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UNIT-1: Introduction to Services Marketing: Importance and characteristics of
Services: Growth of Services Sector; Services in the Indian Economy; Services Strategy
Definition of Service:
According to, Services is defined as activities, benefits (or) satisfactions which are offered
for sale (or) provided in connection with the sale of goods.
Service is a market transaction by an enterprise (or) entrepreneur where the object of the
market transaction is other than the transfer of ownership a tangible commodity. (R .Judd)
Service is an activity (or) series of activities which take place in interaction with a contact
person (or) physical machine and which provides consumer satisfaction. (J. Lehtinen)
Service is any activity (or) benefit that one party can offer to another is essentially intangible
and does not result in the ownership of anything. Its production may (or) may not be tied to a
physical product. (P. Kotler)
Service is an activity (or) series of activities of more (or) less intangible nature that
normally, not necessarily take place in interaction between the customer and service
employees and/or physical resources (or) goods and/or systems of the service provided,
which are provided as solutions to customer participation. (C. Gronroos)
Services are deeds, processes and performances (V.A. Zeithaml and M.J. Bitner)
In simple terms, Service is defined as intangible activities performed by persons (or)
machines (or) both for the purpose of creating value perceptions among consumers. The
quality of services results in perception and value assessment by the consumer.
Significance of Service Marketing: In the present day world, the service sector is
growing at phenomenal rate, where all the countries of the globe are focusing on utilizing the
economy of the service sector. The importance of service marketing mainly varies between
the developing and developed countries. This mainly gives rise to some certain factors which
enhanced the development of the service sector. There are some reasons which are as
1) Generation and Expansion of Job Opportunities: The service sector creates and
expands job opportunities. In developed countries like USA more than 85% of the
jobs created are from the service sector which shows the global growing of this sector,
but where as in developing countries like India, the tertiary sector of the economy is
slow due to the unemployment natured policies.
2) The Least Possible Dependence on Technologies: In the present day world, we
have increased our dependence on technologies. The situation in developed countries
is very high when compared to that in developing countries like India. Hence the best
solution is to raise (or) maximize our dependence on service sector so that the demand
for advanced technologies is minimized.
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3) Optimal Utilization of Untapped Resources: In this utilization of the resources is
given the main priority, where the unused and underutilized services like personal
care, tourism, entertainment etc. if not properly utilized, they turned out to be the
national waste. Hence it is our responsibility to conserve these natural resources and
maintain them effectively.
4) Paving Avenues for Capital Information: In order to allow the service sectors to
grow effectively, the developing and developed countries have to take some certain
policies and measures and stabilize the formation of capital, this can be done only by
the emergence of the Gross National Product (GNP). In USA, every citizen spends
47% of a dollar on service, but not in the case of Indian economy. This can be
changed by raising the standards of our national economy to 85% more than USA.
5) Raising the Standard of Living: The qualitative improvements in a society are more
governed by the pattern of development. This can be achieved only when the
individuals understand on
a) How to Spend?
b) Where to Spend?
c) How much to Spend?
d) How to develop our personality?
e) How to plan our career?
f) How to communicate (or) transmit ideas (or) views?
g) How to educate people?
With all these relevant factors maintaining of human relations also helps in the effective
maintenance of service marketing.
Services in the Indian Economy: India has been pursuing a planned approach to
achieve economic growth and development. Since its independence, economic activities were
divided into 3 categories. They are:
a) Primary Sector: agriculture, animal husbandry, fishing and forestry
b) Secondary Sector: Manufacturing, industry and construction.
c) Tertiary Sector: Services, distribution.
The development of theses 3 sectors were carried in a phased manner. The first three five
year plans focused on primary, next two on secondary and fifth and sixth on tertiary sector.
The plan of the services sector in the Indian economy is pivotal. The sector contributed 29%
to the GDP of the country in 1950-51 and registered consistently high growth rates over the
years to become the largest contributor to GDP with a 57% contribution in 2008-2009.The
share of the services sector in total employment is significant which employs 107.02 million
people in the country and contributes 23.4% to the total employment. According to the
present survey, trade, real estates, banking and insurance are the major contributors to the
growth of service sector in Indian economy in 2008-2009.
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Reasons for the Growth of Services in India: The following are the reasons for the
growth of services in India:
1) Economic Affluence: Affluence is one of the key factors that fuelled the demand for
services. The economic liberalization process initiated in the country led to a positive
impact on the growth of the middle income households and rural rich in India has
resulted in increased demand for many services.
2) Changing Role of Women: Changing role of women in the society has created a
market for a no: of services. The earning women prefer to hire services to minimize
the innumerable roles they are required to play. The demand generated by women is
forcing the service companies to be more innovative in their approach.
3) Cultural Changes: Culture is on embodiment of values, knowledge, traditions, habits
which passes from generation to generation. The influencing culture on lifestyles of
people is significant. Culture is not static; in fact it is a process of development.
Change is the underlying philosophy of culture. The pace of change of Indian culture
is not uniform.
4) Information Technology Revolution: India has occupied a vital position in the area
of IT for last 2 decades. IT has become one of the key service businesses of the
country. India has the largest soft-skilled population in the worlds. The domestic and
international market has grown substantially. Many state governments realized the
potential of this sector and enhanced it subsequently.
5) The Conservation of Natural Resources: Due to the over population growth, greater
industrialization and over consumption has affected the environment, ecological
balances and natural resources. The government and the service organizations have
realized the negative effects of such changes and have started promoting the
awareness campaigns.
6) Development of Markets: The growth of the marketer-retailer population during the
last few decades led to the effective development by the country. Urban India has
become the cluster by wholesaling and retailing businesses. Retailing has spread to
every nook and corner of Urban India which mainly also laid its awareness in rural
7) Unbundling of Corporations: intense competition forced companies to use highly
specialized services to gain competitive advantage. Consequently, companies started
unbundling themselves and began to purchase services from various specialist
organizations, creating opportunity for many service providers.
8) The Increased Consciousness of Healthcare: The health care market has grown
substantially in India. The growing consciousness of the people regarding health
issues has led to life expectancy. The government and social organizations have taken
up mass campaigns through different media to create awareness among illiterate and
rural population on healthcare.
9) Economic Liberalization: The economic liberalization policies in the country have
vastly affected the growth of service sectors in India where the economic policies and
procedures, disinvestments and privatization policies have been a major shift to the
development of the economy.
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10) Migration: Rural to semi-urban migration has been one of the reasons for the growth
of services in India. Migration to urban areas in search of jobs and a better livelihood
resulted in the expansion of cities and townships, real estate, rentals, transportation
facilities to expand rapidly. The demand for urban placement services and personal
services has also increased.
11) Export Potential: India is one of the potential sources of services to many countries
in the world. Tourism and software services are among the major foreign exchange
earners of the country and their growth rate is also very high.
Difference between Goods and Services:
S.No Goods S.No Services
1. Goods are tangible 1. Services are intangible
2. Goods are homogeneous 2. Services are heterogeneous
3. Goods are produced only in factory 3. Goods are produced in buyer-seller
4. These 3 are separate and independent
functions (i.e.,) do not take place
4. Production, consumption and
distribution take place simultaneously.
5. Consumers do not participate in
production of goods.
5. Consumers are co-producers of
6. Goods are stored(i.e.,)perishable 6. Services are imperishable.
7. Transfer of ownership takes place in
case of goods.
7. Transfer of ownership does not take
place in case of services.

Characteristics of Services: The following are the characteristics of services which are
as follows:
1) Intangibility: It is the key characteristic that distinguishes services from goods where
the physical absence of form for identification, verification (or) trial. Service
consumers are often uncertain about the outcome of a service. For example, a tourist
does not know about the exact outcome of experience before consuming the service.
The major challenge for any service company is to facilitate the transformation of
intangible services to concrete benefits.
2) Inseparability: The function like production, distribution and consumption are
inseparable in the case of services. The major challenge takes place in the
characteristic is in the market expansion. In this, the service providers should have the
same production units in all areas that offer same quality standards (or) to reduce the
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buyer-seller interactions. For example, banking organizations having introduced
cheque, credit card facilities etc.
3) Variability: These are highly variable where two customers can receive the same
service, even though they have different experience. Service firms struggle to build
customer confidence and manage consistency in service offerings. Service firms tries
to capitalize this characteristic by introducing many changes in the service that is
being delivered more valuable to the customer by without disturbing the basic
structure of the service offer by promoting innovation as core strength.
4) Perishability: This is a serious problem in the fluctuating demand where this needs
careful planning for optimal capacity utilization and demand management. For
example, a half full train that leaves the railway station means that the service of the
empty half remains unused. When the demand is stable, perish ability cannot be a
problem to the organization.
5) Customer Participation: Customers are co-producers of services; the service quality
depends equally on the performance of the service provider and on the ability and
performance of the customer, which therefore, the customer participation, which
alters the perception of the service providers. For example, tourists can perceive the
architecture, appearance and environmental beauty of Taj Mahal at Agra in many
ways. But if it is informed that Taj Mahal is symbol of their love, the tourists
involvement, experience and perceived quality changes significantly.
6) Lack of Ownership: Convincing the customer by ownership of tangible goods
through transfer of the title is much easier than selling an experience where nothing
remains after consumption except its memory. Customer dissonance is higher in case
of services than of goods.
Marketing Challenges and Strategic Options for Services:
S.No Service
Marketing Challenges Strategic Options
1. Intangibility Cannot be communicated
Design of total service is not
Making the service process
Strengthening internal and
external marketing
2. Inseparability Problems of market
Limited production capacity
Minimizing customer
Standardization to the
maximum possible extent
3. Variability Limited to standardization
Quality can be determined
only after the service is
More focus on
Promoting research and
4. Perishability Storage is not possible
Volume should match the
Demand management
Capacity management
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Time pressure in sales
5. Customer
Customers are not
Customers evaluated at every
step of production
External Marketing
Interactive Marketing
Internal Marketing
6. Lack of Ownership Nothing remains after
High consumer dissonance

Make communication
Managing high level image
of company

Growth of Services Sector: The growth of the service sector is a global trend, where
the growth of services is directly linked to the development of the country. The majority of
the work force in all developed countries including the UK, France, Germany, Japan and
Canada are engaged in service organizations. However, some of the economies identified the
contribution of the service sector to any economy in following respects:
a) People value services as highly as manufactured goods. Services are not something
one looks at after goods needs are met.
b) The value addition of service firms is very high when compared to the manufacturers
of goods.
c) The technological standards in both service sector and goods are on the same track.
d) Service industries develop productivity increases the supporting of the growth of the
Reasons for the Growth of Service Sector: There are 2 major reasons for the growth
of service sector:
1) Intermediate Demand from Firms: The unbundling of corporations is one of the major
changes to have taken place in recent years. The traditional philosophy of self-reliance was
given up to develop networking with dependable supply and support service companies. The
availability of micro-level professional and specialized services at a relatively low price has
helped companies become focused on their companies.
2) Final Demand from the Customer: The direct demand from the consumers for the
services has given higher priority of consumption patterns when compared to the utilization
of the goods. People are well versed with the enhancement of the services. The following are
the reasons identified for the growth of demand from the customer.
1) Increased Affluence: The majority of the population in developed and developing
economies has given more importance to the growth of services sector where the
services like personal services, travel, tourism, entertainment have provided various
opportunities for the service forms to grow. For example, if the travelers have little
money they carry their luggage on their own. If they are affluent they engage a porter
for that job .This is to mainly reduce the scope of self-service.
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2) More Leisure Time: This factor mainly given the people the time to spend with their
families and engage themselves in the personal activities like travel, tourism etc. apart
from that they also spend time on education, training and skill development.
3) Increased Percentage of Working Women: The steady rise in the growth of the
working women have made an huge impact on the service sector economy which
gave rise to the development of services like babysitting, crches, fitness services etc.,
which is mainly seen in the developed economies but not that much popular in
developing economies like India.
4) Growth in population of DINKs: The term DINK- Dual Income, No Kids is one of
the rising factors in developed economies where the people mainly focus on their
respective careers, often dont want to start their family as early , which gave rise to
the high divorce rates and the relationships to be short in time.
5) Greater Life Expectancy: With the economic prosperity and improved standard of
living have resulted in greater life expectancy, which resulted in the growth of
population of senior citizens with a greater demand for the services like nursing
homes and health care services. For example, the population above the age of 60 years
had increased from 14.13 million in 1981 to 76.61 million in 2001.
6) Greater Complexity of Products: The rapid pace of change in the technology offers
greater choice allowing people to regular use increasingly complex products such as
computers, automobiles, television and so on that need specialists for maintenance
and repair. Therefore, demand for services in growing day by day.
7) Greater Complexity in Life: In todays society, people are required to play a no. of
roles. There is demand for such services that can reduce (or) share their demand. As
such, there is an increased demand for income tax consultants, legal consultants,
employment services etc.
8) Greater Concern for Resource Scarcity: A majority of the population despite
limited financial resources want to avail and utilize a no. of services. Owing a tangible
product requires financial strength. On the other hand, many such goods may not be
used for the optimum capacity by individuals. Hence there is a demand for leisure
services such as car rents, computer hardware rentals etc.
9) Increasing no. of New Products: Today the introduction of new products into the
market has given path way to the consumers to choose the product of their own choice
(i.e.) a wide variety of choices. The main problem arising in this factor is the
individual purchases the product without the complete information of the product.
Due to this, the consultancy services enjoy the advantage raised out from this issue.
10) The Young: The younger generation tends to use more and more services than the
older generation, who depends on themselves for a no. of activities. The younger
generation would be able to cope up with the pace of change only through
consumption of services.

