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Subject Code: 14MBA MM303

IA Marks: 50

No. of Lecture Hours / Week: 04

Exam Hours: 03

Total Number of Lecture Hours: 56

Exam Marks: 100

Practical Component: 01 Hour / Week

Module 1: (6 hours)
Introduction to services: Concepts, contribution and reasons for the growth of services sector,
difference in goods and service in marketing, myths about services, characteristics of services,
concept of service marketing triangle, service marketing mix, GAP models of service quality.
Marketing challenges in service industry.
Module 2: (6 hours)
Consumer behaviour in services: Search, Experience and Credence property, consumer
expectation of services, two levels of expectation, Zone of tolerance, Factors influencing
customer expectation of services. Customer perception of services-Factors that influence
customer perception of service, Service encounters, Customer satisfaction, Strategies for
influencing customer perception.
Module 3: (6 hours)
Understanding customer expectation through market research: Key reasons for GAP 1,
using marketing research to understand customer expectation, Types of service research,
Building customer relationship through retention strategies Relationship marketing, Evaluation
of customer relationships, Benefits of customer relationship, levels of retention strategies,
Market segmentation-Basis & targeting in services.
Module 4: (10 hours)
Customer defined service standards: Hard & Soft standards, process for developing
customer defined standards Leadership &Measurement system for market driven service
performance-key reasons for GAP-2 service leadership- Creation of service vision and
implementation, Service quality as profit strategy, Role of service quality In offensive and
defensive marketing.
Service design and positioning-Challenges of service design, new service development-types,
stages. Service blue printing-Using & reading blue prints. Service positioning-positioning on the
five dimensions of service quality, Service Recovery.
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Module 5: (8 Hours)

Employee role in service designing: importance of service employee, Boundary spanning roles,
Emotional labour, Source of conflict, Quality- productivity trade off, Strategies for closing
Customers role in service delivery-Importance of customer & customers role in service
delivery, Strategies for enhancing-Customer participation, Delivery through intermediaries-Key
intermediaries for service delivery, Intermediary control strategies.

Module 6: (8 hours)
Role of marketing communication-Key reasons for GAP 4 involving communication, four
categories of strategies to match service promises with delivery, Methodology to exceed
customer expectation.
Pricing of services-Role of price and value in provider GAP 4, Role of non-monitory cost, Price
as an indicator of service quality Approaches to pricing services, pricing strategies.
Module 7: (6 hours)
Physical evidence in services: Types of service spaces- Role of service scapes, Frame work for
understanding service scapes & its effect on Behaviour-Guidance for physical evidence

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Introduction to services

4 15

Consumer Behaviour in services

16 - 21

Understanding customer expectation through market research

22 30

Customer defined service standards

31 - 61

Employee role in service designing

62 - 76

Role of marketing communication

77 - 95

Physical evidence in services

96 - 113

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Module: 1
Introduction to services: Concepts, contribution and reasons for the growth of services sector,
difference in goods and service in marketing, myths about services, characteristics of services,
concept of service marketing triangle, service marketing mix, GAP models of service quality.
Marketing challenges in service industry.
The American Marketing Association defines services as - Activities, benefits and satisfactions
which are offered for sale or are provided in connection with the sale of goods. Concepts of
service marketing are:

Service as a product

Customer service

Services as value add for goods

Service embedded in a tangible product

Contribution and growth of service sector

The growth of service industries can be traced to the economic development of society and the
socio-cultural changes that have accompanied it. Changing environmental forces brought out of
the services in forefront of the economy. Those environmental forces separately or in
combination create new type of service. The following environmental factors are responsible to
make a new service.
1. Economic affluence: One, of the key factors for the growth of demand for services is the
economic affluence. The size of the middle income consumer is raising fast and the
percentage of the very poor households declining. The rural households in the upper
income category are growing at a much faster pace than the urban households in the
corresponding categories. The Economic liberalization Process has had a positive impact
on the Indian households. Their income as well as their expenditure has been pushed,
creating a demand for many goods and services
2. Changing Role of Women: Traditionally the Indian woman was confined to household
activities. But with the changing time there has been a change in the traditional way of
thinking in the society. Women are now allowed to work. They are employed in defense
services, police services, postal services, software services, health services, hospital
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services, entertainment industries, Business Process Outsourcing and so on.

The percentage of working women has been growing rapidly. The changing role of
women has created a market for a number of product and services. Earning women prefer
to hire services in order to minimize the innumerable roles that they are required to
perform. The demand by woman is forcing service organizations to be more innovative in
their approach.
3. Cultural Changes: Change is the underlying philosophy of culture place of change in
Indian culture is not uniform. However, during the last century the factors of change are
prominent. The emergence of the nuclear family system in place of the traditional joint
family system creates a demand for a host of services like education, health care,
entertainment, telecommunication, transport, tourism and so on. There has been a
marked change in the thought Processes relating to investment, leisure time perception
and so on which has created a huge demand for services.
4. I.T. Revolution: For the last 15 years in India IT became one of the key service
businesses of the country. India has the largest software skilled population in the world.
The domestic market as well as the international market has grown substantially.
Realizing the potential for this area many state governments have made IT as their most,
prioritized segment states such as Karnataka, Andhra Pradesh, Madhya Pradesh
Maharashtra and Delhi have already achieved substantial progress in Information
Technology the In Ile years to come Lille IT enabled se Aces will have a bright future.
The growth. Of population, industrialization and indiscriminate consumptions have
affected the, natural resources, environment and the ecological balance. Due to this there
is an imbalance of the ecology various service organizations have been promoted in order
to take up social marketing. Thousands of crores of rupees are being spent on
safeguarding the rare animals and birds, water pollution, conservation of oil & energy
and research to develop new technologies that can promote effective use of natural
resources and safeguard the environment.
5. Development of Markets: During the last few decades the wholesaler and the retailer
population has grown in the country. Urban India has become a cluster of wholesaling
and retailing business. In the Semi urban areas, retailing has spread to the nooks and
corners of the streets and in the rural areas retail business is significantly present. A new
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breed of organizations, offering marketing services has come up. The government also
offers marketing services to the small-scale agricultural farmers, artisans and other
traditional business sectors such as promotion of regulated markets, export promotion
councils, development boards etc.
6. Market orientation: The changing competitive situation and demand supply positions
has forced the manufacturing organization to shift their philosophy from production
orientation to market orientation. Market is a service function that has been added in the
organization. The pressures in the market has further forced the manufacturing
organizations to have marketing research, accounting, auditing, financial management,
human resource management and marketing research divisions all of which are services
7. Economic liberalization: The economic liberalization of the 1991 has brought many
changes in the Indian scenario. With the Disinvestment and the Privatization policies the
state owned monopolies in many service areas came to an end Multinationals were
permitted to enter the Indian market. Liberal lending policies and lower interest rates
motivated many people to become self-employed. Different sectors like Banking,
Insurance, Power projects, Telecommunication, Hospitality sector, Health Services,
Entertainment, Air transport, and Courier services witnessed intense competition, due to
the entry of multinationals. The flow of time-tested service technology from various parts
of the world changed the attitude of the Indian consumer towards sources.
8. Export potential: India is considered to be a Potential source for services. There are a
number of services that India offers to various parts of the world like banking, insurance,
transportation co data services, accounting services, construction labor, designing,
entertainment, education, health services, software services and tourism. Tourism and
software services are among the major foreign exchange earners of the country and that
the growth rate is also very high as compared to the other sectors

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Difference between goods and services



Resulting Implications



Services cannot be inventoried.

Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.


Heterogeneous Service delivery and customer satisfaction






depend on


uncontrollable factors.
There is no sure knowledge that the service delivered matches
what was planned and promoted.


production and consumption


separate from

Customers participate in and affect the transaction.



Customers affect each other.



Employees affect the service outcome.

Decentralization may be essential.
Nonperishable Perishable It is difficult to synchronize supply
and demand with services.
Services cannot be returned or resold.

Myths about services:

Myth is a popular belief which is over simplified that tends to explain only part of phenomena.
The following are the myths commonly held about services.
Myth 1-A Service Economy produces services at the expense of other sector.
The service sector is growing at very fast pace. Eventually advanced countries will produce only
services and there will be no manufactured goods output at all. This belief is there because sector
is growing so rapidly that other sectors cannot grow at the same pace. This fear is baseless. In
fact both manufacturing and service sector have grown.

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In manufacturing sectors there are more workers than before, the manufacture sector itself needs
services. Therefore service sectors support manufacturing sector and not growing at the expense
of manufacturing.
Secondly it is fact that need for services can be felt very easily modern day consumer spend more
money on services than for manufacturing of goods.
Thirdly some services in fact aid to improve and increase production and productivity.

Myth 2-Service jobs are Low paying and Low level.

Many people think service jobs are of fast food employees, hairdressers, stores, clerks etc. this is
not true. There are service sectors like law, accounting, banking and medicine etc. which are not
of low pay category, another misconception about this sector is that service business is small in
size, though it may employ a large number of people and may dominate GDP.

Myth 3-Service production is labor intensive and low in productivity.

It is a myth service labor intensive; production is sluggish, creating a drag on the economy.
While hotel, travel agency may be less capital intensive, services like airlines,
telecommunication, insurance etc. are quite capital intensive.

Myth 4-Service is necessary evil for manufacturing firms.

Traditionally many manufacturers were of view that so called after sales service was only adding
to cost and in no way it is profitable. The traditional view was that service was equated to repair,
maintenance and handling of complaints. Many manufacturers view services as a profit centre
and use it as a vehicle to differentiate their product from that of competitors.

Myth 5-Managing services is just like Managing manufacturing Business.

This myth will lead us to study of service marketing Many felt that there was not much
difference between product and services made out to be. It was only in 1980 that it was felt by
marketers and top management personal that there is a substantial difference between the
services and product marketing.

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Characteristics of services
Inseparable-From the point where it is consumed and from the provider of the service.
For e.g.: You cannot take a live performance home to consume it (A DVD of the same
performance would be a product, not a service).
Intangible-And cannot have a real, physical presence as does a product,
for e.g., motor insurance may have a certificate, but the financial service itself cannot be touched
i.e., it is intangible.
Perishable-In that once it has occurred it cannot be repeated in exactly the same way
For e.g,once a 100 meters Olympic final has been run there will be no other for 4 more years,
and even then it will be staged in a different place with many different finalist.
Variability-Since the human involvement of service provision means no that two services will
be completely identical.
For e.g., Returning to the same garage time and time again for a service on your car might see
different levels of customer satisfaction, or speediness of work.
Right of ownership- is not taken to the service, since you merely experience it,
for eg, an example an engineer may service your air-conditioning, but you do not own the
service, the engineer or his equipment. You cannot sell it on once it has been consumed, and do
not take ownership of it.

Types of Service Marketing:

1. Business Services-Consultation, Banking, Insurance, Medical, Lawyers.
2. Trade Services-Retailing, Repair, Wholesale, Advertising.
3. Infrastructure Services-Communication, Transportation, Oil, Power.
4. Personal Services-Restaurants, Health Clubs, Swimming pools, Gymnasium.
Entertainment Services-Cinema, Amphi theatre, FM Radio, T.V.
6. Public Services-Education, Police, Defence, P.W.D.
7. Government Services-Railways, Postal etc.
In a service, components may be tangible or tangible.
Teaching-Intangible. This is pure service.
A house coated with new paint-Tangible

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8. Continuous Supply Service/Casual Supply Services: Supply of communication serviceSpecialized service obtained only when needed Musician during a party in marriage
9. Service Based on Consumer Participation:
Example1: Dental Care
Example2: Beauty Parlor-In these cases consumer involvement is more.
In some cases like polishing furniture at home to improve the look. Here consumer participation
is less. Psychological satisfaction is more.
10. Machine Oriented v/s Person/Oriented Services:
a) Machine oriented Services-Telephone, Fax.etc.
b) Man oriented Services-Legal Service, Teaching.

The Services Marketing Mix

A. Traditional Marketing Mix
All elements within the control of the firm that communicate the firms capabilities and image to
customers or that influence customer satisfaction with the firms product and services:
B. Expanded Mix for Services (7P's).
Product: The product concept in service sector is the way in which organization seek to satisfy
consumer need. A product here refers to service rendered
Ex: Banks come under financial Sector,
Products are: Savings account, Fixed Deposit, Recurring Deposit, Current Account, and Loan,
therefore service rendered by banks are important. Therefore the product concept in any financial
sector is the financial rendered.
Ex: Loan Sanctioning is one such service.

Price: This is similar to the product pricing. Total price, discount, mode of payment, price
discrimination are similar to these adopted in product marketing the vital factor in pricing the
service is the quality.
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Quality of service determines the price of service. Time is also a determinant of price.
Ex: The rate of interest charged on loan is the rpice, 5% interest for 2years.This is how price is
determined for the service. Price discrimination also takes place.
Similarly students concession in bus fares which is different for senior citizens indicate the price

Place: This refers to distribution channel of service-How the service will reach the customer?
Ex: Location

re it has to be located? How students can get the

services of getting technical education, what is the level of demand for that courses. All these
issues are considered and engineering institute is established in place convenient to large number
of students.
Thus Place concept is refers to the accessibility to service provided.

Promotion: Advertising public relations are used as promotional tool in services. But in
services, provider of services themselves becomes an important element of promotion mix.
People: Here people refer to service provider. In a product concept manufacturer will have
control measure as manufacturing operations are concerned Consumers are not bothered about
the way in which the product is manufactured. But in case of services, the service provider is in
direct touch with the customer. His behavior and operating process decides the product quality. If
the customer is not happy with the type of service provided the producer of the service will lose
the market.

Process: In some services, consumers also become co-producers.Ex: A self service hotel, where
food provided in the counter to get his food. Here there are no servers at the table. In some
places, consumers themselves have to put the rubbish after eating in to a disposable bin.
Therefore production process is a part of marketing mix.

Physical Evidence: This will form a part of marketing mix. The consumers of service cannot
examine the service before purchasing it, as in the case of products. Therefore they need tangible
evidence to satisfy themselves regarding the quality of service.

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Concept of Service Marketing Triangle:

1. External Marketing: "Setting the

Promise" Marketing to ENDUSERS. Involves pricing strategy,




communication with customers.

Performed to capture the attention of
the market, and arouse interest in the
2. Internal Marketing: "Enabling
the Promise" Marketing to EMPLOYEES. Involves training, motivational, and teamwork
programs, and all communication with employees. Performed to enable employees to perform
the service effectively, and keep up the promise made to the customer.
3. Interactive Marketing: (Moment of Truth, Service Encounter) This refers to the decisive
moment of interaction between the front-office employees and customers, i.e. delivery of service.
This step is of utmost importance, because if the employee falters at this level, all prior efforts
made towards establishing a relationship with the customer, would be wasted.
GAP models of service quality:
Theory of the Gaps Model
Perceived service quality can be defined as, according to the Model, the difference between
consumers expectation and Perceptions which eventually depends on the size and the direction of
the four gaps concerning the delivery of service quality on the companys side (Fig. 1;
Parasuraman, Zeithaml,
Customer Gap = f (Gap 1, Gap 2, Gap 3, Gap 4)

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direction of each gap will affect





Gap 3 will be favorable if the
delivery of a service exceeds




required by the rganization,

and it will be unfavorable
when the specifications of the
service delivered are not met.

The key points for each gap can be summarized as follows:

Customer gap: The difference between Customer expectations and perceptions the Service
quality gap.
Gap 1: The difference between what customers expected and management Perceived about the
expectation of customers.
Gap 2: The difference between Managements perceptions of customer Expectations and the
translation of those perceptions into service Quality specifications and designs.
Gap 3: The difference between Specifications or standards of service quality and the actual
service delivered to customers.
Gap 4: The difference between the services delivered to customers and the Promise of the firm
to customers about its service quality.

Applications of the Gaps Model

First of all the model clearly determines the two different types of gaps in service marketing,
namely the customer gap and the provider gaps. The latter is considered as internal gaps within a
service firm. This model really views the services as a structured, integrated model which

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connects external customers to internal services between the different functions in a service

Ten determinants of Service Quality:

1. Access
2. Communication
3. Competence
4. Courtesy
5. Credibility
6. Reliability
7. Responsiveness
8. Securities
9. Tangibles
10. Understanding/Knowing Customers

Marketing challenges in service industry

There are some inherent challenges in marketing a service business, but they can be overcome.
When marketing services, you apply the same marketing mix principles used for products: place,
price, promotion and product -- which is your service. Added to this mix are emphases on
people, process and physical evidence. Develop a plan that carefully considers these essentials so
you can identify the challenges and devise strategies to overcome them.
One of the most obvious challenges in marketing services is that you are selling something
intangible. People can touch and see a product and are exchanging money for something they
need and can take home to use. Conversely, people only see the results of a service, which may
not always be immediate. It requires faith on the customers part that they will get the desired
results for their money. For example, if you own a cleaning service, you have to convince your
customers to trust you that their homes will be cleaned to their satisfaction.

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Demonstrating Empathy
Convince your customers in your marketing efforts that you understand their problems and are
offering a solution. Do this using people, processes and physical evidence. For example, if you
and your employees have families and work full time, this identifies with working families who
have no time for housecleaning. Before-and-after pictures in your marketing materials, such as
your website, brochures and advertising, are all physical evidence.
Competitive Pricing
How you price your services is an important marketing element. You need to be competitive, so
research several competitors prices to gauge what your prospective customers expect to pay.
Then assess your costs -- your overhead such as rent, insurance, salaries and supplies -- to
determine if you can meet your costs and make a profit with that pricing.
As a services company, marketing your people, including you, is paramount. A service is
consumed when its purchased or produced -- just the results or effects linger, and sometimes
temporarily. For example, your customers home will get dirty again, so the result of your
cleaning delivery is temporary. The client may or may not call you again based on the overall

Defining and improving quality

Ensuring the delivery of consistent quality

Designing and testing new services

Communicating and maintaining a consistent image

Accommodating fluctuating demand

Motivating and sustaining employee commitment

Coordinating marketing, operations, and human resource efforts

Setting prices

Finding a balance between standardization versus customization

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Module 2: (6 hours)

Consumer behavior in services: Search, Experience and Credence property, consumer

expectation of services, two levels of expectation, Zone of tolerance, Factors influencing
customer expectation of services. Customer perception of services-Factors that influence
customer perception of service, Service encounters, Customer satisfaction, Strategies for
influencing customer perception.

