UNIT - IV

SERVICES MARKETING
Definition: “A service is an act of performance that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. Its production may or may not be tied to a
physical product.”- PHILIP KOTLER
Ex.: Include banking, hotel services, airline travel, retail, wireless communication, and home repair
services.
CHARACTERISTICS OF SERVICES
A company must consider four special service characteristics when designing marketing
programs:

Intangibility:
Services intangibility means that services cannot be seen, tasted, felt, heard or smelled before they
are bought.
Ex: People undergoing cosmetic surgery cannot see the result before the purchase. Airline
passengers have nothing but a ticket and the promise that they and their luggage will arrive safely
at the intended destination. To reduce uncertainty, buyers look for “signals” of service quality.
They draw conclusions about quality from the place, people, price, equipment and communications
that they can see. The service provider’s task is to make the service tangible in more ways and to
send the right signals about quality. This is called as evidence management, in which the service
organization presents its customers with organized, honest evidence of its capabilities.
Inseparability/Immediacy:
Services are marked by two kinds of inseparability:
a. Inseparability of production and consumption.
b. Inseparability of the service from the person who possesses the skill and performs the service.
Services are produced and consumed simultaneously. If a person renders the service, then the
provider is part of the service. Because the client is also present as the service is produced,
provider-client interaction is a special feature of services marketing. Both provider and client affect
the outcome.
Variability/Individuality/Heterogeneity:
Services are also marked by Variability/Individuality/Heterogeneity. This is because of three
reasons:
a. The inseparability of the service from the provider leads to some variability; variability
automatically enters the picture, depending on the person performing the service.
b. Services are highly people intensive. Services are often categorized on the basis of the type of
people who provide them- like unskilled services, skilled services and complete professional
services.
c. In services, the effect varies dependent on when and where the service is provided.
Ex.: some hotels—say, Marriott—have reputations for providing better service than others. Still,
within a given Marriott hotel, one registration-counter employee may be cheerful and efficient,
whereas another standing just a few feet away may be unpleasant and slow. Even the quality of a
single Marriott employee’s service varies according to his or her energy and frame of mind at the
time of each customer encounter.
Perishability:
Services cannot be stored. There are no inventories in the case of a service. It is because if its
perishability that, often a client is billed even if he does not avail of the service after having booked
it.
Ex: Airlines charge passengers who fail to ‘show up’ at the time of flight departure.
Public transportation companies have to own much more equipment because of rush-hour demand
than if demand were even throughout the day. Hotels and resorts charge lower prices in the off-
season to attract more guests. And restaurants hire part-time employees to serve during peak
periods.
TYPES OF SERVICES MARKETING

Internal marketing: means that the service firm must orient and motivate its customer-contact
employees and supporting service people to work as a team to provide customer satisfaction.
Marketers must get everyone in the organization to be customer centered. In fact, internal
marketing must precede external marketing. For Ex, Four Seasons Hotels and Resorts starts by
hiring the right people and carefully orienting and inspiring them to give unparalleled customer
service.
Interactive marketing: Training service employees in the fine art of interacting with customers
to satisfy their needs. Ex: Four Seasons selects only people with an innate “passion to serve” and
instructs them carefully in the fine art of interacting with customers to satisfy their every need. All
new hires complete a three-month training regimen, including improvisation exercises to help them
improve their customer interaction skills.
External marketing: describes the normal work of preparing, pricing, distributing and promoting
the service to customers.

ICICI securities- Example of service company achieving marketing excellence:

ICICI securities- a subsidiary of ICICI Bank that offers a wide range of services, including
investment banking, institutional broking, retail broking, private wealth management and financial
product distribution- enables over 2 million Indians to access the capital market through
ICICIdirect.com, an award winning and pioneering online broking platform.

The website allows trading of a wide range of products- equity, derivatives, mutual funds, life
insurance, loans, general insurance, IPOs, currency, fixed deposits- through the internet or on
mobile phones.

ICICI conducts training programs in over 240 of its stores across the country to empower retail
investors to take informed decisions on their investments through the ICICIdirect Learning Center.
DIFFERENCE BETWEEN GOODS AND SERVICES

