Service: Definition, Concept, Characteristics, Importance and Classification

Services can be defined as following:

‘A service is any activity or benefit that one party can offer to another, which is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.’ – Kotler, Armstrong, Saunders and Wong

‘Services are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing about a desired change in – or on behalf of – the recipient of the service.’ – Christopher Lovelock

A service business is one in which the perceived value of the offering to the buyer is determined largely by the services provided to him than the products offered. This includes the business of all intangible services delivered to the customer. Some of the tangible services where both the goods and services are provided to the customer, like restaurants and supermarkets, also come under the purview of the services marketing.

Service: Definitions, Concept, Characteristics, Importance, Classification and the Customer Service Gap Model

Service – Meaning and Definitions

Marketing, on the whole, can be divided into goods marketing and services marketing. Although according to Philip Kotler, besides goods and services, a marketer also markets eight other entities like Events, Experiences, Persons, Places, Properties, Organizations, Information and Ideas; yet it is generally clubbed together and is widely known as goods and services. In marketing, services marketing essentially deals with the products, which are intangible in nature. Services are created through a direct interaction between the service provider and the customers.

ADVERTISEMENTS:

Goods are physical, tangible articles, while Services are nonphysical and intangible in nature and can also satisfy a need like goods. Financial services – Banking, Telecom, DTH, Courier, Hotel, Airline, Multiplex, Train, Doctors, Lawyers, Healthcare and Management Consultancy are all examples of services.

With the advancement in the economy, a country moves from a goods producing country to a service oriented country. For example, USA, which is one of the most developed countries in the world, is having a 21% – 79% mix of goods and services.

Services can be defined as following:

ADVERTISEMENTS:

The spectrum of services range between the degree of intangibility and tangibility of the offerings delivered to the user. Some offerings are clearly services like enjoyment of movie, art exhibition or an athletic event.

ADVERTISEMENTS:

Some of the service offerings also have the product component like the buying of contact lenses also requires proper eye examination and evaluation of the vision parameters are the offerings of the service in the process.

Services are all or mostly tangible. In some cases the physical evidence will be there of transaction that took place but the work done to execute the transaction will be tangible. The example may be cited of the service rendered by the Attorney in preparing the will document of his client as the tangibility may be seen as the physical evidence in preparing the document while the brain work done to prepare the same may be intangible.

The inseparability of the buyer and service provider may be seen on many occasions while designing and delivery of the services. This is called as simultaneity. The services cannot be stored, warehoused or otherwise kept on hand for sometime when the demand is high. The services are also time-sensitive as they cannot be back ordered. The services are largely need-based and called for immediate attention or delivery to the customer.

The doctor’s services are required when there are patients. Some of the services are provided to cover the risk irrespective of its immediate need. The example may be cited of an insurance company who serves the client till he or his life insurance is alive without looking for instant or short-run benefits. Since a large number of services are highly intangible, it is difficult to measure and control the quality and they cannot be standardized like products.

This makes it difficult for the customer to evaluate the quality and for employers to measure and control the quality. The quality of the services can be assessed largely on the behavioral dimensions of the customers and service providers. In view of the difficulty of quality assessment of the services it is always risky for the customer to purchase the same.

The services are largely delivered as per the customer’s prescription unlike products which are often standardized. The interior consultants, tailors, restaurants and the like render the customized services. However, there are some services that have standardized deliveries like ATM services of banks. Many services are process rather than discrete transactions and the talents and attitudes of the person or team providing the service can dramatically alter the outcome and the level of customer delight.

The buyer-provider relationship in service marketing as the knowledge, skill, communication and customer-friendly attitude of buyer and provider determine the quality of service and the degree of customer satisfaction.

Service – Concept of Services

Services are the major component and somehow influenced by the service motives of any business. The service are much needful to develop and make safeguards of customers interest. Moreover, services are complementary and decisional part of marketing.

According to Philip Kotler:

ADVERTISEMENTS:

“A service is any activity or benefit that are being an offer to another that is essentially intangible and does not result in the ownership of anything.”

The characteristics of services are briefly stated here:

(i) It is a core area or an activity or a task of business,

(ii) It is a major component and denotes a parallel size of business,

ADVERTISEMENTS:

(iii) Services may be collateral activity and have a supplementary service to support the core area of business,

(iv) A service is an act or performance offered by one party to another,

(v) It is an ideology or concept or an approach based on customers’ orientation,

(vi) A service is an economic activity that creates values and provides benefits for customers,

ADVERTISEMENTS:

(vii) The service process may be tied to a physical product and the performance is transitory,

(viii) Services are based on the concepts of rational behaviour and the norms of ethical values,

(ix) Services may be treated as the philosophical part in the form of art and a systematical part in the form of ‘science’,

(x) It is prominent task to serve at the input as well as output stages in any value creation process,

(xi) It serves as dynamic platform to accommodate professional attitudes,

(xii) It is provided by a person who processes a particular skills, quality, competencies and learning aspects,

ADVERTISEMENTS:

(xiii) Services having the continuous process within their performance,

(xiv) Services may be characterised as intangibleness, inseparability perishability, heterogeneity in nature and does not normally result in ownership of any resource,

(xv) Service are based on different environmental factors.

Service – 6 Distinctive Characteristics

Service, marketing academics and practitioners argued that services required special treatment as a result of their distinctive characteristic; intangibility, inseparability, heterogeneity and perishability. These characteristics were outlined during the “crawling out” stage.

i. Intangibility refers to the fact that a large component of many service offers is immaterial or intangible and cannot be presented in a concrete manner to consumers prior to purchase. For example, a customer cannot touch the aerobics class prior to attending the class neither can assess the quality without attending the class.

ii. Inseparability refers to the notion that, in much service operation the production and consumption cannot be separated, that is, a service is to great extent consumed at the same time as it is produced. For example, a hairdresser may prepare in advance to carry out the service, but most of the hairdressing service is produced simultaneously as the customer consumes the service.

