Services Marketing Book

UNIT 1- SERVICES MARKETING 1
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SERVICES MARKETING
UNIT I- CONCEPT OF SERVICES
Introduction to services: Consumer behavior in services: Concepts, contribution and reasons for the
growth of services sector, difference in goods and service in marketing, characteristics of services, concept
of service marketing triangle, service marketing mix, GAP models of service quality.
Consumer Behavior in services: Search, Experience and Credence property, consumer expectation of
services, two levels of expectation, Zone of tolerance, Factors influencing customer expectation of services.
Customer perception of services-Factors that influence customer perception of service, Service
encounters, Customer satisfaction, Strategies for influencing customer perception.
INTRODUCTION
Services include all economic activities whose output is not a physical product, is generally consumed at the
time it is produced, and provides added value in forms (like convenience, entertainment, timeliness, comfort or
health) that are essentially intangible concerns of its first purchaser. For example, the core product offerings of
hospitals, hotels, banks, BSNL, BESCOM, Vodafone, colleges, airlines, etc. comprise of services.
DEFINITION
Services can be defined as “A form of product that consists of activities, benefits or satisfactions
offered for sale that are essentially intangible and do not result in the ownership of anything.”
— Philip Kotler
SERVICE OFFERINGS AND CUSTOMER SERVICE
It is necessary to understand the difference between service offerings and customer service.
Service offerings are intangible products offered for sale to customers by service providers to meet specific
needs and wants. These can be sold to business customers (e.g., consultancy, transportation, warehousing,
maintenance services, construction of a factory, etc.), or to end customers (e.g., hotel, restaurant, healthcare
PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

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services, education, etc.). Service offerings can be sold by traditional service companies (e.g., banks,
insurance companies, mobile service like Airtel) as well as the manufacturers (e.g., IBM, GE). They all
provide core service product offerings to customers.
Customer service is service provided in support of a company’s core products whether these core products are
goods or services. Customer service includes things like answering questions (BPOs), billing, and handling
complaints, taking orders, door delivery of products, installation, demonstration and maintenance. There is no
charge for some customer service, while nominal fee is charged for others. Customer service is part of all
marketing offers – tangible and intangible. Both manufactured goods marketers and service industries use
customer service.
Examples of Selected Services
Services Examples
Public Utilities Electricity, water supply, sewerage,

PWD (roads and bridges)
Law enforcing, Civil, Administrative Police, Army, Navy, Air Force,

and Defense Services Fire Service, Judiciary (courts),
Civil Administration, Municipal Services,
Parks and Public Buildings
Transport and communication Railways, Airlines, Buses, Metro Rail, Postal Services,
Telephones (BSNL, Airtel, Vodafone, etc.),
Broadcasting (AIR, FM), Telecasting (Doordarshan,
cable TV, TV channels)
Distributive trade Wholesalers, retailers, dealers, agents

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Insurance, banking, finance Banks, insurance companies, financial institutions, share

brokers
professional and scientific Advertising, marketing research, consultancy, legal,

activities medical, educational (schools and colleges),
maintenance and repairs, employment (HR agencies)
Leisure, recreation Cinemas, theatres, clubs, gyms, restaurants, hotels,

theme parks
Miscellaneous Beauty parlours, health clubs, domestic help,

drycleaning, matrimonial services
DIFFERENCE BETWEEN PHYSICAL GOODS AND SERVICES
Physical Goods Services

A thing An activity or process
Tangible Intangible
Homogeneous Heterogeneous
Production and distribution are separated from Production, distribution and consumption are
consumption simultaneous process
Core value produced in buyer-seller
Core value produced in factory interactions
Customers do not participate in the
production process Customer may participate in the production
Can be kept in stock. Cannot be kept in stock.
Transfer of ownership. No transfer of ownership.
CONTRIBUTION OF SERVICE SECTOR TO INDIA’S ECONOMY
The service sector is a major contributor to India’s economy. It contributed around 55 percent of India’s GDP
during 2010-11 and 56.3 percent in 2011-12, as per the Economic Survey of Government of India, 2012. The

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global recession only partially succeeded in slowing the Indian economy thanks to the continual offsetting
growth of service sector to nearly 10 percent in the year 2010-11. The service sector continues to remain the
growth engine for Indian economy.
It was found that when the Indian economy was growing at the rate of 9 percent in the years 2010-11, and 2011-
12, the service sector witnessed a growth of 10-11 percent. The service sectors of
India that has grown faster than the economy are as follows:
● IT ( Information Technology, the leading service sector )
● IT – enabled services
● Telecommunications
● Community services
● Hotels and restaurants
● Tourism
● Organized retail
As far as employment is concerned, the services sector is in second place in India, next to agriculture.
The service sector of India has also witnessed a remarkable increase in the global market apart from Indian
market. The broad-based services in the trade sector have undergone a large scale rise during the last few
years. The areas of growth are as follows:
● Software services
● Business services

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● Engineering services
● Personal, cultural and recreational services
● Financial services
● Travel, transport and insurance services
Suffice to say that the services sector of India has been the most high-powered sector in Indian economy
during the last few years.
REASONS FOR THE GROWTH OF THE SERVICE SECTOR
The growth of service industries can be traced to the economic development of society and the socio-cultural
changes that have accompanied it. Sometimes the growth of a specific service industry is the result of a
combination of several reasons.
The major reasons for the growth of service industries are given below:
1. Increasing affluence: Higher income levels have provided increased disposable income for people. This
has generated greater demand for services (activities which consumers used to perform themselves) like
interior decoration, laundry, care of household products such as carpets, care of garden, plumbing, electrical
repairs, etc.
2. More leisure time: The desire to use leisure time for leisure has led to greater demand for recreation and
entertainment facilities, travel resorts, adult education and self-improvement.
3. Higher percentage of women in labor force. This has created demand for day care centres, crèches,
baby-sitting, household domestic help, etc.
4. Greater life expectancy: Improvement in life expectancy has generated great demand for nursing homes,
health clubs and healthcare services.
5. Greater complexity of products: This has led to greater demand for skilled specialists to provide
maintenance for complex products like air conditioners, cars and home computers.

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6. Increasing complexity of life: This has led to the demand for specialists in income tax, labour laws, legal
affairs, marriage counseling, event management and employment services.
7. Greater concern about ecology and resource scarcity: as the natural resources are depleting and need
for conservation is increasing, we have seen the coming up of service providers like pollution control
agencies, car pools, and water management..
8. Increasing number of new products: Proliferation of new products, especially computer-sparked
development of programming, software development, and Business Process Outsourcing (BPO) has grown
due to this reason.
TECHNOLOGY AS A DRIVING FORCE FOR GROWTH
Technological advancement has provided a boost to service sector all over the world, and especially so in our
country. Technology, especially information technology (IT), is currently shaping the field of service sector,
and profoundly influencing the practice of service marketing as a driving force. It has created many
opportunities and challenges for service marketing. Technology has had a powerful influence on service
marketing in the following areas:
1. Introduction of New Service Offerings

2. Providing New Process of Service Delivery
3. Facilitating both Customers and Employees
4. Extending the Reach of Services
5. The Internet Becoming an Enlarged Service.
1. Introduction of New Service Offerings

Advancement in technology has facilitated introduction of a variety of service innovations regularly used by
all of us in the present. Mobile phones, video conferencing, Automated Teller Machines (ATMs), Voice Mail,
Interactive Voice Response Systems (IVRS), Dish TV, broad-band, Internet services, etc. have become
possible only because of new technologies. All these are introduced as new service offerings based on
advancement of technology in communication.

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The growing popularity of the Internet has now resulted in many of the advanced new services. Internet-based
service providers like amazon.com and eBay offer online retailing – a service which was not even thought of
earlier. Mobile phones and the Internet can be used both for communicating with customers and making offers
and as an interactive marketing tool. The Global Positioning System (GPS) is another value added new
service introduction. This allows the customers several services while on the move –like finding their
location, route to their destinations, locating hotels, banks, restaurants, petrol bunks, etc. GPS tracking
services also facilitate tracking cargo and courier dispatches. Many logistics companies utilize this facility to
track movement of transport vehicles and delivery of their cargo at destinations.
2. Providing New Processes for Service Delivery
Technology has also provided new processes and vehicles for delivering existing services in ways which are
more accessible, convenient and productive. Even the basic customer service functions of marketing people
are facilitated by technological advancement. Examples:
 Online ticket booking (air, rail or bus)

 Net banking
 Online bill paying (mobile, landline, LIC premium)
 Online information (Frequently Asked Questions, Google search, Wikipedia)
 Online shopping (flipcart.com, amazon.com)
 Online education (MBA and other courses)
 Online tests and examinations
 Business Process Outsourcing (BPOs)
3. Facilitating both Customers and Employees
While technology facilitates customers to be more effective in receiving the needed services, it also helps the
employees of the service marketers to provide their services effectively. Many self-service technology (SST)
based services are now available, using which customers can conveniently and effectively serve themselves.
For example, using net banking, customers can access their bank accounts anywhere in the world, check
balances, pay bills online, order demand drafts, transfer funds to third parties, etc. All these transactions can be
done without going to the bank or without any help from the bank’s employees. New technology also gives
customers the means to access the services of a manufacturer or service marketer more quickly and easily. For
example, using the website of a manufacturer, a customer can easily request for supportive information about

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how to handle a problem with a production machine in a factory or make arrangements for the maintenance of
the machine
For the employees of service providers, technology provides support to make them more effective and
efficient in delivering the services to customers. Information technology (IT) systems and improved databases
from which customer information files are easier to retrieve, and which are less complicated to update than
before, provide customer contact employees with improved support to help them to be customer-centric in
interactions with customers. More accurate, easily retrievable and available information about customers
enables employees to increase the quality of customer interactions. Information technology and the
development of intranets have had a tremendous impact on internal processes of service marketers and
provided an effective system in internal marketing. The information support also allows employees to
customize services to fit the specific customer needs and expectations.
4. Extending the Global Reach of Services
In the present day context, technology infusion has resulted in the potential for reaching out to customers
around the globe in ways not possible earlier. Popularity of the Internet has created a borderless world as far as
communication is concerned, and therefore, information, customer service and transactions can easily move
across countries, reaching any customer in any part of the world, who has access to the Internet, and is
computer savvy.
5. The Internet Becoming an Enlarged Service
The Internet can be considered as an enlarged, big service. Majority of manufacturers, organizations and
service marketers have their presence on the Internet through websites. They are all providing services to
customers on the Internet. The strategies, methods, tools and concepts of services marketing and management
have direct use and impact on the Internet. Geographical boundaries do not pose a problem because of the
connectivity achieved through the World Wide Web. The Internet is used profusely for selling,
communication, market research and making payments. The Internet is also an interactive marketing vehicle,
because a variety of service transactions can be initiated and also performed over the Internet. For example, by
providing e-mail connections to helpdesks or other functions of a service company, the Internet becomes part
of the service process.

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DISTINCTIVE CHARACTERISTICS OF SERVICES AS COMPARED TO PRODUCTS
Services have five special characteristics which have to be considered by companies while designing
marketing programmes and strategies. These are the characteristics which are distinctive to services, as
compared to products. They are given below:
1. Intangibility
2. Heterogeneity (Variability)
3. Inseparability
4. Perishability
5. Lack of ownership

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1. Intangibility
The most important characteristic of services is intangibility. Before and after buying a physical product like,
for example, soap or talcum powder, the customer can see, feel, smell and use it to check its effectiveness and
quality. Cars and motorcycles are purchased by customers after test-driving. These are all tangible, physical
products. Services, on the other hand, are intangibles, which cannot be seen, tasted, felt, heard or smelt before
the purchase is made.
For example, before actually staying in a hotel room, a customer cannot know the quality of service. Before
travelling in a bus or an airline, we cannot understand its quality and reliability. We cannot make a trial trip on
the bus or airline before buying the ticket. Customers have to buy the service and use it to experience the
quality. This is due to the intangible nature of services.
2. Heterogeneity (Variability)
Services are always heterogeneous. There can be variations in the service provided. It is very difficult for any
service provider to standardize a service. The quality of service depends on who provides them as well as
when, where and how they are provided.
For example, Taj Group Hotels have a good reputation as providers of high quality standard service, as Five
Star Deluxe hotels. But the same group may have efficient or not-so-efficient employees in the same premises,
and their services will vary. Since the human element is very much involved in providing and receiving
services, variations are normal and standardization is very difficult to achieve.
3. Inseparability
Tangible products like soaps, motorcycles, or cars can be produced first, stored and later sold to customers.
But, since services are processes consisting of a series of activities where the customer and service employee
have to interact, they are produced and consumed simultaneously and inseparable. For example, A hair
dresser’s service is obviously almost totally produced when the customer is present and receives the service.
The characteristic of simultaneity also implies that the customers will frequently interact with each other
during the service production process and then may affect each other’s experiences (like strangers seated next
to each other in a bus).

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Simultaneous production and consumption leads to another implication known as inseparability in services.
This means that it is not possible to separate the service from the service provider. The provider’s presence is
essential for service production. For example, a plumber or an electrician has to be present to do a repair job.
The doctor has to be in the clinic to treat the patients. However, in some services like banking, ticket booking,
etc., self-service technology and use of the Internet have eliminated the need for the physical presence of
service provider to a large extent.
4. Perishability
Most of the services cannot be stored for future sale and hence, are perishable (i.e., become useless or waste or
are lost forever). If the services of a doctor are not used by needy customers, they cannot be stored up for
future use. For example, if there is a hartal or bund on a particular day, and no patients are able to visit a
doctor, that day’s practice or service of the doctor goes waste or perishes. He cannot resell the previous day’s
service the next day.
Perishability also implies that in contrast to physical products, services cannot be returned if the customer is
unhappy, For example, a bad haircut cannot be returned or exchanged for a better one.
5. Ownership
Usually there is no transfer of ownership of anything in a service. There is no transfer of any tangible object as
in product marketing (like buying a pen or a car, where ownership transfer from seller to buyer takes place).
What is purchased by customers in services is just the use of, or access to the facility or service. The buyer
does not become the owner of anything like in the case of buying a pen, a car, a TV, etc. in product marketing.
When we use the services of Jet Airways to travel from Bangalore to Delhi, we are entitled to be transported
by air from Bangalore to Delhi, but when we arrive at Delhi, there is nothing left with us but the remaining
part of the boarding pass and the ticket. We cannot argue that we own the seat on the plane for which we paid
the fare. When we withdraw money from our savings bank account, we may feel that the bank’s services
resulted in our ownership of the withdrawn money. However, the bank’s service did not create this ownership.
We owned the money all the time. The bank just took care of it for us for some time and gave it to us when we
asked for.

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For successful services marketing, the marketing managers must understand the nature of the above five
characteristics of services and the manner in which they affect the marketing strategy. The implications of the
characteristics of services and how the marketing strategy can be focused to overcome the constraints are
described in Table 1.1 below:
Table 1.1: Implications of Service Characteristics and Ways to Overcome them

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TANGIBILITY SPECTRUM
In the explanation given above about the characteristics of services, we found that intangibility is a main
determinant of whether an offering is a service. Though this is a reality, we cannot neglect the fact that very
few products are purely intangible or totally tangible. On the other hand, we can say that services tend to be
more intangible than manufactured physical products, and manufactured products tend to be more tangible
than services.
Fig. 1.1: Tangibility Spectrum

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For example, Domino’s, PIZZA HUT and McDonald’s belong to the fast-food industry and are classified as
services. But these also have many tangible compliments such as the pizza, burger, French fries, soft drinks,
etc., which the customer can own, touch, taste and eat. The attractive packaging is another tangible element of
fast food service. Motorcycles and cars are classified as manufactured physical products which are tangible.
Yet, they include some intangibles like transportation, seating comfort, driving comfort, etc. The tangibility
spectrum shown in Figure 1.1 captures this idea. There are very few “pure services” or “pure goods”.
Some Myths about Services
There are many misconceptions (beliefs that are not true) or myths about services:
 Service industry produces services at the expense of other sectors of the economy
 Service jobs are low paying and menial
 Service production is labor-intensive and low in productivity
 Service is a necessary evil for manufacturing companies
 Managing service is just like managing a manufacturing business.
 Service jobs do not have any challenge
CONCEPT OF SERVICE MARKETING TRIANGLE

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Services marketing is about promises – promises made and promises kept to customers. A strange framework
known as the services triangle visually reinforces the importance of people in the ability of firms to keep their
promises and succeed in building customer relationships.
The triangle shows the three interlinked groups that work together to develop, promote and deliver services.
These key players on the points of the triangle are:
1. The Company (or SBU or department or management)

2. The Customers
3. The Providers (employees of the service company, sub-contractors, dealers or outsourced
entities who deliver the company’s services)
Between these three points on the triangle, three types of marketing must be successfully carried out for a
service to succeed external marketing, interactive marketing and internal marketing.
1. On the right side of the triangle are the external marketing efforts that the firm engages in to set up its
customers’ expectations and make promises to customers regarding what is to be delivered. Anything or
anyone that communicates to the customers before service delivery can be viewed as part of this external
marketing function. But external marketing is just the beginning for services marketers. Promises made must
be kept.

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2. On the bottom of the triangle is what has been termed interactive marketing or real-time marketing.
Here is where promises are kept or broken by the firm’s employees, sub-contractors, or agents. People are
critical at this stage. If promises are not kept, customers become dissatisfied and eventually leave.
3. The left side of the triangle suggests the critical role played by internal marketing. The management
engages in these activities to aid the providers in their ability to deliver on the service promise: recruiting,
training, motivating, rewarding and providing equipment and technology. Unless service employees are able
and willing to deliver on the promises made, the firm will not be successful and the services triangle will
collapse.
All the three sides of the triangle are essential to complete the whole, and the sides of the triangle should be
aligned. What is promised through external marketing should be the same as what is delivered. The enabling
activities inside the organization should be aligned with what is expected of service providers. Many strategies
are available for practice by service marketers for aligning the service triangle.
SERVICES MARKETING MIX – AN OVERVIEW
Marketing of products has 4 ‘P’ dimensions, viz., Product, Price, Promotion and Place. These are used in
specific combination to arrive at the marketing strategy. Services’ marketing has three additional dimensions
over and above the 4 Ps – People, Physical evidence and Process – making the requirements as 7 ‘P’s. The
different elements of services marketing mix are explained below.

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1. Product:- Services can be visualized as products which provide benefits to the customers in the target
market. Services are bundles of features, processes, deeds and performances which give benefits to specific
target markets. It is important that the package of benefits in the service offer must have a customer’s
perspective. The service product offer usually consists of three levels, as shown in Figure 1.3 below:
The first level is that of the basic service package which includes core service, facilitating services and
supporting services. The second level is that of an augmented service offering where accessibility, interaction
and consumer participation are given equal importance in delivering the service product. The third level is that
of the market communication of the service offering as in its absence the value added augmented service
package will not have any relevance to the customer.

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For example, in Taj Gardenia, the 5-star deluxe hotel in Bangalore, the core service product is lodging and
room service, the services of bell-boy (room boy) and housekeeping are facilitating services, and swimming
pool, health club and travel desk are supporting services.
2. Pricing:- For tangible products, the term ‘price’ is used for all kinds – FMCG, clothes, durables,
land, building, etc. But, in the case of services, different terms are used for different services. Some
common examples are given below:
Service Price Term Used

Theatre Ticket
Legal service Fee
Financial Interest
Stock broker Commission
Transport Fare
Insurance Premium
Property usage Rent
Employee service Salary/Wages
Education Tuition fees
Utilities (telephone,
electricity) Tariff
While fixing prices of services, the perish ability characteristic has to be considered seriously because
fluctuations in demand cannot be met through stock inventory like physical products. In order to offset the
perishable characteristic of services, hotels and airlines offer lower rates in off-season. The intangibility
element in services also creates difficulties in pricing decisions. Fees for lawyers, doctors and consultants
cannot be uniform and will vary according to their expertise and also the nature of service provided. Another
aspect to be considered in pricing services is that for many services prices are subject to regulations, either by
the government or by trade associations. Bank interest rates, bank charges, electricity and water tariff,
telephone, rail and air transport fare, etc., are controlled by the government. In such cases, the service provider
does not have any freedom to fix the prices on his own.
Services are usually sold using the following pricing methods:
1. Differential or flexible pricing.

2. Discount pricing.
3. Diversionary pricing.
4. Guaranteed pricing.

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5. High price maintenance pricing.

6. Loss leader pricing.
7. Offset pricing.
3. Promotion:- While designing the promotion strategy for services, a basic thing to be remembered is that the
customers rely more on subjective impression rather than concrete evidence. This is because of the inherent
intangible nature of services. Also, the customer is likely to judge the quality of service on the basis of the
performer rather than the actual service. Since it is difficult to sample the service before paying for it, the
customer finds it difficult to evaluate its quality and value. Because of all these factors, buying a service is a
more risky business than buying a product. The marketing manager should, therefore, design a promotion
strategy which will help the customer overcome these constraints. The four methods used for promoting
services, viz., advertising, personal selling, publicity, and sales promotion are the same as used in the
promotion of products.
 Advertising:-Most services like entertainment (cinema, theatre), passenger and freight transport (roadways
– TVS, ABT – airlines, railways), hotels, tourism and travel, banks and insurance advertise heavily in
newspapers, internet, e-mail, SMS, etc., radio and TV channels to promote greater usage and attract more
customers.
 Personal Selling:- In the case of some services, personal selling is used to promote by sending
professionals to the clients instead of salesmen. Management consultants, advertising agencies, and travel
agencies do this for canvassing new business from major clients. For example, management consultants or
insurance companies tie up with banks, and hotels tie up with airlines or tourism department.
 Publicity:- Publicity is used by some services by holding press conferences or by sponsoring events like
fashion shows, musical programmes, sports, etc.
 Sales Promotion:- Many types of sales promotion techniques are used to promote services. For example,
Fly now, pay later schemes are introduced by airlines in the off-season periods. Some doctors charge a reduced
fee on subsequent visits to retain loyalty of the patients. Professional colleges offer free laptops and foreign
trips for MBA students. These offers are also used to offset the perishability characteristic of services.

