Introduction to Service Marketing

The Nature of Services

• regardless of the “product”, there is a services component to the offerings of all

firms
• in some cases, a service is the principal purpose of the transaction, as in the rental
of a car, a haircut, or legal services -- we refer to this as the core service
• in others, service is performed in support of the sale of a tangible product -- these
are referred to as supplementary services.

Characteristics:

• Intangibility
• Inseparability
• Perishability
• Variability
• Ownership

Difference between physical

goods and services
Physical goods Services

tangible intangible

homogeneous heterogeneous

Production and distribution are Production, distribution and

separated from consumption consumption are simultaneous
processes
A thing An activity or process

Core value processed in factory Core value produced in the buyer-seller

interaction
Customers do not participate in the Customers participate in production
production process
Can be kept in stock Cannot be kept in stock

Transfer of ownership No transfer of ownership

Lack of ownership.

 You cannot own and store a service like you can a product. Services are used or
hired for a period of time.
 For example when buying a ticket to the USA the service lasts maybe 9 hours
each way , but consumers want and expect excellent service for that time.
Because you can measure the duration of the service consumers become more
demanding of it.

Intangibility

 You cannot hold or touch a service unlike a product. In saying that although
services are intangible the experience consumers obtain from the service has an
impact on how they will perceive it. What do consumers perceive from customer
service? the location, and the inner presentation of where they are purchasing the
service?.

Inseparability

 Services cannot be separated from the service providers. A product when

produced can be taken away from the producer. However a service is produced at
or near the point of purchase. Take visiting a restaurant, you order your meal, the
waiting and delivery of the meal, the service provided by the waiter is all apart of
the service production process and is inseparable, the staff in a restaurant are as
apart of the process as well as the quality of food provided.

Perishibility

 Services last a specific time and cannot be stored like a product for later use. If
travelling by train, coach or air the service will only last the duration of the
journey. The service is developed and used almost simultaneously. Again because
of this time constraint consumers demand more.

Heterogeneity

 It is very difficult to make each service experience identical. If travelling by plane

the service quality may differ from the first time you travelled by that airline to
the second, because the airhostess is more or less experienced.
A concert performed by a group on two nights may differ in slight ways because
it is very difficult to standardise every dance move. Generally systems and
procedures are put into place to make sure the service provided is consistent all
the time, training in service organisations is essential for this, however in saying
this there will always be subtle differences.
Managing Service Productivity

 Giving quality service is an expensive business

 Not every consumer is willing to pay extra for service quality
 Service providers would have to find their optimum service quality/cost ratios
 Can technology substitute part of the labour content?
 Can customers substitute part of the labour content?
 Making services obsolete by product innovations

Pricing Services

• Pricing Strategies include:

• Discount strategies: Cheaper by the week.
• A variable pricing strategy: Kids eat free, movies cheaper on Tuesdays.
• Price competition.

Distribution of Services

• because most services are tied directly to a specific service provider, most have
been distributed directly to customers
• with advancing technology, many firms are now delivering services through
machines
• channels of distribution are necessarily short; some firms use one agent
intermediary, such as insurance, real estate, and travel agents
• some firms use franchises to distribute services

Promotion of Services

• customer contact personnel represent the main channel of customer

communication
• service providers must ensure that each service encounter is a positive one if
customers are to develop a positive image
• many professional service firms are now permitted to advertise
• other elements of the promotional mix are used, including publicity and
community affairs

Four Rs of Service Marketing

• Retention
• Referrals
• Relationships
• Recovery
 Defining and Managing Service Quality

 The global market is becoming more competitive every day

 Companies continually search for new ways to gain an edge over their
competitors around the globe
 Global competition and deregulation in a number of industries is forcing
companies to turn to quality in order to survive.
 Quality is our best assurance of customer loyalty, our strongest defense against
foreign competition, and the only path to sustained growth and earnings (Welch).

 Perhaps the most important reason for pursuing quality is that quality pays
(Deming).

 Research shows a relationship between quality, market share, and return on
investment

What is Quality?
■ "The totality of features and characteristics of a product or service that bear on its
ability to satisfy stated or implied needs." (Kotler)

■ Quality must provide goods and services that completely satisfy the needs of both
internal and external customers.

■ Quality serves as the "bridge" between the producer of goods or services and its
customer. (Johnson & Weinstein)

Service Quality
 Customers also form perceptions of quality during the service transaction - how
effectively and efficiently the service was delivered and the speed and
convenience of completing the transaction

 Finally, customers evaluate support activities that occur after the transaction, that
is post-sale services

■ Customers use service quality attributes such as reliability, competence, performance,

durability, etc. to evaluate technical quality.

