CHAPTER 1

Nature and definition of services

Introduction

The world economy nowadays is increasingly characterized as a service economy. This is primarily due to
the increasing importance and share of the service sector in the economies of most developed and
developing countries. In fact, the growth of the service sector has long been considered as indicative of
a countrys economic progress.

Economic history tells us that all developing nations have invariably experienced a shift from agriculture
to industry and then to the service sector as the main stay of the economy.

This shift has also brought about a change in the definition of goods and services themselves. No longer
are goods considered separate from services. Rather, services now increasingly represent an integral
part of the product and this interconnectedness of goods and services is represented on a goods
services continuum.

Definition and characteristics of Services

The American Marketing Association defines services as Activities, benefits and satisfactions which are
offered for sale or are provided in connection with the sale of goods.

The defining characteristics of a service are:

Intangibility: Services are intangible and do not have a physical existence. Hence services cannot be
touched, held, tasted or smelt. This is most defining feature of a service and that which primarily
differentiates it from a product. Also, it poses a unique challenge to those engaged in marketing a
service as they need to attach tangible attributes to an otherwise intangible offering.

Heterogeneity/Variability: Given the very nature of services, each service offering is unique and cannot
be exactly repeated even by the same service provider. While products can be mass produced and be
homogenous the same is not true of services. eg: All burgers of a particular flavor at McDonalds are
almost identical. However, the same is not true of the service rendered by the same counter staff
consecutively to two customers.
Perishability: Services cannot be stored, saved, returned or resold once they have been used. Once
rendered to a customer the service is completely consumed and cannot be delivered to another
customer. eg: A customer dissatisfied with the services of a barber cannot return the service of the
haircut that was rendered to him. At the most he may decide not to visit that particular barber in the
future.

Inseparability/Simultaneity of production and consumption: This refers to the fact that services are
generated and consumed within the same time frame. Eg: a haircut is delivered to and consumed by a
customer simultaneously unlike, say, a takeaway burger which the customer may consume even after a
few hours of purchase. Moreover, it is very difficult to separate a service from the service provider. Eg:
the barber is necessarily a part of the service of a haircut that he is delivering to his customer.

The Goods-service Continuum

The goods and services continuum enables marketers to see the relative goods/services composition of
total products. A products position on the continuum, in turn, enables marketers to spot opportunities.
At the pure goods end of the continuum, goods that have no related services are positioned. At the pure
services end are services that are not associated with physical products. Products that are a combination
of goods and services fall between the two ends.

For example, goods such as furnaces, which require accompanying services such as delivery and
installation, are situated toward the pure goods end. Products that involve the sale of both goods and
services, such as auto repair, are near the center. And products that are primarily services but rely on
physical equipment, such as taxis, are located toward the pure services end.

A few observations of the Continuum model can be made:

The offerings of a firm range from pure goods to pure services.

Those that are mostly goods are tangible and are very easy to evaluate by the consumer (like fabrics,
jewellery, a house etc.). A consumer finds it very difficult to evaluate those offers which are mostly
services because of their intangibility (like legal and counselling advice, medical diagnosis etc).

The range of offers has different qualities in themselves and the customer looks for or seeks these
qualities:

Those that are mostly goods show search qualities. Customers know exactly what they want and look for
those features in the offer. Thus, an apartment hunter would look for a 2bedroomhallkitchen property
in Bandra admeasuring 900 square feet in carpet area. Or, a lady might look for specific designs in a 23
carat bangle from a Tanishq outlet. Mr. Joseph looks for worsted, blue woollen suit material for himself
etc.
Thus a marketer can put the search quality features on prominent display and make it easier for
customers to get details or access. If the customers do not find these features in their search they may
become anxious and may not buy or they may go for rival products where there is easier access to
information.

Those offers that are mostly services evince credence qualities There are no tangible features for the
customer to search for. He then looks for credo qualities in the offer Reputation of the offer becomes
the decisive factor. He has very few other alternatives to compare. Thus, Mrs. Manjrekar would choose
only that lawyer to fight her divorce and custody battle who has a reputation for winning such court
cases. A patient would. choose his doctor or surgeon on the basis of his reputation.

We tend to give our computers or for repair on the basis of the reputation of the repairman. A
marketer of such offers has to be doubly careful in highlighting the credibility of the service provider. An
actor is never called again for a stage play if his histrionic talent is in question; a doctor or surgeons
whose ethical reputation is in question right never have patients. Thus, in the productservice
continuum, services can be classified in three ways, under the range or degree of tangibility highly
tangible to highly intangible. They are:

Highly tangible services:

They have high degree of tangibility. This is mainly because the services are rendered over certain
goods, e.g., car rentals. It is a service based entirely on cars. If a place had no cars, such a service would
cease to exist. For the marketer, it is both a boon and a curse. As mentioned, car rentals exist only
because cars exist. Its easy for the service marketer to be persuasive and tangibles the offer. He only
has to include the car in his communication; the service concept could be easily comprehended by the
consumer. In addition, if the car has a good brand image and is looking spick and, the car rental basks in
the reflected glory. If the car rental mentions in its advertisements about the type of cars in its pool, the
consumers perceive the quality of the company accordingly. Alternatively, if the car breaks down during
a rental service, the consumer will have a poor impression and image of the car rental company. He
would not reason that it was the car that broke down and failed and that the car rental company should
really not be blamed.

Examples of car rental companies in India are DialaCab, in Delhi, and WheelsRentACar (WRAC) of
the Bhoruka group, who also own Transport Corporation of India, the giant fleet trucking enterprise.
Other car rental companies are HertzRentACar and Avis in the United States.

Service linked to tangible goods: Here the service is linked to goods, either independently, or as part of
the marketers offer. If it is the latter, the service becomes a part of the total product concept. This takes
place when Videocon, the home appliance company, includes repair as part of its marketing mix. Even if
it is not included, home appliance repair is a service that is forever linked to goods. If there were no
home appliances in the world, such services would be nonexistent. A whole range of services exists in
the housing sector especially postconstruction like repair and maintenance.

Highly intangible services

In this classification under the continuum model, service is highly intangible. The services cannot be
touched, felt or seen, e.g., counselling, consultancy, psychotherapy, physiotherapy, a guest lecture, etc.

Types of Services

Core Services: A service that is the primary purpose of the transaction. Eg: a haircut or the services of
lawyer or teacher.

Supplementary Services: Services that are rendered as a corollary to the sale of a tangible product. Eg:
Home delivery options offered by restaurants above a minimum bill value.

Difference between Goods and Services

Given below are the fundamental differences between physical goods and services:

Goods Services

A physical commodity A process or activity

Tangible Intangible

Homogenous Heterogeneous

Production and distribution are separation from Production, distribution and consumption are
their consumption simultaneous processes

Can be stored Cannot be stored

Transfer of ownership is possible Transfer of ownership is not possible

Stated simply, Services Marketing refers to the marketing of services as against tangible products.

As already discussed, services are inherently intangible, are consumed simultaneously at the time of
their production, cannot be stored, saved or resold once they have been used and service offerings are
unique and cannot be exactly repeated even by the same service provider.

Marketing of services is a relatively new phenomenon in the domain of marketing, having gained in
importance as a discipline only towards the end of the 20th century.
Services marketing first came to the fore in the 1980s when the debate started on whether marketing
of services was significantly different from that of products so as to be classified as a separate discipline.
Prior to this, services were considered just an aid to the production and marketing of goods and hence
were not deemed as having separate relevance of their own.

The 1980s however saw a shift in this thinking. As the service sector started to grow in importance and
emerged as a significant employer and contributor to the GDP, academics and marketing practitioners
began to look at the marketing of services in a new light. Empirical research was conducted which
brought to light the specific distinguishing characteristics of services.

By the mid 1990s, Services Marketing was firmly entrenched as a significant sub discipline of marketing
with its own empirical research and data and growing significance in the increasingly service sector
dominated economies of the new millennium. New areas of study opened up in the field and were the
subject of extensive empirical research giving rise to concepts such as the productservice spectrum,
relationship marketing, franchising of services, customer retention etc.

Importance of Marketing of Services

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

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. Eg: In case of two fast food
chains serving a similar product (Pizza Hut and Dominos), 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.

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
fulfill them through the appropriate service offering and build a long lasting relationship which would
lead to repeat sales and positive word of mouth.

Customer Retention: Given todays 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 7 Ps of Services Marketing

The first four elements in the services marketing mix are the same as those in the traditional marketing
mix. However, given the unique nature of services, the implications of these are slightly different in case
of services.

Product: In case of services, the product is intangible, heterogeneous and perishable. Moreover, its
production and consumption are inseparable. Hence, there is scope for customizing the offering as per
customer requirements and the actual customer encounter therefore assumes particular significance.
However, too much customization would compromise the standard delivery of the service and adversely
affect its quality. Hence particular care has to be taken in designing the service offering.

Pricing: Pricing of services is tougher than pricing of goods. While the latter can be priced easily by
taking into account the raw material costs, in case of services attendant costs such as labor and
overhead costs also need to be factored in. Thus a restaurant not only has to charge for the cost of the
food served but also has to calculate a price for the ambience provided. The final price for the service is
then arrived at by including a mark up for an adequate profit margin.

Place: Since service delivery is concurrent with its production and cannot be stored or transported, the
location of the service product assumes importance. Service providers have to give special thought to
where the service would be provided. Thus, a fine dine restaurant is better located in a busy, upscale
market as against on the outskirts of a city. Similarly, a holiday resort is better situated in the
countryside away from the rush and noise of a city.

Promotion: Since a service offering can be easily replicated promotion becomes crucial in differentiating
a service offering in the mind of the consumer. Thus, service providers offering identical services such as
airlines or banks and insurance companies invest heavily in advertising their services. This is crucial in
attracting customers in a segment where the services providers have nearly identical offerings.

We now look at the 3 new elements of the services marketing mix people, process and physical
evidence which are unique to the marketing of services.
People: People are a defining factor in a service delivery process, since a service is inseparable from the
person providing it. Thus, a restaurant is known as much for its food as for the service provided by its
staff. The same is true of banks and department stores. Consequently, customer service training for staff
has become a top priority for many organizations today.

Process: The process of service delivery is crucial since it ensures that the same standard of service is
repeatedly delivered to the customers. Therefore, most companies have a service blue print which
provides the details of the service delivery process, often going down to even defining the service script
and the greeting phrases to be used by the service staff.

Physical Evidence: Since services are intangible in nature most service providers strive to incorporate
certain tangible elements into their offering to enhance customer experience. Thus, there are hair
salons that have well designed waiting areas often with magazines and plush sofas for patrons to read
and relax while they await their turn. Similarly, restaurants invest heavily in their interior design and
decorations to offer a tangible and unique experience to their guests.

Service triangle or The service marketing triangle

The service marketing triangle or the Service triangle as it is commonly called, underlines the
relationships between the various providers of services, and the customers who consume these services.

As we know, relationships are most important in the services sector. The service triangle outlines all the
relationships that exist between the company, the employees and the customers. Furthermore, it also
outlines the importance of systems in a services industry and how these systems help achieve customer
satisfaction.
As the name suggests, the service marketing triangle can also be used to market the service to
consumers. The marketing completely depends on the interaction going on between the customer and
the service provider. We will look at each of these interactions in detail, and also read on how to market
to your customer based on the interaction.

There are 6 main relationships in the Service triangle. And based on these relationships, there are three
ways to apply marketing tactics.

Let us first go through the 6 relationships in the Service marketing triangle

a) Company to Customers One of the critical thing is to communicate the service strategy to the
customers. Most of the Ecommerce companies are nowadays employed in convincing the
customers to buy from their portal only. For this buying, they are communicating various service
advantages which the customers have.

Communication of the service strategy to customers is important to build the trust of customers and
hence to convert the customers to be loyal to the company.
b) Company to employees Another important relationship in the service triangle is that between the
company and the employees. Imagine an Airline where the flight attendants themselves are frustrated
with the company. You, as a customer, will land up with the poorest services.

Hence, training employees, building value and trust, and empowering employees are some of the ways
that the company can make their employees a positive influencing force for the customers.

c) Company to systems To keep customers happy, efficient and productive systems need to be
developed. Imagine your bank in the 1960s where everything was done by paper. If you wanted to
transfer money, you will have to fill many forms, and the recipient had to fill many forms. Ultimately it
was a tedious process.

However, due to advanced systems, nowadays you can not only transfer money to others sitting at
home, you can practically do 80% of the banking work sitting at home from your laptop. Thats the
importance of systems in a service marketing triangle.

d) Customers to systems Although building systems are important, these systems should be most
useful to customers. Taking the same example of banking systems above, it is surprising that even today
when you go to a bank, there is a queue. Look at retail stores. Theres always a big line to check out.

The interaction between customer and system is critical to build the service brand. Taking the example
of Ecommerce systems, when the customer is promised various service advantages, and when he fails
to return a product due to system errors or logistics errors, he becomes dissatisfied with the service.

For a company, it is important not only to build systems, but ensure that the systems comply to the
customers and give excellent experience to customers.

e) Employees to system Not only do systems leave customers frustrated, they also leave the
employees frustrated. Imagine a McDonalds where orders taken at the front desk are not reaching the
kitchen. Or imagine a service center, where although you have entered a grievance, the employee is not
getting your complaint and hence not calling you. Ultimately it is the employee on whom you are going
to get angry!!

In one of the consumer durable companies i know, the systems were top of the line, but they had so
many processes with regards to outstanding and inventory, that a simple order processing took 20
minutes. This same company had at least 1 lakh dealers and distributors. So imagine the continuous
delay in order processing and the pressure on employees due to this system issue. The system was
working excellently, but it was creating friction between the employees and the system.

Both, Employee motivation, and the empowerment of employees depends on the type of system you
hand over to your employees. If the systems are very good and your employees are able to make good
use of it, you will get very happy and satisfied customers.

f) The most important relationship in the service triangle Employee to Customers The employee to
customer interaction is also known as the moment of truth or critical incidents. A single customer
can become dissatisfied with the way the employee treated him. Or that single customer can buy a lot of
material from the same store, because the employee treated him or her like a king or queen.

How to market with the service marketing triangle?

There are 3 types of marketing which happens within the service marketing triangle

Internal marketing Marketing from the company to the employees

External marketing Marketing from the company to the customers
Interactive marketing Marketing between the customers and the employees

1) Internal marketing in the service triangle Holistic marketing is most used when internal marketing is
in effect. An advertising firm always tries to keep its own employees motivated. They are given a hell lot
of parties and outings just so that they are in a jovial mood. And they need to be in a jovial mood
because the rest of the times they are using their creative brains very hard to give the ultimate service
to their customers.

Furthermore, these same advertising companies empower their employees to take the right decisions in
front of customers. This empowerment goes a long way in building motivation and confidence.

And thats what internal marketing based on the service triangle is all about. Building confidence and
motivation in your employees, so that they build excellent relationships with the end customers and the
company gets the money.

2) External Marketing Marketing from the company to the customers. This is the most common type
of marketing which we, as customers, encounter in the market. The various types of service marketing
can be advertising, sales promotions, public relations, direct marketing, or more prominently, internet
marketing in todays age.

3) Interactive marketing The marketing which happens on a retail store, in a restaurant, in a mall, in a
bank, or in any format where the customer comes in touch with the employee, is known as interactive
marketing. This marketing within the service triangle happens between the customers and the
employees.

Interactive marketing is also a strong way to influence customers. It is most commonly used to help
customers come to a decision with regards to their purchase decision. If a retail executive has received
orders that he has to liquidate stock of Samsung, he will only tell you the positive things about samsung
and try to convert your decision into buying Samsung.

The various forms of interactive marketing include personal selling, servicing the customer and
interacting with customers on social media or other such interactive platforms.

In essence, there are two main differences between the services sector and the manufacturing sector.
One is that the services sector needs to be more flexible for their customers. And second is, that this
flexibility brings stress, and a services guy should be able to deal with stress.

The service marketing triangle is an excellent representation of all the interactions which happen within
a services sector, and accordingly how different forms of marketing can be used based on the
interactions happening.

Services Marketing - Moment of Truth

Every business knows that in order to thrive it needs to differentiate itself in the mind of the consumer.
Price has proved inadequate since there is a limit to how much a firm can cut back on its margins.
Product differentiation is also no longer enough to attract or retain customers since technological
advances have resulted in products becoming almost identical with very few tangible differences from
others in the same category. Consequently, marketers have realized the importance of service
differentiation as a sustainable strategy for competing for a portion of the customers wallet.

Service Encounter / Moment of Truth

A moment of truth is usually defined as an instance wherein the customer and the organization come
into contact with one another in a manner that gives the customer an opportunity to either form or
change an impression about the firm. Such an interaction could occur through the product of the firm,
its service offering or both. Various instances could constitute a moment of truth such as greeting the
customer, handling customer queries or complaints, promoting special offers or giving discounts and the
closing of the interaction.

SERVUCTION MODEL

This model used to illustrate factors that influence service experience, including thosethat are visible
and invisible to consumer.Invisible component consists of invisible organizations and systems. It refers
to therules, regulations and processes upon which the organization is based. Although theyare invisible
to the customers, they have a very profound effect on the consumersservice experience.Visible part
consists of 3 parts: Serviscape (inanimate environment), contact personnel/service providers, and other
consumers.Servicescape It refers to the use of physical evidence to design service environments.It
consists of ambient conditionssuch as music, inanimate objects that assist the frm incompleting is tasks,
such as furnishing and business equipment. All nonlivingfeatures present during service encounter.
Contact personnel: :Employees other than primary providers that interact with consumer.Service
Provider: Primary provider of core service, such as dentist, physician or instructor.Other Customers
Customer A : Recipient of bundle of benefits created throughservice experience and customer B : Other
customers who are part of Customers Asexperience.Servuction model demonstrates consumers are an
integral part of service process. TheSlevel of participation may be active or passive, but always there.
Managers mustunderstand the interactive nature of services and customer involvement in production
process. The four components of the servuction model combine to create the experiencefor the
consumer and it is the experience that creates the bundle of benefits for theconsumer.

Importance

In todays increasingly service driven markets and with the proliferation of multiple providers for every
type of product or service, moments of truth have become an important fact of customer interaction
that marketers need to keep in mind. They are critical as they determine a customers perception of,
and reaction to, a brand. Moments of truth can make or break an organizations relationship with its
customers.

This is more so in the case of service providers since they are selling intangibles by creating customer
expectations. Services are often differentiated in the minds of the customer by promises of what is to
come. Managing these expectations constitutes a critical component of creating favorable moments of
truth which in turn are critical for business success.

Moments of Magic and Moments of Misery

Moments of Magic: Favorable moments of truth have been termed as moments of magic. These are
instances where the customer has been served in a manner that exceeds his expectations. Eg: An airline
passenger being upgraded to from an economy to a business class ticket or the 100th (or 1000th)
customer of a new department store being given a special discount on his purchase. Such gestures can
go a long way in creating a regular and loyal customer base. However, a moment of magic need not
necessarily involve such grand gestures. Even the efficient and timely service consistently provided by
the coffee shop assistant can create a moment of magic for the customers.

Moment of Misery: These are instances where the customer interaction has a negative outcome. A
delayed flight, rude and inattentive shop assistants or poor quality of food served at a restaurant all
qualify as moments of misery for the customers. Though lapses in service cannot be totally avoided, how
such a lapse is handled can go a long way in converting a moment of misery in to a moment of magic
and creating a lasting impact on the customer.

