UNIT-I

MARKETING OF SERVICES - Introduction - Growth of the Service Sector - The Concept of

Service - Characteristics of Services- Classification of Services - Designing the Service -
Blueprinting, Using Technology, Developing Human Resources, Building Service Aspirations.

SERVICES DEFINED
The following definitions present the perception of various personalities and associations responsible
for contributing significant work over the last four decades, that is, from 1960 onwards, in services
management and marketing.
The American Marketing Association (1960): The American Marketing Association has taken a
lead in defining services as “activities, benefits or satisfactions which are offered for sale or provided
in connection with the sale of goods.” This definition provides a limited view of services. However,
this was the first major attempt to identify services differently in valuing the output of a society. The
definition does not provide for valuing services involved in producing the tangible goods.
Regan (1963): Regan in his definition classified services into two categories. According to him
“services represent either tangibles, yielding satisfaction directly (transport, housing) or intangibles,
yielding satisfaction jointly when purchased either with commodities or other services “credit
delivery”. An attempt is made through this definition to give a distinctive focus for such services that
are offered directly to the consumers as products.
Robert Judd (1964): According to Robert Judd, service is “a market transaction by an enterprise or
entrepreneur where the object of the market transaction is other than the transfer of ownership of a
tangible commodity.” In this definition three broad areas of services are recognized. They are:
1. Right to possess and use a product (rented goods business).
2. The custom creation, repair or improvement of a product (owned product services).
3. No product element, but an experience (non-goods services).
An attempt was made through this definition to give an independent status to more and more services
and to focus the attention of the researchers for further development.
William J. Stanton (1974): A comprehensive view of services was provided by Stanton. According
to him services are “separately identifiable, intangible activities which provide want satisfaction when
marketed to consumers and/or industrial users and which are not necessarily tied to the sale of a
product or another service.” This definition focuses upon several issues for recognition. They are:
Services may be defined as intangible activities performed by persons or machines or both for the
purpose of creating value perceptions among consumers. Since services are intangible activity (ies) or
benefit(s) produced by the service provider, in association with the consumer, its quality results in
perception and value assessment by the consumer.

EVOLUTION OF SERVICES SECTOR

Adam Smith, a well-known economist of the late eighteenth century, has definedthe important
concept of value generation. In his original theory, he proposed the following schematics:
Thus, he proposed that the production of goods leads to tangible output. This output or the finished
product is consumed by the users. Consumption leads to value generation, as the customer’s overt or
latent needs are satisfied. However, Smith dismissed the contribution of services to the process of
value generation. He emphatically stated that the generation of services is unproductive and thus
devoid of any value creation. It is
indeed difficult to convey the concept of value generation when no tangible ownership of a product
seems to have been transferred. Alfred Marshall, another famous economist, in the late nineteenth
Century, corrected this notion of the role of services. Doubts about the ability of the services sector to
contribute significantly to the economic development and well-being of societies, however, continued
to exist till the twentieth century. Today we are aware that both goods and services satisfy different
needs of customers, and hence, both are value contributors.
1) Crawling out stage - took place prior to 1980
2) Scurrying stage - between 1980 to 1986
3) Walking erect stage - from 1986 to 2000
4) Galloping Stage - From 2000 to till date
Ø Crawling out Stage - took place prior to 1980
In this stage discussion centered around the need for a separate body of literature to deal with the
specific problems of the services sector. Donnelly highlighted differences between the marketing
channels used for services and those used for physical goods and implications for marketing strategy.
Marketing traditionalist argued that service organization did not need a separate body of theory, and
that existing marketing theories could, and should, be applied to service organizations. They
considered services as an offer tied up with physical product. Services marketing academics and
practitioners argued that services required special treatments as a result of their distinctive
characteristics.
Ø Scurrying Stage - between 1980 to 1986
Efforts were made to classify services more clearly and attention focused heavily on the crucial issue
of managing quality in service operations. Zeithaml, Berry and Parasuraman developed their
pioneering gaps model. Booms and Bittner developed their expanded marketing mix for services
which took into account the distinctive characteristics. They add three more P’s to the original
marketing mix. They are people, process and
physical evidence. For the first time text books on services marketing began to be produced.
Ø Walking erect Stage- from 1986 to 2000
Since 1986 there has been almost no discussion of whether services are different from goods, but
rather the literature has focused on specific marketing problems on service organizations. They
include consideration of service encounters, service design, perceived service quality and customer
satisfaction, internal marketing and relationship marketing.
the third quarter (October-December) of 2005-06, real gross domestic product (GDP) registered a
sharp increase in the fourth quarter (January-March) of 2005-06 benefiting from a pick-up in almost
all segments of agriculture, industry and services. According to the revised estimates released by the
Central Statistical Organization (CSO) in May 2006, real GDP accelerated from 7.5 per cent in 2004-
05 to 8.4 per cent during 2005-06. The Indian economy has, thus, recorded an average growth of over
8 per cent in the latest three years (2003-04 to 2005-06).
Growth Rates of Real GDP
(Base Year: 1999-2000) (Per cent)
faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled
the change by squeezing costs, revamping management, focusing on designing new products and
relying on low labor costs and technology.
Services:
India is fifteenth in services output. It provides employment to 23% of work force, and it is growing
fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP,
accounting for 53.8% in 2005 up from 15% in 1950. Business services (information technology,
information technology enabled services, business process outsourcing) are among the fastest growing
sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is
attributed to increased specialization, availability of a large pool of low cost, but highly skilled,
educated and fluent English-speaking workers (a legacy of British Colonialism) on the supply side
and on the demand side, increased demand from foreign consumers interested in India’s service
exports or those looking to outsource their operations. India’s IT industry, despite contributing
significantly to its balance of payments, accounted for only about 1% of the total GDP or 1/ 50th of
the total services. Excellent infrastructure in the service sector and the lowest communication cost has
helped India to be a dominant player in these sectors.