STRATEGIES FOR SERVICES MARKETING

Services marketing strategies are about ensuring that organizations are in position to handle the
costs and risks associated with their service portfolios, and are set-up not just for operational
effectiveness but for distinctive performance. Strategies for overcoming ( intangibility,
perishability, inseparability and variability) challenges are as follows:
1. Strategies for dealing with intangibility:
Intangibility prevents the consumer from having the benefit of the touch, see and feel factor.
Service marketer can tackle these problems by:
a. Highlight the benefits: He can use statistics/facts and figures about his service for convincing
customers. He can specifically highlight factors like reliability, performance, safety and customer
care, quoting facts and figures about his service as well as that of his competitors.
b. Develop a tangible representation of the intangible service: The service marketer can also
develop a tangible representation of the intangible service and play-it up.
Ex: Credit cards. All credit cards have two identifiable features. One is a physical entity and second
is the brand name. In its card, Amex uses colours of gold/platinum, colours that depict richness
and prestige. Thereby, it introduces and element of tangibility.
c. Associate the service with certain easily perceived objects and ideas:Often intangibility of
the service hampers customer understanding of the concept of the service.
Ex: The case of package tours. Here, the marketer can enlarge customer’s understanding of the
service by providing them with detailed information about the hotels where they will be
accommodated and the food, transport facilities, etc., which will be given to them on the tours.
d. Use well known and credible personalities in promotion:Service marketers can also bring in
a tangible element by using well-known personalities in promotion. They can also develop a good
reputation of the service over a period of time and use the reputation for promoting the service.
Over a period of time, reputation may become a tangible element in the perception of the
customers.
e. Focus of the tangible and visible aspects:The service marketers can also use the visualization
to tackle the inherent intangibility. In his communication, he can show relevant visuals that will
give the consumers a good picture of the high satisfaction derived by those who have tried the
service.
f. Focus of the product component: Most services are made up of a product component and a
service component. The product component will obviously be tangible. The marketer can
overcome the intangibility of the service to some extent by drawing attention to the product
component.
g. Manage the evidence emanating from the service:Service consumers will be looking for some
signal or evidence regarding the quality of the service. The service provider can manage the
intangibility by managing the evidence.
2. Strategies for dealing with heterogeneity of service:
Sometimes called “variability”, services quality and consistency are subject to great heterogeneity
because they are delivered by people. Some of the ways this can be overcome are:
a. Selection of personnel: While selecting his people, a service marketer should place more
emphasis on attitude than knowledge/intelligence. While knowledge can be imparted through
training, attitude cannot be imparted in the same measure through training.
b. Motivation of personnel: It involves two aspects here. First, customer satisfaction is heavily
dependent on employees. Second, every employee of the enterprise is involved in generating
customer satisfaction. In service situation, there is no scope for a quality control department.
Quality has to be controlled by motivating and training the employee who perform the service.
c. Training of personnel: The extent of behavioral training can vary, depending on whether the
employee is in a high contact situation, or a low contact situation with customers.
Ex: In the case of the restaurant, even when the fault lies with the cook it is the waiter who faces
the customer’s anger. Employees in service business need good communication skills. Attitude is
indeed the prime thing.
d. Automation: Another way is to go for large-scale automation in the service transaction process.
Automation will bring consistency in the service delivery and transactions.
Ex: Banks are going in a big way for ATMs (Automated Teller Machines). Hotels, airports,
railway stations have got touch-screen enquiry systems.
3. Strategies for dealing with inseparability of service:
The production of the services can’t be separated from its consumption. There are ways to
overcome inseparability:
a. Training of internal customers:The service provider with the help of his organization should
take extra quality effort to train other service providers, as trainees under an expert.
b. Adoption and innovation of other methods of service:Psychiatrists have innovated with the
concept of group therapy to achieve their treatment goals. With group therapy, the psychiatrists
see many patients simultaneously by design and the methods seem to delivering results.
Organizations like Alcoholics anonymous and drug rehabilitation centers are successfully using
this technique.
c. Video conferencing: Service expert giving instructions through video and satellite
conferencing. Expert opinions in medical and legal matters are sought and received through
video and satellite equipment.
d. Robotics: Many intricate surgeries are now carried-out with the help of robots.
4. Strategies for dealing with inventory of service:
The inventory factor prevents a service marketer from storing his offers. The service marketer
suffers from lost opportunities. But there are ways and means to overcome the inventory factor
as:
a.Over-marketing: A service marketer targets for more customers than he has the capacity to
serve. If there are drop-puts and cancellations, the actual number of customers is the same as
servicing capacity. Then the service marketer does not suffer from any opportunity loss.
b. Managing demand:Accurate demand management would aid estimation and forecasting which
would in turn help to avoid perishability.
c. Managing supply:Supply problems in respect of goods occur in those services that are highly
tangible like retailing, car rentals, restaurants, tourism, hotels, pubs, etc. If certain merchandise is
not available when a customer asks for it, the service marketer forever loses that revenue.
d. Organize internal customers: The internal customers are employees, channel partners, etc., A
retail bank during peak hours might shut-down a few non-urgent desks and concentrate only on
essential services.
FIVE PRODUCT LEVELS

In planning its market offering, the marketer needs to address five product levels (see Figure).
Each level adds more customer value, and the five constitute a customer-value hierarchy.
The fundamental level is the core benefit: the service or benefit the customer is really buying. A
hotel guest is buying rest and sleep. The purchaser of a drill is buying holes. Marketers must see
themselves as benefit providers.
At the second level, the marketer must turn the core benefit into a basic product. Thus a hotel
room includes a bed, bathroom, towels, desk, dresser, and closet.
At the third level, the marketer prepares an expected product, a set of attributes and conditions
buyers normally expect when they purchase this product. Hotel guests minimally expect a clean
bed, fresh towels, working lamps, and a relative degree of quiet.
At the fourth level, the marketer prepares an augmented product that exceeds customer
expectations. In developed countries, brand positioning and competition take place at this level. In
developing and emerging markets such as India and Brazil, however, competition takes place
mostly at the expected product level.
At the fifth level stands the potential product, which encompasses all the possible augmentations
and transformations the product or offering might undergo in the future. Here is where companies
search for new ways to satisfy customers and distinguish their offering.
PRODUCT CLASSIFICATIONS
Marketers classify products on the basis of durability, tangibility, and use (consumer or
industrial).
Durability And Tangibility: Products fall into three groups according to durability and
tangibility:
1. Nondurable goods:are tangible goods normally consumed in one or a few uses, such as soft
drinks and shampoo. Because these goods are purchased frequently, the appropriate strategy is to
make them available in many locations, charge only a small markup, and advertise heavily to
induce trial and build preference.
2. Durable goods: are tangible goods that normally survive many uses: refrigerators, machine
tools, and clothing. Durable products normally require more personal selling and service,
command a higher margin, and require more seller guarantees.
3.Services are intangible, inseparable, variable, and perishable products that normally
require more quality control, supplier credibility, and adaptability. Examples include haircuts,
legal advice, and appliance repairs.
CONSUMER-GOODS CLASSIFICATION
When we classify the vast array of consumer goods on the basis of shopping habits, we distinguish
among convenience, shopping, specialty, and unsought goods.
The consumer usually purchases convenience goods frequently, immediately, and with minimal
effort. Examples include soft drinks, soaps, and newspapers.
 Staplesare convenience goods consumers’purchase on a regular basis. A buyer might
routinely purchase Colgate toothpaste, Mysore Sandalwood soap and Britannia Marie
biscuits.
 Impulse goodsare purchased without any planning or search effort, likecandy bars and
magazines.
 Emergency goodsare purchased when a need is urgent—umbrellas duringa rainstorm,
boots and shawls during the first winter snow.
 Manufacturers of impulse and emergency goods will place them where consumers are
likely to experience an urge or compelling need to purchase.
 Shopping goods are those the consumer characteristically compares on such bases as
suitability, quality, price, and style. Examples include furniture, clothing, and major
appliances.
 Homogeneous shopping goodsare similar in quality but different enough in price to justify
shopping comparisons.
 Heterogeneous shopping goodsdiffer in product features and services that may be more
important than price.
 The seller of heterogeneous shopping goods carries a wide assortment to satisfy individual
tastes and trains salespeople to inform and advise customers.
 Specialty goods have unique characteristics or brand identification for which enough
buyers is willing to make a special purchasing effort. Examples include cars, stereo
components, and men’s suits. A Mercedes is a specialty good because interested buyers
will travel far to buy one.
 Unsought goods are those the consumer does not know about or normally think of buying,
such as smoke detectors. Classic examples of known but unsought goods are life insurance,
cemetery plots, encyclopedias and reference books. Unsought goods require advertising
and personal-selling support.
 INDUSTRIAL-GOODS CLASSIFICATION:
 We classify industrial goods in terms of their relative cost and how they enter the
production process: materials and parts, capital items, and supplies and business services.
1. Materials and parts:are goods that enter the manufacturer’s product completely. They
fall into two classes: raw materials, and manufactured materials and parts.
 Raw materialsfall into two major groups: farm products (wheat, cotton, livestock, fruits,
and vegetables) and natural products (fish, lumber, crude petroleum, iron ore).
 Manufactured materialsand partsfall into two categories: component materials (iron,
yarn, cement, and wires) and component parts (small motors, tires, castings).
 Component materialsare usuallyfabricated further—pig iron is made into steel, and yarn
is woven into cloth.
 Component partsenter the finished product with no further change in form, as when
small motorsare put into vacuum cleaners, and tires are put on automobiles.
2. Capital items: are long-lasting goods that facilitate developing or managing the
finished product. They include two groups: installations and equipment. Installations
consist of buildings (factories,offices) and heavy equipment (generators, drill presses,
mainframe computers, elevators).
3. Supplies and business services:are short-term goods and services that facilitate
developing or managing the finished product. Supplies are of two kinds:maintenance
and repair items (paint, nails, and brooms) and operating supplies (lubricants, coal,
writing paper, pencils).
COMPETITOR ANALYSIS