■Functional Quality has more to do with how the technical quality is transferred to the
consumer. Service quality attributes such as responsiveness and access would be
important in helping the customer judge the functional quality of the service encounter.
Basic Principles of Service Quality

 Listening precedes action

 Reliability is key
 Flawless execution of the “basics”
 Pay attention to service design
 Perform service recovery well
 Surprise customers
 Practice “fair play”
 Promote teamwork
 Internal service begets external service

Adapted from Zemke, Ron (2002)

Broad Dimensions of Service Quality

 Reliability – perform promised service dependably and accurately

 Responsiveness - willingness/readiness to provide prompt service

 Competence - possess knowledge and skill to perform the service

 Access - approachability and ease of contact of service personnel

 Courtesy - politeness, consideration, and friendliness of service personnel

 Communication - keeping customers informed; listening to customers

 Credibili

 Reliability – perform promised service dependably and accurately

 Responsiveness - willingness/readiness to provide prompt service

 Competence - possess knowledge and skill to perform the service

 Access - approachability and ease of contact of service personnel

 Courtesy - politeness, consideration, and friendliness of service personnel

 Tangibles - physical evidence of service

How to Improve Quality

 Design services in cooperation with customers

 Focus your improvement programs outward, on market "break-points"

 Create a tangible representation of service quality

 Use teamwork to promote service excellence

 Develop proper measurements

 Employee selection, job design and training are crucial to building customer
satisfaction and SQ

 Reward total quality efforts in marketing

 View service as a process, not a series of functions

 Integrate customer information across sales channels

What is service quality?

1. Provider’s perspective – the degree to which the service’s feature conform
to the organization’s specifications
2. Customer’s perspective – how well the service meets or exceeds
expectation

Evaluating Service Quality

 Evaluation is done after the interaction

 Five key evaluation dimensions
1. Tangibility
2. Reliability
3. Responsiveness
4. Assurance
5. Empathy of service provider
 Perception of service quality is determined by gaps.

 Gap 1 – customer vs. mgmt expectations

 Gap 2 – misconception of expectations
 Gap 3 – delivery design vs. actual delivery
 Gap 4 – service provided vs. service portrayed
 Gap 5 – service expected vs. service received
 Customer needs CUSTOMER
and expectations

1. Knowledge Gap
Management definition
of these needs
MANAGEMENT
2. Standards Gap
Translation into
design/delivery specs 4. Internal
3. Delivery Gap Communications Gap
Execution of 4. Advertising and
design/delivery specs sales promises

5. Perceptions Gap 6. Interpretation Gap

Customer perceptions Customer interpretation
of product execution of communications

7. Service Gap
Customer experience
relative to expectations

Service Guarantee

A service guarantee is a promise to compensate customers if the service delivery fails to

meet established standards.

Why a Service Guarantee Works

 A guarantee forces the company to focus on customers.

 A guarantee sets standards for employees and customers.
 A guarantee generates feedback.
 A guarantee builds loyalty and discourages switching behavior. - Hart (1988)

What Makes Guarantee Extraordinary

 Unconditional
 Easy to understand and communicate
 Meaningful
 Simple to invoke
 Easy and quick to collect on - Hart (1988)
 Pricing of Services
Buyer’s Perception of Value

Product value

Service value Total

customer
Personnel value value

Image Value

Buyer’s perception
of value
Monetary cost

Time cost Total

customer
Energy cost cost

Psychic cost
Demand Considerations

• Demand tends to be more inelastic

• Cross price elasticity considerations need to be examined
• Price discrimination is a viable practice to manage demand and supply challenges

Factors Influencing Consumer Price Sensitivity

 Perceived
Substitutes

I nventory Effect Unique Value

Fairness Effect Switching Costs

Price sensitivity
decreases as
Shared-costs Effect Comparison Effect

End-benefit Effect
Price-Quality Effect
Expenditure Effect

Price Sensitivity Factors

• Perceived Substitute Effect

– few search attributes
– providers often lack resources and marketing expertise
– limited product mix
• Unique Value Effect
– conveying “uniqueness” is difficult
– provider may need to educate the market
– uniqueness is often short-lived

• Switching Costs
– higher levels of perceived risk
– uncertainty involved in changing providers
– consequences associated with a bad outcome
• Difficult Comparison Effect
– high number of experience attributes
– inherent heterogeneity
• Price-Quality Effect
– price acts as a quality indicator when consumers:
• believe that quality differs among providers
• believe that low quality imposes greater consequences
• lack other sources of objective information
• Expenditure Effect
– amount of expenditure relative to consumer household income