Search Qualities: Attributes that a consumer can determine before purchasing a product
Experience Qualities: Attributes that can discerned only after purchase or during consumption
Credence Quality: Includes characteristics that the consumer may find impossible to evaluate
even after purchase and consumption
Customer Expectations of service
Customer expectations are beliefs about service delivery that function as standards or reference
points against which performance is judged
For successful service marketing the following aspects of expectations need to be explored and
1) What types of expectation standards do customers hold about services?
2) What factors most influence the formation of these expectations?
3) What role these factors play in changing expectations?
4) How can a service company meet or exceed customer expectations?

Meaning and types of service expectation

Expectations are reference points against which service delivery is compared
Expected service: there are two levels of expectations are:
1) Desired service: it is the wished for level of performance i.e. the level of service the
customer hopes to receive. It is a blend of what the customer believes can be and should be.
For e.g. a customer expects a neat, clean, spacious berth on a train which would make this
journey comfortable.
2) Adequate service
It is threshold level of acceptable service i.e. minimum level of service the customer will accept.

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It represents the minimum tolerable expectation the bottom level of performance acceptable to
the customer. The adequate expectation level may vary for different firms with in a category or

Zone of tolerance (ZOT)

Services are heterogeneous in that performance may vary across providers, across


from the same provider and even with the same service employee.
ZOT is the range or window in which customers do not particularly notice service performance
ZOT can expand or contract within a customer marketers must understand not just the size and
boundary levels for the ZOT but also when and how the tolerance zone fluctuates within a given
Factors of desired service expectations
a) Personal needs:
Those states or conditions essential to the physical or psychological well-being of the customer
are pivotal factors that shape what we desire in service. It can include physical, social,
psychological and functional needs.
b) Enduring service intensifiers:
They are individual, stable factors that lead the customer to a heightened sensitivity to service.
Enduring intensifier is personal service philosophy-i.e. the customers underlying generic
attitude about the meaning of service and the conduct of service providers

Sources of Adequate service Expectations:

These factors are short term and fluctuate more than the factors that influence desired service
a. Transitory Service intensifiers: They are temporary, usually short term, individual
factors that make a customer more aware of the need for the need for service
b. Perceived service Alternative: They are other providers from whom the customer can
obtain service. The customers perception that service alternatives exist raises the level of
adequate service and narrow the zone of tolerance.
c. Self-perceived service role: it is the perception of the degree to which customers exert
an influence on the level of service they receive i.e. how well they believe they are
performing their own roles in service delivery
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d. Situational Factors: Service performance conditions that customers view as beyond the
control of the service provider, in general situational factors temporarily lower the level
of adequate service, widening the ZOT
e. Predicted service: the level of service customers believe they are likely to get. It is
typically an estimate of the service a customer will receive in an individual transaction
rather than in the overall relationship with a service provider.

Current issues involving customer service expectation

Companies and marketers fear to ask customer expectations as they

feel it may be

unrealistic and extravagant and this may lift their expectations still higher

The customer just wants the service to be delivered as promised but the marketer fails in
meeting even these basic expectations

Asking customers their expectations does not raise the level of expectations but heightens
the belief that the company will do something with the inform that surfaces

The company may not be able to and indeed does not always have to deliver to expressed
expectations but at least it needs to acknowledge to customer that they have heard the input
and are trying to address their issues

One way is to give the reasons to customers why the company is not able to provide the
service currently and also describe the efforts planned to address them

Another way is to campaign to educate customers about ways to use and improve the
service they currently receive

Some under promise to increase the likelihood of meeting or exceeding customers


Customer perception of service

Customer perceive service in terms of the quality of the service and how satisfied they are
overall with their experiences
Customer satisfaction
Satisfaction is the customers fulfillment response. It is a judgment that a product or service
feature, or the product or service itself, provides a pleasurable level of consumption related
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Satisfaction can be viewed as contentment, pleasure, delight. or even relief.

Satisfaction is a dynamic , moving target that may evolve over time, influenced by a
variety of factors

Factors influence on customers satisfactions

1) Product and service features
Customer satisfaction with a product or service is influenced significantly by the customers
evaluation of product or service features
2) Consumer Emotions
These emotions can be stable, preexisting emotions like mood state or life satisfaction
3) Attributions for service success of failure
Attributes the perceived causes of events influence perception of satisfaction as well
4) Perception of equity or fairness
Notions of fairness are central to customers perceptions of satisfaction with products and
Consumers are checking if they have been treated fairly compared to other customers, have paid
better prices or have received better quality of service
5) Other consumer, family members and coworkers
In addition to product and service features and ones own individual feelings and beliefs
consumer satisfaction is often influenced by other people

Service quality

for pure service , service quality will be the dominant element in customers evaluations

for customers service and service which offered with physical product, service quality may
be very critical in determining customer satisfaction

Service encounters
It is the from the service encounters that build their perceptions service encounters or moments
of Truth. The most vivid impression of service occurs in the service encounters or moment of
truth when the customer interacts with the service firm

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Types of service encounters

1) Remote Encounters
2) Phone Encounters
3) Face-To Face Encounters
1) Remote Encounters:
There is no direct human contact e.g. ATM, mail order, internet website etc. here the
tangible evidence of the service and the quality of the technical process and systems become the
primary bases for judging quality. Such encounters provide the firm an opportunity to reinforce
or establish quality perception in the customer
2) Phone Encounters
Almost all firms rely on phone encounters in the forms of customer service, general inquiry or
order taking functions. The judgment of quality is based on variability in the interaction. Tone of
voice, employee knowledge, and effectiveness/efficiency in handling customer issues become
important criteria for judging quality
3) Face-to-Face Encounters
It occurs between customer and salespeople, delivery personnel, maintenance rep, professional
consultant etc determining and understanding service quality issues in face to face context is the
most complex of all. Both verbal and nonverbal behaviors are important determinants of quality,
as are tangible cues such as employees dress and other symbols of service like equipment,
broachers, physical setting etc. in such customer, the customer also plays a role in creating
quality service for herself through her own behavior during interaction
Strategies for influencing customer perception

Measure and manage customer satisfaction and service quality

The strategy for customer focused firms is to measure and monitor customer satisfaction and
service quality. Such measurement need to track trends, to diagnose problems, and to link other
customer focused strategies.

Aim for customer quality and satisfaction is every service encounters

Many firms aims for zero or 100 percent satisfaction in every encounter. To achieve this
require clear documentation of all of the point of contact between the organization and its

Plan for effective Recovery

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Facilitate adaptability and flexibility

Encourage spontaneity

Help employee cope with problem customer

Manage the dimensions of quality at the encounter level


3) Manage the evidence of service to reinforce perception

The evidence of service people, process, and physical evidence provides a frame work


planning marketing strategies. Essentially tangibilize the service for the customer and thus
represent important means for creating positive perception.

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Module 03
Understanding customer expectation through market research: Key reasons for GAP 1,
using marketing research to understand customer expectation, Types of service research,
Building customer relationship through retention strategies - Relationship marketing, Evaluation
of customer relationships, Benefits of customer relationship, levels of retention strategies,
Market segmentation-Basis & targeting in services.
Customers have different expectations re services or expected service
Desired service customer hopes to receive
Adequate service the level of service the customer may accept

Key reasons for GAP 1:

Listening gap
a. Not interacting directly with customers to understand their expectations
b. Unwilling to ask customers expectations
c. Understanding of customers perception

Provider GAP 1

Expected Service



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Company Perceptions of
Consumer Expectations

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Understanding Customer Expectations and Perceptions Through Marketing Research

Using Marketing Research to Understand Customer Expectations

Elements in an Effective Services Marketing Research Program

Analyzing and Interpreting Marketing Research Findings

Using Marketing Research Information

Upward Communication

Common Research Objectives for Services

To identify dissatisfied customers

To discover customer requirements or expectations

To monitor and track service performance

To assess overall company performance compared to competition

To assess gaps between customer expectations and perceptions

To gauge effectiveness of changes in service

To appraise service performance of individuals and teams for rewards

To determine expectations for a new service

To monitor changing expectations in an industry

To forecast future expectations

Types of service research

Includes Qualitative Research

Includes Quantitative Research

Includes Perceptions and Expectations of Customers

Includes Measures of Loyalty or Behavioral Intentions

Balances Cost and Value of Information

Includes Statistical Validity When Necessary

Measures Priorities or Importance

Occurs with Appropriate Frequency

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Identify dissatisfied customers to attempt recovery; identify most common categories of

service failure for remedial action - Customer Complaint Solicitation

Assess companys service performance compared to competitors; identify serviceimprovement priorities; track service improvement over time - Relationship Surveys

Obtain customer feedback while service experience is still fresh; act on feedback quickly
if negative patterns develop - Post-Transaction Surveys

Use as input for quantitative surveys; provide a forum for customers to suggest serviceimprovement ideas - Customer Focus Groups

Measure individual employee service behaviors for use in coaching, training,

performance evaluation, recognition and rewards; identify systemic strengths and
weaknesses in service - Mystery Shopping of Service Providers

Measure internal service quality; identify employee-perceived obstacles to improve

service; track employee morale and attitudes - Employee Surveys

Determine the reasons why customers defect- Lost Customer Research

To forecast future expectations of customers, To develop and test new service ideas Future Expectations Research

Stages in the Research Process

Stage 1 : Define Problem
Stage 2 : Develop Measurement Strategy
Stage 3 : Implement Research Program
Stage 4 : Collect and Tabulate Data
Stage 5 : Interpret and Analyze Findings
Stage 6 : Report Findings

Building customer relationship through retention strategies

It has been called the decade of the customer, the customer millennium, and virtually every name
that can incorporate customer within. Theres nothing new about businesses focusing on
customers or wanting to be customer-centered. However, in todays marketplace just saying an

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enterprise is customer-centric is not enough. It is a promise that organizations must keep. The
problem is that most organizations still fall short of this goal.
Customer-centric, an organization must have customers at the center of its business. Many
organizations are sales-focused and not marketing-oriented. Many enterprises that have a
marketing focus are brand- or product-centric. Being a customer-centered organization is much
more complex than it appears.

Focus on Customer Equity

In their book, Driving Customer Equity: How Customer Lifetime Value is Reshaping Corporate
Strategy, Roland Rust, Valarie Zeithaml, and Katherine Lemon write about a conceptual
framework that realigns an organizations strategies to make it more customer-centered and to
help it build Customer Equity. They define a firms customer equity as the total discounted
lifetime value of all of its customers. The concept of Customer Lifetime Value is well known to
traditional mail-order and direct marketing firms there are three drivers of customer equity and
organizations should focus on those that most influence the organization:
Value equity
Brand equity
Retention equity
Profitability, Retention Measures of Customer Equity
Central to this idea is that organizations must balance growth with profitability. Growth requires
acquisition, which is expensive and a significant expense to an organization. Retention yields
profitability but must be balanced to maximize value.
Loyalty and Satisfaction
While satisfaction and loyalty are related, they are different attributes of marketing effectiveness.
Satisfaction reflects how well an organization fulfills customer expectations of quality, service,
and other material elements of a brands value proposition. Both logic and emotion affect
satisfaction. Loyalty is a behavioral system of repetition that helps to build value over time. It is
transactional in nature and becomes habitual (e.g., stopping at a Starbucks on the way to the
office). While it may seem counter-intuitive, organizations dont always need to satisfy
customers to generate loyalty.

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Contractual, emotional, or functional loyalty are types of loyalty that are less dependent upon
satisfaction to affect purchase events or trigger defections. Service gaffs, the kinds reported in
satisfaction surveys, are often ignored or forgiven. This is common where there is a long-term
emotional bond to a brand, where loyalty is based on vendor agreements (e.g., where a purchase
threshold must be met to qualify for a discount), or where loyalty is based on convenience (e.g.,
the only air carrier with nonstop flights to a destination).
Customer Relationship Management (CRM) is a ubiquitous acronym that has no single
definition. The accepted definition of CRM is often different for each organization and for
different groups within the organization. Marketing may have its definition of CRM, sales its
definition, customer service its definition, and information technology (IT) its definition.
There are three factors that influence the success of CRM programs:
The People factor
People are the most important factor in the success of CRM. No other business strategy cuts
across so many organizational lines or requires so much interdepartmental cooperation. This is
not something that can be implemented with an e-mail asking everyone to just get along. It
requires that top management make clear that the goals of CRM are one of their priorities.
Management must invest resources and let staffers know that they expect a return on the
investment for CRM.

The Process Factor

One of the outcomes of CRM is that the many business processes are automated. Most CRM
systems come with their own built-in business processes. They are usually generic and dont
correspond to the way that an organizations processes work. Trying to make these processes
work can be a difficult and frustrating task. Some organizations simply take their old processes
and try to implement them within their new CRM system. Generally, these processes need a
complete review to learn which can be implemented, which need updating, and which need to be

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The Technology Factor

Technology is the most difficult factor, given the number of CRM alternatives now available.
Organizations need to know what capabilities they are looking for, which of their current
systems they must integrate with CRM, and have some idea of their budget. There are endless
CRM vendors and applications from which to choose, and the number continues to grow.
There is Enterprise cRM (e.g., PeopleSoft) as well as applications for various functions of CRM
(sales force automation, campaign management, call center management, etc.). There are
installed software solutions (e.g. Oracle) as well as hosted services ( The
choices of solutions and vendors are endless. However, enterprises must do their due diligence.
They shouldnt believe what vendors tell them without doing a thorough review. They should
have realtime examples of the software in action, not just PowerPoint presentations or sample

Relationship marketing
Relationship marketing is a philosophy of doing business that focuses on keeping and improving
current customers, does not necessarily emphasize acquiring new customers is usually cheaper
(for the firm) - to keep a current customer costs less than to attract a new one goal = to build and
maintain a base of committed customers who are profitable for the organization thus, the focus is
on the attraction, retention, and enhancement of customer relationships
Enhancing, Retaining, Satisfying and Getting
Value of a customer


Expected Customer Lifetime

Average Revenue (month/year)

Other Customers convinced via WOM

Employee Loyalty??


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Costs of Serving Customer Increase??

Loyal customers: is the one who

Shows Behavioral Commitment

buys from only one supplier, even though other options exist

increasingly buys more and more from a particular supplier

provides constructive feedback/suggestions

Exhibits Psychological Commitment

wouldnt consider terminating the relationship--psychological commitment

has a positive attitude about the supplier

says good things about the supplier

Evaluation of customer relationships

Evaluation of customer relationships done in the basis of Value equity, Brand equity and
Retention equity

Benefits to the Organization of Customer Loyalty

loyal customers tend to spend more with the organization over time

on average costs of relationship maintenance are lower than new customer costs

employee retention is more likely with a stable customer base

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lifetime value of a customer can be very high

Benefits to the Customer:

inherent benefits in getting good value

economic, social, and continuity benefits

contribution to sense of well-being and quality of life and other psychological


avoidance of change

simplified decision making

social support and friendships

special deals

Benefits for Customers: Assuming they have a choice, customers will remain loyal to a firm
when they receive greater value relative to what they expect from competing firms. Remember
that perceived value is the consumers overall assessment of the utility of a product based on
perceptions of what is received and what is given. Value represents a trade off for the consumer
between the give and the get components. Consumers are more likely to stay in a relationship
when he gets (quality, satisfaction, specific benefits) exceed the gives (monetary and no
monetary costs) When firms can consistently deliver value from the customers point of view,
clearly the customers benefits and has an incentive to stay in the relationship.

In addition to the specific inherent benefits of receiving service vale, customers also benefit from
long-term relationships because such associations contribute to a sense of well-being and quality
of life. Building a long-term relationship with a service provider can reduce consumer stress as
initial problems, if any, are solved special needs are accommodated, and the consumer learns
what to expect. This is particularly true for complex services (eg. Legal, medical, education), for
services where there is high ego involvement (eg., hair styling, health club, weight loss
program), and for services that require large investments (eg. Corporate banking, insurance,
architecture). After a time the consumer begins to trust the provider and a count on a consistent
level of quality service. Ego investment, trust are the important factors.

