SERVICES AND E-MARKETING MANAGEMENT

MODULE

Compiled By:

Mr. Habtewold Amona (MA, in Marketing Management)

Mr. Atilaw Asaminew (MA, in Marketing Management)

February, 2023
Wolaita Sodo, Ethiopia

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Contents

INTRODUCTION ................................................................................................................................................... vi
Course Description ................................................................................................................................................... 1
Chapter One: Introduction to Service Marketing ..................................................................................................... 2
1.1. The Concept of Services................................................................................................................................ 2
1.2. Characteristics of Services Vs Products ........................................................................................................ 3
1.3. Rationale of Studying Marketing of Services ............................................................................................... 6
1.4. The Service Triangle ..................................................................................................................................... 7
1.5. Impact of Technology on Services ................................................................................................................ 9
1.6. Gap Model of Service Quality..................................................................................................................... 10
1.7. The Services Marketing Mix ....................................................................................................................... 12
Chapter Two: Consumer Behavior in Services ...................................................................................................... 16
2.1. Categories of Consumer Products: Search Qualities, Experience Qualities & Credence Qualities ............ 16
2.2. Consumer Decision Making Process ........................................................................................................... 17
2.3. Role of Culture in Services ......................................................................................................................... 19
Chapter Three: Customer Expectations of Services ............................................................................................... 21
3.1. Meaning and Types of Service Expectation ................................................................................................ 21
3.2. Factors that Influence Customer Expectations of Service ........................................................................... 22
3.2. Model of customer service expectations .................................................................................................... 25
3.3. Issues involved in customer service expectations ....................................................................................... 26
1. Ever-Increasing Customer Expectations .................................................................................................... 26
2. Exceeding the Customer Expectations ....................................................................................................... 27
3. Deciding the Limit for Meeting Customer Expectations............................................................................ 27
Chapter Four: Customer Perception of Service ...................................................................................................... 28
4.1. Customer perception.................................................................................................................................... 28
4.2. Concept of customer satisfaction and service quality. ................................................................................ 28
4.3. Service quality dimensions .......................................................................................................................... 30
4.4. Service Encounter or Moment of Truth....................................................................................................... 32
4.4. Strategies for influencing customer perceptions ......................................................................................... 34
Chapter Five: Building Customer Relationships .................................................................................................... 36
5.1. Concept of Relationship Marketing ............................................................................................................ 36
5.2. Goals of Relationship Marketing ................................................................................................................ 36

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 5.3. Benefits of Long-Term Relationship to Customers and Firms.................................................................... 37
5.4. Relationship Value of Customers ................................................................................................................ 38
5.5. Customer Profitability Segments................................................................................................................. 39
5.6. Levels of Relationship Strategies ................................................................................................................ 40
Chapter Six: Service Recovery............................................................................................................................... 43
6.1. The Concept of Service Recovery ............................................................................................................... 43
6.2. Importance of Service Recovery ................................................................................................................. 44
6.3. The Service Recovery Paradox ................................................................................................................... 44
6.4. Customer Complaint.................................................................................................................................... 45
6.5. Types of Customer Complaint Actions ....................................................................................................... 45
6.6. Service Recovery Strategies ........................................................................................................................ 46
6.7. Service Guarantees ...................................................................................................................................... 47
Chapter Seven: Service Design and Development ................................................................................................. 49
7.1. Challenges of Service and Design ............................................................................................................... 49
7.2. New Service Development .......................................................................................................................... 49
7.3. Types of New Services ................................................................................................................................ 50
7.4. Stages in New Service Development .......................................................................................................... 51
7.5. Service Blueprinting .................................................................................................................................... 55
7.6. Quality Function Deployment ..................................................................................................................... 56
Chapter Eight: Delivering and Performing Service................................................................................................ 57
8.1. Employee’s Role in Service Delivery ......................................................................................................... 57
8.2. Roles of Customers in Service Delivery ..................................................................................................... 58
8.3. Strategies for Enhancing Customer Participation........................................................................................ 59
8.4. Concept of Service Intermediaries .............................................................................................................. 60
8.5. Common Issues Involving Intermediaries ................................................................................................... 61
8.6. Concept of Electronic Channels and Its Challenges in Service Industry .................................................... 62
8.7. Strategies for Effective Service Delivery through Intermediaries............................................................... 64
Chapter Nine: Integrated Services Marketing Communications (IMC) ................................................................. 66
9.1 Concept of Integrated Marketing Communication ....................................................................................... 66
9.2. Reasons for Service Communication Problems .......................................................................................... 67
9.3. Strategies to Match Service Promises with Service Delivery ..................................................................... 68
9.4. Concept of Customer Expectations ............................................................................................................. 69
9.5. Managing Internal Marketing Communication ........................................................................................... 69

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Chapter Ten: Pricing of Services............................................................................................................................ 71
10.1. Concept of Value to Customers................................................................................................................. 71
10.2. Role of Price as an Indicator of Service Quality ....................................................................................... 71
10.3. Approaches to Pricing Services ................................................................................................................. 71
10.4. Strategies Used by Companies to Price Services ...................................................................................... 72
Chapter Eleven: Services Differentiation, Quality And Productivity .................................................................... 74
11.1. Improving Service Differentiation ............................................................................................................ 74
11.2. Concept of service quality ......................................................................................................................... 75
The 5 Service Quality Components.................................................................................................................... 75
2. Service Quality Tangibility ........................................................................................................................ 75
3. Responsiveness........................................................................................................................................... 76
4. Service Quality Assurance ......................................................................................................................... 76
5. Empathy ..................................................................................................................................................... 76
11.3. The Gap model .......................................................................................................................................... 77
Service Quality Gaps .......................................................................................................................................... 77
Improving Service Quality: The actual steps required to improve service quality will depend on the specific
situation, but they can be grouped into three categories: understanding, performance, and communication. .... 78
11.4. Measuring& improving service quality ..................................................................................................... 79
Measuring Service Quality ................................................................................................................................. 79
11.4. Defining and Measuring Productivity ....................................................................................................... 80
11.4. Improving Service Productivity ................................................................................................................ 82
Chapter One: Overview of Electronics Commerce ................................................................................................ 87
1.0. Introduction ................................................................................................................................................. 87
1.1. Doing commerce on the Internet (E-Commerce) ........................................................................................ 91
1.2. The scope of internet and the Web .............................................................................................................. 95
1.3. Using web to reach customers ..................................................................................................................... 97
1.4. Merits of E-Commerce Environment ........................................................................................................ 100
Chapter Two: Internet Marketing Environment ................................................................................................... 103
2.0. Introduction ............................................................................................................................................... 103
2.1. Basic forms of virtual business ................................................................................................................. 103
2.1.1. Business –to –consumer (B2C) electronics commerce ...................................................................... 103
2.1.2. Business to Business (B2B) electronic commerce ............................................................................. 104
2.1.3. Consumer to Business (C2B) business model .................................................................................... 107
2.1.5. Business to Government (B2G) business model ................................................................................ 107

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 2.2. Business Models in Emerging E-commerce areas .................................................................................... 108
2.2. 1. Consumer to Consumer (C2C) business model ................................................................................. 108
2.2.2. Peer- to –Peer (P2P) business model .................................................................................................. 109
2.2. 3. M-Commerce Business Model .......................................................................................................... 110
2.3. Internet demographics and internet villages .............................................................................................. 110
2.3.1. Internet demographics ........................................................................................................................ 110
2.3.2. The internet village ............................................................................................................................. 111
Chapter three: Online Business Strategies ........................................................................................................... 112
3.1. Introduction ............................................................................................................................................... 112
3.2. Internet Presence ....................................................................................................................................... 114
3.3. Direct selling Model .................................................................................................................................. 115
3.4. Internet Retailing ....................................................................................................................................... 117
3.5. Internet Marketplaces ................................................................................................................................ 119
CHAPTER FOUR: Internet Marketing Objectives and Strategies ..................................................................... 122
4.1. Introduction ............................................................................................................................................... 122
4.1. Product strategies on internet .................................................................................................................... 122
4.2. Price strategy ............................................................................................................................................. 127
4.3. Promotion/communication ........................................................................................................................ 132
4.4. Placement/Distribution Strategy................................................................................................................ 138
4.5. On line community .................................................................................................................................... 139
4.6. Online Branding ........................................................................................................................................ 144
Chapter Five: Mobile Electronic Commerce ....................................................................................................... 146
5.1. An Overview of M-commerce .................................................................................................................. 146
5.2. Wireless Industry....................................................................................................................................... 147
5.3. Wireless communication platform ............................................................................................................ 147
5.4. Wireless WANS ........................................................................................................................................ 148
5.5. Facilitators of a wireless Environment ...................................................................................................... 149
5.6. Concerns for Mobile Enterprise ................................................................................................................ 150
Chapter six: E-Commerce Payment Systems ....................................................................................................... 152
Learning objectives: ......................................................................................................................................... 152
6.0. Introduction ............................................................................................................................................... 152
6.1. Payment Systems ....................................................................................................................................... 152
6.2. Credit Card E-commerce Transactions ..................................................................................................... 153

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 6.3. E-commerce B2C Payment Systems ......................................................................................................... 156
6.4. E-commerce B2B Payment Systems ......................................................................................................... 157
Chapter seven: E-commerce Security and Controls ............................................................................................. 159
7.1. The Internet and Public Policy .................................................................................................................. 159
7.2. Privacy and Security Issues ....................................................................................................................... 160
7.3. Legal, social and Political Issues in e-commerce ...................................................................................... 161
Reference .............................................................................................................................................................. 164

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INTRODUCTION
It is quite obvious that in developing countries, like Ethiopia, the education sector suffers from serious
shortage of teaching materials. As per the directives of the government, the Ministry of Education has
been working on a strategy to implement national exit examination for undergraduate programs
beginning from the 2015 E.C (2022/23 G.C). To achieve the desired national objectives and produce a
graduate that fit for the current market, competency based evaluation of a student become crucial.
Therefore; it is important to develop modules with their respective themes that may help the students
capture the required knowledge, skill and attitude set of competencies for the program in their learning
process. Accordingly, this module is prepared by Wolaita Sodo University, Department of Marketing
Management, based on the identified competency focus areas and selected courses in National Exit
Examination Document (NEED) in the program of marketing management. It is developed on two
selected core courses (i.e. Service and Electronics marketing management) to help students achieve
knowledge, skill and attitude competencies in Service and E-marketing theme identified areas. The
main objective of preparing this module is to support first-degree graduates meet the graduate profile of
the curriculum in the area of service and E-marketing management. Specifically, it helps graduates of
B.A. degree in Marketing Management to be able to pass national exit exam and apply the marketing
concepts, theories and tools in different service organizations and in online marketing programs.

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 PART I
SERVICE MARKETING MANAGEMENT COURSE
Course Description
The course services marketing generally introduce students to cutting-edge coverage of services
marketing. The foundation of this course is the recognition that services present special challenges that
must be identified and addressed. It will examine marketing in industries that deal primarily in services
but also from the perspective of all organizations, in recognition of the fact that service is an integral
part of the offering of every company and organization, regardless of the sector in which it operates. In
this course, an attempt is made to explore the nature of services, consumer behavior in services,
expectation and perception of services, building customer relationships, service recovery, pricing,
integrated services marketing communications, distribution of services, designing the service
environment, and service differentiation, integrated gaps model of service quality, and productivity,
more specifically in the context of service industries. To this end, the course ensures the fact that
successful marketing of services and delivery of excellent services are critical element in the
development of customer satisfaction and the long term success of an organization.
Objectives of the Course
The main objective of this course is to equip students with in-depth knowledge to manage logistics
activities.
After the successful accomplishment of the course the learner should:
 Explain what services are and identify trends in the service sector.
 Construct a flow chart identifying the service processes from the customer and provider perspectives.
 Understand the value of customer loyalty, customer retention and service recovery.
 Explore the profound impact of technology on service.
 Outline the basic differences between goods and services and the resulting challenges for service
businesses.
 Introduce the expanded marketing mix for services.
 Understand and apply aspects of productivity, quality and service delivery.
Identify strategies and key success factors to enhance the effectiveness of services marketing and measure
services performance.

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 Chapter One: Introduction to Service Marketing
CHAPTER OBJECTIVES

At the end of this chapter, students should be able to do the following:

 Understand the Concept of Services
 Outline the difference between Service and Physical goods
 Discuss the Reasons for Growth of Service Sector
 Understand the Basic Concepts of Services Triangle
 Explore the Impact of Technology on Services
 Examine the Gaps Model of Service Quality
 Discuss Service Marketing Mix
1.1. The Concept of Services
Economists have divided all industrial and economic activities in to three main groups: Primary,
secondary, and tertiary. Primary activities include agriculture, fishing and forestry. Secondary activities
cover manufacturing and construction; tertiary activities refer to the services and distribution. In the
pre-industrialized era, primary activities were the main stay of the economy. The industrial Revolution
marked the beginning of increasing importance of secondary activities and the gradually decreasing the
status of agriculture and allied activities. The period following World War II saw USA become the
world’s first “service economy”. The term service is rather general in concept, and it includes a wide
variety of services. Faced with such a broad spectrum we need to define the concept of service from a
marketing view point. Kotler offers one such definition: a service is 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 physical product. W. J. Stanton views services as fulfilling
certain wants and states that “services are those separately identifiable, essentially intangible activities
which provide want-satisfaction and are not necessarily tied to the sale of a product or another service.
In common services have the following characteristics
 services are performed, not produced
 services are more people-based than technology- based
 services supply cannot be easily changed to meet the suddenly changed market needs
 service demand has greater elasticity

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  services face unique quality control issues and a larger number of problems in customer
servicing
 service quality is an amalgam(combination ) of services
WWII marked a milestone in the explosive rise of service industries. at the end of the war major
social and economic changes transformed western economies.
Philip Kotler has distinguished four categories of offer, varying from a pure good to a pure service:
 A pure tangible good such as soap, tooth paste or salt. no services accompany the product
 a tangible good with accompanying services to enhance its consumer appeal. computers are
an example
 A major service with accompanying minor goods and services such as first class airline
travel
 a pure service like baby-sitting and psychotherapy.
This categorization starts to make it clear why it is difficult either to define or generalize about services.
Services vary considerably over a range of factors, including whether they are directed at businesses or
individual consumers; whether they require a customer’s physical presence; and whether they are
equipment intensive or people intensive (involve).
1.2. Characteristics of Services Vs Products
Services have a number of unique characteristics that make them so different from products. Some of
the most commonly accepted characteristics are:
A. Intangibility
When you buy soap, you can see, feel, touch, smell and use it to check its effectiveness in cleaning. But
when you pay fees for a term in college, you are paying for the benefit of deriving knowledge and
education which is delivered to you by teachers. In contrast to the soap where you can immediately
check its benefits, there is no way you can do so in case of the teachers who are providing you the
benefits.
The distinguishing feature of a service is that its intangible aspect is dominant. J.Bateson has described
the intangible characteristics of services which make them distinct from products. These intangible
features are:
 a service cannot be touched
 precise standardization is not possible
 there is no ownership transfer

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  a service cannot be patented
 production and consumption are inseparable
 there are no inventories of the service
 middlemen role are different
 the consumer is part of the production process so the delivery system must go to the market or
the consumer must come to the delivery system
B. 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) by using equipment to handle a tangible product (
dry cleaning or by allowing access to or use of physical infrastructure ( hotel, train). A plumber has to
be physically present to provide the service; the beautician has to be available to perform the message.
This is in direct contrast to products which can be produced in the factory today, stocked for the next
two, three or more months and sold when an order is procured.
C. Heterogeneity
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 gave you his complete attention in your
last visit may behave a little differently the next time. The new bank clerk who cashed your cheques
may not be as efficient as the previous one and you 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, restaurants, banks, hotels have large number of
standardized procedures.
D. Perishability
Services cannot be stored and are perishable. a car mechanic who has no cars to repair today or unsold
seats in a cinema hall represent a service capacity which is lost forever. Apart from the fact that a
service cannot fully utilized represents a total loss, the other dimension of this perishability aspect is
that most services may face a fluctuating demand. There is a peak demand time for buses in the
morning and evening (office hours). Certain train routes are always more heavily booked than others.
This fluctuating demand pattern aggravates the perishability characteristics of services.

E. Ownership

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 When you buy a product you become its owner- be it a pencil, book, shirt, refrigerator or car. in the
case of a service, you may pay for its use but you never own it. by buying a ticket you can see the
evening film show in the local cinema theater; by paying wages you can hire the services of a chauffeur
who will drive your car; by paying the required charges you can have a marketing research firm survey
in to the reasons for you product’s poor sales performance, etc. in case of a service, the payment is not
for purchase, but only for the use or access to or for hire of items or facilities.
A service is purchased for the benefit it provides. If we closely examine the reasons why products are
purchased, we find that they are bought because they provide certain intangible benefits and
satisfactions. From a marketing view-point, the same concepts and techniques are applicable for both
products and services.
Table 1.1: Differences between Physical Goods and Services
P h y s i c a l G o o d s S e r v i c e s

A t h i n g A n a c t i v i t y o r p r o c e s s

T a n g i b l e I n t a n g i b l e
H o m o g e n e o u s H e t e r o g e n e o u s

Production and distribution are separated from consumption. Production, distribution and consumption are simultaneous process.
Core value produced in factory Core value produced in buyer-seller interactions.
Customers do not participate in the production process. Customer may participate in the productio n
C a n b e k e p t i n s t o c k . C a n n o t b e k e p t i n s t o c k .
T r a n s f e r o f o w n e r s h i p . No t r a ns f er of o wn e rs h i p .

Table 1.2: Implication of Service Characteristics and ways of overcoming them

Service Characteristics I m p l i c a t i o n s Means of overcoming Characteristics

1. 1Intaangiabi lit y  S a m p l i n g d i f f i c u l t  Focus on benefits

  Use brand names
Difficult to judge quality and value in advance
 Not possible to patent or have copy right  Personalize service
 Relatively difficult to promote  Develop reputation
 Increase tangibility ( e.g. its physical repre
2. I n s e p a r a b i l i t y  Requires presence of performer/producer  Learn to work in larger groups

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  Direct sale  Work faster
 Limited scale of operations  Train more service performers
 Geographical limited market
3. H e t e r o g e n e i t y  Difficult to standardize quality  Careful selection and training of personnel
 Define behavioral norms
 Reduce role of human element
 Mechanise and automate maximum possib
4. P e r i s h a b i l i t C
y a n n o t b e s t o r e d
 Problem of demand fluctuation
5. O w n e r s h i p  Cus tme r has ac cess to b ut not ow ne rs hip of fac ility or ac tivit y  Stress advantages of non-ownership such as easier payment scheme

1.3. Rationale of Studying Marketing of Services

There are various reasons for the growth of the service sector. These can be divided in to demographic,
social, economic, political and technological changes
A. Demographic Changes
The study of population reveals a general increase in the world population, high birth rate has give
scope for childcare centers, education institutions etc. as the baby boom generation began entering its
years of prime capacity in the late eighties, it became a prime target for a variety of services- fast food,
entertainment etc. the considerable increase in life expectancy indicated expanding market in the age
group over 55 years-this has created a new market for health care, leisure and tourism. There has been a
movement of population from rural to urban areas for over century, and also shift from city to suburbs.
This again causes the need for infrastructures and support services.
B. Economic Changes
The growth of corporate market and stock market is usually an indicator of growth of an economy.
With an overall economic liberalization, resource mobilization through capital market has reached
unprecedented heights. The growth of large firms has brought about greater dependence on special
service providers like market research, and advertising agencies. The economic reforms have ushered
consumerism. Moreover, there have been changes in the consumer purchasing power and spending
patterns with middle class explosion which is now emerging as the ‘consumption community’
C. Political and Legal Changes

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De-regulation has opened many service industries (airlines, banking) to more intense competition
generating greater innovation and expansion. At the same time, many countries continue to strengthen
consumer protection laws to improve public security and to protect the environment.
To increase in government interaction in the trade sector has increase trade relationships between
nations leading to development tourism and hotel industry.
Trading blocs such as North American Free Trade Agreements (NAFTA), European Common Market,
etc
D. Social Changes
The increase in single person household, smaller families and working women mean more discretionary
income, more time for travel and entertainment and also need for child care services. Changing life
styles of the masses due to cultural exchange and communication networks has resulted in continued
emphasis on services.
E. Technological Changes
Recent development in computer science and information technology has brought about convergence of
various technologies like telecommunication, entertainment, and data transmission. The influence of
internet has resulted in creasing mobility of educated labor force among countries, and paradigm shift
in many service industries like travel, banking, education, financial services, insurance etc.
Classification of Services
Classifying a service offers several benefits, such as:
 providing a better understating of the particular service under consideration,
 highlighting the similarities as well as the differences between the service being classified and
other services, and
 Assisting in the development of marketing strategies and tactics.
Services in the same categories will face the same types of challenges and the same marketing strategy
will normally work for all services in a given category. However application of the strategy may have
some variation within each category. The same is true for marketing activities such as promotion,
1.4. The Service Triangle
The total marketing in services includes three different types of marketing. These are:
 External Marketing
External marketing goes from your business organization out to customers and prospective customers.
This is the traditional form of business marketing, showing customers how the services provided by

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your business benefit them. External marketing includes advertising, your website and your company's
social media efforts. The purpose of external marketing is to fill the business pipeline with future
business.
 Interactive Marketing
The side of the triangle between your employees and customers is called interactive marketing. This
form of marketing revolves around how your employees deliver the services your company provides.
The goal is to have highly satisfied customers who become long-term, repeat customers. The
effectiveness of the interactive marketing relates back to the internal marketing efforts of your business.
Interactive marketing is also how your employees keep the promises made by your external marketing
efforts.
 Internal Marketing
Internal marketing is the side of the triangle between your organization and your employees who
provide your services to customers. Marketing issues include adequate training on the services to be
delivered and customer satisfaction service techniques. Internal marketing requires you to be involved
with your employees and let them know the goals and even problems facing the business. Internal
marketing also can include a performance rewards system for employees who deliver the highest level
of customer service.

As can be seen from the triangle, the traditional marketing mix and marketing departments basically
address to “External Marketing” only. However, all three sides are critical to successful services
marketing and the triangle cannot be supported in the absence of any one of the sides

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1.5. Impact of Technology on Services
Technology, in particular information technology, has influenced the nature of services themselves,
how they are delivered, and the practice of service innovation and service management. Here we
overview just a few of these basic changes and trends by identifying some key themes. We will weave
these general themes re-lated to technology and service throughout our discussion of the individual
service quality gaps and strategies to close them.
1. Inspiring Service Innovation
Technology has been a basic force behind many service innovations now taken for granted, such as
automated voice mail, interactive voice response systems, Internet-based services, and various smart
services for example the “connected car,” smart meters for monitoring energy consumption, and remote
health monitoring services. Internet-based companies like Amazon, e-Bay, and Second Life have
sprung up, offering radically new services for consumers. And, established companies have developed
brand new services based on information technology. For example, the Wall Street Journal offers an
interactive edition that allows customers to organize the newspaper’s content to suit their individual
preferences and needs. Advances in information technology are also making it possible for entire suites
of services including phone, Internet, video, photography, and e-mail to be available through one
device such as the iPhone and similar products.
2. Providing Options for Service Delivery
Technology is also providing new opportunities for delivering existing services in more accessible,
convenient, and productive ways. Technology facilitates basic customer service functions (bill paying,
answering questions, checking account records, tracking orders), purchase transactions (both retail and
business-to-business), and learning or information seeking. Over the past few decades, companies have
moved from face-to-face service to telephone-based service to widespread use of interactive voice
response systems to Internet-based customer service and now to wireless service. Technology also
facilitates transactions by offering a direct vehicle for making purchases and conducting businesses.
Finally, technology provides an easy way for customers to learn, do research, and collaborate with each
other. Access to information has never been easier. For example, more than 20,000 websites currently
offer health-related information, resulting in consumers having increasing involvement in their health
decisions and care.

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 3. Enabling Customers and Employees
Technology enables both customers and employees to be more effective and productive in receiving
and providing service. Through self-service technologies, customers can now serve themselves more
effectively. Via online banking, for example, customers can access their accounts, check balances,
apply for loans, and take care of just about any banking need they might have—all without the
assistance of the bank’s employees. These online banking services are just one example of the types of
self-service technologies that are proliferating across industries. For employees, technology can provide
tremendous support in making them more effective and efficient in delivering service. Customer
relationship management, sales support, and product information software are broad categories of
technology-based information that can aid frontline employees in providing better service. These types
of software also allow employees to customize and co-create services to fit customer needs.
4. Expanding Global Reach
Technology also results in the potential for reaching out to customers around the globe in ways not
possible when, in the not-so-distant past, services were limited to local provision. The Internet itself
knows no boundaries, and therefore information, customer service, and transactions can move across
countries and across continents, reaching any customer who has access to the Web. Technology also
allows employees of international companies to stay in touch easily—to share information and serve on
virtual work team together, thus allowing employees to work remotely and services to be provided by
global workers.

1.6. Gap Model of Service Quality

The Gap model of service quality was developed by Parasuraman, Berry and Zeithaml (1985), and
more recently described in Zeithaml and Bitner (2003). It has served as a framework for research in
services marketing, including hospitality marketing, for over two decades. The model identifies four
specific gaps leading to a fifth overall gap between customers.’ expectations and perceived service
The five gaps
Customers have expectations for service experiences and they use them to measure against the
perceived service performance in their judgment of service quality. It is essential, then, that managers
determine what those expectations are when designing the service. The first gap in service quality
occurs when management fails to accurately identify customer expectations. It is referred to as the
knowledge gap. Specifically, it is the difference in customer expectations and management’s perception
of customer expectations. Hotel managers, for instance, must know and understand what their guests

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expect from their stay, including all tangibles (the room, amenities, lobbies features) and intangible
components (availability of additional services, ease of check-in and check-out procedures). The size of
the gap is dependent on:
 the extent of upward communication (from customers to top management),
 the number of layers of management,
 the size of the organization,
 And most importantly, the extent of marketing research to identify customer expectations.
 The second gap is referred to as the design gap. It is measured by how well the service design
specifications match up to management’s perception of customer expectations. The extent of this gap is
dependent on management’s belief that service quality is important and that it is possible, as well as the
resources that are available for the provision of the service. A restaurant manager may understand
customer expectations for being served within 20 minutes of ordering, but may not have the resources
or the Gap 3 represents the variation in service design and service delivery. Known as the performance
gap, its extent is a function of many variables involved in the provision of service. Since individuals
perform the service, the quality may be affected by such factors as skill level, type of training received,
degree of role congruity (agreeability) or conflict, and job fit. Some service providers (i.e. waiters,
front-desk staff) do not have a high service inclination (tendency to do), despite training. Service
recovery efforts along with extent of responsibility and empowerment also affect the size of this gap.
The process is further complicated by the customer’s participation in the service encounter. A customer
may make a special request for a room type different from the one originally reserved, or request a
menu item after the initial order has been completed, making it more difficult to perform the service as
intended.
The fourth gap is called the communications gap. It is the difference between what is promised to
customers, either explicitly or implicitly, and what is being delivered. Hospitality companies use
advertising, personal selling, and sales promotion to inform, persuade, and remind guests about its
products and services. Showing beautifully appointed hotel rooms, refreshing swimming pools and
luxurious lobby areas in an advertisement communicates to the target customers. The extent of
communications between the company and the advertising agencies will affect the size of the gap.Over-
promising is commonly responsible for the communication gap. Each gap has a cumulative effect from
the preceding gaps.

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Gap 5 is the total accumulation of variation in Gaps 1 through 4 and represents the difference between
expectations and perceived service. Furthermore, consumers evaluate perceived service along five
quality dimensions.

1.7. The Services Marketing Mix

Companies are competing strategically through service quality for greater differentiation in today's
competitive marketplace. Successful companies focus on the services-dominant paradigm with
investment in people, technology, human resources policies, and compensation linked to service
performance of employees. This is important because contact employees’ attitudes and behaviors
significantly influence the quality of service. They present the “face and voice” of their organizations to
customers.

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The 4Ps marketing mix which represents Product, Process, Pricing and Promotion, have been most
widely employed as a model for product marketing. It shows the company preparing an offer mix of the
product and price, with an integrated promotion mix to reach the target consumers through the selected
distribution channels. The 4Ps of marketing have been the key areas where marketing managers
allocate scarce corporate resources to achieve the business objectives. Services have unique
characteristics: intangibility, heterogeneity, inseparability and perishability. To discern the differences
between services and physical products, Booms and Bitner suggested the extension of the 4Ps
framework to include three additional factors: People, Physical evidence and Process as marketing mix
variables for services marketing:
(i) People refer to all people directly or indirectly involved in the consumption of a service,
Example employees or other consumers,
(ii) Physical evidence that related to the environment in which the service is delivered, and the tangibles
that help to communicate and perform the service, and
(iii) Process is the delivery and operating systems of procedures, mechanisms and flow of activities
which services are consumed. The additional 3Ps has gained widespread acceptance in the services
marketing literature. The 3Ps together represent the service and provide the evidence that makes
services more tangible.
i) 3Ps of Services Marketing - People
In Booms and Bitner’s 7Ps services marketing framework, people are all people directly or indirectly
involved in the service encounter, namely the firm's contact employees, personnel and other customers.
Due to the inseparability of production and consumption for services which involves the simultaneous
production and consumption of services, service firms depend heavily on the ability of contact
employees to deliver the service. Contact employees contribute to service quality by creating a
favorable image for the firm, and by providing better service than the competitions.
Service providers (such as hair stylists, personal trainers, nurses, counselors and call centre personnel)
are involved in real time production of the service. They are the “service”. Much of what makes a
service special derives from the fact that it is a lived-through event. Service firms must find ways in
which they can effectively manage the contact employees to ensure that their attitudes and behaviors
are conducive to the delivery of service quality. This is especially important in services because
employees tend to be variable in their performance, which can lead to variable quality i.e. heterogeneity
in the performance of services. The quality of a service (a visit to a hospital for medical check-up,

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having a meal at the restaurant, accountancy and consulting services) can vary from service providers
and customers among many other factors. This lack of homogeneity in services creates difficulties for
the service firms. As delivery of services occurs during interaction between contact employees and
customers, attitudes and behaviors of the service providers can significantly affect customers
‘perceptions of the service. This is important, because customers' perceptions of service quality and its
value can influence customer satisfaction, and in turn, purchase intentions.
ii) 3Ps of Services Marketing – Physical Evidence
Physical evidence refers to the environment in which the service is assembled and in which the seller
and customer interact, combined with tangible commodities that facilitate performance or
communication of the service. The physical evidence of service includes all the tangible representations
of service such as brochures, letterhead, business cards, reports, signage, internet presence and
equipment. For example, in the hotel industry, the design, furnishing, lighting, layout and decoration of
the hotel as well as the appearance and attitudes of its employees will influence customer perceptions of
the service quality and experiences. Because of the simultaneous production and consumption of most
services, the physical facility i.e. its service scape can play an important role in the service. For theme
park, restaurant, health club, hospital or school, its service scape is critical in communicating about the
service and making the entire customer experience positive.
The “services cape” illustrates how three physical environment dimensions (ambient conditions,
space/function and signs, symbols and artifacts) provide a means of understanding environment-
participant relationships in service systems. As services are intangible, customers are searching for any
tangible cues to help them understand the nature of the service experience. The more intangible
dominant a service is, the greater the need to make the service tangible. Credit cards are another
example of the use of tangible evidence that facilitates the provision of (intangible) credit facilities by
credit card companies and banks. In fact, the physical environment is part of the product itself. In
summary, physical evidence serves as a visual metaphor of what the company stands for, and facilitates
the activities of customers and employees experience.
3Ps of Services Marketing - Process
Process is referred to the procedures, mechanisms and flow of activities by which the service is
delivered i.e. the service delivery and operating systems. The process of travelling with a budget airline
is very different from that with a full-fledged premium airline. Because services are performances or
actions done for or with the customers, they typically involve a sequence of steps and activities. The

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combination of these steps constitutes a service process which is evaluated by the customers.
Furthermore, in a service situation customers are likely to have to queue before they can be served and
the service delivery itself is likely to take a certain length of waiting time. It helps if marketers ensure
that customers understand the process of acquiring a service and the acceptable delivery times. Creating
and managing effective service processes are essential tasks for service firms. Managing the process
factor is essential due to the perishability of services which means that services cannot be inventoried,
stored for reuse or returned. Hotel rooms not occupied and airline seats not purchased cannot be
reclaimed. As services are performances that cannot be stored, it is a challenge for service businesses to
manage situations of over or under demand.
Another distinctive characteristic of the service process that provide evidence to the customer is the
standardized or customized approach based on customer’s needs and expectations. Since services are
created as they are consumed, and because the customer is often involved in the process, there are more
opportunities for customizing the service to meet the needs of the customers. The first concerns the
extent to which the characteristics of the service and its delivery system lend themselves to the scope of
customization; the second relates to the extent of flexibility the contact employees are able to exercise
in meeting the needs of the customers. As services are dynamic and experiential, frequently co-
produced in real time by customers and employees

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 Chapter Two: Consumer Behavior in Services
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Search qualities, experience qualities and credence qualities of
Services
 Discuss the Decision Making Roles
 Explain the Consumer Decision Making Process
 Identify Factors Influencing Buyer Behavior in the case of Services
2.1. Categories of Consumer Products: Search Qualities, Experience Qualities & Credence Qualities
All marketing activities are directed towards consumers, as they initiate production of goods/services.
The ultimate success of all economic activities depends on producing what the buyer considers suitable.
Since long before recorded history, the buyer had some freedom of rejecting or accepting the product or
service of the seller. They purchase goods/ services based on their mental and economic forces. The
mental force creates desires and wants to satisfy pride, fear, love, fashion, etc. and economic forces
(purchasing power) which may decide the buying pattern to choose between those wants and select
according to priority of consumption. Thus, the marketers task is to find-what, when, where, how and
from whom the consumers decide to purchase goods and services.
The purpose of marketing research is to gain insight into the process and critical factors that influence
the decision making of the consumer.
The difference between characteristic of goods and services
There are three basic attributes on the basis of which the differentiation of evaluation of goods and
services tale place. They are search, experience and credence (SEC) as explained below.
1. Search qualities: This is characteristics that can be estimated before purchase or consumption of
a product. This is the quality on the basis of which some goods/services can be searched. Goods
have higher degree of this search quality as compared to services.
 For goods it can be all physical attributes like, price, color, design, looks, style, shape, size,
etc. so they are easy to search.
 For services this can be price, Convenience, presentation, promptness of service, ambience,
mannerism, courtesy, etc. here these are not easy to search, so other factors like tangibility
are used for help in searching.