• End-benefit Effect
– the more price sensitive consumers are to the cost of the end-benefit, the
more sensitive they will be to purchases that contribute to the end-benefit.
 • Price bundling adds value to the consumer’s end-benefit
• Shared-cost Effect
– consumer price sensitivity decreases as the shared-costs with third parties
increase
• Fairness Effect
– fairness is typically assessed by comparing the price to:
• previous prices paid for similar services
• prices paid for similar services under similar circumstances
• the benefit gained
– assessing “service” fairness is difficult
• Inventory Effect
– consumers are able to protect themselves from future price increases by
building inventories

Criteria for Effective Price Discrimination

1. Different groups of consumers must have different responses to price.

2. Different segments must be identifiable, and a mechanism must exist to price
them differently.

3. No opportunity should exist for individuals in one segment who have paid a low
price to sell their tickets to those in other segments.

3. The segment should be large enough to make it worthwhile.

4. Costs should not exceed the incremental revenues obtained.
5. Customers should not be confused.

Cost Considerations

• Price is sometimes not know until after the service has been produced
• Cost-oriented pricing is more difficult
– activity-based costing breaks down the organization into a set of activities,
and activities into tasks, which convert materials, labor, and technology
into outputs
• High fixed cost to variable cost ratio
• Economies of scale tend to be limited

Customer Considerations

• Price tends to be one of the few search clues available

• More likely to use price as a quality cue
• Consumers are less certain about reservation prices
Competitive Considerations

• Comparing prices is more difficult

• Self-service is a viable alternative

Profit Considerations

• Price bundling makes the determination of individual prices in the bundle of

services more complicated
• Price bundling is more effective in a service context

Product Considerations

• Many different names for price

• Consumers are less able to stockpile by taking advantage of discount prices
• Product-line pricing is more difficult
– Home sellers have three levels of service (6, 7, or 8%)
Legal Considerations

• Opportunity for illegal pricing practices to go undetected is greater for services

than goods
• To consumers, the issue is one of fairness and dual entitlement

Emerging Service Pricing Strategies

• Satisfaction-based pricing
– primary goal is to reduce the amount of perceived risk
– service guarantees
– benefit-driven pricing: charges customers for services actually used as
opposed to overall membership fees
– flat-rate pricing: customer pays a fixed price and the provider assumes the
risk of price increases and overruns

• Relationship Pricing
– primary objective is to enhance the firm’s relationship with its targeted
consumers.
• long-term contracts: offers price and nonprice incentives for
dealing with the same provider over a number of years
• pricing bundling: marketing two or more services as a single
package for a single price

• Efficiency Pricing
– primary objective is to appeal to economically-minded consumers by
delivering the best and most cost-effective service for the price.
 Marketing of Financial Services

Meaning of Financial Services

 The term “Financial services “ in a broad sense “ Mobilising and allocating

saving”
 It includes all the activities that are involved in the transformation of saving into
investment.
 The financial services can also be called as financial intermediation.
 The financial intermediation is a process by which funds are mobilised from a
large number of savers and mode available to those who have a need of it.

Characteristics of financial services

 Intangibility – the financial services are generally intangible , but the service
providers go to some extent to make them tangible. Ex- bank statements, society
passbook.
 Inseparability – the degree of inseparability depends upon the type of service and
the actual supplier. Ex- ATM’s
 Heterogeneity – it makes it difficult to establish standard. The quality of service
can’t be standardized.
 Perishability – it depends on the type of service. Ex- if a cheque needs to be
cleared by certain date and the system causes a delay then the benefits to the
customer are lost, so the service could be said perishable.

Classification of Financial Services

 Capital Market – it consist of a term lending institutions and investing institutions

which mainly provide long term funds.
 Money Market – it consists of commercial banks, cooperative banks and other
agencies which supply funds on short term basis.

Financial products and services

 Merchant Banking
 Leasing
 Mutual Funds
 Venture Capital
 Derivative Security
Merchant Banking

 The merchant banking is a financial intermediary who helps to transfer capital

from those who possess it to those who need it.
 The merchant banking includes a wide range of activities such as management of
customer securities, portfolio management etc.
 A merchant banker renders a host of service to corporate sector and also promotes
industrial development in the country.

Leasing

 The leasing is an agreement under which a company or a firm acquire a right to

make use of capital assets like machinery , on payment of a prescribed fees called
rental charges.
 The lessee cannot acquire any ownership to the asset, but he can use it and have a
full control over it. He is expected to pay for all maintenance charges and
operating costs.

