Marketing of Services

Service is the action of doing something for someone or something. It is largely

intangible (i.e. not material). A product is tangible (i.e. material) since you can touch it and
own it. A service tends to be an experience that is consumed at the point where it is purchased,
and cannot be owned since it quickly perishes. A person could go to a café one day and have
excellent service, and then return the next day and have a poor experience.
Characteristics of Services
Intangibility
They cannot be seen, handled, smelled, etc. There is no need for storage. Because
services are difficult to conceptualize, marketing them requires creative visualization to
effectively evoke a concrete image in the customer’s mind. From the customer’s point of view,
this attribute makes it difficult to evaluate or compare services prior to experiencing
the service
 Prior to purchase, much service promotion must rely on performance attributes which
can only be measured after a purchase experience (tangible goods have search qualities).
Also professional services have credence qualities.

Need to use promotion to help customers perceive a service as highly tangibility.

➢ Develop tangible representation of the service, ie credit card serves as the physical
product with own image and benefits. Make advertising easier. Airlines use an
aircraft. Traveler’s umbrella.
➢ Develop a brand image—seek out U Haul as opposed to a truck service
➢ Word of mouth very important due to intangibility.
➢ Offer discounts and free samples/service to customers who encourage friends to
come.
➢ Offer tangible benefits in sales promotions, must be consistent with customers’
needs/ wants
➢ Establish a clear product position, ie 24 hour outside service for repair of industrial
equipment.

Intangibility also presents pricing problems. How should an auto mechanic charge for
his/her services?

Visibility of the service may be a problem. Although a problem may have been fixed,
you don’t understand why?. Need to explain the time needed for repair, and functions that
were performed if you want the repair to be more tangible.

Psychological role of price is magnified since customers must rely on price as the
sole indicator of service quality when other quality indicators are absent.

Perishability

Unsold service time is “lost”, that is, it cannot be regained. It is a lost economic
opportunity. For example a doctor that is booked for only two hours a day cannot later work
those hours— she has lost her economic opportunity.

Other service examples are airplane seats (once the plane departs, those empty seats
cannot be sold), and theatre seats (sales end at a certain point).Inventory

Services cannot be stockpiled. Need to avoid excess unsatisfied demand and excess
capacity leading to unproductive use of resources.

To resolve inventory issues:

 ➢ Market services to segments with different demand patterns
➢ Market new services having counter cyclical demand patterns from existing services
➢ Market new services to complement existing services
➢ Market service extras at non-peak times
➢ Market new services not affected by existing capacity constraints
➢ Train personnel to do multiple tasks
➢ Hire PT employees during peak hours
➢ Educate consumers to use service at non peak hours
➢ Offer incentive, ie. reduce price at non peak times, this will not work in all
instances, ie, travel at non peak hours.

Lack of Transportability

Services tend to be consumed at the point of “production” (although this doesn’t

apply to outsourced business services).

Lack of Homogeneity

Services are typically modified for each client or each new situation (customised).
Mass production of services is very difficult. This can be seen as a problem of inconsistent
quality. Both inputs and outputs to the processes involved providing services are highly
variable, as are the relationships between these processes, making it difficult to maintain
consistent quality.

Labour Intensity

Services usually involve considerable human activity, rather than precisely

determined process. Human resource management is important. The human factor is often
the key success factor in service industries. It is difficult to achieve economies of scale or
gain dominant market share.

Demand Fluctuations

It can be difficult to forecast demand (which is also true of many goods). Demand
can vary by season, time of day, business cycle, etc.

Buyer Involvement

Most service provision requires a high degree of interaction between client and
service provider.
 Inconsistency

Lawn care service cannot mow a lawn precisely the same way each time, but need to
make the service as efficient and consistent as possible.

Remedy—use technology to help make the service provider more consistent...or

replace workers with technology:)

Inseparability

Leads to direct (short) channels of distribution. In some cases it is possible to use

intermediaries, travel agents, ATMs etc.

Close provider-customer relationship—employee interpersonal skills very

important. “relationship managers”, quality of relationships determines the probability of
continued interchange with those parties in the future.