Environmental Trend and Emerging Service markets

of service functions such as selling, marketing research, advertising, labor welfare, HRD, financial
advisers strategic advisers, etc. With the growth of competition and the pace of change in consumer
exposure and expectations forced organizations to look for specialized services.
Companies started unbundling the organizations and taking the services from outside, where highly
professional and specialized services are available at a relatively low price. As a result, a number of
service organizations have come up in the world. The concept of self reliance by way of minimizing
or avoiding dependence on others was used by the firms to reduce uncertainties, to maintain
confidentiality and to grow big. The wave of specialist services during the last three decades changed
management philosophies and encouraged them to outsource many services. Hence, the demand for
special services has gone up.
Final Demand from Customers
There is a growth in direct demand from customers for a variety of services. The marginal utility from
goods has diminished, atleast in a relative sense and services have grown in importance. People spend
more and more on services. The demand for health services, polybion laser services, travel,
entertainment, sports and the like registered a significant growth in recent years. The following are the
reasons identified for the growth in demand for services directly from customers:
ü Increase in affluence
ü More leisure time
ü Increasing proportion of working woman
ü Growth in the population of DINKS (Double Income No Kids)
ü Greater complexities of products
ü Greater complexities in life
ü Greater concern for resource scarcity and ecology
ü Increasing number of new products
ü Increasing proportion of earning younger generation
REASONS FOR GROWTH OF SERVICES IN INDIA
The following are the reasons for growth of services in India.
A] Cultural Changes
Culture is an embodiment of values, knowledge, traditions, taboos, habits and behavior that passes
from generation to generation. The influence of culture on the lifestyles of people is significant.
Culture is not static; in fact, it is a process of development. Change is the underlying philosophy of
culture. Some societies change faster, some at a medium pace and the others at a slower pace.
The pace of change in Indian culture is not uniform. However, during the last century the factors of
change are prominent. The changed role of women is one example and the change in the family
systems is another. The emergence of the nuclear family system in place of the traditional joint family
system creates a demand for a host of services—entertainment, education, healthcare, hospitality,
telecommunications, posts, transport and tourism, to mention a few. There has been a marked change
in the thought process relating to expenditure, investment, leisure time perception, children’s
education, time management and so on, which has created a market for services.
B] IT Revolution
India has been occupying a vital position in the area of ‘information technology’ for the last fifteen
years. Indians have proved their supremacy in the field to the world. IT became one of the key service
businesses of the country. India has the largest software skilled population in the world. The domestic
market as well as the international market has grown substantially.
Many state governments realizing the potential for this area, have made IT as their most prioritized
segment. States such as Karnataka, Andhra Pradesh, Madhya Pradesh, Tamilnadu, Maharashtra and
Delhi have already achieved substantial progress in information technology. It is expected that the IT-
enabled services will have a
bright future in the years to come.
C] Conservation of Natural Resources
The growth of population, greater industrialization and indiscriminate consumption has affected the
natural resources, environment and ecological balance. The government and social organizations
realize the negative effects of the environmental pollution, resource scarcity and the imbalance of the
ecology. They have promoted several service organizations to take up social marketing. Thousands of
crores of rupees are being spent on forestation, safeguarding rare animals and birds, protecting air,
water pollution, conserving of oil and energy and on research to develop new technologies that can
promote very effective use of natural resources and safeguard the environment.
D] Increased Consciousness of Health Care
The health care market has grown substantially in India. The increased life expectancy is the result of
the consciousness of people regarding health issues. The growth of health centres, fitness clubs,
diagnostic centres, medical counseling, psychological counseling, health-related information sites are
the reflections of the growing demand for health care services. The government as well as social
organizations has taken up mass
campaigns through different media to create awareness among illiterate persons and rural population
on health care. Immunization campaigns, childcare campaigns, campaigns on preventive medicine
and family planning are some of the programmes intended to promote health care in rural India.
E] Economic Liberalization
The economic liberalization process which started in 1991 brought in many changes in the Indian
business scenario. Multinationals were permitted to enter the Indian market. Disinvestments and
privatization policies made an end to the state owned monopolies in many service areas. Delicensing
policies encouraged many entrepreneurs to establish business wherever they wanted. Liberal lending
policies and lower interest rates motivated many people to become self-employed. These changes led
to a major shift in the competitive scenario. The banking sector, insurance, telecommunications,
power projects, advertising gencies, marketing research, hospitality services, courier services and air
transport witnessed intense competition due to the entry of multinational companies. The flow of
time-tested service technology from various parts of the world changed the attitude of the Indian
consumer towards service.
F] Migration
Rural to urban and semi-urban migration has been one of the reasons for the growth of services in
India. Migration to urban areas for want of jobs and livelihood resulted in the expansion of cities and
townships. Due to this, businesses like real estate, rentals, transportation and infrastructure services
are expanding rapidly. Urban placement services and personal services have also found increased
demand.
Ø People Processing: The customer is highly involved in the service process and needs to be
physically present in order to experience the service. In people processing, the service is directed at
the customer. For example, at a school or training center for dance, the students availing the services
have to be present in person. Other examples of services that involve people processing are health
care centers. Passenger transport
services, beauty saloons, lodging and boarding services, educational services and fitness centers.
Ø Possession Processing: The customer doesn’t require to be present to experience the service but
has to submit his property to the service provider for the latter to deliver the service. In possession
processing, the service is directed at the possession and not at the customer. For example, if a person
wants his car to be serviced, he has to leave it with the mechanic for some time to enable the
mechanic to change the oil, check the gears, brakes, etc. and wash and clean it thoroughly. Laundry
and drycleaning services, postal service, courier service and freight transportation are other examples
of such services.
Ø Mental Stimulus Processing: In mental stimulus processing, the attention of the customer must be
directed on the service in order to experience the service. In this case, the service is directed at the
mind of the customer. For example, a person taking career counseling from a professional counselor
gets stimulated mentally to take the right decision or develop the right attitude. Other examples of
such services are advertising, entertainment, and education and consultancy services.
Ø Information Processing: This type of service requires service personnel to collect information,
analyze it, interpret and offer appropriate advice to the client. For example, a market research firm
hired by a company collects information from customers to know their opinion about the company’s
products or services, customer expectations and suggestions to improve the products/services. The
employees of the firm then analyze the information and prepare reports in a way that allows the
management of the company to formulate strategies to improve its sales. Information processing also
takes place in services such as accounting, insurance, legal services. Programming, data processing
and data transmission. food and magazines to passengers, and market research firms provide clients
with a detailed report of the research results.
Ø Highly intangible: These are the services which do not provide customers with any tangible
product. For example, at a massage parlor, the customer might not get anything tangible, except for
the relaxing experience. He might smell the aromatic oils or feel relaxed while undergoing the
massage. But does not get any tangible
product.

CHARACTERISTICS OF SERVICES
Services have basically six characteristics that greatly effect the design of marketing programmes.
They are:
Services have a number of unique characteristics that make them so different from products. Some of
the most commonly accepted characteristics are:
a) Intangibility
b) Inseparability
c) Heterogeneity
d) Perishability
e) Ownership