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4. Distribution (Placement):- Regarding the distribution strategy for services, the major decision relates to the
issue of location of the services, to ensure that maximum numbers of customers are attracted. The inseparability
characteristic of services like the doctors, professors, consultants, and mechanics poses a distribution problem
since they are able to service only a limited, localized market. But when awareness about the quality,
dependability and retailability spreads by word-of-mouth, people from other localities will also patronize these
services. Another characteristic of services which affects the distribution strategy is the fixed location of
services like universities, colleges, banks, restaurants and hospitals, which necessitates the customer to go to the
service location. Parcel delivery at the customer’s doorstep by some services like Domino’s, PIZZA HUT,
Nandhini Hotels, etc. are ways of surmounting this constraint. Some hospitals like Apollo, Sagar, etc. have
opened smaller clinics in different locations to cater to localized demand for its services. Banks, nowadays,
provide ATMs and Internet banking and mobile banking to facilitate customers.
5. People:- People, as the human element, constitute an important dimension in services marketing in their role
as both performers of service and as customers. People as performers are important because customers see a
company through its employees. The employees represent the first line of contact with the customer. Therefore,
the employees must be polite, courteous, well-informed, and well-behaved, and must provide the kind of
service that wins the approval of the customers. The behaviour and attitude of the service employees will have
an important influence on the customers’ overall perception of the service and its quality and he/she can rarely
distinguish between the actual service rendered and the human element involved in it. This is evident in the
example of a customer calling a service provider over the phone, and is asked to hold on for a long time – a
frustrating experience for the customer.
6. Physical Evidence:- Physical evidence refers to the environment in which service is provided. It is also
called the ‘servicescape’. Cleanliness in a doctor’s clinic, exterior appearance and interior décor of a restaurant,
the comfort of air conditioning in a cinema theatre, all contribute towards the image of the service (and the
company running the service) as perceived by the customer. The common factor in these is that they are all
physical, tangible and controllable aspects of a service provider. These constitute the physical evidence of the
service. There are two kinds of physical evidence – peripheral evidence and essential evidence.
7. Process:-In service organizations, the system by which the customer receives delivery of the service
constitutes the process. For example, in fast food outlets like McDonald’s, the process comprises of buying the
coupons at one counter and picking up the food against the coupons at another self-service counter. In a bank,

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the process involves tendering the cheque at one counter, collecting a token, and as the customer’s turn comes,
getting the cash from the teller counter.
Services can be described on the basis of type of process used in the delivery of the service. The three kinds of
delivery processes that are applicable in the case of service products are line operations, job shop operations
and intermittent operations.
Marketing Challenges for Service Industry
Because of the basic characteristics of services, marketers of services face some very real and quite distinctive
challenges. According to Zeithaml and Bitner, the following are the major challenges for service marketers:
1 How can service quality be defined and improved when the product is intangible and non- standardized?
2 How can new services be designed and tested effectively when the service is essentially an intangible
process?
3 How can the firm be certain it is communicating a consistent and relevant image when so many elements
of the marketing mix communicate to customers and some of these elements are the service providers
themselves?
4 How does the firm accommodate fluctuating demand when capacity is fixed and the service itself is
perishable?
5 How can the firm best motivate and select service employees who, because the service is delivered in real
time, become a critical part of the product itself?
6 How should prices be set when it is difficult to determine actual costs of production and price may be
inextricably intertwined with perceptions of quality?
7 How should the firm be organized so that good strategic and tactical decisions are made when a decision
in any of the functional areas of marketing, operations and human resources may have significant impact on
the other two areas?
8 How can the balance between standardization and personalization be determined to maximize both the
efficiency of the organization and the satisfaction of its customers?
9 How can the organization protect new service concepts from competitors when service processes cannot
be readily patented?

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10 How does the firm communicate quality and value to consumers when the offering is intangible and
cannot be readily tried or displayed?
11 How can the organization ensure the delivery of consistent quality service when both the organization’s
employees and the customers themselves can affect the service outcome?
OPPORTUNITIES IN INDIAN SERVICE INDUSTRY
With the commendable growth of services industry in India, many opportunities are being created for a various
set of individuals and professionals to benefit from.
Opportunities for employment have been coming up in five major sectors of the service industry, i.e.,
Information Technology, Telecom, Healthcare, Infrastructure, and retail.
According to IBEF (India Brand Equity Foundation is a trust established by the Department of Commerce, Ministry of
Commerce and Industry, Government of India), the Indian IT industry will touch $225 billion
(=1,55,37,71,25,00,000.00 Indian Rupee) by the year 2020, and as per a study by NASSCOM the size of IT
workforce will touch 30 million in the same duration. The rapid penetration of mobile phones in India is
fuelling the growth of employment opportunities in Telecom sector. Estimates also say that over 40 million new
jobs are expected to be generated by the Indian healthcare sector by the year 2020 in various functions such as
sales, marketing, HR etc. within the industry.
Talking about the tourism industry, it has various cashable opportunities for foreign exchange attraction and
employment. Considering a rich cultural heritage, varying terrains and ecology, and the natural beauty of the
geography of India, the tourism sector attracts a lot of foreign exchange. The tourism industry as a whole is
expected to generate 13.45 million jobs. India is the third favorable country for foreign investment and Indian
service companies are the major contributor in attracting these opportunities. The IT and ITeS sector of the
industry have attracted total FDI inflows of US$ 18 billion between April 2000 and December 2016.
India's service sector has been proved to be the uplifter of its economy contributing to the GDP in major
proportions. The government is also taking steps and making policies to liberalize and enhance the industry
keeping in place the mandatory and basic regulations intact. As the sector is governed by both domestic and
global factors, it is going to be an interesting journey of Indian services sector to reach its forecasted numbers.
Till now, the whole picture looks favorable for this booming sector.

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Market Trends in the Service Industry

The service industry is generally believed to require person-to-person contact in the delivery of,
sometimes, intangible products. Service industries include everything from business consulting to health
care to education. Market trends in the service industry are being impacted primarily by the use of
technology to streamline operations, provide resources to staff, and, in some cases, to replace the need for
staff. Function
A market economy involves the exchanges of good or services and information. A service industry is focused
on the exchange of services between companies and their end-user consumers. Markets are governed by supply
and demand. Increasingly, consumers are requiring higher and higher levels of service and more convenient
access to information. Unlike in manufacturing industries, service marketers are faced with the need to provide
value to consumers based on intangibles that can be difficult to quantify and deliver.
History
According to the U.S. Department of Commerce, during the last half of the 20th century, the service sector
became the largest and fastest-growing part of the U.S. economy. During the first half of the century, the service
sector represented about 60 percent of the economy, but by the end of the 20th century, it represented about 80
percent. This has been a significant shift and an ongoing transition from an agrarian (farming) economy to
manufacturing, and, ultimately, to the service economy that we see today.
Impact on Jobs
The move away from manufacturing to service-related production has had a significant impact on jobs in the
U.S. According to Dixie Sommers, with the U.S. Bureau of Labor Statistics, four trends will be seen through
2014: slower labor force growth, an aging population, a shift of employment from manufacturing to service-
related industries and strong labor productivity growth. She predicts the economy will create 19 million new
jobs, in addition to the 34 million job openings that will result from retirements and turnover.
Challenges
Service industries face different challenges than manufacturers. Chief among them is the fact that the product
delivery process is significantly more complex than when delivering a product. With tangible products,
consistency can be maintained more readily and quality can be monitored and impacted. In service industries,
the number of people or touchpoints involved in the delivery process and the inconsistencies in human

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behaviors and actions make maintaining quality and brand consistency an ongoing challenge, says Lin
Grensing-Pophal, author of "Marketing With the End in Mind."
The Future
Ironically, according to a 2010 report from Global Industry Analysts Inc., the service industry is, and will
continue to be, impacted by machines. Machines still matter. Even in a service economy where people are
increasingly important, innovations in technology mean that machines have the ability to aid and sometimes
replace people. The report predicts that "service robots" will become increasingly common in settings as wide-
ranging as in homes to hospitals and the defense industry.
GAP MODELS OF SERVICE QUALITY
The Gap model of service quality was developed by Parasuraman, Berry and Zeithaml (1985), and more
recently described in Zeithaml and Bitner (2003). It has served as a framework for research in services
marketing, including hospitality marketing, for over two decades. The model identifies four specific gaps
leading to a fifth overall gap between customer’s expectations and perceived service.
The five gaps Customers have expectations for service experiences and they use them to measure against the
perceived service performance in their judgment of service quality. It is essential, then, that managers determine
what those expectations are when designing the service.

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GAP 1: The first gap in service quality occurs when management fails to accurately identify customer
expectations. It is referred to as the knowledge gap. Specifically, it is the difference in customer expectations
and management’s perception of customer expectations. Hotel managers, for instance, must know and
understand what their guests expect from their stay, including all tangibles (the room, amenities, lobbies
features) and intangible components (availability of additional services, ease of check-in and check-out
procedures).
The size of the gap is dependent on:
 The extent of upward communication (from customers to top management),
 The number of layers of management,
 The size of the organization,
 And most importantly, the extent of marketing research to identify customer expectations.
GAP 2: The Gap 2 is referred to as the design gap. It is measured by how well the service design specifications
match up to management’s perception of customer expectations. The extent of this gap is dependent on

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management’s belief that service quality is important and that it is possible, as well as the resources that are
available for the provision of the service. A restaurant manager may understand customer expectations for being
served within 20 minutes of ordering, but may not have the resources or the appropriate number of staff to
insure that speed of service.
GAP 3: Gap 3 represents the variation in service design and service delivery. Known as the performance gap,
its extent is a function of many variables involved in the provision of service. Since individuals perform the
service, the quality may be affected by such factors as skill level, type of training received, degree of role
congruity (agreeability) or conflict, and job fit. Some service providers (i.e. waiters, front-desk staff) do not
have a high service inclination, despite training. Service recovery efforts along with extent of responsibility and
empowerment also affect the size of this gap. x
The process is further complicated by the customer’s participation in the service encounter. A customer may
make a special request for a room type different from the one originally reserved, or request a menu item after
the initial order has been completed, making it more difficult to perform the service as intended.
GAP 4: The Gap 4 is called the communications gap. It is the difference between what is promised to
customers, either explicitly or implicitly, and what is being delivered. Hospitality companies use advertising,
personal selling, and sales promotion to inform,
GAP 5: The Gap 5 is called the Customer gap that the total accumulation of variation in Gaps 1 through 4 and
represents the difference between expectations and perceived service. Furthermore, consumers evaluate
perceived service along five quality dimensions.
DIMENSION OF SERVICE QUALITY
Service quality dimensions refer to the psychological dimensions that form the basis of a customers perceived
quality of a service. While numerous marketing researchers have attempted to define the specific dimensions of
service quality, Parasuraman, Berry, and Zeithaml (1985) introduced the definition in their presentation of the
Gap Model of Service Quality.
They proposed that five specific dimensions of service quality exist and apply regardless of the service
industry: reliability, responsiveness, assurance, empathy, and tangibles. The most important service quality
dimension to customers is reliability.

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1. Reliability is defined as the ability to perform the promised service dependably and accurately. In other
words, it means doing what you say you will do. Customers have consistently stated that a company’s
ability to deliver promises is the most vital factor to providing service quality. Having a room ready upon
check-in is an example of the reliability dimension.
2. Responsiveness is the willingness to help customers and to provide prompt service. Customers judge a
company’s responsiveness by assessing the amount of time it takes and the attentiveness that is offered in
response to their requests, questions, complaints, and problems. Companies that use automated phone
systems, regularly put customers on hold, or consistently have long wait times or long lines tend to be
rated low on the responsiveness dimension. Responding quickly to requests or complaints leads to a higher
rating on this dimension
3. The third dimension of service quality is assurance. Assurance is defined as employees’ knowledge and
courtesy and the ability of the firm and its employees to inspire trust and confidence. The assurance
dimension is particularly important in service industries offering high levels of credence qualities, such as
auto repair and medical services. The importance of the assurance dimension increases in proportion to the
risk and the greater the inability for a customer to evaluate the service. The expertise of an endorser or a
particular service provider for a cruise vacation may affect the level of confidence and trust a customer has
toward that service.
4. Empathy is defined as the caring, individualized attention the firm provides its customers. Customers
perceive the level of a company’s empathy by the degree of personalized service offered. Customers want
to be known on an individual basis and feel that the company understands and addresses their individual
needs. When competing with companies that enjoy economies of scale, small companies can earn greater
market shares by focusing on empathy. Showing concern for a guest whose luggage is lost is a way to
improve the overall perceived service quality.
5. The final dimension of service quality is tangibles. Tangibles are defined as the appearance of physical
facilities, equipment, personnel and communication materials. Service industries such as hotels and
restaurants rely heavily on tangibles. Guests often judge the quality of a hotel experience on the quality of
the physical environment and tangible amenities.

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Each time they experience a service, guests are evaluating the hospitality organization. These customers judge
the overall service quality by looking at its five dimensions during all interactions with service providers.
Companies need to perform well on all dimensions of service quality to insure a positive overall evaluation.
Service Quality (SQ) = Customer’s Perception (P) – Customer’s Expectations (E)
Management of service quality largely focuses on managing the gaps between expectations and
perceptions of customers. The goal of the firm is to minimize the gap between (P) and (E).
Customer satisfaction is a personal feeling of either pleasure or disappointment resulting from the
evaluation of services provided by an organization to an individual in relation to expectations.
Service providers frequently place a higher priority on customer satisfaction, because it has been seen as a pre
requisite to customer retention. As a positive outcome of marketing activities, high customer satisfaction leads
to repeated visit to stores, re-purchase of product, and word-of mouth promotion to friends. Quality of Service
Service quality refers to an attitude formed by a long-term overall evaluation of a firm’s performance. A
successful relationship between businesses and a customer is centered on mutually satisfying goals. These goals
tend to evolve with time, technology and financial and political environment. In the book ‘Principles of
Marketing’ (Armstrong & Kotler, 1996) described customer satisfaction as an emotion resulting from the
evaluation of the balance between the services described and provided against the felt needs that motivated the
purchase decision. (Bitner & Zeithaml, 2003) identified that satisfaction is the customers’ evaluation of the
fulfillment of their requirements and expectations from a product or service. As said by (Boselie, Hesselink, &
Wiele, 2002) satisfaction is a positive, affective state resulting from the review of all aspects of an
organization’s working relationship with another
CONSUMER BEHAVIOR IN SERVICES
The first objective of the service marketer is to close the gap between expectation and perception. To
achieve this purpose, the service provider should know how customer choose and evaluate the service
offered.
Consumers also have equally tough task in evaluating and choosing service because services are intangible,
not standardized and also consumption is close to production.

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From a marketing perspective, products and services can be separated into three useful classes: search
products, experience products, and credence products.
1. Search attributes:- Customers can readily evaluate before they purchase. A hotel room price, an airline
schedule, television reception, and the quality of a home entertainment system can all be evaluated before a
purchase is made. Well-informed buyers are aware of the substitutes that exist for these types of products and
thus are likely to be more price sensitive than other buyers, unless there exists some brand reputation or
customer loyalty. This sensitivity, in turn, induces sellers to copy the most popular features and benefits of these
types of products. Price sensitivity is high with respect to products with many substitutes, and since most buyers
are aware of their alternatives, prices are held within a competitive band.
2. Experience attributes:- can be evaluated only after purchase, such as dinner in a new restaurant, a concert or
theater performance, a new movie, or a hairstyle. The customer cannot pass judgment on value until after he or
she has experienced the service. These types of products tend to be more differentiated than search products,
and buyers tend to be fewer prices sensitive, especially if it is their first purchase of said product. However,
since they will form an opinion after the experience, if it is not favorable, no amount of differentiation will
bring them back. Product brand and reputation play an important role in experience products, due to
consistency of quality and loyalty. For instance, when customers travel, so does brand reputation, as with
airlines, hotels, rental cars, and so forth
3. Credence attributes:-Buyers cannot confidently evaluate, even after one or more purchases. Thus, buyers
tend to rely on the reputation of the brand name, testimonials from someone they know or respect, service
quality, and price. Credence products and services include health care; legal, accounting, advertising,
consulting, and IT services; baldness cures; pension, financial, and funeral services; and even pet food
(since you have to infer if your pet likes it or not). Credence services are more likely than other types to be
customized, making them difficult to compare to other offerings. Because there are fewer substitutes to a
customized service and there is more risk in purchasing these types of services, price sensitivity tends to be
relatively low — that is, the majority of customers purchasing credence services are relatively price
insensitive compared to search or credence goods.
Expectations and How They Are Formed

Customers' expectations about what constitutes good service vary from one business to another. For example,
although accounting and veterinary surgery are both professional services, the experience of meeting an

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accountant to talk about your tax returns tends to be very different from visiting a vet to get treatment for your
sick pet. Expectations are also likely to vary in relation to differently positioned service providers in the same
industry.
While travelers expect no-frills service for a short domestic flight on a discount carrier, they would undoubtedly
be very dissatisfied with that same level of service on a full-service airline flying from Los Angeles to Sydney,
or from Toronto to Paris, even in economy class. Consequently, it's very important for marketers to understand
customer expectations of their own firm's service offerings especially as they relate to specific product
elements.
When individual customers or corporate purchasing department employees evaluate the quality of a service,
they may be judging it against some internal standard that existed prior to the service experience. Perceived
service quality results from customers comparing the service they perceive they have received against what they
expected to receive.
People's expectations about services tend to be strongly influenced by their own prior experience as customers
with a particular service provider, with competing services in the same industry, or with related services in
different industries. If they have no relevant prior experience, customers may base their pre purchase
expectations on factors like word-of-mouth comments, news stories, or the firm's marketing efforts.
Over time, certain norms develop for what to expect from service providers within a given industry. As we
discussed in Chapter, roles and scripts help reinforce these expectations for both customers and service
employees. Norms are also affected by customer experiences and supplier-controlled factors like advertising,
pricing, and the physical appearance of the service facility and its employees. For example, Americans don't
expect to be greeted by a doorman and a valet at a Motel, but they certainly do at a Ritz-Carlton hotel, where
service levels are known to be much higher.
Customer Needs and Expectations Examples
Customer expectations may also vary from one industry to another, reflecting industry reputations and past
experience. In many countries, people have lower expectations of government service providers than they do of
private companies.

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Expectations may even vary within different demographic groups (e.g., between men and women, older and
younger consumers, or blue- versus white-collar workers).To make things more complicated, expectations also
differ from country to country. For instance, while it may be acceptable and unsurprising for a train to arrive
several hours late in some countries, rail schedules are so precise in Switzerland that the margin for error is
measured in seconds.
CONSUMER DECISION MAKING AND EVALUATION OF SERVICES
1. Need perception: difference in actual state & desired (Hungry –need to buy food-remove hunger)
2. Search for information: need felt-decides to purchase- search for info. To full fill needs (from –
personal, commercial, public source, experimental) & perceived risks.(financial risk, functional
,physical, psychological, social, time risk)
3. Evaluation of alternatives: compare & evaluate services of alternatives. (Well defined attributes)
e.g interior decoration –different from home to home & customer to customer.
(Emotions- influence on customer- evaluation ability)

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4. Purchase & consumption: trail purchase, repeat purchase, long term commitment purchase)
5. Post purchase evaluation: compares performance vs. expectations – Satisfied customer becomes
loyal.
CUSTOMER EXPECTATION OF SERVICES
THE COMPONENTS OF CUSTOMER EXPECTATION
Customer expectations embrace several different elements, including desired service, adequate service,
predicted service, and a zone of tolerance that falls between the desired and adequate service levels.
The model shown in Figure shows how expectations for desired service and adequate service are formed.

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Desired and Adequate Service Levels: The type of service customers hope to receive is termed desired
service. It is a "wished for" level a combination of what customers believe can and should be delivered in the
context of their personal needs. However, most customers are realistic and understand that companies can't
always deliver the level of service they would prefer; hence, they also have a threshold level of expectations,
termed adequate service, which is defined as the minimum level of service customers will accept without
being dissatisfied.
Among the factors that set this expectation are situational factors affecting service performance and the level of
service that might be anticipated from alternative suppliers? The levels of both desired and adequate service
expectations may reflect explicit and implicit promises by the provider, word-of-mouth comments, and the
customer's past experience (if any) with this organization.
Predicted Service Level: The level of service that customers actually anticipate receiving is known
as predicted service, which directly affects how they define "adequate service" on that occasion. If good
service is predicted, the adequate level will be higher than if poorer service is predicted. Customer predictions
of service may be situation specific. For example, from past experience, customers visiting a museum on a
summer day may expect to see larger crowds if the weather is poor than if the sun is shining. So a 10-minute
"wait to buy tickets on a cool, rainy day in summer might not fall below their adequate service level. The level
of service quality a customer believes a firm will actually Deliver.
Zone of Tolerance: The inherent nature of services makes consistent service delivery difficult across
employees in the same company and even by the same service employee from one day to another. The extent to
which customers are willing to accept this variation is called the zone of tolerance. A performance that falls
below the adequate service level will cause frustration and dissatisfaction, whereas one that exceeds the desired
service level will both please and surprise customers, creating the "customer delight" that we discussed earlier
in this chapter.
Another way of looking at the zone of tolerance is to think of it as the range of service within which customers
don't pay explicit attention to service performance. When service falls outside this range, customers will react
either positively or negatively. The range within which customers are willing to accept variations in service
delivery.
The zone of tolerance can increase or decrease for individual customers depending on factors like competition,
price, or importance of specific service attributes. These factors most often affect adequate service levels
(which may move up or down in response to situational factors), while desired service levels tend to move up

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very slowly in response to accumulated customer experiences. Consider a small-business owner who needs
some advice from her accountant.
Her ideal level of professional service may be a thoughtful response by the next business day. But if she makes
the request at the time of year when all accountants are busy preparing corporate and individual tax returns, she
will probably know from experience not to expect a fast response. Although her ideal service level probably
won't change, her zone of tolerance for response time may be much broader because she has a lower adequate
service threshold.
FACTORS INFLUENCING CUSTOMER EXPECTATIONS OF SERVICE
When consumers are interested in purchasing services, they are likely to seek or take in information from
several different sources. For example, they may call a store, ask a friend, or deliberately track newspaper
advertisements to find the needed service at the lowest price.
They may also receive service information by watching television or hearing an unsolicited comment from a
colleague about a service that was performed well. In addition to these active and passive types of external
search for information, consumers may conduct an internal search by reviewing the information held in
memory about the service.
35
Sources of Desired Service Expectations:
1. Personal needs - physical, social, psychological, and functional needs- here level of tolerance keep changing.
For example, a cricket fan goes to watch a match in the stadium. He stands is queue, and enters the stadium
after 2 to 3 hours. Obviously he will be feeling thirsty and hungry. He hopes and desires that food and drink
vendor will passes through as early as possible. Image an cricket fan who has brought lunch and water, entering
the stadium by standing in the queue. This person has zero level of desired level from the vendor thus varies
from individual to individual.
2. Derived service expectations- customer expectations driven by another person or group of people. Ex.
Family, other people, managers or supervisors, or own customers in B2B. A person choosing a holiday
resort for the family. Here service is chosen at the pressure of children. Therefore parent derived this
service from children
3. Personal service philosophy-customer‘s underlying generic attitude about the meaning of service
and proper conduct of service providers. Service philosophy comes from those customers who are
themselves in service business or worked for a service business in the past. If you are been a waiter in a
hotel, you are likely to have a standard for restaurant services.
Sources of Adequate Service Expectations:
1. Transitory Service Intensifiers short-term individual factors that make a customer more aware of the
need for service EX. Personal emergency like car accident, car repair.
2. Perceived service alternatives other providers from whom the customer can obtain service, do it
yourself or have many or few choices (airport in small versus big towns)
3. Self-perceived service role degree to which a customer exerts an influence on the level of service
they receive (if customer does not show up regularly for allergy shots, customers more lenient with
allergist)
4. Situational factors service conditions beyond control of service provider
5. Predicted service what customers think they are likely to get ( if predict good service, the level of
adequate service is high)
PRIYADARSHINI N, ASST.PROF, DEPT. OF MBA,

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Sources of both Desired and Predicted Service Expectations
1. Explicit service promises: Explicit service promises are personal and non-personal statements about
the service made by the organization to customers. The statements are personal when they are
communicated by salespeople or service or repair personnel; they are non-personal when they come from
advertising, brochures, another written publications. Explicit service promises are one of the few
influences on expectations that are completely in the control of service provider.
Promising exactly what will ultimately be delivered would seem a logical and appropriate way to manage
customer expectations and ensure that reality fits the promises. However, companies and the personnel who
represent them often deliberately overpromise to obtain business or inadvertently overpromise by stating
their best estimates about delivery of a service in the future.
2. Implicit service promises: Implicit service promises are service-related cues other than explicit
promises that lead to inference about what the service should and will be like. These quality cues are
dominated by price and the tangibles associated with the service: In general, the higher the price and
the more impressive the tangibles, the more a customer will expect from the service. Consider a customer
who shops for insurance, finding two firms charging radically different prices. She may make the inference
that the firm with the higher price should and will provide higher quality service and better coverage.
Similarly, a customer who stays at a posh hotel is likely to desire and predict a higher standard of service
than from a hotel with less impressive facilities.
3. The word-of-mouth communication: The importance of word-of-mouth communication is shaping
expectations of service is well documented. These personal and sometimes non-personal statements
made by parties other than the organization convey to customers what the service will be like and
influence both predicted and desired service. Word of mouth tends to be very important in services that
are difficult to evaluate before purchase and direct experience of them. Experts (including consumer
Reports, friends and family) are also word-of-mouth sources that can affect the levels of desired and
predicted service.

