 The services sector has been growing at a

rate of 8% per annum in recent years

 More than half of our GDP is accounted for

from the services sector

 This sector dominates with the best jobs,

best talent and best incomes

Services, 68% Agriculture, Forestry, Mining,
Fishing, 2.3%

Manufacturing and
Construction, 17.3%

Government, 12.4%
(mostly Services)
Source: Bureau of Economic Analysis, Survey of Current Business, May 2005, Table 1

INSIGHTS
 Private sector service industries account for over two-thirds of GDP
 Adding government services, total is almost four-fifths of GDP
-Theodore Levitt-
It is the part of the product or the full product for
which the customer is willing to see value and
pay for it.
 Powerful forces are transforming service
markets
◦ Government policies, social changes, business trends,
advances in IT, internationalization
 These forces are reshaping
◦ Demand
◦ Supply
◦ The competitive landscape
◦ Customers’ choices, power, and decision making
A service is any act or performance that one
party can offer to another that is essentially
intangible and does not result in the ownership
of anything. Its production may or may not be
tied to a physical product.
Kolter
A service is an intangible product involving a
deed, a performance or an effort that cannot be
physically possessed.
Berry and Parasuraman
 Services
◦ Are economic activities offered by one party to another
◦ Most commonly employ time-based performances to
bring about desired results in:
 recipients themselves
 objects or other assets for which purchasers have responsibility
 In exchange for their money, time, and effort,
service customers expect to obtain value from
◦ Access to goods, labor, facilities, environments,
professional skills, networks, and systems
◦ But they do not normally take ownership of any of the
physical elements involved
 It is intangible.
 It does not result in ownership.
 It may or may not be attached with a physical

product
Physical goods
tangible
homogeneous
Production and distribution are
separated from consumption
A thing
Core value processed in factory
Customers do not participate in the
production process
Can be kept in stock
Transfer of ownership
Services
intangible
heterogeneous
Production, distribution and
consumption are simultaneous
processes
An activity or process
Core value produced in the buyer-seller
interaction
Customers participate in production
Cannot be kept in stock
No transfer of ownership
 Economic affluence
 Changing role of women
 Cultural changes
 IT revolution
 Conservation of natural resources
 Development of markets
 Unbundling corporations
 Increased consciousness of health care
 Economic liberalization
 Migration
 Export potential
 Most new jobs are generated by services
◦ Fastest growth expected in knowledge-based
industries
◦ Significant training and educational qualifications
required, but employees will be more highly
compensated
◦ Will service jobs lost to lower-cost countries? Yes,
some service jobs can be exported
Share of
Employment Agriculture

Services

Industry

Time, per Capita Income Source: IMF, 1997

 Social Business Advances in
Changes Trends IT
Government
Globalization
Policies  New markets and product categories
 Increase in demand for services
 More intense competition

Innovation in service products & delivery systems, stimulated by better technology

Customers have more choices and exercise more power

Success hinges on:

 Understanding customers and competitors
 Viable business models
 Creation of value for customers and firm
 Social Business Advances in
Changes Trends IT

Government
Globalization
Policies

 Changes in regulations

 Privatization

 New rules to protect customers, employees,

and the environment

 New agreement on trade in services

 Social Business Advances in
Changes Trends IT

Government
Globalization
Policies
 Rising consumer expectations
 More affluence
 More people short of time
 Increased desire for buying experiences versus
things
 Rising consumer ownership of high tech
equipment
 Easier access to information
 Immigration
 Growing but aging population
 Social Business Advances in
Changes Trends IT
Government
Globalization
Policies

 Push to increase shareholder value

 Emphasis on productivity and cost savings

 Manufacturers add value through service and sell

services

 More strategic alliances and outsourcing

 Focus on quality and customer satisfaction

 Growth of franchising

 Marketing emphasis by nonprofits

 Social Business Advances in
Changes Trends IT
Government
Globalization
Policies

 Growth of the Internet

 Greater bandwidth

 Compact mobile equipment

 Wireless networking

 Faster, more powerful software

 Digitization of text, graphics, audio, video

 Social Business Advances in
Changes Trends IT
Government
Globalization
Policies

 More companies operating on transnational basis

 Increased international travel

 International mergers and alliances

 “Offshoring” of customer service

 Foreign competitors invade domestic markets

They could be
 Equipment based
 People based – varying skill levels
 Personal needs – haircuts, tution, massage
parlours
 Business needs – courier services, office

cleaning services, delivering fresh flowers

 Intangibility
 Inseparability
 Perishability
 Variability
 Customer participation
 No ownership
 Marketing can be viewed as:
◦ A strategic and competitive thrust pursued by top
management
◦ A set of functional activities performed by line managers
◦ A customer-driven orientation for the entire organization
 Marketing is the only function to bring operating
revenues into a business; all other functions are cost
centers
 The “8Ps” of services marketing are needed to create
viable strategies for meeting customer needs
profitably in a competitive marketplace
 Product Elements
 Place and Time
 Price and Other User Outlays
 Promotion and Education
 Process
 Physical Environment
 People
 Productivity and Quality
Working in Unison:
The 8Ps of Services
Marketing
 Product
 Price
 Promotion
 Place

