CH.

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INTRODUCTION
TO SERVICES
“Any act or performance that one party can offer to another and that is
essentially intangible and does not result into ownership of anything. Its
production may or may not be tied to a physical product.” – Dr. Philip Kotler

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 INTRODUCTION TO SERVICES
Topics to be covered:

Topic 1: Definition of Services

Topic 2: Unique Characteristics of Services along with the Implications & Strategies

Topic 3: Factors responsible for the Growth of Service Sector

Topic 4: Classification of Services

Topic 5: Challenges Confronted by Service Sector

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Topic 1: Definition of Services

“Any act or performance that one party can offer to another and that is essentially
intangible and does not result into ownership of anything. Its production may or may not be
tied to a physical product.” – Dr. Philip Kotler

“An act or performance offered by one party to another. Although the process may be tied to
a physical product, the performance is transitory and often tangible in nature and does not
normally result in ownership of any factors of production” – Valarie and Ziethaml

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Topic 2: Unique Characteristics of Services along with its

Implications and Strategies
Major Characteristics of Services are as follows:

1. Intangibility
2. Inseparability / Simultaneous Production & Consumption
3. Variability / Heterogeneity
4. Perishabilty

Let us see all of these in details.

INTANGIBILITY
 Services are mainly intangible in nature as services are mainly acts, deeds or
performances rather than objects.
 Intangibility of services means they can’t be seen, touched, felt or tasted in the same
manner as we can sense physical goods.
 E.g. One hour lecture at College, Hair Setting, Health care services, Consulting
Services etc.
 Sometimes services can be touched or felt if some tangible cues (physical evidences)
are used by service providers.

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Implications / Challenges due to Intangibility

1. Services cannot be inventoried or stored and therefore demand fluctuations are

very difficult to manage. E.g. in Shimla there is very high demands during summers
and very low demands during monsoons and hence hotels owner cannot store their
supply for summers from monsoons.
2. Services cannot be patented like physical goods so a new service concept or idea can
be easily copied by competitors.
3. Services are not such which can be easily displayed or communicated like physical
goods, so it is very difficult for consumers to assess its quality.
4. Pricing of service becomes very difficult as it is difficult to bring out per unit pricing.

Strategies to Overcome the problem of Intangibility

1. Visualization:
The marketer should find ways and means to help the customer visualize service process.
Picture, films, Video clips etc. should be used to convince customers.
2. Association:
The marketer can build a bridge and expect the positive association with the services offer.
The consumer makes the correlation, believes the service delivery promise, and gets some
idea of its character. This makes it easier to build a relationship with customers.
For Example:. Gujarat tourism – Amitabha Bachchan, Visa card – Schine Tendulkar, Videocon
D2h – Abhisek Bachchan, IIPM – Shahrukh Khan, etc…
3. Physical Representation:
The intangibility factor in a service offer forces a marketer to go tangible representations of
service. The tangibles help in making the offer believable. Some of the ways in which this
can be used are:
Uniforms: This has been in use by many service organizations over a long period of
time effectively. They not only convey uniformity, discipline and conformity but also
professionalism.
Colours: This is used in servicescapes like interiors, stationery, glow signs, buildings,
logo, and other corporate communication tools etc. Colour communicates the firm’s
viewpoint uniquely and softly.
Buildings – This has been one of the most effective ways in ‘concretizing’ the
intangibility of service offers. The building conveyed the firm’s permanence
existence and easy accessibility. E.g. Buildings of RBI, NSE, BSE, IIM, RBI, BOB, etc….
Business Cards – This is another tool of tangibilisation. The card, its design, paper
used, graphics, colours, text, etc. goes a long way in communicating the image of a
service firm.
4. Documentation
Service industries use different documentations to prove its features and claims. With the
help of it organization is able to overcome the intangibility factor. E.g. different ISO
certificates, i.e. ISO 9001 and 9002 - standards of service delivery systems and processes,

