1.

SERVICES
1.1. Meaning and Definition of Service
A service is the non-material equivalent of a good. A service provision is an economic activity that does not
result in ownership, and this is what differentiates it from providing physical goods. It is claimed to be a process
that creates benefits by facilitating either a change in customers, a change in their physical possessions, or a
change in their intangible assets.

By supplying some level of skill, ingenuity and experience, providers of a service participate in an economy
without the restrictions of carrying stock (inventory) or the need to concern themselves with bulky raw materials.
On the other hand, their investment in expertise does require marketing and upgrading in the face of
competition which has equally few physical restrictions.

In common parlance, the term cannot be only personal services like auto repairing, hair-cutting, services of
dentists, legal consultants and so on. The marketing experts view the problem in a bit different way. They feel
that the contents of services are much wider. There is no doubt in it that a number of experts have attempted to
define the services but no single definition has been accepted universally.

According to Philip Kotler, “A service is an 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”.
According to Zeithmal and Bitner, “Services are deeds, processes and performances”. Here, deeds are the
actions of the service provider, processes are the steps in the provision of service, and performance is the
customers’ understanding of how the service has been delivered.

According to the American Marketing Association, “Services are activities, benefits or satisfaction, which
are offered for sale are provided in connection with the sale of goods”. This definition makes it clear that
services are activities, benefits or satisfaction and we find their uses for selling products which may be tangible
or even intangible.

A comprehensive definition of services must include the following elements:

i) Lack of physical output or construction
ii) Benefit to the receiver from the service rather than the product offered
iii) The intangible nature of services
iv) The possible combination of a service with the production of goods
v) Marketing of an idea or a concept

1.2. Characteristics of Services:

1) Intangibility: Services are intangible. Unlike physical products, they cannot be seen, tasted felt, heard, or
smelled before they are bought. The person getting a face lift cannot see the exact results before the
purchase, and the patient in the psychiatrist’s office cannot know the exact outcome.

2) Inseparability: Inseparability is the next unique feature of services. Some experts refer to it by the term
‘immediacy’. In fact, services are marked by two kinds of inseparability:
i) Inseparability of production and consumption
 ii) Inseparability of the service from the person who possesses the skill and performs the service
Services are typically produced and consumed simultaneously. This is not true of physical goods, which are
manufactured, put into inventory, distributed through multiple resellers, and consumed later. If a person
renders the service, then the provider is part of the service. Because the client is also present as the
service is produced, provider-client interaction is a special feature of services marketing. Both provider and
client affect the outcome.
3) Variability: Services are also marked by variability / individuality/ heterogeneity. This is so because of three
reasons:
i) The inseparability of the service from the provider leads to some variability; the provider of the service
being inseparable from the service, variability automatically enters the picture, depending on the person
performing the service.
ii) Services are highly people intensive. And, anything that is people intensive is bound to be marked by
variability. Services are often categorized on the basis of the type of people who provide them – like
unskilled services, skilled services, and complete professional services. In the case of physical
products, who produces the product is immaterial.
iii) In services, the effect varies dependent on when and where the service is provided. As a combined
result of the three factors, services are marked by a high degree of variability/individuality/
heterogeneity.
4) Perishability – Services are Perishable as Well: Services cannot be stored. Some doctors charge
patients for missed appointments because the service value existed only at that point. The perishability of
services is not a problem when demand is steady. When demand fluctuates, service firms have problems.
For example, public-transportation companies have to own much more equipment because of rush-hour
demand than if demand were even throughout the day.
5) Ownership: It is also ownership that makes it significant to market the services in a bit different way. The
goods sold are transferred from one place to another, the ownership is also transferred and this provides to
the buyers an opportunity to resell. In the case of services, we do not find the same thing. The users have
just an access to the service. As for example a consumer can use personal care services or Medicare
services or can use a hotel room or swimming pool, however the ownership rests with the providers.
6) Service is a Performance: While products are produced, services are performed. In most cases, the latter
are totally unconnected to any physical product.
 7) Simultaneity: Services cannot be delivered to customers or users. Services do not move through the
channel of distribution. For availing the services, it is essential that the users are brought to the providers or
the providers go to the users. It is right to say that the services have limited geographical areas.
8) Quality Measurement: The quality of service requires another tool for measurement. We cannot measure it in
terms of service level. It is very difficult to rate or quantify the total purchase. As for example, we can quantify the
food served in a hotel but the way a waiter or a carrier serves it or overall environment or behavior of other staff
can’t be ignored while rating the total process. Hence we can determine the level of satisfaction at which the users
are found satisfied. A firm sells atmosphere, conveniences, consistent quality, status, anxiety, moral etc.
9) Nature of Demand: While going through the features of services, we cannot underestimate the factor
related to the nature of demand. Generally the services are found of fluctuating nature. Particularly during
the peak season, we find an abnormal increase in the demand. As for example, the mobility of passenger
is found increased, especially during the marriage season on during an important festival. The tourists
prefer to go the tourist spots or resorts especially during summer when we find the weather condition
suitable. The cricket stadiums are used in winter.
10) Consumer, a Part of the Production Process: In most services, the consumer is an integral part of the
production process, as he has to be physically present when the service is produced. This is not true of
physical products. In fact, a service situation requires the presence of not merely the consumer but that of
the producer as well. Quite often, the consumer and the service provider are face to face when the service
is produced. Hence, service provider-consumer interaction becomes a special feature of services.

Robert Johnston (Book Code 25.18) Pg No. 36-37

1.3. Types of Services
Each sector of the service economy (such as financial services, tourism, leisure, charities and government,
hospitals and business-to-business services) has its own set of specific challenges. This section describes
some of the differences between the various types of services and outlines some of the particular challenges
faced by each sector. Therefore, it is necessary to be aware that each of these services will also have issues
relating to aspects such as:
1) Periodical Transactional Volume: The volume of transactions in a given time period stands as the major
consideration in the service industry. The hyper-market has very different operation challenges from the
local grocery store, not least in simply managing the flow of hundreds of customers in the store.
2) Mode of Service Delivery: The retail sector provides a good example of this diversity, with face-to-face
service in traditional stores, remote service through mail order or telephone shopping and more recently,
Internet-based services.

Here, we explore some of the key differences in service provision between five broad sectors of the service
economy (see table below).
3) Business-to-Business (B2B) services,
4) Business-to-Consumer (B2C) services,
5) Internal services,
6) Public services (sometimes referred to as G2C – Government-to-Consumer),
7) Not-for-profit services.

It is important to note that we use the term ‘customer’ as an all-embracing term that covers users, consumers
and beneficiaries. For example,

Table: Types of Service

Business-to- Business-to- Internal Services Public Services Not-for-Profit
Business (B2B) Consumer (G2C) Services
Services (B2C)
Services
Description Services provided Services Services provided Services provided by Services provided by
for businesses provided for by internal central or local Non-Government
individuals functions within government. Organizations (NGOs)
organizations. or charities.
Examples Maintenance Shops Finance Prisons Hospices
Consultancy Hotels Purchasing Hospitals Counseling
Training Catering Banks IT Personnel Schools Faith organizations
Food Leisure Ad agencies
Customers Frequently Usually Users have little or Users may have little Beneficiaries are self-
and purchased by purchased by no choice of day-to-day choice; selecting or chosen
Purchasers professionals, who the individual provider; frequently funded through recipients; funded
are not necessarily consumer. funded by central taxation with the through individual and
the end-users. budget. allocation of organizational giving.
resources influenced
by political
processes.
Challenges Providing high- Providing Demonstrating Balancing the Dealing with
quality services to consistent value for money various political differences between
business customers service to a against possible pressures and volunteers, donors and
who frequently have wide variety of external providing acceptable beneficiaries. Dealing
high purchasing customers. alternatives. public services. with emotional and
power. sometimes
overwhelming needs.

