Service Management, BBM, 6th sem
Chapter - 1
SERVICES
Introduction
The economic activities have been divided into mainly three classes. They are – Primary,
Secondary, and Tertiary. Primary activities includes – agriculture, fishing and forestry.
Secondary activities includes – industry ( manufacturing and construction ). Tertiary activities
includes services. Up to the industrial revolution, agriculture was dominated in economic sector.
After the industrial revolution, industry started to dominate the economy and presently service
sector dominate the whole economy of world. The economic growth is not equal in all countries.
In many Asian and African countries, agriculture is still the dominant factor of their economies.
At the same time there are some countries with industry as the dominant factor of their
economies.
Service
According to the economic point of view a service is an intangible commodity. That is,
services are an example of intangible economic goods. A service is any activity or benefit that
one party can offer to another that is essentially intangible and does not result in the ownership
of anything. Its production may or may not be tied to physical product.
Examples - Education service - Insurance service - Banking service - Film Theater - Medical
service - Telecommunication service
Characteristics of services:
1. Perishability:
Service is highly perishable and time element has great significance in service marketing.
Service if not used in time is lost forever. Service cannot stored.
2. Fluctuating Demand:
Service demand has high degree of fluctuations. The changes in demand can be seasonal or by
weeks, days or even hours. Most of the services have peak demand in peak hours, normal
demand and low demand on off-period time.
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3. Intangibility:
Unlike product, service cannot be touched or sensed, tested or felt before they are availed. A
service is an abstract phenomenon.
4. Inseparability:
Personal service cannot be separated from the individual and some personalised services are
created and consumed simultaneously.
For example hair cut is not possible without the presence of an individual. A doctor can only
treat when his patient is present.
5. Heterogeneity:
The features of service by a provider cannot be uniform or standardised. A Doctor can charge
much higher fee to a rich client and take much low from a poor patient.
6. Pricing of Services:
Pricing decision about services are influenced by perishability, fluctuation in demand and
inseparability. Quality of a service cannot be carefully standardised. Pricing of services is
dependent on demand and competition where variable pricing may be used.
7. Service quality is not statistically measurable:
It is defined in form of reliability, responsiveness, empathy and assurance all of which are in
control of employee’s direction interacting with customers. For service, customers satisfaction
and delight are very important. Employees directly interacting with customers are to be very
special and important. People include internal marketing, external marketing and interactive
marketing.
Difference between Goods and Services
There is a relevant difference between goods and services that is dependent on both tangible and
intangible factors. The following are the basic 20 differences between goods and services:
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# Basis for Goods Services
comparison
1 Meaning Material objects that could be Service is a type of activity that one party
touched, seen, or felt and are may provide to another without transferring
available for sale to consumers ownership. Service does not have a tangible
are referred to as goods. identity and therefore could not be owned; it
could only be used.
2 Nature The nature of goods is that they The nature of services is that they are
are homogeneous and tangible. heterogeneous and intangible.
3 Separable It is possible to separate the Services may not be separated from the
goods from the seller. service provider
4 Return If the goods are defective, they Since the manufacture and usage of service
may be returned for a refund or happen simultaneously, services could not be
credit. returned after they have been provided.
5 Transfer of When the buyer pays the The ownership of services cannot be
Ownership consideration for the goods, transferred.
ownership transfers from the
seller to the buyer.
6 Perishability Goods may be kept in physical Services can’t be stored because they’re
inventory in a lot, warehouse, highly perishable.
or store until they are bought,
after which they have been
used and stored at a person’s
home or workplace. They don’t
spoil because they’re non-
perishable.
7 Storage Goods may be stored for future It is impossible to store service.
use or used several times.
8 Quantity Goods come in a variety of Services, on the other hand, are impossible to
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# Basis for Goods Services
comparison
shapes, forms, and sizes and quantify numerically. Although various
could be numerically service providers are available, the idea
quantified. remains the same.
9 Quality The quality of goods could be Quality could not be measured in the case of
measured and compared to that services.
of other goods.
10 Core value The core value of goods is their The core value for service is it produces at
production in a company or the time when the buyer and the service
factory. provider interact.
11 Standardizatio Standardization and the However, when services are delivered, the
n grading of the production quality of the services differs.
process could be used to
control the quality of goods.
12 Participation The customer is not Customer participates in the production
participated in production in process of services
the case of goods.