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Services Strategy:
Strategy: A Strategy is an integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain competitive advantage. It is developing the
right connectivity of company resources with emerging opportunities so as to shape the
companys business and services in such a way that they bring in the desired profits and
Steps in Strategic Planning: The top management of a service company should be
clear on the issues that are vital for strategic planning. Over the years, many developments
have taken place within the business and in the business environment, resulting in conflicting
interests, priorities, adjustments, directions and hence confusion. In order to avoid this, the
economists have developed 5 steps in the strategic planning. They area s follows:
1) Defining the Mission: The mission statement defines the scope and identifies the
priorities, distinctive competencies and future orientation of the company in a simple and
understandable way to all the stakeholders of the company. This statement should inspire and
motivate all those connected with the company. It is the heart of the corporate strategy of any
2) Carrying out SWOT Analysis: In order to relate the organizational factors with
environmental factors a popular strategy named SWOT analysis is used. It is the approach
used to analyze and understand the internal and external environments of the organization.
The analysis helps aligning the strengths and weaknesses of the company with the
opportunities and threats emerging (or) existing in the external environment.
3) Strategy Formulation: Strategy formulation is a science as well as an art. It is necessary
to analyze the environment scientifically and develop the strategy creatively by exploring
artistic skills to find a distinctive and unique way of addressing the needs and wants of
consumers. Competitiveness is the desired focus in strategy formulation. According to M.E.
Porter, there exist 6 types of strategies:
1) Low-Cost Provider Strategy: The main objective of this strategy for adopting low
prices is to attract (or) appeal to a broad spectrum of price-sensitive customers.
2) Differentiation Strategy: The main objective of this strategy is innovation. It is the
key to the success of service business. Service companies should focus on investing in
research and development to find distinctive ways of serving consumers and provide
higher value. Through innovation, service firms can achieve differentiation advantage
over competition.
3) Best-Cost Provider Strategy: Consumers generally prefer quality services at a
relatively low cost. Effective cost management practices, thus, are important to
service companies to follow in order to minimize costs. It is necessary to classify
costs into good costs and evil costs. Good costs improve buyer-seller interactions;
hence they need to be promoted. Evil costs, on the other hand, burdensome to
consumers need to be eliminated.
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4) Focused (Market niche) Strategy based on Low Cost: The objective focused
marketing (or) niche marketing is to identify subgroups with in a broad market
segment has distinctive set of traits and might seek a special combination of benefits.
5) Focused (Market Niche) Strategy based on Differentiation: The aim of the
strategy is to perform a better job of selling buyers in the target market niche. When a
company identifies substantial groups with well-defined desires; this strategy is
capable of earning dividends.
6) Service Oriented Strategy: It focuses on the improvement of buyer-seller
interactions when there is a marketing problem. This strategy helps enhance
customers quality perceptions and satisfaction levels to bring the business of the
company back on track and make it profitable.
4) Strategy Implementation: It requires special skills in motivating and managing others.
Allocating, structuring authority, tasks and responsibilities, initializing best practices in
internal marketing and providing of support services help in the effective implementation of a
5) Strategy Evaluation and Control: It is the last step in the planning process which
involves the following steps.
a) It involves timely detection of problems and to take corrective and preventive actions
is essential in evaluation and control of a strategy.
b) It is necessary to evolve criteria and standards for evaluation to find out performance
gaps and to initiate corrective measures.

Fig: Steps in Strategic Planning
Defining the Mission
Carrying out SWOT Analysis
Strategy Formulation
Strategy Implementation
Strategy Evaluation and Control
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Services Marketing Mix: The conventional 4Ps of marketing mix is considered
deficient to solve the marketing problem of service organizations. A new marketing mix with
7Ps is suggested for services, in which while retaining the old 4Ps, 3 new Ps are added.
The new additions are physical evidence, people and process. The components of service
marketing mix are:
1) Product: service is an intangible product. It consists of a bundle of features and
benefits relevant to a specific target market. As such, there is a high level of flexibility
and opportunity to be innovative in designing a product offer.
2) Physical Evidence: Most services cannot be offered without the support of tangibles.
Though consumers cannot see the service, they can definitely see the associated
tangibles, examine them and try to form an opinion on the service provider.
3) Price: The pricing decision is critical in services too, as this component of the
marketing mix alone determines the revenue of the firm. Consumer sensitivity to price
would be higher in service than in goods. Though the basic methods of pricing are the
same as in goods, the pricing strategies for services basically depends on the value
perceptions of various groups of people that are targeted by the organization.
4) Place: Services are intangible as well as inseparable. These 2 characteristics do not
allow a service firm to follow the same channel options available for goods
marketing. Due to the intangible character of services, traditional wholesalers and
retailers cannot be used. As services cannot be stored and separated from producers,
retailing cannot be an independent activity in services marketing. Production,
distribution and consumption are simultaneous activities in services.
5) People: Service organizations are people oriented and people based organizations.
The employees of a service firm constitute a major competency in undertaking
business operations. Every employee of the service firm is a marketing person who
undertakes either full time (or) part time marketing activity. The following have a
direct influence on consumers line of visibility, employees direct contact with
customers and their behavior, activities and performance.
6) Promotion: Consumers are co-producers in service business. The quality of service
not only depends on the performance of the service provider, but also on the service
consumer. It is the responsibility of service firms to educate and if necessary train
customers to make them use the services efficiently.
7) Process: Process is a functional activity that ensures service availability and quality.
The way the physical setting is designed technically and functions are scheduled and
routed to provide promised services to customers speaks of the efficiency of the
process. Moments of truth occurs during the service encounter the challenges of
process management to improve the moments of truth.

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Fig: Services Marketing Mix

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Type of Questions to be asked from Unit-1:
Short Answers:
1) Definition of Service
2) Characteristics of Services (Anyone of the characteristics to be asked individually)
3) Differences between goods and services
4) Definition of Services Marketing
5) Definition of Strategy
Long Answers:
1) Significance of Services Sector
2) Marketing Implications and Strategic Options of Services
3) Characteristics of Service
4) Growth of Services Sector and its reasons
5) Service Sector in India Economy and its reasons
6) Various types of strategies
7) Process of Strategic Planning process in Service Marketing

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UNIT-2: Consumer Behavior in Services; Market Segmentation and Services
Positioning; Service Demand Management; Designing and Managing Service Product
Consumer Behavior in Services:
Consumer Behavior: It is the study of understanding the needs, wants and expectations
of consumer to serve them better before the purchasing decision. It mainly laid the foundation
for the marketing of services. It is most difficult for the consumer to predict the behavior of
the customer due to different tastes of preferences, choices etc.
This process mainly involves 3 terms they are as follows:
1) Consumer: He is the one who consumes goods and/or services.
2) Buyer: He is the one who buys goods and/or services.
3) Customer: He is the one who is identified from the perspective of the company, shop,
brand etc.
Factors Influencing Consumer Behavior: The factors are classified into 3 categories
which are as follows:
1) Cultural and Social Factors: There are 4 factors which are as follows:
1) Culture: It is the shared values, systems and norms of a society. Culture influences
the development of personalities. The dimensions include complexity, rigidity,
collectivism and individualism.
2) Social Class: It is the subclass of the culture where these classes are relatively greater
in homogeneity in cultural beliefs, values and behavioral patterns and the main
variable of social class is the income.
3) Family: A family is a very close group within which individuals interact regularly
and share values, lifestyles, habits etc.
4) Reference Group: It is any person (or) group that serves as a point of comparison for
an individual while forming either general (or) specific values, attitudes for a behavior
(or) it serves as guides to consumers either directly (or) indirectly to respond to
various stimulations.
2) Personal Factors: There are 7 factors which are as follows:
1) Education: It is the important factor where an educated persons exposure,
knowledge and analytical abilities, whereas uneducated persons are mostly emotional
and dependent on others while making a purchase decision.
2) Occupation: It is the important where the behavior of the individuals differs from the
kind of occupations done by the individuals.
3) Economic Position: The financial background, regularity of income, future flow of
income, financial obligations are these variables which directly (or) indirectly
influences the behavior of an individual.
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4) Status: It is the influencing factor on the behavior of an individual where it exists in 2
a) Ascribed Status: It is the status achieved by the family position.
b) Achieved Status: Its the status achieved by individual through their
own effort.
5) Personality: It refers to the individuals response across different situations. It is
displayed in terms of self- confidence, dominance, aggressiveness, defensiveness etc.
6) Self-concept (or) Self-Image: It influences product selection and usage. It is
identifies in 4 stages:
a) Actual-Self Image (how individuals see themselves)
b) Ideal Self Image (how individuals would like to see themselves)
c) Social Self Image (how individuals feel others see them)
d) Ideal Social Self Image (how individuals would like others to see them)
7) Lifestyle: It is the study by identifying the individuals interactions with the
3) Physical Factors: There are 4 factors which are as follows:
1) Age: It is the vital factor where the individuals of different age groups are influenced
by the various different decisions at various stages of life.
2) Sex: It is the key factor where the gender tends to behave differently and their choices
are different from each other.
3) Health: It is another factor which has an impact on the consumption behavior where
the services are healthcare, fitness etc. came into existence.
4) Height and Weight: These are other important physical characteristics which has the
impact on the consumption behavior.
4) Psychological Factors: There are 4 factors which are as follows:
1) Motivation: It refers to the process that causes people to behave as they do (or) refer
to the process of satisfying the need that arose from the customer.
2) Perception: It is the process by which an individual selects, organizes and interprets
information to create a meaningful picture to what he has seen (or) heard.
3) Learning: It is the process by which people acquire knowledge and experience.
4) Attitude and Beliefs: It is the persons point of view towards something. They are
influenced by past experience, word of mouth communication, personality and
marketing stimulations. Belief is a descriptive thought that a person holds about

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Zone of Tolerance: Consumers have different types of expectations form as service.
Hence there are 2 levels of expectations. It is the difference of willingness between the
maximum service level and minimum service level.
1) Maximum Service Level: It is a blend of what customer believes can be and
should be.
2) Minimum Service Level: It is the lowest level of performance acceptable to the
If the performance of the service is below the minimum service level,
customers are frustrated and highly dissatisfied.
If the performance of the service is above the maximum service level,
customers are delighted.
If the performance of the services falls in tolerance zone, customers cant
particularly notice the service performance.
Consumer Buying Purchase Decision Process: The study of purchase decision
process of consumers provides vital clues to service provide to understand their consumers
better. The distinctiveness in their behavior for various services (or) service features needs to
be analyzes carefully. It involves 5 steps.
1) Problem Recognition (or) Need Recognition: It is the first step in the process where the
need (or) problem recognition has to be defined. According to Maslow, the needs are
categorized into 5 types:
1) Physiological Needs (These are the biological needs such as food, water and sleep)
2) Safety and Security Needs (These needs include shelter, protection and security)
3) Social Needs (These needs include affection, friendship and acceptance)
4) Esteem Needs (These need include prestige, success, accomplishment and self-
5) Self-Actualization Needs (These needs involve self-fulfillment and enriching
But these needs can be identified by 2 needs which are as follows:
a) Internal Stimulations: These are from the pressure of needs, social factors,
physiological needs, personality and lifestyle.
b) External Stimulations: These are the communications from service providers, word
of mouth, personal observations, expiry of service contracts and future expectations.
2) Information Search: It is the second step in the purchase decision process. The required
information is gathered from the personal sources like friends, relatives and experts and from
the non-personal sources like mass media (or) selective media. But however the reaction of
buyers depends on level of involvement in problem solving. The following 3 types of search
behaviors are as follows:
1) High Involvement Problem solving (Indicates more efforts on information search)
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2) Low Involvement Problem Solving (Indicates moderate search)
3) Zero Involvement Problem Solving (Indicates routine response and no further
information search)
4) Perceived risk is another important property that influences the information search.
Some degree of perceived risk accompanies all the transactions, but there is more risk
in purchase of services.
3) Evaluation of Alternatives: It is the third step in the buying decision process where the
evoked set of alternatives is smaller in the case of services when compared to goods. The
evoked set of alternatives means a group of products in a given service category that a
consumer considers an acceptable option. Due to this consumers cannot have multiple brands
of services as they are heterogeneous; The major challenge for the service providers is to
research customer expectations and demands in such situations.
4) Purchase Decision of Service: After the completion of above 3 steps customers decide to
purchase decision by again rechecking the each and every attribute related to that product (or)
service. Here the success of the service delivery depends on the service encounter between
the service provider and the customer. Mood is the vital factor also plays a crucial role in
this process. Customer Capability influences the customers preference of a service. The co-
customers expected behavior, status, gender and the other features at the service consumers.
5) Post-Purchase Evaluation: It is the final step in the buying process where the judgment
of the quality of services depends on the customers satisfaction and dissatisfaction. If the
customers feel satisfied, then the customer becomes loyal to the service provider. If the
customer feels dissatisfied, then the customer is likely to switch the brand (or) simply
switches to another service provider (or) product.

Fig: Stages in Consumer Behaviour Buying Process
Need Recognition
Information Search
Evaluation of Alternatives
Purchase Decision
Post-Purchase Decision
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Market Segmentation: Service companies need to position themselves in order to
maximize competitive advantage and to serve the target markets effectively. However, there
are 3 distinct approaches. They are as follows:
Undifferentiated Marketing: It is also known as mass marketing approach, the same
service package to the entire market. Customers needs and wants are generalized and a
service offer is developed accordingly making many service consumers compromise on their
specific desires and expectations.

Fig: Undifferentiated Market Segmentation
Differentiated Marketing (or) Market Segmentation: It is the process of dividing
the heterogeneous markets into some closely homogeneous groups (or) segments. It
facilitates companies to develop differentiated offers. The objective is to offer service
packages closely matching the needs and wants of consumers to the homogeneous segments.

Fig: Differentiated Marketing

Service Marketing
Total Market
(all consumers)
Service Package 1 Market Segment1
Service Package 2 Market Segment 2
Service Package3 Market Segment 3
Service Package 4 Market Segment 4
Service Package 5 Market Segment 5
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Customization: It is to consider each customer a market and offer them a specially
designed service by taking into account their specific needs, wants and expectations. This is
the most desirable from the customer point of view. Though many argue that customization is
not a realistic approach, companies are working towards customization with the support of
technology and other resources.

