Understanding the Role and Classification of Services in the Modern Economy

What are services?
Comparative analysis: Product and service
Characteristics of services
Why market services?
Contribution of services marketing
Services in developing countries
Classification of services
Concept in services marketing
Myths about services
Service Sector Management

Role of services in modern economy
It affects the way in which we live & work
Contributes towards the growth of the economy &

creates maximum employment opportunities.
Opening of service economy means greater
competition, which will in turn stimulate innovation
through application of new & improved technologies.
Optimum utilization of resources
* Accelerates capital formation
* Increases standard of living
* Investment in R & D – better technology, increased
speed, better efficiency, meeting increased supply, up to
date MIS

Reasons for growth of services

(verma)

Higher disposable income , affluence
Increasing specialization , competitive pressure
Growing fashion consciousness ,urbanization
Professionalism in fields (E.g. education)
Information explosion
Increased sophistication/civilized lifestyles
Government activities – cultural exchange policies,

trade policies, global partnerships etc
Women in work force
Concern for environment
Demographic shifts / Life expectancy
Innovations , new products, product complexity

Factors stimulating the growth of service sector
Government policies-changes in regulation, LPG,

customerisation , new agreements on trade in services.
Social changes-rising consumer expectations, more
affluence, use of technology
Business trends-Providing value, competition, stress
on quality, Imp of marketing , Innovation
Development in IT-computerisation , web
connectivity, benefit of internet, wireless networking
Internationalization / globalization-growth of MNC
transnationals, Mergers alliances, acquisitions',
international trade etc1

Services in developing countries
Huge untapped potential
Basic services- healthcare, education not

developed
Quality of services- low
No service delivery standards set
Lack of market research
Need for government intervention
Proper channels to human, financial and
intellectual resources needed
Potential to contribute to country’s GDP and
economic development

Service marketing environment

(bhattacharjee)

External environment for service firms consists of

SLEPT factors:
Socio-cultural factors--- Socio-cultural changes--* consumption * Beliefs &
values
--- Demographic changes--*age composition, * gender
composition, * changing role of women.
Services that received a big boost due to this factor are
Retailing, health & personal care, education, BPO travel
& transportation etc
Legal factors- are the percolation of the political &
govt factors, there are more laws & regulations for the
service industry.
Eg of legal implications—closure of BPOs, FERA
guidelines, reservation of certain sectors, CRR,SLR,
environmental guidelines etc

Economic factors—the govt economic policies have

tremendous impact on mgt of service sector. An
economy has a business cycle consisting of –
Recession
* Recovery
Growth
Decline
Some economic pointers of the impact on services
--with globalization there has been a spurt in the
demand for communication & information services.
--with increased specialization there has been an
demand for specialized services such as M.R, ERP,
mgt consultancy, financial consultants etc
--knowledge based economy

Political factors—service firms have been greatly

affected by the policies & decisions made by the
government, the regressive tax regime on services
contributed in damping growthEg of impact of government policies is the leisure,
travel & tourism industry, retail sector, education.
Technological factors-some technological

development which affected services:—
Universal product code
Credit cards
Electronic data capture
Internet, ATMs with V-SAT, cellular phones
Data mining & data warehousing technology
Quick response inventory management system

Internal or Micro environment factors
External customers/ consumers
Internal customer/ channel pattern/ providers
Competitors- to gain competitive advantage ,a

service firm must do either of the following:--Provide product value but operate more efficiently
than its rivals(lower cost )
--Operate in a unique way that creates greater
product value & command premium price.
Four different types of competition are:Direct, Indirect, substitute & new entrant
competition.
Suppliers
Regulators

Major categories of services
Business and professional services – banking,

insurance, accountancy, medicine, lawyers,
advocates
Infrastructural services – roads, railways, motor
transport, power, oil
Public services – police, defense
Trade services – wholesale & retail , distribution
Personal services – education, medical,
gymnasiums, hotels, spas ,health
Individual & group services – beauty parlors,
medical, coaching classes (education)
Environment
Finance- banking, insurance, investment
Travel , tourism, hospitality, recreation

What are services?
Services are activities, benefits or satisfaction which are

offered for sale, and are provided in connection with the
sale of goods

Service is action of an organization that maintains and

improves the well being and functioning of people.

Payne has defined service as an activity which has some

element of intangibility associated with it, which
involves some interaction with customers or property
in their possession and does not result in transfer of
ownership.

