I called the Assistant Branch Manager from work and enquired about the progress made in my case. The same day my son met with an accident. I was told that Mr.K. R. AIC. R. R. It all happened this way: July 28: Your Development Officer. Augst 9: Saturday (Holiday) Surveyor did not come.30 A. I appraised Mr. Singh is in the field and the Branch Manager is on one month leave ending on August 30. as he was extremely busy with his sister’s marriage. the same day. Singh. my scooter was badly damaged. Mr. my worry now waswhether my scooter was insured on July 30 or not? August 8: I did not attend my office and went to your branch office. August 7: On August 7 I rang up your branch office and enquired for Mr. he assured me that the surveyor will visit my place the same evening and the surveyor did come.

hence. instead of being apologetic for his conduct he told me that since the surveyor had not yet submitted the report he could not do anything about my problem of claim assessment. I expressed my displeasure at the treatment meted to me at his hands the day before. Sir. 20. September 1: I met the Branch Manager. Case Studies Sir. 800/. He informed me that the actual loss assessed by the surveyor is Rs. it would be better if I could contact him the day after. Helpless and frustrated as I was—I left his office telling him that if he wants my business back he’d better contact me. hence. with a hope to meet the Branch Manager on Monday the September 1. it would be better if I collected my claims cheque in the first week of October. He suggested that since he was away for long he does not know anything about this case. is it the way that your company treats customers? If he could not get the surveyor’s report by then and could do nothing about my problem why did he agree to meet me and waste my time the earlier day and this day? When I insisted that I must speak to his superior he said—I could meet the Branch Manager as he was joining on the 31st but he will also not be able to do anything about it. 1. The Branch Manager asked me to go ahead with the repairs and submit all bills in original. I was so disgusted with your ABM that I could do nothing else but walk out of his office.30 AM sharp only to be told the ABM is away to the Regional Office and shall be back soon. I left a message for him that he should speak to me on 25468 the moment he is back. 1.August 28: Instead of attending to my office I reached the branch office at 10. that he also remarked that “all customers estimate their losses on the higher side”. The BM informed me that it would take 15 days to process my papers and for the funds to come. He was understanding and gave me a patient hearing. September 15: I went to your branch office with required relevant documents for my claim. In the afternoon. 1. I waited for him for about an hour and then left for my office. I blessed my stars. No call came from the ABM. Shockingly.300/ shall not meet the actual expenses on repairs I agreed for the settlement of claim at Rs. 1300/. Frustrated and irritated. Your ABM was so unprofessional. October 5: When I reached your office on October 5 there were lot of bombshells in store for me. August 29: Instead of going to my office I again visited your branch office and fortunately met the ABM. The ABM was not there. Even though I was sure Rs. I was told that the Branch Manager has gone on a three week training program to Calcutta and much against my wishes I had to meet the ABM. My misery had not ended. In the mean time I got my scooter repaired which had actually cost me Rs. Your ABM informs me that the claim could not be settled as it had to be reassessed. 2. something was moving in the positive direction. I lost my temper and enquired your ABM about the whole reassessment business—“Office confidentials can not be shared with customers” was your ABM’s reply.000 worth of business with your company and I have never made a claim. September 3: I called the Branch Manager from work. 2.200/.300/ and not Rs. Thank God. I again rang up your branch office. It was just the beginning of it. What did he mean by this statement? Do you think we are swindlers who earn profit out of our insurance policies? Over the years I have done Rs. that was more than two weeks ago and I haven’t heard from your ABM. Sir. I 61 .