1.4. Classification of Services

1) By Market Segment:
Final Consumer
Coaching, Taxi, Car
By Market Segment Wash, Life Insurance
Organizational
Consumer

Management Consulting,
Machinery Repair, Accounting
Services, Legal Services
Figure: Classification of Services by Market Segment
2) By Degree of Tangibility:
Highly Tangible
Car rental, Vending machines,
Telecommunications
Service Linked to Tangible
By Degree of Tangibility
Goods
Domestic appliance repair,
Car service
Highly Intangible

Psychotherapy, Consultancy,
Legal services
Figure: Classification of Services of by Degree of Tangibility
3) By Skills of the Service Providers:
Professional

By Skills of the Medical services, Legal services,

Service Providers Accountancy, Tutoring
Non-Professional

Babysitting, Caretaking, Casual

labor, uniformed security, Taxi
Figure: Classification of Services by Skills of the Service Providers
4) By Goals of the Provider:

Not-for-profit

By Goals of the Provider Scouts Association, Charities,

Public sector leisure facilities

Commercial

Banks, Airlines, Tour Operators,

Hotel and Catering services
Figure: Classification of Services by Goals of the Provider
5) By Degree of Regulation: Government exercises control over the services by enacting regulation. These
can be classified by the extent of regulation exercised by the government. Some services like banking,
insurance are highly regulated. Services like catering, fast food are subjected to limited regulations, for
example, used colors in sweets should be edible of specifications.

Highly Regulated
Mass transit, Hospitals,
Insurance, utilities
Limited
By Degrees of Regulation
Regulated

Catering, fast food

Non-regulated

Computer time, leisure

lawn care, house
painting
Figure: Classification of Services by Degree of Regulation
6) By Degree of Labor Intensiveness: People are involved in performing services. Therefore, human
labor is involved in service delivery. The services differ according to extent of labor involved, for
example, computer assisted banking versus manual banking, manual car washing versus automated
car washing. Labor intensity will increase if high volume/heavy weight equipment is installed at
owner’s premises as it will involve loading, transportation, unloading and other handling activities. Do
it yourself services are performed by the consumers themselves.

Degree of labor
intensiveness

Equipment based People based

services services

Automated Operated by Operated Unskilled Skilled

relatively unskilled by skilled labor labor Professionals
operators operators

Vending Lawn care Appliance

machine Excavating Guards
Motion picture repair
automated car Airlines Cleaning
theatres Dry Plumbing
wash Computer Time services repair Catering
cleaning Taxis Sharing
 The labor intensive services are categorized as equipment based and people based. Equipment based
services are automated, monitored by relatively unskilled operations and operated by skilled operators. For
example, automated coffee vending, automated car wash. People based service are those involving
professionals, i.e., lawyers, accountants; skilled, i.e., appliance repair, catering; unskilled, i.e., lawn care,
guards etc. Figure above illustrates the classification of services by degree of labor intensiveness.

7) By Degree of Customer Contact:

High contact

By degrees of Customer Universities, large appliance

Contacts repair, Air travel, hotel

Low contact

Lawn care, Automated car

wash, Janitorial services
Figure: Classification of Services by Degree of Customer Contact

1.5. Role of Services in an Economy

Services lie at the very center of economic activity in any society. Dorothy Riddle, in writing about the role of
the service sector in world development, formulated the economic model shown in figure below. This model of
the economy shows the flow of activity among the three principal sectors of the economy, extractive (mining
and farming) manufacturing and service, which is divided into five sub-groups. All activity eventually leads to the
consumer. Examples of services in each of the five sub-groups are:
Extractive
Sector

Business Consumer
Services

Infrastructure Trade
Services Services

Social/Personal
Services
Public
Administration

Manufacturing
Sector

Interactive Model of an Economy

1) Infrastructure Services: Infrastructures such as transportation and communication are the essential links
between all sectors of the economy, including the final consumer. In a complex economy, infrastructure
services and trade services function as intermediaries between the extractive and manufacture sectors and
as the channel of distribution to the final consumer. Infrastructure services are a prerequisite for an
economy to become industrialized, therefore, no advanced society can be without these services.
Examples: Communications, transportation.
2) Business Services: In an industrialized economy, specialized firms can supply business services to
manufacturing firms more cheaply and more efficiently than the manufacturing firms can supply the services
for themselves. Thus, more often we find advertising, consulting, financing, and other business functions
being provided for the manufacturing sector by service firms.
Examples: Consulting, finance, banking.
3) Trade Services: Service activities are absolutely necessary for the economy to function and to enhance the
quality of life. Consider, for example, the importance of banking industry to transfer funds and transportation
industry to move food to areas that cannot produce them.
Examples: Retailing, maintenance and repair.
4) Social/Personal Services: Moreover, a wide variety of social and personal services such as restaurants,
lodging, cleaning and child care have been created to move former household functions into the economy.
Examples: Restaurants, health care.
5) Public Administration: It plays a critical role in providing a stable environment for investment and
economic growth. In communities and countries where public administrative services are weak or heavily
skewed solely by political or idealistic concerns, essential services are inaccessible to many citizens.
Examples: Education, Government

Thus, it is imperative to recognize that services are not peripheral activities but, rather, integral parts of society.
They are central to the functioning of a healthy economy. The service sector not only facilitates but also makes
possible the goods producing activities of the extractive and manufacturing sectors. Services are the crucial
force for change towards a global economy.

1.5.1. Service Sector in India

The main features of service sector in India can be summarized as below:
1) Employee Oriented: The service industry is highly employee oriented and heavily overstaffed.
2) Regulated By Government: It is mostly under government control where social objectives often take
precedence over commercial implications. Further when evaluating the achievement of social objectives,
service to beneficiaries appears to be neglected.
3) Beyond Comparison: The difference in operating environment between Indian service organizations and
similar ones in other countries is so vast that comparisons become meaningless.
4) Monopolistic Players: Organizations dealing with the service sector are monopolistic and dominated by
procedures and statistics rather than service to customers, whereas service depends primarily on people’s
attitude rather than on procedures.
From a predominantly agricultural economy in the earlier times, the country has come a long way in its development
since its independence in 1947.
The usual method adopted by economists to understand the relative importance of various segments of an
economy is to divide it into three main sectors representing the origin of Gross Domestic Product (GDP).
1) Primary Sector: The contribution of this sector comes from fisheries, agriculture, forestry, mining and
quarrying, and so on. In short, it is predominantly dependent on natural resources. Construction is also
included in the primary sector.
2) Secondary Sector: This sector comprises manufacturers and industries. It is mainly dependent on the
products of the primary sector as raw materials and produces goods for consumption. The secondary
sector produces goods that can be used either by other industries or by end consumers.
3) Tertiary Sector: This is the services sector where the output is not goods or construction but various services
that make life comfortable. This sector comprises government (defense, social welfare), financial (investing,
broking, insurance, banking), education (schools, colleges), health (hospitals, gymnasiums, spas, etc.), and even
entertainment (sports, television, cinema, radio) services.

2. SERVICES MARKETING
Services marketing is marketing based on relationship and value. It may be used to market a service or a
product. Marketing a service-base business is different from marketing a goods-base business.
We term marketing as a function by which a marketer plans, promote and deliver goods and services to the
customers or clients. In the marketing of services, the providers are supposed to influence and satisfy the
customers or users. An institution or an individual may act as a provider who requires professional excellence to
influence the impulse of prospects and to transform them into actual customers. When we buy services offered
by a service generating organization in a true sense we buy the time, knowledge, skill or resources. The
application of marketing principles in the services sector is the main thing in the services marketing.