In simple terms services are intangible deeds, activities,

processes, and performances that cannot be touched, seen
or felt but can be experienced& which benefits and
satisfies the consumer.

services
PERFORMED BY
INDIVIDUALS OR
MACHINES
IS AN
SERVICE IS AN
INTANGIBLE
ACTIVITY,
S
ACT, DEED,
DEED,ACTIVIT
DEED, ACT,
S
ACT, EFFORT,
EFFORT OR
PERFORMANCE

SERVICES

RENDERED TO
DIRECTED
CUSTOMERS OR
TO
INANIMATE
CUSTOMERS
OBJECTS

RENDERED
RENDERED FOR
FOR PROFIT,
PROFIT,BENEFIT
R
BENEFIT &
&
SATISFACTION
SATISFACTION

Some of the distinctive aspects that emerge from the
above definitions are as follows;Services are intangible, however some of these may

include a final tangible component eg reports,
notes
They do not result in ownership of anything
Services are activities performed by the provider
Customer interaction & co-operation is integral to
service creation,delivery and consumption.
Services are actions bought for their ability to
provide satisfaction or benefit
Service production may be some times tied to goods
and are an integral offerings of many manufactured
goods for eg warranties, deliveries, installations

Four Categories of product as distinguished by Philips Kotler
A pure tangible good- eg tooth paste, salt rice where
no service accompanies product.
A tangible good accompanied by service- consumer

durables ,to enhance consumer appeal/satisfaction.

A major service accompanied by minor goods

&services- 1st class air travel, premium hotel stay.

A pure service- consultancy, teaching ,babysitting etc

The continuum of goods & services
Pure
goods

Combination of
goods & services

Pure
services

In the world of marketing there are very few pure

products or services, instead the market offerings can
be visualized to be falling on a continuum with two
ends being tangible & intangible dominance .
Shostack presented the idea of tangible & intangible
scale to classify market offering as below
Pure goods
Goods major service minor
Tangible & intangible equal
Major services minor goods
Pure services

Tangibility Spectrum
The term goods can be interchangeably used with

product, a product can be defined as a comprehensive
package of goods or services or both, which adds value
to the consumer.

Intangibility is the key characteristic of a service,

however there are few goods & services that are purely
tangible or purely intangible.

Instead services tend to be more intangible than goods

and goods tend to be more tangible than services

Continuum of tangibility


Classification of services
Classification of services on the basis of customer involvement
-People Processing- customer has to actively co-operate eg
health care, beauty salons, being transported etc
-Possession processing- service offered to physical
objects-both living & inanimate, that belong to the customer.
Eg courier, car repair/maintenance , dry cleaning
-Mental stimulus processing- services that interacts with
peoples minds, eg Psychotherapy, education, counseling.
-Information processing- services that are highly dependent
on effective collection and processing of information eg
financial services ,medical diagnosis, M.R

Classification on the basis of tangibility
Highly tangible- car rental , wending mac, ATM etc.
Service linked to tangible goods- installation,

maintenance
Tangible goods linked to services-restaurant, health
care, education.
Highly intangible- housekeeping, hairdressing etc
Classified on the basis of expertise
Professional- medicine, legal, accountancy, teaching
Non professional- baby sitting, housekeeping.
Profit-Oriented—i)Non profit ii) commercial
Based on end user—i) consumer ii)Business to bussi
iii)Industrial

Characteristics of services
Intangibility—visualization, association, physical

representation and service marks, facts & figures.
 Perish ability– over marketing, managing demand &
supply.
Heterogeneity (Quality aspect)– Training of internal
& external customers, automation, quality
recruitment & selection, developing service minded
culture.
Inseparability/simultaneity (of creation and delivery)training internal customers, use of technology
Ownership/Resell
Quality measurement—feedback, monitoring.
Nature of Demand (by season, by time – e.g. peak

Some eg of service marks
Alliance group insurance --- “the power on your side”
AT & T --- “It is within your reach”
British Airways--- “ The worlds favorite airline”
Taj Business Hotels– “Nobody cares as much”
Discovery channel– “explore your world”
Godrej – “promise of good living”
Jet Airways– “the joy of flying”
Holiday Inn Hotels– “ Be yourself”


Comparative analysis: Product and
service
Tangibility
Transferability (Physical transfer)
Existence
Heterogeneity
Reselling

