CHAPTER ONE

AN OVERVIEW OF SERVICE MARKETING

1.1 INTRODUCTION
A Wide variety of activities labeled as services are practiced by both profit-orientated organizations and non-
profit orientated organizations. The success of these organizations depends on delivering excellent service
quality and creating value to customers (Kasper et al., 1999:13). Defining services is therefore not a
simplistic task. Over the year’s service marketing literature has provided readers with an assortment of
service definitions.
In simple words, services are deeds, processes, and performances. But, the increasing interest in the services
sector has been accompanied by considerable disagreement and debate as to what constitutes a service
and whether service marketing is a distinctive subject area. In order to develop clarity on service as a
concept, it is desirable to look at the way various researchers and scholars have defined it over the years.
One of the first to define services was the American Marketing Association which as early as in 1960 defined
services as “activities, benefits, or satisfactions which are offered for sale, or provided in connection with
the sale of goods”. This definition took a very limited view of services as it proposed that services are
offered only in connection with the sale of goods.
The other definition which was proposed in 1963 by Regan suggested that “services represent either
intangible yielding satisfactions directly (transportation, housing etc.), or intangibles yielding satisfactions
jointly when purchased either with commodities or other services (credit, delivery, etc.)”. For the first time
services were considered as pure intan- gibles - capable of providing satisfaction to the customer and
can be marketed like tangible products.
Robert Judd defined service as “a market transaction by an enterprise or entrepreneur where the
object of the market transaction is other than the transfer of ownership of a tangible commodity”.
In 1973 Bessom proposed that “for the consumer, services are activities offered for sale that provide
valuable benefits or satisfactions; activities that he cannot perform for himself or that he chooses not to
perform for himself”.
Another definition given by Blois in 1974 says that, “a service is an activity offered for sale which
yields benefits and satisfactions without leading to a physical change in the form of a good”.
Stanton proposed a definition in 1974 and defined service as “Separately identifiable, intangible activities
which provide want satisfaction when marketed to consumers and/or industrial users and which are not
necessarily tied to the sale of a product or another service”.
Kotler and Bloom in 1984, defined service as, “any activity or benefit 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”.
Gronroos defined a service as “an activity or series of activities of more or less intangible nature that
normally, not necessarily, take place in interactions between the customer and service employees and/or
physical resources or goods and/or systems of the service provider, which are provided as solution to
customer problems”.
services are deeds, processes, and performances (Zeithaml and Bitner 1996) . Their broader definition states
that services include all economic activities whose output is not a physical product, is generally consumed at
the time it is produced, and provides added value in forms that are essentially intangible concerns of the
purchaser.
pure services are intangible but they do usually add value to, or make available, a tangible product. They do
not result in transfer of ownership and may leave only memories. (Irons, 1997:12)
A service is an act or performance offered by one party to another. Although the process may be tied to a
physical product, the performance is essentially intangible and does not normally result in ownership of any
of the factors of production.

Services are economic activities that create value and provide benefits for customers at specific times and
places, as a result of bringing about a desired change in—or on behalf of-—the recipient of the service.
The conclusion derived from the above definition is that services deal with intangible components. The
purchase of services does not necessarily result in physical transfer or ownership but still creates a bundle of
benefits during or after the service interaction or experience.
The bundle of benefits is the customers’ expectations from the service. Customers experience positive
consequences of service processes as benefits, while negative consequences are experienced as perceived
risks. The bundle of benefits and the way the services are delivered is aimed at creating customer satisfaction.
In most service processes, consumption and production of services take place at the same time. This
procedure requires interaction between the service provider and the customer to complete the service process.
The success of the service process is subsequently dependent on the success of the interaction.
1.2 CHARACTERISTICS OF SERVICE MARKETING
It is utmost important to explore the distinctive features of services, because recognition of the sespecial
characteristics will provide insights for enlightened and innovative management. One reason for the poor
quality of service levels across different service industries is that managers often tend to solve service
marketing problems with tools and techniques that are essentially meant for tangible products. It happens
because of inadequate understanding about the nature of services. As our knowledge of the characteristics of
services grows, so does our ability to deal with them from both an economic and marketing perspective.
Services have a number of unique characteristics that make them different from products.