Competition in business is the effort of two or more parties acting independently to secure the
business of a third party by offering the most favorable terms.
Competitor analysis in marketing is an assessment of the strengths and weakness of current and
potential competitors.
Types of competition and related strategies:
Bergen and Petrel suggest that competitors should be mapped against two criteria as shown in
the dig:
✓ Market commonality: The degree to which competitors are competing in
common markets. This is termed as market commonality.
✓ Resource similarity: Competitors should be mapped to the degree they are
similar in and their strengths in serving the needs of the defined market. This is
termed as resource similarity.
Bergen and Petrel’s model of identification of competitors:
Overall competition may fall into three major levels as:
1. Immediate/Direct competition.
2. Related/Indirect competition.
3. Unrelated/Budgeted competition.
1. Immediate/Direct competition:
It is the degree to which they are competing in common markets. The most narrow form is direct
competition (also called as category or immediate competition), where brands which perform the
same function compete against each other.
Ex: One brand of detergent say Tide competes with several other brands of detergent say Rin,
Surf, Henko, etc.
Marketing strategy adopted- Cost leadership:
When the competitive advantage of a firm lies in a lower cost of products or services relative to
what the competitors have to offer, it is termed as cost leadership. The firm outperforms its
competitors by offering products or services at a lower cost than they can. Cost leadership offers
a margin of flexibility to the firm to lower price if the competition becomes stiff and yet earn more
or less the same level of profit.
Conditions under which cost-leadership is used:
The markets for the products/service operate in such a way that price-based competition is
vigorous making cost an important factor. The buyers may be numerous and possess a significant
bargaining power. There is less customer loyalty and the cost of switching from one seller to
another is low.
2. Related/Indirect Competition:
Brands which are close substitutes for one another compete.
Ex: Tata Tea Gold competes with Nescafe Coffee.
Marketing strategy adopted- Differentiation:
When the competitive advantage of a firm lies in special features incorporated into the
product/service, which are demanded by the customers who are willing to pay for those, then the
strategy adopted is differentiation business strategy.
Conditions under which differentiation is used:
1. The market is too large to be catered by few firms offering a standardized product.
2. The customer needs and preferences are too diversified to be satisfied by a
standardized product.
3. It is possible for the firm to charge a premium price for differentiation that is valued by
the customer.
4. If brand loyalty is possible to generate and sustain.
5. There is ample scope for increasing sales for the product on the basis of differentiated
features.
3. Unrelated/Budgeted competition:
Included in this category is anything on which the consumer might want to spend their available
money.
Ex: A family which has 20k available may choose to spend it on many different brands, which
can all be seen as competing with each other.
Marketing strategy adopted-Focus strategy:
Focused strategies essentially rely on either cost leadership or differentiation but cater to a
narrow segment of the total market. They are niche strategies.
A focuser’s basis for competitive advantage is either lower costs than competitors in serving the
market niche or ability to offer niche members something they perceive is better suited to their
own unique tastes and preferences.
Conditions under which focus strategies are used:
1. There is some type of uniqueness in the segment, which could either be
geographical, demographical or based on lifestyle.
2. There are specialized requirements for using the products.
3. The niche market is big enough to be profitable for the focused firm.
4. The focusing firm has the necessary skill and expertise to serve the niche
segment.
PORTER’S MODEL FOR COMPETITOR’S ANALYSIS
Michael E.Porter has identified five forces that determine the intrinsic long-term attractiveness of
a market or a specific market segment. They are:
• Industry competitors.
• Potential entrants.
• Substitutes.
• Buyers.
• Suppliers.
Industry competitors: This is manifested through intense segment rivalry. A segment is
unattractive if it is already full of many strong, aggressive competitors. This could lead to frequent
price wars, advertising wars, new product introduction, and will make it costly to compete. The
mobile phone market is a good example for fierce competition due to segment rivalry.
Potential Entrants: Entry and exit barriers affect a segment’s attractiveness. The most attractive
segment is one in which entry barriers are high and exit barriers are low. Few firms can enter the
industry and poor-performance firms can easily exit. Profit potential is high when both entry and
exit barriers are high, but firms face more risk because poorer-performing firmsstay in and fight it
out. When both entry and exit barriers, are low, firms easily enter and leave the industry, and the
returns are stable and low.
Substitutes: A segment is unattractive when there are actual or potential substitutes for the
product. Substitutes place a limit on prices and on profits. The company will have to monitor price
trends closely. If technology advances or competition increases in these substitutes industries,
prices and profits in the segment are likely to fall.
Buyers: If buyers possess strong or growing bargaining power, that segment will be unattractive.
The rise of retail giant like Reliance, Wal-Mart and Tesco has prompted some experts to conclude
that the potential profitability of packaged good companies will be curtailed. Buyer’s bargaining
power grows when they become more organized or concentrated, when the product represents a
significant fraction of the buyer’s switching costs are low, when buyers are sensitive because of
low profits, or when buyers can integrate upstream.
Suppliers: If the company’s suppliers are capable of raising prices or reducing quantity supplied,
such segments are unattractive. For ex, oil companies like Shell, Exxon Mobil are at the mercy of
the amount of oil reserves and actions of oil supplying cartels like OPEC. Suppliers tend to be
powerful when they are organized or concentrated, when there are few substitutes, when the
supplied product is an important in part, when the costs switching suppliers are high, and when the
suppliers can integrate downstream. The best defenses are to build win-win relations with suppliers
or use multiple supply sources.
ANALYZING COMPETITORS
Meeting customer’s needs better than a competitor, possibly at a lower cost is critical to a product’s
success in the market. For this, the company should have a strong focus on analyzing and
understanding competitor’s marketing strategies and capabilities.
Competitor analysis covers six important areas of interest:
✓ Who are the major competitors?
✓ How do the competing products/services stack up against each other?
✓ What are the major objectives of the major competitor products?
✓ What is the current strategy being employed to achieves the objectives?
✓ Who has the competitive edge?
Designing competitive strategies:
Competing companies are assumed to play different roles in a target market- Leaders, Challengers,
Followers and Nichers.
• Market Leaders:It involves finding ways to expand total market demand,
protecting the current market share through defensive and offensive actions and
increasing the market share even if the market size remains constant.
✓ Expanding the market- bringing in new customers through market penetration strategy,
entering new market segments and geographical expansion strategy.
✓ Defending market share-Continuous innovation through developing new products and
customer services, distribution effectiveness and cost cutting. Increases competitive
strength and customer value.
✓ Expanding market share-Improves the profitability of the leader.
• Market Challengers: Gain ground or even overtake the leader. The challenger has
to decide whom to attack. Five attack strategies for the market challenger:
✓ Frontal attack:The attacker matches its opponent’s product, price, advertising and
distribution.
✓ Flank attack:Enemy’s weak points are spotted.
✓ Encirclement attack: Attempts to capture a wide slice of the enemy’s territory through
launching a grand offensive on several fronts.
 ✓ Bypass attack:Involves bypassing the enemy and attacking easier markets to broaden
one’s resource base, like diversifying into unrelated products, into new geographical
market segments and adopting new technologies.
✓ Guerrilla attack:It consists of waging small, intermittent attacks to harass and demoralize
the opponent and eventually securing permanent footholds.
• Market Followers: Many firms prefer to follow rather than challenge the leader.
✓ They offer similar products to buyers often imitating the leader.
✓ Counterfeit products are offered by some who sell them as the leader’s product.
✓ Imitators copy the product of the leader but maintain some differentiation.
✓ Adapters take the leader’s product and adapt or improve them.
• Market Nichers: An alternative to being a follower in a large market is to be a
leader in a small market or niche.
✓ Nichers have three alternative strategies- creating niches, expanding niches and protecting
niches.
✓ The key to nichemanship is specialization.
✓ They develop market offerings to fully meet a certain group of customer’s needs,
commanding a premium price in the process.
COMPETITIVE ADVANTAGE

