CHAPTER – 1 : UNDERSTANDING SERVICES

INTRODUCTION :

What Is Marketing :

1. The shortest definition of Marketing Management is “Meeting Needs Profitably”.

2. The American Marketing Association’s formal definition – “Marketing is an organisational function and a set of processes for creating, communicating and delivering value to customers and for managing customers’ relationship in ways that benefit the organisation and its stock holders”.

3. General definition – “Marketing Management as the art and science of choosing target markets and getting, keeping and growing customers thru creating, delivering and communicating superior customer value”.

4. Social definition – “Marketing is a societal process by which individuals and groups obtain what they need and want thru creating, offering and freely exchanging products and service of value with others”.

What Is Marketed :

Marketing people are involved in marketing 10 types of entities –

1. Goods – physical products, consumer products, consumer durables

2. Services – transport, repair & maintenance, legal, financial, consultancy, hotel, specialised skills

3. Experiences – theatres, opera, Disney-world, ocean cruise, cinema, music concerts

4. Events – trade shows, sports, world cups, vintage car rally, fashion shows, artistic performance shows

5. Persons – celebrity marketing, film stars, politicians, artists, performers, advertisers

6. Places – cities, states, countries for tourism, leisure & place for industrialisation & business

7. Properties – ownership of tangible properties like real estate, house, apartment, farm house, precious metals and intangible properties like financial portfolio of various securities

8. Organisations – building up identity, image, reputation, and value in the minds of consumers

9. Information – can be packaged & marketed as a product – text books, encyclopaedias, magazines & journals on literature, science, technology, medicine space, now available thru internet

10. Ideas – concept regarding a utility, business opportunity, advertising / marketing ideas, scientific & technical, social, financial, psychological etc.

The Three Major Sectors of development of economy are :

1. Agriculture – Providing employment to the large part of the population, also contributes to the GDP.

2. Manufacturing – Because of the technological advancements, people need things & they are available thro manufacturing. Also factories need more technology to be set

1

up, and need manpower to run them. It increases the purchasing power of the population, and also GDP increases.

3. Services – The traditional class based society divided along the lines of family trade fades away and people need services in increasing volume & quality. They have to be catered thro’ organised sector. The study begins here.

Factors influencing the growth of service sector :

DEMOGRAPHIC CHANGES :

Three basic phases relevant in the growth of services are :

1. Decrease in the rate of mortality, infant death & fertility, as a result the target audience increases for services marketing

2. Increase in the proportion of the young people, and if they get employment then they will have more disposable income to buy services, and also can be employed in service industry.

3. Finally, people live longer, we have more elderly people to whom services can be marketed, because they have the need and paying capacity.

SOCIAL CHANGES :

Because of the improvement in the social conditions of the households people have more disposable income. More so for families where women also earn. New needs are created & catered, e.g., working mothers increase surplus income of the family, and be a consumer of child care services as they have less time to look after the children. Lifestyle changes are one such area. The latest craze is high-flying professionals need high quality services & service providers.

ECONOMIC CHANGES :

1. After the WW-II, there were a stabilisation of political activity, more piece, & due to the technological advancements during the war, the economy of household improved. More factories, more employments, more surplus earning, more goods, and slowly more services, as the govt. withdrew control over land ownership etc.

2. Then came the globalisation & liberalisation where MNCs opened shops in India & Indian companies started going abroad. More money are now available on loan, so people now spend & pay later

POLITICAL & LEGAL CHANGES :

This is more visible in the cases of formerly USSR & PRC, both countries make improvements in their economies.

TECHNOLOGICAL CHANGES :

Probably, the single most important factor is the technological advancements which revolutionalised both the products & services sectors. It is well said, when someone says that the products being equal in quality parameters, will enjoy patronage when attached to the quality of service delivery.

POLICY CHANGES :

The Govt. is the policy makers of a country, and the policies have a major impact on the development of the country. This may happen slowly or rapidly, according to its favourable nature to the population in general and development partners in particular. In

2

India it happened slowly, like some sectors were opened to private ownership, globalisation, liberalisation, decontrol, EXIM policies, GATT etc.

Services Defined :

There are various definitions we come across :

IN SIMPLE TERMS :

Services are Activities, Experiances, Deeds, Performances & Processes.

ADRIAN PAYNE’S DEFINITION :

A service is an activity that has an element of intangibility associated with it and which involves the service provider’s interaction either with the customers or with the property belonging to the customers. The service activity doesn’t involve the transfer or ownership of the output.

PHILIP KOTLER’S DEFINITION :

A service is any activity of benefit that one party can offer to another that is essentially intangible & doesn’t result in the ownership of anything. Its production may or may not be tied to a physical product.