a) Intangibility
When you buy a cake of soap, you can see, feel, touch, smell and use it to check its effectiveness in
cleaning. But when you pay fees for a term in college, you are paying for the benefit of deriving
knowledge and education which is delivered to you by teachers. In contrast to the soap where you can
immediately check its benefits, there is no way you can do so in case of the teachers who are
providing you the benefits. Teaching is an intangible service. When you travel by an aeroplane, the
benefit which you are deriving is a service (transaction) but it has some tangible aspects such as the
particular plane in which you fly (and the food and drink which is served). In this case the service has
both a tangible and intangible aspect as compared to teaching which has hardly any tangible aspect.
Figure 1.1 presents the tangible-intangible dominant aspect on a goods-service continuum. This
continuum highlights the fact that most services are in reality a combination of products and services
having both tangible and intangible aspects. There are only a few truly pure tangible products or pure
intangible services. The distinguishing feature of a service is that its intangible aspect is dominant. J.
Bateson has described the intangible characteristics of services which make them distinct from
products.
These intangible features are:
 A service cannot be touched
 Precise strandardisation is not possible
 There is no ownership transfer
 A service cannot be patented
 Production and consumption are inseparable
 There are no inventories of the service
 Middlemen roles are different
 The consumer is part of the production process so the delivery system must go to the market
or the customer must come to the delivery system.
Inseparability
In most cases a service cannot be separated from the person or firm providing it. A service is provided
by a person who possesses a particular skill (singer), by using equipment to handle a tangible product
(dry cleaning) or by allowing access to or use of physical infrastructure (hotel, train). A plumber has
to be physically present to provide the service, the beautician has to be available to perform the
massage. This is in direct contrast to products which can be produced in the factory today, stocked for
the next two, three or more months and sold when an order is procured.
b) Heterogeneity
The human element is very much involved in providing and rendering services and this makes
standardisation a very difficult task to achieve. The doctor who gave you his complete attention in
your last visit may behave a little differently the next time. The new bank clerk who cashed your
cheques may not be as efficient as the previous one and you have to spend more time for the same
activity. This is despite the fact that rules and procedures have been laid down to reduce the role of the
human element and ensure maximum efficiency. Airlines, restaurants, banks, hotels have large
number of standardized procedures. You have to reserve a room in a hotel and this is a straight
forward procedure for which all the steps are clearly defined. Human contact is minimal in the
computerised reservation systems, but when you go to the hotel there will be a person at the reception
to hand over the key of your room. The way this person interacts with you will be an important factor
in your overall assessment of the service provided by the hotel. The rooms, the food, the facilities may
be all perfect, but it is the people interacting with you who make all the difference between a
favourable and unfavourable perception of the hotel.
c) Perishability
Services cannot be stored and are perishable. A car mechanic who has no cars to repair today, spare
berths on a train, or unsold seats in a cinema hall represent a service capacity which is lost forever.
Apart from the fact that a service not fully utilised represents a total loss, the other dimension of this
perishability aspect is that most services may face a fluctuating demand. There is a peak demand time
for buses in the morning and evening (office hours). Certain train routes are always more heavily
booked than others. This fluctuating demand pattern aggravates the perishability characteristic of
services.
d) Ownership
When you buy a product you become its owner-be it a pencil, book, shirt, refrigerator or car. In the
case of a service, you may pay for its use but you never own it. By buying a ticket you can see the
evening film show in the local cinema theater; by paying wages you can hire the services of a
chauffeur who will drive your car; by paying the required charges you can have a marketing research
firm survey into the reasons for you product’s poor sales performance, etc. In case of a service, the
payment is not for purchase, but only for the use or access to or for hire of items or facilities. A
service is purchased for the benefits it provides. If we closely examine the reasons why products are
purchased, we find that they are bought because they provide certain intangible benefits and
satisfactions. Detergent powder provides the primary benefit of cleanliness, air-conditioners provide
the benefit of a cool, comfortable environment, a mixer-cum-grinder provides convenience. The only
difference between products and services is that in the latter, the intangible component is greater than
in the former. Thus, services can be treated as a special kind of product. From a marketing view-point,
the same concepts and techniques are applicable for both products and services. The successful
marketing of both requires market research, product design, product planning and development,
pricing, promotion and distribution. However, for marketing services, the marketing manager must
understand the nature of the five characteristics of services and the manner in which they impinge on
the marketing strategy.

EXAMPLE LIST OF SELECTED SERVICES:

Utilities
Electricity
Water Supply
Law Enforcing, Civil, Administrative and Defence Services
Police
Army
Air Force
Navy
Judiciary
Civil
Municipal Services (Sewage, maintenance of roads parks and public buildings)
Business, Professional and Scientific Activities
Advertising
Marketing Research
Consultancy
Accountancy
Legal
Administration Medical
Educational
Research
Maintenance and Repairs (of plants, machinery and equipment)
Leasing
Computer Programming
Employment Agencies
Insurance, Banking, Finance
Banks
Share and Stock Brokers
Transport and Communication
Railways (Passenger and Freight)
Air Transport (Passenger and Freight)
Post and Telegraph
Telephone and Telecommunication Clubs,
Broadcasting (All India Radio)
Telecasting (Doordarshan)
Leisure, Recreation
Cinema, Theatre
Gymnasiums
Restaurants, Hotels
Video Game Parlors
Casinos
Self-improvement Courses
Distributive Trades
Wholesale Distribution
Retail Distribution
Dealers, Agents
Miscellaneous
Beauty Parlors
Health Clubs
Domestic Help
Drycleaning
Matrimonial Service

CLASSIFICATION BASED ON SKILLS AND EXPERTISE REQUIRED

Services can be categorized as follows based on the skills and expertise required by the service
provider to offer the service. Let us discuss the schemes briefly.
1. The Nature of the Service Act
Using two dimension of tangibility of the service act and to whom services are directed at. Lovelock5
has classified services according to whether services are directed at people or possessions, at minds,
physical possessions or assets. The following table will help you understand this classification
scheme.

Nature of the Services Directed At

Service Act

People Possession

Services directed at goods Services directed at peoples bodies

Tangible Action Physical possessions
Healthcare, Salons, Transportation Restaurants, Laundry/Dry, Lawn care

Intangible Services directed Services directed at intangible assets

Action at people’s minds
Education, Banking, Information, Broadcast, Legal Services,
Museums Insurance, Accounting

2. Relationship between Service Organisation and Customers

In the service sector both institutional and individual customers may enter into continuing
relationships with service providers and opt for receiving servicescontinually. Services can therefore
be classified on the basis of whether thenature of the relationship is continuous or intermittent and
whether a consumer needs to get into a membership relationship with the service organisation to
access and utilise the service.
Table : Services and Customer Relationships
Type of Relationship
Nature of Delivery Membership Non Membership
 Insurance  Police protection
Continuous  Education  Public highway
 Banking
 Theatre seat subscription  Car rental
Discrete  commuter tickets  Pay telephone
 Restaurant

3. How the Service is delivered

Lovelock has used two issues of number of delivery sites (whether single or multiple) and the method
of delivery to classify services in a 2 × 3 matrix. Then implications here are that the convenience of
receiving the service is the lowest when the customer has to come to the service and must use a single
or specific outlets. As his options multiply, the degree of convenience can go on rising, from being
able to choose desirable sites, to getting access at convenient locations.

Service Delivery Modes

Nature of Interaction between Customer Availability of outlets
and Organisation Single site Multiple site
Customer goes to service organisation Theatre Bus Service
Fast Food Chain
Service organisation comes to the customer Lawn care Mail delivery
Pest control Emergency auto –
repair

Customer and organisation transact business Credit cards Telephone company

at arms length Local TV station Broadcasting

4. Proportion of Tangibility and Intangibility

Using the characteristic of intangibility of services, Shostack proposed that all goods and services can
be placed on a tangibility intangibility continuum, with services clustering towards low to high
intangibility. Accordingly, services can be classified as those with a low intangibility content (a fast
food restaurant) and a pure service, having very high intangibility content (Education, consultancy,
Medical advice).

