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MODULE 1

Introduction
The world economy nowadays is increasingly characterized as a service
economy. This is primarily due to the increasing importance and share of the
service sector in the economies of most developed and developing countries.
In fact, the growth of the service sector has long been considered as
indicative of a countrys economic progress.
Economic history tells us that all developing nations have invariably
experienced a shift from agriculture to industry and then to the service
sector as the main stay of the economy.
This shift has also brought about a change in the definition of goods and
services themselves. No longer are goods considered separate from services.
Rather, services now increasingly represent an integral part of the product
and this interconnectedness of goods and services is represented on a
goods-services continuum.
Service Sector structure & drivers of growth
The services sector, with around 52 per cent contribution to the Gross
Domestic Product (GDP) in 2014-15, has made rapid strides in the past
decade and a half to emerge as the largest and one of the fastest-growing
sectors of the economy. The services sector is not only the dominant sector
in Indias GDP, but has also attracted significant foreign investment flows,
contributed significantly to exports as well as provided large-scale
employment. Indias services sector covers a wide variety of activities such
as trade, hotel and restaurants, transport, storage and communication,
financing, insurance, real estate, business services, community, social and
personal services, and services associated with construction.

The services sector contributed US$ 783 billion to the 2014-15 GDP (at
constant prices) growing at Compound Annual Growth Rate (CAGR) of 9 per
cent, faster than the overall GDP CAGR of 6.2 per cent in the past four years.
Out of overall services sector, the sub-sector comprising financial services,
real estate and professional services contributed US$ 305.8 billion or 20.5
per cent to the GDP. The sub-sector of community, social and personal
services contributed US$ 188.2 billion or 12.6 per cent to the GDP. The thirdlargest sub-segment comprising trade, repair services, hotels and
restaurants contributed nearly equal or US$ 187.9 billion or 12.5 per cent to
the GDP, while growing the fastest at 11.7 per cent CAGR over the period
2011-12 to 2014-15.

The Government of India recognises the importance of promoting growth in


services sectors and provides several incentives in wide variety of sectors
such as health care, tourism, education, engineering, communications,
transportation, information technology, banking, finance, management,
among others. The Government of India has adopted a few initiatives in the
recent past. Some of these are as follows:

The Central Government is considering a two-rate structure for the


goods and service tax(GST), under which key services will be taxed at
a lower rate compared to the standard rate, which will help to minimize
the impact on consumers due to increase in service tax.
By December 2016, the Government of India plans to take mobile
network to nearly 10 per cent of Indian villages that are still
unconnected.
The Government of India has proposed provide tax benefits for
transactions made electronically through credit/debit cards, mobile
wallets, net banking and other means, as part of broader strategy to
reduce use of cash and thereby constrain the parallel economy
operating outside legitimate financial system.
The Reserve Bank of India (RBI) has allowed third-party white label
automated teller machines (ATM) to accept international cards,
including international prepaid cards, and has also allowed white label
ATMs to tie up with any commercial bank for cash supply.

Services sector growth is governed by both domestic and global factors. The
sector is expected to perform well in FY16. Some improvement in global
growth and recovery in industrial growth will drive the services sector to
grow 7.4 per cent in FY16 (FY15: 7.3 per cent) as per Mr Dilip Chenoy, MD
and CEO of National Skill Development Corporation. The Indian facilities
management market is expected to grow at 17 per cent CAGR between 2015
and 2020 and surpass the $19 billion mark supported by booming real
estate, retail, and hospitality sectors. The performance of trade, hotels and
restaurants, and transport, storage and communication sectors are expected
to improve in FY16. Loss of growth momentum in commodity-producing
sectors had adversely impacted transport and storage sectors over the past
two years. The financing, insurance, real estate, and business services
sectors are also expected to continue their good run in FY16. The growth
performance of the community, social and personal services sector is directly
linked with government expenditure and we believe that the government will
remain committed to fiscal consolidation in FY16.