Some of most commonly accepted characteristics are as follows:

Intangibility: The most basic and universally cited characteristic of services is intangibility, because services
are performances or actions rather than objects, they cannot be seen, felt, tasted, or touched in the same
manner that we can sense tangible goods. For example, when we buy a cake of soap, we can see, feel, smell
and use to check its effectiveness in cleaning. But, when we pay fees for a semester in the university, we are
paying for the benefits of deriving knowledge, skills and education which is delivered to us by teachers.
Teaching is an intangible service. When we travel by a plane, the benefit which we are deriving is a
service (transportation) but, it has some tangible aspects such as the particular plane in which we fly (Boeing,
Avro, Concorde, etc.) and the food and drink which are served.

The broad definition of services implies that intangibility is a key determinant of whether an offering is or
is not a service. While this is true, it is also true that very few products are purely tangible or purely
intangible. Instead, services tend to be more intangible than manufactured products, and manufactured
products tend to be more tangible than services.

Intangibility presents several marketing challenges. Services cannot be inventoried, and therefore fluctuations
in demand are often difficult to manage. It cannot be patented legally, and new service concepts can,
therefore, easily be copied by competitors. It cannot be readily displayed or easily communicated to
customers, so quality may be difficult for consumers to assess. The actual costs of a ‘unit of service’ are
hard to determine and the price/quality relationship is complex.
Implications
To help a customer picture a service prior to usage a service organization needs to provide something
tangible, e.g. computerized representation of hairstyles or a university prospectus.

Inseparability: In most cases a service cannot be separated from the person or firm providing it. A service is
provided by a person who possesses a particular skill (singer, doctor, etc.), by using equipment to handle a
tangible product (dry cleaning) or by allowing access to or use of a physical infrastructure (hotel, train, etc.).
Services are typically produced and consumed at the same time. The relationship between production and
consumption, therefore, dictates that production and marketing are highly integrated processes. The
telephone company produces telephone service while the telephone user consumes it. A plumber has to be
physically present to provide the service, the beautician has to be available to perform the massage. The
service provider and the client are often physically present when consumption takes place.

Generally, most goods are produced first, then sold and consumed. On the other hand, services are usually
sold first and produced and consumed simultaneously. Sasser observed that the firm is unable to store or
transport services, that only direct distribution is possible, thereby potentially limiting the number of markets
that firm can cover. Apart from the stress laid on ‘right place’ and ‘right time’ in case of distributing
goods, there is additional importance given to the performance of service in the ‘right way’ as well.
Another outcome of simultaneous production and consumption is that service producers find themselves
playing a role as part of the product itself and as an essential ingredient in the service experience for the
consumer.

Since services often are produced and consumed at the same time, mass production is difficult if not
impossible. The quality of service and customer satisfaction will be highly dependent on actions of
employees and the interactions between employees and customers. It is not usually possible to gain
significant economies of scale through centralization. Usually operations need to be relatively decentralised
so that the service can be delivered directly to the consumer at convenient locations. Since the customer is
involved in and observes the production process, and thus may affect (positively or negatively) the outcome
of the service transaction.
Implications
The involvement of the customer in the production and delivery of the service means that the service
provider must exercise care in what is being produced and how it is produced. The latter task will be of
particular significance. How teachers, doctors, bank tellers, lawyers, car mechanics, hairdressers conduct
themselves in the presence of the customer may determine the likelihood of repeat business.
Therefore, proper selection and training of customer contact personnel is necessary to ensure the delivery of
quality.
Heterogeneity: Since services are performances, frequently produced by human beings, no two services will
be precisely alike. The human element is very much involved in providing and rendering services and this
makes standardization a very difficult task to achieve. The doctor who gives us complete attention in one
visit may behave a little differently in next visit. The new bank clerk who encases our cheques may not
be as efficient as the previous one and we may have to spend more time for the same activity. This is despite
the fact that rules and procedures have been laid down to reduce the role of the human element and ensure
maximum efficiency. Airlines, banks, hotels, etc. have a large number of standardized procedures. Human
contact is minimal in the computerised reservation systems, but when we go to the hotel there will be a
person at the reception to hand over the key of the reserved room. The way that person interacts with us will
be an important factor in our overall assessment of the service provided by the hotel. The rooms, the food,
the facilities may be all perfect, but it is the people interacting with us who make all the difference between a
favourable and unfavourable perception of the hotel. Heterogeneity also results because no two customers are
precisely alike; each will have unique demands or experience the service in a unique way. Thus, the
heterogeneity connected with services is largely the result of human interaction (between and among
employees and customers) and all of the vagaries that accompany it.