5. Service Inputs
Services based on this criterion have been classified as primarily equipment based or primarily
people based service depending upon which input is primary applied to get service outputs. The
equipment based services can be further classified according to whether they are fully automated, or
consist of equipment monitored by unskilled persons (lift operators, delivery van personnel) or need
the presence of skilled personnel to man the equipment (quality control, diagnostics services).

6. Contact between the Consumer and the Service Provider

Services also differ in the extent of contact that needs to be maintained between the User and
Provider, the marketing implication in this case being the necessity of physical presence of the
provider as well as need to manage desired quality of personnel in case of high contact services.
On this basis all services can be classified as high contact or low contact services, depending upon
the time a user needs to spend with the service organization/provider in order to utilize/acquire the
service. Examples of low contact services are telecommunications, drycleaning and broadcasting
while high contact services are education, hospitality, theatre performance.

7] Professional services: These services require the service provider to be formally trained to deliver
the service. The service rendered by a doctor. A pilot, an IT consultant or a corporate trainer are
examples of professional services.
Non-professional services: These services do not require the service provider to undergo any training
to deliver the service. For example, baby-sitting and housekeeping are examples of non-professional
services and can be delivered without the need for formal training.

8] Classification based on the Business Orientation of Service Provider Services can be

categorized based on the service provider’s purpose of doing business:
Ø Not-for-profit organizations: These are the services in which the main objective of the service
provider is to serve society and not to make profits. For example, government schools and social
service organizations are not in the business to make a profit.
Ø Commercial organizations: These are services in which the main objective of the service provider
is to earn revenues and make profits. Airlines, insurance firms and restaurants charge customers for
the services they offer and attempt to continuously improve their services and profitability.

9] Classification based on customer–employee presence during the service

Bitner,whilst researching the importance of the physical surroundings(the so-called ‘servicescape’) on
customers and employees involved with service provision, has classified service organisations as
● self-service (customer only), e.g. ATM, golf course
● interpersonal services (both customer and employee), e.g. school, drycleaner
● remote service (employee only), e.g. insurance company.
Clearly, in the context of designing servicescapes, (marketing) management need to be clear as to
which of the three classes their organisation fits best. Should the emphasis be on front office or back
office design? In addition to a consideration of physical surroundings, the simple three-way
classification can aid the focus of management activity on either operations efficiency or marketing
effectiveness.

10] By mode of service delivery: in ‘job shop’ services (for example, doctor’s surgery), the
opportunity for employees to show friendliness is normally limited to when the core service is being
delivered (whereas customers may interact with other customers during waiting times). In ‘assembly
line’ services (for example, a car wash business), there are opportunities for employees to offer
programmed personalisation and ‘good cheer’.
In batch processing (for example, an aerobics class), employee friendliness can be directed towards
creating a sense of shared purpose amongst customers.
Other types
Production services, like repairs, maintenance and transportation of goods, growing almost at the
same rate as industry.
Business services, like banking, insurance, advertising, accountancy, finance, market research, credit
cards, oftware, business centres, call centers and information processing, growing at rates faster than
industry.
Consumer services like health care, travel, leisure, beauty, entertainment, information, investments,
education, consultancy and brokerage.
Public administration and defence. Although this is a function of the government, administration is an
important activity within all organisations, manufacturing or otherwise.

MARKETING SERVICES VERSUS PHYSICAL GOODS

The dynamic environment of services today places a premium on effective marketing. Although it's
still very important to run an efficient operation, it no longer guarantees success.The service product
must be tailored to customer needs, priced realistically, distributed through convenient channels, and
actively promoted to customers. New market entrants are positioning their services to appeal to
specific market segments through their pricing, communication efforts, and service delivery, rather
than trying to be all things to all people. But are the marketing skills that have been developed in
manufacturing companies directly transferable to service organizations? The answer is often no,
because marketing management tasks in the service sector tend to differ from those in the
manufacturing sector in several important respects.

BASIC DIFFERENCES BETWEEN GOODS AND SERVICES

Every product—a term used in this book to describe the core output of any type of industry—delivers
benefits to the customers who purchase and use them. Goods can be described as physical objects or
devices and services are actions or performances. Early research into services sought to differentiate
them from goods, focusing particularly on four generic differences, referred to as intangibility,
heterogeneity (or variability), perishability of output, and simultaneity of production and
consumption. Although these characteristics are still cited, they have been criticized for over-
simplifying the realworld environment.
It's important to note that in identifying these differences we're still dealing with generalizations that
do not apply equally to all services. Now, let's examine each of the nine differences in more detail.
Customers Do Not Obtain Ownership Perhaps the key distinction between goods and services lies
in the fact that customers usually derive value from services without obtaining permanent ownership
of any substantial tangible elements. In many instances, service marketers offer customers the
opportunity to rent the use of a physical object like a car or hotel room, or to hire the labor and skills
of people whose expertise ranges from brain surgery to knowing how to check customers into a hotel.
As a product: the core output (either a service or a manufactured good) produced by a firm. goods:
physical objects or devices that provide benefits for customers through ownership or use.
Service Products as Intangible Performances Although services often include tangible elements—
such as sitting in an airline seat, eating a meal, or getting damaged equipment repaired—the service
performance itself is basically an intangible. The benefits of owning and using a manufactured
product come from its physical characteristics (although brand image may convey benefits, too). In
services, the benefits come from the nature of the performance. The notion of service as a
performance that cannot be wrapped up and taken away leads to the use of a theatrical metaphor for
service management, visualizing service delivery as similar to the staging of a play with service
personnel as the actors and customers as the audience.
Some services, such as rentals, include a physical object like a car or a power tool. But marketing a
car rental performance is very different from attempting to market the physical object alone. For
instance, in car rentals, customers usually reserve a particular category of vehicle, rather than a
specific brand and model. Instead of worrying about styling, colors, and upholstery, customers focus
on price, location and appearance of pickup and delivery facilities, extent of insurance coverage,
cleanliness and maintenance of vehicles, provision of free shuttle buses at airports, availability of 24-
hour reservations service, hours when rental locations are staffed, and quality of service provided by
customer- contact personnel. By contrast, the core benefit derived from owning a physical good
normally comes specifically from its tangible elements, even though it may provide intangible
benefits, too. An interesting way to distinguish between goods and services is to place them on a scale
from tangible dominant to intangible dominant (illustrated in Figure 1.4).
Customer Involvement in the Production Process Performing a service involves assembling and
delivering the output of a combination of physical facilities and mental or physical labor. Often,
customers are actively involved in helping create
FIGURE 1.4