Thus services are those activities which satisfy wants. Some services are offered individually while some others are offered as a supplement to a product purchased or a major service consumed by the customer. The detailed categorisation is discussed in subsequent pages.

Tangibility Spectrum :

Essentially services are intangible, but sometimes they may involve the use of some tangible goods. In such cases the title of goods doesn’t change from the service provider to the customer. But again some services do have a tangible component.

The key factor which differentiates a service from a product is its intangibility. This line of demarcation is thinning down day by day and now marketers attach a service to the product, and vice versa. Thus we see that there are four types of offer involving goods & services :

PURE TANGIBLE GOODS :

These include physical products, consumer products, consumer durables, which don’t have any service component attached to the product.

TANGIBLE GOODS WITH ACCOMPANYING SERVICES :

These goods need repair & maintenance from time to time, and the company provides after sales service to improve customer satisfaction.

MAJOR SERVICES ACCOMPANYING MINOR GOODS :

These services include a small or minor amount of goods for consumption or use. E.g. Air Travel includes foods, drinks, confectioneries, etc.

A PURE SERVICE :

These are only services where the element of intangibility & non-transfer of ownership is maintained. E.g., consultancy, teaching, medical treatment, legal advice, etc.

3

Let’s put a set of products & services in order from pure tangible goods to pure services as follows :

SALT

SOFT DRINKS

CD PLAYER

GOLF CLUBS

AUTOMOBILES

COSMETICS

TAILORED CLOTHING

FURNITURE RENTAL

FAST-FOOD OUTLETS

PLUMBING REPAIR

AD AGENCIES

HEALTH CLUB

AIRLINES

BANKING

INSURANCE

CONSULTING

TEACHING.

Characteristics of Services :

INTANGIBILITY :

The basic difference between a product & a service is their tangibility, i.e., products have tangible attributes & services have intangible attributes. Goods’ attributes can be defined, tested and measured, where as these can’t be tested for services – one can know only when he has experienced or consumed it. Also the satisfaction can be felt but not measured. Qualities of a product can be measured & maintained, but for services they can’t be done directly, but by some other subjective method like paying attention, emotional or moral support to the clients.

HETEROGENEITY :

Normally machines manufacture the physical goods which can be controlled or programmed to produce the products of similar or same quality parameters. But as the service involve persons directly, it is difficult to maintain the level of uniformity. This varies from time to time, place to place, mood to mood, condition to condition, etc. Sometimes this heterogeneity can be productively used for differentiating services for discerning & general customers.

INSEPARABILITY :

Generally, the goods are produced & stocked before selling & consumption. But, in contrast the services are consumed at the time of production, i.e., they can’t be stocked or kept on the shelf before consumption. Since, the production & consumption happen

4

simultaneously, and there is an interaction between the consumer & the marketer or its representatives, hence the provider and the service become inseparable. Thus consumers tend to relate the server (who is responsible for the serving) to the quality of the service (they are inseparable). Therefore, the service marketers try to improve the quality of the servers in their approach, courtesy, dealings, etc.

PERISHABILITY :

Certain consumables, like ripe fruits perish in the course of time if they are not consumed, and become unfit for consumption, which is a loss to the seller. Similarly, here, some kinds of services if not consumed when it is available, are lost for ever, which is a loss to the marketer. E.g., time – if not utilised can’t be stored & used at an later date. The controlling of this kind of services to prevent the opportunity lost is very complex & critical, and this can be only minimised, but not really prevented. The marketers need to consider all critical aspects & plan carefully to have the optimum utilisation of capacity for providing services.

Generic Differences between Goods & Services :

The above characteristics which differentiate goods & services are very general in nature are not strictly applicable in some cases. Some marketing gurus like C Lovelock tried to use certain other attributes to differentiate between the two, as follows :

NATURE OF THE PRODUCT :

According to L L Berry, goods can be physical objects, equipment, devices, or things where as services can be deeds, performances, activities, experiences. In most cases the market offerings are some combination of the two in different proportions. The marketers adopt different strategies for different combinations.

PROBLEMS IN QUALITY CONTROL :

The intangible nature of the services makes it difficult for the quality definition, measurement, setting standards & delivery. In fact they are all inside the mind of the consumer, which differs from person to person according to their perception. The other problem is that the quality can’t be improved once it is delivered for it gets consumed on delivery. So the marketer has to be very careful about the quality at the time of delivery.

INVOLVEMENT OF CUSTOMER IN PRODUCTION & DELIVERY :

Goods are produced & stored till some buyers buy them. In contrast most services are designed, produced & delivered in the presence of buyers according to their need & order. So not only the buyers decide the quality & other attributes of a service, they also influence or create an environment for the delivery with interaction with the servers. This may be pleasant / favourable or unpleasant / unfavourable which again tell upon the final delivery quality. To eliminate the interaction with the servers and to enhance the buyer involvement, today many automation have taken place, like ATMs, Tele banking etc.