Customers may become loyal to a particular employee as opposed to the company,

prevalent in the advertising industry. Therefore must make sure that multiple employees are
capable of performing the same tasks.

Classification of Services

Service ontology for service Economic service

bundling classifications

Function Combine services into groups Divide whole spectrum of

existing services into smaller
groups

Grouping rules Company- and domain-specific Global rules (hold for the whole
business rules service industry)
Nature of Any type of dependency between Classification criteria that differ-
grouping rules services (e.g. difference, similarity) entiate one service from another
Abstraction level Instances of services (e.g., ABN- Abstract classes of services (e.g.,
of reasoning Amro private unemployment insurance services)
insurance)
2.0 MEANING OF FINANCIAL SERVICES

The Indian Financial services industry has undergone a metamorphosis since

1990. During the late seventies and eighties, the Indian financial service industry was
dominated by commercial banks and other financial institutions which cater to the
requirements of the Indian industry. Infact the capital market played a secondary role
only. The economic liberalization has brought in a complete transformation in the
Indian financial services industry.

The ‘financial service’ can also be called ‘financial intermediation’ Financial

intermediation is a process by which funds are moblised from a large number of
savers and make them available to all those who are in need of it and particularly to
corporate customers. Thus, financial services sector is a key are and it is very vital for
industrial developments. A well developed financial services industry is absolutely
necessary to mobilize the savings and to allocate them to various investable channels
and thereby to promote industrial development in a country.

2.0 CLASSIFICATION OF FINANCIAL SERVICES INDUSTRY

The financial intermediaries in India can be traditionally classified into two:

(i) Capital market intermediaries and

(ii) Money market intermediaries.

The capital market intermediaries consist of term lending institutions and

investing institutions which mainly provide long term funds. On the other hand,
money market consists of commercial banks, co-operative banks and other agencies
which supply only short term funds. Hence, the term ‘financial services industry’
includes all kinds of organizations which intermediate and facilitate financial
transactions of both individuals and corporate customers.

SCOPE OF FINANCIAL SERVICES

Financial services cover a wide range of activities. They can be broadly

classified into two namely:

(i) Traditional activities

(ii) Modern activities

Traditional activities

Traditionally, the financial intermediaries have been rendering a wide range of

services encompassing both capital and money market activities. They can be grouped
under two heads viz;

(i) Fund based activities and

(ii) Non-fund based activities

Fund based activities: The traditional services which come under fund based
activities are the following:

(i) Underwriting of or investment in shares, debentures, bonds etc. of new

issues (primary market activities)

(ii) Dealing in secondary market activities.

(iii) Participating in money market instruments like commercial papers,

certificate of deposits, treasury bills, discounting of bills etc.

(iv) Involving in equipment leasing, hire purchase, venture capital, seed

capital etc.

(v) Dealing in foreign exchange market activities.

Non-fund based activities: Financial intermediaries provide services on the basis of

non-fund activities also. This can also be called “fee based” activity. Today,
customers whether individual or corporate are not satisfied with mere provision of
finance. They expect more from financial service companies. Hence, a wide variety of
services, are being provided under this head. They include the following:

(i) Managing the capital issues i.e., management of pre-issue and post-
issue activities relating to the capital issue in accordance with the SEBI
guidelines and thus enabling the promoters to market their issues.

(ii) Making arrangements for the placement of capital and debt

instruments with investment institutions.

(iii) Arrangement of funds from financial institutions for the clients’

project cost or his working capital requirements.
 (iv) Assisting in the process of getting all Government and other clearances.

Modern activities

Besides the above traditional services, the financial intermediaries render

innumerable services in recent times. Most of them are in the nature of non-fund
based activity. In view of the importance, these activities have been discussed in brief
under the head ‘New financial products and services’. However, some of the modern
services provided by them are given in brief hereunder:

(i) Rendering project advisory services right from the preparation of the
project report till the raising of funds for starting the project with
necessary Government approval.