Levitt argues that owing to the industrialisation of services, their production can no longer be viewed as
being heterogeneous. Attempts have been made to improve productivity in the service sector by
introduction of technology. Uniformity can be achieved by substituting equipment and machinery for labour.
Hostage suggested that service firms could also reduce variability by training the service providers in
appropriate responses to each customer situation. They can also monitor customer satisfaction through
suggestion and complaint system so that poor service can be detected and corrected.

Services are heterogeneous across time, organisations, and people and as a result, it is very difficult to ensure
consistent service quality. Quality actually depends on many factors that cannot be fully controlled by the
service supplier, such as the ability of the consumer to articulate his or her needs, the ability and willingness
of personnel to satisfy those needs, the presence (or absence) of other customers, and the level of demand for
the service. Because of these complicating factors, the service manager cannot always know for sure that the
service is being delivered in a manner consistent with what was originally planned and promoted.
Implications
Reducing variability involves determining the causes. It may be due to unsuitable personality traits in an
employee which are very difficult to detect at the selection stage. There is nothing much that can be done
about this except hope that the employee decides to terminate his/her employment! However, there may be
good sound reasons for variations in performance. For example, it could be due to poor training and
supervision, lack of communication and information, and generally a lack of regular support.

Perishability: Perishability refers to the fact that services cannot be saved, stored, resold, or returned. Since
services are deeds, performances or acts whose production and consumption takes place simultaneously, they
tend to perish in the absence of consumption. Goods can be stored and sold at a later date in the absence of a
customer. Services, on the other hand, go waste if they are not consumed. A seat on an airplane or in a
restaurant, an hour of a professor’s time, or telephone line capacity not used cannot be reclaimed and used
or resold at a later time.

A primary issue that marketers face in relation to service perishability is the inability to hold inventory.
Demand forecasting and creative planning for capacity utilisation are, therefore, important and challenging
decision areas. The fact that services cannot typically be returned or resold also implies a need for strong
recovery strategies when things do go wrong. Kurtz and Boone observed that the utility of most services is
short lived; therefore, they cannot be produced ahead of time and stored for periods of peak demand. The
perishability of services is not a problem when demand is steady because it is easy to staff for the service in
advance. When there are wide fluctuations in demand there should be a highly flexible production system or
idle productive capacity. Sasser has described several strategies for producing a better match between
demand and supply in a service business. On the demand side, the firm can make use of differential pricing,
cultivating non-peak demand and developing complementary services. On the supply side, for effective
matching with demand, the firm may hire part time employees to serve peak demand; peak-time efficiency
routines can be introduced, facilities for future expansion can be developed, and increased consumer
participation can be encouraged.

Implications
Fluctuations in demand characterize service organizations and may pose problems where these fluctuations
are unpredictable. Strategies need to be developed for producing a better match between supply and demand.
The above cited characteristics of services make it unique and that is why services receive special treatment
from marketers. There is general agreement that inherent differences between goods and services exist and
that they result in unique, or at least different, management challenges for service businesses and for
manufacturers that offer services as a core offering.

1.3. GOODS VS SERVICE MARKETING

The dynamic environment of services today places a premium on effective marketing. Although it's still very
important to run an efficient operation, it no longer guarantees success. The service product must be tailored
to customer needs, priced realistically, distributed through convenient channels, and actively promoted to
customers. New market entrants are positioning their services to appeal to specific market segments through
their pricing, communication efforts, and service delivery, rather than trying to be all things to all people. But
are the marketing skills that have been developed in manufacturing companies directly transferable to service
organizations? The answer is often no, because marketing management tasks in the service sector tend to
differ from those in the manufacturing sector in several important respects.