Customers Expectations and Delight

Introduction

In todays ultra competitive business environment merely meeting customer expectations is not
enough. In order to effectively differentiate themselves from the competition, service providers need to
focus on exceeding customer expectations to create customer delight and create a pool of loyal
customers. Therefore, when deciding on a service delivery design, it is imperative for the service
provider to consider the targeted customer base and their needs and expectations. This will help in
developing a service design that will help the provider to effectively manage customer expectations
leading to customer delight.

Customer Needs and Expectations

Customer needs comprise the basic reason or requirement that prompts a customer to approach a
service provider. For instance, a person visits a restaurant primarily for the food it serves. That is the
customers need. However, the customer expects polite staff, attentive yet non intrusive service and a
pleasant ambience. If these expectations are not properly met the guest would leave the restaurant
dissatisfied even if his basic requirement of a meal being served has been met. Thus knowing and
understanding guest expectations is important for any service provider.

Customer Satisfaction, Dissatisfaction and Delight

Based on the quality of the service experience a customer will either be satisfied, dissatisfied or
delighted. Knowing a customers expectation is instrumental in developing a strategy for meeting and
exceeding customer expectations.
 Customer Dissatisfaction: This is a situation when the service delivery fails to match up to the
customers expectations. The customer does not perceive any value for money. Its a moment of misery
for the customer.

Customer Satisfaction: In this case, the service provider is able to match the customers expectations
and deliver a satisfactory experience. However, such a customer is not strongly attached to the bran and
may easily shift to a competing brand for considerations of price or discounts and freebies.

Customer Delight: This is an ideal situation where the service provider is able to exceed the customers
expectations creating a Moment of Magic for the customer. Such customers bond with the brand, are
regular and loyal and will not easily shift to other brands.

Meeting and Exceeding Customer Expectations

Exceeding customer expectations is all about creating that extra value for the customer. The hospitality
industry specializes in creating customer delight.

Example, most 5 star hotels maintain customer databases detailing room order choices of their guests.
So if a guest has asked for say orange juice to be kept in the mini bar in his room, the next time that he
makes a reservation at the hotel, the staff ensures that the juice s already kept in the room. Such small
gestures go a long way in making customers feel important and creating customer delight.

Another novel way of exceeding guest expectations is often demonstrated by travel companies. Since,
they usually have details on their customers birthdays, they often send out an email greeting to their
guests to wish them. This not only makes an impact on the guest but also helps to keep the company
acquire top of the mind recall with the guest.

Maintaining Service Quality

After having attained the desired service level, the next great challenge faced by service providers is to
maintain service standards at levels of excellence. This is as important, and as tough, as establishing
service standards and attaining to them in the first place.
There are basically two approaches that any organization can have towards maintaining service
standards a proactive approach or a reactive approach.

Proactive: A proactive approach entails actively reaching out to customers and trying to gather their
feedback on service quality and suggested areas of improvement. This can be done by way of

Surveys and administering questionnaires, Gap Analysis andStaff training

Surveys and questionnaires: Such an approach helps a brand to anticipate customer demands and
expectations and align its service offering accordingly. Also, the findings of such surveys can help to
identify common issues and demands of customers hence helping a company to customize its service
offering.

Gap Analysis: Another approach that is adopted for analyzing service quality is that of the gap analysis.
The company has an ideal service standard that it would like to offer to its customers. This is contrasted
with the current level of service being offered. The gap thus identified serves both as a measure and as a
basis for planning a future course of action to improve the service offering.

Staff Training: Another crucial aspect of the proactive approach is staff training. Companies nowadays
spend generously on training their personnel to adequately handle customer queries and/or complaints.
This is particularly true if a company is changing its service offering or going in for a price hike of its
existing services. For example, when a fast food chain increases the price of its existing products, the
staff has to handle multiple customer queries regarding the hike. Lack of a satisfactory explanation
would signify poor service standards and lead to customer dissatisfaction.

Reactive: A reactive approach basically consists of resorting to a predetermined service recovery

mechanism once a customer complains about poor service quality. It usually starts with apologizing to
the customer and then taking steps to redeem the situation. The fundamental flaw with this approach is
that, here the customer has already had a bad experience of the brands service.

Measuring Service Quality

Another crucial element to be kept in mind while seeking to maintain service quality is to have in place a
metric for measuring quality. The particular parameters selected would depend on the type of
business, service model and the customer expectations. For example: at a customer service call center
of a telecom provider, the metric for measuring service quality could be the average time taken for
handling a call or rectifying a complaint. For a fast food outlet, the metrics for measuring service quality
of the sales staff could be the number of bills generated as a percentage of total customer footfalls or
the increase in sales month on month.

Once a system is put in place for measuring quality, a standard can then be mandated for the service
standard the organization is seeking to maintain.

The Changing Face of Services Marketing

Marketing of Services has emerged as an important sub discipline of marketing in its own right. It has
evolved phenomenally to emerge as a major field of study with far reaching implications in todays
increasingly service driven economies. It is then, only natural, to wonder what is the future course that
this field of study is most likely to take.

At first glance, one can see that there are as yet many opportunities available for Services Marketing to
evolve and gain in relevance as the role of the service economy continues to expand. A large chunk of
Third World economies are now beginning to move into the service domain. The role and share of the
service sector in these economies is growing with an increased monetization of services

However, there are several challenges also. There has been a change in the basic nature of services.
Services, today, can no longer be described according to the parameters of intangibility, heterogeneity,
inseparability and perishability. These changes are detailed below:

Intangibility: While services maybe intangible, the process of delivery and even the customer
experience of the service is not necessarily so. Thus while service providers focus on pre purchase
behavior they often fail to pay attention to customer experience during the process of service delivery,
the nature of output (which may manifest in an observable physical change) or the learning outcomes of
the delivery process.

Heterogeneity: Heterogeneity of services is also not applicable to the services domain today. Across
sectors and industries we see an increased pressure for standardization of services. This is being
achieved in some instances through automation such as through ATMs and vending machines. Even in
cases where automation is not possible there is greater focus on standardizing the service delivery
process by way of service scripts and strict adherence to service cycles. For example, most fast food
outlets and quick service restaurants follow the & steps of the service cycle that starts with greeting the
customer (using standard phrases) through to saying good bye.
Inseparability: Even this criterion does not hold true for all services rendered. Inseparability implies that
the production and consumption of services is simultaneous. Thus, consumers need to be present
and/or involved in the production process. In reality however, there are several services that are
separable. Example: insurance, repair and maintenance where production happens prior to
consumption and the customers need not necessarily be present at the time the service is rendered. The
same is witnessed in the phenomenon of outsourcing of services.

Perishability: even though this is true for a lot of services, there are several notable exceptions. In
todays information era there are several information based services that can be recorded and saved in
electronic media and reproduced on demand. Moreover, for greater clarity in this regard it is necessary
to have a distinction between the perishability of productive capacity, of customer experience and of
the output.

Thus the definition of services is not as clear cut as it was once assumed to be. Consequently this is one
of the major challenges lying ahead for the field of Services Marketing.

Contribution of Services to the economy

The services sector in India has remained the most vibrant sector in terms of contribution to national
and state incomes, trade flows, FDI inflows, and employment. According to the Economic Survey 2015
16 tabled in Parliament today, the services sector contributed almost 66.1% of its gross value added
growth in 201516 becoming the important net foreign exchange earner and the most attractive sector
for FDI (Foreign Direct Investment) inflows. Despite the slow down in the post crisis period (201014)
India showed the fastest service sector growth with a CAGR (Compound Annual Growth Rate) of 8.6%
followed by China at 8.4%. In 2014 Indias services sector growth at 10.3% was noticeably higher than
China at 8.0%. As per the ILO (International Labour Organisation) report on Global Employment and
Social Outlook : Trends 2015 job creation in the coming years will be mainly in the service sector.

FDI

In 2014, FDI in India at 34billion US$ increased by 22% over 2013. There has been a significant growth in
FDI inflows in 201415 and 201516(April October) in general and in Services Sector in particular. In
201415, FDI inflows to the Services Sector grew by a whopping 70.4% to 16.4 billion US$. This rising
trend is continuing in the first seven months of 201516 with the FDI equity inflows in the services sector
growing by 74.7% to 14.8 billion US$. Significant FDI related liberalization has taken place in a number
of sectors to ensure that India remains a increasingly attractive investment destination.

Indias Services Trade

Services exports have been a dynamic element of Indias trade and globalization in recent years. Indias
services export grew from 16.8 billion US$ in 2001 to 155.6 billion US $ in 2014 which constitutes 7.5%
of the GDP making the country the 8th largest services exporter in the world. The overall openness of
the economy reflected by total trade including services as a percentage of GDP shows a higher degree of
openness at 50% in 201415 compared to 38% in 200405.
Indias Services Import at 81.1 billion US$ grew by 3.3% in 201415 . The Government has taken policy
initiatives to promote services exports which include the Service Export from India Scheme (SEIS) and
organizing Global Exhibition on Services (GES).

THE DIFFERENT SERVICE INDUSTRIES

Tourism

Tourism is a major engine of economic growth, and a generator of employment of diverse kinds.
According to Economic Survey Indias tourism growth which was 10.2% in terms of foreign Tourist
Arrival (FTA) and 9.7% in terms of foreign exchange Earnings(FEE) in 2014 decelerated to 4.5% in terms
of FTAs and fell by 2.8% in terms of FEEs in 2015. The lower growth in FTAs and fall in FEEs in 2015 is
due to negative or low growth in FTAs from high spending tourists originating from European countries
like France, Germany and UK. However, domestic tourism continues to be an important contributor to
the sector providing much needed resilience In 2014 it grew by 12.9%. The top five states in domestic
tourist visits in 2014 are Tamil Nadu, Uttar Pradesh, Karnataka, Maharashtra and Andhra Pradesh. In
201415, Government has launched two schemes for thematic development of tourism, these are
Swadesh Darshan and National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive
(PRASAD). To promote medical tourism, the Government has launched Indias Healthcare Portal and
Advantage Health Care India.

Shipping & Port Services

Around 95% of Indias trade by volume and 68% in terms of value is transported by sea. As per UNCTAD,
India with 11.7 million twentyfoot equivalent units of container (TEUs) and a world share of 1.7%,
ranked ninth in 2014 among developing countries in terms of containership operations. A vision for
coastal shipping tourism and regional development has been prepared with a view to increasing the
share of the coastal/inland waterways transport mode from 7% to 10% by 201920. The cargo traffic of
India ports increased by 8.2% to 1052.21 million tonnes in 201415. In Indias Maritime Agenda, the
target for the year 2020 is 3130 million tonnes of port capacity with an investment of approximately Rs.
2,96,000/ crores.

IT-BPM Services

The ITBPM sector has demonstrated flexibility and as per the Economic Survey is expected to touch an
estimated share of 9.5% of GDP and more than 45% in total services export in 201516. Ecommerce is
expected to grow at 21.4% in 201516 to reach 17 billion US$. India home to a new breed of young start
ups has clearly evolved to become the third largest base of technology start ups in the world. Within
one year the number of start ups have grown by 40% creating 80,00085,000 jobs in 2015. This
emerging sector is set to get up a fillip with the Startup India programme.

Research and Development Services

As per the CSOs(Central Statistical Organization) new method there is no separate head for R&D, it is a
part of the professional scientific & technical activities including R&D which grew at 3.8% and 25.5
respectively in 201314 and 201415. According to the Survey, Indias R&D globalization and services
market is set to almost double by 2020 to 38 billion US$.

Consultancy Services
According to the Survey Consultancy Services is emerging as one of the fastest growing service segments
in India. Government has taken several initiatives like the Marketing Development Assistance and
Market Access Initiative Scheme among others for capacity development of domestic consultants.

Real Estate and Housing

This sector constituted 8.0% of the Indias GVA (Gross Value Added) in 201415 and grew by 9.1%. The
sector has grown at a CAGR of 8.1% since 201112. However, the construction sector has witnessed a
slowdown in last few years due to weakening of both domestic and global growth. The Government has
announced plans to build six crore houses by the year 2022 under the Housing for All scheme.

Internal Trade

According to the Survey, Rs. 12,31,073 crore trade and repair services sector, with a 10.7% share in GVA,
grew by 10.8% in 201415. Indias retail market is expected to grow to 1.3 trillion US$ by 2020 making
India the worlds fastest growing major developing market. The Ecommerce market in India is expected
to reach 16 billion US$ by the end of 2015 on the back of growing internet population and increased
online shoppers.

Media and Entertainment Services

According to the Economic Survey, the industry has recorded unprecedented growth over the last two
decades making it one of the fastest growing industries in India. It is projected to grow at a CAGR of
13.9% to reach 1964 billion rupees by 2019. Digital advertising and gaming, which grew by 44.5% and
22.4% respectively in 2014, are projected to drive the growth of this sector in the coming years.

Postal Services

India Posts is the largest Postal network in world. Towards financial inclusion, the number of post
office savings bank (POSB) accounts has increased from 30.86 crore to 33.97 crore and total deposits in
POSB accounts and cash certificate to Rs. 6.53 lakhs crore in the last one year. More than 80 lakh
Sukanya Samridhi Yojna accounts have been opened. The IT Modernization Project of the Department
of Posts, with a total outlay of Rs. 4909 crore, involves computerization and networking of all the post
offices.

Services Marketing Environment

Features of Business Environment

Business environment is the sum total of all factors external to the business firm and that greatly
influences their functioning.

It covers factors and forces like customers, competitors, suppliers, government, and the social,
cultural, political, technological and legal conditions.
 The business environment is dynamic in nature that means, it keeps on changing.

The changes in business environment are unpredictable. It is very difficult to predict the exact nature
of future happenings and the changes in economic and social environment.

Business Environment differs from place to place, region to region and country to country. Political
conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China
vary considerably.

Importance of Business Environment

There is a close and continuous interaction between the business and its environment. This interaction
helps in strengthening the business firm and using its resources more effectively. As stated above, the
business environment is multifaceted, complex, and dynamic in nature and has a farreaching impact on
the survival and growth of the business. To be more specific, proper understanding of the social,
political, legal and economic environment helps the business in the following ways:

Determining Opportunities and Threats: The interaction between the business and its environment
would identify opportunities for and threats to the business. It helps the business enterprises for
meeting the challenges successfully.

Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of
growth for the business firms. It enables the business, to identify the areas for growth and expansion of
their activities.

Continuous Learning: Environmental analysis makes the task of managers easier in dealing with
business challenges. The managers are motivated to continuously update their knowledge,
understanding and skills to meetthe predicted changes in realm of business.

Image Building: Environmental understanding helps the business organisations in improving their image
by showing their sensitivity to the environment within which they are working. For example, in view of
the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to
meet their own requirement of power.

Meeting Competition: It help the firms to analyse the competitors strategies and formulate their own
strategies accordingly.

Identifying Firms Strength and Weakness : Business and Weakness: Business environment helps to
identify the individual strength weaknesses in view of the technological and global developments.

Business environment is broadly divided into two types:

Internal Environment andExternal environment

i. Internal Environment :
It relates to those factors which are internal to the business and are controllable. The internal
environment exercises a significant influence on the attitudes, behaviour and performance of people.
Internal environment is influenced by the following factors:

Goals and objectives of the organisation: The goals and the objectives set up the parameters within
which the organisation decisions can be taken. They greatly influence an ability of an organisation to
deal with its external environment. Financial and nonfinancial targets are determined by the goals.

Corporate image: Every organisation enjoys an image among the employees. Some refer to their
employers as progressive whereas others refer to them as Conservative. To make the business
acceptable to the society, every business must try to improve its image. Objectives based on
enlightened lines certainly help to improve corporate image.

Research and development facilities: Research and development is the strength of the business. it helps
the business to go ahead of the competitors by introducing new products and improving the existing
ones.

Efficient manpower: A successful business is known by its efficient manpower and not by the buildings
and machines. Manpower makes or breaks a business. Due care should be taken to recruit result
oriented employees.

Business policies: The knowledge of internal environment and how it affects the functioning of the
organisation is important to understand the use of business policies. Broadly, policies cover four
functional areas viz. production, marketing, finance and HRD. Business policies provide the broad
guidelines within which an organisation has to work. Thus policies should be comprehensive.

Strong financial base: Business organisations must try to attain strong financial base. This helps the
business to fight uncertainty in the market. It can depend on internal financing when an external
borrowing becomes costly.

Cordial relations: Both the employers & employees should try to maintain cordial relations at the
workplace. It is important to keep clear line of communication. Differences and conflicts can be settled
across the table. Work environment should attract employees to their work.

Value based management : Traditional measures for performance measurement like a return on sales,
a return investment or a return on net assets have become outdated. New measures like shareholders,
views, employee morale and the work ethics which improve the employee satisfaction are considered
more important. Value system is internal to business and differs from enterprise to enterprise.

ii. External Environment:

External environment relates to the factors which are external to the business organisation. It is divided
into Micro Environment and Macro Environment.

MICRO ENVIRONMENT:

The micro environment consists of all the factors in the companys immediate environment that affects
the performance of the Company. These include the suppliers, marketing intermediaries, competitors,
customers and the publics. The microenvironmental factors are more intimately linked with the
company than the macro factors. The micro forces need not necessarily affect all the forms in a
particular industry in the same way. Some of the micro factors may be particular to a firm. When
competing firms in an industry have the same micro elements, the relative success of the firm depends
inter alia, on their relative effectiveness in dealing with these elements. The following factors affect the
micro environment:

Corporate Resources:Corporate resources include employees, funds, materials, machinery and

management. These resources are controllable. They can be used as per the guidelines provided by the
business policies.

Customers:The business exists only because of its customers. Monitoring the customers sensitivity is
therefore a prerequisite for the success of a business It is important to consider the customers likes,
dislikes, needs, preferences, buying motives and expectations. A company may have different categories
of customers like individuals, households, industries and other commercial establishments and
government and other institutions. Higher customer patronage brings increased profit to the business.

Suppliers:Supplier is an important force in the micro environment of the firm. Supplier, are those people
who supply inputs like raw materials and components to the firm. The importance of reliable source of
supply to the smooth functioning of the business cannot be overlooked. Uncertainty regarding the
supply or the other supply constraints often compel companies to maintain high inventories leading to
increased cost. It is always advisable to, negotiate with several suppliers and not allow a single supplier
to enjoy monopoly power. The selection of suppliers is within the control of the management.

Competitors:The role of competitors is beyond the control of the management. It is necessary to study
the competitors policy on product, price, promotion, etc. When relevant information is collected about
the competitors, it helps to strengthen business and also face the competition more effectively. The
business can profit by exploiting the weaknesses of the competitors.

Marketing intermediaries: The marketing intermediaries, include middlemen such as agents and
merchants who help the company find customer or close sales with them. Marketing intermediaries
are a vital link between the company and the final consumers. A wrong choice of the link, may cost the
company heavily. Goods requiring demonstrations find the services of middlemen unavoidable.

Society:Business has to serve the society. Society consists of general public, media, government,
financial institutions and organize group like trade unions, shareholders associations etc. Society,
directly influences the decisions of business.