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 2. Experience qualities: This quality of goods and services are those which can only be assessed
after purchase, utilization, use/consumption I.e. after experience. Services have higher
experience attributes than goods.
3. Credence qualities: There are certain attributes of goods and services that cannot be assessed
even after use/utilization/consumption. Because the customers lack certain ability to analyze or
estimate them, like the effect of some nutritious food/vitamin. Example some health service
provider may claim that the food contains organically produced fertilizers-but there is no way to
ascertain it. However, when services are offered by experts, professionals, specialists, it creates
credence for the services.
2.2. Consumer Decision Making Process
To develop effective marketing strategies, we must understand how people think and make decisions
about buying and using a service; and what the experience of service delivery and consumption is like
for customers, and how they evaluate that experience. A person's decision to buy and use a service
reflects arousal of an underlying need.
The buyer behavior is a process involving a series of related and sequential stages or activities. The
process begins with the discovery or recognition of an unsatisfied need or want. This becomes a drive.
Consumers begin a search for information followed by evaluation of alternatives and purchase decision.
In the post purchase behavior, the consumer evaluates the purchase and the satisfaction he derives. The
major difference between goods and services is that the greater portion of evaluation of services
succeeds purchase and consumption than in the case of the goods. The intangible nature of service and
the general inability of the consumer to check quality of a service until it is used/consumed adds to the
importance of understanding the decision and evaluation process.

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 1. Need/problem recognition
The buying process begins with the buyer recognizing a problem or a need. The need may be triggered
by internal or external stimuli. The internal stimuli consist of one’s normal needs such as hunger and
thirst. From past experience the person learns to cope with this drive and is motivated towards a class
of objects that will that satisfy the drive. The need can be triggered by external stimuli. A person
passing a bakery and seeing freshly baked bread stimulates his/her hunger. The marketer must identify
the stimuli, which induce interest and develop marketing programmes based on the stimuli. This close
knowledge of consumers can be found through marketing research.
2. Information search
Aroused needs can be satisfied promptly only when desired service is not only known but also easily
available. When consumers are not aware of the type of the service that can best satisfy the need, how
and where it can be secured, the will have to search for relevant information. The consumer can get
this information from many personal sources like family, friends, reference groups, their past
experience with the service firm, etc.
The service marketer thus identifies effective source of information and the importance of each source
as it is critical in preparing effective communication to target customers.
3. Evaluation of alternatives
With the availability of information the consumer evaluates the alternative service that satisfies his
needs. The basic elements in the process of evaluation are distinctive service features, image of the
service provider, quality and price. In the case of the service the alternatives available are similar than
goods, because brand choice in the service is limited, quality of the service can only be experienced

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While evaluating alternatives for purchase decision, research indicates that the customers rank in the
order of importance the factors that contribute towards purchase decision. For example the choice of
restaurant lies in the following key factors: food quality, menu variety, price, atmosphere and
convenience.
4. Purchase of the Service
After evaluating the alternatives the customer chooses that the service provider who will be able to
satisfy his needs. The purchase of the service is an experience, which leads to the satisfaction of
customer needs. Service production and consumption is a simultaneous activity. The service encounter
involves the interaction of the service provider and the customer. The success of the service delivery
depends up on the service encounter. Therefore, apart from motivating the staffs who deliver the
service the service provider must also be aware of the moods and emotions of the customer and should
attempt to influence those moods and emotions in a positive way. Many service factors can be used to
influence moods-the ambience, and design of physical setting, the process associated with the service
delivery, limiting waiting times in lines, scheduling of customer, and training and motivating staff who
interact with customers.
5. Post Purchase Evaluation
Only after experiencing the service the customer will be able to judge the service quality, in relation to
his expectation the actual service received. The evaluation of the service received is further complicated
by the role played by the customer in the delivery process. Customers attribute some of their
dissatisfaction with the services to their own disability to specify their needs or failure to perform their
part of the service, rather than blame the service provider completely.
2.3. Role of Culture in Services
Many factors have an influence on consumer behavior. Some are described below:
1. Culture: culture consists of values, norms, roles and customs shared by members of a society. It
differs from place to place. The culture of a place plays a vital role in determining the value and
attitude of the people of that place, and in turn their purchase behavior. So, marketers should
have an understanding of the culture of different places, in which they like to market services.
2. Sub-culture: subcultures are similar divisions in a society with similar norms, values, behavior
patterns, which make them distinct from the main culture. As life style, geography, ethnicity,
race and religion form the base for the subculture.

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 3. Social class: people having similar life styles, interest, values, behaviors and norms are grouped
under social class. Their similarity in beliefs forms the base for market segmentation, and
affects their shopping patterns or kind of product/service they purchase. Thus, marketers `offer
products aimed at social class of the people.
4. Reference groups: an individual uses the perspectives of a reference group as the base for his
action, judgment and opinion. Marketers make use of reference group influences to develop
advertisings by associating products/services or some behaviors with some type of reference
groups.
5. Family: purchases are often not made by individual alone, but a whole lot of other people to
have a say in purchase decision. Marketers need to recognize the role played by these various
individuals in the purchase decision, in order to target their marketing message at them.

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 Chapter Three: Customer Expectations of Services
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Customer Expectation
 Identify Different Types of Service Expectation
 Identify Factors Influencing Customer Expectations on Services
3.1. Meaning and Types of Service Expectation
Customer’s expectations are beliefs about service delivery that function (serve) as standards or
reference points against which performance is judged. Because customers compare their perceptions of
performance with these reference points when evaluating service quality, through knowledge about
customer expectations is critical to services marketers. Knowing what the customer expects is the first
and possibly most critical step in delivering quality service. Being wrong about what customers want
can mean losing a customer’s business when another company hits the target exactly. Being wrong can
also mean expending money, time, and other resources on things that do not count to the customer.
Being wrong can even mean not surviving in a fiercely competitive market. There are three types of
service expectations: predicted service, desired service and adequate service
Predicted Service: It is a probability expectation that reflects the level of service the customer believes
is likely to occur, Customer satisfaction evaluations are developed by comparing predicted service with
perceived service received
Desired Service: It is an ideal expectation that reflects what customers actually want compared with
predicted service, which is what is likely to occur. Desired service reflects a higher expectation than
predicted service.
Adequate Service: It is a minimum tolerable expectation and reflects the level of service the customer is
willing to accept. It is based on experience or norms that develop over time. Comparing adequate
service with perceived service produces a measure of perceived service adequacy.
The Zone of Tolerance
Services are heterogeneous in that performance may vary across providers, across employees from the
same provider, and even with the same service employee. The extent to which customers recognize and
are willing to accept this variation is called the zone of tolerance. But to what extent do customers
tolerate variations? The zone of tolerance reflects the difference between desired service and adequate
service. It expands and contracts. Factors affecting include the service, conditions under which the

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service is provided, price etc. desired service is less subject to change than adequate service. If service
drops below adequate service-the minimum level considered acceptable-customers will be frustrated
and their satisfaction with the company will be undermined. If service performance is higher than the
zone of tolerance at the top end-where performance exceeds desired service-customers will be very
pleased and probably quite surprised as well. You might consider the zone of tolerance as the range or
window in which customers do not particularly notice service performance. When it falls outside the
range (either very low or very high), the service gets the customer’s attention in either a positive or
negative way. As an example, consider the service at a checkout line in a grocery store. Most customers
hold a range of acceptable times for this service encounter- probably somewhere between 5 and 10
minutes. If service consumes that period of time, customers probably do not pay much attention to the
wait. If a customer enters the line and finds sufficient checkout personnel to serve her in the first two or
three minutes, she may notice the service and judge it as excellent. On the other hand, if a customer has
to wait in line for 15 minutes, he may begin to grumble and look at his watch. The longer the wait is
below the zone of tolerance, the more frustrated he becomes.
3.2. Factors that Influence Customer Expectations of Service
Because expectations play such a critical role in customer evaluation of services, marketers need and
want to understand the factors that shape them. Marketers would also like to have control over these
factors as well, but many of the forces that influence customer expectations are uncontrollable.
Sources of Desired Service Expectations
The two largest influences on desired service level are personal needs and philosophies about service.
Personal needs those states or conditions essential to the physical or psychological well-being of the
customer, are pivotal factors that shape what customers desire in service. Personal needs can fall in too
many categories, including physical, social, psychological, and functional. A fan who regularly goes to
baseball games right from work, and is therefore thirsty and hungry, hopes and desires that the food and
drink vendors will pass by his section frequently, where as a fan who regularly has dinner elsewhere
has a low or zero level of desired service from the vendors. A customer with high social and
dependency needs may have relatively high expectations for a hotel’s ancillary services, hoping, for
example, that the hotel has a bar with live music and dancing.
Some customers are more demanding than others, having greater sensitivity to, and higher expectations
of service. Lasting service intensifiers are individual, stable factors that lead the customer to a
heightened sensitivity to service. One of the most important of these factors can be called derived

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service expectations, which occur when customer expectations are driven by another person or group of
people.
Business-to-business customers may also derive their expectations from their managers and
supervisors. Employees of a marketing research department may speed up project cycles ( increase their
expectations for speed of delivery when pressured by their management to deliver the study results.
Purchasing agents may increase demands for faster delivery at lower costs when company management
is emphasizing cost reduction in the company.
Another lasting service intensifier is personal service philosophy- the customer’s underlying generic
attitude about the meaning of service and the proper conduct of service providers. If you have ever been
employed as a wait person in a restaurant, you are likely to have standards for restaurant service that
were shaped by your training and experience in that role.
Sources of Adequate Service Expectations
A different set of determinants affects adequate service, the level of service the customer finds
acceptable. In general, these influences are short-term and tend to fluctuate more than the factors that
influence desired service. In this section we explain the five factors that influence adequate service:
1. Temporary service intensifiers
2. Perceived service alternatives
3. Customers self-perceived service role
4. Situational factors
5. And predicted services
The first set of elements, temporary service intensifiers, consists of short-term, individual factors
that make a customer more aware of the need for service. Personal emergency situations in which
service is urgently needed (such as an accident and the need for automobile insurance or a
breakdown in office equipment during a busy period) raise the level of adequate service
expectations, particularly the level of responsiveness required and considered acceptable.
Problems with the initial service can also lead to heightened expectations. Performing a service
right the first time is very important because customers value service reliability above all other
dimensions. If the service fails in the recovery phase, fixing it right the second time (that is, being
reliable in service recovery) is even more critical than it was the first time.
Perceived service alternatives are other providers from whom the customer can obtain service. If
customers have multiple service providers to choose from, or if they can provide the service for

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 themselves (such as lawn care or personal grooming), their levels of adequate service are higher
than those of customers who believe it is not possible to get better service elsewhere.
A third factor affecting the level of adequate service is the customer’s self-perceived service role.
We define this as customer perceptions of the degree to which customers exert an influence on the
level of service they receive. In other words, customers’ expectations are partly shaped by how well
they believe they are performing their own roles in service delivery. One role of the customer is to
specify the level of service expected.
A final way the customer defines his or her role is in assuming the responsibility for complaining
when service is poor. A dissatisfied customer who complains will be less tolerant than one who
does not voice his or her concerns.
Levels of adequate service are also influenced by situational factors, defined as service performance
conditions that customers view as beyond the control of the service provider. For example, where
personal emergencies such as serious automobile accidents would likely intensify customer service
expectations of insurance companies (because they are temporary service intensifiers), catastrophes
that affect a large number of people at one time (tornados or earthquakes) may lower service
expectations because customers recognize that insurers are inundated with demands for their
services.
The final factor that influences adequate service is predicted service, the level of service that
customers believe they are likely to get. This type of service expectation can be viewed as
predictions made by customers about what is likely to happen during an impending transaction or
exchange.
Service Encounter Expectations versus Overall Service Expectations
Customers hold expectations of the quality of each service encounter, just as they hold expectations
about the overall service quality of a firm. When the expectations are about individual service
encounters, they are likely to be more specific and concrete ( such as the number of minutes one
must wait for a front desk clerk) than the expectations about overall service quality ( like speedy
service)
Sources of both Desired and Predicted Service Expectations
When consumers are interested in purchasing services, they are likely to seek or take in information
from several different sources. In this section one internal and three external factors that influence
both desired service and predicted service expectations:

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  Explicit service promises: these are personal and non -personal statements about the service
made by the organization to customers. The statements are personal when they are
communicated by salespeople or service or repair personnel; they are non -personal when they
come from advertising, brochures, and other written publications. Explicit service promises are
one of the few influences on expectations that are completely in the control of the service
provider. Explicit service promises influence the levels of both desired service and predicted
service. They shape what customers desire in general as well as what they predict will happen in
the next service encounter from a particular service provider or in a certain service encounter.
 Implicit service promises: these are service-related cues other than explicit promises that lead to
inferences about what the service should and will be like. These quality ques are dominated by
price and the tangibles associated with the service. In general, the higher the price and the more
impressive the tangibles, the more a customer will expect from the service.
 Word-of-mouth communications: the importance of word-of-mouth communication in shaping
expectations of service is well documented. These personal and sometimes non personal
statements made by parties other than the organization convey to customers what the service
will be like and influence both predicted and desired service. Word-of-mouth communication
carries particular weight as an information source because it is perceived as un-biased. Word of
mouth tends to be very important in services that are difficult to evaluate before purchase and
before direct experience of them
 Past experience: the customer’s previous exposure to service that is relevant to the focal service,
is another force in shaping predictions and desires. The service relevant for prediction can be
previous exposure to the focal firm’s service. Service evaluations are often based on comparison
of the current service encounter to other encounters with the same provider, other providers in
the industry, and other providers in other industries
3.2. Model of customer service expectations
The full model of customer Service expectations and the forces that influence them is shown in
Figure 3.2. At the center of the model is the detailed view of expectations showing the two levels,
desired and adequate, and the zone of tolerance that separates them? The sources of antecedents of
each type of expectation are shown along the sides of the model. How might a manager of a service
organization use this model to create, improve, or market services? First, managers need to know
the pertinent expectation sources and their relative importance for a customer population, a

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 customer segment, and perhaps even a particular customer. They need to know, for instance, the
relative weight of word of mouth, explicit service promises, and implicit service promises in
shaping desired service and predicted service.

3.3. Issues involved in customer service expectations

As the market is customer-oriented the customer demands whatever he/she wants irrespective of the
nature and domain of the service provider. The service provider has to decide which benefit is to offer
to him/her as per its business model. Since every service desired by the customer has some cost and the
service provider is doing business, it must include the trade-off. Hence, it is essential to maintain a
balance between the price and the benefits. For example, while travelling through airways, the
customer wants to secure the best quality food at the least possible price. Similarly, different modem
facilities like air conditioning, music or live shows or a comfortable ambience are desired by the service
customers in a restaurant and they do not want to pay for that.
1. Ever-Increasing Customer Expectations
It is also a challenging issue for service marketers. It is vital for the service organization to have
a clear understanding of the rate of rising in the customers’ expectations.
It is quite likely, that by providing good quality services, the customers expect better services next time.
They expect even higher services each time as the old ones are met. Service providers are also
responsible for such increasing service expectations of the customers. In order to compete with their
competitors, service providers continuously launch different kinds of schemes and offers. These, in
return, increase customer expectations.

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 2. Exceeding the Customer Expectations
In today’s world of cutthroat competition, it is not only essential to fulfil the expectations of the
customers but to exceed them by offering even better services. This varies from company to company,
how they supersede others in the market and exceed beyond the customers’ expectation levels.
3. Deciding the Limit for Meeting Customer Expectations
It is not easy for service organizations to maintain pace with the constantly rising expectations of
the customers, as the cost is incurred for every service decision. It is not wise to ignore the financial
considerations for meeting the customers’ expectations.

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 Chapter Four: Customer Perception of Service
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
o Define Customer perception
o Understand the Concept of customer satisfaction and service quality
o Discuss Service quality dimensions
o Identify Service Encounter or Moment of Truth
o Discuss Strategies for influencing customer perceptions
4.1. Customer perception
How customers perceive services, how they assess whether they have experienced quality service and
whether they are satisfied are the subject of this chapter. As we move through this chapter, keep in
mind that perceptions are always considered relative to expectations. Customers perceive service in
terms of quality of the service and how satisfied they are overall with their experiences. Companies
today recognize that they can compete more effectively by distinguishing themselves with respect to
service quality and improved customer satisfaction.
A consumer perception is defined as the process by which an individual selects, organizes, and
interprets stimuli into a meaningful and Coherent picture of the world. A stimulus is any unit of input to
any of the sense. Examples of stimuli (i.e sensory input) include products, packages, brand names,
advertisements, and commercials (Leon andLeslie, 1997).
Perceptions are defined in various ways; strydom, Jooste and Cant (2000) define customer
perception as the process of receiving, organizing and assigning meaning to information of stimuli
detected by the customer’s five senses and opine that it gives meaning to the world that surrounds the
customer. Perceptions are also described as the end result of a number of observations by the customer.
4.2. Concept of customer satisfaction and service quality.
Satisfaction VS service quality
Practitioners and writers in the popular press tend to use the terms satisfaction and quality inter
changeably, but researchers have attempted to be more precise about the meaning and measurement of
the two concepts, resulting considerable debate. Consensus is growing that the two concepts are
fundamental different in terms of their underlying causes and outcomes. While they have certain things
in common, satisfaction is generally viewed as broader concept while service quality assessment

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focuses specifically on dimensions of service. Based on this view, perceived service quality is a
component of customer satisfaction.
Service quality is a focused evaluation that reflects the customer‘s perception of specific dimensions of
service reliability, responsiveness, assurance, empathy, tangibles. Satisfaction, on the other hand, is
more inclusive: it is influenced by perceptions of service quality, product quality and price as well as
situational factors and personal factors.
Customers Satisfaction
Building from previous definitions, Richard L. Oliver offers his own formal definition. Satisfaction is
the consumer‘s fulfillment response. It is a judgment that a producer or service feature or the product or
service itself provides a pleasurable level of consumption-related fulfillment. In less technical terms, we
translate this definition to mean that satisfaction is the customers’ evaluation of a product or service in
terms of whether that product or service has met their needs and expectations. Failure to meet needs
and expectations is assumed to result in dissatisfaction with the product or service. According to Kottler
and Keller (2006), customer satisfaction is a person‘s feeling of pleasure or disappointment resulting
from comparing a product‘s perceived performance (or outcome) in relation to his or her expectations.
If the performance falls short of expectations, the customer is dissatisfied. If the performance matches
the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is
highly satisfied or delighted.
What determine customer satisfaction?
Customer satisfaction is influenced by specific product or service feature perception of product and
service quality and price. In addition personal factor such as the customer mood or emotional state and
situational factors such as family member opinions will also influence satisfaction.
A. Product and service feature
Customer satisfaction with a product or service is influenced significantly by the customer evaluation
of product or service features. For service such as a resort hotel important feature might include the
pool area, access to golf facilities, restaurant room comfort and privacy helpfulness and courtesy of
staff , room price. The customer service will make trade off among different service feature eg. Price
level vs quality vs friendliness of personnel vs level of customization depending on the type of service
being evaluated and the criticality of the service.

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B. Consumer emotion
Customers’ emotions can also affect their perceptions of satisfaction with products and services. These
emotions can be stable, pre-existing emotions- for example, mood state or life satisfaction. Think of
times when you are at a very happy stage in your life ( such as when you are on vacation), and your
good, happy mood and positive frame of mind have influenced how you feel about the services you
experiences. Alternatively, when you are in a bad mood, your negative feelings may carry over in to
how you respond to services, causing you to over-react or respond negatively to any little problem.
C. Attribution for service success or failure
Attribution;- the perceived causes of events influence perception of satisfaction as well. When they
have been surprised by an outcome (the service is either much better or much worse than expected),
consumers tends to look for the reasons and their assessment of the reasons can influence their
satisfaction.
D. Perception of equity or fairness.
Customer satisfaction is also influenced by perception of equity and fairness. Customers ask
themselves;-
1. Have I been treated fairly compared with other customers?
2. Did other customers get better treatment, better price, or better quality service?
3. Did I pay a fair price for the service?
4. Was I treated well in exchange for what I paid and the effort I expended?
Notion of fairness are central to customer perception of satisfaction with product and service.
E. Other consumer, family member and coworkers.
In addition to product and service features and one's own individual feelings and beliefs, customer
satisfaction is often influenced by other people. Eg. Satisfaction with a family vacation trip is dynamic
phenomenon, influenced by the reaction and expressions of individual’s family member over the
duration of the vacation
4.3. Service quality dimensions
Defining and measuring quality in services might be difficult due to the intangible nature of the service
offering. For the purpose of measuring customer satisfaction with respect to different aspects of service
quality, a survey instrument developed by Parasuraman, Zeithaml and Berry in 1988. the instrument is
called SERVQUAL. The basic assumption of the measurement was that customers can evaluate a firms

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service quality by comparing their perception with their expectations. The SERVQUAL scale includes
five principal dimensions. These are: Reliability, Responsive, Assurance, Empathy, and Tangibles.
1. Reliability: ability to perform the promised service dependably and accurately.
2. Responsiveness: willingness to help customer and providers prompt service.
3. Assurance: employees’ knowledge and courtesy and their ability to inspire trust and confidence.
4. Empathy: carrying individualized attention given to customers.
5. Tangibles: appearance of physical facilities equipment personnel and written materials.
These dimensions represent how consumers organize information about service quality in their mind.
1. Reliability: delivering on promises
It is defined as the ability to perform the promised service dependably and accurately. Broadly;-mean
that the company delivers on its promises. Promises about delivery, service provision, problem
resolution and pricing. Customers want to do businesses with companies that keep their. Particularly
their promise about the service outcome and core service attributes.
2. Responsiveness: being willing to help
It is the willingness to help customers and to provide prompt service. It emphasizes attentiveness and
promptness in dealing with customer requests, questions, complaints and problem. Responsiveness is
communicated to customers by the length of time they have to wait for assistance, answers to question
or attention to problem. It also capture the notion of flexibility and ability to customize the service to
customer need.
3. Assurance: inspiring trust and confidence
It is defined as employee’s knowledge and courtesy and the ability of the firm and its employee to
inspire trust and confidence. It is particularly important for service that customers as high risk or for
service of which they feel uncertain about their ability to evaluate outcomes. Trust and confidence may
be embodied in the person who links the customer to the company, such as securities brokers, insurance
agents, and lawyers or seeks to build trust and loyalty between key contact people and individual
customer.
4. Empathy: treating customer as individuals
It is carrying individualized attention that the firm provides its customer (includes access,
communication and understanding the customer). The essence of empathy is conveying, through
personalized or customized service, that customers are unique and special and that their needs are
understood. In business to business service customers want supplier firms to understand their industries

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and issues. Many small computer consulting firms successfully compete with large venders by
positioning themselves as specialists in particular industries even though larger firm have superior
resource the small firms are perceived as more knowledgeable about customers issues and needs and
are able to offer more customized service.
5. Tangible: representing the service physically
It is the appearance of physical facilities, equipment, personnel, and communication material. It
provides physical representation or image of the service that customer particularly new customers will
use to evaluate quality. Tangible are often used by Service Company to enhance their image, provide
continuity and signal quality to customers most companies combine tangible with another dimension to
create a service quality strategy for the firm.
4.4. Service Encounter or Moment of Truth
Service encounter are where promise are kept or broken and where the proverbial rubber meet the road
sometime called real-time marketing. It is when customers interact with the service or product for the
first time. It is a transactional interaction in which one person provides service or good. we classify
service encounter in to three types. These are
1. Remote encounters
2. Phone encounters and
3. Face to face encounter.
1. Remote encounter; - it can occur without any direct human contact such as customer interacts with
bank through the ATM system. It can also occur when the firms send its billing statement or
communicate other type of information to customers by mail. Although there is no direct human
contact in this remote encounters, each represent an opportunity for the firm to reinforce or establish
quality perception in the customer.in remote encounter the tangible evidence of the service and the
quality of technical processes and systems become the primary bases for judging quality.
2. Phone encounters: it can be occur between an end customer and the firm over telephone such as
insurance companies, utilities and telephone communication. The judgments of quality in phone
encounter are different from remote encounter because there is greater potential variability in the
interaction. Tone of voice employee knowledge and effectiveness, efficiency in handling customer
issues become important criteria for judging quality in these encounters.
3. Face to face encounter: it occur between an employee and a customer in direct contact.
Determining and understandings service quality issue in face to face encounter is the most complex of

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all. Both verbal and nonverbal behaviors are important determinants of quality as are tangible cues such
as employee dress and other symbol of service (equipment, informational brochures, physical setting)
the customer also play a role of creating quality service for herself through her own behavior during the
interaction.
Technology based service encounter.
All the research on service encounter described thus far and the resulting themes underlying service i.e.
face to face encounters between customers and employees of service organization, These type of
encounter involves customer interacting with internet based service automated phone service, service
delivered via CD often these system are referred to as self-service technologies (SST) because the
customer essentially provides his or her own service.
For satisfying SST:
solved on intensified need;- customers in this category were thrilled that the technology could bail
them out of a difficult situation e.g. a cash machine that come to the rescue, allowing the customer to
get cash to pay a cab driver and get to work on time when a car had broken down. Better than
alternative;- many SST stories related to how the technology based service was in some way better than
the alternative, easy to use, save time, available when and where the customer needed it, saved money.
For dissatisfying SST:
1. Technology failure: It relates to technology simply not working as promised, it is not available
when needed pin number do not work, or systems are off line.
2. Process failure: Often the technology seems to work, but later the customer discovers that a back
office or follow up process, which the customer assumed was connected does not work, e.g. a product
order seems or the wrong product is delivered.
3. Poor design: It relate with how the technology is designed in terms of either the technical process
technology is confusing, menu options are unclear or the actual service design delivery takes too long,
service is inflexible.
4. Customer driven failure: in some case the customers told stories of their own in abilities or failure
to use the technology properly.
4.5. Strategies for influencing customer perception
The following strategies will be developed for influencing customer perceptions.
1. Enhance customer satisfaction through service encounters: the service firms should train and educate
their service personnel for positive service encounters, with respect to:

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a) Recovery by planning for effective recovery,
b) Adoptability by facilitating adaptability and flexibility,
c) Spontaneity by encouraging spontaneity,
d) Coping by helping employees cope with problem customers,
e) The five dimensions of service quality – by managing the dimensions of quality at the encounter
level and relating every encounter to one of the dimensions.
2. Reflect evidence of service: the evidence of service – people, process, physical evidence – discussed
earlier provides a frame work for planning the marketing strategies that address the expanded
marketing mix elements (4 p’s to 7 p’s). These new elements or a subset of them cover essentially
tangibilize the service for the customer and thus represent important means for creating positive
perceptions.
3. Communicate and create a realistic image: Not only promises are made; they must be kept, thereby
enhancing the image, reputation of a service organization.
4. Enhance customer perception of quality and value through pricing: Similarly the pricing is also very
critical and customers must feel that the service is worth the price they pay for.
4.4. Strategies for influencing customer perceptions
Measure and manage customer satisfaction service quality: Track the trends, diagnose problems,
and link to other customer focused strategies.
Aim for customer quality and satisfaction in every service encounter: Every service encounter is
critical to customer retention. Thus many firms aim for zero defects or 100% satisfaction. Clear
documentation of all the points of contact between the organization and its customers
Plan for effective recovery: When service customers have been disappointed on the first try doing
right the 2nd time is essential to maintain customer loyalty. This implies a need for service process and
system analysis to determine the root cause of failure and redesign the service system.
Facilitate adaptability and flexibility: The existence of this encounter theme suggested the need to
know when and how the system can flex, and when and how to explain to customers.
Encourage spontaneity: Recruitment and selection procedures can be used to hire employees with
strong service orientation whose natural tendency is to be service minded. Strong service culture,
employee empowerment, effective supervision and monitoring should be done.

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Help employees cope with problem customers: Employees need appropriate training and tools to
deal with problem customers. Training the customers is essential so that they know what to expect and
know the appropriate behavior in the situations.
Manage the dimensions of quality at the encounter level: Whenever the customer is encountering
the service, the service firm should take measures to maintain the dimensions of service of service
quality.

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 Chapter Five: Building Customer Relationships
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
o Understand the Concept of Relationship Marketing
o Discuss the Goals of Relationship Marketing
o Explain the Benefits of Long-term Relationship to Customers and firms
o Identify Relationship value of Customer
o Identify Customer Profitability Segments
o Discuss the Levels of Relationship Strategies
5.1. Concept of Relationship Marketing
There has been a shift from transaction to relationship focus in marketing. Customers become partners
and the firm must make long-term commitments to maintaining those relationships with quality,
service, and innovation.
Relationship marketing essentially represents s paradigm shift within marketing away from an
acquisitions/transaction focus toward retention/ relationship focus. Relationship marketing is a strategic
orientation that focuses on keeping and improving relationships with current customers, rather than on
acquiring new customers. This philosophy assumes that many consumers and business customers
prefer to have an ongoing relationship with one organization than to switch continually among
providers in their search for value. Building on this assumption and the fact that it is usually much
cheaper to keep a current customer than to attract a new one, successful marketers working on effective
strategies for retaining customers, It has been suggested that firms frequently focus on attracting
customers (the first act), but then pay little attention to what they should do to keep them (second act).
5.2. Goals of Relationship Marketing
The primary goal of relationship marketing is to build and maintain a base of committed customers who
are profitable for the organization. To achieve this goal, the firm will focus on the attraction, retention,
and enhancement of customer relationships.
1.0 First, the firm will seek to attract customers who are likely to become long-term relationship
customers. Through market segmentation the company can come to understand the best target
markets for building lasting customer relationships. As the number of these relationships grows.
The loyal customers themselves will frequently help to attract (through word of mouth) new
customers with similar relationship potential.

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 2.0 Once they are attracted to begin a relationship with the company, customers will be more likely
to stay in the relationship when they are consistently provided with quality products and
services and good value over time, they are less likely to be pulled away by competitors if they
feel the company understands their changing needs and seems willing to invest in the
relationships by constantly improving and evolving its product and service mix.
3.0 Finally, the goal of customer enhancement suggests that loyal customers can be even better
customer id they buy more products and services from the company over time. Loyal customers
not only provide a solid base for the organization, they may represent growth potential. In
recent years, many companies have aspired to be the “exclusive supplier” of a particular product
or service for their customers. Over time these enhanced relationships can increase market share
and profits for the organization.
5.3. Benefits of Long-Term Relationship to Customers and Firms
Both parties in the customer-firm relationship can benefit from customer retention. That is, it is not
only in the best interest of
the organization to build and maintain a loyal customer base, but customers themselves also benefit
from long-term associations.
A. Benefits for Customers
There are three benefits the customers can experience in long-term service relationships:
Confidence Benefits-these benefits comprise of trust or confidence in the provider, along with a sense
of reduced anxiety and comfort in knowing what to expect. Human nature is such that most of us would
prefer not to change service providers, particularly when we have a considerable investment in the
relationship. If the service provider knows us, knows our preferences, and has tailored services to suit
our needs over time, then changing providers would mean educating a new provider on all of these
factors. The costs of switching are frequently high in terms of both dollar costs of transferring business
and the psychological time-related costs.
Social benefit: overtime customers develop a sense of familiarities and even a social relationship with
their service providers. These ties make less likely that they will switch, even if they learn about a
competitor that might have better quality or a lower price.