Basic Differences between Goods and Services

Every product—a term used in this book to describe the core output of any type of industry—delivers
benefits to the customers who purchase and use them. Goods can be described as physical objects or devices
and services are actions or performances. Early research into services sought to differentiate them from
goods, focusing particularly on four generic differences, referred to as intangibility, heterogeneity (or
variability), perish ability of output, and simultaneity of production and consumption. Although these
characteristics are still cited, they have been criticized for over-simplifying the real world environment

It's important to note that in identifying these differences we're still dealing with generalizations that do not
apply equally to all services. In the subsequent chapters, we classify services into distinct categories, each of
which presents somewhat different challenges for marketers and other managers. We also need to draw a
distinction between marketing of services and marketing goods through service. In the former, it's the service
itself that is being sold and in the latter, service is added—usually free of charge—to enhance the appeal of a
manufactured product. Now, let's examine each of the nine differences in more detail.
Customers Do Not Obtain Ownership Perhaps the key distinction between goods and services lies
in the fact that customers usually derive value from services without obtaining permanent ownership
of any substantial tangible elements. In many instances, service marketers offer customers the
opportunity to rent the use of a physical object like a car or hotel room, or to hire the labor and skills
of people whose expertise ranges from brain surgery to knowing how to check customers into a hotel.
As a purchaser of services yourself, you know that "while your main interest is in the final output, the
way in which you are treated during service delivery can also have an important impact on your
satisfaction.

Service Products as Intangible Performances Although services often include tangible elements—
such as sitting in an airline seat, eating a meal, or getting damaged equipment repaired—the service
performance itself is basically an intangible. The benefits of owning and using a manufactured
product come from its physical characteristics (although brand image may convey benefits, too). In
services, the benefits come from the nature of the performance. The notion of service as a
performance that cannot be wrapped up and taken away leads to the use of a theatrical metaphor for
service management, visualizing service delivery as similar to the staging of a play with service
personnel as the actors and customers as the audience. Some services, such as rentals, include a
physical object like a car or a power tool. But marketing a car rental performance is very different
from attempting to market the physical object alone. For instance, in car rentals, customers usually
reserve a particular category of vehicle, rather than a specific brand and model. Instead of worrying
about styling, colors, and upholstery, customers focus on price, location and appearance of pickup
and delivery facilities, extent of insurance coverage, cleanliness and maintenance of vehicles,
provision of free shuttle buses at airports, availability of 24-hour reservations service, hours
when rental locations are staffed, and quality of service provided by customer-contact
personnel. By contrast, the core benefit derived from owning a physical good normally comes
specifically from its tangible elements, even though it may provide intangible benefits, too. An
interesting way to distinguish between goods and services is to place them on a scale from tangible
dominant to intangible dominant.
intangible benefits, too. An interesting way to distinguish between goods and
on a scale from tangible dominant to intangible dominant.

Fig.1.2. Value added by Tangible Vs Intangible Elements in Goods and Services

Customer Involvement in the Production Process Performing a service involves assembling and
delivering the output of a combination of physical facilities and mental or physical labor. Often,
customers are actively involved in helping create the service product, either by serving themselves (as
in using a Laundromat or ATM) or by cooperating with service personnel in settings such as hair
salons, hotels, colleges, or hospitals.
People as Part of the Product In high-contact services, customers not only come into contact with
service personnel, but they may also rub shoulders with other customers (literally so, if they ride a bus
or subway during the rush hour).The difference between service businesses often lies in the quality of
employees serving the customers. Similarly, the type of customers who patronize a particular service
business helps to define the nature of the service experience. As such, people become part of the
product in many services. Managing this service encounters—especially those between customers and
service employees—is a challenging task.
Greater Variability in Operational Inputs and Outputs The presence of personnel and other
customers in the operational system makes it difficult to standardize and control variability in both
service inputs and outputs. Manufactured goods can be produced under controlled conditions,
designed to optimize both productivity and quality, and then checked for conformance with quality
standards long before they reach the customer. (Of course, their subsequent use by customers will
vary widely, reflecting customer needs and skills, as well as the nature of the usage occasion.)
However, when services are consumed as they are produced, final "assembly" must take place under
real-time conditions, which may vary from customer to customer and even from one time of the day
to another. As a result, mistakes and shortcomings are both more likely and harder to conceal. These
factors make it difficult for service organizations to improve productivity, control quality, and offer a
consistent product.

