SERVICE MANAGEMENT, TY BBA (SEM V), VNSGU – SURAT

CHAPTER 1

INTRODUCTION TO SERVICE MANAGEMENT

DEFINITION OF SERVICE
According to Philip Kotler, “A Service is any act or performance that one party can offer to another
which is intangible and does not result in the ownership of anything. Its production may or may not
be tied to a physical product”.
A service is a type of economic activity which is intangible in nature. It cannot be stored or owned. A
service is consumed at the time of production. Examples of services include the transfer of goods, such
as the postal service delivering mail, and the use of expertise or experience, such as a person visiting a
doctor.

UNIQUE CHARACTERISITICS / FEATURES OF SERVICES AND ITS IMPLICATIONS ON

THE SERVICE FIRMS
OR
DIFFERENCE BETWEEN PHYSICAL PRODUCT AND SERVICE
There are four major/ unique characteristics of services. They are different from physical goods. They
are;
1. INTANGIBLE
2. VARIABLE
3. INSEPARABLE
4. PERISHABLE

1. INTANGIBLE:
Meaning:
When a service product is purchased, something is acquired that cannot be seen or touched. This is
known as intangibility. E.g. Travel, Entertainment, Advice, Education etc.
Implications (effect) on consumer and company:
Consumers do not feel confident about the service since it is intangible in nature. It is difficult for the
consumer to measure service value and quality. Hence, it becomes difficult for the company to
advertise and promote a service which cannot be seen. Because services are intangible, it has its effect
on the customers; following are its effects;
- Customers find it difficult to evaluate different competing services.
- Customers perceive high risk.
- Customer uses price as a basis for quality
- Customer places more importance on personal information sources.
Strategies:
 Make services more tangible: One way to make services more tangible is to develop a physical

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object that represents service. For e.g. If financial institution decides to give credit to its customers,
it will issue credit cards for them. This means that service (giving credit) is made tangible (credit
card) to some extent.
 Focus on the service provider: Another strategy that a marketer uses is to focus on the service
provider instead of the service. The service provider (airlines, life insurance agent, doctor etc) is
more tangible than the service (air travel, life insurance etc). As a result advertising will focus more
on the skills of the service provider. E.g. Airlines advertisement usually shows skilled pilots,
courteous staff etc.

2. VARIABLE:
Meaning: Service industries are more labour intensive whereas manufacturing is more capital
intensive. As a result, services are less standardized than products. Hence services are often dependent
more on labour and less on technology. As a result of this, services are more variable in nature since
humans cannot produce the same result every time.
Example: A customer going to a restaurant can obtain excellent service on one occasion but not on the
second occasion. A customer may find sales people more courteous on one occasion but rude in
another. This means that services are more variable.
Implications:
Customer faces greater uncertainty and risk in purchasing services. The loyalty of the customers gets
lesser when service becomes more variable.
Strategies:
The service marketer can make service less variable (i.e. making service standardized) in several ways;
a. Service marketers may try to reduce the risk by offering money back guarantee.
b. A service marketer can make service standardized using machines instead of people. E.g. Use of
ATMs in banks.
c. A service marketer can increase the control over service provided. E.g. A hotel will make sure
that the service is more clean, efficient, prompt and that service personnel are courteous.

3. INSEPARABLE:
Meaning:
Products are generally produced and then sold and consumed. Service are usually sold first, then
produced and consumed at the same time. Hence often services are produced and consumed at the
same time. E.g. A consumer buys a plane ticket first. The service is produced as the plane takes off and
consumption occurs because the consumer is in the plane.
Implication:
Service provider is as important as the service. Hence, companies need to focus on service provider
also.
Strategies:
The simultaneous production and consumption of services means that;
a. Proper selection and training of service providers (employees) is necessary because they are
the part of the product.
b. Services must be delivered close to the customers.
c. Image of service provider is important for repeat purchase. Hence the company must focus on
its image building.

