RVS INSTITUTE OF

MANAGEMENT STUDIES
KUMARAN KOTTAM CAMPUS, KANNAMPALAYAM 641402

BA9253 - SERVICES MARKETING

COURSE MATERIAL & NOTES

Unit 1

INTRODUCTION

Definition
Service Economy
Evolution & Growth of service sector
Nature and Scope of Services
Unique Characteristics of Services
Challenges and issues in Services Marketing

Definition
Marketing Meaning:
Marketing is a human activity directed at satisfying needs and wants through
an exchange process.
Services Meaning:
A service as an act or performance that one arty can offer to another that is
essentially intangible and does not result in the ownership of anything. Its production
may or may not be tied to a physical product.
Services include all economic activities whose output is not a physical
product or construction, is generally consumed at the time it is produced, and
provides added value in forms (such as convenience, amusement, timeliness,
comfort or health) that are essentially intangible concerns of its first purchaser
The American Marketing Association has taken a lead in defining services as
activities, benefits or satisfactions which are offered for sale or provided in
connection with the sale of goods.
Examples of services are:
Trade
Hotels and Restaurants
Railways
Other Transport & Storage
Communication (Post, Telecom)
Financial
Real Estate
Business Services (BPO, KPO etc.)
Public Administration; Defence
Personal Services

 Community Services
Difference between Goods and Services
It has been argued that there are no major differences between goods and
services, as a great deal of similarity has been found in the marketing of both
goods and services.
Though the processes of marketing goods and services are increasingly
resembling each other a few possible differences do remain the most
prominent among them being

Goods

Services

Tangible

Intangible

Homogeneous

Heterogeneous

Production and distribution are

separated from consumption

Production, distribution and

consumption are simultaneou
processes

A thing

An activity or process

Core value processed in factory

Core value produced in the

buyer-seller interaction

Customers do not participate in the

production process

Customers participate in
production

Can be kept in stock

Cannot be kept in stock

Transfer of ownership

No transfer of ownership

Why Marketing of Services

The following factors make it clear that application of modern marketing principles
by the service generating organizations would pave avenues for qualitative-cumquantitative transformation.
Upward Trend in the disposable income:
We cant negate that of late the disposable income of masses has been found
moving upward. This trend is fond even in developing countries like ours. These
facts are a mute testimony to the proposition that even in the Indian economy we
find positive developments which have been creating new opportunities for the
development of services sector.
Increasing Specialization:
We are living in a age of specialization in which only perfection is to be
rewarded suitably. More and more sophistication in the process of economic
transformation is due mainly to the increasing specialisation.
Growing Fashion:
With the development of corporate culture and the emergence of wellestablished services sector, there would be basic change in the lifestyles. Since
the IT would show their influence in almost all the areas, it is natural that fashion
would take shape of an industry.
Professionalism in Education:
The development of HR would be given a transcendental priority by almost all
the organisations either producing goods or generating services. Of course , the
corporate culture makes an advocacy in favor of performance-orientation bur it is
not possible unless we assign due weight age to employee-orientation.
Information Explosion:
of Late the developed countries have been found making sincere efforts to
build a super highway for communications. The tremendous opportunities
generated by communications would influence almost all the sectors.
Sophistication in Market:

With the development of communication services, it is natural that we find

sophistication in the market where customer expectations would be found high.
The westernized life styles would change the hierarchy of needs and
requirements and fashion oriented, comfort-generating house hold items would
have a profitable market.
Increasing Governmental Activities:
The expanding governmental Activities due mainly to the participation of the
state in almost all sectors of the economy would also make ways for the
development of the services sector. The trade and cultural exchange policies, the
global partnership, the convention industry, the hospitality industry etc., would
have a profitable market.
Types of Services
Primary Sector - is something like extracting e.g.

mining, cultivate like

Agriculture Primary Sector (Horti-culture\Aqua-culture) farming.