ADVERTISEMENTS:

iii. Heterogeneity is closely related inseparability as it is very difficult to apply quality standards to services to ensure an identical service output, when so much depends on the cooperation and participation of individual customers.

iv. Perishability refers to the fact that unlike physical goods, services cannot be stored. An appointment with the dentist, in contrast, at a given time on a given day, cannot be stored and offered again to the customer.

A detailed insight of the distinctive characteristics of services is provided below:

1. Intangibility

2. Inseparability

3. Variability

ADVERTISEMENTS:

4. Perishability

5. Simultaneity

6. Heterogeneity

7. Lack of ownership

Characteristic # 1. Intangibility:

Services cannot generally be seen, tasted, felt, smelt, heard before being bought. The potential customer’s is unable to perceive the service before the service delivery. Service is totally intangible and cannot be seen what is done.

Intangibility presents problems in the sense that the customer may experience difficulty in knowing and understanding what is on offer before and even after in receipt of the service. The challenge for a service provider is to make the service tangible which implies resort to make some form of measurement and to provide-tangible evidence, e.g., computerised representation of hairstyle or a university prospectus.

ADVERTISEMENTS:

Service cannot be inventoried and therefore fluctuations in demand are often difficult to manage, e.g., resort owners have same number of rooms to sell year around but demand varies during peak and non- peak seasons. Services cannot be easily patented and new service concepts can therefore be easily copied by customers, Services cannot be readily displayed or easily communicated to customers, so quality may be difficult for consumers to assess.

Decisions about what to include in advertising and other promotional campaigns are challenging as is pricing. The actual cost is difficult to be determined and so price quality relationship is complex. Levitt has suggested that there are no so such things as service industries, only industries where the service components are relatively greater than those in other industries.

Similarly, Shostack has argued that there are few industries or activities that are purely goods based or a purely service based, and presents a continuum from tangible dominant goods to intangible dominant services. Kotler identifies four distinct categories of offerings, ranging from purely tangible goods, to tangible goods with accompanying services, to a major service with some accompanying goods, to pure services.

Characteristic # 2. Inseparability:

There is marked difference between physical goods and services in terms of the sequence of production and consumption.

Sequence of Production and Consumption:

a. Physical Goods

b. Services

c. Production

d. Sale

e. Storage

f. Produced and consumed at the same time

g. Sale

h. Consumption

Goods are first produced stored finally sold and consumed, whereas services are first sold then produced and consumed simultaneously. For various services at production site customers presence is must, e.g., counselling, rail travel, hotels, etc. Some services are produced and delivered in the absence of customers, e.g., carpet cleaning, plumbing, etc. Whatever be the nature and extent of contact the potential for inseparability of production and consumption remains.

The involvement of customers in production and delivery of services implies service provider must take care in what is being produced and delivered. Proper selection and training of customer contact personnel are necessary to ensure the delivery of quality of services.

Production and consumption are said to be separable, but for a service production and consumption are said to be inseparable where both must meet at a time and place which is mutually convenient in order that the producer can directly pass on service benefits, e.g., the service of the ATM machine can be realised if producer and consumer interact.

Inseparability has number of marketing implications for services. First, goods are generally first produced then offered for sale and finally sold and consumed, inseparability causes this process to be modified for services. Services are sold first then produced and consumed while the method of goods produced is to a large extent of little importance to the consumer, production process are critical to the enjoyment of services.

All service encounters have similarities. The “service encounter”, the provision and consumption of a service, is central to service experience and an understanding of service encounters involves an appreciation of a complex set of behaviours on the part of all involved in them.

a. Waiting time – time spent in queues or in-process delays;

b. Personal interaction – between participants, service provider, customers and others present;

c. Expectations and perceptions – of service adequacy and quality.

Characteristic # 3. Variability:

An unavoidable consequence of simultaneous production and consumption is variability in performance of a service. The quality of a service may vary depending upon who provides it as well when and how it is provided, e.g., an airline company provides on time services to and fro, whereas some other airline provides though regular service but not on time. Within a service provider one employee may be courteous and helpful others might be inefficient as well as rude.

Reducing variability involves determining the causes. It may be due to unsuitable personality traits in an employee which is difficult to determine at the selection stage. There may be good sound reasons for variations in performance, e.g., it could be due to poor training and supervision, lack of communication and performance and also lack of general support.

For services variability impacts upon customers in terms not just of outcomes but also of process of production. At the production stage variability pose a much greater threat for services as customers are usually involved in the production process at the same time as they consume it so becomes difficult for the service provider to maintain consistency of quality.

Pre-delivery inspection is not possible for the service providers as services are produced in the presence of the customer without the possibility of intervening quality control. The variability of service output can pose problems for brand building in services compared to tangible goods for the latter it is usually relatively easy to incorporate monitoring and a quality control procedures into production processes in order to ensure that a brand stands for a consistency of output. It’s often difficult to obtain standardisation of output in services.

Characteristic # 4. Perishability:

Services cannot be stormed for later sale or use, e.g., hotel rooms not occupied, airline seats not purchased and college places not filled cannot be reclaimed since services are performances, they cannot be stored. If demand exceeds supply it cannot be met as things cannot be taken out from warehouse. Even if capacity exceeds demands the revenue value of the service is lost.

Fluctuations of demand being one of the characteristics of service organisation pose a great problem when these fluctuations are unpredictable, e.g., increase in the number of patients in any hospital due to a sudden calamity, the hospital beds being the same. So, there should always be strategies to provide a match between demand and supply. Services unlike goods cannot be stored. A producer of cars which is unable to sell all its output in the current period can carry forward stocks to sell it in the subsequent years.

The only significant costs are storage; financing and possibility of loss through obsolesce. In contrast the producer of a service who cannot sell its output cannot move it to the subsequent years other than incurring loss. An airline which offers regular flights at 9.00 p.m. from Delhi to Mumbai has to fly even its few seats are empty. The service offer disappears and spare cannot be stored to meet increased demands.