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Most consumers (Whether individuals or business) have many competing demands for their time
and money and are continually searching for ways to balance and simplify decision making to
improve the quality of their lives. When they can maintain a relationship with a service provider
they free up time for other concerns and priorities. And excellent example is the case of dual
career families, for which the decision about who should care for their children during the
workday is one of the most important decisions they make. Once they have identified and
established a satisfying relationship with a good caregiver (whether it be can individual a day
care center, or a preschool) family stress is reduced and the quality of family life is improved.
Should something happen, that requires a change in caregivers, or should the relationship quality
deteriorate for any reason, family stress levels immediately increase. Thus, a stable relationship
with a good child-care provider is directly reflected in quality of life. Frequently families are
willing to pay premium prices to maintain stable, predictable, high quality care for their children.
Eg: Boarding Schools, Hostel facilities, etc.,

Benefits for the Organization: The benefits to an organization of maintaining and developing a
loyal customer base are numerous. They can be linked directly to the firms bottom line.
Increasing Purchase: As consumers get to know a firm and are satisfied with the quality of its
services relative to that if its competitors, they will tend to give more their business to the firm.
And as customers mature (in terms of age, life cycle, growth of business). They frequently
require more of a particular service. Eg: Laundry, Haircutting.
a) Lowest Costs: There are many start-up costs associated with attracting new customers. The
include advertising and other promotion costs, operating costs of setting up accounts and
systems, and time costs of getting to know the customer. Sometimes these initial costs can
outweigh their revenue expected from the new customers in the short term. A prime example
occurs in the insurance industry. Typically the insurer doent recover its up-front selling costs
until the third of fourth year of the relationship. Thus, from a profit point of view, there would
seem to be great incentive to keep new customers once the initial investment has been made. Eg:
Even ongoing relationship maintenance costs are likely to drop over time. For example, early in
a relationship a customer is likely to have questions and to encounter problems as he or she
learns to use the service. Once learning has taken place the customer will have fewer problems
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and questions (assuming the quality of service is maintained at a high level) and the service
provider will incur fewer costs in serving the customer. Eg: Hotels, Airlines.

b) Free Advertising through word of mouth: When a product is complex an difficult to

evaluate. And there is risk involved in the decision to buy it as is the case with many services
consumers most often look to others for advice on which providers to consider. Satisfied. Loyal
customers are likely to provide a firm with strong word of mouth endorsements. This form of
advertising can be more effective than any paid advertising the firm might use, and has the added
benefit of reducing the costs of attracting new customers. Eg: Consumer and Consumer durable
c) Employee Retention: It is easier for a firm to retain employees when it has a stable base o
satisfied customers. People like to work for companies whose customers are happy and loyal.
Their jobs are more satisfying and they are able to spend more of their time fostering
relationships than scrambling for new customers, In turn, customers are more satisfied
andbecome even better customer a positive upward spiral. Because employees stay with the firm
longer, service quality improves and costs of turnover are reduced, adding further to profits.
Relationship building becomes difficult with new employees. Eg: Bank Manager.
d) Lifetime value of a customer: If companies knew how must it really costs to lose a customer,
they would be able to make accurate evaluations of investments designed to retain customer.
Unfortunately, todays accounting systems do not capture the value of a loyal customer. One
way of documenting the value of loyal customers is to estimate the increased value or profits that
accrue for each additional customer who remains loyal to the company rather than defecting to
the competition.
Strategies for Building Relationships:


Excellent Quality/Value

Careful Segmentation

Bonding Strategies:

Financial Bonds

Social & Psychological Bonds

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Structural Bonds

Customization Bonds


Relationship Strategies Wheel

Levels of customer retention strategies

Excellent Quality and Value
1. Financial Bonds
o Volume and Frequency Rewards
o Stable Pricing
o Bundling and Cross Selling
2. Social


o Continuous Relationships
o Personal Relationships
o Social Bonds Among Customers
3. Customization Bonds
o Customer Intimacy
o Mass Customization
o Anticipation/ Innovation
4. Structural


o Shared Processes and Equipment

o Joint Investments
o Integrated Information Systems
Steps in Market Segmentation and Targeting for Services:

Identify Bases for Segmenting the Market

Develop Profiles of Resulting Segments

Develop Measures of Segment Attractive- ness

Select the Target Segments

Ensure that Segments Are Compatible

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Market segmentation splits up a market into different types (segments) to enable a business to
better target its products to the relevant customers.
Market segmentation offers the following potential benefits to a business:
Better matching of

Customer needs differ. Creating separate products for each segment

customer needs

makes sense

Enhanced profits for

Customers have different disposable incomes and vary in how


sensitive they are to price. By segmenting markets, businesses can

raise average prices and subsequently enhance profits

Better opportunities

Market segmentation can build sales. For example, customers can be

for growth

encouraged to "trade-up" after being sold an introductory, lower-priced


Retain more

By marketing products that appeal to customers at different stages of


their life ("life-cycle"), a business can retain customers who might

otherwise switch to competing products and brands.

Target marketing

Businesses need to deliver their marketing message to a relevant


customer audience. By segmenting markets, the target customer can be

reached more often and at lower cost

Gain share of the

Through careful segmentation and targeting, businesses can often

market segment

achieve competitive production and marketing costs and become the

preferred choice of customers and distributors

Identify bases for segmenting the market: Market segments are formed by grouping customers who
share characteristics that are in some way meaningful to the design, delivery, promotion, or pricing
of the service. Common segmentation bases for consumer markets include demographic
segmentation, geographic segmentation, psychographic segmentation, and behavioral segmentation.
Segments may be identified on the basis of one of these characteristics or a combination.

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Segmentation and Market Targeting:

Geographic Segmentation: Dividing

the market to form different geographic
units such as nations, countries or


Dividing buyers to form groups based

on social class, life style or personality
Behavioral Segmentation: Dividing buyers to form groups based on knowledge, attitude, uses
or responses to a service.
Requirements for effective segmentation: Measurability: The degree to which the size and
purchasing power of the segments can be measured.
Accessibility: The degree to which the segments can be reached and served.
Substantiality: The degree to which the segments are large or profitable enough.
Action ability: The degree to which effective program can be designed for attracting and
servicing of the segments.

Criteria for Evaluation Market Segments for Market targeting: Segment size and Growth:
includes information on current sales, projected growth rates and expected profit margins.
Segment structural attractiveness: Includes current and potential competitors, Substitute
products and services, relative power of buyers and relative power of suppliers.
Company objectives and Resources: Involves whether the segment fits the companys
Demographic Segmentation: In other cases, geographic variables (nations, countries, states,
regions) form the base for dividing the market place of identifying potential unmet needs.
Psychographics Segmentation: Many times, it is not a particular demographic or geographic
variable that defines the market segment, but rather a shared sense of values, a common life

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style, or common personality characteristic among consumers in the segment. A service based on
psychographic segmentation will focus on such factors in the design and delivery of the service.
Behavioral Segmentation: At other times, a segmentation strategy may be formed around
behavioral characteristics of consumer such as their knowledge, attitudes or usage patterns.
In businesses to business marketing the applications situation of the organization form the basis
for segmentation? Such applications situations as technology needs, product usage, or service
requirements are examples. To illustrate, an institutional food service provider may have
different service configurations for the large manufacturer segment that requires full service
executive dening facilities and large volume cafeterias than it would have for the hospital market
segment that uses a centralized kitchen facility to disperse a wide variety of dietary
Develop profiles of Resulting Segments: Once the segments have been identified, it is critical
to develop profiles of the in consumer markets, these profiles usually involve demographic
characterizations of psychographic or usage segments. Of most importance in this stage is clearly
understanding how and whether the segments differ from each other in terms of their profiles. If
they are not different from each other, the benefits to be derived from segmentation, that is, from
more precisely identifying sets of customers will not be realized.

Develop Measures of segment Attractiveness: The fact that segments of customers exist does
not justify a firms choice of them as targets. Segments must be evaluated in terms of their
attractiveness. The size and purchasing power of the segments must be measurable so that the
company can determine if the segments are worth the investment in marketing and relationship
costs associated with the group. They must be profitable in the long term in terms of revenues
generated, and they also should not place a disproportionate drain on the firms time and /or
human energy. These costs are not always easy to determine in advance.
The chosen segments also must be accessible, meaning that advertising or marketing vehicles
must exist to allow the company to reach the customers in the segments.

Select the Target Segments: Based upon the evaluation criteria in step 3, the services marketer
will select the target segment or segments for the service. The service firm must decide if the

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segment is large enough and trending toward growth. Market size will be estimated and demand
forecasts completed to determine whether the segment provides strong potential.
Competitive analysis, including an evaluation of current and potential. Competitive analysis,
including an evaluation of current and potential competitors, substitute products and services and
relative power of buyers and relative power of suppliers, will also help in the final selection of
target segments. Finally, the firm must decide whether serving the segment is consistent with
company objectives and resources.

Ensure that the target segments are compatible: This step, of all the steps in segmentation
strategy, is arguably more critical for service companies than for goods companies. Because
services are often performed in the presence of the customer, the services marketer must be
certain that the customers are compatible with each other for example, families who are attracted
by the discounted prices and college students on their fees it may find that the two groups do not
merge well. It may be possible to manage the segments in this example so that they do not
directly interact with each other but if not, they may negatively influence each others
experiences, hurting the hotel future business. In identifying segments it is thus important to
think through how they will use the service and whether segments will be compatible.

Retention Strategies:
1. Monitor Relationships: A basic strategy for customer retention is to implement a through
means of monitoring and evaluating relationship quality over time. Current customers should be
surveyed to determine their perceptions of value received, quality, satisfaction with services and
satisfaction with the provider relative to competitors. The organizations will also regularly
communicate with its customers in person or over the telephone. In a competitive market, it is
difficult to retain customers unless they are receiving a base level of quality and value.
A well designed customer data has is also a foundation for customer retention strategies.
Knowing who the organizations current customers are (names, addresses, phone numbers, etc.,)
what their buying behavior is, the revenue they generate, the related costs to serve them, their
preferences, and relevant segmentation information (ie., demographics, life style, usage patterns)
forms the foundation of a customer data base. In cases of customers leaving the organization,
information on termination would also existing the data base.
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Three levels of Retention Strategies:

Level 1: At level 1 the customer is tied to the firm primarily through financial incentives lower
prices for greater volume purchases or lower prices for customers who have been with the firm a
long time. Examples of level 1 relationship marketing are not hard to find. Thinkabout the airline
industry and related travel service industries like hotels and car rental companies Frequent
flyer programs provide financial incentives and rewards for travelers who bring more of their
business to a particular airline. Hotels and car rental companies do the same. One reason these
financial incentive programs proliferate is that they are not difficult to initiate and frequently
result in at least short term advantages to a firm since, unless combined with an other
relationship strategy, they dont serve to differentiate the firm from its competitors in the long
run. Many travelers belong to several frequent flyer programs and dont hesitate to trade off
among them. And there is considerable customer switching every month among the major
telecommunication suppliers. While price and other financial incentives are important to
customers, they are generally not difficult for competitors to imitate since the only customized
element of the marketing mix is price. Eg. Swiss air, Luftansa offer big gifts and discounts for
fliers exceeding certain Kilometers in a year.
Level 2: Level 2 strategies bind customers to the firm through more than pricing incentives.
While price is still assumed to be important, level 2 retention marketers build long-term
relationships through social as well as financial bonds. Customers are viewed as clients not
nameless faces and become individuals whose needs and wants the firm seeks to understand.
Services are customized to fit individual needs and marketers find ways of staying in touch with
their customers, thereby developing social bonds with them. For example in a study of customer
firm relationships in the insurance industry, it was found that behaviours such as staying in touch
with clients to assess their changing needs, providing personal touches like cards and gifts and
sharing personal information with clients all served to increase the likelihood that the client
would stay with the firm. Personal relationship becomes very important.
Social bonds are common among professional service provides (eg. Lawyers, accountants,
teachers and their clients as well as among personal care providers (hair dressers, counselors,
health care providers) and their clients.
A dentist who takes a few minutes to review her patients file before coming in to the exam room
is able to jog her memory on personal facts about the patient (occupation, family details, interest,
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dental health history). By bringing these personal details into the conversation, the dentist reveals
her genuine interest in the patient as an individual and builds social bonds. Eg: Car garage
empathy plays a vital role.

Sometimes relationships are formed with the organization due to the social bonds that develop
among customers rather than between customers and the provider of the service. This is
frequently the case in health clubs, country clubs, educational settings and other service
environments where customers interact with each other. Over time the social relationships they
have with other customers are important factors that keep them not be change the organization
from switching to another organization. Women who exercise together regularly at a health club
may develop social ties and friendships that bind them to each other and to the particular fitness
center where they work out. People who vacation at the same place during the same weeks every
year build bonds with others who vacation there at the same time. Social tie up acts as a

Level 3: Level 3 strategies are the most difficult to imitate and involve (1) Structural as well as
(2) financial and (3) social bonds between the customer and the firm. Structural bonds are
created by providing services to the client that are highly customized and frequently designed
right into the service delivery system for that client. Structural bonds often are created by
providing customized services to the client that are technology based and serve to make the
customer more productive. Some concrete examples will help to demonstrate the effectiveness of
structural bonds in building relationships.

By working closely with its hospital customer will improve hospital supply ordering, delivery
and billing that have greatly enhanced their value as a supplier.
For Example hospital specific pallet architecture that meant all items arriving at a particular
hospital were shrinking wrapped with labels visible for easy identification. Separate pallets were
assembled to reflect the individual hospitals storage system, so that instead of miscellaneous
supplies arriving in boxes they arrived on client friendly pallets designed to suit the
distribution needs of the particular hospital. Eg: Supply of items from wholesaler to retailer with
proper identification.
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Retaining Customers when things go wrong: As we have seen, reliability and doing it right
the first time are extremely important factors in Customers judgment of service quality. Yet for
even the best of firms, service failures and mistakes are inevitable and because service is often
performed in the presence of the customer errors and failures are difficult to hide or disguise. It is
usually not possible to start over as it might be with a manufactured product. When things go
wrong, the consumer is presented with a good reason to switch providers and to tell others not to
use the service. Effective recovery is thus essential to save and even build the relationship. If the
organization fails in recovery, it has failed the customer twice a double deviation from customer
Track and Anticipate recovery opportunities: The customer who complains is your friend
customers who dont complain are likely not to come back, and further they may influence other
customers to not try the service. Building on this notion, organizations need systems to track and
identify failures, viewing them as opportunities to save and retain customer relationships.
An effective service recovery strategy requires identification of failure points in the system
through listening to customers. This means not only monitoring complaints, but really listening
and being active in searching out potential failure points. Take complaint as a compliment for
corrective action.
Take Care of Customer problems on the Front Line: Form the customers point of view, the
most effective recovery is accomplished, when a front line worker can take the initiative to solve
the problem on the spot. Acknowledgement of the problem, an apology, an explanation when
appropriate and a solution to the problems are often all the customer wants. Sometimes the
solution may be a refund retailers with liberal, return policies build customer loyalty through
refunding or trading in defective merchandise, no questions asked.
Solve Problems Quickly: Once the failure points are identified, employees must act quickly to
solve problems as they occur. A problem not solved can quickly escalate. Sometimes employees
can even anticipate problems before they arise and surprise customers with a solution.

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Module 4: (10 hours)

Customer defined service standards: Hard & Soft standards, process for developing
customer defined standards.
Leadership & Measurement system for market driven service performance-key reasons for
GAP-2 service leadership- Creation of service vision and implementation, Service quality as
profit strategy, Role of service quality In offensive and defensive marketing.
Service design and positioning-Challenges of service design, new service development-types,
stages. Service blue printing-Using & reading blue prints. Service positioning-positioning on the
five dimensions of service quality, Service Recovery.
Hard customer defined standards: Things that can be counted, timed, or observed through
audits (time, numbers of events)
Soft customer defined standards: Opinion-based measures that cannot be observed and must be
collected by talking to customers (perceptions, beliefs)
Hard and Soft Service Standards at Ford:
1. Appointment available within one day of customers requested service day
2. Write-up begins within four minutes
3. Service needs are courteously identified, accurately recorded on repair order and verified
with customer
4. Service status provided within one minute of inquiry
5. Vehicle serviced right on first visit
6. Vehicle ready at agreed-upon time
7. Thorough explanation given of work done, coverage and charges
Hard standards: The standards 1,2,4,5&6 can be measured & audited.
Soft standards: The standards 3&7 require customer opinion.
Company Defined: Internal- Productivity, Efficiency, Costs or technical quality.
Customer Defined: Requirements that is visible and assessed/ measured by consumers.

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Process for developing customer defined standards

1. Identify Existing or Desired Service Encounter Sequence: Similar to AT & Ts

2. Translate Customer Expectations Into behaviour/actions: Abstract customer
expectations are translated into concrete specific behaviours/actions associated with each
3. Select behaviors/actions for standards: Standards are based on behaviors and actions
that are very important for the customers. Standards cover performance that needs to be
improved or maintained. Standards are accepted by employees. Standards are predictive
rather than reactive. Standards are challenging but realistic.
4. Set Hard or Soft Standards: Companies are biased towards hard standard. First
establish a soft standard.
5. Develop Feedback Mechanisms: Hard standards involve mechanical counts or
technology enabled measurements. Soft standards- employee monitoring through
customer feedback.

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6. Establish measures and target levels: Ccompanies can relate levels of customer
satisfaction with actual performance of a behaviour.
Eg: Airline waiting line.
7. Track measure against standards: Figuring out what goes wrong and prevent it from
happening again.
8. Provide feedback about performance to employees: Communication of performance
on its service quality to its employees to identify and correct problems.
Key reasons for GAP-2 service leadership
It is the gap between company perceptions of consumer expectations & customer driven service
standards and designs.
Not having the right service quality design & standards.

Poor service design

Absence of customer driven standards

Inappropriate physical evidence and service scape

The reason for GAP-2 is inadequate leadership. Service leadership does not mean meeting
companies efficiency standards or productivity standard of the company. Service leadership
means trying to achieve excellence in the area of customer wants.
When mangers are not committed to service quality, fromthepoint of view of the customers, they
do not realize that the organization is not working towards customer satisfaction. Sometimes
managers think that the service quality adds to the cost and they do not contribute towards
This is because; it is very difficult to find a link between quality and financial return. This is
similar to the link between quality and financial return. This is similar to the link between
advertising and sales, because, a sale does not go up due to advertising. There are many factors
such as, Pricing, Image, etc.
Service Leadership:
Service leadership can be discussed, to the model as shown:

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Vision Statement
*Formulating the

Implementation of Vision
Selecting, Acculturating and Training
Managing Information
Team Building
Promoting Change & Risk Taking

A leader creates a Vision: Vision is nothing but image of the future. A leader must have
developed a mental image of a possible future state of the organization. We call this as vision,
may be vague, like a dream, but the vision is the target, which the leader should achieve.
It is necessary for a leader to have a vision, which is pre-requisite for service excellence. It has
been found that organizations with extremely good vision are found to be four times better rated
than companies with a poor vision.
1. Synthesizing the Vision:
I. Synthesizing means combining.
Here the leader is combining the past and the future.
The future is called FORESIGHT,
The past is called HINDSIGHT,
The Foresight will ensure that vision is quite appropriate with the future environment.
The Hindsight will ensure that organizational culture and tradition are not violated.
II.Clearly Articulating the vision. (Nothing but vision statement)
Service visions may be simple or complex, the best vision statement should be:

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Brief and clear

Eg: 1) To become the best nursing care system in the world
2) Any time, anywhere communication.