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4. Past experience: The customer’s previous exposure to service that is relevant to the focal service, is
another force in shaping predictions and desires. The service relevant for prediction can be previous
exposure to the focal firm’s service.
For example, you probably compare each stay in a particular hotel with all previous stays in that hotel. But
past experience with the focal hotel is likely to be a very limited view of your past experience. You may
also compare each stay with your experiences in the other hotels and hotel chains.
5. Customers also compare across industries: hospital patients, for example, compare hospital stays against
the standards set by telephone service, one reason why cable service is often judged to be poor. In a general
sense, past experience may incorporate previous experience with the focal brand, typical performance of a
favorite brand, experience with the brand last purchased or the top-selling brand, as well as the average
performance a customer believes represents a group of similar brands.
CUSTOMER PROFILE
 A good method of identifying and understanding customers is to develop customer profile.

 This approach is similar to that used in market segmentation.
 The marketer creates some basis for dividing the various customer groups.
 The marketer then develops a typical customer profile which helps to analyze and understand
consumer behavior.
CUSTOMER PERCEPTION OF SERVICES
Customer perception analysis is a value-chain assessment methodology that gives a better understanding of
one’s interaction with customers.
1. Perception is a process through which the in selected, received, organized and interpreted to make it
meaningful.
2. Services are processes that are experienced and many people experience the same service differently

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Service Quality – Judgment about an entity‘s overall excellence or superiority, for providers it is the degree
to which the service conforms to the organizations specifications and requirements and for the consumers it
is how well the service meets or exceeds expectations
Customer satisfaction – post purchase evaluation of the overall service experience (process and outcome), it
is affective (emotional) state or reaction and is a judgment that a product or service provides a pleasurable
level of consumption-related fulfillment.
PERCEPTION
According to kolasa,‘ perception is selecting the outside environment at one time or the other to
provide the meaningful entity we experience.‘
According to Robbins, "perception may be defined as a process by which individuals organize and
interpret their sensory impressions in order to give meaning to their environment.‘
FACTORS THAT INFLUENCE CUSTOMER PERCEPTION OF SERVICE
1. Service encounters
2. Evidence of service
3. Image
4. Price
1. SERVICE ENCOUNTERS
From the customer‘s point of view, the most vivid impression of service occurs in the service encounters or
Moment Of Truth, when the customer interacts with the service firm. This is the foundation to ―Satisfaction
of Service Quality – it is where the promises are kept or broken. The concept of service encounter was put
forth by Richard Norman, taking the metaphor from Bull Fighting. Most services are results of social acts,
which take place in direct contact between the customer and the service provider. At this stage the customer
realizes the perceived service quality.

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Every ―Moment of Truth‖is Important – according to Scandinavian Airlines, each one of their 10 million
customers come in contact with 5 employees. Thus the airlines say there 50 million moments of truth – each
one is managed well and ―They prove they are the BEST.
Types of Service Encounters
A service encounter occurs every time a customer interacts with the service organization. There are three
general types of service encounters – remote encounters, phone encounters, and face-to-face encounters. A
customer may experience any of these types of service encounters, or a combination of all three in his/her
relations with a service firm.
1. Remote Encounter: Encounter can occur without any direct human contact is called as Remote Encounters.
Such as, when a customer interacts with a bank through the ATM system, or with a mail-order service through
automated dial-in ordering. Remote encounters also occur when the firm sends its billing statements or
communicates others types of information to customers by mail. Although there is no direct human contact in these
remote encounters, each represents an opportunity for a firm to reinforce or establish perceptions in the customer.
In remote encounter the tangible evidence of the service and the quality of the technical process and system
become the primary bases for judging quality. Services are being delivered through technology, particularly with
the advent of Internet applications. Retail purchases, airline ticketing, repair and maintenance troubleshooting, and
package and shipment tracking are just a few examples of services available via the Internet. All of these types
of service encounters can be considered remote encounters.
2. Phone Encounters: - In many organizations, the most frequent type of encounter between a customer and
the firm occurs over the telephone is called as phone encounter. Almost all firms (whether goods
manufacturers or service businesses) rely on phone encounters in the form of customer-service, general
inquiry, or order-taking functions. The judgment of quality in phone encounters is different from remote
encounters because there is greater potential variability in the interaction. Tone of voice, employee
knowledge, and effectiveness/efficiency in handling customer issues become important criteria for judging
quality in these encounters.

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3. Face-to-Face Encounters: A third type of encounter is the one that occurs between an employee and a
customer in direct contact is called as Face-to-Face Encounter. In a hotel, face–to–face encounters occur
between customers and maintenance personnel, receptionist, bellboy, food and beverage servers and others.
Determining and understanding service equality issues in face–to–face context is the most complex of all.
Both verbal and non-verbal behaviors are important determinants of quality, as are tangible cues such as
employee dress and other symbols of service (equipment‘s, informational brochures, physical settings). In
face–to–face encounters the customer also play an important role in creating quality service for her through
his/her own behavior during the interaction. For example, at Disney theme parks, face-to-face encounters
occur between customer and ticket-takers, maintenance personnel, actors in Disney character costumes, ride
personnel, food and beverage servers, and others. For a company such as, IBM, in a business-to-business
setting direct encounters occur between the business customers and salespeople, delivery personnel,
maintenance representatives, and professional consultants.
THE EVIDENCE OFSERVICE
Another major set of factors influencing customer perceptions of service is referred to as the ―Evidence
of Service.
Because service is intangible, customers searching for evidence of service in every interaction they have with
an organization. The evidences of services as experienced by the customer are People, Process and Physical
evidence.
All the above elements are present in every service encounters a customer has with a service firm. And it is
important in managing service quality and customer satisfaction. For example, when a patient has an
appointment with a Doctor in Health clinic, the first encounter of the visit is with the receptionist in the clinic
waiting area. The quality of the encounter will be judged by
a. How the appointment registration process works? Registration system computerized, is it

accurate, how long have to wait, the action and attitude of the receptionist counts.
b. Was she courteous, helpful, and knowledgeable?
c. How does the Doctor handle the patient, Is he effective?

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d. Is the waiting area clean and comfortable?
All the three types will operate in face to face service encounter.
IMAGE
In addition to the impression and immediate service encounter, customer perception can be influenced by the
image or reputation of the organization. Organizational image can exist at several levels. A large service
organization with multiple outlets or branches like Food World has a corporate image as well as local image,
that is closely associated with a specific location. A favorable and well known image is an asset for any
organization because image influenced perception of quality, value and satisfaction.
Organizational image acts as a filter that influences customer perception of the service organization operations.
A very positive image will act as a buffer against incident of poor services. In other words, if a customer has an
overall positive image of the organization, one bad experience is not likely fatal
PRICE
The price of a service greatly influences perception of quality, satisfaction and value. Because services are
intangible and often difficult to judge before purchase, price plays an important role in expectations. If the price

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is very high, customer are likely to expect high quality and the actual perception will be influenced by this
expectations. If the price is too high, the organization may be sending a message of unconcern to the customers.
If the price is too low, customer doubt the organization‘s ability to deliver poor quality of services. The
customer will certainly think whether he has got the value for the price that he has paid for service
CUSTOMER SATISFACTION BENEFITS
Although every successful marketer wants to deliver services that makes customer satisfied, But this is not the
marketers' goal only. Organizations and companies cannot ignore their main objectives like access to
competitive advantages through creating profit. Customer satisfaction has so many benefits to company and
high level of customer satisfaction leads to more customer loyalty. Maintaining the good customers in the long
run is more beneficial than continuous attraction of new customers to replace with those customers who have
broken up their relationship with company. Customers who have more satisfaction from the company, they tell
their positive experiences to others and such this way they become advertiser of company, therefore they reduce
the customer attraction cost also. This is very important to professional service deliver, because their popularity,
Reputation, Introducing their benefits and positive points of them through their customer word of mouth is the
essential information source for new customers.
STRATEGIES FOR INFLUENCING CUSTOMER PERCEPTION
1. Measure and manage customer satisfaction and service quality

2. Aim for customer quality and satisfaction in every service encounter-zero defects
3. Plan for effective recovery
4. Facilitate adaptability and flexibility
5. Encourage spontaneity
6. Help employees with problem customers
7. Reflect evidence of service
8. Enhance customer perception of quality and value through pricing.
THE FLOWER OF SERVICE

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This concept was first introduced by Christopher Lovelock in 1992. In his paper "Cultivating the Flower of
Service: New Ways of Looking at Core and Supplementary Services", he has elaborated the range of
service elements that can be added to a services products as:
1. The elements that are important in service delivery or aid to the delivery of core product.
They are Facilitating Service.
2. The elements that add extra value to the core product. They are termed as Enhancing
Services.
Though there can be number of facilitating and enhancing services, Christopher Lovelock has classified
them in eight clusters. According to this model these eight service elements are petals surrounding the
center of the flower which is represented by the core product called the Flower of service. They consist of
information, consultation, order-taking, hospitality, safekeeping, exceptions, billing and payments.
The order of the elements in the service flower is designed keeping in mind the flow of service and the
order in which they happen. Information, order taking, billing and payments describes facilitating elements,
and consultations, hospitality, safekeeping and exceptions brings up enhancing service elements.
The facilitating and enhancing services aids the delivery of core service product. They are present in
services with variations as not everyone aims at the highest level of service. Also the sequence of service
differs in different industries - for example in some cases like online travel bookings, customers may not
visit the service providers office at all. Facilitating services are also determined by the role of customer in
the delivery process (people processing vs possession processing) and the waiting and delivery time
associated with the delivery.

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1. Information
Information is a very strong element in facilitating core service. Good service provider’s aims to create
good impression by keep an updated and informative website, which helps providing all necessary
information to the customer. The customer may seek following Information:
Directions to service site:
Service providers can use SEO to enable online search. On the company's website all the information
including product information, reservations and FAQs guides the customer. It also provides location help to
the customers.
Novotel hotel in Venice, Italy provides all the useful information on it's website.
On the physical location there is an information counter or reception provides the information. They are the
people who guides the customer to appropriate service factory.
Schedules/service hours:
Airlines provide information regarding flight timings and duration, Hotels put up check-in and check-out
timings, doctors display their visiting hours to provide customers with the schedules.

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Prices:
Most customers seek information regarding prices of the service package. They also look for information
regarding inclusions in the given offer and prices for add-ons.
Reminders & Offers:

Most airlines sends messages to its customers regarding schedules and delay, banks provide its customer
with the updated account information and beauty saloons sends message its customers for service
reminders. Tours and travel companies send messages to its customers regarding offers and schemes.

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Warnings and Conditions:
All disclaimers, cancellation policies, possible changes in fares and prices are informed to the customers.
Special conditions are mentioned if required. For example, a hair spa would ask the customer to wash the
hair before treatment.
This tour and travel companies indicates current prices with warnings that it is subject to change as seats
are full. They would also notify the change in itinerary, timings and packages are informed.
Documentation:
Customer may need information regarding their previous services that is made available if
documented. Confirmation of reservations can be provided online or offline through a message or a
voucher. Receipts and tickets are a proof of bookings and payments an offline or online voucher or ticket is
provided. Banks and financial institutions provides summaries of account activities that are updated and
accurate.

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2. Consultation
After seeking all the general information, the customers will look for the suggestions and recommendations
that best suits their specific needs. The service providers tries to answer all possible queries of customers.
In an academic institution, students asks faculty members regarding choice of course. In a restaurants,
patrons ask captain to suggest what dish to order, In a beauty saloon, customers ask experts to guide them
regarding what facial or haircut will suit them. Consultation is an enhancing service which may not be
offered by basic service providers. Some of the consultation services includes:
Customized advice:
Tours and travel companies provide customized advice to its customers regarding personal counseling,
tutoring/training in product use and management or technical consulting.
Norwegian cruise liners have personal consultants for guide customers booking the right cruise and
packages.

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3. Order taking
Once a customer is satisfied with all the information and counseling, the order is placed. In services order
placing may happen before counseling, after counseling or simultaneously as well. Ordertaking is a
facilitating element and essential in all service. In basic services order is taken on the basis of what is
available and very less or no counseling is given to the customers.
The customer may place the order online through the reservation portals. Many service providers like
beauty salons, spas, hotels and restaurants book reservations online.

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18MBAMM303
Many rental companies like taxi services, car rentals or equipment rentals also provide online booking
services. Bookmyshow app provides online booking of tickets for movies, concert, sports events and plays.

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18MBAMM303
Some services like memberships in clubs, admissions in schools and universities and subscription services
requires the customer to fill an application. In such cases, there are many applicants for one seat and the
service provider selects the customer on the basis of certain criteria.
4. Hospitality
Hospitality is an enhancing element. Its starts at the moment customer enters a service factory. This
elements is the most important parameter of service quality and very essential in people processing high
contact services. Many services providers excels in hospitality. Major hotel chains and restaurants have
positioned themselves on their exceptional hospitality services.

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18MBAMM303
As per Christopher Lovelock, the hospitality element is defined by the following:

Greeting:
Being the first contact point or moment of truth, service providers makes sure that the customer is greeted
properly upon entering the service facility. The main entrance security, parking assistants, and the people at
reception greets the customer. At HDFC bank branches, the customer is greeted by a security personnel at
the entrance and guided towards the right counter.
Food and beverages:
A very important aspect of hospitality s the food and beverages offered to the customer, not only for the
hotel and restaurant services but for all the people processing services. In a beauty saloon, consultancy
services, complimentary refreshments are offered to the customers waiting and availing the services.In
some other service, like retail stores, cinema halls and concerts, refreshments are made available on paid
basis.
Airlines also emphasize on quality of food served. Low cost airlines serve food on payment (pre or onspot).
Luxury airlines serve liquor and food to its customers.
Other hospitality elements includes, neat and clean toilets and washrooms, comfortable waiting facilities
with basic amenities like air-conditioner and water dispenser. Service providers also offers lounges, waiting
areas with wi-fi facility, comfortable seating. Changi airport in Singapore provides massage chairs in the
waiting lounge. Waiting lounges also keep magazines, televisions, newspapers for the customers.
Service providers also provides weather protection from sun, rains and snow is provided to the customers
and the customer's vehicles.
Good hotels also provide airport transfers and sight seeing tours.
5. Safekeeping
Safekeeping is also an enhancing element. It includes:
 Caring for customer possessions child care, pet care, parking for vehicles, valet parking, coat
rooms, baggage handling, storage space, safe deposit boxes and security personnel

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18MBAMM303
 Caring for goods purchased like providing packaging, pickup, free transportation and delivery,
installation, inspection and diagnosis of malfunctioned products, cleaning, refueling,
annual maintenance repair and renovation.
6. Exceptions
Exceptions is an enhancing element of service product. At time service providers have to deal with special
requests from the customers regarding their personal needs for example, children’s needs, dietary
requirements, medical or disability needs or religious observances. For hotels, customer may request for
early check-in or late checkout.
Service providers also excel in handling complaints, compliments and suggestions. In case of complaints
they try to recover the service, if not possible they provide adequate compensation. For example, if a
customer is not satisfied with a haircut, the saloon may not charge the customer. In case the customer is
delighted with the experience and compliments service provider, the service provider rewards the
customers with some freebies to retain the patronage. Customer suggestions are invited for improvements.
Services providers may provide exception in handling and solving problem situations. They may offer
service warranties and guarantees like home repair and painting companies offers. They may assist
customer using a product or may assist customers meres who have suffered an accident or a medical
emergency
In case of service failure due to any reason, the service provider may restitute by offering refunds and
compensation. They may also offer free repair of defective goods.
7. Billing
Billing is a facilitating element of service product. Whatever level of service offered or availed, billed with
great care and accuracy. It includes, invoices for individual transactions, verbal statements of amount due
or machine display of amount due. At times customers may create the bill themselves. Many hotels offers
express check-ins.
8. Payments
The final and most important supplementary service is the payment facility. These days there are many
options available for payment. Customer can pay online using payment gateway, using credit card or debit
cards. They may pay through mobile network or third party, like paytm. Some housing and personal
finance companies deduct directly from customer's bank account. The option to pay at service provider site
is also available.

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20MBAMM303- SERVICES MARKETING
UNIT II- UNDERSTANDING CUSTOMER EXPECTATION OF SERVICES
Key reasons for GAP 1, using marketing research to understand customer expectation, Types of service
research, Building customer relationship through retention strategies –Relationship marketing,
Evaluation Of customer relationships, Benefits of customer relationship, levels of retention strategies,
Market segmentation-Basis & targeting in services.
GAP 1 – the Listening Gap/Knowledge Gap
Provider gap 1, the listening gap, is the difference between customer expectations of service and company
understanding of those expectations.
Customer’s expectatons
Reasons Inadequate marketing research

for orientation
provider Lack of upward communication
gap Insuficient relationship focus
I Inadequate service recovery
Management’s
perceptions of customer
expectatons
PRIYADARSHINI N, ASST. PROF, DEPT OF MBA,

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UNIT 2 – SERVICES MARKETING 2
A primary cause in many firms for not meeting customers' expectations – that is, the customer gap – is that the
firm lacks accurate understanding of exactly what those expectations are. Many reasons exist for managers not
being aware of what customers expect: They may not interact directly with customers, they may be unwilling to
ask about expectations, or they may be unprepared to address them. Closing the listening gap requires that
management or empowered employees acquire accurate information about customers' expectations. Customer
expectations must be assessed accurately before new services are developed, and they must be tracked after the
services are introduced.
STRATEGIES FOR CLOSING THE LISTENING GAP
Figure lists the four key strategies for closing the listening gap. Each of these strategies is backed by research
and practical applications.
Inadequate customer research Insufficient customer research.

orientation Research not focused on service quality
Inadequate use of market research
Lack of upward communication Lack of interaction between customer and management.
Insufficient communication between contact employees &
managers
Too many layers between contact personnel and top
management.
Insufficient relationship Lack of market segmentation.
focus Focus on transactions rather than relationships.
Focus on new customers rather than relationship customers.
Inadequate service Lack of encouragement to listen to customer complaints
recovery Failure to make amends when things go wrong.
No appropriate recovery mechanisms in place for service
failures.
1. The first strategy is to listen to customers in multiple ways through customer research and
employee upward communication. Such research includes the full range of traditional marketing

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research methods such as surveys, focus groups, and complaint handling. There have also been research
methods uniquely useful in service situations such as SERVQUAL surveys, mystery shopping, and
critical incidents analysis. A distinguishing factor between marketing research on goods and services is
that services research must capture human performance.
Whereas goods research can evaluate goods independent of the individuals who create them, service is often
created in the interaction between customers and contact personnel. The behavior of personnel can be highly
variable across individuals as well as with employees from day to day, so constant monitoring must occur. For
that reason, additional techniques are needed to assess and feedback information about the performance of
individuals. Mystery shopping – hiring people to pose as customers to evaluate performance – is typically used
in restaurants and other retail service settings.
Critical incidents research, in which a customer recalls and discusses both satisfying and unsatisfying
experiences with a service provider and its employees, is particularly useful in examining and improving service
encounters. Another marketing research approach that is particularly useful in service firms is the trailer call, a
short survey that follows (“trails”) a service event or encounter. The trailer call offers quick feedback on
employees and also allows a company to fix its processes in a timely fashion.
2. The second strategy that closes provider gap 1 is to focus on building relationships by
understanding and meeting customer needs over time. In firms where customers and companies have
interpersonal contact, this can involve many different strategies: learning customers' names, their
businesses, their industries, and their histories with the firm. Even in direct marketing or online
situations, a firm can develop a virtual relationship with customers by learning their preferences and
history. The stronger the firm's relationship with its customers, the better is the firm's ability to listen to
customers (and thus close the listening gap).
3. The final key factor associated with provider gap 1 is lack of service recovery, or a failure to
understand and act on what customers expect when there is a service failure. Even the best
companies, with the best of intentions and clear understanding of their customers' expectations,
sometimes fail. It is critical for an organization to understand the importance of service recovery – why
people complain, what they expect when they complain, and how to develop effective service recovery
strategies for dealing with inevitable service failures. Such strategies might involve a well‐defined
complaint‐handling procedure and an emphasis on empowering employees to react on the spot, in real

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time, to fix the failure; at other times, it involves a service guarantee or ways to compensate the
customer for the unfulfilled promise. Firms that learn from their failures – which often result from not
fully understanding their customers' expectations – can reduce or eliminate the listening gap.
COMMON RESEARCH OBJECTIVES FOR SERVICES
• To identify dissatisfied customers
• To discover customer requirements or expectations
• To monitor and track service performance
• To assess overall company performance compared to competition
• To assess gaps between customer expectations and perceptions
• To gauge effectiveness of changes in service
• To appraise service performance of individuals and teams for rewards
• To determine expectations for a new service
• To monitor changing expectations in an industry
• To forecast future expectations
CRITERIA FOR AN EFFECTIVE RESEARCH PROGRAM
 Includes Qualitative Research and Quantitative Research

 Includes Perceptions and Expectations of Customers
 Includes Measures of Loyalty or Behavioral Intentions
 Balances Cost of the research and Value of Information
 Includes Statistical Validity When Necessary
 Measures Priorities or Importance of attributes
 Occurs with Appropriate Frequency
 Includes measurement of loyalty, behavioral intentions or actual behavior
PORTFOLIO OF RESEARCH

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STAGES IN THE RESEARCH PROCESS
Stage 1 : Define Problem
Stage 2 : Develop Measurement Strategy
Stage 3 : Implement Research Program
Stage 4 : Collect and Tabulate Data
Stage 5 : Interpret and Analyze Findings
Stage 6 : Report Findings

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ELEMENTS IN AN EFFECTIVE SERVICE MARKETING PROGRAM (TYPES OF SERVICE

RESEARCH)
BUILDING CUSTOMER RELATIONSHIP THROUGH RETENTION STRATEGIES
Relationship Marketing

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• is a philosophy of doing business that focuses on keeping and improving current customers
• does not necessarily emphasize acquiring new customers
• is usually cheaper (for the firm)--to keep a current customer costs less than to attract a new one
• goal = to build and maintain a base of committed customers who are profitable for the organization
• thus, the focus is on the attraction, retention, and enhancement of customer relationships.
A Loyal Customer is one who...