Special treatment benefits: special treatments include things such as being given a special deal or price,
getting preferential treatment, etc.
B. Benefits for the Organization

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 The major benefits include:
 Increasing sales and profits: as customers mature (in terms of age, life cycle, growth of
business) they frequently require more of a particular service.
 Lower costs: there are many start up costs associated with attracting new customers. They
include, advertising and other promotion costs, operating costs of setting up accounts and
systems, and time costs of getting to know the customer, sometimes these initial costs can
outweigh the revenue expected from the new customer in the short term,
 Free advertising through word of mouth: when a product is complex and difficult to evaluate,
and there is a risk involved in the decision to buy it-as is the case is the many services-
consumers most often look to others for advice on which providers to consider. Satisfied, loyal
customers are likely to provide a firm, with strong word-of –mouth endorsements. This form of
advertising can be more effective than any paid advertising the firm might use, and has the
added benefit of reducing the costs of attracting new customers
 Employee retention: and indirect benefit f customer retention is employee retention. It is easier
for a firm to retain employees when it has a stable base of satisfied customers. People like to
work for companies whose customers are happy and loyal. Their jobs are more satisfying and
they are able to spend more of their time fostering relationships than scrambling for new
customers.
5.4. Relationship Value of Customers
Relationship value of a customer is a concept or calculation that looks at customers from the point of
view of their life time revenue and or profitability contributions to a company. This type of calculation
is obviously needed when companies start thinking of building long-term relationships with their
customers. Just what is the potential financial value of those long-term relationships? And what are the
financial implications of losing a customer?
Factors That Influence Relationship Value
The life time or relationship value of a customer is influenced by the length of an average ‘’ life time’,
the average revenues generated per relevant time period over the life time, sales of additional products
and services over time, referrals generated by the customer over time, and costs associated with serving
the customer. Lifetime value sometimes refers to life time revenue stream only; but most often when
costs are considered, life time value truly means’’ life time profitability”
Estimating Customer Lifetime Value

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If companies knew how much it really costs to lose a customer, they would be able to accurately
evaluate investments designed to retain customers. One way of documenting the dollar value of loyal
customers is to estimate the increased value or profits that accrue for each additional customer who
remains loyal to the company rather than defecting to the competition.
Linking Customer Relationship Value to Firm Value
The emphasis on estimating the relationship value of customers has increased substantially in the past
decade. Part of this emphasis has resulted from an increased appreciation of the economic benefits that
firms accrue with the retention of loyal customers. Interestingly, recent research suggests that customer
retention has a large impact on firm value and that relationship value calculations can also provide a
useful proxy for assessing the value of a firm. That is, a firm’s market value can be roughly determined
by carefully calculating customer life time value. The approach is straightforward: estimate the
relationship value of a customer, forecast the future growth of the number of customers, and use these
figures to determine the value of a company’s current and future base.
5.5. Customer Profitability Segments
Companies may want to treat all customers with excellent service, but they generally find that
customers differ in their relationship value and that it may be neither practical nor profitable to meet
(and certainly not to exceed) all customers’ expectations. Federal Express Corporation, for example,
has categorized its customers internally as the good, the bad, and the ugly- based on their profitability.
Rather than treating all its customers the same, the company pays particular attention to enhancing their
relationships with the good, tries to move the bad to the good, and discourages the ugly. Other
companies also try to identify segments-or, more appropriately, tiers of customers that differ in current
and/or future profitability to a firm. This approach goes beyond usage or volume segmentation because
it tracks costs and revenues for segments of customers, thereby capturing their financial worth to
companies. After identifying profitability bands, the firm offers services and service levels in line with
the identified segments. Building s high-loyalty customer base of the right customer’s increases profits
Profitability Tiers- The Customer Pyramid
There are four use full tier systems
6. The platinum tier describes the company’s most profitable customers, typically those who are
heavy users of the product, are not overly price sensitive, are willing to invest in and try new
offerings, and are committed customers of the firm.

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 7. The gold tier differs from the platinum tier in that profitability levels are not as high, perhaps
because the customers want price discounts that limit margins or are not as loyal. They may be
heavy users who minimize risk by working with multiple vendors rather than just the focal
company.
8. The iron tier contains essential customers who provide the volume needed to utilize the firm’s
capacity, but their spending levels, loyalty, and profitability are not substantial enough for
special treatment.
9. The lead tier consists of customers who are costing the company money. They demand more
attention than they are due given their spending and profitability and are sometimes problem
customers-complaining about the firm to others and tying up the firm’s resources.
Once a system has been established for categorizing customers, the multiple levels can be
identified, motivated, served, and expected to deliver differential levels of profit. Companies
improve their opportunities for profit when they increase shares of purchases by customers who
either have the greatest need for the services or show the greatest loyalty to a single provider. By
strengthening relationships with the loyal customers, increasing sales with existing customers, and
increasing the profitability on each sale opportunity, companies thereby increase the potential of
each customer.
5.6. Levels of Relationship Strategies
Relationship Bonds
Level 1: Financial Bonds
At level 1, the customer is tied to the firm primarily through financial incentives- lower prices for
greater volume purchases or lower prices for customers who have been with the firm a long time.
Examples of level 1 relationship marketing are not hard to find. Think about the airline industry and
related travel service industries like hotels and car rental companies. Frequent flyer programs provide
financial incentives and rewards for travelers who bring more of their business to a particular airline.
Hotels and car rental companies do the same. Long distance telephone companies in the United States
have engaged in a similar battle trying to provide volume discounts and other price incentives to retain
market share and build a loyal customer base. Unfortunately, financial incentives do not generally
provide long-term advantages to a firm because, unless combined with another relationship strategy,
they do not differentiate the firm from its competitors in the long run. Many travelers belong to several
frequent flyer programs and do not hesitate to trade off among them. Although price and other financial

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incentives are important to customers, they are generally not difficult for competitors to imitate because
the primary customized element of the marketing mix is price.
Level 2: Social Bond
Level 2 strategies bind customers to the firm through more than financial incentives. Although price is
still assumed to be important, level 2 retention marketers build long-term relationships through social
and interpersonal as well as financial bonds. Customers are viewed as “clients,” not nameless faces, and
become individuals whose needs and wants the firm seeks to understand.
Social, interpersonal bonds are common among professional service providers (lawyers, accountants,
and teachers) and their clients as well as among personal care providers (hairdressers, counselors,
health care providers) and their clients. A dentist who takes a few minutes to review her patient’s file
before coming in to the exam room is able to jog her memory personal facts about the patient
(occupation, family details, interests, dental health history). By bringing these personal details in to the
conversation, the dentist reveals her genuine interest in the patient as an individual and builds social
bond.
Interpersonal bonds are also common in business-to-business relationships in which customers develop
relationships with sales people and or relationship managers working with their firms.
Social bonds alone may not tie the customer permanently to the firm, but they are much more difficult
for competitors to imitate than are price incentives. In the absence of strong reasons to shift to another
provider, interpersonal bonds can encourage customers to stay in a relationship. In combination with
financial incentives, social bonding strategies may be very effective.
Level 3: Customization Bonds
Level 3 strategies involve more than social ties and financial incentives, although there are common
elements of level 1 and 2 strategies encompassed with in a customization strategy and vice versa.
Two commonly used terms fit within the customization bonds approach: mass customization and
customer intimacy. Both these strategies suggest that customer loyalty can be encouraged through
intimate knowledge of individual customers and through the development of one-to-one solutions that
fit the individual customer’s needs.
Mass customization has been defined as “the use of flexible processes and organizational structures to
produce varied and often individually customized products and services at the price of standardized,
mass-produced alternatives. Mass customization does not mean providing customers with endless

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solutions or choices that only make them work harder for what they want; rather, it means providing
them through little effort on their part with tailored services to fit their individual needs.
Level 4: Structural Bonds
Level 4 strategies are the most difficult to imitate; they involve structural as well as financial, social
and customization bonds between the customer and the firm. Structural bonds are created by providing
services to the client that are frequently designed right in to the service delivery system for that client.
Often structural bonds are created by providing customized services to the client that are technology
based and make the customer more productive.

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 Chapter Six: Service Recovery
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Service Recovery
 Discuss the Importance of Service Recovery
 Explain the Service Recovery Paradox
 Identify Customer Complaint
 Identify the Types of Customer Complaint actions
 Discuss the Issues of Service Guarantees
6.1. The Concept of Service Recovery
Service recovery refers to the action taken by an organization in a response to a service failure. Failure
occurs for all kinds of reasons:
10. The service may be unavailable when promised,
11. The service may be delivered late or too slowly,
12. The outcome may be incorrect or poorly executed ,or
13. Employee may be rude or uncaring
All these types of failures bring about negative feelings and responses from customers. Left unfixed
they can result in customers leaving, telling other customers about their negative experiences, and even
challenging the organization through consumer right organizations or legal channels.
Research has shown that resolving customers effectively has a strong impact on customer satisfaction,
loyalty and bottom-line performance. That is, customers who experience service failures, but are
ultimately satisfied based on recovery efforts by the firm, will be more loyal than those whose
problems are not resolve. That loyalty translates into profitability, those who complain have their
problems resolved quickly are much more likely to repurchase than are those whose complaints are not
resolved, those who never complain are least likely to repurchase.
An effective serviced recovery strategy has multiples potential impacts. It can increase customer
satisfaction and loyalty and generate positive word of mouth as noted earlier. A well-designed, well-
documented service recovery strategy also provides information that can be used to improve as` part of
a continuous improvement effort. By making adjustments to service processes, systems and outcomes
based on learning from service recovery experiences, companies increase the likely hood of “doing it
right the first time.”

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N.B: unless the recovery effort is absolutely superlative, it cannot overcome the negative impressions
of the initial experience enough to build repurchase intentions beyond where they would be if the
service had been right in the first place. The adage “do it right the first time” is still the best bet.
6.2. Importance of Service Recovery
-Increase customer satisfaction
- Make customers being loyal (locality increase)
-Impress the customers
-Increase consumption of service (profitability of the provider) and etc.
6.3. The Service Recovery Paradox
Occasionally some businesses have customers who are initially dissatisfied with a service experience
and then experience a high level of excellent service recovery, seemingly leading them to be even more
satisfied and more likely to repurchase than if no problem had occurred at all; that is, they appear to be
more satisfied after they experience a service failure than they otherwise would have been! To
illustrate, consider a hotel customer who arrives to check in and finds that no room is available. In an
effort to recover, the hotel front desk person immediately upgrades this guest to a better room at the
original price. The customer, thrilled with this compensation, reports that she is extremely satisfied
with this experience, is even more impressed with the hotel than she was before, and vows to be loyal
in to the future. Although such extreme instances are relatively rare, this idea-that initial disappointed
customer who has experienced good service recovery might be even more satisfied and loyal as a
result-has been labeled the recovery paradox.
So, should a firm “screw up” just a little so that it can “fix the problem” superbly? If doing so would
actually lead to more satisfied customers, is this strategy worth pursuing? The logical, but not very
rational, conclusion is that companies should plan to disappoint customers so they can recover well and
(hopefully) gain even greater loyalty from them! What are the problems with such approach? First, as
we indicated earlier, a vast majority of customers do not complain when they experience a problem
(like passive complaints). The possibility of a recovery exists only in situations in which the firm is
aware of a problem and is able to recover well; if customers do not make the firm aware of the failure-
and most do not-dissatisfaction is most likely to be the result. Second, it is expensive to fix mistakes;
recreating or reworking a service may be quite costly to a firm. Third, it would appear somewhat
ludicrous (very foolish) to encourage service failures-after all, reliability (“doing it right to the first
time”) is the most critical determinant of service quality across industries. Finally, although the

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recovery paradox suggests that a customer may end up more satisfied after experiencing excellent
recovery, there is certainly no guarantee that the customer actually will end up more satisfied. The
recovery paradox is highly dependent on the context and situation; although one customer may find it
easy to forgive a restaurant who provides him with a gift certificate for a later date for having lost his
dinner reservation, another customer who had planned to propose marriage to his date over dinner may
not be all that happy with the same recovery scenario.
6.4. Customer Complaint
Customer complaint is an expression of dissatisfaction on a behalf to a responsible part.
6.5. Types of Customer Complaint Actions
First customers can choose to take action or they can do nothing. Many customers are very passive
about their dissatisfaction, simply saying or doing nothing. Those who do not complain are least likely
to return. For companies, customer passivity in the face of dissatisfaction is a threat to future success.
If customers take action following service failure, that action can be of various types. A dissatisfied
customer can choose to complain on the spot to the service provider, giving the company to respond
immediately. This is often the best case scenario for the company because it has a second chance right
at that moment to satisfy the customer, keeps its business in the future, and potentially avoid any
negative word of mouth. If they don’t complain immediately customers may choose to complain later
to the provider by phone or in writing, or even to write or call the corporate offices of the company.
Some customers choose not to complain directly to the provider but rather spread negative word of
mouth to friends, relatives, and co-workers. The company has no chance to recover unless word of
mouth is accompanied by a complaint directly to the company.
Finally, customers may choose to complain to third parties such as the Better Business Bureau, to
customers affairs arms of the government, to a licensing authority, a professional association or
potentially to private attorney.
Types of complainers
Complainers can be classified in to four groups:
4. Passive-least likely to take any action. They are unlikely to say anything to the provider, less
likely than others to spread negative word of mouth, and unlikely to complain to third party.
They often doubt the effectiveness of complaining, thinking the consequences will not merit the
time and effort they will spend. These folds tend to fell less alienated from the marketplace than
irates and activists.

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 5. Voicers: these customers actively complain to service provider, but they are less likely negative
word of mouth, to switch patronage or to go to third parties with their complaints. These
customers should be viewed as service provider’s best friends. Similar to passive, these
customers are less alienated from the market place. They tend to believe complaining has
social benefits and therefore don’t hesitate to voice their opinions. Their personal norms are
consistent with complaining.
6. Irates: these customers are more likely to engage in negative word of mouth to friends and
relatives and to switch provider than others. They about average in their propensity to complain
to the provider. They are unlikely to complaint to third parties. These folks (group) tend to feel
alienated from the market place. As their label suggest, they are angrier with the provider,
although they do believe that complaining to the provider has social benefit. They are less likely
to give the service provider a second chance and instead will switch to a competitor, spreading
the word to friends and relatives along the way.
7. Activists: these consumers are characterized by above average propensity to complain on all
dimensions: they will complain to the provider, they will tell others, and they are more likely
than any other group to complain to third parties. Complaining fits with their personal norms.
Similar to irates, these consumers are more alienated from the market place than other groups.
They have a very optimistic sense of sense of the potential positive consequences of all types of
complaining. In extreme cases, these consumers can become “terrorist”
6.6. Service Recovery Strategies
Thankfully not all companies are doing poorly at service recovery. There are many who have learned
the importance of providing excellent recovery for disappointed customers. It will become clear that
excellent service recovery is really a combination of a variety of strategies that need to work. The major
service recovery strategies are:
1. Do it right the first time: in this way, recovery is necessary, customers get what they expect, the
cost of managing the service and compensating for errors can be avoided. What specific
strategies do firms employ to achieve reliability? The adoption of Total Quality Management
(TQM ), practices aimed at “zero defects”: are commonly used
2. Welcome and encourage complain: even in a zero defect organization that aims for 100%
service quality, failures occur. A critical component of service strategy is therefore welcoming

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 and encouraging complaints. The complaining customer should be viewed as a friend. Part of
encouraging complain also involves customers how to complain.
3. Act quickly: complaining customers require quick response. Thus, if the company welcomes,
even encourages complaints, it must be prepared to act on them quickly. This requires systems
and procedures that allow for action, as well as empowered employees.
4. Treat customers fairly: in responding quickly, it is also critical to reach each customer fairly.
5. Learn from recovery experiences: problem-resolution situations are more than just opportunities
to fix flawed services and strengthen ties with customers. They are also valuable-but frequently
ignored or underutilized-source of diagnostic, prescriptive information for improving customer
service.
6. Learn from lost customers: another key component of an effective service recovery strategy is
to learn from the customers who defect or decide to leave.
6.7. Service Guarantees
When you buy consumer durables like refrigerator, TV, washing machine etc., they invariably came
with a product warranty where in the company agrees to replace or repair the product if something goes
wrong. But what about services?as compared to manufactured products, guarantees in case of services
are a more recent phenomenon. Because of the intangible nature of services it was often thought as to
what can be guaranteed. Products being tangible can be returned but can services be returned back
offering service guarantees which may take the form of a satisfaction guarantee or guarantying specific
aspect of service delivery.
A bank may offer a guarantee that an account will be opened or a credit card will be issued within a
specified number of working days otherwise it will pay the customer a specified amount depending on
the period of delay.
Why offer a Service Guarantee?
More and more service firms have started to realize that a good guarantee can act as a marketing tool
for attracting customers as well as help in retaining customers. It also helps in cultivating and maintains
quality throughout an organization. Some of the benefits of an effective service guarantee are
highlighted below
 Implementing a guarantee forces a company to focus on customers.

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  Offering a guarantee provides employees with a service related goal and facilitates goal
alignment between employees and the organization. It can also increase employee morale and
loyalty.
 It encourages customers to complain and provides the opportunity to the organization to make
amends, there by retaining the customers.
 A well designed service guarantee can lead to increased service quality expectations, lower
perceived risk and increased purchase intent.
 Service companies have greater opportunity than manufacturers to differentiate themselves
through a guarantee.
Features of a Good Service Guarantee
Hart summarizes them in to following main characteristics
i. Unconditional: A guarantee should not have “ifs”, “and”, or “buts”. It should make the
promise unconditionally.
ii. Easy to Understand and Communicate: It should be easy to understand for the customers as
to what to expect as well as for the employees as to what to do. The message should be short
and memorable and the standard clear.
iii. Meaningful: The guarantee should be meaningful in terms of what is being promised (
things that customers care about) as well as in terms of the payout
iv. Easy to make request and collect: A good guarantee should be easy to request. Service
marketers should understand that once poor service has been delivered, easy and quick
settlement should be ensured.

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 Chapter Seven: Service Design and Development
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
o Understand the Challenges of Service and Design
o Discuss the New Service Development Process
o Identify the Types of New Services
o Explain the Stages in New Service Development
o Understand Service Blue Printing
o Discuss the Issue of Quality Function Development
7.1. Challenges of Service and Design
Because service is largely intangible and process oriented, they are difficult to describe and
communicate. When services are delivered over a long period, their complexity increases, and
they become even more difficult to define and describe. Further, because services are delivered
by employees to customers, they are variable. Rarely are two services are alike or experienced
in the same way. These characteristics of services we explored in the first chapter are the heart
of the challenge involved in designing services.
Because services cannot be touched, examined, or tried out, people frequently resort to words in
their efforts to describe them. Lynn Shostack, a pioneer in developing design concepts for
service, has pointed out four risks of attempting to describe services in words alone.
 Oversimplification (eg. Inadequate words to describe complex service)
 Incompleteness ( not detailed)
 Subjectivity ( by personal experience and degree of exposure to services) and
 Biased interpretation (eg, no two people will define ‘quick’, ‘responsive’ or ‘flexible’.
7.2. New Service Development
Research suggests that products that are designed and introduced via the steps in structured planning
framework have a greater likelihood of ultimate success than those not develop within framework. The
fact that services are intangible makes it even more imperative for new service development system to
have four basic characteristics:
7. It must be objective, not subjective
8. It must be precise, not vague
9. It must be a fact driven, not opinion driven

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 10. It must be methodological, not philosophical
Although the process of developing new services should be structured and should follow a set of
defined stages, it should not become overly rigid and bureaucratized.
Often new services are introduced on the basis of managers’ and employees’ subjective opinions about
what service should be and whether they will succeed, rather than on objective designs incorporating
data about customer perceptions, market needs, and feasibility.
Because services are produced and consumed simultaneously and often involve interaction between
employees and customers, it is also critical that the new service development process involve both
employees and customers. Employees frequently are the service, or at least they perform or deliver the
service, and thus their involvement in choosing which new services to develop and how these services
should e designed and implemented can very beneficial. Contact employees are psychologically and
physically close to customers and can be very helpful in identifying customer needs for new services.
Because customers often actively participate in service delivery, they too should be involved in the new
service development process. Beyond just providing input on their own needs, customers can help
design the service concept and the delivery process, particularly in situations in which the customer
personally carries out part of the service process.
7.3. Types of New Services
Not all new services are “new” to the same degree. Major Service options can run the gamut
(series) from major innovations to minor style changes:
 Major or radical innovations-are new services for markets as yet undefined. Many
innovations now and in the future will evolve from information, computer, and internet-
based technologies.
 Start-up businesses –consists of new services for a market that is already served by existing
products that meet the same generic needs. Service examples include the creation of health
maintenance organizations to provide an alternative for of health care delivery, online
banking for financial transactions, and door to door airport shuttle services that compete
with traditional taxi and limousine services.
 New service for the currently served market represent attempts to offer existing customers
of the organization a service not previously available from the company (although it may be
available from other companies).

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  Service line extensions represent augmentations of the existing service line, such as a
restaurant adding new menu items, an airline offering new routes, a law firm offering
additional legal services, and a university adding new courses or degrees.
 Service improvements represent perhaps the most common type of service innovation.
Changes in features of services that are already offered might involve faster execution of an
existing service process, extended hours of served, or augmentations such as added
amenities in a hotel room (eg. The addition of wireless internet connections).
 Style changes represent the most modest service innovations, although they are often highly
visible and can have significant effects on customer perceptions, emotions and attitudes.
Changing the color of scheme of a restaurant, revising the logo for an organization,
redesigning a website, or paintings aircraft a different color all represent style changes.
These innovations do not fundamentally change the service, only its appearance, similar to
how packaging changes are used for consumer products.
7.4. Stages in New Service Development
The steps can be applied to any type of new service. Much of what is presented in this section has
direct parallels in the new product development process for manufactured goods. Because of the
inherent characteristics of services, however, the development process for new service requires
adaptations. Although these steps may be similar to those for manufactured goods, their
implementation is significantly different.
Front-end planning
1. Business strategy development
2. New service strategy development
3. Idea generation
4. Concept development and evaluation
5. Business analysis

6. Service development and testing

7. Market testing
8. Commercialization
9. Post introduction evaluation

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Implementation
A. Font end planning
1. Business strategy development or review
It is assumed that an organization will have an overall strategic orientation, vision, and mission. Clearly
a first step in new service development is to review that mission and vision. The new service strategy
and specific new service ideas must fit within the large strategic mission and mission of the
organization.
In addition to its strategic mission, the company’s underlying orientation toward growth will affect how
it defines its new services strategy. Becoming aware of the organization’s overall strategic orientation is
fundamental to plotting a direction for growth. Noted strategy researchers suggest four primary
strategic orientations that are taken by companies:
i. Prospectors-seek to be innovative, searching out new opportunities and taking on risks
ii. Defenders-are experts in their own areas and tend not to seek new opportunities outside their
domain of expertise
iii. Analyzers- maintain stability in certain areas of operation but are open to experimenting and
seeking out opportunities on the margin
iv. Reactors- seldom make adjustments unless forced to do so by environmental pressures.
Another noted management strategist suggests that firms can be distinguished by whether they
primarily pursue a cost –leadership strategy, a differentiation strategy, or a focused strategy.
2. New service strategy development
Research suggests that without a clear new product or service strategy, a well-planned portfolio of new
products and services, and an organizational structure that facilitates product development via ongoing
communications and cross- functional sharing of responsibilities, front-end decisions become
ineffective. Thus product portfolio strategy and a defined organizational structure for new product or
service development are critical-and are the foundations-for success.
The type of new services that will be appropriate will depend on the organization’s goals, vision,
capabilities, and growth plans. By defining a new service strategy, the organization will be a better
position to begin generating specific ideas. For example, it may focus its growth on new services at
particular level of the describe continuum from major innovations to style changes.
One way to begin formulating a new service strategy is to use a framework shown below.

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O f f e r i n g s M a r k e t s
Current customers N e w c u s t o m e r s
E x i s t i n g s e r v i c e s S h a r e b u i l d i n g Market development
N e w s e r v i c e s Service development D i v e r s i f i c a t i o n
The above framework allows an organization to identify possible directions or growth and can be
helpful as catalyst for creative ideas. The framework may also serve as initial idea screen if, for
example, the organization chooses to focus its growth efforts on one or two of the four cells in the
matrix.
3. Idea generation
The next step is the formal solicitation of new ideas. Formal brainstorming, solicitation of ideas
from employees, and customers, lead user research, and learning about competitors’ offerings are
some of the most common approaches. Some companies are still collaborative with outsiders
(competitors, vendors, an alliance partners).
4. Service concept development and evaluation
Once an idea surfaces that is regarded as a good it with both the business and new service strategies, it
is ready for initial development. In the case of tangible product, this next step would mean formulating
the basic product definition and then presenting consumers with descriptions and drawings to get their
reactions.
Inherent characteristics of services, particularly intangibility and simultaneous production and
consumption, place complex demands on this phase of the process. By involving multiple parties in
sharpening the concept definition, it often becomes apparent that individual views of the concept are
not the same.
After clear definition of the concept, it is important to produce a description of the service that
represents its specific features and characteristics and then to determine initial customer and employee
responses to the concept. The service design document would describe the problem addressed by the
service, discuss the reasons for offering the new service, itemize the service process and its benefits,
and provide a rationale for purchasing the service. The roles of customers and employees in service
delivery process will also be described. The new service concept would then be evaluated by asking
employees and customers whether they understand idea of proposed service, whether they are favorable
to the concept, whether they feel it satisfies unmet needs.

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5. Business analysis
Assuming the service concept is favorably evaluated by customers and employees at the concept
development stage, the next step is to estimate its economic feasibility and potential profit implications.
Demand analysis, revenue projections, cost analysis and operational feasibility are assessed at this
stage. This stage will involve preliminary assumptions about the costs of personnel hiring and training,
delivery system enhancements, facility changes, and any other projected operations costs.
B. Implementation
6. Service development and testing
In the development of new tangible product, the development and testing stage involves construction of
product prototypes and testing for consumer acceptance. Again services are intangible and largely
produced and consumed simultaneously, this stage presents unique challenges. To address these
challenges, this stage of service development should involve all who have stake in the new service:
customers and contact employees as well as functional representatives from marketing, operations and
human resources. During this phase, the concept is refined to the point at which a detailed service
blueprint representing the implementation plan for the service can be produced. The blueprint is likely
to evolve over a series of iterations on the basis of input from all the involved parties. For example,
when a large state hospital was planning a new computer-based information service of doctors
throughout its state, it involved many groups in the service development and evaluation stage, including
medical researchers, computer programmers and operators, librarians, telecommunication experts, and
record clerks as well as the physician customers.
A final step is for each area involved in rendering the service to translate the final blueprint into
specific implementation plans for its part of the service delivery process.
7. Market testing
At the market testing stage, a tangible product might be test marketed in a limited number of trading
areas to determine marketplace acceptance of the product as well as other marketing mix variables
such as promotion, pricing and distribution systems. Again, the standard approach for a new
manufactured product is typically not possible for a new service Because of its inherent characteristics.
Because new service offerings are often intertwined with the delivery system for existing services, it is
difficult to test new services in isolation. And in some cases, again, it may not e possible to introduce
the service to an isolated market area because the organization has only one point of delivery. There are
alternative ways of testing the response to marketing mix variables, however. The new service might be

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offered to employees of their organization and their families for a time to assess their responses in
terms of intensions to try the service under varying circumstance. This approach certainly has limitations
compared with an actual market test, but it is better than not assessing market response at all.
It is also extremely important at this stage in their development process to do a pilot run of the service
to be sure that the operational details are functioning smoothly.
8. Commercialization
During the commercialization stage, the service goes live and is introduced to the marketplace. This
stage has two primary objectives. The first is to build and maintain acceptance of the new service
among large numbers of service delivery personnel who will be responsible day to day for service
quality. This task is made easier if an acceptance has been built in by involving key groups in the
design and development process all along.
The second objective is to monitor all aspects of the service during introduction and through the
complete service cycle. If the customer needs sic months to experience the entire service, then careful
monitoring must be maintained through at least six months.
9. Post introduction evaluation
At this point, the information gathered during commercialization of the service can be reviewed and
changes made to the delivery process, staffing or marketing mix variables on the basis of actual market
response to the offering.
No service will ever stay the same. Whether deliberate or unplanned, changes will always occur.
Therefore, formalizing the review process to make that change that enhances service quality from the
customer’s point of view is critical.
7.5. Service Blueprinting
The manufacturing and construction industries have a long tradition of engineering and design. Can
you imagine a house being built without detailed specifications? Yet services commonly lack concrete
specifications. A service, even a complex one, might be introduce without any formal Objective
depiction of the process.
A service blueprint is a picture or map that accurately portrays the service system so that the different
people involved in providing it can understand and deal with it objectively regardless of their roles or
their individual points of view. Blueprints are particularly useful at the design stage of service
development. A service blueprint visually displays the service by simultaneously depicting the process

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of service delivery, the points of customer contact, the roles of customers and employees, and the
visible elements of the service.
Steps involved in building a service blue print are the following:
1. Identify the process to be blue printed
2. Identify the customer or customer segment
3. Map the process from the customer’s point of view
4. Map employee actions, onstage and backstage, and/or technology actions
5. Link contact activities to needed support functions
6. Add evidence of service at each customer action step
7.6. Quality Function Deployment
In addition to service blueprinting, another approach than can be used to develop service architecture is
quality function deployment (QFD). QFD has been defined a “system for translating customer
requirements into appropriate company requirements at every stage, fro m research through production
design and development to manufacture; distribution; installation; and marketing, sales, and services.”
Because QFD is used as a means of integrating marketing and engineering personnel in the
development process, it has more applications in manufacturing than in services. Its ideas are also
applicable to services; however, QFD is implemented via what is known as the “house of quality,”
which links the customer requirements to design characteristics of the product or service. These are
then linked to internal processes such as product planning, process planning, and production planning
and parts deployment.
The result of house of service quality comprises three distinct sections:
i. Customer quality criteria (what customer perceives)
ii. Service company facets (how these criteria are created by the firms)
iii. The relationship grid (how the two are related)

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 Chapter Eight: Delivering and Performing Service
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
o Understand the role of Employee’s and Customers in Service Delivery
o Identify the Strategies for Enhancing Customer Participation
o Explain the Concept of Service Intermediaries
o Discuss the Common Issues Involving Intermediaries
o Understand the Concept of Electronic Channels and its Challenges in Service Industry
o Identify Strategies for Effective Service Delivery through Intermediaries
8.1. Employee’s Role in Service Delivery
In this chapter we focus o service employees and human resource practices that facilitate delivery of
quality services. The assumption is that even when customer expectations are well understood (gap1)
and services have been designed and specified to conform to those expectations (gap2), there may still
be discontinuities in service quality when the service is not delivered as specified. These discontinuities
are labeled gap3-the service performance gap-in the service quality framework. Because employees
frequently deliver or perform the service, human resource issues are a major cause of this gap. By
focusing on the critical role of service employees and by developing strategies that will lead to effective
customer-oriented service, organizations can begin to close the service delivery gap
The failure to deliver services as designed and specified can result from a number of employee and
human performance factors: ineffective recruitment of service-oriented employees; role ambiguity and
role conflict among contact employees; poor employee-technology-job fit; inappropriate evaluation and
compensation systems; and lack of empowerment, perceived control, teamwork.
The behavior of employees in an organization will be heavily influenced by the culture of an
organization, or the pervasive norms and values that shape individual and group behavior.
Corporate culture has been defined as “the pattern of shared values and beliefs that give the members of
an organization meaning, and provide them with the rules for behavior in the organization.” Culture has
been defined more informally as “the way we do things around here.” Suppose that you have been a
member of churches, fraternities, schools, or associations. Your behavior and the behavior of others
were no doubt influenced by the underlying values, norms and culture of the organization. Even when
you firs t interview for a new job, you can begin to get a sense of the culture through talking to an
number of employees and observing behavior. Once you are on the job, your formal training as well as

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informal observation of behavior will work together to give you a better picture of the organization’s
culture.
Experts have suggested that a customer-oriented service-oriented organization will have at its hear a
service culture, defined as “a culture where an appreciation for good service exists, and where giving
good service to internal as well as ultimate, external customers is considered a natural way of life and
one of the most important norms by everyone.”
Service culture has been linked to competitive advantage in companies. Why is it so important? No
realistic amount of supervision would allow a firm to exercise sufficient control over all employee
behavior, in many service settings, employees interact with customers with no management present. In
such instances, the firm must rely on its service culture it influence employee thoughts, feelings and
behaviors.
Strategies for delivering service quality through people
 hire the right people
 Compete for the best people
 Hire for service competencies and service inclination
 Be the preferred employer
 develop people to deliver service quality
 Train for technical and interactive skills
 Empower employee
 Promote teamwork
 provide needed support system
 Measure internal service quality
 Provide supportive technology and equipment
 Develop service-oriented internal process
 Retain the best people
 Include employees in the company’s vision
 Treat employee as customers
 Measure and reward strong service performers
8.2. Roles of Customers in Service Delivery
Service customers are often present in the “factory”(the place the service is produced and /or
consumed), interacting with employees and with other customers. For example, in a classroom or
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training situation, students (customers) are sitting in the factory interacting with instructor and other
students as they consume and co-create the educational services. Because they are present during
service production, customers can contribute to or detract from the successful delivery of the service
and to their own satisfaction. In a manufacturing context, rarely does the production facility contend
with customer presence on the factory floor, nor does it rely on the customer’s presence on the factory
floor, nor does it rely on the customer’s immediate real-time input to manufacture the product.
Because customers are participants in service production and delivery, they can potentially contribute
to the widening of gap3. That is, customers themselves can influence whether the delivered service
meets customer-defined specifications. Sometimes customers contribute to gap3 because they lack
understanding of their roles and exactly what they should do in a given situation, particularly if the
customers confronting a service concept for the first time.
Customer participation at some level is inevitable in service delivery and co-creation as the customers
play the following roles as well as what we mentioned so far.
Customer receiving the service
 Customer influencing fellow customers
 Customer as productive resource
 Customer as contributor to service quality and satisfaction
 Customers as competitors- if self-service customers can be viewed as resource of the fir, or
as” partial employees,” they could in some cases partially perform the service or perform the
entire service for themselves and not need the provider at all.
8.3. Strategies for Enhancing Customer Participation
The level and the nature of customer participation in the service process are strategic decisions that can
impact an organization’s productivity, its positioning relative to competitor, its service quality, and its
customer’s satisfaction. The overall goals of a customer participation strategy will typically be to
increase organizational productivity and customer satisfaction while simultaneously decreasing
uncertainty due to unpredictable customer actions.
Strategies that can enhance customer participation are as follows:
1. Defining customers’ jobs-the job might entail helping oneself, helping others, or promoting the
company. See also individual difference: not everyone wants to participate.
2. Recruit, educate and reward customers

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 3. Manage the customer mix-because customers frequently interact with each other in the process of
service delivery and consumption.
8.4. Concept of Service Intermediaries
Except for situations such a distance learning, where electronic channels can distribute services,
providers and consumers come into direct contact in service provision. Because of the inseparability of
production and consumption in service, providers must either be present themselves when customers
receive service or find ways to involve others in distribution. Involving others can be problematic
because quality in service occurs in the service encounter between company and customer. Unless the
service distributor is willing and able to perform in the service encounter as the service principal would,
the value of the offering decreases and the reputation of the original service may be damaged. In spite
the challenge from the use of intermediary, most service companies may face an even more formidable
task: attaining service excellence and consistence when intermediaries represent them to customers.
Two distinct service marketers are involved in delivering service through intermediaries: the service
principal, or originator, and the service deliverer, or intermediary. The service principal is the entity
that creates the service concept (whose counterpart is the manufacturer of physical goods), and the
service deliverer is the entity that interacts with the customer in the actual execution of the service
(whose counterpart is the distributor or wholesaler of physical goods).
Direct delivery of service
In fact, many services` are delivered directly from the service producer to the consumer. i.e, in contrast
to channels for goods, channels for services are often direct-with the creator of the service (the service
principal) selling directly to and interacting directly with the customer. Because services cannot be
owned, there are not titles or rights to most services that can be passed along a delivery channel.
Because services are intangible and perishable, inventories cannot exist, making warehousing a
dispensable function. In general, because services cannot be produces, warehoused, and the retailed, as
goods can many channels available to goods producers are not feasible for service firms. Thus, many of
the primary functions that distribution channels serve-inventorying, securing, and taking title of goods-
have no meaning in services, allowing the service principal to deliver the service directly to the
customer
Delivery of service through intermediaries
Even though many of the functions that intermediaries provide for goods manufacturers ar not relevant
for service firms, intermediaries often deliver services and perform several important functions for

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service principals. First, they may co-produce the service, fulfilling service principals’ promises to
customers, franchise services such as haircutting , key making, and dry cleaning are produced by the
intermediary (the franchisee) using a process developed by the service principal. Service intermediaries
also make services locally available, providing time and place convenience for the customer. Because
they represent multiple service principals, such intermediaries as travel and insurance agents provide a
retailing function for customers, gathering together in one place a variety of choices. And in many
financial or professional services, intermediaries function as the glue between the brand or company
name and the customer by building the trusting relationship required in these complex and expert
offerings.
The primary types of intermediaries used in service delivery are franchisees, agents, brokers, and
electronic channels. Franchises are service outlets licensed by a principal to deliver a unique service
concept it has created or popularized. Examples include fast-food chains (McDonald’s, Burger king),
video stores automobile repairs services and hotels.