Tangibility Spectrum
The broad definition of services implies that intangibility is a key determinant
of whether an offering is a service. Although this is true, it is also true that
very few products are purely intangible or totally tangible. Instead, services
tend to be more intangible than manufactured products, and manufactured
products tend to be more tangible than services. For example, the fast-food
industry, while classified as a service, also has many tangible components
such as the food, the packaging, and so on. Automobiles, while classified
within the manufacturing sector, also supply many intangibles, such as
transportation. The tangibility spectrum captures this idea.

Definition and characteristics of Services


The American Marketing Association defines services as - Activities, benefits
and satisfactions which are offered for sale or are provided in connection
with the sale of goods.
The defining characteristics of a service are:

Intangibility: Services are intangible and do not have a physical


existence. Hence services cannot be touched, held, tasted or smelt.
This is most defining feature of a service and that which primarily
differentiates it from a product. Also, it poses a unique challenge to
those engaged in marketing a service as they need to attach tangible
attributes to an otherwise intangible offering.
Heterogeneity/Variability: Given the very nature of services, each
service offering is unique and cannot be exactly repeated even by the
same service provider. While products can be mass produced and be
homogenous the same is not true of services. eg: All burgers of a
particular flavor at McDonalds are almost identical. However, the same
is not true of the service rendered by the same counter staff
consecutively to two customers.
Perishability: Services cannot be stored, saved, returned or resold
once they have been used. Once rendered to a customer the service is
completely consumed and cannot be delivered to another customer.
eg: A customer dissatisfied with the services of a barber cannot return

the service of the haircut that was rendered to him. At the most he
may decide not to visit that particular barber in the future.
Inseparability/Simultaneity of production and
consumption: This refers to the fact that services are generated and
consumed within the same time frame. Eg: a haircut is delivered to and
consumed by a customer simultaneously unlike, say, a takeaway
burger which the customer may consume even after a few hours of
purchase. Moreover, it is very difficult to separate a service from the
service provider. Eg: the barber is necessarily a part of the service of a
haircut that he is delivering to his customer.

Types of Services

Core Services: A service that is the primary purpose of the


transaction. Eg: a haircut or the services of lawyer or teacher.
Supplementary Services: Services that are rendered as a corollary
to the sale of a tangible product. Eg: Home delivery options offered by
restaurants above a minimum bill value.

Flower of Service
Like a flower, any service offering start-up should strive to develop at the
beginning a core that offers the basic functionality, the functionality that the
users are willing to pay for and, later on, an array of complementary services
which in-term will help retain customer by adding value to the core...not the
other way around. In flower terms: the pistil is the one that draws users to
the application/service offering the functionality that solves users pain points
and the corolla is just a bunch of additional services/features that sets the
core apart.
Every service, be it on-line or off-line, has a core that is backed-up by various
supplementary services. This supplementary services can be classified in 2
categories: facilitating services and enhancing services.
The facilitating services are needed for core service delivery and they help in
the use of the core service/product. Here are some examples of facilitating
services: billing, payment, order tacking, information - it is up to each
management team in part to decide which are the facilitating services for
their business.
On the other hand the enhancing services are meant to add extra value to
the customers (you can think about them as additional features). Enhancing
services might consist of: customer support, consulting, hospitality - like in
the case of the facilitating services the enhancing ones are not set in stone,
so it's up to you to decide what's enhancing and what not.
For companies that go for the cost leadership strategy, the number of

supplementary services that they offer, be it enhancing or facilitating, is


quite small opposed to the number of services offered by companies that
aim for differentiation.
Difference between Goods and Services
Given below are the fundamental differences between physical goods and
services:
Goods

Services

A physical commodity

A process or activity

Tangible

Intangible

Homogenous

Heterogeneous

Production and distribution are


separation from their consumption

Production, distribution and


consumption are simultaneous
processes

Can be stored

Cannot be stored

Transfer of ownership is possible

Transfer of ownership is not possible

Extended services marketing mix


The first four elements in the services marketing mix are the same as those
in the traditional marketing mix. However, given the unique nature of
services, the implications of these are slightly different in case of services.
1. Product: In case of services, the product is intangible,
heterogeneous and perishable. Moreover, its production and
consumption are inseparable. Hence, there is scope for customizing
the offering as per customer requirements and the actual customer
encounter therefore assumes particular significance. However, too
much customization would compromise the standard delivery of the
service and adversely affect its quality. Hence particular care has to be
taken in designing the service offering.