The following key points regarding the concept or perception of services marketing are:
i) It is a managerial process of managing the services.
ii) It is an organized effort for providing a sound foundation for the development of an organization.
iii) It is a social process helping an organization to understand the emerging social problems and to take part in
the social transformation process to justify its existence in the society.
2.1. Why Marketing of Services?
1) Upward Trend in the Disposable Income: We cannot negate that of late the disposable income of masses
has been found moving upward. This trend is found even in the developing countries like ours where the
development-oriented sector has opened new job opportunities and the liberalization of economy is opening
new vistas for development. The development of corporate sector makes ways for the transformation of
industrial economy. If we find more job opportunities, the masses get an opportunity to earn more and when
they earn more, it is quite natural that they want to spend more. The positive developments in the
development sector thus open doors for an increase in the disposable income. The moment we find an
increase in the disposable income, the process of demand generation gains a rapid momentum provided the
pressure of inflation and the economic depression are not to slow down the tempo. These facts are a mute
testimony to the proposition that even in the Indian economy we find positive developments which have been
creating new opportunities for the development of services sector.
2) Increasing Specialization: We are living in an age of specialization in which only perfection is to be
rewarded suitably. More and more sophistication in the process of economic transformation is due mainly to
the increasing specialization. In the industrial economy, the magnitude of technological sophistication is
found increasing. Of course, this is due to the growing importance of specialization. The organizations have
now no option but to promote specialization since this helps them in making possible cost effectiveness.
The firms prefer to engage specialists for almost all the purposes. Experts and professionals like the
management consultants, legal advisers, financial experts, technocrats, play a decisive role in managing an
organization.
This makes it clear that increasing importance of specialization would activate the demand cycle which
would make ways for the development of banking services, insurance services, transportation services,
communication services and many other services would be motivated.
3) Growing Fashion: With the development of corporate culture and the emergence of a well established
services sector, there would be a basic change in the lifestyles. Since the information technologies would
show their influence in almost all the areas, it is natural that fashion would take shape of an industry. The
hair dressing, beauty parlors, jogging and gym centres would flourish since the masses would be found
more conscious to their physical health.
4) Professionalism in Education: The development of human resources would be given a transcendental
priority by almost all the organizations either producing goods or generating services. Or course, the
corporate culture makes an advocacy in favor of performance-orientation but it is not possible unless we
assign due weightage to employee-orientation. The professional excellence thus would get a new priority
and the masses would be tempted to the professional education.
5) Information Explosion: Of late, the developed countries have been found making sincere efforts to build a
superhighway for communications. The inventions and innovations in the field of communications have
been found fuelling information explosion. It is in this context that we now find globe like a village. To be
more specific after the development of satellite communication facilities, we find beginning of a new chapter
in almost all the areas. The tremendous opportunities generated by communications would influence almost
all the sectors.
6) Sophistication in Market: With the development of communication services, it is natural that we find
sophistication in the market where customers’ expectations would be found high. The westernized life
styles would change the hierarchy of needs and requirements and fashion-oriented, comforts-
generating household items would have a profitable market. The living conditions would be changed,
the food habits would be changed, the dresses and hair styles would be changed, the drinks would be
changed, the vehicles would be changed and the style of homes and apartments would be changed
and so on and so forth. This makes it clear that multi-dimensional changes in almost all the areas
would change the nature of market vis-à-vis the products/services required for that market.
7) Increasing Governmental Activities: The expanding governmental activities due mainly to the
participation of state in almost all sectors of the economy would also make ways for the development
of services sector. The trade and cultural exchange policies, the global partnership, the convention
industry, the hospitality industry etc. would have a profitable market.

2.2. Nature of Services Marketing

Marketing of service product is different from marketing of products. Following are the features of service
marketing:
1) Intangibility
Services are said to be intangible, they cannot be seen or tasted. This can cause lack of confidence on the part
of the consumer. Consumer decides on basis of his understanding of service and marketer promise of
performance. If the service is complex, consumer may spend considerable time in evaluation of alternatives.
2) Low Price Sensitivity
In service sector, consumers have low price sensitivity. Consumers are willing to pay a higher price as long
as they feel assured that they get a better quality. Consumer decision in service marketing is based on two
parameters, price sensitivity and performance expectation. A consumer will accept a low performance in
service if the price of service is low. Similarly he will expect high quality of service if price of service is high.

3) No Inventory
In service industry there is zero time gap between production and consumption. Services that are produced
have to be consumed as they are produced. Marketers have to keep this aspect in mind while planning
operations. Marketer need to balance demand and supply of service. This is important for profitability.

4) Value Creation Process

Marketer can create value in service process through people, procedure, proof of performance and the pace at
which service is delivered. Most of the marketers ignore these four P’s and concentrate on traditional P’s. A
value service product is created through integrated marketing mix.

5) Providing Tangibility to the Intangibility

How can a marketer overcome the drawback of intangibility? Fortunately for him, there are ways and means to
overcome this particular unique characteristic of the service industry. These are the ways in which intangibility
can be overcome:
i) Visualization: The marketer should find ways and means to help the customer visualize the transaction
process and the service transaction benefits of consuming the service product. Pictures, films, etc., should
be used evocatively.
ii) Association: The intangibility of the service offer makes it difficult for the marketer to convince consumers
about its credibility, character, or the “ability to keep its word”, “service delivery”, etc. This can be overcome
by associating the offer with some living persona, or known inanimate objects.
iii) Physical Representation: The intangibility factor in a service offer forces a marketer to go for tangible
representations symbolizing the existence and character of service industries. The tangibles help in making
the offer believable. Some of the ways in which this can be used are:
a) Uniforms: This has been in use by many service organizations over a long period of time effectively.
They not only covey uniformity, discipline and conformity but also professionalism. They also improve
visibility for the service organization.
 b) Colors: This is used in services capes like interiors, stationery, glow sign, buildings, etc. The corporate
colors are a part of their logo and other corporate communication tools.
c) Logos and Mascots: This is not unique to service firms but has been effectively used by them
to overcome intangibility. Logos, derived from the Greek word logos, implied … “word”. Kings used it in
their royal seals and English Lords and other nobility used them in their family crests. Service firms have
sought to convey their mission and vision through them. Most schools, colleges and universities have
them to convey their core values, through mottos and distinctive badges
iv) Documentation: The documentation is used by service providers to tangibilize their intangibles. They cite
facts and figures in their promotions to support the claim of their performance in terms of dependability,
reliability and responsiveness.
v) Selling Services: In practice, face-to-face selling tends to be more prevalent in service industry. This is, in
large part, because many such services are also ‘delivered’ in a personal form; with some service providers
using ‘professionals of specialization’ rather than salesperson. It is because personal contact may be seen
as necessary to establish the credentials’ – the integrity of the service provider, where the service itself is
an intangible quantity.
vi) Tangibilizing Services through Benefits: The AT&T, the Citibank and the Times Group are
revolutionizing the credit card industry by offering tangible benefits to customers; discounts on long distance
telephone calls, frequent flyer programmes.
vii) Tangibilizing through Positioning: The intangibility of services makes positioning decisions difficult. Unlike
goods positioning, which may stress attributes and consumer analysis (such as touching, tasting and so on) prior
to purchase the service positioning must rely on performance attributes (such as how well a truck handles
following a tune up) which can be measured only after a purchase.

2.3. Difference between Product/Goods and Services Marketing

Services and goods are not synonymous. There are a number of salient features that establish a clear cut
difference between the two. Something which can be physically touched, verified, attracted or exchanged with
or even without making profits are known as goods. On this basis, goods are food, clothes, books, other
domestic and industrial items that can be carried home, can be stored at a place and are tangible. On the other
hand, the services are hotel business, personal care, legal or medical services, banking services, insurance
services, transportation services and many other services which cannot be stored at a place and one has to
hire someone else to perform the services. The effects are pleasure, joy, and entertainment, a relief from
ailment or so. The following points clarify the difference between the two(make this into tabular form)
1) Tangibility: By tangibility, we mean anything which can be viewed. On the basis of tangibility, goods are
found tangible since we can view the goods bought by us. Contrary to it, the services are found intangible
because it is not possible to view the services. We can just realize the services used by us.
2) Transferability: On the basis of transferability, the goods can be transferred from one place to another. We
can carry goods bought by us. We find transfer of goods from the point of sale to the point of use. Just
reverse to it, it is not possible to transfer the services from the point of sale to the point of use.
3) Existence: The goods bought by us remain existent. The durables continue for a long time and even if the
non-durables have limited existence. We do not find the same thing with the services since we find services
non-existent in nature.
4) Heterogeneity: On the basis of heterogeneity, the services can hardly be standardized. Contrary to it, the
goods can be standardized. It is very difficult to measure the quality of services but it is easier to measure
the quality of goods.
5) Re-selling: The goods bought by us can be resold. After a limited use, the owners are in a position and
they do also possess a legal right to resale the same. We don’t find the same thing with the services. If we
buy a seat in the air craft, if we book a room in a hotel, if we buy a seat in a cinema hall; we have no option
but to use or surrender. We don’t bear the right of reselling the same.
K. Rama Mohana Rao (Book Code 25.3) Pg No 7-8
6) Point of Production: Services are produced in buyer-seller interactions. Goods are produced in the
factory.
7) Functional Integration: Production, distribution and consumption take place simultaneously in the case of
services. In the case of goods, the three are separate and independent functions.
8) Customer Role: Consumers are co-producers in services. Customers do not generally participate in the
production of goods.
9) Storage: Services cannot be stored. Goods can be stored.