ABSENCE OF INVENTORIES :

Services can’t be stored unlike goods, when demand is less more goods can be produced & stored to meet the increased demand at a future date. Services are not available later if they are not utilised at the time of availability. Also in case of mass or group service, the capacity can’t be exceeded.

STRUCTURE & NATURE OF DISTRIBUTION CHANNELS :

5

For the goods there are distribution channels which make them available with the buyers. But services normally don’t have one as these are consumed at the time & point of production, so this is like direct marketing of goods. The services come directly from the service provider or its franchise.

IMPORTANCE OF PROMPT SERVICE :

Time plays an important role in providing service. People don’t like to wait for the service to be delivered, and look for that elsewhere. In case of goods, the time tolerance limit is more in general.

DIFFICULTY IN EVALUATING SERVICE QUALITY :

It’s very difficult to assess or evaluate a service before consuming or experiencing it. The best method available for this purpose is to go by others who have used the service – word-of-mouth, opinion of the experiencers. But again the experience or the level of satisfaction varies from person to person, so one has to be careful in selecting.

Basic Differences Between Goods & Services :

1. Customers don't obtain the ownership of services

2. Service Products are ephemeral (transitory & perishable) and can't be inventoried.

3. Intangible elements dominate value creation.

4. Customers may be involved in the production process,

5. Other people may form part of the product.

6. There's is greater variability in operational inputs & outputs.

7. Many services are difficult for customers to evaluate.

8. The time factor assumes a great importance.

9. Distribution channels take different forms.

Categories of Services :

1. Services Industries & Companies : Healthcare, Hotels, Hospitality, Transportation, Education

2. Services as Products : Normally sold with goods as accompanying services, like gift wrapping, training & grooming

3. Customer Services : Provided to support the core product, like cars are sold along with the periodical services.

4. Derived Services : This is comparatively a new concept where any goods are always associated with some kind of service, like a pharmaceutical provides medical services, a razor provides grooming services, a computer provides information services, etc.

Classification of Services :

Now we shall distinguish between various types or classes of services. Different types of services need different marketing strategies.

DEGREE OF INVOLVEMENT OF THE CUSTOMER :

This category is based on the degree of involvement of the customer :

6

1. People processing : The customer has to be present at the place of delivery to experience or consume the service, like a training workshop, a dance class, health care, etc.

2. Possession Processing : The customer’s presence is not required but his possession or property needs to be deposited for service, like car servicing/repair, TV/VCD repair, laundry, courier service, etc.

3. Mental Stimulus Processing : Here the customer’s mental attention is required if not physical presence in order to experience the service, like career counselling, advertising, consultation & education services, etc.

4. Information Processing : In this case, data, information, knowledge are gathered & analysed for the use of the clients, like research studies, market surveys, data processing, accounting, legal services, programming, etc.

SERVICE TANGIBILITY :

Here the degree of tangibility (the tangibility spectrum) has been taken into consideration, with the same no. of classes (namely four) :

1. Highly Tangible : The service includes a physical product (highly tangible) for use during the contract period, like the cell phone or a house on rent.

2. Service Linked To Tangible Goods : These are the guaranty or warranty periods, during which the sellers provide free or subsidised service to the customer, like machines, vehicles, gadgets, etc.

3. Tangible Goods Linked to Services : Here some physical goods are given to the customer as the part of a service, like food with a train/air ticket, hotel accommodation includes morning breakfast, etc.

4. Highly Intangible : Here no products are offered as a part of the services, like hair-cuts, body-massage, cinema, etc.

SKILLS & EXPERTISE REQUIRED :

This is on the basis of the level of skills required to render a set of services, as :

1. Professional (High Skill) Services : These services require a high level of qualification & training to provide the services, like doctors, lawyers, pilots, IT professionals, etc.

2. Non-Professional (Low Skill) Services : These services don’t require any special prerequisites in skills, and can be performed by anybody with some practice, like office security guards, baby sitting, courier delivery boys, etc.

THE BUSINESS ORIENTATION OF SERVICE PROVIDER :

This kind of services depend on the business style or orientation (objective, purpose, aim) of the organisation, as :

1. Commercial Organisations (Profit Oriented) : The main objective here is to make a profit by providing service. They strive to do all that are required to earn a profit by keeping the customers satisfied.

2. Non-Profit Organisations (Service Oriented) : The main objective here is to serve the target clientele, without any motive to earn any profit. Of course money is needed for running such an organisation, and that is obtained from public donation, trust fund, or govt aid. This category includes Govt. bodies and also no-profit-no-loss (cost to cost) organisations. Schools, NGOs, welfare societies, disaster relief organisations, etc. are examples.