MACRO ENVIRONMENT

1. Economic Environment

The survival and success of each and every business enterprise depend fully on its economic
environment. The main factors that affect the economic environment are:

(a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that
have great influence on business organisations and their operations. These include gross domestic
product, per capita income, markets for goods and services, availability of capital, foreign exchange
reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of
economic growth.

(b) Economic Policies: All business activities and operations are directly influenced by the economic
policies framed by the government from time to time. Some of the important economic policies are:

(i) Industrial policy

(ii) Fiscal policy

(iii) Monetary policy

(iv) Foreign investment policy

(v) Export Import policy (Exim policy)

The government keeps on changing these policies from time to time in view of the developments taking
place in the economic scenario, political expediency and the changing requirement. Every business firm
has to function strictly within the policy framework and respond to the changes therein.

Important Economic Policies

Industrial policy: The Industrial policy of the government covers all those principles, policies, rules,
regulations and procedures, which direct and control the industrial enterprises of the country and shape
the pattern of industrial development.

Fiscal policy: It includes government policy in respect of public expenditure, taxation and debt.

Monetary policy: It includes all those activities and interventions that aim at smooth supply of credit to
the business and a boost to trade and industry.

Foreign investment policy: This policy aims at regulating the inflow of foreign investment in various
sectors for speeding up industrial development and take advantage of the modern technology.

ExportImport policy (Exim policy) : It aims at increasing exports and bridge the gap between expert
and import. Through this policy, the government announces various duties/levies. The focus nowadays
lies on removing barriers and controls and lowering the custom duties.

2. Social and culture Environment

It refers to peoples attitude to work and wealth; role of family, marriage, religion and education; ethical
issues and social responsiveness of business. The social environment of business includes social factors
like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure
and the values that a society cherishes have a considerable influence on the functioning of business
firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets,
fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the
quality of the products. Due to change in family composition, more nuclear families with single child
concepts have come up. This increases the demand for the different types of household goods. It may
be noted that the consumption patterns, the dressing and living styles of people belonging to different
social structures and culture vary significantly.

3. Political Environment

This includes the political system, the government policies and attitude towards the business
community and the unionism. All these aspects have a bearing on the strategies adopted by the
business firms. The stability of the government also influences business and related activities to a great
extent. It sends a signal of strength, confidence to various interest groups and investors. Further,
ideology of the political party also influences the business organisation and its operations. You may be
aware that CocaCola, a cold drink widely used even now, had to wind up operations in India in late
seventies. Again the trade union activities also influence the operation of business enterprises. Most of
the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes
etc. also adversely affect the business operations. However, with the competitive business environment,
trade unions are now showing great maturity and started contributing positively to the success of the
business organisation and its operations through workers participation in management.

4. Legal Environment

This refers to set of laws, regulations, which influence the business organisations and their operations.
Every business organisation has to obey, and work within, the framework of the law. The important
legislations that concern the business enterprises include :

Companies Act, 1956

Foreign Exchange Management Act, 1999

The Factories Act, 1948

Industrial Disputes Act, 1972

Payment of Gratuity Act, 1972

Industries (Development and Regulation) Act, 1951

Prevention of Food Adulteration Act, 1954

Essential Commodities Act, 2002

The Standards of Weights and Measures Act, 1956

Monopolies and Restrictive Trade Practices Act, 1969

Trade Marks Act, 1999

 Bureau of indian Standards Act, 1986

Consumer Protection Act, 1986

Environment Protection Act

Competition Act, 2002

CHAPTER 2

Service Product Service life cycle Service design Service quality, Service guarantee Measuring
Customer Satisfaction Perceptions and Reality Delight The expectation hierarchy Discontinuation
Service Location Role of Internet in service Channel management issues Pricing a Service Product
Demand VariationsCapacity Constraints Psychological Pricing Pricing Objectives and approaches
Pricing Strategies Promotion Objectives and Promotion Plan for Services.

What is Service Design?

Most design disciplines draw from other areas and fields. Technology, cognitive science and aesthetics
all contribute to design as we know it today. Service design, a more recent application of design
expertise, is no different. Service design draws on many concepts, ranging from user experience,
marketing and project management in order to optimize new services.

Service design was first introduced as a design discipline at the Kln International School of Design in
1991. As a new field, the definition of service design is evolving in academia. But in practice, service
design is:

The activity of planning and organizing people, infrastructure, communication and material components
of a service in order to improve its quality and the interaction between service provider and customers.
The purpose of service design methodologies is to design according to the needs of customers or
participants, so that the service is userfriendly, competitive and relevant to the customers. Service
Design Network

Five Principles

How does the concept of service design translate into practice? What are the elements that distinguish
service design from UX? One of the first textbooks on service design, This is Service Design Thinking by
Marc Stickdorn and Jakob Schneider, outlines five key principles to keep in mind when rethinking a
service:

UserCentered: People are at the center of the service design.

 CoCreative: Service design should involve other people, especially those who are part of a system or a
service.

Sequencing: Services should be visualized by sequences, or key moments in a customers journey.

Evidencing: Customers need to be aware of elements of a service. Evidencing creates loyalty and
helps customers understand the entire service experience.

Holistic: A holistic design takes into account the entire experience of a service. Context matters.

Tools of the Trade

Many of the tools involved in UX and marketing overlap with service design. Here are a few tools to try
if you are interested in innovating a service:

Personas: A persona is a summary of a specific type of customer that represents a broader customer
segment. After conducting qualitative interviews, a persona is an archetype of a specific aspects about
many customers who fall into the same segment. A persona is used to summarize psychographics, like
motivations, desires, preferences and values. Personas help you create a design with specific customers
in mind and ensure the process is usercentered. There are many persona templates to help you get
started.

Customer Journey Map: A customer journey map is a tool that shows the best and worst parts of a
customers experience. The journey starts long before a customer starts to take an action, and shows
the entire experience of the service through the customers perspective. The authors of the This Is
Service Design Thinking, offer a blank customer journey canvas. You can work with customers to ensure
your customer journey map is cocreative.

Service Blueprinting: Erik Flowers and Megan Erin Miller offer a guide to service blueprinting. A
service blueprint goes beyond a customer journey map and allows you to understand a customer from a
more holistic viewpoint, including the work and processes that go into creating and delivering an
experience.

Role of technology in service marketing process

Technology is influencing the practice of services marketing. It has resulted in tremendous potential for
new service offerings. It is shaping the field of service enabling both customers and employees to get
and provide customized services. The technology has been the basic force behind the service innovation.
Automated voice mail, interactive voice response systems, fax machines, ATMs etc., are possible only
because of new technology.

The role of technology and physical aids in service delivery system are summarized below:

1. Easy accessibility of service: Internet based companies find that internet makes offer of new services
possible. The Wall Street Journal offers an interactive edition where customers organize the
newspapers content according to their needs. Internet based bill paying service ensures convenience to
the customers while availing services. The connected car will allow people to access all kinds of
services while on the road. Cars are equipped with map and routing software which direct drivers to
specific locations. Accessing the Web via cell phones is possible nowadays. Thus, technology is a vehicle
for delivering existing services in more useful ways.

2. New ways to deliver service: In addition to providing new service offerings, technology has
introduced new ways of delivering service. It is providing vehicles for delivering existing services in more
convenient ways. It is true to say that technology facilitates basic customer service functions like bill
paying, checking accounts records, tracking orders, seeking information, etc.

The face of customer service has changed with the influx of technology. Before the development of
technology every customer service was provided facetoface through direct personal interaction
between employees and customers. Nowadays, large organizations centralist their customer service
functions. It is possible by establishing a few large call centres that could be located anywhere in the
world. IBMs customer service calls are typical example for consolidating call centres by the large
organizations.

Introduction of automated voice response system has improved the customer service in
telecommunications. Ford Motor companys technology allows customers to set their own service
appointments and monitor the status of their vehicles through online. Also, a good number of websites
offer health related information.

3. Close link with customers: Financial service companies achieve a close link with their customers by
employing the latest technology. Computers are linked into clients information systems. Companies
engaged in goods distribution install order terminals, inventory control terminals of other equipment at
their customers premises.
This provides the client with better service by facilitating an integrated client relationship. Financial
companies provide online financial services. They provide various types of services on the basis of online
orders which go directly into the information management system without human intervention.

4. Higher level of service: Technology enables both customers and employees to be more effective in
receiving and providing service respectively. Selfservice technologies enable customers to serve access
to their accounts, check balances, apply for a loan, transfer money among various accounts. Computer
information system allows banks and insurance companies to furnish data to their customers without
delay. By having immediate access to information about their service offerings, the employees are able
to serve their customers well. This allows employees to customize their services to fit the customers
needs. Technology provides tremendous support in making the employees more efficient in delivering
service. Customer relationship management and sales support software aid frontline employees in
providing better service.

5. Global reach of service: Infusion of technology in service industry offers enormous scope for reaching
out to customers around the globe. The internet is just one big service which knows no boundaries.
Information, customer service and transactions can move across countries. The service provider can
reach any customer who has access to the web. Technology allows employees of international
companies to share information. Technologybased service can be extended to the customers living
around the globe.

6. Cost rationalization: Customer expectations are high because of the excellent service they receive
from some companies. They expect high quality of service at reasonable cost. Just as in the
manufacturing sector, technology can be used in the service industries. It can replace less skilled people
working in frontline service jobs. This substitution reduces the costs of services. For example, automatic
car wash and automatic cash dispenser are desired by the customers for their promptness in work.
Websites providing answers to specific disease, drug and treatment details are another standing
example for cost rationalization.

How to Price Business Services

The reason you went into business selling services to customers was to make a profit. If you were giving
away your services for less than cost, or just breaking even, you'd be operating a nonprofit venture or
a business that's likely to fail. There are a variety of components that factor into whether or not a
business is profitable, including location, leadership, market demand, competition, and so on. But one of
the most important decisions you need to make to determine whether you turn a profit or not is how to
price your services.
Service businesses can range from a sole proprietorship consultancy to midsized businesses with
several hundred employees, some of whom go out to customers and perform anything from cleaning
homes to providing information technology expertise to large corporations. Get your pricing strategy for
these services wrong and you will create a problem you may never overcome. Get it right and you will
dramatically increase the likelihood of creating a business that perseveres and takes care of you
financially.

"It can just destroy you if you don't do it right," says Charles Toftoy, an associate professor at the George
Washington University School of Business and Public Management. Toftoy has helped counsel 1,500
small businesses along with his graduate students. "It doesn't matter whether you're putting out a novel
you've written or providing a service through a pest control company or you're a veterinarian. The
bottom line is that pricing is extraordinarily important."

Pricing Your Services

The good news is you have a great deal of flexibility in how you set your prices. The bad news is there is
no surefire, formulabased approach you can pull off the shelf and apply in your business. Pricing
services is more difficult than pricing products because you can often pinpoint the cost of making a
physical product but it's more subjective to calculate the worth of your counsel, your staff's expertise,
and the value of your time. You can, however, use some of the same underlying pricing guidelines to
figure out your costs and operating expenses plus your target profit in setting your price for services.

Factors to consider in pricing

When pricing services, there is a bit more leeway than pricing products. "The price of a product is more
objective. The price of a service is more subjective so that there is a gray area," Toftoy says. "Pricing is
both an art and a science." Here are the factors that experts say you should consider when trying to
determine what price to charge for a service:

Cost-plus pricing. This standard method of pricing in business seeks to first determine the cost of
making a product or, in this case, providing a service, and then add an additional amount to represent
the desired profit. To determine cost, you need to figure out direct costs, indirect costs, and fixed costs.
"With the costplus approach, the thing to remember is that if you're paying someone $11 an hour, you
may think you should charge $11 an hour for the service they provide, but you have to factor in all your
costs," says Jerome Osteryoung, a professor of Finance at Florida State University and outreach director
of the Jim Moran Institute for Global Entrepreneurship. Those costs include a portion of your rent,
utilities, administrative costs, and other general overhead costs. "When I make a deal to sell a service,"
he says, "I have to make sure to cover all my costs."
Competitors' pricing. You need to be aware of what competitors are charging for similar services in the
marketplace, Osteryoung says. This information could come from competitor websites, phone calls,
talking to friends and associates who have used a competitor's services, published data, etc. "I don't
think it's a good idea for any entrepreneur to compete on price if you can avoid it. Compete on service,
ambiance, or other factors that set you apart," Osteryoung says. If you have to compete on price to win
a customer, you may ask yourself whether that customer will be loyal to you if they find someone
offering a service at a lower price. You want to establish longterm relationships in the marketplace.
"You need to convince the customer that you are giving them tremendous value in terms of service and
quality," Osteryoung says. "You just need to be aware of what the competition is charging."

Perceived value to the customer. This is where a lot of the subjectivity comes in when setting a price for
a service. When you have a product, you may decide to use keystone pricing, which generally takes the
wholesale cost and doubles it to come up with a price to charge and account for your profit. With a
service, you can't necessarily do that. To your customer, the important factor in determining how much
they are willing to pay for a service may not be how much time you spent providing the service, but
ultimately what the perceived value of that service and your expertise is to them, Osteryoung says. That
is where pricing becomes more of an art form.

Calculating the costs

Before you set a price for the services your company will provide, you need to understand your costs of
providing these services to customers. The U.S. Small Business Administration advises that the cost of
producing any service is made up of the following three parts:

Materials cost. These are the costs of goods you use in providing the service. A cleaning business would
need to factor in costs of paper towels, cleaning solutions, rubber gloves, etc. An auto repair business
would tally up the cost of supplies, such as brake pads or spark plug, which are being installed by service
people. You may want to include the material list with your estimate in bidding for a job.

Labor cost. This is the cost of direct labor you hire to provide a service. This would be the hourly
wages of your cleaning crew and/or a portion of your mechanic's salary and benefits while they were
providing the service for your customer. The SBA recommends using a time card and clock to keep tabs
on the number of hours of labor involved in providing each service for a customer.

Overhead costs. These are the indirect costs to your business in providing services to customers.
Examples include labor for other people who run the firm, whether administrative assistants or human
resources personnel. Other overhead costs include your monthly rent, taxes, insurance, depreciation,
advertising, office supplies, utilities, mileage, etc. The SBA suggests that a reasonable amount of these
overhead costs should be billed to each service performed, whether in an hourly rate or a percentage.
One important thing to note: don't just depend on figures from last year to determine your overhead
costs. You need to charge customers rates that cover your current costs, including higher salaries to
employees, inflation, etc.
Determining a fair profit margin

Once you determine your costs, you need to mark up your services to ensure that you achieve a profit
for your business. This is a delicate balance. You want to ensure that you achieve a desirable profit
margin, but at the same time, particularly in a down economy, you want to make sure that your
business doesn't get a reputation for overcharging for services. Osteryoung suggests that you look for
resources in your industry, such as the annual statement studies on small and midsized business
financial benchmarks from Risk Management Associates, to help you determine whether your profit
margin is on target. "The net profit margin for a specific industry might be 5 percent, so if I'm sitting on 2
percent I need to come up a bit," Osteryoung says. "I need to sell services, give value, and make sure the
firm runs a fair rate of return."

Different Pricing Models

Now that you understand what it costs you to provide a service, what your competitors are charging,
and how customers perceive the value of your services, it's time to figure out whether to charge an
hourly rate, a perproject rate, or try to negotiate a retainer for your services. This may be
predetermined by your industry and the type of service pricing that predominates in your sector. For
example, lawyers tend to charge hourly rates for their services, although those rates can vary. Many
construction firms charge a project fee and require that one third be paid up front, another third be paid
at the halfway point, and the remaining third be paid upon completion.

Here are some benefits and risks associated with the following pricing models:

Charging an hourly rate. For many businesses, pricing services on an hourly rate is preferred. This
ensures that you are achieving a rate of return on the actual time and labor you invest in servicing each
customer. Hourly rates are often used when you are pricing your own consulting services, instead of
pricing a service that uses labor and materials from others. Your rate should be determined by your
amount of expertise and seniority; a more senior consultant will generally be paid a higher hourly rate
than a less experienced or junior consultant. The SBA recommends that one's travel time be included as
an extra charge. Sometimes even consultants are asked to price a service on a project or contract basis.
That contract needs to factor in clerical support, computer or other services, and overhead expenses,
the SBA advices.

Charging a flat fee. In tough economic times, many businesses are concerned about keeping costs down
and may agree to hire your business for services only on a fixedrate or flatfee basis. "Customers want a
fixed rate," Osteryoung says. "Entrepreneurs want an hourly rate. It's a question of who is going to bear
the risk. If I charge a flat rate, I am bearing the risk." If a project takes longer than expected to complete,
you may risk losing money on the client. If you have a customer that insists on a flat fee, you may want
to see if they are amenable to putting a cap on the number of hours involved in the project or agree to
pay additional fees if the project runs over that time.
Variable pricing. In addition to determining a fair price for your services, you have to determine
whether you will practice a fixedprice policy and charge all your customers the same amount or
whether you want to institute variable pricing, in which bargaining and negotiation help set the price for
each customer. "Should you charge different customers different rates? I have a hard time with that,"
Osteryoung says. "The exception is if someone comes in and says that they will book 1,000 hours of
time, you may want to give them a price break for quantity. But in general, charging different prices to
different customers will create ill will. People will talk about it and they will find out." One thing a
business can not afford to lose is its integrity and respect among customers.

Monitoring and Changing Your Price

In a service business, your biggest costs are usually your people costs salaries, benefits, etc. If you are
having a hard time selling services at an acceptable profit, the problem may be that your employee costs
are too high rather than the price is too low. You may want to also reevaluate your overhead costs to
determine whether there are other cuts you can make to bring your price down and your profit margin
up. "Look at your expenses and see where you can cut," Toftoy advises.

Monitor profitability monthly

You need to understand the profitability of your company every month. By the 15th of every month, you
ought to have your financial statements from the previous month. "If there is any mistake I see
entrepreneurs make, it's that they don't spend enough time going over their financial statements,"
Osteryoung says. "In some cases, no one has ever shown them how to do that. I see their eyes glaze
over." In addition to understanding your monthly profitability, you need to understand the profitability
(or lack of profitability) of every service you sell. Make absolutely sure you know the degree to which
every person or project you sell is contributing to your goal of making money each month.

Test the market for new services and prices

You should always be testing new prices, new offers, and new combinations of benefits and premiums
to help you sell more of your services at a better and better price. Often the perfect time to do this is
when quoting a price to a new customer. Raise the price and offer a new and unique bonus or special
service for the customer. Measure the increase or decrease in the volume of services you sell and the
total gross profit dollars you generate.

Be wise about raising your prices

It's a fact of life that you will have to raise prices from time to time as part of managing your business
prudently. If you never raise your prices, you won't in business for long. You have to constantly monitor
your price and your costs so that you are both competitive in the market and that you make the kind of
money you deserve to make in your business. But there are risks to raising prices, particularly when your
customers are going through tough financial times.

"You can price too high and sell yourself out," Toftoy says. "People don't forget that they felt like you
gouged them for the quality of the service you were selling."

Here are some guidelines for when and how to raise prices:

Do raise prices when your competitors are raising prices. If the competition has upped the ante, that is
a good signal that the market can and will support a price increase for your services, too.

Do raise prices if your customers say you're a bargain. If your customers start commenting about what
a great value your services are, that "may be an indication you're charging too low a price," Osteryoung
says.