Fig: Customization
Stages in Market Segmentation: There are 3 stages in market segmentation which are
as follows:
1) Search: It refers to information search on various issues relating to consumers.
2) Selection: It is the process of grouping the consumer characteristics and identifying
the groups based on dominant characteristics of the group.
3) Strategy: It is formulated based on 3 important issues- value maximization, capacity
utilization and customer participation.
Bases for Market Segmentation (or) Different types of Segmentation: The
segmentation of market is based on consumer characteristics and consumer responses. Taking
consumer characteristics as base, segmentation may be done in 3 ways-geographic,
demographic and psychographic. Taking consumer variables as a base, the market can be
segmented using variables such as occasions, benefits and user status.
1) Geographic Segmentation: It is the simplest way of segmenting the market. Under
this approach, the market is divided into various geographical units. The variables of
these segmentations are regions, city, density and climate. It is very easy and
relatively inexpensive way to handle the market. It provides an opportunity to the
service companies to explore distinctive opportunities for product development as
well as product differentiation.
2) Demographic Segmentation: Demography is the study of population. Under this
approach, the market is divided into various segments based on demographic
variables such as age, family size, gender, family life cycle, income, occupation,
education, religion, race, nationality and social class. The cost of this approach is very
Service Package 1 Customer1
Service Package 2 Customer 2
Service Packagen Customer n
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low. If the demographic variables are employed properly, it provides a constructive
base for consumer - centric market segmentation.
3) Psychographic Segmentation: It is the more concrete and focused approach than
geographic and demographic. The variables of this segmentation are lifestyle,
personality and values. It is also relatively the expensive method. However, this
segmentation is mainly based on the attitudes, beliefs and values which arises from 3
questions: What we do? What we want? , and what we think? The answers for these
questions are answered by 2 approaches:
a) AIO Dimensions (Attitude, Interest, Opinion) - Develop lifestyle profile of
the consumers.
b) VALS Approach (Values, Attitudes and Lifestyle systems)
4) Behavioral Segmentation: It is a typical type of segmentation, where the
segmentation is done based on the knowledge, attitude and uses (or) response to a
service. The variables used are occasions, benefits, users status, usage rates, loyalty
status, buyer readiness stage and towards the service. It is the most expensive type of
segmentation which reflects the economy of the service of the country.
Service Positioning: It means projecting the image of a product (or) a service in such a
way that consumers perceive its value distinctively from that of other competitive offers. In
other words, positioning intends to influence the perceptual process of consumers against a
product (or) service.
Before positioning of the product, the brand of the product should be known to the customer
who can be done by the communication campaign taken up by the company to propagate
brand attributes selected for positioning it in the minds of the customers. This is called brand
Positioning Strategies: Consumers are heavily influenced by many marketing
stimulations. The pressure in performing a variety of roles in daily life is not leaving
much time and energy for people to go through the details of every offer leisurely.
Selective attention and selective retention are the key strategic moves of the
consumers to defend themselves from the high pressure stimulations of the marketers.
However there is no standard role on how to position a product (or) service, but
certainly few questions are often looked into before positioning the service.
1) Who is the target Customers?
2) What is the relevance of our service to their lives?
3) What is the key benefit offered?
4) How will it fits into their lifestyle?
5) How is service different from that of competitor offers?
6) What experience is the brand promising?

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Types of Positioning Strategies: A service company may use any of the following
types of positioning of strategies.
1) Service Attributes: A company can position the service attributes such as facilitating
services and supporting services. State bank of India positioned its services stating the
product attributes as Pure Banking, Nothing Else with the tag line With You all
the way emphasizes the banks long association with the customers.
2) Service Benefits: This strategy focuses on the distinctive benefits of using the service
to the consumer. The tagline used by Hutch Wherever You go, Our Network
Follows, added significant value to the brand, making it one among the top players in
the telecom segment.
3) Service Application Positioning: The service firm makes the consumer identify the
service need (or) desire and the suitability of the service offered to satisfy his/her need
(or) desire. For example is the successfully positioned itself as the best job
portal in India.
4) Service User Positioning: A service company may identify the target group and
position the service as the best for them. For example, Virgin mobile positioned its
service for the youth of the country.
5) Competitive Positioning: The positioning may be against the competition (or) away
from the competition. The positioning of IIPM Dare to think beyond IIMs helped
the institute grow in 50 times in turnover in just 7 years.
6) Quality Positioning: The positioning focuses on the quality leadership of the firm.
For example, CRISIL, Indias leading credit rating company positioned its brand with
the value of unimpeachable credibility and unmatched analytical rigor.
7) Price Positioning: The positioning is to communicate the best value for the price the
consumers pay. The positioning of Big Bazaar-Is Se Sasta Aur Achha Kahin Nahi--
-- signifying the lowest prices, reached to millions and helps in increasing values.
8) Leadership Positioning: This communicates to the consumers that the service
company is a major shareholder in the market and enjoys the acceptance of the
majority. For example, Airtel tagline-Barriers break when people talk.
9) Excellence Positioning: This positioning is based on the performance and efficiency
of the firm. Premium hotel groups like the Taj, the Oberoi and ITC use excellence in
services as their positioning strategy.
Service Demand Management: Every product has the capacity to generate the
demand. The demand for the service should have 3 characteristics. They are desire,
affordability and willingness to purchase. Such demand is often insufficient to achieve
organizational objectives. Service companies need to manage the demand to the level of its
optimum capacity. The perishability character of the services intensifies the problems of
demand management. The utilized capacity will have serious effects on the profitability of
the organization. Fixed costs are significantly higher in services.

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Demand Situations: Service companies different demand situations in different market
segments at different times. The following are the demand situations.
1) Negative Demand: In this situation, people are aware of the features and benefits of
the service and they decide not to use that service on the basis of their evaluation. In
such circumstances, the marketing unit of a service firm has to find out the prime
reasons for the rejection of their service and a strategy has to be designed to diffuse
the misunderstandings of buyers and transform the negative demand into a positive
potential demand.
Eg: Passengers refusal to board the bus.
2) No Demand: The situation of no demand exists either due to unawareness (or)
insufficient information about the service that is being consumed. Marketers should
focus on promotional campaigns and awareness programs to make the service
penetrate through the customers. Service differentiation is the popular strategy in this
Eg: A bus with passengers.
3) Latent Demand: In any given environment, it is impossible to have a set of products
capable of satisfying all needs and wants of a society. There always exists a gap
between desirability and availability. The market (Or) the firms should always look
for better opportunities and new offers to bridge the gap.
Eg: A passenger travelling in an ordinary bus dreamt of travelling in a luxury bus.
4) Seasonal demand: Some services are only in demand during a particular season of
the year. Here the demand shouldnt belong to only the national borders, but it must
spread to the other parts of the world. Some of the services even though they end in
that season, but still want to continue the service rises to some financial hurdles,
investment of money, promotion and advertising agencies.
Demand Patterns: There are 5 types of demand patterns which are as follows:
1) Irregular Demand: A fluctuating demand creates instability between desirability and
availability due to the inconsistency of demand arise which results to the failure of the
Eg: A bus full of passengers during peak hours.
2) Falling Demand: A falling demand is one of the unhealthy situations to the market
environment so that the market (or) companies has to identify the root causes for the
service, which exhibits the decline in the demand. The companies of the market have
to adopt right strategy to recover from such situation.
3) Demand to the level of Optimum Capacity (or) Full Demand Situation: The
situation when demand matches the optimum capacity of the firm is called full
demand situation.
Eg: A bus filled with maximum capacity.
4) Demand exceeds the level of Optimum Capacity (or) Excess Demand: when the
demand exceeds the maximum capacity of a service, it is called excess demand. The
possible consequences that arise in such type of demand are as follows:
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a) Inability of providing the best services due to excess capacity
b) Losing of Customers
c) Decline in the service
5) Demand Less than Optimum Capacity (or) Low Demand: This situation exists in
excess production capacity due to the underutilization of the equipments and
facilities, which in turn results in the loss of service, unable to recover the profits,
unable to match the demand that is required.
Strategies for Demand Management: Service organizations, generally follows 2
alternative strategies for balancing supply demand positions. One alternative is to shift the
demand to match the capacity and the other alternative is flexing the capacity to match the
Shifting the demand to Match Service Capacity: When the demand doesnt match
the optimum capacity 2 situations arises. One is the demand more than the level of optimum
capacity and the other is less demand than the optimum level of capacity, it has to be shifted
to the periods where the demand is low, and it has to be done by convincing customers. The
following approaches are useful in handling when demand is more than optimum capacity.
1) Identify Peak Periods and communicate it to Customers: When the peak business
hours are informed to the customers in advance, the customers who are in urgent need
will avail the service during peak hours and the other customers avails the service in
non-peak hours, which help in avoiding the creation of negative impact on the service.
2) Offer Incentives during Low Demand Periods: this is a very popular strategy
adopted by many service firms to shift demand from peak to non- peak periods. The
customers who avails the service in non- peak periods are offered special benefits in
either cash, in kind (or) both.
3) Recognize Regular Customers and Serve them first: Most service firms survive
and grow in the market on the customers, especially loyal customers. There exists a
situation, where it is not possible for the firms to shift the service seekers who are
loyal to the firm. Hence they have to be recognized separately and offer them special
benefits over others.
4) Schedule Services Segment Wise: This approach divides the markets segment wise
and schedules offering services to each segment separately. This helps the service
firms to serve all the segments of the market, by also serving the unserved demand
during a particular segment.
Increasing Demand to the Level of Optimum Capacity: There are 8 approaches
used to increase the demand when service firms have demand below the optimum capacity.
1) Promote Services Aggressively: Service forms aggressively promote through
advertising, personal selling, sales promotion, publicity and public relations using a
varied strategy to attract the market (or) increase the consumption levels of the
existing customers.
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2) Search for New Segments and Enter: When demand generated from the market
segments being served is less than the optimum capacity, market expansion would be
a suitable strategy. Identifying the new segments and serving them with a new service
package may increase the demand.
3) Offer Price Incentives: The strategy of offering incentives to increase the demand is
workable when the market is price sensitive. Price may be reduced, either directly (or)
indirectly through discounts, gift offerings, free services etc. Such price changes are
likely to change the demand positively.
4) Schedule Services as Per Customer Convenience: This is one of the widely adopted
strategies where the service firms serve the customers as per their convenience by
employing the time schedules in order to increase their customer base and to generate
positive results about their service.
5) Provide Service Conveniences better than Competitors: When customers are
provided better service conveniences such as decision convenience, access
convenience and transaction convenience, they are likely to respond positively.
Internet Shopping, telebanking and Internet banking are few examples.
6) Focus on Word-of Mouth Communication: This plays a vital role in influencing
customers. The role of reference groups in promoting this strategy is quite significant.
Service firms need to identify opinion leaders and exert their influence on consumers
to create (or) increase demand.
7) Position Service Offers Differently During Slow Periods: A typical marketing
tactic is to position the service differently for a short period. Consumers should
identify the distinctive value of the service if availed during the low-demand periods
from a service company.
8) Bundle Services: Service companies have been practising this strategy for a long
time. Bundling of services is the offer of two (or) more service packages at a package
price. Consumers do not have the option of buying individual services separately.
Bundling less- demanded service with highly demanded service may generate positive
results. Marketers should workout customer benefit in monetary and non-monetary
terms while bundling services.
Managing Service Product: A Service product is complex and very difficult to
describe. The 4 risks in describing a service are oversimplification, incompleteness,
subjectivity and biased interpretation. It is necessary to put serious efforts to find clarity on
features and benefits of a service product.
Service Product: A service is a package comprising a series of service elements executed
in proper order keeping with the needs and wants of the consumer, with the intention of
maximizing customer satisfaction.
Basic Service Package (BSP): Basic Service Package consists of 3 elements which are
as follows:
1) Core Service: It is the service for the service firms existence in the market.
Eg: For Hospital- health care, Hotel- lodging, Airline-transportation
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2) Facilitating Services: These are the services without which core services cannot be
performed. They make it possible for customers to use a core service.
Eg: Thus a hotel requires a building consisting of rooms, cots, toilet etc.
3) Supporting Services: These are the services do not facilitate the consumption (or)
use of a core service. Thus for hotel the supporting services they run a restaurant,
operate transport services for local visits.

Fig: Elements of Basic Service Package (BSP)

Customer Hierarchy Value: A service product is ultimately assessed in terms of
customer value. According to Philip Kotler, marketer needs to think through 5 levels of the
product. This customer value can be assessed with the help of taking hospitality service.