13 Variability In terms of physical Diversified
characteristics and
specifications, a good would
remain the same.
14 Evaluation The process of evaluating Since different service providers provide
goods is easy and simple. similar services but charge different amounts,
evaluating services is a difficult task. It could
be because their methods of providing
services differ or because the criteria they use
to value their services differ.
15 Need vs. A good is one that is designed For a service, though, satisfaction is
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# Basis for Goods Services
comparison
Relationship specifically to meet the needs achieved, but nothing is carried away.
and desires of consumers, and Essentially, the development of a customer
it could be carried away. relationship is at the heart of service
marketing.
16 Shelf line If a good may not sell within a In comparison to a good, a service has a
specified time, it may be sold shorter shelf line.
at a later date.
17 Return Back If a customer is unhappy with Services can’t be returned or substituted after
their purchase, they could they’ve been purchased, but they can often be
return it and receive a refund. refunded.
18 Patent The majority of manufactured Since most services are not patentable, they
goods are patentable. are easily copied.
19 One vs. Many. Goods are commonly available Usually, services do not have multiple
in a variety of formulations. formulations. Regardless of whether you’re
Clothes are available in a going to the hospital for tennis elbow or
variety of types, colors, and diabetes, a doctor’s visit is a doctor’s visit.
sizes. Different ingredient (You can use various service providers, but
combinations are available in the basic elements would remain the same.)
cat food.
20 Simultaneous The goods are manufactured Services are created and consumed
Production and first, then exchanged, and simultaneously. 99% of the time, service is
Consumption eventually consumed. So, here consumed as soon as it is produced.
are the three steps:
Production
Realization
Consumption
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1. People processing involves tangible actions to people's bodies. Examples of people-processing
services include passenger transportation, haircutting, and dental work. Customers need to be
physically present throughout service delivery to receive its desired benefits. Services that
involve tangible actions
to people's bodies.
2. Possession processing includes tangible actions to goods and other physical possessions
belonging to the customer. Examples of possession processing include airfreight, lawn
mowing, and cleaning services. In these instances, the object requiring processing must be
present, but the customer need not be. tangible actions to goods and other physical possessions
belonging to customers.
3. Mental stimulus processing refers to intangible actions directed at people's minds. Services in
this category include entertainment, spectator sports, theater performances, and education. In
such instances, customers must be present mentally but can be located either in a specific
service facility or in a remote location connected by broadcast signals or telecommunication
linkages. intangible actions directed at peoples minds.
4. Information processing describes intangible actions directed at a customer's assets.
Examples of information-processing services include insurance, banking, and
consulting. In this category, little direct involvement with the customer may be needed
once the request for service has been initiated. Let's examine why these four different
types of processes often have distinctive implications for marketing, operations, and
human resource strategies. intangible actions directed at customers' assets.
5. Pure Tangible Good – This offering is a pure physical product like toothpaste, packaged
food, soaps, sugar, etc. There is no service associated except the courteous response and
help from the sales people.
6. Tangible Good with accompanying services – The tangible offering is made available
along with 1 or 2 services for a better customer experience. Most of the technologically
advance and expensive products have quality services associated with their sale. These
can be free installation, free servicing for a certain period, warranties and guarantees, etc.
These are directed towards increase in sales. For example, most of the Mobile
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manufacturers during their launch always emphasise the number of service centres they
have in the region.
7. Hybrid – The offering is an equal combination of the tangible good and the intangible
service. For example, a premium restaurant with quality food and service, and Domino’s
quality offering with free delivery within promised time.
8. Major Service with accompanying minor Goods and Services – In this category a
major service is provided along with some additional service and/ or goods. For example,
travel by airline or a first class train travel accompanies food, drinks, books, magazine,
internet, etc. The passenger pays for the transportation and these additional/
complementary food items and services from the staff enhance the travel experience of
the passenger.
9. Pure Service – The offering is only a service provided without any accompanying
tangible product or additional service. For example, courier service, massage, financial
consultant, and psychotherapy.
Types of services
Services are classified into two groups, ie services in consumer markets and services in
industrial market.
1. Services in consumer markets
The following services come under this category
A).Food services
Food services are offered by hotels, restaurants and catering services. Food is supplied in
restaurants as well as delivered to customers’ residence. Catering agents supply food for
occasions like wedding, engagements, birthday, conference etc.
b). Boarding and lodging services.