8.5. Common Issues Involving Intermediaries

Key problems with intermediaries include conflict over objectives and performance, difficulty
controlling quality and consistency across outlets, tension between empowerment and control, and
channel ambiguity.
Channel conflict over objectives and performance
The parties involved in delivering services do not always agree about how the channel should operate.
Channel conflict can occur between the service provider and ther service intermediary, among
intermediaries in a given area, and between different types of channels used by a service provider (such
as when a service principal; has its own outlets as well as franchised outlets). The conflict most often
center on the parties having different goals, competing roles and rights, and conflicting views of the
way the channel is performing. Sometimes the conflict occurs because the service principal and its
intermediaries are too dependent on each other.
Difficulty controlling quality and consistency across outlets
One of the biggest difficulties for both principals and their intermediaries involves the inconsistency
and lack of uniform quality that result when multiple outlets deliver services. When shoddy
performance occurs, even at single outlet, the service principal suffers because the entire brand and
reputation are jeopardized, and other intermediaries endure negative attributions to their outlets. The
problem is particularly acute in highly specialized services such as management consulting or

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architecture, in which execution of the complex offering may be difficult to deliver to the standards of
the principal.
Tension between empowerment and control
McDonald’s and other successful service businesses were founded on the principle of performance
consistency. Both they and their intermediaries have attained profits and longevity because the
company controls virtually every aspect of their intermediaries ‘business. McDonald’s for example, is
famous for its demanding and rigid service standards (such as “turn, never flip, hamburgers on the
grill”), carefully specified supplies, and performance monitoring.
Control, however, can have negative ramifications within intermediaries. Many service franchisees, fro
example, are entrepreneurial by nature and select service franchising because they can own and operate
their own business. If they are to deliver according to consistent standards, their independent ideas must
be integrated into and often subsume by the practices and policies of the service principal. In these
situations they often feel like automations with less freedom than they have anticipated as their own
business.
Channel ambiguity
When control is not the chosen strategy, doubts exist about the roles of the company and the
intermediary. Who will undertake market research to identify customer requirements, the company or
an intermediary? Who owns the results and in what way are they to be used? Who determines the
standards for service delivery, the franchiser or the franchisee?
8.6. Concept of Electronic Channels and Its Challenges in Service Industry
Electronic channels are the only service distributors that do not require direct human interaction.
What they do require is some predesigned service (almost always information, education, or
entertainment) and an electronic vehicle to deliver it. You are all familiar with telephone and
television channels and the internet and web and may be aware of other electronic vehicles that are
currently under development. The consumer and business services that are made possible through
these vehicles include movies on demand, interactive news and music, banking and financial
services, multi-media libraries and databases, distance learning, desktop videoconferencing, remote
health services, and interactive, network-based games.

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 The more service relies on technology and/or equipment for service production and the less it relies
on face-to-face contact with service providers, the less the service is characterized by inseparability
and no standardization.
Benefits of Electronic channels
 Consistent delivery of standardizes services
 Low cost than interpersonal media
 Customer convenience
 Wide distribution
 Presence of customer choice and ability to customize
 Quick customer feedback is also possible
Challenges in distributing services through electronic channels
 Price competition-one of the traditional differences between goods and services has been the
difficulty of directly comparing features and prices of services with each other. Whereas goods
can typically be compared in retail settings, few retail settings exist that offer services from
multiple sources. The internet has changed all that. Services such as Travelocity of service.
 Inability to customize with highly standardized electronic services-in electronic classes-as in the
video-conferences that are springing up in many businesses-the quality of the service can be
impeded by the way the audience reacts (or does not react) in those situations. People talk
among them, leave, laugh, and criticize, among other behaviors.
 Lack of consistency because of customer involvement-although electronic channels are very
effective in minimizing the inconsistency from employees or providers of service, customer
variability still presents a problem. Many times customers use the technology themselves to
produce the service and can lead to errors or frustration unless the technology is highly user
friendly. Maneuvering online can sometimes be overwhelming, and not all websites are easy to
use. Furthermore, many customers may not have computers and , even if they do, may be
reluctant to use this medium
 Changes in consumer behavior-a consumer purchasing g a service through electronic channels
engages in very different behavior than a consumer entering a retail store and talking to a
salesperson. Considerable changes-in the willingness to search for information, in the
willingness to perform some aspects of the services themselves, in the acceptance of different
levels of service-are necessary when customers use electronic channels. Behavior change is

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 difficult, even for a consumer wanting to make a change; therefore, marketers wishing to
motivate consumers to alter long-established patterns will be challenged
 Security concerns-particularly for health and financial information. Eg. Cyber attack and
vandalism.
 Competition from widening geographies-historically, many services were somewhat protected
from competition because customers had limited choice among the providers they could
physically drive to banks, for example Supplied all local customers with checking accounts,
savings accounts, and mortgages, in fact, it use to be said that because services could not be
transported they were limited in their scope. Not any linger-and not with electronic channels.
Through the interknit, many services, including financial services, can be purchased from
service providers far from the local area
8.7. Strategies for Effective Service Delivery through Intermediaries
Service principals, Of course, want to manage their service intermediaries to improve service
performance, solidify their images, and increase profits and revenues. The principal has a variety of
choices, which range from strict contractual and measurement control to partnering with
intermediaries in a joint effort to improve service to the customer. One of the biggest issues a
principal faces is whether to view intermediaries as extensions of its company, as customers, or as
partners. Below are categories of intermediary management strategies:
1. Control strategies-in the control strategies category, the service principal believes that
intermediaries will perform best when it creates standards both for revenues and service
performance, measures results, and compensates or rewards on the basis of performance.
2. Empowerment strategies-in which service principal allows greater flexibility to intermediaries
based on the belief that their talents are best revealed in participation rather than acquiescence-
are useful when the service principal is new or lacks sufficient power to govern the channel
using control strategies. In empowerment strategies, the principal provides information,
research, or processes to help intermediaries perform well in service. in doing, so:
 Help the intermediary develop customer-oriented service process- to this the standard can be no
client will wait more than 30 minutes in the waiting area phone calls will be answered by the fourth
ring, no caller will be on hold for more than one minute.
 Provide needed support systems
 Develop intermediaries to deliver service quality

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 Have a cooperative management structure
3. Partnering Strategies important activities for this are:
IV. Alignment of goals
V. Consultation and cooperation

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 Chapter Nine: Integrated Services Marketing Communications (IMC)
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
o Understand the Concept of integrated services marketing communications
o Identify the Reasons for service communication problems
o Discuss the Strategies to match service promises with service delivery
o Understand the Concept of customer expectations
o Discuss on Managing internal marketing communication
9.1 Concept of Integrated Marketing Communication
 IMC is a strategy that carefully integrates all external and internal communication channels to
present a consistent message to customers. IMC is defined as "a comprehensive plan that
evaluates the strategic roles of a variety of communication disciplines and combines these
disciplines to provide clarity, consistency and maximum communication impact. The primary
idea is to create a seamless experience forconsumers across different aspects of the marketing mix.
 The brand's core image and messaging are reinforced as each marketing communication channel
works together asparts of a unified whole rather than in isolation.
 Prior to the emergence of IMC during the 1990s, masscommunications - information to large
segments of the population through television, radio, and other media dominated marketing.
 Marketing was a one-way feed.
 Advertisers broadcasted their offerings and value propositions with little regard for the diverse
needs, tastes,and values of consumers. This "one size fits all" approach was costly and
uninformative.
 Marketers were increasingly able to correlate promotionalactivities with consumer purchasing patterns.
 Now, marketing is viewed more as a two-way conversationbetween marketers and consumers.
 This transition can be summarized by the following market trends: a shift from mass media ad
to multiple forms ofcommunication the growing popularity of more specialized (niche)media,
which considers individualized and increased segmentation of consumer tastes andpreferences
the move from a manufacturer-dominated market to aretailer-dominated, consumer-controlled
market the growing use of data-based marketing as opposed togeneral-focus ad and marketing
greater business accountability, particularly in ad
 Unlimited Internet access and greater online availability ofgoods and services.

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  a larger focus on developing marketing communicationsactivities that produce value for target
audiences while increasing benefits and reducing costs.
9.2. Reasons for Service Communication Problems
 People are not trained. When an organization does notspend the time to fully train their people.
Solution:
Dedicate resources (time and money) fortraining.
Employees should be fully informed about company goals, the products and services. Emphasis and
training should be focused upon the importance of listening and responding to the customer’s requests.
People can only do the job if they are given the right toolsand objectives. It costs money to train people.
It will cost more if youdecide not to train them.
 People don’t care. Selecting the correct personality is crucial for your business success.
Apathetic or self centeredpersonality types have no place in a business that requires customer
contact.
Solution: Focus the selection and evaluation process toidentify personalities that do not fit the
required profile.
Get the wrong people out immediately, it also sends a clearmessage to everyone.
 Sabotage. Angry or frustrated employees can activelywork to sabotage and try to destroy the
company.
Solution:
Keep honest and open communications withemployees. Informally and formally review performance,
goals, objectives and feelings to stop potential problems beforethey reach the customers. Get these
people out of the front lines immediately.
 Employees don’t believe in the company, product or service. If the image, marketing and
promotion of the company is quite different from the reality, workers will notbe able to sustain a
positive attitude in the face of problemsthey know exist.
Solution: Be honest. Work closely with customer service, marketing and quality control to identify
real problems andfix them.
Don’t let marketing advertise over problems, solve them.
 Personal problems reflected in work. When an employee’s personal life is in crisis or out of
control, theymay exercise control, aggression and negativism toward customers in an attempt to
put some part of their life in order.

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 Solution:
- Clear communications with employees:
- If their personal life is affecting work performance, talk about it. Time off,
access to counseling or just listeningmay prevent more serious problems.
 Burnt out. Too much negative, too many complaints can lower a person’s level of
commitment and move their positive and helpful attitude to an apathetic one.

Solution: Constant communication helps to identify whois burning out and why.
- Get customer service people together to talk of success and how to deal with the
frustrations.

- Provide recognition or incentives for excellence in dealingwith problems.

 Not providing the correct solutions to customers, lack of empowerment: There is
nothing worse than dealing with an employee who listens to a problem, then shrugs and
saysthey have to ask someone else in the company to intervene and provide a solution.

 Don’t see the benefits – don’t understand their role in thecompany.

Solution: Employees project an image of the company.

-They are the company.

- They should be reminded of their importance and value to the customer and to the
company. Incentives, recognition, training and constant reinforcement are important.

 Apathetic from hearing the same problems over and over. Provide constant feedback on
how customers view the company, the products and the service. If this feedbackis not analyzed
and acted upon by upper management a feeling of apathy and frustration is created.

Solution: Set up a model and procedure for the accumulation, analysis and
implementation of solutions for the problems identified by customerservice.

 Incentives/salary not tied to results.

Solution: If you insist that the company depends upon people, and that people are
the key to success, implementcompensation packages, evaluations and incentives that
support and reinforce this.
9.3. Strategies to Match Service Promises with Service Delivery
 Customers expect certain things when they walk into abusiness.

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  When expectations are not met by the performance of customer service representatives,
customer dissatisfaction will be the result.
 Customer Expectations + Service Performance =Customer Satisfaction
 The quality of your customer service is determined by your ability to meet your customer
expectations. You canhave the greatest service team, but if your customers perceive their needs
are not being met, your service reputation suffers.
 Service quality is largely determined by customer'sperception.
 Identifying Customer Expectations
 it can be very challenging to know precisely what thoseexpectations might be
 Have customers’ complete surveys about your products andservice.
 Next time you see a customer, ask if his expectations ofyour business are being met.
 If not, find out why and what you can do to make yourservice better.
9.4. Concept of Customer Expectations
Common customer expectations include:
Fast, efficient and accurate service
High quality products at a competitive price
Friendly, helpful service staff to provide information andanswer questions
Prompt responses to their inquiries, whether online, byphone or in person
Sufficient stock to meet their needs without long waits
A trained staff that can handle their questions withoutreferring them on
A clean facility or easy to navigate website
All of these expectations comprise the minimum of whatyour top-notch service should look like.
When you are able to accurately identify and adequatelymeet your customers' expectations, your
customer servicereputation will automatically be enhanced.
Some of the benefits of meeting your customers'expectations are:
Customers that transform from first-time visitors to loyalclients
Increased sales as customers feel more comfortable doingbusiness with you
More referrals from satisfied customers who bring in additional
business by word of mouth
By meeting or exceeding them consistently, your company is likely to enjoy happier customers and a
healthier bottom line.
9.5. Managing Internal Marketing Communication
Internal marketing communication needs well-coordinated efforts among different functions of the
organization to work for the same goal. Horizontal communication that should take place among
functions does not go on resulting in not keeping everyone informed or getting everyone’s input. Any
miscommunication between any two departments like marketing and operations or these two and the
HR can cause a situation that may create missing links and hence disintegrated communication.

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Until marketing communications are fully integrated and spread across the organization, it is quite very
difficult to keep all the employees informed of real communication objectives. Informed employees get
motivated to offer a service in a manner that minimizes the gap. Therefore, there is a tremendous need
for coordinating marketing communications. There are a few more factors in addition to inadequate
internal communication that build unrealistic expectations. The availability of competitive offerings,
customers’ perceptions of competitive offerings and the general word of mouth play a role toward that.
Also, the sheer fact that customers have certain needs to fulfill, they develop certain expectations.
These factors are of such extraneous nature that it is difficult for the company to control them. The
company, however, can control the tools of communication at its disposal in a way that the impact of
extraneous factors gets subsided.

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 Chapter Ten: Pricing of Services
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Value to Customers
 Discuss the Role of Price as an Indicator of Service Quality
 Explain the different Approaches to Pricing Services
 Identify Strategies used by Companies to Price Services
10.1. Concept of Value to Customers
Service companies must understand how pricing works, but first they must understand how customers
perceive prices and price changes. If you are like many consumers, you feel quite uncertain about you
knowledge of the prices of services, and the reference prices you hold in memory for services are not
generally as accurate as those you hold for goods. Some of the reasons for this difference are:
F. Service variability limits knowledge
G. Provider are unwilling to estimate prices
H. Individual customer needs vary
I. Collection of price information is overwhelming in services
J. Prices are not visible
10.2. Role of Price as an Indicator of Service Quality
Because services are intangible and experienced in nature, the price becomes more important to
consumers as a cue of what to expect.
 In the absence of other form of communication from the company, price becomes the sole
decisive factor in the selection of a service. Customers look for cues like information through
advertising, brand image, etc.
 In certain services which are perceived as high risk like consultancy services and medical
treatment the customer’s associate price with quality assurance.
 Too low price an act as a repellant. It could send negative signals.
10.3. Approaches to Pricing Services
What Makes Service Pricing Strategy Different and Difficult?
 Harder to calculate financial costs than a manufactured good
 Difficulty in defining a “unit of service”
 Services hard to evaluate

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  Customers may be prepared to pay more for faster delivery
 Delivery through physical or electronic channels—may create differences in perceived value
There are three bases for pricing:
 Cost based/cost plus
 Competition based
 Demand based
 Cost based
Cost based Pricing: Used in services like advertising, contracting etc.
Price = Direct Cost+ Overhead Cost+ Profit Margin
 Competition based pricing
This approach is based on using the competitors’ price as the point of reference
Eg: Fitness clubs, Driving classes, Computer classes etc.
When services are standard across providers:
 In oligopolies where there are few large service providers : Airlines
 Going-rate Pricing
 Sealed bid pricing: govt. tenders
 Demand based pricing
Based on establishing prices consistent with customer perception of value i.e. pricing depends on what
customers are likely to pay for the services provided
10.4. Strategies Used by Companies to Price Services
New service pricing strategies:
1. Price skimming strategy,
2. Price penetration
 Differential pricing/market segmentation pricing
Price discrimination may be resorted on the following basis:
1. Group of buyers-where different groups pay different prices. Eg. Children below ten are charged
less in amusement parks.
2. Differential points of consumption-where different rates are charged for the same service in
different locations. Eg. Higher price in cities than suburbs.
3. Different time of consumption- where different prices are charged to even out the peak and slack
period of demand.
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  Service mix pricing
Service firms with multiple services offering that are more often interrelated may resort to:
Optional additional service: when the service provider gives an option to consumer to purchase the
optional service with the core service. Eg. Holiday resorts may keep their room tariff low to attract
tourists but will charge more on optional services like swimming pool, restaurant, health club facilities,
etc. Captive service-in this strategy the customer has not choice but to get additional service from the
service provider along with the core service. Eg. Software developing firm also offer software
maintenance contracts with an agreement to provide free upgrades of software that enters into
maintenance contracts with them. Competing services- in this strategy the service provider may offer a
new service offering similar to the existing one but at low price. In this strategy the service firm
competes with its own offerings.
 Price bundling
In this strategy the service provider prices his entire service offering as a package at a single price.
Bundling means pricing and selling services as a group rather than as individual offering
Relationship pricing
It is an appropriate form of pricing where there is an ongoing contact between the service provider
and the customer. This strategy follows the market oriented approach of value based pricing of all
services provide to the customer and makes a potential profit stream over a given period of time. In
other words it takes the life time of the customer into account. The main objective of this strategy is
to encourage customer loyalty.

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Chapter Eleven: Services Differentiation, Quality And Productivity
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
o Understand the Concept of Service Differentiation
o Discuss the Measurement of Productivity
o Explain the Mechanism of Improving Productivity
11.1. Improving Service Differentiation
In these days of intense price competition, service marketers often complain about the difficulty of
differentiating their services from those of competitors. To the extent that customers view then services
of different providers as similar, they care less about the provider than the price.
The solution to price competition is to develop differentiated offer, delivery and image.
The ‘offer can include innovative features that set one company’s offer apart from competitors ‘offers.
Some hotels offer car-rental, banking, and business-center services in their lobbies and free high-speed
Internet connections in their rooms. Airlines differentiate their offers though frequent-flyer award
programs and special services, For example, Qantas offers personal entertainment screens at every seat
and "Sky beds" for international business class flyers.
Lufthansa provides wireless Internet access and real-time surfing to every seat-it makes "an airplane
feel like a cyber cafe." And British Airways offers spa services at its Arrivals Lounge at Heathrow
airport and softer in-flight beds, plumper pillows, and cozier blankets. Says one ad: "Our goal is simple:
to deliver the best service you can ask for, without you having to ask."
Service companies can differentiate their service delivery by having more able and reliable customer
contact people, by developing a superior physical environment in which service product is delivered or
by designing a superior delivery process. For example, many grocery chains now offer online shopping
and home delivery as a better way to shop than having to drive, park, wait in line, and tote groceries home.
Service companies also can work on differentiating their images through symbols and
Branding, the Harris Bank of Chicago adopted the lion as its symbol on its stationery, in its advertising,
and even as stuffed animals offered to new depositors. The well-known Harris lion confers an image of
strength on the bank. Other well-known service symbols include Merrill Lynch's bull, MGM's lion,
McDonald's Golden Arches, and Allstate's "good hands."

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Finally, a service firm can differentiate itself by delivering consistently higher quality than its
competitors do. Like manufacturers before them, most service industries have now joined the
customer-driven quality movement, and like product marketers, service providers need to identify what
target customers expect concerning service quality.
11.2. Concept of service quality
Service quality is a measure of how an organization understands its users’ needs and fulfills their
expectations. Understanding how to improve the service quality of your product is the key step to
growth for any organization. Measuring and improving service quality is a valuable art. But this
requires research and expertise. To learn more about service quality we need to understand the key
dimensions of service quality.

The 5 Service Quality Components

The key dimensions can be categorized into 5 components. Let’s take a deep dive into the above points
and learn how to make your product the best in the market:
1. Service Quality Reliability
Consistency all year round will not only ensure the probability that a product or service will operate as
desired but also make sure that there is no breakage in the deliveries as set out. This helps in
uncovering the customer experience measures well as potential risks in losing customers to the
competition.
There might be numerous factors that could potentially cause disruption or breakage of a quality of a
service being provided, especially in the case of continuous service delivery enterprises. Analyzing
these deadlocks, and sources and coming up with strategies to mitigate the risks so that the end
customers get consistent service delivery is a key component in making sure.
For instance, in a multi-tenant architecture fluctuation of end-customer volumes can be quite uneven-
while regular web traffic can be quite manageable, we might end up having exponential requests on the
first working day of the month. It is absolutely necessary that proper contingency plans be developed
during the inception phase so that there is a smooth transition in handling these anomaly scenarios.

2. Service Quality Tangibility

Customers should feel a palpable sense of quality in the level of services being offered to them. Total
perceived quality is generally based on the juxtaposition of expected quality vs. experience quality.
In general, Expected quality is usually deduced from various marketing campaigns, sales promotions,
brand images, and word-of-mouth.

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Multiple types of research have shown the experienced quality can be measured with either:
 Technical Quality: The What?
 Functional Quality: The How?
Sometimes, organizations can also derive their custom indicators to measure tangible service
experience with the help of well-formulated questionnaires and surveys.

3. Responsiveness
Being responsive to your consumers, making them feel heard, and giving them the right directions is a
key factor in service quality. If you have a product and are facing issues with it, and the service team
for the product is taking ages to get the issue resolved, would that make you want to use the product?
Or will you find a product with a great Time-To-Resolution and better service?
How can you be better at Responsiveness?
Understanding your customer, providing consistent support experience, providing them with
resourceful self-help guides, using canned responses for a quicker process, training the employees,
setting performance goals for your employees, and monitoring them are some of the key factors that
will benefit your organization and the product.

4. Service Quality Assurance

It is worth noting that consumers are getting bombarded with targeted digital advertisements all over. It
is difficult to measure the reliability of each of these on a daily basis and with less attention span on a
digital platform for end-users for e.g. e-commerce sites, trusting a brand is very important.
Assurance measures the ability of service providers to relay trust to the customers which are paramount
in getting confidence in customers to stick with the organization as opposed to the competition.
Assurance can be marked in different ways – Brand loyalty might be the first. People generally tend to
trust a brand they are familiar with. But this might be a bit difficult for new startups. New aspiring
companies need to pay special attention to delivering sales pitches which magnifies their commitment
to reliable service delivery in the long run.

5. Empathy
Understanding the consumer’s use case, how the product will be useful to them, guiding them and
helping them achieve their goals, and being empathetic to their needs is a very important process for an
organization. This is what separates a human from a bot, the ability to empathize with your customer
and make them feel valued.

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Empathizing with your clients would make them feel valued and it will lead the user to be loyal to your
product and services.
11.3. The Gap model
Service Quality Gaps
With a framework in place to analyze customer expectations and perceptions of service quality, the next
step is to look for gaps between expected performance and perceived performance. In order for the
service provider to satisfactorily perform services it must understand customer expectations, be able to
perform according to those expectations and communicate effectively with the customer throughout the
entire process. Each customer’s expectations will be influenced by the provider’s communication as well
as by other external factors, including previous experiences and input from other customers.

There can be gaps during each one of these steps. The service provider organization may fail to
understand customer expectations. Even if the expectations are understood, the provider may fail to
translate those expectations into adequate service quality specifications. Even if the service quality
specifications are adequate, the organization may fail to deliver according to those standards. Lastly,
there may be a mismatch between what the organization is able to achieve and what it is
communicated to the customer. The combined gaps in any of these steps will ultimately create a gap
between what customers expect and how they perceive the organization’s performance.

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 The Management Perception Gap: A gap between customer expectations and management’s
understanding of those expectations can arise due to insufficient market research or management
that is too far removed from front line customer interaction.
The Quality Specification Gap: A gap between management understands of customer
expectations and the service quality specifications of the organization can arise due to a lack of
standardization, insufficient planning or a lack of commitment to service quality.
The Service Delivery Gap: A gap between service quality standards and actual service delivery can arise
due to lack of teamwork, low morale, ineffective management or insufficient capacity to meet demand.
Marketing Communication Gap: A gap between actual service delivery and the promised
service delivery can arise due to inadequate communication between service delivery and sales or
marketing or failure to manage customer expectations throughout the service delivery process.
Perceived Service Quality Gap: The overall gap between expected service and the perceived
level of service can usually arise due to the previous four gaps combined with the unique
background and previous experiences of each customer.
Improving Service Quality: The actual steps required to improve service quality will depend on
the specific situation, but they can be grouped into three categories: understanding, performance,
and communication.
The best way to improve understanding of customer needs and expectations is to increase the
amount of time that members of the organization, including management, spend observing and
interacting with customers. This can include customer visits and shadowing those performing front
line services. Customer surveys can also be used to collect information, although surveys do not
remove the need for observing and interacting with customers directly.
Internally, customer personas can be built to help everyone in the organization try to visualize and
understand one or more stereotypical customers. This can include information about the customer’s
background, needs and expectations. Exercises can be performed where employees take turns trying
to argue from the customer’s point of view.
Improving performance will depend on the specific services being performed. The approaches
however fall into two categories. One approach is to invest in creating service quality standards and
developing rigorous training so that all employees understand how to properly perform services. It
is also important for management to observe how services are being performed in order to identify
gaps in service quality standards or additional training opportunities. This is often the approach
selected by large organizations and when done properly it can lead to consistent service quality. The

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 other approach is to hire great people, work hard to retain and motivate them, coach them in areas
where they need improvement, and give them the freedom to delight customers. With this approach
it is particularly important for management to be intimately familiar with employees and the work
they perform in order to be able to properly identify coaching opportunities. This approach can
work particularly well for small organizations who may opt to do this instead of investing in
standards and training. But relying solely on this approach can be difficult as the size of an
organization increases. It is important to find the right balance between these two approaches.
Communication can easily undo all of the hard work put into improving understanding and performance.
When it comes to improving communication, as it relates to service quality, it is important to make sure that
communication to customers is prompt, that expectations are properly set up front, and that any changes or
deviations are communicated as soon as possible. All communications should reflect an understanding of the
customer’s needs and expectations and consider the organization’s ability to perform according to those
expectations.
11.4. Measuring& improving service quality
Tangible products tend to have concrete specifications with objective ways to measure adherence to
those specifications. Measuring the quality of the products is typically done by the quality assurance or
quality control function. When it comes to services however there are some challenges posed by their
intangible nature. When purchasing services the customer is usually interested in the outcome or
experience being provided. This means that the quality of the service is based on an subjective
evaluation from the point of view of the customer. This makes it more difficult for the service provider
organization to objectively measure service quality. These challenges however can be overcome through
a structured approach to measuring, analyzing and improving service quality.
The first step of improving service quality is to start measuring service quality; it is hard to improve that
which is not measured. The second step is to start identifying gaps between the customers’ perception of
service quality and the service provider’s desired level of performance. The final step is to use this new
found information to look for ways to improve service quality.
Measuring Service Quality
When it comes to ensuring service quality there are two important aspects to consider: the
customer’s expectations and the customer’s perception of the performance. If the perceived performance
exceeds expectations, the customer can be considered satisfied. If the expectations are not met, the
customer will typically be dissatisfied. These expectations and the resulting perception of performance
can be analyzed along five dimensions: responsiveness, assurance, tangibles, empathy and reliability.

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 Responsiveness: refers to how promptly the service provide is able to respond to the needs of the customer.
Assurance: is the level of confidence the customer has that the service will be performed adequately.
Tangibles: refers to the physical aspects involved in the rendering of services. This includes the
facility, equipment and personnel that are performing the services.
Empathy: is the service provider’s sense of caring and understanding of the customer and their needs.
Reliability: is the ability of the service provider to consistently provide services dependably and
accurately compared to what was promised.
These five dimensions are part of the RATER model, which originated from the SERVQUAL service
quality framework. This framework was developed in 1977 by Zethaml, Parasuraman, and Berry.
This was the most complete attempt at building a framework for thinking about and measuring
service quality. It originally used ten aspects of service quality: competence, courtesy, credibility,
security, and access, communication, knowing the customer, tangibles, reliability, and
responsiveness. In 1988 seven of these were collapsed into assurance and empathy, leading to the
simplified dimensions found in RATER.
These dimensions are not completely independent. For example, the quality of the facilities,
considered under tangibles, can have an effect on the customer’s level of confidence, considered
under assurance. They are also not necessarily equal in importance. The importance of each
dimension may depend on the specific services being provided as well as on the specific customers
and their needs and expectations. This leads to some challenges with using SERVQUAL as a
quantities model for measuring service quality. But the dimensions provide a useful qualitative
model for analyzing and improving service quality.
11.4. Defining and Measuring Productivity
What is productivity? Simply defined, productivity measures how efficiently a company can transform
inputs into outputs. Inputs vary according to the nature of the business but may include labor (both
physical and intellectual), materials, energy, and capital (land, buildings, equipment, information
systems, and financial assets). Service outputs are the final outcomes of the service delivery process as
perceived and valued by customers. Improving productivity requires increasing the ratio of outputs to inputs.
Why is improving productivity important to marketers? One reason is that it helps keep costs down.
Lower costs mean either higher profits or the ability to hold down prices. The company with the lowest
costs in an industry has the option to position itself as the low-price leader—usually a significant
advantage among price-sensitive market segments. Firms with lower costs than their competitors also

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generate higher margins, giving them the option of spending more on marketing and customer service
activities. They may also be able to offer higher margins to attract and reward the best distributors and
intermediaries. These companies are also better able to invest in new service technologies. A second
reason that productivity improvements are important to marketers is that they are often associated with
faster operating procedures. To the extent that speed of service is valued by customers, it becomes a
competitive advantage.
The intangible nature of service performances often makes it difficult to measure the productivity of
service industries. The measurement task is perhaps the most straightforward in possession-processing
services because many are quasi-manufacturing organizations, performing routine tasks with easily
measurable inputs and outputs that often include physical elements. Examples include quick-service
garages, which change a car's oil and rotate its tires, or fast-food restaurants, which offer limited and
simple menus. But the task is more complicated when the customer's vehicle has an engine problem, or
when the restaurant in question is famous for its varied and exotic cuisine.
In a people-processing service like a hospital, we can look at the number of patients treated in the
course of a year and at the hospital's census, or average bed occupancy. But how do we account for the
different types of procedures performed removal of cancerous tumors, treatment of diabetes, or setting
of broken bones and the almost inevitable variability between one patient and another? And how do we
evaluate the difference in service outcomes? Some patients get better, some develop complications, and
some never recover. There are relatively few standardized procedures in medicine that offer highly
predictable outcomes.
Information-based services also pose measurement issues. How should we define the output of a bank
or a consulting firm? And how does an architect's output compare to a lawyer's? Some lawyers like to
boast about their billable hours. But what were they actually doing during those hours, and how do we
measure their output as opposed to their fees? It's alleged that some lawyers strive to bill for more than
24 hours of work per day, but is that really an accurate indication of productivity?
Finally, measuring productivity is a challenge for mental stimulus services like education. Many
universities are under pressure to document outputs, and they have been struggling with how to
measure the hours professors spend preparing for class, interacting with students, providing service to
the university and the community, and contributing to their professional fields. And how do colleges
(or their graduates) quantify the value of a college degree? Or the value of a good professor versus a
mediocre one

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Variability is a major problem in measuring service productivity. Unfortunately, traditional measures of
service output tend to ignore variations in the quality of service delivered and its perceived value to
customers. In freight transportation, for instance, a ton-mile of output for freight that is delivered late is
treated the same for productivity purposes as a similar shipment delivered on time.30 Another
approach, counting the number of customers served per unit of time, suffers from the same
shortcoming. What happens when an increase in the speed with which customers are served is achieved
at the expense of perceived quality? Suppose a hair stylist serves three customers per hour and finds she
can increase her output to four by giving what is technically just as good a haircut but using a faster but
noisier hair dryer, eliminating all conversation, and rushing through the process. Even if the haircut is
identical in quality, her customers may rate the overall service experience less positively because it did
not meet their expectations of an adequate (or desired) level of service on multiple dimensions.
11.4. Improving Service Productivity
Efforts to improve productivity often affect customers. It's the marketer's responsibility to ensure that
negative impacts are avoided or minimized and that new procedures are carefully presented to
customers. When the impact is a positive one, the improvements can be promoted as a new advantage.
Finally, as we'll see, there are opportunities for marketers themselves to help improve productivity by
involving customers actively in service production and delivery.
In situations where customers are deeply involved in the service production process (most typical in
people-processing services), operations managers should examine how customers' inputs can be made
more productive. Marketing managers should be thinking about what marketing strategies can be
employed to influence customers to behave in more productive ways. Two strategies, in particular, may
be helpful: changing the timing of customer demand and involving customers more actively in the
production process.
Managing capacity and Customer Demand
Managing demand in capacity constrained service businesses is a recurring theme in this book.
Customers often complain about crowding and congestion, reflecting time-of-day, seasonal, or other
cyclical peaks in demand. During the off-peak periods in those same cycles, managers often worry that
there are too few customers and that their facilities and staff are not fully productive. By shifting
demand away from peaks, managers can make better use of their productive assets and provide better
service. However, some demand cannot easily be shifted without the cooperation of third parties like
employers and schools, who control working hours and holiday schedules.

