Introduction to Service

By: Prof. Shilpa Chadichal

Outline
Emergence of GATS in world trade.

Definition of service.
Characteristics of service.

Difference between goods and services.

Service sector and Indian economy.

Case study.

GATS
The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations.

The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

GATS

The multilateral legal instruments resulting from the Uruguay Round were treated as a single undertaking.

India also signed all the WTO agreements under the single undertaking rule and GATS is a part of this whole package.

What is the main purpose of GATS?

Prior to the Uruguay Round, services were considered to offer less potential for trade expansion than goods, thanks to existence of technical, institutional and regulatory barriers. However, the development of new transmission technologies facilitating the supply of services like satellite communication, electronic banking, tele-education and.

What is the main purpose of GATS?

gradual liberalization of hitherto regulated sectors like transport, banking and insurance combined with changes in consumer preferences, enhanced the tradeability" of services. These developments increased international services flows and created a similar need for multilateral disciplines - as in the area of goods.

What is the main purpose of GATS?

Thus, the main purpose for the creation of the General Agreement on Trade in Services (GATS) was to create a credible and reliable system of international trade rules, which ensured fair and equitable treatment of all countries on the principles of non-discrimination.

It aims at stimulating trade and development by seeking to create a predictable policy environment wherein the member countries voluntarily undertake to bind their policy-regimes relating to trade in services.

GATS four Modes

In order to capture the complex nature and diverse forms of international transactions in services, the GATS adopted a novel approach of classifying the entire range of services trade into four modes: Mode 1 Cross-border Mode 2 Consumption abroad Mode 3 Commercial presence Mode 4 Movement of natural persons

Mode 1
Mode 1: Cross-border supply refers to a situation where the service flows from the territory of one Member country into the territory of another Member country.
For example,
an architect can send his architectural plan through electronic means; a teacher can send teaching material to students in any other country a doctor sitting in Germany can advise his patient in India through electronic means.

In all these cases, trade in services takes place and this is equivalent to cross-border movement of goods.

Mode 2
Mode 2: Consumption abroad refers to a situation where consumer of a service moves into the territory of another member country to obtain the service. For example,
a tourist using hotel or restaurant services abroad. a ship or aircraft undergoing repair or maintenance services abroad.

Mode 3
Mode 3: Commercial presence implies that service suppliers of a Member country establish a territorial presence (a legal presence) in another Member country with a view to providing their services.

In this case, the service supplier establishes a legal presence in the form of a joint venture/ subsidiary/representative/branch office in the host country and starts supplying services.
Example: IBM-India. Tata Docomo, Maruti suzuki ltd.

Mode 4
Mode 4: Presence or movement of natural persons (this only refers to export of manpower) covers situations in which a service is delivered through persons of a member country temporarily entering the territory of another member country.
Examples include independent service suppliers (e.g. doctors, engineers, individual consultants, accountants, etc.)

However, GATS covers only temporary movement and not citizenship, residence or employment on a permanent basis in the foreign country.

12 Services Sector
The WTO Secretariat has divided all services into the following 12 sectors : 1.Business services (including professional and computer services) 2. Communication services. 3. Construction and Engineering services 4. Distribution services (e.g. Commission agents, wholesale & retail trade and franchising) 5. Education services 6. Environment services 7. Finance (including insurance and banking) services 8. Health services 9. Tourism and Travel services 10. Recreation, Cultural and Sporting Services 11. Transportation Services, and 12. Other services not elsewhere classified.

Developed Countries interest in India

India has received Requests from 27 countries.

These Requests cover all the major service sectors such as express delivery services, telecommunication services, audio visual services, financial services, distribution services, legal services, energy services, environmental services etc. and are in all modes of supply of service.

The definition of marketing is: Marketing is organizational function & a set of processes for creating, communicating & delivering value to customers for managing customer relationship in ways that benefit the organization & its stake holders.