This characteristics of the perish ability results in greater attention to be paid in the management of demand by evening out peaks and trough and scheduling service production to follow this pattern as far as possible. Pricing and promotion are two of the tools usually adopted to tackle this situation.

This characteristic emphasises that service encounters involves individuals – service providers and consumers. Moreover, service encounters take place again and again, at different times. As a consequence, there are likely to be variations in service provision, by virtue of the participants, the time of the encounter or the circumstances.

Characteristic # 5. Heterogeneity:

To handle a service sector even though standard sectors may be used, e.g., to book in the cab service, to quote for insurance in one’s life, etc., each unit may differ from each other unit. Franchise operations ensure to bring a standardisation but ultimately it is difficult to ensure the same level of output in terms of quality. From customers viewpoint also it is difficult to judge quality without using it.

Capacity levels should be available on cope which surge in demand before service levels falls. Equal attention has to be given in times of low levels of usage to manage the spare service, e.g., different programmes can be adopted to compensate for uneven demand like theatre halls can go for weekend specials, films festivals, dentist – family discounts, etc.

This characteristic emphasises that service encounters involve individuals – service providers and consumers. Moreover, service encounters take place again and again, at different times. As a consequence, there are likely to be variations in service provision, by virtue of the participants, the time of the encounter or the circumstances.

Heterogeneity clearly has wide-ranging implications for the operational side of service provision:

i. Service Personnel – Service delivery and customer satisfaction are highly dependent upon the activities and actions of those members of staff in the “front-line”, who actually perform, and are seen to perform, services. Service personnel must therefore be competent to perform services. They must be made aware of service standards and be able, or enabled, to achieve those standards.

ii. Service Standards – Must be established and made clear, to assist quality control and more effective management of service encounters, in particular evenness and equity of service delivery.

Characteristic # 6. Lack of Ownership:

Lack of ownership is the basic difference between a service industry and a product industry as a customer gets an access for a service after paying for it but not owns it, e.g., hotel rooms, hospitals beds, etc. So, service industry should put a stress on easier payment terms in order to facilitate better growth of service sector. Ownership relates to the notion that the consumers of services do not own them overall, but only have temporary access to them.

Importance of Marketing of Services

Given the intangibility of services, marketing them becomes a particularly challenging and yet extremely important task.

1. A Key Differentiator:

Due to the increasing homogeneity in product offerings, the attendant services provided are emerging as a key differentiator in the mind of the consumers. For Example – In case of two fast food chains serving a similar product (Pizza Hut and Domino’s), more than the product it is the service quality that distinguishes the two brands from each other. Hence, marketers can leverage on the service offering to differentiate themselves from the competition and attract consumers.

2. Importance of Relationships:

Relationships are a key factor when it comes to the marketing of services. Since the product is intangible, a large part of the customers buying decision will depend on the degree to which he trusts the seller. Hence, the need to listen to the needs of the customer and fulfil them through the appropriate service offering and build a long lasting relationship which would lead to repeat sales and positive word of mouth.

3. Customer Retention:

Given today’s highly competitive scenario where multiple providers are vying for a limited pool of customers, retaining customers is even more important than attracting new ones. Since services are usually generated and consumed at the same time, they actually involve the customer in service delivery process by taking into consideration his requirements and feedback. Thus they offer greater scope for customization according to customer requirements thus offering increased satisfaction leading to higher customer retention.

The U.S. economy has evolved into a service economy with services like health care, education and consulting making up a larger part of the overall economy. Marketing such services is an important skill-and a tough one-for businesses to have. Without a tangible product to show and tell customers about, service marketers must be adept at pulling together all the pieces of the marketing mix to create value for their intended consumers.

4. Relationships are Key:

In service marketing, because there is no tangible product, relationships are key. Service marketers must listen to and understand the needs of customers and prospective customers to build loyalty and trust. Ultimately, effective relationships in service marketing will lead to repeat sales and positive word of mouth.

5. Multiple Touchpoints:

Service marketing involves many touchpoints for the consumer. Interactions with multiple people and experiences that are less tangible than when buying an actual product all impact the consumer’s perspective of the purchase process. These touchpoints work together to establish a perception in the consumer’s mind.

6. Services Proliferate:

Consumers have many service options to choose from, and because the product is intangible, the challenge for the service marketer is to somehow make her services stand out from the crowd. Because service marketing is so prolific, marketers must think of ways to communicate the benefits of the service they offer in language that reflects consumer need and value.

7. Feedback Improves Service:

Unlike the marketing process for a tangible product, service marketing actually involves the consumer in the marketing process. He is engaged in the process and contributes to a positive outcome. For this reason, it is important to seek consumer feedback and to use that feedback to improve service marketing effectiveness.

8. Technology Impacts:

Technology is having a major impact on the service economy. You can use technology to streamline service activities and provide do-it-yourself options for consumers. Internet-based services, for instance, allow consumers to participate actively in the service marketing process, often never involving contact with another human being. Having a website is important, because people like to get information about service providers before deciding which one to use.

Classification of Services

There are numerous varieties of services. The numerous varieties of services can be classified into certain categories or types on the basis of certain criteria.

Classification of services into certain categories or types serves certain purposes.

The purposes of classification of services into various categories are:

1. The classification helps to understand the nature of different services.

2. The classification is helpful to understand the attributes of a service product.

3. The classification is helpful to understand the relationship between service organisations and their customers.

4. The classification is helpful to understand the nature of a service demand.

5. The classification is helpful in solving issues connected with planning and designing of services.

The criteria used for the classification of services and the various classifications of services are:

1. Classification Based on the Ultimate Users of Services:

On the basis of the ultimate users of services, services can be classified into two categories.

They are:

(a) Services to final consumers – Services to final consumers are services which are provided to ultimate consumers. Examples of such services are recreation and entertainment services, tourism, hair-dressing and other personal care services, etc.

(b) Services to business firms – Services to business firms refer to services rendered by a service organisation to business firms. Examples of these services are advertising, marketing research, maintenance and repairs, installation of plants and equipments, computer programming, consultancy, legal, accountancy, etc.