Difference between Services and Goods

Basis Services Could be Either Goods
Intangibility Fully intangible may be physical Partially tangible Fully tangible
evidence
Inseparability of Buyer Both must be present Remote transactions Remote transactions easy
and Provider possible
Ease of Inventory Cannot store or ware-house the Easily inventoried
service
Sensitivity to Time Needed on demand, or sale is Can usually wait to receive the
lost product
Difficulty in Measuring Measure and control people and Measure and control Measure and control product
and Controlling Quality processes instead of products people, processes, and quality only
products
High Degree of Cost of failure very high; may Partial replacement is Product can be replaced
Risk/Difficulty of not be possible make whole or possible
Experimentation replace the service
Consumption of the Customization likely to enhance Customization has Customization increases
Offering customer perception of peripheral affect on costs, but unlikely to affect
perceived quality perceived quality perceived product quality
Personalization of Buyer Relationship can be as Relationship can play Product is the focus of the
Relationship important as service. an important role transaction

2.4. Goods/Services Continuum

In reality, most products are a combination of goods and services. The purchase of a “pure good” like a Car still
has service components, such as bringing it to the dealer for maintenance work. The purchase of a “pure
service” like a makeover at a department store has product components, for example, lotions, powders, and
lipsticks the cosmetologist uses to create the “new you”.

The service continuum in figure below shows that some products are dominated by either tangible or
intangible characteristics, for instance, salt versus teaching, whereas others tend to include a mixture of
goods and services, such as flying in an airplane. A product’s placement on this continuum gives some
guidance as to which marketing issues are likely to be most relevant. As the product approaches the tangible
pole of this continuum, there is fairly little emphasis on service. The physical product itself is the focal point
and people will choose one over others based on the product's function or image. But, as the product gets
near the intangible pole,Scale
the of
service encounter plays a key role in shaping the service experience. In the mid-
(In) Tangibility
dle of the continuum, both goods and servicesTeaching contribute substantially to the quality of the product because
Nursing
these products rely on people to satisfactorily Theatre
operate equipment that will deliver quality service. Let's
consider each of these three Advertising
positions agency
as we move from products dominated by tangibles to those dominated
by intangibles. Air travel
1) Good-Dominated Products: Many tangible products are
Television Intangible
accompanied by supporting services, even if this
elements (most
only means that the company maintains a toll-free telephone services) line for questions or provides a 30-day
warranty against defects. Including a service with the purchase of a physical good is termed embodying.
Embodying is a strategy in the computer industry, especially for companies that are trying to break into
international markets saturated with cheap products but with insufficient guidance in their use.

Tangible Balanced Entity

elements (most
Fast-food shop
goods)
Tailored suit
Automobile
House
Dog food
Necktie
Salt
2) Equipment- or Facility-Based Services: Some products require a mixture of tangible and intangible
elements. Many hospitals and restaurants fall in the middle of the continuum because they rely on
expensive equipment or facilities and skilled personnel to deliver a product. Facility-driven services, such as
automatic car washes, amusement parks, museums, movie theaters, health clubs, tanning salons, and
zoos, must be concerned with the three factors.
i) Operational Factors: Technologies must move customers smoothly through the service. Clear signs
and other guidelines must show customers how to use the service. In particular, firms need to minimize
waiting times. Marketers have developed a number of tricks to give impatient customers the illusion that
they aren’t waiting too long. One hotel chain, responding to complaints about the long wait for elevators,
installed mirrors in the lobby; People tend to check themselves out until the elevators arrive, and lo and
behold protests decreased. Burger King’s research showed that multiple lines create stress in
customers – especially if one moves faster than the others – so it shifted to single lines in which
customers at the head of the line order at the next available register.
ii) Location Factors: These are especially important for frequently purchased services, such as dry
cleaning or retail banking that are obtained at a fixed location. Blockbuster Entertainment estimates that
70 percent of the U.S. population lives within a 10-minute drive of a Blockbuster store.
iii) Environmental Factors: Service managers who operate a storefront service requiring people to come
to their location realize they must create an attractive environment to lure customers. That's why NFL
stadiums are upgrading their facilities by offering plush “sky boxes” to well-heeled patrons and a better
assortment of food and merchandize to the rest of us. One trend is for such services to adopt a more
retail-like philosophy, borrowing techniques from clothing stores or restaurants to create a pleasant
environment. Banks, for example, are creating signature looks for their branches through the use of
lighting, color, and art.
2) People-Based Services: At the intangible end of the continuum are people-based services.

Because people have less and less time to perform various tasks, the importance of people-based services is
increasing. Self-improvement services such as those offered by wardrobe consultants and personal trainers are
becoming increasingly popular, and in some cities even professional dog walkers do a brisk business. Many of
us hire someone to do our legal work, repair our cars and appliances, and do our tax returns.

2.5. Factor Affecting Development of Services Marketing

1) Organization Size and Structure: Many service providers are typically small and specialized – plumbers,
lawyers and accountants are representative of the traditional service provider. In the past, they catered
exclusively for the existing local demand. Marketing specialists were not employed due to the size of the
operations, which may have been sole trader or partnership based, and due to limited competition,
especially on a local scale.
2) Regulatory Bodies: Regulatory bodies have also restricted the activities of many service providers.
Restrictions still exist today on the amount and type of advertising which can be undertaken by certain
professional services, particularly in the medical and legal fields. Public sector services and charities are
also frequently constrained in their ‘business’ activities by various forms of legislation and regulations.
3) Growth in Service Industries: However, growth in major services industries such as banking, hotel and
catering and tourism services has been accompanied by new developments in marketing. Services marketing
ideas and techniques have grown alongside the growth of the service economy. Marketing has contributed to
the growth and success of service industries in a number of ways. The design of the service product, or
offering, has shifted from a product-based focus to a customer focus – the organization provides what the
market needs, not what the organization thinks the market wants.
4) Characteristics of Services: The characteristics of services – intangibility, inseparability, heterogeneity
and perishability – mean that there are new considerations facing services marketers. These differences led
to the development of the expanded marketing mix to focus on issues perceived by customers to be
important in services marketing.
5) Customer/Employee Interaction: The customer/employee interaction takes on a far more significant role in
services marketing than in the marketing of physical goods. Consequently, services marketing attaches more
emphasis to training and better communications. Relatively new concepts have emerged to support services
marketing such as internal marketing and relationship marketing. These are now finding increasing
acceptance in mainstream marketing and are being applied to areas outside service.
6) Service Quality: Services marketing also places a clear focus on service quality and programmes for
implementing service quality. The development of a clearer understanding of perceived service quality and the
customer’s perception of quality based on the total service experience has addressed specific quality issues in
services marketing.
7) Specific Service Sectors: Specific areas of services marketing have attracted interest, especially not-for-
profit organizations and professional services. Marketers in these organizations are faced with ethical
considerations and other constraints. Certain public sector services are similarly constrained. The adoption
of marketing by these organizations, and the growth or marketing expertise in the area, is leading to a
greater marketing orientation.