Offering Products & Services that Satisfy Customer Needs

SERVICE BECOMES THE KEY WORD TO CUSTOMER SATISFACTION & CUSTOMER LOYALTY

Home Delivery Service

Laundry Service

Talking on Telephone Getting a Hair Cut

Travelling Service

Courier Service

Listening to Radio

Placement Service

Internet Connections

Photocopying Service

Counseling Services

Cafeterias

Defining the Essence of Service:

An act or performance offered by one party to another

An economic activity that does not result in ownership

A process that creates benefits by facilitating a desired change in:

Customers themselves
Physical possessions Intangible assets

Defining the Essence of Service:

A service is an act or performance of an intangible nature that does not result in ownership of a tangible commodity but creates value and benefits for the customer( video-Burj)

Examples of Service Industries:

Classification of Services by Industry: Health Care Hospital, medical practice, dentistry, eye care Professional Services Accounting, legal, architectural Financial Services Banking, investment advising, insurance

Hospitality
Restaurant, hotel/motel, bed & breakfast, ski resort, rafting Travel Airlines, travel agencies, theme park Others: Hair styling, pest control, plumbing, lawn maintenance, counseling services, health club

Service
Service can been divided into four distinct categories:
Service Industries and companies. Services as products. Customer Service. Derived Service.

Service
Service industries and companies: It include those industries and companies typically classified within the service sector whose core products is a service.
Example-Taj Palace Hotels (Lodging), Indian Airlines (transportation), Birla Sun Life (Insurance and financial Services), Fortis (health care).

Service as products: It represent a wide range of intangible product offerings that customers value and pay for in the marketplace.
Example-IBM and Hewlett-Packard offers information technology consulting services to the market place.

Service
Customer service: It is the service provided in support of a companys core products. Companies typically do not charge for customer service. Customer service can occur on-site
Example-when a retail employees helps customer find a desired item or answer a question.

Derived service: The value derived from the physical goods is really the service provided by the good, not the good itself.
Example-Pharmaceutical provides medical services. A razor provides barbering services

Classification of Services
The Degree of Tangibility of Services Restaurant Services V/S Consultant Services Whether the Service is Directed to the Customer or His Possession haircut or hotel check in v/s car or TV repair The Time & Place of Service Delivery Pest control has to be on site, but software services can be provided via internet in any location Level of Customization V/S Standardization Some services are more customized like lawyers, doctors. On the other hand few services are standardized like a computer course, Mc Donalds menu etc.

Classification of Services
Formal or Informal Relationship with Customers Clubs require formal membership whereas Disneyworld, or a movie theatre only requires people to buy a ticket.

Extent to which Demand & Supply Fluctuate

Some services have steady demand example a downtown restaurant and some services have highly fluctuating demand on the basis of time of the day, season etc. Interaction with People Some transactions could be done on phone while others require physical presence like taking a flight.

Tangibility Spectrum

Salt

Soft Drinks

Detergents Automobiles Cosmetics Fast-food Outlets

Intangible Dominant

Tangible
Dominant

Fast-food Outlets Advertising

AgenciesAirlines Investment Management Consulting

Teaching

DIFFERENCES BETWEEN GOODS AND SERVICES

CHARACTERSTICS GOODS SERVICES

Physical shape

Tangible

Intangible

Process design
Production Delivery Supply Producer status Title Physical presence of customer Customer involvement Type of technology

Customer not involved

Time spread Separated with production schedule Flexible Separable Ownership possible Hardly required Low / absent Generally hard

Immediate effect on customer

Spontaneous Along with production Inflexible Inseparable for services No ownership possible Absolutely necessary for many services High Generally soft

Other Differences (contd.)

CHARACTERSTICS Consumer reaction Repairs Delayed Common GOODS SERVICES Spontaneous Generally Impossible

Replacement
Pricing base Need satisfied Basis of competition Channel of distribution Standardization Facility location Product design

Common
Material Physical Technology Longer All over Near supply Physical product

Rare
Labor More emotional Personalization Shorter Only for routine services Close to customer Role is more vital

Other Differences (contd.)