Secondary Sector - like manufacturing process ( machinery provide service).
Tertiary Sector - Business: Consultation, Finance, Banking, Trade: Retailing,
Maintenance,
Social\personal,

Repair,

Infrastructure,

Restaurants,

Health

Communication,
Care,

Transportation,

Entertainment

Public

Administration: Education, Government Administration.

Service Economy
Service economy can refer to one or both of two recent economic
developments. One is the increased importance of the service sector in industrialized
economies.
The term is also used to refer to the relative importance of service in a product
offering. The service economy in developing countries is mostly concentrated
in financial services, health, and education. Products today have a higher service
component than in previous decades. In the management literature this is referred to
as the servitization of products. Virtually every product today has a service

component to it. The old dichotomy between product and service has been replaced
by a service-product continuum. Many products are being transformed into services.
For example, IBM treats its business as a service business. Although it still
manufactures computers, it sees the physical goods as a small part of the "business
solutions" industry. They have found that the price elasticity of demand for "business
solutions" is much less than for hardware. There has been a corresponding shift to
a subscription pricing model. Rather than receiving a single payment for a piece of
manufactured equipment, many manufacturers are now receiving a steady stream of
revenue for ongoing contracts.
Environmental effects on Service Economy

Much easier integration with accounting for nature's services

Much easier integration with state services under globalization, e.g. meat
inspection is a service that is assumed within a product price, but which can vary
quite drastically with jurisdiction, with some serious effects.

Association

of

goods

movements

in commodity

markets with negative

commodity (representing emissions or

other pollution, biodiversity loss, biosecurity risk) public

bads so

that

no

commodity can be traded without assuming responsibility for damage done by its
extraction, processing, shipping, trading and sale - its comprehensive outcome

Easier integration with urban ecology and industrial ecology modelling

Making it easier to relate to the Experience Economy of actual quality of

life decisions made by human beings based on assumptions about service, and
integrating economics better

with

marketing theory

about brand value

e.g.

products are purchased for their assumed reliability in some known process. This
assumes that the user's experience with the brand (implying a service they
expect) is far more important than its technical characteristics

Role of Service Economy in Development

Services constitute over 50% of GDP in low income countries and as their
economies continue to develop, the importance of services in the economy
continues to grow The service economy is also key to growth, for instance it
accounted for 47% of economic growth in sub-Saharan Africa over the period 2000
2005 (industry contributed 37% and agriculture 16% in the same period). This means
that recent economic growth in Africa relies as much on services as on natural
resources or textiles, despite many of those countries benefiting from trade
preferences in primary and secondary goods. As a result, employment is also
adjusting to the changes and people are leaving the agricultural sector to find work in
the service economy. This job creation is particularly useful as often it provides
employment for low skilled labour in the tourism and retail sectors, thus benefiting
the poor in particular and representing an overall net increase in employment. The
service economy in developing countries is most often made up of the following:

Financial services

Tourism

Distribution

Health, and

Education

The export potential of many of these products is already well understood, e.g. in
tourism, financial services and transport, and however, new opportunities are arising
in other sectors, such as the health sector. For example:

Indian companies who provide scanning services for US hospitals

South Africa is developing a market for surgery and tourism packages

India, the Philippines, South Africa and Mauritius have experienced rapid
growth in IT services, such as call centers, back-office functions and software
development

Service Economy Growth: Key Influences and Concerns

Technological Influences

Socio-Cultural Influences

Competitive Influences

Service Sector Growth Concerns

How important is the Service Sector in Our Economy?

The size of the service sector is increasing in almost all economies around the

world.
Services make up the bulk of todays economy and also account for most of

the growth in new jobs.

Even in emerging economies, service output is growing rapidly and often
accounts for half or more of GDP ( Gross Domestic Product Sum of all

goods and services produced within the boundaries of a country).

Jobs range from high-paid professionals and technicians to minimum-wage
positions.
Service organizations can be any size from huge global corporations to local
small businesses.
The services sector has been growing at a rate of 8% per annum in recent
years.

Predicted Keys to Success within the Service Sector

Niche marketing.

Firms ability to master technological change.

Firms abilities to excel at customer service and develop compelling service

experiences.

Understanding of the value of customer retention.