Competitive advantage is a company’s ability to perform in one or more ways that

competitors cannot or will not match- Philip Kotler.
It is basically a position of superiority by a company in relation to its competition in any of the
activities performed.
Competitive advantage can be gained through superior production, marketing and excellent
product, good corporate image, etc.
CORE COMPETENCE

Core competence can be defined as "a harmonized combination of multiple resources and skills
that distinguish a firm in the marketplace“.

Core competencies fulfill three criteria:

➢ Provides potential access to a wide variety of markets.
➢ Should make a significant contribution to the perceived customer benefits of the end
product.
➢ Difficult to imitate by competitors.
For example, a company's core competencies may include precision mechanics, fine
optics, and micro-electronics. These help it build cameras, but may also be useful in making
other products that require these competencies.
 Strategic marketing mix components

Marketing mix is the combination of the product, the distribution system, the price structure and
the promotional activities. They are probably known as 4Ps of marketing mix.
 Product: The management must, first decide the products to be produced, by knowing the
needs of the consumers. The product mix combines the physical product, product services,
brand and package. The marketing authority has to decide the quality, type of goods or
services, which are offered for sale. A firm may offer a single product or several product.
 Price: The marked or announced amount of money asked from the buyer is known as basic
price-value placed on a product. Many factors like demand for a product, cost involved,
consumer’s ability to pay, prices charged by competitors for similar products, government
restrictions etc. have to be kept in mind while fixing the price.
 Place: Place refers to having the right product, in the right location, at the right time to be
purchased by consumers. This placement is done through middle people called the channel
of distribution. This is comprised of interdependent manufacturers, wholesalers and
retailers.
 Promotion: It refers to a process of informing, persuading and influencing a consumer to
make choice of the product to be bought. Firms undertake promotion work- advertising,
sales promotion, publicity, personal selling etc., which are the major activities. Promotion
is the persuasive communication about the products by the manufacturer to the public.
7Ps of marketing mix for services:

1. Product: Marketers have identified three levels in developing the product element of
the marketing mix as far as services are concerned. The ‘core’ level aims to satisfy
important needs of the customer while the ‘tangible’ level manages the appearance of the
product. The ‘augmented’ level involves the addition of supplementary services to the basic
offering.
 Ex: The core service of a restaurant is to serve good food to the customers while the
secondary service includes providing them with good ambience.
2. Pricing: Services can be differentiated based on their price, as a higher price is generally
associated with better quality. Another factor, is the cost involved. The fixed cost is high
and the variable costs are low for a service, when compared to a product. Another factor
depends on the demand for the service.
3. Place: In services, place relates to the ease involved in accessing a service. It includes,
a. The physical location of the service provider’s outlet. Banks, are striving to provide
ATMS to their customers at all important locations to improve accessibility to their
services.
b. The physical appearance and ambience of the place of service offering.
 c. The decision to use particular types of intermediaries to offer easy accessibility to the
customers. Ex: the decision of a service provider to sell holiday packages either directly or
through tour operators to the customers.
4. Promotion: Promotion can be achieved by encouraging and promoting positive word-
of-mouth publicity, developing strong brands, offering a trial use of service for the
customers and finally, by managing advertising and public relations effectively to clearly
communicate the message to the customers.
5. People: Most services are dependent on people to deliver them successfully.
6. Process: Process is the way of undertaking transaction, supplying information and
providing services on a way, which is acceptable to the consumer and effective to the
organization.
7. Physical evidence: It 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, service personnel etc.
ONLINE BUYER BEHAVIOUR
Online shopping behaviour (also called online buying behavior and internet shopping / buying
behaviour) refers the process of purchasing products or services via the internet.

Online shopping became popular in the mid-1990s with the popularization of the world wide web
(www).

Online shopping (sometimes known as e-tail from "electronic retail" or e-shopping) is a form of
electronic commerce which allows consumers to directly buy goods or services from a seller over
the Internet using a web browser.

Features of Online buying:

 Assortment can be unlimited.
 Items are not on hold.
 A consumer cannot touch or feel the product.

 Better information makes the consumer a better shopper.

 Internet makes it easier to do comparison shopping and to compare prices from different
sellers.

TYPES OF ONLINE BUYERS

1. Directed information seekers: These users will be looking for product, market or
leisure information such as details of their football club’s fixtures. They are not typically
planning to buy online.
2. Undirected information seekers: They are referred to as ‘surfers’ who would like to
browse and change sites by following hyperlinks.

3. Directed buyers: These buyers are online to purchase specific products online.
4. The Bargain Shopper:
Customer Behaviour: The Bargain hunting shoppers use comparison shopping tools extensively. Sporting
no brand loyalty, these shoppers are just looking for the lowest price. Retailers must convince these
shoppers that they are getting the best price and do not need continue searching online for a better deal.
Sale-priced items listed on the site, or made available through an operator, are very attractive to these
shoppers.
Ex: Jet2.com If the dates of flight travelers are flexible, the ability to view the cheapest flights over the
month is very useful for finding the best combination of flight dates and prices.
5. The Surgical Shopper:
Customer Behavior: The surgical shoppers know exactly what they want before logging online and only
purchase that item. Typically they know the criteria on which they will base their decision, seek information
to match against that criteria and purchase when they are confident they have found exactly the right
product. Product configurators and archived opinions are essential to persuade surgical shoppers that what
they found is what they need. These shoppers also benefit quick access to insights from other shoppers
experiences and real time customer service from knowledgeable operators.
Ex: House of fraser (british department store), provides options for filtering, sorting, and viewing results in
different formats. The filtering options are open in such a way that it is easy for users to switch back to the
search results.
6. Enthusiast shopper:
They use shopping as a form of recreation. They purchase frequently and are the most adventurous
shoppers. It is important to cater to the fun loving character of them. To fuel their enjoyment, website should
offer them engaging tools to view the merchandise personalized product recommendations and community
applications such as, bulletin boards and customer feedback pages.
Ex: www.burberry.com (british luxury fashion house)
7. The power shopper:
They shop out of necessity. They develop sophisticated shopping strategies to find what they want. Sites
that have excellent navigation tools and offer lots of information on the available products. Customer
experiences expert opinions and customer service are attractive to power shoppers. They want instant access
to information and support and expect highly relevant product recommendations that match their criteria.
Ex: kiddicare was one of the first to use customer reviews as a filtering option which was very useful.
 Situational Influences and Online Shopping
a. Why consumers shop online

i. Convenience: What could be easier than shopping from your own home (or on the go
with a smartphone) anytime you want?

ii. Communication: Instantly correspond with other consumers, sellers and company
representatives to easily gather information about a purchase.

iii. Choice: Consumers can rapidly search through multiple stores from all over the globe
instantly. Consumers can also easily research a company/product capabilities and
popularity.

iv. Cost: Consumers feel empowered when they can shop around at such a fast speed, they
can make more informed purchasing decisions especially when it comes to prices.
Companies need to make sure they are offering prices comparable to their competitors,
because customers will figure it out and not purchase from them!

v. Customization: Another positive aspect of the Internet is the ability for the customer to
purchase a product exactly how they want it; and the company avoids paying inventory
storage costs and overhead for a retail location since the products are made and then
shipped directly to the customer. Dell Computers turned their small operation into a multi-
million dollar company on this marketing idea.

vi. Control: Customers seem to have more control over quantity, size, style, color, price
and the type of vendor that they purchase from when using the Internet. Purchases for
second-hand products can be made on e-bay, creating a whole new genre of stores.

b. The 7 C’s of Driving Website Commerce

i. Context: A website’s layout, visual design and use of colors, white space, graphics and
information have to all create a theme that makes sense for the company and products.

ii. Commerce: A website’s ability to allow customers to make purchases safely, and also
to make returns.

iii. Connection: Links to other websites. The amount of links depends on the company and
the products.

iv. Communication: A website can allow communication between the company and the
consumer, some sites use live chat capabilities, others use a message board or email.
v. Context: A websites use of text, fonts, sounds, music, video demonstrations to convey
a theme or help convince customers to purchase.

vi. Community: Some websites will allow customers to talk to each other via message
boards or leave comments about products.

vii. Customization: A website can be customizable by the customer and tailor itself to
different users. Amazon.com makes personal recommendations based on past purchases.
Some gaming websites will allow the user to choose to see information on only the games
they own.