Fig: Customer Value Hierarchy
Core Services
Services and
Services and
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S.No Product Level Customer Value
1. Core Benefit Rest and Sleep (It is the most fundamental benefit the
customer purchase)
2. Basic Product Hotel room, bed, bathroom (It is how a marketer translates
the core benefit into a service package)
3. Expected Product Clean bed, fresh towels, working lamps (A set of attributes
buyer normally expect while purchasing a service)
4. Augmented Product Supply of food that suits customer health
5. Potential Product New ways of satisfying customers (Anything that surprises
and delights the customer)
New Service Development (NSD): Developing successful new service is critical for
many companies. To have a competitive edge in the market, the introduction of new services
that too faster than its competitors is essential. An effective organizational mechanism is
necessary for new service development.
New Service Product: A new service product refers when it is innovative, created and
offered by the company to the world for the first time. These are the improved versions of the
existing service products either in technology, performance, style, status. According to Booz
Allen Hamilton, the new products are of 6 types:
1) New-to-the World: The products are really creative and the world has not witnessed
such products earlier. These products create an entirely new market.
2) New Product Lines: The products are not new to the market but new to the company.
A company may add a new business to the existing one and enter an established
market for the first time.
3) Additions to the Existing Product Line: A company may add new products to the
established product lines in order to strengthen the product lines.
4) Improvements and Revisions of Existing Products: A company may modernize its
products by adding new values (or) replacing the existing products with improved
5) Re-Positioning: The existing products of a company may be targeted to new markets.
6) Cost Reductions: Companies may develop new products that are capable of
providing similar performances at a lower cost than that of earlier products.
Steps in New Service Development: The following are the 9 steps in new service
development which are as follows:
1) Idea Generation: This is the first step in new service development where the scarcest
product in todays competitive world is undoubtedly is a good idea. Even though
ideas are good (or) bad, it is their application and execution that make them effective
and penetrating through markets. However the ideas are generated from 2 sources.
They are as follows:
a. Internal Sources: Frontline people, sales personnel, researchers, organization.
b. External Sources: Customers, Competitors, market information system and
gap analysis.
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2) Idea Screening: This is the second step in new service development where the ideas
that are identified during idea generation are potential and competent enough to be
successful. The ideas are screened by the evaluation committee to ensure the
consistency of the idea with company mission, image and capability. As each firm has
its own criteria for evaluation there is no standard set for evaluation. This screening
process must ensure that there is full support from the management to proceed to the
next stage of development.
3) Concept Development: Concept development means the translation of an idea into a
descriptive form in accurate terms. Concept development is especially different for
service firms because of the specific characteristics of services such as intangibility
and simultaneous production and consumption. A clearly defined service includes the
elements of a basic service package, customer- employee interaction and the service
design document. The service design document describes:
a. The problem to which the solution is offered in the form of service
b. Reasons for offering a new service
c. List of sequential service processes and its benefits
d. A rationale for the consumer as to why he/she should have the service.
4) Concept Testing: A new service concept developed is tested by presenting the
concept to target market and seeking feedback. Besides customers, the concept is also
to be tested with the employees of the organization, so as to assess their understanding
and willingness in performing the service. The results raised from the concept testing
like the gaps, purchase intention levels are overcome.
5) Market Strategy Development: After the successful testing, a preliminary marketing
strategy has to be developed. The strategic plan should clearly define the target
consumers, market size and the competitors. The plan should also outline the
positioning and distribution strategies. It should also outline the settings of targets for
long-term sales, expected market share and profit- both long term and short term.
6) Business Analysis: It includes the estimation of first time sales, repeat sales,
incremental sales for first 5 years, product life cycle analysis, cost estimation, profit
estimation, projected profit and loss account for the first 5 years, payback period and
the risk analysis. Market competitiveness and the ability of the company to respond to
the variations in demand for the new service are also analyzed. Business managers
help managers to rank the screened ideas.
7) Service Development: The business proposal must be converted into the actual
service that will be delivered to the customer. All tangible elements as well as service
delivery process must be designed. A complete marketing programme that includes
promotion campaign, pricing policy, recruitment and training of staff, as well as the
method of service delivery (channel) must be developed.
8) Market Testing: Now the services are ready for sale. To know how the service
delivered is penetrated the service firms invite employees, families and select
customers to know their responses. A careful; evaluation of the logical process of
operational functions is very important at this stage.
9) Commercialization: the final step in the process where the new service developed is
now offered for sale. At this stage, firms have to incur huge costs to make the service
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reach the customer by external marketing and to make the consumers participate well
in the service process and also make them perceive the quality of the service. At this
stage, 4 decisions are of utmost importance:
a. When should the service be offered?
b. Where the service should be offered?
c. To whom the service should be offered?
d. How the service should be offered?

Service companies must be either market driven (or) market driving in their new service
development efforts. The new product should reflect service innovativeness, quality of
service experience and customized features. It should be capable of achieving high
performance in sales, competitiveness and cost efficiency. Corporate synergy is very
important in achieving such performance.

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Fig: Steps in New Service Development

Idea Generation
Idea Screening
Concept Development
Concept Testing
Market Strategy Development
Business Analysis
Service Development
Market Testing
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Service Blue Print: It is a picture (or) map that portrays the service accurately. It exhibits
clearly the service processes, employee actions, backstage and technology actions and
linkage of various processes of the service. The steps required for building a service blue
print are as follows:
1) Identify the process to be blueprinted
2) Identify the customer (or) customer segment
3) Map the process from the customers 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

Customer contact point

Line of Visibility Support Services

Back stage support Services
Fig: A Model Service Blue Print of a Bank
Service Differentiation: It means providing meaningful changes in the service offers
which add value to the customer and are capable of generating quality perceptions distinct
form competitive offers. The major service differentiators are basic service package,
accessibility, interaction, customer participation, tangibles, service personnel, service
channels and service image and service recovery.

Cash Receipts Cash
DDs and
other services

Cash Manager Bills Verification
Bills passing officer
Accountant/Supervising officer Accounts Department
Support Staff Chief Manager/ Branch
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Service Product Life-Cycle: Marketers believe that every service product eventually
dies, though there is no universal possible lifetime for any service. Marketers also believe that
the life of a service product passes through different stages. There are 4 stages in the life
cycles of Service: Introduction, growth, maturity and decline. Companies use sales and profit
to identify stages in a life cycle:

Fig: Service Product Life Cycle
1) Introduction: At the introducing stage, companies enjoy the benefit of novelty if the
service introduced is really innovative. Such an advantage is not available to all
products. The initial expense of promoting the brand is very high; the focus is on
creating awareness and knowledge of the service among the target customers. The
sales increase slowly. Service firms generally do not expect profits at this stage.
Service firms make efforts to reduce this stage to shortest time period possible.
2) Growth: The Company sees the results of its effort at this stage. The sales grow at a
faster rate, and the promotional focus is on persuading target customers. Word-of-
mouth communication plays a significant role in image building. This is a profit-
generating stage, characterized by high turnover and low promotional expenditure.
The profit curve peaks during the period. The end of the period indicates declining
growth rate of sales and increased intensity of competition. Profit starts declining at
the end of the period. Service firms strive hard to stretch this period to the longest
3) Maturity: This stage of the service life is marked by stabilization in turnover and a
downward tendency of the profit curve- competition is severe and firms need to invest
heavily to match upto competitive threats in the area of service modernization and
sales promotion. The increased expenses reduce the profit margin, and as a result, the
profit curve experiences a downward slide. The sales peak at the beginning of this
stage, gradually decline thereafter. The end of the period is marked by an increased
rate of decline in sales; the profit curve reaches its lowest level. Service firms try to
prolong this stage in a bid to generate the maximum possible profit.
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4) Decline: During this stage, the sales curve slides down at a faster rate, profits
evaporate and soon the service becomes a loss-generating one. As soon as the service
product reaches this stage, service firms seriously consider dropping the service

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Type of Questions to be asked from Unit-2:
Short Answers:
1) Definition of Consumer Behaviour
2) Zone of Tolerance
3) Market Segmentation
4) Types of Market Segmentation (Any one of the types can be asked individually)
5) Service Positioning
6) Service Demand
7) Demand Patterns (Any one of the patterns can be asked individually)
8) Demand Situations (Any one of the situations can be asked individually)
9) Definition of Basic Service Package (BSP)
10) Augmented Product
11) Definition of New Service Product
12) Types of New Service Product
13) Service Blueprint
14) Service Differentiation
Long Answers:
1) Consumer Buying Behaviour Decision Process (or) Consumer Purchase Decision
2) Bases for Market Segmentation (or) Types of Market Segmentation
3) Strategies for Demand Management
4) Stages in New Service Development (NSD) Process
5) Service Product Life Cycle
6) Factors influencing Consumer Behaviour
7) Service Positioning and its types of positioning strategies

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UNIT-3: Service Quality Management: Service Quality Audit- GAP Model of Service
Quality-Total quality Services Marketing- Services Excellence, Pricing of Services-
Pricing Strategies Linked to Value Perceptions
Service Quality Management: According to A.Parusuraman, V.A.Zeithamal and
L.L.Berry define service quality as the degree and direction of discrepancy between
consumers perceptions and expectations in terms of different but relatively important
dimensions for service quality, which can affect their future purchasing behavior.
Service quality management is the most critical task of service companies. Quality may be
perceived in many dimensions. It may relate to costs, profitability, customer satisfaction,
customer relations (or) positive word-of-mouth communication. Customers access service
quality in their own criteria.
Customers perceive service quality in 2 dimensions. They are as follows:
1) Technical Quality: It refers to what is being offered to the customer from the
organization and what customer receives in interactions with the service firm. It
mainly relates to the design quality of the service.
2) Functional Quality: It refers to the way the customers how they receive the service
and how they experience the service process. It mainly relates to the performance of
the service. Both these dimensions are perceived by consumers from the perspective
of the company image.
Total Perceived Quality: It is the outcome of customers assessment of expected quality
and experienced quality. The consumer feels satisfied with the experienced quality matches
with expected quality. If the expected quality is more than the experienced quality
consumers feels highly satisfied. If the expected quality is less than experienced quality the
consumer is dissatisfied.

Fig: Total Perceived Quality
Total Perceived Quality
Word of
mouth, Image
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Determinants of Service Quality: According to A.Parusuraman, V.A.Zeithamal and
L.L.Berry have identified 5 influencing variables of customer-perceived quality. The 5
quality determinants are determined by using a tool called SERVQUAL. The 5 determinants
are as follows:
1) Reliability: It refers to the ability to perform the promised service dependably and
2) Responsiveness: It refers to the willingness to help customers and provide prompt
3) Assurance: It refers to the employees knowledge and courtesy and their ability to
inspire trust and confidence.
4) Empathy: It refers to the caring, individualized attention that the firm provides its
5) Tangibles: It refers to the appearance of physical facilities, equipment, personnel and
written materials.
Service Quality Audit: One of the greatest challenges of service companies is to ensure
continuous quality services to the consumers. The design of effective quality management
process alone cannot ensure the achievement of the desired objective. The management
should be able to gear the system towards effective functioning. A service system operates in
a dynamic environment, and therefore the system should be capable of adapting itself to the
changes. An audit system needs to be designed to locate deficiencies, discrepancies and
limitations at various processes. The GAP model of service quality which was developed
by V.A.Zeithamal executed well serves to the purpose.
GAP Model of Service Quality: The GAP mode l of service quality is divided into 2
parts. Part one relates to the internal process in a customer and part 23 relates to the process
involved between service provider and consumer. In the GAP model, 5 gaps are identified.
Each gap arises due top inconsistencies and deficiencies in the service company. It is
difference between actual performances with potential performances.
1) GAP-1: Management Perception GAP: It is the difference between expected service by
customers and the managements perceptions of consumer expectations. Service companies
often fail to understand properly the expectations of consumers. Improper understanding of
consumer expectations is one of the root causes for not delivering services that satisfy
consumer expectations. The key factors leading to GAP1 are as follows:
1) Insufficient market research
2) Inaccurate information from market research
3) Poorly interpreted information about expectations
4) No demand analysis
5) Research not focused on service quality
6) Lack of interaction between management and customers
7) No market segmentation
8) No relationship focus
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2) GAP-2: Quality Specification GAP: It is the difference between the company perception
of customer expectation and customer-driven service designs and standards. Service
companies may have excellent communication and information network and may be capable
of managing without any gap at the first level. Gap2 is the second milestone that the
companies should come across with excellence in performance.
Gap2 may occur due to the following reasons:
1) Mistakes in planning (or) insufficient planning procedures
2) Lack of customer driven service standards
3) Lack of formal process for setting service quality goals
4) Lack of management commitment
5) Unclear service designs
6) Lack of support from top management
3) GAP-3: Service Delivery GAP: It is the difference between customer-driven service
designs and standards and service delivery. Formulation of clear guidelines for performing
services may not assure quality service performance. The standards must be supported by
people, systems and technology. Employee motivation and satisfaction plays an important
role. The major reasons for Gap3 are as follows;
1) Complicated process specifications
2) Ineffective internal marketing
3) Poor management of service operations
4) Failure to match demand and capacity
5) Inappropriate customer note
6) Lack of proper customer education and training
4) GAP-4: Market Communication GAP: It is the difference between service delivery and
external communication to customers. Service firms make promises through external
marketing process to current as well as potential customers. The promises made through
communication media potentially raise customer expectations. The Gap4 occurs due to the
following reasons:
1) Negatively confirmed quality
2) Bad reputation
3) Lost customers
4) Negative corporate (or) local image
5) Over-promising in external communication campaign
6) Failure to manage customer expectations
7) Failure to perform according to specifications
5) GAP-5: Perceived Service Quality GAP: It is the gap between perceived and expected
service. The reasons for Gap5 are as follows:
1) Difficult to analyze
2) Negative effects
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3) Negative word-of-mouth communication
4) Bad past experiences
5) Service promises