2. Classification Based on the Degree of Intangibility of Services:

On the basis of the degree of intangibility, services can be classified into two broad categories.

They are:

(a) Low intangible content services or highly tangible services – Low intangibility content services are those services which have low intangibility content or which have high tangibility content. Examples of these services are fast food services, vending machines, etc.

(b) High intangibility content services or highly intangible services – High intangibility content services refer to services which have high intangibility content or which are highly intangible. Examples of these services are consultancy services, legal services, baby-sitting, etc.

3. Classification Based on Service Options:

On the basis of service options, services can be classified into two categories.

They are:

(a) Primarily people-based services – Primarily people-based services refer to services which are primarily people-based or labour intensive. Examples of these services are restaurant, insurance, medical services, etc.

(b) Primarily equipment – based services – Primarily equipment – based services refer to services which are primarily equipment – based and which involve low contact with people. Examples of these services are vending machines, automatic teller machine services in banks, cinema, etc.

4. Classification Based on Specialisation:

On the basis of the expertise, skill and specialisation of the service providers, services can be classified into two categories.

They are:

(a) Professional services – Professional services refer to services rendered by skilled specialised professionals to business firms and ultimate consumers. Legal services, medical services, consultancy services, accountancy and auditing services, etc. are examples of professional services.

(b) Non-professional services – Non-professional services refer to services provided by nonprofessional persons. Baby-sitting, domestic help, etc. are examples of non-professional services.

5. Classification Based on Profit-Orientation:

On the basis of profit-orientation (i.e., profit motive), services can be classified into two categories.

They are:

(a) Profit-Oriented Services – Profit-oriented services refer to services rendered primarily with profit motive. In other words, they are commercial services designed for profit. Examples of profit-oriented services are banking service, insurance service, hotel, restaurant and catering services, tour operation, airline service, etc.

(b) Non-profit-oriented services – Non-profit-oriented services refer to services rendered without any profit-orientation or profit motive. Examples of such services are educational services by Government, hospital services by Government, services of cultural organisations, services of welfare organisations, services of religious institutions, services of research foundations, etc.

6. Classification on the Basis of the Fact whether they are Primarily Directed at Public at Large or Primarily Directed at Individuals:

On the basis of the fact, whether the services are primarily directed at public at large or primarily directed at individuals, services can be classified into two categories.

They are:

(a) Public services – Public services refer to services which are primarily directed at (i.e., provided to) public at large. Examples of public services are public utility services, transport services, insurance services, municipal services, etc.

(b) Private services – Private services refer to services which are primarily directed at individuals. In other words, they are services designed for and used by consumers as individuals. Examples of private services are personal care services, medical advice, etc.

7. Classification on the Basis of the Extent of Contact between the Service Provider and the Consumer:

On the basis of the extent of contact between the service provider and the consumer, services can be classified into two categories.

They are:

(a) High contact services – High contact services refer to services in which the consumers or users have to spend more time with service providers to acquire or utilise the services. Examples of high contact services are medical services, personal care services, etc.

(b) Low contact services – Low contact services refer to services in which the consumers or users have to spend less time with the service providers to acquire or use the services. Examples of low contact services are internet services, hospitability, theatre performance, etc.

8. Classification on the Basis of Number of Delivery Outlets:

On the basis of the number of delivery outlets, services can be classified into two categories.

They are:

(a) Single or specific outlet services – Single or specific, outlet services refer to services which are provided to customers through a single outlet. In this case, the convenience of receiving the service is less. Examples of these services are theatre services, museum services, etc.

(b) Multiple outlet services – Multiple outlet services refer to services which are provided to consumers through many outlets. In this case, the convenience of receiving the services is more. Examples of these services are fast food service, bus service, etc.

9. Classification of Services as External and Internal:

Services can also be classified as:

(a) External services – External services refer to services provided by a service organisation to external or outside agencies. Examples of these services are installation services, distribution services, etc.

(b) Internal Services – Internal services refer to services provided by the service provider within the organisation. Examples of these services are internal transport, office cleaning, etc.

10. Classification on the Basis of the Presence of Customers and Employees:

On the basis of the presence of customers and employees, services can be classified into three categories.

They are:

(a) Self-services – Self-services refer to services in which there will be the presence of only the customers. Examples of self-services are self-service restaurants, ATM banking service, etc.

(b) Inter-personal services – Inter-personal services refer to services in which there will be the presence of both customers and employees. Examples of these services are education, hotel services, entertainment services, etc.

(c) Remote Services – Remote services refer to services in which there will be the presence of only employees. Examples of such services are insurance services, etc.

Nature and Role of Service Marketing

Nature of Service Marketing:

It evolves from its multidisciplinary coverage of activities.

It includes:

1. It is a dynamic process.

2. It is customer oriented.

3. It is creative.

4. It is intangible.

5. Transfer of ownership is not possible.

6. It is heterogeneous.

7. It has zero shelf life.

8. Services are production is inseparable.

9. It is perishable.

10. It is a social process.

11. It is an economic function.

12. It involves customer participation.

Role of Service Marketing:

The role of service marketing is as follows:

1. Reduced operating expenses.

2. Competitive differentiation.

3. Enhanced quality.

4. Enhanced efficiency.

5. Enhanced responsiveness.

6. Enhanced market Share.

7. Enhanced customer loyalty.

8. Enhanced Competition.

9. Manufacturing Support.

10. Makes Economic Sense.

Marketing Mix for Services

It is to be reiterated that the marketing concept is equally applicable to goods, services and ideas. Thus, service marketers, like goods marketers, must strive to provide a bundle of benefits that satisfies the needs of consumers.

Unfortunately most of the firms providing services do not give any importance to the marketing planning as in the case of products. Most producers feel that a service is a necessity and hence the demand will be instantaneous. This seems to be an incorrect philosophy. On the contrary, adoption of proper planning in service marketing could work wonders. Because, there are innumerable services that could be offered almost simultaneously.