• Shows Behavioral Commitment
– buys from only one supplier, even though other options exist
– increasingly buys more and more from a particular supplier
– provides constructive feedback/suggestions
• Exhibits Psychological Commitment
– wouldn’t consider terminating the relationship--psychological commitment
– has a positive attitude about the supplier
– says good things about the supplier
BENEFITS FOR CUSTOMER RELATIONSHIP

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Both parties in the customer/firm relationship can benefit from customer retention. That is, it is not only in the
best interest of the organization to build and maintain a loyal customer base, but customers themselves also
benefit from long-term associations.
BENEFITS FOR CUSTOMERS:
Customers will remain loyal to a firm when they receive greater value relative to what they expect from
competing firms. Apart from this obvious benefit the customer may be inclined to stick to one product or
organization because of his/her believe that-
1. he will comfortable in the relationship,

2. he knows what to expect,
3. he has a good working relationship with the organization
4. he knows he will be taken care of even for an unusual request.
Research has uncovered specific types of relational benefits, of the sort just described, that customers
experience in long-term service relationships including confidence benefits, social benefits, and special
treatment benefits.
1. Confidence Benefits: These benefits comprise feelings of trust or confidence in the provider, along with
a sense of reduced anxiety and comfort in knowing what to expect. Across all the services studied in the
research just cited, confidence benefits were the most important to customers.
Most consumers (whether individuals or businesses) have many competing demands for their time and money
and are continually searching for ways to balance and simplify decision making to improve the quality of their
lives. When they can maintain a relationship with a service provider, they free up time for other concerns and
priorities.
2. Social Benefits: In some long-term customer-firm relationship a service provider may actually become
part of the consumer's social support system. Hairdressers often serve as personal confidant of the
customer. Less common examples include proprietors of local retail stores who become central figures
in neighborhood networks.

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These types of personal relationships can be developed for business-to-business customers as well. The social
support benefits resulting from these relationships are important to the consumer's quality of life (personal
and/or work life) above and beyond the technical benefits of the service provided.
3. Special Treatment Benefits: Special treatment includes such things as getting the benefit of the doubt,
being given a special deal or price, getting preferential treatment etc. However, interestingly enough,
special treatment benefits were less important than the other types of benefits received in service
relationship.
BENEFITS FOR THE ORGANISATION:
The benefits for the organisation for developing and maintaining effective relationship with the customer are
numerous. A few obvious advantages are listed below.
1. Economic Benefits
Increase in Purchase: Researchers worldwide have reported that an effective relationship with a group of
profitable customers results in more number of sales. As consumers get to know a firm and are satisfied with the
quality of its services relative to that of its competitors, they will tend to give more of their business to the firm.
Lower Costs: It is a well-known fact that retaining old customers is cheaper than luring new customers.
Sometimes these initial costs can outweigh the revenue expected from the new customer in the short term. Even
ongoing relationship maintenance costs are likely to drop over time. For example, early in a relationship a
customer is likely to have questions and to encounter problems as he or she learns to use the service. As time
goes by the customer will have fewer doubt or question and will make fewer mistakes (assuming that the quality
or service is maintained at a high level) and the service provider will incur fewer costs in serving the customer.
2. Customer Benefits:- Good word-of-mouth: Services are normally complex and difficult to evaluate
before actually buying it, consumers most often look to others for advice on which providers to be
considered. Satisfied, loyal customers are likely to provide a firm with strong word-of- mouth
endorsements.

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Further, researchers report those customers show up based on a referral tend to be better quality customers (in
terms profitability, likelihood of being loyal) than the customers who are attracted through other promotional
campaigns like price promotion and advertising.
3. Human Resource Management Benefits
Employee Retention: Employee retention may be an indirect benefit of customer retention. It is easier for a firm
to retain employees when it has a stable base of satisfied customers. People like to work for companies whose
customers are happy and loyal. Figure 3 explains this with a causal loop diagram. The positive signs (within
brackets) show a positive change in the dependent variable with one unit change in the independent variable.
The overall changes on all the variables will be positive as well.
Having discussed the benefits of Relationship Marketing let there be a discussion on one recent development in
this field, which is helping popularising the concept among practicing marketers.
“The Customer Isn’t Always Right”
• Not all customers are good relationship customers:
– wrong segment
– not profitable in the long term
– difficult customers
CUSTOMER GOALS OF RELATIONSHIP MARKETING
The primary goal of relationship marketing is to build and maintain a group of committed customers who are
profitable for the organisation. Following methods exemplifies how the company may choose to segment and
target particular group of customers for potential relationship marketing.
 Identify the customers who spend above average. Find out whether they are loyal to the company, if not
find out ways to keep them with the company. The company should try to continuously lure them to buy
its product, even by offering loyalty discounts.
 Loyal customers can be even better customers if they buy more products and services from the company
over time. Loyal customers not only provide a solid base for the organization; they may represent
growth potential too.

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 Find out the group of new customers, which hold better promise than the others do. One way of doing so
is to tap the customers who are buying the company’s product not in response to a price discount. Then
the company should try to nurture such customers by finding out why they bought the product and by
trying to strive to give the customer whatever they look from it.
 As customers move from one life cycle stage from another, needs evolve, buying pattern fluctuates and
product choices shift. A smart and live relationship company should recognise such change of needs and
wants, and should gear itself up to suit the advantage. Failure to do so might result in drifting of the
customer.
To achieve the firm will focus on attraction and retention of the customer, and enhancement of customer
relationship.
The longer a customer is with you, the more valuable they are.
Customers as… Strangers Acquaintances Friends Partners
Product offering Attractive relative On a par with Differentiated withCustomized,

to competitors industry standards adaptation to individualized offerings
segments

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Source of Attractiveness Satisfaction Satisfaction + Trust Satisfaction + Trust +
competitive Commitment
advantage
Buying activity Interest, Reduced need for Buying without Commitment in the form
exploration, trial search perfect information of information sharing,
(what customer
specific investments
does)
Focus of selling Encouraging trial Familiarity and Specific segment Specific knowledge,
activities (what facilitates initial general knowledge knowledge idiosyncratic investments
firm does) selling
Relationship time None Short Medium: trust takes Long: detailed

horizon time to build knowledge,
interconnections
Sustainability of Low: must Low: must build Medium: must High: depends on
competitive continue to attract, unique value into understand various uniqueness &
advantage induce trial standard product customer needs effectiveness of
interconnections
Primary Acquire Satisfy customer Retain customer’sEnhance relationship

relationship customer’s needs business with customer
marketing goal business
THE CUSTOMER PYRAMID

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PROFITABILITY TIERS
Platinum Tier:- Company's most profitable customers, typically heavy users of the product, not overly price
sensitive, willing to invest in and try new offerings, and committed customers of the firm
Gold Tier:-Profitability levels are not as high, perhaps because customers want price discounts that limit
margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors.
Iron Tier:- Essential customers that provide the volume needed to utilize the firm'' capacity but their spending
levels, loyalty, and profitability are not substantial enough for special treatment
Lead Tier:-Customers who are costing the firm money. They demand more attention than they are due given
their spending and profitability and are sometimes problem customers—complaining about the firm to others
and tying up firm resources
RELATIONSHIP DEVELOPMENT MODEL

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STRATEGIES FOR BUILDING RELATIONSHIP
Underlying Logic of Customer Retention Benefits to the Organization
Core Service Provision:
Retention strategies will have little long-term success unless the firm has a solid base of service
quality and customer satisfaction on which to build. The firm does not necessarily have to be the
very best among its competitors or be world-class in terms of quality and customer satisfaction.
It must be competitive, however, and frequently better than that. All the retention strategies that
we describe foundations built upon delivery of excellent service:
satisfaction, perceived service quality, perceived value
Switching Barriers: When considering a switch in service providers, a customer may face a number of
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Literature suggests that switching barrier influence consumers’ decisions to exit from relationship with
firms and, therefore, help to facilitate customer retention.
Customer inertia:- Inertia may even explain why some dissatisfied customers stay with a
provider. People may stay because breaking the relationship would require them to restructure
their life – to develop new habits of living, to refashion old friendship, and to find new ones. In
other words, people do not like to change their behavior.
Switching costs:- In many instances, customer develop loyalty to an organization in part because
of costs involved in changing to and purchasing from a different firm. These costs, both real and
perceived, monetary and non-monetary, are termed as switching costs. Switching cost include
investment of time, money, or for the customer to move to another provider.
set up costs, search costs, learning costs, contractual costs
Relationship Bonds:
financial bonds
social bonds
customization bonds
structural bonds
LEVEL OF RETENTION STRATEGIES
Retention Strategies:
Berry and Parasuraman, two early advocates of relationship marketing have developed a framework for
understanding the type of relationship strategies. The framework suggests that retention marketing can occur at
different levels and that each successive level of strategy results in ties that bind the customer a little closer to
the firm. At each successive level, the potential for sustained competitive advantage is also increased. Building
on the levels of the retention strategy idea, Figure illustrates four types of retention strategies, which are
discussed below.

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Level-1: Financial Bond: At level I, the customer is tied to the firm primarily through financial incentives-
lower prices for greater volume purchases or lower prices for customers who have been with the firm a long
time. Examples of level 1 relationship marketing are not hard to find. Airline industry and related travel service
industries like hotels and car rental companies are following this type of incentive for a long time. Frequent flier
programs provide financial incentives and rewards for travelers who choose their airline for long time. Hotels
and car rental companies do the same. Long-distance telephone companies in the United States have engaged in
a similar battle, trying to provide volume discounts and other price incentives to retain market share and build a
loyal customer base. Other types of retention strategy are cross selling of services, like the tie up of airlines
industry with hotel chains and credit card companies.
Level 2- Social Bonds: This strategy bonds the customers to the firm through more than financial incentives.
While price is still assumed to be important, level 2 retention marketers build long term relationship through
social and interpersonal as well as financial bonds. Customers are viewed as clients rather than mere customers.
The clients are the individuals whose wants and needs the firm tries to understand and design the product
accordingly. Services are customised to fit individual needs, and the marketers find ways of sticking to the
customers, thereby developing social bonds with them.

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Social, interpersonal bonds are common among professional service providers (e.g., -lawyers, accountants, and
teachers) and their clients as well as personal care providers (hairdressers, counselors, and healthcare provider)
and their clients. A dentist who takes a few minutes to review his patient's file before coming in to the exam
room is able to jog his memory on personal facts about the patient (occupation, family details, interests, dental
health history). By bringing these personal details into the conversation, the dentist reveals his genuine interest
in the patient as an individual and builds social bonds.
Interpersonal bonds are also common in business-to-business relationships where customers develop
relationships with salespeople and/or relationship managers working with their firms.
Sometimes relationships are formed with the organization due to the social bonds that
develop among customers rather than between customers and the provider of the service. Over time the social
relationships they have with other customers are important factors that keep them from switching to another
organization.
While social bonds alone may not tie the customer permanently to the firm, they are much more difficult for
competitors to imitate than are price incentives. In the absence of strong reasons to shift to another provider,
interpersonal bonds can encourage customers to stay in a relationship. In combination with financial incentives,
social-bonding strategies may be very effective.
Level 3-Customisation Bonds: Level 3 strategies involve more than social ties and financial incentives,
although there are common elements of level 1 and 2 strategies encompassed within a customisation strategy
and vice-versa.
Two commonly used terms fit within the customization bonds approach: Mass customization and customer
intimacy. Both of these strategies suggest that customer loyalty can be encouraged through intimate knowledge
of individual customers, and through the development of one-to-one solution that fits the individual customers
needs.
Mass customisation has been defined as the use of flexible processes and organisational structures to produce
varied and often individually customized products and services at the price of standardised mass-produced
alternatives. Mass customisation, however, does not mean providing customers with endless solutions or

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choices that only make them work harder for what they want; rather, it means providing them through little
effort on their part with tailored services to fit their individual needs.
Level 4- Structural Bonds: Level 4 strategies are the most difficult to imitate and involve structural as well as
financial, social, and customization bonds between the customer and the firm. Structural bonds are created by
providing services to the client that designed right into the service delivery systems. Often structural bonds are
created by providing customised services to the client that are technology based and serve to make the customer
more productive.
Underlying Logic of Customer Retention Benefits to the Organization
MARKET SEGMENTATION AND TARGETING FOR SERVICES
Meaning of segmentation
Market segmentation is the process of dividing an entire market up into different customer segments. Targeting
or target marketing then entails deciding which potential customer segments the company will focus on. It
comes before targeting, which helps a company to be more selective about who they are marketing their
products to. Marketing segmentation and targeting are equally important for ensuring the overall success of a
company.Today, Segmentation, Targeting and Positioning (STP) are a familiar strategic approach in modern
marketing. The STP model is useful to creates marketing communications plans since it helps marketers to

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develop strategies and then create and deliver personalized and relevant messages to engage with different
audiences.
Importance of segmentation of services
As already stated, segmentation is the basis for developing targeted and effective marketing plans. Furthermore,
analysis of market segments enables decisions about intensity of marketing activities in particular segments. A
segment orientated marketing approach generally offers a range of advantages for both, businesses and
customers.
1) Focus of the Company – It is an effective method to enhance the focus of a firm on market segments. If
marketers have better focus, obviously he will have better returns. A number of automobile companies
have started focusing on small car segments. This is nothing else but a company changing its focus for
better returns. Thus companies develop their strategy based on a new segment which increases its
profitability.
2) Increase in competitiveness – Once marketer’s focus increases, their competitiveness in that market
segment will increase. Segmentation increases the competitiveness of companies. For example, if you
are focusing on youngsters, your brand recall and equity with youngsters will be very high. Your market
share might increase and the chances of a new competitor entering might decreases. The brand loyalty
will definitely increase. Thus market segmentation also increases competitiveness of a firm from a
holistic view.
3) Market expansion- In segmentation expansion is immediately possible. Suppose you have your market
strategy on the basis of geography, then once you are catering to a particular territory, you can
immediately expand to a nearby territory. In the same way, if you are targeting customers based on their
demography (Ex – Reebok targets fitness enthusiasts) then you can expand in similar products (Ex –
Reebok expanding with its fitness range of clothes and accessories). Segmentation plays a vital role in
expansion.
4) Customer retention – By using segmentation, customer retention can be cheered through the life cycle
of a customer. You can take an example of Hospitality segment whether there are hotels, airlines, or
hospitals. Hospitality services is the growing sector in India, where a customer have an ample number of

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choices starting from a local Dhaba to a luxurious hotel catering services on the basis of customer
demands.
5) Have better communications – One of the Ps of marketing mix which is absolutely dependent on STP
is Promotion or communication. The communications of a company needs to be spot on for its target
market. Thus if you need a target market, you need segmentation. Communication cannot be possible
without knowing your target market. Imagine if you had to make someone across a curtain understand
what politics is. You would go on about ruling parties, states, countries and politicians. And when the
curtain is taken aside, you find that the person across the curtain is a 5 year old kid. Is there any use
talking to him about politics? This shows why communication needs segmentation. If you don’t know
your market segment, what is their demography, what is their psychology, where they are from, then
how can you form a communication message.
6) Increases profitability – Segmentation increases competitiveness, brand recall, brand equity, customer
retention, and communications. Thus if it is affecting so many factors of your business, then definitely it
affects the profitability of the firm. We never see people negotiating in a Nike, Gucci or BMW
showrooms. One of the USP’s of this brand is their segmentation. They are in fact targeting segments
which have no need of bargaining or negotiation. Thus their profitability is high.
Targeting of services
A target market is that selected market (customers), that a company wants to sell its products and services to,
and to whom it directs its marketing efforts. Firstly marketer needs to identify the target market and thereafter
develops its marketing plan. A target market can be separated from the market as a whole by geography, buying
power and psychographics. Once the segments have been evaluated the market to be targeted can be selected on
the basis of :
Undifferentiated marketing: The undifferentiated marketing strategy emphases on an entire target market
rather than a segment of it. This strategy employs a single marketing mix - one product, one price, one
placement and a single promotional effort to reach the maximum number of consumers in that target market.
"Marketing," by William M. Pride and O. C. Ferrell, gives commodities says sugar and salt are examples of
products that might be marketed effectively through an undifferentiated strategy, as many consumers in the
overall market have similar needs for the products.

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Differentiated marketing: This is a customized approach and satisfies customers according to their needs. A
differentiated marketing strategy targets different market segments with specific marketing mixes designed
especially to meet those segments needs. Each mix includes a product, price, placement and promotional
program customized specifically for a particular segment. For example, a company that manufactures vitamin
supplements might identify gender-based market segments. It could produce one multivitamin formula for
women and another for men. It could further differentiate by segmenting the gender groups by life stage and
creating different marketing mixes around each one. Differentiated marketing is best suited for markets with
readily identifiable segments, each with distinctive needs. Concentrated marketing: The concentrated strategy
provides a third-way solution that allows marketers to target a single market segment with a single marketing
mix. The ability to specialize to this degree has the advantage of allowing a company to focus its resources on
meeting the needs of a single, well-defined and well-understood market, which makes it more competitive
against larger companies. On the downside, a concentrated marketing strategy can pigeonhole a company into a
single product and market and leave it vulnerable to the effects of changing conditions within that market.
Micro marketing: Micromarketing is a marketing strategy in which advertising efforts are focused on a small
group of highly-targeted consumers. Micromarketing requires a company to narrowly define a particular
audience by a particular characteristic, such as ZIP code or job title, and tailor campaigns for that particular
segment. It can be a more expensive technique due to customization and lack of an economy of scale.
STEPS IN MARKETING SEGMENTATION AND TARGETING FOR SERVICES
SUMMARY
In any competitive industry, firms need to focus to achieve competitive advantage. There are three focused
strategies that can be used to achieve competitive advantage. They are

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(1) Fully focused,
(2) Service focused and
(3) Market focused.
There is a fourth, the unfocused strategy. However, it is not advisable for firms to choose an unfocused
strategy as this will mean that they spread themselves too thin to remain competitive. Marketing segmentation
forms the basis for the three focused strategies. In marketing segmentation, firms should identify and select
target segments that it can serve best. When determining the attributes that are important to its target segments,
there is a need to understand the difference between important and determinant attributes in consumer choice
decisions. An attribute may be important to the consumer, but that may not be important for buying decisions
(e.g. safety is important, but all airlines a traveler considers are seen as safe). If that is the case, such an attribute
should not be used as a basis for segmentation. Determinant attributes are attributes that consumers focus on
when comparing alternative services and can be used for product positioning. Once the important and
determinant attributes are understood, management should decide what service level the firm can achieve for
each of the attributes. Service levels are often used to segment customers according to their willingness to trade
off price and service level across a broad variety of attributes. With the understanding of service attributes and
levels, firms can develop their market positioning strategy. To do that, they need to conduct market, internal and
competitor analyses. The outcome of these analyses is the position statement. Positioning changes and does not
stay still. It needs to develop and change according to changes in competitive responses and consumer trends.
LISTENING GAP : CLOSING THE GAP
Formal & informal methods to capture information about customer expectations must be developed through
customer research.
Techniques :

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1. Traditional approaches • Customer interviews

• Survey research
• Complaint systems
• Customer panels
2. New innovative techniques • Structured brainstorming.
• Service quality gap analysis
Well defined complaint handling procedure
Emphasis on empowering employees to react on the spot.
Ways to compensate the customer for unfulfilled promise.
Building strong relationships and understanding customer needs over time.
Implementation of recovery strategies when things go wrong.

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UNIT 3-SERVICES MARKETING
UNIT 3-SERVICES MARKETING 1

20MBAMM303

UNIT 3- CUSTOMER DEFINED SERVICE STANDARDS
“Hard” & “Soft” standards, challenges of matching supply & demand in capacity, four common types
of constraints facing services, optimum v/s maximum use of capacity, strategies for matching capacity
& demand.
Yield management-balancing capacity utilization, pricing. Waiting line strategies- four basic Waiting
line strategies.
Leadership & Measurement system for market driven service performance - key reasons for GAP-2
service leadership- Creation of service vision and implementation, Service quality as profit strategy,
Role of service quality In offensive and defensive marketing.
INTRODUCTION
Translation of perceptions into

service
quality specifications
Reason
Poor service design
s for Absence of customer-defined
provid service standards
Inappropriate physical evidence
er gap and services cape
2
Management perceptions of
customer expectations
Priyadarshini N, Asst.Prof,Dept of MBA Page 1

According to one long-term observer of service industries, standardization of service can take two forms: -
Substitution of technology for personal contact and human effort

KEY REASONS FOR GAP-2
Poor service design • Unsystematic new service development process.

• Vague, undefined service designs.
• Failure to connect service design to service
positioning.
Absence of customer- driven standards • Lack of customer- driven service standards.