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ISO 14000 – Environmental protection, etc. For Educational institutions prepare to be
awarded certification from National Association of Accreditation (NAAC), National Board of
Association (NBA), etc. to check quality of education.
5. Facts and figures
Facts, figures and data are always used to emphasis a point and to build credibility.
Retailers, airlines, banks and hotels use their Customer Satisfaction Index (CSI) to
communicate their standing in the market. Service organization can also use rating of some
agencies, awards, Annual reports, profit and loss statements, balance sheets, etc. to convey
tangible achievements.
General Strategies

1. Try to make services more tangible by using tangible cues (physical evidences).
2. Try to make strong brand image through advertising and other promotional tools.
3. Stimulate word-of-mouth communication.
4. Use personal selling rather than non-personal communication mode
5. Use cost accounting to set the price

INSEPERABILITY / SIMULTANEOUS PRODUCTION & CONSUMPTION

 Inseparability can be viewed into two ways: Inseparability of service and a service
provider and secondly, inseparability of production of services and consumption of
it.
 Inseparability of service and a service provider means that we cannot separate out
service provider and the services which are delivered by him. E.g. one cannot
separate the lawyer and his art of fighting a case.
 In case of physical goods, firstly they are produced and then sold but many services
are firstly sold and then produced. E.g. If one want to watch a movie firstly he needs
to buy tickets then only he will be able to see that. Due to this there is inseparability
of production and consumption in services.
 A customer will have to consume the service as and when it is produced. Customers’
presence is must while delivering many services and that is why sometimes
customers also become part of service production process itself. E.g For lecture to be
delivered, presence of both, teacher and student is required or else service will not
be delivered.

Implications / Challenges Due to Inseparability

1. As services are produced and consumed in ‘real time’, mass production of services is
not possible. E.g. A restaurant owner cannot feed thousands of customers in a day.
2. Services cannot be delivered thorough centralisation of outlets. For effective and
efficient delivery of services, a service provider must provide services at customers’
convenient location.
3. Because customers are involved in service delivery process, the quality of service
depends on them too. E.g. a highly qualified teacher cannot teach his/her student
effectively unless the student respond and learn properly.

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 4. Presence or absence of other customers also spoils or improves the service
experience. E.g. if you go to watch a movie and you get disturbed by the undesirable
behaviour of audience then also the movie watching experience gets spoiled.

Strategies for Inseparability

1. Have strong training and development programs both for employees and for
customers.
2. Do marketing at multi site location to reasonably overcome the problem of mass
production
3. Innovate different techniques of indirect interaction
4. Develop user friendly systems and equipments
5. Develop effective service recovery system. E.g. Free Replacement, Free Repair,
Instant Complaint solving etc.
6. Video Conferencing
7. Use of Robotics

VARIABILITY / HETEROGENIETY
 In services, service providers face the problem of variability among the services as
services are produced and co-produced by humans and no two humans are same.
 Variability refers to the point that the same service provided by two different service
providers, are same as well as no two services provided by the same service
provider, is same.
 This is because of the presence of human element in the service consumption and
production.
 Services become variable because no two customers are also same.

Implications / Challenges Due to Variability

1. Service quality depends upon the service employee as well as service consumer.
2. Difficulty in bringing standardization and setting quality parameters because services
differ across time, place, organisation and people.
3. Service quality also depends on many uncontrollable factors too. E.g. If one has gone
to watch a cricket match and rain has stopped play so this uncontrollable factor will
spoil the quality of service.

Strategies to overcome the problem of Variability

1. Training of Internal Customers (employees)

This is one of the most important tools for a service organization to remove heterogeneity
or variability. The variability occurs, due to the difference in the background of employees,
their varying moods, experiences, involvement, orientation and skills. The training should be
given to employees to minimize variability in service delivery. Different types of training:
 Orientation-cum-Induction
 Refresher
 Re-skilling

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  Motivational, leadership, group dynamics, communication skills training, etc.
2. Recruitment and Selection of Internal Customers
A manger could choose to have better quality personnel through quality recruitment and
selection. This would ensure that the internal customers are from the same family
background, level of skills, education background, experience, location, and orientation, etc.
and would thus deliver homogenous services.
3. Training of External Customers
Service is a transaction between the service provider and the customer. It is not enough if
only one of the players in the transaction game is at a high level of competence. To
complete the transaction process, the customers should also be knowledgeable about the
service offer, process, rules and norms. For example: medical surgery, use of online banking,
etc.
4. Automation
The fourth way to improve homogeneity and standardization is to go for large-scale
automation in the service transaction process. Automation will bring consistency in the
service delivery and transactions. For Example: Indian Railways have booking done through
the Internet, and tickets are validated by coupon validating machines etc.
General Strategies to overcome Variability

1. Set quality standards based upon customers’ expectations.

2. Promote training and development
3. Promote research & development
4. Try to use machineries and equipments rather than human efforts wherever feasible
and desirable.