the service product, either by serving themselves (as in using a laundromat or ATM) or by cooperating
with service personnel in settings such as hair salons, hotels, colleges, or hospitals. As we "will see in
Chapter 2, services can be categorized according to the extent of contact that the customer has with
the service organization.
People as Part of the Product In high-contact services, customers not only come into contact with
service personnel, but they may also rub shoulders with other customers (literally so, if they ride a bus
or subway during the rush hour).The difference between service businesses often lies in the quality of
employees serving the customers. Similarly, the type of customers who patronize a particular service
business helps to define the nature of the service experience. As such, people become part of the
product in many services. Managing these service encounters—especially those between customers
and service employees—is a challenging task.
Greater Variability in Operational Inputs and Outputs The presence of personnel and other
customers in the operational system makes it difficult to standardize and control variability in both
service inputs and outputs. Manufactured goods can be produced under controlled conditions,
designed to optimize both productivity and quality, and then checked for conformance with quality
standards long before they reach the customer. (Of course, their subsequent use by customers will
vary widely, reflecting customer needs and skills, as well as the nature of the usage occasion.)
However, when services are consumed as they are produced, final "assembly" must take place under
real-time conditions, which may vary from customer to customer and even from one time of the day
to another. As a result, mistakes and shortcomings are both more likely and harder to conceal. These
factors make it difficult for service organizations to improve productivity, control quality, and offer a
consistent product. As a former packaged goods marketer observed some years ago after moving to a
new position at Holiday Inn:
We can't control the quality of our product as well as a Procter and Gamble control engineer on a
production line can. . . . Wlien you buy a box of Tide, you can reasonably be 99 and 44/100ths percent
sure that this stuff will work to get your clothes clean. When you buy a Holiday Inn room, you're sure
at some lesser percentage that it will work to give you a good night's sleep without any hassle, or
people banging on the walls and all the bad things that can happen in a hotel.9
Not all variations in service delivery are necessarily negative. Modern service businesses are
recognizing the value of customizing at least some aspects of the service offering to the needs and
expectations of individual customers. In some fields, like health care, customization is essential.
Harder for Customers to Evaluate Most physical goods tend to be relatively high in "search
attributes ."These are characteristics that a customer can determine prior to purchasing a product, such
as color, style, shape, price, fit, feel, and smell. Other goods and some services, by contrast, may
emphasize "experience attributes" that can only be discerned after purchase or during consumption
(e.g., taste, wearability, ease of handling, quietness, and personal treatment). Finally, there are
"credence attributes"—characteristics that customers find hard to evaluate even after consumption.
Examples include surgery and auto repairs, where the results of the service delivery may not be
readily visible.
No Inventories for Services Because a service is a deed or performance, rather than a tangible item
that the customer keeps, it is "perishable" and cannot be inventoried. Of course, the necessary
facilities, equipment, and labor can be held in readiness to create the service, but these simply
represent productive capacity, not the product itself. Having unused capacity in a service business is
rather like running water into a sink without a stopper. The flow is wasted unless customers (or
possessions requiring service) are present to receive it. When demand exceeds capacity, customers
may be sent away disappointed, since no inventory is available for backup. An important task for
service marketers, therefore, is to find ways of smoothing demand levels to match capacity.
Importance of the Time Factor Many services are delivered in real time. Customers have to be
physically present to receive service from organizations such as airlines, hospitals, haircutters, and
restaurants. There are limits as to how long customers are willing to be kept waiting and service must
be delivered fast enough so that customers do not waste time receiving service. Even when service
takes place in the back office, customers have expectations about how long a particular task should
take to complete—whether it is repairing a machine, completing a research report, cleaning a suit, or
preparing a legal document.Today's customers are increasingly time sensitive and speed is often a key
element in good service.
Different Distribution Channels Unlike manufacturers that require physical distribution channels to
move goods from factory to customers, many service businesses either use electronic channels (as in
broadcasting or electronic funds transfer) or combine the service factory, retail outlet, and point of
consumption at a single location.
In the latter instance, service firms are responsible for managing customer-contact personnel. They
may also have to manage the behavior of customers in the service factory to ensure smoothly running
operations and to avoid situations in which one person's behavior irritates other customers who are
present at the same time.

Inseparability
A service is consumed by the customer as soon as it is delivered by the employee. Thus, production
and consumption occur simultaneously in case of services as opposed to products which are
manufactured, inventoried and then consumed. Services cannot be inventoried and need to be
consumed immediately. Since the delivery and consumption of a service are inseparable, there has to
be interaction between customers and employees ofa service organization.
For example, the interaction between patient and doctor is essential if the patient has to be treated for
an illness. In the case of a hotel, the interaction between server and a customer is essential for the
former to take the order for food and serve it to the customer for consumption. As a result, customers
tend to equate the quality of service offered by the organization with their interaction with its front-
line employees. Therefore,
service organizations should take special care in training and motivating employees. Frontline
employees should be trained to be professional in their approach; courteous in the way they talk to
customers and patient in dealing with queries.
Variability
Services cannot be separated from the service provider. In fact, the production, delivery and
consumption of a service takes place simultaneously in the buyer-seller interactions. This
characteristic of a service creates problems to the marketer, particularly in the case of market
expansion. Wherever the service provider intends to offer services, he should have a service
production unit that offers the same service quality standards.
However, some service organizations are able to reduce direct interactions by introducing new
technologies. For example, banking organizations have introduced the cheque facility, the credit card
facility, tele banking and ATM to minimize direct buyer-seller interactions.
Services are highly variable. It is almost impossible to have the same service from the same seller the
second time. No two customers can have exactly similar service even though they experience it
simultaneously. For example, the experiences of bus travelers vary with the seats they occupy. The
experiences of passengers sitting on the window side, inner side, front rear and rear of the bus will not
be similar, though they take the service simultaneously.
A receptionist of a hotel cannot extend the same kind of smile to the customers during all her working
hours. Service organizations face major problems in standardizing and communicating the service
standards because of this characteristic. While customers look for communication from the company
relating to service standards for arriving at a is necessary. Customization is one of the key strategies
the service firms adopt to ensure efficient and effective participation of customers. Customer
participation is active in services such as medical treatment, hairdressing, health clubs, colleges and
beauty care centres.
No Ownership
Service consumers will have experiences but not ownership. Since the services are intangible and
perishable, the question of ownership doesn’t arise. But this characteristic will add to the problems of
the service marketer. Convincing the customer with tangible goods on which he will have ownership
through transfer of title is much easier than selling an experience where nothing remains after
consumption, except the memory of it.
Customer dissonance (discussed in the last semester course on marketing Management) would be
higher in the case of services than of goods. Due to the above mentioned characteristics of services,
service providers face varied problems and challenges in marketing, when compared to producers of
goods. The marketing challenges and strategic options due to service characteristics are presented in
The strategic options listed in the table forms the essence of strategies practiced by the services
marketers and they will be discussed in detail in due course of this course material.
The characteristics described above distinguish services marketing from goods marketing approach.
The marketing challenges over and above the scope of goods marketing need to be addressed by the
service firms with a different strategic approach. This does not mean that traditional marketing
philosophies, methods and techniques are totally irrelevant to the service sector. In fact, the
fundamentals of marketing which you have studied in the last semester are the same to both the
sectors. What is required is to develop an adaptable mechanism to a different environment, keeping in
view the service characteristics. Thus, services marketing is nothing but application of traditional
marketing philosophies to the service sector with changes required wherever.

