Unit 1: Foundation of Services Marketing

Chapter outline
A. Introduction to services
B. The growth is services – Indian, Global and Reasons for growth
C. Importance of services marketing
D. Nature and characteristics of services
E. 4 Is of services Marketing
F. Classification of services
G. Managing service encounters
H. Sector Overview – Financial Services

A. Introduction to services
Definition

• A service is any act of performance that one party can offer another that is essentially
intangible and does not result in the ownership of anything; its production may or may not be
tied to a physical product – Philip Kotler

• Services are deeds, processes and performances. Here, deeds are actions of the service
providers, processes are the steps in the provision of service and performance is the
customers’ understanding of how the service has been delivered - Zeithaml & Bitner

B. The growth is services – Indian, Global and Reasons for growth

Service Sector in India
The services sector is not only the dominant sector in India’s GDP, but has also attracted significant
foreign investment, has contributed significantly to export and has provided large-scale employment.
India’s services sector covers a wide variety of activities such as trade, hotel and restaurants,
transport, storage and communication, financing, insurance, real estate, business services,
community, social and personal services, and services associated with construction.
Service Sector Globally
Services, with their rising importance in the global economy alongside manufacturing, are becoming
more vital in many countries’ economic growth.

IT took centuries for the world’s economies to shift from agriculture to manufacturing, but the rise of
the services sector is occurring more quickly. The world is in the midst of a radical shift, with the share
of total output—world GDP—accounted for by services experiencing a sharp increase in almost all
countries.1 Indeed, a few countries, such as India and Sri Lanka, have broken the historical convention
by heading straight to services without developing a significant manufacturing sector at all. This
growth in services has likely transformed not only the composition of the world’s economic production
and employment, but potentially global trading patterns over the past few decades.

This is well evident in the chart below that for more than a decade services have been contributing
more than 60% of the world GDP consistently -
Below are some country’s Services contribution to national GDP

• UK – 71.26 % in 2019
• Singapore - The services sector contributes 70.4% of GDP and employed 84.1% of the active
population in 2020 (World Bank, 2020)
 • China – 54% in 2020, and in the same year, contributed to 60 percent of the nation's total
economic growth.
• European Union – 70.7%
• Japan - The service sector accounts for 69.3% of GDP and employs 72.6% of the workforce

Reasons for Growth in India

The following aspects are responsible for growth of services in India –
• Upward trend in disposable income - More disposable income indicates more spending in
services. The real household disposable income has doubled since 1985
• Changing lifestyle – the lifestyles have come to change with more spending attitude as
supposed to more savings in previous generations. The lifestyles have become more outgoing
and concepts like grooming, fashion, convenience have gained importance, thereby increasing
demand for services.
• Increasing specialization – With changing lifestyles the increase in demand for specialized
services has given rise to many service ideas. For instance there are specialized services like
car spa, designer garments, nail spa, priority banking services etc
• Increasing literacy rates – Higher literacy rates indicate more aware consumers, better job
prospects, more demanding customers. In India literacy rates have increased from about 15%
in 1950 to 74% in 2011 and the contribution of services have also increased in the same period
highlighting a directly proportional relationship
• Increase in government activities – Government activities like MGNREGA, Right to education
etc results in better infrastructure and higher disposable incomes.
• Greater life expectancy – Greater life expectancy indicates higher spends on health care apart
from other industries as more life means more usage of services. India has progressed from a
life expectancy of 41.38 years in 1960 to 66.21 years in 2012.
• Changing social patters – With family patterns and social circles changing, the consumption
patterns also changes, thereby increasing the needs for more service products. The traditional
joint family systems are now replaced with Nuclear families, DINKS, Working women, single
child etc.
• Cultural change – Culture is an embodiment of values, knowledge, traditions, habits and
behavior that passes from one generation to other, its not static and in modern times has
become more open minded and inclusive. This leads to celebration of other cultures and there
by increases spending on services. For ex celebration of Diwali, Christmas and Ed by all
communities.
• Increase in new product launches – Companies regularly launch new products to cater to
specific needs and the life products and services are shrinking. Every new service attracts more
people meaning more revenue. Ex – TATA Owned Indian Hotels Company ltd (IHCL) recently
launched Ginger chain in the budget hotels category apart from the existing Taj group that
caters to the luxury segment.
• Technology penetration – more technology penetration enables – smoother functioning of
services, access to larger audience and customer convenience. The booming to e-commerce
has give a push to many services. Internet penetration in India is 16%, 243 million more that
US 207 million, second largest internet base after china (300 mln), 82 mln active fb users, more
than 50% access internet through cell phones
 • Young population – India is set to become the youngest country by 2020, today every 3 Indian
is a youth. Young people being open to more services with a more disposable income are a
boon to the sector.
• Revenue to government – A major role that services play in an economy is to contribute to
Government through taxes. In 2010-11 the government collected Rs 71,390 crs in service tax
that formed 9% of total government revenue.

Conclusion – Services play a pivotal role in a country’s economy, as it is evident in the facts quoted
above. As India is touted to be the next super power, it will have to focus on providing great
infrastructure and support to services. There are steps already taken in this direction, for instance PM
Narendra Modi’s pet project GIFT city in Gujarat is all set to create 10 lakh jobs in the coming years in
the financial services industry.