Segments Influencing e-shopping behaviour

 KEY FACTORS INFLUENCING ONLINE CONSUMER BEHAVIOUR

The FFF Model of Online Consumer Behavior:

In 2012, two management professors Ujwala Dange and Vinay Kimar from Priyadarshini
Engineering College and S. B. Patil Institute of Management respectively proposed a
model for online customer behaviour.

The FFF model takes into consideration internal and external factors affecting consumer
buying behaviour. It then proceeds to discuss various filtering elements customers will
apply to make a selection of a store to purchase from and revised filtered buying
behaviour based on their final selection.

MODEL REPRESENTING CUSTOMER JOURNEY TO PURCHASE

1. Factors: Starting from left, the first element Kimar and Dange identified are factors that
motivate customers to buy products or services online. They divided them into two
categories: external and internal.

The external factors are the ones beyond the control of the customers. They can divide into
five sectors: Demographics, socio-economics, technology and public policy; culture; sub-
culture; reference groups; and marketing.
Internal factors are personal traits or behaviours and include attitudes, learning, perception,
motivation, self image, and semiotics.

Based on such factors customer develops what Jagdish Sheth, defined as two distinct types
of buying motives: functional and non-functional. The functional motives relate to
consumer needs and could include things like time, convenience of shopping online, price,
the environment of shopping place (i.e. couch buying), selection of products etc. The non-
functional motives relate more to the culture or social values like the brand of the store or
product for instance.

2. Filtering Elements: Kimar and Dange recognized security, privacy and trust as three
hurdles to online purchases. Customers use these three factors to filter their buying choices
and decide on the final selection of stores they are willing to buy from. In other words, if
your store doesn’t pass your customers’ security, privacy and trustworthiness criteria, they
won’t buy from you. Even if you are cheaper.

Compared to traditional brick and mortar shops, online shopping carries more risk during
the purchase process. Customers recognize online as a high level risk purchase and have
become aware of what might happen with their data online. They use that knowledge now
to filter their purchase options by 3 factors:

Security It’s an unfortunate characteristics of the internet that information there could be
easily lost or stolen. Your payment details or personal information could easily be retrieved
from a database it is stored in by the shop for instance, as we have seen recently with few
major security breaches. Customers are growing more aware of the dangers of stolen data
from the web. And they filter their purchasing alternatives against security criteria.

Privacy Another type of risk online is having personal information handed over to or stolen
by 3rd party companies to send unsolicited emails and spam to customers. Even though the
results of privacy breaches may not be as severe as losing your financial data, it can still
cause a great deal of frustration and diminish trust in stores. A lack of trust in a store’s
privacy policies is a serious obstacle for many customers. Similarly, many customers look
for reassurance that their data will be protected and not handed over to any 3rd parties for
further use in marketing.

Trust and Trustworthiness Online trust is essential in building any relationship with
customers. There seems to be however a diminishing trust in online merchants. This is
especially true when it comes to smaller, niche stores. Customers focus on Amazon and
other giants, shops with big brands behind them and don’t apply the same level of trust to
a smaller shop. So if you run a store selling bike storage for instance, you should work hard
to build a high level trust among your customers to be picked up for the order.

3. Filtered Buying Behaviour: The last element of the model covers what authors call the
filtered buying behaviours, a set of expectations and motives revised by the filters

CUSTOMER SATISFACTION:
Customer satisfaction is a measure of how products and services supplied by a company meet or
surpass customer expectation. One commonly used measure of customer satisfaction is the ‘gap
model’. The gap model is defined by the following equation:

Customer satisfaction=Delivery-Expectations.

Delivery refers to the customer’s perception of the actual delivery of the product or service.
Expectations refer to the customer’s expectations about that product or service. Thus customer
satisfaction is the difference or “gap”, between what the consumer expected and what he or she
received.
BUILDING CUSTOMER SATISFACTION:

In the present scenario of competition companies can build the required customer satisfaction by:
1. Incorporating good business practices:
These practices are constructed around stakeholders, business process, resource and organization.
To ensure maximum value, companies need to develop business processes, which understand and
fulfill customer expectations. This can be achieved by aligning cross functional teams across
critical processes. Companies need to understand its core competencies and develop them, thereby
successfully managing its resources. Organizational structure, design and policies have to be
suitable to facilitate the introduction of total customer satisfaction culture.
2. Creating and delivering value:
Company itself can be considered as a value chain consisting of primary and secondary activities.
Primary activities consist of inbound materials, operation, delivering finished products,
sales/marketing and servicing clients. Secondary activities consist of functional departments like
technology department, procurement department, human resource and finance department. This
value created is delivered to customer through the distribution channel under the principle of
supply chain management.
3. Customer relationship management:
The art of retaining customers along with attracting new customers can be achieved through
customer relationship management (CRM). In CRM the task is to develop strong consumer based
brand equity, which is done by converting first time buyer to repeat buyer to a client to a member
to advocates and finally to partners. During these courses, companies can look forward to offering
financial benefits in terms of discount for frequent buyers or also by association with a social
cause.
TOOLS FOR BUILDING CUSTOMER SATISFACTION:

 Enhanced customer communications approach include:

 Providing customer feedback forms.
 Asking about customer needs in general when customers call with problems.
 Training call-center staff to handle disputes uniformly and constructively.
 Responding directly to customer feedback.
 Demonstrating how the company listens to its customers.
 Encouraging a service culture throughout the organization.
 Companies also employ a wide variety of tactics to directly encourage customer loyalty
through promotions or special treatment.
Examples:
 Creating a point system that offers rewards once a customer accumulates a certain number
of points.
 Offering discount or free-product coupons.
 Running contests in which customers may win prizes by entering a drawing.
 Offering lifetime service guarantees.