SERVICE DESIGN & BLUE PRINTING

Service design is a complex task that requires an understanding of how the core and supplementary
services are combined to create a product offering that meets the needs of target customers. For
physical objects like new buildings or ships, the design is usually captured on architectural drawings
called blueprints (because reproductions have traditionally been printed on special paper where all the
drawings and annotations appear in blue).These blueprints show what the product should look like
and detail the specifications to which it should conform.
In contrast to the physical architecture of a building, ship, or piece of equipment, services have a
largely intangible structure that makes them all the more difficult to plan and execute. However, it is
possible to map service processes by defining the steps required to provide the core and
supplementary product elements. To do this, we borrow process-mapping techniques from logistics,
industrial engineering, decision theory, and computer systems analysis, each of which uses blueprint-
like techniques to describe processes involving flows, sequences, relationships, and dependencies.

Blueprinting can be used to document an existing service or design a new service concept. We
introduced a simpler version of blueprinting known as flowcharting in Chapter 4. But in that case our
focus was limited to front-stage service delivery from the customer's perspective. As you'll see,
blueprinting provides more extensive documentation of the activities involved in producing a service.
To develop a blueprint, you need to be able to identify all of the key activities involved in service
delivery and production, clarify the sequence, and to specify the linkages between these activities.8
Service blueprints clarify the interactions between customers and employees and how these are
supported by additional activities and systems backstage. As a result, they can facilitate the integration
of marketing, operations, and human resource management within a firm. This can be beneficial,
since operationally oriented businesses are sometimes so focused on managing backstage activities
that they neglect to consider the customer's view of front-stage activities. Accounting firms, for
instance, often have elaborately documented procedures and standards for how to conduct an audit
properly, but may lack clear standards for when and how to host a client meeting or how to answer the
telephone when clients call.
By analyzing blueprints, managers are often able to identify potential fail points in the service
delivery process where there's a significant risk of problems that can hurt service quality. Knowledge
of these fail points enables managers to design procedures to avoid their occurrence or implement
effective recovery strategies if necessary. Blueprints can also pinpoint parts of the process where
customers commonly have to wait. Standards can then be developed for these activities that include
times for completion of a task, maximum wait times in between tasks, and scripts to guide interactions
between staff members and customers.
Blueprints of existing services can suggest ideas for product improvements. Managers may spot
opportunities to reconfigure delivery systems add or delete specific elements, or reposition the service
to appeal to other segments. For example, Canadian Pacific Hotels (which operates hotels under
Fairmont and Delta brand names) decided to redesign its hotel services. It had already been successful
with conventions, meetings, and group travel but wanted to build greater brand loyalty among
business travelers. The company blueprinted the entire "guest experience" from pulling up at the hotel
to getting the car keys from the valet. For each encounter, Canadian Pacific defined an expected
service level based on customer feedback and created systems to monitor service performance. It also
redesigned some aspects of its service processes to provide business guests with more personalized
service. The payoff for Canadian Pacific's redesign efforts was a 16-percent increase in its share of
business travelers in a single year.
There's no single "best" way to prepare a service blueprint, but it's helpful to adopt a consistent
approach within a single organization. In this chapter, we adapt and simplify an approach proposed by
Jane Kingman-Brundage.9 If desired, any aspect of a blueprint can subsequently be examined in
greater detail.
Developing a Service Blueprint
To illustrate blueprinting, let's examine the process of dining at Chez Jean, an upscale restaurant that
enhances its core food service with a variety of supplementary services. A typical rule of thumb in
full-service restaurants is that the cost of purchasing the food ingredients represents about 20 to 30
percent of the price of the meal. The balance can be seen as the "fees" that the customer is willing to
pay for supplementary benefits like renting a table and chairs in a pleasant setting, hiring the services
of food preparation experts and their kitchen equipment, and having staff to wait on them both inside
and outside the dining room.
Figure 7.4 (shown on pages 156—159) contains a blueprint of the Chez Jean restaurant experience.
The key components of the blueprint (reading from top to bottom) are:
1. Definition of standards for each front-stage activity (only a few examples are actually specified
here)
2. Physical and other evidence for front-stage activities (specified for all steps)
3. Principal customer actions (illustrated by pictures)
4. Line of interaction
5. Front-stage actions by customer-contact personnel
6. Line of visibility
7. Backstage actions by customer-contact personnel
8. Support processes involving other service personnel
9. Support processes involving information technology
Reading from left to right, the blueprint prescribes the sequence of actions over time. To emphasize
the involvement of human actors in the service delivery process, our blueprint uses pictures to
illustrate each of the 14 principal steps in which our two customers are involved. The process begins
with making a reservation and concludes with departure from the restaurant after the meal. Like many
high-contact services involving discrete transactions, the restaurant experience can be divided into
three "acts," representing activities that take place before the core product is encountered, delivery of
the core product (in this case, the meal), and subsequent activities while still involved with the service
provider.