Fig: GAP Model of Service Quality
Total Quality Services Marketing: Service firms should try to achieve total quality in
their performance. Total quality marketing aims at achieving quality performance right at the
first time. TQM requires cross-functional thinking, planning and doing. The entire
organizations orientation should be towards generating perceptions to the customers.
However, there are some of the philosophies that promote quality at times.
1) Quality must be perceived by customers: the employees of the service firm as well
as customers are involved in service production process. Both perceive the quality in a
service encounter. If the service performance process, if the employee is satisfied and
the customer is not satisfied, the service firm cannot claim quality performance. If the
perceptions are viceversa, then the problem is with the internal structure of the firm,.
If both are satisfied, then the total quality can be achieved.
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2) Quality must be reflected in every company activity: A service offer is a bundle of
features. Each part of the service product has its own role in contributing to the
perceptions of customers. For example, a customer who reserved the hotel
accommodation for 5 days may have hundreds of interactions. The sum of all these
experiences contributes in the development of total quality service.
3) Quality requires total employee commitment: Employees constitute the core
strength for service firms. Quality is a journey, not a destination. Different employees
are capable of generating different feelings and experiences in the customers.
Satisfied employees exhibit their sense of belongingness to the organization and
handle varied situations with greater involvement.
4) Quality can always be improved: There are no boundaries for quality standards for a
service. Services are always open for further improvements where continuous
research is necessary for the improvement of quality. Service firms should develop
quality circles and strategic groups, among the employees, so that they can have bank
of ideas for further improvement.
5) Quality does not cost more: Top managements of service firms often hesitate to
enhance quality standards as they feel it costs more. They also feel that the time spend
by employee to one customer would also result in the loss of customers. However,
these do not hold true in case of services. Japanese developed a concept called Zero
Investment Improvements where employees are encouraged to find new ways of
performing the processes that could enhance the quality perceptions by consumers,
without any further investments.
6) Everyone contributes to customer perceived quality: All employees in the
organization should contribute to the customer-perceived quality, whether an
employee is in interaction with the customer (or) not, whether an employee is in the
line of visibility (or) not, the employees contribution would be there in quality
7) Quality should be monitored by the employees: Service employees need to perform
with involvement and commitment, if service quality is to be delivered. Unlike in
manufacturing organizations, supervision by the managers cannot improve
productivity and quality performance in service organizations.
Service Excellence: It means offering superior quality performance consistently and often
beyond the bench-marking performances. It requires well-defined organizational processes,
policies, procedures and quality-oriented service culture. Every service company aims to
have a model of excellence in service offerings. Robert.C.Ford, Walt Disney, Brich Parlton,
have developed lessons that can help guide organizations to success. The lessons suggested
by the researchers are:
1) Base decisions on what the customers expect and want
2) Think and act in terms of the entire customer experience
3) Continuously improve all parts of the customer experience
4) Hire and reward people who can effectively build relationships with customers.
5) Train employees on how to cope with emotional labour costs
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6) Create and sustain a strong service culture
7) Avoid failing your customers twice
8) Empower customers to co-produce their own experience
9) Get managers to lead from the front, not the top
10) Treat all customers as if they were guests
Achieving service excellence in service quality is the inspirational goal of every service
organization. The goal becomes attainable only when the management of the company is
committed to quality performance all the time. It requires focusing on improving customer
experience of the service encounter. Employee empowerment and customer empowerment
are the 2 dimensions that promote positive customer experience. The organization should
develop leadership qualities in every employee. The leader in employee makes him/ her
future-oriented person and proactive in facing different situations in the service processes.
Employees become creative and take calculated risk in experimentation and develop abilities
to persuade customers to have new experiences.
Pricing of Services: Pricing is an art of translating into quantitative terms the value of the
product (or) unit of a service to customers. Price is the medium for exchange of value
between buyers and sellers. It is the only element of the marketing mix that ensures inflow of
revenues while all others are associated with costs.
Role of Pricing: Pricing decisions have an impact on all parts of marketing system,
suppliers, intermediaries, customers and the government are all affected by pricing.
1) It affects the standard of living of the people and it regulates sales growth and thus
brings about economic development.
2) Pricing also helps the organization to achieve its financial objectives
3) Pricing is the mechanism that constantly monitors the alternative use of a capital and
it corrects itself as and when competition intensifies.
Objectives of Pricing: According to Christopher Lovelock classified the pricing of
services into the following 3 categories:
1) Revenue-Oriented Objectives: Profit making is one of the goals of business
concerns. Companies are responsible for satisfying the stake of stock holders and
also for expanding the business as per the expectations of stock holders. Firms at a
target return on investment to meet the priorities.
2) Operation-Oriented Objectives: Some service organizations are constrained by
capacity. They try to match demand and supply inorder to ensure optimum use of
their productive capacity at any given time. Service firms need to change prices
frequently to match demand and supply. However, it may be noted that frequent
variations in pricing may confuse (or) irritate the customers.
3) Patronage- Oriented Objectives: Price may be used effectively to develop loyalty
and relationship with customers. Many companies now prefer patronage building to
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profit maximization as a future- oriented strategic option. Companies can accrue
multiple benefits through relationship building.
Customer-Delivered Value (CDV): Customer delivered value is the difference
between total customer value (TCV) and total customer cost (TCC).

Fig: Customer Delivered Value
Total Customer Value (TCV): The total customer value is the sum of variables that
the customers attach to specific values in relation to a service. The TCV is achieved by the
following values: Core Service Value, Supporting Service Value, Personal Value, Image
Value and other values.
1) Core Service Value: This value is commonly assessed in every service. It signifies
the relevance and suitability of the service to the prime need of the customer. The
assessment of the value depends on the intensity of the need of a customer (or) a
group of customers at a given situation.
Customer Value variables
Core Service Value
Supportive Service Value
Personal Value
Image Value
Other Values

Customer Cost Variables
Monetary Cost
Search Cost
Time Cost
Energy Cost
Psychic Cost
Other Costs
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2) Supporting Services Value: Customers also assess the additional services associated
with the core service and their capacity to enhance value of the service. Support
services provide an opportunity to gain competitive advantage for service providers.
3) Personal Value: The suitability of a service to the customer can be a measure for
value assessment. As the physical conditions, lifestyle and personal goals vary from
customer to customer, it becomes difficult to generalize this value. Some service
companies use customization as a way to maximize this value.
4) Image Value: The corporate image and the local image of the service provider
influences value perceptions of the customers. The social status and ego system of the
customer are the inputs for image value assessment.
5) Other Values: Consumers may perceive some additional values in such cases as
emergency, impulse and other emotional and psychological values which may be
associated with a service offer.
Total Customer Cost (TCC): The total customer cost is the sum of the cost, both
monetary and non-monetary incurs in having a service. The following are the consumer cost
variables that are generally considered while purchasing a service: Monetary Cost, Search
Cost, Time Cost, Energy Cost, Psychic Cost and other costs.
1) Monetary Price: All commercial service organizations and also some of the non-
commercial service organizations offer service products at a monetary price to the
customers. The monetary price is the real financial commitment to the service
2) Search Cost: As services are not tangibles, the customers may have a feeling of
uncertainty before a purchase. Therefore, consumers try to get more and more
information before taking purchase decisions for services. The efforts of the
customers put in for obtaining adequate satisfactory information is a cost for
consumers. Search costs may be monetary (or) non- monetary (or) sometimes partly
monetary and partly non-monetary.
3) Time Cost: Consumers may be required to wait for some time for some services. This
is an inevitable factor for many services; because the service provider cannot control
the length of time it takes for a customer to be serviced and the number of customers
to serve. Time definitely carries some opportunity cost. The total waiting time of
customers adds to the cost of the service from the customers point of view. Time
costs also vary from customer to customer.
4) Energy Cost: The energy costs include the loss of physical energy in travelling to the
service outlet, waiting, participating in a crowd of other customers, weight being
carried and so on. Service customers may add energy cost as non-monetary cost to the
total customer cost.
5) Psychic Cost: Psychological costs are the most painful non-monetary costs incurred
while receiving services. While selecting service consumers may have some fears----
fear of not understanding the service, fear of rejection, fear of uncertainty and so on.
All these anxieties constitute psychic costs.
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6) Other Costs: Apart from the above, consumers may perceive other non-monetary
costs related to a particular service. For example, the convenience costs may be
particular means of the transport service when compare to other means of transport.
Pricing Strategies Linked to Value Perceptions: In the pricing strategies, the
consumers have identified 4 value perceptions that they may develop in a service. The
following are the pricing strategies that can be adopted effectively against the 4 different
perceptions of value by customers. Price discrimination is yet another strategy followed by
many service companies.

Fig: Pricing Strategies Linked to Value Perceptions
1) Low (or) Reduced Price is Value: When customers perceive value is low price, the
following pricing strategies are more effective.
1) Discounts: Consumers belonging to this group can be attracted by offering price
discounts. This strategy is useful when demand for the service is low (or) when it is
required to shift demand from peak periods to slack periods.
2) Psychological Pricing: This strategy is used to influence the consumers
psychologically by fixing the price in odd numbers like INR 6,999, 199 and soon. The
interaction is to create a psychological feeling in customers that they offered services
at a lower price.
3) Penetration Pricing: Introducing a service at low initial price is called penetration
pricing. This strategy is to attract the price sensitive market.
2) Value is everything expected in a service: For a customer group perceives value to be
everything, the following strategies are suitable:
Low (or) Reduced Price is
a) Discounts
b) Psychological Pricing
c) Penetration Pricing
Value is everything expected
in a Price
a) Prestige Pricing
b) Skimming Pricing

Value is Price Vs Quality
a) Value Pricing
b) Market Segmentation
Value is special package
offered by service firm
Price Framing
Price Bundling
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1) Prestige Pricing: This pricing intends to attract premium segments of the market.
The price of the service reflects the status of the target market. Customers attach more
value to high price of the service.
2) Skimming Pricing: This pricing involves introduction of the service at a high initial
price. Service companies look for exploiting the opportunities in the premium
segment at first. After this segment is exploited, companies may focus on other down-
the line segments of the market.
3) Value is Price Vs. Quality Relationship: The customers, who have this kind of
perception, are more rational in the decision making process. The following strategies are
suitable for this segment.
1) Value Pricing: Offering higher CDV can be a right strategy for this group. Since the
customers are rational in their approach, focus on reduction in customer costs and
enhancement of customer value will yield positive results.
2) Segmentation Pricing: This strategy involves separating theses customers from the
rest of the market by offering separate package. The customers are likely to perceive
more value in distinctive strategy.
4) Value is Special Package Offered by the Company: This group consists of consumers
who are highly evaluative and look for beneficiary service packages. The following are the
strategies suitable for this group:
1) Price Framing: It means providing total information on pricing of various service
packages so that the customers can group the desired services at a price to place an
order. A detailed list of prices should be communicated through an appropriate media,
for example, by using a price anchor.
2) Price Bundling: When customers find value in packaging of interrelated services.
Price bundling is an appropriate strategy. Price bundling means pricing and selling
services as a group, not individually.
3) Complementary Pricing: Under this pricing, 3 strategies are adopted
a) Captive Pricing: In this, the service firm offers a basic service (or) product
and continues supplies (or) peripheral services that are needed.
Eg: Cable Networks
b) Two-Part Pricing: Under this strategy, the price of the services is divided
into 2 parts. The first part may be compulsory and the second part depends on
the usage of the service.
Eg: Usage of internet service (or) call rates in telecommunication
c) Loss-Leader Pricing: The objective of this strategies is to attract a large no:
of customers to the service outlet. Some supplementary services generally
offered at a very low price for attracting customers to the business service
provider. The loss incurred on some offers is recovered with the additional
turnover generated due to this strategy.

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Approaches to Pricing: There are 3 approaches for pricing:
1) Cost-Based Pricing: In cost-based pricing, a company determines expenses from raw
materials and labour, adds amounts (or) percentages for overhead and profit, and there by
arrives at the price. This method is widely used by industries such as utilities, contracting,
wholesaling and advertising. The basic formula for cost-based pricing is
Price= Direct Costs+ Overhead Costs+ Profit Margin
Direct costs involve materials and labours that are associated with delivering the service,
overhead costs area share of fixed costs and profit margins is a percentage of full costs
(direct+ overhead).
Challenges: The following are the challenges are cost-based pricing:
1) Costs are difficult to trace
2) Labour is more difficult to price than materials
3) Costs may not equal the value that customers perceive the services are worth
2) Competition- Based Pricing: This pricing focuses on the prices charged by other firms in
the same industry (or) market. This approach is used in 2 situations:
1) When services are standard across providers, such as in dry cleaning industry
2) In oligopolies, with a few large service providers such as in airline (or) rental car
Challenges: The following are the challenges in competition-based pricing:
1) Small firms may charge too little to be viable
2) Heterogeneity of service limits comparability
3) Prices may not reflect customer value
3) Demand-Based Pricing: This approach takes into consideration the customers sensitivity
to non-monetary costs, the customers perception of the value and the customers
acceptability of a service at a price. It promotes the most important concept for services that
are value pricing. It uses the value that a service delivers to customers as the main factor for
setting the prices. The value perceptions of a service vary among different groups of
customers. Service customers generally perceive the following 4 perceptions:
a) Low (or) Reduced Price is Value
b) Value is everything expected in a service
c) Value is Price Vs. Quality Relationship
d) Value is Special Package Offered by the Company
Challenges: The following are the challenges in the demand-based pricing:
1) Monetary price must be adjusted to reflect the value of non-monetary costs
2) Information handling is very difficult
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Type of Questions to be asked from Unit-3:
Short Answers:
1) Definition of Service Quality Management
2) Technical Quality and Functional Quality
3) Total Perceived Quality
4) Determinants of Service Quality
5) Service Quality Audit
7) Definition of Gap
8) Total Quality Services Management
9) Service Excellence
10) Definition of Pricing
11) Role of Pricing
12) Objectives of Pricing
13) Customer Delivered Value (CDV)
14) Total Customer Cost (TCC)
15) Total Customer Value (TCV)
16) Typed of Pricing Strategies (Any one of the strategies can be individually asked)
Long Answers:
1) GAP Analysis
2) Total Quality Service Management
3) Various Non-Monetary Costs involved in the Pricing of Services
4) Pricing Strategies (or) Linked Value to Perceptions
5) Different Approaches of Pricing

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UNIT-4: Service Distribution- Managing Physical EvidenceInternal
Service Distribution: The distribution of services is more challenging than the
distribution of goods due to their inherent characteristics such as intangibility, inseparability,
variability and perishability. These characteristics and more particularly customer
participation in the service process make service distribution critical in shaping customer
Service Transactions: These transactions are broadly classified into 3 groups:
1) Customers Calling Service Outlets: In this type of transaction, customers will
approach the service outlets to avail the type of service within that outlet. The service
provider creates an environment conducive to the production and consumption of the
service with good service care and infrastructural facilities.
Eg: Educational institutions, theaters, beauty parlors etc.
2) Service Firms Calling Customers: In this type of transaction the service firms
maintain a particular database of information about the prospective customers and
deliver the type of service according to the need (or) desires of the customers.
3) Service Firms transacting With Consumers at an Arms Length: In such
transactions, there is no need for service providers to have personal contacts and face-
to-face encounters with the consumers. Services can be produced and consumed with
the help of tangibles and equipment provided for the purpose.
Eg: Telecom Services, Cellular Services and Credit Card Services etc.
Service Location: A service location is an important value for both the company and the
customer. The selection of the location is based on target customers, the degree of interaction
required and the required accessibility. While selecting a location for service outlets, the
following are to be considered.
1) Proximity: The location of the service outlet should be as close to the target market
as possible. The proximity of the service outlet saves time and energy costs also
develops affinity among the consumers.
2) Image: The image of the location should match the corporate image of the company.
The level of acceptability of a location by the consumer varies.
3) Parking Facility: It is becoming an important factor, particularly in cities and metros.
A service outlet without adequate parking facilities is less likely to attract customers.
4) Convenience: The location of the service outlet should be convenient for customers
convenience is often measured in terms of transport, shopping facilities, safety and
5) Accessibility to other Services: A service outlet requires a host of other services and
infrastructural facilities such as electricity, telecommunications, water and sanitation.
6) Competitive Advantage: The effect of the competition cannot be ignored while
taking any decision in services. The location that provides competitive advantage can
be preferred.
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Distribution of Flow of Services:





Fig: Flows of Channels of Distribution
Channels for Service Distribution: Service distribution deals with the means that
service firms use to provide services to the consumers. The distributors of services need to
play a critical role before and after the sale of service. This is because distribution becomes a
potent competitive weapon for service firms and what channel to use for service distribution
is a critical decision. The popularly used channels are franchising, agents and brokers and
electronic channels.
1) Franchising: It is the most often used channel, like retail of services. The franchisees
are authorized to distribute services to the end customers, on behalf of the service principal. It
involves a contractual agreement between a franchiser and franchisee. Generally, agreements
and contracts include a clear description of the following:
a) Nature of the service
b) Geographic territory
c) Percentage share to be paid to the franchiser on the revenue of the franchisee
d) Time period of agreement
Service Consumer

Service Consumer







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e) Instructions, interactions and conditions
f) Support to be provided by the franchiser
g) Roles and responsibilities of the franchisee
h) Rules and regulations of termination of agreement
Benefits: The following are the benefits of franchising:
1) Business Expansion and Revenue Gains: Service companies can reach more
markets without much effort through franchisees. The wider distribution, thus
achieved results in increased revenues, larger market share, brand name and
recognition as well as economies of scale.
2) Consistency in Outlets: Service companies can ensure consistency in performance of
the franchisees with the help of agreements and contracts. By way of providing
standard specifications relating to exterior, interior and process of service production,
it is possible to maintain consistency in outlets.
3) Knowledge of Local Markets: Greater reach of market provides adequate
information back through the franchisee, relating to specific issues of local markets.
This information helps the organization develop market-oriented service packages.
4) Shared Financial Risk and Investment Burden: Franchisees invest money and
other resources to arrange for the required equipment and personnel for performing
services as per the specifications of the franchiser. Therefore, the franchisers
investment burden gets reduced.
Challenges: The following are the challenges of franchising:
1) Problems in Maintaining and Motivating Franchisees: Most service companies
face problems in motivating their own employees. When it is in the case of outside
operators, it is more difficult task to motivate them to perform the service as per
2) Quality Inconsistency May Affect Company Image: Many a time, the quality of
services offered by franchisees varies from the service specifications. Exercising
quality control devices by the service company may not yield good results in the case
of private operators. Therefore the service firm should be cautious and maintaining
2) Agents and Brokers: Agents and brokers are widely used as intermediaries,
particularly in insurance, transport and tourism services. An agent is an intermediary who is
authorized to negotiate on behalf of the service principal with the customers. Brokers are
middlemen who bring buyers and sellers together and assist in negotiations.
Benefits: The following are the benefits of agents and brokers:
1) Low Selling and Distribution Cost: Agents and brokers work on commission basis.
Service firms need not employ permanent sales force for the purpose. Selling and
distribution costs are directly linked with the sales revenue when agents and brokers
are used.
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2) Specialized Skills and Knowledge of the Agents and Brokers: Persons who choose
to be agents and brokers generally possess specialized skills in persuading people.
Such skills are mostly inherent and inherited. Service companies can exploit those
skills in their favour without any additional cost.
3) Wider Representation in Market: Service companies can appoint many brokers and
agents and can have a wider representation in this market. Agency network of LIC is
the example.
4) Knowledge of Local Markets: Agents and brokers operate within specific locations,
having knowledge on various local issues and possess the talent to exploit their
knowledge for marketing sales. The information provided by these intermediaries,
naturally is more reliable.
5) Customer Choice: There may be a no: of authorized agents and brokers relating to a
service in a location. Customers may choose known intermediaries for providing the
services. Customer confidence will be high when they take service through a known
broker (or) agent.
Challenges: The following are the challenges in agents and brokers:
1) Loss of control in pricing and other marketing aspects when the agents and brokers
prevail over the producers as well as consumers.
2) Some brokers and agents, generally, represent multiple service principals and special
focus may not be provided to any one of the service providers.
3) Electronic Channels: Electronic channels are becoming more and more popular in the
distribution of services. They do not require direct human-to-human interactions. The
examples of electronic channels are television, telephone, internet etc. Through electronic
channels service firms are able to provide movies on demand, banking and financial services,
multimedia libraries, database etc.
Benefits: The following are the benefits of electronic channels:
1) Quality Control: Service firms can reach customers without any standard package
through electronic channels. Unlike delivery through human beings, electronic
channels do not interpret the service and execute it according to that interpretation. It
transmits exactly what is designed. Also, the channels facilitate the centralized design
of the service package, and there by better quality control.
2) Cost: The cost incurred for reaching each buyer is slowest through electronic media
when compared to distribution through human resources.
3) Customer Convenience: One of the important benefits of using the electronic
channels is customer convenience whenever and wherever customers want the
service; they can access it through the electronic channels.
4) Distribution: Cost-effective extensive market coverage is possible through electronic
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5) Customer Choice: Through electronic channels a wide variety of services can be
offered as choice to the customers. Movies, cable programmes, education modems
and music are some electronic channels used by service firms.
Challenges: The following are the challenges in electronic channels:
1) No Control on electronic environment: The electronic media, of late, has become a
subject of controversy due to lack of proper regulation. Once a channel (or) network
becomes popular some controversial material starts appearing, and results in a
negative effect, in some cases on service quality. The effectiveness of the channel
depends on many factors such as power, signal, satellite linkage, weather conditions
etc. Most of them are beyond the control of a service firm.
2) Inability to Customize: Adaptability to the local needs is not possible through
electronic channels. If service personnel are used for delivery, there is a chance to
modify business systems planning on the spot, according to needs of customer. But
electronic channels cannot provide such facilities.
3) Customer Involvement: The need for customer participation is very high in the case
of electronic channels. Customers should know how to operate the electronic media.
Therefore, technology should be higher user friendly. Any complexity keeps the
customers away from using the service.
Managing of Physical Evidence: Service firms search for clues of evidence in the
service offer because services are intangibles. Service companies should find right means to
communicate evidences of service.
Physical Evidence: It is what a company physically exhibits to customers. It includes the
physical environment of the service outlet, the exterior, the interior, all tangibles such as
equipment, furniture, vehicles, stationary, signage, certificates, receipts, service personnel
Servicescape: It is the man-made physical surrounding where service production and
consumption processes take place. Spatial layout and functionality and aesthetic appeal are
the 2 critical factors in its design.
Types of Servicescapes: Service companies design Servicescapes based on the nature of
interactions required for the service production and delivery. The basic principle that guides
the design is user friendliness. Based on usage, servicescape can be classified into 3 types.
1) Self-Service: In a self-service environment, the customer performs most of the
activities and very few employees are involved. ATMs, fast food centers and movie
theaters are examples.
2) Inter-Personal Service: In this type of Servicescape, both employees and customers
are given adequate importance. In case of hospitals, educational institutions and banks
etc. The Servicescape should contribute to social interactions between and among
customers and employees.
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3) Remote Services: In some services, the customers physical environment may be
very little (or) even absent. The goal of this is to keep employees motivated and to
facilitate teamwork and operational efficiency.
Dimensions of Servicescape: There are 3 dimensions of Servicescape. They are
ambience, space and functional conditions and signs, symbols and artifacts. A critical
analysis of these 3 dimensions and a strategic approach is necessary to design servicescape
inorder to achieve desired results. They are as follows:

Fig: Dimensions of Servicescape
1) Ambient Conditions: Ambience represents the surrounding (or) persuading atmosphere of
a servicescape. Ambient conditions are these characteristics of the environment pertaining to
our 5 senses. The following are the important ambient conditions that may influence human
behavior at the service environment.
1) Temperature: The temperature that exists in service environments has the capability
to influence behaviors. The customers and employees feel pleasant when the service
firm provides the comfortable environment and vice versa. It influences the approach,
stay, waiting and also social interactions.
2) Quality of Air: The quality of service interaction will be greatly influenced by the
quality of air. No smell, dust and fresh air will attract different reactions from the
Ambient Conditions
a) Temperature
b) Quality of air
c) Sound/Noise
d) Music, Smell
Space and Functional Conditions
a) Layout and design
b) Equipment
c) Colour
Signs, symbols and artifacts
a) Signage
b) Dcor
c) Artifacts


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people. An assurance of pollution free air can also become selling proposition for
service firms.
3) Noise: The sound (or) noise level ranging from absolute silence to high-decibel
sounds will have an influence on the behavior. The service firms have to take
necessary steps and to have to carefully plan the design of the environment which
does not result in the negative information onto the mind of the customer.
4) Music: Music is a very powerful stimulator of feelings in human beings. People have
different preferences in music. Some like classical, western, old and new. If music is
arranged while taking into consideration the preferences of the customer groups,
positive behavior can be expected.
5) Smell: People have different likings as far as smell is concerned. A right combination
makes the environment pleasant.
2) Space/Function: The living space and functional support facilities form an important part
of the servicescape. The following are the factors that influence the behavior of employees
and customers.
1) Layout and Design: The service environments are intended to fulfill the needs and
specific purposes of the customers. Therefore, spatial layout that facilitates
functionality is an important requirement. Spatial layout refers to the ways in which
machinery, equipment and furnishings are arranged and the size and shape of those
items and the relationship among them.
2) Equipment: Service firms should acquire such equipment that facilitates the
accomplishment of customer and employee goals. In self-service environments,
particularly the equipment should be of state of the art technology and customer
3) Colour: Colour is one of the important visual cues in a servicescape. Colour is
stimulating, calming, expressive, disturbing, impressionable, cultural, exuberant and
symbolic. It pervades every aspect of our lives, embellishes the ordinary and gives
beauty to everyday objects.
3) Signs, Symbols and Artifacts: Sign boards displayed on the exterior (or) interior provide
explicit communication. These can be used to communicate rules, directions, cautions,
processes, layout details and soon. Signs provide relief to such customers who are poor
communicators (or) are not comfortable interacting with others. Signs also can be used to
reduce perceived crowding. When customers are not familiar with the service environment,
they look for environmental clues for initial help.
Role of Physical Evidence in Service Marketing: In services marketing, physical
evidence plays a definitive role in influencing the perceptions of customers and employees by
exposing them to the critical objects of the servicescape. Individuals do not evaluate a
specific servicescape based on only one environmental stimulus. They combine all discrete
pieces to form a holistic picture. A. Parasuraman and L.L. Berry have identified 6 specific
roles of evidence.
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1) Shaping First Impressions: Consumers form initial impressions once they are
exposed to the exterior and interior of a service outlet. The first flash quickly creates
an impression on the service provider. Such first impressions condition the mind and
influence perception of the situations that follow in the service process. The service
provider thus finds an opportunity to shape the first impressions of the consumers
through physical settings of the service outlet.
2) Managing Trust: Physical environment and the tangibles used in service processes
stands as clues to consumers. The positive clues will clarify the doubts and suspicions
of the consumers and build trust. The consistency in quality of the physical settings
will help in managing consumer trust.
3) Facilitating Quality of Service: A good servicescape facilitates employee- customer
participation in the service production, delivery and consumption process. It makes
sure all kinds of support facilities are present in the order and function as desired. The
ambience itself has the capacity to stimulate positive moods and emotions to people
engaged in service process.
4) Changing the Image: The change in physical environment has the potential to
change the image of the service outlet and the service provider. The up-scaling of
facilities and structures contributes for the change of the image of the service
5) Providing Sensory Stimuli: The aesthetics of the service environment has the
potential to stimulate the senses. Such stimulations support the customer in
participation of service production and in quality perceptions.
6) Socializing Employees: Many services need employee-employee co-operation and
coordination in creating quality experiences to the customers. Servicescape facilitates
employee interactions formally and informally and helps in developing social
bondage among them.

Fig: Role of Physical Evidence in Service Marketing
Shaping First Impressions
Managing Trust
Facilitating Quality of Service
Changing the Image
Providing Sensory Stimuli
Socializing Employees
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Guidelines for Developing a Physical Evidence Strategy: The management
should identify the strategic requirement of physical evidence while designing the physical
evidence strategy. Service blue printing provides absolute clarity to identify the areas where
in physical evidence attributes can be incorporated effectively. The following guidelines help
service providers in developing a physical evidence strategy.
1) Identify the Strategic Requirement of Physical Evidence: The evidence strategy
must be linked clearly with the organizations over all goals and vision. They should
state clearly all the statements so that they can be easily understood.
2) Decide the Kind of Physical Evidence Required: Prior to designing the
servicescape, it is necessary to decide what kind of physical evidence is required and
what its role in services marketing is. Service blueprinting should be carried out to
have a absolute clarity over all the facilities.
3) Clarify Roles of Employees and Customers in the Servicescape: The identification
and definition of the roles to be played by employees and customers, machines and
other elements in the servicescape aid in identifying opportunities and deciding who
needs to be consulted in making decisions.
4) Identify and Assess Physical Evidence Opportunities: All service firms need to
look for possibilities of introducing changes and improvements in the forms of
evidences and the roles of the servicescape. What are the perceptions of the customers
and employees on the physical evidence? What are missed opportunities? What are
the defects in the physical evidence strategy? Such questions are to be answered
periodically to identify the opportunities that can be exploited.
5) Update and Modernize Evidence: Some aspects of the service firms should be
prepared to introduce changes as per the requirements of the market. The orientation
to change makes the service firm innovative and capable of influencing the
perceptions of the customers much better than its competitors.
Internal Marketing: Internal marketing refers to identification of employees as market
and saving them as final customers. The concept believes that satisfaction of internal
customers is the prerequisite for satisfying the external customers.
Service employees have to satisfy the needs of the employer as well as customers, which are
often conflicting. Employer demands productivity and the efficiency while customer
demands more attention and service quality. Thus, the employees are caught in between.
Objectives of Internal Marketing: Service companies strive to achieve customer
satisfaction through employee satisfaction. Christian Gronroos suggested 2 internal marketing
objectives. They are:
1) To ensure that the employees are motivated for customer-oriented and service-
oriented performance and thus successfully fulfill the duties as part-time marketers
in their interactive marketing tasks
2) To attract and retain good employees
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The employees of service organizations are broadly categorized into 2 groups:
a) Full-time Marketers: They are specialist functionaries in marketing
b) Part-time Marketers: They are involved in various service activities either
on the line of visibility (or) below the line of visibility
Role of Service Employee: Service employees are required to perform variety of
roles in a service organization. Employees who are involved in the service production
process need to perform the following rules effectively.
1) Product Designer: The basic service package formulated by the service firm serves
as the basic input for the employee when he is in interaction with the customer. If any
unknown situation arises the employee plays the role of product designer and gets the
situation solved.
2) Performer: Service employees as are the performers in the production process. They
have to interact with the uncontrollable elements and extracts quality performance by
influencing the customers to get involved in the process.
3) Technician: Some services require the use of equipments and tools. The service
employee who possesses the skill to operate such equipment is required for such
4) Associate: Service employees and service consumers together produce service. The
expected role of an employee is to with the consumer and produce quality service.
Further, some services may need group involvement. Then it may be necessary for a
service employee to associate with group members for performing the service.
5) Friend: A service employee has to play a role of a friend with consumers as well as
co-employees in a team. Co-employees and customers look for help, co-operation,
guidance and support from others on various issues. Every employee of the
organization should respond to such needs positively.
6) Empathizer: Empathy is the key quality parameter in service. Service consumers feel
comfortable and perceive better quality when contact employees are pathetic. Service
employees should have the patience and inclination to be empathetic towards
7) Assurer: Service employees words and actions should reflect assurance to
customers. As services are intangible, valuable, customers seeks assurance in every
service being delivered.
8) Salesmen: The performance of the employee builds a positive image for the service
company. This situation happens only when the particular service employee is able to
convince the customer which in turn leads to the profit generation for the company.
9) Marketing Intelligence: One of the most prominent sources of marketing
intelligence is contact employees. They are the right personnel to assess the response
of the customers on company policies and quality specifications. The feedback from
contact employees proves to be very valuable.