C. Importance of services marketing

Given the intangibility of services, marketing them becomes a particularly challenging and yet
extremely important task.

1. A Key Differentiator: Due to the increasing homogeneity in product offerings, the attendant
services provided are emerging as a key differentiator in the mind of the consumers. For
Example – In case of two fast food chains serving a similar product (Pizza Hut and Domino’s),
more than the product it is the service quality that distinguishes the two brands from each
other. Hence, marketers can leverage on the service offering to differentiate themselves from
the competition and attract consumers.
2. Importance of Relationships: Relationships are a key factor when it comes to the marketing
of services. Since the product is intangible, a large part of the customers buying decision will
depend on the degree to which he trusts the seller. Hence, the need to listen to the needs of
the customer and fulfil them through the appropriate service offering and build a long lasting
relationship which would lead to repeat sales and positive word of mouth.
3. Customer Retention: Given today’s highly competitive scenario where multiple providers are
vying for a limited pool of customers, retaining customers is even more important than
attracting new ones. Since services are usually generated and consumed at the same time,
they actually involve the customer in service delivery process by taking into consideration his
requirements and feedback. Thus they offer greater scope for customization according to
customer requirements thus offering increased satisfaction leading to higher customer
retention.
4. Relationships are Key: In service marketing, because there is no tangible product,
relationships are key. Service marketers must listen to and understand the needs of customers
and prospective customers to build loyalty and trust. Ultimately, effective relationships in
service marketing will lead to repeat sales and positive word of mouth.
5. Multiple Touchpoints: Service marketing involves many touchpoints for the consumer.
Interactions with multiple people and experiences that are less tangible than when buying an
actual product all impact the consumer’s perspective of the purchase process. These
touchpoints work together to establish a perception in the consumer’s mind.
6. Services Proliferate: Consumers have many service options to choose from, and because the
product is intangible, the challenge for the service marketer is to somehow make her services
stand out from the crowd. Because service marketing is so prolific, marketers must think of
 ways to communicate the benefits of the service they offer in language that reflects consumer
need and value.
7. Feedback Improves Service: Unlike the marketing process for a tangible product, service
marketing actually involves the consumer in the marketing process. He is engaged in the
process and contributes to a positive outcome. For this reason, it is important to seek
consumer feedback and to use that feedback to improve service marketing effectiveness.
8. Technology Impacts: Technology is having a major impact on the service economy. You can
use technology to streamline service activities and provide do-it-yourself options for
consumers. Internet-based services, for instance, allow consumers to participate actively in
the service marketing process, often never involving contact with another human being.
Having a website is important, because people like to get information about service providers
before deciding which one to use.

D. Nature and characteristics of services

E. 4 Is of services Marketing
• Characteristics of services
• Marketing challenges of services
• Goods v/s service marketing
• Distinctive characteristics of services

Though all the principles of marketing goods remain true for services; owning to the unique
characteristics of services there are additional challenges that are inherent. Services posses unique
characteristics as compared to goods, these were largely ignored till the 80’s. But recently it has been
suggested that these are also relevant for goods and the view that all businesses are in the business
of services is being realized.

Myntra.com is an Indian online shopping retailer of fashion and casual lifestyle products,
headquartered in Bangalore, Karnataka. It’s a strong player in the country’s booming ecommerce
industry. It explains how a company can overcome the unique challenges that services posses, Myntra
was recently sold to ecommerce major flipkart for $ 300 mln.

The challenges posed by services can be grouped 4Is -

• Intangibility – is the most basic distinguishing characteristics of services. Services are

performances or actions rather than objects, they cannot be seen, felt, tasted or touched in
the same manner that you can sense tangible goods.

Marketing implications:

― Services cannot be inventoried

― Cannot be easily patented
― Cannot be readily displayed
― Difficult to put a price.

Ex – To reduce this challenge Myntra.com has a feature called Style Studio where the
customers can upload their picture and virtually try the apparels they shortlist.
 • Inconsistency, Heterogeneity – since services are performances and are frequently produced
by humans, no two services will be precisely alike. Heterogeneity in services is largely the
result of human interaction.

Marketing implications:

― Satisfaction depend on the employee and customer actions

― Quality depends on uncontrollable factors
― Delivery depends on actual performance

Ex – Myntra.com has to bear the brunt of this aspect of services as different consumers
perceive the service differently and they post negative reviews about the brand, Myntra tries
to reduce this by recovering genuine service failure and replying to negative comments.

• Inseparability, Simultaneous Production and Consumption – most services are sold first and
then produced and consumed simultaneously.

Marketing implications:

― Customers participates and affect the transactions

― Customers affect each other
― Employees affect the service outcome
― Decentralization may be essential
― Mass production is difficult

Ex – Myntra again faces negative reviews even if the problem was at the customers end, like
they didn’t mention the correct size or not mentioned the address correctly etc.

• Inventory, Perishability - refers to the fact that services cannot be saved, stored, resold, or
returned.