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To fill idle capacity during off-peak hours, marketers may need to target new market segments with
different needs and schedules, rather than focusing exclusively on current segments, productivity will
improve.
Strategies for matching capacity and demand
To match supply and demand,
10. Determine demand pattern.
11. Assess causes of demand variations.
12. Develop methods for managing capacity.
13. Develop methods for managing demand.
Managing Demand
There are two approaches by which demand for service offers can be managed:
1. Shift demand from high to low demand periods.
2. Flexing capacity to meet demand
1. Strategies for shifting demand to match capacity
Demand Too High Demand Too Low
-use signage to communicate busy days and times -use sales and advertising to increase business from current market segments
-offer incentives to customers for usage during non-peak
-modifytimes
the service offering to appeal to new market segments
-Take care of loyal or regular customers first -Offer discounts or price reductions
-Advertise peak usage times and benefits of non-peak
-Modify
use hours of operation
-Charge full price for the service--no discounts -Bring the service to the customer

Advantages of shifting demand

 Business is not lost.
 Service quality is not adversely affected.
 Increased efficiency
Disadvantages of shifting demand
o Customers may not want to shift.
o Customers may not have control over when they use the service.
Flexing capacity to meet demand

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 A. Capacity flexing strategies when demand is high
 Stretch time, labor, facilities and equipment,
 Cross-train employees
 Hire part- time employees
 Request over time work from employees
 Rent or share facilities
 Rent or share equipment
 Sub-contracting or outsourcing activities
A. Capacity flexing strategies when demand is low
 Perform maintenance and renovation: slack seasons are the best periods for service firms to
perform maintenance work for equipment and other infrastructures.
 Schedule vacations: scheduling the vacation of employees during the period of low demand
helps the organization to have continued service of the employees during peak period of
demand.
 Schedule employee training
 Lay-off employee: this is the last resort available to service organizations to reduce costs
during non-peak periods. However, labor laws of respective countries should permit such an
exercise by service firms.
Involving Customers More in Production
Customers who assume a more active role in service production and delivery can take over some labor
tasks from the service organization. Benefits for both parties may result when customers perform self-
service. Some technological innovations are designed to enable customers to perform tasks previously
undertaken by service employees. For instance, many companies are trying to encourage customers to
use a corporate Web site to obtain information and place orders, rather than telephoning customer
service staff directly. For such changes to succeed Web sites must be made user-friendly and easy to
"navigate" and customers must be convinced that it is safe to provide credit card information over the
Internet. Some companies have offered promotional incentives (like a credit of air miles to a frequent
flyer program or a discount on merchandise) to encourage customers to make an initial reservation or
place an order on the Web.
Restaurants, which have traditionally had a high labor component and relatively low productivity,
represent another service in which customers have been asked to do more of the work. We've become

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accustomed to self-service salad bars and buffets. Despite the reduction in personal service, this
innovation has been positioned as a benefit that lets customers select the foods they want, without
delay, in the quantities they desire.
Quality and productivity improvements often depend on customers' willingness to learn new
procedures, follow instructions, and interact cooperatively with employees and other people. Customers
who arrive at the service encounter with a set of preexisting norms, values, and role definitions may
resist change. In fact, research results suggest that some customers may be more willing than others to
serve themselves.
A large-scale study presented respondents with the choice of a do-it-yourself option versus traditional
delivery systems at gas stations, banks, restaurants, hotels, airports, and travel services. A particular
scenario was outlined for each service, since earlier interviews had determined that decisions to choose
self-service options were very situation specific, depending on such factors as time of day, weather
conditions, presence or absence of others in the party, and the perceived time and cost involved. The
results showed that in each instance a sizable proportion of respondents would select the self-service
option even in the absence of time or monetary savings. When these inducements were added, the
proportions choosing self-service increased. Further analysis showed an overlap for some respondents
in terms of their self-service behaviors across different services. If respondents didn't pump their own
fuel, for instance, they were less likely to use an ATM and more likely to prefer being served by a bank
clerk.

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 PART II
ELECTRONIC MARKETING (E-MARKETING) COURSE
Course Description

The growth of the Internet continues to have a tremendous influence on business. Companies and
organizations of all types and sizes are rethinking their strategies and how they run their operations.
This new course challenges students to explore the realities and implications of e-commerce from a
marketer's perspective. Business-to-consumer (B2C) and business-to-business (B2B) e-commerce
markets are examined. The course introduces students to a wide range of electronic commerce issues
for marketers, as a foundation for continual learning in the dynamic e-commerce environment.
Learning Outcomes
After completing this course students will be able to:

 To gain an understanding of the theories and concepts underlying e-commerce

 To apply e-commerce theory and concepts to what e-marketers are doing in "the real world"
 To improve familiarity with current challenges and issues in e-commerce
 Analyze business issues, problems and opportunities in E-commerce.
 Communicate effectively and professionally through physical or virtual presence, vi writing,
speaking and electronic media.
 Apply technological tools to gather and access information necessary to make business
decisions
 Identify the major disciplines contributing to e-commerce.
 Apply informed judgments to ethical issues presented in electronic commerce

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 Chapter One: Overview of Electronics Commerce
After you study this Chapter, you will be able to explain:
 Know the overview and evolution of electronics marketing
 To know the scope of electronic commerce
 Using the web to reach customers
 Benefits of the E-commerce market

1.0. Introduction
There are many terms with the e-prefix and many different interpretations. Within any organization,
developing a common understanding for terms such as e-commerce, e-business and e-marketing, and
how they interrelate and who will manage them, is important to enable development of a consistent,
coherent strategy.
E-commerce is primarily about selling online or the ability to transact online. This includes e-tailing,
online banking and shopping which involve transactions where buyers actually buy and shoppers
actually shop. Some suggest that e-commerce includes all online transactions such as responding to an
enquiry or an online catalogue search.
E-commerce itself does not include the marketing or the back office administration processes that are
required to run a business. E-business has a broader perspective involving the automation of all the
business processes in the value chain from procurement or purchasing of raw materials, to production,
stock holding, distribution and logistics, sales and marketing, after sales, invoicing, debt collection and more.
Electronic commerce is the purchase and sale of goods or services on the internet. E-commerce is the
pursuit of commercial activity through electronic tools. It is based on the electronic processing and
transmission of information (text, video, audio). E-commerce involves many activities - e-commerce of
goods and services, electronic delivery of digital, information, electronic auctions, direct marketing to
consumers. Electronic commerce can be widely applied in the following areas: e-trade; financial
transactions in the provision of banking, financial leasing, insurance and other services, investments,
speculative operations in currency and securities; other services markets: hotels, tourism, education,
consulting, payment for utilities, advertising and other; between various business, public and other
institutions, legal and natural persons, households and individuals
Electronic commerce is a business in which information technology is used to increase sales, business
efficiency and provide a basis for new products and services. Through its activities, each company
communicates with many other entities: it may be private or corporate clients, business partners,
suppliers. When communicating with each other, these entities exchange various types of information:

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they inform themselves about their products and services, negotiate the terms of transactions, exchange
documents, transmit and accept orders for goods, complain about inappropriate services, distribute
press releases, etc. The flow of information is also carried out among all of these entities: managers and
subordinates communicate with the company, marketing specialists talk about vendors and product
managers. Internet popularity has provided many new opportunities for business. Accelerated and
simplified communication and unimagined technical capabilities have enabled smart entrepreneurs to
create advertisements, stores, and other promising items on their own, on the Internet. Moreover, the
growing number of internet users has increased the volume and profitability of the use of commerce
and services.
E-marketing, Internet marketing or digital marketing is at the heart of e-business getting closer to
customers and understanding them better, adding value to products, widening distribution channels and
boosting sales through running e-marketing campaigns using digital media channels such as search
marketing, online advertising and affiliate marketing which we will explain later in this chapter. It also
includes using the web site to facilitate customer leads, sales and managing after-sales service. As with
mainstream marketing, e-marketing is a way of thinking, a way of putting the customer at the heart of
all online activities; e.g. getting different user groups to test your web site on different browsers in
different settings on different connections.
E-marketing is a process of planning and executing the conception, distribution, promotion, and
pricing of products and services in a computerized, networked environment, such as the Internet and
the World Wide Web, to facilitate exchanges and satisfy customer demands. It has two distinct
advantages over traditional marketing. E-marketing provides customers with more convenience and
more competitive prices, and it enables businesses to reduce operational costs. As businesses offer e-
marketing and online shopping, customers can get market information from their computers or cell
phones and buy goods or find services without leaving home twenty-four hours a day and seven days
a week (24/7). They can read ads on the Web or from e-mail, get e-coupons, view pictures of goods,
compare prices, and make purchases with a few clicks of their mouse, saving the time and money it
would take to shop in person at a brick-and-mortar store. At the same time, e-businesses can reduce
costs in distribution channels and physical store space and thus pass the savings on to customers.
To make e-marketing effective and efficient, managers of e-businesses need to know: online customer
behavior, e-marketing techniques, costs and benefits of e-marketing over traditional marketing, and
pitfalls and legal issues of e-marketing.

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 Discussion of each of these aspects:
A. Online Customer Behavior
In the late 1990s online shoppers was mainly well-educated, high-earning, and twenty- to forty-year-
olds. By 2003 online shoppers represented a broader demographic, with an average age of forty-four
years and an average annual household income of $65,000. Of these shoppers, 50 percent were female
and 50 percent were college graduates. According to a 2004 report from the U.S. Department of
Commerce, in 2003 searching for product/service information was the second most popular online
activity after e-mailing or instant messaging and 77 percent of U.S. Internet users age fifteen and
older shopped online. E-customers researched products and services that they were considering for
purchase online. Their final purchases, however, may not have been made online.
Several reasons are behind the reluctance to purchase online. Studies published in 2003 and 2004
reported that 25 percent of e-commerce sites do not display a phone number clearly on the customer
service page; 49 percent of online shoppers could not readily find the answers to a question; and 88
percent of shoppers abandoned their online shopping carts before reaching the checkout. The Yankee
Group, a Boston-based research firm, indicated that up to the first quarter of 2003, the average
conversion rate from shopping in brick-and-mortar stores to buying on e-commerce sites was just 10
percent.
E-customers' most serious concern is security and privacy, followed by price, delivery cost, return
policy, customer service, site design, navigation, one-click shopping, and personalization, this leads to
,E-marketers must assure customers that their sites use cybercrime-proof systems to protect e
customer information and clearly display the security/privacy statement on their sites. Competitive
prices, discounts, e-coupons, free delivery, and standard return policies motivate initial online
purchases and repeat purchases. Nevertheless, requiring too many mouse clicks for navigating on a
site, a lack of easily accessible help, technical difficulties, and requesting too much customer
information for purchasing goods often causes shoppers to abandon their online shopping carts before
reaching the checkout.
B. E-marketing techniques
E-marketing techniques can be broken down to pull and push marketing. Pull marketing is a
passive technique by which online shoppers take the initiative requesting specific information on
the Web. Search engines, product/service advertising, e-coupons, and e-samples are part of pull
marketing. For example, e-marketers can register their e-commerce sites, products, and services

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 with search engines such as Google and or Yahoo, thereby enabling online shoppers to search for
product/service information using Google or Yahoo and link to their sites. Similarly, e-marketers
can also register their e-coupons and e-samples with e-coupon sites such as ecoupons.com and e-
sample sites such as yes-its-free.com.
Push marketing is a proactive technique that enables e-marketers to "push" their product/service
information to Web visitors or shoppers without their requesting it. Banner advertising, pop-up
advertising, e-mail promotion, and spamming belong to push marketing. For instance, e-
marketers can rent designated space from Internet service providers such as America Online or
MSN for their banner or pop-up ads. Using animated graphics, appealing messages, and links, e-
marketers try to lure visitors to their sites to buy their products or services. Many Internet users,
however, find such ads annoying and employ software that blocks pop-ups and banner ads.
E-mail promotion is widely used by e-marketers to send new product/service information to their
registered customers. For example, airline companies periodically e-mail their registered
customers about their e-fares and promotional vacation packages. Spamming refers to sending
millions of e-mail promotions to recipients who have never asked for the information. These
recipients' e-mail addresses are often purchased or swapped with other businesses. Spamming is
at best unethical and at worst illegal.
C. Costs and Benefits Of E-Marketing
E-marketing can offer more competitive prices than traditional marketing because e-marketing
reduces costs by not having to maintain physical store space and by strategically placing
distribution centers throughout the country. Second, because the Internet is available 24/7, e-
marketing enables shoppers to search for product/service information and buy goods at their
convenience, not just when the store is open. Third, research indicates that the cost of Internet-
based promotion is one-fourth of traditional promotion, because it does not incur the costs of
paper, printing, handling, and mailing. Fourth, e-marketing enables buyers to custom-build
products such as shoes, clothes, computers, and automobiles on the Web, options often not
available in stores
Electronic commerce: is a powerful concept and process that has fundamentally changed the
current of human life. Electronic commerce is one of the main criteria of revolution of Information
Technology and communication in the field of economy.

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 Electronic commerce: commonly known as E-commerce, is trading in products or services using
computer networks, such as the Internet. Electronic commerce draws on technologies such as
mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online
transaction processing, electronic data interchange (EDI), inventory management systems, and
automated data collection systems.
The effects of e-commerce: already appear in all areas of business, from customer service to new
product design. It facilitates new types of information based business processes for reaching and
interacting with customers like online advertising and marketing, online order taking and online
customer service, etc.
Electronic commerce: or e-commerce is the buying and selling of goods and services on the
Internet. Other than buying and selling, many people use the Internet as a source of information to
compare prices or look at the latest products on offer before making a purchase online or at a
traditional store.
Electronic commerce (e-commerce) all electronically mediated information exchanges between an
organization and its external stakeholders.
1.1. Doing commerce on the Internet (E-Commerce)
The Internet is the starting point for an exploration of e-commerce, and the World Wide Web is a
worldwide collection of computer networks, cooperating with each other to exchange data using a
common software standard. Though considered by many as a new technology, the Internet has been
around for several decades. Originally known as Research Projects Agency Computer Network
(ARPANET) the Internet was created in 1969 by the U.S. Department of Defense as a nationwide
computer network that would continue to operate even if the majority of it were destroyed in a nuclear
war or natural disaster. It was not until 1992 that commercial entities started offering Internet access to
the general public, and the business world has not been the same since.
Over the past decade, widespread Internet and e-mail access have radically changed the way companies
do business and communicate with their employees, vendors, and customers. Consumers and
businesses purchase products and services such as $2,000 laptops and airline tickets by paying with
credit cards via the Internet without ever speaking to a customer representative or salesperson. Many
companies allow customers to track the status of their orders online to see when their products shipped
and when they are scheduled to arrive, again without ever speaking to a customer representative. When

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companies such as Amazon and Priceline emerged, their business models revolved around conducting
100 percent of their business online, eliminating the need for costly bricks-and-mortar outlets.
More and more consumers are paying their bills online as they become comfortable with online
security, thus eliminating the need to pay postage and write checks for each bill using the traditional
snail-mail method. Today thousands of adults are getting their undergraduate and master’s degrees
online without ever attending an actual class or meeting their peers or professors, who teach the classes
online. There are few businesses or organizations isolated from this transformational wave of
technology and innovation.
According to www.internetworldstats.com, the total number of Internet users worldwide as if there are
4.39 billion internet users in 2019 .This is approximately 57 percent of the total world population of
7.676 billion. These big numbers mean that India is responsible for more than a quarter of this year’s
total global growth. Overall, Asia-Pacific delivered 55 percent of the annual growth figure, with
China adding another 50 million new users in the past year.
Perhaps surprisingly though, the United States takes third spot in our global ranking of absolute
internet user growth. Despite already enjoying an internet penetration rate of 88% this time last year,
internet users in the US grew by almost nine percent year-on-year, reaching a total of more than 310
million users in January 2019 (95 percent penetration).
History and Evolution of Electronic Commerce
E-commerce was made possible by the development of electronic data interchange (EDI), the ex-
change of business documents from one computer to another in a standard format. EDI originated in the
mid-1960s, when companies in transportation and some retail industries were attempting to create
“paperless” offices. In the mid-1970s, EDI was formalized by the Accredited Standards Committee of
industry representatives, and more varied companies began to adopt EDI through the 1970s and 1980s.
As the first generation of e-commerce, EDI allowed companies to exchange information, place orders,
and conduct electronic funds transfer through computers. However, the diffusion of EDI was slow. By
the late 1990s, less than one percent of companies in Europe and in the United States had adopted EDI.
The huge expense for getting connected to an EDI network and some technical problems limited the
diffusion of EDI. The second generation of e-commerce is characterized by the transaction of goods
and services through the Internet, which started as a research tool, but has generally evolved into a
commercial tool. The inception of the Internet can be traced back to the 1960s, when the Advanced
Research Projects Agency Computer Network (ARPANET), the precursor to the Internet, was

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established for research in high technology areas. The nodes of ARPANET increased from 4 in 1969 to
15 in 1971. The term Internet actually did not come into use until 1982, when the number of hosts on
the ARPANET rose to 213. Then, in 1983, the Internet Protocol (IP) became the only approved way to
transmit data on the Net, enabling all computers to exchange information equally .In the early 1990s,
the creation of the hypertext markup language (HTML), with specifications for uniform resource
locators (URLs) enabled the Web to evolve into the environment that we know today. The Internet was
therefore taken “out of the realm of technical mystique and into common usage” as it became usable for
ordinary people without sophisticated understanding of computer science and techniques. Hence, with
the increasing number of Internet users, the Internet became attractive to the business world.
History of ecommerce dates back to the invention of the very old notion of "sell and buy", electricity,
cables, computers, modems, and the Internet. Ecommerce became possible in 1991 when the Internet
was opened to commercial use. Since that date thousands of businesses have taken up residence at web
sites. At first, the term ecommerce meant the process of execution of commercial transactions
electronically with the help of the leading technologies such as Electronic Data Interchange (EDI) and
Electronic Funds Transfer (EFT) which gave an opportunity for users to exchange business information
and do electronic transactions. The ability to use these technologies appeared in the late 1970s and
allowed business companies and organizations to send commercial documentation electronically.
Although the Internet began to advance in popularity among the general public in 1994, it took
approximately four years to develop the security protocols (for example, HTTP) and DSL which
allowed rapid access and a persistent connection to the Internet. In 2000 a great number of business
companies in the United States and Western Europe represented their services in the World Wide Web.
At this time the meaning of the word ecommerce was changed. People began to define the term
ecommerce as the process of purchasing of available goods and services over the Internet using secure
connections and electronic payment services. Although the dot-com collapse in 2000 led to unfortunate
results and many of ecommerce companies disappeared, the "brick and mortar" retailers recognized the
advantages of electronic commerce and began to add such capabilities to their web sites (e.g., after the
online grocery store Web van came to ruin, two supermarket chains, Albertsons and Safeway, began to
use ecommerce to enable their customers to buy groceries online). By the end of 2001, the largest form
of ecommerce, Business-to-Business (B2B) model, had around $700 billion in transactions.

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History of ecommerce is unthinkable without Amazon and E-bay which were among the first Internet
companies to allow electronic transactions. Thanks to their founders we now have a handsome
ecommerce sector and enjoy the buying and selling advantages of the Internet.
The evolution of E-commerce has been studied and followed up by several researchers and
stakeholders in the field. Given the advances on Information Technology, more precisely with the
development of the Internet, from 1990’s, a large range of possibilities were perceived, with a noted
emphasis to communication. Nevertheless, (Galinari et al., 2015) advocate that e-commerce has its first
phase on the 1970’s, when e-commerce was restricted to operations among large corporations which
established among themselves private communication networks and, by means of electronic fund
transfer systems, which electronically made financial transactions and document exchanges. The
evolution of electronic commerce can be divided in four phases.
In Phase I: organizations used the functionalities of the Internet for processes of information
divulgation regarding their product and services. That was the initial stimulus for electronic commerce
development.
The Phase II: was receiving orders and sending information and instructions on the utilization of their
products and services. In this phase, logistics caused its first impact onto companies.
Phase III: of the evolution, was the distribution of products and services by using Information
Technology (IT), In this phase, some products began to be commercialized digitally as, e.g., music and
software. For the last comes the phase which consolidates electronic commerce, with the interaction
between seller and consumer, no more transmitting data or delivering products and services only. With
the advance of IT and widespread use of the Internet, such interaction enabled the simple internet user
to become a potential consumer, given the possibilities of electronic commerce. That tool allowed for a
true revolution on how to commercialize products, services and information, bringing more comfort
and large variety of offers and options for the consumer, but also for the seller who is inserted in that
market practice. For it is just normal that companies undergo transformations in their structure, and
globalization contributed for that strong tendency. Increased competitiveness, the need of producing
innovation and increasing consumer demands all items brought by globalization have culminated with
the emergence of more modern forms of company management. The appearance of a technology called
3G and 4G, from 2012 in Brazil, gave access to high speed Internet through mobile devices, such as
smart phones and tablet PCs. Such technology enables the consumer with more easiness to do price
research for various locations. Some consumers use that resource even when inside physical stores,

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which they use to get in touch with the product, and there they choose the purchase channel of sales
which better fits their shopping needs.
The development of electronic commerce follows the stages of evolution of the digital environment an
evolution which must be understood and guaranteed through the aspects that must be taken into
consideration when using the electronic commerce aiming to assuring the use of its contributions. Thus,
the development of information technology is impacted by the evolution one- commerce. Another
dimension which completes the analysis on e-commerce phases is its application in business processes.
This way, electronic commerce became, much more than a trend, a reality. Modern companies seek to
change their structure to comply with new consumers’ demands, once the latter more and more value
comfort. For such end, using new technologies is a very common strategy.
Main Tools in Electronic Commerce the Internet is constantly improved, thus several applications
often appear seeking to better utilization of the electronic commerce services.
E-procurement is the automation of the purchase of products and services besides dynamism in
purchasing, a considerable cost decrease can be noted, and also a shorter derisory time can be reached.
Another important tool is e-learning, which is a tool that shortens distances between educators and
students, providing them with conditions to access courses and training sessions wherever they are.
Important examples may be mentioned, such as: language schools, virtual universities, etc. An
important and successful tool is e-banking, which, is good both for banking institutions and their
clients. It enables clients to do, from home, what they would need to go to a bank branch to do, before.
Besides bringing proactively to consumers, a considerable cost is reduced to banks. E-gambling is the
tool for online casinos, with Abets on money, which can be accessed by users located in any country,
including those which do not allow traditional casinos. E-auctioning are online auctions, which reduce
costs with commuting and make traditional auctions more accessible and faster. There are so many
other tools which is important for the development of electronic commerce, despite having a minor
expression. For example: e-trade, which is buying and selling stock shares online; e-drugs, which are
online drugstores, adding value to traditional drugstores, among others.
1.2. The scope of internet and the Web
The Internet allows greater flexibility in working hours and location, especially with the spread of
unmetered high-speed connections. The Internet can be accessed almost anywhere by numerous means,
including through mobile Internet devices. Mobile phones, data cards, handheld game consoles and
cellular routers allow users to connect to the Internet wirelessly. Within the limitations imposed by

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small screens and other limited facilities of such pocket-sized devices, the services of the Internet,
including email and the web, may be available. Service providers may restrict the services offered and
mobile data charges may be significantly higher than other access methods.
Educational material at all levels from pre-school to post-doctoral is available from websites.
Examples: range from C Beebe’s, through school and high-school revision guides and virtual
universities, to access to top-end scholarly literature through the likes of Google Scholar. For distance
education, help with homework and other assignments, self-guided learning, whiling away spare time,
or just looking up more detail on an interesting fact, it has never been easier for people to access
educational information at any level from anywhere.
The Internet in general and the World Wide Web in particular are important enablers of both formal
and informal education. Further, the Internet allows universities, in particular, researchers from the
social and behavioral sciences, to conduct research remotely via virtual laboratories, with profound
changes in reach and generalizability of findings as well as in communication between scientists and in
the publication of results. The low cost and nearly instantaneous sharing of ideas, knowledge, and skills
have made collaborative work dramatically easier, with the help of collaborative software. Not only can
a group cheaply communicate and share ideas but the wide reach of the Internet allows such groups
more easily to form. An example of this is the free software movement, which has produced, among
other things, Linux, Mozilla Firefox, and Open Office.org. Internet chat, whether using an IRC chat
room, an instant messaging system, or a social networking website, allows colleagues to stay in touch
in a very convenient way while working at their computers during the day. Messages can be exchanged
even more quickly and conveniently than via email. These systems may allow files to be exchanged,
drawings and images to be shared, or voice and video contact between team members.
Key Differences Between E-commerce and E-business
The points presented below are substantial so far as the difference between e-commerce and e-business
is concerned:
 E-commerce is a major component of e-business(E-business is broader than e-commerce)
 E-commerce includes transactions which are related to money, but e-business includes
monetary as well as allied activities.
 E-commerce has an extroverted approach that covers customers, suppliers, distributors, etc. On
the other hand, e-business has an ambient approach that covers internal as well as external
processes.

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  E-commerce requires a website that can represent the business. Conversely, e-business requires
a website, Customer Relationship Management and Enterprise Resource Planning for running
the business over the internet.
 E-commerce uses the internet to connect with the rest of the world, in contrast e-business, uses
internet, intranet and extranet for connecting with the parties.
Unique Features of E-commerce
As electronic commerce has digital and worldwide, it has unique features like:
Non-Cash Payment: E-Commerce enables use of credit cards, debit cards, smart Cards, electronic fund
transfer via bank's website and other modes of electronics Payment.
24x7 Service is availability: E-commerce automates business of enterprises and Services provided by
them to customers are available anytime, anywhere. Here 24x7 refers to 24 hours of each seven days of
a week.
Advertising/Marketing: E-commerce increases the reach of advertising of products and services of
businesses. It helps in better marketing management of products / services.
Improved Sales: Using E-Commerce, orders for the products can be generated anytime, anywhere
without any human intervention. By this way, dependencies to buy a product reduce at large and sales
increases.
Support: E-Commerce provides various ways to provide pre sales and post sales assistance to provide
better services to customers.
Inventory Management: Using E-Commerce, inventory management of products becomes automated.
Reports get generated instantly when required. Product inventory management becomes very efficient
and easy to maintain.
Communication improvement: E-Commerce provides ways for faster, efficient, reliable
communication with customers and partners.
1.3. Using web to reach customers
An important element of a corporate web presence is communicating with site visitors who are
consumers or potential consumers. In this section, you will learn how websites can help firms identify
and successfully connect to consumers.
The nature of communication on the web
In business, there are two general ways of identifying and reaching consumers:
∞ Personal contact and

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 ∞ Mass media.
These two approaches are often called communication modes because they each involve a characteristic
way (or mode) of conveying information from one person to another (or communicating).
Personal contact model: the firm’s employees individually search for, qualify, and contact potential
consumers. This personal contact approach to identifying and reaching consumers is sometimes called
prospecting.
Mass media approach: firms prepare advertising and promotional materials about the firm and its
products or services. They then deliver these messages to potential consumers by broadcasting them on
television or radio, printing them in newspapers or magazines, posting them on highway billboards, or
mailing them.
An effective website is a combination of the mass media and personal contact models.
Measuring website effectiveness in traditional commerce, there are many different established methods
for measuring how effective businesses are when communicating with potential consumers.
Approaches include estimates of audience size, response rate, enquiry rate and sales. However, in e-
commerce, such measurements are far more difficult to establish. This is because people may visit a
site for many different reasons. The visitor is in control over which messages are viewed as they choose
which links to follow. Recently, however, several different methods have been used to determine the
amount of traffic generated by a website. These measurements include:
• A visit is defined to be when a user requests a page from a website. Further pages requested by the
user over a given period of time (i.e. five minutes) are counted as part of the visit.
• A trial visit is defined to be the first time a user loads a website. After this initial visit all other visits
are referred to as repeat visits.
• An advertising view is defined as being when a page is loaded that contains an advertisement or
promotional banner.
• The click through rate is defined by the number of times an advertisement is clicked in order to view
further details of the product or service being advertised.
E-commerce advantages and disadvantages
Electronic commerce is a tool for promoting new forms and dimensions of business. After all, you can
sell your online store seven days a week, 24 hours a day, and you do not need any special premises,
sellers, complicated accounting systems or stores in each country. Your online store is accessible,
visible and visited everywhere and always, and your customer does not even need to leave home to buy

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a product that he likes, he only has to click on the "buy" button and the courier will deliver his desired
item directly to his home.
E-commerce offers the user the opportunity at any time, regardless of where it is located (as long as the
user has access to the Internet) information on goods and services, as well as purchasing them. This
removes the barriers associated with time and space constraints when acquiring goods or services. The
user has the electronic space the ability to compare offers from different traders regarding price, quality
aspect, and assessment seller's credibility. The user can personalize his purchase and keeps him from
subjective criteria for determining the product's choice, such as seller's persuasion, alleged discounts
shares.
Advantages and disadvantages of e-commerce
Advantage Disadvantage

Convenience - You save time by physically The ability to be cheated - Your money security depends
shopping. You can shop anywhere you have an on your vigilance. So before submitting your personal
Internet connection and at any time. information, check that the online store is trusted. When
you buy online, you risk not getting or getting the same as
the one shown in the photo.

Information details and recommendations - It is easy to make a mistake on the price - Keep in mind
Detailed information is provided for each item in that the product will have to pay more than specified.
the e-shop. Here you can find product reviews
and recommendations.

Lower prices and better choices - Online sellers Lack of privacy - Some online stores even unsolicited
do not have to pay rent or wages to employees. It send you emails about various stocks and new items. On
is convenient for you to compare prices for the the one hand, this may seem useful, but on the other hand,
same product in different e-shops in a short it is a way to get you more money.
period.

Starting an e-business requires less investment When ordering a product online, it often takes a long time
than traditional commerce before it is delivered, and shipping charges sometimes
exceed the price of the item, especially if the product is
A wider circle of consumers is attracted
ordered from abroad. Repaying your online purchase may

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(disabled, foreign clients) be more difficult than buying a traditional store

More varied and more convenient supply of Often money will not be refunded for shipping, and in
goods and services some cases, it will even have to cover the cost of
returning the product itself. Also, when shopping online,
Comfortable billing (bank charges, bank link
it is important to make sure the website is trusted, and
integration).
your credit card or online banking data will be protected.
Finally, shopping online will not be able to see the goods
(like clothes).

1.4. Merits of E-Commerce Environment

E-Commerce advantages can be broadly classified in three major categories:
 Advantages to Organizations
 Advantages to Consumers
 Advantages to Society
Advantages to Organizations
E-commerce has many advantages for organizations in many ways, among these:-
 Using E-Commerce, organization can expand their market to national and international markets
with minimum capital investment.
 An organization can easily locate more customers, best suppliers and suitable business partners
across the globe
 Improve customer’s service than traditional commerce
 It can be deduced that E-commerce helps organization to provide better customer services and
also E-Commerce helps to simplify the business processes and make them faster and efficient.
 E- Commerce reduces paper work a lot and increases the productivity of the organization.
 It supports "pull" type supply management. In "pull" type supply management, a business
process starts when a request comes from a customer and it uses just-in-time manufacturing
way
 Pull type processing allows for inexpensive customization of products and services and
provides a competitive advantage for companies who implement this strategy
 Decrease the cost of creating, processing, distributing, storing, and retrieving paper-based
information

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  Supply chain inefficiencies can be minimized with electronic commerce
Benefits to consumers:
 24/7 service of transactions and services.
 Provides more choices, options and quicker delivery of products
 frequently provides less expensive products with quick comparison
 Consumers can locate relevant and detailed product information in seconds
 A customer can put review comments about a product and can see what others are buying or see
the review comments of other customers before making a final buy.
 Makes virtual auctions possible
 Readily available information.
 A customer can see the relevant detailed information within seconds rather than waiting for
days or weeks
 Last but not least E-Commerce increases and Facilitates competition among the organizations
and as result organizations provides substantial discounts to customers.
Advantages to Society
 More individuals work at home and do less travelling for work or shopping
 E-Commerce helps government to deliver public services like health care, education, social
services at reduced cost and in improved way.
 Lower prices allow less affluent people to improve their standard of living.
 Public services can be delivered at lower cost
 E-Commerce has enabled access to services and products to rural areas as well which are
otherwise not available to them
 Customers need not to travel to shop a product thus less traffic on road and low air pollution
Demerits of E-Commerce:
E-Commerce disadvantages can be broadly classified in two major categories
1. Technical disadvantages
2. Non-Technical disadvantages
Technical Disadvantages
 System security, reliability, standards, and some communication protocols are still evolving.
 Telecommunication bandwidths are insufficient. Internet is still expensive and/or inconvenient.
 Software development tools are still evolving and changing rapidly.

