What Are Services?

Services are activities or benefits that one party offers to another, which are essentially intangible —
meaning they cannot be seen, touched, or stored like physical goods. They are performed to satisfy
needs or wants. usually produced and consumed at the same time.

In exchange for their money, time, and effort. service customers expect to obtain value from access
to goods, labour, facilities, environments, professional skills, networks, and systems, normally do not
take ownership of any of the physical elements involved.

Characteristics of Services

Intangibility

Services cannot be seen, touched, or stored before they are purchased. Customers rely on trust,
reputation, and experience. Example:

 You cannot see a doctor’s treatment before taking the appointment.

 A massage cannot be “displayed” or tested before buying.

Because services are intangible, customers look for cues like reviews, brand name, and environment
to judge quality.

Inseparability (Simultaneous Production & Consumption)

Services are produced and consumed at the same time. You cannot separate the service provider
from the service process. Example:

 A teacher must be present to teach students; the lecture happens in real-time.

 In a salon, the barber and customer must both be present.

This means customer involvement is high in services.

Heterogeneity (Variability)

Service quality changes depending on who provides it, when, and how it is delivered. Services are
not identical each time. Example:

 One Uber driver may be polite; another may be rude.

 You may enjoy great service at a restaurant one day, and an average experience the next
time.

Because of variability, companies try to use training, standard procedures, and feedback systems.

Perishability
Services cannot be stored, saved, or inventoried. If a service is not used when available, the
opportunity is lost forever. Example:

 An empty airline seat on today’s flight cannot be sold tomorrow. the revenue for that seat is
lost forever.

 If a hotel room is vacant tonight, that revenue is gone permanently.

This is why service businesses use discounts, dynamic pricing, and reservations.

Lack of Ownership

When you buy a service, you are only buying access or experience, not ownership of anything
physical. Example:

 When you subscribe to Netflix, you don’t own the movies; you only access them.

 When you use Internet service, you don’t own the network infrastructure.

You only gain temporary use or experience, not a product.

🌟 Three-Stage Model of Service Consumption

This model explains how consumers experience and evaluate a service. It consists of three main
stages:

1. Pre-purchase Stage

2. Service Encounter Stage

3. Post-purchase Stage

Each stage involves different customer actions, decisions, and perceptions.

1. Pre-Purchase Stage

This is the stage before the service is bought. The customer identifies a need, searches for
information, and evaluates different service options before making a decision.

Customer Activities:

 Recognizing a need or problem

 Gathering information about available services

 Comparing alternatives and making a choice

Example:
A person planning a vacation wants a relaxing stay.

 They search online for hotels, read reviews, and compare prices and amenities.

 After comparing, they book a hotel that best fits their needs.

2. Service Encounter Stage

This is the stage where the actual service delivery and consumption take place. The customer
directly interacts with the service provider.

Customer Activities:

 Participating in the service process

 Evaluating the environment, employees, and experience

 Experiencing satisfaction or dissatisfaction during delivery

Example:

When the traveller checks in and stays at the hotel, they interact with the receptionist, enjoy the
room service, use hotel facilities, and experience the service quality firsthand.

3. Post-Purchase Stage

After the service is completed, the customer evaluates their overall satisfaction and decides whether
they will use the service again or recommend it to others.

Customer Activities:

 Evaluating satisfaction level

 Sharing feedback or complaints

 Deciding on future purchase intentions (loyalty or switching)

Example:

After leaving the hotel, the traveler rates the stay online, writes a review, and decides whether they
will book the same hotel for future vacations.

Summary Table

Stage What Happens Example (Hotel Stay)

1. Pre-purchase Customer identifies need and chooses Searching and booking hotel
Stage What Happens Example (Hotel Stay)

service

2. Service Encounter Service delivery and consumption Staying and using hotel services

Writing a review, deciding to

3. Post-purchase Evaluation and feedback
return

In Short:

The Three-Stage Model of Service Consumption helps businesses understand how customers:

 Decide to buy a service (Pre-purchase)

 Experience the service (Encounter)

 Evaluate the outcome (post-purchase)

By managing each stage well, service providers can enhance customer satisfaction and loyalty.

🌟 Service Marketing Mix – Definition

The Service Marketing Mix is an extended version of the traditional marketing mix.
While the marketing of physical goods uses 4Ps (Product, Price, Place, Promotion), services require
7Ps because services are intangible, inseparable, variable, and perishable.

🧩 The 7Ps of Service Marketing Mix

1. Product

 Meaning:
The “product” in services refers to the service itself — what the organization offers to satisfy
customer needs.