2. Pricing: Pricing of services is tougher than pricing of goods. While the


latter can be priced easily by taking into account the raw material
costs, in case of services attendant costs - such as labor and overhead
costs - also need to be factored in. Thus a restaurant not only has to
charge for the cost of the food served but also has to calculate a price
for the ambience provided. The final price for the service is then
arrived at by including a mark up for an adequate profit margin.
3. Place: Since service delivery is concurrent with its production and
cannot be stored or transported, the location of the service product
assumes importance. Service providers have to give special thought to
where the service would be provided. Thus, a fine dine restaurant is
better located in a busy, upscale market as against on the outskirts of
a city. Similarly, a holiday resort is better situated in the countryside
away from the rush and noise of a city.
4. Promotion: Since a service offering can be easily replicated promotion
becomes crucial in differentiating a service offering in the mind of the
consumer. Thus, service providers offering identical services such as
airlines or banks and insurance companies invest heavily in advertising
their services. This is crucial in attracting customers in a segment
where the services providers have nearly identical offerings.
We now look at the 3 new elements of the services marketing mix - people,
process and physical evidence - which are unique to the marketing of
services.
5. People: People are a defining factor in a service delivery process,
since a service is inseparable from the person providing it. Thus, a
restaurant is known as much for its food as for the service provided by
its staff. The same is true of banks and department stores.
Consequently, customer service training for staff has become a top
priority for many organizations today.
6. Process: The process of service delivery is crucial since it ensures that
the same standard of service is repeatedly delivered to the customers.
Therefore, most companies have a service blue print which provides
the details of the service delivery process, often going down to even
defining the service script and the greeting phrases to be used by the
service staff.
7. Physical Evidence: Since services are intangible in nature most
service providers strive to incorporate certain tangible elements into
their offering to enhance customer experience. Thus, there are hair
salons that have well designed waiting areas often with magazines and
plush sofas for patrons to read and relax while they await their turn.

Similarly, restaurants invest heavily in their interior design and


decorations to offer a tangible and unique experience to their guests.
Service Encounters and the types
Every business knows that in order to thrive it needs to differentiate itself in
the mind of the consumer. Price has proved inadequate since there is a limit
to how much a firm can cut back on its margins. Product differentiation is
also no longer enough to attract or retain customers since technological
advances have resulted in products becoming almost identical with very few
tangible differences from others in the same category. Consequently,
marketers have realized the importance of service differentiation as a
sustainable strategy for competing for a portion of the customers wallet.
A moment of truth is usually defined as an instance wherein the customer
and the organization come into contact with one another in a manner that
gives the customer an opportunity to either form or change an impression
about the firm. Such an interaction could occur through the product of the
firm, its service offering or both. Various instances could constitute a
moment of truth - such as greeting the customer, handling customer queries
or complaints, promoting special offers or giving discounts and the closing of
the interaction. In todays increasingly service driven markets and with the
proliferation of multiple providers for every type of product or service,
moments of truth have become an important fact of customer interaction
that marketers need to keep in mind. They are critical as they determine a
customers perception of, and reaction to, a brand. Moments of truth can
make or break an organizations relationship with its customers.
This is more so in the case of service providers since they are selling
intangibles by creating customer expectations. Services are often
differentiated in the minds of the customer by promises of what is to come.
Managing these expectations constitutes a critical component of creating
favorable moments of truth which in turn are critical for business success.
Moments of Magic: Favorable moments of truth have been termed as
moments of magic. These are instances where the customer has been
served in a manner that exceeds his expectations. Eg: An airline passenger
being upgraded to from an economy to a business class ticket or the 100th
(or 1000th) customer of a new department store being given a special
discount on his purchase. Such gestures can go a long way in creating a
regular and loyal customer base. However, a moment of magic need not
necessarily involve such grand gestures. Even the efficient and timely
service consistently provided by the coffee shop assistant can create a
moment of magic for the customers.

