Services Marketing

MBA, V Trimester, GSIB

Course Instructor
Dr. Subrahmanyam A

UNIT- 1
Introduction
 SERVICES DEFINED
Service is an act or performance that one party can offer to another that is
essentially intangible and does not result in any ownership of anything. Its
production may or may not be tied to physical products.
(Philip Kotler)

A simple definition of services can be explained as follows:

“An activity of set of activities which involve interaction with individuals /
institutions often without a tangible product, or even if a product is involved,
it is only incidental”.

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”.
 SERVICES DEFINED Cont..

• 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, produced by the service provider, in
association with the consumer, its quality results in perception and value
assessment by the consumer.

--Zeithmal VA and Mary Jo Bitner (1996)

 MARKETING OF SERVICES
• The basic question arises why should there be a separate learning on
services marketing?

• Are the marketing concepts and techniques that are developed for the
manufacturing sector not applicable to services?

• Do services required distinctive strategies in marketing?

• The answers to the questions provide the basic platform for an

understanding of services marketing.

• A different marketing approach is necessary for services marketing.

Because services differ from goods in many respect.
Why do we need to study Services Marketing
Leading economic sector of the
countries
Contribution of Agriculture sector
Contribution of Industry sector
Contribution of Service sector
Top 10 Countries by GDP Sector Composition
 GROWTH OF SERVICES SECTOR
• The growth of the service sector is a worldwide trend.

• As mentioned already, many economies became service economies and the others
are following in their steps.

• Growth proportions are so significant that the services account for over 80% and
61% of the GDP of the U.S and India respectively.

• The growth of services is directly linked to the development of the economy.

• The majority of the workforce in all developed countries in the world including UK,
France, Germany, Japan, Canada and so on is engaged in service organizations.
 GROWTH OF SERVICES SECTOR Cont..

• Reasons for growth of Service Sector

The reasons for the growth of the service sector can be broadly categorized
into two. They are:

1. Growth in intermediate demand from firms

2. Growth in final demand from customers

 GROWTH OF SERVICES SECTOR Cont..

1. Intermediates Demand from Firms

• 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 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.
Increasing Specialization
• Technology
• Cost effective
• Expert and professionals
• Development of services, financial, banking
 GROWTH OF SERVICES SECTOR Cont..

2. Final Demand from Customers

Reasons Type of services required

Greater demand for services (activities which consumers used to

1. Increasing affluence perform themselves) such as interior decoration, laundry, care of
household products such as carpets, care of garden etc.

Greater demand for recreation and entertainment facilities, travel

2. More leisure time
resorts, adult education and self-improvement courses

3. Higher percentage of women Greater demand for crèches, baby sitting, household domestic
in labor force help

4. Greater life expectancy Greater demand for nursing homes and health care services

5. Changing Lifestyle Development of corporate culture, Jogging, gym centre, Adapting

western culture: foreign brands, Increasing literacy
 GROWTH OF SERVICES SECTOR Cont..
2. Final Demand from Customers Cont..

Reasons Type of services required

Greater demand for skilled specialists to provide maintenance
6.Greater complexity of products for complex products such as air conditioners, cars, home
computers.

Greater demand for specialists in income-tax, labour laws,

7. Increasing complexity of life
legal affairs, marriage counseling, employment services

8. Greater concern about ecology Greater demand for purchased or leased services, car rental,
and Resource scarcity travel resort to time sharing rather than ownership basis

9. Increasing number of new The computer sparked development of such service industries
products and complexity as programming, repair and time-sharing.

Upward trend in disposable income, Developing country,

10. Other reasons
Liberalization, Job Opportunities
 variety of services.
The term service is rather general in concept and it includes a wide variety of services.

Nature of Service Associated Institutions

1. Utilities Electricity, water supply, gas and fire

2. Business Services Consultancy, finance banking, advertising, insurance

3. Trade services Retailing, maintenance and repairs rentals

4. Infrastructural Services Postal, telecommunications, transportation

clubs, recreation, restaurants, health care, day care

5. Social/personal services
centers
6. Public Administration Education and government

7. Professional services Real estate, laundry, security, tourism

8. Leisure Recreation cinema, theatre, clubs, Gymnasiums, Casinos

“There are no such thing as service industries. There are
only industries whose service components are greater or
less than those of other industries. Everybody is in
service.”