 Example:
A bank’s products include savings accounts, credit cards, and online banking services.

2. Price
  Meaning:
The amount customers pay to receive the service. Pricing in services depends on perceived
value, competition, and service quality.

 Example:
A luxury spa charges premium prices for personalized treatments, while a local salon charges
less for basic services.

3. Place

 Meaning:
Refers to how and where the service is delivered or accessed by customers.

 Example:
Online banking services are delivered through mobile apps and websites, while restaurants
provide services at physical locations.

4. Promotion

 Meaning:
Activities used to communicate and persuade customers to use the service.

 Example:
Airlines use TV ads, social media campaigns, and loyalty programs to attract travelers.

5. People

 Meaning:
In services, employees and customers themselves are key participants in service delivery and
customer satisfaction.

 Example:
The friendliness of hotel staff greatly influences the guest’s experience.

6. Process

 Meaning:
The procedures, mechanisms, and flow of activities by which a service is delivered.

 Example:
In a restaurant, the process includes ordering, food preparation, serving, and payment.

7. Physical Evidence
  Meaning:
Tangible elements that help customers evaluate a service before purchase — since services
are intangible.

 Example:
The appearance of a hospital, uniforms of staff, or a company’s website design create
impressions of service quality.

Summary Table

Element (P) Meaning Example

Product Core service offered Bank account, airline travel

Price What customer pays Ticket cost, membership fee

Place Where/how service is delivered Website, hotel, mobile app

Promotion How service is communicated Ads, social media, discounts

People Service employees & customers Receptionists, flight attendants

Process Steps in service delivery Check-in, ordering, billing

Physical Evidence Tangible cues of service quality Décor, uniforms, brochures

In Short:

The Service Marketing Mix (7Ps) helps service organizations design and deliver a complete customer
experience by managing both tangible and intangible aspects of their offering.

Would you like me to explain how the 7Ps differ from the traditional 4Ps (used for products)? That’s
often asked in exams.

Market-Focused Strategy

 Definition: The company serves a narrow market segment but offers a wide range of
services to that market.

 Focus: Market focus (deep understanding of customer segment), but broader service variety.
  Example:
A law firm that serves only small businesses but offers many types of legal services —
contracts, employment law, tax law, etc.

Service-Focused Strategy

Meaning:

 The firm offers a narrow range of services but serves multiple market segments.

 Focuses on specializing in one or few services and offering them to different types of
customers.

Example:

 A law firm that offers only corporate legal services but serves clients from various industries
(banks, IT firms, real estate developers, etc.).

Fully Focused Strategy

Meaning:

 The firm offers a limited range of services to a narrow and specific market segment.

 Focuses deeply on one service for one market.

Example:

 A children’s dental clinic that provides only dental care for kids.

 It serves a specific target market (children) with a single specialized service (dentistry).

Unfocused Strategy

Meaning:

 The firm offers many services to many different market segments.

 Lacks a clear focus — tries to serve everyone with everything.

A consulting firm offering HR, IT, marketing, and finance services to all industries and all company
sizes.

🌟 SERVQUAL Model – Definition

The SERVQUAL model is a framework used to measure service quality by comparing customer
expectations with their perceptions of the actual service received.

Service quality is determined by the difference between what customers expect and what they
perceive:

Service Quality = Perceptions − Expectations

 Positive Gap → Service exceeds expectations → High satisfaction

 Negative Gap → Service falls short → Customer dissatisfaction

5 Dimensions of SERVQUAL

The model identifies five key dimensions of service quality:

1. Tangibles
o Definition: Physical facilities, equipment, personnel appearance, and
communication materials.
o Example: Cleanliness of a hotel room, modern medical equipment in a hospital.
2. Reliability
o Definition: Ability to deliver the promised service consistently and accurately.
o Example: An airline departing on time and delivering luggage correctly.
3. Responsiveness
o Definition: Willingness and promptness of staff to help customers.
o Example: A restaurant server quickly attending to a customer’s special request.
4. Assurance
o Definition: Knowledge, courtesy, and ability of employees to inspire trust and
confidence.
o Example: Doctors in a hospital confidently explain procedures, making patients feel
safe.
5. Empathy
o Definition: Caring, individualized attention provided to customers.
o Example: A spa staff member remembering a client’s preferences or a doctor
listening patiently to a patient’s concerns.