Theodore Levitt’s concept of ‘Marketing Myopia’ is found to have influenced in preventing the adoption of marketing planning in its full perspective in the area of marketing of services. For instance, the activities of a film studio are often described as – “making movies” instead of “marketing entertainment”.

In developing a service marketing strategy many firms were seen to consider the following seven areas:

i. Marketing should occur at all levels, from the marketing department to the point where the service is provided.

ii. Wherever possible, establish direct contact with the customers.

iii. Use only high-quality personnel for marketing job.

iv. Creation or loyalty among existing customers.

v. Ensure quick resolving of problems faced by customers.

vi. Provision of improved services at lower cost.

vii. Brand the services offered.

1. Service Mix:

Goods can be defined in terms of their physical attributes, but services cannot be because they are intangible. But there are also tangibles (such as – facilities, communications) associated with a service. These tangible elements help form a part of the product and are often the only aspect of a service that can be viewed prior to purchase, which is why marketers must pay close attention to associated tangibles and make sure that they are consistent with the selected image of the service product.

All other components of product mix are relevant here also. However, a caution may be noted. The service product is often equated with the service provider; for example, the teller becomes the service of a bank or the beautician becomes the service a beauty parlour provides.

Because consumers tend to view services in terms of the service personnel and because personnel are inconsistent in their behaviour, it is imperative that marketers effectively select, train, motivate and control contact people. It is true to say that service marketers are selling long-term relationships as well as performance.

2. Price Mix:

Another difference between the sale of products and services lies in the techniques of pricing. It has been observed earlier that pricing a new product is one of the most important and puzzling marketing problems. This is more so in the case of services where pricing plays both an economic and a psychological role.

It is psychological because consumers rely on price as the sole indicator of service quality when other quality indicators are absent. In its economic role, price determines revenue and influences profits.

Pricing of services can also help smooth fluctuations of demand. Given the perishability of service products, this is an important function. A higher price may be used to reduce demand during peak periods, and a lower price may be used to stimulate demand during slack periods.

For example, if a room in a hotel is not rented out or if there are vacant seats in a bus, the potential income is lost permanently. The concessional charge allowed for telephone calls in the night proves the stimulation of demand during off peak period.

Requirement for advance payment is another feature in pricing of service products. This is also related to the perishability of the services. When a potential customer indicates interest in a service, the seller often wants to make sure that the buyer makes a firm commitment.

For this the seller often insists on a guarantee from the buyer preferably in the form of receiving an advance payment. When we would like to travel, for example, we could reserve a ticket y paying a fee and sometimes by paying the full fare and obtaining a ticket.

The same is applicable to a cinema or a music concert when the buyer of the service will have to pay in full the price of the ticket in advance. Unless such a guarantee is obtained, in the event the buyer does not turn up, the seller loses completely. This is not the case with a product which could be sold to someone else later.

Negotiated price – In many of the service industries, the prices are settled after negotiations. For example, the price for management consultancy services is negotiated and fixed. The negotiated price gives an opportunity to the seller and the buyer to determine just the services required to meet the specific needs.

Bids for high-price services – Bidding is very common in the case of some specialised high-price services. For example, when a building is to be constructed, tenders are invited. Or, when an individual (consumer) wants to have his house painted, he is likely to ask for bids or quotations.

3. Physical Distribution Mix:

Distribution for services is usually simpler and more direct than channels of distribution for goods. This is due to the intangibility of services. The marketer of services is often less concerned with storage, transportation and inventory control, and shorter channels of distribution are typically employed.

Further, the element of inseparability (i.e., services cannot be separated from producers) has created a feeling that direct sale alone is possible in the matter of sale of services. This is, however, not completely true. It is quite common to recognise some middlemen in certain areas.

The following kinds of middlemen are found in the channel of distribution of services:

i. Agents – For example, Travel agents, Employment agencies, Insurance agents. These agents are at par with agent middlemen who do not take a title.

ii. Wholesalers and Retailers – The actual service may not be easily transferable as the products could be transferred. Still, tangible representations of the services are transferable, for example, the transfer of shares. This type of channel is often found in cases where a contract exists as a tangible representation of the service.

The merchant middlemen dealing in services are rare. When an organisation contracts for a charter flight and then sells space to others, it is acting as a merchant middlemen because it is now the temporary owner of the service. In India, electricity was bought and distributed by some agencies in the past.

Some service firms may market on a wholesale basis. For example, many transporting agencies undertake to transport goods although they do not own any vehicle. The consumer actually has no contract with the firm that actually produces the services, namely the transport company. These transport agents are actually wholesalers or retailers working on a fixed commission from the fleet owner.

4. Promotion Mix:

Promotion mix is definitely an important aspect of the marketing mix for services. For instance, the advertising of services is somewhat challenging because they are tangible-dominant products. The intangibility makes it difficult to use different media of advertising.

Service advertising should thus emphasise tangible cases that will help consumers understand and evaluate the service. The cues maybe the physical facilities in which the service is performed or some relevant tangible object that symbolises the services itself. For example, hotels may stress their physical facilities — clean, hygienic room facilities, etc.

Personal selling is potentially powerful in services because this form of promotion lets consumers and sales people interact. Customer contact personnel can be trained to use this opportunity to reduce customer uncertainty, give reassurance, reduce dissonance, and promote the reputation of the organisation.

Sales promotions, such as contests, are feasible for service firms, but other types of promotions are more difficult to implement. For instance, a service can neither be displayed nor can it give free samples.

Although the role of publicity and the implementation of a publicity campaign do not differ significantly in the goods and service sectors, service marketers appear to rely on publicity, much more than goods marketers do.

Consumers tend to value word-of-mouth communications more than company sponsored communications. This preference is probably true for all products but especially for services because they are experimental in nature.

For this reason, service, firms should attempt to stimulate and simulate word-of-mouth communications. In this connection it is highly essential for a service marketer to know clearly the distinctions between Advertising Publicity and Public Relations.

Factors Affecting the Channel of Distribution of Services

The selection of a good channel of distribution in the marketing of services was being ignored till recently due to various reasons. Most of the marketers felt that a channel of distribution, except a direct one, was not at all feasible. However, the concept is found to be changing gradually.