CHARACTERSTICS Storage Inventory Quality control Workers skills Forecasting Capacity planning Facility layout Possible Raw material Fixed Technical Longer Average capacity To enhance production GOODS SERVICES Not possible Personnel Variable Interaction Shorter Capacity increased To accommodate customer physical & psychological needs Important

Role of physical surroundings

Not so important

Characteristics of Services
Customers do not obtain ownership of services.

Service products are ephemeral and cannot be inventoried.

Intangible elements dominate value creation. Greater involvement of customers in production process. Other people may form part of product experience. Greater variability in operational inputs and outputs. Many services are difficult for customers to evaluate. Time factor is more important--speed may be key. Delivery systems include electronic and physical channels

Characteristics of Services
No ownership

Customers obtain temporary rentals, hiring of personnel, or access to facilities and systems Pricing often based on time Customer choice criteria may differ for renting vs. purchase--may include convenience, quality of personnel Cant own people (no slavery!) but can hire expertise and labor

Characteristics of Services
Services cannot be inventoried after production

Service performances are ephemeraltransitory, perishable Exception: some information-based output can be recorded in electronic/printed form and re-used many times Balancing demand and supply may be vital marketing strategy Key to profits: target right segments at right times at right price

Characteristics of Services
Customers may be involved in production process
Customer involvement includes self-service and cooperation with service personnel Think of customers in these settings as partial employees Customer behavior and competence can help or hinder productivity, so marketers need to educate/train customers Changing the delivery process may affect role played by customers Design service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedules

Characteristics of Services
Intangible elements dominate value creation

Understand value added by labor and expertise of personnel Effective HR management is critical to achieve service quality Make highly intangible services more concrete by creating and communicating physical images or metaphors and tangible clues

Characteristics of Services
Other people are often part of the service product

Achieve competitive edge through perceived quality of employees

Ensure job specifications and standards for frontline service personnel reflect both marketing and operational criteria Recognize that appearance and behavior of other customers can influence service experience positively or negatively Avoid inappropriate mix of customer segments at same time Manage customer behavior (the customer is not always right!)

Characteristics of Services
Greater variability in operational inputs and outputs

Must work hard to control quality and achieve consistency

Seek to improve productivity through standardization, and by training both employees and customers
Need to have effective service recovery policies in place because it is more difficult to shield customers from service failures

Characteristics of Services
Often difficult for customers to evaluate services Educate customers to help them make good choices, avoid risk. Tell customers what to expect, what to look for. Create trusted brand with reputation for considerate, ethical behavior. Encourage positive word-of-mouth from satisfied customers.

Characteristics of Services
Time factor assumes great importance Offer convenience of extended service hours up to 24/7 Understand customers time constraints and priorities Minimize waiting time Look for ways to compete on speed Distribution channels take different forms Tangible activities must be delivered through physical channels Use electronic channels to deliver intangible, information-based elements instantly and expand geographic reach

SERVICE SECTOR IN INDIA

An Introduction

The Indian Economic structure constitutes of three major segments, namely: o Agriculture o Industry (Manufacturing) o Service Sector Trade The Services Sector constitutes of: Hotels & Restaurants Railways Other Transport & Storage Insurance Dwellings, Real Estate Business Services Public Administration; Defence

Communication (post & telecom) Banking

Personal Services Community Services

% Contribution in GDP & Employment

Percentage Contribution to GDP by Various Sectors, 2007

Percentage Contribution of Labor Force by Various Sectors, 2007

% Contribution of sectors to GDP

28.5% Industry Agriculture 56.9% 14.6% Services

Comparison of GDP Contribution

Role of Services in Economy

Adds on to GDP growth Generates employment & career opportunities Opens many entrepreneurial opportunities Increased tax revenue

Leads to all round development

Better quality of living

Growth of Service Sector

Liberalization in regulatory framework o This gives rise to innovation and high export earnings o India is ranked 21st among exporters of services o IT sector, BPO, outsourcing, consultancy, education, healthcare all are booming well equally. Increased disposable income in the hands of people Changing consumer attitude & lifestyle Increased productivity & automation in agriculture & industry (manufacturing) Faster technological developments