-Theodore Levitt-
 Services Marketing Mix
Services Marketing Mix:7 Ps for Services:-
• Product
• Price
• Place
• Promotion
• People
• Process
• Physical Evidence
 Differences between Physical Goods and Services

Services Goods
• Intangible • Tangible
• Heterogeneous • Homogeneous
• Produced in buyer seller interactions • Produced in the factory.
• Cannot be stored • Can be stored
• Transfer of ownership will not take place • Its possible
• Production, distribution and consumption • Three are separate and independent
take place simultaneously functions
• Performed • Produced
• People based • Technology based
• Supply cannot be easily changed • Supply can be easily changed
• Unique quality control issues • Quality can be controlled easily
• Consumers are co-producers and High • Consumers are not co-producers
customer interaction
 CHARACTERSTICS OF SERVICES
• Services have basically six characteristics that greatly affect the design of
marketing programmes.
They are:
1. Intangibility
2. Inseparability
3. Inconsistency (or) Heterogeneity (or)variability
4. Inventory or Perish ability.
5. Customer Participation
6. Ownership
7. Quality Measurement
8. Nature of Demand
 CHARACTERSTICS OF SERVICES
1. Intangibility
• Services are intangible, means it cannot be seen, tasted, felt, heard or
smelled before purchase.
• The intangibility created a feeling of uncertainty about the outcome of a
service.

Marketing approaches
• This characteristic of the service makes the buyers look for evidence of
quality in the service.
• Intangibility is used in marketing to describe the inability to assess the
value gained from engaging in an activity using any tangible evidence.
• Thus it is right to mention that due to intangibility, the selling and
marketing of services become much more complicated.
Tangibility Spectrum

Source:Shostack, L. G.(1977)
 CHARACTERSTICS OF SERVICES

1. Intangibility Cont..
Examples:
• An airline sells the seat from one destination to another.
• The banking organizations promote the sale of credit cards by visualizing the
conveniences and comforts of the holders of the credit cards are likely to get
from the same.
• a tourist does not know what the exact outcome of experience would be
before consuming the service.
• a woman who purchases services in a beauty parlor for a facial cannot
foresee the exact result.
 CHARACTERSTICS OF SERVICES

2. Inseparability
• Services are produced and consumed simultaneously with customer
involvement in the process.

• Provider-client interactions is a special feature of service marketing.

• In inseparability, key quality of services as distinct from goods

• Examples: A live theatre performance

 CHARACTERSTICS OF SERVICES
2. Inseparability Cont..
Marketing approaches
• This characteristic of a service creates problems to the marketer,
particularly in the case of market expansion.
• Service requires shortest channel of distribution i.e., direct selling.
• However, some service organizations are able to reduce direct interactions
by introducing new technologies.

Example: Credit card facility, telebanking and ATM to minimize direct buyer
seller interactions.
• There are some services which can be sold by a representative of the
main service producer
Example: travel agent insurance broker,
but at the final point of service delivery, the creator-seller presence is
unavoidable.
 CHARACTERSTICS OF SERVICES

3. Inconsistency (or) Heterogeneity (or) variability

• The inconsistency occurs largely because of Different service providers
perform a given service on different occasion.
• The service will also vary according to the degree to which customers or
clients are involved in the production of the service.
For examples:
• The performance of an artist in a theatre is not of same standard in each
performance
• The front office manager of a hotel does not provide same quality of the
service to each customer he deals.
• A car servicing varies each time
• Mc Donald’s consumables maybe standardized but a weekday or a
weekend maybe different.
 CHARACTERSTICS OF SERVICES
3. Inconsistency Cont..
Marketing approaches
• In order to provide consistent services the companies should pay special
attention to a product planning stage of their marketing programmes.
• Companies which are highly equipment based or less people based are
able to produce inconsistency in services.
For example : Automatic car wash facilities, ATM s are providing consistent
services.
• The existence of inconsistency problem is more in services than products
and it is impossible to standardize service industry output.
 CHARACTERSTICS OF SERVICES

4. Perishability
• Services perish. They cannot be stored.

• Thus, a train that leaves a railway station half full means that the service
of the empty half remains unused. An unutilized service capacity cannot
be sued further.