Moment of Misery: These are instances where the customer interaction has a
negative outcome. A delayed flight, rude and inattentive shop assistants or
poor quality of food served at a restaurant all qualify as moments of misery
for the customers. Though lapses in service cannot be totally avoided, how
such a lapse is handled can go a long way in converting a moment of misery
in to a moment of magic and creating a lasting impact on the customer.
Search, Experience & Credence Attributes

From a marketing perspective, services can be separated into three useful


classes:
search
products,
experience
products,
and
credence
products. Search products or services have attributes customers can readily
evaluate before they purchase. A hotel room price, an airline schedule,
television reception, and the quality of a home entertainment system can all
be evaluated before a purchase is made. Well-informed buyers are aware of
the substitutes that exist for these types of products and thus are likely to be
more price sensitive than other buyers, unless there exists some brand
reputation or customer loyalty. This sensitivity, in turn, induces sellers to
copy the most popular features and benefits of these types of products. Price
sensitivity is high with respect to products with many substitutes, and since
most buyers are aware of their alternatives, prices are held within a
competitive band.

Experience services can be evaluated only after purchase, such as dinner in


a new restaurant, a concert or theater performance, a new movie, or a
hairstyle. The customer cannot pass judgment on value until after he or she
has experienced the service. These types of products tend to be more
differentiated than search products, and buyers tend to be less price
sensitive, especially if it is their first purchase of said product. However,
since they will form an opinion after the experience, if it is not favorable, no
amount of differentiation will bring them back. Product brand and reputation
play an important role in experience products, due to consistency of quality
and loyalty. For instance, when customers travel, so does brand reputation,
as with airlines, hotels, rental cars, and so forth.

Credence services have attributes buyers cannot confidently evaluate, even


after one or more purchases. Thus, buyers tend to rely on the reputation of
the brand name, testimonials from someone they know or respect, service
quality, and price. Credence products and services include health care; legal,
accounting, advertising, consulting, and IT services; baldness cures; pension,

financial, and funeral services; and even pet food (since you have to infer if
your pet likes it or not). Credence services are more likely than other types to
be customized, making them difficult to compare to other offerings. Because
there are fewer substitutes to a customized service and there is more risk in
purchasing these types of services, price sensitivity tends to be relatively low
that is, the majority of customers purchasing credence services are
relatively price insensitive compared to search or credence goods.

Categorizing Service processes


Different types of processes result in different levels of customer
involvement.
If services are deeds, acts, or performances, two questions arise:
-

at whom (or what) is the activity directed;


is the activity tangible or intangible.

What is the
nature of the
service act?

Who or what is the direct recipient of the service?


People

Possessions

Tangible actions

I. Service directed at
peoples bodies:

II. Services directed at


physical possessions:

passenger
transportation;
- health care;
- lodging;
- beauty saloons;
- physical therapy;
- fitness centers;
- restaurants;
- haircutting;
- funeral services
Intangible actions III. Services directed and
peoples minds:
-

advertizing/PR;
arts and entertainment;
broadcasting/cable;
management consulting;
education;

freight transportation;
repair and maintenance;
warehousing/storage;
janitorial services;
retail distribution;
laundry and dry cleaning;
refueling;
landscaping/lawncare;
disposal/recycling.

IV. Services directed at


intangible assets:
-

accounting;
banking;
data processing;
data transmission;
insurance;

information services;
concerts;
psychotherapy;
religion;
voice telephone.

legal services;
programming;
research;
securities investment;
software consulting.

I. People processing.
Managers should think about the process and output in terms of what
happens to the customer (or other object process) to identify what benefits
are being created.
Reflecting on the service process itself helps to identify some of the nonfinancial costs time, mental and physical effort, and even fear and pain
that customers incur in obtaining the services.
Critical factors:
-

moving to the service factory (or service people going to clients);


getting into contact and cooperation;

II. Possession processing.


Frequently quasi-manufacturing operations.
The services are the entire chain of activities that may take place during the
lifetime of the object in question.
Receivers are not necessary to be present.
III. Mental stimulus processing.
Strong ethical standards and careful oversight may be required.
Receivers physical presence is not necessary, but
communication/participation is required.
IV. Information processing.
Customer involvement is determined by traditions and personal desire;
operationally it is not required.