Don't raise prices too much all at once. In a tough economy, a big jump in prices might be too much of a
jolt for your customers. Instead, raise prices in small increments of two or three price increases over the
course of a year, Osteryoung suggests.

Don't raise prices across the board. Do be discreet. Customers may not notice price increases if they are
only for certain services and not for others. Osteryoung recalls speaking with a dentist who recently
raised prices on fillings but not cleanings a strategy that brought no customer complaints. "You need
to raise prices in today's economy where you think your customer can't see there has been an increase,"
he says.

Price Meaning | Pricing of services | Objectives

Meaning of price

Price is the amount we pay for goods, services or ideas. The term price is known by a variety of names in
different sectors of the economy. For example, price is known as fare in the transport sector; fee in
education; rent in real estate and in certain services it is known as charge. Generally speaking, the price
is the exchange value between the seller and buyer. So, price is the money charged by a marketer for his
product or service. For the marketer, price covers the total market offering. The ultimate user considers
price as a sacrifice of his purchasing power. For the buyer, it stands for quality and quantity of the
service bought.

Price is the source of revenue and a prime determinant of profit for the service provider. In the service
sector. price reflects the nature of relationship between customer and provider.

What is pricing?
Pricing is equivalent to the total service offering. Pricing includes the brand name, delivery and other
benefits. Pricing translates the qualitative offering into quantitative terms.

Pricing of services

Pricing is a vital area in marketing. Price is one of the significant elements in the marketing mix. It is the
sole and an important element in the marketing mix of a firm that brings revenue to the business.
Organizations should use a sophisticated approach to pricing. While pricing the services, due regard
should be given to shifts in demand, the rate at which supply can be expanded, prices of available
substitutes, the price volume relationship and the availability of future substitutes. Service companies
must understand how customers perceive prices of services.

How do customers perceive?

The price charged by the service provider must be acceptable to the target customers. It should
coordinate well with the other components of the marketing mix. Pricing decisions have an impact on all
suppliers, sales force, distributors, competitors and customers. Price also indicates to the customers
the kind of quality of the service that they are likely to receive. For example, the menu card in a
restaurant indicates the quality of its food and service in terms of price.

Objectives of pricing

A firm approaches its target market with a tailormade marketing mix of variables. The marketing
strategy of the firm represents the combination of strategic variables (product, price, promotion and
place). This strategy will vary from one market segment to another. This necessitates the firm to develop
pricing objectives. A firm may have a number of objectives in the area of pricing. Some of these will be
longterm while others will be shortterm. Also some will be primary objectives while others will be
secondary. The below chart shows the various pricing objectives of the firms.

Pricing Objectives

1. Survival price: Survival price is only a shortrun objective. A firm follows survival price policy when
there is an intense competition and changing consumption pattern in the target market. Generally, it is a
low pricing objective to maintain demand for the firms product. Many readymade garment sellers
dealing in foreign brands like Lee, Arrow, Peter England, Van Heusen etc., have followed pricing below
cost. So pricing below cost involves foregoing desired levels of profits to ensure survival. Factors such as
intense competition, changing consumer wants, critical cash conditions etc., force the service provider
to follow this objective.
2. Current profit maximization price: Profit maximization is the oldest objective of pricing. It is generally
a long term objective. It is the opposite to the survival price. The firm charges high price that will
maximize current profit of the firm. This pricing objective is set when a good demand exists for the
services of the firm. Profit maximization pricing ensures maximization of profitability over a given
period. The period concerned may be related to the life cycle of the service.

3. Market share price: Price helps improve market share. Market share means that portion of industrys
sale which a marketer wishes to retain Market share also represents. a sensitive indicator of customer
as well as trade acceptance. Maximization of market share is adopted by those firms which are able to
realize economies of scale in distribution and promotion. When a marketer attains a high market share
in the market, he is able to enjoy lowest costs and highest longterm profits. A market share leader
charges a low price to maintain his market sharp.

4. Service quality leadership: A service company may use a pricing policy to prove its prestige. The high
price charged impresses the quality of the service. It also leads to price quality leadership in the target
market. Service offerings positioned in high price category build a quality image for the service provider.
Highpriced restaurants and personal care centres aim at achieving leadership in service and quality by
setting service quality price for their services.

Profit maximization cannot be the only objective of pricing. A multiplicity or mix of objectives is
invariably involved. Firms seek to meet a varietyof interests through price policy. Interests may vary
from one firm to another. Accordingly, pricing policy may vary. No firm is satisfied with a single objective
in pricing.

CHAPTER 3

"There is only one valid definition of business purpose: to create a customer. It is the customer who
determines what a business is. What the business think it produces is not of first importance especially
not to the future of the business and to its success. What the customer thinks he is buying and considers
'value' is decisive it determines what a business is, what it produces and whether it will prosper." as
summarized by Peter Drucker, 1989,(3).

In the past, what happened was that a business just produced a product and sold it to the customer.
Oftentimes, it was just a oneshot deal and a case of 'just too bad for the customer' if something went
wrong.
The scenario is radically different in today's hypercompetitive business environment. Customers are
continuously adapting to their everchanging einvironments. They're now more educated, better
informed, more value conscious and demand more for their dollar. Their expectations of the companies
and the people they buy from is much higher and they tend to avoid buyerseller negotiations. They're
no longer willing to be pushed around anymore by businesses. In short, they want better customer
service.

Importance of Customer Service

Customer service is one of the greatest keys to your business success. It can literally make or break you.
This is so because your entire business, marketing, sales and profits depend on your customers. You're
in business to generate profits by selling your products and servcies to people who need and want to
buy. Customers want to know how you can make their lives better or easier and/or how you can relieve
them of their pain.

It follows that whatever you do must be carefully designed to meet and satisfy the needs of your
customers as it's the foundation for a growing and profitable business. The decision you make must be
based on the situation, what the customers want and how it affects your business. Treat every service
situation as unique. Interact with each customer as an individual and treat him/her that way he or she
wants to be treated.

Great marketing acquires new customers for you, but it's great customer service that ensures that the
customers keep coming back to you as people tend to do business with people they like and trust, and
therefore, are more likely to be loyal and continue to buy from those who provide them with excellent
customer service.

Surveys have shown that most customers quit because of an indifferent attitude towards them from the
business owner, managers and/or employees. A typical business will only hear from a handful of
dissatisfied customers; most of your customers will just quietly go away and never come back.

To further compound the problem, a typical dissatisfied customer will tell an average of 7 to 10 people
about his problem and your bad service.

This is a serious financial loss for those of you who don't know how to treat your customers right; for
those who do, it represents a tremendous gain.
Implications for Large and Small Businesses

In light of these, not many business can succeed for any length of time without the comprehensive care
and diligent servicing of their customers.

To a large extent, customer service has levelled the playing field for the small business owners who sell
similar products as their bigger competitors. It opens up a treasure chest of opportunities. It provides
them with the opportunity to differentiate themselves from the competition.

For large companies, they'll need to act fast to accommodate the customers by revisiting and finetuning
their policies and procedures. They musn't let inflexible rules and regulations, policies and procedures
stop them from making their customer satisfied.

The Role of Employees in Successful Service Delivery

We know these truths to be selfevident that the success of any company is directly linked to the
satisfaction of the employees who embody that company. Employees are one of your companys
greatest assets. What they say about your company, how they act in the workplace, and how
happy they are in their roles all impact on your brand, your image, your levels of service and
ultimately your customers satisfaction.

IntroductionEmployees Roles in Service Delivery

The importance of people in the marketing of services is captured in the people element of the

services marketing mix, which is described as all of the human actor who play a part in the

service delivery and thus influence the buyers perceptions namely the firms personnel, the

customer and other customers in the service environment.

The focus is on service employees because

They are the service,

They are the organization in the customers eyes,

They are the marketers

In many cases the contact employee is the service there is nothing else. The offering is the
employee.
Thus investment in the employee to improve the service parallels making a direct investment in
the improvement of a manufactured product.

Even if the contact employee doesnt perform the service entirely, they may still personify the
firm in the customers eyes.

Because contact employees represent the firm and can directly influence customer satisfaction
they form the role of marketers. They personally embody the product and are walking billboards from
a promotional standpoint. Some may also perform more traditional selling roles.

e.g. hair cutting, physical trainers, legal services etc

Employee satisfaction is essential to the success of any business. A high rate of employee
contentedness is directly related to a lower turnover rate. Thus, keeping employees satisfied with their
careers should be a major priority for every employer. While this is a well known fact in management
practices, economic downturns like the current one seem to cause employers to ignore it. There are
numerous reasons why employees can become discouraged with their jobs and resign, including
high stress, lack of communication within the company, lack of recognition, or limited
opportunity for growth.

EMPLOYEE SATISFACTION + CUSTOMER SATISFACTION = PROFITS

There is concrete evidence thatsatisfied employees make for satisfied customers and satisfied
customers in turn can in turn reinforce employees sense of satisfaction in their jobs. Some have even
gone so far as to suggest that unless service employees are happy in their jobs,
customersatisfaction will be difficult to achieve. Employee satisfaction, customer satisfaction and
customer loyalty reinforce each other over time.The companies who offer superior internal service
quality to their employees, and who treat their employees as customers, can achieve higher
employeessatisfaction. By enhancing good employees and also improved employees productivity
can be obtained. At the same time, the satisfied employees can build satisfied even committed
customers (and satisfied customers can, inturn, reinforce employees' sense of satisfaction in
their jobs)

Ultimately, customerssatisfaction and customers loyalty influence revenue growth and profits
through increasing the volume of purchases and market share.

Service Quality and Employees

All of the five elements of service quality can be influenced directly by service employees.

Delivering the service as promised reliability is often totally within the control of frontline
employees.
They can also influence customer perceptions of responsiveness through their personal
willingness to help and their promptness in serving customers.
The assurance dimension of service quality is highly dependent on employees ability to inspire
trust and confidence.
 Empathy implies that employees will pay attention listen, adapt, and be flexible in
delivering what individual customers need.
Employees appearance and dress are important aspects of the tangible dimension of quality
along with many factors that are independent of service employees.

Strategies for Managing Emotional Labour

Screening for emotional labour abilities:

Wilson statedthat many firms recruit and select the most suitable employees to meet the
emotional labour requirements of the job. Companies put prospective employees through the
practices (e.g., simulated customer contact exercise) to seek for the employees whose values,
experience and personalities match the job's emotional labour requirements.

Emotional management skills and appropriate behavior:

Most companies teach their customercontact employees need to be friendly and courteous to
customers. However, customers have no obligation to return empathy or courtesy. Therefore,
employees haven't the status as equal as the customers who have the privilege of 'the customer is
always right'. In this situation, employees face real challenges because they cannot express their true
feelings. Companies may encourage employees to engage in deepacting strategies such as
imagining that the client is a friend and expressing the real feelings to them. Companies also may train
employees in how to avoid absorbing a customer's bad mood.

Carefully constructing the physical work environment:

The environment of service delivery can have an impact on employee behaviour and emotions.
Companies can provide the comfortable environment, such as available rest room and sport
room, to relief employees stress and reduce the boredom.

Allowing employees to air their views:

Allowing employees to air their views lets them get rid of their dissatisfaction and frustrations
suppose that firms can provide emotional support and encouragement to employees through
setting a venting to share frustrations and 'let off steam'. Through this venting, employees can see that
others are experiencing the same problems and they are not alone. At the same time, they can
feel their emotional contribution are recognized and can feel their company much care about them

Strategies

A complex combination of strategies is needed to ensure that service employees are willing and able to
deliver quality services and that they stay motivated to perform in customer oriented, service
minded ways.

To build such a work force an organization must hire the right people, develop people to deliver service
quality, provide the needed support systems and retain the best people.
Hire the Right People

This implies that considerable attention should be focused on hiring and recruiting service personnel.

Compete for the best people competing for talent market share Firms should act like marketers in their
pursuit of the best employees. This means using a variety of methods to recruit employees.

Hire for service competencies and service inclinationservice competencies are the skills and knowledge
necessary to do the job. Service inclination is their interest in doing service related work, which is
reflected in their attitudes toward service and orientation toward serving customers and others on
the job.

Be the preferred employee involves many strategies many of which revolve around treating
employees as whole people and addressing their personal as well as work needs.

Develop People to Deliver ServiceQuality

Once the firm has hired the right people, the organization must train and work with these
individuals to ensure service performance.

Train for technical and interactive skillsthis training is not just for the frontline
employees but also for support staff, supervisors, and managers. It is important that this
training be ongoing. It has to be viewed as an important investment for future success.
Empower employeesthis means giving employees the desire, skills, tools, and authority to
serve the customer. An empowered organization is characterized by flexibility, quick
decisions, and authority given to frontline people.
Promote teamworkthis will help alleviate the stresses and strains. Employees who feel
supported and have a team backing them up will be better able to maintain their
enthusiasm and provide quality service. Oneway of doing so is to encourage the attitude that
everyone has a customer. Teams should be organized around market based groupings rather
than functional line
Provide needed support systemsservice workers require internal support systems that are
aligned with their need to be customer focused. To do so, one needs to measure internal
service quality, provide supportive technology and equipment, and develop service oriented
internal processes.
Retain the best people employee turnover can be very detrimental to customer
satisfaction. To do so one needs to include employees in the companys vision, treat employees
as customers, measure and reward strong service performers.

Examplesof Wal-Mart Vs K-Mart

Wal-Mart

(Successful service delivery and success due to good employeesimportance)

WalMart was launched by Sam Walton in 1962. Walton sought to provide customers with low prices by
passing on savings from wholesalers rather than pocketing the money like other retailers. This
ended up being a cornerstone of the business strategy in the WalMart Empire.
Sam Walton established many business practices that allowed him to keep prices low for
consumers. Although he dreaded unions and really didnt like paying his workers anymorethan he
should, Walton understood that he must keep his workers happy and introduced profitsharing plans
and sold them the notion that working at WalMart meant limitless opportunity.

WalMart success ingredient is its Associates, Institutionalized policies and practices

Sharing performance information with associates

Soliciting their ideas Offering them incentives
Offering profit sharing Maintaining
Open door policy Very competitive benefits and very competitive wages
It offered more training than any other retailer.
Promotionrate is high2/3 of its managers had been promoted to higher level.
Successful, caring and fun place to work.
Health insurance benefits to over 90% employees
2/3 of hourly employees are female
They hold 1/3 of store management jobs and 15% store management position.

Focus of WalMart is to provide a firstclass service, to create a firstclass staff, and to build first
class excellent management team.

K-Mart

(Unsuccessful service delivery and failure due to less employee importance)

The company was founded in 1962 and is the third largestdiscount storechain in the world

Kmart was a pioneer of the discount retailer industry. At the turn of the century, innovative
tactics and strong customer loyalty contributed to unprecedented corporate growth .KMart is
one of the top retailers in the United States and the number three discountretailing store behind Wal
Mart and Target.

Problem Statement / Key Issues

Poor customer service

Poor employment management led to failure

No training or say proper training for employees

Less communication in Customer and employee

Replacement of CEO and BOD led to Bankruptcy & downfall of Kmart.

Customers being dissatisfied with the fluctuation in Kmart prices.

Kmarts board of directors seemed intent on focusing on the customers the company didnt have.

Kmart elected to turn to people with senior management experience, but without any Kmart
knowhow

Employees complained about the lack of available human capital

In 2002 Kmart went bankrupt.

Employees satisfaction is central concern particularly in the service industry. Need to enhance
employee satisfaction is critical because it is a key to business success of any organization. As in case of
Kmart during the first 10 or 15 years, it did not have to refine its core value proposition and tighten its
focus. Kmart did not move beyond its original vision and did not change its strategies by the time
it was too late to make a move. By then WalMart had taken Kmarts value proposition and kicked it up a
notch, adding service and product depth and leaving Kmart emptyhanded. The main point for failure
of Kmart was employee dissatisfaction and as we know satisfied employees make for satisfied
customers. There were some other aspects also for their failure but employees played a major role
and they missed it.

Physical Evidence: Elements, Types and Role of Physical Evidence in Service Marketing

Elements:

Services being intangible, customers often rely on tangible cues, or physical evidence, to evaluate the
service before its purchase and to assess their satisfaction with the service during and after
consumption. They include all aspects of the organizations physical facility (the services cape) as well as
other forms of tangible communication.

Elements of the services cape that affect customers include both exterior attributes (such as parking,
landscape) and interior attributes (such as design, layout, equipment, and decor). It is apparent that
some services communicate heavily through physical evidence (e.g. hospitals, resorts, child care), while
others provide limited physical evidence (e.g. insurance, express mail).

Role of service evidence:

A distinction is made in services marketing between two kinds of physical evidence:

(a) Peripheral evidence;

(b) Essential evidence.

(a) Peripheral Evidence:

Peripheral evidence is actually possessed as part of the purchase of a service. It has however little or no
independent value. Thus a bank cheque book is of no value unless backed by the funds transfer and
storage service it represents.

An admission ticket for a cinema equally has no independent value. It merely confirms the service. It is
not a surrogate for it. Peripheral evidence adds to the value of essential evidence only as far as the
customer values these symbols of service.

The hotel rooms of many large international hotel groups contain much peripheral evidence like
directories, town guides, pens, notepads, welcome gifts, drink packs, soaps and so on. These
representations of service must be designed and developed with customer needs in mind. They often
provide an important set of complementary items to the essential core service sought by customers.

(b) Essential Evidence:

Essential evidence, unlike peripheral evidence, cannot be possessed by the customer. Nevertheless
essential evidence may be so important in its influence on service purchase it may be considered as an
element in its own right. The overall appearance and layout of a hotel; the feel of a bank branch; the
type of vehicle rented by a car rental company; the type of aircraft used by a carrier are all examples of
physical evidence.

Managing the Evidence:

Service organizations with competing service products may use physical evidence to differentiate their
service products in the marketplace and give their service products a competitive advantage. A physical
product like a car or a camera can be augmented through the use of both tangible and intangible
elements.

A car can be given additional tangible features like a sliding roof or stereophonic radio equipment; a
camera can be given additional tangible features like control devices which enable use in a wide variety
of light conditions.

A car may be sold with a long life antirust warranty or cost free service for the first year of ownership; a
camera with a longlife warranty or free lens insurance. Tangible and intangible elements may be used
to augment the essential product offer. In fact organizations marketing tangible dominant products
frequently use intangible, abstract elements as part of their communications strategy.

Service marketing organizations also try to use tangible clues to strengthen the meaning of their
intangible products.
Make the Service more Tangible:

The bank credit card is an example of the tangible representation of the service, credit. The use of a
credit card means:

(a) The service can be separated from the seller;

(b) Intermediaries can be used in distribution thereby expanding the geographic area in which the
service marketer can operate;

(c) The service product of one bank can be differentiated from the service product of another bank (e.g.
through colour, graphics and brand names like Visa).

(d) The card acts as a symbol of status as well as providing a line of credit.

Make the Service Easier to Grasp Mentally:

There are two ways in which a service can be made easier to grasp mentally.

(a) Associate the service with a tangible object which is more easily perceived by the customer.

This approach may be used in advertising messages where the intangible nature of service is transferred
into tangible objects representing that service. These may have more significance and meaning for
customers. It is easier for the customer to grasp what their service means compared with competitors.

With this approach it is obviously vital to:

(a) Use tangible objects that are considered important by the customer and which are sought as part of
the service. Using objects that customers do not value may be counterproductive.