(ii) Planning for mergers and acquisitions and assisting for their smooth
carry out.

(iii) Guiding corporate customers in capital restructuring.

(iv) Acting as Trustees to the debenture-holders.

(v) Recommending suitable changes in the management structure

and management style with a view to achieving better results.

(vi) Structuring the financial collaboration/joint ventures by identifying suitable

joint venture partner and preparing joint venture agreement.

(vii) Rehabilitating and reconstructing sick companies through appropriate

scheme of reconstruction and facilitating the implementation of the
scheme.

(viii) Hedging of risk due to exchange rate risk, interest rate risk, economic risk
and political risk by using swaps and other derivative products.

(ix) Managing the portfolio of large Public Sector Corporations.

(x) Undertaking risk management services like insurance services, buy-back

options etc.

(xi) Advising the clients on the question of selecting the best source of funds
taking into consideration the quantum of funds required, their cost, lending
period etc.

(xii) Guiding the clients in the minimization of the cost of debt and in the

determination of the optimum debt-equity mix.

 (xiii) Undertaking services relating to the capital market such as:
(a) Clearing services,
(b) Registration and transfers,
(c) Safe-custody of securities,
(d) Collection of income on securities.
(xiv) Promoting credit rating agencies for the purpose of rating companies which
want to go public by the issue of debt instruments.
CONSTITUENTS OF FINANCIAL SERVICES:
The financial services comprise of the following major constituents in the
financial system. They are:
a) Financial instruments
b) Market players
c) Specialized Institutions
d) Regulatory bodies
a) Financial Instruments:
It includes equity, debt and hybrid. These instruments are written evidences of
ownership and they give the holders the right to demand and receive property
not in their possession.
The ownership of a corporation is divided into various units and each unit is
called as a share. A shareholders interest is evidenced by a stock certificate,
which states the name of the shareholder, the class of stock and the number of
shares owned.
Debenture is a certificate issued by the company under its common seal
acknowledging the debt to be repayable with interest.
Hybrid instrument is the combination of both equity and debt instruments.

Market players:
The players in the market include:
i. Commercial banks
ii. Financing companies
iii. Stock brokers
iv. Consultants
 v. Underwriters
vi. Market makers
i. Commercial Banks:
The commercial banking in the developed countries provide term loans to
corporate sector by participating in the capital and equipment finance. The
commercial banking has undergone a number of structural and functional
changes in the developing countries. The Indian banks have recently
commenced hire purchasing finance, leasing, factoring and other services.
ii. Financing companies:
The participation of finance organizations can stimulate the economic growth.
They inject new blood to the corporate sector. All these reflections made for the
evolution of a vibrant, competitive and dynamic financial system, the Non-
Banking Finance Corporations sector has recorded marked growth in the recent
past.
iii. Stock Brokers:
Stock Brokers play an important role in the stock market. They involve in
buying and selling of securities in a recognized stock exchange. If anyone wants
to work as a broker, a certificate of registration from the SEBI is mandatory after
satisfying all the terms and conditions. SEBI will grant the registration to the
brokers. The membership in the stock exchange can be granted as individual
membership and corporate membership.
iv. Consultants:
Consultants are the professionals in the area of Finance can be providing best
solutions to the problems faced by the corporate sector. They are pioneer in their
field and render the quality service with high integrity and standards. A
financial consultant occupy a key role in problem solving solution like in all
areas of functional management such as production, finance, marketing and
human resources. Their services are intangible and show greater impact on the
functioning of the company. They provide tailor made solution to all the
problems irrespective of any area.
v. Underwriters:
Underwriters are the intermediaries in the primary market. They provide
assurance to the companies, which approach the capital market for raising the
financial resources. They render valuable services to the newly started
companies, which require believable advice. Underwriters assure the company
full subscriptions for a commission.
vi. Market makers:
Market makers are associated with the stock exchanges. The market making
system is very much popular in London, New York and Chicago stock
exchanges. Their basic function is to provide the needed liquidity to a particular
scrip. They help in eliminating the temporary disparity between the supply and
demand of scrip. They help in maintaining a fair and orderly market.
b) Specialized Institutions:
Financial services area meant for providing solution to various problems faced
by the corporate sector. The provider of financial services remains in constant
touch with the dynamic market. The financial markets are required to develop
specialized institutions to solve the financial problems of the corporate sector.
These specialized institutions include acceptance houses, Discount houses,
Factors, Depositories, Credit rating agencies, Venture capital. These institutions
provide solutions to the financial problems of the corporate sector.
c) Regulatory Bodies:
Regulations are the most important factor in any area of financial system. The
Financial markets are highly volatile and need a close observation by the
Government. The government of India watches the market affairs on daily basis
through its nominee SEBI. The government regulates the financial system
through various legal organs of the administration. The banking affairs are
monitored by the RBI. The corporate affairs are regulated by the company law board and
board for industrial and financial reconstruction.