As consumers’ buying habits are changing and competition is increasing, many service industries are taking another look at their channel of distribution. Some have shown considerable ingenuity in making their services available at convenient locations.

An example is the widespread arrangement for the distribution of cooking gas which was not conceivable at all two decades ago. Yet another example is that of banking services. Today we have “drive-in-banks”, payment on the spot, etc., offered by most of the banks.

However, there are-certain factors that prevent an easy selection of a good channel in the marketing of services.

Some of these factors are discussed below:

(1) Geographical Area:

The seller of a service can reach only a limited area mainly because of the fact that he could employ only a few agencies. This, emphasises the importance of the selection of a good channel that will fully expose the service in the market. Banking institutions have come to realise the importance of this fact in recent years. Accordingly, they have initiated many innovations in the distribution of banking services.

(2) Limited View of Marketing:

Because of the nature of their product, many service firms depend mainly on population growth to expand their sales. It is not the increase in the size of population that matters but it is really the expanding needs of a growing population that is important. As the population’s educational level and the standard of living go up, the need for new and diversified services arises. Service firms can meet these changing needs by developing new channels, or altering existing channels.

(3) Lack of Competition:

Many services in the past faced only very little competition. Most of them are monopolies even today. The lack of competition is not conducive to innovative marketing. However, the scene is changing and banks, financial institutions, etc., are facing stiff competition.

(4) Lack of Creative Management:

Most of the services are necessary and ‘consumer orientation’ is still not a powerful ingredient in the marketing of services. This leads to inaction and makes the service firms inert.

(5) No Fear for Obsolescence:

Most services, because of their intangibility, are not greatly subject to obsolescence. This is definitely an advantage. But it has led many firms to be slow in their approach to marketing. The manufacturers of products, on the other hand, are always alert in revising their marketing plans and seeking new methods to distribute their products, lest they should become obsolete because of a change in fashions.

In the service context, distribution is making services available to prospective users. Marketing intermediaries are the entities between the actual service provider and the consumer that make the service more available and more convenient to use. The distribution of services is very closely related to product development. Indirect distribution of services may be made possible by a tangible representation on a facilitating good (for example, Bank Credit Card).

Thus, as far as the marketing of services is concerned the marketing managers in future will have to be highly imaginative and creative at least in the matter of innovations in the channel of distribution. There in every chance that the service will grow in importance and such services should be made available at convenient locations. A proper decision in the channel of distribution alone would help the service firms to meet the challenge in future.

Difference between Goods and Services

Based on the nature and features of services, the following differences can be identified between goods which have greater tangible elements and services which have greater intangible elements.

1. Greater Intangibility:

Through services have many tangible components like airplanes for air services, uniform dealers for people serving in a hotel, and packaging for fast food in restaurant, there is an element of service which is intangible. Services are merely experiences which cannot be displayed like products on exhibition by sellers or markers. They cannot be carried by the customers as they carry physical products. They are intangible, they cannot be touched, they cannot be seen and they cannot be displayed like products.

2. Perishable Nature – Services are Essentially Perishable:

Services are perishable whereas goods are not so. Services cannot be carried over packed or transferred like goods. If seats are vacant in a theatre, or a plane service or bus service the revenue is lost forever. If doctors or lawyers fail to attend their clients, their revenue is lost forever. But this is not so in the case of goods. Tangible goods not sold on any given day or after they are produced, they can be stored and sold after some time.

3. Variability:

Services are variable whereas products which are standardised are not so variable. Therefore, no two services rendered by the some person but at different times are uniform. Even the service rendered by a single individual at different times cannot be the same. But products provide uniformity and the same quality taste etc. For example or the Mysore Sandal soaps produced at different times possess the same quality in all respects as they are standardised whereas services of the same person or the same category of employees cannot be standardised.

4. Difficulty in Quality Control:

Many services are offered only at the point of sale and hence quality control or standardisation of service is very difficult to achieve. But it is very easy to control the quality of the products and their quality can be made uniform and standardised.

A related problem in this connection is the difficulty of the consumers in judging correctly the quality of the service provided by the service provider. For example, how does a consumer decide which lawyer is efficient or which doctor is very useful or which teacher is the best and so on?

5. Labour Intensity:

Labour intensity is more in services but it is not so in the case of goods. The labour intensive nature is more in. the services of individuals and also in the case of service organisations and economies of scale cannot be enjoyed in the case of services. For example, the output of a lower or a doctor cannot be easily increased like the output of a product. This is so because the services are to be produced personally and tailored to the needs of each individual clients.

6. Legal and Ethical Barriers:

There are some professional codes of ethics which prohibit professional practitioners from engaging in certain kinds of marketing and advertising activities. Peer pressures often limit the extent to which those professional service persons like doctors, dentist’s attorneys etc. should developed their marketing programmes. For example, doctors are not permitted to undertake any type of advertising or marketing their expertise.

Similarly some state legislatures do not permit public utilities to advertise their services. However, the producers of goods are freely permitted to advertise their products in any way they like through various media of advertising and publicity.

7. Unpredictability of Demand:

It is easy to predict the nature of demand for tangible goods but it is very difficult to predict the nature of demand for services. Demand for some services can fluctuate strongly from time to time or from season to season. During the period of some epidemics, demand for certain kinds of services is most likely to rise. But demand for certain products like flowers, coconuts, new clothing etc. may be estimated easily during the period of festivals like Diwali, Dussehra etc. but not at other times.

8. Difficulty for Entering Foreign Markets:

Demand for physical goods like automobiles, computers etc. can be easily estimated in foreign markets through various media of advertising but it is not possible to do so in the case of services because there are many barriers complicating the selling of services across the national boundaries.

9. Limited Applicability of Portfolio Theory:

It is very difficult to apply portfolio theory to the management of services whereas it is not so in the case of tangible goods. Without a portfolio of services, the life cycle concept bears very little relevance for many services. Further, it is also more elusive to establish appropriate growth strategies for service firms than for tangible goods firms.