• Absence of process management to focus on
customer requirements.
• Absence of formal process for setting service
quality goals.
Inappropriate servicescape • Failure to develop tangibles in line with customer

expectations.
• Servicescape design that does not meet customer
& employee needs.
• Inadequate maintenance & updating of
servicescape
Improvement in work methods
• Technology and work improvement methods facilitate the standardization of service necessary to
provide consistent delivery to customers.
• Customer service standards are based on pivotal customer requirement that are visible to and
measured by customers.
• They are operations standards sets to correspond to customer expectations and priorities rather than to
company concerns such as productivity or efficiency.
• Two major types of customer defined service standards: -Hard customer defined standards and Soft
customer defined standards
Hard standards Soft standards

Things that can be counted, timed, or Opinion-based measures that cannot be
observed through audits (time, numbers of observed and must be collected by talking
events) to customers (perceptions, beliefs).
Hard standards and measures, things that All customer priorities cannot be counted,
can be counted, timed, or observed through timed, or observed through audits.
audits. It provides guidance, direction, and
To ensure speed or promptness, handle feedback to employees in ways to achieve
complaints, answer questions, arrive for customer satisfaction.

repair calls etc.
PROCESS OF DEVELOPING CUSTOMER DEFINED STANDARDS
1. Identify existing or desired service encounter sequence
• First stage in developing customer defined service standards is to identify existing service encounter
sequence.
• Identify the strength and weakness of the encounter sequence.
• Try to establish a desired service encounter sequence according to the customer – driven standards
• Companies should distinguish service interactions by the role of the company personnel involved
(such as sales person, technical person, and manager etc to understand encounter sequence clearly.
2. Translate customer expectations into behavior & actions
• Abstract customer requirements and expectations must be translated into concrete, specific behaviors
and actions associated with each encounter.


• Research techniques for eliciting behaviors and actions include in-depth interviews, focus group
interviews etc.
• Behaviors are translated into specific service standards so that employees will understand what they
are being asked to deliver.
3. Select behaviors and actions for standards
This stage involves prioritizing the behaviors and actions. The following are the most important criteria:
• The standards are based on behaviors and actions that are very important to customers
• The standards cover performances that need to be improved or maintained
• The standards cover behaviors and actions employees can improve
• The standards are accepted by employees
• The standards are predictive rather than reactive
• The standards are challenging but realistic
4. Decide whether Hard or Soft standards are appropriate
• This step involves deciding whether hard or soft standards should be used to capture the behavior and
action.
• Unless the hard standard adequately captures the expected behavior and actions, it is not customer
defined.
• Right first time strategy
• There is a high degree of positive correlation between hard and soft standards.
• The following figure shows the linkage between speed of complaint handling (a hard measure) and
satisfaction (a soft measure).
5. Develop feedback mechanisms for measurement to standards

• To be effective, standards must be measured and reviewed regularly.
• Without measurement and feedback, corrections to quality problems will probably not occur.
• On critical aspect of developing feedback mechanisms is ensuring that they capture the process from
the customer‘s view rather than the company‘s view.
6. Establish measures and target levels

• Companies should establish target levels for the standards.
• Without this stage the company lacks a way to quantify whether the standards have been met.
• Both internal and competitive benchmarking run the risk of being defined internally by the company,
either by looking only within the organization for best practices and measures or by defining the
competitive set for the business.


• In both of these types benchmarking, company – defined rather than customer – defined standards
could be generated.
7. Track measure against standards
• Report has to be prepared to have a track on practical measures against standards set by the company.
• Root cause analysis is designed to identify the source of problem if measure is not up to the standards.
8. Periodically update target levels and measures
• The final stage involves revising the target levels measures and even customer requirements on a
regular enough basis to keep up with customer expectations.
MANAGING DEMAND AND CAPACITY

Introduction
Demand is the amount of a particular economic good or service that a consumer or group of
consumers will want to purchases at a given price.
Managing Capacity means managing the limits of an organization’s resources, such as its labor force,
manufacturing and office space, technology and equipment, raw materials, and inventory. Capacity is usually
constant whereas demand usually fluctuates. Overuse or underuse of a service results in Gap 3 of the Gap
model- failure to deliver what was designed and planned.
UNDERLYING ISSUE: LACK OF INVENTORY CAPABILITY

Lack of Inventory capability is the main constraint in services marketing.
Fluctuates leads to
1. Excess Demand: The level of demand exceeds maximum capacity. In some situation some
customers will be turned away, resulting in lost business opportunities. For the customers who do
receive the service, its quality may not match what was promised because of crowding or overtaxing
of staff and facilities.
2. Demand exceeds optimum capacity: No one is turned away, but quality of service may still suffer
because of overuse, crowding, or staff being beyond pushed beyond their abilities to deliver
consistent quality
3. Demand and Supply are balanced at the level of optimum capacity: Staff and facilities are occupied
at Ideal level. No one is overworked, facilities can be maintained, and customers are receiving
quality service without undesirable delays.
4. Excess Capacity: The demand is below optimum capacity. Productive resources in the form of labor,
equipment, facilities are underutilized, resulting in lost productivity and lower profits. Customers
may receive excellent quality on an individual level because they have the full use of the facilities,
no waiting, and complete attention from the staff. If, however, service quality depends on the

presence of other customers, customers may be disappointed or may worry that have chosen an
inferior service provider.
1. UNDERSTANDING CAPACITY CONTRAINTS
EXAMPLES • Whistler Mountain a SKI- resort in Vancouver, Canada offers its facilities for executive
development and training programs during the summer when snow-skiing is not possible. • Airlines change
the configuration of their plane seating to match the demand from different market segments. In some planes,
there may be no first class section at all. On routes with a large demand for first class seating, a significant
proportion of seats may be placed in first class.
2. UNDERSTANDING CAPACITY CONSTRAINTS AND DEMAND PATTERNS
Capacity Constraints DemandL Patterns
Time, labor, equipment, and facilities Charting demand patterns

Optimal versus maximum use of capacity Predictable cycles
Random demand fluctuations
Demand patterns by market segment

3. OPTIMAL VERSUS MAXIMUM USE OF CAPACITY

• It is important to know the difference between optimal and maximum use of capacity
• From the fig 15.1, optimum and maximum capacity may not be the same. Using capacity at an
optimum level means that resources are fully employed but not overused and that customers are
receiving quality service in a timely manner.
• Maximum capacity represents the absolute limit of service availability.
• In the case of a foot ball game, optimum and maximum capacity may be the same. The entertainment
value of the game is enhanced for customers when every single seat is filled, and obviously the
profitability for the team is greatest under these circumstances. On the other hand, in a university
classroom it is usually not desirable for students or faculty to have every seat filled. In this case,
optimal use of capacity is less than maximum.
• Maximum use of capacity may result in excessive waiting by customers, as in a popular restaurant.
From the perspective of customer satisfaction, optimum use is again less than maximum.
• In case of equipment or facilities constraints, the maximum capacity at any given time is obvious.
There are only a certain number of weight machines in the health club, a certain number of seats in
the airplane, and a limited amount of space in a cargo carrier.
• When the limitation is people’s time or labor, maximum capacity is harder to specify because people
are in a sense more flexible than facilities and equipment. When an individual service provider’s
maximum capacity has been exceeded, result is likely to cause decreased service quality, customer
dissatisfaction, and employee burnout and turnover, but these outcomes may not be immediately
observable even to the employee herself

• So it is critical for the firm to understand optimum and maximum human capacity limits.
4. UNDERSTANDING DEMAND PATTERNS

It is necessary to have a clear understanding of demand patterns to manage fluctuating demand
effectively in a service business, which are as follows:
• Charting demand patterns: Those organizations which have computerized customer information
systems can do the charting demand over relevant periods. If seasonality is a suspected problem
then graphing should be done for data from the past year. •
• Predictable cycles: Variations in demand can be caused by many factors. Some are predictable -
while some are not. Tourism services have peak periods at certain holidays and at weekend days.
Generally one or more causes can be identified when there exist a predictable pattern.
• Random demand fluctuations: Random variations in demand are there in every kind of services.
There is no predictable cycle. For example Medical Service facilities in case of occurrence of a
Natural Calamity
• Demand patterns by market segment: Disaggregation of demand by market segmentation is
possible if an organisation has detailed records on customer transactions or the analysis may
reveal that the demand from one segment is predictable whereas the demand is relatively random
from another segment. For example, for a bank, the visits from its commercial accounts may
occur daily at a predictable time whereas personal account holders may visit the bank at random
intervals.
STRATEGIES FOR SHIFITING DEMAND TO MATCH CAPACITY
By shifting demand and capacity an organization seeks to shift customers away from periods in which
demand exceeds capacity. Perhaps by convincing them to use the service during periods of slow demand.
This may be possible for some customers but not for others. For example, many business travelers are not
able to shift their needs for airline, car rental, and hotel services. Pleasure travelers on the other hand can

often shift the timing of their trips. Those who can’t shift and can’t be accommodated will represent lost
business for the firm.
1. Vary the service offering
One approach is to change the nature of the service offering, depending on the season of the year, day of the
week, or time of day.
Air lines even change the configuration of their plane seating to match the demand from different market
segments. In some planes there may be no first-class section at all. On routes with a large demand for first-
class seating, a significant proportion of seats may be placed in first class.
Care should be exercised in implementing strategies to change the service offering. Because such changes
may easily imply and require alterations. Other marketing mix variables are promotion, pricing and staffing
to match the new offering. Unless these additional mix variables are altered effectively to support the
offering, the strategy may not work. Even when done well, the downside of such changes can be a confusion
in the organization’s image from the customers’ perspective or a loss of strategic focus for the organization
and its employees.
2. Communicate with customers
Another approach for shifting demand and capacity is to communicate with the customers. It helps them
know the times of peak demand so that they can choose to use the service at alternative times and avoid
crowding or delays. E.g signs in banks and post offices let customers know their busiest hours and busiest
days of the week can serve as a warning. This allows customers to shift their demand to another time if
possible.
In addition to signage communicating peak demand times to customers, advertising and other forms of
promotion can emphasize different service benefits during peak and slow periods. Advertising and sales
messages can also remind customers about peak demand times.
3. Modify timing and location of service delivery
Some firms adjust their hours and days of service delivery to more directly reflect customer demand.
Historically, U.S. banks were open only during “bankers’ hours” from 10 A.M. to 3 P.M. every weekday.
Obviously these hours did not match the times when most people preferred to do their personal banking.
Now U.S. banks open early, stay open until 6 P.M. many days, and are open on Saturdays, better reflecting
customer demand patterns.
Theaters also accommodate customer schedules by offering matinees on weekends and holidays when people
are free during the day for entertainment. Movie theaters are sometimes rented during weekdays by business
groups. It is an example of varying the service offering during a period of low demand.

4. Differentiate on price
A common response during slow demand is to discount the price of the service. This strategy relies on basic
economics of supply and demand. To be effective, however a price differentiation strategy depends on solid
understanding of customer price sensitivity and demand curves. For example, business travelers are far less
price sensitive than are families traveling for pleasure.
For any hotel, airline, restaurant or other service establishment all of the capacity could be filled with
customers if the price were low enough. But the goal is always to ensure the highest level of capacity
utilization without sacrificing profits.
STRATEGIES FOR ADJUSTING CAPACITY TO MATCH DEMAND
1. Flexing capacity to meet demand
A second strategic approach to matching demand and capacity focuses on adjusting or flexing capacity. The
fundamental idea here is to adjust, stretch and align capacity to match customer demand. During periods of
peak demand the organization seeks to stretch or expand its capacity as much as possible. During periods of
slow demand it tries to shrink capacity so as not to waste resources.
2. Stretch existing capacity
The existing capacity of service resources can often be expanded temporarily to match demand. In such cases
no new resources are added. Rather people, facilities, and equipment are asked to work harder and longer to
meet demand.


•
• Stretch time: It may be possible to extend the hours of service temporarily to accommodate demand.
A health clinic might stay open longer during flu season. Retailers are open longer hours during the
Christmas shopping season. And accountants have extended appointment hours (evenings and
Saturdays) before tax deadlines.
• Stretch labor: In many service organizations, employees are asked to work longer and harder during
periods of peak demand. For example, consulting organizations face extensive peaks and valleys with
respect to demand for their services. During peak demand, associates are asked to take on additional
projects and work longer hours. And front-line service personnel in banks, tourist attractions,
restaurants and telecommunications companies are asked to serve more customers per hour during
busy times.
• Stretch facilities: Theaters, restaurants, meeting facilities and classrooms can sometimes be expanded
temporarily by the addition of tables, chairs, or other equipment needed by customers. Or as in the
case of a commuter train, a car can hold a number of people seated comfortably or can “expand” by
accommodating standing passengers.
• Stretch equipment: Computers, telephone lines and maintenance equipment can often be stretched
beyond what would be considered the maximum capacity for short periods to accommodate peak
demand. In using these types of “stretch” strategies, the organization needs to recognize the wear and
tear on resources. The potential for inferior quality of service may go with the use.
3. Align capacity with demand fluctuations
This basic strategy is sometimes known as a “chase demand” strategy. By adjusting service resources
creatively, organizations can in effect chase the demand curves to match capacity with customer demand
patterns. Time, labor, facilities, and equipment are again the focus, this time with an eye toward adjusting the
basic mix and use of these resources.
Specific actions might include the following:
• Use part-time employees: In this case the organization’s labor resource is being aligned with demand.
Retailers hire part-time employees during the holiday rush, tax accountants engage temporary help
during tax season, tourist resorts bring in extra workers during peak season. Restaurants often ask
employees to work split shifts (work the lunch shift, leave for a few hours, and come back for the
dinner rush) during peak mealtime hours.
• Outsourcing: Firms that find they have a temporary peak in demand for a service that they cannot
perform themselves may choose to outsource the entire service. For example, in recent years, many
firms have found they don’t have the capacity to fulfill their own needs for technology support, Web
design, and software-related services. Rather than try to hire and train additional employees, these
companies look to firms that specialize in outsourcing these types of functions as a temporary (or
sometimes long-term) solution.

4. Rent or share facilities or equipment
For some organizations it is best to rent additional equipment or facilities during periods of peak demand.
For example, ex press mail delivery services rent or lease trucks during the peak holiday delivery sea son. It
would not make sense to buy trucks that would sit idle during the rest of the year. Sometimes organizations
with complementary demand patterns can share facilities.
An example is a church that shares its facilities during the week with a Montes son preschool. The school
needs the facilities Monday through Friday during the day; the church needs the facilities evenings and on
the weekend.
5. Schedule downtime during periods of low demand
If people, equipment, and facilities are being used at maximum capacity during peak periods, then it is
imperative to schedule repair, maintenance, and renovations during off-peak periods. This ensures that the
resources are in top condition when they are most needed. With regard to employees, this means that
vacations and training are also scheduled during slow demand periods.
6. Cross-train employees
If employees are cross-trained, they can shift among tasks, filling in where they are most needed. This
increases the efficiency of the whole system and avoids underutilizing employees in some areas while others
are being over taxed. Many airlines cross-train their employees to move from ticketing to working the gate
counters to assisting with baggage if needed. In some fast-food restaurants, employees specialize in one task
(like making french fries) during busy hours, and the team of specialists may number 10 people. During slow
hours the team may shrink to three, with each person performing a variety of functions.
7. Modify or move facilities and equipment
Sometimes it is possible to adjust, move, or creatively modify existing capacity to meet demand fluctuations.
Hotels accomplish this by reconfiguring rooms—two rooms with a locked door between can be rented to two
different parties in high demand times or turned into a suite during slow demand. The airline industry offers
dramatic examples of this type of strategy. Using an approach known as “demand-driven dispatch,” airlines
have begun to experiment with methods that assign airplanes to flight schedules on the basis of fluctuating
market needs. Another strategy may involve moving the service to a new location to meet customer demand
or even bringing the service to customers. Mobile training facilities, libraries, and blood donation facilities
are examples of services that physically follow customers.

YIELD MANAGEMENT
DEFINITION
Yield management is a term that has become attached to a variety of methods, some very
sophisticated, matching demand and supply in capacity-constrained services.

The goal of yield management is to produce the best possible financial return from a limited available
capacity.
Specifically, yield management has been defined as ‘the process of allocating the right type of capacity to
the right kind of customer at the right price so as to maximize revenue or yield.’
Yield is a function of price and capacity used. Recall that capacity constraints can be in the form of time,
labor, equipment, or facilities. Yield is essentially a measure of the extent to which an organization’s
resources (or capacities) are achieving their full revenue-generating potential. Assuming that total capacity
and maximum price cannot be changed, yield approaches as actual capacity utilization increases or when a
higher actual price can be charged for a given capacity used.
For example – in an airline context, a manager could focus on increasing yield by finding ways to bring in
more passengers to fill the capacity, or by finding higher-paying passengers to fill a more limited capacity. In
reality, expert yield managers will work on capacity and pricing issues simultaneously to maximize revenue
across different customer segments.
PROBLEMS INVOLVED IN YIELD MANAGEMENT:
By becoming focused on maximizing financial returns through differential capacity allocation and pricing, an
organisation may encounter these problems:
• Incompatible Incentive and Reward Systems – Employees may resent yield management systems
if these don’t match incentive structures. For example – many managers are rewarded on the basis of
capacity utilization or average rate charged, whereas yield management balances the two factors.
• Inappropriate Organisation of the Yield Management Function – To be most effective with yield
management, an organisation must have centralized reservations. While airlines and some large hotel
chains and shipping companies do have such centralization, other smaller organizations may have
decentralized reservation systems and thus find it difficult to operate a yield management system
effectively.
• Lack of Employee Training – Extensive training is required to make a yield management system
work. Employees need to understand its purpose, how it works, how they should make decisions, and
how the system will affect their jobs.
• Loss of Competitive Focus – Yield management may result in over-focusing on profit maximization
and inadvertent neglect of aspects of the service that provide long-term competitive success.
• Employee Morale Problems – Yield management systems take much guesswork and judgment
away from sales and reservations people. Although some employees may appreciate the guidance,
others may resent the rules and restrictions on their own discretion.
• Customer Alienation – If customers learn that they are paying a higher price for service than
someone, they may perceive the pricing as unfair, particularly if they don’t understand the reasons.
Customer education is thus essential in an effective yield management program. Customers can be
further alienated if they feel victimized (and are not compensated adequately) to overbooking
practices that are often necessary to make yield management systems work effectively.
WAITING LINES

A waiting line system, also known as a queuing system, is exactly what it sounds like. It's when a person or
object spends time waiting in a line for an activity or transaction to happen. For example, a customer may be
waiting in line to purchase a movie ticket or deposit a check, or a package may be waiting in line at a
warehouse to be shipped.
There are two levels of service for a waiting line: a low level, which is initially inexpensive to the company,
or a high level, which is initially expensive to the company. However, that expense may be worth it because
the higher the customer satisfaction, the more likely a customer is to return. For example, if a customer waits
in line to return an item to a store without a receipt, a 'no return policy' would be a low level of service. But a
store that issues a store credit would be offering a high level of service.
Optimal Waiting Line

The goal of determining the optimal waiting line is to estimate the number of potential customers that can fit
into the process of a service system at any given time. For example, if a physician's waiting room only has
five chairs available for patients to sit, you would expect that there would never be more than five people
scheduled at any one time. That means the person scheduling the patients would also need to know how long
it takes the physician to examine each patient.
In order to make this determination, the estimated customers, or population, are divided by the total
customers the service system can hold. If the service system holds less than the population, the company
cannot meet the demand and customers leave.
Optimization occurs in the service line by balancing the number of lines or servers, customer arrival times,
and waiting line rules, meaning how people are serviced.
TYPES OF WAITING LINES

There are two main types of waiting lines: finite, where new customers can only be added to the line once
others move out of the line, and infinite, where new customers are not affected by the number of customers
already in the system.
Lines can also be set up so that there is one single or multiple lines for service. A single line system often
presents a view of fairness to the customer because it typically works on a first come, first serve basis. This
perception of fairness often causes a single line system to work best. (However, in some single line instances,
such as a hospital waiting room, the rule about who is served first is based on the nature of the emergency.)
A multiple line system, such as the one you see at a grocery store, may be used to allow customers with
fewer items to check out more quickly. Multiple line systems often provide different transaction types by
customer type.
There are three ways that customers may behave when they're unhappy with waiting in a line:

1. Balking - when a customer chooses not to enter the waiting line.

2. Reneging - when a customer enters the line, but leaves.
3. Jockeying - when a customer changes from one line to another.
WAITING LINE PHASES

A single phase line is when the customer's transaction is completed all at once. For example, the customer
purchases their clothing item and leaves the store. A multiple phase line is when there are multiple steps to
the transaction, and each phase can have either single or multiple lines.
Waiting Line Strategies
1. Employ operational logic
▪ modify operations
▪ adjust queuing system
2. Establish a reservation process
3. Differentiate waiting customers
▪ Importance of the customer
▪ urgency of the job
▪ duration of the service transaction
▪ payment of a premium price
4. Make waiting fun, or at least tolerable
Issues to consider in making waiting more tolerable
• Unoccupied time feels longer than occupied time.
▪ Preprocess waits feel longer than in-process waits.
▪ Anxiety makes waits seem longer.
▪ Uncertain waits seem longer than known, finite waits.
▪ Unexplained waits seem longer than explained waits.
▪ Unfair waits feel longer than equitable waits.
▪ The more valuable the service, the longer the customer will wait.
▪ Solo waits feel longer than group waits.
WAITING LINE CONFIGURATIONS

Reservations:
One way to smooth demand and to reduce customer discomfort associated with waiting is through the use of
reservations. The system can often direct customer arrivals into time periods that would otherwise be slow.
However, the downside of a reservation-based system is that customers occasionally fail to show up for
appointments.
This typically results in lost revenues, since there is too little time to contact and reschedule other customers
to fill the gaps in the schedule. For this reason, services that are able to do so demand prepayments which are
not refundable unless adequate cancellation time is given.
Hotels usually offer a mixture of reservation agreements. Because those that take reservations also have
many unscheduled arrivals as well, they do not generally penalize customers who fail to arrive, since
reserved rooms are not held past 6 p.m. and can often be resold if unclaimed. Only so-called guaranteed
reservations, which are held all night, require non-refundable deposits because they provide the hotel with no
chance of filling the lost capacity if the customers fail to show up.
A common strategy to deal with no-shows when customers suffer no penalties for not appearing is to
overbook, i.e., to promise more reservations than there is capacity available. If the firm has a good
understanding of the percent of customers who tend not to show up and uses this information to limit the
amount of overbooking, this policy can work most of the time.
However, given the nature of random variation, the number of arrivals will occasionally exceed available
capacity. In those cases, the firm must be ready to assuage angry customers with some form of compensation.
Airlines, whether justified or not, are notorious among customers for overbooking, but are usually prepared
to pay excess passengers with valuable free tickets to take later flights.