Harder for Customers to Evaluate Most physical goods tend to be relatively high in "search
attributes.”These are characteristics that a customer can determine prior to purchasing a product,
such as color, style, shape, price, fit, feel, and smell. Other goods and some services, by contrast, may
emphasize "experience attributes" that can only be discerned after purchase or during consumption
(e.g., taste, wear ability, ease of handling, quietness, and personal treatment). Finally, there are
"credence attributes"—characteristics that customers find hard to evaluate even after consumption.
Examples include surgery and auto repairs, where the results of the service delivery may not be
readily visible.

No Inventories for Services Because a service is a deed or performance, rather than a tangible item
that the customer keeps, it is "perishable" and cannot be inventoried. Of course, the necessary
facilities, equipment, and labor can be held in readiness to create the service, but these simply
represent productive capacity, not the product itself. Having unused capacity in a service business is
rather like running water into a sink without a stopper. The flow is wasted unless customers (or
possessions requiring service) are present to receive it. When demand exceeds capacity, customers
may be sent away disappointed, since no inventory is available for backup. An important task for
service marketers, therefore, is to find ways of smoothing demand levels to match capacity.

Importance of the Time Factor Many services are delivered in real time. Customers have to be
physically present to receive service from organizations such as airlines, hospitals, haircutters,
and restaurants. There are limits as to how long customers are willing to be kept waiting and service
must be delivered fast enough so that customers do not waste time receiving service. Even when
service takes place in the back office, customers have expectations about how long a particular task
should take to complete—whether it is repairing a machine, completing a research report, cleaning a
 suit, or preparing a legal document. Today's customers are increasingly time sensitive and speed is
often a key element in good service.
Different Distribution Channels Unlike manufacturers that require physical distribution channels to
move goods from factory to customers, many service businesses either use electronic channels (as in
broadcasting or electronic funds transfer) or combine the service factory, retail outlet, and point of
consumption at a single location. In the latter instance, service firms are responsible for managing
customer-contact personnel. They may also have to manage the behavior of customers in the service
factory to ensure smoothly running operations and to avoid situations in which one person's behavior
irritates other customers who are present at the same time

The difference between goods and services can be best understood from the table 1.1.

Table 1.1
Differences between physical goods and services

Physical Goods Services

A thing An activity or process
Tangible Intangible
Homogeneous Heterogeneous
Production and distribution are separated Production, distribution and consumption
from consumption. are simultaneous process.
Core value produced in factory Core value produced in buyer-seller
interactions.
Customers do not participate inCustomer may participate in the production
the
production process.
Can be kept in stock. Cannot be kept in stock.
Transfer of ownership. No transfer of ownership.

Source: Christian Gronross, Service management and Marketing, Massachusetts : Lexington

Books, 1990, p. 28.
 The Service Marketing Mix element
Marketing activity is normally structured around the ‘4 Ps’ – product, price, promotion and place.
Service product
Firstly, Service is bundle of features and benefits and secondly these benefits and features have relevance for
a specific target market. Therefore while developing a service product it is important that the package of
benefit in the service offer must have a customer’s perspective.
2. pricing
A. pricing and service characteristics
In determining the price of service, different service characteristics have impact , these are
I.pershiablity ; fluctuation in demand cannot be meet though inventory .Hotels and Airlines offering low
rates in off-season are example of how pricing strategy can be used to offset the perishable characteristics
of service.