III.Promoting Commitment.
One of the examples for a service leader to create commitment is to travel to all the outlets and
supervise personally to find out how service is going on and what is a satisfaction level of the
customers. This follows the principle that if you are a leader, you better lead.Therefore, a
leader should lead by example.
This is one of the ways to motivate the other employees and let them know that you want to see
what they are doing and what they can do.

Implementation of Vision:
A leader implements the service vision. During the process of implementing the vision, the
leader should not only be involved fully, he should also engage in other actions such as
restructuring the organization, selecting and training the employees, motivating, team building
and promoting the change in addition to risk taking.
I. Structuring the organization: While formulating the organization structure, the leader must
make sure that there are:

Rigid Functional Boundaries

Too many layers of management

Rigid hierarchy and bureaucracy

This organizational structure should be process oriented, so that it satisfies the customer needs
instead of each function in the organization feeling satisfied about their own departmental
function. To do this, the Following steps have to be followed:
a) Organize the structure based on the process and not on a task of the department. Assign the
owner for each process.
b) Flatten and eliminate all those work which does not add value.
c) Use teams to manage everything, give the teams a common purpose
d) Let the customer drive the performance and derive satisfaction.
e) Reward team performance instead of individual performance.
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f) Maximize service provider and customer contact.

g) Inform and train all the employees.

II. Selecting, Acculturating and Training: The major part of implementing service involves
hiring, and training the right people, selecting and acculturating. Selecting involves choosing the
right service worker for each job. Acculturating involves teaching and makes the employee learn
the organizational culture and vision. Training helps to perform his responsibilities and duties.
III. Motivating: The leaders should motivate the employess, the method of motivating the
subordinates includes:

Use of authority

Role model

Build self confidence


Introduce reward and punishment

IV. Manage Information: Effective leaders are those who are good listeners, these leaders
listen to their subordinates and to the customers. They are available and they are approachable.
This message is sent to both employees as well as to the people outside the organization. Service
leaders read complaints given by the customers and discuss the same with the team of service
providers to avoid such mistakes recurring future. These successful leaders will be unwilling to
delegate the most important function to others but want to be involved and gain knowledge
Leaders who keep their ears tuned to employees are using upward communication to understand
the activities. Leaders have two types of communications which they use effectively to solve any
given problem.
a. Formal Communication: Eg: Complaint or Exceptionally good service delivery
B. Informal Communication: Eg: Discussion with the contact people with regard to day to day
problems. Leaders who stay close to their contact people not only keep their employees happy,
but also learn about their customer.
V. Building Teams: Service leaders need to build teams, which work effectively to achieve the
goals. Among the strategies used to ensure that the employees works together are, creating

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cooperative goals that can be reached only by working together use teams and task forces for
implementing the service and reward the same.
VI. Promoting change and Risk Taking: It has been found that unsuccessful service
organizations have leaders who have short term and narrow thinking, i.e,they are willing to think
creatively about customer needs and give excuses for maintain status quo.Therefore one of the
leader to have an open mind and encourage innovation in the organization.

Service Quality as profit strategy

Service quality can be studied under two headings,
1. Profits earned by offensive effects
2. Profits earned through defensive effects
In the first case, profits are earned by increasing the market share and capturing the market.
In the second case, profits are earned by retaining the customer and by lowering marketing and
promotional costs. The diagram shows both these methods:

Role of Service Quality in Offensive and Defensive Marketing:

Offensive Marketing: In this method, profit is obtained through sales, but the methodology
adopted is sales increase through repetition and higher market share. In this method, the services
are charges higher than that of competitive, Sales promotion and advertising are huge in this
method. This method is possible only for those companies which have a good reputation.

Defensive Marketing: In this method the emphasis is on customer retention. This is because;
we know that lost customer must be replaced by a new customer when the replacement comes at
the high cost because of high advertising and promotion expenses. New customers may not be
profitable in the short term.
Eg: In cell phone industry, capturing the customer from other company is very expensive. A
greater degree of service improvement is necessary who make a customer switch from

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competitor than to retain a current customer. In general, longer a customer remains with the
company, it is both profitable and companies relationship with the customer will improve.
If the customer is served properly he generates more profits every year and stay with the
company. Longer the company keeps the customer, the more money it makes.
The Money a company makes from retention comes from four sources: as shown in the above



Price Premium

Word of Mouth

Lower Cost: If a company can lower the customer defection, it saves money. It has been found
that attracting a new customer is five times as costly as retaining a existing customer. Also it has
been by market research that customer defections have greater impact on the companys profit
compared to market share. It is also true that by retaining 5% more customers, company can
increase his profit varying between 25% to 50%.
Volume of Purchase: Customers who are satisfied with the companys services are likely to
increase the amount of money they spend with that company or the type of services produced. If
the person is satisfied with a bank, he will not only open a SB A/c, but he will also avail loan
facility from the same bank. Thus he will use more than one service from a service provider.
Price Premium: Customer who notices that the service provided by the company is excellent and
without any fault, he will have no hesitation to pay a price premium for the services. Word of
Mouth: Word of mouth communication is considered more creditable than any other source of
information. This is the best type of promotion for the service industry, where experienced
customers words carry lot of weight.

Service Design and Positioning:

The objective is to study the following:
1. Describe the challenges inherent in service design and positioning
2. Present helpful steps in the new service development process
3. Show the value of service blueprinting in new service design, service improvements, and
positioning strategies.
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4. Demonstration how to build a service blueprint

5. Explain service positioning and the role of the service quality dimensions, service evidence
and blueprinting in positioning strategies

Challenges in Service Design & Positioning:

Since services are intangible, it is always difficult to describe and communicate. Because
services are delivered by employees to customers, they are heterogeneous; rarely two services
are alike and experienced in the same way. These characteristics of services are the heart of the
challenge to involve in designing and positioning service.

Risk of describing Services by words alone:

Lynn Shostack a pioneer in Developing design concepts for services, has pointed out,
Four Risks, of attempting to describe services in words alone..,
1. over simplification, shostack points out that to say that portfolio management means
buying and selling stocks is like describing the space shuttle as something that flies, some
people will picture a bird, some a aero plane ,that means words are simply inadequate to
describe a whole service system.
2. Incompetencies, In describing services, people (employees, managers, customers) tend
to omit details or elements of the service with which they are not familiar person might
do a fairly credible job of describing how a discount stock brokerage service takes orders
from customers. But would that person be able to describe fully how monthly statements
are created, how the interactive computer system works and how these two elements of
the service are integrated into the order taking process. e.g,Surgen, Physician
3. Subjectivity, Any one person describing a service in words will be biased by personal
experiences, & degree of exposure to the service. There is natural and mistaken tendency
to assume that because all people have gone to a fast-food restaurant, they will
understand what that service is. Persons working in different functional areas of the same
service organization (e.g, A marketing persons, an operations person, or a finance person)
are likely to describe the service very differently as well, biased by their own functional

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4. Biased interpretation, No two people will define responsive, quick, and flexible in
exactly the same way. For e.g., a supervisor or manager may suggest to a front line
service employee, that the employee should try to be more flexible or responsive in
providing service to the customer.
The above mentioned risks become very apparent in the new service development process, when
organizations may be attempting to design services never before experienced by customers. It is
critical that all involved (managers, frontline employees and behind the scenes support staff) be
working with the same concepts of the new service based on customer needs and expectations.
For a service that already exists any attempt to improve it will also suffer unless everyone has the
same vision of the service and associated issues
New Service Development Process

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Business Strategy Development: It is assumed that an organization will have an overall

strategic vision and mission. Clearly a first step in new service development is to review that
vision and mission.
New Service Strategy Development: The types of new services that will be appropriate will
depend on the organizations goals, vision, capabilities & growth plans. By defining a new
service strategy (possibly in terms of markets)

Idea generation: Continuous systematic search for new product opportunities.

Marketing oriented sources--identify opportunities based on consumer needs, lab research is
directed to satisfy that research.
Laboratory oriented sources--identify opportunities based on pure research or applied research.
Intra firm devises--brain storming, incentives and rewards for ideas. Hewlett Packards lab is
open 24 hrs. day. Analyzing existing products, reading trade publications. Brainstorming for
your group project. Ideas should not be criticized, no matter how off-beat they are.

Concept Development and Evaluation: After clear definition of the concept, it is important to
produce a description of the service that represents its specific features and characteristics and
then to determine initial customer and employee responses to the concept. The service design
document would describe the problem addressed by the service, discuss the reasons for offering
the new service, itemize the service process and its benefits, and provide a rationale for
purchasing the service, the role of customers and employees in the delivery process would also
be described. The new service concept would then be would then be evaluated by asking
employees and customers whether they are favorable to the concept and whether they feel it
satisfies an unmet need.

Business Analysis: Assuming the service concept is favorably evaluated by customers and
employees the concept development stage the next step is to determine its feasibility and
potential profit implications. Demand analysis, revenue projections, cost analysis, and
operational feasibility are assessed at this stage .
Because the development of service concepts is so closely tied to the operational system of the
organization, this stage will involve preliminary assumptions about the costs of hiring and
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training personnel, delivery system enhancements, facility changes and any other projected
operations costs.

Service Development and Testing: In the development of new tangible products, this stage
involves construction of products prototypes and testing for consumer acceptance. Again because
services are intangible and largely produced and consumed simultaneously, this step is difficult.
To address the challenge this stage of service development should involve all who have stake
inthe new service. Customers and contact employees as well as functional representatives from
marketing, operations and human resources. During this phase, the concept is refined to the point
where detailed service blue print representing the implementation plan for the service can be
produced. The blueprint is likely to evolve or a series of interactions on the basis of input from
all of the parties listed.

Market Testing: In this stage of the development process that a tangible product might be test
marketed in a limited number of trading areas to determine marketplace acceptance of the
product as well as other marketing mix variables such as promotion, pricing, and distribution
vehicles again, the standard approach for a new manufactured product is typically not possible
for a new service due to its inherent characteristics. The new service might be offered to
employees of the organization and their families for a time to assess their responses to variations
in the marketing mix. Or the organization might decided to test variations in pricing and
promotion in less realistic contexts by presenting customers with hypothetical mixes and getting
their responses in terms of try the service under varying circumstances. While this approach
certainly has limitations compared with an actual market test, it is better than not assessing
market response at all.

Commercialization: At this stage in the process, the service goes live and is introduced to the
market place. This stage has two primary objectives. The first is to build and maintain
acceptance of the new service among large numbers of service delivery personnel who will be
responsible day to day for service quality. This task is made easier if acceptance has been built in
by involving key groups in the design and development process all long.

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Types of New Services:

1. Major Innovations: Are new services for markets as yet underlined
2. Start-up Business: consists of new services for a market that is already served by
existing products that meet the same generic needs.
3. New Services: for the currently served market represent attempts to offer existing
customers of the organization a service not previously available from the
4. Service line extensions: represent augmentations of the existing service line, such as a
restaurant adding new menu items an airline offering new routes, a law firm offering
additional legal services, a university adding new courses or degrees.
5. Service Improvements: represent perhaps the most common type of service innovation.
Changes in features of services that are already offered might involve faster execution of
an existing service process, extended hours of service, or augmentations such as added
amenities in a hotel room.
6. Service changes: represent the most modest service innovations. Changing the color
scheme of a restaurant, revising the logo for an organization, or painting aircraft a
different color all represent style changes. These do not fundamentally change the
service, only its appearance, similar to how packaging changes are used for consumer

Service Blue Printing:

A tool for simultaneously depicting the service process, the points of customer contact, and the
evidence of service from the customers point of view.

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The manufacturing and construction industry have a long tradition of engineering and design.
You cant imagine a house being built without detailed specification nor can you build a car
without design. Though it is difficult o define specifications in exact terms still an attempt must
be made to get the blue point.
A service blue print is a picture or a map that shows the service system. So that the different
people involved in providing the service can understand their roles clearly.
A Service Blueprint does the following,

It shows the service provided along with the process of how service is provided

It tells us the role of the customers and employees

It also tells us, what are the visible elements of the service

Helps to break a service into many logical components

It also helps us to know the steps involved in the process and the means by which the
given task is executed

It also gives the evidence of service as customer experience it

Blue Print Components:

The Blueprint components are shown in the figure below,
They are:
1. Customer Actions line of interaction
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2. Onstage contact employee action line of visibility

3. Back stage employee action line of internal interaction
4. Support Process

Customer action
1. Line of interactions
Onstage contact employee action
2. Line of Visibility
Backstage contact employee action
3. Line of internal Interaction
Support processes
Customer Action: Customer action
includes his choices, activities and
interactions that the customer has during the process of purchasing and consuming.
For e.g.: If a customer wants the service of lawyer, he has his choice,
1. To select the lawyer
2. To telephone him for an appointment
3. Have face to face meeting with the lawyer
4. Handover the documents if any
5. Recieved documents from the lawyer
6. Recieve the bill from lawyer for the service rendered and pay.

Onstage Employee Action: In legal service as above, the action of the lawyer that is visible to
the client are.
1. The face to face contact with the lawyer
2. Handling over of document to the lawyer and 3. Receiving documents from the lawyer.
Backstage Employee Action: Preparation of documents to be handed over to the client.
Support Process: This is the service rendered by the assistants to the lawyer, preparing of the
document, and secretarial help such as preparing the summary of the meetings of the clients.

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One of the most significant difference in service blueprint compared to any other type of flow
diagram is the inclusion of customers view about the service process. Infact it is best that the
diagram starts with the view point of the process as seen by the customer.
The Four key action areas are separated by the horizontal lines,
First is the line of interaction, represents direct interaction between the customer and the
organization. Any time a vertical line crosses the horizontal line of interaction a direct contact
between the customer and the organization is taking place.
The next horizontal line is critically important i.e., line of visibility. This line separates all
service activities that are visible to the customer from those that are not visible. By looking at the
blueprint, it is immediately obvious whether the customer is provided with much visible
evidence of service simply by analyzing how much the service occurs above the line of visibility
v/s activities carried out below the line. This line also separates what contact employees do on
stage from what they do backstage.
The third line is the line of internal interaction represents internal service encounters. For eg.
When you hire a musician to perform at a function, 75% of this activity will be backstage and
25% will be onstage. But this is not the case of a hotel service. For e.g., the following are the
activities of onstage,
1. Welcoming you, 2. Lead you to the seat, 3.Turn the glass, 4. Fill the glass with water, 5. Give
you menu card and provide an ashtray if required, 6. Move the cutlery into the right position if
not done earlier, 7. Switch on the music if not done earlier, 8.Take the order, 9. Service the food
as ordered, 10. Enquiry regarding the quality of food, 11. Provide you cheque, 12. Help you to
depart and 13. Wish you good day or good night and lead you to the exit.
Backstage Service is as Follows:
1. Arrangement of the table, table cloth, flower vase, cutleries
2. Dusting the seats
3. Wearing uniform
4. Keeping the Menu card handy
5. Fill the water jug

Support Process is as Follows:

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1. Interacting with the bar tender

2. Interacting with the cook and other kitchen employees to make sure that they prepare exactly
what customer wants?
3. Carrying the food from the counter to the customer in an orderly manner
4. Interaction with the billing section
5. Interacting with the D.J.

The following are the steps to be taken to prepare/build a service blueprint:

1. Identify the process to be blueprinted: here we must identify,
a. The Service,
b.A specific service component
2. Map the process keeping customers view point in mind
3. Draw the line of interaction
4. Draw the line of visibility
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5. Map the process from the customer contact persons point of view
6. Distinguish between onstage and backstage
7. Link customer and contact person activities to need support functions
8. At each step show an evidence of service
Benefits of Service Blueprinting:
1. It tells the organization what it can do to improve the service keeping customer orientation in
2. It tells us the weak points and the weak links of the chain of service so that quality
improvement can be done
3. Line of interaction between external customer and employer shows the role of the customer
and where the customer experiences quality in service
4. Line of visibility tells us what the customer should actually see during the service.
5. Line of internal interaction tells us how various departments in the organization should
function towards quality improvements
6. Service map helps the advertising agency or in-house promotion team to review the service
and select suitable messages for communication, in case the service is to be advertised.

Reading & Using Service Blue Prints:

Reading Blue Prints:
If the purpose is to understand the customers view of the process or the customer experience,
Blue print is read from left to right, tracking the events in customer area.
If the purpose is to understand the Contact employees it is read horizontally focusing on
activities directly above & below line of visibility.
If the purpose is to understand the integration of various elements of service process & how a
particular employee fit into bigger picture blue print can be analyzed vertically.
Using Service Blue Prints:

If the purpose is service redesign blue print can be looked at as a whole to assess the
complexity of the process.

Used to determine failure points

Used to assess overall efficiency & productivity of service system.

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Service Positioning:
Basic Positioning Steps:

Perform S.W.O.T. analysis

Evaluate positioning possibilities and select the most appropriate

Develop the marketing mix that establishes in the eyes of target customers the adopted

Developing a Positioning Strategy:

Market Analysis:




Internal Corporate Analysis:




Competitive Analysis:



Current positioning

There are Five Dimensions of Service Quality,

They are,
1. Reliability
2. Tangible
3 Responsiveness
4 Assurances
5. Empathy.