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4. PERISHABLE:
Meaning:
Since services are produced and consumed at the same time, it cannot be stored as inventory. Hence,
service should be consumed at the same time when produced. If services are not consumed when
offered, they go waste. For e.g. an empty airline or theatre seat represents lost revenue.
Implication:
As a result, a marketer finds difficult to control demand and supply.
Strategies:
There are several strategies for matching demand and supply in a service business;
ON DEMAND SIDE
a. Use of differential pricing: different prices during peak and off – peak periods.
b. Reservation system: it is a way to manage demand. E.g. Railways, hotels etc
ON SUPPLY SIDE
a. Part time employees can be hired for peak periods.
b. Facilities for future expansion can be developed for e.g. an amusement park may buy
surrounding land for later development.

SERVICE MANAGEMENT
Traditional marketing concept says that
- the service provider should first determine the needs and wants of customer
- Then it should organize resources to produce the product.
- Finally achieve customer satisfaction and earn profits.

Hence, success could only come if better customer service is provided. However, service firms lag
behind manufacturing firm in using marketing concept as above. Many service firms are small and
unorganized. Example: Barbar shop, shoe-repair and do not use marketing techniques. Till recently,
there was no competition in certain service businesses like colleges hospitals etc. hence, they did not
make use of marketing. But now, the scenario has changed. Competition is increasing everywhere.

Booms and Bitner suggested additional 3Ps in marketing services along with other 4Ps of marketing. So
service marketing has 7Ps in all. PRODUCT, PRICE, PLACE, PROMOTION is the traditional 4Ps of
marketing. The additional 3Ps of services marketing are PEOPLE, PHYSICAL EVIDENCE, and PROCESS.

Most services are provided by people. Hence, the proper selection, training and motivation of
employees bring better customer satisfaction.

Companies focus on physical evidence because quality is reflected in physical evidence. Example:
Quality in a hotel is reflected in clean (physical evidence) environment of the surrounding.

Finally, service companies can choose from among the different processes to deliver their service.
Example: A restaurant may select from the following styles in delivering the services.
a. cafeteria style
b. buffet style
c. fast food
d. candle light
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Service companies cannot adopt marketing strategies like that of manufacturing companies because
there are other 3ps in services marketing for e.g. Let us assume a customer in a restaurant;
- he sees how other customers are treated by employees (PEOPLE)
- he observes physical environment (PHYSICAL EVIDENCE)
- he sees how one employee interacts with another (PROCESS)

According to Gronroos, service marketing requires;

1. external marketing
2. internal marketing
3. interactive marketing

1. EXTERNAL MARKETING
External marketing describes the normal work done by a company to produce, price, distribute (place)
and promote the service to customers. External marketing is traditionally used by manufacturing
companies.

2. INTERNAL MARKETING
Internal marketing describes the work done by the company to train and motivate its employees to
serve customers well. As a result of better internal marketing, every employee of the company would
practice marketing in delivering the service.
Example: Radford community hospital sets up a fund of $ 10000, out of which it pays patients who
have justified complaint like cold food, long waiting etc. whatever amount left after paying to the
complaining patients is distributed among the employees. This means that if there are 100 employees
and there is no complaint from patients, it means $ 10000, shall be distributed equally among 100
employees. This motivates every employee to fully satisfy each patient.

3. INTERACTIVE MARKETING
Interactive marketing describes the employee’s skills in serving the client. The customer judges quality
not only from technical point of view (Example: Successful surgery) but also by its functional point of
view (e.g. Surgeon showing concern and inspiring confidence in patient) service providers must deliver
‘high touch’ & high tech service.

Service companies face three tasks;

1. MANAGING DIFFERENTIATION
Service marketers find it difficult to differentiate their services from that of the competitors. Many
companies try to differentiate their offers on the basis of price. The alternative to price competition is
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to develop a differentiated offer, delivery and image.
Offer – the offer can include innovative features. E.g. Airlines Company provides facilities such as
movies, telephone services, frequent flyer awards etc.
Delivery – a service company can distinguish its service delivery quality by having more able and
reliable customer contact people than its competitors. A company can deliver its service in a better
physical environment and through proper process
Image – service companies can also differentiate their image. They often do this through symbols,
branding, logos etc.