(b) Ensure that the promise implied by these tangible objects in fact is delivered when the service is
used. That is, the quality of the goods must live up to the reputation implied by the promise.
If these conditions are not met, then incorrect, meaningless and damaging associations can be created.

(b) Focus on the Buyerseller Relationship:

This approach focuses on the relationship between the buyer and the seller. The customer is
encouraged to identify with a person or group of people in the service organization instead of the
intangible services themselves.

Advertising agencies use account executives; market research agencies assemble client teams; the Bank
uses personal bankers. All encourage a focus on people performing services rather than upon the
services themselves.

However before a service organisation can translate intangibles into more concrete clues it must ensure
that it:

(a) Knows precisely its target audience and the effect being sought by the use of such devices.

(b) Has defined the unique selling points which should be incorporated into the service and which meet
the needs of the target market.

Effective Strategy of Physical Evidence in Services

1. Recognize the Strategic Impact of Physical Evidence:

For an evidence strategy to be effective it must be linked clearly to the organizations overall goals and
vision. Thus, planners must know what those goals are and then determine how the evidence strategy
can support them. At a minimum, the basic service concept must be defined, the target markets (both
internal and external) identified, and the firms broad vision of its future known. Because many evidence
decisions are relatively permanent and costly (particularly servicescape decisions), they must be planned
and executed deliberately.

2. Map the Physical Evidence of Service:

Everyone should be able to see the service process and the existing elements of physical evidence. An
effective way to depict service evidence is through the service map, or blueprint. From the map one can
read the actions involved in service delivery, the complexity of the process, the points of human
interaction that provide evidence opportunities, and the tangible representations present at each step.
To make the map even more useful, photographs or videotape of the process can be added to develop a
photographic blueprint.

3. Clarify Roles of the Servicescape:

Sometimes the servicescape may have no role in service delivery or marketing from the customers
point of view. This is essentially the case for telecommunication services or express mail services.
Clarifying the roles played by the servicescape in a particular situation will aid in identifying
opportunities and deciding just who needs to be consulted in making facility design decisions.

4. Assess and Identify Physical Evidence Opportunities:

Once the current forms of evidence and the roles of the servicescape are understood, possible changes
and improvements can be identified. A strategy might be developed to provide more evidence of service
to show customers exactly what they are paying for. Or the pricing or the facility design would need to
be changed, depending on the restaurants overall strategy.

5. Be Prepared to Update and Modernize the Evidence:

Some aspects of the evidence, particularly the servicescape, require frequent or at least periodic
updating and modernizing. Even if the vision, goals, and objectives of the company dont change, time
itself takes a toll on physical evidence, necessitating change and modernization.

There is clearly an element of fashion involved, and over time different colours, designs, and styles may
come to communicate different messages. Organizations obviously understand this when it comes to
advertising strategy, but sometimes they overlook other elements of physical evidence.

6. Work Cross-functionally:

In presenting itself to the consumer, a service firm is concerned with communicating a desired image,
with sending consistent and compatible messages through all forms of evidence, and with providing the
type of service evidence the target customers want and can understand.

A multifunction team approach to physical evidence strategy is often necessary, particularly for making
decisions about the servicescape. It has been said that Facility planning and management is a
problemsolving activity that lies on the boundaries between architecture, interior space planning and
product design, organizational (and consumer) behavior, planning and environmental psychology.
CUSTOMER COMPLAINT MANAGEMENT

If you work with people, sell a product, or provide a service, you likely deal with complaints, and those
complaints can take many forms. While most companies have to manage complaints of some kind,
certain businesseslike healthcare institutions, municipalities, educational systems, financial services
companies, restaurants, and retailersalso have to consider how failing to properly handle a complaint
could potentially damage their reputation or even create liability due to compromised compliance.

The trick is to recognize the extent to which your business may have to deal with complaints on a
regular basis and then implement complaint management early on. This is especially critical if you serve
external customers and your reputation or compliance, in part, relies on making customers happy or
keeping them safe.

6 Examples of Complaint Management

When it comes to complaints, emotions can run rampant. Complaint handling requires respect,
promptness, and objectiveness from the acknowledgement all the way to resolution. Below, we talk
about six segments where complaint management plays a major role in making sure customers are
happy and businesses are in compliance:

Financial Services Complaints

Within the last few years, complaints in the financial realm escalated to the point that the government
got involved. The Consumer Protection Forum exists for customers to file complaints against financial
services companies unable or unwilling to resolve their complaints. Certainly some of those complaints
might have been unnecessary had the companies in question employed good mechanisms for managing
consumer concerns.

Resolving Technology & Software Complaints

If youre a software company, it could be that your product isnt functioning as intended or users cant
access the system when they need it. Documentation may not match up properly. Maybe a customer
has had a disagreement with a staff member. These complaints arent only valid, but also typical. And, if
software userswhether internal or external customersare frustrated with a product, this frustration
can leave a lasting impression, especially if they have a complaint that doesnt get addressed in a timely
manner. This hurts business and customer relationships.

Tracking HR or Harassment Complaints

For most Human Resources departments, harassment reports are a common concern. Higher education
and school systems provide good examples of organizations that must carefully handle harassment
complaints, for example, against staff, faculty, and other students. Even bullying concerns could be
considered behavioral complaints. Effectively managing such complaints starts with implementing a
safe, protected, and private mechanism and process for victims to report harassment. These types of
complaints, more than any other, require tact, empathy, and understanding in their resolution.

Handling Patient & Hospital Incident Management

In health care, patient complaint and incident management often involves fielding concerns from a
patients family member. It could be something as minor as a housekeeping need or something as
severe as an error in medication. Internal staff may need to report errors and malfunctions with
equipment. Incidents related to safety or hazardous conditions reflect another kind of concern typical of
a healthcare environment. Between patients, their families, visitors and staff, a complaint may come in
from any source.

Managing Citizen Complaints

If you work for a local government or municipality, you are certainly acquainted with citizens reporting
their concernspotholes on the main roads, signal failures at major intersections, incorrect tax
assessments on person property or real estate, just to name a few. Outside of citizen concerns, other
sources of complaints could come from consumers, students, vendors, and employees. All require
mechanisms for resolution. And, in some cases, neglecting to follow through on tracking and resolving a
complaint not only results in unhappy customers, but could also place an institution at risk for being
out of compliance.

Addressing Restaurant Complaints

Waiter, theres a fly in my soup. My waiter was rude! My favorite entre isnt available! Youre no
doubt familiar with these types of complaints if youve ever waited tables or managed a restaurant!
Restaurants frequently have comment cards or howd we do surveys that encourage feedback, both
positive and negative. An example would be where if you have filled up a negative complaint and the
restaurant sends gift coupons as a compensation.

Why You Need a Solid Process for Handling Complaints

With complaints coming in from all sources, you need a complaint management process that keeps the
person making the complaint in the loop. Basic complaint management normally includes a timely
acknowledgement, a process towards resolution, and a final outcome that benefits everyone.

The restaurant chain had a complaint management process in place. It involved being responsive to
customer comments, then sending out coupons. And while coupons arent the cure for everything, in a
restaurant situation, its an easy and often satisfying resolution.

Outside of the retail environment, the process may involve more than just resolving a single complaint.
It may mean taking steps to make sure the same problem never happens again. Software companies
patch bugs in their software. Manufacturing companies issue product recalls. And, in the case of
harassment complaints, it may mean disciplinary action, termination of employment, or even potential
legal ramifications.

All of these involve mechanisms for collecting and tracking complaints and informing customers of the
progress toward resolution as well as preventing future complaints. Above all, communication with the
person that made the complaint is critical. How many times have you had a complaint that wasnt
acknowledged? In the eyes of the people making the complaints, their complaints are always valid.
Sometimes, all thats needed is a general acknowledgement or an acknowledgement along with a final
resolution. Other times, there may need to be multiple communication points along the way to
resolution.

Whats your complaint management process? Some companies handle complaints through emails.
Others take phone calls, use social media, or implement website pages as mechanisms to submit
complaints. Other companies, however, have discovered that using a software application is the most
surefire way of tracking complaints from submission to resolution. This also helps with identifying
trends, preventing future complaints, and maintaining compliance.

Role of customers in service delivery

Service delivery for customers can be seen in a factory. The place the service is produced and is
consumed interacting with the employees and other customers. E.g in a classroom or in a training
situation, students (customers) are sitting in the factory interacting with the instructor and other
students as they consume the educational services.

Since these customers are present during the service production, customers can contribute to or
detract from the successful delivery of the service and to their own satisfaction.

Importance of customers in service delivery

Customer participation at some level is inevitable in service delivery. Services are actions or
performances, typically produced and consumed simultaneously. In many situations employees,
customers and even others in the service environment interact to produce the ultimate service
outcome. As the customers receiving the service participates in the service delivery process. He or she
can contribute to the gap through appropriate or inappropriate, effective or ineffective, productive or
unproductive behaviors.

Customers who are unprepared in terms of what they want to order can soak up the customer service
representatives time as they seek advice. Similarly, shoppers who are not prepared with their credit
cards can put the representative on hold. While they search for their credit cards or go to another
room or even out of their cars to get them. Meanwhile, other customers and calls are left unattended,
causing longer wait times and potential dissatisfaction.

Participation in service delivery

The level of participation low, medium, high varies across different services. In some cases, all that
is required is the customers physical presence (low level of participation), with the employees of the
firm doing all of the service production work, as in case of a Ghazal/ musical concert. The listeners
must be present to receive the entertainment service. In other cases, consumer inputs are required to
aid the service organization in creating the service delivery (moderate level of participation).

Inputs can include information, effort or physical possessions. All three of these are required in case
of accounting services who prepares a clients income tax return effectively. Information in the form
of tax history, marital status, and number of dependents. Effort in putting the information together in
a useful fashion. Physical Possessions such as receipts and past tax returns. In case of long term
consulting engagements involvement of the customers high as they co create the service.

Customers roles

Customers as a productive process

Service customers are referred to as partial employees of the organization. They are human
resources who contribute to the organizations productive capacity. In other words, if customers
contribute effort, time or other resources to the service production process, they should be
considered as part of the organization.

Customer inputs can affect the organizations productivity through both quality and quantity of
output. E.g. research suggest that in an IT consulting context:

Clients who clearly articulate the solution they desire.

Provide needed information in a timely manner.

Communicate openly.

Gain the commitment of key internal stakeholders.

And raise the issues during the process before it is too late will get better service.

Customers as quality contributors to service delivery and satisfaction

Another role customers play in service delivery is that of the contributor to their own satisfaction and
the ultimate quality of the services they receive. Customers may care little that they have increased
the productivity of the organization through their participation. But they likely care a great deal about
whether their needs are fulfilled. Effective customer participation can increase the likelihood of
service delivery that their needs are met and that benefits the customer seeks are attained. Services
such as health care, education, personal fitness, and weight loss, where the service outcome is highly
dependent on the customers participation. In such services unless the customers perform their roles
effectively, the desired service outcomes cannot be achieved.

Research has shown that in education, active participation by students as opposed to passive
listening increases learning the desired service output significantly.

Customers as competitors

A final role played by service customers is that of a potential competitor. If self-service customers can
be viewed as resources of the firm, or as partial employees, self-service customers in some cases.
They can partially perform the service or the entire service for themselves and may not need the
provider at all.
Customers thus in that sense are competitors of the companies that supply the service. Whether to
produce a service for themselves (internal exchange). E.g. child care, home maintenance i.e. have
someone else provide home services for them (external exchange) is a common dilemma for
consumers.

Similar internal versus external exchange decisions are made by organizations. Firms frequently
choose to outsource service activities such as payroll, data processing, research, accounting,
maintenance, and facilities management. They find that it is advantageous to focus on their core
businesses and leave these essential support services to others with greater expertise. Alternatively, a
firm may decide to stop purchasing services externally and bring the service production process in-
house.

SERVICE BLUEPRINT

A service blueprint is an operational planning tool that provides guidance on how a service will be
provided, specifying the physical evidence, staff actions, and support systems / infrastructure needed to
deliver the service across its different channels. For example, to plan how you will loan devices to users,
a service blueprint would help determine how this would happen at a service desk, what kinds of
maintenance and support activities were needed behind the scenes, how users would learn about
whats available, how it would be checked in and out, and by what means users would be trained on
how to use the device.

Service Blueprints may take different forms some more graphic than others but should show the
different means/channels through with services are delivered and show the physical evidence of the
service, front line staff actions, behind the scene staff actions, and support systems. They are completed
using an iterative process taking a first pass that considers findings from personas, journey maps, and
location planning and then coming back to the blueprint to refine it over time. Often blueprints raise
questions that cannot be readily answered and so need to be prototyped; for instance by acting out an
interaction or mocking up a product. Generally, one blueprint should be created for each core service,
according to the right level of detail for each.

SERVICE RECOVERY

What is Service Recovery?

Service recovery comes into play when something in a service delivery goes wrong. The service delivery
company ideally takes action to ensure that their customer gets their desired outcome anyway, and
later rectifies their own process so that the failure doesnt reoccur.
Why is Service Recovery Important?

Service recovery has received attention for over 20 years within service management and service
marketing. Since the cost of gaining a new customer usually greatly exceeds the cost of retaining a
customer (it is often stated that it costs five times as much to attract a new customer as maintaining
one), managers are increasingly concerned with minimizing customer defections. The research has led
to four major findings on how service failure and subsequent recovery affect customers loyalty towards
a service company:

Service failure has a negative effect on customer loyalty intentions.

Failure resolution has a positive effect on loyalty intentions.

Customer satisfaction with the recovery has a positive effect on loyalty intentions.

Outstanding recovery results in loyalty intentions which are more favorable than they would be had
no failure occurred.

Whereas the three first findings could be expected, the fourth is somewhat of a surprise and has
become known as the service recovery paradox. The service recovery paradox means that a customer
might be more satisfied with a company although they didnt deliver on their first attempt than if they
had delivered the service without errors, if the recovery action is perceived as very good.

How Does Service Recovery Work?

The main focus of the workshop will be how to perform service recovery and we will introduce a tool we
have designed to help service designers approach and design service recovery. The concepts from the
service recovery literature which provide the basis for the tool are introduced briefly below.

When it comes to immediate recovery after a service breaks down, the company representatives need
to consider why the service delivery broke down as the reason for the break down affects the recovery
expected by the company. If the breakdown occurs due to mistakes or errors by the service personnel or
external sources the recovery should be psychological the employees need to apologize for the
inconvenience. If the error however is due to errors in the service architecture the recovery effort needs
to be tangible and the customer should be compensated.

To be able to provide great service recovery the employees need to feel that they have the freedom to
do so. Several companies preauthorize front line employees to spend a capped amount to fix customer
problems. For example a company can have a system in place where each employee is preauthorized to
spend up to $1,000 to solve a customers problem at the RitzCarlton Hotel an employee is pre
authorized to spend up to $2,000 per incident. The principle behind this is that customers are more
satisfied with their encounter if the first person they contact about a problem takes the initiative to fix
things without having to send the request up the chain to their manager. It lets employees focus on
solving problems.

Having dealt with the customer recovery, a company should ask itself how it might avoid the failure
reoccurring. By analyzing what happened and changing their routines the company can perform
operations recovery. If the failure is bound to happen due to company procedures (like overbookings),
the standard solution space for employees need to be defined. Another part of getting the organization
prepared for future failures is to train their employees to provide great recovery in the future (employee
recovery).

Service Recovery Strategies

When a service failure occurs, service recovery strategies will be needed to be implemented by service
organizations. This longterm strategy will be embedded as part of organizations overall service
strategy. Service recovery is about the combination of a variety of strategies to solve the specific context
of the problem. The proposed eight strategies by Zeithaml et al. are:

The first strategy is to make the service failsafe by doing it right the first time. It avoids negativities of
failures and it is the most important dimension of service quality. In order to achieve that, there must be
a top management commitment and a positive firm culture of zero defection and appreciate
relationship value of customers to uphold the standards of service without blindly adopting the Total
Quality Management from the product perspective.

The second strategy is to encourage and track complaints. According to research, almost 50% of
customers encountered problems by do not complain. This segment will have a higher chance of
switching to competitor as organization has no control over it. Encouraging complaint is healthy and it
will allow organization to learn. Tracking complaints will ensure no complaints are left out. Technology
can be used to aid in handling of complaints.

The third strategy is to act quickly. Complaining customers want quick responses and do not want to be
pingpong around different employees, which will seem to be shirking responsibilities. Even when full
resolution is likely to take longer, fast acknowledgement is required to appease them. There is positive
correlation between fast service recovery with satisfaction and loyalty.

The fourth strategy is to provide adequate explanations. This allows customers to understand why the
failure occurred. According to attribution theory, customer will understand and appreciate what is going
on and they will be more forgiving. The content and the style of the delivery must be suitable to the
affected customers subjectively

The fifth strategy is to treat customers fairly. They want justice in their complainthandling process,
which involves procedure (speed, convenience, followup etc), interaction (behavior of service
representatives) and outcome. Therefore it is important that the process be handled properly to return
them the justice they seek. Recent research indicates that justice considerations have a large impact on
how customers evaluate firms recovery effort. Therefore, if they do not perceive themselves being just,
they will rate the recovery badly even when it is perfectly done. (Tax and Brown 2000)

The sixth strategy is to cultivate relationship with customers. Long term relationship will allow
customers to be more forgiving and open to the recovery process. Cultivation of strong relationship can
provide an important buffer to service firms when failures occur. The biggest challenge would be to
restore their confidence and trust again.

The seventh strategy is to learn from recovery experience. Organizations can learn through using tools
to help evaluate experiences. They can use blueprinting, control charts, fishbone diagram (cause and
effect diagram) to use those acquired knowledge in their recovery effort. The last strategy is to learn
from lost customers through market research and get into the root cause analysis of why they left.

CHAPTER 4

RELATIONSHIP MARKETING

One of the most expensive and difficult tasks facing any business is acquiring new customers. Earning a
potential customer's attention, making a convincing pitch, and then facilitating the accompanying sale
can leads to huge expenses when every step is considered. According to business authors Emmett C.
Murphy and Mark A. Murphy, acquiring a new customer can cost five times as much as retaining an
existing customer.

This presents a serious dilemma for many companies. With finite resources, is it better to attract new
customers or try to hold onto the ones they already have? According to those same authors, a 2%
increase in customer retention can decrease costs by as much as 10%. No company can survive and
grow if they are not constantly adding to their customer base.

Many companies separate the two functions and dedicate different areas of their marketing department
to work on one or the other. New customers are considered transactional because the goal is to get
them to buy, while existing customers require different strategies.
To retain current customers, businsses engage in relationship marketing strategies to continually attract
repeat business. While both types of customer must be acknowledged and respected, the goal,
ultimately, is to turn every new customer into a returning customer.

Relationship marketing is about forming longterm relationships with customers. Rather than trying to
encourage a onetime sale, relationship marketing tries to foster customer loyalty by providing
exemplary products and services. This is different than most normal advertising practices that focus on a
single transaction; watch ad A and buy product B. Relationship marketing, by contrast, is usually not
linked to a single product or offer. It involves a company refining the way they do business in order to
maximize the value of that relationship for the customer.