Generic difference between goods &services
Nature of the product
Customer involvement in the prod process
People as part of the product
Quality control problems
Harder for customer to evaluate
Absence of inventories
Importance of time factor
Structure & nature of distribution channels

offered to physical

Marketing challenges of services

Narrow definition of marketing— some service
executives continue to define mkt as simply advt,
sales promotion & P.R, where as crucial areas for a
service firm are, new product development, pricing
STP, customer service, service quality.
Lack of appreciation for marketing skills— the
prevailing environment not only restricts the
resources allocated to marketing but also inhabits
the creativity of the service marketer.
Different org structure-- service org should try and
achieve an org structure which will integrate
marketing & operational considerations, in order
to ensure high level of service quality &
satisfaction.
Limited data on competitive performance—
Unlike consumer goods segment, the service

on a product to product basis, which would have enabled
service provider managers & their advt agencies to
tightly monitor the results of their efforts. Two key
uses of market research data are :i) Determination of customer needs and preferences
ii)Measures of service specific customer satisfaction.
Problems in determining costs for pricing— In
comparison to manf firms it is more difficult to
determine which fixed & operating costs are
associated with which products especially when several
services are being produced concurrently by the same
organization.
The basic difference between goods & services may lead
to myriad other challenges & questions that marketer
may face which can be as follows:Service Sector Management

* How can product quality be defined& improved

when the product is intangible and not
standardized. Eg beauty salon
* How does the firm accommodate fluctuating
demand when the capacity is fixed and the service
itself is perishable eg theatre
* How can the firm best motivate and select
service employees who, because the service is
delivered in real time become a part of the product
itself.
* How can a balance between standardization &
personalization be determined to maximize both
the efficiency of the org and the satisfaction of its
customers as well as its employees.
* How can the org protect new service concepts
from competitors when service process cannot be

* How can organizations ensure delivery of

consistent quality service when, both the
organizations employees and customers
themselves affect the service outcome.

The service Marketing Triangle

The challenges faced by the service managers can be
conceptualized in the service marketing triangle.
According to Gronross there are three types of
marketing activities that must be successfully
carried out for service org to succeed, namely
external marketing, internal marketing and
interactive marketing.

Types of marketing in service firms
Service triangle
Service Firm

Internal marketing
enabling the promise
promise

External marketing
setting the promise

Employees

Customers

Inter active mkt
Interactive mkt

Internal marketing – directed towards employees
External marketing - directed towards consumers
Service Sector
Moment of truth Management

External marketing

Anything that is communicated to the customer before the

service delivery-that an org engages in the set up of its
customers expectations & make promises to the customers
regarding what is to be delivered.
 It includes advt, sales promotion, P.R,, sales management ,
direct marketing , the firms physical facilities & the process
of service delivery.

Internal Marketing
• It suggests a critical role which enables employees to keep

the promise that have been made to the customers.
• The employees are considered the first internal market for
the org & every individual play an imp role in mkt of the
service.
• It includes any efforts such as training,, customer
knowledge, sales –mkt knowledge ,motivation by the org
to satisfy its customers

Internal marketing

Definition:- attracting, developing, motivating, and

retaining qualified employees through job products that
satisfy their needs.
Components of internal marketing: Motivation
 Co-ordination
 Information
 Education

Proposed Process of Internal Marketing Programs
 Attract best talent
 Motivate
 Impart knowledge
 Emphasize on Team work
 Empower
 Reward

Interactive marketing or moment of truth

Emphasized by Scandinavian airlines system(SAS) &

has become popular as MOT or moment of truth
Though companies strive to design effective service
products, communicate its promise to the customers.
Train, convince & enable its front line providers ,it is
only the front line staff who keeps the promise.
The provider becomes the face of the company &
all their perception of quality & satisfaction entirely
depends on the provider.
Finally it is the responsibility of the provider to convey
the sincerity of purpose & validity of promise that is to
be kept, to put their best foot forward, smiling , being
extra polite, going out of way to help the customer, to
make their experience memorable. These encounters
are termed as MOM or Moment of truth.