MEASURING CUSTOMER SATISFACTION:

Several tools available to listen to the customer are:

1. Comment card: It is a cheap method. A card is enclosed with the warranty card and packed
along with the product, during sales. The card collects information on name, address, age,
gender, occupation and the factor that influenced customer’s decision to buy the product, etc.
These cards are very common in hospitality industry.
2. Customer questionnaire: It is a familiar method to get opinions and perceptions on the
organization and its product and service. It is time consuming and costly. Many surveys seek
the customer’s response on ‘one to five’ scale grading. A well-structured question elicits a
better answer.
3. Focus group: This method is very expensive. A group of customers is gathered in a meeting,
and a series of questions are answered. In this method current, as well as, proposed products
and services are included. The structured questions probe into the participants ideas,
perceptions etc. Ex: A fast food company found that consumers preferred low energy foods
during weekdays and energy rich dishes on weekends.
4. Toll free telephone numbers: This method is most effective for obtaining complaints and
feedback. Response can be faster and cheap.
5. Visits to customer’s place of business: The organization can proactively monitor the
performance of the product, which is being used on the spot. This enables them to identify
any of the specific or recurring problems.
6. Report card: The data are examined to locate the areas of improvement.
7. Mass customization: It is a way of providing variety at affordable cost. It is made possible by
flexible manufacturing technology, just-in-time systems and cycle-time reduction. Computers
 are assembled according to customer’s requirements by adding or subtracting components
built on one of several base systems.
8. Customer satisfaction index: The American Customer Satisfaction Index (ACSI), established
in 1994 as a joint project between the University of Michigan and the American Society for
Quality, quantifies quality and customer satisfaction and relates them to firm’s financial
performance. The index is based on findings from telephone interviews from a national sample
of about 50,000 households. Survey participants are selected on the basis of having recently
bought or used a company’s product.

CUSTOMER ACQUISITION
Customer acquisition is used to identify the processes and procedures used to locate, qualify and
ultimately secure the business of new customers.

PROCESS OF ACQUISITION:

The acquisition process constitutes the following stages.

1. Enquiry: In the enquiry stage, the prospective buyer undertakes a detailed enquiry with regard
to several aspects pertaining to the organization, product, nature of transaction, and all other related
aspects.
2. Interaction: Having stored the information he passes on to the interaction stage, where the
customer interacts with the organization and obtains additional information, clarifies, and ensures
already collected information.
3. Exchange: Terms of exchange, mode of delivery and other things related to exchange are settled
at the exchange stage.
4. Coordination and adoption: Further coordinated effort on either side would lead the customers
moving to adoption of the product or service concerned, and that completes the acquisition process.

STRATEGIES FOR CUSTOMER ACQUISITION:

1. Focused approach: The organization operates in a market condition consisting of people who
can be categorized from the organization service or product point-of-view are as follows:
a. Knowers: This set of people just knows the existence of the product or service without any
specific preference for those products.
b. Preferers: This set of people prefers to have the product or service, but have not acted on their
preference.
c. Indifferent: This set of people is indifferent towards the organization’s offering.
d. Rejecters: This set of people mentally rejects the organization’s offerings and are far away from
the acquisition process.
The organization should have a detailed database containing the above classification of the market
and related details, which would help to make the approach of acquisition effective.
2. Providing a Win-Win platform: It is necessary to develop and provide a win-win platform
applicable both to the prospective customers and to the organization concerned. This would induce
easy customer acquisition because of the benefits the customers might anticipate.
3. Initiate forum for communication: Communication plays a vital role in the acquisition
process. Communication has to be open and interactive in nature. This would enable prospective
customers to come closer to the organization.
4. Attempt to minimize ‘FUD’: The organization must effectively plan to minimize Fear,
Uncertainty and Doubts (FUD) that might occur in the minds of customers during the course of
acquisition.
5. Projection of benefits and not products: The critical success factor, leading to customer
acquisition, is the benefits that the organization provides to the customers. Customers do not buy
products or services per se. They are interested in the core or the augmented benefits that product
or service might generate. If the benefits promised by the organization correspond to their
expectation, then the customers can be easily acquired.
6. Contextual application: The efforts towards acquisition are to be directed in tune with specific
role the prospective customer plays in a given context. The organization should gather those details
in relation to who influences, decides, buys, uses and what so on.
7. Focus on decision process: The organization for the purpose of acquisition, must focus
attention on the purchase decision process and the influences on the process. Each of the stages is
influenced by several internal and external factors. The internal factors include learning motives,
perception, self-image, attitude etc.,. The external factors include culture, society, religion, family
lifestyle, income level etc.,
8. Attention on adoption process: Generally, a very less percentage of the total number of
customers would initially join in the adoption process at the introduction stage of the product. Such
initial adopters are called innovators who are followed subsequently by early adopters, early
majority, later majority and finally the laggards.

RETAINING CUSTOMER
Customer retention is the process when customers continue to buy products and services
within a determine time period.
Levels of retention strategies:
 Leonard Berry and A. Parasuraman have formulated a framework for retaining and
building relationship with customers.
 It suggests that relationship marketing can occur at different levels and each level of
strategy results to ties that bind customers:

Level 1: Financial Bonds:

At level 1, the customer is tied to the firm primarily through financial incentives, lower price for
greater volume purchases or lower price for customers who have been with the firm for long time.
Ex: McDonald’s, as a smart way to attract customers and cross-sell high –margin and low-margin
items to maintain profits and increase sales. They have successfully created a number of value
pack meals, each of which meets the needs of a different customer segment.
Level 2: Social bonds:
Customers are viewed as clients rather than mere customers. Services are customized to fit
individual needs, and the marketers find ways of sticking to the customers, thereby developing
social bonds with them. Social, interpersonal bonds are common among professional providers.
Ex: Lawyers, accountants.
Interpersonal bonds are also common in business-to-business relationships where customers
develop relationships with salespeople and/or relationship managers working with their firms.
Level 3: Customization bonds:
Two commonly used terms, mass customization and customer intimacy, fit within the
customization bonds approach. Mass customization has been defined as the use of flexible
processes and organizational structures to produce varied and often individually customized
products and services at the price of standardized mass-produced alternatives. Customer intimacy
is a commitment to deliver a higher level of service to every customer across all channels, product
lines and geographies. Customer intimacy means knowing a customer’s habits and wants and
delivering on, or even anticipating, their needs.
Level 4: Structural bonds:
These are created by providing services to the client that are frequently designed into the service
delivery system for the client. These are created by providing customized services to the client that
are technology based and make the customer more productive.