PERISHABILITY
 Perishabilty refers to the fact that services can’t be stored, resold or returned. E.g. A
bad Haircut cannot reverse the Haircutting process back!!!
 E.g. A seat on an Aircraft, Unoccupied seat in hotels, restaurants, bus; an
appointment with lawyer, unattended lecture by a student etc.
 In other words, we can say that unutilised cannot be utilised again in case of many
services.

Implications / Challenges Due to Perishabilty

1. Service can’t be resold or returned

2. Services can’t be saved
3. Capacity of service is fixed

Strategies for Perishabilty

1. Demand Forecasting and creative planning for capacity utilization

2. Devise recovery strategies of services
3. Continuous study of demand patterns

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 4. Develop attractive price options and offers for early-bird customers so that demand
can be fixed at reasonable level

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Topic 3: Factors Affecting Growth of Service Sector

We live in service economy. In India, during pre-independence era and post independence
era, the highest contribution was generated to GDP was by Agricultural Sector then Industry
and Mining and a very small proportion was contributed by services. Today, the scenario has
been reversed. According to the data of World Fact Book in the year of 2012 the scenario is
as follows.

Agriculture,
17.40%

Agriculture

Industry

Services
Services,
56.50%
Industry,
26.10%

Source: https://www.cia.gov/library/publications/the-world-factbook/fields/2012.html, Accessed on

16th September, 2013

 Major Factors Affecting Growth of Service Sector

1. Services dominate the Economy in most nations

The size of service sector is increasing in almost all the countries. Even in emerging
economies, the service output is growing more rapidly and often represents at least half of
the gross domestic product. Evolution to a service-dominated economy likely will take place
over time as per capita income rises.

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 2. Most New jobs are generated by Services

In older times, if anyone talked about getting jobs, their priority and availability was
Manufacturing and Agriculture sector. But in USA, employment has shrinked in
Manufacturing, mining and agriculture. Now, mostly new jobs are given and created by
service sector. These jobs will demand significant amount of training, educational
qualifications and employees who even are highly compensated. Some of the fastest growth
is expected in knowledge based industries like professional services (CA, CS, and
Management Consulting etc.), business services, education, banking & insurance and health
services. If anyone wants to be an entrepreneur, he / she will likely to open its enterprise in
service sector only.

3. Technology as a key driver in the growth of services

With the rapid inventions and innovations in technologies, it has led to tremendous growth
in service sector.

 OTHER FACTORS

1. Liberalisation of service sector

Certain service sectors in India have been liberalised and made open to private sectors. This
has led to enhanced competition leading to high degree of entrepreneurship in these areas.
Some highly liberalised sectors like banking, insurance, telecommunication have attracted
many FDIs and created more employment opportunities and galvanised other service sector
as well.

2. Foreign Direct Investments

Liberalisation has led to increased foreign direct investment in the service sector. This has
led to increased investment by MNCs in India and has increased the competition with
domestic players. Hence domestic firms have also tried to meet the growing customer
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aspirations and resulted in superior services. FDIs have also led to higher exports in the
service sector.

3. High disposable income

The income of individual person has increased significantly. Their income spending power
has increased tremendously. And hence, now they have more amount of money to spend.
With more income with them they spend more and more amount of money on services to
make their life convenient. E.g. Mobile phone has made our life the most convenient as the
same way internet too has made life very easy going.

4. Convenience Factors

As incomes of people rise, convenience amount needed to them rises. E.g. Nowadays
laundry, housekeeping, baby sitting are outsourced which were earlier used to be
performed by individual itself.

5. Dual Household Income

With both spouse working, the spending power has increased.