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Fig: Role of Service Employee in Service Marketing
Strategies for Internal Marketing: Internal marketing activities should ensure right
people taken for the right jobs. The employees need to be trained, supported, rewarded,
empowered and powered with all necessary inputs for quality performance. There are 8
themes that involved various strategies of internal marketing:
1) Staffing: It is one of the critical parts of internal marketing. Service companies should
take up manpower planning and search for right sources of recruitment to get the best people
with not only technical skills but also service inclination. The dimensions are as follows:
1) Manpower Planning: As the name itself shows that, for the successful competence
of any service firm requires the right planning of right size of manpower to fill the
right personnel to occupy the right positions. It also develops supplementary plans for
manpower expansion and contraction, according to demand fluctuations.
2) Recruitment: It is one of the critical dimensions, where the right people are identified
and the service firms should know who the best personnel are and how they are
helpful to run the sources of the service firm.
3) Selection: This is the crucial phase where the personnel required for the positions to
be selected. They are aimed at attracting, retaining and motivating service-minded,
Customer-conscious employees capable of generating customer-perceived quality and
provide competitive advantage. However, the selection process may vary according to
the needs of the service firms.
2) Training: It is an important input for employee performance. The inducted employees
and experienced employees also should be given training as per needs. The training should
focus on building technical, interactive and social skills in employees. The dimensions of this
theme are as follows:
1) Technical Skills: Related to job specification and expected role performance.
Product Designer
Marketing Intelligence
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2) Interactive Skills: Related to provide courteous, caring, responsiveness and
empathetic service. It includes communication, listening, problem-solving and
interpersonal skills.
3) Social Skills: Related to building personal relationships and recognizing and
treating regular customers differently.
3) Organizing: Employees of service organizations need to be organized properly to
achieve better results. The following are the 4 dimensions:
1) Work Assignment: Classification of jobs and assigning them to the personnel is a
critical task, because the experienced personnel handle the job differently when
compared to the freshers.
2) Empowerment: It means giving the employees the desired skills, tools and
authority to serve the customer.
3) Service Culture: It is an important dimension where individuals of different
regions, countries come together and work efficiently. Whatever might be their
belief but they all should be the same in terms of the service organization.
4) Teamwork: Customers often perceive better experiences when employee works
together as teams. Due to the nature of service jobs, which is sometimes
frustrating, demanding (or) challenging, teamwork reduces the stress and strain of
individual employees and helps them to maintain enthusiasm in work.
4) Supporting: Service employees need support systems to be efficient and effective in
their jobs. Frontline employees need institutional support for better performance. The support
may be technical (or) related to internal processes. The internal processes should facilitate the
frontline employees work. The services to the internal customer should be planned and well
1) Technical Support: The quality of the work by the employees get enhances with the
support of technology and equipment.
2) Process Support: Support services are necessary to service employees and customers
for their efficient functioning in service production and consumption.
5) Motivation: Several researchers established positive correlation between employee
motivation and performance. Service employees need to be motivated by way of providing
them enhanced benefits, promoting to high positions and in all treating them in real sense as
internal customers.
1) Promotions: Employees of the organization always look for a higher rank with in the
appropriate span of their career. If they do not find out those opportunities definitely
they get de- motivated and may quit the organization. If they have the promotional
activities, it creates a healthy environment.
2) Treating Employees as Customers: This mainly involves 3 principles:
a) Involving employees in decision making
b) Ensuring customer satisfaction
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c) Bench marking and incorporating the best practices of HR Management
6) Evaluating: Evaluation of performance of employees is vital in internal marketing. It is
necessary to develop systems that measure the performance of the employees.
1) Feedback to Management: Management of the service firms should collect feedback
on employees performance regularly for several purposes. The feedback helps
management identify areas for improvement, defects and deviations from the quality
2) Feedback to Employees: In service firms, direct supervision may not be effective in
assessing the performance, but they have to provide the support systems that can
provide time to time feedback to the employees, so that they can enhance their
3) Measuring Performance: Service firms need to develop an acceptable methodology
for measuring the performance of employees; the measures should help employees
know their level of performance so that they can plan for further improvement. The
performance measures help the management to recognize the merit, to identify
training needs and to develop plans for motivating employees.
7) Rewarding: One of the prime concerns of any employee is the reward that he (or) she
gets for the service rendered to the organization. The following are the 3 dimensions in this
theme are as follows:
1) Competitive Compensation: Compensation is an important dimension in
management of human resources. Service employees need to be provided more than
the competitors offer to motivate and retain. It is also necessary to recognize excellent
performers and pay them for their excellence.
2) Extended Benefits: The benefits include employee welfare measures with the
organization, employee family welfare measures, employee children welfare,
functions and social interaction. Managements can be innovative in providing
extended benefits.
3) Payment for Excellence: A rewarding system, to be effective, should be capable of
identifying the best performers and rewarding them to level for their excellence. The
measures adopted to identify the performers are often subjected to severe criticism by
employees. If the system is not properly received by employees, it may prove harmful
to the organization.
8) Retaining: Hiring the right people is the beginning of a human resource policy.
Retaining them is the real essence of the policy. When experienced and efficient personnel
move out of the service organization, the reputation image and performance of the company
suffer. Service companies have to develop the following strategies to retain employees.
1) Inclusion in the Company Vision: One of the key elements of the retention strategy
would be the inclusion of employees in the Companys Vision, when the
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employees are made part of the companys vision, they share not only the present
benefits but also the benefits to be generated in future.
2) Retaining the Best Employees: Employee retention is one of the benchmark
performances of a service firm. Not all employees need to be retained. Only the
performers need to be retained. Poor performers should be sent out of the organization

Fig: Internal Marketing Strategies and their Dimensions
a) Manpower Planning
b) Recruitment
c) Selection
a) Technical Skills
b) Social Skills
c) Interactive Skills
a) Work Assignment
b) Empowerment
c) Service culture
d) Team work
Technical Support
Process Support
Treating employee as customers
Feedback to management
Feedback to employees
Measuring Performance
Competitive Compensation
Extended Benefits
Payment for Excellence
Inclusion in the Company Vision
Retaining the Best Employees

Involving Employees in
the service process
interaction through
customer orientation
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Type of Questions to be asked from Unit-4:
Short Answers:
1) Definition of Service Distribution
2) Types of Service Transactions
3) Definition of Service Encounter
4) Factors affecting the selection of Service Location
5) Franchising
6) Agents/Brokers
7) Electronic Channels
8) Definition of Physical Evidence
9) Definition of Service Scape
10) Dimensions of Service Scape
11) Types of Service Scape
12) Definition of Internal Marketing
13) Objectives of Internal Marketing
Long Answers:
1) Franchising, its benefits and challenges
2) Agents/Brokers, its benefits and challenges
3) Electronic Channels, its benefits and challenges
4) Characters involved in channels of distribution
5) Role of Physical Evidence in Service Marketing
6) Effective Guidelines for designing physical evidence
7) Role of Service Employee in Services Marketing
8) Strategies (or) Components (or) Various themes of Internal Marketing and their

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UNIT-5: External Marketing: Word of Mouth Communication; Interactive
Marketing: Management of Moments of Truth- Service Deficiencies-
Consumer Grievance Recovery Strategies
External Marketing: It is the interaction of the service firm with the target market.
Unless and until a service firm comes with a proposal, there is no response from the market,
either positive (or) negative. External marketing includes all such communication campaigns
by the service provider which inform, educate, persuade, train and influence the customers to
purchase and participate in service process effectively. As service customers need to perform
certain roles in service production, external marketing assumes greater significance.
External Communication Mix (or) Integrated Marketing Communication
(IMC): External marketing in services is popularly known as promotion in traditional
marketing. To continue the traditional identity, promotion was included as one if the
components of services marketing mix. Promotion refers to communication campaign of the
organization towards external customers to achieve organizational objectives. The 5
important tools used for marketing communications are as follows:
1) Advertising: It is non-personal mass communication by an identified sponsor.
Advertising is a cost-effective and powerful means to reach the masses. The cost per
unit of exposure is the lowest in advertising, when compared to other promotional
approaches. It has the capacity to attract the market. Informative, educative and
persuasive objectives can be achieved through advertising.
2) Personal Selling: If organizations establish communication channels through their
sales force with the target market, it is called the personal selling. It is face-to-face
communication. Feedback can be spontaneous and customers can clarify doubts on
the spot. However, this approach has a limited application as it is very costly as well
as difficult to reach the mass market. For example, LIC follows personal selling
3) Sales Promotion: It includes technique that stimulates demand in a market during a
short period and has measured responses. Sales promotion can be implemented
through other components of communication mix. Discounts, gifts, coupons,
premiums, exhibitions and trade shows are some of the techniques of sales promotion.
4) Publicity and Public Relations: publicity is a communication campaign through a
third party. A business organizations identity and direct payment to the sources are
absent in publicity. Public relations are a deliberate attempt by the various
organizations to establish relationships with various people, who are capable of
influencing directly (or) indirectly business proposals.
5) Direct Marketing: when intermediaries are not involved between producers and
consumers it is called direct marketing. Direct marketing is not a recent concept. It is
one of the alternatives for the producer to consumer. The inclusion of direct marketing
as a component of communication mix is a recent phenomenon.

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Fig: External Marketing Communication (or) IMC
Word of Mouth Communication: It is one of the most powerful communication
channels in service marketing. It has the capability of creating excellent results for the
company. It is not controllable but influential. The impact of word-of-mouth in services is
expected to be very strong on business profits. Marketers should identify the critical sources
of word-of-mouth and influence them. The following are the sources for generating word-of-
mouth communication.
1) Contact Employees: Contact employees of the service generally in informal
discussion with the customers. They provide information by taking into consideration
the anxiety levels of the customer. Customers tend give greater importance to the
informal interaction provided by contact employees.
2) Other Employees in the Service Outlet: Customers may contact employees other
than contact personnel and share their opinions and information with them. When the
waiting time (or) process time is more, customers are likely to indulge in conversation
with other employees.
3) Co-Customers: They are the most important source of communication for customers.
Customers share their anxiety with co-customers as both the parties have the same
problem and seek a similar solution. Many co-customers also show interest in
exchanging information, views and opinions relating to the service that they seek to
4) Experienced Customers: Prospective buyers generally try to locate experienced
customers to get an unbiased assessment of the service.
PR and
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5) Experts: Independent consultants in an identified field may also act as informal
communicators. Customers seek the advice of the experts in high- involvement
6) Opinion Leaders: Opinion leaders in different fields influence the prospects of a
service by spreading their opinions as messages to their followers.
7) General Public Discussions: When people meet, discussions automatically generate.
People during travel time, in clubs, parks, at group events and other places initiate
discussions. When a prospective buyer takes part in the group (or) acts as a spectator
he/she collects information and uses it for assessment before taking a purchase
decision. Word-ofMouth communication takes place in 3 ways.
a) When customers contact any of the sources out of anxiety
b) When any of the source contacts the customer to share its anxiety
c) An indirect contact between the source and the customer

Fig: Sources of Word-of-Mouth Communication
Interactive Marketing: Interactive marketing may be defined as the managerial process
through which a series of interactions between service provider and consumer are organized
to facilitate efficient participation in service production and consumption and creates positive
customer-perceived quality.
Customer Interaction: The identification of customers interaction points/ elements is
important for interactive marketing. The possible interactions would be with physical
settings, tangibles, employees, systems, signage and other facilities at the service outlet.