10. Difficulties in Establishing Large Market Shares:

There are usually very few barriers for service industries to make an entry into the most physical markets. Therefore the competitors can quickly and easily enter service markets which keep any one firm from establishing a dominant market share. This fact is proved by the large number of successful fast food franchises. However the service firms are not able to experience economies of scale because of the negative effect on their services to acquire a large market share.

Service – The Customer Service Gap Model

The customers’ demands are increasing day by day. They not only want high quality products but they also expect high quality customer service. Even manufactured products such as cars, mobile phones and computers cannot gain a strategic competitive advantage through the physical products alone. From a consumer’s point of view, customer service is considered as very important part of the product.

Delivering superior value to the customer is an ongoing concern of Product Managers. This not only Includes the actual physical product but customer service as well. Products that do not offer good quality customer service that meets the expectations of consumers are difficult to sustain in a competitive market. SERVQUAL (service quality gap model) is a gap method in service quality measurement, a tool that can be used by Product Manager across all industries.

The aim of this model is to:

i. Identify the gaps between customer expectation and the actual services provided at different stages of service delivery.

ii. Close the gap and improve the customer service.

This model developed by Parasuraman, Zeithalm and Berry in 1985 identifies five different gaps.

1. The Customer Gap – The Gap between Customer Expectations and Customer Perceptions:

The customer gap is the difference between customer expectations and customer perceptions. Customer expectation is what the customer expects according to available resources and is influenced by cultural background, family lifestyle, personality, demographics, advertising, experience with similar products and information available online. Customer perception is totally subjective and is based on the customer’s interaction with the product or service. Perception is derived from the customer’s satisfaction on the specific product or service and the quality of service delivery.

The customer gap is the most important gap and in an ideal world the customer’s expectation would be almost identical to the customer’s perception. In a customer orientated strategy, deliver image quality service for a specific product should be based on a clear understanding of the target market. Understanding customer needs and knowing customer expectations could be the best way to close the gap.

2. The Knowledge Gap – The Gap between Consumer Expectation and Management Perception:

The knowledge gap is the difference between the customer’s expectations of the service provided and the company’s provision of the service. In this case, managers are not aware or have not correctly interpreted the customer’s expectation in relation to the company’s services or products.

If a knowledge gap exists, it may mean companies are trying to meet wrong or non-existing consumer needs. In a customer-orientated business, it is important to have a clear understanding of the consumer’s need for service. To close the gap between the consumer’s expectations for service and management’s perception of service delivery will require comprehensive market research.

3. The Policy Gap – The Gap between Management Perception and Service Quality Specification:

According to Kasper et al, this gap reflects management’s incorrect translation of the service policy into rules and guidelines for employees. Some companies experience difficulties translating consumer expectation into specific service quality delivery. This can include poor service design, failure to maintain and continually update their provision of good customer service or simply a lack of standardisation. This gap may see consumers seek a similar product with better service elsewhere.

4. The Delivery Gap – The Gap between Service Quality Specification and Service Delivery:

This gap exposes the weakness in employee performance. Organisations with a Delivery Gap may specify the service required to support consumers but have subsequently failed to train their employees, put good processes and guidelines in action. As a result, employees are ill equipped to manage consumer’s needs.

Some of the problems experienced if there is a delivery gap are:

i. Employees lack of product knowledge and have difficulty in managing customer’s questions and issues.

ii. Organisations have poor human resource policies.

iii. Lack of cohesive teams and the inability to deliver.

5. The Communication Gap – The Gap between Service Delivery and External Communications:

In some cases, promises made by companies through advertising media and communication raise customer expectations. When over-promising in advertising does not match the actual service delivery, it creates a communication gap. Consumers are disappointed because the promised service does not match the expected service and consequently may seek alternative product sources.

Example – Amazon.com:

Amazon.com provides books, movies, music and games along with electronics, toys, apparels, sports, tools, groceries and general home and garden items. Amazon is a good example of an online business that tries to close the service gaps in order to thoroughly meet consumer expectations.

Understanding Customer Needs:

From the time the consumer starts to shop at Amazon’s online store, Amazon will attempt to understand their expectations. From when a customer first makes a product selection Amazon creates a consumer profile and attempts to offer alternative goods and services that may delight the consumer. The longer the consumer shops at Amazon, the more the company attempts to identify their preferences and needs.

Customer Defined Standards:

When a consumer buys a product from Amazon they selects the mode of delivery and the company tells them the expected number of days it will take to receive their merchandise. For example – standard shipping is three to five days but shipping in one or two days is also available.

The company has set standards for how quickly customers are informed when a product is unavailable, (immediately), how quickly customers are notified whether an out of print book can be located (three weeks), how long customers are able to return items (30 days) and whether they pay return shipping costs. These standards exist for many activities at Amazon from delivery to communication to service recovery.

Service Performance:

Apart from defining their service delivery, Amazon goes one step further and delivers on its promises. Amazon performs! Orders often arrive ahead of the promised dates; orders are accurate and are in excellent condition because of careful shipping practice. Customers can track packages and review previous orders at any time. Amazon also makes sure that all its partners who sell used and new books and other related items meet Amazon’s high standards.

The company verifies the performance of each purchase by surveying the customer and posting scores that are visible to’ other customers. Managing promises is handled by clear and careful communication on the website. Every page is very easy to understand and to navigate. For example the page dealing with returns eliminates customer misunderstanding by clearly spelling out what can be returned.

The page describes how to repack items and when refunds are given. The customer account page shows all previous purchases and exactly where every ordered item is in the shipping process Amazon strategy has been well received by its customers and the Amazon brand is known worldwide.

Growth of Service Marketing

Since 1960, services marketing has grown in importance and popularity not only in developed economies but also in developing economies. Numerous varieties of services are provided today by service organisations.

There are many reasons or causes for the phenomenal growth in the services marketing.

The main reasons are:

(a) The consumers have more and more disposable income, i.e., more money to spend on services.