2.6. Significance of Services Marketing

1) Creation and Expansion of Job Opportunities: The mounting problem of unemployment especially in the
Indian perspective makes it essential that whatever the development plans we formulate are instrumental in
creating and expanding the job opportunities. We cannot deny that the development of services sector
would open doors, search new vistas for the development of even those sectors which have either
remained untapped or have partially been tapped.
2) An Optimal Utilization of Resources: The most important thing in the development process is to make
possible an optimal development of the different types of resources available in a country. Since we have
been facing the problem of a non-optimal demographic structure, it is pertinent that we make an assault on
the misuse of resources. It is in this context that we find the services marketing important since this sector
of the economy if marketed properly regulates the unproductive use of resources. By marketing services,
we prefer to use resources which remain unutilized or underutilized generally found to be a burden on the
exchequer.
3) Paving Avenues for the Formation of Capital: To energize the process of development, it is essential that we
speed up the process of capital formation so that the problem of inadequacy of financial resources is minimized. It
is against this background that we need to assign due weightage to the development of services sector. The
formation of capital is substantially influenced by the contributions of production processes to the national economy.
If our investments are found to be productive, we contribute substantially to the development process.
4) Increasing the Standard of Living: The philosophy of development is coiled in the essence of improving
the living conditions of masses which in turn help increasing the standard of living. If we offer quality living
conditions for the masses, the faculty of development would be proved to be productive. The qualitative
developments in the society are substantially influenced by the pattern or system of development adopted
by the policy makers. If we turn our eyes on the standard of living of the Indian society, of course we find
ourselves far behind the developed countries. At the same time, it is right to mention that we find good
auguries and are optimistic. For increasing the standard of living, it is only not essential that we make
available to the masses opportunities to earn more but it is also essential that we make sincere efforts to
increase public awareness so that they know how to spend, where to spend, what to eat, how much to eat,
how to develop our personality, how to keep the health sound and so on. These things contribute
considerably to the standard of living.
5) Environment-Friendly Technology: Of late, we find use of technologies even in the services sector since
almost all the services are now found technology-driven. To be more specific the developed countries have
been found practicing the same. There is no doubt in it that we find a beginning even in the Indian condition
 but it is at the nascent stage. The basic difference that we find in the nature and types of technologies used
for managing and offering the services is its negligible or even dismal negative effective on the
environment. The banking services, insurance services, tourism services, hostel services, communication
services, education services and by and large almost all the services are now technology-driven but
environment friendly.

2.7. Paradigms in Services Marketing

Progress in any scientific field requires a paradigm, which is conceived as a fundamental set of assumptions
that is shared by members of a particular scientific community. Defined in this way, in contrast to its traditional
dictionary definition of “a pattern, exemplar, example” (Oxford English Dictionary), a paradigm shapes the
formulation of theoretical generalizations, focuses data gathering, and influences the selection of research
procedures and projects. Although paradigms can facilitate researcher and generate axioms that are useful for
both teaching and practice, they are not absolutes and the validity of the underlying assumptions may be open
to challenge.

2.7.1. Service as a Process

In service marketing today, service brand is built by taking the process perspective. This means that unlike
manufacturing, differentiation between operations and marketing is blurred in the services industry. Internal
customer focus is as important as external customer orientation. Further, since customers are often involved in
the production of services (for example, the customer in a food chain wherein he places the order, picks up the
order himself and then after finishing clears the table), marketers need to understand the nature of the service
process and the stages in this process that are exposed to customers. The process is a special method of
operation wherein several steps or activities are performed in a defined sequential manner.

It is obvious that people and objects are two major inputs processed in thee service industry. In most cases,
customers are important inputs in the service process, as reflected by restaurant, airline or beauty salon
businesses. In other cases, the key input is an object that needs to be either produced or repaired. For
example, a burger is an object to be produced by McDonald in a defined manner and time so as too ensure
consistent quality, production and delivery. In another case, like the computer hardware industry, a
malfunctioning computer is an object that requires service support. Thus keeping in mind the category of inputs
and whether the action required is at the tangible or intangible level, one can have a four-way classification of
services as shown in Figure aside. In the Figure, quadrant ‘A’ is categorized as people processing services,
quadrant ‘B’ as product or possession processing, while quadrant ‘C’ is mental stimulus processing and the last
quadrant ‘D’ is information processing.

Tangible Restaurant/Health Transportation/

Care Warehousing
Action
Required
Education/
Intangible Management Legal
Consultancy Services/Insurance

People Objects/Products
Inputs

Classification of Services

In the Figure above, quadrant ‘A’ is categorized as people processing services, quadrant ‘B’ as product or
possession processing, while quadrant ‘C’ is mental stimulus processing and the last quadrant ‘D’ is information
processing.
i) People Processing Services: People processing services are targeted at themselves. In order to receive
these types of services the customer must physically enter the service system or the service factory. For
example, an aircraft where both people and equipment or technology, or either of them, create and deliver
service benefit. Today it is possible that the service producer may come to the customer along with the
necessary tools of his trade. The goal of this service provider is to create a new set of values in the
industry, for the customers. For example, a banker may walk up to the customer and complete all the
necessary transactions that the customer may want to do at his/her place of work or residence at a time
most convenient to him/her.

ii) Product Processing or Possession Processing: In product processing or possession processing services,
customers are less physically involved. In most such cases customer involvement is usually limited to calling for
the services, explaining the problem and subsequently making the payment. The pre and after sales service
here will involve issues relating to customer response management. From the marketing viewpoint, these are a
range of services, which are going to add value to the customer and hence, the marketer needs to understand
the entire value chain process of the customer. For example, the logistics services provider needs to understand
the role of his services in the value creation process of an exporter or of the shares department of a large
industrial house. It is important to note here that the customer evaluates such services on the basis of tangible
promises being delivered within a defined time period and at a pre-negotiated price.

Thus the marketer has to ensure that there are no problems in delivering the promised service.

iii) Mental Stimulus Processing: Services that are categorized under mental stimulus processing include
education, entertainment and management consultancy. It also includes religious services being offered by a
large number of religious ‘gurus’ and their ashrams. These services impact the consumer mind and have the
potential to shape their attitudes, behavior and lifestyle. In a way, this relationship of the marketer with the
customer is one of dependency, in which the customer is dependent on the ‘Guru’. This can often lead to
problems relating to manipulation, extortion and even unethical behavior or practices. To avoid such a negative
image, such organizations and individuals need to evolve a code of conduct acceptable to the customer and
create high ethical standards.

iv) Information Processing Services: In the context of information processing services, the marketer has to
understand that information is a most intangible form of service output and, in today’s context, most vital
from the point of view of the customer’s own competitive advantage. In this era of information technology
customers shop for information in areas as diverse as accounting, legal research, medicine, insurance, and
financial products. The customer’s involvement in these situations is very high and hence is categorized as
high involvement purchase decisions. From the customer’s view point these are high cost (both financial
and non financial) and high risk service situations. Hence the customer tries to avoid going into the service
factory to shop for the service product. From a marketer’s perspective, this poses a challenge to bring the
customer to the factory and motivate him to buy and consume the services.

2.7.2. Doing Right the First Time

Since there is no 99 percent quality in the service product, there is no question of reworking or repairing of bad
service product. This is because unlike the manufacturing sector, there are no inventories in the service industry
as there is zero time gap between the production and consumption of a service. Hence it is extremely important
that each and every employee involved in service production and delivery do his or her job right the very first time.
A bad service delivery not only creates a dissatisfied customer but also severely impacts the brand equity. In the
manufacturing sector, one can still make amends by repairing or replacing defective products, but not so in the
service sector.