Act I: Starting the Service Experience

Act I begins with the customer making a reservation—an interaction conducted by telephone with an
unseen employee. In theatrical terms, the telephone conversation might be likened to a radio drama,
with impressions being created by the speed of response, tone of the respondent's voice, and style of
the conversation. Once the customers arrive at the restaurant, the "stage" or servicescape includes
both the exterior and interior of the restaurant. From this point on, front-stage actions take place in a
very
visual environment. Restaurants are often quite theatrical in their use of physical evidence like
furnishings, decor, uniforms, lighting, and table settings; they may also employ background music to
help create an environment that matches their market positioning.
By the time our customers reach their table in the dining room, they have been exposed to several
supplementary services, including reservations, valet parking, coatroom, cocktails, and seating. They
have also seen a sizeable cast of characters, including five or more contact personnel and many other
customers. Standards that are based on a good understanding of guest expectations should be set for
each of these service activities. Below the line of visibility, the blueprint identifies key actions that
should take place to ensure that each front-stage step is performed in a manner that meets or exceeds
customer expectations. These actions include recording reservations, handling customers' coats,
delivery and preparation of food, maintenance of facilities and equipment, training and assignment of
staff for each task, and use of information technology to access, input, store, and transfer relevant
data.
Identifying the Fail Points Running a good restaurant is a complex business and much can go
wrong. The most serious fail points, marked by Q. are those that will result in failure to access or
enjoy the core product.They involve the reservation (Could the customer get through by phone? Was a
table available at the desired time and date? Was the reservation recorded accurately?) and seating
(Was a table available when promised?). Since service delivery takes place over time, there is also the
possibility of delays between specific actions that will cause customers to wait. Points at which there
is a risk of such a wait are identified by a y(^\ Excessive waits at critical steps in delivery can be
classified as fail points, because they will annoy customers and negatively impact perceived service
quality.
Every step in the process has some potential for failures and delays. David Maister coined the term
OTSU ("opportunity to screw up") to highlight the importance of thinking about all the things that
might go wrong in delivering a particular type of service.
10 OTSUs can be very humorous if you're not personally involved. John Cleese made millions laugh
with his portrayal of an inept hotel manager in the television series Fmt'lty Towers. Chevy Chase and
Steve Martin have entertained movie audiences for years by playing customers tortured by inept, rude,
or downright cruel service employees. However, customers don't always see the funny side when the
joke is on them. That's why it is important for service managers to identify all the possible OTSUs
associated with a particular task so they can put together a delivery system that is explicitly designed
to avoid these problems.
Setting Service Standards Through both formal research and on-the-job experience, service
managers can learn the nature of customer expectations at each step in the process. As discussed in
other chapters, customers' expectations range across a spectrum—referred to as the zone of tolerance
—from desired service (an ideal) to a threshold level of merely adequate service. Service providers
should design
standards for each step that are sufficiently high to satisfy and even delight customers. These
standards may include time parameters for specific activities, the script for a technically correct
performance, and prescriptions for appropriate employee style and demeanor.
The initial steps of service delivery are particularly important, since customers' first impressions can
affect their evaluations of quality during later stages of service delivery. Perceptions of their service
experiences tend to be cumulative.11 If things go badly at the outset, customers may simply walk out.
Even if they stay, they may be looking for other things that aren't quite right. On the other hand, if the
first steps go well, their zones of tolerance may increase so that they are more willing to overlook
minor mistakes later in the service performance.
Research by Marriott Hotels has found that four of the five top factors contributing to customer
loyalty come into play during the first 10 minutes of service delivery. While initial impressions are
critical, performance standards should not be allowed to fall off toward the end of service delivery.
Other research findings point to the importance of a strong finish. They suggest that a service
encounter that starts poorly but then increases in quality will be better rated than one that starts well
but declines to a poor conclusion.
Act II: Delivery of the Core Product
In Act II, our customers are finally about to experience the core service they came for. We've
condensed the meal into just four scenes for simplicity's sake. But reviewing the menu and placing the
order are actually two separate activities and meal service typically proceeds on a course-by-course
basis. Assuming all goes well, the two guests will have an excellent meal, nicely served in a pleasant
atmosphere, and perhaps a fine wine to enhance it. But there is always the possibility that the
restaurant won't satisfy customer expectations during Act II. The answers to the following questions
can help managers identify potential fail points: Is the menu information complete? Isit intelligible? Is
everything that's listed on the menu available this evening? Will employees provide explanations and
advice in a friendly and non condescending manner for guests who have questions about specific
menu items or are unsure about which wine to order?
After our customers decide on their meals, they place their order with the server, who must then pass
on the details to personnel in the kitchen, bar, and billing desk. Mistakes in transmitting information
are a frequent cause of quality failures in many organizations. Bad handwriting or unclear verbal
requests can lead to delivery of the wrong items altogether—or of the right items incorrectly prepared.
As Act II continues, our customers evaluate not only the quality of food and drink—the most
important dimension of all—but also how promptly it is served and the style of service. A
disinterested, ingratiating, or overly casual server can still spoil a technically correct performance.
Act III: Concluding the Service Performance
The meal may be over, but much activity is still taking place both front stage and backstage as the
service process moves to its close. The core service has now been delivered, and we'll assume that our
customers are happily digesting it. Act III should be short. The action in each of the remaining scenes
should move smoothly, quickly, and pleasantly, with no shocking surprises at the end. In a North
American environment, most customers' expectations would probably include the following:
>- An accurate, intelligible bill is presented promptly as soon as customers request it.
>- Payment is handled politely and expeditiously (with all major credit cards accepted).
>• Guests are thanked for their patronage and invited to come again.
>- Customers visiting the restrooms find them clean and properly supplied.
»- The right coats are promptly retrieved from the coat room.
>- The customers' car is brought promptly to the door in the same condition as when it was left.
>- The parking lot attendant thanks them again and bids them a good evening.
But how often do failures at the end of a service intervene to ruin the customers' experience and spoil
their good humor? Can you remember situations in which the experience of a nice meal was
completely spoiled by one or more failures in concluding the service delivery? Informal research
among participants in dozens of executive programs has found that the most commonly cited source
of dissatisfaction with restaurants is an inability to get the bill quickly when customers are ready to
leave! This seemingly minor OTSU can sour the overall dining experience even if everything else has
gone well. (For some suggestions on reducing customer waits, see the box, "In and Out Food
Service.")

Reading a Service Blueprint:

Some standards have to be followed in preparing a service blueprint so that there is consistency in
developing and reading it. If no standards are followed, it might be difficult for an organization to
understand a blueprint prepared a few months/years earlier. The various elements discussed in the
above section are separated in a service blue print by three horizontal lines (Refer Figure 3.5). This
notation helps in understanding a blueprint.
Line of interaction: The first horizontal line shows the points of interaction between the service
personnel and the customer. If a vertical line passes through a horizontal line, it shows that a direct
contact between a customer and service provider has taken place.
Line of visibility: The second horizontal line, line of visibility, divides the service processes that are
visible to the customer from those that take place backstage. This line divides the onstage and
backstage employee actions.
Line of internal interaction: The third horizontal line is the line of internal interaction, which divides
the internal processes that assist the service personnel in producing and delivering the service when a
vertical line passes through a horizontal line, it represents an internal service encounter.
Figure 3.5 Simplified Example- Blueprinting a Hotel Visit
These illustrations clearly establish the importance of tangibles or physical evidence in the services
sector. In this part of this unit we will discuss the elements of physical evidence and their significance
for service providers.
Physical Evidence
Physical evidence is everything that a company physically exhibits to the customer. It includes the
physical environment of the service outlet, the exterior, the interior, all tangibles like machinery,
furniture, vehicles, stationery, signboards, communication materials, certificates, receipts, service
personnel, and so on. Physical evidence provides tangible cues to customers to develop service quality
expectations. The physical environment facilitates performance of service by the service provider as
well as the service customers.
1.Service Scape
A service represents the physical environment designed in a service outlet. Research studies have
proved that the design of the service scape influences customer’s choice, expectations, satisfaction,
and other behavior. The nature of the service activity and service consumption experience sought by
consumers will influence the design of a service scape. The basic principle that guides the design is
user friendliness. Therefore, service companies should first identify the users of the service scape.
Based on usage, services scapes can be classified into three types self service, interpersonal service
and remote service.
 Self-service
In a self-service environment, the customer performs most of the activities and very few
employees are involved. ATMs, fast-food centres and movie theatres are examples of self-service
environments. If the service firm is focusing on a self-service environment, it has to attract the
right market segment and offer easy-to-use facilities.
 Interpersonal services
In this type of service scape, both employees and customers will be given adequate importance. In
the case of hospitals, educational institutions and banks, the service scape must be planned to
attract, satisfy and facilitate both employees and customers simultaneously. The service scape
should contribute to social interactions between and among customers and employees.
 Physical environment
 Modes and content of communication
 Price of the service
 Appearance and conduct of service personnel,
 Tangible elements accompanying service
 Brand
 Noise: The noise level ranging from absolute silence to high-decibel sounds will have an
influence on the behavior. Noise may be from inside or outside. If the noise is from inside, but
unavoidable (noise generated in operating machines for service processes), care must be taken to
reduce the effect by using sound-proof material or keeping the customer contact point away
 from the sound generator place. If it is from outside, it is better to avoid such a location or to use
sound-proof material to minimize the disturbance.
 Music: Music is a very powerful stimulator of feelings in human beings. People have different
preferences in music. Some like classical, some like we stern, some like old, and some like new. If
music is arranged, while taking into consideration the preferences of the customer groups,
positive behavior can be expected.
 Smell: People have different likings as far as smell is concerned. A right combination will make
the environment pleasant.