Evolution and Growth of Service Sector

Evolution of the Services Marketing Field

Crawling Out (Pre 1980)

Early services marketing work was conceptual/theoretical.
Goods Marketing vs. Services Marketing Debate:

Shostack (1977) Breaking Free From Product Marketing.

Berry (1980) Services Marketing is Different.

Scurrying About (1980-1985)

More services research was published.

Literature was still mostly conceptual.

Literature was beginning to move beyond goods vs. services

issues.

Enthusiasm centered around AMA Services Marketing Conferences.

Emergence of a core group of academics & business practitioners.

Walking Erect (19851992)

Increasing number of services scholars.
Explosive growth in the literature:

Acceptance of services research by major journals

More dissertations

More textbooks

Academic events in Europe

Creation of academic centers:

Arizona State Universitys Center for Service Leadership

THE SECOND ERA: THE EMERGENCE OF A MULTIDISCIPLINARY FIELD

Remarkable change has occurred in the services marketing field since

the publication of Fisk, Brown

and Bitner (1993). To portray these

changes in the services field, we continue with a metaphorical approach,

but we shift the nature of the evolutionary

metaphor

from

biological

evolution to social evolution.

Recent Stages of Service Evolution

Making Tools
A tremendous technology infusion, especially of information technology
made it possible for most service industries to rapidly

increase

the

technological sophistication of the service they provide customers.

Prominent among these technology c h a n g e s is the e m e r g e n c e
o f t h e Internet and the many web-based services that are possible
the

Internet.

Included

in

via

these technology c h a n g e s a r e n u m e r o u s

s e l f -service technologies. These changes

have

prompted

service

marketers to study technology infusion into services and the role of selfservice technologies in customer-firm relationships.
Creating Language
Language is itself one of the most sophisticated tools

created by the

human species. Every new academic field must develop a technical

language for communicating knowledge that is created by the community
of

scholars

within

originated in services

the

field. Technical words and phrases that

marketing have become mainstream to the

marketing field. These terms include: service encounters, service quality,

Service Theater, service e x p e r i e n c e , service scapes, and s e r v i c e

recovery.

Building Community: The Future of the Service Field

Building Communit y is the next stage in the social evolution of
the service field. Academic disciplines play essential roles in the creation
and diffusion of knowledge. As the academic study of service phenomena
has

steadily

broadened

its reach from its origins in the services

marketing and management fields, the rapid increase in the number

participants

in

the services

We believe that the

of

field creates both opportunity and peril.

broader services field has reached a critical

juncture. Sophisticated social networking is

needed

to

grow

and

disseminate service knowledge.

Reasons for growth in service sector

Experienced rapid since World War II as many nations shift from a

manufacturing based economy to a service economy.

Major stimulus for this shift movement to an information age spurred by the
invention of the computer and advancements in telecommunications.

As countries continue to shift from an agricultural and industrialized economic

base, the demand for services will continue to increase

Larger discretionary income offers opportunities for entertainment services

In addition to the entertainment services, there will be an increase in demand

for services that enable individuals to have more free time, such as house
cleaning, lawn, and child care services. The increase in the demand for these
services is due to increase in number of women in work force.

Advances in product technology led to rise in the demand for services.

Growth in intermediate demand from firms.

Importance of Staff function than line managers.


High professional and specialized services were taken from
outside to grow big.

It leads to outsourcing of services.

Growth in final demand from customers.

Increase in affluence( wealth, rich, prosperous)

Increase in affluence( wealth, rich, prosperous)
More leisure time
Increasing proportion of working woman
Growth in population of DINKS(Double Income no Kids)
Greater complexities of products.
Greater Complexities in life
Greater concern for resource scarcity and ecology
Increasing number of new products
Increasing proportion of earning younger generation.