EVOLUTION OF FINANCIAL SERVICES IN INDIA:

Financial services sector is blooming in India and it has passed through various phases as
mentioned below:
i) Initial phase (1960-80)
ii) Second phase (1980-90)
iii) Third phase (1990-2002)
i) Initial phase:
Financial services at the initial phase introduced many innovative services
such as merchant banking, Insurance and leasing finance. The term merchant
banking was not known till 1960. It was used as an umbrella function. Its
activities start from project appraisal to mobilization of finance from
suppliers. They also underwrote the public issues and helped in getting the
shares listed in the stock exchange. LIC, GIC and UTI initiated to enter into
this segment during this period. Leasing activities was started in the year
1970. Initially leasing companies were engaged in equipment lease financing.
Afterwards they have undertaken different kinds of leasing such as financial
lease, operating lease and wet leasing.
ii) Second phase:
Financial services entered the second stage and it covered the period of 10
years approximately. In this phase it introduced many innovative value added
services such as over the counter share transfers, pledging of shares, mutual
funds, factoring, discounting, venture capital and credit rating. Mutual funds
provide major fund to the industry anywhere in the developed countries.
Credit rating reduces malpractices in the capital market and this rating is
applied only to debt instruments only. Now this rating is mandatory for
 commercial papers and fixed deposits.
iii) Third phase:
This phase in financial services include the setting up of new institutions and
instruments. This period started after post liberalization. The depositories, the
stock lending schemes, online trading, paperless trading, dematerialization,
book buildings are the contemporary issues of this phase. This phase has
initiated to popularize book building to help both investors and fund
mobilizes. In this phase government has taken initiatives to allow foreign
institutional investors into the capital market. The government of India is
revamping companies‘ act, income tax act, MRTP act etc, for delivering
effective financial services.
PRESENT SCENARIO:
i) Conservatism to dynamism:
At present, the financial system in India is in a process of rapid
transformation, after the liberalization of financial sector. The main
objective of the financial sector reforms is to promote an efficient,
competitive and diversified financial system in the country. Now the
Indian financial services sector is very dynamic and it is adopting
itself to the changing needs.
ii) Emergence of Primary Equity Market:
Primary market in India is now very active. India is now witnessing
the emergence of many private sector financial services. Capital
market is one of the major places to raise finance. The aggregate
funds raised in the Indian capital market have doubled over a decade.
iii) Concept of Credit Rating:

The facility of credit rating helps the investors in finding a profitable

and safe debt capital. It rates the debt issues and instructs the investors
not to invest in the debt capital of the firms that are badly rated. The
regulators of the Indian capital market are contemplating on
introducing Equity grading, which helps the investors to prudently
 invest their savings.
iv) Process of Globalization:
Globalization has given way for the entry of innovative and
sophisticated financial products into our country. Government of India
is very keen in removing all the obstacles in the financial sector.
Indian capital market has high potential for the introduction of
innovative financial products.
v) Process of liberalization:
Government of India has initiated many steps to reform the financial
services industry. The interest rates have been deregulated. The private
sector has been permitted to participate in banking and mutual fund
sectors. The Finance Act of Government of India is bringing various
amendments every year to keep the financial sector very flexible