These services are provided by hotels and lodges to the people who travel to distant
places.
Growing tourism has contributed to remarkable growth in boarding and lodging services.
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c). Personal care services
These are the services provided to meet the personal care needs of customers like health,
appearance, physical fitness etc. personal care service include service offered by beauty
parlors, barbershops, gymnasiums, dry cleaners hospitals etc.
d).Entertainment service
These services include cinema, drama, dance, music, amusement park, cable,TV etc.
There is an increasing tendency among the people to send more money on entertainment
services.
e).Transport services
These include the services provided by railways, road transporting facilities, air transport
such as flights and helicopters and water transporting services such as ships and boats.
f).Automobile services
These are services provided to the owners of automobile vehicles for their repair and
maintenance. They are provided by units called service stations.
g).Communication services
These are services provided to help people to exchange4 information. These services
include telephone, telegraph, e-mail, telex, fax etc. mobile phone and internet has
revolutionalised the field of information communication.
h). Education service
Education service provide coaching to students in various desceplines and to prepare
them for various examinations. These services are provided by schools, colleges and universities.
i). Insurance service
Insurance services are provided to protect people against the risk of loss of life and
properties. Insurance companies sell various insurance policies in the field of life insurance
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and general insurance. They provide a sense of security to the policy holders.
j). Financial services
These are the services provided to the people to meet their varied financial needs. They
are performed by various financial institutions like banks, NBFCs, Chitty companies, stock
brokers, mutual fund companies etc. Their services include keeping of deposits, providing
various types of loans, discounting bills, hire purchase financing stock broking etc.
2. Services in industrial market
The following services come under this category.
a. Financial services
Finance is essential for carrying out business operations. Companies require both short
tem and long term finance. This finance is provided by commercial banks, merchant banks and
other financial institutions. Investment companies guide firms in investing in share and bonds.
b. Insurance service
All business units are exposed to variety of risks. Insurance companies provide necessary
protection against risk such as fire, marine losses, theft, accidents etc.
c. Transport services
Business units require transport services for moving men and materials to the factory and
men finished goods from factory. These services are provided by various transport companies
by means of trains, trucks, buses ships aero planes etc.
d. ware housing service
Warehousing services are required for keeping materials and finished goods until they are
needed for use. Warehoused in public sector and private sector offer these services to the
business units.
e. Advertising services
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Advertising is the most commonly and widely used mode of promotion. Advertising
agencies help the businessmen to plan and implement advertising campaigns. They also help to
study the effectiveness of advertising.
f. Consultancy services
Consultancy services refer to advice given to management on various matters such as
production, marketing, finance etc. Most of the business units especially small and medium
sized depend on management consultancy firms to solve their problems.
g. Office services
Several types of services are required for the efficient functioning of business offices.
These include Xeroxing, scanning, cleaning etc.
h. Engineering services
Engineering services include assistances given to business units in planning new projects,
designing plants, construction of buildings, erection plant and machinery etc. therse4 services
are provided by sepecialised engineers.
[Link] services
HR services considered as the most important asset of a business concern. Proper
selection and training of man power is essential for organizational development. Selection and
training is often entrusted to specialized recruitment agencies.
SERVICE MARKETING
Service marketing is marketing based on relationship and value. It may be used to market
a service or a product. With the increasing prominence of services in the global economy, service
marketing has become a subject that needs to be studied separately. Marketing services is
different from marketing goods because of the unique characteristics of services namely,
intangibility, heterogeneity, perishability and inseparability.
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Service marketing refers to the application of a different set of tactics or strategies to
anticipate the consumer’s need for an intangible product. And thus, meet their requirements
accordingly, to create maximum value for them from their purchase.
The marketing of services is different from the marketing of products. While selling off
services, convincing the consumers and pricing the intangible products is a challenging task.
Characteristics of Service Marketing
Services are very different from goods or tangible products, and so is its marketing needs.
The general marketing strategies may not apply to the marketing of intangible products.
Some of the basic features which differentiate service marketing from the usual marketing are as
follows:
a. Intangibility
The service is considered as an intangible product which cannot be seen or touched or physically
felt but can only be experienced.
In case of a service, the consumer’s buying decision is wholly based on his understanding of the
service offering. He/she spends ample time and efforts in decision making, especially for those
services which involve huge investment and risk.