6. New Technological Devices

New advancements in technology and their commercial applications have led to the
emergence of new services such as gaming, entertainment and cable network. Nowadays
with mobile phone one can see a movie, book a reservation tickets, transfer the money
from one account to another, can play games, can stay socially active and much more. This
is just due to invention of new technologies.
7. Affluence

The increase in per capital income (from Rupees 238.8 in 1950 to Rupees 11,934.5 in 1998)
is an indicator of the increase in general affluence level. This increase in affluence has given
rise to services like pest-control, personal security, interior designer, etc.
8. Leisure Time

People do get some time to travel and holiday and therefore there is a need for travel
agencies, resorts, hotels, and entertainment. There are others who would like to utilize this
time to improve their career prospects and therefore there is a need for adult education/
distance learning/ part-time courses.
9. Life Expect
The health programmes have significantly contributed to an increase in life expectancy,
giving rise to services like old age homes, nursing homes, health care, etc.
10. Working Women / Female
As more and more women have started working, the need for day care for children has
increased, and so is the case with packed food and home delivery.

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 11. Product Complexity
A large number of products are now being purchased in households which can be serviced
only by specialized persons like water purifiers, microwave ovens, home computers, etc.,
giving rise to the need for services like ‘after sales service’ agents for durables, maintenance
services providers, etc.
12. Life’s Complexity
As the daily routine gets busier, individuals find it difficult to manage things on their own.
This leads to obvious need for tax consultants/ legal advisors, and property advisors, etc…
13. Resource Scarcity and Ecology
As the natural resources re depleting and need for conservation is increasing, we have seen
the coming up of service providers like pollution control agencies, car pools, water
management etc.
14. New Products
The development in information technology has given rise to services like PCOs, pager
services providers, web shopper, etc. e.g. online shopping, internet banking, tele-banking,
etc.
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Topic 4: Classification of Services

Classification of any offer is necessary for the marketer to understand it in totality, which in
turn would help him design his marketing mixes. Classification of services gives decision-
makers great insight into management and customer interfaces.
Services can be classified in the following ways:
 Based on End User of the services
 Based on degree of tangibility prevalent in the service.
 Based on People Based service
 Based on degree of Expertise required for delivering the services.
 Based on orientation towards profit of service
 Based on the location of service delivery points.
 Based on regulation imposed on service
1. END-USER
Service industry can be classified by the type of end-users and they are of three types:
a. Individual Consumer as an end-user
Services are consumed by individuals. Some examples are leisure, hairdressing, personal
finance, package holiday tour etc. The implication for the marketer is: mass market and
mass communication. If there is a possibility of branding then there is tremendous scope
of enlarging the geographical reach of the market. E.g. tailoring, saloon, education, etc.

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b. Business to Business end-users:
Services are consumed by business organization. This implies that one business or firm
will buy services from another business or another company. This has condition of
industrial marketing –abhorring mass media, more personal selling, and high
involvement, with decision Making Units. E.g. Distribution, wholesaling
c. Industrial end-users:
This end user of services is plant, machinery, equipments, tools and factories. They
might require very unique services that are equally technical. E.g. Maintenance and
repairing service.

2. DEGREE OF TANGIBILITY – THE PRODUCT-SERVICE CONTINUUM

The second way to classify services is by the degree of tangibility that they have in their
offer. Services are inherently intangible which implies that a consumer cannot touch, feel or
see a service product. In the product service continuum services can be classified in three
ways:
 Highly Tangible Services:
They have the degree of tangibility. This is mainly because the services are delivered with
certain tangible goods. The service product can only exist if such tangible goods are
available. E.g.: Car rentals - It is service based entirely on cars, home rental, bus
transportation, etc…
 Service Linked to tangible goods
Here the service is linked to the goods- independent or as part of the marketer’s offer. If it
is the latter, the service becomes the part of the total product concept. For example:
repairing service of home appliances. A whole range of services exist in the housing
sector- especially post construction like repair and maintenance.
 Highly intangible services:
In this classification under the continuum model, service is highly intangible. The services
cannot be touched, felt or seen. E.g.: counseling, consultancy, psychotherapy, a guest
lecture etc.
3. PEOPLE- BASED SERVICES
The third way to classify service is by the type of contact that the service and providers have
with their customers. There are two types of such services:

 High contact- here the service providers have degree of contact with the customers.
These kinds of services are very much people based. There are large number of
providers catering to customers and meet them repeatedly over a long period of time.
Some examples are teaching, counselling, surgery etc.
 Low Contact- But there are also many types of services where there is very low contact
with people. Providers catering interact very less with the customers- its machines that
do the interaction. These kinds of services are equipment based and are very popular in
United States, United Kingdom and in Europe.