Example of SERVQUAL in Action, Imagine a hotel:

Dimension Customer Expectation Perception of Service Gap
Small positive
Tangibles Clean, modern room Room is clean and well-furnished
gap
Reliability Room ready on time Room was ready late Negative gap
Staff should respond quickly to
Responsiveness Staff responds promptly Positive gap
requests
Staff should be knowledgeable Staff is friendly but not very Slight negative
Assurance
and courteous knowledgeable gap
Staff should understand special Staff notes special requests (e.g.,
Empathy Positive gap
needs extra pillows)

Gaps Model – Simple Explanation

The Gaps Model explains why service quality fails and how organizations can improve it.
It identifies the difference (gap) between what customers expect and what they receive.

1. Knowledge Gap

 Meaning: The company doesn’t know what customers really want.

 Example: A hotel thinks guests only care about fancy rooms, but they also want fast check-in.

2. Policy/Standards Gap

 Meaning: The company knows what customers want but sets the wrong rules or standards.

 Example: Management knows check-in should be fast but has a slow procedure in place.

3. Delivery Gap

 Meaning: The employees don’t deliver service as planned.

 Example: Staff is trained to greet guests politely, but during busy times, they forget.

4. Communication Gap

 Meaning: The company promises more than it delivers in ads or brochures.

 Example: Hotel advertises “instant check-in,” but guests experience delays.

5. Customer Gap

 Meaning: The difference between what customers expect and what they actually get.

 Example: Guests expect fast, friendly service but face delays and unfriendly staff, leaving
them dissatisfied.

In Short:

 Gaps 1–4 are internal problems in the company.

 Gap 5 is the result of these problems, seen by the customer as poor service.

Simple Idea: If a company wants happy customers, it must know what they want, set the right
standards, deliver properly, and communicate honestly.

Mehrabian-Russell Stimulus-Response Model

Overview

The Mehrabian-Russell (M-R) Model is a psychological framework that explains how environmental
stimuli influence a person’s emotional responses, which then affect their behavior. It is widely
applied in service environments to understand customer reactions.

Key Components

1. Stimulus (S): External environmental factors such as the physical surroundings of a service.

o Example: Lighting, music, decor, temperature, signage in a hotel or restaurant.

2. Organism (O): Emotional and psychological reactions of the customer.

o Emotions are typically measured using Pleasure–Arousal–Dominance (PAD)

dimensions:

 Pleasure: How happy or satisfied a customer feels.

 Arousal: Level of stimulation or excitement.

 Dominance: Feeling of control in the environment.

3. Response (R): The resulting behavioral response, such as approach or avoidance.

 o Example: Customers stay longer, explore more, make purchases, or leave the
premises.

Example in Service Environment

 A coffee shop with pleasant lighting, soft music, and comfortable seating (Stimulus) →
makes customers feel relaxed and happy (Organism) → they stay longer, buy more, and
return in the future (Response).

Russell’s Model of Affect – Overview

Russell’s Model of Affect is a framework to understand emotions by placing them in a two-

dimensional space rather than listing them individually. It is widely used in consumer behavior and
service marketing to study how customers respond emotionally to an environment.

The Two Dimensions

1. Pleasure–Displeasure (Valence)

o Measures how positive or negative a person feels.

o Pleasure: Happiness, satisfaction, enjoyment.

o Displeasure: Sadness, frustration, dissatisfaction.

2. Arousal–Sleepiness (Activation)

o Measures how energized or calm a person feels.

o High arousal: Excited, alert, stimulated.

o Low arousal: Relaxed, calm, sleepy.

Application in Service Environments

 Retail stores: Bright lights, lively music → high pleasure, high arousal → encourages
exploration and purchases.

 Spas: Soft lighting, calm music → high pleasure, low arousal → promotes relaxation and
repeat visits.

 Airports or banks: Unpleasant, crowded, or noisy → low pleasure → customers feel

frustrated and want to leave.
Russell’s Model of Affect helps managers design service environments to generate the desired
emotional state in customers, influencing satisfaction, loyalty, and spending behavior.

The Flower of Service – Explained

The Flower of Service model illustrates that every core service (the main service the customer is
buying) is surrounded by a set of supplementary services that help enhance its value and improve
the customer experience.

Distributing Services through Physical and Electronic Channels

Distribution of services refers to the methods and channels used to deliver a service to customers —
making the service accessible at the right place, time, and form.

Unlike physical goods, services are often produced and consumed simultaneously, so distribution
involves both:

 The service provider’s presence (people, equipment, facility), and

 The customer’s accessibility (location, devices, online access).

Physical (Traditional) Distribution Channels

These are tangible, face-to-face channels where the customer and service provider interact in
person.

Feature Explanation / Example

Service Outlets /
Banks, hospitals, restaurants, retail stores, etc.
Branches

A service brand grants rights to independent operators (e.g., McDonald’s,

Franchising
Domino’s, or hotel chains).