• When the demand is stable, perishability cannot be a problem to the

service organization.

• But service firms face many problems when demand fluctuates.

 CHARACTERSTICS OF SERVICES
4. Inventory or Perishability Cont..
Marketing approaches
• The major challenge to these firms is to balance the supply-demand
positions.
• Thus, demand management is one of the major tasks for the
service firms.

Examples.
• A tax consultant who is available only nine to five
• Empty seats in a stadium
• In a bank hours when tellers are idle
 CHARACTERSTICS OF SERVICES
5. Customer Participation
Service production is not a one sided activity. Customers are co-producers
of service.
• The production quality of the service greatly depends upon the ability,
skill and performance of the employee as well as the ability and
performance of the customer.
 CHARACTERSTICS OF SERVICES

5. Customer Participation Cont..

Marketing approaches
• Service firms should make the customers aware of the service package
and the production process through proper communication media.
• They should take necessary steps to train customers, if necessary, to
provide quality experience of the service.
• Customization is one of the key strategies the service firms adopt to
ensure efficient and effective participation of customers.
• Customer participation is active in service such as medical treatment, hair
dressing, health clubs, colleges and beauty care centers
 CHARACTERSTICS OF SERVICES
6. No Ownership
• Service customers 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.
• Customer dissonance would be higher in the case of services than of
goods.
 CHARACTERSTICS OF SERVICES
7. Quality Measurement
• A service sector requires another tool for measurement.
• We can measure it in terms of service level.
• It is very difficult to rate or quantify services.

Example:
• We can quantify the food served in a hotel but the way waiter serves the
customer or the behaviour of the staff, timely delivery , hygiene etc.
cannot be ignored while rating the total process.
• Thus the firm sells good atmosphere, convenience of customers,
consistent quality of services, etc.
 CHARACTERSTICS OF SERVICES
8. Nature of Demand
• The services are fluctuating in nature.
• The demand of services can be abnormal, sudden seasonal, situational &
dependent.
• Therefore, while identifying the salient features of services one cannot
ignore the nature of demand.

Example:
• Service quality level deteriorates during peak hours in hotels,
transportation etc.
• E-Retailers offering huge discounts on festive occasions
• A marketer should effectively utilize the capacity without deteriorating the
quality to meet the demand.
 Characteristics of Services
• When Michelle goes to her local restaurant , she sometimes gets her food
fast and hot. Other times her order is slow, and her food arrives at her
table cold. If Michelle wants a special order, like her burger with a baked
potato instead of fries, she never knows how long she’ll have to wait for
her food. Michelle is experiencing the service characteristic of ?

• Intangibility
• Inseparability
• Variability
• Perish ability
 Classification Of Services
• Service can be classified in several ways. Various authors have tried to
classify services on the basis of different features /aspects such as the
market segments, tangibility factor, skill type etc. They are enlisted below.

• Market segment
• Degree of tangibility
• Skills of the service provider
• Goals of the service provider
• Degree of regulation
• Degree of labor intensiveness
• Degree of customer contact
 Classification Of Services
1. Market Segment
• To end consumers such as the hair salon and beauty services, coaching
classes and car wash services and

• To organizational customers such as management consulting, repair and

maintenance services for machines and legal services.
 Classification Of Services
2. Degree Of Tangibility

• Rental Goods (Hotel Room, Car etc.)

• Owned Goods (T.V Repair etc.)

• Non –Good (College education )

 Classification Of Services
3. Skills of the Service Provider
• Professional (Legal, Medical, management etc. )

• Non professional (Taxi, security, shoe shining, laundry,

cleaning services etc.)
 Classification Of Services
4. Goals Of The Service Provider
• Profit (Airlines, Hôtels , Insurance etc)

• Non-profit (Indian Postal Service, NGO, Public libraries,

Religious Places etc.)
 Classification Of Services
5. Degree Of Regulation

• High Regulation
(Airlines, Railways, and Roadways etc.)