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1. Reliability: Reliability means, ability to perform the promise to service dependably and
accurately. Reliability means that the company delivers as per the promises. Customers want to
do business with a company which keeps up the promise.
Eg, Medical Care-Appointments are kept on schedule, diagnosis prove to be accurate
Airline-Flights as promised-arrival and departure on time
2. Tangible: Tangible means, appearance of physical facilities, equipments personnel and
written materials. All of these provide physical image of the service. This is very
important particularly to the new customers who will use this as criteria to evaluate
quality. A Service industry emphasizes tangibles in their strategy which includes
hospitability in services when the customers visit the establishment to receive services.
While tangibles are used by service companies to enhance their image, provide continuity
and signal quality to the customers.

3. Responsiveness: Responsiveness means willingness to help customers and provide

prompt service. This deals with attentiveness and promptness in dealing with customer
request questions, complaints and problems. Responsiveness is communicated to the
customers in an indirect way as follows,
a) The length of time they have to wait for assistance
b) Answers received to the questions asked
c) How flexible and ability to provide custom built service products
e.g., Airlines-Timely, prompt, speedy system of ticketing, baggage handling efficient
Medical Care-No waiting time, willingness to listen
4. Assurances: Assurance means, employees knowledge and courtesy and their ability to
inspire trust and confidence. This dimension is likely to be particularly important for services
that customer perceives as having high risk and feel uncertain about their ability to evaluate
outcomes.e.g. Medical, Banking and Legal Services
e.g., Medical Care-Knowledge, Skills, Good Credentials, Reputation Car Repair-Knowledgeable
mechanics who know their jobs very well.

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5. Empathy: Empathy means caring and individualized attention to the customers. The essence
of empathy is to convey the message that the customers are unique and special. Customers want
to feel that he is important to the company and to the service provider. Personnel at small service
firms often know the customers by name and build relationship with them and meet their
requirements and preferences. Such a small firm competes with large firms; the ability to
empathetic may give the small firm a clear advantage.
Positioning on Service Evidence:
Services can also be positioned based on service evidence from the customers view point. The
evidence of service falls into three categories,
1. People
2. Physical Evidence
3. Process
1. People: Here people we are referring to as contact employees who come in contact with the
customer and offer service facility. How these people look how they act and who they are, will
influence the service position in the customer mind. Imagine yourself arriving in city for the first
time, seeking a place to have a dinner. As you wonder down a street with a number of different
restaurant, you glance at the board, notice the service personnel (what are they wearing) and
other customers (are they dressed in business attire or casual).Sometimes the dress worn by the
people is an indication of the service and this has a great bearing on positioning. Employee
uniform dress codes can also serve to convey a particular service position.
Eg. Lawyer in black dress, Doctor in a white coat are the indication of their service.

2. Physical Evidence: Physical evidence is similar to tangible elements. While tangibles may be
rated high by consumers in terms of their influence on quality physical evidence for positioning
places in a role.
Eg., All forms of communication such as brochures, advertising, business cards, billing
statements etc.,Let us take the example of an educational institution where all the details
regarding the courses offered, fees structure, study program content, food facility and hostel
facilty,library facility available etc,So the above are examples of physical evidence.

3. Process: Process can be used for position strategy.

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Process are divided into,

a. Based on Complexity
b. Based on Divergence
Whether a service is high or low in complexity refers to the number of steps involved in
delivering the service. Divergence refers to variation in these steps,
Eg, A physician service is high both in complexity and divergence, and A Hotel services are high
in complexity, i.e. lots of steps in service delivery process, but low in divergence i.e. they have
standardized their services from room cleaning to check out. These are services which are low in
complexity but high in divergence.

Quality Function Deployment:

In Addn., to Blueprinting another approach is used to develop a service architecture is -QFD.
A system for translating customer requirement into Co., requirements at every stage, from
research through production, design & development to manufacture. Distribution, installation,
Marketing, sales & services. QFD is implemented via what is known as the House of Quality
House of Quality:
Which links customer requirements to design characteristics of the product or service
They linked to internal process such as:

Product Planning,

Process Planning,

Production Planning &

Parts Deployment.

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Module 5: (8 Hours)

Employee role in service designing: importance of service employee, Boundary spanning roles,
Emotional labour, Source of conflict, Quality- productivity trade off, Strategies for closing
Customers role in service delivery-Importance of customer & customers role in service
delivery, Strategies for enhancing-Customer participation, Delivery through intermediaries-Key
intermediaries for service delivery, Intermediary control strategies.
Employees Roles in Service Delivery:
Demonstrate the importance of creating a service culture in which providing excellent service to
both internal and external customers is a way of life. Illustrate the critical importance of service
employees in creating customer satisfaction and service quality. Identify the challenges inherent
in Boundary-Spanning roles.
Provide examples of strategies for creating customer-oriented service delivery through hiring the
right people, developing employees to deliver service quality, providing needed support systems,
and retaining the best service employees.
Service Culture: A culture where an appreciation for good service exists, and where giving
good service to internal as well as ultimate, external customers, is considered a natural way of
life and one of the most important norms by everyone in the organization. - Christian Gronroos
in (1990).
The Critical Importance of Service Employees:
They are the service.
They are the organization in the customers eyes.
They are the brand.
They are marketers.
Their Importance is Evident in:
The service Marketing Mix (people)
The Service-Profit Chain

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The Service Marketing Triangle

The triangle shows the three interlinked groups that work together to develop, promote and
deliver services. These key players are labeled on the points of triangle: the company (or SBU or
Department or Management): the customers: and the providers. Providers can be the firms
employees, subcontractors or outsourced entities who actually deliver the companys services.
Between these points on the triangle, three types of marketing must be successfully carried out
for a service to succeed: External Marketing, Interactive Marketing & Internal Marketing.
On the right side of the triangle are the external marketing efforts that the firm engages in to
set up its customers expectations & make promises to customers regarding what is to be
delivered. But external marketing is just the beginning for services marketers. Promise made
must be kept.

Interactive Marketing or Real time marketing: Here is where promises are kept or broken by the
firms employees, subcontractors or agents. People are critical at this juncture. If promises are
not kept, customers become dissatisfied and eventually leave. Recruiting, training, motivating,
rewarding & providing equipment and technology. Unless service employees are able & willing
to deliver on the promises made, the firm will not be successful, and the services triangle will

Ways to Use the Services Marketing Triangle:

Overall Strategic Assessment
How is the service organization doing on all three sides of the triangle?
Where are the weaknesses?
What are the strengths?
Specific Service Implementation
What is being promoted and by whom?
How will it be delivered and by whom?
Are the supporting systems in place to deliver the promised service?

There are Five Dimensions of Service Quality, They are,

1. Reliability
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2. Tangible
3 Responsiveness
4 Assurances
5. Empathy
1. Reliability: Reliability means, ability to perform the promise to service dependably and
accurately. Reliability means that the company delivers as per the promises. Customers want to
do business with a company which keeps up the promise.
2. Tangible: Tangible means, appearance of physical facilities, equipments personnel and written
materials. All of these provide physical image of the service. This is very important particularly
to the new customers who will use this as criteria to evaluate quality. A Service industry
emphasizes tangibles in their strategy which includes hospitability in services when the
customers visit the establishment to receive services. While tangibles are used by service
companies to enhance their image, provide continuity and signal quality to the customers.
3. Responsiveness: Responsiveness means willingness to help customers and provide prompt
service. This deals with attentiveness and promptness in dealing with customer request questions,
complaints and problems. Responsiveness is communicated to the customers in an indirect way
as follows,
4. Assurances: Assurance means, employees knowledge and courtesy and their ability to inspire
trust and confidence. This dimension is likely to be particularly important for services that
customer perceives as having high risk and feel uncertain about their ability to evaluate
outcomes.e.g. Medical, Banking and Legal Services
5. Empathy: Empathy means caring and individualized attention to the customers. The essence of
empathy is to convey the message that the customers are unique and special. Customers want to
feel that he is important to the company and to the service provider. Personnel at small service
firms often know the customers by name and build relationship with them and meet their
requirements and preferences. Such a small firm competes with large firms; the ability to
empathetic may give the small firm a clear advantage.
Service Employees: Who are they?

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Boundary Spanners -Frontline service employees because they operate at the organizations
What are these jobs like?

Emotional labor-That goes beyond the physical or mental skills needed to deliver quality
service. Means delivering smiles, making eye contact, showing interest, and engaging friendly
conversation with clients.
Quality/Productivity Tradeoffs:

As indicated in the
figure Boundary Spanners provide a link between the external customers and environment
and the internal operations of the organization. They serve as critical function in
understanding, filtering and interpreting information and resources to and from the organization
and its external constituencies.
In industries such as fast food, hotels, telecommunication & retail, the boundary spanners are the
least skilled and lowest paid employees in the organization. They are order takers, front desk
employees, telephone operators, store clerks, truck drivers and delivery people.
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In other industries boundary spanners are paid well, highly educated professionals. For example:
doctors, lawyers, accountants, consultants, architects and teachers.

Emotional Labor: Refers to the labor that goes beyond the physical or mental skills needs to
deliver quality service. It means delivering smiles, making eye contact, showing sincere interest
and engaging in friendly conversation with people who are essentially strangers and who may or
may not ever seen again, Friendlyness, empathy and responsiveness direct towards customers all
require huge amount of emotional labor frontline employees who shoulder this responsibility for
the organization.
Emotional labor draws on peoples feelings (often requiring them to suppress their true feelings)
to be effective in their jobs.
Source of Conflict: Frontline employees often face interpersonal and inter organizational
conflicts on the job. Their frustrations and confusion can, if left unattended, lead to stress, job
dissatisfaction, a diminished ability to serve customers and burnout.
Boundary-Spanning Workers Juggle Many Issues:

Person versus role

Organization versus client

Client versus client

Because they represent the customer to the organization and often need to manage a number of
customers simultaneously. Frontline employees inevitably have to deal with conflicts, including
Sources of Conflict:
*Person/role conflicts
*organizational/Client conflicts
*Interclient conflicts
Person/Role Conflicts: Arises when employees are required to wear specific clothing or change
some aspect of their appearance to confirm to the job requirements. A young lawyer, just out of
school, may feel an internal conflict with his new role when his employer requires him to cut his
long hair & trade his casual clothes for a three-piece suit.

Organizational/Client conflicts: A common type of conflict for front line service employees is
the conflict between their two bosses, the organization and the individual customer.
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Service employees are rewarded for following certain standards, rules, & procedures. Ideally
these rules and standards are customer based.
For Eg, employees who depend on tips or commission are likely to face greater levels of
organization/client conflict because they have greater incentives to identify with the customer.

Interclient Conflict: Sometimes conflict occurs for boundary spanners when incompatible
expectations and requirements arise from two or more customers. This situation occurs most
often when the service provider is serving customers in turn (a bank teller, a ticketing agent, a
doctor) or is serving many customers simultaneously (teachers, entertainers).

Strategies for Closing GAP 3:

Teamwork, Empowerment, Role clarity, Training

Synchronize Demand & Capacity

Communicating with customers

Quicker responses to



service delivery Quicker

responses to dissatisfied
customers during service
Employees feel better









Empowered employees
are a great source of ideas
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Great word-of-mouth advertising from customers

Potentially greater dollar investment in selection and training
Higher labor costs
Potentially slower or inconsistent service delivery
May violate customers perceptions of fair play
Employees may give away the store or make bad decisions
Customers Roles in Service Delivery: Illustrate the importance of customers in successful
service delivery and co creation of service experiences. Discuss the variety of roles that service
customers play: productive resources for the organization; contributors to quality and
satisfaction; competitors.

How Customers Widen the Service Performance Gap: Lack of understanding of their roles,
not being willing or able to perform their roles, No rewards for good performance, interfering
with other customers Incompatible market segments.
Importance of Other (Fellow) Customers in Service Delivery:
Other customers can detract from satisfaction:
Disruptive behaviors
Overly demanding behaviors
Excessive crowding
Incompatible needs
Other customers can enhance satisfaction:
Mere presence

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Customers as Productive Resources: customers can be thought of as partial employees

contributing effort, time, or other resources to the production process
customer inputs can affect organizations productivity
Customers as Contributors to Service Quality and Satisfaction:
Customers can contribute to:
Their own satisfaction with the service
By performing their role effectively
By working with the service provider

The quality of the service they receive

By asking questions
By taking responsibility for their own satisfaction
By complaining when there is a service failure
Customers as Competitors: Customers may compete with the service provider
Internal exchange vs. External exchange
Internal/External decision often based on:
Expertise capacity
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Resources capacity
Time capacity
Economic rewards
Psychic rewards

Strategies for Enhancing Customer Participation: The overall goals of customer participation
will typically be to increase organizational productivity & customer satisfaction while
simultaneously decreasing uncertainty due to unpredictable customer actions.

Strategies for Enhancing Customer Participation:

I. Define customers jobs: The organization first determines what types of participation it wants
from customers, thus beginning to define the customers job. Identifying current level of
customer participation can serve as a starting point.
Once the desired level of participation is clear the organization can define more specifically what
the customers job entails. The customers job description will vary with the type of service &
the organizations desired position within its industry. The job might entail.,
1. Helping oneself
2. Helping others
3. Promoting the company

II. Recruit, Educate and Reward Customers: Once the customer role is clearly defined the
organization can think in terms of facilitating that role.
In a sense the customer becomes a partial employee of the organization at the same level. As
with the employees customer participation in service production & delivery will be facilitated
1. Recruit the right customers
2. Educate and train customers to perform effectively
3. Reward customers for their contributions
4. Avoid negative outcomes of inappropriate customer participation
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Manage the customer mix: Eg: Single college students who want to party & families with small
children who want quiet-it may find two groups do not merge.
The process of managing multiple & sometimes conflicting segments is known as compatibility
management (C.M).
Compatibility management will be critically important for some businesses (such as Public
transportation, hospitals & clubs)

Delivering Service through Intermediaries: Identify the primary channels through which
services are delivered to end customers.
Provide examples of each of the key service intermediaries.
View delivery of service from two perspectivesthe service provider and the service deliverer.
Discuss the benefits and challenges of each method of service delivery.
Outline the strategies that are used to manage service delivery through intermediaries.

Service Provider Participants:

Service principal (originator): creates the service concept (Like a manufacturer)
Service deliverer (intermediary)
Entity that interacts with the customer in the execution of the service

Services Intermediaries:
Franchisees: Service outlets licensed by a principal to deliver a unique service concept it has
e.g., KFC, McDonalds,
The other recent trend in distribution of services is that of franchising.
Franchising is the granting of rights to another person or institution to exploit a trade name, trade
mark or product in return for a lump-sum payment or a royalty.
Franchise is characterized by the following features:
a) Ownership by one person of a name, an idea, a secret process or specialized piece of
equipment and the goodwill associated with it.

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b) The grant of a license by that person to another permitting the exploitation of such name, idea
process or equipment and the goodwill associated his rights.
c) The inclusion in the license agreement of regulations relating to operation of the business in
the conduct of which the licensee exploits his rights.
d) The payment by the licensee of a royalty or some other consideration for the rights that are
In service Industries franchises operate in the area of hotels, restaurants, car rentals, fast food
outlets, beauty parlors, pest control, travel agencies, office services, packers and movers,
couriers, business centres, etc.

The advantages provided by a Franchising arrangement are as follows:

1. There are usually training materials already developed, for both franchisees and their workers.
2. Expansion through franchising can proceed quickly.
3. The franchiser need apply only minimal controls; it does not have to develop as large a
bureaucracy to govern the business.
4. A franchiser's overhead is lower because the franchisee does hiring, collections, local
promotions, etc.
5. There are economies of scale to advertising and promotion.
6. The franchisee is responsible for most of the cost control.
7. 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.
8. Franchises usually have a better record for staying viable business than the typical service
business startup.
9. Local operators are committed because they have their own capital at risk.
10. The service tasks, service standards, and service delivery systems are usually well defined
and structured, and thus they work well. They have been prototyped, and many of the potential
problems with the operations have already been identified and ironed out.

Agents and Brokers: Representatives who distribute and sell the services of one or more service
e.g., Travel agents, Independent insurance agents.
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Agent: An agent is an independent intermediary, who may act in the name of, or for a principal.
His contract will define these provisions along with territorial rights, exclusivity and sales
Broker: A broker is an independent intermediary between buyer and seller who bring parties
together to facilitate the conclusion of sales contract. A broker may have continuing relationship
for his client under a contract period;
For which he may charge fee for assistance. Alternately, a broker may be for a special job to be
There are obvious benefits in distributing services through Agents and Brokers.
Firstly, they help in reducing the selling and distribution costs besides a wider representation in
the market. Secondly, such intermediary's possess special skills and expertise and also the
knowledge of local markets.
However these agents and brokers also pose some challenges also. 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.
Functions of Agents and Brokers
The major function of these agents and brokers is, like any other intermediary, to bring the
producer of service and the user or consumer together.
For certain services, agents can be identified and deployed with selling as the chief function to be
performed by them. These agents can be compared with the agents for goods and they are
classified as brokers or sales agents. The
example of this kind of channel is transportation (travel agents) and office or factory workers
(employment agencies). However in some cases the agents may be trained in the creation and
production of service and then franchised to ell it (eg, Shahnaz Hussain Beauty Parlors).
In case of certain services, actual product is not transferable and therefore
tangible representations are created and transferred. This type of channel is used for marketing
insurance services, where a contact document exists as a physical and tangible representation of
the 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.
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
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selection decision. Duane David, 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. The problem of standardization and uniformity restrains the service organization to
use middlemen to any great extent and limit the geographical area which the


organisations propose to reach and cover. This lays emphasis on the significance of good
selection to attain maximum coverage at the market place.
Banking organizations have started reliving this fact and introduced extension counters, mobile
banking apart from opening branches in rural areas.

