Lecture notes on Services marketing

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Chapter 2 SERVICES MARKETING- AN OVERVIEW 2.1 Services: The Concept All industrial and economic activities are divided into three, namely, primary, secondary and tertiary. Primary activities include agriculture, fishing, forestry, mining etc. Secondary activities consist of manufacturing, processin-g, construction etc. Tertiary activities comprise of services, distribution etc. Services form a major part of economic activities and the world today is dominated by the service sector. The service sector is enormously large and varied. It includes banking, transportation, insurance, communication, education, employment, healthcare, Legal service, accounting, tourism, hospitality and information services. Some of the services are provided on a nonprofit basis, for example, education and healthcare, while others are provided on a commercial basis such as hotels, professional consultants, solicitors etc. Defining a service is not an easy task and there is no single universally accepted definition of the term. An earlier view of the concept of service was that it was a mere benefit attached to a physical product. Now a major shift has taken place in the concept of service and the service industry at present has achieved its independence and growth quite apart from physical goods. Hence service industries are fundamentally different from manufacturing industries. In common parlance the term services means personal services like repairing, health service, legal services, counselling etc. Marketing experts in a different way. They feel that the contents of services are view the problem much wider. Services are deeds, acts or performancesbl The complexity of definition of services increases when one realises that there are no pure services or pure tangible products. "Any act or performance that one party can offer to another that is essentially intangible and does n-ot result in ownership of anything. Its production may or may not be tied to a physical prduct." .- "Services are activities, benefits or satisfaction which are offered for sale, are provided in connection with sale of good." "Services can also be defined as action of organisation that maintains and improves the well being and functioning of peple." "A service is an activity which has some element of intangibility associated with it, which involves some interaction with customers or with I3erry.L.L. "Service Marketing is Different." Business. Volume 30 - May-June 1980, pp.24-30. Kotler, Philip, Marketing Management: Analysis, Planning, Zrnplernentaton and Control. Prentice-Hall of India, New Delhi, 1990, p. 467. American Marketing Association: Committee on Definitions, A Glossary oj Marketing Terms. Chicago, 1960. Hasenfield. Y and Richard, A.E., Hvrnon Services Orgonisations. The University of Michigan Press, 1974, p. 1. property in their possession, and does not result in a transfer of ownership. A change in condition may occur and production of service may or may not be closely associated with a physical product. "5 What these and other definitional approaches share in common is their emphasis on the essentially intangible nature of a service. Thus a service firm : offers an essentially intangible product(s); produces an output the units of which may be dissimilar in the same lot (heterogeneity); .- a cannot store the unused (unsold) service; .- a may often need engagement of customers in the production and delivery of the service; may leave the buying basket of customers as empty as it was before buying. 2.2 Services : Features Services have some salient features, which necessitate a new vision, a distinct approach and a world class professional excellence to deal with the Pawe, Adrian. The Essence of Seruices Marketing. Prentice Hall of India, New Delhi.1995, p.6. various aspects of the services effectively and profitablyn6 The service professionals who are not well aware of these features find it difficult to make creative decisions. It is against this background that the important features of services are analysed as follows for making appropriate managerial decisions. 1. Intangibility Services are intangible in that they do not have a physical shape. So a consumer cannot touch or see it but can derive the benefits after buying it. This intangibility makes the task of decision makers more complex. While motivating the prospects they cannot display the positive or negative aspects of services. The consumer also finds it difficult to measure service value and quality. To overcome this, consumers tend to look for evidence of quality and other attributes. They also consider physical evidence and qualifications or professional standing of the consultant. Services by nature are abstract. Therefore, services carry with them a combination of intangible perceptions and benefits. Thus it is right to mention that due to intangibility, the managing of services become much more complicated. Services often cannot be separated from the person of the service provider. Moreover, some services must be created and dispensed simultaneously. For example, dentists create and dispense almost all their services at the S.M. Jha, Seruices Morketlng, Hirnakya Publishing House, Mumbai, 2000, p.7 same time. From the marketing point of view, direct sale is the only channel of distribution of services. This feature of services also limits the scale of operation of a service firm. The goods are produced at one point and then distributed by others at other points. In services, we find the selling processes contributing to its creation. Thus in the words of Donald Cowell, goods are produced, sold and then consumed, whereas services are sold and then produced and cnsumed. 3. Heterogeneity It is not possible for a service firm to standardise its service. Each unit of - the service is somewhat different from the other units of the same service. For example, an airline does not provide the same quality of service on each journey. The primary reason for such inconsistency is the effort to satisfy the customer's need to the fullest. This requires the interaction of customers and service providers. They should do everything to ensure the consistent quality of the service. 