Factors Stimulating Transformation Of Services Economy

Government Policies

Changes in regulation New rules to protect customers, employees & environment

Social Changes Rising customer expectations More affluence Rising ownership of computers & mobile phones Immigration

Business Trends
More strategic alliances Growth of franchising

Factors Stimulating Transformation Of Services Economy

Advances in I.T. Convergence of computers & telecommunication Wireless networking Faster & more powerful soft wares Digitalization of text, graphics, audio & video Growth of internet

Internationalization More companies operating on transnational basis Increased international travel International mergers & alliances

GAP MODEL OF SERVICE QUALITY

What is Service Quality- FivePerspectives

Transcendental: Quality = excellence. Recognized only through
experience

Product-Based: User-Based:

Quality is precise and measurable

Quality lies in the eyes of the beholder

Manufacturing- Quality is conformance to the firms developed specifications Based:

Value-Based:

Quality is a trade-off between price and value

Generic Dimensions Customers Use to Evaluate Service Quality

Credibility Security Access Communication Understanding the customer Tangibles Reliability Responsiveness Competence Courtesy

SERVQUAL SCALE
Research instrument developed by Zeithaml to measure customer satisfaction with different aspects of service quality. In its basic form, the scale contains 21 perception items and a series of expectation items reflecting the 5 dimensions of service quality ( Tangibles, Reliability, Responsiveness, Assurance, Empathy)

SERVQUAL Attributes
RELIABILITY

EMPATHY

Providing service as promised Dependability in handling customers service problems Performing services right the first time Providing services at the promised time Maintaining error-free records Keeping customers informed as to when services will be performed Prompt service to customers Willingness to help customers Readiness to respond to customers requests Employees who instill confidence in customers Making customers feel safe in their transactions Employees who are consistently courteous Employees who have the knowledge to answer customer questions

Giving customers individual attention Employees who deal with customers in a caring fashion with best interest at heart. Employees who understand the needs of their customers Convenient business operating hours

RESPONSIVENESS

TANGIBLES
Modern equipment Visually appealing facilities Employees who have a neat, professional appearance Visually appealing materials associated with the service

ASSURANCE

Example of How customers judge the five dimensions of service quality

Car Repair:
Reliability :problem fixed the first time and ready when promised.
Responsiveness :Accessible; no waiting; responds to requests Assurance: Knowledgeable mechanics. Empathy: Acknowledge customer by names; remember pervious problems and preferences and anticipate customer needs. Tangibles : Repair facility; waiting area; uniform; equipment.

The GAP Model: A conceptual tool to identify and correct service quality problems
Customer needs and expectations

CUSTOMER

1. Knowledge Gap
Management definition of these needs

MANAGEMENT

2. Standards Gap
Translation into design/delivery specs

3. Delivery Gap
Execution of design/delivery specs

4. I.C.Gap

Advertising and sales promises

5. Perceptions Gap
Customer perceptions of product execution

6. Interpretation Gap
Customer interpretation of communications

7.

Service Gap

Customer experience relative to expectations

Gaps Model of Service Quality

CUSTOMER

Expected

Service
Customer Gap

Perceived Service
External Communications to Customers

COMPANY

Service Delivery
GAP 3
Customer-Driven Service Designs and Standards

GAP 4

GAP 1

GAP 2
Company Perceptions of Consumer Expectations

Factors leading to Provider Gap 1

Customer Expectations
Inadequate marketing research orientation Lack of upward communication Insufficient relationship focus Inadequate service recovery

Company perception of customer expectations

Factors leading to Provider Gap 2

Customer driven service designs and standards

Poor service designs Absence of customer driven standards Inappropriate physical evidence and servicescape

Management perceptions of customer expectations

Factors leading to Provider Gap 3

Customer-driven service designs and standards

Deficiencies in human resource policies Customers who do not fulfill roles Problems with service intermediaries Failure to match supply and demand

Service delivery

Factors leading to Provider Gap 4

Service Delivery

Lack of integrated services marketing communications. Ineffective management of customer expectations. Overpromising. Inadequate horizontal communication.