Relationship marketing mainly involves the improvement of internal operations. Many customers leave
a company not because they didn't like the product, but because they were frustrated with the
customer service. If a business streamlines its internal operations to satisfy all service needs of their
customers, customers will be happier even in the face of product problems.

Technology also plays an important role in relationship marketing. The Internet has made it easier for
companies to track, store, analyze and then utilize vast amounts of information about customers.
Customers are offered personalized ads, special deals, and expedited service as a token of appreciation
for their loyalty.

Social media sites allow business to engage their customers in an informal and ongoing way. In the past,
it would have been impossible to keep useful records about every single client, but technology makes it
easy for companies to automate their marketing efforts. (See also Analytical Marketing)

Branding is the final component of relationship marketing. A company can form a longterm relationship
with a client if that client feels like the brand they purchase reflects who they are or who they want to
be. Customers are less inclined to switch to a different brand if they think that switch makes a statement
about their identity.

Many types of companies have something to gain from developing longterm relationships with their
customers. Smaller businesses often serve a steady stream of regulars, and make little effort to draw in
new customers. Imagine a small restaurant that sees a steady stream of business from the morning
commute.Their daily presence is a large part of the business that restaurant does every day.

Larger companies typically invest the most in carrying out sophisticated relationship marketing
campaigns. In some major companies, relationship marketing is a strategy that affects every department
with a client facing purpose (sales, customer service, shipping etc). Industry leaders constantly face
competition from new companies who claim to provide similar goods with a higherquality level of
service. Holding onto their existing customers is the only way they can maintain their position at the top
of their industry. This is true for businesses in all industries, from cell phones to baby food.

Ikea The Swedish furniture maker has a worldwide base of intensely loyal customers. When
the company changed the font in their ubiquitous catalog, Ikea lovers took to the Internet to air
 their complaints. Rather than alienate their customers for a trivial reason, Ikea changed the font
back in the next catalog.
Direct Recruitment The direct mail marketing firm sends out handwritten birthday cards to
clients and associates every year. This simple, personal touch helps clients feel like Direct
Recruitment cares about them as people rather than simply consumers.
American Airlines The airline maintains a comprehensive frequent flyer program that rewards
customer loyalty with the promise of free flights, upgrades, and discounts.
Dell Dell computers created a special online store for high volume corporate customers. By
tailoring the ordering process to the specific customer's needs, Dell was able to expedite many
of the hassles corporate technology buyers face. Providing a higher level of service leads to
increased loyalty.
Vyvanse The makers of the popular ADHD drug created an extensive online portal that
included videos, forums, expert articles, and mobile apps to help those who suffer from ADHD.
Rather than relying on the strength of the product alone, the drug makers created a place for
users to gather and interact that was linked back to the company.

Relationship marketing can involve revising major aspects of the way a company conducts business. This
can be expensive, time consuming, and have serious consequences for both customers and employees.
The only way to carry out a relationship marketing strategy in a thoughtful and effective way is to follow
a comprehensive marketing plan.

Companies must first look at demographic and historical data about their customers to understand who
they are, what they buy, and how to provide for them over the long term. The company must
understand why a consumers returns for repeat business. There is the tendency to think that customers
return because the company has served them well, but maybe they return to a store because it is the
closest to their house, or the only one in the area that stocks the product they want to buy. Analyzing
the nature of customer loyalty is the best method develop a working relationship marketing plan.

With a wealth of customer data in place, the company can begin to segment these customers and
develop unique marketing strategies for each segment. A customer who appreciates a product's value
has different qualities than one who has had a helpful customer service experience. These customers
are loyal for different reasons, and require tailored relationship marketing strategies.

Once the marketing strategy has been implemented, it requires constant evaluation to determine its
success. There are a number of hard metrics that companies can use to measure whether they are
holding onto their customers. The most obvious is repeat sales, but they can also look at whether
customers are spending more, opening up email newsletters, referring the company to friends, or
following them on social networks. All of these are indicators of various types of customer loyalty.

CUSTOMER RELATIONSHIP MANAGEMENT

CRM (customer relationship management) is all aspects of interactions that a company has with its
customers, whether it is sales or servicerelated. While the phrase customer relationship management is
most commonly used to describe a businesscustomer relationship (B2C), CRM is also used to manage
business to business (B2B) relationships. Information tracked in a CRM system includes contacts, clients,
contract wins and sales leads and more.

CRM Solutions Today

CRM solutions give organizations business data to help provide services or products that your customers
want, offer better customer service, help sales teams to crosssell and upsell more effectively, close
deals, retain current customers and to better understand exactly who your customers are. Organizations
frequently look for ways to personalize online experiences (a process also referred to as mass
customization) through tools such as helpdesk software, email organizers and different types of
enterprise applications.

The Customer Relationship Management Strategy

Customer relationship management is often thought of as a business strategy that enables businesses to
improve in a number of areas. The CRM strategy allows you to to following:

Understand the customer

Retain customers through better customer experience

Attract new customers

Win new clients and contracts

Increase profitably

Decrease customer management costs

Technology Impacts CRM Strategies

Technology and the Internet have changed the way companies approach customer relationship
strategies. Advances in technology have changed consumer buying behavior, and today there are many
ways for companies to communicate with customers and to collect data about them. With each new
advance in technology especially the proliferation of selfservice channels like the Web and
smartphones customer relationships are being managed electronically.
Many aspects of customer relationship management rely heavily on technology; however, the strategies
and processes of a good CRM system will collect, manage and link information about the customer with
the goal of letting you market and sell services effectively.

The Business Benefits of CRM

The biggest benefit most businesses realize when moving to a CRM system comes directly from having
all your business data stored and accessed from a single location. Before CRM systems, customer data
was spread out over office productivity suite documents, email systems, mobile phone data and even
paper note cards and Rolodex entries. Storing all the data from all departments (e.g., sales, marketing,
customer service and HR) in a central location gives management and employees immediate access to
the most recent data when they need it. Departments can collaborate with ease, and CRM systems help
organization to develop efficient automated processes to improve business processes.

Other benefits include a 360degree view of all customer information, knowledge of what customers
and the general market want, and integration with your existing applications to consolidate all business
information.

Sales, marketing, and customer service professionals love referring to CRM as a technology solution
and with good reason. Average improvements among Sales force customers reflect favourable returns: a
36 percent increase in sales productivity, a 25 percent increase in sales pipeline, a 26 percent increase in
sales win rate, a 30 percent increase in revenue, and a 45 percent increase in forecast accuracy. Not too
shabby.

CRM is often synonymous with software because the acronym was born of and proliferated parallel to
the 1990s advances in business technology. Database software was the earliest revolution of managing
customer contacts, spurred by the customercentric banking and telecommunications industries.

CRM software is a critical component of any companys success, but a ship is only as good as its crew. A
company can have the best CRM system in the world, but has the team formalized a process? How
about identifying its people and stakeholders? How do those people and processes interact to drive an
organization to achieve its goals?

Now is the time to talk about the big picture of CRM as a holistic system to help drive success.

What Does CRM Stand For?

CRM is short for customer relationship management, but its a whole lot more than those three basic
words. Its a combination of methodologies and software systems that help companies build
relationships with customers through organization, automation, synchronicity, andmost recently
collaboration. It ties together the customer lifecycle and distributes it across the integrated teams and
functions of your business.
CRM helps organizations be more effective and efficient in their daytoday tasks and assists them in
reaching longterm business objectives and goals. However, good process is nearly invisible. CRM must
fit the organizations processes, which are in turn driven by the customer lifecycle.

The Three Pillars of CRM

People, process, and technology are each a critical cornerstone of a successful customer relationship
management strategy. Not giving proper attention to each will make those pillars crumble and your
structure fall. Dont fall prey to cognitive biasthe assumption there are no problems because the
process already seems to work from your vantage point, or the assumption your people are already
aware of the process. Ensure your process is in place and account for the people involved in your
organization before selecting the right technology solution.

CRM maturity models can help organizations plan for their CRM roadmap and understand where they
are in the process for full CRM mastery. A number of models exist, from the simple to the complex. Here
is a simplified version to illustrate how organizations may be tempted to skip the people and process
components of CRM strategy and head directly to technology.

Each stage represents a step along the CRM adoption continuum. Stage zero represents no process,
while stage five is the highest level of fully integrated organizational actualization, a deep understanding
of processes, use, and continuous improvement beyond just using the software.

Dont get stuck in stage two or three on your organizational path to selfactualization. Understanding
the people and processes behind your technology will keep things moving along.

People

CRM is all about the peopleliterally. Few other business functions are as focused on people. The origin
of the practice is as old as business itself. After all, every business has relationships to manage. Its just a
matter of how technology has altered the speed and ways in which we connect. Businesses would not
be investing more than $20 billion annually in CRM if they did not believe in building trust through long
termrelationships. This investment is projected to grow to $36 billion by 2017.

The focus of CRM is to develop stronger customer relationships, those lasting ties that help both the
business and the customer thrive. Its essential to understand the customer through profiles, use cases,
needs, personas, and individual customer lifecycles. (More about this in a minute.)

But its not just about building relationships with customers. CRM systems also help manage
relationships with stakeholdersboth internal and externalof your organization. These include:

Customers

Employees

Executive leadership
 Partners

Suppliers

Media

Investors

Advisors

The relationships between and among these stakeholders are key. Understanding what information
needs to be shared and accessed by each party, as well as how information travels between them, will
help guide a plan for CRM software. Consider building an organizational relationship map to identify
critical paths in communication.

Process

Process is the structure that liberates your company to grow and evolve, and each process is unique to
every organization.

Take your organizational relationship map and understand who will be using a CRM. Know what their
natural process is before investing in software. One core process that most business functions revolve
around is the customer lifecycle.

CRM Addresses the Customer Lifecycle

Customer relationship managements primary roles of sales, marketing, and customer service represent
functions along the customer lifecycle. Although each has a dominant role, all work to support one
another.

Every businesss customer lifecycle is unique, but a general flow is as follows:

So how does each customer relationship management function address these core lifecycle events?
Here are a few ways the functions work together and address each step.

Awareness

Sales coldcall leads acquired through various sources, such as referrals.

Marketing plans target advertising to generate awareness.

Knowledge

Sales coordinates a call between the prospect and a current customer to learn more about a use case.

Marketing creates content that addresses the target audiences pain points.

Customer service puts together a knowledge base of frequently asked questions about products and
services.

Consideration
 Sales walks the prospect through the product and describes key value points.

Marketing develops product landing pages where the prospect can gather more information and
compare options.

Customer service can have a live chat popup option on the product page to answer questions.

Selection

Marketing sends out a thank you note.

Customer service checks in to answer additional questions.

Purchase

Sales completes the paperwork.

Marketing ensures the purchase experience is smooth and removed of pain points.

Customer service follows up with next steps, if necessary.

Retention

Sales calls customer when special discounts are offered on a favourite product.

Marketing sends monthly email newsletters to keep in touch and top of mind.

Customer service checks in a few weeks after purchase to learn how satisfied the customer is with the
product.

Advocacy

Sales sends a thank you note to the customer for referring business.

Marketing develops and promotes a referral program with incentives.

Customer service answers new questions from new referrals.

Measurement

What gets measured gets managed, even in customer relationships. Metrics and key performance
indicators can both drive process and be driven by process. Data collection may reveal a new process
requirement, and processes deliver these metrics.

Traditional Marketing vs. Relationship Marketing

Currently there is a lot talk about the replacement of traditional relationship marketing. Personally I
think everyone has their own channel and strategy to be applied at the target that we want to lead us,
the type or sales needs and get the result.
Before seeing the differences and the advantages and disadvantages of each, we comment what we
mean by traditional marketing and relationship marketing:

Traditional Marketing: It focuses on sales of the moment, in the background leaving the relationship
with the customer, focusing its action on the product or service that has generated the production of
the company, looking to sell as soon as possible and streamline the business profitable stocks.

Relationship marketing: Attraction Marketing and relational key parts, is the strategic management of
collaborative relationships with customers and other stakeholders, in order to create value and
distribute evenly.

Some differences traditional marketing vs. Relationship marketing:

Traditional Marketing:

Find the steady increase in sales.

Looking to have sporadic contact with customers to sell their stocks punctual.

It focuses on the characteristics of the product or service.

Seeks instant and immediate sale.

It works on the basis of return on their stocks.

The quality concerns only the production staff.

Seek immediate profit of the seller.

It is aimed at a target and broad masses.

The positions of the vendor and the client are clear.

Looking for immediate sale depending on the quality and price.

It faces economic exchange.

It is based on the direct and massive.

Communication is oneway: company > customer.

In short, is facing economic exchange.

Relationship marketing:

Find sales that are of quality and continuous in time, no intense promptly.
The goal is for the customer contact is uninterrupted.

It develops and on the client. The customer is king.

Customer feedback is important and constant, especially once the customer has used the product or
service.

It focuses on customer value on perceived value and you want.

The product or service is developed according to your wishes.

Look for the winwin:

Product quality and service concerns all personnel of the seller.

It is more personalized customer focus action seeking customer.

The boundaries of the sale are unclear, as a joint effort between the vendor and the customer.

We need to develop internal marketing activities for the whole company staff collaborate.

In short, aims to exchange value.

The use of each of the marketing strategies is to assume a way of understanding the marketing, the
market and the company. In expanding markets, which dominates demand on supply, traditional
marketing is often more effective than relationship marketing, however, in mature markets where
supply exceeds demand and there is certain saturation, relationship marketing is the road and clear
strategy to follow.

Every company in the market depending on who moves, even being in a state of expansion, it is
convenient to use relationship marketing procedures, as customer retention costs are always lower than
those of reconquer.

In service companies, relationship marketing is the clear path to follow and use, because if you use this
strategy as a whole get a significant competitive advantage, differentiating you from other competitors.
In the long run you will be much more profitable and stable strategy.

CUSTOMER RETENTION

What is Customer Retention?

A Definition of Customer Retention

Customer retention refers to the activities and actions companies and organizations take to reduce the
number of customer defections. The goal of customer retention programs is to help companies retain as
many customers as possible, often through customer loyalty and brand loyalty initiatives. It is important
to remember that customer retention begins with the first contact a customer has with a company and
continues throughout the entire lifetime of the relationship.

Customer Retention Benefits

While most companies traditionally spend more money on customer acquisition because they view it as
a quick and effective way of increasing revenue, customer retention often is faster and, on average,
costs up to seven times less than customer acquisition. Selling to customers with whom you already
have a relationship is often a more effective way of growing revenue because companies dont need to
attract, educate, and convert new ones.

Companies that shift their focus to customer retention often find it to be a more efficient process
because they are marketing to customers who already have expressed an interest in the products and
are engaged with the brand, making it easier to capitalize on their experiences with the company. In
fact, retention is a more sustainable business model that is a key to sustainable growth. The proof is in
the numbers: according to studies done by Bain & Company, increasing customer retention by 5% can
lead to an increase in profits of 25% 95%, and the likelihood of converting an existing customer into a
repeat customer is 60% 70%, while the probability of converting a new lead is 5% 20%, at best.

How to Improve Customer Retention

Obviously, established companies and organizations need to focus on customer retention. More
important, companies are finding that customer profitability tends to increase over the life of a retained
customer, so employing customer retention strategies is a worthwhile use of company resources. We
have compiled some of the more successful customer retention strategies and techniques and outline
them here, for your convenience:

Set customer expectations Set customer expectations early and a little lower than you can provide to
eliminate uncertainty about the level of your service and ensure you always deliver on your promises.

Become the customers trusted advisor You need to be the expert in your particular field, so that you
can gain customers trust and build customer loyalty.

Use relationships to build trust Build relationships with customers in a way that fosters trust. Do this
through shared values and fostering customer relationships.

Take a proactive approach to customer service Implement anticipatory service so that you can
eliminate problems before they occur.

Use social media to build relationships Use LinkedIn, Twitter, and Facebook to connect and
communicate with customers and give them a space for sharing experiences with your company, so they
can become brand ambassadors.

Go the extra mile Going above and beyond will build strong relationships with customers and build
longterm loyalty by paying attention to their needs and issues.
Make it personal Personalized service improves customer experience and is something customers are
expecting and demanding. Make their experience personal to strengthen the bond with your brand.

Rather than try to manage customer retention with a mishmash of customer retention strategies, many
companies use customer retention software systems and targeted customer retention plans to improve
customer retention. Some companies offer customer experience management solutions that enhance
customer retention rates.

Financial services in India | History and trends

The financial services sector in India, which accounts for 6 percent of the nations GDP, is growing
rapidly. Although the sector consists of commercial banks, development finance institutions,
nonbanking financial companies, insurance companies, cooperatives, mutual funds, and the new
payment banks, it is dominated by banks, which holds over 60 percent share.

The Reserve Bank of India (RBI) is the apex bank of the country, controlling all activities in the financial
sector. Commercial banks include public sector and private sector banks and are under the regulatory
supervision of the RBI. Development finance institutions include industrial and agriculture banks.

Nonbanking finance companies (NBFC) provide loans, purchase stocks and debentures, and offer
leasing, hire purchase, and insurance services.

Insurance companies function in both public and private sectors and are controlled by the Insurance
Regulatory and Development Authority (IRDA).

India also has a vibrant capital market with stocks exchanges controlled by the Securities and Exchange
Board of India (SEBI).

According to India in Business, a website of the Union Government, Indias banking sector assets were
worth $1.8 trillion in the 201415 financial year.

According to a report by KPMGCII, Indias banking sector is on the way to becoming the fifth largest in
the world by 2020. The countrys life insurance sector is the biggest in the world, and the market size is
expected to touch about $400 billion by 2020.

The assets of the mutual fund industry are worth $190 billion. The pension corpus fund is projected to
record $1 trillion by 2025. Reforms to put the financial services industry and the economy on the fast
track include measures to make finance available to medium, small, and micro industries.

India once had a heavily governmentdominated financial services industry, and most services were
provided by nationalised banks. Financial sector reforms were initiated in 1991 with the aim of
accelerating economic growth.
In the following years, industry and service sectors were opened up for foreign direct investment. The
reforms ended the dominance of the public sector and reduced direct government control on industrial
investments.

Financial sector reforms in India have improved resource mobilisations and allocation. The liberalisation
of interest rates and the easing of cash reserve norms have helped make funds available to various
sectors.

However, prudential norms have been tightened and transparency and regulation increased to avoid a
systemic collapse that other countries have suffered.

Chapter 4

SERVICE QUALITY AND CUSTOMER SATISFACTION

Quality drives the development of all marketing strategies. Thus the concept of quality
isconsidered to be very important factor for the marketers. That is the major focus of all
themarketing strategies.