• Limited Regulation
(Hospitality sector)

• Absent Regulation
( Barber and Beauty Service,
Personal services, etc.)
 Classification Of Services
6. Degree Of Labor Intensiveness and People based Services
Services can be equipment based or people based.

• Complete automated services (ATMs , Coffee Vending Machines etc.)

• Unskilled Operators (Movie theatre , Dry cleaning etc)

• Skilled operator (Airlines, Crane machines, Railways etc.)

• Professionals (Lawyer ,Doctor ,Management consultant , HR Consultant etc.)

 Classification Of Services
7. Degree Of Customer Contact

Service is categorized on the basis of customer contact

• High Contact- Where customer spends time, days, week, month, year like
education and hospitality services

• Low Contact –Low contact service is one which the contact with service
system ranges from few minutes to some hours like appliance repair
service, postal services etc.
SERVICE AS A PROCESS
 Transformation Process

transformed
resources
1.Materials
2.Information
3.Customers
Output
Input
Input Resources
Transformation Process products/ Customers
services

1. Facilities
2. Staff
transforming
resources
 SERVICE AS A PROCESS
• Service processes range from relatively simple to complex activities.
Categorizing service processes
• A process implies taking an input and transforming it into output.
• Two broad categories of things get processed in services; people and
objects.
• In many cases, ranging from passenger transportation to education,
customer themselves are the principal input to the service process.

• By looking at service processes form a purely operational perspective, we

see that they can be categorized into four broad groups.

Four way classification scheme based on

• Tangible actions to people bodies or physical possessions and

• Intangible actions to people’s minds of their intangible assets.

 SERVICE AS A PROCESS Cont..
• Each of these four categories involves fundamentally different forms of
processes, with vital implications for marketing, operations, and human
resource mangers.

the categories are

1. People processing,

2. Possession processing,

3. Mental stimulus processing, and

4. Information processing.
 SERVICE AS A PROCESS Cont..

1. People processing:
Involves tangible actions to people’s bodies.

• Customers need to be physically present throughout service delivery, to

receive the desired benefits of such services.

• Customers are integral part of process

• They must spend time interacting & co-operating with service providers
 SERVICE AS A PROCESS Cont..

2. Possession processing:
includes tangible actions to goods and other physical possessions belonging
to the customer.
• Providing treatment to possession. Customers less physically involved.
• Customer’s involvement – to drop item that needs treatment,
requesting the service, explaining problem & later picking it up & paying
the bill.
• If object to be processed is difficult to move then “service factory”
comes to customer
 SERVICE AS A PROCESS Cont..

3. Mental stimulus processing:

refers to intangible actions directed at people’s minds.

• These services interact with the customer’s minds which has the power
to shape their attitude & behaviour.

• Core content is information

• Customers may not physically present, but mentally connected with

information presented.
 SERVICE AS A PROCESS Cont..

4. Information processing
intangible actions directed at a customer’s intangible assets.
• In this category, little direct involvement with the customer may be
needed once the request for service has been initiated, and even that can
be undertaken remotely by mail, phone, or Internet.
• Information is most intangible but can be made tangible by letters,
reports, books.
• Financial & professional services are strong examples of collection &
processing of information
 SERVICE AS A PROCESS
Who or What is the Direct Recipient of the Service
Nature of the People
service Act
Tangible 1. People Processing
Actions (Services directed at people’s bodies);
Passenger transportation; Lodging;
Health care; Beauty salons;
Physical therapy; Fitness center;
Restaurant/ bars; Barbers;
Funeral services
Intangible 3. Mental stimulus Processing
Actions (Service directed at People’s minds):
Advertising; Broadcasting cable;
Arts and entertainment;
Management consulting; Education;
Information services;
Music concerts; Psychotherapy etc.,
Cont..
Possessions
2. Possession Processing
(Services directed at physical
possessions).
Air-freight; lawn mowing; cleaning
services; Car repairing etc.,
4. Information processing
(Services directed at intangible assets):
Accounting; Banking; Data transmission;
Data processing; Insurance; Legal
services; Programming; Research;
Software consulting etc.,
 Consumer Behavior in Services