4. Perishability Services are highly perishable and they cannot be stored. In the context of services, if we fail to sell the services, it is lost forever. For example, a vacant seat in an aircraft or an unbooked room in a hotel etc. are opportunities lost forever. This makes it essential that decision-makers "Cowell, Donald, W., The Marketing of Services; CAM Foundation and Institute of Marketing. William Heinemann Ltd., London, 1984.p.25. should minimise the risk by utilising their professionalism. The strategies include peak load pricing, motivating non- peak period consumption etc. 5. Ownership Lack of ownership is a basic feature of the service industry. A customer may only have access to or use of a facility. Payment is for the use, access or hire of the service. Thus the ownership is not affected in the process of selling the services. 6. Fluctuating Demand: Generally the demand for services is fluctuating in nature. Demand for certain services that may be high during peak seasons may be low during off-seasons. Most service organisations have capacity constraints. So simultaneous attempt to achieve closer match between demand and supply is sought. The combination of perishability and fluctuating demand offers challenges to service company executives in planning, pricing and promotion of services. Management experts would like to add some more features to services while distinguishing them from products. These are: 1. Lack of entry barriers: Introduction of new changes in various services is not patentable i.e. the innovativeness of one firm can easily be adopted by another. Also, services are not generally capital intensive, and thus entering a service sector is not at all difficult. Minimum opportunities to achieve economies of scale: Most services operate from multiple locations so that they can cater to the surrounding geographical area. This prevents the service provider from producing a service at one place as is done in the case of producing tangible goods. Thus opportunities of achieving economies of scale are difficult. 3. Customer Contact .- The customer is very much a part of the service process. A service can be classified as high or low contact depending on the percentage of time the customer spends in the delivery system relative to the total service time. In high contact services the customer influences the timing of demand and the nature of service by direct participation in the process. 2.3 Classification of Services There have been a number of approaches towards classification of services. The intention behind this classification is to provide service managers with a means of identifying other companies who, though operating in different types of services, share certain common characteristics. Lovelock classifies services based on five crucial factors. They are: Nature of the service act. The relationship of service organisation to customers. The extent of customization and judgement. The nature of supply and demand for the service The process of service deliverym8 A simple form of classification of services is into: A. Business and professional services. B. Non-business services Business and professionalservices include banking, insurance, advertising, consulting, market information, budgeting, legal, medical, accounting etc. Non-business services include leisure, entertainment, recreation, education, counselling etc. - Helen Woodruffe classifies services into the following five categries: 1. End user According to the end-user of services, it may be classified into: Lovelock, C.H., "Classifying services to Gain Strategic Marketing Insights," Journal of Marketing, Vo1.47. Summer, 1983, pp.9-20. Woodruffe, Helen, Services Marketing, Macrnillan India Limited, New Delhi 1 10002.1999. pp 28-29. Consumer services- such as leisure, hairdressing, personal service Business services-advertising agencies, printing, accounting, consultancy Industrial services- plant maintenance, repair service, project management 2. Service tangibility The degree of tangibility of a service can be used to classify services: Highly tangible services - car rentals, vending machines, - telecommunications. Services linked to tangible goods - car service, repair of domestic appliances Highly intangible services - consultancy, legal service 3. People based services: Services can be classified based on the extent of the consumer contact: People-based services -education, healthcare etc. where high contact is necessary. Equipment based services - only low customer contact is required for such services: car wash, cinema, and vending machines. 4. Expertise / Professionalism On the basis of expertise and skills required, services may be classified into: Professional Services - legal, medical, accounting, and consultancy. Non-professional Services - day care, baby sitting. 5. Profit Orientation The overall business orientation is a recognised means of classification: - Commercial Services - banks, insurance, hotel and catering services. Non-commercial services - charities, public sector leisure facilities. 2.4 Marketing of Services Service firms lagged behind manufacturing companies in the application of marketing principles till recently. Many service organisations were either small which consider marketing not necessary or costly or unethical. The service sector has been found contributing substantially to the development process of any economy. The developments in the service sector and mounting competition in this field have been forcing service-generating firms to apply modern marketing principles. It is necessary to adopt marketing strategies by service firms not only for their survival and growth but also for satisfying the needs and expectations of their customers. Marketing is a human activity directed at satisfying the needs and wants of consumers through exchange process. The British Institute of Marketing finds it as the management function which organises and directs all those activities involved in assessing and converting customer purchasing power into effective demand for a specific product or service and to achieve the profit motive in moving the product to the final customers or users. Marketing is essentially a customer-oriented activity where satisfaction of customers is the focal point. The American Marketing Association defines marketing as the performance of business activities that direct the flow of goods and services from producer to consumer or useralo "Marketing is a social and managerial process by which individuals and groups obtained what they need and want through creating and exchanging products and value with others"." lo American Marketing Association Committee on Definitions, A Glossary of Marketing Terms, Chicago. 