Electronic Channels: all forms of service provision through electronic means. e.g, ATMs,
university video courses, Tax Cut software.
Benefits and Challenges for Franchisers of Service:
Leveraged business format for greater expansion and revenues
Consistency in outlets
Knowledge of local markets
Shared financial risk and more working capital
An established business format
National or regional brand marketing
Minimized risk of starting a business
Difficulty in maintaining and motivating franchisees
Highly publicized disputes and conflict
Inconsistent quality
Control of customer relationship by intermediary
Disappointing profits and revenues
Lack of perceived control over operations
High fees

Benefits and Challenges in Distributing Services through Agents and Brokers:

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Reduced selling and distribution costs
Intermediarys possession of special skills and knowledge
Wide representation
Knowledge of local markets
Customer choice.
Loss of control over pricing
Representation of multiple service principals

Benefits and Challenges in Electronic Distribution of Services:

Consistent delivery for standardized services
Low cost
Customer convenience
Wide distribution
Customer choice and ability to customize
Quick customer feedback

Price competition
Inability to customize with highly standardized services
Lack of consistency due to customer involvement
Changes in consumer behavior
Security concerns
Competition from widening geographies

Common Issues Involving Intermediaries:

Conflict over objectives and performance,

Difficulty controlling quality and consistency across outlets,

Tension between empowerment and control,

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Channel ambiguity.

Strategies for Effective Service Delivery through Intermediaries:

Control Strategies:
Partnering Strategies:
Alignment of goals
Consultation and cooperation
Empowerment Strategies:
Help the intermediary develop customer-oriented service processes
Provide needed support systems
Develop intermediaries to deliver service quality
Change to a cooperative management structure

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Module 6: (8 hours)
Role of marketing communication-Key reasons for GAP 4 involving communication, four
categories of strategies to match service promises with delivery, Methodology to exceed
customer expectation.
Pricing of services-Role of price and value in provider GAP 4, Role of non-monitory cost, Price
as an indicator of service quality Approaches to pricing services, pricing strategies.

Key Reasons for GAP 4 Involving communication:

Inadequate Management of Service Promises:

A discrepancy between service delivery and promises occurs when companies fail to manage
service promises the promises made by sales people, advertising, and service personnel. One of
the primary reasons for this discrepancy is that the company lacks the information to fulfill the
promises. Sales people often sell services particularly new business services, before their actual
availability and without having an exact date when they will be ready for market. Demand and
supply variations also contribute to the problem of fulfilling service promises. They make service
provision possible at sometimes improbable at others and difficult to predict GAP 4 can also
occur when companies neglect to inform customers of special offers to ensure quality that are not
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visible to customers. Customers are not always aware of everything done behind the scenes to
serve them all or to fulfill what they expect.

GAP4 Service Delivery, Key Factors Related to communication:

Inadequate management of service promises

Overpromising in advertising ad personal selling

Insufficient customer education

Inadequate horizontal communication

Differences in policies and procedures across branches or units

External communications to customers

Key reasons for GAP4

They assume that an overview at the beginning of the service, or manual or set of instructions
will equip customer. Unfortunately this is rarely sufficient, for the customers because they can
neither understand the process nor appreciate the value received from service.
A final condition under which customer education can be beneficial involves services where
demand and supply are not synchronized.

If the customer is not informed about peaks and valleys in demand, service overloads and
failures not to mention underutilized capacity are likely to result. Service organizations need to
advise customers about variations in demand and supply to ensure that customers will not be
disappointed when they need service.

Inadequate Horizontal Communication:

Another major difficulty associated with GAP4 provider is that multiple functions in the
organization such as marketing and operations must coordinated to achieve the goal of service
provision. Because service advertising and personal selling promise what people do, frequent
and effective communication across functions-horizontal communication is critical. If horizontal
communication is poor, perceived service quality is at risk. If company advertising and other
promises are developed without input from operations, contact person may not be able to deliver
service that matches the image claimed in marketing efforts.
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All need horizontal communication between the sales force and service providers. Unfortunately
salespeople and operations employees are often in conflict, each function believing that the other
makes work difficult. Operations employees feel that sales people constantly promise more than
they can deliver in order to get or maintain the business. Salespeople believe that, operations
employees are unwilling to push hard enough to deliver to customer expectations. A spirit of
misunderstanding and mistrust can develop.

Differences in policies and procedures across distribution outlets:

A final form of coordination for providing service quality is consistency in policies and
procedures across departments and branches. If a service organization operates many outlets
under the same name, whether franchised or company owned customers expect similar
performance across those outlets. If managers of individual branches or outlets have significant
autonomy in procedures and policies, customer may not receive the same level of service quality
across the branches.
A question frequently asked by companies is How much standardization can we achieve
across branches without taking away the autonomy and perceived control of employees.

Four Categories of Strategies to Match Service Promises with Delivery: the four categories
of strategies to match or exceed service delivery with promises
1. Manage Service promises
2. Reset customer expectations
3. Improve customer education
4. Manage Horizontal communications

Manage Service promises involves coordinating the promises made by all employees in
the company ensure that they are consistent and feasible.

Reset customer expectations, a more dramatic strategy that tells customers, that the firm
can no longer provide the level of service that it has provided in the past and the customer
expectation must be lowered due to significant changes in the environment.

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Educating customers means providing customers with information about the service or
evaluate criteria that inform them about aspects of service.

Finally, managing horizontal communication means transmitting information across

functional boundaries-between marketing and operations, human resources and finance to
align all functions with customer expectations.

1. Managing Service promises:

In manufacturing physical goods, the departments that make promises and those that deliver
them can operate independently. Goods can be fully designed and produced and then turned over
to marketing for promotion and sale. In services, however, the sales and marketing departments
make promises about what other employees in the organization will fulfill. Because what
employees do cannot be standardized the way physical goods produced mechanically. Sucessful
services advertising and personal selling become the responsibility of both marketing and
operations. Marketing must accurately report and tell what happens in actual service encounters
and operations must deliver what is deliver what is promised in advertising.

If advertising or personal selling sets up unrealistic expectations for customers, the actual
encounter will disappoint the customer. In a similar way operations must cooperate with
advertising to carry out themes of courtesy, responsiveness, and reliability.

a. Make Realistic Promises: The expectations of customers about the service affect their
evaluations of its quality, the higher the expectation, the higher the delivered service must be to
be perceived as high quality. Therefore, promising reliability in advertising is appropriate only
when reliability is actually delivered. Promising no

Surprises at a hotel is disastrous if what actually happens in the delivery process includes many
surprises. It is essential for the marketing or sales department to understand the actual levels of
service delivery. (I.e. percentage of times the service is provided correctly, percentage and
number of problems that arise) before making promises about reliability. To be appropriate and

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effective, communications about services quality must accurately show what the customer will
actually receive n the service encounter.
b. Offer Service Guarentee: Service guarantees are formal promises made to customers about
aspects of the service they will receive. While many services carry implicit service satisfaction
guarentees, the true benefits from them an increase in the likelihood of a customer choosing or
remaining with the company come only when the customer knows the guarantees exist and trusts
that the company will stand behind them.

An effective service guarantee is one which is unconditional. Easy to understand and

communicate and easy to collect. Unconditional means that no exceptions are built into the
promise, the guarantee should cover either all elements of service or all elements that the firm
can control. Ease of understanding and communication means that the guarantee should be
simple and pinpoint the promise enough to tell employees what to do and customers can expect.
Guarentees should also be meaningful, both by covering service aspects that are important to
customers and by providing significant payout when the promise is not kept. A guarantee of
service within twenty four hours will not be meaningful if the customer really wants service at a
pre appointed time.

C. Keep Customers informed about Provider availability:

Responsiveness and access are important aspects of service quality. Being able to reach a person
who can help immediately or who can confirm a time by which help will arrive can be
comforting to customers, particularly when they are experiencing service interruptions.
E.g.: Cable Operators

D. Keep customers informed about changes to schedules and offerings:

More than anything, service quality means keeping promises. We all know this is true and yet we
also realize that situations do arise when promises cant be met. In airline service, the weather
sometimes prohibits takeoffs. In software service, problems in the program are discovered after
the introduction of the software. In professional services such as medical services, a delayed test
from lab makes the doctors diagnosis late. The reasons for unmet promises may involve the
company, the customer, or the other parties. In case the question arises, how soon do we let the
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customer to know about the delay? Do we wait until we are sure there are no further
delays/problems/issues or do we inform the customer quickly? This approach is particularly
relevant to business to business services that are customized, such as marketing research,
consulting and computer programming services. In Industries that perform project work for other
companies, schedules often slip because of their unpredictability.
This happens because customer himself sometimes changes the requirement of his project half
way through. In these cases service provider need to inform clients of departures from schedule
as soon as possible and as often as the changes are made.

3. Improving Customer Education:

Customer must perform their roles properly for many services to be effective. If customer forgets
to perform this role, or performs it improperly, disappointment may result for this reason
communication to customers can take the form of customer education.

a. Prepare Customers for the service Process

Customers of management consulting services, purchase intangible benefits, such as finding out
marketing effectiveness, schemes for motivating work forces or downsizing the organization.
The very fact that companies purchase these services usually indicates that they do not know
how to perform these functions. Many customers will also not know what to look for. A similar
approach is sometimes necessary and effective with individual service customers.

4. Managing Horizontal Communications

Coordination between marketing and operations can result in communication that accurately
reflects service delivery, thus reducing the gap between customer expectations and actual service
delivery. Integration of effort between marketing and human resources can improve the ability of
each employee to become a better marketer. Coordination between finance and marketing can
create prices that accurately reflect the customers evaluation of a service. In service firms, the
functions need to be integrated to produce consistent message and to narrow the service quality.

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Approaches for Managing Horizontal Communication:

a. Align back office and support personnel with external customers through interaction or
As companies become increasingly customer focused, front line personnel develop improved
skills in knowing what customers require. As they become more knowledgeable about and
empathetic toward external customers, they also experience intrinsic rewards for satisfying
Back office or support personnel, who typically do not interact directly with external customers,
miss out on this bonding and as a consequence, fail to gain the skills and rewards associated with
Interaction: Companies are creating ways to facilitate the interaction between back office and
support personnel and external customers.
Xerox for Example, created a program called Adopt a district to allow employees to meet
and build relationships with particular customers. When actual interaction is difficult or
impossible some companies have videotaped customers in their service facilities during the
purchase and consumption process to vividly portray needs and requirements of customers and to
show personnel the support front line people need to deliver.

b. Open channels of communication between advertising and operations

When a company creates advertising that depicts the service encounter, it is essential that the
advertising accurately reflect what customers will experience in actual service encounters.
Coordination and communication between advertising and service providers are important.

Exceeding Customer Expectations

When attempt is being made exceed customer expectations a company must understand?
1. What type of expectations can and should exceed?
2. What customer group or segment is to be targeted?
3. The impact of exceeding the expectations has no future expectation of the customers?

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A. Demonstrate understanding of customer expectations

Before exceeding customer expectation, we need to know and communicate back to the
customer, what his or her expectations are; sometimes just the simple act of trying to understand
itself exceeds expectations.
For e.g., if you are contacting a customer by phone and instead if you go and personally meet
him, this amounts to exceeding the service, similarly if the car to be taken to the service garage
by the owner is substituted by the garage personnel coming and collecting the car for service is
an example of exceeding the expected level of service.

B. Exceed expectations of selected customers

One reason many companies have difficulty meeting, much less exceeding, customer
expectations is that they do not distinguish among groups of customers to be served. Except for
public and nonprofit firms that must treat all customers equally nearly all service companies have
some customers that are more important than others. Eg: In a Hotel it is possible to identify
regular customers v/s casual customers.

C. Under promise and Over deliver

One proposal for delighting customers on a continuing basis is to deliberately under promise the
service to increase the likelihood of exceeding customer expectations. This strategy is to under
promise and over deliver. If every service promise is less than what will eventually happen,
customers can be delighted frequently. While this reasoning sounds logical two potential
problems should be weighed before using this strategy.
First, customers with whom the company interacts on a regular basis are likely to notice the
under promising and adjust their expectations accordingly. Customers with easily recognize the
pattern of under promising when time after time the firm promises one delivery time and yet
constantly exceeds it.

D. Position unusual service as unique, not the standard

At times the escalation of expectations as a result of improved service leads some companies to
question the wisdom of exceeding customer expectations. They reason that, exceeding customer
expectations today will lead to higher expectations tomorrow, making the job of satisfying
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customers that much harder in the future. If they perform a miracle today wont customers accept
more miracles tomorrow and the next day? One way to avoid this escalation while still surprising
customer is to position unusual service as unique rather than standard.
For eg. If an Air flight is extremely short(less than 45 min)it is not possible to serve beverages.
The Airline may announce that the crew will try best to serve but all of them may not get it. In
this case the airline has positioned its service as unique by telling the passengers are delighted,
but their expectations for regular service is not increased by this action.


Pricing of Services-Role of price and Value in Provider GAP4, Role of non-monitory cost, Price
as an indicator of service quality, Approaches to pricing services, Pricing Strategies
I. Reference Price
A reference price is a price point in memory for goods or services, and can consist of the price
last paid, the price most frequently paid, or the average of all prices customers have paid for
similar offerings.
1. To see how accurate your reference prices for services are, you can compare them with the
actual price of these services from the providers in your home town. Because services are
intangible and are not created on a factory assembly line, service firms have great flexibility in
the configurations of services they offer. Firms can conceivably offer an infinite variety of
combinations and permutations leading to complex and complicated pricing structures. As an
example, consider how difficult it is to get comparable price quotes when buying life insurance.
With the multitude of types (e.g., whole life versus term), features (different deductibles),
variations associated with customers (age, health risk, smoking or non smoking), few insurance
companies offer exactly the same features and the same prices, only an expert customer, one who
knows enough about insurance to completely specify the options across providers, is likely to
find prices that are directly comparable.

2. Another reason customers lack accurate reference prices for services is that many providers
are unable or unwilling to estimate price in advance. Consider most medical or legal services.
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Rarely are legal or medical service providers willing or even able to estimate a price in
advance. The fundamentals reason in many cases is that they do not know themselves what the
services will involve until have fully examined the patient or the clients situation or until the
process of service delivery (such as an operation in a hospital or a trial) unfolds. In a business
to business context, companies will obtain bids or estimates for complex services such as
consulting or construction, but this type of price estimation is typically not undertaken with endconsumers; therefore, they often buy without advance knowledge about the final price of the

Another factor that results in the inaccuracy of reference prices is that individual customer needs
vary. A service as simple as a hotel room will have prices that vary greatly : by size of room,
time of year, type of room availability, and individual versus group rate. These two examples are
for very simple services.

Still another reason customers lack accurate reference prices for services is that , with most
goods, retail stores display the products by category to allow customers to compare and contrast
the prices of different brands and sizes. Rarely is there a similar display of services in a single
outlet. If customers want to compare prices (for example, for dry cleaning), they must drive to or
call individual outlets.

II. The Role of Nonmonetary Costs

It has been recognized that monetary price is not the only sacrifice consumers make to obtain
products and services. Demand, therefore, is not just a function of monetary price but is
influenced by other costs as well. Non-monetary costs represent other sources of sacrifice
perceived by consumers when buying and using a service. Time costs, search costs, often enter
into the evaluation of whether to buy or rebury a service, and may at times be more important
concerns than monetary price.
Most services require direct participation of the consumer and thus consume real time; time
waiting as well as time when the customer interacts with the service provider. Consider the
investment you make to exercise, see a physician, or get through the crowds to watch a concert
or game. Not only are you paying money to receive these services : youre also expending time.
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Time becomes a sacrifice made to receive service is multiple ways. First because service
providers cannot completely control the number of customer to be serviced, service customers
are likely to expend time waiting to receive the service.
Waiting time for a service is virtually always longer and less predictable than waiting time to buy
Search costs the effort invested to identify and select among services you desire are also higher
for services than for physical goods. Price for services are rarely displayed on shelves of service
establishments for customers to examine as they shop, so these prices are often known only when
a customer has dedicated to experience the service.
There are also convenience costs of services. If customers have to travel to a service, they incur a
cost, and the cost becomes greater when travel is difficult, as it is for elderly persons. Further, if
service hours do not coincide with the customers available time, she must arrange her schedule
to correspond to the companys schedule.
Often the most painful nonmonetary costs are the psychic costs incurred in receiving some
services fear of not understanding (insurance), fear of rejection (bank loans), fear of uncertainty
(including fear of high cost) all of these constitute psychic costs that customers experience as
sacrifices when purchasing and using services. All change, even positive change, brings about
psychic costs that customers factor into the purchase of services. When banks first introduced
ATMs, customer resistance was significant, particularly to the idea of putting money into a
machine: customers felt uncomfortable with the idea of lettings go of their checks and bank
III. How Price as an Indicator of Service Quality
When service cues to quality are readily accessible, when brand names provide evidence of a
companys reputation, or when level of advertising communicates the companys belief in the
brand, customers may prefer to use those cues instead of price. In other situations, however, such
as when quality is hard to detect or when quality or price varies a great deal within a class of
services, consumers may believe that price is the best indicator of quality.
Many of these conditions typify situations that face consumers when purchasing services.
Another factor that increases the dependence on price as a quality indicator is the risk associated
with the services purchase. In high risk situations, many of which involved credence services

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such as medical treatment or management consulting, the customer will look to price as a
indicator for quality.
Because customers depend on price as a cue to quality and because price sets expectations of
quality, service prices must be determined carefully. In addition to being chosen to cover costs or
match competitors, prices must be chosen to convey the appropriate quality signal. Pricing too
low can lead to inaccurate inferences about the quality of the service. Pricing too high can set
expectations that may be difficult to match in service delivery.