• How consumers seek, choose, purchase, experience and evaluate services

• Consumer Decision Making:
The Three-Stage Model of Service Consumption

Pre-purchase Stage

Service Encounter Stage

Post-purchase Stage
 Consumer Behavior in Services

1. Pre-purchase Stage
• The decision to buy and use a service is made in the pre purchase stage.

Awareness of Need
1. Pre-purchase Stage
Information Search
2. Service Encounter Stage
Evaluation of Alternatives
3. Post-purchase Stage
 Consumer Behavior in Services
1. Pre-purchase Stage
• Seek solution to aroused needs
• A service purchase is triggered by an
Awareness of Need
underlying need (need arousal)
• Needs may be due to:
Information Search
 People’s unconscious minds (e.g., aspirations)
 Physical conditions (e.g., chronic back pain)
Evaluation of Alternatives
 External sources (e.g., marketing activities)
• When a need is recognized, people are
likely take action to resolve it
 Consumer Behavior in Services
1. Pre-purchase Stage • When a need is recognized, people will search
for solutions.
• Information may be collected from
Awareness of Need • Internal sources (evoked set): customer from
his memory, related to his previous experience
of buying of services.
Information Search • External sources:
• Personal sources- Family, neighbour,
Friends etc.
Evaluation of Alternatives
• Non-personal sources- Advertising,
Dealers, Television, Newspapers, radio etc.

Or
 Consumer Behavior in Services
Service Attributes
1. Pre-purchase Stage • The ‘Search’, ‘Experience’ and ‘Credence’
are some of the factors which create
Awareness of Need difference between service and goods.
• Search attribute-

Information Search

Evaluation of Alternatives
• Experience attribute-

• Credence attribute-
 Consumer Behavior in Services
How product characteristics affect ease of evaluation
 Consumer Behavior in Services
Perceived risks in purchasing and using services
• Perceived risk is relevant for services – that are difficult to evaluate
before purchase and consumption
• First time users – more uncertain
Examples: Type of Perceived Risks
• Functional (Unsatisfactory performance outcomes)
• Financial (monetary loss, unexpected costs)
• Temporal (wasting time, consequences of delays)
• Physical (Personal injury or damage to possessions)
• Psychological (Personal fears and emotions)
• Social (How others think and react)
• Sensory (Unwanted effects on any of the five senses)
 Consumer Behavior in Services

How do customers handle perceived risks?

• Seek info from personal/family sources (family, friends, peers)
• Rely on firm that has good reputation
• Guarantees and warrantees
• Visit service facilities or trying aspect of services before purchasing
• Ask knowledgeable employees about competing services
• Examine tangible cues or physical evidence
• Use internet for competitor service offerings and to search for
independent review and ratings
 Consumer Behavior in Services

Risk reduction strategies developed by suppliers

• Offer performance warrantees
• Money back guarantee
• Prospective customers can preview service through brochures/web/tv
• Encourage prospects to visit service facilities
• Institute visible safety procedures
• Train staff to be respectful and empathetic in their dealings with
customers
• Provide toll free no/website
• Deliver messages to cell phone (delayed flights by airlines)
• Giving customers online tracker to track order status
 Consumer Behavior in Services

Understanding Customers service expectations

• Customers evaluate service quality by comparing what is
expected with what they receive from supplier

• If expectations are met/exceeded, remain loyal to that

supplier

• Pre experience also plays an important part

• Service expectations change over time influenced by advt,

pricing, new tech, service innovations, social trends,
increased access to info through various media
 Consumer Behavior in Services

Possible Levels of Customer Expectations

 Consumer Behavior in Services
Components of service expectations
• Desired service: Type of service which customers hope to receive
 ‘Wished for level”: - a combination of what customers believe can and should
be delivered in the context of personal needs
 A blend of what customers believes “can be” and “should be”

• Adequate service: Minimum level of service which customers will accept

without being dissatisfied.
 Customers are realistic- they have threshold level of expectations
 Eg. fast food service restaurant vs an expensive gourmet meal restaurant