The molecular model
Helps us to understand the difference between

goods & services, highlighting the relationship
between tangible & intangible component
It has benefited managers to see the big picture of
the firms service offering, he gets to appreciate the
tangible & intangible offering & the customers
needs better, thus preparing him to offer
competitive features.
Eg Indian railways & Prithvi theater


Molecular model for prithvi theatre


The servuction model
Is used to illustrate factors that influence service

experience
The experiential aspect of consumption becomes
important when service firms provide complex
bundle of benefits.
All those who come in contact with the customer
help in the service delivery & affect service
encounter & experience
This model is relevant in those services where
there is a high degree of involvement of the
consumer like ATM, buffet lunch, self service in
petrol pumps etc
Consumer tends to add their own bundle of
benefits taking Sector Management the given offer.
off from
Service

Myths about services
A service economy produces services at the cost of

other sectors
Service jobs are low paying & menial
Service production is labor intensive & low in
productivity
Service is necessary evil for manufacturing firms
Managing service is just as managing a
manufacturing business.
The growth of the government is the reason we
are a service economy.


Consumer Behavior- sub topics
Difference between evaluation process between

goods & services
Customer decision making process
Implication for service providers
Service gap & Zone of tolerance
Customer expectation—Types, factors influencing
customer expectations, Managing & Exceeding
service expectations.
Customer Perception—Factors influencing
perception ( service encounter, service evidence,
image & Price)
Strategies for influencing customer Perception

Categories of qualities of consumer goods or

servicesSearch quality- these attributes can be determined
even before purchase of product. For e.g color,
style, price, hardness etc. Goods are high in search
quality & services being in-tangible are low in
search qlty.
Experience quality- attributes that can be
discerned after or during purchase or
consumption. For e.g vacation, restaurant meal
etc. or through others who have experienced it.
Credence qualities- Difficult or impossible to
evaluate even after consumption or usage, due to
the tech, lack of expertise or nature of service it is
difficult to evaluate. For e.g heart surgery, kidney
transplant, dental service, auto repairs, etc.

Conclusion- goods & services high is search

quality are easily evaluated & that which are high
in experience qualities are somewhat difficult &
those high in credence qualities are very difficult
to evaluate.


Customer decision making process involves

four main sub-processes:-

i) Search for the information—a)Use of sources-

personal & non personal b) greater Perceived risk-as
services are intangible, non- std, no warranties.
ii)Evaluation of alternatives-depends on emotions &
moods of consumer & availability of alternatives.
iii)Purchase & consumption-dramatizing the service
experience, compatibility of service customer.
iv)Post purchase evaluation- Attribution of dissatisfaction ,customer loyalty

Implication of the difference for service providers
--Word of mouth plays an imp role in the marketing of
services as consumer rely more on personal sources.
--Since perceived risk is more in purchase of services
companies should design strategies to reduce risk,
e.g std of offering, training to employees.
--Since moods & emotions have an impact on the way
information is absorbed & retrieved, marketer should be
aware & attempt to influence them in a +ve way.
--Control should be exerted on unruly customer who
cause dissatisfaction not only to themselves but to fellow
customers by specifying limits.
--Service marketers should provide incentives while
introducing new services to speed up adaptation
--Service providers should research customer
demands & expectation especially for unprofessional
services

Service gap
Primary objectives of service provider is to develop &

provide offerings that satisfy consumer needs &
expectations, thereby ensuring survival
To remain competitive & survive in today's business
env companies need to understand consumer behavior
thoroughly
Service marketers need to be able to close the gap

between expectations & perceptions of the
consumer as shown in the following fig:-

Service gap

Expected service
Perceived service

Customer expectations & perceptions

Understanding the customers wants , perception &

expectations is crucial, if customers perception of service
recd is less than expected it will lead to dissatisfaction thus
customer should be given more than his expectation
(customer delight)

Customer expectations—formed from variety of influencing

factors such as past exp, current needs, feed back.

Types of service expectations- ( two levels of expectations)
a) desired level-which he hopes to receive but may not be
always possible (eg business school )
b) adequate level-it is the minimum tolerable expectation or
the lower level of expectation or the service that the
customer will accept.

Zone of tolerance
The variation between desired service & adequate

service is called as zone of tolerance, it is the
extent to which customers recognize & are willing
to accept this variation. A performance below the
tolerance zone will frustrate the customer & above
it will delight him. One may consider the zone of
tolerance as a range or window in which customer
does not particularly notice service performance.

 e.g banking. airlines

Limit of expectation
Zone of tolerance

Desired service
Adequate service


Managing customer expectations
Customers main expectations of service are quite

simple & basic, they expect companies to do what
they are supposed to do, they expect fundamentals
not fancies, performance not promises.

Service org can manage expectations by managing

the following 3 things

Ensuring promise reflect reality
Performing the promised service reliably
Communicating effectively with customers.