Service Quality Models

SERVQUAL model

Based on disconfirmation paradigm, Parasuraman, Zeithaml, & Berry (1985) made the new model
ofservice quality measurement. They try to cover the weakness of Nordic model by offering a new way
formeasuring service quality. In SERVQUAL model, they suggest to use the gap or difference
betweenexpected level of service and delivered level of service for measuring service quality perception
with fivedimensions: Reliability, Responsiveness, Assurances, Empathy, and Tangibility.SERVQUAL is an
analytical tool, which can help managers to identifying the gaps between variablesaffecting the quality
of the offering services. This model is the mostused by marketing researchers and scientists, although it
is an exploratory study and does not offer aclear measurement method for measuring gaps at different
levels. This model has been refined duringthe years and some believe that only performance needed to
be measured as SERVPERF model in orderto find perception of service quality (Cronin & Taylor, 1992).
Finding in years of using this model showsSERVQUAL factors are inconsistent and it is not
comprehensive for different applications
 The SERVQUAL model by Parasuraman et al., (1985)

Nordic Model

Early conceptualization of service quality was formed by Gronroos (1982, 1984), he defined service
quality by technical or outcome (what consumer receive) and functional or process related
(howconsumer receive the service) dimensions (figure 1) (Gronroos, 1982, 1984, 1988). Image build up
bytechnical and functional quality and effect of some other factors (marketing communication, word
ofmouth, tradition, ideology, customer needs and pricing). Nordic model is based on is
confirmationparadigm by comparing perceived performance and expected service. This was the first
attempt tomeasure quality of service. Gronroos model was general and without offering any technique
onmeasuring technical and functional quality. Rust & Oliver (1994) tried to refine the Nordic model by
TheThreeComponent Model. They suggest three components: service product (i.e., technical
quality),service delivery (i.e., functional quality), and service environment but they did not test their
model andjust a few support have been found.

The Nordic model by Gronroos (1984)

Service Quality Gap Model

The gap model (also known as the "5 gaps model") of service quality is an important customer
satisfaction framework. In "A conceptual model of service quality and its implications for future
research" (The Journal of Marketing, 1985), A. Parasuraman, VA Zeitham and LL Berry identify five major
gaps that face organizations seeking to meet customer's expectations of the customer experience.

The five gaps that organizations should measure, manage and minimize:

Gap 1 is the distance between what customers expect and what managers think they expect Clearly
survey research is a key way to narrow this gap.

Gap 2 is between management perception and the actual specification of the customer experience
Managers need to make sure the organization is defining the level of service they believe is needed.
 Gap 3 is from the experience specification to the delivery of the experience Managers need to audit
the customer experience that their organization currently delivers in order to make sure it lives up to
the spec.

Gap 4 is the gap between the delivery of the customer experience and what is communicated to
customers All too often organizations exaggerate what will be provided to customers, or discuss the
best case rather than the likely case, raising customer expectations and harming customer perceptions.

Finally, Gap 5 is the gap between a customer's perception of the experience and the customer's
expectation of the service Customers' expectations have been shaped by word of mouth, their
personal needs and their own past experiences. Routine transactional surveys after delivering the
customer experience are important for an organization to measure customer perceptions of service.

Each gap in the customer experience can be closed through diligent attention from management. Survey
software can be key to assisting management with this crucial task.

The SERVPERF Model

Cronin and Tylor proposed that perceptions of performance are the only criteria to measure and define
service quality and brought out SERVPERF model.They investigated the conceptualization and
measurement of serviced quality and the relationaships between service quality,consumer satisfaction
and purchase intentions.Their work focused on trying to overcome the perceptionsminus
expectations measurement focus of SERVQUAL.The development of the SERVPERF model aimed to
provide an alternative method of measuring perceived service quality and the significance of the
relationships between service quality,customer satisfaction and purchase intentions.In investigating
these concepts and the interrelationships between them they argued that:

A performance based measure of service quality may be an improved means of measuring the service
quality construct.

Service quality is an antecedent of customer satisfaction

Consumer satisfaction has a significance effect on purchase intentions and

Service has less effect on purchase intentions than consumer satisfaction.

As a result they presented a performance based measurement,SERVPERF.The SERVPERF scale was

created mainly in response to the criticism of the SERVQUAL scale.It particulary sought not to use
disconfirmationbased measures as that was perceived to be flaw in the SERVQUAL scale.

CHAPTER 5

CHANNEL MANAGEMENT

Channel management (Place)

Firms must carefully choose how and where their goods reach consumers by managing their distribution
channels. A distribution channel can be defined as an organization system of marketing institutions and
their interrelationships that promote the physical and title flow of goods and services from producers
to

consumers. It overcomes the major time, place and possession gaps that separate goods and services
from those who would use them. It provides ultimate users with convenient ways to obtain the goods
and services they desire. The choice of distribution channels should support the firms overall marketing
strategy. Figure 5 shows the various members and flows in marketing channels.

Consider for example, the distribution channel of Air Deccan, Indias leading lowcost airliner. Apart
from directly selling a ticket (eticket) from the airlines website, www.airdeccan.net, it also sells through
an arrangement with Reliance WebWorld (a chain of Internet cafs) and Indian Oil retail outlets (petrol
bunks). There is a limited, if not, full scale distribution, through the travel agents also. As a result, Air
Deccan uses multiple channels.

Channel functions

The marketing literature identifies the following as the functions performed by the members of the
marketing channel:

1. Information: gathering and distributing marketing research and intelligence information about the
marketing environment

2. Promotion: developing and spreading persuasive communications about an offer

3. Contact: finding and communicating with prospective buyers

4. Matching: shaping and fitting the offer to the buyers needs, including such activities such as
manufacturing, assembling and packaging

5. Negotiation: agreeing on price and other terms of the offer so that ownership or possession can be
transferred

6. Physical distribution: transporting and storing goods

7. Financing: acquiring and using funds to cover the costs of channel work

8. Risk taking: assuming financial risks such as the inability to sell inventory at full margin.

The first five functions help to complete transactions. The last three help to fulfill the completed
transactions. All these functions have three things in common:

They use scarce resources

They can often be performed better through specialization

They can be shifted among channel members

Shifting functions to the channel members may keep producer costs and prices low, but channel
members must add a charge to cover the cost of their work. To keep costs low, functions should be
assigned to channel members who can perform them most efficiently.
Service intermediaries

In a typical service marketing context, two service marketers are involved in delivering service through
intermediaries: the service principal (originator) and the service deliverer (intermediary). For example, in
the fast food industry, Pizza Hut is the service principal and the outlet in Pondicherry run by a franchisee
is the service deliverer. Service intermediaries perform important functions for the service principal.
They often coproduce the service, fulfilling service principals promises to customers. In contrast to
channels for products, channels for services are almost always direct, if not to the customer then to the
intermediary that sells to the customer. Because services cannot be owned, there are no titles or rights
to most services that can be passed along a delivery channel. Because services are intangible and
perishable, inventories cannot exist, making warehousing a dispensable function. In general, because
services can not be produced, stored and then retailed as goods can, many

channels available to product firms are not feasible for service firms. Many of the primary functions of
channel members have no meaning in services. The focus in service distribution is on identifying ways to
bring the customer and principal or its representative together.

Service channel options

The options for service distribution are limited to franchisees, agents, brokers and electronic channels.

Franchisees are service outlets licensed by a principal to deliver a unique service concept it has created
or popularized (Example: fastfood chains like McDonalds)

Agents and brokers are representatives who distribute and sell the services of one or more service
suppliers (Example: Insurance agents)

Electronic channels include all forms of service provision through television, telephone, interactive
media and the Internet. (Example: a hotel website facilitating online reservation)

Channel levels

Marketing channels can be described by the number of channel levels. Each layer that performs some
work in bringing the product and its ownership/consumption closer to the final buyer is a channel level.
Because the producers and the final consumer both perform some work, they are part of every channel.
The number of intermediary levels (channel members) is used to indicate the length of a channel. As a
result, one can have a short or long marketing channel depending on the number of intermediary levels
that exist between the producer and the consumer. The following table describes the factors that affect
distribution channel strategy.

Channel issues

Channel managers often must work to resolve channel conflicts. Distribution channels work smoothly
only when members cooperate in wellorganized efforts to achieve maximum operating efficiencies, yet
channel members often perform as separate, independent and even competing forces. Too often
marketing institutions see only one step forward or backward along a channel. They think about their
own supplies and customers rather than about vital links throughout the channel. Key problems with
intermediaries include channel conflicts over objectives and performance, conflict over costs and
rewards, difficulty controlling quality and consistency across outlets, tension between empowerment
and control and channel ambiguity.

The parties involved in delivering services do not always agree about how the channel should operate.
The conflict most often centres on the parties having different goals, competing roles and rights and
conflicting views of the way the channel is performing.

The monetary arrangement between those who create the service and those who deliver it is a pivotal
issue of contention.

One of the biggest difficulties for both principals (producers) and their intermediaries (channel
members) involves the inconsistency and lack of uniform quality that result when multiple outlets
deliver services. When a poor performance occurs in a single outlet, the service principal (who probably
has franchised out the service) suffers because the entire brand and reputation are affected and other
intermediaries endure negative attributions to their outlets.

In many service situations, the principal and the intermediaries attained profits and longevity by the
principals controlling virtually every aspect of the intermediaries businesses. Such control can have
negative influences within intermediaries. They think their freedom and creativity is curbed.

When the channel is highly empowered, doubt exists about the roles of the service firm and its
intermediaries about many marketing activities. It may lead to confusion and cause conflict.

CHAPTER 6

Marketing communications (Promotion)

Modern marketing calls for more than developing a good product, pricing it attractively and making it
available to target customers. The whole marketing mix must be integrated to deliver a consistent image
and strategic positioning. Firms must communicate continuously with their present and potential
customers. Every firm is inevitably cast into the role of communicator and promoter.

Promotion is the function of informing, persuading and influencing the consumers purchase decision.
Consumers receive marketing communications messages that deal with buyerseller relationships
from a variety of media,including television, magazines and the Internet. Marketers can broadcast an ad
on television network to mass markets or design a customized directmail appeal targeted to a small
market segment (even a segment of one customer!). Each message the consumer receives from any
source represents the brand or firm. Unless a firm coordinates all these messages, the consumer can
become confused and may entirely tune out the message. To prevent this loss of attention, marketers
are turning to integrated marketing communications (IMC) which coordinate all promotional activities to
produce a unified, customerfocused promotional message.

Promotion mix

A firms total marketing communications program, called its promotion mix, consists of a specific blend
of advertising, sales promotion, public relations and personal selling to achieve advertising and
marketing objectives. The five major promotional tools are:
 Advertising Any paid form of nonpersonal presentation and promotion of ideas, goods or services
by an identified sponsor

Sales promotion Shortterm incentives to encourage the purchase or sales of a product or service

Public relations Building good relations with the firms various publics by obtaining favourable
publicity, developing a good corporate image, and handling or heading off unfavourable rumours,
stories and events.

Personal selling Oral presentation in a conversation with one or more prospective buyers for the
purpose of making sales.

Direct marketing The use of direct communication to a consumer designed to generate a response in
the form of an order (direct order); a request for further information (lead generation); or a visit to a
place of business to purchase specific goods/services (traffic generation).

Steps in developing effective communication

The following are the steps in developing effective communication.

1. Select the target audience, including potential buyers, current users and possibly others who
influence the buying decision.

2. Determine the communication objectives, typically involving such goals as awareness, knowledge,
liking, preference, conviction and purchase.

3. Decide on a budget, including how much to spend on the total campaign as well as what to allocate to
various promotion types.

4. Create a message, capturing what to say, how to say it and who will deliver the message.

5. Choose media, among them personal communication channels such as personal selling or non
personal communication channels such as television and newspapers. Media can also be distinguished
as mass media (such as television) and targeted media (such as specialized magazines and direct mail).

6. Collect feedback, which includes researching how effective the communications were in meeting the
objectives.

Services marketing communication

Service firms must add to the traditional communications or promotion mix, a concern about the ways
that customers receive information about services through interactive marketing or marketing between
employees and customers. Refer to the services marketing triangle show in Figure 5. It demonstrates
that the customer of services is the target of two types of marketing communication.

First, external marketing communication extends from the firm to the customer and includes such
traditional communication channels as advertising, sales promotion and public relations. Second,
interactive marketing communication involves the messages that employees give to customers through
such channels as personal selling, customer service interactions, service encounter interactions and
servicescapes.
Integrated services marketing communication

To match service delivery with service promises, the following strategies are recommended: manage
service promises, manage customer expectations, improve customer education and manage internal
marketing communications.

Manage service promises

In manufacturing physical goods, the departments that make promises and those that deliver them can
operate independently. In services, however, the

sales and marketing departments make promises about what other employees in the organizations will
fulfill. Because what employees do cannot be standardized like physical goods produced mechanically,
greater coordination and management of promises are required. Successful services advertising and
personal selling becomes the responsibility of both marketing and operations. Intangibility makes
services advertising different from product advertising and difficult for marketers. The intangible nature
of services creates problems for consumers both before and after purchase. Mittal (1999) has suggested
services advertising strategies to overcome the challenges posed by the intangible nature of services.

Service marketers have developed the following guidelines for service advertising effectiveness:

Use narratives to demonstrate the service experience

Present vivid information

Use interactive imagery

Focus on the tangibles

Feature service employees in communication

 Promise what is possible

Encourage wordofmouth (WOM) communication

Feature service customers

Use transformational advertising

Manage customer expectations

Many service firms find themselves in the position of having to tell customers that services previously
provided will be discontinued or available only at a higher price. Here are four strategies for a service
firm to gracefully give the customer news about what to expect.

One way to reset expectations is to give the customer options for any aspects of service that are
meaningful, such as time and cost. With the choice, clients can select that aspect of the tradeoff (time
or money) that is most meaningful to them. Making the choice solidifies the clients expectations of
service.

Product companies are accustomed to offering different versions of their products with prices
commensurate with the value customers perceive. This type of formal bundling and pricing can be
accomplished in services, with the extra benefit of managing expectations.

A service provider can educate the customer the criteria by which to evaluate the service. The
provider who does this in a credible manner will have an advantage in shaping the evaluation process.

Service providers must learn to present their offerings in terms of value and not on price alone. Such a
valuecentred negotiation can lead to more realistic expectation in the customer.

Improve customer education

The nature of services demand that customers perform their roles properly for many services to be
effective. If the customer forgets to perform this role, or performs it improperly, disappointment may
result. For this reason, communication to customers can take the form of customer education. The
following customer education approaches can help match promises with delivery:

Prepare customers for the service process

Confirm performance to standards and expectations

Clarify expectations after the sale

Teach customers to avoid peak demand periods and seek slow demand periods

Manage internal marketing communication

Internal marketing communications can be both vertical and horizontal. Vertical communications are
either downward (from management to employees) or upward (from employees to management).
Horizontal communications are those across functional boundaries in an organization. Firms must give
customer contact employees the information, tools and skills to perform successful interactive
marketing through downward communication. Upward communication is also necessary in closing the
gap between service promises and service delivery. Having an open upward communication can prevent
service problems before they occur and minimize them when they do occur. Horizontal communication
must be facilitated to coordinate efforts for service delivery. It is important to open channels of
communication between marketing and operations personnel for the potential for conflict between
these two is high. The backoffice and support personnel typically do not interact directly with external
customers. Still they can be aligned with external customers through mechanisms like interaction and
also by creating crossfunctional teams.

CHAPTER 7

Peoples role in service firms

The people element in the service marketing mix refers to all of the human actors who play a part in
service delivery and thus influence the buyers perceptions. Two groups of people play important roles
in the delivery of quality services the employees and customers. Service employees create satisfied
customers and build customer relationships. The frontline service providers are enormously important
to the success of the firm. They are responsible for understanding customer needs and for interpreting
customer requirements in real time. Customer participation at some level is inevitable in service
delivery. As a result, the customers also play unique roles in service delivery situations. Because
customers are present during service production, they can contribute to or detract from the successful
delivery of the service and to their own

satisfaction. In many situations, employees, customers and even others in the service environment
interact to produce the ultimate service outcome.

Critical importance of service employees

Frontline employees and those supporting them from behind the scenes are critical to the success of
any service organization because they are the service, they are the organization in the customers eyes,
they are the brand and they are marketers. Customers perceptions of service quality will be impacted
by the customercentric behaviours of employees. In fact, all of the five dimensions of service quality
(reliability, responsiveness, assurance, empathy and tangibles) can be influenced directly by service
employees. Satisfied employees make for satisfied customers. The frontline service employees are
referred to as boundary spanners because they operate at the organizations boundary. They serve a
critical function in understanding, filtering and interpreting information and resources to and from the
organization and its external constituencies. They also exert emotional labour that goes beyond the
physical or mental skills needed to deliver quality service. Friendliness, courtesy, empathy and
responsiveness directed toward customers require huge amounts of emotional labour from the front
line employees who should this responsibility for the organization. To build a customeroriented,
serviceminded workforce, a service firm must

Hire the right people

Compete for the best people in the talent market

Hire for service competencies and service inclination

Be the preferred employer

Develop people to deliver service quality

 Train for technical and interactive skills

Empower employees

Promote teamwork

Provide the needed support systems and

Develop serviceoriented internal processes

Provide supportive technology and equipment

Measure internal service quality

Retain the best people

Include employees in the firms vision

Treat employees as customers

Measure and reward strong service performers

The importance of customers in service delivery

Recognition of the role of customers in service delivery is reflected in the definition of the people
element of the services marketing mix. The service audience (comprising of the customer receiving the
service and other customers in the service environment) contribute to the service outcome through
appropriate or inappropriate, effective or ineffective, productive or unproductive behaviours. Table 7
summarizes the levels of customer participation across different services.

In many service contexts, customers receive the service simultaneously with other customers or must
wait for their turn while others are being serviced. Either way, the presence of other customers in
the service environment can affect the service delivery process or its outcome. When other customers
exhibit disruptive behaviours, cause delays, overuse, crowd and complain on incompatible needs, it
negatively affects the service experience.

Advances in technology have allowed the proliferation of a wide range of selfservice technologies (SSTs)
that manage the customer participation in service delivery. They bring in a great degree of
standardization and consistency to the service experience, at the same time saving others resources
(including employees) for the service firm. Popular examples of SSTs include ATMs, Internet banking,
Package tracking, elearning, airline eticket, online shopping and auctions.

The level and nature of customer participation in the service process are strategic decisions that can
impact a firms productivity, its competitive positioning, service quality and customer satisfaction. The
goal of a customer participation strategy are to increase productivity and customer satisfaction while
simultaneously decreasing uncertainty due to unpredictable customer actions. A customer participation
strategy may be outlined as follows:

Define customers jobs

Helping oneself
 Helping others

Promoting the brand/firm

Recruit, educate and reward customers

Recruit the right customers

Educate and train customers to perform effectively

Reward customers for their contributions

Avoid negative outcomes of inappropriate customer participation

Manage the customer mix

Appropriate market segmentation

Compatibility management

Servicescapes (Physical evidence) and their roles

Physical evidence is the environment in which the service is delivered and where the firm and the
customer interact, and any tangible commodities that facilitate performance or communication of the
service. Physical evidence is important for communicating about credence services. Think of the
impressions a theme part may leave on its customers using brightly coloured displays, the music, the
fantastic rides and the constumed characters they all reinforce the feelings of excitement and fun.

Physical evidence is important because the services are intangible. They help to tangibilize the intangible
service as customers go by tangible cues, to evaluate the service before its purchase and to assess their
satisfaction with the service during and after consumption. Table 8 represents the elements and
examples of physical evidence.

A classification of service firms can be arrived based on variations in form (elaborate/lean) and use (self
service, interpersonal service, remote service) of the servicescape. Some service environments are very
simple, with few elements, few spaces and few pieces of equipment. Such environments are termed
lean. Examples include ATM and information kiosks. Other servicescapes are very complicated, with
many elements and many forms. They are termed elaborate environments. Examples include hospitals
and insurance companies.