External communications to customers

Example HP GAS
Introduction : Hindustan Petroleum corporation Limited(HPCL) is the second Largest LPG marketing company with over 16 million consumers serviced through a network of 1823 distributors across the country. In view of the fast changing market dynamics and shift from sellers market to buyers market, HP Gas has embarked upon a new initiative to build brand image by increasing focus on consumers needs and expectation.

Effectively closing the GAP

Customer expectation are not merely limited to receiving refills on time, but also cover value added services. Based on extensive marketing research to understand the needs and expectations of the customers.

HP GAS has been positioned to provide totally hassle free experience to the consumers.

Driven by customers expectation , HP Gas has taken several measures to design, standardize and benchmark its marketing activities.

Effectively closing the GAP

To effectively manage customer expectation, HP Gas now offers distinct set of value added services to its customers.

Delivery of cylinder is assured within 24 hours and delivery timings have been extended from 8 am to 8pm on all seven days in a week. Installation of a new connection is done within 24 hours and a single point contact for cylinder refill booking, customer service enquires and emergency services have been provided through a 4 digit single number, which is valid all over the country.
Not only this, HP Gas has computerized the entire distribution network making it convenient for consumers to book refills through internet etc.

Effectively closing the GAP

Special training is being provided to distributors under the program Millennium Distributors and more than 1000 distributors have been provided softer skills to help them change their mindset to meet the challenges of the competitive environment.

Customers not only look for timely delivery of refilled cylinders but expect the cylinders to contain the right quantity of gas.
Keeping in view the concerns of customers HP Gas, for the first time in India, provided the option of checking the weight of gas cylinder right at the doorstep of the customers.

Effectively closing the GAP

Every delivery man carries a weighing scale for this purpose. HP Gas provides customers with on the cylinders pilfer-proof seal guaranteeing that every cylinder is of the right weight. Careful understanding of the customer needs and expectations in the ever evolving lifestyle of a typical Indian household has led HP Gas launch the concept Jee Haan along with Promise Yahi, Weight Sahi campaign reinforcing a strong positive service orientation thereby building a stronger market share through greater customer satisfaction.

Example- To close provider Gap

IKEA has done an excellent job of closing all four provider gaps. The company's supplier network is carefully chosen and managed to ensure quality and consistency. Despite the fact that the company has stores in more than 20 countries, it keeps standards, designs, and approaches very consistent everywhere, thereby reducing gap2. Indoor and outdoor physical environment are unique and customer focused further closing gap2.

Example- To close provider Gap

IKEA is also well known for its strong employee culture and careful hiring and training, factor that help reduce gap3. Its innovative service concept that involves customers in the delivery, assembly and creation of its products. To accomplish this service, the company educates its customers thoroughly with its script like catalogs, thereby helping to close gap4.

Prescriptions for Closing Service Quality Gaps

Knowledge: Learn what customers expect--conduct research, dialogue, feedback. Standards: Specify SQ standards that reflect expectations. Delivery: Ensure service performance matches specs-consider roles of employees, equipment, customers. Internal communications: Ensure performance levels match marketing promises. Perceptions: Educate customers to see reality of service delivery. Interpretation: Pretest communications to make sure message is clear and unambiguous.

Assignment 1
Research work: services quality and customer loyalty in -------------- service market: Using SERQUAL approach and Gap Model.

Questions 2mks
What are tangible-dominant services?

What is Serv Qual ?

What is customer Gap?

What is Provider Gap?

Questions -5 mks
Explain briefly the significance of service sector in Indian economy. Bring out the impact of General Agreement on Trade in service (GATS) on service industry in India.

Questions-10 mks
How are services different from goods? Discuss the implications of these differences for service marketers. Discuss the factors simulating the transformation of the service sector in different economies. What factors contribute to various provider gaps in Gaps model of service quality?

THANK YOU