Approaches to Pricing Services: Three pricing structures typically used to set prices:
1. Cost Based 2. Competition based 3. Demand based companies need to consider each of the
three to some extant in setting prices.
C0st Based Pricing
In cost based pricing, a company determines expenses from raw materials and labor adds
amount or percentages for overhead and profit and thereby arrives at the price. This method is
widely used by industries such as utilities, contracting, wholesaling and advertising. The basic
for cost based pricing is
Price = Direct costs + overhead cost + Profit margin
Special Problem in Cost Based Pricing For Services
One of the major difficulties in cost based pricing involves defining the units in which a service
is purchased. Thus the price per unit a well understood concept in pricing of manufactured
goods is a vague entity. For this reason many services are sold in term of input units rather than
units of measured output. For example, most professional service (such as consulting,
engineering, architecture, psychotherapy and tutoring) are sold by the hour.
Approaches to pricing: First, costs are difficult to trace or calculate in services business,
particularly where multiple services are provided by the firm. Consider how difficult it must be
for a bank to allocate teller time accurately across its checking, saving, and money market
accounts in order to decide what to charge for the services. Second, a major component of cost is
employee time rather than materials and the value of peoples time, particularly non-professional
time, is not easy to calculate or estimate.
Example of Cost Based Pricing Strategies in Services

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Cost plus pricing is a commonly used approach in which component costs are calculated and
markup added. In product pricing this approach is quite simple, in service industries, however, it
is complicated because the tracking and identification of costs are difficult. The approach is
typically used in industries where cost must be estimated in advance, such as construction
engineering and advertising. In construction or engineering, bids are solicited by clients on the
basis of the description of the service desired. Using their knowledge of the costs of the
components of the service (including both professional and unskilled) and margin, the company
estimated and present to the client a price for the finished service.
Fee for service is the pricing strategy used by professionals; it represents the cost of the time
involved in providing the service. Consultants, psychologists, accounts and lawyers, among other
professionals, charge for their services on an hourly basis.
Competition Based Pricing
This approach focuses on the prices changed by other firms in the same industry or market.
Competition based pricing does not always imply changing the identical rate others changes
but rather using others prices as an anchor for the firms price. This approach is used
predominantly in two situations.
1. When services are standard across providers, such as in the dry cleaning industry.
2. In oligopolies where there is a small number of large service providers, such as in the airline
or rental car industry.
Special Problems in Competition Based Pricing For Services
Small firms may charge too little and not make margins high enough to remain in business.
Further, the heterogeneity of services across and within providers makes this approach
complicated. Bank services illustrate the wide disparity in service prices. Customers buying
checking accounts, money orders, or foreign currency, to name a few services, will find prices
are rarely similar across providers.
Example of Competition Based Pricing Industries
In this type of market, any price offered by one company will be matched by competitors to
avoid giving a low cost seller a distinct advantage. The airline industry exemplifies price
signaling in services.
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Demand Based Pricing

The two approaches to pricing just described are based on the company and its competitors
rather than on customers. Neither approach takes into consideration that customers may lack
reference prices, may be sensitive to no monetary prices, and may judge quality on the basis of
price. All of these factors can and should be accounted for in a companys pricing decisions. The
third major approach to pricing, demand based pricing involves setting prices consistent with
customer perceptions of value; prices are based on what customers will pay for the services
Special Problems in Demand Based Pricing For Services
One of the major ways that pricing of services differs from of goods in demand based is that,
no monetary cost and benefits must be factored into the calculation of perceived value to the
customers. When services require time, inconvenience, and psychic and search costs, the
monetary price must be adjusted to compensate. And when services save time, inconvenience,
and psychic and search costs, the customer is likely to be willing to pay a higher monetary price.
Another way services and goods differ with respect to this from of pricing is that information on
services costs may be less available to customers.

Perceived Monetary Price:

This is the price the customer perceives the service to be, whereas objective price is the actual
price. As we discussed earlier, many consumers do not attend to, know, and remember actual
prices of services. Instead they reframe prices in ways that are meaningful to them. Some
consumers may notice that the price of dry cleaning a shirt is Rs.12. others may perceive and
remember the price only as expensive or cheap. Still others may not pay any attention to
the price at all.
Perceived Non-Monetary Price:
This price represents the others costs we discussed earlier in this chapter that are perceived by
consumer when buying and using a service : time costs, search costs and psychic costs.
Perceived Sacrifice:
Perceived sacrifice includes all that the customer perceives has to be given up to obtain a service.
All form of price monetary and no monetary feed into this perceptual concept.
Perceived Quality:
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Perceived is defined as the customers judgment about a services overall superiority or

Perceived Value:
Perceived value is defined as the consumers overall assessment of the utility of a service based
on perceptions of what is received.
Incorporating Perceived Value Into Service Pricing:
It is the buyers perception of total value that prompts the willingness to pay a particular price for
a service. To translate the customers value perceptions into an appropriate price for a specific
service offering, the marketer must answer a number of question.
1. What benefits does the service provide?
2. How important is each of these benefits to the others?
3. How much is it worth to the customer to receive a particular benefit in a services.
4. At what price will the service be economically acceptable to potential buyers?
5. In what context is the customer purchasing the service?
The most important thing a company must do and often a difficult thing- is to estimate the value
of the companys services to the customers. Value may be perceived differently by consumers
because of tastes, knowledge about the service, buying power, and ability to pay. In this type of
pricing, what the consumer values is important for pricing and not what he pays. Therefore its
effectiveness rests solely on accurately determining what the market perceives the service to be
Pricing Strategies that Link to the Four Definitions
1. Pricing Strategies:
When the customer means Value Is Low Price
Some of the specific pricing approaches appropriate when customers define value as low price
include discounting, odd pricing, synchro pricing, and penetration pricing.
Service providers offer discounts or price cuts to communicate to price sensitive buyers that are
receiving value.
Odd Pricing
This is the practice of pricing services just below the exact Rupee amount to make buyers
perceive that they are getting a lower price Rs.199.90
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Syncro Pricing
Synchro pricing is the use of price to manage demand for a service by using customer
sensitivity to prices. Certain services, such as tax preparation, passenger transportation, long
distance telephone, hotels, and theaters have demand that fluctuates over time as well as
constrained supply at peak times. For companies in these and other industries, setting a price that
provides a profit over time can be difficult. Pricing can however, play a role in smoothing
demand and synchronizing demand and supply.
Place differentials are used for services where customers have a sensitivity to location. The front
row at concerts, the 50 yard line in foot ball, center court in tennis or basketball, ocean side
rooms in resort hotels all these represent place differentials that are meaningful to customers
and that therefore command higher prices.
Time differentials involve price variations that depend on when the service in consumed.
Telephone service after 11 p.m., hospital rooms on weekends, airline tickets that include a
Saturday night stay, are time differentials that reflect slow periods of service. By offering lower
prices for under used time periods, a service company can smoothen demand and also gain
incremental revenue.

Penetration Pricing:
Penetration pricing is a strategy in which new services are introduced at low prices to stimulate
trial and widespread use. The strategy is appropriate when (1) sales volume of the service is very
sensitive to price, even in early stages of introduction (2) a service faces threats of strong
potential competition very soon after introduction; and (3) there is no class of buying willing to
pay a higher price to obtain the service. (2) pricing strategies when the customer means value
is everything I what in a service when the customers is concerned principally with the get
components of a service, monetary price is not of primary concern.

Prestige Pricing
This is a special from demand based pricing by service marketers who offer high quality or
status services. For certain services restaurants, health clubs, airlines, and hotels a higher
price is charged for the luxury end of the business. Some customers of service companies who
use this approach may actually value the high price because it represents prestige or a quality
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images. Others prefer purchasing at the high end because they are given preference in seating or
accommodations and are entitled to other special benefits. In prestige pricing, demand may
actually increase as price increases because the costlier service has more value in reflecting
quality or prestige.

Skimming Pricing
This is a strategy in which new services are introduced at high prices with large promotional
expenditures. In this situation many customers are mor concerned about obtaining the service
than about the cost of the service allowing service providers to skim the customers most willing
to pay the highest prices.
(3) Pricing strategies when the customers means value is the quality i get for the price i pay
The task of the marketer is to understand what quality means to the customers (or segments of
customers and then to match quality level with price level.
Value Pricing
This widely used term has come to mean giving more for less in current usage it involves
assembling a bundle of services that are desirable to a wide group of customers and then pricing
them lower than they would cost alone.

Market Segmentation Pricing

In this from of pricing, service marketer charges different prices to groups of customers for what
are perceived to be different quality levels of services, even though there may not be
corresponding differences in the costs of providing the service to each of these groups. This
pricing is based on the premise that different segments show different price elastic ties of
demand and desire different quality levels.
Companies also use market segmentation by service version, recognizing that not all segments
want the basic level of service at lowest price. When they can identify a bundle of attributes that
are desirable enough for another segment of customers, they can charge a higher price and
service points appealing to different groups in the market. Hotels, for example,
Offer standard rooms at a basic rate but then combine amenities and tangibles related to the room
to attract customers willing to pay more.
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Price Framing:
Because many customers do not possess accurate prices for services, services marketers are more
likely than product marketers to organize the price information for customers, so that they know
how to view it customers naturally look for price anchors, as well as familiar services against
which to judge focal services. If they accept the anchors, they will view the price and service
package favorably.

Price Bundling
Some services are consumed more effectively in conjunction with other services; other services
accompany the products they support (e.g. extended service warranties, training, and expedited
delivery). When customers find value in a package of services that are interrelated, price
bundling is an appropriate strategy. Bundling, this means pricing and selling services as a group
rather than individually, has benefits to both customers and service companies. Customers find
that bundling simplifies their purchase and payment, and companies find that the approach
stimulates demand for the firms service line, there by achieving cost economics for the
operations as a whole while increasing net contributions. Bundling also allows the customers to
pay less than she would in purchasing each of the services individually, which contributes to
perceptions of value.
Approaches to bundling include mixed bundling, mixed leader bundling, and mixed joint
bundling. In mixed bundling, the customer can purchase the services individually or as a
package. But a price incentive is offered for purchasing the package. An example, a health club
customer may be able to contract for aerobics classes at 25 per month. Weight machines at
Rs.15, and pool privileges at Rs.15 or the group of three services for Rs.27 (a price incentive of
Rs.5 per month.). in mixed leader bundling, the price of one service is discounted if the first
service is purchased at full price. For example, if cable TV customers buy one channel at full
price for first T.V., they can acquire a second T.V. channel at a reduced monthly rate. In mixed
joint bundling, a single price is formed for the combined set of services with the objective to
increase demand for both services by packing them together.

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Complementary Pricing
This pricing includes three related strategies captive pricing, two part pricing, and loss
leadership. Services that are highly interrelated can be leveraged by using one of these forms of
pricing. In captive pricing, the firm offers a base service or product and then provides peripheral
services needed to continue using the service. In this situation the company could off load
some part of the price for the basic service to the peripherals. For example, cable services often
drop the price for installation to a very low level, then compensate by charging enough for the
peripheral services to make up for the loss in revenue. With services firms, this strategy is often
called two part pricing because the service price is broken into a fixed fee plus variable
usage fee (also found in telephone services). Loss leadership is the term typically used in retail
stores when providers place a familiar service on special largely to draw the customer to the
stores and then reveal other levels of service available at higher prices.

Contingency Pricing
The most commonly known form of results based pricing (used when uncertainty is high) is a
practice called contingency pricing used by lawyers. In this approach, lawyers do not receive
fees or payment until the case is settled, when they are paid it is a percentage of the pricing
makes sense in part because most clients in these cases are unfamiliar with the outcomes. Their
biggest fears are high fees for a case that may take years to settle. By using contingency pricing,
clients are assured that they pay no fees until they receive a settlement.

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Module 7: (6 hours)
Physical evidence in services: Types of service spaces- Role of service scapes, Frame work for
understanding service scapes & its effect on Behaviour-Guidance for physical evidence

Service Scape:
Servicescape is a concept that was developed by Booms and Bitner to emphasize the impact of
the physical environment in which a service process takes place. The concept of servicescape can
help assess the difference in customer experience between a fast-food franchise restaurant and a
small, family-run restaurant. Whereas the quality of the food may be the same, the customer may
perceive higher quality in the latter over the former based on the environment in which the
service is provided.
Booms and Bitner defined a servicescape as "the environment in which the service is assembled
and in which the seller and customer interact, combined with tangible commodities that facilitate
performance or communication of the service".
The servicescape includes the facility's exterior (landscape, exterior design, signage, parking,
surrounding environment) and interior (interior design and decor, equipment, signage, layout, air
quality, temperature and ambiance).
Service scape can influence, customer choice, expectation, satisfaction and other behavior Eg.,
Retailers (shopper stop, food world) know that customers are influenced by smell, dcor, music,
store layout. Because services generally are purchased and consumed simultaneously employees
and customers will interact with each other in the service scape. Thus, the same physical
evidence setting that communicates with the customer and influences him to buy the service will
also affect the employees of the firm, i.e., affect the employee by way of motivation,
productivity, satisfaction. Therefore service setting is to be designed (stay physical layout) in
such a way that is meets the need of the customer and employee.

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Roles of Service Scapes:

o conveys expectations
o influences perceptions

o facilitates the flow of the service delivery process
o Provides information (how am I to act?)
o Facilitates the ordering process (how does this work?)
o Facilitates service delivery

o facilitates interaction between:
o customers and employees
o customers and fellow customers


sets provider apart from competition in the mind of the consumer

The service-scape can play many roles simultaneously. An examination of the variety of roles
and how they interact makes clear how strategically important it is to provide appropriate
physical evidence of the service.
1. Package:
Similar to a tangible products package, the service-scape and other elements of physical
evidence essentially wrap the service and convey an external image of what is inside to
consumers. The service-scape is the outward appearance of the organization and thus can be
critical in forming initial impressions or setting up customer expectations it is a visual
metaphor for the intangible service.
This packaging role is particularly important in creating expectations for new customers and for
newly established service organizations that are trying to build a particular image. The physical
surroundings offer an organization the opportunity to convey an image in a way not unlike the
way an individual chooses to dress for success.
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2. Facilitator:
The service-scape can also serve as a facilitator in aiding the performances of persons in the
environment. How the setting is designed can enhance or inhibit the efficient flow of activities in
the service setting, making it easier or harder for customers and employees to accomplish their
A well-designed, functional facility can make the service a pleasure to experience from the
customers point of view and a pleasure to perform from the employees. On the other hand, poor
and inefficient design may frustrate both customers and employees.
3. Socializer:
The design of the service-scape aids in the socialization of both employees and customers in the
sense that it helps to convey expected roles, behaviours, and relationships. For example, a new
employee in a professional services firm would come to understand her position in the hierarchy
partially through noting her office assignment, the quality of her office furnishings, and her
location relative to others in the organization.
The design of the facility can also suggest to customers what their role is relative to employees,
what parts of the service-scape they are welcome in and which are for employees only, how they
should behave while in the environment, and what types of interactions are encouraged.
4. Differentiator:
The design of the physical facility can differentiate a firm from its competitors and signal the
market segment the service is intended for. Given its power as a differentiator, changes in the
physical environment can be used to reposition a firm and/or to attract new market segments.
In shopping malls the colours used in decor and displays and type of music wafting from a store
signal the intended market segment. The design of a physical setting can also differentiate one
area of a service organization from another. This is commonly the case in the hotel industry
where one large hotel may have several levels of dining possibilities, each signed by differences
in design.

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While it is useful from a strategic point of view to think about the multiple roles of the servicescape and how they interact, making actual decisions about service-scape design requires an
understanding of why the effects occur and how to manage them.

Frame work for understanding service scapes

Examples for service facilities:

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Is it customer, or employee or both groups? The design of service scape depends on this factor.
There could be a self-service environment where the customer performs must of the activities
and no employee is involved.
1. ATM
2. Vending machine.
At the other extreme, we have remote service, where there is no customer involvement, i.e.,
customer does not see the physical facility or service scape E.g., Mail order, Telemarketing,
utilities, (KEB. Water supply). In these remote services, the service scape should be designed, to
meet only employees needs, and preferences. The place should be so designed so as to keep the
employees motivated, facilitate increase in productivity improve team work and efficiency. In
this case the consideration for designing service-scape is to achieve only organizational goal
since customers do not see the service scape.
Interpersonal service is in between the extremes and in this case both customers and employee
must be present in the servicescape. E.g., Hotels, Hospitals, Educational Institute etc., In this
case servicescape must be planned to attract, satisfy both customers and employees
Organization must ask the following 3 questions.
1. Who should be consulted in making services scape and other evidence decisions. The answer
to this is Who is involved in service scape
2. What organizational goal might be targeted through servicescape design?
For self service firm: Marketing goals such as customer attraction and customer satisfaction.
For remote service: Priority is given to employee motivation, productivity while designing
3. How complex is the service scape
1. Is it lean or 2. Is it elaborate
Lean means simple service environment with few elements, few space, few pieces of equipment.
Eg., Pushcart Kitchen, small travel agent for hiring a car .
Elaborate means complex service environment like hospital with many floors. How
servicescape plays each of the following role. a. Packing b. Facilitator c. Socializer d.