The marketer’s assurance on the performance of the service influences the consumer’s decision.
However, even a little negative publicity may lead to consumer turnover.
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b. Use of Tangible Products
The service providers make use of various tangible or real products to deliver appropriate service
to the consumers. The products absorbed for providing services create value for the customers.
For instance, a travel agent needs to book train tickets (which are usually available in a physical
form) for the clients. Thus, the traveller’s experience of the journey is based on the ticket
available with him/her.
c. No Stock Maintenance
The services are intangible and are provided then and there; thus, unlike products, no inventory
needs to be maintained in such cases. The profitability in the service industry depends upon the
excellence of the service provider and business operations.
For example, a photographer is known for his/her skills, clicks and portfolio, and he/she doesn’t
need to maintain any stock. On the contrary, a person selling cameras and albums is known for
the product quality and needs to keep sufficient inventory.
d. Low Price Sensitivity
When we talk about the service industry, we see that the consumers are not price-conscious but
are more concerned about the quality of service they get. A zero-defect service product has the
highest earning potential.
Thus, we can say that consumer’s price sensitivity towards service is inversely related to the
level of performance expectation. In the case of service products like vehicle mechanic, the price
sensitivity is quite high. Even though the level of performance expectation is low (i.e., there is a
scope of resilience to imperfection).
However, in financial products like education, there is little price sensitivity, but the level of
performance expectation is quite high (with zero tolerance to imperfection).
e. Value Creation Process
The four significant elements or 4P’s of a service which is responsible for consumer satisfaction
and value creation are the paces, people, proof and process involved.
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The service marketing mix constitutes of these elements along with the traditional marketing
mix elements, i.e., product, price, promotion and place
For instance, ola cab services are known for the instant booking of cabs, humble drivers, facility
of ‘one-time password’ and easy app accessibility.
Paradigm in Service Marketing
The present marketing scenario is a lot more different from what it used to be earlier. The belief,
mindset, perception and attitude of the consumers have changed tremendously.
Discussed below are the new set of paradigm for modern marketing in terms of services:
Service Categories
Service industry seems to be more complicated than the manufacturing industry. The services
can be either tangible or intangible; people-oriented or product oriented.
These are further classified into the following four major categories based on their applicability:
Customer Oriented
In the service industry, customization of the product offering becomes essential as compared to
that of the manufacturing industry. The customer’s needs, perception and requirements are given
significance while carrying out the business operations in as a service provider.
Single Take
Service is a one-take action, i.e., it cannot be restored, redone, replaced or exchanged. It is
intangible and irreversible; thus, it needs to be perfect and well-delivered at the first time itself.
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An organization, therefore, requires trained and experienced personnel to provide services
because a lousy consumer experience may lead to negative publicity, which affects the brand
name and equity.
Service as a Process
In the service industry, the process plays an important role. The process here refers to the steps
involved in availing the service by the consumer.
An organization must keep a watch over each of these steps. It must ensure humbleness, honesty
and sincerity of the personnel involved in the interaction with the consumers, while the execution
of each of these steps.
Speed and Accuracy
The consumers prefer prompt services without any interruption. Therefore, the rate with which
the service is provided is considered as a parameter for efficient service. It is also responsible for
the selection of one service provider over the other, by the consumers.
Service Marketing Triangle
Christian Gronroos initially developed the service marketing triangle model in the year 2000. It
depicts the relationship between three essential elements of a service industry, i.e., company,
employees and consumers.
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It emphasizes on the division of the marketing tasks into following three categories based on the
required skills, strategies and priorities for service marketing:
Internal Marketing
The internal marketing connects the company with the employees where the employees are
assisted, guided and trained for providing the services to the customers.
The employees are introduced to the organizational goals, and their queries or problems are
resolved. The best performers are even appreciated through the performance reward system.
External Marketing
This is the direct form of service marketing. Here the company reaches out to the target
consumers through website, advertisements, social media and other relevant platforms, to keep
the business rolling.
Interactive Marketing
One of the most crucial marketing tasks is the actual delivery of services to the consumer by the
employees. The success of interactive marketing depends upon the proper execution of internal
and external marketing.
The employees aim at consumer satisfaction, long-term association and customer retention in
interactive marketing. The image of the company is in the hands of the employees.