2. MANAGING SERVICE QUALITY

One of the major ways to differentiate a service firm is to deliver consistently higher quality service
than competitors. It is important to satisfy the target customer’s expectation regarding the quality of
the service. Customer’s expectations are formed by their past experience, word of mouth. The service
providers will have to understand the expectations and perception of the customer regarding the
quality they expect from the service providers. If the perceived service falls below the expected
service, customers loose interest in the service provider. If the perceived service exceeds their
expectations they use the service provider again.

3. MANAGING PRODUCTIVITY
There are several approaches to improve productivity. They are;
a. Work more skillfully. The company can hire and train workers more skillfully.
b. Increase the quantity of service by giving up some quality. Example: Doctors can attend more
patients by providing less time for each patient.
c. Make the service more standardized by adding machines. E.g. some airlines are providing ATM
like machines to get ticket.
d. Reduce or replace the service by a physical product. Example: TV substituted out of home
entertainment.
e. Design a more effective service. How to quit smoking clinics may reduce the need for expensive
medical services later on.
f. Making use of technology saves time and thereby improves productivity level.

FACTORS RESPONSIBLE FOR THE GROWTH OF SERVICE SECTOR

Services consist of economic activities like transportation, trade, tourism, communications, banking
and insurance, real estate, public administration, defence etc. According to an Adrian – Payne four
factors are responsible for growth in the service sector. They are: demographic, social, economic and
political.

Demographic changes: the expected life span of people has risen. Because of this, the population of
retired people is increasing. Service sector has created a new demand for travel and leisure, as well as
for healthcare, nursing and life insurance for this type of people. The need for infrastructural support
services has increased due to the development of new towns and regions.

Social changes: The number of women in work force has increased. As a result of this the work that
was done at home in earlier days are now been done outside. Example more and more laundry
services are required by people as that function is less performed at home now.

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The rise in number of double income household (both husband and wife working) has created a
greater demand for consumer services, including retailing, real estate and personal financial services.
With the growing income, the standard of life has improved. Smaller families with double income
spend more on entertainment, travel and hospitality services.

Economic changes: The demand for communication, travel and information services has increased due
to globalisation. This has been done by the fast changes brought about by new information technology.
Increased specialization within the economy has led to dependence on specialist service providers.
Example: advertising and marketing research have now become specialist functions providing support
to all the sectors of the economy.

Political and legal factors: The size of the government has grown. This has resulted in creation of huge
infrastructure of service departments. With the growth in international trade, the demand on legal and
other professional services have increased internationally.

REASONS FOR THE GROWTH OF SERVICES IN INDIA

Economic development:
According to the NCAER (National Council for Applied Economic Research), the size of the middle
income consumer is rising fast and the percentage of the very poor household is decreasing. The rural
households in the upper income category are growing at a much faster pace than the urban
households in the same categories. The Economic liberalisation process has had a positive impact on
the Indian households. Their income as well as their expenditure has been increased which has
increased demand for many goods and services.

Changing Role of Women:

Traditionally the Indian woman used to perform only household activities. But with the changing time
there has been a change in the traditional way of thinking in the society. Women are now allowed to
work. They are employed in defence services, police services, postal services, software services, health
services, hospital services, entertainment industries, Business Process Outsourcing and so on.
The percentage of working women has been growing rapidly. The changing role of women has created
a market for a number of product and services. Earning women prefer to hire services in order to
minimise the many roles that they are required to perform. The demand by woman is forcing service
organisations to be more innovative in their approach.

Cultural Changes: The emergence of the nuclear family system in place of the traditional joint family
system creates a demand for a host of services like education, health care, entertainment,
telecommunication, transport, tourism and so on. There has been a change in the thought processes
relating to investment, leisure time perception and so on which has created a huge demand for
services.

I.T. Revolution: For the last 15 years India is occupying an important position in the area of Information
Technology. IT became one of the key service businesses of the country. India has the largest software
skilled population in the world.

Social marketing: The growth of population, industrialisation and indiscriminate consumption has

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affected the, natural resources, environment and the ecological balance. Due to this there is an
imbalance of the ecology various service organisations have been promoted in order to take up social
marketing. Thousands of crores of rupees are being spent on protecting the rare animals and birds,
water pollution, conservation of oil & energy and research to develop new technologies that can
promote effective use of natural resources and safeguard the environment.