II. Intangibility; the higher the intangibility, the more difficult it is to calculate cost and greater tendency
towards non- uniform service, such as fee of Doctors, Management consultancy, Lawyer. In such case the
price may sometimes be settled through negotiation between the buyer and seller. on the other hand in
service such as Dry cleaning , the tangible component is higher , and the service provided is homogenous . It
is easier to calculate the cost on a unit basis and have a uniform pricing policy. In general the more unique a
service, the grater the freedom to fix the price at any level. Often the price may be fixed according to the
customer’s ability to pay. In such case price may be used as an indicator of Quality.
III. The prices are subject to regulation either by the government or by trade association .bank charges,
electricity and water rates, air transportation. it helps to avoid undercutting and to maintain quality standard.
in such case , the producers has no freedom to determine his/ her own price.
3.Place / distribution
the most important decisions elements in the distribution strategy are related to
a.location of the service ; in deciding to locate your service , you should rise questions like
How important is the location of the service to customers? Will an inconvenient location lead to purchase
being postponed or being taken over by competitor? In case of dry cleaning, convenience is critical but in
case of service provided by doctors and beauty parlours where customer’s involvement with the provider of
the service is very high and the decision is made on the basis of reputation, competence and past experience.
Is service, technology –based or people based? How flexible is the service ? can the equipment and
people be moved to another location without loss in quality.
How important are complementary service to location decision? e.g. Garages and mechanic shops located
next to petrol stations.
b.Whether to sell directly to the customers or through intermediaries; in case of services which are
inseparable from the performer direct sale is best, in case of service like life insurance though middlemen.
c.How provide the service to a maximum number of customers in the most cost effective manner.
4.promotion
People
All human actors who play a part in service delivery and that influence the buyers perception ,namely the
firm personnel( performers of service) and as customer.
service personnel’s : “customers see a company though its employee
Customers: are important because they are source of influencing other customers.
physical evidence
The common element in these is that all physical, tangible and controllable aspects of a service organization.
There may be two kinds of physical evidence:
periphereral evidence : Is actually possessed as a part of the purchase of service but by itself is of no valu
Essential evidence: Whereas peripheral evidence is possessed and taken away by the customers, the essential
evidence cannot be possessed by the customers: for example
the building,
its size and design
interior layout and decor
logo , equipment etc
process
In the service organization the system by which you receive delivery of the service constitutes the process. It
is in general deals with the actual procedure, Mechanisms, and flow of activities by which the service is
delivered, or the delivery and operating system of the organization. As marketing manager you need to
manage the process to:
assesses service availability
assesses consistent quality

1.5. The Service marketing triangle

Services marketing is about promises –promises made and promises kept to customers. A strategic
framework known as the services triangle (illustrated in Figure )
Company (Management)

Internal Marketing External marketing

“Enabling the promise” “Making the promise”

Employee Customers
Interactive Marketing
“Delivering the promise”

Interactive marketing
“Delivering the promise”

Fig.1.3: The service marketing triangle

The triangle shows the three interlinked groups that work together to develop, promote, and deliver services.
These key players are labeled on the pointed of the triangle: the company (or SBU or department or
“management”), the customers; and the providers. Providers can be the firm’s employees,
subcontractors, or outsourced entities who actually deliver the company’s services. Between these three
points on the triangle, three types of marketing must be successfully carried out for a service to succeed:
external marketing interactive marketing, and internal marketing. On the right side of the triangle are the
external marketing efforts that the firm engages in to set up its customers’ expectations and make promises
to customers regarding what is to delivered. Anything or anyone that communicates to the customer before
service delivery can be viewed as part of this external marketing function. But external marketing is just the
beginning for services marketers. Promises made must be kept. On the bottom of the triangle is what has
been termed interactive marketing or real –time marketing. Here is where promises are kept or broken by
the firms’ employees, subcontractors, or agents. People are critical at this juncture. If promises are not kept,
customers become dissatisfied and eventually leave. The left side of the triangle suggests the critical role
played by internal marketing. Management engages in these activates to aid the providers in their ability to
deliver on the service promise: recruiting, training, motivation rewarding, and providing equipment and
technology. Unless service employees are able and willing to deliver on the promises made, the firm will not
be successful, and the services triangle will collapse. All three sides of the triangle are essential to complete
the whole, and the sides of the triangle should be aligned. That is, what is promised through external
marketing should be the same as what is delivered: and the enabling activities inside the organization should
be aligned with what is expected of service providers.