2.7.3. Speedy Response

Speed in responding to the customer holds the key to brand planning in the service industry. It is, therefore,
necessary that the service strategist pushes for speed and accuracy everywhere. For example, in the case of
the courier industry, pick up of the package or parcel, from the customer’s premises taking it to the collection
point and to the airport are crucial moments in creating a credible brand. Likewise, on reaching the destination
the same speed has to be maintained upto the point at which the package or parcel is to be delivered. Speed in
providing correct and accurate information on the status of the delivery is yet another critical moment. This
clearly means that the marketer needs to reduce the time gap between two successive stages in the service
process. He needs to benchmark each of these stages in terms of time and evaluate the variance that may
come about between the customer’s defined time standard and the actual time taken for the product to be
delivered. This is possible through the development of a standardized service design and simplified processes.
This is also possible through the application of state-of-the-art technology for each successive stage, such that
the employee interface is reduced to the bare minimum. This is important because often people tend to bring in
their own perceptions and prejudices into service delivery. Human behavior cannot be standardized or
predicted and in fact human interactions create multiple levels and types of responses. Increasingly it is being
felt in the service industry that in order to ensure that customers get the desired brand value, services should be
standardized and delivered in a consistent manner.

2.7.4. Keeping Customers Perspective

Service marketing cannot succeed without always maintaining the customer’s perspective at all levels of the
organization.

2.8. Component Tasks in Services Marketing

1) Understanding the nature of the service
2) Understanding the customer and his expectation of the service
3) Giving a shape to the service (developing the service product)
4) Organizing delivery systems and creating channels/intermediaries
5) Pricing
6) Promotion
7) Harnessing the special elements of service marketing:
i) People
ii) Physical Evidence
iii) Process
8) Achieving differentiation
9) Measuring service quality
10) Monitoring customer satisfaction

3. CUSTOMER RELATIONSHIP MANAGEMENT:

SPECIFIC FOR SERVICE INDUSTRY
Customer Relationship Management (CRM) is a strategy adopted by business firms in recent years and
includes the formulation of methodologies and tools that help businesses manage customer relationships in an
organized way. CRM processes are extremely helpful in identifying and targeting the best customers of the
business firm and generating quality sales leads, as well as in the planning and implementation of marketing
campaigns with definite goals and objectives. The processes involved in CRM can help the firm maintain a
customized relationship with the customers for creating higher-level customer satisfaction and offering the finest
customer service. CRM also endows the employees of the organization with the information they need to know
about their customers’ wants and needs and to build a long-term sustained relationship between the firm and its
customers.

According to Gartner, “CRM is a business strategy designed to optimize profitability, revenue and customer
satisfaction”.

According to PwC Consulting, “CRM is a business strategy that aims to understand/appreciate, manage and
personalize the needs of an organization’s current and potential customers”.

According to Parvatiyar and Sheth, “CRM is a competitive strategy and process of acquiring, reacting and
partnering with selective customers to create superior value for the company and the customer”.

3.1. Mass Marketing to Relationship Marketing

Customer Relationship Management (CRM) is used to define the process of creating and maintaining
relationships with business customers or consumers. CRM is a holistic process of acquiring, retaining, and
growing customers. It sprang from the relationship marketing concept after the advent of the Internet and other
technologies but has not grown to include all online and offline relationship management. Increasingly, firms are
recognizing that if they don’t keep their customers happy, someone else will.
 Mass Marketing Relationship Marketing

Discrete transactions Continuing transactions

Short-term emphasis Long-term emphasis

One-way communication Two-way communication and collaboration

Acquisition focus Retention focus

Share of market Share of mind

Product differentiation Customer differentiation

Continuum from Mass Marketing to Relationship Marketing

It is important to keep and improve relationship with customers for the following reasons:
1) Higher Marketing Costs in Generating New Customers: There are higher marketing costs associated
with generating interest in new customers as opposed to already informed existing customers.
The marketing costs involved in the creation of interest in an uninformed new customer far outweigh those
involved in maintaining the relationship necessary to continue exchanges between buyer and seller.
It has been estimated that the cost of attracting new customers can be as high as six times that of retaining
existing customers.
2) Better Exchange Opportunities in Long-term Relationships: Close and long-term relationships with customers
imply continuing exchange opportunities with existing customers at a lower marketing cost per customer.
Across a wide range of businesses, the pattern is the same: the longer a company keeps a customer, the
more money it tends to make.
3) Customer's Confidence as a Revenue Stream: Viewing customer exchanges as a revenue stream, as
opposed to a compendium of isolated transactions, enables cross-selling of related services over time and
premium pricing for the customer's confidence in the business.
4) More Practical Ideas for New Products: Strong customer relationships with a high degree of familiarity
and communications on both sides can generate more practical new product ideas from customers and
contact personnel.
5) Positive Word-of-mouth: Good relationships with customers can result in good word-of-mouth from
successful exchanges and minimal bad word-of-mouth in the event of unsuccessful exchanges. Service
quality cracks can often be papered over where good relationships have existed previously.

C Customers C
Top u u
s Front Line s
Management People
t t
Middle o o
Management m Middle m
e Management e
Front Line r r
Top
People s s
Management

Customers

Traditional Organizational Chart Modern Customer Oriented

Organizational Chart
Customer Relationship Management

Net Matter
3.2. Customer Relationship Management in the Service Industries
Globalization and deregulation, combined with advances in information technology, have radically changed the
managerial context of service industries. Although the origin of CRM was initially in the industrial context, the
service industry is also focused on maintaining and enhancing customer relationships. Services are produced
and delivered by the same institutions. The success of a service provider is dependent on long-term
relationships that develop between the provider and customer of the service. A greater emotional bond and
trust between the service provider and service user creates the need for maintaining and enhancing this
relationship.

In today’s deregulated world, members of financial services industry are continuously faced to seek new ways
to gain advantages over their competitors and to outdo one another in terms of effectively satisfying their retail
customers’ demands for increasingly sophisticated financial products and services. As they have moved away
from traditional broad-based marketing to retailing, relationship service needs to be provided to attract and hold
customers, to cross-sell products and most importantly, to attract customers to avail of multi-products and
services. CRM is thus of the utmost importance to financial services industry for survival and growth.

In order to retain customers in today’s competitive environment, financial institutions are increasing the depth of
customer relationships through the implementation of CRM programmes. A successful CRM programme in the
financial services addresses four key areas of business, i.e., strategy, people, technology and process. In a
financial services industry, it is unusual to find website interactions in one database, lease agreements in an
administration system, call centre history in another and payment history in the accounting system.

Although difficult, integrating such a huge information system can provide valuable insight into a financial
customer’s behavioral pattern and preferences and signals for intended behaviors. Advanced data analysis
models can provide valuable information on customer behavior and can help in projecting behavior in a more
accurate way about the likelihood of purchase of specific products and services, the best next offer information
and the probability of defection to the competitor brands. These models are customized to that organization’s
business domain and customer behavior and are based not on any behavioral or non-behavioral correlates but
on the actual interactions of customers with financial institutions.

3.3. Characteristics of CRM

1) Share of Customer: Historically, marketers have measured success in a product category by their share of
market. For example, if there are 100 million pairs of athletic shoes sold each year, a firm that sells 10
million of them has a 10 per cent market share. If the shoemaker’s marketing objective is to increase
market share, it may lower the price of its shoes, increase its advertising, or offer customers a free
basketball with every pair of shoes purchased. Such tactics may increase sales in the short run but,
unfortunately, they may not do much for the long-term success of the shoemaker. In fact such tactics may
actually decrease the value of the brand by cheapening its image with giveaways.
Because it is always easier and less expensive to keep an existing customer than to get a new customer,
CRM firms focus on increasing their share of customer, not share of market.
2) Lifetime Value of the Customer: With CRM, a customer’s lifetime value is identified and is the true goal,
not an individual transaction. It just makes sense that a firm’s profitability and long-term success are going
to be far greater if it develops long-term relationships with its customers so those customers buy from it
again and again. Costs will be far higher and profits lower if each customer purchase is a first-time sale.
3) Customer Equity: Today an increasing number of companies are considering their relationships with
customers as financial assets. Such firms measure success by calculating the value of their customer
equity—the financial value of customer relationships throughout the lifetime of the relationships. To do this,
firms compare the investments they make in acquiring customers, retaining customers, and relationship
enhancement with the financial return on those investments. The goal is to reap a high return on the
investments made in customer relationships and maximize the value of a firm’s customer equity.
4) Greater Focus on High-Value Customers: Using a CRM approach, customers must be prioritized and
communication customized accordingly. For example, any banker will tell you that not all customers are
equal—when it comes to profitability. So, some banks (about one out of every eight at this point) now use
CRM systems to generate a profile of each customer based on factors such as value, risk, attrition, and
interest in buying new financial products. This automated system helps the bank decide which current or
potential customers it will target with certain communications or how much effort to expend on retaining a
person’s account—all the while cutting its costs by as much as a third.