Agents & Brokers Travel agents selling airline tickets or insurance agents offering policies.

Home Delivery / On-site Plumbers, repair technicians, or beauty services visiting customers’
Service homes.

2. Electronic (Digital) Distribution Channels

These are technology-based systems that allow customers to access services remotely.
Feature Explanation / Example

Websites & Apps Online banking, e-learning, hotel booking, or food delivery apps.

Self-service Kiosks / ATMs Customers perform transactions themselves.

Call Centers / Chatbots Service assistance via phone or chat.

Streaming / Cloud Netflix (entertainment), Coursera (education), or Zoom

Platforms (communication).

Hybrid (Multichannel) Distribution

Most modern services use a combination of both physical and electronic channels — giving
customers flexibility and convenience.

Examples:

 Banks: Physical branches + ATMs + Mobile banking app.

 Universities: On-campus classes + Online learning portals.

 Retailers: Physical stores + E-commerce websites (e.g., IKEA, Walmart).

UNIT 4

Managing Relationships & Building Loyalty

In services marketing, managing relationships and building loyalty are central because services are

intangible and depend heavily on trust and repeated interactions.

Why Relationship Management & Loyalty Are Critical

 Services are inseparable from the provider, so the customer’s experience matters more than
the product itself.

 Acquiring a new customer can cost 5–7 times more than retaining an existing one.

 Loyal customers are more likely to:

o Spend more per transaction

o Recommend the service to others

 o Forgive minor service failures

A key part of relationship management is creating customer loyalty, which means customers
repeatedly choose the same service provider. Loyal customers are more profitable, less price-
sensitive, and often act as brand ambassadors through word-of-mouth.

Companies build loyalty through several strategies:

1. Financial Bonds:
These include price incentives such as discounts, loyalty points, cashback, and membership benefits.
They encourage repeat purchases but are easy for competitors to copy.

2. Social Bonds

Personal relationships between employees and customers.

Examples: Personalized greetings, remembering preferences, friendly interactions.

birthday/anniversary messages.

3. Structural Bonds:
These involve value-adding solutions that are difficult to replace, such as customized services,
integrated systems, or exclusive digital platforms. Structural bonds make switching inconvenient.

Service Quality & Trust:

Consistent reliability, responsiveness, empathy, and assurance build trust. High service quality
reduces uncertainty and encourages long-term loyalty.

6. Effective Complaint Handling:

Quick resolution, empathy, and fair compensation help recover dissatisfied customers and may even
increase loyalty (service recovery paradox).

Customization Bonds

Firms offer customized or tailored services that match individual customer needs.
Examples: Personalized investment plans, tailored fitness programs, customized hotel room setups,
teacher customizing lessons.
Purpose: Customers stay loyal because the service fits them perfectly.
Benefit: High perceived value and differentiation.

Customer Relationship Management (CRM)

Customer Relationship Management (CRM) refers to the strategies, processes, and technologies
that organizations use to manage interactions with customers, with the goal of building long-term
relationships and improving loyalty.

CRM shifts the focus from one-time transactions to understanding individual customer needs,
offering personalized service, and increasing customer lifetime value. It collects and analyzes
customer data—such as purchase history, preferences, and behaviour—to deliver more relevant and
satisfying experiences.

✅ Key Objectives of CRM

 Enhance customer satisfaction and retention

 Increase repeat purchases and loyalty

 Identify profitable customers

 Personalize communication and service offerings

 Improve service quality and responsiveness

 Reduce marketing and servicing costs

Banking

 Banks use CRM to track customer spending and offer personalised loan or credit card offers.

 CRM alerts banks when a customer’s fixed deposit is about to mature → they send
reminders and renewal options.

 Relationship managers get customer data to suggest investments based on risk profile.

E-Commerce

 Amazon recommends products based on past purchases, browsing history, and wishlist
data.

Telecom

 Jio or Airtel use CRM to identify customers likely to switch plans (churn prediction).

 They send retention offers, extra data, or lower tariffs to keep the customer.

6. Healthcare

 Hospitals store patient history, diagnosis, and preferences.

  CRM sends reminders for follow-up checkups, vaccinations, or lab reports.

Complaint Handling and Service Recovery

Complaint Handling

Complaint handling refers to the process of receiving, addressing, and resolving customer
grievances in a timely and fair manner.
The objective is to show customers that the organization cares and is committed to correcting
mistakes.

✅ Key Elements of Complaint Handling

1. Accessibility
Customers should find it easy to register complaints through phone, email, app, or in person.

2. Empathy and Courtesy

Staff must listen actively, acknowledge the issue, and show understanding.