Contact Employees
Other Employees in the Service
Experienced Customers
Opinion Leaders
General Public Discussions
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Quality- Generating Resources: The core value provided by the service consumers
includes not only the uniqueness of products, but also various factors involved in service
processes such as physical facility, styles, images and the quality of services delivery. There
are 4 quality generating resources in interactive marketing. They are as follows:
a) Customers involved in the process
b) Contact employees
c) Systems and operational processes
d) Physical resources and equipment
Moments of Truth: This concept was promoted by Jan Carlzon, The CEO of
Scandinavian Airlines. After taking charge in 1981, he adopted a customer- focused approach
to turn around the company which was suffering a loss of USD 20 million. He identified
50,000 daily moments of truth with the customer. By focusing on this concept, he increased
the revenues to USD 54 million in just 12 months. The concept is simple and easily
adaptable. The service company should first identify those moments between employees and
customers, customers and service environment and between customers and systems and other
processes that are capable of creating some specific expenses for the customers. The
moments thus identified are to be assigned, by categorizing and designing them into groups,
to each employee involved in the interaction process. The employee concerned is responsible
for managing the assigned moments. Management of moments of truth effectively is possible
only when employees are adequately empowered. It also requires a high level of motivation
as well as morale of the employees. This concept makes every employee creative and
innovative. The employee becomes conspicuous of what is happening in the moments
assigned to him and becomes accountable for such moments for the company.
Moments of truth occurs when a service encounter takes place. The truth is interpreted
by consumers to develop service quality perceptions. Every moment that happens will be
having influence at different degrees on consumers directly (or) indirectly.
Managing Moments of Truth: It can be managed effectively by integrating company
policies, procedures, service environment, employees roles and customer rules.
Determinants of Employee Behaviour at Service Encounter: The determinants
are as follows:
1) Personal Needs: These needs influence the interactive behaviour of employee.
Employees may have set of needs they want to satisfy through the performance of the
job. The other needs that influence the positive behaviour of the employee includes
recognition needs, achievement needs, promotion needs, work satisfaction needs,
learning needs, social needs and relationship needs.
2) Self-Image: It is the image developed by an individual on him/herself. Some
employees like to be recognized as a good person, the sociable person, stylish person
(or) positive person (or) an empathetic person. The perceived status and expected
recognition by the others are part of self-image.
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3) Lifestyle: The way in which an individual leads his/her life is called lifestyle. Every
individual; develops some uniqueness in leading the life through majority of the
lifestyle standards are influenced by group life standards where he/she belongs to. It
reflects opinions, activities and interests of the individual.
4) Ability to Perform: Employees vary in their ability to perform various tasks at the
frontline operations. Knowledge of the job is an important factor influencing the
ability of employee in the interactive process.
5) Willingness to Perform: Willingness to perform is yet another factor that influences
the interactive process. The employees may have ability to perform but may not have
interest to perform. There are several reasons to develop willingness to serve and also
to develop unwillingness to serve. The willingness contributes for positive and
efficient performance of the employee and the unwillingness contributes for low (or)
sometimes negative performance.
6) Situational Pressures: The pressures like excessive demand, extended hours of work,
observation by superiors, pressure from family side, urgencies etc. do not allow
employee to be cool and perfect in performing the job. Situational pressures may not
be a regular phenomenon, but whenever employee undergoes such pressure, his/her
interactive behaviour is affected.
7) Mood: Mood is the psychological state of mind. Individuals may have positive (or)
negative mood. Mood influences the perception of the employee. Employee with
positive mood tries to observe the positives in the environment and in the interactive
persons. Negative mood makes an individual look at negatives in the environment and
in the interactive persons. There is another position which is called no mood that
helps an individual indifferent and uninterested in handling any job.
8) Health: The condition of health of an employee has a certain impact on interactive
behaviour. The healthy person may feel comfortable in handling different situations
when compared to the unhealthy person. Therefore, physical and mental fitness is an
important dimension in the interactive process.
Determinants of Customer Behaviour during a Service Encounter: The
determinants are as follows:
1) Personal Needs: Consumers seek to satisfy a set of needs from a service provider.
The needs may be the services that are identified as requirement for the self and the
family, shopping needs such as knowing the choices available, particularly, new
services, status needs, social needs, entertainment needs etc. The group of needs that
satisfy the consumer wants to be called the need set.
2) Self-Image: As like the employees, the consumers interactive behaviour also are
influenced by the perception of their self-image. The traditional, the variety seeker,
the stylish, the innovator, the dependent, the insufficient, the weak in technical
knowledge, the indecisive and the risk taker are some of the self-images the individual
develop. Such self-images may have positive (or) negative impact at the time of
service encounter.
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3) Lifestyle: Consumer of different lifestyles display different behaviour patterns in
interacting with customers.
4) Ability to Participate: consumers often feel deficient in their participative abilities in
their participative abilities at service encounter. The reasons may be lack of sufficient,
reliable and timely information lack of adequate knowledge on technical factors, lack
of time for shopping, poor communication skills etc. Ability to participate varies from
customer to customer
5) Situational Pressures: The pressures like the time pressure, overcrowding of the
customers in the service outlet, fatigue (or) tiresomeness, pressure from children etc.
Create discomfort to the consumer to participate in the service encounter.
6) Mood: Similar to employee, the mood of the consumer influences significantly the
interactive behaviour. Consumers with positive, negative and no mood behave
7) Previous Experience: The experience that the consumers had at the earlier encounter
influences the development of service expectations.
8) Word-of-Mouth: The information received by the consumers relating to the company
from friends, relatives family members and others who are not related to company is
called word-of-mouth communication.
9) Health: Soundness in health and physical fitness of the consumer play an important
role at service encounter. The healthy person needs more and more interactions but it
is quite different when compared to the unhealthy person.
Employee Customer

Fig: Moments of Truth

Personal Needs
Ability to Participate
Willingness to Perform
Situational Pressures
Personal Needs
Ability to Participate
Willingness to Participate
Situational Pressures
Previous Experience

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Service Deficiencies (or) Service Failures: It is most commonly defined as a
mistake, problem (or) error that occurs in delivery of the service. Service failures occur due
to distinctive characteristics of services. The more interms the failure, the more is the
customer-perceived loss. The severity of a service failure influences consumer trust and may
lead to negative word of mouth, which is dangerous to service companies.
Reasons for Service Failures: The following are the reasons for the service failures.
1) Due to Bad Attitude
2) Not willing to seek a problem
3) Not giving full-product explanations
4) Not willing to admit the mistakes
5) Not keeping upto date
6) Broken promises
Service Recovery: It is the process by which an organization attempts to rectify a failure
in the service delivery process. The ability of a company in resolving consumer problems
effectively has a very strong impact on consumer satisfaction and loyalty.
According to C. Gronroos defined service recovery as those activities in which a company
engages to address a customer complaint regarding a perceived service failure.
Benefits of Service Recovery: The following are the benefits of service recovery:
Service recovery increases customer satisfaction
1) It increases customer loyalty
2) It promotes positive word of mouth
3) It provides information that can be used to improve service quality
4) It helps in taking preventive actions
5) It reduces the cost of failure
6) It improves employee satisfaction and promotes healthy internal competition
7) It enhances companys corporate image
8) It provides an opportunity to differentiate the service by providing uniqueness in
9) It promotes good service culture in the organization
10) It reduces employee turnover
11) It enhances employee morale
12) It propagates value system and ethical behaviour of the organization.
Successful companies convert service failures into positive outcomes by resolving them
effectively. If companies in the recovery process, they may have detrimental outcomes such
as customer dissatisfaction and loss of customers.

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Consumer Grievance Recovery Strategies: Service recovery planning ought to be
based on research- based knowledge in order to avoid the harmful impact of the service
failure. Service recovery should be part of a service firms quality management strategy. The
objective of service recovery should be maintaining the business relationship with the
Recovery Strategies: Service recovery strategies involve both what is done and how it is
done and both influence customer perceptions of the service recovery. A major challenge to
achieve the higher levels of customer retention is the service firms recovery strategy when a
customer encounters problems. To turn a dissatisfied customer into a loyal one, choosing the
most suitable service recovery option should be considered a critical task for specific
incidents. The following strategies are capable of yielding good results.

Fig: Consumer Grievance Recovery Strategies
1) Acknowledge: It is the situation where a mistake (or) failure that happened, instead of
hiding the mistake in front of the customer but simply admitting that he has
committed the mistake.
2) Apologize: If there exists a situation, where the employee is not in a state of
identifying the problem, then this recovery strategy, apologize strategy must be used.
3) Explain Reasons: Consumers must be appraised of the reasons for the service failure.
This explanation makes the consumers understand the problems rationally and
respond to the recovery process positively. The understanding of the factors
contributed for the failure helps the consumers participative effectively in the
recovery process.
Explain Reasons
Respond Quickly
Do it Right Again
Do it more
Compensate Value
Follow Up
Consumer Grievance
Service Recovery
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4) Empathize: There exist some situations which makes the customer hurt (or) feel
dissatisfied. This recovery strategy is used.
5) Respond Quickly: The longer the time taken to deliver the service makes the
customer feel agitated (or) frustrated, the following strategy will be used.
6) Do it Right Again: In the first instance, the service might be delivered to the
customer. If the same problem arises again, this strategy will be used.
7) Compensate Value: There may exists a situation where the customer comes to the
service delivery for the second time which leads to the situation of grievance
occurrence, then the employee, then the employee (or) the service provider, simply
compensates the customer(or) replaces that product(or) risk.
8) Follow Up: After the recovery of the service failure, the service provider mustnt
relax and should follow up the customer and ask whether he felt satisfied with the
service delivery (or) not.
Effective Service Recovery: Service organizations are required to display their
commitment in the service recovery. They should formulate clear guidelines and effective
service recovery procedures. The following practices (or) measures are important for
effective service recovery.
1) Proactiveness in Service Recovery: Proactive recovery refers to the company
initiative to rectify the failure without waiting for the customer. Reactive recovery
refers to the company action only against the customer complaint.
2) Advance Planning for Recovery Procedures: It is necessary to plan in the advance
the recovery process. The service marketers should expect the possibilities of the
occurrence of service failures (or) deficiencies and develop contingency plans
accordingly. It is good to identify the common service problems and develop set
solutions in advance.
3) Employee Empowerment: Services are produced in buyer-employee interactions. If
anything goes wrong, the immediate person to respond is the contact employee.
Therefore, the contact employees should be empowered to use their judgment and
interactive skills to develop solutions that will satisfy the consumer. Employees need
to be given adequate authority to make the decisions on the spot. If the employees are
to look for the decisions from the superior, the recovery process gets delayed and
consumer gets frustrated. Therefore, employee empowerment is the key for successful
resolution of customer grievance.
4) Developing Recovery Skills: The interactive behaviour of the employee should be
different from that of normal transactions. The contact employee has to handle
customers who have some amount of dissatisfaction (or) are frustrated and angry. The
employee should be selective in choosing words in displaying feeling sand gestures in
interactive communication. He/she should be capable of communicating his/her
concerns to the customer problem and assurance can be handled successfully. For this
purpose, employees need to be given appropriate training.
5) Employee Training: Service employees should be given training to handle customers
with grievances and to make the appropriate recovery decision. In the service
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recovery training there are atleast 3 areas that need to be specifically addressed. They
are as follows:
a) Information Processing: The employees shall be given training to identify
the information sources and the ways to which they can access the system
independently and without delay. Information support is essential for quality
decision making.
b) Emotional Response: Consumers emotional response to service failures is
often highly correlated with overall satisfaction judgment of the service
encounter. The service employees shall be given special training to handle the
emotionally charged customers.
c) Instilling Customer Confidence: This is the key area in which the employees
are given special training where the employees exposed to different situations
where they are potent enough to handle pressures and situations

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Type of Questions to be asked from Unit-5:
Short Answers:
1) Definition of External Marketing
2) External Communication Mix (or) External Marketing Mix
3) Advertising
4) Sales Promotion
5) Personal Selling
6) Direct Marketing
7) Publicity/ PR Relations
8) Objectives of External Marketing
9) Word-of-Mouth Communication
10) Definition of Interactive Marketing
11) Managing Moments of Truth
12) Service Deficiency
13) Service Recovery
14) Benefits of Service Recovery
Long Answers:
1) Forms of External Marketing (or) External Communication Mix (or) External
Marketing Mix (or) Integrated Marketing Communication (IMC)
2) Word-of-Mouth Communication and sources of word-of-mouth communication
3) Management of Moments of Truth
4) Definition of Service Recovery and its benefits
5) Consumer Grievance Recovery Strategies
6) Effective Service Recovery

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Old Question Papers
1. Answer any 5 of the following questions
a) Augmented Product
b) Physical Evidence
c) Interactive Marketing
d) Discriminatory Pricing
e) Customer Delight
f) Perception
g) Advertising of Services
h) Heterogeneity
a) What are the key factors which have contributed to the growth and importance of
services sector in India?
b) Choose a service sector you are familiar with and show how each of the 7 elements
(7Ps) of integrated management policies?
1. How is consumer behaviour in services buying different from consumer behaviour in
purchase of goods? Explain.
2. What is service positioning? Discuss how service quality can be used for positioning
of services?
a) What is a service gap? State different types of service gaps and also suggest suitable
measures to overcome them?
b) Describe non-monetary costs involved in service pricing and various types of pricing
strategies used in services?
a) How are services delivered through intermediaries?
b) Discuss general importance of customers in the successful delivery of service using
your own service?
a) What is service encounter? Explain its significance in service delivery?
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b) As a consumer of services what kind of protection do you need and explain the
redressal mechanism available for consumer protection?
a) Answer any 5 of the following
a) Classification of services
b) Physical Evidence
c) Relationship Marketing
d) Internal Marketing
e) The Services Marketing Mix
f) People Based Service
g) Causes of Producing the Service
h) Interactive Marketing
a) Explain major trends of any 3 major services that exist in India with relevant
b) Explain the reasons for growth of Services sector in India?
a) What are the factors influencing consumer behaviour with regard to marketing of any
2 services?
b) What are the different techniques of forecasting demands for service?
a) What are the factors influencing pricing of services?
b) How do you access an organizations service strategy engaged in tourism and travel by
using GAP model? Explain.
a) Explain various strategies for delivering service strategy?
b) Explain various components of internal marketing in programs?
a) What are the various strategies for the management of Moments of Truth?
b) Explain various recovery service strategies?
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1. Answer any 5 of the following questions
a) Characteristics of Services
b) Augmented Marketing Mix
c) Relationship Marketing
d) Service Excellence
e) Internal Marketing
f) Service Deficiency
g) Word-of-Mouth Communication
h) GAP Model of Service Quality
a) Explain the importance of service sector in Indian Economy?
b) Do you think classification of services can help developing the marketing strategy
better? How?
a) Explain the buying decision process and how consumers evaluate services?
b) How do you segment the market of services? Explain.
a) Explain various issues relating to service quality management?
b) Explain various service pricing methods?
a) Explain various elements of internal marketing?
b) Explain the strategic role of Physical Evidence?
a) Explain various elements of external marketing?
b) Explain various service deficiencies? What are the measures you suggest to overcome
these deficiencies?