3.4. Need for CRM

The purpose of CRM is not limited to merely improving customer service, it also allows companies to acquire
customers and serve them, increase the value of the customer to the organization, retain good customers and
determine which customers can be retained or given a higher level of service.

A good CRM programme can improve customer service by:

1) Provides Updated Information: Providing product information and technology assistance with an
accessibility for 24 hours a day, seven days a week,
2) Customized Strategies: Identifying the difference in qualities perceived by different customers and then by
designing a suitable service strategy for each customer based on expectation,
3) Anticipates Problems: Helping identify potential problems quickly, even before they occur,
4) Prompt Follow-Up: Providing a fast mechanism for managing follow-up sales calls to assess post-
purchase problems, re-purchase probabilities, repurchase times, frequencies, etc.
5) Problem Resolving Mechanism: Providing a fast mechanism for handling problems and complaints, etc.
6) Assesses Customer Interests: Using Internet cookies to track customer interests,
7) Integrating Functional System: Integrating other functional systems and thereby providing accounting
and production information to customers when they need it.
3.5. Aspects of CRM
CRM includes many aspects which relate directly to one another:
1) Front Office Operations: Direct interaction with customers, e.g. face to face meetings, phone calls, e-mail,
online services etc.
2) Back Office Operations: Operations that ultimately affect the activities of the front office (e.g., billing,
maintenance, planning, marketing, advertising, finance, manufacturing, etc.)
3) Business Relationships: Interaction with other companies and partners, such as suppliers/vendors and
retail outlets/distributors, industry networks (lobbying groups, trade associations). This external network
supports front and back office activities.
4) Analysis: Key CRM data can be analyzed in order to plan target-marketing campaigns, conceive business
strategies, and judge the success of CRM activities (e.g., market share, number and types of customers,
revenue, profitability, etc.).

netmatter
3.6. Difference between CRM and Relationship Marketing
Relationship marketing is a broader overriding concept. Relationship marketing is marketing based on
interactions within networks of relationships.

Relationships Relationship Interactions

Marketing

Networks

Figure: Relationship Marketing

A network is a set of relationships which can grow into enormously complex patterns. In the relationship, as the
simple dyad grows into a complex networks, the parties enter into active contact with each other. This is called
interaction. The relationship between the one who sells something and the one who buys something forms the
classic dyad of marketing, a two-party relationship. This is the party relationship of marketing.

Table: Levels of Relationship Marketing

High Medium Margin Low Margin
Margin
Many Customers/Distributors Accountable Reactive Basic or reactive
Medium Number of Proactive Accountable Reactive
Customers/Distributors
Few Customers/Distributors Partnership Proactive Accountable

CRM is the values and strategies of relationship marketing – with particular emphasis on customer
relationship turned into practical application. CRM does not deal with networks but focuses on the customer-
supplier interaction.

Gummesson has converted the philosophy of Relationship Marketing into tangible relationships that become
part of the company’s marketing and business planning. This has been done by defining thirty relationships, the
thirty R’s.
These thirty Rs. are divided into four broad categories:
1) Classic-Market Relationships: Classic-Market Relationships consisting of the relationship between the
supplier and the customer, between the customer-supplier competitor and the classic network distribution
channels.
2) Special-Market Relationships: Relationships via full-time marketers and part time marketers, interaction
between customers and service providers, relationship in industrial and business marketing, e-relationship,
green relationship (environment and health-based, law-based).
3) Mega Relationships: Personal and social network, mass media.
4) Nano Relationships: Introduction of profit centers in an organization, relationship between internal
customers and internal suppliers, the relationship between operations management and marketing,
relationship with the employee market, etc.

The first two types are market relationships, be it classic-market relationships or special-market relationships.
The next two types are non-market relationships which directly influence efficiency of market relationship.

netmatter
3.7. Types of CRM
Types of CRM can be broadly understood by looking at two different ways of categorization. These two types
of categorization are as follows:

1) Proactive versus Reactive CRM: In this type of categorization, the practice of a company to anticipate and
respond to the customer needs with suitable offerings is contrasted with the practice of simply responding
to the customer stimulus that comes in through suggestions or complaints.

In an increasingly dynamic business world, companies with progressive outlook are those who not only
understand and translate their customer value proposition through their entire offering but also attempt to
accommodate the future needs of their customers. Needless to say, companies attempting Proactive CRM
are generally those which are increasing the level of personalization and are practicing one-to-one
marketing as shown in figure below.

Proactive

Customer Data Analytics

P
e
r Interactive
O
s Customer Facing Business Processes
S
o
n
al Responsive/Reactive
iz
Customer Interaction Management
a
ti
o
n
Types of CRM Mapped against Degree of Personalization

Figure: Types of CRM Mapped Against Degree of Personalizationas

Dependent on Level of Personalization
2) Operational, Collaborative and Analytical CRM: Another type of CRM which is often referred to is the
second one which attempts to distinguish and delineate the scope of Operational, Collaborative and
Analytical CRM.

i) Operational CRM: Today, the consumer approaches the business in far too many ways than in the
past. Also known as front-office CRM, it involves the areas where direct customer contact occurs.
These interactions are referred to as customer touchpoints. CRM is a process by which a company
maximizes the process of gathering and understanding customer information from all touchpoints, i.e.,
point of sale, call centers, web, etc., in an effort to increase customers’ loyalty and to retain them over
their lifetime. It is not a short-term goal based on isolated transactions resulting in sporadic client
service.

The customer touchpoints are classified into:

a) Face-to-Face Touchpoints: Sales/Service/Channel/Events/Stores/Promotions.
b) Database-driven Touch-points: Telephones/E-mail/Mail/SMS/Fax/LoyaltyCards/ ATM’s.
c) Mass Media: Advertising/PR/Website.
 At any of these touchpoints, any number of the following transactions can take place:
• Financial transaction,
• Sale,
• Payment,
• Return of sale,
• Information transaction,
• Request for information,
• Complaint,
• Suggestion.

Operational CRM enables and streamlines communication to and from the customer. But this does not
necessarily mean optimizing service. Here ‘Optimization’ means letting marketers plan and prioritize all
inbound and outbound customer communications in order to maximize effectiveness while balancing the
organization’s capacity to deliver and the likelihood that customers will respond.

ii) Collaborative CRM: Collaborative CRM is a specific functionality that enables a two-way dialog
between a company and its customers through a variety of channels to facilitate and improve the
quality of customer interactions. Since the primary goal is to build a long-term and ‘profitable’
relationship with the ‘chosen’ customers, it is necessary that all the concerned parts of the organization
work in collaboration with aligned purpose, objective and strategy to achieve this outcome. A ‘lifetime’
value extraction is possible only through close collaboration of internal stakeholders and customers.

The mandate of Collaborative CRM is to manage various partners of the company, be it business
partners, agents, brokers, OEM’s, intermediaries like distributors, dealers, re-sellers and retailers. By
managing all these partners, it tries to in turn facilitate the integration of various activities like
Marketing, Sales, Service/Support and Quality.

iii) Analytical CRM: Also known as back-office or strategic CRM, it involves understanding the customer
activities that occurred in the front-office. It involves analyzing large amounts of cross-functional data
using data mining and other methods and feeding the result (knowledge gained) back to operational
CRM. It also studies consumer behavior patterns that help to know what products to position for cross-
selling/up-selling and the level and kind of service to deliver to meet customer demand.To enable all
the above, technology is deployed as a facilitator. Technology involves a progressive approach in
gathering customer data via multiple inter-connected delivery channels. This mass of data has to be
further transformed into ‘business knowledge’ for it to be effectively utilized and deployed. Knowledge-
like-behavior patterns, preferences, values, etc., are the various attributes that are drawn by analysis of
data from different sources and touch points drawn in by the operational CRM. This knowledge helps
the collaborative CRM layer to position right products and services, offer cross-sell and up-sell options
and tailor-made solutions for the customers.