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  Some E-Commerce software might not fit with some hardware or it may be incompatible with
certain operating systems or components(lack of compatibility)
 Special types of web server or other software might be required by the vendor setting the e-
commerce environment apart from network servers.
 Sometimes, it becomes difficult to integrate E Commerce software or website with the existing
application or databases
 Legal issues are not yet refined; there could be a breakdown in human relations.
Non-Technical Disadvantages
 Initial cost: The cost of creating / building E-Commerce application in-house may be very high.
 There could be delay in launching the E-Commerce application due to mistakes, lack of
experience. User resistance:
 User may not trust the site being unknown faceless seller. Such mistrust makes it difficult to make
user switch from physical stores to online/virtual stores.
 Security/ Privacy: Difficult to ensure security or privacy on online transactions especially in B2C
arena. Lack of touch or feel of products during online shopping
 E-Commerce applications are still evolving and changing rapidly. Internet access is still not cheaper
and is inconvenient to use for many potential customers like one living in remote villages.
 Customers do not trust an unknown, faceless seller, paperless transactions, and e-money.
 Some customers like to touch items such as cloths, so they know exactly what they are buying.

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 Chapter Two: Internet Marketing Environment
Learning Objectives
After you study this Chapter, you will be able to explain:
 Basic forms of virtual business
 Business –to –consumer (B2C) electronics commerce
 Business to Business (B2B)
 Consumer to Business (C2B)
 Consumer to Consumer E-Commerce (C2C)
 B2G E-Commerce
 Peer- to -Peer Electronic Commerce
 M-Commerce Business Model
 Benefits of E-Commerce
2.0. Introduction
A business model is a set of planned activities designed to result in a profit in a market place. An
electronic commerce business model aims to use and leverage the unique qualities of the internet and
the World Wide Web.
2.1. Basic forms of virtual business
2.1.1. Business –to –consumer (B2C) electronics commerce
The term business-to-consumer (B2C) refers to the process of selling products and services directly
between consumers who are the end-users of its products or services. Most companies that sell directly
to consumers can be referred to as B2C companies. B2C became immensely popular during the dotcom
boom of the late 1990s when it was mainly used to refer to online retailers who sold products and
services to consumers through the Internet. As a business model, business-to-consumer differs
significantly from the business-to-business model, which refers to commerce between two or more
businesses. Business-to-consumer (B2C) is among the most popular and widely known of sales models.
The idea of B2C was first utilized by Michael Aldrich in 1979, which used television as the primary
medium to reach out to consumers. B2C traditionally referred to mall shopping, eating out at
restaurants, pay-per-view movies, and infomercials. However, the rise of the Internet created a whole
new B2C business channel in the form of e-commerce or selling of goods and services over the
Internet. Although many B2C companies fell victim to the subsequent dot-com bust as investor interest

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in the sector dwindled and venture capital funding dried up, B2C leaders such as Amazon and Priceline
survived the shakeout and have since seen great success. Any business that relies on B2C sales must
maintain good relations with their customers to ensure they return. Unlike business-to-business (B2B),
whose marketing campaigns are geared to demonstrate the value of a product or service, companies that
rely on B2C must elicit an emotional response to their marketing in their customers.
Business-to-consumer e-commerce, or commerce between companies and consumers, involves
customers gathering information; purchasing physical goods (i.e., tangibles such as books or
consumer products) or information goods (or goods of electronic material or digitized content, such
as software, or e-books); and, for information goods, receiving products over an electronic network.
B2C e-commerce reduces transactions costs (particularly search costs) by increasing consumer
access to information and allowing consumers to find the most competitive price for a product or
service. B2C e-commerce also reduces market entry barriers since the cost of putting up and
maintaining a Web site is much cheaper than installing a "brick-and-mortar" structure for a firm. In the
case of information goods, B2C e-commerce is even more attractive because it saves firms from
factoring in the additional cost of a physical distribution network. Moreover, for countries with
a growing and robust Internet population, delivering information goods becomes increasingly
feasible.
Examples:-www.amazon.com, www.ediets.com, www.pets.com etc.

Supplies Business organization

Order processing

Customers
Website

2.1.2. Business to Business (B2B) electronic commerce

Business to business also called B to B or B2B is a form of transaction between businesses, such as one
involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business to business refers to
business that is conducted between companies, rather than between a company and individual
consumers. Business to business stands in contrast to business to consumer (B2C) and business to
government (B2G) transactions.

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Business-to-business transactions are common in a typical supply chain, as companies purchase
components and products such as other raw materials for use in the manufacturing processes. Finished
products can then be sold to individuals via business-to-consumer transactions. This is the type of e-
commerce that deals with relationships between and among businesses. About 80% of e-commerce is
of this type, and most experts predict that B2B e-commerce will continue to grow faster than the B2C
segment. The reasons for the growth in B2B e-commerce are many, in an increasing competitive
scenario; e-commerce offers highly attractive cost saving options. The shift to this process is often
driven by the needs of buyers. In the context of communication, business to business refers to methods
by which employees from different companies can connect with one another, such as through social
media. This type of communication between the employees of two or more companies is called B2B
communication.
Business-to-business transactions and large corporate accounts are commonplace for firms in
manufacturing. Samsung, for example, is one of Apple's largest suppliers in the production of the
IPhone. Apple also holds B2B relationships with firms like Intel, Panasonic and semiconductor
producer Micron Technology. B2B transactions are also the backbone of the automobile industry.
Many vehicle components are manufactured independently, and auto manufacturers purchase these
parts to assemble automobiles. Tires, batteries, electronics, hoses and door locks, for example, are
usually manufactured by various companies and sold directly to automobile manufacturers.
Service providers also engage in B2B transactions. Companies specializing in property management,
housekeeping, and industrial cleanup, for example, often sell these services exclusively to other
businesses, rather than individual consumers.
Business organization

Supplies

Order processing
Wholesalers Website
Order

Seller

Customers

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As an example, a wholesaler places an order from a company's website and after receiving the
consignment, sells the end-product to the final customer who comes to buy the product at one of its
retail outlets. For example, an automobile manufacturer makes several B2B transactions such as buying
tires, glass for windscreens, and rubber hoses for its vehicles. The final transaction, a finished vehicle
sold to the consumer, is a single (B2C) transaction.
The impact of B2B markets on the economy of developing countries is evident:
Transaction costs: There are three cost areas that are significantly reduced through the conduct of B2B
e-commerce. First is the reduction of search costs, as buyers need not go through multiple
intermediaries to search for information about suppliers, products and prices as in a traditional supply
chain. In terms of effort, time and money spent, the Internet is a more efficient information channel
than its traditional counterpart. In B2B markets, buyers and sellers are gathered together into a single
online trading community, reducing search costs even further. Second is the reduction in the costs of
processing transactions (e.g. invoices, purchase orders and payment schemes), as B2B allows for the
automation of transaction processes and therefore, the quick implementation of the same compared to
other channels (such as the telephone and fax). Efficiency in trading processes and transactions is also
enhanced through the B2B e-market’s ability to process sales through online auctions. Third, online
processing improves inventory management and logistics.
Disintermediation: Through B2B e-markets, suppliers are able to interact and transact directly with
buyers, thereby eliminating intermediaries and distributors. However, new forms of intermediaries are
emerging. For instance, e-markets themselves can be considered as intermediaries because they come
between suppliers and customers in the supply chain.
Transparency in pricing: Among the more evident benefits of e-markets is the increase in price
transparency. The gathering of a large number of buyers and sellers in a single e-market reveals market
price information and transaction processing to participants. The Internet allows for the publication of
information on a single purchase or transaction, making the information readily accessible and
available to all members of the e-market. Increased price transparency has the effect of pulling down
price differentials in the market. In this context, buyers are provided much more time to compare prices
and make better buying decisions. Moreover, B2B e-markets expand borders for dynamic and
negotiated pricing wherein multiple buyers and sellers collectively participate in price-setting and two-
way auctions. In such environments, prices can be set through automatic matching of bids and offers. In

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the e-marketplace, the requirements of both buyers and sellers are thus aggregated to reach competitive
prices, which are lower than those resulting from individual actions.
Economies of scale and network effects: The rapid growth of B2B e-markets creates traditional
supply-side cost-based economies of scale. Furthermore, the bringing together of a significant number
of buyers and sellers provides the demand-side economies of scale or network effects. Each additional
incremental participant in the e-market creates value for all participants in the demand side. More
participants form a critical mass, which is the key in attracting more users to an e-market.
2.1.3. Consumer to Business (C2B) business model
The C2B model involves a transaction that is conducted between a consumer and a business
organization. It is similar to the B2C model, however, the difference is that in this case the consumer is
the seller and the business organization is the buyer. An example of C2B model of e-commerce is the
site Priceline.Com, which allows prospective airline travelers, tourists in need of hotel reservations etc.
to visit its websites and indicate their preferred price for travel between any two cities. This category
includes individuals who sell products and services to organizations.
2.1.5. Business to Government (B2G) business model
Business-to-government e-commerce or B2G is generally defined as commerce between
companies and the public sector. It refers to the use of the Internet for public procurement, licensing
procedures, and other government-related operations. This kind of e-commerce has two features:
first, the public sector assumes a pilot/leading role in establishing e-commerce; and second, it is
assumed that the public sector has the greatest need for making its procurement system more effective.
Web-based purchasing policies increase the transparency of the procurement process (and reduce
the risk of irregularities). To date, however, the size of the B2G ecommerce market, as a component
of total e-commerce is insignificant, as government, E-procurement systems remain undeveloped.
This may include,
E-procurement services, in which businesses learn about the purchasing needs of agencies and provide services.
A virtual workplace in which a business and a government agency could coordinate the work on a contracted
project by collaborating on-line to coordinate on-line meetings, review plans and manage progress.
Rental of on-line applications and databases designed especially for use by government agencies.

Organization Website Government

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2.2. Business Models in Emerging E-commerce areas
2.2. 1. Consumer to Consumer (C2C) business model
Consumer-to-consumer e-commerce or C2C is simply commerce between private individuals or
consumers. This type of e-commerce is characterized by the growth of electronic marketplaces and
online auctions, particularly in vertical industries where firms/businesses can bid for what they want
from among multiple suppliers. It perhaps has the greatest potential for developing new markets. The
C2C is a schema of trade of the consumers, sharing similar characteristics with agriculture trade market
or flea market. What constitutes it are vendors and purchasers, electronic trade provider suppliers,
similar to space suppliers and governors agriculture trade market in the real and the flea market. In the
categories of C2C, the electronic trade provider suppliers play the prominent role.
Firstly, in such wide range of the network, if without a well-known supplier trusted by both vendors
and purchasers, bunching both vendor and purchaser together, it is very difficult for buyers and sellers
to find each other, and also will cause loss of chances.
Secondly, the electronic trade provider suppliers also take the responsibilities of supervision and
management for honesty and creditability of vendors and purchasers monitoring their transactions and
minimizing the occurrences of fraud in order to protect the interests of buyers and sellers.
Thirdly, electronic trade provider suppliers can offer the technology support to vendors and purchasers,
including helping sellers to create online shop, release product information, decide on pricing strategy
etc., helping buyers to select products or electronic settlement etc. It is just because of the technology
support that C2C categories have been accepted by a large group of users within a short period of time.
Lastly, along with the maturity of pattern C2C, the electronic trade provider supplier can still offer
buyers and sellers the financial services like insurance, loans, thus better services for the both vendors
and purchasers. Therefore, in the categories of C2C, the electronic trade provider tenders play a
significant role, because it directly affects the precondition and foundation of these commerce
categories. When talking about C2C e-commerce categories, People analyze rationality and potential of
the categories from the perspective of auction, but usually neglect the status and the role of the
electronic trade provider suppliers.
For example, www.half.com enables consumers to sell off unwanted books, movies, etc to other
consumers. www.eBay.com is also a person-to-person online trading community with more than
23 million registered users.

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 Place advertisements

Website

Want to sell products

Receive products Want to buy products
Customers 1
Customers 2 Receive Money

2.2.2. Peer- to –Peer (P2P) business model

Peer-to-peer (P2P) electronic commerce: communities can be seen as truly distributed computing
applications in which peers (members) communicate directly with one another to exchange
information, distribute tasks, or execute transactions. P2P e-Commerce communities can be
implemented either on top of a P2P network using a conventional client-server platform. Gnutella is an
example of P2P e-Commerce communities that are built on top of a P2P computing platform. Person-
to-person online auction sites such as eBay and many business-to-business (B2B) services such as
supply-chain-management networks are examples of P2P communities built on top of a client server
computing architecture.
In e-Commerce settings P2P communities are often established dynamically with peers that are
unrelated and unknown to each other. Peers of such communities have to manage the risk involved with
the transactions without prior experience and knowledge about each other’s reputation. One way to
address this uncertainty problem is to develop strategies for establishing trust and develop systems that
can assist peers in accessing the level of trust they should place on an e-Commerce transaction. For
example, in a buyer-seller market, buyers are vulnerable to risks because of potential incomplete or
distorted information provided by sellers. Trust is critical in such electronic markets as it can provide
buyers with high expectations of satisfying exchange relationships. A recent study reported results
from both an online experiment and an online auction market, which confirmed that trust can mitigate
information asymmetry (the difference between the amounts of information the two transacting parties
possess) by reducing transaction-specific risks, therefore generating price premiums for reputable sellers.
Recognizing the importance of trust in such communities, an immediate question to ask is how to build
trust. There is an extensive amount of research focused on building trust for electronic markets through
trusted third parties or intermediaries. For example, www.groovenetwork.com help its workers share
files, calendars, work schedules, and plans without burdening central servers.

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2.2. 3. M-Commerce Business Model
M-commerce (mobile commerce) is the buying and selling of goods and services through wireless
technology-i.e. handheld devices such as cellular telephones and personal digital assistants (PDAs).
Japan is seen as a global leader in m-commerce. As content delivery over wireless devices becomes
faster, more secure, and scalable, some believe that m-commerce will surpass wire line e-commerce
as the method of choice for digital commerce transactions. This may well be true for the Asia-Pacific
where there are more mobile phone users than there are Internet users.
Industries affected by m-commerce include:
Financial services, including mobile banking (when customers use their handheld devices to access
their accounts and pay their bills), as well as brokerage services (in which stock quotes can be
displayed and trading conducted from the same handheld device); Telecommunications, in which
service changes, bill payment and account reviews can all be conducted from the same handheld
device; Service/retail, as consumers are given the ability to place and pay for orders on-the-fly;
and Information services, which include the delivery of entertainment, financial news, sports figures
and traffic updates to a single mobile device.
2.3. Internet demographics and internet villages
2.3.1. Internet demographics
Today as the world is moving globally, the pace of communication has also become rapid.
Nowadays, communication can be defined as sharing of knowledge and interaction amongst people
through different forms and means. As life move on, Internet has become the most important means
of communication and gathering information. Generally children and youth are quick adopter of
Internet for use of communication, education or entertainment.
The online population in Asia is growing day by day. According to research, Asia has the largest
number of online population globally which currently stands at 34 percent. If we talk about usage of
Internet for business purposes, it is a cost effective media as well as a quicker media may be with
respect to other media. This means that organizations are easily able to communicate with its customers
and suppliers across the globe. Increasing uses of Internet is making it a most useful way of
communication. People with different educational levels, gender and age use Internet for different
purposes. Uses of Internet include downloading, purchasing, messaging, social networking etc.
According to a research, males use Internet mostly for downloading and purchasing while females are
more interested in messaging and social networking. However, younger users are more involved in
downloading and messaging activities than older users.

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2.3.2. The internet village
The internet is the backbone of a global village; it has revolutionized the computer and communications
world like nothing before. The Internet is at once a world-wide broadcasting capability, a mechanism
for information dissemination, and a medium for collaboration and interaction between individuals and
their computers and of late any gadget without regard for geographic location.
The Internet is among the greatest wave that revolutionizes the way people lived, living and will live.
We are now in an era whereby the world is a single community linked by telecommunications, gadgets,
social media and cloud computing. With the interconnection, the world has become smarter,
information is now as far as opening a Google search, dating is as soon as opening a social site and
employment is as easy as dialing a single call or pressing that send button on the email. In my campus
life, I spent lot of time reading big database and programming books, the knowledge I learnt in a whole
semester can now be achieved by just watching a YouTube clip which is more elaborate, straight to the point and practical .

A global village is about having access to everything as you would access your kitchen from your table
room. When you are sick you download a doctor app, you want to date, you log in to the various social
sites, your agriculture products are due you sell via mkulima bora, you want to attend a lecture class
you log to eLearning, you want a taxi you use viper, you want to travel to abroad you set up a
teleconference hall in your dormitory. As we focus on making the world a global village, cloud
computing and API integration have also emerged and created more job opportunities. You can now
integrate lots of platform in one project just by calling the APIs and using cloud computing. For an
efficient global village, reliable internet is core; infrastructure is expensive and important too.
A global village is a result of a smart village and a digital village, the most people who propel this
world into the next curve are the startups, people who are less connected and looking for ways to do so,
innovators who have ideas and don’t have cash to implement them and so they are looking for the
cheapest, efficient way to do so and people who are passionate about cloud computing. The internet
balloon will bring a new face to the global village, challenges in the connectivity in the rural areas will
have been solved, internet connectivity will be like installing a DSTV dish, 5 Billion people will be
now be part of the global village, what this means is that any idea or solution that you expose to the
internet it will have a new market of over 5 billion. Many would argue that Google, Face book, twitter
and linked in will be the major beneficiaries, but on my opinion the winner will be the big data world.

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 Chapter three: Online Business Strategies
After completing of the chapter, students will able to:
 To understand business strategies
 To know the objectives of internet marketing
 To know the meaning of internet presence
 To understand the meaning of direct selling
3.1. Introduction
Almost all business owners today know that Internet marketing is essential, but not all of them
understand the end results that can or should be obtained through online strategies. As a result, it can be
tough for them to calculate the ROI of their campaigns.
If you’re one of the many marketers or business owners who don’t have clear-cut objectives for your
online efforts, you’re probably struggling to evaluate your success.
Here are some common internet marketing goals that may fit your company’s goals:
1: Increase revenue
The primary goal of any marketing strategy is ultimately to increase revenue, and Internet marketing is
no exception. Thankfully, the Internet provides plenty of opportunities for every business to improve
their bottom line.
By combining search engine optimization, or SEO, with pay-per-click ads, or PPC, your company can
improve the chances that potential customers find you online. And with strategies like content
marketing and social media marketing, you can position yourself as an expert in your field who also
cares about your clients.
2: Build a brand
Internet marketing objectives often include building a brand. This means not only establishing your
logo and company name in the minds of consumers, but also what your company stands for.
Well-known brands are typically trusted more by customers, especially when paired with positive
associations. The Internet is a great tool for building that trust, because it has a wide reach and allows
you to directly connect with individuals.
Social media is particularly useful when building a brand, because it allows companies to create and
post with a more personal feel.
Organizations have discovered that this kind of brand-building can be fostered by the use of social
media channels such as Face-book, Twitter, Instagram and Pinterest. In addition to organic posts on

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these sites, companies can build brand recognition by paying for advertisements and placements. This
takes patience on the part of the organizational leaders, because trust and loyalty are developed over
many months, and sometimes years. The key is to stay focused on the results.
3: Improve local SEO
Many small businesses, as well as companies focused on increasing sales in specific geographic region,
focus much of their marketing efforts on improving their local SEO.
This means optimizing various elements on their sites in order to attract local customers who are
looking for the services they provide.
Although the number of searches that include both your industry and your town or city is undoubtedly
lower than those that just specify a product or business type, those searches tend to generate much more
qualified traffic. If a user is already looking for businesses where you are, chances are high that they’ll
be willing to come to your physical location.
4: Increase qualified traffic
Every business owner wants to see numbers rise in terms of visitors to their site and landing pages.
However, those numbers are meaningless if they aren’t the right kinds of traffic.
Not every visitor to your site is going to make a purchase. That’s just the way of the Internet, and
should be accepted. However, if none of your site visitors make purchases (or contact you), you are
likely attracting “unqualified” traffic, or visitors who have no intent of becoming a customer.
By targeting your marketing to specific personas and aiming to attract specific, qualified people, you
can increase the ROI of your marketing efforts—as well as your bottom line.
5: Manage online reputation
In an age when anyone with a computer or Smartphone can post their opinions about companies,
products, and services for the whole world to see, it’s important for businesses to maintain a solid
online reputation. This means monitoring your company’s name, maintaining social profiles, and
responding to bad reviews accordingly.
One bad review doesn’t mean that your company’s reputation is shot, but one bad reaction to a bad
review might. The way you publicly respond to customer complaints will show them (and all other
current and potential customers) how much you care about their opinions. But as intimidating as that
may sound, all it takes is a bit of respect and concern for your customer base.
For some companies who’ve already made errors in this department, their objective is simply to remove
any negative associations with their company and show customers that they’ve seen the errors of their

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ways. Though the improvements won’t happen overnight, and bad online PR can be difficult to get rid
of, the Internet is a solid tool for repairing damaged reputations.
6: Become an influencer in their field
Every industry has a few well-known individuals or companies that others look to as thought leaders.
They stay at the forefront of new technologies and ideas, and are often the first to share new
information.
Unfortunately, every industry only has a particular amount of room at the top. The people who become
experts and influencers are those who strategically position themselves to give out great advice and
information, often without much obvious monetary gain.
For instance, an influential company might write and share blog posts and articles on a regular basis.
Their CEO and other top employees might keep their LinkedIn and other social profiles up to date and
share them as well. The company might offer free webinars on up-and-coming industry news. All of
these efforts combined can position them as an expert not only in the eyes of other industry
professionals, but also in the eyes of potential clients.
Is it possible to achieve all of these objectives?
The possibilities with Internet marketing are plenty, and it’s entirely possible to achieve all of these
objectives. That being said, without a dedicated Internet marketing team, it can be difficult.
A business strategy is a set of plans for achieving superior long-term returns on capital invested in a
business firm. It is therefore a plan for making profits in a competitive environment over the long term.
3.2. Internet Presence
Many feel they need to get their business/organization "on the internet". Often they aren't sure exactly
what this means, but think they should be doing it.
Being "on the internet" is a bit vague and could mean many different things. We use the term "Internet
Presence" to describe all or any of the possibilities, but more specifically, being "present" and visible
on the internet so that other people can find you. Here are some of the things your internet presence
might include:
 Access to the internet  Listings in directories, search engines, etc
 E-mail address  Other communication tools
 Website
Do I need an internet presence?: Some organizations really don't have much use for the internet; in fact
many small businesses survive without a computer at all. However, if you're in business or if you

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represent an organization of any kind, then we can almost guarantee that some sort of internet presence
will benefit you. It may be a full-blown website, it may be a lower-cost alternative, and it may be a
simple listing in a directory. In any case it makes sense to explore the options. What if I don't use the
internet?: It doesn't matter. You don't necessarily need to use the internet to have an internet presence,
just as you don't need to read the phone book to be listed in it. Just remember that most other people do
use the internet more and more use it as their main source of information. If you're not there, you're
slowly becoming invisible.
Do I need e-mail?: Do you need a postal address or a telephone? If not then maybe you don't need an
email address. Otherwise you certainly should be considering it. Even if you've never needed an email
address you may be surprised at how useful it can be. Do I need a website?: This is a more difficult
question and you should probably to talk to someone with experience if you want the best answer.
Generally speaking, you should have a website if any of these criteria apply to you if you like:
 To provide information about your business/organization to the public
 People to have a good chance of finding you on the internet
 Your business/organization to have a professional image
 To sell goods or services over the internet.
Internet has changed how businesses and organisations interact with participants/learners. People
search online before they go to the white pages or browse through their local paper. The Internet is a
global, interconnected computer network in which every computer connected to it can exchange data
with any other connected computer.
There are many other reasons to have a website but these are the most common.
3.3. Direct selling Model
There are many terms thrown around in home business, several of which frequently get confused or
used interchangeably with others. One such term is Direct Selling. Direct selling refers to selling
products directly to the consumer in a non-retail environment. Instead, sales occur at home, work, or
other non-store location. This system often eliminates several of the middlemen involved in product
distribution, such as the regional distribution center and wholesaler. Instead, products go from
manufacturer to the direct sales company, to the distributor or rep, and to the consumer. The products
sold through direct sales are usually not found in typical retail locations, which means finding a
distributor or rep is the only method to buy the products or services.

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Direct selling is usually associated with party-plan and/ or network marketing companies; however
these aren't the only types of companies that use direct selling. Many businesses that sell business-2-
business (B2B), use direct selling to target and sell to their end customer. For example, many
companies that sell advertising or office supplies will send their reps directly into the stores that can use
their services. Don't confuse direct selling with direct marketing. Direct selling is when individual
salespeople reach out to consumers directly, whereas direct marketing is when a company markets
directly to the consumer.
Types of direct selling
There are a variety of ways business owners can sell directly to consumers through direct selling.
Single-level direct sales: This type of sales is done one-on-one, such as through door-to-door or by
doing in-person presentations. Sales can be done online or through catalogs, as well. Generally income
is earned on sales commissions, with possible bonuses. Hostess or Party Plan: This type of sales is done
in a group setting, usually involving the distributor or rep doing a presentation in her or in another
person's home or other location. In some cases, a company might sell to individuals in a business. For
example, a real estate software sales rep might do a group sales presentation to a group of Realtors (R).
Elements of an effective online presence
Website: Your organisation’s website Can be found in search engines Optimised onsite and offsite
 Is easy to navigate
 Includes up-to-date information
 Is responsive (i.e. can be viewed on all devices including computer, mobile phone, iPad, etc.)
 Includes appropriate branding (i.e. Learn Local and Neighbourhood House logos)
Types of web sites
Users tend to view Web sites, and thus Web site design, by the function of the site or by its visual
appearance. It is important to be able to describe sites this way; however, there are many more ways to
categorize them. Web Sites can be group within the following broad categories:
Informational sites: These sites provide information about a particular subject or organization (the
“brochure ware” sites). These are the most common Web sites on the Internet and often take on
aspects of the other site categories over time.
Transactional sites: This type of site can be used to conduct some transaction or task. E-commerce
sites fall into this category.

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 Community sites: These provide information or transaction-related facilities, but focus on the
interaction between the visitors of the site. Community-based sites tend to focus on a particular
topic or type of person and encourage interaction between likeminded individuals.
Entertainment sites: These sites are for game playing or some form of amusing interaction, which
may include transactional, community, and informational elements.
Other sites: Included here are artistic or experimental sites, personal Web spaces such as Web logs
(also called blogs), and sites that may not follow common Web conventions or have a well-defined
economic purpose. We might also group sites based upon the organization that is running, or in
some sense paying for, the site. Within this type of categorization we see five major groupings:
Commercial: A site in this group is built and run by an organization or individual for commercial gain,
either directly through e-commerce or indirectly through promotion for some off-line purchase of
goods or services.
Government: This site’s parent entity is ultimately a government organization, and the purpose of the
site is to satisfy some social or legal need.
Educational: This type of site’s parent entity is some educational institution (perhaps government
related), and it is used to support learning or research goals.
Charitable: A charitable site exists to promote the goals of a nonprofit organization or the charitable
activities of an individual or organization.
Personal: The site exists at the sole discretion of some person or group for any number of reasons,
usually as a creative outlet or form of personal expression. Categorization can be difficult. For example,
educational sites might really fall under the governmental category.
3.4. Internet Retailing
E-tailing is the buying and selling of retail goods on the Internet. The most modern innovation in
retailing is e-tailing. E-tailing enables consumers to choose from an almost infinite variety of products
and purchase them without leaving their own homes. The e-tailing pioneer is Amazon.com. The
concept of retailing and e-tailing implies sales of products/services to customers, i.e. B2C electronics
commerce. Services retailers play an important role in our economy by providing specialized skills and
expertise most consumers lack and need. Banks, dental offices, and pet groomers are examples of
services retailers. Non-store retailers are able to lower costs by selling directly to consumers without
the cost of maintaining a storefront.

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Four main types of online retail business models:
Virtual merchant (Amazon, etc): Single channel Web firm that generates almost all its revenue from
online sales
Clicks and bricks: Company that has a network of physical stores as primary retail channel, but also
online offerings
Catalog merchant: Established company that has a national offline catalog operation as its largest
retail channel, but also has online capability
Manufacturer direct (Dell, etc.): Single or multi-channel manufacturers who sell directly online to
consumers without intervention of retailers
Electronic retailing, e-tailing
What is 'Electronic Retailing - E-tailing?'
Electronic retailing is the sale of goods and services through the internet. Electronic retailing, or e-
tailing, can include business-to-business (B2B) and business-to-consumer (B2C) sales of products and
services, through subscriptions to website content, or through advertising. E-tailing requires businesses
to tailor traditional business models to the internet and its users. Electronic retailing requires many
product and service displays and specifications, giving shoppers a personal feel for the look and quality
of the offerings without requiring them to be present in a store.
Characteristics of Successful Electronic Retailing
Successful e-tailing requires strong branding. Websites must be engaging, easily navigable and
regularly updated to meet consumers' changing demands. Products and services need to stand out from
competitors' offerings and add value to consumers' lives. In addition, a company's offerings must be
competitively priced so consumers do not favor one business over another based on cost alone. E-tailers
need strong distribution efficiency so consumers are not waiting long periods of time for the products
or services they purchase. Transparency in business practices is also important so consumers trust and
stay loyal to a company.
Advantages of Electronic Retailing
E-tailing helps traditional brick-and-mortar stores reach more consumers worldwide and increase sales.
Individual and start-up e-tailers may be launched from a single room with one computer and expand
rapidly rather than pay for an entire building with expensive overhead. E-tailers may trace consumers'
shopping behavior while gaining valuable insights into their spending habits, which may lead to
increased revenue. In addition, customers shop from the comfort of their homes at any time rather than

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being physically present in the store during specific hours. Many brick-and-mortar retailers have
chosen to expand their offerings online because it saves cost. Automated sales and checkout cut down
on the need for personnel and websites cost less than physical stores. It also reduces advertising and
marketing expenses as customers can find the stores through search engines or social media.
Disadvantages of Electronic Retailing
However, creating and maintaining an e-tailing website may be expensive. Infrastructure costs for order
fulfillment, warehousing goods, dealing with returns and other issues add up quickly. Also, consumers
may not trust a company that is not well-established and may not buy from it as frequently as a brick-
and-mortar store. In addition, e-tailing does not provide the emotional shopping experience
encouraging consumer spending the way being physically present in stores does. E-tailing does not let
consumers hold, smell, feel or try products or services for the sensory support of buying them. It also
does not provide the personal service many consumers are accustomed to when shopping. Consumers
may be concerned about providing credit card information online and having their personal details
jeopardized. Also, operating with an unproven business model increases the odds of an e-tailer failing.
Consumers may have no recourse if the company becomes insolvent and cannot refund product or
service payments as requested.
The Largest Players
Amazon is by far the largest online retailer with more than $94.7 billion in sales in 2016, giving it a
massive piece of the pie. The U.S. Commerce Department estimates that consumers spent $394.9
billion online in 2016, a 15.6% increase from the previous year. Though strongly overshadowed by
Amazon, traditional brick-and-mortar stores such as Apple and Wal-Mart were the next largest. Apple
sold $16.8 billion in merchandise online and Wal-Mart sold $14.4 billion in the same year. Other e-
tailers that operate exclusively online and compete with Amazon include Overstock.com, JD.com and Alibaba.

3.5. Internet Marketplaces

A market-space is an electronic marketplace in which sellers and buyers exchange goods and services
for money (or for other goods and services). While traditional marketplaces are constrained by their
physical locations, market spaces use technology to eliminate this constraint (by being online).
Electronic marketplaces have three main functions:
 Matching buyers and sellers
 Facilitating the exchange of information, goods, services, and payments associated with market
transactions

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  Providing an institutional infrastructure, such as a legal and regulatory framework, that enables the
efficient functioning of the market
An online marketplace (or online e-commerce marketplace) is a type of e-commerce site where
product or service information is provided by multiple third parties, whereas transactions are
processed by the marketplace operator. Online marketplaces are the primary type of multichannel
ecommerce and can be a way to streamline the production process. In an online marketplace,
consumer transactions are processed by the marketplace operator and then delivered and fulfilled by
the participating retailers or wholesalers (often called drop shipping). Other capabilities might
include auctioning (forward or reverse), catalogs, ordering, wanted advertisement, trading exchange
functionality and capabilities like RFQ, RFI or RFP. These types of sites allow users to register and
sell single items to a large number of items for a "post-selling" fee.
In general, because marketplaces aggregate products from a wide array of providers, selection is
usually wider, and availability is higher than in vendor-specific online retail stores. Also prices
may be more competitive. Since 2014, online marketplaces are abundant since organized
marketplaces are sought after. Some have a wide variety of general interest products that cater to
almost all the needs of the consumers, however, some are consumer specific and cater to a
particular segment only. Not only is the platform for selling online, but the user interface and user
experience matters. People tend to log on to online marketplaces that are organized and products are
much more accessible to them.
Types of E-Marketplaces
E-marketplace is an online market, usually B2B, in which buyers and sellers exchange goods or
services; the three types of e-marketplaces are private, public, and consortia.
Private e-marketplaces: Online markets owned by a single company; can be either sell-side or buy-side
e-marketplaces Sell-side e-marketplace is e-marketplace in which a company sells either standard or
customized products to qualified companies. Buy-side e-marketplace is e-marketplace in which a
company makes purchases from invited suppliers. Public e-marketplaces: B2B marketplaces, usually
owned and/or managed by independent third parties that include many sellers and many buyers; also
known as exchanges.
Consortia: E-marketplaces owned by a small group of large vendors, usually in a single industry.