1960. l1 Kotler, Philip and Armstrong, Gary, Principles of Marketing, Prentice Hall of India, New Delhi, 1996, p.6. 38 Kotler further adds "Marketing is getting the right goods and service to the right people, at the right places, at the right time and at the right price with the right communications and promotions" .I2 "Marketing is not concerned solely with tangible goods, it also plays a similar role in connection with the distribution of service".' Felton views the marketing concept as "a corporate state of mind that insists on the integration and co-ordination of all marketing functions which, in turn, are welded with all other corporate functions for the basic objective of providing maximum long range corporate profits" .I4 Service marketing is defined as the integrated system of business activities designed to plan, price, promote and distribute appropriate services for the benefit of existing and potential consumers to achieve organisational objectives. The perception of services marketing focuses on selling the services in the best interest of the customers.15 it is a systematic and coordinated effort of a service organisation to expand its market by delivering the best possible services. The objects of services marketing are the achievement of organisational goals like making profits, establishing leadership, long term 12 Kotler, Philip, Marketing Management: Analysis, Planning, lmplementotion ond Control, Prentice Hail of India, New Delhi,1990, p,3. l3 Rathwell, J.M., Marketing in the Seruice Sector, Winthrop Publishers Inc. Cambridge, 1974. l4 Felton. A P. "Making the Marketing Concept Work", Horward Business Review. July-August. 1959, Source: Marketing: A Managerial Introduction, by J C Gandhi, Tata McGraw Hill Publishing Company Limited, New Delhi, 1991. l5 Jha. S.M. ,Services Marketing, Himalaya Publishing House,Mumbai,2000, p. 10. survival and growth and the satisfaction of consumers by rendering excellent services. The concept of services marketing covers the following aspects: selling services profitably to target consumers and prospects delivering maximum satisfaction to consumers of services; and positioning the service firm in the market. Marketing is thus an integral part of service management. The managerial decisions are not found to be effective in the absence of a time bound implementation of marketing principles. Of late, customer satisfaction is found to be a focal point of the marketing decisions sirice the marketing processcan help in offering the right services to the right persons at the right time. Marketing simplifies the process of transforming prospects into actual customers of services. 2.5 Need for Services Marketing The concept of marketing was not given much attention by most of the service organisations hitherto. Some service organisations like educational institutions, hospitals etc. once had so much demand that they did not need marketing until recently. Still others (legal, medical and accounting practices) believed that it was unethical to use marketing.16 16 Kotler, Philip and Armstrong, Gary, Principles of Marketing, Prentice Hall of India, New Delhi, 1996, p. 663, With the passage of time the service economy has gained momentum and has achieved growth far exceeding the growth of the industrial economy especially in the developed countries. Services marketing ideas and techniques have thus grown alongside the growth of the service economy. Like manufacturing businesses, service firms ultimately felt the need to use marketing principles to position themselves strongly in the chosen target markets. The multi-faceted developments in the service sector and in the mounting intensity of competition have been engineering a strong foundation for the application of modern marketing principles in the service organisations. The following facts make it clear that the application of modern .- marketing principles by service generating organisations would pave avenues - for qualitative and quantitative transformation: 1. Increase in the Disposable Income The disposable income of the people has been found increasing in recent years. This trend is also visible in developing countries like India. The increase in income in turn leads to demand for a number of services and thereby, new opportunities are created in the service sector. The positive developments in the service sector open new doors for an increase in disposable income. The moment an increase in the disposable income is found, the process of demand generation gains a rapid momentum creating more opportunities for the development of services sector. The intensity of competition is found at its peak and this necessitates application of marketing principles. 2. Increasing Specialisation Organisations have now no option but to promote specialisation since this helps them to be cost effective. The firms prefer to engage specialists for almost all purposes. Experts and professionals like consultants; legal advisors, financial experts, technocrats etc. play a decisive role in managing an organisation. Greater specialisation in management requires the services of experts and consultants in almost all areas. It is right to mention that due to growing specialisation, service generating organisations would need a new culture influenced by corporate culture, and marketing practices can do a lot towards this end. 3. Changing Lifestyles With the development of corporate culture and the emergence of a well- established services sector there would be a basic change in the lifestyles. The busy working environment and increased personal stress and strain would pave the way for development of innovative personal services like healthcare, fashion-designing, recreational centres, beauty parlours etc. The change in lifestyles creates new waves in the demand for specialised services and marketing can play a vital role in meeting the new aspirations of the consumers. 