CHAPTER 8

INTERNATIONAL MARKETING OF SERVICES

Why Is International Service Marketing Important?

Service businesses in international markets depend on effective marketing to succeed.

The international business environment has changed drastically thanks to globalization and market
liberalization. Widespread use of electronic channels in marketing and product distribution has
intensified competition in global markets. As such, service businesses targeting foreign growth are
embracing international marketing strategies to remain competitive.
International Audience

Services are intangible products generally delivered through interactive channels. They are offered
either as primary products or as supplementary components, according to the Management Study
Guide. For example, legal representation is a primary service while computer networking is
complimentary. International service marketing looks to create awareness of new and existing services
in the target markets and public domains of foreign countries.

Cultural Expectations

International service marketing enables businesses to acknowledge cultural differences when

advertising in foreign countries. For example, when the American Family Life Assurance Co. (AFLAC)
introduced its famous Duck ad campaign in Japan it used a stuffed doll because the use of live animals
in commercials was not common practice there. The campaign went on to gain iconic status when
AFLAC created the Maneki Neko Duck from the combination of the Duck and Maneki Neko, a famous
white cat associated with luck in some Asian countries. AFLACs efforts to meet the expectations of
Japanese society underscored the significance of aligning service marketing to cultural sensitivities.

International Networks

Service businesses that build and maintain international networks build close relationships with
customers. This allows them to raise sales while expanding their market presence abroad. Taking
advantage of Internetbased promotional and networking platforms, such as social media, lets them
reap maximum benefits in market penetration strategies. Digital platforms are particularly useful for
small and mediumsize service companies engaging in international promotion because they are fairly
affordable and easily accessible.

Promoting Differentiation

International service marketing is an important platform for brand differentiation among service
companies offering similar and related products in foreign markets. Indeed, brand recognition enables
service companies to stand out and remain competitive. That makes promotional campaigns that
engages the audience while establishing brand awareness as critical as the investment required to
operate on an international basis.

5 Driving Forces of Global Professional Services

Faced with increasingly sophisticated clients, market globalization, and evolving technology, professional
services firms must evaluate their business models to ensure they can delivery the greatest value to
every client on every project. If firms continue to do business as usual, they will face eroding margins,
increased operational complexity and risk, and underleveraged partnerships. Lets take a moment to
look at each of the five fundamental driving forces at work in the professional services marketplace
today before we explore how firms can proactively address these trends.

Increasingly sophisticated clients

As more exconsultants work in industry, clients become increasingly discerning and thus routinely
expect firms to offer highly seasoned consultants. They also demand greater visibility into engagement
pricing and structure. In addition, clients increasingly focus on outcomes and demand more choices
both in terms of services and providersat lower costs.

Intense competition

In addition to satisfying discerning clients, professional services firms must deal with increased
competition from a variety of sources. The availability of online information, the pace at which the
competition copies innovative ideas, and industry convergence resulting in a steady and relentless
increase in the number and types of competitive forces a professional services firm faces. For example,
online service providers are making certain services, such as X, obsolete. In addition, offshore firms are
gaining market share with lower labor costs. Finally, product firms are marketing their manufacturing or
product expertise to those seeking process efficiencies, creating new competitors for professional
services firms.

Market globalization

Competition is not only intense, it is global. As national boundaries become irrelevant to global business,
suppliers, clients, information, and ideas flow easily across borders. Professional services firms are
finding themselves largely locationindependent. No one region is the single source for the right labor
mix, latest technology, or management innovation. Clients expect their services partners to provide
support around the world and source from the locations that provide the greatest expertiseand best
value. Firms must be able to deliver both custom and packaged services globally, yet have each project
configured for the local market. Fulfilling this demand requires extraordinary operational and staffing
flexibility.

Evolving technology architecture

Further squeezing the market, custom software, packaged applications, and software as a service (SaaS)
are now available to solve business problems once addressed with laborbased services. One important
technology transformation involves the construction of information architecture. With the emergence of
web services and Service Oriented Architecture (SOA), applications are being broken down into smaller
components, each of which can interface seamlessly with other components. More and more
information services, technologies, and business applications can be distributed across computers and
organizations. Some are even publicly available for free on the Internet, limiting the need for certain
external professional services.
Emergence of modularization

Like software applications, business processes are also swiftly becoming modular or componentized
broken down into small elements that can be combined and recombined as needed. Companies can
choose to locate these modules inside or outside the enterprise, knowing they can easily integrate with
other critical business activities or be reconfigured as needs change. The rapid and continued
modularization of business means that companies must focus on and invest in only those worldclass
processes that create a competitive advantage.

As all five of these market forces converge, it becomes increasingly difficult for professional services
firms to differentiate based on the products and services that they provide. Additionally, these firms are
discovering that their competitors copy many of their services or that the clients procurement
department is comparing every proposal to competing offers in minute detail. Even as price pressures
squeeze margins, sophisticated, global clients are demanding that professional services firms deliver
standardized elements at the lowest cost and provide differentiated service in the most costeffective
manner possible. The message is clear: professional services firms must either constantly innovate to
deliver the differentiated products and services clients demand at the lowest cost or risk being
swallowed by competitive forces.

SEGMENTATION, TARGETTING & POSITIONING IN SERVICES

Segmentation, targeting, and positioning together comprise a three stage process. We first (1)
determine which kinds of customers exist, then (2) select which ones we are best off trying to serve and,
finally, (3) implement our segmentation by optimizing our products/services for that segment and
communicating that we have made the choice to distinguish ourselves that way.

Segmentation involves finding out what kinds of consumers with different needs exist. In the auto
market, for example, some consumers demand speed and performance, while others are much more
concerned about roominess and safety. In general, it holds true that You cant be all things to all
people, and experience has demonstrated that firms that specialize in meeting the needs of one group
of consumers over another tend to be more profitable.

Generically, there are three approaches to marketing. In the undifferentiated strategy, all consumers
are treated as the same, with firms not making any specific efforts to satisfy particular groups. This may
work when the product is a standard one where one competitor really cant offer much that another
one cant. Usually, this is the case only for commodities. In the concentrated strategy, one firm chooses
to focus on one of several segments that exist while leaving other segments to competitors. For
example, Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned
seating for low prices. In contrast, most airlines follow the differentiated strategy: They offer high
priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and
find it impractical to stay over a Saturday. These travelersusually business travelerspay high fares
but can only fill the planes up partially. The same airlines then sell some of the remaining seats to more
price sensitive customers who can buy two weeks in advance and stay over.

Note that segmentation calls for some tough choices. There may be a large number of variables that
can be used to differentiate consumers of a given product category; yet, in practice, it becomes
impossibly cumbersome to work with more than a few at a time. Thus, we need to determine which
variables will be most useful in distinguishing different groups of consumers. We might thus decide, for
example, that the variables that are most relevant in separating different kinds of soft drink consumers
are (1) preference for taste vs. low calories, (2) preference for Cola vs. noncola taste, (3) price
sensitivitywillingness to pay for brand names; and (4) heavy vs. light consumers. We now put these
variables together to arrive at various combinations.

Several different kinds of variables can be used for segmentation.

Demographic variables essentially refer to personal statistics such as income, gender, education,
location (rural vs. urban, East vs. West), ethnicity, and family size. Campbells soup, for instance, has
found that Western U.S. consumers on the average prefer spicier soupsthus, you get a different
product in the same cans at the East and West coasts. Facing flat sales of guns in the traditional male
dominated market, a manufacturer came out with the Lady Remmington, a more compact, handier gun
more attractive to women. Taking this a step farther, it is also possible to segment on lifestyle and
values.

Some consumers want to be seen as similar to others, while a different segment wants to stand apart
from the crowd.

Another basis for segmentation is behavior. Some consumers are brand loyali.e., they tend to
stick with their preferred brands even when a competing one is on sale. Some consumers are heavy
users while others are light users. For example, research conducted by the wine industry shows that
some 80% of the product is consumed by 20% of the consumerspresumably a rather intoxicated
group.

One can also segment on benefits sought, essentially bypassing demographic explanatory variables.
Some consumers, for example, like scented soap (a segment likely to be attracted to brands such as Irish
Spring), while others prefer the clean feeling of unscented soap (the Ivory segment). Some
consumers use toothpaste primarily to promote oral health, while another segment is more interested
in breathe freshening.

In the next step, we decide to target one or more segments. Our choice should generally depend on
several factors. First, how well are existing segments served by other manufacturers? It will be more
difficult to appeal to a segment that is already well served than to one whose needs are not currently
being served well. Secondly, how large is the segment, and how can we expect it to grow? (Note that a
downside to a large, rapidly growing segment is that it tends to attract competition). Thirdly, do we
have strengths as a company that will help us appeal particularly to one group of consumers? Firms may
already have an established reputation. While McDonalds has a great reputation for fast, consistent
quality, family friendly food, it would be difficult to convince consumers that McDonalds now offers
gourmet food. Thus, McDonalds would probably be better off targeting families in search of consistent
quality food in nice, clean restaurants.

It is possible using to target very specific customer groups based on magazine subscriptions, past
purchases, and demographic variables. A number of list brokers will sell lists of names and addresses of
homeowners in a particular area (information they get from county registrars) or the subscribers to
various magazines. Firms will often sell lists of their customers to competitors since it is widely believed
in the industry that more catalogs tend to result more in incremental sales than in losing share in fixed
size pie. One can also buy email lists, but it is generally not legal to send solicitng emails to individuals
with which one does not already have an established business relationship, and these are also likely to
be discarded by "spam" filters. In the "mergepurge" process, lists from several sources are combined
(since none contains every relevant individual by itself), after which duplicates are removed.

Positioning involves implementing our targeting. For example, Apple Computer has chosen to position
itself as a maker of userfriendly computers. Thus, Apple has done a lot through its advertising to
promote itself, through its unintimidating icons, as a computer for nongeeks. The Visual C software
programming language, in contrast, is aimed a techies.

Michael Treacy and Fred Wiersema suggested in their 1993 book The Discipline of Market Leaders that
most successful firms fall into one of three categories:

Operationally excellent firms, which maintain a strong competitive advantage by maintaining

exceptional efficiency, thus enabling the firm to provide reliable service to the customer at a
significantly lower cost than those of less well organized and well run competitors. The emphasis here is
mostly on low cost, subject to reliable performance, and less value is put on customizing the offering for
the specific customer. WalMart is an example of this discipline. Elaborate logistical designs allow
goods to be moved at the lowest cost, with extensive systems predicting when specific quantities of
supplies will be needed.

Customer intimate firms, which excel in serving the specific needs of the individual customer well.
There is less emphasis on efficiency, which is sacrificed for providing more precisely what is wanted by
the customer. Reliability is also stressed. Nordstroms and IBM are examples of this discipline.

Technologically excellent firms, which produce the most advanced products currently available with
the latest technology, constantly maintaining leadership in innovation. These firms, because they work
with costly technology that need constant refinement, cannot be as efficient as the operationally
excellent firms and often cannot adapt their products as well to the needs of the individual customer.
Intel is an example of this discipline.

Treacy and Wiersema suggest that in addition to excelling on one of the three value dimensions, firms
must meet acceptable levels on the other two. WalMart, for example, does maintain some level of
customer service. Nordstroms and Intel both must meet some standards of cost effectiveness. The
emphasis, beyond meeting the minimum required level in the two other dimensions, is on the
dimension of strength.

Repositioning involves an attempt to change consumer perceptions of a brand, usually because the
existing position that the brand holds has become less attractive. Sears, for example, attempted to
reposition itself from a place that offered great sales but unattractive prices the rest of the time to a
store that consistently offered everyday low prices. Repositioning in practice is very difficult to
accomplish. A great deal of money is often needed for advertising and other promotional efforts, and in
many cases, the repositioning fails.

To effectively attempt repositioning, it is important to understand how ones brand and those of
competitors are perceived. One approach to identifying consumer product perceptions is
multidimensional scaling. Here, we identify how products are perceived on two or more dimensions,
allowing us to plot brands against each other. It may then be possible to attempt to move ones brand
in a more desirable direction by selectively promoting certain points. There are two main approaches to
multidimensional scaling. In the a priori approach, market researchers identify dimensions of interest
and then ask consumers about their perceptions on each dimension for each brand. This is useful when
(1) the market researcher knows which dimensions are of interest and (2) the customers perception on
each dimension is relatively clear (as opposed to being made up on the spot to be able to give the
researcher a desired answer). In the similarity rating approach, respondents are not asked about their
perceptions of brands on any specific dimensions. Instead, subjects are asked to rate the extent of
similarity of different pairs of products (e.g., How similar, on a scale of 17, is Snickers to Kitkat, and
how similar is Toblerone to Three Musketeers?) Using a computer algorithms, the computer then
identifies positions of each brand on a map of a given number of dimensions. The computer does not
reveal what each dimension meansthat must be left to human interpretation based on what the
variations in each dimension appears to reveal. This second method is more useful when no specific
product dimensions have been identified as being of particular interest or when it is not clear what the
variables of difference are for the product category.

CHAPTER 9

SERVICE LIFE CYCLE

The different stages in the life cycle of a product and services are more or less similar and have common
characteristics. They are as follows:

Introduction: At this stage the service is new as it is just launched its usage rate will be low. The
production cost is high but the sales being smaller the revenue is low. Until the growth .stage
the service provider mostly operate from one location.
Growth: There is a rapid increase in the sales at this stage. The sales increase at an increasing
rate as the consumers see the benefits. In using the service. Promotion is focused in order to
attract new users and retain repeat customers. The firm may even improve service quality and
add some new features to attract the customers.
 Maturity: The product/services enter the stage of maturity as the rate of growth slows down.
Here the sales are still increasing but increasing at a decreasing rate. The sales touch their peak
and then it saturates. At that level for a longer period of time. There is intense competition at
this stage and the firm in order to keep its market share may modify and improve the service
quality.
Decline: The usage rate of services diminishes with the technological advancement and
changing consumer tastes. The service provider uses different strategies at this stage. Some
firms withdraw form the current service and switch over to new ventures with better
opportunities. Some retain the services in order to cater to the needs of a few loyal customers
but still diversify to other services.

International Marketing Decisions

International marketing decisions are same as domestic marketing; only difference is that all marketing
decisions are taken with reference to foreign or international markets (or customers). More clearly,
product, price, promotion, and distribution decisions are made for international buyers.

Those firms planning to enter the global markets have to decide on following key decisions:

1. International Markets Decision:

Whether to go for international market?

2. Market Selection Decision:

To whom of which country to sell?

3. Market Entry Decision:

How to enter the international market?

4. Marketing Mix Decision:

Which type of marketing mix should a firm prepare?

5. Organisation Decision:

What type of organisation should a firm adopt to manage international business?

International Markets Decision:

The first few important questions a firm has to answer are should a company go for international
market? Why should a company prefer to enter global market? Does company capable to transact in
international markets? Obviously, answers come from companys current domestic market position and
types of opportunities available in the foreign markets. When international markets seem to more
attractive and the company is capable to exploit these markets, the company decides to enter the
international markets.

In short, a company prefers to enter the international market in following situations:

1. When companys has excess production capacity and there exists attractive opportunities outside,
and/or

2. When, compared to domestic markets, foreign markets seem more attractive or profitable, and/or

3. When company has enough capabilities to deal with international markets, and/or

4. When domestic governments insist, force, and/or encourage businessmen for international markets.

Once a firm has decided to enter the international market, the next important marketing decision is
market selection. As per companys present product mix, production capacity, and proposed expansion
strategy, it selects one or more countries to operate in. In the same way, it has to decide on type of
foreign buyers to be served.

Market segmentation and target market selection are two basic issues in the decision. Initially, a firm
targets the most attractive and comparatively easy international markets. Global marketing research can
help a company to study international consumer behaviour, segment international market, and select a
few most profitable markets.

To assess international markets, following criteria may be used:

1. Present market opportunities

2. Future market opportunities

3. Market share

4. Uncertainties and challenges

5. Costprofit estimates

6. Return on investment

Market Entry Decision:

A firm has selected international markets to operate in. Now, the next imperative marketing decision is
market entry, i.e., how to enter the market; which of the options to be used for foreign market entry.
There are several options to choose an appropriate entry strategy.

1. Exporting:

Exporting involves selling domestic products in foreign markets. It is easier and common entry option.
Exporting consists of producing the products in home country and selling or exporting the same in the
international market. There are two options in exporting, the first, company itself exports products in
foreign markets, and, the second, company exports through intermediate agency or agent.

Some entry options in exporting, as suggested by Philip Kotler, include:

i. Export Department:

A company maintains a fullfledged export department to sell its products in foreign markets. The
department is responsible for searching export opportunities, promotion and selling products, and
performing all activities related to export business.

ii. Opening Branch in Foreign Market:

Some companies open their branches or shops in foreign markets to serve consumers. The head of the
branch is responsible for all activities related to promotion and distribution of the companys products.

iii. Appointing Traveling Salesmen:

Some companies appoint salesmen to search customers in foreign market and serve them. They collect
orders and manage necessary procedures. They can help develop relations with foreign agencies,
retailer, and customers.

iv. Appointing Distributors:

In this entry option, a firm appoints agents, representatives, or middlemen in foreign markets. They are
responsible to carry out all activities to promote and sell the companys products.

2. Direct Foreign Investment:

A company sets up its own factory in other countries. Its carries out all production and marketing
activities in foreign land. But, the option depends on a lot of factors such as market stability, costs of
production and marketing, competition, government policies, and other factors determining
favourableness of situation. Company should select this strategy carefully as there are considerable risk
and uncertainties in some countries.

3. Joint Venture:

The joint venture is jointly owned and managed by host and foreign companies, by two companies of
two nations. A foreign company holds necessary equity to get voice in management but not enough to
completely dominate the venture. Structure of joint venture depends on government policies and
approach of host country.
In underdeveloped and developing countries, many multinational corporations are operating as joint
ventures. For example, HMT represent joint venture with Swiss Machines and Tools, Proctor and
Gamble has joint venture with Godrej, Suzuki of Japan has with Maruti Udyog, etc.

At present Indian governments and companies operate with more than 50 countries as joint ventures.
When a giant company invests directly in many countries, it is called multinational companies (MNCc).
There are several forms of joint venture, such as mixed companies, joint ownership companies, licensed
companies, contract manufacturing, management contract, etc.

Marketing Mix Decision:

Marketing mix decision involves preparing marketing mix (strategies) for international market.
Marketing mix consists of 4Ps product decisions, pricing decisions, promotion decisions, and place or
distribution decisions.

Marketing mix decisions remain same as domestic market except the target market. Here, all marketing
mix decisions are taken with reference to foreign customers and global marketing environment.

Organisation Decision:

Organisation for global marketing is an important decision. In order to implement, direct, and control
international marketing efforts, a company must adopt an appropriate organization structure. The
organisation is responsible to regulate foreign trade.

It is same as domestic marketing organisation; the only difference is that it is prepared to administer
international marketing operations and activities. Structure depends on a lot of factors such as type of
products, number of countries, type of buyers, etc. Sometimes, it is treated as the department or part of
main organisation, for example, foreign trade department.

There are different types of organisation structures suit with international marketing such as:

i. Productwise Organisation

ii. Countrywise Organisation,

iii. Customerwise Organisation

iv. Placewise organisation

v. Matrix or Mix Organisation, etc.