Exceeding service expectations
It involves delighting & surprising the customers by giving
them more than they expect, it helps in intensifying
customer loyalty & ruling out competitive options
Foll are some of the things that companies can do:
Strive constantly to provide additional customer value in

every transaction
Use a flexible service envelop around the core service to
generate surprise benefits
Constantly surpass the benefits that the customer has built
around the service
Treat the customer as if he is the most imp customer and
offer personalized package.

Customer Perception
It may be defined as the process by which people select,
organise & interpret information to form a
meaningful picture of the world.


Factors that influence customer perception

There are four primary factors, these are service

encounter, evidence of service, image & price
1. Service encounter:- for any customer a clear
impression of the service occurs when the
customer interacts with the service & starts using
the service.
Types of service encounters—
Remote encounters
Phone encounters
Face to face encounters
Sources of satisfaction & dissatisfaction
Recovery
Adaptability
Spontaneity
coping

2. Service evidence:-Due to the intangible nature of
the services customer searches for evidence in
every interaction that they have with the
organization.
Customer will experience three types of service
evidences:People
Process
Physical evidence
These three are not mutually exclusive, rather
they are interrelated
3. Image:- a favorable image is an asset to an org,
because it can impact perception of quality, value
& satisfaction
4. Price:- it is Service Sector Management
a visible indicator of service level &

Strategies for influencing customer perception
Aim for customer satisfaction in every service

encounter

Reinforce perception by managing the evidence of

service

Communicate realistically & use customer

experience to reinforce images

Use price to enhance customer perceptions of

quality & value


Buying Roles
Decision making role
Initiator
Influencer
Gatekeeper
Decider
Buyer
User
Types of buying behavior
Complex buying behavior
Dissonance-reducing buyer behavior
Habitual buying behavior
Variety seeking buying behavior

Market segmentation
Process of market segmentation in services– service

provider has three alternatives:-

Undifferentiated segment– no recognition of

distinct segment– known as market aggregation. Eg
laundry, courier etc

Company

Service
Marketing
Mix


Undifferentiated
Market

Customers

Differentiated Marketing approach —separate market

segment identified and separate marketing mix
developed to target the segment. Eg tours & travels,
insurance etc
Marketing Mix 1
Marketing Mix 2
Company

Segment 1
Segment 2

Marketing Mix 3

Segment 3

Marketing Mix 4

Segment 4

Marketing Mix 5

Segment 5


Customers

Concentrated marketing approach —separate

segment is identified, but efforts are concentrated on
only one or two specific segment. Eg driving school
Segment 1

Company

Service
Marketing
Mix

Segment 2
Segment 3
Segment 4
Segment 5


Customers

Basis for market segmentation
Demographic segmentation:- age, gender, income,

family, education, occupation ,size of family etc. eg
insurance, investment banks, travel & tourism, hotels,
health food.

Geographic :- scope factors– local , regional , state etc

features factor– density of population, climate related.
• Psychographic:- social class, lifestyle, personality eg

hotels, health clubs, pubs, investment banks etc

*


• Behavioral Segmentation:-

Benefit Segmentation- on the basis of benefit sought
Purchase occasion – reasons behind purchase
User status Segmentation– usage pattern i.e first time,
regular users.
Usage Rate- Frequency of use
Loyalty Segmentation- hard core, soft core, shifting
loyalists, switchers

Positioning of services
It involves establishment of a competitive position.
It is largely a communication issue dealing with psychology

of the service seeker.
It deals with identifying the need of the customer and
fulfilling it by identifying a unique selling proposition.
It offers an opportunity to create a differentiation in the
minds of the service seeker
Levels of positioning:Industry positioning
Organizational positioning
Service sector positioning
Individual service positioning

Implementing positioning
Ensure recall value
Service should stand out distinct from its competitors
Positioning should be evaluated from time to time, less it

does not become outdated—repositioning
Marketing mix is the key to implementing an effective
positioning strategy eg—by way of
The service itself
The price
The promotion
The place
Process
People
Physical evidence

Key characteristics of effective positioning
It should be meaningful
It should be believable
It must be unique
It needs to keep competitors out & not draw them in.
Steps in developing positioning strategy
Determining level of positioning
Identifying the key attributes of importance to

selected segment
Location of attributes on position map
Evaluating position options

Understanding the Role and Classification of Services in the Modern Economy

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