Figure 3.7 Service scape Dimensions

 Space/function
The living space and functional support facilities form an important part of the service scape. The
following are the influencing factors with regard to space/ function on the behavior of employees
and customers;
The quality of the materials used in the construction of physical structures at work, the presence
of certificates and photographs, the floor coverings and architectural values communicate
symbolic meanings and create an aesthetic impression. Signs, symbols and artefacts influence the
forming of the firs impressions of customers. When customers are not familiar with the service
environment, they look for environmental clues for initial help.
The physical environment will have an impact on the behavior of both customers and employees.
Three kinds of internal responses get generated in them.
They are: cognitive responses, emotional responses and physiological responses.
 Cognitive responses are influenced by beliefs, the way in which the individual categorizes the
stimulation and the symbolic meanings he develops for the stimuli.
 Emotional responses are influenced by the mood of the individual and also the attitude he has
developed against the service firm.
 Physiological responses include pain, comfort, movement and physical fitness. The interplay of
these factors finally result in customer response or employee response.
 Social interaction is an important dimension of physical environment. The service scape
influences the nature and quality of customer-employee interactions. Environmental variables
such as physical proximity and seating arrangements have an influence on customer employee
interactions and also customer-customer interactions. Research studies have confirmed that the
environmental conditions will influence such social behaviors as small group interactions,
friendship formation, participation, aggression, withdrawal and helping.
The appearance, behavior and number of service personnel and the quality and quantity of other
customers have a psychological impact on the social behavior of the customers.
Dowell and Gamble described service environment in the following ways:
 An environment surrounds, enfolds and engulfs and one can only participate in it.
 The environment has a definite impact on the senses in more than one way.
 It is impossible to build an environment which does not have any impact.
 Peripheral and central information is always present in the environment.

TECHNOLOGY IN SERVICE ENCOUNTER

Service encounters were viewed as person-to-person interactions. Now, in many contexts, technology
is replacing human providers and either giving customers an option of, or requiring, the use of self
service
technologies. Technology is also being deployed to enhance the performance of the front line
employee in interacting with the customer. In still other cases, technology is allowing introduction of
entirely new service innovations. Across all these situations, the infusion of technology is
dramatically altering the very essence of service encounters formerly anchored in a “low tech, high
touch” paradigm.
The objective of this research is to explore the changing nature of service encounters emanating from
the infusion of technology, with an emphasis on how service encounters can be improved through
technology. We examine the influence of technology on the ability of firms to effectively:
(1) customize service offerings;
(2) recover from service failure; and,
(3) delight customers.
The role of technology infusion is examined as an enabler of both employees and customers in
creating satisfying service encounters across all three of these categories. Examples are featured and
managerial and research implications highlighted.
IMPLEMENTING SUCCESSFUL SELF-SERVICE TECHNOLOGIES
As companies race to introduce technology that enables customers to get service on their own,
managers often find that it is more difficult than it looks to implement and manage effective
selfservice
technologies (SSTs). In this research, we present findings from qualitative interviews and survey
research investigating SSTs from the customer’s point of view. Based on this research and our work
with companies, we present and develop insights around important lessons listed below to guide
managers in developing successful SSTs.
Lesson 1: Be very clear on the strategic purpose of the SST.
Lesson 2: Maintain a Customer Focus.
Lesson 3: Actively promote the use of SSTs.
Lesson 4: Prevent and Manage Failures.
Lesson 5: Offer Choices.
Lesson 6: Be prepared for constant updating and continuous improvement.
Descriptions of technologically based service encounters were collected from over 800 customers.
Results indicate that the determinants of satisfaction or dissatisfaction with SSTs are quite different
from factors that determine satisfaction or dissatisfaction in interpersonal encounters. Satisfactory
encounters result primarily from the customer’s delight at being able to solve an immediate need,
fascination with being able to conduct transactions electronically, or being able to do something more
easily and conveniently. On the other hand, all dissatisfactory encounters resulted from some type of
service failure, either with the technology itself, the design of the technology, the resulting service
process, or occasionally from the customers’ own mistake.
As expected, satisfactory encounters lead to significantly greater occurrence of positive word of
mouth and repeat purchases, and less complaining than dissatisfactory encounters. It was also
determined that customers found certain types of failures (design of the technology or service process)
to be more unforgivable than other more temporary failures such as an out of order SST.
This research examines the issue of employee behaviors and motivation with regard to recommending
a new SST to end customers. Over 300 sales and service employees in dealerships of a major
manufacturer were surveyed to assess their motivation for recommending a new consumer SST that
allows online scheduling of service appointments and tracking of service status by end customers.
Conclusions from the study suggest that:
 Employees who have more positive beliefs & feelings about the new SST will be more likely
to recommend it.
  Employees are more motivated when they feel they are competent to recommend the
technology and when they feel free to decide to recommend it.
 Employee competence and freedom of choice, and thereby motivation and ultimate
recommending behaviors, are increased through:
 Creating a sense of the importance of the strategic SST initiative and buy-in throughout the
organization.
 Increasing management and co-worker support of the SST initiative.
 Having managers clearly expect, or even require, that employees recommend the SST to
customers.
 Training and re-training all managers and employees to use the SST themselves.
 Promoting and advertising the SST internally to employees as well as externally to customers.
An overall conclusion from the study is the need for organizations to implement an internal marketing
and employee roll out plan for new SSTs in addition to the more common customer advertising and
customer roll out plans.

The value of technology in service encounters

To gain competitive advantage in the market, several retail banks have recently started to deploy
biometric technologies in their service encounters. Biometrics is an emerging technology that
authenticates individuals using their unique physical characteristics. While the application of
biometrics is expected to increase security of a certain physical or logical area, this new technology
seems to engender various consumer concerns.
This study aimed to understand consumers' value perception of using biometric technology, in
particular fingerprint recognition technology at ATMs. Following the utilitarian approach to define
consumers' value, perceived benefit and perceived risk were measured as a "get" component and a
"give" component, respectively. The levels of trust in a bank and personal innovativeness were also
measured as constructs that may influence individuals' value judgment of using the new technology.
The perceived benefit and the perceived risk were hypothesized as multi-dimensional constructs and
measured by formative indicators. Specific dimensions of those two molar constructs were determined
based on informal personal interviews as well as reviews of extant literature. To validate the research
model of this study, an empirical study was conducted with an Internet survey. Customers' e-mail
addresses were randomly selected from the database of the bank that deployed fingerprint recognition
technology for its ATMs.