by ABM’s conduct. along with that of our friends and colleagues at work.K. Jaiswal’s residence. Singh) that if possible Mr. Jaiswal that he has to perform a survey the moment he is back. after receiving the letter and knowing about this lapse we have instructed the Development Officers accordingly. He never mentioned about this delay to me. I also left Mr.Sectoral Applications-II am outraged at this entire episode. If you want me back as your customer I expect full claim of Rs. Chawla. As Mr. ABC Insurance Company Ltd. 3. by the lack of communication and by the ridiculous system of working you have. Hence. Singh (Development Officer).m. Jaiswal’s residence on Aug 9 (holiday) I learnt that he shall be back from Pathankot only by Monday . Nevertheless. I am convinced that this office made all efforts to set things right for Mr. Chawla’s loss on the following grounds. I agree Sir. 2200/. b. R. 1. Jaiswal could not perform survey on August 8. Yours Sincerely Rajesh Chawla EXHIBIT 2 The Regional Manager. Sat and Sun) needs some explanation. I deem it fit to make you aware of some mitigating circumstances which I can share only with you and not with the customer. Chandigarh. Why Mr. Sir. the company should not appoint surveyors of customer’s choice. Jaiswal be appointed as the surveyor. Chawla intimated Mr. 9. Chawla’s address with her. I was informed by his wife that Mr.(for which I have documents) and apology from your ABM. by the way your company treats its customers. I felt that the proximity of their residence shall enable Mr. should you feel that we have fallen short of company’s expectations we shall love to be portrayed as bad boys in the eyes of the customer. I left clear instructions with her for Mr. Rajesh Chawla. who would soon hear all about the AIC way of doing business. 2.. it was a lapse on our part. That the customer received the covernote of his insurance policy a week late is a news for me. 62 On August 8. Chawla stay in the same colony. after years of experience we have all realized that the customers get only more dissatisfied if we appoint surveyors against their wish. Then how could I react to his problem unaware? However. the same evening. Chawla expressed his wish to our Development Officer (Mr. As a follow up measure when I rang up Mr. Jaiswal and Mr. Although. Jaiswal as surveyor on August 8 (Friday) to assess Mr. I read Mr. We appointed Mr. Unfolding these shall help you understand the case more accurately and fully. Jaiswal is away to Pathankot and will be back by 6 p. This is in response to your letter requesting detailed information on customer complaint of Mr. the day Mr. although he may not accept it. Mr. and 10 (Fri. if it helps in any way. Chawla’s letter and reviewed the whole case. a. However. or else you can kiss our business good-bye. about the accident I called Mr. Jaiswal to complete the survey early and to the customer’s satisfaction.

I had to set priorities—either to attend the meeting or to attend to Mr. Chawla is a swindler. Chawla’s gripe concerns with my absence from office on August 28 when he had come to meet me. Chawla had already left after creating a scene in the office. 63 . 800/ to Rs. I never said that neither the BM nor can I do anything about his problem of claim assessment. c. I could do nothing else but leave instructions with my office to request Mr. Given the number of calls. Case Studies 5. 4. Mr. Hence. Mr. Jaiswal that he expects the loss to be to the tune of Rs. 1000/. Jaiswal is blacklisted. The meeting got stretched and I got delayed in reaching my office. b. I made it clear to Mr. At this. My statement was — “Although we do not interfere with the surveyor’s report because it reflects upon our professional integrity. Sir. but to mention my casual conversation with Mr. Jaiswal submitted his report on Sept 1 while he was still down with flu. With regard to reassessment. By that time Mr. Necessary to mention that Mr. Chawla. Jaiswal fell ill and could not prepare the report. but I shall speak to the surveyor and see what can be done about it. when he called again on August 27. we have just followed company’s standing policy. Not finding me he left his telephone number which I presume is his office number. I chose the former as it was your first day in office as Regional Manager and the first formal meeting with you. Unfortunately. Above all. I tried my best to contact him but in vain. The same afternoon while I was away to meet a client. Chawla rings up at our office at about 4 p. I failed in getting the surveyors report by Aug 28 as promised. Chawla has conveniently not mentioned that Mr. before leaving for your office on August 28. While there is no point in disputing these with him. we do not generally share such information with customers”. is that he inundated us with the sheer volume of calls between August 20 and 27. Jaiswal was black listed as a surveyor by our regional office on October 1 we have sent all pending claims assessed by Mr. 6. a. Hence. he is a very demanding. Chawla have liked it? In his letter Sir. you would like to know the following. Mr. However. As I was acting BM then. But that was because Mr. there was no way for me to demonstrate progress in his case. as you can tell from the tone of Mr. the office neither had Mr. I could have appointed some other surveyor even on a holiday—but would Mr. I never said “office confidentials can not be shared with customers”. no one can do anything till we receive Mr. As Mr.m. I made attempts to contact Mr. the actual assessment is always lesser than the actual loss.morning. Agreed. Chawla’s contact number nor was he listed in the telephone directory. I just appraised him of the fact that when customers assess their loss they do not deduct depreciation and accessory losses out of the total loss. My statement was “although there is nothing confidential.30 p. you had wished to meet all Divisional and Branch Managers the following day at 10 am. Chawla’s letter has several misstatement of facts. Jaiswal was his choice. Probably his office was closed by then. however. Chawla’s letter. What his letter does not tell you. With regard to the reassessment Sir. 7. Chawla to wait as I expected the meeting to be over soon. If you recall Sir. Much of Mr. Jaiswal for reassessment. only on my insistence. on August 27 evening-following the traditions of the company we had a welcome party for you. In the party Sir.Nevertheless. No way did I give an impression that Mr. Chawla that Mr.m. Jaiswal’s report”. When I reached back office at 5. Chawla and inform him about the change in my program. in your office. persistent individual.