3. Promptness
Fast response reduces frustration. Delays amplify dissatisfaction.

4. Fairness
Solutions must be transparent and reasonable, such as refunds, replacements, or apologies.

5. Documentation & Follow-up

Proper recording ensures problems don’t repeat and customers feel valued.

A customer complains about a failed ATM withdrawal.

→ The bank registers the complaint immediately, investigates, and reverses the amount within 24
hours, sending an apology SMS.

Telecom : A customer complains of network issues.

→ The telecom company sends a technician, resolves the signal problem, and updates the customer
via SMS.

Hotels : A guest reports noise disturbance.

→ The hotel staff shift the guest to a quieter room and offer a courtesy apology call.

Service Recovery Strategies

1. Apology and Acknowledgment

Accept responsibility and show genuine regret.
 2. Immediate Fix
Correct the problem quickly (rebooking, replacement, refund).

3. Compensation
Offering discounts, upgrades, vouchers, or complimentary services.

4. Empower Employees
Frontline staff should have authority to solve issues without delay.

5. Root Cause Analysis

Identify why the failure occurred and prevent future problems.

Example:
If a hotel room AC is not working, the hotel may shift the guest to a better room, offer a free dinner,
and apologize sincerely.

A flight is delayed by 3 hours.

→ The airline gives passengers meal vouchers, communicates updates clearly, and offers free
rebooking options.

Restaurants : Long waiting time for food due to kitchen error.

→ The restaurant offers a free dessert or bill discount along with a sincere apology.

Service Audit

A Service Audit is a systematic and objective evaluation of how well a service organization delivers its
services compared to customer expectations, standards, and competitors. It helps identify gaps in
service performance, strengths, weaknesses, and opportunities for improvement.

The goal of a service audit is to improve service quality, ensure consistency, reduce failure points,
and enhance customer satisfaction and loyalty.

✅ Key Components of a Service Audit

✅ 1. Service Standards Review

Examining whether the organization’s service standards (timeliness, accuracy, courtesy, cleanliness)
are being met.
Example: A hotel evaluates if check-in time is consistently under 5 minutes.

✅ 2. Customer Experience Evaluation

Assessing the service from the customer's perspective through surveys, feedback, mystery shopping,
or interviews.
Example: A bank uses mystery shoppers to test employee behaviour and response time at the
branch.

✅ 3. Process and System Analysis

Identifying bottlenecks, delays, or inefficiencies in the service delivery process.

Example: A hospital reviews the patient registration and billing workflow to reduce waiting time.

✅ 4. Employee Performance Review

Assessing whether employees follow standards, have required skills, and provide courteous service.
Example: A restaurant audits staff greeting, order-taking accuracy, and hygiene practices.

✅ 5. Competitor Benchmarking

Comparing service quality with industry competitors to identify best practices.

Example: An airline studies competitors' baggage handling time and punctuality.

Customer Complaining Behaviour

Customer Complaining Behavior refers to how customers respond when they experience
dissatisfaction or a service failure. Because services are intangible and involve human interaction,
complaints provide valuable feedback about service quality. Understanding complaining behavior
helps firms design better recovery strategies and retain customers.

Customers generally complain for three reasons:

1. They want the problem fixed,

2. They want compensation,

3. They want to express frustration or warn the company.

✅ Types of Customer Complaining Behavior

✅ 1. Voice Response (Direct Complaint to the Company)

Customers complain directly to the service provider seeking resolution.

Examples:

 A bank customer reports a wrong charge.

 A hotel guest complains about an unclean room.

This is the most useful type of complaint for businesses.

✅ 2. Private Response (Negative Word-of-Mouth)

Customer shares dissatisfaction with friends, family, or online communities instead of contacting the
firm.
Examples:

 Posting a negative review on Google.

 Telling friends not to visit a restaurant.

This harms the company’s reputation even though it receives no direct feedback.

✅ 3. Third-Party Response

Customer approaches an external agency or authority to resolve the complaint.

Examples:

 Filing a complaint with consumer court.

 Reporting to ombudsman (Banking Ombudsman in India).

 Approaching media or social media influencers.

This usually happens when customers feel ignored or unfairly treated.

✅ Why Some Customers Complain and Others Don’t

1. Awareness: Some customers don’t know how or where to complain.

2. Effort: Complaining seems too time-consuming.

3. Confidence: They doubt the company will respond.

 4. Personality: Some customers are more vocal; others avoid conflict.

5. Past experience: Previous poor handling discourages complaints.

Service Guarantees