CRM - CUSTOMER RELATIONSHIP MANAGEMENT

is the process of carefully managing detailed information about individual customers and all
customer “touch points” to maximize loyalty.

A customer touch point is any occasion on which a customer encounters the brand and product—
from actual experience to personal or mass communications to casual observation.

For a hotel, the touch points include reservations, check-in and checkout, frequent-stay
programs, room service, business services, exercise facilities, laundry service, restaurants, and
bars.

CRM enables companies to provide excellent real-time customer service through the effective
use of individual account information. Based on what they know about each valued customer,
companies can customize market offerings, services, programs, messages, and media.

CRM is important because a major driver of company profitability is the aggregate value of the
company’s customer base.

Types of CRM
1. Operational CRM: generally refers to products and services that allow an organization to
take care of their customers. It provides support for various business processes, which can
include sales, marketing and service. Contact centers, data aggregation systems and web sites are
a few examples.

2. Analytical CRM: addresses the analysis of customer data for a host of different purposes. In
general it is used to design and execute targeted marketing campaigns that optimize marketing
effectiveness. Analytical CRM takes into account product and service decision making, pricing
and new product development.

3. Collaborative CRM: is communication with customers and covers direct interaction with
customers including feedback and issue reporting. Interaction can take place through web pages,
email, Automated Voice Response. Collaborative CRM greatly improves on services offered.

Framework
Don Peppers and Martha Rogers outline a four-step framework for one-to-one marketing that can
be adapted to CRM marketing as follows:

1. Identify your prospects and customers. Don’t go after everyone. Build, maintain, and mine a
rich customer database with information from all the channels and customer touch points.

2. Differentiate customers in terms of (1) their needs and (2) their value to your company.
Spend proportionately more effort on the most valuable customers (MVCs).Apply activity-based
costing and calculate customer lifetime value. Estimate net present value of all future profits
from purchases, margin levels, and referrals, less customer-specific servicing costs.

3. Interact with individual customers to improve your knowledge about their individual needs
and to build stronger relationships. Formulate customized offerings you can communicate in a
personalized way.

4. Customize products, services, and messages to each customer. Facilitate customer interaction
through the company contact center and Web site.

Process of CRM-CRM Cycle

1. Acquisition: Customer acquisition process comprises of the five stages as:
Enquiry: In the enquiry stage, the prospective buyer undertakes a detailed enquiry with regard
to several aspects pertaining to the organization, product, nature of transaction, and all other
related aspects.
Interaction: Having stored the information he passes on to the interaction stage, where the
customer interacts with the organization and obtains additional information, clarifies, and
ensures already collected information.
Exchange: Terms of exchange, mode of delivery and other things related to exchange, are
settled at the exchange stage.
Coordination and adoption: Further coordinated effort on either side would lead the customers
moving to adoption of the product or service concerned, and that completes the acquisition
process.
2. Customer Interaction Management (CIM):Customer Interaction Management (CIM) refers
to a type of Enterprise Software Application which is responsible for managing the interaction
between an organisation and its customers.
CIM can assume the following routes:
 Online routes- e-mails, web communities, chat rooms.
 Offline routes- telephone, fax, mails, interactive television network.
 Outsourcing: It can also be got done by third party which specializes in CIM.
3. Customer Retention: Customer retention is the process of keeping customers in the customer
inventory for an unending period by meeting the needs and exceeding the expectations of those
customers. It is a approach of converting a casual customer into a committed and loyal customer.
4. Attrition: It is a process of gradually weaving down. At this stage, customers question the
benefits they would accrue from this continued relationship with the company in question.
Attrition may lead to defection if not arrested at the earlier stage.
Attrition signals include:
 Increase in the number of complaints.
 Decrease in the frequency of contacts.
 Decrease in enquiries.
 Decrease in the volume of business.
 Decrease in number of active buyers.
 Decrease in the flow of communication.
The organization must carefully observe attrition signals and enforce preventive measures.
5.Defection: Customer defection means losing a business. It occurs when an unhappy customer
decides to stop hire or purchase the services or products and decides to find some other suitable
alternative that satisfies its needs which the organization failed to deliver. Customer defection is a
threat. At this stage, a company must put its best effort to regain the lost customer loyalty through
re-acquisition.
Advantages of CRM
1. Efficiency: A well-implemented CRM system can replace manual processes that create
significant organizational inefficiencies.
2. Collaboration: In even small organizations, the entire customer lifecycle is typically too
complex to be managed effectively by one person. The use of cloud-based CRM platforms allows
for employees in multiple departments to more effectively manage their customer relationships
and to see the big picture at any time.
3. Data: Popular CRM platforms typically offer a variety of homegrown and third party tools that
enable companies to understand their CRM data and learn things about their customers that
wouldn't be possible otherwise.
4. Increased accountability: A well-implemented CRM system helps employees across
departments understand their responsibilities to customers throughout the customer lifecycle and
when those responsibilities aren't met, it's easy to identify what went wrong, where, who fell short
and how to make sure it doesn't happen again.
5. Improved customer experience: Customers are more easily and accurately segmented, their
needs identified, and because the status of a company's relationship with them is accurately
tracked, companies can interact with them meaningfully at the right times, leading to more sales,
faster sales and higher customer retention and satisfaction.
Disadvantages of CRM
 Record Loss
 Training
 Require additional work inputting data
 Require continuous maintenance, information updating, and system upgrading costly
 Difficult to integrate with other management information systems.