+
 People
 Physical evidence
 Process
 Productivity
 Embrace all aspects of service performance that
create value
 Core product responds to customer’s primary need
 Array of supplementary service elements
◦ Help customer use core product effectively
◦ Add value through useful enhancements
 Planning marketing mix begins with creating a
service concept that:
◦ Will offer value to target customers
◦ Satisfy their needs better than competing alternatives
 Service benefits
 Service concept
 Service offer
 Service forms
 Service delivery systems
 Delivery decisions: Where, When, How
 Geographic locations served
 Service schedules
 Physical channels
 Electronic channels
 Customer control and convenience
 Channel partners/intermediaries
 Merits Demerits
1. Control Financial risk
2. Healthy customer R’ships Lack of knowledge
3. Flexibility and confidentiality

Electronic Channels
Franchising are authorized to distribute services to the end
customers, on behalf of the service principal.
Agreements and contracts in Franchising are:
 Nature of the service

 The geographic territory

 The percentage share to be paid to the franchiser on the

revenue of the franchisee

 The time period of agreement

 The instructions, interactions and conditions

 The support to be provided by the franchiser

 The role and responsibilities of the franchisee

 The rules and regulations of termination of agreements

 Marketers must recognize that customer outlays
involve more than price paid to seller
 Traditional pricing tasks:
◦ Selling price, discounts, premiums
◦ Margins for intermediaries (if any)
◦ Credit terms
 Identify and minimize other costs incurred by users:
◦ Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting,
etc.)
◦ Time expenditures, especially waiting
◦ Unwanted mental and physical effort
◦ Negative sensory experiences
 Price skimming
 Penetration pricing
 Mixed pricing
 Cost-plus pricing
 Variable pricing
 Marginal pricing
 Promotional pricing
 Differential pricing
 Satisfaction based pricing
a. service guarantees
b. benefit driven pricing
c. Flat rate pricing
 Convenience pricing
 Relationship pricing
 Long-term contracts
 Price bundling
 Efficiency pricing
 Informing, educating, persuading, reminding customers
 Marketing communication tools
◦ Media elements (print, broadcast, outdoor, retail, the Internet, etc.)
◦ Personal selling, customer service
◦ Sales promotion
◦ Publicity/PR
 Imagery and recognition
◦ Branding
◦ Corporate design
 Content
◦ Information, advice
◦ Persuasive messages
◦ Customer education/training
 Advertising
 Personal selling
 Sales promotion
 Publicity and public relations
 Direct marketing
The following are the sources for generating
word-of-mouth communication
 Contract employees

 Other employees in the service outlet

 Co-customers
 Experienced customers

 Experts
 Opinion leaders
 General public discussions
Word-of-mouth communication takes place in
three ways. These are:
1. When customers contract any of the sources
out of anxiety
2. When any of the source contracts to share its
anxiety
3. When there is an indirect contract between
the source and the customer
 How firm does things may be as important as what it
does
 Customers often actively involved in processes,
especially when acting as co-producers of service
 Process involves choices of method and sequence in
service creation and delivery
◦ Design of activity flows
◦ Number and sequence of actions for customers
◦ Nature of customer involvement
◦ Role of contact personnel
◦ Role of technology, degree of automation
 Badly designed processes waste time, create poor
experiences, and disappoint customers
Process is an element of service that sees the
customer experiencing an organization's
offering
Eg: Going on a flight trip-From the moment you
arrive at the airport, you are greeted; your baggage
is taken for screening. Accessibility given to the
person from restaurants and inflight shopping.
Finally, at the end of the journey the baggage is
delivered to you. Here many airlines want to
differentiate their offerings to make the process
successful
 Design service scape and provide
tangible evidence of service
performances
 Create and maintain physical
appearances
◦ Buildings/landscaping
◦ Interior design/furnishings
◦ Vehicles/equipment
◦ Staff grooming/clothing
◦ Sounds and smells
◦ Other tangibles
 Manage physical cues carefully—
can have profound impact on
customer impressions
Physical evidence is the material part of a
services
 Building

 Catalogues
 Brochures
 Furnishings

 Signage
 Packaging
 Internet web presentation

 Uniforms
 Interactions between customers and contact
personnel strongly influence customer
perceptions of service quality
 The right customer-contact employees
performing tasks well
◦ Job design
◦ Recruiting
◦ Training
◦ Motivation
 The right customers for firm’s mission
◦ Contribute positively to experience of
other customers
◦ Possess—or can be trained to have—
needed skills (co-production)
◦ Can shape customer roles and manage
customer behavior
 People are the most important element of any
service
 Services tend to be produced and consumed at the
same moment, and aspects of the customer
experience are altered to meet the “individual
needs” of the person consuming it
 Remember, people buy from people whom they
like, so the attitude, skills and appearances of all
staff need to be first class
 Productivity and quality must work hand in hand
 Improving productivity key to reducing costs
 Improving and maintaining quality essential for
building customer satisfaction and loyalty
 Ideally, strategies should be sought to improve both
productivity and quality simultaneously—technology
often the key
◦ Technology-based innovations have potential to create high
payoffs
◦ But, must be user friendly and deliver valued customer benefits
 Giving quality service is an expensive
business
 Not every consumer is willing to pay extra
for service quality
 Service providers would have to find their
optimum service quality/cost ratios
 Can technology substitute part of the labour
content?
 Can customers substitute part of the labour
content?
 Making services obsolete by product
innovations
Three management functions play central and interrelated roles in
meeting needs of service customers