Marketing implications:

― Synchronization of supply and demand is difficult

― Services cannot be returned or resold.

Ex – Myntra regularly comes up with innovative sales promotion techniques to reduce its
inventory, like republic day sales of upto 65% and free shipping etc.

Other Characteristics

Conclusion
These challenges that services provide are also opportunities for companies to create differentiation
and add value, hence a young service company like Myantra was valued at $300 Million and sold to
Flipkart which itself is valued at more than $5 Billion.
F. Classification of services
Do you think classification of services can help in developing the marketing mix? How?

Yes, the classification facilitates better decisions on developing the marketing mix.

Following are the bases on which Services can be classified –

By market segment By degree of tangibility

End customer B2B customer Highly intangible Balanced Highly Tangible
Salon Ad agency Website Restaurant Take away joints

By skill of the service providers By degree of regulation

Limited
Professional Non-Professional Highly Regulated regulation Non-regulated
Doctor Care taking Hospitals Catering House painting

By business orientation By degree of customer contacts

NGO Commercial High contact Low contact
Red Cross Air Asia Colleges Web-sites

• The marketing mix for a business to consumer service like a Dominos will be different from
that of an ad agency which is a B2B modeled service. While developing the marketing mix for
Dominos the marketers will keep more resources in promoting and advertising the product
and communicate with the end consumers using multiple mediums like TV, print and radio.
Whereas for an ad agency promoting will be more to do with networking than advertising on
TV
• In high contact services like Colleges the People mix (consisting of teaching and non-teaching
staff) in the overall marketing mix gains more importance as compared to low contact services
like web-sites where the product per se is gain more weightage

The same is true for all the bases on which services are classified above and go to prove that
classification helps developing an apt marketing mix for services owning to the various combinations
that services come in

G. Managing service encounters

The service encounter is also called the Moment of Truth

From the customer’s point of view, the most vivid impression of service occurs in the service
encounter or “Moment Of Truth,” when the customer interacts with the service firm. This is the
foundation to “Satisfaction of Service Quality” – it is where the promises are kept or broken. This
concept was put forth by Richard Norman, taking the metaphor from Bull Fighting. Most services are
results of social acts, which take place in direct contact between the customer and the service
provider. At this stage the Customer realises the perceived service quality.
Managing service encounter forms an important part of the consumer behavior in services

Understanding consumer behavior lies at the heart of marketing. We need to understand how people
make decisions about buying and what determines their satisfaction after consumption. Without this
understanding no organisation can hope to create and deliver services that will result in satisfied
customers.

The huge success of Big Bazaar and especially its “Sabse Saste Din” sale days is a testimony to the fact
that if consumer behavior is understood success follows.

Service consumption can be divided in 3 stages –

1. Pre-purchase stage – this is the stage where the need for a solution is realized, the problem is felt.
Understanding this stage of consumer decision making process is crucial because it is at this stage the
customer is short listing the brands or solutions they consider best to solve their problem. Brands
should be present at this stage to communicate with its TG.

The following are the characteristics of this stage –

• Customers seek solutions to aroused needs

• Evaluating a service may be difficult
• Uncertainty about outcomes increases perceived risk
• Service providers should implement risk reduction strategies
• They should understanding customers’ service expectations and its components
• This stage ends at the customer making a service purchase decision

Ex – Kishore Biyani and team undertook a detailed research by spending time at chawls in Mumbai
and other parts of the country to understand how their TG arrives on a purchase decision; where they
found that for their TG which were low income people like crowd around when they shop and they
always touch the food grain before packing.

2. Service Encounter Stage – this is moment-of-truth when the customer has decided on the brand
and the encounter with the service provider happens. Although some of these encounters are very
brief, service providers need to design the process keeping in mind customer convenience and to
satisfy them.

The following form the important part of this stage –

• Moments of truth – Importance of managing touch points

• High/low contact – extent and nature of contact points
• Theatre metaphor – ‘staging’ service performances

Ex – following the earlier stage Big Bazaar developed a store process where customers can touch and
feel the food grains; spend as much time selecting the right variety and then pack

3. Post encounter stage – During the post encounter stage the customers evaluate the service
performance they have received and compare it with their prior expectations.

It includes the following –

• Customer satisfaction – whether the customer is satisfied i.e. the service has matched her
expectation or dissatisfied i.e. the actual service performance was below the expectation or
the promise
 • Customer Delight – if the actual service was much better than what was expected or promised,
the customer experiences a delight

Ex – the phenomenal success of Big Bazaar’s ‘sabse saste din’ and the fact that it is still running every
year from the past 7 years proves that it has achieved customer delight.

Conclusion – the success of marketing lies in the satisfaction of customers and that depends on
understanding the customer’s behavior, this becomes more challenging in case of service given its
unique characteristics. But once understood and acted upon the customer end up delighted and the
company profitable. Big Bazaar implemented the super sale day ‘sabse sasta din’ in 2006 purely
based on understanding the shopping emotions of its TG and in its first year itself earned a revenue
of more than 26 crore rupees.

H. Sector Overview – Financial Services, Insurance Services, Banking

Services
* please refer the PDF for this part

H - Financial Services Overview