When some business sectors are purely engaged in intangible products, the others either deal in
100% tangible products or include both real and intangible products.
The service industry has immensely evolved in recent years to provide assistance to the
manufacturing industry and also contribute to the development of the economy.
Role of Service on Economy
Like primary and secondary sectors, service (tertiary) sector also plays an important role for the
economic development of a country. According to economists like Colin Clark, Simon Kuznets
etc., the development of a country depends on the performance of the service sector.
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In a modern economy the share of primary sector towards national income is gradually reducing,
whereas; the shares of secondary and tertiary sectors are improving day by day. In 1950-51, the
contribution of service sector in national income was 34%, which rose up to 48.5% in 2000-01.
Service sector mainly includes transports and communications, banking and insurance,
education, health etc.
The main features of the tertiary sectors are:
(i) This sector helps in the development of the primary and secondary sectors.
(ii) The activities related to this sector do not produce key good but they are an aid or a support
for the production process.
(iii) It also provides essential services that may not directly help in the production of goods such
as services of teachers, doctors, barbers, lawyers, etc.
(iv) In recent times, certain new services based on information technology etc have become more
important.
(v) The services which are included in the tertiary sectors are transport, storage, communication,
banking, trade, etc.
Service sector plays a vital role in the development of a modern economy. In fact this sector is so
vital that total performance of an economy depends on the performance of the tertiary sector.
(i) Share in Net National Product:
At present, the service sector contributes the maximum share in country’s net national product at
factor cost (national income). According to 2000-01, 48.5 % share of national income comes
from service sector and moreover, 22.9% of total working population are employed in this
sector.
(ii) Helps Industrialization:
The development of industries is dependent on the performance and improvement of transport,
communication, electricity, banking etc. in a country. Transport system helps to carry raw
materials, finished goods and labourers in their required destination. Communication helps to
widen the market industrial goods. Electricity and banking services help to flourish the industries
in remote areas.
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(iii) Expands Agriculture:
Service sector helps to develop the agricultural production by providing better network facilities.
It helps to carry raw materials and finished goods from one place to another.
(iv) Removes Regional Imbalances:
This sector provides a well-organised transport and communication service. It also provides
sufficient banking services along with expansion of education and medical facilities in the
backward regions of the country. Thus it helps to wipe out the problem of regional imbalances
and disparities within the country.
(v) Growth of Market:
This sector provides different types of services to both agriculture and industrial sectors. Thu: in
other way, it helps to grow the proper markets for both agricultural and industrial goods finished
goods as well as raw materials or semi-finished goods.
(vi) High Quality of Life:
Better services in the areas of transport and communication, banking and insurance, education
and health etc must help a country to pave the path for economic development by increasing the
quality of life or standard of living within the country. It also helps to improve the value of HDI
(Human Development Index) of a country.
(vii) Increase Productivity:
This sector helps the working force by giving sufficient technical education and proper medical
facilities. Moreover, a well-organised network of transport and communication system increases
the mobility and informations among the workers. All these make the labourer more skillful and
efficient and thus the productivity (producing capacity of a labourer) will increase
simultaneously.
(viii) Rise in International Trade:
A well-developed service sector, specially transport, communication banking etc., helps to
expand the international trade. Hence, it will also help to increase the foreign exchange reserve
within the country.
(ix) In a developing country, the government has to take the responsibility for the provision of
basic services for example, hospitals, educational institutions, post and telegraph services, police
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stations, courts, village administrative offices, municipal corporations, defence, transport, banks,
insurance companies, etc.
(x) The development of agriculture and industry leads to the development of services such as
trade, transport, storage, etc. Greater the development of the primary and secondary sectors,more
would be the demand for such services.
(xi) As income levels rise, certain sections of people start demanding many more services, such
as eating out, tourism, shopping, private hospitals; private schools, professional training, etc.
This change was quite sharp in cities, especially in big cities.
(xii) Over the past decade or so, certain new services, such as those based on information and
communication technology have become important and essential.
(xiii) Government policy of privatisation has also led to growth of this sector.
(xiv) A large number of workers are engaged in services, such as small shopkeepers, repair
persons, transport persons, etc.
(xv) However, the entire sector has not grown. Large numbers of people engaged as construction
workers, maid, peons, small shopkeepers, etc., do not find any change in their life.
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