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4. ON THE BASES OF EXPERTISE
There can be two types of services under this classification:

 Highly professional services

Under this, the service firm could be classified as highly professional organization. E.g.:-
Technical consultants like Tata Consultancy Services, accountancy firms like Price Water
houses Coopers, or hospitals where doctors are qualified and certified law firms.

 Non – professional
But there are also services which can be categorized as non-professional. These could
include the tailors, barbers, construction project, and utility services like garbage
cleaners from the Municipal Corporation.

5. ORIENTATION TOWARDS PROFIT

The fifth way to classify service is by the degree of orientation towards profit that the
services provider might have. Accordingly, there are two types of service industry:

 Commercial oriented:
These service firms exist to make profits. They are owned both by the government
(Indian Airlines, Ashok Hotel group) as well as by public at large (ICICI Bank, Apollo
Hospitals etc.). Most service organization in the private sector fall under this category.

 Not for profit Organization:

But there are also many service organizations, which are not for profits. E.g.: public
municipal parks, public parks, public libraries, etc. They have the societal concept in
mind while carrying out their service functions.

6. BY THE LOCATION OF POINTS OF SERVICE DELIVERY

Service can also be classified by the places and points where delivery is and is not possible:

 Services only where the customer is located – home repairs, heavy household
appliance repairs like air-conditioners, refrigerators etc.
 Services where the provider is located at the provider’s location – retailing like malls,
movie theatres, surgery and diagnosis in hospitals, college education etc.
 Services that can be delivered at both the locations or midway – French health system
of treating trauma victims in situ near the site of the accident , education in the form of
coaching and tuitions, Christmas carol singing both at the church as well as at home etc.
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Topic 5: Challenges confronted by Service Sector in India
1. Infrastructure

The growth of any segment / sector depends upon the presence of adequate and good
infrastructure. Despite India’s average performance in the manufacturing segment as
compared to China, it looks far better in terms of service Industry, especially in terms of
Software Industry. The support of government in terms of providing and developing
software technology parks is magnificent. But this can function well and meaningful if only if
the roads are proper, transport sector is well developed, power, water & bandwidth facility

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is adequate. Thus the biggest problem in India is to create world class infrastructure for the
growth of services.

2. Technology

Technology has dramatically changed the nature of business. E.g. E-commerce has
opened up an additional channel for sales for many organisations. This has direct
implication on nature of transactions, procurement and delivery process. Also shopping on
internet opens up new options for consumers. Here the challenge is that firms will have to
look for larger volumes of business to make their online business commercially possible.
Also technology can be copied and imitated very fast so this is a challenge to remain
competitive in the long run.

3. Employees

It is a big challenge to fid right kind of people who can create a distinct experience for
consumers. Service sector like retail and IT enabled services which are operating in India
faced the highest challenges. That means that new people should be hired continuously and
they should be well trained. There is also a problem of labour turnover in Indian hospitality
sector and their firms face big challenge in retaining talented workers. The problem behind
this may be the wrong attitude of employees and lack of motivation. Service firms are facing
following problems as far as employees are concerned.

 How to recruit right talent

 How to retain the people
 How to install right competencies in employees

4. Consumers

Consumers are becoming more and more literate and they are investing higher amount of
money behind education. This has resulted into high consumer awareness and higher
standard of living as and when competition increases, consumers are willing to switch over
their existing brands to get maximum value for their money and hence sustaining growth
and capturing big market share is the challenge for the service firms.

5. Suppliers

Suppliers are becoming more dynamic and have given rise to new kind of industry
relationship in service sector. But in years to come, service providers will have to answer
following questions:

 How will the supplier impact my future growth?

 Should I go with multiple suppliers or should I deal few suppliers?

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