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Packing: Servicecape act as a package in tangible goods. Physical evidence wrap the service and
convey an external image of what is inside the service organization for customers. Just as
product package given image of the product servicescape gives the image of service.
Behaviour and service scapes effects

Individual behavior : It is observed that when individuals react to places. The behavior takes 2



Approach behaviours include all positive behaviours that might be directed at a particular place
such as desire to stay.
Avoidance behaviour reflect the opposite, a desire not to stay. This behavior is influenced by the
The environment, in addition to attracting or determining entry can also influence the customers,
and employees in executing their plan once inside the servicescape. Each individual comes to a
particular service organization with a goal or purpose that may be aided or hindered by setting.
Take a hotel situation when a customer enters. He needs easy access to parking, clear sign
boards, directing him to reception, efficient food service, clean rooms etc., The ability of an
employee to do their jobs is also influenced by the servicescape. Adequate space, proper
equipment, comfortable temperature all these contribute to employees comfort and job
Social Interaction: In addition to the effect of servicessape on individual behavior, servicescaoe
influence the nature and quality of employee interactions, most directly in interpersonal service.
The social interaction is affected by the physical container in which it occurs. The physical
container can affect the nature of social interaction in terms of the duration of interaction and
progression of events. In some service situation, the firm may want to limit the duration of
service. Environmental variables such as seating arrangements, size, time limit the social
interaction occurring between customers and other customers (Cinema) or in a train. The close
physical proximity of passengers on the train will in itself prescribe certain patterns of behavior.

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The physical setting decides the nature of social interaction. Friendship formation, participation,
helping others have are been influenced by environment conditions. It is also found that proper
physical setting will also help employees in developing friendship, group work etc.,
One of the challenges in designing environments is to enhance individual approach behaviours
and encourage the appropriate social interactions is that the best design from one person or group
may not be best design for others. It has been fund that, when customers are in the bank, they
have different needs and desires for their physical surroundings compared to an employee whose
physical surrounding requirement are quite different.

The most important approaches for understanding service-scape effects are as follows:
1. Environment Surveys
2. Direct Observation
3. Experiments
4. Photographic Blueprints.
The design environments that work from both a marketing and an organizational behaviour
perspective, firms need to research environmental decisions and plan them strategically. The
needs of ultimate users and the requirements of various functional units must be incorporated
into environmental design decisions.
An organization can learn about users reactions to and preferences for different types of
environments through four approaches: environmental surveys, direct observation, experiments,
and photographic blueprints.
1. Environment Surveys:
An environment surveys asks people (either customers or employees) to express their needs and
preferences for different environmental configurations by answering predetermined questions in
a questionnaire format.
The advantages of surveys are the ease of administration and interpretation of results. Usually
the data are collected via standardized questions and the results can be entered into a computer
and easily interpreted.
Thousands of questionnaires can be sent out or administered over the phone, so sample sizes can
be very large and many environmental variables can be explored simultaneously. Depending on

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the decisions being made surveys can at times be completely adequate for the task. Surveys are
also less time consuming than the other approaches.
The primary disadvantage of an environmental survey is that sometimes the results may be less
valid than results from other methods that is, the answers to the survey questions may not truly
reflect how people feel or how they will behave. This can occur when the dimensions of the
servicescape affect people subconsciously or through complex interrelationships of dimensions,
and people cannot accurately express these effects through paper and pencil surveys.

2. Direct Observation:
Using observation methods, trained observers make detailed accounts of environmental
conditions and dimensions, and observing and recording the reactions and behaviours of
customers and employees in the servicescape.
The advantages of direct observation, when done by highly trained and skilled observers, are the
depth of information acquired and its accuracy. The inter-relationship of elements of the
environment and the reactions and interactions of participants in the environment can be
unobtrusively recorded, increasing the validity of the findings beyond what is typically found in
a standardized survey. Direct observation can also be useful when there is a very specific
servicescape question that needs answering.
The disadvantages of direct observation are primarily related to time and costs.
First, the researchers who observe the servicescape must be highly trained and skilled in
ethnographic methods, which make data collection expensive.
Second, they must be allowed to observe for some period of time, and the interpretation of their
detailed records can be very labour intensive. Unlike the survey method, the data cannot as a rule
be entered into a computer and analyzed with nice, clean quantitative results.

3. Experiments:
Experimental methods are one of the best ways to assess specific customer and employee
reactions to environmental changes or alternatives when it is important to know their true
reactions and preferences. Experiments involve exposing groups of customers to different
environmental configurations and measuring their reactions.

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The advantages of experiments lie primarily in the validity of the results; that is, if the
experiment is carefully done, you can believe and rely on the results. Because environmental
dimensions often affect people subconsciously and the multitude of dimensions interacts to form
a composite impression, it is difficult to get accurate responses to questions about the
environment in the absence of actual experience.
By controlling the environmental conditions experimentally and then measuring consumers
responses, there is a certainty that the environment and not something else actually was the cause
of the internal response or the behaviour.
Further, different dimensions can be varied systematically to assess the independent impact of
factors such as music, colour, and layout. The interactions among the dimensions can also be
assessed systematically. Experiments also overcome the disadvantage of surveys in which people
respond to questions in one way but actually behave differently in the real situation. As with
direct observation methods, the disadvantages of experiments relate primarily to costs and time.

4. Photographic Blueprints:
A photographic blueprint essentially provides a visualization of the service at each customer
action step. The visual can be a slide, a photograph, or the entire service process as videotaped
from the customers point of view. By combining a service blueprint with photos, managers and
other service employees can see the evidence of service from the customers point of view. The
photographic blueprint can provide a powerful analytic tool to begin assessing the service
Photographic blueprints are extremely useful in providing clear and logical documentation of the
physical evidence as it currently exists in a given service situation. Before changes can be made,
the current state of physical evidence should be made apparent to all concerned.
The photos and/or videotapes give more depth to the process blueprint and the blueprint forces a
certain logic on the analysis of the physical evidence. The photographic blueprint can give a
vivid picture of how things are.
The main disadvantage of a photographic blueprint is that it is just a starting point. In and of
itself it doesnt answer any questions, but many questions can be asked of it. In and of itself it
doesnt give clues as to customer and employee preferences and needs; it could, however, be
used as a catalyst for gathering customer and employee opinions.
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Natural light is usually the most comfortable source of light. Strip lighting, particularly when it
flickers, can cause actual discomfort for some people, whether customers or employees. In some
cases it can even cause migraines. Unfortunately, the amount of natural light varies with the time
of day and weather conditions. Glare from sunlight on screens can also cause problems.

On a functional level, different illumination levels are needed to perform tasks, depending on the
level of detailed attention required. An example of inappropriate lighting is the lighting in the
suite facilities of many hotels.
Good light is needed for putting make-up on or shaving, and yet frequently the lighting provided
is very poor. The actual measure of light now in use is the lux (lx) which is equal to 1 lumen (lm)
per square meter, the lumen being a unit of luminous flux. Light used to be measured in
footcandles, where 1 footcandle is approximately equal to 10 lux. Table 9.3 gives an indication
of the different levels of illumination needed to perform various tasks.
Lighting can also contribute to the creation of atmosphere. Low levels of lighting are associated
with romantic settings. Strobe lighting is often used in nightclubs to excite and arouse. Well-lit
passages will feel safer than those which are poorly lit. Light bulbs which have failed and not
been replaced create an ill-kept, inefficient image.
Colour and illumination are often used in conjunction. A colour at different levels of illumination
may look quite different. The effect of neighbouring colours also changes the impact of a colour:

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some clash and have a disturbing or arousing effect; others complement and have a more
soothing or calming effect. Greens and blues are cool colours, often used for quiet or rest areas.
Warm colours are reds, oranges and yellows. Some examples of the use of colours are
presented here.
Regarded as disturbing and psychologically difficult. In a Swedish study it was the most
disliked colour in terms of environmental settings.
The colour of fire and passion, suggesting activity, energy, joy. It is used by interior designers to
increase comfort levels in unheated spaces and is also regarded (along with pink) as good for
restaurants, especially the fast-food variety. One study showed that red-stimulated diners tend to
eat more quickly and move on for the next person.
Although researchers have claimed that an orange environment improves social behaviour,
cheers the spirit and lessens hostility and irritability, it is seldom used by professional designers.
Conflicting evidence here which on the one hand suggests its ideal stimulative effect where
concentration is required. However, if it is used too strongly, those in its environment are likely
to get stressed up.
Symbolizes the natural world and is widely believed to be a calming hue. Ideal for areas where
relaxation is required and along with blue is found to enhance our appetite; thus good for dining
Symbolizes authority and implies truth, prudence and wisdom ideal for banks and building
societies. It is considered as having a calming effect which makes it ideally suited for hospital
cardiac units.
Temperature and Humidity:
Temperature and humidity affect the comfort of customers. This can be difficult to control in
situations where the number of customers in the system fluctuates. For example, a crowded train
or theatre may become unbearably hot because there are so many customers in the system.
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The converse of this is the lecture theatre where the air-conditioning is fine when the theatre is
full of students, but when half-empty leaves students huddling in their coats. The negative impact
on perceptions of the service can be quite severe.
The level of activity undertaken during the service will also be relevant: the higher the level of
exercise, the lower will be the requirement for heat. Table 9.4 gives recommended room
temperatures for various activities in a work context and Table 9.5 examines the effect on work
of deviations from a comfortable working temperature.

Background noise often interferes with concentration and can make learning difficult. The unit of
measurement of sound is the decibel and this is related to the physical unit of sound pressure
called the micropascal.
The minimum sound that a human ear can hear is 20 micropascals, and this is equivalent to 1
decibel. The relationship between micropascals and decibels is logarithmic, so that each time
sound pressure in micropascals is multiplied by 10; 20 decibels are added to the decibel level.
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Bearing in mind the fact that a logarithmic scale applies to decibels, Table 9.6 gives an indication
of noise levels in decibels for various activities. The generally recommended maximum level to
which workers should be exposed over a working day is 90 decibels.

The perception of noise varies between individuals. Some people are just better than others at
screening out noise, and may be oblivious to the loud music from next door. The maker of the
noise is often either oblivious to the noise (e.g. a typist) or enjoys the noise (e.g. a pianist). In a
hospital ward, the potential problem of noise is recognized and all patients have earphones to
listen to whatever they wish to hear on the radio without Walkmans.
The problem with the latter is that, although some consideration has been shown, the background
rhythm is frequently still audible to the other passengers, which is often highly infuriating. Lack
of control over the source of the noise is in itself stressful. Circumstances may also affect
sensitivity to noise. Students writing examinations may find the rustling of papers highly
distracting, when normally they would not even notice the noise.

Some factors affecting the level of annoyance caused by noise are summarized here:
1. The louder the noise, and the higher the pitch, the greater the annoyance.
2. Intermittent and unfamiliar noises intrude on the consciousness more than continuous or
familiar sounds
3. Previous experience of exposure to noise can influence perceptions of sounds; for example,
the sound of a dentists drill, or a similar sound, can arouse anxiety.
4. Non-participation in the creation of the noise increases the likelihood of annoyance. This
effect will be influenced by the degree of dislike of the sound (e.g. the type of music), by the
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attitude towards the person creating the sound, and by the inability to control the source of the
5. The situation in which the noise is experienced. If a person is trying to get to sleep, or
concentrate on a difficult task, a noise which would otherwise be acceptable, or not even noticed,
may become extremely annoying.
The smell of freshly baked bread or freshly ground coffee has a very positive appeal to many
people. In contrast, many people find the smell of cigarette smoking obnoxious. Once again,
however, the service provider must recognize that all customers will perceive odours in different
ways. Smoking, in particular, causes problems. In some countries, smoking in public places is
prohibited. This is fine for the non-smoker, but for the 10-cigarettes-a-day smoker, having to
refrain from smoking on a flight lasting two hours or more can be very uncomfortable,
particularly if he or she is anxious about flying.
The implication of this is that more has to be spent on ventilation to minimize the effect on nonsmokers if some customers are to be allowed to smoke. Segregation is one way of trying to
minimize the impact. The problem with this is that smoke drifts, and many non-smokers will
notice when a cigarette has been lit even if at the opposite side of the room.
The smell of smoke also lingers well after the smoker has gone. Hotel bedrooms which have
been occupied by smokers previously can be unacceptable to non-smokers. Probably the best
answer to this problem is to have totally separate room for smokers. However, the actual solution
will depend upon the mix of customers and the country in which the service is being provided.

Signs, Symbols and Are facts:

There are two aspects to signs, symbols and artefacts. First, they- may help customers to orient
themselves within the service environment, and second, they provide cues about the service
being provided.
In terms of orientation, signs indicate where customers should go; for example, in hospitals,
signs usually indicate where out-patients should report. They may also be used to instruct
customers; for example, in a laundry signs may be used to instruct the customer how to use the
washing machine.

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The effect on the customers perception of the service can often be negatively affected by the
lack of signs, or by ambiguous signs. Getting lost in the railway station and missing a train can
be extremely annoying, and of course it is always when the passenger is short of time that clear,
prominent signs which are essential in such circumstances are non-existent!
Signs often represent the first encounter that a new customer has with the organization, and
influence those first impressions which are so very important. Being able to find the way
quickly and without trouble encourages a positive frame of mind.
Various design aspects of signs are important, and they will affect the visibility, legibility and
intelligibility of the message. The orientation of the signs will also have an impact on their ease
of use.
Visibility of signs refers to their positioning in such that they can easily be seen.
Legibility refers to the clarity of the message on the sign.
Intelligibility refers to the sense of the message. The sign itself may be perfectly visible and the
shapes distinct, but can the customer understand the message?
In services, some customers may be illiterate. Symbols can overcome the language and literary
problems, but are sometimes themselves unclear.
Symbols and artefacts may also act as cues. As service is intangible, and often there is an
expertise gap between the service provider and the customer (e.g. doctor and patient), it is often
difficult for the customer to judge the proficiency of the expert. Certificates on walls are a
visible cue or symbol of achievement and many provide reassurance to the customer. Similarly,
an office lined with bookshelves suggests knowledge, while original oil paintings may indicate
The style of the decor generally can create an impression of cheap, cheerful and fun, or sedate,
serious and expensive, etc. Inappropriate use of artefacts can create the wrong impression
completely: leopard skins hung on the office wall would hardly be appropriate in an organization
trying to project an image of concern for wildlife and the future of the environment generally.
Are facts such as paintings, plants and sculptures can also be used in conjunction with the spatial
layout to create a type of landmark along a corridor, helping navigation around a building with a
symmetrical layout. In such buildings, it is sometimes difficult to tell the difference between
floors or corridors. A distinctive plant in the north-west corner of the fifth floor, for example,
provides a point of reference when trying to get ones bearings.
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Spatial layout:
Ease of access, good visibility, proximity of linked services and so on will help to make a
customer feel in control of the process. If a customer is lost, stress levels rise. Unless the whole
point of the exercise is to create a sense of mystery and excitement, as in a maze in a theme park
perhaps, then one of the main objectives for the design of the layout of the facilities should be to
facilitate ease of use for the customer.
Personal Space:
Linked with spatial layout is the concept of personal space. Every person needs space around
them to feel comfortable. If other people enter this space, stress levels will rise. Personal space
comprises four zones, each with an increasingly large distance from the individual. Figure 9.2
illustrates these four zones.
Only very close friends can be admitted to zone A without causing psychological discomfort,
which in turn may lead to stress and associated physical effects, such as sweating. Zone B is
reserved for friends, and zone C for business-type encounters. The limit of zone C represents the
closest that strangers can approach without causing discomfort. Zone D extends to that distance
within which the presence of others is noted.

The size of the zones varies among people, and in particular among people of different cultures.
Touching is much more acceptable in some cultures than in others, which clearly necessitates
close proximity. Other variables which affect the size of the different zones are age, personality,
gender and status of the individuals involved.

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The implications of this for the design of the service are to recognize that expecting customers to
share their space with others will lead to increased stress levels and is likely to have a negative
impact on their perception of the service received, or at least make them feel uncomfortable. This
can be used to some advantage if the aim is to encourage customers to vacate tables quickly, as
in a fast- food restaurant, or when the aim is to arouse, as in exciting/scary experiences.
However, if the aim is to create a relaxing atmosphere, crowding must be avoided.
Body Language:
One of the ways to try and standardize the service provided is to prepare scripts for employees
to follow. These may be quite detailed or simply provide an outline. For example, telephone
sales operators are often trained to follow a script, with the exact opening lines and follow-up
questions being predefined.
In fast-food restaurants, the opening and closing lines that the server has to use may be
prescribed. However, Have a nice day can become an irritant to customers who perceive the
phone lines as always engaged and inaudible. The reason why customers often feel that the
words spoken are not meant is because the accompanying body language is conveying another
Body language, which includes facial expression and bodily positioning, conveys emotion or
attitude. Spoken language conveys information, although the way something is said can also
convey emotion. Greeting a customer or thanking a customer without making eye contact or
smiling will not have the effect that management would like the lines to have. It is relatively easy
to tell employees to learn a script, but it is far more difficult to foster the desired body language.
Training is needed here, but as such interpersonal behaviour is a skill, it cannot be learnt without
practice and feedback. This form of training is time consuming and costly. More often than not,
it is not provided, as front-line serving staffs are frequently part time or temporary, and such an
investment is not perceived to be justified.

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Physical Evidence:
Physical Evidence is the environment in which service is delivered. It is the environment in
which customers and firm interact. Physical evidence is any tangible commodity which
facilitates communication.

Physical evidence includes all aspects of the organizational physical facility physical facility is
also called as servicescape. There are 2 elements of service scape. 1. Exterior 2. Interior .
Exterior refers to parking, signboard, landscape etc., Interior refers to layout, decor and
equipment. Some service communicate heavily through physical evidence eg., hospital, resorts.
Some other services provide limited service evidence eg., Insurance.

Guidelines for physical evidence strategy:

1. Recognize the impact of physical evidence
2. Map the present physical evidence
3. Clarify the role of servicescape.
4. Identify the opportunities to improve the servicescape.

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