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 Check your progress:
 What is business strategy, and key elements of business strategies
 List and discuss about phases of business strategies?
 What is the difference between marketplace and market space?
 What is online retailing?
 What are goals of internet marketing
 What is Internet presence, and how it is important for organization?

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 CHAPTER FOUR: Internet Marketing Objectives and Strategies
4.0. Learning objectives
After you study this Chapter, you will be able to explain:
 Online Implementation of Marketing product strategy
 Online community
 Online branding
 Product strategies on internet
 Price strategy
 Promotion/communication
 Placement/Distribution Strategy
4.1. Introduction
As we have seen the meaning of Strategy in chapter three, is the means to achieve organizational a goal
(making a profit).
E- Business Strategy is strategy that deploys enterprise resource to reach performance objectives,
competitive advantages. E-marketing Strategy capitalizes on information technology to reach marketing
objectives.
4.1. Product strategies on internet
The marketing mix is a well-established conceptual framework that helps marketers to plan their
approach to each market. At worst, it provides a checklist of decisions which marketers must make. At
best, marketers integrate, or mix, these decisions together and allocate their resources accordingly. In
this chapter we examine how the mix applies today. Online developments affect every aspect of
business, every aspect of marketing and every aspect of the marketing mix. So do we have to throw out
the old marketing mix concept or can it still be applied? Is a radical remix needed? There is a debate
amongst marketers about which mix is the most appropriate, regardless of whether it is online or
offline. Some feel that the traditional version of the mix simply misses the mark. There are others who
feel it is a useful starting point. Some argue that physical distribution, selling and pricing absorb the
biggest impact from the Internet. In fact, all the elements of the mix are affected by the online world.
The e-marketing mix is changing as products become services, services become customer driven, and
customers create communities that extend the brand into new online experiences. It’s a new type of

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mix. While ‘people’ or staff used to do all the customer service; now there are ‘new people’
(customers), who help each other in creating new customer experiences.
Although an extra element of the mix is suggested at the end of the chapter, this chapter does not seek
to create a new mix, but examines how the old mix is radically changed by the fast changing digital
environment. The overall balance of the marketing mix is strategic and the details of the mix are
tactical. Of course, a balanced mix itself is not enough to ensure success. Too many clever start-up
companies and many existing companies do not have all of the facets required to run a business.
To ensure that a business (or even just the new online aspects of a business) actually works (for the
customer), you need to ensure first that there is a market, and second that you can supply it; i.e. that the
basic business is fit for purpose and that the appropriate technology, product/service design, production
process and marketing process, sales process, delivery process, cash-flow process and after-sales
support process are all in place along with the 3Ms resources men (and women the human resource),
money (budgets) and minutes (time) required to service it. All of this must be 100 per cent in place at
the same time, because if any single element fails, then so does the whole. Product as mentioned above,
each P in Internet marketing refers to a series of decisions that you are going to need to make. For the
Product aspect of Internet marketing, you need to make decisions regarding the following:-
Functionality: what does the product do? What does it not do? This is a list of some of the features of
the product. These are the basis for the benefits that help a customer determine which product(s) they
will purchase? In an online environment, remember that your website itself is part of your product
offering. If it is difficult to navigate, confusing, or it’s hard to find what the customer is looking for,
you will lose them. If a customer can’t find what they need on your website, they are more likely to
click over to your competition’s site than to call you and ask for assistance.
Appearance: will you make the product look modern, Vintage/usage period, Rock and roll? Sleek and
sophisticated? You have to appeal to the person that you hope will purchase your product or service,
and the appearance of the product and even the appearance of its packaging is important in conveying
the message that you want to send to the public. Again, the appearance of your website is crucial here
as well. It should match what your product or service is and it should convey an image of your
company that you want it to convey
Quality: the quality of your product or service needs to match the message you are sending to the
customers in your marketing. If you promise luxury and deliver poor quality, your reputation is going
to suffer greatly. Your quality should at least meet and hopefully exceed what you promise to the

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customer. Additionally, your website, order fulfillment, follow-up emails, electronic information or any
other online interaction with the customer should convey that same sense of quality.
Packaging: What does the packaging communicate to your customers? Is it consistent with the
message that you’ve been sending in your marketing? It should communicate the same level of quality
and functionality you promised. It should match with the ‘vibe’ of your marketing youthful, funky,
upscale, and high tech whatever you’ve been promising. The packaging should always complement the
product. The copy should highlight the major benefits of the product for those who haven’t decided to
purchase it yet. What features and benefits are the true sellers?
Brand: Is this a new brand? Is it a new version of an existing brand? How are you making the
connection between the new and the old? Or how are you being sure the new brand is distinct enough
from the old brand that people will recognize there has been a change? Is there a new name, a new
color, a new style? If your branding isn’t clear to you, it won’t be clear to the customers. Your website
and any Internet marketing you do should strengthen and complement your brand - customers should
recognize your company whether they see it online or live.
Warranty: The warranty has multiple effects on your product. First, of course, there is the financial
implication of a warranty that needs to be considered. Second, there is the practical side of
implementing a warranty how will it work? How long will it be? What will it cover and what will it
not? Sure to reference them on your packaging - and of course, on your website.
But from a marketing perspective, you need to consider the message that your warranty delivers to your
customers. A short warranty communicates that the quality might be low. A long warranty
communicates a standard of quality that the customer can depend on. How you design the warranty
depends on what message you want your customers to get. In an age where so much business is done
online, an effective guarantee might drive a customer to choose your product or service over the
competition’s site where there is no warranty given.
Service/Support: It’s inevitable that a customer will eventually have a problem with your product or
service. Customers know this they have experience with similar products or services that have told
them that. So when you are marketing your product, you need to consider what level of service or
support you want to communicate to your customers. What can they expect from you if there ever is a
problem? How will they receive help? Will it be easy or difficult? Are there multiple options for getting
help or only one number that constantly rings busy or places them on hold for a long time?

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When you are marketing your product or service, you need to consider what level of service or support
you want to provide to your customers. Remember that some customers may expect you to offer some
kind of “live” support, particularly when doing business with you for the first time.
E-marketing enhanced product development:
E-marketer considers several factors that affect product development & product mix strategies with
new technologies.
1. Customer co-design: The power shift to buyers, when combined with the internet’s global reach
and death of distance, allows for many unusual business partnerships and for both business and
consumer collaboration.
Example: Software developers commonly seek customer input
One study of more than 300 research and development vice presidents found that customer interaction
in the early stages of product development can actually increase product success.
2. Electronic Input: Good marketers look everywhere for customer feedback to improve products
through:-
 The increase of web sites inviting customer product ratings,
 The proliferation of e-mail, “word-of-mouse”, and
 The speed and reach of the net,
 Customers are quick to spread the word about product strengths and weaknesses
 Internet savvy firms collect inputs electronically and refine products to meet customers’ needs.
The main implications of the Internet for the product aspect of the mix, which we will review in this
section, are:
1. Options for varying the core product; 3. Conducting research online;
2. Options for changing the extended 4. Velocity of new product development;
product; 5. Velocity of new product diffusion.
1. Options for varying the core product
For some companies, there may be options for new digital products which will typically be
information products that can be delivered over the web. In 1998, Ghosh proposed to evolve the
product offerings using the Internet. He introduced the notion of ‘digital value’ to customers and
suggested companies to ask themselves the following questions:

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 Can I offer additional information or transaction services to my existing customer base? For
example, for a bookseller, providing reviews of customer books, previews of books or selling books
online. For a travel company, providing video tours of resorts and accommodation.
Can I address the needs of new customer segments by repackaging my current information assets or
by creating new business propositions using the Internet? For an online bookseller, creating an
electronic book service or a DVD rental service as has been achieved by Amazon.
Can I use my ability to attract customers to generate new sources of revenue such as advertising or
sales of complementary products? Lastminute.com which sells travel-related services has
significant advertising revenue; it can also sell non-travel services.
Will my current business be significantly harmed by other companies providing some of the value I
currently offer? Considers the consequences if other companies use some of the product strategies
described above.
2. Options for Changing the Extended Product
When a customer buys a new computer, it consists not only of the tangible computer, monitor and
cables, but also the information provided by the computer salesperson, the instruction manual, the
packaging, the warranty and the follow-up technical service.
These are elements of the extended product. Smith and Chaffey (2005) suggest these examples of
how the Internet can be used to vary the extended product:
 Endorsements  Customer comments
 Awards  Warranties4Guarantees
 Testimonies/proof  Money-back offers
 Customer lists
 Customer service (see people, process and physical evidence)
 Incorporating tools to help users during their selection and use of the product.
3. Conducting research online
The Internet provides many options for learning about products. It can be used as a relatively low-cost
method of collecting marketing research, particularly about customer perceptions of products and
services. Typically these will complement rather than replace offline research. Options include:
 Online focus group: A moderated focus group can be conducted to compare customers’ experience
of product use.

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 Online questionnaire survey: These typically focus on the site visitors’ experience, but can also
include questions relating to products.
 Customer feedback or support forums: Comments posted to the site or independent sites may give
information on future product innovation.
 Web logs: A wealth of marketing research information is also available from the website itself,
since every time a user clicks on a link this is recorded in a transaction log file summarizing what
information on the site the customer is interested in. Such information can be used to indirectly
assess customers’ product preferences.
4. Velocity of New Product Development
The Internet can also be used to accelerate new product development since different product options
can be tested online more rapidly as part of market research. Companies can use their own panels of
consumers to test opinion more rapidly and often at lower costs than for traditional market research.
Another aspect of the velocity of new product development is that the network effect of the Internet
enables companies to form partnerships more readily to launch new products.
5. Velocity of New Product Diffusion
Tipping point
Using the science of social epidemics explains principles that underpin the rapid spread of ideas,
products and behaviors through a population;
4.2. Price strategy
Price: is the amount of money charged for a product or service.
Pricing is one of the most challenging areas of your Internet marketing strategy to address. There are
websites and web-based services designed to search through the Internet and return with the best prices
available on a certain product or service. In this kind of price-centric environment, how do you decide
what price to set for your product or service? Price You need to price your products and services
competitively, but at the same time set them high enough that you cover your costs and provide
yourself and any other workers with a salary. But there is more to pricing than just covering your costs
and overhead. The strategy that you use to price your products and services depends on the type of
industry you are in, the quality and position of the competition you have, the activity in the market
itself, and several other factors.
In the Internet marketplace, pricing is vital. Price is the most important factor when choosing to make a
purchase online.

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The internet has had an effect on the pricing of products and services. There is a great deal of pricing
information available online and customers can use this to make comparisons and make better
judgments about purchases. As customers become more aware of prices of competing products or
services this has the effect of limiting the firms’ ability to discriminate on price between different
consumer groups. A firm must decide how online product prices will compare with offline equivalents
considering the differing costs of sorting and delivering products to individuals through the online
channel as well as competitive and market concerns.
There are two online pricing trends are:
1. Fixed pricing: Two common fixed pricing strategies' used online are:
1. price leadership and
2. Promotional pricing
A) Price leadership: is the lowest priced product entry in a particular category.
•This strategy is productive for the internet as the second lowest priced item will also gain
sales.
.Example:- On the net buy. COM is a price leader in many categories, selling many items below
market value and overcomes losses through advertising revenue from the website.
E.g. E-bay
B) Promotional pricing: Many online retailers have turned to promotional pricing to encourage a first
purchase, encourage repeat business & close a sale.
Example: - Amazon. COM offered free shipping with any order over $25 with such success that it
became standard.
2. Dynamic pricing: it is the strategy of offering different prices to different customers or applies
different price levels for different customers or situations. The Internet allows firms to price items
automatically and “on the fly” while users view pages.
The two types of dynamic pricing are:-
1. Segmented and 2. Negotiated pricing
Segmented Pricing: The company sells a good or service at two or more prices, based on segment
differentiation
Example: A computer priced at $1000 in Los Angeles may be priced at 800 pounds in London
($1,285). The reason for the difference are price of transportation, tariffs, importer margins, costs
involved in selling in another country, etc.

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Negotiated pricing: - One can realize the growth of online auctions with the advent of internet. Many
consumers enjoy the sport and community of an online auction while others are just looking for a good
deal. The Internet is changing pricing for ever. The price at which any product or service is sold
depends on production costs, distribution costs, and the level of return on investment and profit margin
aimed for by the producer. Uniquely among the marketing mix variables, price directly affects the
firm's revenue. Thus, the setting of prices is a critical issue facing managers. The Pricing mix elements
will often relate to the Product element since online pricing depends on the range of products offered.
In this section, we explore the impact that the Web will have on both the pricing decisions that
managers make, and the pricing experiences that customers will encounter. when looking more deeply
into the interactions between the 4 P’s of the marketing mix, one observes that Price is a supportive
element for the remaining 3 P’s, because it costs to produce and design a Product, it costs too distribute
it (Place) and definitely we have costs to Promote it.
Implications of the Internet for the price aspect of the mix, which we will review in this section, are:
1. Increased price transparency and its implications on differential pricing;
2. Downward pressure on price (including commoditization);
3. New pricing approaches (including dynamic pricing and auctions);
4. Alternative pricing structure or policies.
1. Increased Price Transparency
Price transparency refers to Customer knowledge about pricing increases due to increased availability
of pricing information. Pricing online has to take into account the concept of differential Pricing and
price elasticity of demand.
Differential pricing concept: Identical products are priced differently for different types of customers,
markets or buying situations. While, Price elasticity of demand is a Measure of consumer behavior that
indicates the change in demand for a product or service in response to changes in price. Price elasticity
of demand is determined by the price of the product, availability of alternative goods from alternative
suppliers and consumer income. A product is said to be ‘elastic’ (or responsive to price changes) if a
small change in price increases or reduces the demand substantially. A product is ‘inelastic’ if a large
change in price is accompanied by a small amount of change in demand.
Pricing online is relatively inelastic: There are two main reasons for this, first, pricing is only one
variable consumers also decide on suppliers according to other aspects about the brand such as
familiarity, trust and perceived service levels. Secondly, consumers often display satisfying behavior

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which refers to; Consumers do not behave entirely rationally in product or supplier selection. They will
compare alternatives, but then may make their choice given imperfect information.

2. Downward Pressure on Price

Price transparency is one reason for downward pressure on price. The Internet also tends to drive down
prices since Internet-only retailers which do not have a physical presence do not have the overhead of
operating stores and a retailer distribution network. This means that online companies can offer lower
prices than offline rivals. A further reason for downward pressure on price is that companies looking to
compete online may discount online prices. For example, easy Jet discounted online prices in an effort
to meet its growth objectives of online revenue contribution. Such discounts are possible since there is
a lower overhead of processing a customer transaction online than for phone transactions.
Pricing Approaches
a) Cost-plus pricing: This involves adding on a profit margin based on production costs. As we have
seen above, a reduction in this margin may be required in the Internet era.
b) Target-profit pricing: This is a more sophisticated pricing method that involves looking at the fixed
and variable costs in relation to income for different sales volumes and unit prices. Using this
method the breakeven amount for different combinations can be calculated. For e-commerce sales
the variable selling cost, i.e the cost for each transaction, is small. This means that once breakeven
is achieved each sale has a large margin. With this model differential pricing is often used in a B2B
context according to the volume of goods sold. Care needs to be taken that differential prices are
not evident to different customers.
c) Competition-based pricing: This approach is common online. The advent of price-comparison
engines such as Kelkoo (www.kelkoo.com) for B2C consumables has increased price competition
and companies need to develop online pricing strategies that are flexible enough to compete in the
marketplace, but are still sufficient to achieve profitability in the channel.
d) Market-oriented pricing: This is known as ‘the elasticity of demand’. There are two approaches.
Premium pricing (or skimming the market) involves setting a higher price than the competition to
reflect the positioning of the product as a high-quality item. Penetration pricing is when a price is
set below the competitors’ prices to either stimulate demand or increase penetration. This approach
was commonly used by dot-com companies to acquire customers. The difficulty with this approach

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 is that if customers are price-sensitive then the low price has to be sustained – otherwise customers
may change to a rival supplier. This has happened with online banks – some customers regularly
move to reduce costs of overdrafts for example. Alternatively if a customer is concerned by other
aspects such as service quality it may be necessary to create a large price differential in order to
encourage the customer to change supplier.
Kotler (1997) suggests that in the face of price cuts from competitors in a market, a company has the
following choices which can be applied to e-commerce:
I. Maintain the price (assuming that e-commerce-derived sales are unlikely to decrease greatly
with price since other factors such as customer service are equally or more important)
II. Reduce the price (to avoid losing market share)
III. Raise perceived quality or differentiate product further by adding-value services
IV. Introduce new lower-priced product lines.
3. New Pricing Approaches (Including auction)
The new different pricing mechanisms are includes:
Forward auctions (B2C): Item purchased by highest bid made in bidding period.
Reverse auction (B2B): Item purchased from lowest-bidding supplier in bidding period. It is
difficult to forecast the evolution of reverse auctions since the buyers’ behavior is still confusing:
half of them do not choose the lowest bidder, while over 80% prefer to stay with the current
supplier.
Offer: A commitment by a trader to sell under certain conditions.
Bid: A commitment by a trader to purchase under certain conditions.
Aggregated buying: A form of customer union where buyers collectively purchase a number of
items at the same price and receive a volume discount.
4 Alternative pricing structure or policies
Different types of pricing may be possible on the Internet, particularly for digital, downloadable
products such as mp3’s, software, e-books. The Internet offers new options such as payment per
use, rental at a fixed cost per month or a lease arrangement.
Further pricing options which could be varied online include:
 Basic price  Guarantees and warranties
 Discounts  Refund policies
 Add-ons and extra products and services  Order cancellation terms

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4.3. Promotion/communication
Promotion is the element of the marketing mix that involves the communication with customers
regarding products and services for sale. The internet represents another channel for communication
with customers. Use of traditional media such as newspapers, magazines, radio and television to
promote the website; Direct e-mail to promote the website and as a means of attracting customers with
details of special offers; Providing information on the website to enhance the customer experience or
make the transaction smoother for the customer. When it comes to online promotion, you have a
myriad number of choices. Most companies will focus on one or two of them, but might not capitalize
on all of them. For you to compete successfully, your Internet marketing strategy should take advantage
of as many opportunities as possible to attract and keep visitors on your website. The complete
promotional mix or communications mix the ten communications tools (advertising, selling, sales
promotion, PR, sponsorship, direct mail, exhibitions, merchandising, packaging, and word-of-mouth) –
can be used to communicate or promote in the online or offline world. They can all be extended online
in new and dynamic ways.
Promotional mix Online Executions

4. Advertising: Interactive ads, pay per click keyword advertising

5. Selling: Virtual sales staff, affiliate marketing, web rings, links
6. Sales promotions: Incentives, rewards, online loyalty schemes
7. PR: Online editorial, e-zines, newsletters, discussion groups, viral
8. Sponsorship: Sponsoring an online event, site or service
9. Direct mail: Opt-in e-mail and web response
10. Exhibitions: Virtual exhibitions
11. Merchandising: Shopping malls, e-tailing, the interface
12. Packaging: Real packaging is displayed online
13. Word-of-mouth Viral, affiliate marketing, e-mail a friend, web rings, links
Advertising is a (usually paid) placement or promotion of a product in a public arena to current or
prospective customers with the intent to promote and sell. Advertising, accompanied with other
marketing initiatives such as direct marketing, PR, sales and promotion strategies, works to drive
customers to your product and increase sales. Traditional advertising includes the placement of an ad or
infomercial in media channels like newspapers, television, magazines, radio and cinema. The aim of
any ad is to utilize the reach of mass media by broadcasting a single message to a mass market. The
advertiser can control the placement, frequency and content of the message as well as the distribution
channel. With the arrival of the internet, marketers have a new medium to spread the word on, through
an “integrated communication approach” that achieves increased brand awareness and market reach.
Advantages of online advertising:
 No expiration date: Traditional media has an expiration date. A print ad is only as good as a
single print. Newspapers, magazines and even television have specific media placement
 Plans and strategies: Once the publication has expired, so has the message in the ad. Online media
is instant, flexible and forever changing. A website is accessible 24/7 and will never expire. People
visiting their favorite news website with see the banner every day; the message is reinforced and the
content can be updated within minutes.
 Lead time: It can take weeks, if not months, before an offline advert can be screened or printed,
online information can be published immediately and changed regularly. There is little to no lead
time. There are also no geographical limitations.
 Quality exposure: When you drive past a billboard or watch an ad break during your favorite
series, you are exposed to an ad but do not necessary have any interest in the product being sold.
Online, viewers only click on a banner or a Google advert if they are interested. Online advertising
has the potential to be more targeted.
 Freedom: Online users have more control over what they want to see and when; offline viewers,
listeners or readers have no control over whether they want to listen to a radio ad, view a
commercial or read a billboard on the highway. Freedom of choice enables the customer to choose
whether to interact with the brand or not.
 Reach: The internet crosses global boundaries. No matter where in the world you are, one ad has
the potential to reach thousands of people with just one click.
 Cost: Provided you understand how to manage budgets, set a limit for online ad spend and target
visitors accurately, online advertising can be a much more cost effective and measurable medium
than traditional advertising.
There is nothing cheap about magazine advertising or shooting a 30-second commercial. Production
costs can easily run into several hundred thousand rand for one commercial.
Types of online advertising
There are several other means of promoting products online that are much less invasive like PPC ad
(pay-per click)campaigns, submitting content to free distributors, submitting your website’s UR L to
search engines and giving sponsorship, to name just a few. But this chapter explores three very
different online advertising arenas: free, paid, and the dying and slightly unethical.
1. Free Online Ads.
Free advertising allows you to increase traffic to your site, inform search engines of your existence,
build a network of referral sites and spread your brand virally.
∞ Content distributors: The internet is like a spider web: the more content that is available to read,
click, forward and share, the better – provided the readers find their way back to your website,
brand and your bottom line. Writing articles and press releases about your latest products and
company news is another way to increase exposure about your company, increase brand awareness
and hopefully traffic.
∞ Search engine submission sites: Here are a few ways to index your website and make sure that
Google has your website in its database:
• Create a Google sitemap and submit it to Google through their Webmaster
Tools interface (www.google.com/webmasters/tools). An XML sitemap is an index of all the pages
on your website (www.xml-sitemaps.com).
• Manually submit your URL to search engines like Yahoo and Google (www. google.com.
• Use a one-stop shop. Add your UR L to one website that will submit your URL to multiple search
engines (for example, www.addme.com or www.addpro.com).
∞ Blog indexing: Submit your blog to a blog search engine such as Afrigator (www.afrigator.co.za).
Afrigator is a social media search engine and blog directory for anyone interested in blogs, videos,
photos and news from Africa. Afrigator only carries African content and is the hub for social media
in Africa.
Here are a few other ideas on how to increase traffic to your blog:
 Set up a live feed on Yahoo or Google so that your site is crawled regularly.
 Add a link to your blog in your email signature, email marketing campaigns and any other
marketing material.
 Write comments on other people’s blogs and then make sure you add a link back to your
website.
∞ Affiliate networks: As with all relationships, it is important to network with the right people in your
industry. An affiliate network is essentially an online referral system and a vital mechanism for
generating cross-referrals between companies.
Here are a few local and international examples of affiliate networks you can join to promote your
website and generate more inbound links to your site:
 www.freebielist.com
 www.affiliate-program.amazon.com
 www.ebaypartnernetwork.com/files/hub/en-US/index.html
2. Not So Free, But Excellent Returns
Pay per click (PPC): go to www.google.com, type in a search term and click “search”. What do
you see? Depending on the popularity of your search term, there should be a long list of results. To
the right of these, there is a list of “sponsored links” (sometimes above your results as well). These
are Google Ads or, in Google terminology, ad Words (www.google.com/adwords). People have
paid money for these ads to be displayed when someone searches for a specific search term. This is
called “pay-per-click” advertising (PPC), because you only pay for the advert when someone clicks
on your sponsored advert in the search results.

PPC campaigns have become a popular advertising technique in recent years for three main
reasons:
1. They are targeted to keywords, so only people actively looking for what your business offers will
be shown the ads.
2. The return on campaigns (or conversion rate) is easily measurable with tracking codes that can be
added onto UR Ls included in the ads.
3. They are more cost effective than other advertising techniques like TV commercials, banner ads
and print ads, because you’re only paying when someone clicks on your ads.
3. Banner ads: The good, the bad and the ugly
 Banner ads is a rectangular image that can be placed anywhere on a website. Banners can be one
image, image and text, rotating images (.gif files) and even Flash. The goal of any banner ad is to
entice people to click through to the website.
Examples:
◦ Banner ad (animated banner) “Pump the burger” banner in 2008. The goal was to encourage
viewers to pump the burger up – every time you buy a supersized meal you would get a discount
voucher.

◦ Mobile Web in Africa 2010 (static banner) the banner is simple, sticks to the facts and is
positioned in the “mobile” section of www.BizCommunity.com.

Not so ethical techniques of online advertising

There are a few online advertising tactics that have made online users and marketers very angry. Online
advertising can be very successful if done ethically, but the last thing you want to do is make your current or
potential customers frustrated when they cannot enjoy a positive online experience because they are bombarded
with ads. Here are a few examples of unethical advertising techniques to watch out for:
YouTube video ads: When you click on a YouTube video, you expect to watch a video, not an
advertisement. YouTube is a free video distribution website and some videos are only a few second
long, and yet you are often forced to watch an advertisement than is potentially longer than the video
itself.
This is annoying and does not seem necessary when watching a homemade video about super heroes,
even if the advertisement is relevant to the target audience.
Personal selling: Will you still have personal selling, as in; will you be doing personal face-to-face
marketing? Remember that if your website is the sales channel, there may still be salespeople behind it
who need to close the sale - or fulfill the sale. Also, building relationships with your client base online
is key if you want to become known as an expert and someone that your customers will buy from again
in the future.
Public relations: A company’s reputation is critical in sales. The PR efforts you undertake both online
and offline can make the difference between a customer’s choosing your product vs. the competitions.
For example, are you a community-oriented organization? Do you talk about that on your website or
link to press coverage about it from your homepage? Is your product or service more earth-friendly
than others? Again, do you tell customers that on your website? The image you communicate to the
public your potential customer base is something to consider when y Message: Can you condense your
marketing message down to a few words? What will your elevator speech, and to speak? If you boiled
down all of your promotional efforts to one phrase, this is the message it is the basic information you
want every customer to know about your product, service and organization. It could be the basis for all
of your online and offline advertising and what you want the customer to walk away remembering
about your offering. You choose Internet marketing strategy.
Media: what additional types of media will you use, and how will you integrate them with your online
advertising and marketing? The answer to this depends on whether or not your customers would
receive your messages in those other channels. Does your target customer listen to the radio? Which
stations? Does your target customer read magazines or newspapers? Which ones? Yes, you can market
solely online, but consider what you will do if you have customers who want to “see something in
writing.” Will you just ignore those potential customers? Many people will choose to focus on online
advertising and marketing because of the low cost of entry; you don’t have to pay for thousands of
brochures or more for media time. But eventually, a well thought-out Internet and offsite marketing
plan will involve all media channels where customers might be located.
The success of promotion is highly dependent on the effectiveness of the website design. Customer
loyalty is one of the keys to creating a competitive advantage in the online environment.
Specific characteristics of successful promotional websites:
1. Easily accessible and easy to use: the website needs to be highly visible on search engine lists and
easily navigated by consumers when accessed;
2. Fast and efficient: the website must provide consumers with up-to-date and relevant information
quickly;
3. Confidence boosting: consumers must gain confidence that the company and its products and
services being offered are genuine. This can involve the use of company logos, brand names, contact
details and visual images of buildings and people;
4. Constantly available: The website should be available at all times;
5. Secure: consumers need to be confident that no other third party will be able to access any of their
communications and that the information they provide will not be sent on to any third party without
their permission.
4.4. Placement/Distribution Strategy
Distribution costs are significantly lower for digital products compared with physical distribution. Gone
are the days when you could consider only your local geographic area as a possible place for selling
your product or service. With the advent of the Internet, customers no longer stay just in their local
neighborhood when they are looking for something. They could buy it from someone across the
country or even across the globe. So you need to think about several aspects about where you will sell
your product or service and how it will affect your online and offline operations.
Channel Motivation: each channel you sell through, you need to be able to motivate your customers
to take action through that channel. For example, if you sell a specific product, you could sell it through
your own website as well as through a major retailer like Amazon.com. Each sales channel may require
different marketing, advertising, and promotional activities so that you can recoup the investment
you’ve made in that marketing channel. You also need to monitor the effectiveness of each channel so
that you are sure you are getting the kind of customer response that you need.
Market Coverage: what range of the market are you going to attempt to cover with your marketing
efforts? Which other websites will you advertise on, and how will you choose them? Of course, this
requires some understanding of what you already have gained in terms of marketing coverage as well
as knowing where your customers are already surfing. Will you start by attempting to maintain
customers you already have from your “brick and mortar” business or will you be aggressive and
attempt to gain a certain new percentage of customers the first year you roll a new product out? You
can drive many of your other Internet marketing decisions by this decision.
Logistics: For each decision you make on where, to whom, and how you plan to sell your product or
service, both online and offline, you have to be able to carry through on the operational, logistical side
of the sales equation. For example, do you have the means to fulfill the orders from all the channels you
use? If you use multiple websites to sell your product, can you comply with their fulfillment
requirements? Will you have to maintain certain levels of stock ahead of time, or can you develop it as
it is sold? Do you have delivery channels in place? What about support channels? All of the logistics
need to be in place if you are going to be successful on the fulfillment end of the marketing process.
Service levels: In this aspect of the Place decisions, you want to consider if you will offer the same
level of service both online and offline. As we’ve mentioned, providing excellent customer service for
online customers could be the key to keeping a customer from clicking over to the next website.
New Distribution Models
So place is vital and an explosion of radically new ideas has occurred in the online world of distribution
in the last five years. Here are a few:-
Disintermediation: this is removing the middleman to deal direct with customers instead of through
agents, distributors and wholesalers. Note that this can create channel conflict as middlemen feel the
squeeze. For example, Hewlett-Packard sells a lot of equipment to hospitals. But when hospitals started
going directly to the HP site, first for information and second to place orders, it posed a big question:
do we pay commission to the sales representative for this?
Reinter -mediation: this is the emergence of new types of middlemen who are brokers, such as
Bizrate, which unites buyers with sellers.
Info-mediation: a related concept where middlemen hold data or information to benefit customers and
suppliers.
Channel confluence: this has occurred where distribution channels start to offer the same deal to the
end customer.
Peer-to-peer services: music swapping services such as Napster and Gnutella opened up an entirely
new approach to music distribution with both supplier and middleman removed completely, providing a
great threat, but also an opportunity to the music industry.
Affiliation: affiliate programs can turn customers into sales people. Many consider sales people as part
of distribution. Others see them as part of the communications mix. Amazon. Com sees its 400,000
affiliate partners as a huge asset which creates part of their distinctive competitive advantage.
Group purchasing: facilitated by Group on and Living Deals, Millions of people are alerted to
special, limited, heavily discounted offers negotiated by group purchasing groups, and clusters of them
reply.
4.5. On line community
An online community is a virtual community whose members interact with each other primarily via the
Internet. For many, online communities may feel like home, consisting of a "family of invisible
friends". Those who wish to be a part of an online community usually have to become a member via a
specific site and thereby gain access to specific content or links. An online community can act as an
information system where members can post, comment on discussions, give advice or collaborate.
Commonly, people communicate through social networking sites, chat rooms, forums, e-mail lists and
discussion boards. Online communities have become a very popular way for people to interact, who
have either known each other in real life or met online.
People may also join online communities through video games, blogs and virtual worlds. The rise in
popularity of Web, Websites has allowed for easier real-time communication and connection to others,
and facilitated the introduction of new ways for information to be exchanged.
The idea of a community is not a new concept. On the telephone, in ham radio and in the online world,
social interactions no longer have to be based on proximity; instead they can literally be with anyone
anywhere. The study of communities has had to adapt along with the new technologies. Many
researchers have used ethnography to attempt to understand what people do in online spaces, how they
express themselves, what motivates them, how they govern themselves, what attracts them, and why
some people prefer to observe rather than participate. Online communities can congregate around a
shared interest and can be spread across multiple websites.
Some signs of community are:
 Content: articles, information, and news about a topic of interest to a group of people.
 Forums or newsgroups and email: so that community members can communicate in delayed
fashion.
 Chat and instant messaging: so that community members can communicate more immediately.
Online community Development
There is a set of values to consider when developing an online community. Some of these values
include: opportunity, education, culture, democracy, human services, and equality within the economy,
information, sustainability, and communication. A developer's main focus is to create a technology that
adheres to the interests, as well as the social and basic needs, of the community. An online community's
main goal is to serve as a common ground for people who share the same interests . People may use
online communities to keep up with events, such as upcoming church or sporting events, that are going
on in their local communities. Online communities also form around activities and hobbies. They have
become an important part of education; students can take classes online, and they may communicate
with their professors and peers online. Businesses have also started using online communities to
communicate with their customers about product and service enhancements and to share new
information about the business. Many online communities relating to health care help inform, advice,
and support patients and their families. Other online communities allow a wide variety of professionals
to come together to share their thoughts and ideas on certain topics or issue.
When developing an online community, it is important to have the technologies necessary to keep
members interested, manage assets, and uphold community relations. Developers take into
consideration whether all the online community members are good at using technology. If an online
community is not workable for some users, they may be discouraged. Surveys and discussions where
members may post their feedback are essential in developing an online community. Online
communities are developed to encourage individuals to come together to teach and learn from one
another. They encourage self-learners to discuss and learn about real-world problems/situations as well
as focus on things such as teamwork, collaborative thinking, personal experiences, et cetera. Not
everyone is drawn to participate and engage in online communities, and age and lifestyle often
discourage people from getting involved.
According to Dorine C. Andrews, author of Audience-Specific Online Community Design there are
three parts to building an online community: starting the online community, encouraging early online
interaction, and moving to a self-sustaining interactive environment when starting an online
community, it may be effective to create Web-Pages that appeal to specific interests. Online
communities with clear topics and easy access tend to be most effective. In order to gain early
interaction by members, privacy guarantees and interwoven content discussion are very important.
Successful online communities tend to be able to function self-sufficiently.
Participation
There are two major types of participation in online communities:
1. Public participation and
2. Non-public participation, also called lurking.
Non-public (Lurkers) Participants: are participants who join a virtual community but do not
contribute. In contrast, public participants, or posters, are those who join virtual communities and
openly express their beliefs and opinions. Both lurkers and posters frequently enter communities to
find answers and to gather general information. For example, there are several online communities,
dedicated to technology. In these communities, posters are generally experts in the field who can
offer technological insight and answer questions, while lurkers tend to be technological novices
who use the community to ask questions as opposed to offering advice. In general, virtual
community participation is influenced by how participants' view themselves in society as well as
 norms, both of society and the online community. Participants also join online communities for
friendship and support. In a sense, virtual communities fill the social voids in participants' offline
lives.
Sociologist Barry Wellman presents the idea of “glocalization”- the ability for the Internet to extend
participants’ social connections to people around the world while also aiding them in further
engagement with their local community.
Online learning: is a form of online community. The sites are designed to educate. Colleges and
universities may offer many of their classes online to their students; this allows each student to take the
class at his or her own pace.
Aspects of successful online communities
 Communities of transaction emphasize the importance of buying and selling products in a social
online manner where people must interact in order to complete the transaction.
 Communities of interest involve the online interaction of people with specific knowledge on a
certain topic.
 Communities of fantasy encourage people to participate in online alternative forms of reality,
such as games where they are represented by avatars.
 Communities of relationship often reveal or at least partially protect someone's identity while
allowing them to communicate with others, such as in online dating services.
Community Goes Online
The arguments for: New technologies allow new forms of communication between close friends,
acquaintances, and strangers,
Online communities provide a focus for social interaction, new technologies improve communication
between co-workers, customers and suppliers, online communities enable consumer-to-consumer
interaction, marketers can use community-building technologies to generate customer loyalty,
involvement, and repeat sales.
The arguments against: Private time online comes at the expense of physical interaction with friends
and family. Weak ties between strangers replace strong ties between friends and neighbors. Those who
spend hour online often test higher on psychological measures of loneliness and depression.
Online communities combine 4 important features
Internet communication tools, Rules that define community membership, Collaborative production of
material by members and Repeat use by members. Communication is multidirectional and Users
provide material and users consume information
Challenges faced by community builders: Building traffic, maintaining member collaboration, member
retention.
To understand the significance of place, consider which is the most successful brand in the soft drinks
markets? The answer is Coca-Cola, not Pepsi. It is readily available almost whenever and wherever
customers could need it. Their excellent distribution gives them the edge.
This logic also transfers to the electronic market space. Esther Dyson (1999) says: ‘You put coke
machines in places where you think people might want to drink a coke. On the Internet you put
Amazon buttons in places where there might be people inclined to buy books’.
Place and promotion overlap when organizations extend their presence online with links from other
sites or with micro sites in relevant places as the brand gets wider promotion, and simultaneously
increases its distribution (place) as the brand is, effectively, available for purchase more widely online.
Place means the place of purchase, distribution and, in some cases, consumption. Some products
exploit all three aspects of place online; for example, digitizable products such as software, media and
entertainment. Widgets can extend distribution across many other web sites. Apps (once downloaded)
can extend distribution into the hands of millions of customers via their mobiles. And QR codes can
bring distant (and even past) experiences closer.
Proximity marketing and location-based marketing: bring promotions to the customer as they
physically move closer to a distribution point. Foursquare and Face book Places enable customers to
reveal their locations to friends and discover nearby Deals. Customers get rewarded with special offers
for checking into a venue. In the USA, Gap gave away 10,000 pairs of jeans through Deals to drive
people into its stores. Interestingly, check-in behavior patterns differ between the USA and EU
countries (see Chapter 4). ‘More and more large brands are turning to location based services to find
out more about and communicate with their customers, and to offer them deals and promotions for their
loyalty’ (Gray, 2011).
So it’s not just digitizable products and services all products and services can extend themselves online
by considering their online representation for place of purchase and distribution. Even perishable goods
such as food and flowers are sold online as customers like the increased convenience and reduced cost
of ordering online, often using delivery partners for offline fulfillment. Distribution channels can
radically change. Amazon (1994) and eBay (1995) are relative newcomers on the retail scene.
4.6. Online Branding
Internet branding (also referred to as online branding) is a Brand management technique that uses the
World Wide Web as a medium for positioning a brand in the marketplace. Website creation and
optimization, social media, blogs, online press releases, and video marketing are all methods used for
online branding purposes.
Online branding techniques
Some professionals believe that the goal of online branding is to have consumers continually recognize
a brand. Others focus on integrating online branding with the overall brand experience of customers in
relation to a company, product, or other branded entity. From this perspective, brand recognition is
viewed as one component among many, such as brand differentiation (from competitors) and the
"Collaboration Age" brand dialog facilitated by Internet and mobile communications. Website
development is a key component of online branding as a website is used by companies and individuals
to present products and services of a brand. Focusing on a website's appearance, functions, and
company message to provide a positive experience to visitors is all part of online branding. Website
development for online branding also includes utilizing a blog to generate content for readers interested
in topics related to the brand. It has been both recommended and advised against to guest blog on other
websites for the purpose of online branding. In 2014, Matt Cutts, the head of Google's Spam team,
stated that guest blogging has become more and more spammy and recommended against using guest
posting for building incoming links to a website.
Internet branding also involves social media interaction and integration. Display and content networks used with
repetition are one method of integrating a brand with social media. Behavioral targeting, re-messaging, and site
specific targeting are used as a way to keep a brand in front of a target audience. Branding through social media
involves sharing knowledge about the brand and continuously interacting with customers. Using sites like
Twitter, Facebook, LinkedIn, and YouTube to share knowledge about a brand is a popular form of online
branding through social media.
Cheque your progress
1. Which one of the following is true about online communities?
A. An online community can act as an information system
B. Online communities has a set of values
C. Online community is a new concept
 D. Online community is the issue of only profit making organizations
E. Online community developers should consider education level, culture, democracy, and
Equality in economy of members
F. Except C. and D are correct
2. What factors could hinder of online communities participates and engages in?
3. What factors could hinder of online communities participates and engages in?
A. age and lifestyle
B. Technology usage skill and know how
C. Income level
D. Education level
E. All are correct
is an attempt to understand societies/ people’s online activities, how they express themselves, what
motivates them, how they govern themselves, what attracts them, and why some people prefer to
observe rather than participate.