Additional factors Contributing Growth

Aging population
Longer life expectancies
Increased leisure time
Higher per capita income
Increased time pressure
More female work force participation
Changing social and cultural values
Advances in technology

Service Sector Growth and Development Sustainability

The service sector produces intangible goods, some well knowngovernment, health,
educationand some quite newmodern communications, information, and business
services. Producing services tends to require relatively less natural capital and more
human capital than producing agricultural or indus- trial goods. As a result demand has
grown for more educated workers, prompting countries to invest more in educationan
overall benefit to their people. Another benefit of the growing service sector is that by
using fewer natural resources than agriculture or industry, it puts less pressure on the
local, regional, and global environment.

Nature and Scope of Services

The second level of the services address the nature of the services in terms
of the degree of tradability, to whom or what the action is directed, and the degree of
merchantability.

Tradability: Tradability is the relative involvement between goods and

services in the production of the services.

Merchantability: Merchantability is the relative distance the customer and

the service provider in the acquisition or performance of the service.

Although both services marketing and goods marketing start with the
critical need identification and need design functions, goods are produced

before it is sold and services are sold before it is produced.

Services marketing has more limited influence on customers before the

purchase than goods marketing

Services dominated by experience qualities, attributes that can be
meaningfully evaluated only after purchase and during production-

consumption.
Post sale marketing and Word of Mouth Communication have prominent

effect in winning customers loyalty.

Services marketers can create brand awareness and induce trial before
the sale, but they demonstrate benefits and build brand awareness most

effectively after the sale

Experience Qualities: Evaluation takes place only after the service has

been consumed or during the process of consumption.

Credence Qualities : Some services are difficult to evaluate even after
consumption

Learning Objectives:

Service process matrix.

The service package.
Distinctive characteristics of a service operation.

The strategic classification of services.

The role of a service manager from an open-systems view of service.

Unique Characteristics of Services

What exactly are the characteristics of a service? How are services different from a
product? In fact many organisations do have service elements to the product they
sell, for example McDonalds sell physical products i.e. burgers but consumers are
also concerned about the quality and speed of service, are staff cheerful and
welcoming and do they serve with a smile on their face?
There are five characteristics to a service which will be discussed below.

1. Lack of ownership
You cannot own and store a service like you can a product. Services are used or
hired for a period of time. For example when buying a ticket to the USA the service
lasts maybe 9 hours each way , but consumers want and expect excellent service for
that time. Because you can measure the duration of the service consumers become
more demanding of it.
2. Intangibility
You cannot hold or touch a service unlike a product. In saying that although services
are intangible the experience consumers obtain from the service has an impact on
how they will perceive it. What do consumers perceive from customer service? the
location, and the inner presentation of where they are purchasing the service?.
3. Inseparability
Services cannot be separated from the service providers. A product when produced
can be taken away from the producer. However a service is produced at or near the
point of purchase. Take visiting a restaurant, you order your meal, the waiting and
delivery of the meal, the service provided by the waiter/ress is all apart of the service
production process and is inseparable, the staff in a restaurant are as apart of the
process as well as the quality of food provided.

4. Perishibility
Services last a specific time and cannot be stored like a product for later use. If
travelling by train, coach or air the service will only last the duration of the journey.
The service is developed and used almost simultaneously. Again because of this
time constraint consumers demand more.
5. Heterogeneity
It is very difficult to make each service experience identical. If travelling by plane the
service quality may differ from the first time you travelled by that airline to the
second,

because

the

airhostess

is

more

or

less

experienced.

A concert performed by a group on two nights may differ in slight ways because it is
very difficult to standardise every dance move. Generally systems and procedures
are put into place to make sure the service provided is consistent all the time,
training in service organisations is essential for this, however in saying this there will
always be subtle differences.

Challenges and Issues in Services Marketing:

Companies that are marketing a product face different challenges compared with
those that are promoting a service. If youre transitioning from marketing products to
services or vice versa, you have to know and understand these differences to
effectively promote and sell. Understanding the different challenges in product and
service marketing can help you establish the right approach.

Tangibility
A product is tangible, which means the customer can touch and see the product
before deciding to make a purchase. Items such as packaging and presentation may
compel a customer to purchase a product. Services, on the other hand, are not
tangible, which can make them more difficult to promote and sell than a product.