Analytical CRM requires technology (to compile and process the mountains of customer data to
facilitate analysis) and new business processes (to refine customer facing practices in order to
increase customer loyalty and raise profitability).

The inter-relationship between the three is shown in figure below.

 Direct
Kiosk
Interactio
ATM Web/Chat Voice Voice
n

Operational
Multi-Channel Synchronization Integration
CRM

Provider Agent Inter-

Partners
Direct Broker Mediate

Distribution Channel Synchronization Integration

Collaborative Service/
CRM Marketing Sales
Support

Application Integration

Analytical Customer
Customer Product
CRM Activity
Analytical Data Mart Data Mart
Data Mart
Business
Intelligence

Customer Generic Data Warehouse

Figure: Inter-relationship between Operational, Collaborative

and Analytical CRM

3.8. Building Customer Relationship Management

Step 1: Acquisition: It is a vital stage in building customer relationship. The acquisition process comprises of
the following stages:
1) Enquiry,
2) Interaction,
3) Exchange,
4) Co-ordination,
5) Adoption.

Each one of the above stages assumes a significant role in the acquisition process. In the enquiry stage, the
prospective buyer undertakes a detailed enquiry with regard to several aspects pertaining to the organization,
product, nature of transaction and all other related aspects.

The terms of exchange, mode of delivery and other things related to the exchange are settled at the exchange
stage. Further coordinated effort on either side would lead the customers to move towards the adoption of the
product or service concerned, and that completes the acquisition process.
Step 2: Customer Interaction Management (CIM): Interaction plays a leading role in building customer
relationships. CIM constitutes the customer relationship technologies with additions of technology-based
interactive solutions. The interactive channels that are currently available enable very effective customer
interactive communications, which lead to CIM, which further leads to relationship building.

In view of technology growth, the interaction management is facilitated by communication in terms of media,
message, speed, accuracy, distance, content, reach, repetition, etc.

CIM can assume the following routes:

1) Online Routes: E-mails, web communities, chat rooms.
2) Offline Routes: Telephone, fax, mails, interactive television network.
3) Outsourcing.

Step 3: Customer Retention: The focus of the organization is more on customer retention than simply on
customer acquisition. Customer retention is the process of keeping customers in the customer inventory for an
unending period by meeting the needs and exceeding the expectations of those customers. It is the approach of
converting a casual customer into a committed and loyal customer.

CRM is a complete system with a number of inter-linkages, beginning with what type of consumers should be
targeted to finally obtaining efficiency in it. Online processing or customer call-centers alone cannot lead to a
successful CRM.

A CRM has to start with a good database of consumers and it should have a historical perspective on them.

3.9. Requirements for CRM Success/ Ways to gain Success with

Customer Relationship Management
The most important thing is to get started with simple improvements to how to profitably deliver value to
customers. And then to learn from these early experiences as expand CRM into other areas.
1) Develop a Customer Centric Strategy: An organization should understand that customer relationship
management is not a one-time expense. It is a set of strategies that deal with the maintenance of customer
information and their demands in order to ensure customer satisfaction.
2) Must have Department-wise Strategies: An enterprise must have department-wise strategies, which are
aligned with its customer touch points. An organization should understand that strategy comes first. A
strategy is of highest importance in planning for a business. Technology serves as the means to execute
the strategies.
3) Translate Customer Information: It is necessary for an organization to translate its customer information
into profitability and interpret customer information in the form of future plans for increasing business.
Models of the customer segments of a business help the business, set goals for achieving profits. An
organization should work towards building and refining processes that can enhance customer relations and
lead the organization to success.
4) Plan for the Pitfalls: It is important for an enterprise to plan for the pitfalls in its path and plan for
prospective financial losses. It is necessary to plan ahead in time while looking for the 'quick-wins'. An
organization should consider its potential need to change.
5) Every Business Process is Important: An enterprise must give every business process its due
importance and plan strategically towards an effectively managed customer relationship management
system.
6) Deliver Value: It is very important to deliver value with proper quality and satisfaction. It must be delivered
quick & slowly.

3.10. Benefits/importance of CRM

1) Increased Sales Revenues and Reduced Cost of Sales: Increased sales result from spending more time with
customers, which results from spending less time chasing, needed information (i.e., productivity improvement).
Usually existing customers are more responsive customers. Better knowledge of your channels or
distributors drives more effectiveness in the relationship. CRM will also reduce marketing campaign costs
and provide higher ROI in marketing and customer communications.
2) Increased Win Rates: Win rates improve since companies can withdraw from unlikely or bad deals earlier
 on in the sales process.
3) Increased Margins: Increased margins resulting from knowing customers better, providing a value-sell,
and discounting prices.
4) Improved Customer Satisfaction Ratings: This increase occurs since customers find the company to be
more responsive and better in touch with their specific needs. Larger wallet-share; more follow-up sales; more
referrals from higher customer satisfaction and services; ability to cross-sell or up-sell from present purchases.
5) Decreased General Sales and Marketing Administrative Costs: This decrease occurs since the company
has specified its target segment customers, it knows their needs better, and thus it is nor wasting money and
time, for example, on mailing information to all customers in all existing and potential target segments.
6) Lower Costs of Recruiting Customers: Savings on marketing, mailing, contact, follow-up, fulfillment, and
services, and so on. No need to recruit so many customers to maintain a steady volume of business
(especially in business-to-business marketing environments).
7) Increased Customer Retention and Loyalty: Customers stay longer, buy more, contact for their
requirements (which increases the bonding relationship), and customers buy more often. CRM, therefore,
increases the opportunity and accomplishment of real lifetime value.
8) Evaluation of Customer Profitability: Knowing which customers are truly profitable, which customers
should be changed from low/no profit through cross-selling/up-selling; which customers might not ever
become profitable; which customers should be managed by external channels; and which customers drive
future business.

3.11. Barriers to Customer Relationship Management

Like all other things, CRM also have few shortcomings that they need to overcome. Following are the major
disadvantages that stop CRM from becoming a perfect tool for any business:
1) Company Ownership is based on Capitalist System: The problem with CRM is actually one that isn't
part of CRM. It's based in the company ownership, which again is based on the capitalist system. There it's
really only about money, about ever-increasing profits and growth, about a system that is thoroughly
unsustainable to any but the most unenlightened, ignorant and greedy.
2) Require Top-Management Support: If top management still needs convincing that (the real) CRM is
absolutely necessary to make life of both the company and the customer easier, then no amount of
lobbying will do. Without top management support, CRM cannot be deployed successfully.
3) Confusion in Attributes: Generally reason for barrier is because, most organizations that actually employ
CRM, experience a lot of confusion about its attributes and what it really is. Some would define it as a
business strategy while others view it as something to do with technology.
4) Problem in Implementation: There is a major problem in Implementation. One of the original purposes of
CRM (customer relationship management) has always been to develop a technique that will help
companies improve customer retention, customer satisfaction and customer loyalty. However, if it is truly
analyzed, relationship with vendors, or many companies' relationships with their vendors, it can be find that
in most cases, customers are taken for granted and therein lies the root of the problem.
5) Building Relationship: The other main barrier is building relationship. When a marketer fails to contact its
customers frequently, no relationship is built. As a result, the customer has no reason to be loyal. Most
companies are unintentionally committing the above mistakes, but in this day and age when the customers
have many choices, it is the violation of all Ten Commandments of business, not to mention CRM, to ignore
customers and not try to show appreciation and care in order to keep that customer loyal.
6) Not Functionally Organized: Most organizations are still not functionally organized.
7) Customer Dissatisfaction: Although several businesses have implemented CRM to focus on customers,
several clients are still dissatisfied with its execution.
8) Not Customer Centric: Training to the front line support staff are still not be customer centric.
9) Incapability: CRM implementation is still not a capable to build project.