(b) The consumers are willing to buy services which they are unable to perform or they are unwilling to perform.

(c) The desire of the people to get more time for leisure is also responsible for their buying services in the services market.

(d) Many business firms are willing to buy specialised services from service organisations instead of employing specialised service personnel in their firms. For instance, many business firms, instead of employing maintenance workers, are using the maintenance services offered by professional maintenance companies.

Similarly, many business firms, instead of employing professional experts in their firms, want to buy the services of professional experts like the management consultants, auditors, tax experts, lawyers, valuation experts, etc. This has contributed to the growth of many service firms.

(e) Today, many services needed by consumers and business firms have become sophisticated and complex. The sophistication and complexity of present- day services has led to the need for the development of specialised service institutions offering specialised services.

(f) Increasing affluence is one of the factors responsible for the growth of service industries, such as interior decoration, laundry, care of household products, care of gardens, etc.

(g) Increasing affluence combined with increasing insecurity has led to the emergence of issue of credit cards by banks and other institutions.

(h) Increasing number of products and complexity of products is responsible for the emergence of specialists to provide maintenance services for complex products like air-conditioners, cars, computers, etc.

(i) Desire of the people to live longer is responsible for the growth of nursing home and health care services.

(j) Higher percentage of women in the labour force is responsible for the growth of services like baby-sitting, household domestic help, etc.

(k) Resource scarcity is responsible for the growth of leasing services, time sharing services, etc.

Problems in Marketing of Services

1. A service cannot be demonstrated.

2. Sale, production and consumption of services takes place simultaneously.

3. A service cannot be stored. It cannot be produced in anticipation of demand.

4. Services cannot be protected through patents.

5. Services cannot be separated from the service provider.

6. Services are not standardized and are inconsistent.

7. Service providers appointing franchisees may face problems of quality of services.

8. The customer perception of service quality is more directly linked to the morale, motivation and skill of the frontline staff of any service organization.

Global Scenario

There has been an immense contribution of the services sector particularly in the developed economies of the world. It has created a large number of employment opportunities in addition to providing for higher standard of living. In India, it has provided 60 percent of employment and 47 percent to GDP in 1998. Its contribution to GDP has risen to 48.8 percent in 2001.

Thus, the services sector contributes largely to the GDP of the national economy that in turn results into better investment avenues for the nation. The services sector has become predominant part in earning foreign exchange in the Indian economy and accordingly, there has been a reduction in the foreign exchange earnings of the merchandise export sector. There has been considerable increase in the foreign exchange earnings by the service sector in the Indian economy over the last ten years or so.

India’s services exports in 1997 were $9.3 billion as against its merchandise exports of $32.2 billion. It is expected that services exports could be as third of its merchandise exports now. This is well above the global average of one-quarter. This implies that India, which has failed to catch the bus in the exports of merchandise, is among the early leaders of the developing world in the race for service exports.

The services sector in India has given a tremendous boost to the growth of Indian GDR. The result is that the contributions to India’s exports have also grown from a meagre value of $8.9 billion to $ 73.0 billion in 2006. This is due to the direct result of the Indian economy opening its doors and policy up for the services exports, that the contribution of the services sector made quantum jumps from 15 to 20 billion U.S. dollars to 73 billion U.S. dollars.

However, the Indian economy will have to develop its services sector further to ensure the contribution of the services sector at 70 percent of the country’s GDP as is the case in most developed economies of the world.

It is interesting to note that India’s IT has shown tremendous growth over the last ten years. To-day it consists of an increased specialisation with an availability of a large pool of highly skilled, qualified computer engineers and IT engineers. This has created an unprecedented demand for India’s service experts from many foreign countries.

There has also been considerable increase in the demand from abroad for business process outsourcing to Indian companies. India’s IT industry accounted for only one percent of the total GDP or 1/50th of the total services in 2001 but it had grown to 4.8 percent in 2005-06 and to 7 percent of GDP in 2008. This has led to India’s services sector contribution to 53 percent of the GDP in 2008.

To-day, Hong Kong and Singapore have become service- oriented economies with high income status. They were formerly the colonial countries of Great Britain but now they surpassed their old master. Great Britain became switched to services and specialised in the service sector industries and now they have become the world famous service economies, with their share of services in GDP no less than 84% in Hong Kong and 65% in Singapore as against the share in the USA which is 74% and its new focus on Knowledge intensive services has made it an economic power house in the 90’s.

As Singapore and Hong Kong, India too is becoming a service economy, the share of services in its GDP is almost 47% as against 29% for industry and 24% for agriculture. India has become a service economy without even realising it or striving for it. Yet India has remained a laggard in services not only by global standards but even by South Asian standards.

Pakistan’s share is 50%, Bangladesh’s share is 49% and even Sri Lanka’s share is 52% but India’s share is only 47% which is lower than that Sub-Sahara Africa (i.e. 48%) or Latin America (60%). India is lagging behind because of two reasons – one due to neglect of services and another due to failure to become a great manufacturer or exporter.

However, there is some hope. India hopes to go ahead over its Asian neighbours in services. The Asian Tigers harnessed cheap skills for manufacturing relatively low-tech goods for global – consumption. India also hopes to follow the same but it has made very little progress. What is then the problem for this slow progress? The problem is not just its poor policies but technological change has largely reduced the potential of competitive advantage based on low wages.

Mechanism of production in India has been rapidly increasing, thereby leading to a considerable reduction of labour content which is less than 10 percent. By contrast, the labour content in services can reach 100%. Therefore, comparative advantage flowing from cheap skilled labour has greater scope in services than in manufacturing.

Computer software sector is the fastest and biggest growing segment of the services sector. The NASSCOM (i.e. the National Association of Software and Service Companies) has estimated that software exports have grown from $34 million in 1995-96 to $2,625 million in 1998-99 and they are estimated to grow to $4000 million in 2000-01 and to $45 billion by 2005-06. It is strongly hoped that India will emerge a major player not only in software services but also in other services sectors.