4. Professional Excellence Corporate culture makes an advocacy in favour of performance- orientation. The development of human resources would be given greater importance by all organisations either producing goods or services. Professional excellence thus would get a new priority and the masses would be tempted to the professional education. Excellence and professionalism in knowledge require the development of world-class educational institutions for almost all disciplines. The services sector would be professionalised in which only the world-class human resources can get a place. This will lead to greater efficiency in service organiisations. .- The application of marketing principles along with this professionalism - will make it easier to achieve the corporate goals. 5. Information Explosion The inventions and innovations in the field of communications have been found fuelling information explosion. The tremendous opportunities generated by communications would influence almost all the sectors especially service industries like entertainment, advertisement, fashion designs etc. It is in this context that it is essential to practice the modern marketing principles so that the marketing information system plays a positive role in improving the quality of decisions. 6. Sophistication in Market: There is more sophistication in the modern market where consumer expectations would be greater and more complex in nature. There would be frequent changes in the hierarchy of needs and requirements of consumers that result in the changes in the nature of market in terms of products or services required for that market. These multi-dimensional changes in the market necessitate the application of modern marketing principles. 7. Increasing Governmental Activities: The expanding governmental activities in almost all sectors of the economy would also make ways for the development of the service sector. The latest trends in the trade and cultural exchange policies, the global partnership etc. would pave the way for more profitable growth of service sector. This will also lead to more positive and sophisticated qualitative changes in the service sector which call for intensive use of innovative marketing principles. 2.6 Service Industries: The Marketing Response Given the unique and distinguishing features of the service industry, researchers have offered different models for the marketing of services. In a service firm there are many variables which affect the service encounter. Services marketing requires not only external marketing but also internal marketing and interactive marketing." The three types of marketing form a triangle model which is depicted in Fig. F1 below: Internal // \ External Marketing / Employees Customers Interactive Marketing Fig. F1 - The Triangle Model' of Services Marketing .- Internal Marketing deals with marketing to employees, that is, motivating them to serve the customers. External Marketing involves making the services available to consumers. Interactive Marketing relates to efforts of employees to win customers' loyalty in the process of their interaction with the customers in delivering the services. Parasuraman18 suggested the pyramid model of services marketing. (Fig. F2.). 17 Gronross, Christian, " A Service Quality Model and Its Marketing Implications", Europen Journal of Marketing, Vol. 18, No.4, 1984,pp.36-44 - Source: Mamoria, C.B., Suri, R.K. and Mamoria, Satish, Marketing Management, Kitab Mahal, Allahabad, 2000, p.7 16. l8 Parasuraman, A , "Augmented Marketing." Business %day, January 7-21.1997. pp. 25-26. Customers Fig-F2. The Pyramid Model of Services Marketing The introduction of technology as a service delivery option adds a whole new dimension to services marketing. In addition, the various facets of the pyramid imply augmentation of the traditional internal, external and interactive marketing. 2.7 Service Marketing Mix The elements of the marketing mix as applied in the marketing of tangible goods are equally applicable to services marketing also. As in product marketing the management should first define its marketing goals and select its target markets. 'Then management must design and implement marketing mix strategies to reach its markets and fulfil its marketing goals. However, the task of developing a total marketing programme in service industry is challenging because of the special features of services. The special characteristics of services make it quite difficult to apply the traditional Four Ps of marketing mix to services namely product, price, place and l9 Zeithaml. V.A. Pararuraman, A and Berry, L.L., "Problems and Strategies in Services Marketing", Journal of Marketing, Vo1.49, No.2, 1985, pp.33-46. The object of a services firm is to deliver quality service to customers at competitive prices. The quality of service depends on the customer's expectations and their perception of the service. If these do not match, quality difference can arise which will lead not only to a dissatisfied customers but also to bad publicity. Thus a modified marketing mix has to be developed which will incorporate those elements which are essential to the marketing of services in addition to the Four Ps. The activities involved in the effective marketing of services are quite different and generally do not fall in the conventional marketing mix. Therefore, it is imperative for service managers to consider the extended marketing mix in formulating their marketing strategies. Marketing experts have added three more Ps namely process, people and physical evidence to the services marketing mixO2 The three- extra Ps which are added to the existing four Ps, basically take into account the intangible nature of services and the considerable human element involved in the service process. Thus the 7 Ps of the service marketing mix are product, price, place, promotion, process, people and the physical evidence. Following the trend AgrawalZ1 expanded the mix of marketing elements to eight variables and proposed a new marketing framework. It is 20 Booms, M.H and Bitner. M.J., "Marketing Strategies and Organisation Structure for Service Firms". in Donnelly, J.H and George, W.R (Eds . ) , Marketing of Seruices, American Marketing Association, Chicago, 1982, pp.47-51. 21 Agrawal. M.L., "Managing Service Industries in the New Millennium : Evidence is Everything" . Management and Labour Studies, XLRI Jamshedpur Vol. 25, No.2, April 2000, pp.99-114.

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