Development of Markets: During the last few decades the wholesaler and the retailer population has
grown in the country. Urban India has become a cluster of wholesaling and retailing business. In the
Semi – urban areas, retailing has spread to the all the corners of the streets and in the rural areas retail
business is significantly present. The government also offers marketing services to the small-scale
agricultural farmers, artisans and other traditional business sectors such ‘as promotion of regulated
markets, export promotion councils, development boards etc.

Market orientation: The changing competitive situation and demand supply positions has forced the
manufacturing organisation to shift their philosophy from production orientation to market
orientation. Market is a service function that has been added in the organisation. The pressures in the
market has further forced the manufacturing organisations to have marketing research, accounting,
auditing, financial management, human resource management and marketing research divisions – all
of which are services functions.

Health-Care Consciousness: In India, the healthcare market has grown substantially. The increased life
expectancy is the result of the consciousness of the people regarding the health issues. The growth of
fitness clubs, diagnostic centres, medical counseling, and health-related information sites are all
indication of the growing demands for health care services. The government as well as the social
organisations has taken up the mass campaigns in order to create awareness among the illiterate
persons and the rural population on health service. Hence, the growth of health related services.

Economic liberalisation: The economic liberalisation of the 1991 has brought many changes in the
Indian scenario. With the Disinvestment and the Privatisation policies the government owned
monopolies in many service areas came to an end. Multinationals were permitted to enter the Indian
market. Liberal lending policies and lower interest rates motivated many people to become self-
employed. Different sectors like Banking, Insurance, Power projects, Telecommunication, Hospitality
sector, Health Services, Entertainment, Air transport, and Courier services witnessed intense
competition, due to the entry of multinationals. The flow of time-tested service technology from
various parts of the world changed the attitude of the Indian consumer towards sources.

Migration: One of the important reasons for the growth of services in India is the heavy migration of
people from rural to semi-urban and urban areas. Migration to urban areas for the want of jobs and
livelihood has resulted in the expansion of cities and townships due to which businesses like real
estates, rentals, transportation and infrastructure services are rapidly expanding.

Export potential: India is considered to be a Potential source for services. There are a number of
services that India offers to various parts of the world like banking, insurance, transportation,
accounting services, construction labour, designing, entertainment, education, health services,
software services and tourism. Tourism and software services are among the major foreign exchange
earners of the country and that the growth rate is also very high as compared to the other sectors.

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CHALLENGES FACED BY THE SERVICE INDUSTRY

It is a challenging task to manage a service or product industry. These challenges however are different
and unique for each industry. Some of the challenges that are faced while managing, growing and
making profit from a service industry are discussed below, these factors do not readily apply to the
product industry.

INTANGIBILITY:
Services are intangible and so customers cannot see or hold them before they buy it. Buyers are
therefore uncertain about the quality of service and feel they are taking a risk. The buyer is unable to
conceptualize and evaluate a service beforehand. From the seller's point of view, he finds it challenging
to promote, control quality and set the price of the service. Unlike products the intangible nature of
service causes difficulties to both client and the firm.

QUALITY:
Defining and improving quality in the service industry is a major challenge. Unlike products very often
services are produced and consumed simultaneously. As a result service quality management faces
challenges that the product industry never ever comes across. In the product industry the
manufacturer gets many opportunities to test his products before they reach the market. In case of a
quality issue the problem is taken care of during the quality check and customer satisfaction is taken
care of. However during service production the customer is right in front. To guarantee customer
satisfaction in this scenario is a major challenge.

CUSTOMER TRUST:
In case of the service industry the customer first needs to develop trust in the service organization
before he buys their services. The client often gives more importance to the amount of faith he has on
the service organization than the services being offered and their value proposition.

COMPETITION:
Service industry faces competition not only from fellow service industry but also from their clients who
often question themselves whether or not they should engage a service at all!

SALES:
Most of the product companies have dedicated sales staff while in the service industry the service
deliverers often do the selling. Coordinating marketing, operations and human resource efforts is a
tedious task.