7

THE TYPE OF END USER :

Services can be classified by the type of consumers, who consume them :

1. Consumer Services (B2C) : This is between the service provider (the company) and the individual customer for his personal consumption, like medical treatment, fitness services.

2. Business to Business (B2B) : This is between two companies, like a company hiring another to do a market research for it.

3. Industrial Services : This is the case where a manufacturing company buys services from a service provider like supply, erection, commissioning, maintenance of the plant & machinery.

Myths about Services :

Not so long ago, the services sector grew slowly. But after the IT revolution & international trade development the growth is rapid.

1. Myth – 1 : Service is a necessary evil for manufacturing Firms : Manufacturers offer guarantee, warranty, R & M, for their products to the buyers, which people think are not productive. In the modern concept of marketing, it’s the level of customer services which attract, convert a prospect, retain a customer, have a competitive advantage.

2. Myth – 2 : The service sector is labour intensive & less productive : This is a thing of the past. With the advancement of technology, several key servers are replaced by the machine substitutes. Humans only control them, raising the no. of skilled employment. Also slowly it is felt that the comparison between the efficiency levels of two different sectors are not relevant nor prudent.

3. Myth – 3 : Service firms earn less revenue compared to other two sectors : In the earlier days when services sectors was not developed the revenues were low. Now the advent of technology, IT revolution, the service sector is widely developed and still growing. Things are really growing day by day & high-end services are added continually.

4. Myth – 4 : Growth in the service economy is linked to the public sector services : In India after independence, govt used to control most of the public services, hence there was a feeling that the growth of economy is dependent on growth of public services. But since 1980s slowly the process of privatisation started & got a boost in 1990s & the economy was opened to globalisation & liberalisation. With this slowly one by one services are taken up by private players, like banking, insurance, telecom, power, energy, road transport, hotels tourism, FIIs, etc.

5. Myth – 5 : Marketing a service is not different from marketing a product : In reality they are, because of the most important factor – Intangibility. So there is difference between marketing a “seen, felt, tested” object and an “imagined concept of an experience”

6. Myth – 6 : Growth in the service sectors eliminates jobs from the manufacturing sectors : This view has arisen in the developed countries where the industrial scenario is saturated & service sector grows. People require physical objects to satisfy their physical & psychological needs. Also most services revolve around some physical objects or they require some specific products to supplement the services, so the manufacturers are here to stay. Also the growth in service sector will generate employment which in turn create surplus purchasing power to buy more goods.

8

Developing Framework for Analysing Services :

Here we would like to group the services using the right basis to enhance the ability of the managers to solve complex problems they face in marketing services. According to C H Lovelock, the services can be categorised based on similarities in certain characteristics rather than the industries they belong, for the significant improvement in the development & implementation of marketing strategies. Let’s discuss them one by one :

1. The Type of Service : The service provider has to define & identify the target customer, and analyse what the relative position of the survive in the tangibility spectrum. The services can be tangible or intangible :

a. Tangible – when directed towards the customer or his physical possessions, like transport or courier.

b. Intangible – when directed towards the customer’s mind or his intangible possessions, like a seminar on a topic, an insurance policy for the client & his family members.

2. The Nature of Relationship shared by the Customer with the Service Organisation :

a. Long Term Association : Certain types of services are inherently long term like insurance,

b. Short Term Association : While some others are short term like beauty care.

3. The Method of Delivery : There are several methods of delivery, like :

a. The customer visits the place of service providers – Cinema,

b. The service provider visits the customer’s house – pesticide maintenance,

c. Doorstep delivery : Internet orders where the delivery is at doorstep – flowers, birthday cakes,

d. Proximity delivery : A convenient place very close to the customer’s house – ATMs.

4. Types of demand & Supply : Services have variety of demands – uniform to highly irregular. E.g., banking has reasonably smooth, where hospital surgery ward has highly fluctuating demand. Even there are services with a fixed capacity, and the service provider can’t cater to more customers, like cable operator, or fitness centres.

5. Extent of Customisation needed, & Exercise of Judgement : Customisation is changing or adjusting the nature & qualities of the service to suit different customers. Customers differ in their requirements and hence customisation is necessary. Only the extent of customisation varies from nominal to substantial. Cinema halls have the least customisation like sitting arrangement, while Lawyers & legal consultants have substantial amount of customisation to suite the particular case. Exercising judgement comes to play where in the process of service delivery the servers interacting with the customer adjust the service by applying their own judgement & deciding what is best for the customer.

Key Words :

Market, Marketplace, Product, Goods, Services, Cost, Price, Value, Tangibility, Perishability, Tangibility Spectrum, Heterogeneity, Inseparability, Inventories.

© HIMANSU S M / 20-07-2010

9

10