Mutual Funds

 The mutual funds refers to the fund raised by a financial service company by
pooling the savings of the public.
 The funds provide investment avenue for small investors who cannot participate
in the equities of big companies.
 It ensures low risk, steady returns, high liquidity and better capital appreciation on
the long run.

Venture Capital

 It is another method of financing in the form of equity participation. The venture

capitalist finances a project based on the potentialities of a new innovating
project.
 The finance is provided not only for start – up capital but also for development
 HOSPITALITY MARKETING

Introduction

 Hospitality products are output of the hotel and catering industry.

 They refer to satisfaction or dissatisfaction which are being received or expected
to be received from a hospitality experience.
 They may be physiological – satisfied thirst, comfortable bed and pleasant
environment.
 Economical- good value for money, speedy service, excellent location, credit
facilities.
 Social – enjoyable company, attentive staff, and advice on selected food and
wine.
 Psychological – fulfillment of needs relating to self-esteem, status and security.

Median – five basic component

These component of hotel contribute to satisfaction/dissatisfaction. These are:

 Location – defines the geographical placement of a hotel in a particular village,
town or city or country. Within a given area, specific location defines access and
convenience, freedom from noise and other disturbance, attractiveness of
surroundings.
 Facilities – include the infrastructural and recreational facilities – bedrooms ,
restaurants, conference, swimming pool, gym and tennis courts.
 Services – defined by the availability and access of particular hotel services
provided through its facilities and personal as well as the quality and style of these
services in terms of formality/informality, degree of personal attention, efficiency
and speed.
 Images – defined by the way the hotel is perceived by consumers at large. While
image is a product of deliberate controllable inputs like location facilities and
service, it is also contributions as to who stays and eats, what it communicates
about itself, and what people say about it.
 Price – is an expression of the value provided by the hotel through its location,
facilities, service and satisfaction derived by the consumers from the use of the
above elements of the service product.
 The fundamental benefit for the consumer to the service can be the room provided
be the restaurant or eating or the socializing place.
 The tangible product can be the size of the room, and the facilities provided can
be TV, telephone or room service.
 Augmented product refers to the complete product offerings and includes the
atmospheric, the behavior of staff, the décor, and services like transport,
communication.
HOTEL

 The hotel is a public place where all possible facilities are made available to a
person or persons who stays.
 The facilities like entertainment, food, accommodation etc are the core services of
a hotel.

Classification

 The hotels are classified on the basis of nature:

1. Residential hotel
2. Commercial hotel
3. Resorts hotel
4. International hotels
5. Floating hotel

Residential hotel

 The Residential hotel works as apartment house. That is why we call them
apartment hotels.
 The hotel charges rent on monthly , half or yearly basis.
 The hotels are generally located in big cities and towns where no meals are served
to the customers.
 Initially, the residential hotels were developed in USA.
 The services given in the residential hotels is a well managed home.

Commercial hotel

 The commercial hotel is meant for the people who visit a place for trade and
commerce or for business purpose.
 The hotels are located at the commercial or industrial centre.
 The commercial hotels focus their attention on individuals travellers and are
generally run by the owners.

Resorts hotel

 The resort hotel are meant for the holiday makers, tourist and for those who need
a change in the atmosphere mainly on the health ground.
 The resort hotels are located near sea, mountain and other areas having an
attractive landscape and healthy climate condition.
 The tourist visit hotels mainly to relax.
  The entertainment and recreation facilities like swimming pool, tennis courts,
boating and other sports is also added in the restaurant and cafeteria, conference
room, lounge and entertainment etc. become significance in the resort hotel.
International hotels

 The international hotels are modern luxurious hotels, classified on the basis of
international guidelines.
 The international hotels are placed in various star categories :
 Five star deluxe, five star, four star, three star, two star, one star.
 The international hotels are mostly owned by the public companies were a board
of directors is constituted for its control.
 The overall management control is in the hands of senior executives.

Floating hotel

 The floating hotel are located on the water surface. The place are sea, river and
lake.
 Floating hotels provide all the facilities and services that are available in a good
hotel.eg. “Shrikaras”.

Classification on the basis of standard and control

They are:
1. Approved hotels
2. Unapproved hotels
Approved hotels – they are based on the criteria lead down by the ministry of tourism.
they have the stamp of official recognition and the customers have trust on them.
Unapproved hotels – they may also provide quality services but they lack official
recognition so customer don’t have trust on them.

Classification on the basis of star

They are:
1. Classified
2. Unclassified
 The hotels having star are included in the classified group e.g.. Hotel Sayaji.
 The hotels which are no star are included in unclassified hotels. E.g. Crown Place.