LEADERSHIP & MEASUREMENT SYSTEM FOR MARKET DRIVEN SERVICE

PERFORMANCE
Service Leadership- Creation of service Vision and Implementation,

1. Service leadership means trying to achieve excellence in the area of customer wants.


2. Service leadership does not mean meeting companies’ efficiency standards or productivity standards.
3. When managers are not committed to service quality from the point of view of the customers, they do
not realize that the organization is not working towards customer satisfaction.
4. Sometimes, managers think that the service quality adds to the cost and they do not contribute
towards profitability.
VISION
• A leader creates a vision. Vision is nothing but image of the future.
• A leader must have developed a mental image of a possible future state of the organization.
• It may be vague, like a dream, but the vision is the target, which the leader should achieve.
• It has been found that organizations with extremely good vision are found to be four times better
rated than companies with a poor vision.
SYNTHESIZING VISION
Synthesizing means combining. Here, the leader is combining the past and the future. The future is
called FORESIGHT, and the past is called HINDSIGHT.
• The foresight will ensure that the vision is quite appropriate with the future environment.
• The hindsight will ensure that organizational culture and tradition are not violated.
• Combining both, the leaders vision defines

• What the organization should strive?

FORMULATING THE VISION
Service vision may be simple or complex.
The best vision statement should be,
• Brief
• Clear
Ex: - to become the best knowledge provider in the world
PROMOTING COMMITMENT
One of the examples for a service leader to create commitment is to travel to all the outlets and
supervise personally to find out how service is going on and what is a satisfaction level of the customers.
This follows the principle that if you are a leader, you better lead. Therefore, a leader should lead by
example. This is one of the ways to motivate the other employees and let them know that you want to see
what they are doing and what they can do.
IMPLEMENTATION OF VISION
A leader implements the service vision. During the process of implementing the vision, the leader
should not only be involved fully, he should also engage in other actions such as restructuring the
organization, selecting and training the employees, motivating, team building and promoting the change in
addition to risk taking.
a. Structuring the organisation

o While formulating the organization structure, the leader must make sure that there are:
o Rigid Functional Boundaries
o Too many layers of management Rigid hierarchy and bureaucracy
This organizational structure should be process oriented, so that it satisfies the customer needs instead of
each function in the organization feeling satisfied about their own departmental function. To do this, the
Following steps have to be followed:
• Organize the structure based on the process and not on a task of the department. Assign the owner
for each process.
• Flatten and eliminate all those work which does not add value.
• Use teams to manage everything, give the teams a common purpose
• Let the customer drive the performance and derive satisfaction.
• Reward team performance instead of individual performance.
• Maximize service provider and customer contact.
• Inform and train all the employees.

b. Selecting, acculturating & training
The major part of implementing service involves hiring, and training the right people, selecting and
acculturating. Selecting involves choosing the right service worker for each job. Acculturating involves
teaching and makes the employee learn the organizational culture and vision. Training helps to perform his
responsibilities and duties.
c. Motivating: The leaders should motivate the employees. The method of motivating the subordinates
includes: -
• Use of authority
• Role model
• Build self-confidence
• Delegate
• Introduce reward and punishment
d. Managing information
• Effective leaders are good listeners
• Leaders listen to their subordinates and to the customers
• Successful leaders will be unwilling to delegate the most important function to the others, but
want to be involved and gain knowledge.
• Leaders have two types of communications which they use effectively to solve any given
problems
• Formal communication
• Informal communication
e. Team building
• Service leaders need to build teams, which work effectively to achieve the goals.
• Strategies have to be implemented to ensure that the employees work together.
• Achieving co-operative goals that can be reached only by working together
• Use teams and task forces for implementing the service and reward the same.
f. Promoting change & risk taking
• It is found that unsuccessful service organizations have leaders who have short term and narrow
thinking.
• One of the duty of the leader is to have an open mind and encourage innovation in the
organization
• Change is the only thing remains constant and every other things changes


• Leader should have the mindset to take challenges in the future uncertain environment.
SERVICE QUALITY AS PROFIT STRATEGY
Role of service quality in Offensive and Defensive Marketing
• Reduce costs: focus on cost cutting and efficiencies

• Build revenues through improvement to customer service, customer satisfaction, and customer
retention
• Combining (1) and (2)
Offensive marketing effects of service

Service quality can help companies attract more and better customer to business, through

OFFENSIVE MARKETING
Offensive Marketing Definition
An offensive marketing strategy seeks to attack the market by targeting the weaknesses of the competition
and emphasizing the company's strengths in comparison. Offensive marketing does not seek to challenge an
industry leader's strengths since that would only play to the leader's defensive marketing capabilities. This
strategy attacks the industry leader where the company is at its most vulnerable. For example, a company
using an offensive marketing strategy may seek to target an established industry leader's shaky product safety
record by emphasizing the safety of its own products.
Offensive Marketing Techniques
The marketing attack from an offensive-minded company must be as focused as possible according to Quick
MBA's website. A focused attack hammers home the company's product message to consumers and casts
doubt on the industry leader's weakest areas. A marketing attack that is too broad risks its message losing
focus with consumers. This may also mean a company using an attacking strategy will introduce only one
product at first to clearly establish it as a challenger to the industry leader's own product.
• Attract more and better customers

• Involves market share, reputation and price premiums
 When service is good, a company gains a positive reputation and through that, a higher market share
and ability to charge more than its competitors for services.
 Companies offering superior service achieve higher than normal market share growth and that service
quality influences profit through increased market share and premium prices as well as lowered costs
and less rework.
 Satisfied customer spread positive work of mouth, which leads to the attraction of new customers and
then to high market share.

DEFENSIVE MARKETING EFFECTS OF SERVICE ON PROFIT.

A defensive marketing strategy is largely reactive to the competition or perceived occurrences in the market,
according to the website for the Massachusetts Institute of Technology. A defensive strategy seeks to counter
product claims made by the competition or to stem the tide of a perceived competitor advantage. For
example, a company that highlights the effectiveness of its products in the wake of competitor claims of
product inferiority is using a defensive marketing strategy. A company may also seek to introduce products
into the market that are better than its existing offerings as part of a defensive marketing strategy.
Defensive Marketing Advantages
For an established company with a wide customer base, defensive marketing is a useful strategy. The
company doesn't have to actively work to generate customer interest in its products and can simply reinforce
its product messages with consumers. A well-built reputation through quality products makes it difficult for a
new competitor to enter the market and attack the established company's customer base. The established
company simply uses its defensive marketing to reinforce customer confidence in its products and swat the
new comer away.
The Effects of Service on Behavioral Intentions and Behavior

The Key Drivers of Service Quality, Customer Retention, and Profits


20MBAMM303

UNIT IV- EMPLOYEE ROLE IN SERVICE DESIGNING
Employee Role in service designing- Importance of service employee, Boundary spanning roles,
Emotional labor, Source of conflict, Quality- productivity trade off, Strategies for closing GAP 3.
Customer’s role in service delivery-Importance of customer & customer’s role in service delivery,
Strategies for enhancing-
Customer participation, Delivery through intermediaries-Key intermediaries for service delivery,
Intermediary control strategies.
THE IMPORTANCE OF SERVICE EMPLOYEE

1. They are the service
2. They are the organization in the customer’s eyes
3. They are the brand
4. They are the marketer
The Importance of Employees in Customer Satisfaction & Retention
In the world of business, keeping customers satisfied and retaining them is vital to continued success. Often,
the employees who work face-to-face with these customers are the ones who determine their levels of
satisfaction, keeping them content with the company and preventing them from looking elsewhere for
someone to meet their needs. Instead of ignoring the impact your employees can have upon the overall
satisfaction levels of your client base, keep this power in mind and encourage employees to make the most of
the power they wield, helping your business achieve success.
1. Ensuring Customer Satisfaction While those who don't deal directly with customers may be able to
hypothesize what will make customers happy, only those who interact face-to-face can ensure that they are
truly satisfied. To do this, however, employees must feel as if they are able to make modifications to the
general business practices to truly satisfy their customers. If your employees feel compelled and empowered
to meet customer needs, you can ensure higher levels of customer satisfaction and likely improved customer
retention.
2. Environment Creation Customers' impressions of a business depend in large part on the environment
present in the workplace. While managers may have a preference as to how their workplace will feel,
employees are the ones who actually set the scene. Employees impact the business environment through the
ways in which they interact with each other as well as how they respond to customers. If employees behave in
a professional-yet-inviting manner, they may be better able to please customers and make the business
environment an inviting one.

3. Relationship Building ideally, customers and workers create relationships, keeping customers coming
back. To craft these relationships, workers must do more than just the bare minimum and create connections
with the individuals they serve. This may entail asking customers for details about their lives or remembering
customers' common orders, allowing them to expedite the process in a fashion quite pleasing to the repeat
customers. While management cannot enforce the building of relationships, they can select employees who
appear open and willing to build relationships.
4. Representing the Product Employees often provide customers with their initial impressions of the
products the company offers. Though the workers who deal directly with customers may not be the people
who select or develop products, they are the ones who give customers information about them, selling the
products and proving to the customers that the products in question are ones they need. To ensure that workers
can represent the products they sell effectively, managers must educate their workers on these products and
ensure that they possess the knowledge necessary to tell workers about them in an informed and engaging
manner.
BOUNDARY SPANNING ROLES

Job positions where individual employees are required to come in direct contact with the public or employees
of other firms are called boundary spanning roles.


20MBAMM303
EMOTIONAL LABOR
Emotional labor is a requirement of a job that employees display required emotions toward customers or
others. More specifically, emotional labor comes into play during communication between worker and citizen
and between worker and worker.
This includes analysis and decision making in terms of the expression of emotion, whether actually felt or not,
as well as its opposite: the suppression of emotions that are felt but not expressed. Roles that have been
identified as requiring emotional labor include but not limited to those involved in public administration,
flight attendant, day-care worker, nursing home worker, nurse, doctor, store clerk, call centre worker, teacher,
social worker, as well as most roles in a hotel, motel, tavern/bar/pub and restaurant, as well as jobs in the
media, such as TV and radio.
• Delivering smiles
• Making eye contact
• Showing sincere interest
• Engaging in friendly
• Conversation with customers who are essentially strangers
SOURCE OF CONFLICT
1. Person/Role Conflicts: Arises when employees are required to wear specific clothing or change some
aspect of their appearance to confirm to the job requirements. A young lawyer, just out of school, may feel an
internal conflict with his new role when his employer requires him to cut his long hair & trade his casual
clothes for a three-piece suit.
2. Organizational/Client conflicts: A common type of conflict for front line service employees is the
conflict between their two bosses, the organization and the individual customer. Service employees are
rewarded for following certain standards, rules, & procedures. Ideally these rules and standards are customer
based. For Eg, employees who depend on tips or commission are likely to face greater levels of
organization/client conflict because they have greater incentives to identify with the customer.
3. Inter-client Conflict: Sometimes conflict occurs for boundary spanners when incompatible
expectations and requirements arise from two or more customers. This situation occurs most often when the
service provider is serving customers in turn (a bank teller, a ticketing agent, a doctor) or is serving many
customers simultaneously (teachers, entertainers).
4. Quality- Productivity tradeoff:


Front line service people are always asked to be efficient and effective. We are expected to satisfy service to
customers and at the same time be cost effective and productive in what they do?
Eg., A grocery shopper is expected to know this customers and at the same time be polite, courteous, measure
quantum correctly and at the same time to the work fast so that queue does not build up. Here we are asking
for both quality and quantity to be at its peak. This is where service providers find it extremely to satisfy both.
For some jobs such as research scientists, quality is really all that matters – a number of results, quantity is
secondary. If a scientist can develop one new drug with the potential of saving millions of lives and generate
substantial revenue for a company, that one quality result is invaluable. At the other extreme, there are service
jobs that are totally quantity dominated, for eg., filing paper, processing claims, cleaning rooms, and serving
good. In these jobs the standards already set and the systems are in place to confirm the performance and it is
known how much a person can provide service in quantitative terms. In this case more the quantity, the better
it is. Most service jobs fall into category which is in between that of a research scientist and a clerk who is
filing. The service provider itself to make a trade off between quality and quantity
KEY FACTORS LEADING TO PROVIDER GAP 3

HUMAN RESOURCE STRATEGIES FOR CLOSING GAP 3
 Hire the Right People

• Compete for the Best People
• Hire for Service Competencies and Service Inclination
• Be the Preferred Employer
 Develop People to Deliver Service Quality
• Train for Technical and Interactive Skills
• Empower Employees
• Promote Teamwork
 Provide Needed support systems
• Measure Internal Service Quality
• Provide Supportive Technology and Equipment Develop Service-Oriented
Internal Processes
 Retain the best People
• Include Employees in the Company’s Vision
• Treat Employees as Customers
• Measure and Reward Strong Service Performers

CUSTOMERS’ ROLES IN SERVICE DELIVERY
The main objective of the study is to

• Illustrate the importance of customers in successful service delivery and co creation of service
experiences.
• Discuss the variety of roles that service customers play: productive resources for the organization;
contributors to quality and satisfaction; competitors.
• Strategies for involving service customers effectively to increase both quality and quantity
How Customers widen the Service Performance Gap: Lack of understanding of their roles, not being
willing or able to perform their roles, No rewards for ―good performance, interfering with other customers
Incompatible market segments.
Importance of Other (“Fellow”) Customers in Service Delivery:
Other customers can detract from satisfaction:

• Disruptive behaviors
• Overly demanding behaviors
• Excessive crowding
• Incompatible needs
• Other customers can enhance satisfaction:
• Mere presence
• Socialization/friendships

1. Customers as Productive Resources: customers can be referred as “partial employees” – contributing

effort, time, or other resources to the production process customer inputs can affect organizations
productivity resulting quality and quantity of output generated.
For eg:- in contributing information and efforts in the preparation of tax returns, clients of a firm constitute
part of service production process. The quality of information they provide ultimately affects the quality of tax
returns.
2. Customers as Contributors to Service Quality and Satisfaction, value:

Customers can contribute to:
– Their own satisfaction with the service
• By performing their role effectively
• By working with the service provider
The quality of the service they receive
• By asking questions
• By taking responsibility for their own satisfaction
• By complaining when there is a service failure
3. Customers as Competitors: Customers may compete with the service provider. Sometimes customer
may perform partial service and sometimes customers perform the entire service for themselves and do not
require the service provider at all. In this case customer become competitors for the companies that
supplies service.
Eg:- child care, minor repair of the vehicle sometimes a question arises whether to do the service internally or
give it outside.
Internal exchange vs. ―External exchange
Internal/External decision often based on:
• Expertise capacity- if the company has the specific skills and knowledge needed to produce the service
then also they may not like to do it themselves because of time constraint, cost consideration. Eg:
ironing, cooking (know or don’t know)
• Resources capacity - to decide to produce a service internally, a household are a firm must have
resources such as people, space, material, money, time etc. if one of these are not available then
decision will be take to do it outside.eg:- starting tuitions
• Time capacity- capacity with time constraints- eg- waiting line
• Economic rewards:- economy of the services is evaluated eg:- buying decisions
• Psychic rewards: in terms of reward and redeem points
• Trust- depends on self trust versus trust on others in a particular context. Eg: hostel and PG
• Control- the household or firm’s desire for control over the process if the degree of the control is high
than the service will internalized.eg- day care centers – wish to put their child if it is good otherwise
cancel and appointing maid for cooking

Important thing to remember is that many service scenarios, customer can do and choose as participants either
partially or fully. Thus customers can be productive source, co-creator of services to an organization.
STRATEGIES FOR ENHANCING CUSTOMER PARTICIPATION
1.
2. Define customers’ jobs:
The organization first determines what types of participation it wants from customers, thus beginning to
define the customer‘s job. Identifying current level of customer participation‖ can serve as a starting point.
Once the desired level of participation is clear the organization can define more specifically what the
customer‘s job entails. The customers’ job description will vary with the type of service & the organizations
desired position within its industry. The job might entail.
• Helping oneself
• Helping others
• Promoting the company
3. Recruit, Educate and Reward Customers: Once the customer role is clearly defined the organization
can think in terms of facilitating that role. In a sense the customer becomes a ―partial employee of the


organization at the same level. As with the employees customer participation in service production & delivery
will be facilitated when.
• Recruit the right customers
• Educate and train customers to perform effectively
• Reward customers for their contributions
• Avoid negative outcomes of inappropriate customer participation
4. Manage the customer mix: Eg: Single college students who want to party & families with small
children who want quiet-it may find two groups do not merge. The process of managing multiple &
sometimes conflicting segments is known as compatibility management (C.M). Compatibility management
will be critically important for some businesses (such as Public transportation, hospitals & clubs)
DELIVERY SERVICES THROUGH INTERMEDIARIES
Identify the primary channels through which services are delivered to end customers. Provide examples of
each of the key service intermediaries. View delivery of service from two perspectives—the service provider
and the service deliverer. Discuss the benefits and challenges of each method of service delivery. Outline the
strategies that are used to manage service delivery through intermediaries.
Service Provider Participants:

• Service principal (originator):
• creates the service concept (Like a manufacturer)
• Service deliverer (intermediary)
– Entity that interacts with the customer in the execution of the service
SERVICE INTERMEDIARIES
Franchisees: Service outlets licensed by a principal to deliver a unique service concept it has created. e.g.,
KFC, McDonalds
Franchising
The other recent trend in distribution of services is that of franchising. Franchising is the granting of rights to
another person or institution to exploit a trade name, trade mark or product in return for a lump-sum payment
or a royalty.

Franchise is characterized by the following features:
• Ownership by one person of a name, an idea, a secret process or specialized piece of equipment and
the goodwill associated with it.
• The grant of a license by that person to another permitting the exploitation of such name, idea process
or equipment and the goodwill associated his rights.
• The inclusion in the license agreement of regulations relating to operation of the business in the
conduct of which the licensee exploits his rights.
• The payment by the licensee of a royalty or some other consideration for the rights that are obtained.
• In service Industries franchises operate in the area of hotels, restaurants, car rentals, fast food outlets,
beauty parlors, pest control, travel agencies, office services, packers and movers, couriers, business centers,
etc.
The advantages provided by a Franchising arrangement are as follows:

1. There are usually training materials already developed, for both franchisees and their workers.
2. Expansion through franchising can proceed quickly.
3. The franchiser need apply only minimal controls; it does not have to develop as large a bureaucracy to
govern the business.
4. A franchiser's overhead is lower because the franchisee does hiring, collections, local promotions, etc.
5. There are economies of scale to advertising and promotion.
6. The franchisee is responsible for most of the cost control.
7. There is often less risk attached to franchise expansion than with the creation of new service ventures
that may not have been tested as well.
8. Franchises usually have a better record for staying viable business than the typical service business
startup.
9. Local operators are committed because they have their own capital at risk.
10. The service tasks, service standards, and service delivery systems are usually well defined and
structured, and thus they work well. They have been prototyped, and many of the potential problems
with the operations have already been identified and ironed out.
Agents and Brokers: Representatives who distribute and sell the services of one or more service suppliers.
e.g., Travel agents, Independent insurance agents.
Agent: An agent is an independent intermediary, who may act in the name of, or for a principal. His contract
will define these provisions along with territorial rights, exclusivity and sales commissions.
Broker: A broker is an independent intermediary between buyer and seller who bring parties together to
facilitate the conclusion of sales contract. A broker may have continuing relationship for his client under a
contract period; For which he may charge fee for assistance. Alternately, a broker may be for a special job to
be undertaken.

There are obvious benefits in distributing services through Agents and Brokers. Firstly, they help in reducing
the selling and distribution costs besides a wider representation in the market. Secondly, such intermediary's
possess special skills and expertise and also the knowledge of local markets. However these agents and
brokers also pose some challenges also. For example representation of multiple service principals may lead to
poaching in territories of others resulting in loss of control over pricing and other aspects of marketing.
Functions of Agents and Brokers
The major function of these agents and brokers is, like any other intermediary, to bring the producer of service
and the user or consumer together. For certain services, agents can be identified and deployed with selling as
the chief function to be performed by them. These agents can be compared with the agents for goods and they
are classified as brokers or sales agents. The example of this kind of channel is transportation (travel agents)
and office or factory workers (employment agencies). However in some cases the agents may be trained in the
creation and production of service and then franchised to ell it (eg, Shahnaz Hussain Beauty Parlors).
In case of certain services, actual product is not transferable and therefore tangible representations are created
and transferred. This type of channel is used for marketing insurance services, where a contact document
exists as a physical and tangible representation of the services. Another characteristic of services is that the
services are generally not delivered to the buyer and the creation of time and place utilities is a vital function
in the services marketing. Irrespective of whether one uses agents or middlemen or direct sales channel the
factor of location keeping in view the potential markets will be the most significant factor in channel selection
decision. Duane David et.al, are of the view that location considerations along with personal sources of
information are two of the critical factors in final purchase decision of many services. The problem of
standardization and uniformity restrains the service organization to use middlemen to any great extent and
limit the geographical area which the service organizations propose to reach and cover. This lays emphasis on
the significance of good selection to attain maximum coverage at the market place. Banking organizations
have started reliving this fact and introduced extension counters, mobile banking apart from opening branches
in rural areas.
Electronic Channels: all forms of service provision through electronic means. e.g, ATMs, university video
courses, Tax Cut software.
Benefits and Challenges for Franchisers of Service:
Benefits:
• Leveraged business format for greater expansion and revenues

• Consistency in outlets

• Knowledge of local markets

• Shared financial risk and more working capital
• An established business format
• National or regional brand marketing
• Minimized risk of starting a business
Challenges:
• Difficulty in maintaining and motivating franchisees

• Highly publicized disputes and conflict
• Inconsistent quality
• Control of customer relationship by intermediary
• Encroachment
• Disappointing profits and revenues
• Lack of perceived control over operations
• High fees
Benefits and Challenges in Distributing Services through Agents and Brokers:
Benefits:
• Reduced selling and distribution costs
• Intermediary‘s possession of special skills and knowledge
• Wide representation
• Knowledge of local markets
• Customer choice.
Challenges:
• Loss of control over pricing
• Representation of multiple service principals
Benefits and Challenges in Electronic Distribution of Services:
Benefits:
• Consistent delivery for standardized services
• Low cost
• Customer convenience
• Wide distribution
• Customer choice and ability to customize
• Quick customer feedback

Challenges:
• Price competition
• Inability to customize with highly standardized services
• Lack of consistency due to customer involvement
• Changes in consumer behavior
• Security concerns
• Competition from widening geographies
Common Issues Involving Intermediaries:

• Conflict over objectives and performance,
• Difficulty controlling quality and consistency across outlets,
• Tension between empowerment and control,
• Channel ambiguity.
STRATEGIES FOR EFFECTIVE SERVICE DELIVERY THROUGH INTERMEDIARIES
Which of the 3 strategies for an effective delivery through intermediaries do you think most successful?
Service principals, of course, want to manage their service intermediaries to improve service performance,
solidify their manage, and increase profits and revenues. The principal has a variety of choices, which range
from strict contractual and measurement control to partnering with intermediaries in a joint effort to improve
the service to the customer. One of the biggest issues a principal faces is whether to view intermediaries as
extensions of the company, as customer or as a partner.
The three categories of intermediary management strategies are as follows:
1. Control Strategies: in this category the service principal believes that intermediaries will perform
best when it creates standards both for revenues and service performance, measures results, and compensates
or rewards on the basis of performance level. To use these strategies the principal must be the most powerful
participant in the channel, possessing unique services with strong consumer demand or loyalty or other forms
of economic power.
• Measurement: - some franchisers maintain of the service quality delivered by their franchisees by
ongoing measurement programs that feed date back to the principal. Virtually all automobile dealers sales and
service performance is monitored regularly by the manufacturer, which creates the measurement program,
administer it, and maintain control of the information. The company thirty days out, ninety days out, and after
a year.
• Review: - The manufacturer designs the instruments and obtains the customer feedback directly. On
the basis of this information, the manufacturer rewards and recognizes both individuals and dealerships that

perform well and can potentially punish those that perform poorly. This obvious advantage to this approach is
that the manufacturer retains control. However this trust and goodwill between manufacturers and dealers can
easily be eroded if dealers feel that the measurement is used to control and punish.
2. Partnering Strategies: The group of strategies with the highest potential for effectiveness involves
partnering with intermediaries to learn together about end-customers, set specification improve delivery, and
communicate honestly. This approach capitalizes on the skills and strengths of both principal and intermediary
and brings a sense of trust that improves the relationship
• Alignment of goal:- one of the most successful approaches to partnering involves aligning company
and intermediary goals early in the process. Both the service principal and the intermediary have individual
goals that they strive to achieve. If the channel members can see that they benefit the ultimate consumer of
services and in the process optimize their own revenues and profit, they begin the relationship with a target in
mind
• Consultation and cooperation:- this strategy is not as dramatic as setting joint goals but it does result in
intermediaries participating in the decisions- making process. In this approach, which could involve virtually
any topic, from compensation to service quality to the service environment, the principal makes a point of
consulting intermediaries and asking for their opinions and views before establishing policy
3. Empowerment Strategies: this strategy where the service principal allows greater flexibility to
intermediaries based on the belief that the intermediaries have the best talents. This is true when the service
principal is new or lacks sufficient power to govern the channel. This is the best strategy in empowerment
strategies, because the principal provides information, research, or processes to help intermediaries perform
well in service
• Help the intermediary develop customer-oriented service processes:- individual intermediaries rarely
have the funds to sponsor their own customer research studies or reengineering efforts. One way for a
company to improve intermediary performance is to conduct research or standard-setting studies relating to
service performance. The standards could be
o No client will wait more than thirty minutes in the waiting area eg- car service stations.
o Phone calls will be answered by the fourth ring, an no caller will be on hold for more than one minute.
o Accurately prepared and checked bill will be delivered in four days or fewer.
• Provide needed support systems:- sometimes the service provider may not have the necessary system
to implement, even though, the principal may identify the customer expectation, though the intermediary may
agree with the principal, with regards to the expectation of the customer he may not have the infrastructure to
satisfy the same.
• Develop intermediaries to deliver service quality:- in this strategy, the service originator invests in
training or other forms of development to improve the skills and knowledge of intermediaries and their
employees
• Change to a cooperative management structure:- based on the management structure, well defined
franchisee could change to cooperative with the principal following their marketing strategies and
implementing the local marketing methods.

UNIT V- ROLE OF MARKETING COMMUNICATION
Role of marketing communication- Key reasons for GAP 4 involving communication, four
categories of strategies to match service promises with delivery. Pricing of services- Role of
price and value in provider GAP4, Role of non-monitory cost, Price as an indicator of service
quality –Approaches to pricing services, pricing strategies.
REASONS FOR GAP 4
KEY REASONS FOR SERVICE COMMUNICATION CHALLENGES

1. Inadequate management of service promises
a. Usually issue internally between departments or employees
2. Inadequate management of customer expectations
PRIYADARSHINI N,ASST.PROF,DEPT OF MBA Page 1

a. Can be result of external marketing providing unrealistic expectations.

3. Inadequate customer education
a. This often exists with high involvement services – i.e. certain medical services, certain financial services, etc.
4. Inadequate internal marketing communications
FOUR CATEGORIES OF STRATEGIES OR APPROACHES TO MATCH SERVICE PROMISES

WITH DELIVERY

1. APPROACHES FOR MANAGING SERVICE PROMISES

2. APPROACHES FOR IMPROVING CUSTOMER EDUCATION
3. APPROACHES FOR MANAGING CUSTOMER EXPECTATION

4. APPROACHES FOR MANAGING INTERNAL MARKETING COMMUNICATIONS
PRICING OF SERVICES-ROLE OF PRICE AND VALUE IN PROVIDER GAP 4
PRICING means that pays what to whom either in Monetary or Non-Monetary way.
Significance of pricing
1. Customer often has inaccurate or limited reference prices of services.

2. Price is a key signal of quality in service.
3. Monetary price is not the only price relevant to service customer.
1. CUSTOMER KNOWLEDGE OF SERVICE PRICES

REFERENCE PRICE
A reference price is a price point in memory for goods or services, and can consist of the
price last paid, the price most frequently paid, or the average of all prices customers have paid
for similar offerings.
1. Another reason customers lack accurate reference prices for services is that many providers are
unable or unwilling to estimate price in advance. Consider most medical or legal services. Rarely are
legal or medical service providers willing – or even able – to estimate a price in advance.
2. In a business – to – business context, companies will obtain bids or estimates for complex
services such as consulting or construction, but this type of price estimation is typically not undertaken
with end consumers; therefore, they often buy without advance knowledge about the final price of the
service.
3. Another factor that results in the inaccuracy of reference prices is that individual customer
needs vary. A service as simple as a hotel room will have prices that vary greatly : by size of room,
time of year, type of room availability, and individual versus group rate. These two examples are for
very simple services
2. THE ROLE OF NON-MONETARY COSTS
Non-monetary costs represent other sources of sacrifice perceived by consumers when buying
and using a service. Time costs, search costs, often enter into the evaluation of whether to buy or rebuy
a service, and may at times be more important concerns than monetary price. Most services require
direct participation of the consumer and thus consume real time; time waiting as well as time when the
customer interacts with the service provider.
For example: Consider the investment you make to exercise, see a physician, or get through the
crowds to watch a concert or game. Not only are you paying money to receive these services: you
also expending time.
1. Time cost becomes a sacrifice made to receive service is multiple ways. First because service
providers cannot completely control the number of customer to be serviced, service customers
are likely to expend time waiting to receive the service. Waiting time for a service is virtually
always longer and less predictable than waiting time to buy goods.
Search costs the effort invested to identify and select among services you desire are also
higher for services than for physical goods. Price for services are rarely displayed on shelves of
service establishments for customers to examine as they shop, so these prices are often known
only when a customer has dedicated to experience the service.

2. The most painful non-monetary costs are the psychic costs incurred in receiving some services
fear of not understanding (insurance), fear of rejection (bank loans), fear of uncertainty
(including fear of high cost) – all of these constitute psychic costs that customers experience as
sacrifices when purchasing and using services. All change, even positive change, brings about
psychic costs that customers factor into the purchase of services. For example: When banks
first introduced ATMs, customer resistance was significant, particularly to the idea of
putting money into a machine: customers felt uncomfortable with the idea of lettings go of
their checks and bank cards.
3. HOW PRICE AS AN INDICATOR OF SERVICE QUALITY

One of the interesting aspect of pricing is that buyers are likely to use prices as an indicator of both
services cost and services quality.
When service cues to quality are readily accessible, when brand names provide evidence of a
company’s reputation, or when level of advertising communicates the company’s belief in the
brand, customers may prefer to use those cues instead of price. In other situations, however, such as
when quality is hard to detect or when quality or price varies a great deal within a class of services,
consumers may believe that price is the best indicator of quality.

Develop a pricing strategy is a continuous marketing process and is undertaken when:
• A new product or service is introduced

• An existing product or service is revised
• The competitive environment changes
• A product or service moves through its life cycle
• A competitor initiates a price change
• Cost rise or fall dramatically
• The firm’s prices come under government scrutiny.
APPROACHES TO PRICING SERVICES:
Three pricing structures typically used to set prices:
1. Cost Based
2. Competition based
3. Demand based
Companies need to consider each of the three to some extant in setting prices.
1. Cost – Based Pricing

In cost – based pricing, a company determines expenses from raw materials and labor adds
amount or percentages for overhead and profit and thereby arrives at the price. This method is widely
used by industries such as utilities, contracting, wholesaling and advertising. The basic for cost – based
pricing is
Price = Direct costs + overhead cost + Profit margin
Special Problem in Cost – Based Pricing for Services
One of the major difficulties in cost based pricing involves defining the units in which a service is
purchased.
• Fee for service: Thus the price per unit – a well – understood concept in pricing of
manufactured goods is a vague entity. For this reason many services are sold in term of input units
rather than units of measured output. For example, most professional service (such as consulting,
engineering, architecture, psychotherapy and tutoring) is sold by the hour.
• Cost – plus pricing is a commonly used approach in which component costs are calculated and
markup added. In product pricing this approach is quite simple, in service industries; however, it is
complicated because the tracking and identification of costs are difficult. The approach is typically
used in industries where cost must be estimated in advance, such as construction engineering and
advertising. In construction or engineering, bids are solicited by clients on the basis of the description
of the service desired.
2. Competition – Based Pricing

Competition – based pricing does not always imply changing the identical rate others changes but
rather using others prices as an anchor for the firms price. This approach is used predominantly in two
situations.
1. When services are standard across providers, such as in the dry cleaning industry.
2. In oligopolies where there is a small number of large service providers, such as in the airline or
rental car industry.
Special Problems in Competition – Based Pricing For Services
Small firms may charge too little and not make margins high enough to remain in business.
Further, the heterogeneity of services across and within providers makes this approach complicated. Bank
3. Demand Based Pricing

The two approaches to pricing just described are based on the company and its competitors rather
than on customers. The third major approach to pricing, demand – based pricing involves setting prices
consistent with customer perceptions of value; prices are based on what customers will pay for the
services provided.
Special Problems in Demand – Based Pricing For Services

One of the major ways that pricing of services differs from of goods in demand – based is that, no
monetary cost and benefits must be factored into the calculation of perceived value to the customers.
When services require time, inconvenience, and psychic and search costs, the monetary price must be
adjusted to compensate. And when services save time, inconvenience, and psychic and search costs, the
customer is likely to be willing to pay a higher monetary price. Another way services and goods differ
with respect to this from of pricing is that information on services costs may be less available to
customers.
Perceived Monetary Price: This is the price the customer perceives the service to be, whereas
objective price is the actual price. As we discussed earlier, many consumers do not attend to,
know, and remember actual prices of services. Instead they reframe prices in ways that are
meaningful to them. Some consumers may notice that the price of dry cleaning a shirt is Rs.12.
others may perceive and remember the price only as ―expensive or ―cheap. Still others
may not pay any attention to the price at all.
Perceived Non-Monetary Price: This price represents the others costs we discussed earlier in
this chapter that are perceived by consumer when buying and using a service : time costs,
search costs and psychic costs.
Perceived Sacrifice: Perceived sacrifice includes all that the customer perceives has to be
given up to obtain a service. All form of price monetary and no monetary feed into this
perceptual concept.
Perceived Quality: Perceived is defined as the customers judgment about a services overall
superiority or excellence.
Perceived Value: Perceived value is defined as the consumer’s overall assessment of the
utility of a service based on perceptions of what is received.
Incorporating Perceived Value Into Service Pricing: It is the buyer’s perception of total value
that prompts the willingness to pay a particular price for a service.


PRICING STRATEGIES THAT LINK TO THE FOUR DEFINITIONS
1. VALUE IS LOW PRICE
When the customer means ―Value Is Low Price‖ Some of the specific pricing approaches
appropriate when customers define value as low price include discounting, odd pricing, synchro pricing,
and penetration pricing.
I. Discounting: Service providers offer discounts or price cuts to communicate to price sensitive
buyers that are receiving value.
II. Odd Pricing: This is the practice of pricing services just below the exact Rupee amount to make
buyers perceive that they are getting a lower price Rs.199.90
III. Synchro – Pricing: Synchro –pricing is the use of price to manage demand for a service by using
customer sensitivity to prices. Certain services, such as tax preparation, passenger transportation,
and long – distance telephone, hotels, and theaters have demand that fluctuates over time as well
as constrained supply at peak times. For companies in these and other industries, setting a price
that provides a profit over time can be difficult. Pricing can however, play a role in smoothing
demand and synchronizing demand and supply.
a. Place differentials are used for services where customers have sensitivity to location. The front
row at concerts, the 50 – yard line in foot ball, center court in tennis or basketball, ocean – side
rooms in resort hotels – all these represent place differentials that are meaningful to customers
and that therefore command higher prices.
b. Time differentials involve price variations that depend on when the service in consumed.
Telephone service after 11 p.m., hospital rooms on weekends, airline tickets that include a
Saturday night stay, are time differentials that reflect slow periods of service.
c. Quantity differentials: By offering lower prices for under used time periods, a service
company can smoothen demand and also gain incremental revenue.
i. Penetration Pricing:
a. Penetration pricing is a strategy in which new services are introduced at low prices to stimulate trial and
widespread use.
b. The strategy is appropriate when
1. sales volume of the service is very sensitive to price, even in early stages of introduction
2. a service faces threats of strong potential competition very soon after introduction; and
3. there is no class of buying
4. Willing to pay a higher price to obtain the service.
2. VALUE IS EVERYTHING I WHAT IN A SERVICE:

When the customers are concerned principally with the get components of a service, monetary price is
not of primary concern.
i. Prestige Pricing
This is a special from demand – based pricing by service marketers who offer high – quality or
status services. For certain services – restaurants, health clubs, airlines, and hotels – a higher price is
charged for the luxury end of the business. Some customers of service companies who use this approach
may actually value the high price because it represents prestige or a quality images. Others prefer
purchasing at the high end because they are given preference in seating or accommodations and are
entitled to other special benefits. In prestige pricing, demand may actually increase as price increases
because the costlier service has more value in reflecting quality or prestige.
Skimming PricingThis is a strategy in which new services are introduced at high prices with large
promotional expenditures. In this situation many customers are more concerned about obtaining the
service than about the cost of the service allowing service providers to skim the customers most willing to
pay the highest prices.
3. VALUE IS THE QUALITY I GET FOR THE PRICE I PAY. The task of the marketer is to
understand what quality means to the customers (or segments of customers and then to match quality
level with price level.

i. “Value Pricing”:
This widely used term has come to mean giving more for less in current usage it involves
assembling a bundle of services that are desirable to a wide group of customers and then pricing them
lower than they would cost alone.
ii. Market Segmentation Pricing
In this from of pricing, service marketer charges different prices to groups of customers for what
are perceived to be different quality levels of services, even though there may not be corresponding
differences in the costs of providing the service to each of these groups. This pricing is based on the
premise that different segments show different price elastic ties of demand and desire different quality
levels. Companies also use market segmentation by service version, recognizing that not all segments
want the basic level of service at lowest price. When they can identify a bundle of attributes that are
desirable enough for another segment of customers.
4. VALUE IS WHAT I GET FOR WHAT I GIVE
i. Price Bundling
Some services are consumed more effectively in conjunction with other services; other services
accompany the products they support (e.g. extended service warranties, training, and expedited delivery).
When customers find value in a package of services that are interrelated, price bundling is an appropriate
strategy. Bundling, this means pricing and selling services as a group rather than individually, has
benefits to both customers and service companies. An example, a health club customer may be able to
contract for aerobics classes at 25 per month.
ii. Complementary Pricing
This pricing includes three related strategies captive pricing, two–part pricing, and loss leadership.
Services that are highly interrelated can be leveraged by using one of these forms of pricing. In captive
pricing, the firm offers a base service or product and then provides peripheral services needed to continue
using the service. With services firms, this strategy is often called two part pricing because the service

price is broken into a fixed fee plus variable usage fee (also found in telephone services). Loss
leadership is the term typically used in retail stores when providers place a familiar service on special
largely to draw the customer to the stores and then reveal other levels of service available at higher prices.
iii. Contingency Pricing

The most commonly known form of results – based pricing (used when uncertainty is high) is a
practice called contingency pricing used by lawyers. In this approach, lawyers do not receive fees or
payment until the case is settled, when they are paid it is a percentage of the pricing makes sense in part
because most clients in these cases are unfamiliar with the outcomes. Their biggest fears are high fees for
a case that may take years to settle. By using contingency pricing, clients are assured that they pay no fees
until they receive a settlement.
COMMUNICATION GAP: CLOSING THE GAP
• Companies must manage all communications to customers, so that inflated promises does not
lead to higher expectations.
• Appropriate pricing.
• Capitalizing on opportunities to educate customers to use services appropriately.
• Need to co-ordinate interactive marketing with external marketing.
• Effectively coordinating actual service delivery with external communications.
• Pricing strategies such as discounting, couponing needs to be different in service situations
where customer has no initial sense of prices.

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UNIT VI - PHYSICAL EVIDENCE IN SERVICES & SERVICE SCAPES
Physical evidence in services: Importance of Physical Evidence, Elements of Physical Evidence, Physical
Evidence Strategies, Guidelines for Physical Evidence.
Services scapes: Types of service scapes-Objective and Goals of services capes Role of services capes,
Approaches for understanding service scapes effects, Frame work for understanding services capes & its
effect on behaviour-Guidance for physical evidence strategies.
INTRODUCTION
PHYSICAL EVIDENCE AND THE SERVICESCAPE PRINCIPLES OF SERVICE MARKETING
MANAGEMENT
When customers visit a service facility, they expect it to be user friendly easy to find, simple to use, and
staffed by helpful personnel. Operations specialists tend to focus on the functional aspects of facility design, with
an emphasis on productive use of resources and safe, efficient delivery of services. But marketers also care about
the impression that service facilities and personnel make on customers and how they contribute to the overall
service experience.
In many instances, it's the nature of that experience that differentiates one service provider from its
competitors. So marketers must address the question: What physical evidence should our facilities
present? When you go to a service factory and interact directly with employees, you're exposed to more
compelling evidence than when service is delivered at your home (or work locations) or through electronic
channels.
Physical evidence one of the 7Ps of integrated service management refers, first, to the tangible elements
encountered by customers in the service delivery environment and, second, to the tangible metaphors used in
symbols, slogans, or advertising messages. For example, the clean streets, colorful signage, and costumed
employees of theme parks like Disneyland and Legoland contribute to the sense of fun and excitement that
visitors encounter on arrival and throughout the service experience.
Alternatively, consider the office of a successful professional business an investment bank or law firm where
wood-paneled walls, leather-bound books, and antique furnishings are used to create an elegant and impressive
atmosphere. Marketers use strategically managed physical evidence in three ways:
• As an attention-creating medium, differentiating their company's services from those of
competitors and attracting customers from target segments
• As a message-creating medium, using symbolic cues to communicate with the intended audience
about the distinctive nature and quality of the service experience
• As an effect-creating medium, employing colors, textures, sounds, scents, and spatial design to
create or heighten an appetite for certain goods, services, or experiences
Antique stores provide a nice example of how carefully crafted physical evidence can become an important
effect-creating medium. As Philip Kotler noted:
Many antique dealers also make use of "organizational chaos" as an atmospheric principle for
selling their wares. The buyer enters the store and sees a few nice pieces and a considerable amount of
junk. The nice pieces are randomly scattered in different parts of the store. The dealer gives the
impression, through his prices and his talk, that he doesn't really know values.
The buyer therefore browses quite systematically, hoping to spot an undiscovered Old Master
hidden among the dusty canvases of third-rate artists. He ends up buying something that he regards as
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value. Little does he know that the whole atmosphere has been arranged to create a sense of hidden
treasures.
Services scape Design

The term services cape describes the style and appearance of the physical surroundings where customers
and service providers interact. Since services capes can create powerful positive or negative impressions, it is
important to manage them effectively (especially in high-contact environments).
Consider these examples.
1. Airlines employ corporate design consultants to help them differentiate the appearance of their
aircraft and employees from those of competitors. Although the flight attendants from many airlines
look interchangeable in their black or navy blue outfits, some have distinctive uniforms that identify
them as employees of uniquely positioned carriers like Singapore Airlines or Southwest Airlines.
And most airlines have specific color combinations and logos that appear consistently in the interior
decor of the plane, the napkins, the snack food packaging, etc.
For first-time customers in particular, the services cape plays an important role in helping frame expectations
about both the style and quality of service to be provided. Because it's hard to evaluate many service
performances in advance (or even after service delivery), customers seek pre-purchase clues about service
quality. Hence, first impressions are important.
Guidelines for Effective Strategy of Physical Evidence in Services!
1. Recognize the Strategic Impact of Physical Evidence:

For an evidence strategy to be effective it must be linked clearly to the organization‘s overall goals and vision.
Thus, planners must know what those goals are and then determine how the evidence strategy can support them.
At a minimum, the basic service concept must be defined, the target markets (both internal and external)
identified, and the firm‘s broad vision of its future known. Because many evidence decisions are relatively
permanent and costly (particularly servicescape decisions), they must be planned and executed deliberately.
2. Map the Physical Evidence of Service:

Everyone should be able to see the service process and the existing elements of physical evidence. An effective
way to depict service evidence is through the service map, or blueprint. From the map one can read the actions
involved in service delivery, the complexity of the process, the points of human interaction that provide evidence
opportunities, and the tangible representations present at each step. To make the map even more useful,
photographs or videotape of the process can be added to develop a photographic blueprint.
3. Clarify Roles of the Servicescape:

Sometimes the servicescape may have no role in service delivery or marketing from the customer‘s point of
view. This is essentially the case for telecommunication services or express mail services. Clarifying the roles
played by the servicescape in a particular situation will aid in identifying opportunities and deciding just who
needs to be consulted in making facility design decisions.
4. Assess and Identify Physical Evidence Opportunities:

Once the current forms of evidence and the roles of the servicescape are understood, possible changes and
improvements can be identified. A strategy might be developed to provide more evidence of service to show
customers exactly what they are paying for. Or the pricing or the facility design would need to be changed,
depending on the restaurant‘s overall strategy.
5. Be Prepared to Update and Modernize the Evidence:

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Some aspects of the evidence, particularly the servicescape, require frequent or at least periodic updating and
modernizing. Even if the vision, goals, and objectives of the company don‘t change, time itself takes a toll on
physical evidence, necessitating change and modernization.
here is clearly an element of fashion involved, and over time different colours, designs, and styles may come to
communicate different messages. Organizations obviously understand this when it comes to advertising strategy,
but sometimes they overlook other elements of physical evidence.
6. Work Cross-functionally:
In presenting itself to the consumer, a service firm is concerned with communicating a desired image, with
sending consistent and compatible messages through all forms of evidence, and with providing the type of
service evidence the target customers want and can understand.
SERVICE SCAPE
Servicescape is a concept that was developed by Booms and Bitner to emphasize the impact of the physical
environment in which a service process takes place. The concept of servicescape can help assess the difference in
customer experience between a fast-food franchise restaurant and a small, family-run restaurant. Whereas the
quality of the food may be the same, the customer may perceive higher quality in the latter over the former based
on the environment in which the service is provided.
Booms and Bitner defined a Servicescape as "the environment in which the service is assembled and in
which the seller and customer interact, combined with tangible commodities that facilitate performance or
communication of the service".
The servicescape includes the facility's exterior (landscape, exterior design, signage, parking, surrounding
environment) and interior (interior design and decor, equipment, signage, layout, air quality, temperature and
ambiance).
Service scape can influence, customer choice, expectation, satisfaction and other behavior Eg., Retailers (shopper
stop, food world) know that customers are influenced by smell, décor, music, store layout. Because services
generally are purchased and consumed simultaneously employees and customers will interact with each other in
the service scape. Thus, the same physical evidence setting that communicates with the customer and influences
him to buy the service will also affect the employees of the firm, i.e., affect the employee by way of motivation,
productivity, satisfaction. Therefore service setting is to be designed (stay physical layout) in such a way that is
meets the need of the customer and employee.
TYPES OF SERVICE SCAPES

Is a framework for categorizing service organizations on two dimensions that captures some of the key
differences that will impact the management of the servicescape? Organizations that share a cell in the matrix
will face similar issues and decisions regarding their physical spaces.
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he physical setting may be more or less important in achieving the organisation’s marketing and other
goals depending on certain factors:
(Servicescape Use:
First, organisations differ in terms of whom the servicescape will actually affect. That is, who actually comes into
the service facility and thus is potentially influenced by its design—customers, employees, or both groups? There
are three types of service organisations that differ on this dimension.
• At one extreme is the self-service environment, where the customer performs most of the activities and
few if any employees are involved.
Examples of self-service environments include ATMs, movie theatres, express mail drop-off
facilities, self-service entertainment such as golf and theme parks, and online Internet services.
In these primarily self-service environments, the organisation can plan the servicescape focusing
exclusively on marketing goals such as attracting the right market segment and making the
facility pleasing and easy to use.
• At the other extreme of the use dimension is the remote service, where there is little or no customer
involvement with the servicescape.
Examples of Remote Service includes Telecommunications, utilities, financial consultants,
editorial, and mail-order services are examples of services that can be provided without the customer
ever seeing the service facility. In fact, the facility may be in a different state or a different country.
• Another types is Interpersonal services, where the both customer and employee must be present in
service scape.
Examples of Interpersonal service includes hair salon, restaurant, banks and hospitals where
interpersonal service happens simultaneously in the presence of both customer and employee
ELEMENTS OF SERVICE SCAPE

Services being intangible, customers often rely on tangible cues, or physical evidence, to evaluate the
service before its purchase and to assess their satisfaction with the service during and after consumption. General
elements of physical evidence are shown in Table 9.1. They include all aspects of the organization‘s physical
facility (the services cape) as well as other forms of tangible communication.
Elements of the services cape that affect customers include both exterior attributes (such as parking,
landscape) and interior attributes (such as design, layout, equipment, and decor). Physical evidence examples
from different service contexts are given in Table 9.2. It is apparent that some services communicate heavily
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through physical evidence (e.g. hospitals, resorts, child care), while others provide limited physical evidence (e.g.
insurance, express mail).
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ROLE OF SERVICESCAPES
A distinction is made in services marketing between two kinds of physical evidence:
(a) Peripheral evidence;
(b) Essential evidence.
(a) Peripheral Evidence:
Peripheral evidence is actually possessed as part of the purchase of a service. It has however little or no
independent value. Thus a bank cheque book is of no value unless backed by the funds transfer and storage
service it represents.
An admission ticket for a cinema equally has no independent value. It merely confirms the service. It is
not a surrogate for it. Peripheral evidence ‗adds to‘ the value of essential evidence only as far as the customer
values these symbols of service.
The hotel rooms of many large international hotel groups contain much peripheral evidence like
directories, town guides, pens, notepads, welcome gifts, drink packs, soaps and so on. These representations of
service must be designed and developed with customer needs in mind. They often provide an important set of
complementary items to the essential core service sought by customers.
(b) Essential Evidence:
Essential evidence, unlike peripheral evidence, cannot be possessed by the customer. Nevertheless essential
evidence may be so important in its influence on service purchase it may be considered as an element in its own
right. The overall appearance and layout of a hotel; the ‗feel‘ of a bank branch; the type of vehicle rented by a car
rental company; the type of aircraft used by a carrier are all examples of physical evidence.
1. Packaging : Servicescape act as a package in tangible goods. Physical evidence wrap the service and
convey an external image of what is inside the service organisation for customers.
2. Facilitating: A well designed, functional facility can make the service a pleasure to experience from the
customer‘s point of view.
3. Socializing: Properly designed servicescape tells the customers in which part of the servicescape
customers are welcome and which are for employees only. How they should interact, and what type of
interaction is allowed.
4. Differentiating:– design of physical facility can differentiate a firm from its competitors. Ex: - A/c v/s
non – a/c bus
Packaging: Similar to a tangible products package, the service-scape and other elements of physical evidence
essentially wrap the service and convey an external image of what is inside to consumers. The service-scape is
the outward appearance of the organization and thus can be critical in forming initial impressions or setting up
customer expectations it is a visual metaphor for the intangible service. This packaging role is particularly
important in creating expectations for new customers and for newly established service organizations that are
trying to build a particular image. The physical surroundings offer an organization the opportunity to convey an
image in a way not unlike the way an individual chooses to dress for success.
Facilitating: The service-scape can also serve as a facilitator in aiding the performances of persons in the
environment. How the setting is designed can enhance or inhibit the efficient flow of activities in the service
setting, making it easier or harder for customers and employees to accomplish their goals. A well-designed,
functional facility can make the service a pleasure to experience from the customer‘s point of view and a pleasure
to perform from the employees. On the other hand, poor and inefficient design may frustrate both customers and
employees.
Socializing: The design of the service-scape aids in the socialization of both employees and customers in the
sense that it helps to convey expected roles, behaviors, and relationships. For example, a new employee in a
professional services firm would come to understand her position in the hierarchy partially through noting her
PRIYADARSHINI
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office assignment, the quality of her office furnishings, and her location relative to others in the organization. The
design of the facility can also suggest to customers what their role is relative to employees, what parts of the
service-scape they are welcome in and which are for employees only, how they should behave while in the
environment, and what types of interactions are encouraged.
Differentiating: The design of the physical facility can differentiate a firm from its competitors and signal the
market segment the service is intended for. Given its power as a differentiator, changes in the physical
environment can be used to reposition a firm and/or to attract new market segments. In shopping malls the colors
used in decor and displays and type of music wafting from a store signal the intended market segment. The
design of a physical setting can also differentiate one area of a service organization from another. This is
commonly the case in the hotel industry where one large hotel may have several levels of dining possibilities,
each signed by differences in design.
FRAMEWORK FOR UNDERSTANDING SERVICE SCAPES & ITS EFFECT ON BEHAVIOR
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UNDERSTANDING SERVICE SCAPE EFFECTS ON BEHAVIOR
INDIVIDUAL BEHAVIORS IN THE SERVICE SCAPE

(i) Individual Behaviours:
Environmental psychologists suggest that individuals react to places with two general, and opposite, forms of
behavior – approach and avoidance. Approach behaviors include all positive behaviors‘ that might be directed at
a particular place, such as desire to stay, explore, work, and affiliate.
Avoidance behaviors reflects the opposite — a desire not to stay, to explore, to work, or to affiliate. In a study of
consumers in retail environments, researchers found that approach behaviors‘ (including shopping enjoyment,
returning, attraction, and friendliness toward others, spending money, time spent browsing, and exploration of the
store) were influenced by perceptions of the environment.
(ii) Social Interactions:
In addition to its effects on their individual behaviors, the servicescape influences the nature and quality of
customer and employee interactions, most directly in interpersonal services. It has been stated that ―all social
interaction is affected by the physical container in which it occurs.‖ The ―physical container‖ can affect the
nature of social interaction in terms of the duration of interaction and the actual progression of events.
In many service situations, a firm may want to ensure a particular progression of events (a ―standard script‖) and
limit the duration of the service. Environmental variables such as physical proximity, seating arrangements, size,
and flexibility can define the possibilities and limits of social episodes such as those occurring between
customers and employees, or customers and other customers.
INTERNAL RESPONSES TO THE SERVICE SCAPE

The perceived service scape does not directly cause people to behave in certain ways. Although the
internal responses are discussed independently here, they are clearly interdependent – A person‘s beliefs about a
place, a cognitive response, may well influence the person‘s emotional response, and vice-versa.
In other words, employees and customers respond to dimensions of their physical surroundings
cognitively, emotionally, and physiologically, and those responses are what influence their behaviors in the
environment. For example, patients, who come into a dentist‘s clinic that is designed to calm and sooth their
anxieties (emotional responses), may believe as a result that the dentist is caring and competent (cognitive
responses).
(1) Variations in Individual Responses:
In general, people respond to the environment in the ways just described cognitively, emotionally,
physiologically and their responses influence how they behave in the environment. However, the response will
not be the same for every individual, every-time.
Personal differences as well as temporary conditions such as moods or the purpose for being there can
cause variations in how people respond to the service scape. One personal trait that has been shown to affect how
people respond to environments is aroused seeking. Arousal seekers enjoy and look for high levels of
stimulation, whereas arousal avoiders prefer lower levels of stimulation.
(2) Environment and Cognition:
The perceived service scape can have an effect on people‘s beliefs about a place and their beliefs about
the people and products found in that place. In a sense the service scape can be viewed as a form of nonverbal
communication, imparting meaning through what is called ―object language.‖ In other cases, perceptions of the
service scape may simply help people to distinguish a firm by influencing how it is categorized.

9
The overall perception of the service scape enables the consumer or employee to categorize the firm
mentally. Research shows that in the restaurant industry a particular configuration of environmental cues
suggests ―fast foods,‖ whereas another configuration suggests ―elegant sit-down restaurant.‖ In such situations,
environmental cues serve as a short-cut device enabling customers to categories and distinguish among types of
restaurants.
(3) Environment and Emotion:
In addition to influencing beliefs, the perceived service scapes can directly elicit emotional responses
that, in turn, influence behaviors. Just being in a particular place can make us feel happy, light-hearted, and
relaxed, whereas being in another place may make us feel sad, depressed, and gloomy.
The colors, decor, music, and other elements of the atmosphere can have an unexplainable and
sometimes very sub-consciousness effect on the moods of people in the place. For some people, certain
environmental stimuli (noises, smells) common in dental clinics can bring on immediate feelings of fear and
anxiety. Environmental psychologists have researched people‘s emotional responses to physical settings.
They have concluded that any environment, whether natural or engineered, will elicit emotions that can be
captured by two basic dimensions:
a. Pleasure/displeasure; and
b. Degree of arousal (amount of stimulation or excitement).
Servive scapes that are both—pleasant and arousing—would be termed exciting, whereas those are pleasant and
non-arousing, or sleepy, would be termed relaxing. Unpleasant service scapes that are arousing would be called
distressing, while unpleasant, sleepy service scape would be gloom. These basic emotional responses to
environments can be used to begin predicting the expected behaviors of consumers and employees who find
themselves in particular type of place.
(4) Environment and Physiology:
The perceived service scape may also affect people in purely physiological ways. Noise that is too loud,
may cause physical discomfort, the temperature of a room may cause people to shiver or perspire, the air quality
may make it difficult to breathe, and the glare of lighting may decrease ability to see and cause physical pain. All
of these physical responses may, in turn, directly influence whether people stay in and enjoy a particular
environment.
It is well known that the comfort of seating in a restaurant influences how long people stay. The hard
seats in a fast-food restaurants cause most people to leave within a predictable period of time. Similarly,
environmental design and related physiological responses affect whether a person can perform his or her job
function well. A vast amount of research in engineering and design has addressed human physiological responses
to ambient conditions as well as physiological responses to equipment design.
Such research fits under the rubric of human factors design or ergonomics. Human factors research
systematically applies relevant information about human capabilities and limitations to the design of things and
procedures people use. Thus an arousal avoider in a loud, bright disco with flashing neon might show strong
disliking for the environment, whereas an arousal seeker would be very happy.
In a related vein, it has been suggested that some people are better screeners of environmental stimuli
than others. Screeners of stimuli would be able to experience a high level of stimulation but not be affected by it.
Non-screeners would be highly affected and might exhibit extreme responses even to low levels of stimulation.
The particular purpose for being in a service scape can also affect a person‘s response to it.
A person who is on an aero plane for a one-hour flight will likely be less affected by the atmosphere on
the plane than will the traveler who is embarking on a 10-hour overseas flight. Similarly, a day-surgery hospital
patient will likely be less sensitive and demanding of her environment than would a patient who is spending two
weeks in the hospital. And a person who is staying at a resort hotel for a business meeting will respond
differently to the environment than a couple on their honeymoon.

10
Temporary mood states can also cause people to respond differently to environmental stimuli. A person
who is feeling frustrated and fatigued after a long day at work is likely to be affected differently by a highly
arousing restaurant than the person would be after a relaxing three-day weekend.
The important thing to remember is that not every person will always respond in the same way to the
environment — individual moods, purposes, and expectations may influence the response. And common
personality characteristics (arousal seeking, environment screening) may cause certain groups of people to
respond in predictably similar ways.
ENVIRONMENT DIMENSIONS
Ambient Conditions: affect the 5 senses, but may be imperceptible or affect us subconsciously
◦ Temperature, lighting, noise, music, scent, color
Spatial Layout and Functionality: size, shape, and arrangement of machinery, equipment, and
furnishings and the ability of such to facilitate customer and employee goals
◦ Accessibility, aesthetics, seating comfort
Signs, Symbols, Artifacts: explicit or implicit communication of meaning; often culturally embedded;
important in forming first impressions
Way-finding, labels, rules of behavior, creating aesthetic impression
THE MAIN APPROACHES FOR SERVICESCAPES ARE AS FOLLOWS:

(1) Direct Observation: Using observation methods, trained observers make detailed accounts of environmental
conditions and dimensions, also observing and recording the reactions and behaviours of customers and
employees in the servicescape. Through direct observation, depth interviews, and photography, researchers
compared detailed accounts of gift giving as it was observed and experienced in two separate retail stores – the
mouse house and baubles.
The findings could be very useful in redesigning the servicescape or in comparing different facilities. Direct
observation can also be useful when there is very specific servicescape question that needs answering — for
example, ―What are the foot traffic flow patterns in the mall during peak business hours, and are the new signs
effective in directing people?‖ The disadvantages of direct observation are primarily related to time and dollar
costs.
First, the researchers who observe the servicescape, must be highly trained and skilled in ethnographic methods,
which makes data collection expensive. Second, they must be allowed to observe for some period of time, and
the interpretation of their detailed records can be very labour intensive. Unlike the survey method, the data
cannot, as a rule, be entered into a computer and analyzed with nice, clean quantitative results.
(2) Environment Surveys:
An environment survey asks people (either customers or employees) to express their needs and preferences for
different environmental configurations by answering predetermined questions in a questionnaire format. This is
the type of research conducted in a retail bank setting that was designed to measure the importance of different
environmental dimensions and elicit user expectations about bank facilities.
The study surveyed 3,000 bank customers and 2,000 bank employees about 32 environmental variables organised
into five categories – ambient conditions, aesthetics, privacy, efficiency/convenience, and social conditions.
Across the categories, employees and customers often had different expectations for the bank facility. Although
this study was conducted in on specific setting, more recent research has developed a general measurement scale
to assess ―perceived servicescape quality.
―The scale measures perceptions of three servicescape factors—ambience, design, and social conditions. The
measure was developed using perceptions of 1,674 consumers across 10 different industries. The advantages

11
surveys are the ease of administration and interpretation of results. Usually, the data are collected via
standardized questions and the results can be entered into a computer and easily interpreted.
Thousands of questionnaires can be sent out or administered over the phone, so sample sizes can be very large
and many environmental variables can be explored simultaneously. The primary disadvantage of an
environmental survey is that sometimes the results may be less valid than results from other methods i. e., the
answers to the survey questions may not truly reflect how people feel, or how they will behave.
(3) Photographic Blueprints:
A photographic blueprint essentially provides a visualization of the service at each customer action Step. The
visual can be a slide, a photograph, or the entire service process as video-taped from the customer‘s point of
view. By combining service blueprint with photos, managers and other service employees can see the evidence of
service from the customer‘s point of view. The photographic blueprint can provide a powerful analytic tool to
begin assessing the service process.
Photographic blueprints are extremely useful in providing clear and logical documentation of the physical
evidence as it currently exists in a given service situation. Before changes can be made, the current state of
physical evidence should be made apparent to all concerned. The photos and/or video-tapes give more depth to
the process blueprint, and the blueprint forces certain logic on the analysis of the physical evidence.
The photographic blueprint can give a vivid picture of how things are. The main disadvantage of a photographic
blueprint is that it is just a starting point. In and of itself it doesn‘t answer any questions, but many questions can
be asked of it. It doesn‘t give any clues as to customer and employee preferences and needs; it could, however, be
used as a catalyst for gathering customer and employee opinions.
(4) Experiments:
Experimental methods are among the best ways to assess specific customer and employee reactions to
environmental changes or alternatives when it is important to know their true reactions and preferences.
Experiments involve exposing groups of customers to different environmental configurations and measuring their
reactions. The advantages of experiments lie primarily in the validity of the results, i.e., if the experiment is
carefully done, you can believe and rely on the results.
Marriott Hotels has used this approach in designing its hotel rooms. However, because of the expense involved in
constructing actual servicescapes, some form of simulation (verbal descriptions, photos/slides, scale models,
videos, and computer simulations) will likely be used. Environmental psychologists and marketers have shown
that simulated environments can work well in achieving results similar to what would be found in actual,
constructed environments.
GUIDANCE FOR PHYSICAL EVIDENCE STRATEGIES
1. Recognize the Strategic Impact of Physical Evidence: For an evidence strategy to be effective it must
be linked clearly to the organization‗s overall goals and vision. Thus, planners must know what those
goals are and then determine how the evidence strategy can support them. At a minimum, the basic
service concept must be defined, the target markets (both internal and external) identified, and the firm‗s
broad vision of its future known. Because many evidence decisions are relatively permanent and costly
(particularly service scape decisions), they must be planned and executed deliberately.
2. Map the Physical Evidence of Service: Everyone should be able to see the service process and the
existing elements of physical evidence. An effective way to depict service evidence is through the
service map, or blueprint. From the map one can read the actions involved in service delivery, the

12
complexity of the process, the points of human interaction that provide evidence opportunities, and the
tangible representations present at each step. To make the map even more useful, photographs or
videotape of the process can be added to develop a photographic blueprint.
3. Clarify Roles of the Service scape: Sometimes the service scape may have no role in service delivery or
marketing from the customer‗s point of view. This is essentially the case for telecommunication services
or express mail services. Clarifying the roles played by the service scape in a particular situation will aid
in identifying opportunities and deciding just who needs to be consulted in making facility design
decisions.
4. Assess and Identify Physical Evidence Opportunities: Once the current forms of evidence and the
roles of the service scape are understood, possible changes and improvements can be identified. A
strategy might be developed to provide more evidence of service to show customers exactly what they
are paying for. Or the pricing or the facility design would need to be changed, depending on the
restaurant‗s overall strategy.
5. Be Prepared to Update and modernize the evidence: Some aspects of the evidence, particularly the
service scape, require frequent or at least periodic updating and modernizing. Even if the vision, goals,
and objectives of the company don‗t change, time itself takes a toll on physical evidence, necessitating
change and modernization. There is clearly an element of fashion involved, and over time different
colours, designs, and styles may come to communicate different messages. Organizations obviously
understand this when it comes to advertising strategy, but sometimes they overlook other elements of
physical evidence.
6. Work Cross functionally: In presenting itself to the consumer, a service firm is concerned with
communicating a desired image, with sending consistent and compatible messages through all forms of
evidence, and with providing the type of service evidence the target customers want and can understand.

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UNIT 1- SERVICES MARKETING 1

UNIT I- CONCEPT OF SERVICES

SERVICE OFFERINGS AND CUSTOMER SERVICE

PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

Examples of Selected Services

Public Utilities Electricity, water supply, sewerage,

Law enforcing, Civil, Administrative Police, Army, Navy, Air Force,

Distributive trade Wholesalers, retailers, dealers, agents

PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

Insurance, banking, finance Banks, insurance companies, financial institutions, share

professional and scientific Advertising, marketing research, consultancy, legal,

Leisure, recreation Cinemas, theatres, clubs, gyms, restaurants, hotels,

Miscellaneous Beauty parlours, health clubs, domestic help,

DIFFERENCE BETWEEN PHYSICAL GOODS AND SERVICES

Physical Goods Services

CONTRIBUTION OF SERVICE SECTOR TO INDIA’S ECONOMY

PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

● IT ( Information Technology, the leading service sector )

● Hotels and restaurants

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● Personal, cultural and recreational services

● Travel, transport and insurance services

REASONS FOR THE GROWTH OF THE SERVICE SECTOR

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TECHNOLOGY AS A DRIVING FORCE FOR GROWTH

1. Introduction of New Service Offerings

1. Introduction of New Service Offerings

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2. Providing New Processes for Service Delivery

 Online ticket booking (air, rail or bus)

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4. Extending the Global Reach of Services

5. The Internet Becoming an Enlarged Service

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DISTINCTIVE CHARACTERISTICS OF SERVICES AS COMPARED TO PRODUCTS

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PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

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Table 1.1: Implications of Service Characteristics and Ways to Overcome them

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Fig. 1.1: Tangibility Spectrum

PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

Some Myths about Services

CONCEPT OF SERVICE MARKETING TRIANGLE

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1. The Company (or SBU or department or management)

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SERVICES MARKETING MIX – AN OVERVIEW

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PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

Service Price Term Used

1. Differential or flexible pricing.

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5. High price maintenance pricing.

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PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

Marketing Challenges for Service Industry

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PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

Market Trends in the Service Industry

PRIYADARSHINI N, ASST.PROF, DEPT OF MBA

GAP MODELS OF SERVICE QUALITY

PRIYADARSHINI N, ASST.PROF, DEPT OF MBA