Services Marketing, Operations and Management

Vinnie Jauhari and Kirti Dutta

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Chapter 1
Introduction to Service Industry

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Agenda
Introduction to service economy Service characteristics Classification of services Factors responsible for growth of services sector Challenges confronted by the service sector Critical factors for success International trade regulations for service sector Service Management Services Marketing environment
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Introduction to service economy

Services account for 54% of the GDP and is the fastest growing sector of the economy. Indias export of services worth USD 76.2 billion grew by 32.1% in 2006-2007 Among the services transport and communications is fastest growing with growth averaging 15.3% per annum Banking, insurance and business services grew at 13.9%
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Service Defined
An activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as a solutions to customer problems
Gronroos (1990)
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Service Defined
Any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may not be tied to a physical product
Kotler, 1991.

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Service Defined
A set of activities or benefits which produce a good, which is normally intangible in nature, perishable, involving temporary transfer of ownership or as long as the service is being used and which gratify the customers needs or problems. Services can also be provided in connection with sale of tangible goods for creating value perceptions among customers.
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Characteristics of services
Intangibility Inseparability Variability Perishability

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Intangibility
Service cannot be stored Service cannot be patented legally and hence can be easily copied by competitors. Service cannot be readily displayed or easily communicated to customers leading to difficult in assessing the quality. Decisions regarding advertising and promotions are difficult. Pricing is difficult as it is hard to determine the actual cost of a unit of service and price/quality relationship is complex. It is less efficient than goods production. Design of total service package is not possible. For example: Services rendered by banks, restaurants, airlines etc. An airline traveller cannot know the kind of experience he is going to
have during a flight at the time of making the purchase for the first time.
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Intangibility - Emerging Marketing strategy

Some of the possible solutions to overcome intangibility problems of services can be: Use tangible cues (for example see reading : Incredible India Packs in a Cosmetic Touch) Stimulate manage and promote word of mouth communication. Use personal sources of information more than nonpersonal sources. Use post purchase communications Strengthening internal and external marketing. Use relationship marketing Create strong organisational image. Use cost accounting to help set prices.
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Inseparability
Centralized mass production is difficult if not impossible. Customer experience depends upon action of employees and interaction between employees and customers. Operations need to be decentralized so that service can be delivered directly to consumers in convenient locations. Due to simultaneous production and consumption, the customer involvement is high and this may affect the outcome of the service transaction. Involvement of other customers in the production process.
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Inseparability - Emerging Marketing strategy

Need strong selecting and training programmes for public contact personnel Strong incentives and motivations to always satisfy the customer Use multi-site locations. Innovating techniques of indirect interaction. Standardisation to maximum extent possible. Consumer Management Focus on personal attention Develop distribution network with quality control mechanism
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Variability/Heterogeneity
Standardisation is difficult to achieve. Hard to set up a quality control. Quality can be determined only after the service has been performed. Not possible to communicate what exactly the customer is going to receive.

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Heterogeneity - Emerging Marketing strategy

Stress standardisation and performance Focus on employee training programme, performance evaluation and internal marketing. Consider licensing and other forms of credential requirements. Positioning variation as strength of innovation. Promote research and innovation. Industrialize service: Levitt 1972, suggested specific techniques to substitute organized pre-planned systems for individual service operations. This strategy is the opposite of customization. Customize services.
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Perishability
Value is short lived. Cannot be inventoried Time pressure in sales Capacity is finite

For example: An airline seat on a particular flight, if not sold cannot be stored for sale during the next flight.
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Perishability - Emerging Marketing strategy

Demand forecasting and creative planning for capacity utilization to achieve a closer match between demand and supply. Use strategies to cope with fluctuating demand. Strong recovery strategies when things go wrong. Focus on competence and expertise Continuous study on demand patterns and competitive parameters. Creative pricing like early bird specials.
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In-class exercise
Can you now apply these characteristics for: Banking service Hospitality service Beauty saloon How do these characteristics vary across the sectors?
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Classification of services

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Differentiation between goods and services

Ownership Performance Customer involvement People as a part of the product Variability Evaluation Inventory Distribution channel
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Factors Growth of Service Sector

Foreign Direct Investment Better living standards High disposable income Convenience factors Dual income households New technological devices Concern for productivity
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Challenges confronted by Service Sector

Infrastructure Technology Employees Consumers Competition Suppliers

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Critical factors for success

Focus on customers Caring for employees Identification of value drivers Deploying technology to a firms advantage Demand management Adequate systems
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International trade regulations for service sector

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization and the first multilateral trade agreement to cover trade in services at the global level.

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Basic purpose of GATS

GATS is intended to contribute to trade expansion under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries. Thus we can conclude that the GATS' contribution to world services trade rests on two main pillars: (a) Ensuring increased transparency and predictability of relevant rules and regulations, (b) Promoting progressive liberalization through successive rounds of negotiations.
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Scope and application

A service is traded when the supplier and customer are from different countries, regardless of location of the transaction (Hibbert, 2003). GATS apply to measures by Members affecting trade in services. The measure can be taken at central, regional or local government level, or by non-governmental bodies exercising delegated powers. The relevant definition covers any measure, "whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form, ... in respect of: The purchase, payment or use of a service; The access to and use of, in connection with the supply of a service, services which are required by Members to be offered to the public generally; The presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member

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Basic principles
All services are covered by GATS. Most-favored-nation treatment applies to all services, except the one-off temporary exemptions. National treatment applies in the areas where commitments are made. Transparency in regulations, inquiry points. Regulations have to be objective and reasonable. International payments: normally unrestricted. Individual countries' commitments: negotiated and bound. Progressive liberalization: through further negotiations.

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Services Marketing Mix

Product Price Place Promotion People Process Physical Evidence
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Product
Brand Features Quality Quantity Style Accessories Packaging Warranties Product lines
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Price
Price Level Strategy Determinants Discount Trade-ins Credit Terms
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Promotion
Personal selling
Selection Training Incentives

Advertising
Targets Media types

Sales promotion Public relations

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Place
Outlet type Outlet nos. Accessibility Location Stocks Intermediaries Transportation Managing channels
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People
Customers
Age Social group

Employees
Quantity Quality Training Motivation Promotion Rewards Teamwork
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Process
Blueprinting Automation Control procedures

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Physical evidence
Layout/Decor Ambience Cleanliness Equipment Employee dress Quantity Guarantees
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Services Marketing Environment

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Political environment
According to Kotler et al. (2006) the political environment is made up of laws, government agencies and pressure groups that influence and limit the activities of various organizations and individuals in society and its basic purpose is to protect: companies from unfair competition consumers from unfair practices the society from unimpeded business behavior. In India a number of laws have been constituted to protect the rights of the stakeholders of a business. For instance, laws relating to working hours, conditions of services and employment, employment and training, labour laws, wage laws, etc. protect the rights of employees.
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Economic Environment
This consists of factors that affect consumer purchasing power and spending patterns. Attention should be paid to
income distribution and average income.

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Demographic Environment
Demography is the study of human population in terms of size, density, location, age, gender, race, occupation and other statistics. (Kotler et al., 2006) The demographics of a country is of major interest to marketers because it represents the target customers for products and services.
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Socio-cultural Environment
A societys cultural environment includes institutions and other forces that affect the basic values, perceptions, preferences, and behaviors of its members. This is particularly relevant in the diverse Indian culture as culture varies like the vast geography of India. People speak in different languages, dress differently, follow different religions, eat different food etc.
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Technological Environment
The most remarkable force that is shaping our destiny today is technology. We are still at the threshold of Internet technology, which has given us countless opportunities at a negligible cost.

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