Relationship and Value

Products tend to fill a customer's need or want, so companies can use this to sell a
product. A service is more about selling a relationship and the value of the
relationship between the buyer and seller of the service. For example, a car is
something a buyer can touch and see as well as use. A service, such as lifestyle
coaching, for example, is not tangible. A lifestyle coach may be able to assist clients
in creating a life plan and implementing steps to transform his life into one that the
client wants to live, but it is not something tangible that the client can place in his
home and look at every day. Therefore, the client needs to perceive the value of the
service, which can be harder to get across.

One versus Many

Marketing products tends to involve multiple products that make up the line. For
example, cleaning product manufacturers tend to market not just one cleaning
product. Instead, they have a line of cleaning products to serve the various needs of
their customers. Services, on the other hand, typically have a single option. It can be
harder to promote and sell the reputation of one single service over the benefits of
many different products.

Comparing Quality
Measuring the quality of a product is easier than measuring that of a service. If a
customer buys a cleaning product to clean the kitchen sink and it doesnt do the job,
the customer knows the value of the product is zero. On the other hand, it is harder
to measure the quality of a service.

Return Factor

If a customer purchases a product and it doesnt work as it is supposed to, the

customer can return the product for her money back or at least to receive a store
credit. A service is consumed as it is offered, so it lacks the return factor that a
product has. Some service providers overcome this by offering money-back
guarantees.

CHALLENGES IN SERVICES MARKETING

Managing, growing, and profiting with both product and service businesses are
challenging tasks. But the challenges are different from one to the other. Listed
below are some of the most common and difficult challenges of growing and
managing consulting, professional, or technology service businesses that don't
necessary apply to product businesses.
1. Clients can't see or touch services before they purchase them
This makes services difficult to conceptualize and evaluate from the
client perspective, creating increased uncertainty and perception of risk. From
the firm's perspective, service intangibility can make services difficult to
promote, control quality, and set price.
2. Services are often produced and consumed simultaneously.
This creates special challenges in service quality management that
product companies do not even consider. Products are tested before they go
out the door. If a product has quality problems while in production, the
company can fix them and customers are none the wiser. Service production
happens with the customer present, creating a very different and challenging
dynamic.
3. Trust is necessary.
Some level of trust in the service organization and its people must be
established before clients will engage services. This is as important, sometimes
more important, than the service offerings and their value proposition.
4. Competition is often not who you think.
Competition for product companies are other product companies. Competition
for service companies are often the clients themselves. Sure, sometimes you find
yourself in a competitive shootout (some firms more than others), but often the

client is asking 'should we engage this service at all' and 'if so, should we just do
it in-house'.
5. Brand extends beyond marketing
Brand in service businesses is about who you are as much as what you say
about yourself. And internal brand management and communications can be
equally as vital to marketing success as are external communications.
6. Proactive lead generation is difficult
Many service companies have tried, and failed, at using lead generation
tactics that work wonders for product companies. Implemented correctly,
traditional product techniques, such as direct marketing and selling, can work for
services, but the special dynamics of how clients buy services must be carefully
woven into your strategy.
7. Service deliverers often do the selling.
Many product companies have dedicated sales forces. For services,
the selling is often split between sales, marketing, professional, and
management staff.
8. Marketing and sales lose momentum.
Most product companies have dedicated marketers and sellers. They
market and sell continuously, regardless of the revenue levels they generate.
In many services companies the marketers and sellers also must manage and
deliver. This can often lead to the Services Revenue Rollercoaster-wide
swings between revenue and work overflow, and revenue and work drought.
9. Passion is necessary, yet elusive.
The more passion, spirit, hustle, and desire your staff brings to the
organization every day, the more revenue and success you will have. The
correlation between staff passion and financial success is direct and measurable
(as is the correlation between lack-of-passion and organizational failure). Yet
institutionalizing passion, while necessary, is agonizingly elusive.
Ethics in Services Marketing
1. Aggressive Promotion through telemarketing and personnel selling.
2. Invasion of Privacy.

3. Misleading claims backed by poor service performance.