• Predicted service: The level of service which customers actually

anticipate receiving
 Directly affects how they define adequate service at that level
 Customer prediction will be situation specific
 Eg. long queues for tickets for amusement park on a holiday
 Consumer Behavior in Services

Components of service expectations

• Zone of tolerance: The extent to which customers are willing to accept
the variation is called as zone of tolerance

• The range of service within which customers don’t pay explicit attention
to service performance. When service falls outside this range customers
either react positively/negatively

• Too low performance: frustration and dissatisfaction amongst customers,

exceeding performance : pleases and delights customers

• Size of ZOT will be large or small

• Diff customers possess diff zones of tolerance

 Consumer Behavior in Services

Factors influencing Customers expectation about

service
 Consumer Behavior in Services
The Three-Stage Model of Service
Consumption
Service Encounter Stage
1.Pre-purchase Stage
• A service encounter is a period of time
during which you as a customer interact
2.Service Encounter Stage directly with the service provider.
• It begins with submitting an application,
requesting a reservation, or placing an
3.Post-purchase Stage
order.
 Consumer Behavior in Services
Service Encounter Stage
• High Contact Service • Low Contact Service
• Customer’s exposure takes on a • Little, if any physical contact
physical and tangible nature between customer and service
• Eg. Hotels, Restaurants, provider
Healthcare, public • Ex. Telephone based service
transportation etc delivery etc.
 Consumer Behavior in Services
Service Encounter Stage
Levels of customer contact with service organizations
 Consumer Behavior in Services
The Servuction Model (Pierre Eiglier and Eric Langeard)
• Conceptualized service business as a system that integrated marketing,
operations and customers themselves
• It consists of a technical core invisible to customer and the service delivery
system visible to and experienced by the customer

The Servuction Model

 Consumer Behavior in Services
Role and script theories
• Servuction model- static and describes a single service encounter or
moment of truth
• Service processes – series of encounters Eg flight booking, travel, arrival,
retrieving luggage etc
• Knowledge of role and script theories- helps us to understand, design,
manage both customer and employee behaviour in these encounters
 Consumer Behavior in Services
Role
• A set of behaviour patterns learned through experience and communication,
to be performed by an individual in a certain social interaction in order to
attain maximum effectiveness in goal accomplishment

• As combination of social cues or expectations that guide behaviour in specific

setting or context

• In service encounters both employees and customers have roles to play

• The satisfaction or productivity depends on extent to which each person acts

out his/her prescribed role during a service encounter

• Employees must perform their roles wrf customer expectations or else

dissatisfy/lose customers

• Customers must also play by rules or risk problems to firm/employees and

other customers
 Consumer Behavior in Services
Scripts
• Specifies the sequences of behaviour that employees and customers are
expected to learn and follow during service delivery
• Employees receive formal training
• Customers learn scripts through experience, education and communication.
More experience- more familiarity with the script
• Unwillingness to learn a new script may be a barrier to switch to competition
• Any deviation- employee and customer dissatisfaction
• If company decides to change service script (technology), customers and
employees should be educated about the new approach and benefits it
provides
• highly structured and flexible scripts
Consumer Behavior in Services
Script for a dental exam
 Consumer Behavior in Services
The Three-Stage Model of Service
Consumption

1.Pre-purchase Stage
The post encounter stage
• Customers have certain service standards in
mind before consumption (their
2.Service Encounter Stage expectations), observe service performance,
compare it to standards, and then form
satisfaction judgments based on this
3.Post-purchase Stage
comparison
• Negative disconfirmation- if service is worse than expected
(redesign service)

• Positive disconfirmation- if it is better than expected and simple

confirmation if it is as expected

• If substantial positive disconfirmation, plus an element of pleasure

and surprise- customer is likely to be delighted
 Consumer Behavior in Services
Why is satisfaction so important to service managers?
• Links between customer satisfaction and corporate
performance
• On average 1 % increase in customer satisfaction is associated
with a 2.37% increase in a firm’s return on investment (ROI)
• a 5% change in the ACSI score is associated with a 19% change
in the market value of common equity
Good service is good business

End of UNIT 1