 How Internet could enhance product development?

 How internet affect the pricing strategies
 Is Internet improving placement of goods and services? If you say yes, how?
 What is online community?
 Do you engage in online community? What you obtained from the community
 List and discuss about the two types of participation
 How internet improves online branding?
Chapter Five: Mobile Electronic Commerce
Objectives of this chapter:
5.0.Overview of Mobile commerce
5.1. Wireless Industry
5.2.Wireless WANS
5.3.Wireless communication platform
5.4.Facilitators of a wireless Environment
5.5. Concerns for Mobile Enterprise
5.1. An Overview of M-commerce
The steady shift of consumer behavior to online shopping from retail stores hasn't been lost on wireless
electronic device manufacturers. Mobile electronic commerce is yet another way to purchase online
items from electronic storefronts or online services from automated service providers. Computer-
mediated networks enable these transaction processes through electronic store searches and electronic
point-of-sale capabilities. Other mobile devices include dash-top mobile devices, personal digital
assistants or smart phones.
Device vendors target younger generations who use mobile phones more than any other age group,
prompting online vendors to collaborate with big names in the telecommunications industry to promote
the advancement of e-commerce to m-commerce such that users can shop online from their phones.
Most of these advances are accomplished through sophisticated application designs that are constantly
emerging and evolving.
One of the features of m-commerce sites is the adaptation of websites to make them easier to use with
smaller screen sizes. There are a number of adaptations that can be made including the removal of large
graphics and the optimization of fonts for easier viewing and ergonomics.
What does Mobile E-Commerce (M-Commerce) mean?
Mobile e-commerce (m-commerce) is a term that describes online sales transactions that use wireless
electronic devices such as hand-held computers, mobile phones or laptops. These wireless devices
interact with computer networks that have the ability to conduct online merchandise purchases. Any
type of cash exchange is referred to as an e-commerce transaction. Mobile e-commerce is just one of
the many subsets of electronic commerce. Mobile e-commerce may also be known as mobile
commerce.
5.2. Wireless Industry
Wireless operations permit services, such as long-range communications, that are impossible or
impractical to implement with the use of wires. The term is commonly used in the telecommunications
industry to refer to telecommunications systems (e.g. radio transmitters and receivers, remote controls
etc.) which use some form of energy (e.g. radio waves, acoustic energy, etc.) to transfer information
without the use of wires. Information is transferred in this manner over both short and long distances.
The wireless industry is a collection of businesses involved in the development and use of various
electronic devices that can receive and send information wirelessly. While it once primarily included
those companies that produced the hardware and software for mobile phones, it has expanded to the use
of tablets and similar devices. This does not typically include other wireless devices, such as wireless
routers, which require a physical connection and then transmit a wireless signal to other devices. The
wireless industry includes hardware manufacturers of devices, which employ engineers and software
designers, as well as companies that produce software applications for such devices. Much like the
entertainment industry, the wireless industry does not necessarily refer to a set number of companies
with any established business model, but to a group of businesses that produce wireless technology.
Mobile telephones primarily led the way in this industry, especially with the development of smart
phones that utilized 3G specifications and the increased functionality that those devices provided for
users. As the wireless industry has grown, however, it has come to include developers of other devices
such as wireless tablets, which combine numerous functions to act as a hybrid between a smart phone
and a laptop computer. Speeds have increased as technologies have evolved, from earlier technologies
such as GSM, CDMA and GPRS, to 3G networks such as W-CDMA, EDGE or CDMA2000.
5.3. Wireless communication platform
The Wireless Communications Platform is an innovative, practical and cost-efficient telemetry solution
for gathering and transmitting information using existing communication technologies and
infrastructures. The following are general descriptions of various proprietary wireless telemetry
systems and components developed:
 Wireless solutions consisting of software and firmware providing encryption, compression, error
checking, logging, participation in network load balancing and incorporation of Artificial
Intelligence to enable an equipped device to transmit data packets to the Network Operations
Center (“NOC”) server. The server is accessible by common web connections to provide
information about the current condition of the equipped device and its performance; typically
 through installed remote wired sensors. Said access enables control and monitoring of the
equipped device from a web based connection.
 Wireless solutions that enable third-party linking with an equipped device to report data about the
condition of the equipped device to the Network Operations Center at the request of the third-
party.
 Firmware solutions that enable a third-party to properly present data upstream and verify it to the
Network Operations Center and a corresponding server-side database for eventual presentation to
the end user customer.
 Server side software solutions for getting and presenting data received from a third-party device
through the Network Operations Center so the data might be accessed by the end user customer
and through which the end user customer may query and control the equipped device in “near real
time.”
 Hardware, firmware and wireless solutions enabling remote upgrading of existing in place
firmware found on or operating in conjunction with third-party devices.
 Software and hardware solutions that connect multiple equipped devices into a wireless Local Area
Network (“LAN”) through the cooperation of a LAN module with the equipped devices and the
Wireless Telematics Operating System (“WTOS”).
5.4. Wireless WANS
A wireless wide area network (WWAN), is a form of wireless network. The larger size of a wide area
network compared to a local area network requires differences in technology. Wireless networks of all
sizes deliver data in the form of telephone calls, web pages, and streaming video.
A WWAN often differs from wireless local area network (WLAN) by using mobile telecommunication
cellular network technologies such as LTE ( LTE, an abbreviation for Long-Term Evolution,
commonly marketed as 4G LTE, is a standard for wireless communication of high-speed data for
mobile phones and data terminals) , WiMAX (often called a wireless metropolitan area network or
WMAN), UMTS ( Universal Mobile Telecommunications System), CDMA2000, GSM ( Global
System for Mobile Communications, originally Groupe Spécial Mobile), is a standard developed by the
European Telecommunications Standards Institute (ETSI) to describe protocols for second generation
(2G) digital cellular networks used by mobile phones), cellular digital packet data (CDPD) and
Mobitex to transfer data. It can also use Local Multipoint Distribution Service (LMDS) or Wi-Fi (is a
local area wireless technology that allows an electronic device to exchange data or connect to the
internet using 2.4 GHz UHF and 5 GHz SHF radio waves ) to provide Internet access. These
technologies are offered regionally, nationwide, or even globally and are provided by a wireless service
provider. WWAN connectivity allows a user with a laptop and a WWAN card to surf the web, check
email, or connect to a virtual private network (VPN) from anywhere within the regional boundaries of
cellular service. Various computers can have integrated WWAN capabilities.
Since radio communications systems do not provide a physically secure connection path, WWANs
typically incorporate encryption and authentication methods to make them more secure. Unfortunately
some of the early GSM encryption techniques were flawed, and security experts have issued warnings
that cellular communication, including WWAN, is no longer secure. UMTS (3G) encryption was
developed later and has yet to be broken

5.5. Facilitators of a wireless Environment

Enablers
The Technology Acceptance Model (TAM) suggests that perceived usefulness and perceived ease-of-
use are the two important factors that determine adoption of any technology (Davis 1989). Many
enablers fall under these categories of factors. First, networking is a key enabler. Networking increases
perceived usefulness. Both the Millennials and the Road Warriors value mobile devices as these help
them stay in touch with other people. Whereas the Millennials prefer to use the mobile primarily for
social networking, that is, to keep in close contact with their friends and family members, the Road
Warriors use the mobile primarily for professional networking, that is, being in touch with their
business colleagues. Retailers should design and pitch their offers differently to these segments based
on the difference in the purpose of primary usage.
Second, the range of mobile applications increases usefulness and thus enhances adoption. In particular,
location-based services enhance consumer utility and lead to fast adoption by a large number of
consumers.
Third, price is an important enabler. Because the mobile device and applications may fall under
discretionary spending for many consumers, prices of the mobile device and applications should be
within the budgets of targeted users. Fourth, the ease-of-use of the device and its applications greatly
increase adoption, consistent with TAM model's prediction (Davis 1989). Finally, trust with the
application, service provider, and the retailer—which includes privacy and security—can enhance
perceived usefulness and enable wider and deeper adoption of mobile devices and Applications (e.g.,
Davis 1989; Peltier, Milne and Phelps 2009; Urban, Amyx and Lorenzon 2009).
Inhibitors
A number of factors may inhibit both the use of mobile devices and the acceptance of mobile marketing
devices and offers. Some of these inhibitors are consistent with the paradoxes of technology (Mick and
Fournier 1998). First, there is consumer inertia to new technology adoption (Yadav and Varadarajan
2005). In the context of the mobile, some consumers typically resist adopting mobile technology,
consistent with the disengaging dimension.
Second, economic barriers (e.g., limited disposable income) play a key role in inhibiting the adoption
of mobile devices and the acceptance of mobile offers from retailers. Third, lack of knowledge (or
mobile literacy) limits the adoption and use of a mobile device. In this sense, retailers are faced with the
challenge of educating consumers about the benefits of their mobile offers. From an organizational
standpoint, retailers face another challenge. Many retail managers lack specific knowledge of mobile
marketing in the retail context. Fourth, another inhibitor is the fact that a key segment such as the
Millennials distrusts marketing and advertising practices. This segment typically seeks an environment
free of marketing pressures. As a result, the Millennials are rather quick to resist “outsiders” (e.g.,
retailers), whom they perceive as intruding into their private and special mobile space.
5.6. Concerns for Mobile Enterprise
Mobile advertising has become more and more popular. However, some mobile advertising is sent
without a required permission from the consumer causing privacy violations. It should be understood
that irrespective of how well advertising messages are designed and how many additional possibilities
they provide, if consumers do not have confidence that their privacy will be protected, this will hinder
their widespread deployment. The privacy issue became even more salient as it was before with the
arrival of mobile data networks. A number of important new concerns emerged mainly stemming from
the fact that mobile devices are intimately personal and are always with the user, and four major
concerns can be identified: mobile spam, personal identification, location information and wireless
security. Aggregate presence of mobile phone users could be tracked in a privacy-preserving fashion
Check your progress
 What is Mobile Electronic Commerce?
 What is wired and wireless communication?
 What are the motives that encourage and discourage the usage of mobile commerce?
 What is the importance of wireless communication over wired communication?
 Discuss the effect of culture on electronic commerce and mobile commerce adaption
 What is mobile spam? Is it legitimate? If not how marketers handle mobile spam?
Chapter six: E-Commerce Payment Systems
Learning objectives:
 What is e-payment system?
 Credit card e-commerce transaction
 Types of payment system
 B2B,and B2C Payment system
 Electronic Cheques
6.0. Introduction
Collecting revenue from sales is at the very heart running a business. E-commerce poses some unique
issues for merchants who want to reliably and efficiently collect revenue from customers, and for
customers who would like a reliable, trustworthy way to pay for goods and services online.
6.1. Payment Systems
Cash
It is legal tender defined by a national authority to represent value. It is the most common form of
payment in terms of number of transactions.
Advantages
 Cash is potable, requires not authentication, and provides instant purchasing power for those who
possess it.
 Cash allows for micro payments (payments of small amounts)
 The use of cash is “free” in that neither merchant not consumers pay a transaction fee for using it.
 Cash is anonymous and difficult to trace, and in that sense it is “private”
Limitation
 Cash is limited to smaller transaction
 It can be easily stolen
 It does not provide any “float” period (time between a purchase and actual payment)
Checking Transfers: They are funds transferred directly via a signed draft or cheque from a
consumer’s checking account to a merchant or other individual. They are the second most common
form of payment in terms of number of transaction. They can be used for both small and large
transactions, although typically they are not used from micro payments. They have some float and
the unspent balance can earn interest.
Limitations
B. They are not anonymous and require third-party institutions to work
C. They also introduce security risks for merchants as they can be forged more easily than cash.
D. They also present additional risks compared to cash because they can be cancelled before they
clear the account or they may bounce if there is not enough money in the account.
Credit Card: It represents an account that extends credit to consumers, permits consumers to
purchase items while differing payment, allows consumers to make payments to multiple vendors at
one time.
 Offer consumer a line of credit and the ability to make small and large purchases instantly
 They are widely accepted as a form of payment; reduce the risk of theft associated with carrying
cash, and increase consumer convenience.
 Credit cards also offer consumers considerable float.
Stored Value: They are accounts created by depositing funds into an account and from which
funds are paid out or withdrawn as needed. They are similar in some respects to checking transfers
which also store funds but do not involve writing a cheque. Examples include debit cards, gift
certificates, prepaid cards, and smart cards.
Debit cards look like credit cards, but rather than providing access to a line of credit, they instead
immediately debit a checking account or other demand deposit account. Because debit cards are
dependent on funds being available in a consumer’s bank account, larger purchases are still generally
paid for by credit card.
Accumulating Balance
They are accounts that accumulate expenditures and to which consumers make periodic payments.
Traditional case of such payment accumulates balances. Usually over a specified period (typically a
month) and then are paid in full at the end of the period.
6.2. Credit Card E-commerce Transactions
It is important to understand credit card because it is the dominant form of online payment. The
following diagram shows how an online credit card transaction works:
 Merchant
Clearing House Merchant Bank

Secure Line

2. SSL provides secure connection

through internet to merchant
server Clearing house Issuing bank
verfies a/c and credit merchant
balances with account

issuing bank

Monthly statement issued with debit for purchase

1. Consumer makes purchase
An online credit card transaction begins with a purchase when a consumer wants to make a purchase;
he/she adds the item to the merchant’s shopping cost. When the consumer wants to pay for the items in
the shopping carts, a secure tunnel through the internet is created using SSL (Secure Sockets Layer).
SSL is supported by Netscape and Microsoft browsers. The technology creates a secure “session”
between the parties, and scrambles the information that is passed between them. Secure Sockets layer
does not authenticate either the merchant or the consumer
Once the consumer credit card information is received by the merchant, the merchant software contacts
a clearing house.
A clearinghouse is a financial intermediary that authenticates credit cards and verifies account
balances. The clearinghouse contacts the issuing bank to verify the account information.
Once verified, the issuing bank credits the account of the merchants at the merchant’s bank (usually
this occurs at night in a batch process). The debit to the consumer account is transmitted to the
consumer in a monthly statement.
Limitations
a. Low level of security and high merchant risk
b. Too costly (3.5% of the purchase +20-30 cents transaction fee +other setup fees). This makes
selling less than $10 on the web undesirable
c. Credit cards are not very democratic, even though then seem ubiquitous: Adults with low
income cannot be qualified for credit cards.
The SET (Security Electronic Transaction) Protocol
It is intended to address the weakness of ordinary online credit card transactions by authenticating card
holder and merchant identity and making it impossible to refute charges through the use of digital
signatures.
SET uses a digital certificate which is an attachment to a message that verifies a sender’s identity, as
one way of improving payment security. The SET transaction process itself is similar to a standard
online credit card transaction, except that there is more identity verification involved.

Clearing House
Merchant
Merchant Bank

3. Merchant Software forwards

encrypted message

5. Issuing bank

Credit
4. Clearing house verifies account and merchant
2. Merchant and consumer computers
balances with Issuing bank account
verify each other’s identity. SET encrypted
& authenticated ordered payment
information to merchant server.

6. Monthly statement issued with debit for purchase Consumer’s card Issuing bank
The SET protocol is being developed by VISA and Master card. The “secure electronic transactions”
protocol differs from SSL (Secure Socket Layer) in that it includes a system to check that the merchant
is authorized to accept payments on cards, and that the customer is authorized to use it
6.3. E-commerce B2C Payment Systems
A. Digital Wallets
They seek to emulate functionality of an analog wallet. A customer goes online to any website, use
digital wallet to authenticate him/ herself, pay for anything purchased, keep a record of transactions that
would be instantly available for review. The same digital wallet would support payments using a
regular credit card, digital cash, digital credit card, or digital check.
There are two different major categories of digital wallets:
I. Client Based Digital Wallets
They are software applications that consumers install on their computers. They offer consumers
convenience by automatically filling out forms at online stores. Merchants install software on their
servers to receive information from the client-based wallet. When the customer clicks the relevant
button at a participating merchant’s site, the merchant’s server of varies the consumer’s browser for
information from his/her digital wallet.
The business model of client based wallet vendors is to sell millions of wallets, establish a de facto
proprietary industry standard, and reap the rewards of network by becoming the single, viable solution
for consumers to shop online. The revenue model for these vendors is to collect multiple revenue
streams from sales of the software as well as from parties in an online transaction. Wallet vendors
would like to collect fees from merchants for promoting merchant products sell personal transaction
information to merchants and intermediaries, and rent their systems to other financial intermediaries
such as banks.
ii. Server based digital wallet
They are software based authentication and payment service and products sold to financial institutions
that market the system to merchants either directly or as a part of their financial service package.
Vendors may provide both technology services and wallet services. Merchants and financial
institutions use the digital wallet products and services to provide easy, secure shopping, using
whatever payment methods the customer desire. The revenue model for these server-based wallet
vendors is to generate revenue by charging merchants.
B. Digital Cash
It was one of the first forms of alternative payment systems developed for e-commerce. It is a form of
value storage and value exchange that have limited convertibility into other forms of value and that do
require intermediaries to convert. It works by creating online accounts for the children, funded by
payments from their parents. These credits can then be spent at designated e-commerce site.
C. The Stored Value Systems
They permit consumers to make instant, online payments to merchants and other individuals based on
value stored in an online account. Some stored value systems require the user to down load a digital
wallet, whereas others require users to simply sign up and transfer money from their existing credit
accounts into an online stored value account.
Smart cards as stored value systems
They are another kind of stored value system based on credit card-sized plastic cards that have
embedded chips that store personal information.
Whereas credit cards tore a single charge account number in the magnetic strip on the back, smart cards
can hold 100 times more data, including multiple health insurance, personal identification, bank
accounts, and loyalty programs such as frequent flyer accounts.
This capacity makes them an attractive alternative to carrying a dozen or so credit and ID cards in
physical wallet. Smart cards can also require a password, unlike credit cards, adding another layer of
security. There are two types of smart cards:
E. Contact: in order for contact cards to be read, they must be physically placed into a card
reader.
F. Contact less: have an antenna built in that enables transmission of data without direct contact.
6.4. E-commerce B2B Payment Systems
Traditional payment systems pose special challenges:
 Sometimes a dozen or more documents may be needed to consummate the transaction,
including a purchase order, regulatory, documents, credit verification, authentication, letter of
credit.
 B2B payment systems must link into existing systems that integrates inventory, production,
shipping, and other corporate data and into electronic data interchange systems.
 The B2B payment market is actually much larger than B2C market because of the large size of
transactions.
Electronic Letters of Credit
It is a written agreement by a bank to pay to the beneficiary (the seller) on accounts of the applicant
(the buyer) a sum of money upon presentation of certain documents. It can be done electronically.
Electronic Cheques
As more banks and their customers go online, there has been a rapid development in the availability
and use of electronic cheques (e-cheques). E-cheques are designed particularly for the business to
business markets, and represent an attempt by the banks to reclaim internet currency from card
providers.
E-Cheques use a digital certificate system that secures the transfer of payment data between buyers,
sellers, and banks. The system is designed to be very secure. Each party to the transaction has a piece
of software which allows them to issue or receive cheques: when a cheque arrives, the technology
allows the recipient to test the transmission for integrity before “opening” it to accept the payment.
Both firm’s banks and both firms need have opted into the technology, but is not expensive. Once each
side has the software to send and receive cheques, all that it needed is e-mail. The breakthrough the
system offers is that it allows e-mail to be used to make and transmit binding payment commitments
between trading parties that are then automatically enacted by participating banks.
Check your progress
4. All but One of the following is not the importance of cash payment system
A. Buyers might be lost money value(No float time)
B. Cash is potable
C. not Requires authentication
D. Provides instant purchasing power for those who possess it.
E. Cash allows for micro payments (payments of small amounts)
 List and discuss the advantages and limitations of each payment system?
 What is the importance of digital Wallets over other payment systems?
Chapter seven: E-commerce Security and Controls
Learning objectives:
 What are e-commerce security, privacy and controls?
 favorable policy environment for e-commerce
 Legal, social and Political Issues in e-commerce
7.1. The Internet and Public Policy
The government plays an instrumental role in encouraging e-commerce growth through concrete
practicable measures such as:
 Creating a favorable policy environment for e-commerce; and
 Becoming a leading-edge user of e-commerce and its applications in its operations, and a
provider to citizens of e-government services, to encourage its mass use.
What is a favorable policy environment for e-commerce?
Among the public policy issues in electronic commerce that governments should take heed of are:
 “bridging the digital divide” or promoting access to inexpensive and easy access to information
networks
 Legal recognition of e-commerce transactions
 Consumer protection from fraud
 Protection of consumers’ right to privacy
 Legal protection against cracking (or unauthorized access to computer systems) and
 Protection of intellectual property
Measures to address these issues must be included in any country’s policy and legal framework for e-
commerce. It is important that government adopt policies, laws and incentives that focus on promoting
trust and confidence among e-commerce participants and developing a national framework that is
compatible with international norms on e-commerce (covering for instance, contract enforcement,
consumer protection, liability assignment, privacy protection, intellectual property rights, cross-border
trade, and improvement of delivery infrastructure, among others.
How can government use e-commerce?
Government can use e-commerce in the following ways:
 E-procurement: Government agencies should be able to trade electronically with all suppliers
using open standards-through ‘agency enablement’ programs, ‘supplier enablement’ programs, and
e-procurement information systems.
 Customs clearance: With the computerization of customs processes and operations
(i.e., electronic submission, processing and electronic payment; and automated systems for data entry to
integrate customs tables, codes), one can expect more predictable and more precise information on
clearing time and delivery shipments, and increased legitimate revenues.
 Tax administration: This includes a system for electronic processing and transmission of tax
return information, online issuances of tax clearances, permits, and licenses, and an electronic
process registration of businesses and new taxpayers, among other
7.2. Privacy and Security Issues

The Tension between Security and other values, examples are as follows:
1. Security vs. ease of use: the more security measures that are added, the more difficult a site is to
use, and the slower it becomes
2. Security vs. desire of individuals to act anonymously

Security Threats in the E-commerce Environment

Three key points of vulnerability:
 Client  Communications channel
 Server
Most common threats:
 Malicious code  Denial of service attacks
 Hacking and cyber vandalism  Sniffing
 Credit card fraud/theft  Insider jobs
 Spoofing
 Viruses: computer program that as ability to replicate and spread to other files; most also deliver a
“payload” of some sort (may be destructive or benign); include macro viruses, file-infecting viruses
and script viruses
 Worms: designed to spread from computer to computer
 Trojan horse: appears to be benign, but then does something other than expected
 Bad applets (malicious mobile code): malicious Java applets or ActiveX controls that may be
downloaded onto client and activated merely by surfing to a Web site
7.3. Legal, social and Political Issues in e-commerce
Intellectual Property Rights: encompasses all tangible and intangible products of human mind
1. Major ethical issue: How should we treat property that belongs to others?
2. Major social issue: is there continued value in protecting intellectual property in the Internet age?
3. Major political issue: How can Internet and e-commerce be regulated or governed to protect
intellectual property?
There are three types of Intellectual Property Protection.
These are:
1. Copyright 2. Patent 3. Trademark law
Goal of intellectual property law: Balance two competing interests public and private maintaining this
balance of interests is always challenged by the invention of new technologies
Copyright law:
Protects original forms of expression (but not ideas) from being copied by others for a period of time
 Look and feel copyright infringement lawsuits
 Fair use doctrine
 Digital Millennium Copyright Act, 1998
 First major effort to adjust copyright laws to Internet age
 Implements WIPO treaty that makes it illegal to make, distribute, or use devices that
circumvent technology-based
Patent right law: Grant owner 20-year monopoly on ideas behind an invention, Machines
 Man-made products  Promotes dissemination of new techniques
 Compositions of matter through licensing
 Processing methods  Stifles competition by raising barriers to
 Invention must be new, non-obvious, novel entry
 Encourages inventors
Trademarks
 Identify, distinguish goods, and indicate their source
 Purpose
 Ensure consumer gets what is paid for/expected to receive
 Protect owner against piracy and misappropriation
 Infringement  Bad faith
 Market confusion  Dilution
 Behavior that weakens connection between trademark and product
Social protection
Protection of children and strong sentiments against
  Pornography
 Passing legislation that will survive court challenges has proved difficult
• Efforts to control gambling and restrict sales of drugs and cigarettes
 Currently mostly regulated by state law
 Unlawful Internet Gambling Enforcement
Check your progress
 What are electronics commerce security and privacy issues?
 Do you think that government could improve e-commerce adaption? How?
 List and discuss different security issues?
 What is the difference between the three intellectual propriety protection right: 1. patent
right 2. Copy right, 3. Trade mark
Reference
References books of service marketing
1. Christian Groonroos, (2007), Service Management and Marketing: Customer Management in Service
Competition, 3rd ed. New York:Willey
2. Christopher L. and Jozhen W. (2004), Services Marketing, New Jersy: USA and
Dorling Kinersley Ltd.

3. Zeithaml, A., Bitner, M. and Gremler D. (2006), Services Marketing: Integrating Customer Focus Across
the Firm, 3rd ed., Tata Mc Graw-Hill Ltd.
4. Palmer A. and Cole C. (1995), Services Marketing principles, Mc Graw-Hill Ltd.
5. Donnely, J.A. and George,W. R., (1981), Marketing of Services, Chicago: American Marketing
Association.
6. Manfred B. & Dominik G. (2006). Services Marketing: Managing the Service Value Chain, FT Prentice
Hall.
7. Douglas H. & John E. (2010). Services Marketing: Concepts, Strategies, and Cases, 4th ed. South-Western
Cengage Learning, USA
8. Philip Kotler, (2000), Marketing Management, New Jersy: Prentice-Hall Inc.
Reference for e-marketing
1. Advice on holistic web marketing: www.flyte.biz/resources/ newsletters/07/03-holistic-web-
marketing.php
2. Social Science Working Paper, 887, California Institute of Technology, 1995.
3. Hämäläinen, M., A. B. Whinston and S. Vishik. "Electronic markets for
4. Learning: Education Brokerage on the Internet." Communications of the ACM,
5. McFadden, D. L. and K. E. Train. "Consumers' evaluation of new products:
6. McAfee, R. P. and J. McMillan. "Electronic markets." Readings in Electronic
7. Commerce. Ed. R. Kalakota and A. B. Whinston. Reading, Mass.:
8. Tapscott, D. The Digital Economy: Promise and Peril in the Age of Networked