MOTIVATION:
Passion works for the service industry. More the passion, spirit and desire among the service staff
more is the revenue generation and success generated every day. There is a direct correlation between
staff passion and financial success and similarly lack of passion leads to failure in the service industry.
Staffs need to be constantly motivated and efforts have to make to sustain employee commitment.

TESTING NEW SERVICES:

Testing of new services is not possible. At the same time, communication of the services is also very
difficult.

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SETTING PRICE:
Setting prices does not come easily for service industry. Since services are intangible in nature, it
becomes difficult to set is price based on cost of manufacturing. Hence it is very difficult to set the
prices of services based on cost of manufacture.

STANDARDISATION VS PERSONALISATION:
Standardization versus personalization is another major issue the service industry has to face. If
standardization is done, then there is less variability of service and high quality, but when human
beings provide services, it is difficult to achieve standardization completely. If we do personalization of
services, then cost increases per customer. Hence the service provider has to decide between
standardization and personalization.

CLASSIFICATION OF SERVICES

Service can be classified into many ways. They are;

I) ON THE BASIS OF DEGREE OF INVOLVEMENT OF THE CUSTOMER:

This category is based on the degree of involvement of the customer:

1. People processing: The customer has to remain present at the place of delivery to consume the
service. Example: a dance class, health care etc.
2. Possession Processing: The customer’s presence is not required but his possession or property
needs to be deposited for service, like car servicing/repair, TV/VCD repair, laundry, courier service, etc.
3. Mental Stimulus Processing: Here the customer’s mental attention is required if not physical
presence in order to experience the service, like career counseling, advertising, consultation &
education services, etc.
4. Information Processing: In this case, data, information, knowledge are gathered & analysed for the
use of the clients, like research studies, market surveys, data processing, accounting, legal services,
programming, etc.

II) ON THE BASIS OF SERVICE TANGIBILITY:

Here the degree of tangibility is considered;
1. Highly Tangible: In this type of service, physical part of the product is more than the services.
Example: house on rent.
2. Service Linked To Tangible Goods: These are the guaranty or warranty periods, during which the
sellers provide free to the customer, like machines, vehicles, etc.
3. Tangible Goods Linked to Services: Here some physical goods are given to the customer as the part
of a service, like food with a train/air ticket; hotel accommodation includes morning breakfast, etc.
4. Highly Intangible: Here no products are offered as a part of the services, like haircuts,
body-massage, cinema, etc.

III) ON THE BASIS OF SKILLS & EXPERTISE REQUIRED:

This is on the basis of the level of skills required to provide the service:
1. Professional (High Skill) Services: These services require a high level of qualification & training to
provide the services, like doctors, lawyers, pilots, IT professionals, etc.
2. Non-Professional (Low Skill) Services: These services don’t require any special skills, and can be

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performed by anybody with some practice, like office security guards, baby-sitting etc.
IV) ON THE BASIS OF THE BUSINESS OF SERVICE PROVIDER:
This kind of services depends on the business style or orientation (objective, purpose, aim) of the
organisation, as:
1. Commercial Organisations (Profit Oriented): The main objective here is to make a profit by
providing service.
2. Non-Profit Organisations (Service Oriented): The main objective here is to serve the customers
without any motive to earn any profit. Of course money is needed for running such an organisation,
and that is obtained from public donation, trust fund, or government aid. This category includes Govt.
bodies and also no-profit-no-loss (cost to cost) organisations. Schools, NGOs, welfare societies, disaster
relief organisations, etc. are examples.

V) ON THE BASIS OF THE TYPE OF END USER:

Services can be classified by the type of consumers,
1. Consumer Services (B2C): This is between the service provider (the company) and the individual
customer for his personal consumption, like medical treatment, fitness services.
2. Business to Business (B2B): This is between two companies, like a company hiring another to do a
market research for it.
3. Industrial Services: This is the case where a manufacturing company buys services from a service
provider like supply, erection, commissioning, maintenance of the plant & machinery.
Following chart shows a complete map of different types of services based on different classification
criteria;

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