After going through the case you are expected to define the basic issues in the case. this brings up two questions: While protecting the interests of the customer should we also not protect the interest of the company? Should we mind losing business of such customers? With regards. Chawla had more confidence in the BM. For apology I am always there. as applicable to the service in question. I have maintained silence for two weeks since his last visit to our office.) CASE 2 DOSA KING Objectives The learning objectives of this small case study are to enable you to understand the service offer concept behind the proposed new service. Do you think he should go ahead with the franchising option? Give reasons for your answer. Sincerely yours (A. Mr. analyse the information given in the case to attempt the following. Sir. This is because I strongly believed that: a. economically priced masala dosa in a “fast food” environment. Chawla just did not want to see me—he also makes mention of this in his letter. Narayanan. Evaluate the price and distribution strategies decided by Mr. Narayanan. Hence. 64 . How are the issues of service product standardisation and service quality addressed by the service concept? Suggest possible launch strategy for Dosa King. Chief Executive and Promoter of Gum India Limited (makers of Big Fun & Champs Chewing Gum) came up with the concept of a chain of Masala Dosa outlets serving a standardised. Agreed. Narayanan. Mr. allowing Dosa King machines to be operated from established restuarants or insisting upon separate booths independent of the restaurants. Mr. If Mr.B. explain the service process. I can suggest nothing to rebuild his confidence in us. analyse the issues of distribution and delivery as relevant to this service. b. c. 2200/ is a bit far fetched. Chawla is unhappy with the idea of reassessment and delay in his claim settlement. How do you assess the success of this service concept? What do you think would be a better course of action for Mr. I would have hurt him more with the reassessment business. His demand to recover Rs.M.Sectoral Applications-II 7. Discussion Questions 1) Comment upon the service offer as conceptualised by Mr. 2) 3) 4) 5) Case In 1989. Narayanan. I felt it would be better that the BM comes back from his training and sorts out the issue.

once the dosa was ready. He has to decide whether to insist upon a separate booth independent of any restaurant or allow his machines to be operated from established restaurants. Narayanan is confident that his Dosa King dosas shall be of uniform. East or Western India. he conceptualised a machine that would manufacture dosas automatically. a machine was evolved which could make dosas automatically. Mr. he felt a dosa was not as much of a “fun” or “speciality” or “eating out” food in the South as in the rest of India. He has ruled out South India as he feels the customers are likely to be very discriminating and might not accept his machine made dosa. He has also to decide whether his initial foray should be in North. after over 5000 man hours of R & D effort. Now Mr. Case Studies 65 . A year later. The batter and masala mix would be manufactured in a central plant at Nagpur and supplied to the numerous outlets all over India. Narayanan is wondering which market/town he should select for his test marketing. Mr. standardised quality and taste at all outlets and can be marketed at a very reasonable price of Rs. Recently. ft booth for operating and can therefore be installed just about anywhere. Further more. a dollop of batter would drop on the heated tawa. 4.00 per dosa leaving a 20% margin for the franchisee. In this electrically operated machine. The company plans to give the dosa making machines on lease to franchisees all over India and eventually also enter markets in the Gulf and SE Asia where large Indian ethnic communities exist. Although the Dosa King machine requires only a 8 sq. Narayanan was beset with another dilemma. He hopes to have 100 outlets in selected cities by mid 1992 and to enter about 50 towns with a network of 500 outlets by end 1993. he has been approached by a few restaurant operators who want to instal it because of its novelty appeal. a dollop of masala would drop onto the dosa and the dosa would be automatically folded and picked up and inserted into a paper bag for handing over to the customer.Starting with this concept. A company was registered under the name and style of “Indian Food Fermentations Limited” and work commenced upon developing the automatic Dosa Maker. He also has to decide whether he should give higher priority to launching Dosa King franchise in Metros or mini Metros or whether he should go first to state capitals and other large to medium cities. A promotion is planned on a co-operative basis with the franchisees.

Indira Gandhi National Open University School of Management Studies MS-65 MARKETING OF SERVICES Marketing of Services: An Introduction 1 .

Indira Gandhi National Open University School of Management Studies MS-65 MARKETING OF SERVICES Services Marketing Mix 2 .

Indira Gandhi National Open University School of Management Studies MS-65 MARKETING OF SERVICES Strategic Issues 3 .

Indira Gandhi National Open University School of Management Studies MS-65 MARKETING OF SERVICES Sectoral Applications-I 4 .

Indira Gandhi National Open University School of Management Studies MS-65 MARKETING OF SERVICES Sectoral Applications-II 5 .

Sign up to vote on this title
UsefulNot useful