Operations Marketing
Management Management

Customers

Human Resources
Management
Understanding Customer Needs, Decision Making,
and Behavior in Service Encounters

Building the Service Model

Managing the Customer

Interface

Implementing Profitable Service

Strategies
 I: Understanding Customer Needs, Decision
Making, and Behavior in Service Encounters
Differences among Services Affect Customer Behavior

Three-Stage Model of Service Consumption

Prepurchase Stage: Search, Service Encounter Stage: Role
evaluation of alternatives, in high-contact vs. low-contact
decision delivery

Post-Encounter Stage:
Evaluation against
expectations, future intentions
 Building The Service Model
Part II: Chapters 3-7
The Value Proposition

Develop service concept: core & Select physical & electronic

supplementary elements channels for service delivery

Value Exchange

Set prices with reference to costs,

competition & value
The Business Model

Educate customers & promote Position the value proposition

the value proposition against competing alternatives
 III: Managing the Customer
Interface
Design and manage service Balance demand against
processes productivity capacity

Plan the service environment

Manage service employees for

competitive advantage
 IV: Implementing Profitable Service
Strategies
Create customer relationship and Plan for service recovery and
build loyalty create customer feedback systems

Continuously improve service quality

and productivity

Organize for change management

and service leadership
 Search qualities
 Experience qualities
 Credence qualities
 Offering
 Faster and better delivery
 Image
 Gap between management perceptions and
consumer expectations
 Gap between management perceptions and
service quality specifications
 Gap between service quality specifications
and service delivery
 Gap between service delivery and external
communication
 Gap between expected service and
perceived service
 Reliability – delivering on promises
 Responsiveness – willing to help
 Assurance – inspiring trust and confidence
 Empathy – individualising customers
 Tangibles- physical representation
 It is the customer – service encounter
 Every positive or negative experience of the

consumer would have fall-out on the overall

service experience
 Continuous auditing of competitor service
levels versus own company
 Importance - performance analysis
I
M
P Concentrate Keep up the
O
here good work
R
T
A Low priority Possible overkill
C
E
PERFORMANCE
Their satisfaction will be influenced by
 Encounters with service personnel
 Appearance and features of service facilities –

exterior and interior

 Interactions with self service equipment
 Characteristics and behaviour of other

customers
 Predicted services-believes likely to occur
 Desired Service – the ‘wished for’ service
 Adequate Service – the service that would be

acceptable
 Zone of tolerance – high to low, reflecting the

difference between desired service and

adequate service.
Difference between the desired service and
the adequate service
 Recovery
 Adaptability
 Spontaneity
 Coping
 Don’t Do
 Ignore customer  Acknowledge
 Blame customer
problem
 Leave customer to  Explain causes
fend for himself  Apologise
 Downgrade
 Compensate/upgra
 Act as if nothing is
wrong de
 ‘pass the buck’  Lay out options
 Take responsibility
 Don’t Do
 Promise and fail to  Recognise the
keep them seriousness
 Show unwillingness
 Acknowledge
to try
 Anticipate
 Embarrass the
 Accommodate
customer
 Laugh at the  Adjust

customer  Explain
 Avoid responsibility
rules/policies
 Don’t Do
 Exhibit impatience  Take time
 Yell/laugh/swear  Be attentive
 Steal from  Anticipate needs

customers  Listen
 Discriminate  Provide information
 Ignore  Show empathy
 Don’t Do
 Take customer’s  Listen
dissatisfaction  Try to
personally accommodate
 Let customer’s  Explain
dissatisfaction  Let go of the
affect others customer
 Ambient conditions
 Space/function
 Signs, symbols and artefacts
Ambient Conditions
•
•
Temperature
Quality of air
Customer
• Sound / Noise
• Music
• Smell
Space and Functional
Conditions
• Layout and Design
• Equipment
• Furnishings
Signs, Symbols and
Artefacts
• Signage
Employees
• Décor
• Artefacts

71
 It pays to resolve customer complaints
 On an average only 5 % dissatisfied

customers complain. Others simply go over

to the competitor
 A satisfied consumer speaks to an average

of 3 people on his her experience

 A dissatisfied consumer gripes to on an

average 11 persons about his/her

unpleasant experience
 Pay attention to quality and training of
manpower recruited
 Have clear benchmarks on service quality
and communicate to employees
 Take remedial steps to improve customer
satisfaction and prevent repeats of
customer dissatisfaction
 Have a data base on customer complaints
that is periodically analysed and policies
adjusted
 Morale
 Motivation
 Mood