NEW HORIZON COLLEGE

MARATHALLI, BANGALORE
(Affiliated to Bangalore University)
A Recipient of Prestigious Rajyotsava State Award 2012 conferred by the Government of Karnataka

IV SEM BBA STUDY MATERIAL

SERVICE MANAGEMENT

Prepared By

MS. SHIKHA YADAV

Ring Road, Bellandur Post, Near Marathalli, Bangalore - 560 103

Tel : +91-80-6629 7777 Fax : +91-80-2844 0770
E-mail : principalnhc.edu@gmail.com
Web : www.newhorizonindia.edu
 UNIT 1 INTRODUCTION TO SERVICES
MANAGEMENT
 Services are present everywhere be it a doctor, a trip, your favorite restaurant, remember your
school day or college.
 The Services Sector contributes the most to the Indian GDP.
 The Sector of Services in India has the biggest share in the country's GDP, it accounts for more than
50% contribution.
 The various sectors under the Services Sector in India are construction, trade, hotels, transport,
restaurant, communication and storage, social and personal services, community, insurance,
financing, business services, and real estate.
 Services marketing concepts and strategies have developed in response to the tremendous growth of
service industries. Most new employment is provided by service.
 The global service economy is growing at a fast rate to the extent that our majority of GROSS
NATIONAL PRODUCTS are generated by the service sector.
 We can see this growth in traditional and modern services as well.
 Traditional services include health care, financial and insurance. Modern services include IT
service, bio-technology, and port management.

ELEMENTS OF A PRODUCT

 Every product will be having two elements.

 Example- A meal in a restaurant

Product- Food

Service- The way it is served

DEFINITION OF SERVICE

“A service is any activity or benefit that one party can offer to another which is essentially
intangible and does not result in the ownership of anything. Its production may or may
not be tied to a physical product.”
 CHARATERISTICS OF SERVICE

 INTANGIBILITY
 INSEPARABILITY
 VARIABILITY
 PERISHABILITY
 INABILITY TO OWN SERVICES

INTANGIBILITY

 Pure services can be verified on the basis of reliability, personal care, attention by the staff,
there friendliness, Etc.
 But a product or good can be examined for a physical integrity, aesthetic appearance, smell,
taste etc.
 A good can be examined before purchasing but a service can be examined and verified only
once it has been purchased and consumed.
 The quality of the service can be different to the goods. Goods have tangible standards but in
services it is defined in the minds of consumers.

INSEPARABILITY

 The consumption of service cannot be separated from its means of production. The producer
and consumer must interact in order for the benefits of the service. Both must normally meet at
a time and at a place that is mutually convenient in order to get the benefits of service.
 EX. A SURGEON CAN NOT PROVIDE HIS SERVICE WITH OUT A PATIENT
 Inseparability occurs whether the producer is human as in the case of health care service or
ATM machine. The service of the ATM can only be benefited if producer and consumer
interact.
 In case of banking sector many banks has replaced local branches with centralized telephone
call centers.

VARIABILITY
 Most manufactured goods are produced with high consistency but for services variability
depends on outcomes and process of production.
 Variability in production standard is of the greatest concern to services the organizations there
customers are highly involved in production process it can be seen in labour intensive personal
service like personal health care.
 Now a day’s many services are equipment based which are less variable than those which
involved personnel interaction of human in the production process
 By adopting equipment based production methods, it is easy to reduce variability and helps in
building strong brand image.
 Ex. Replacement of human telephone operator by computerized voice system and automation
of banking services.

Variability Services are highly variable because the quality of service depends on who provides
and where and when they are provided.

The level of service provided during peak season may differ from the service provided during
off-peak season if consistency is not being practiced.

For example, when there is less number of customers, services are more specific and polite. If
there is large number of customers, service provider tend to be busy and might lose some
service to the customers.

 Variability can also mean lack of consistency.

For example, if one day you eat in a restaurant, the food and service was very good but the next
day, it becomes bad.
 Classification of Services

1. End-user

Services can be classified into the following categories:

 Consumer: leisure, hairdressing, personal finance, package holidays. Cinema watching
 Business to business: advertising agencies, printing, accountancy, consultancy, supply
stationery to the Govt.
 Industrial: plant maintenance and repair, work wear and hygiene, installation, project
management.

2. Service tangibility

 The degree of tangibility of a service can be used to classify services:

 Highly tangible: car rental, vending machines, telecommunications.ATM,
 Service linked to tangible goods: domestic appliance repair, car service.
 Highly intangible: psychotherapy, consultancy, legal services. Lecture, meditation, yoga.

3. People-based services
Services can be broken down into labour-intensive (people-based) and equipment-based
services. This can also be represented by the degree of contact:

 People-based services - high contact: education, dental care, restaurants, and medical services.
 Equipment-based -low contact automatic car wash, launderette, vending machine, and
cinema.
 Expertise, e – commerce , E- business, E- Marketing

4. Profit orientation

The overall business orientation is a recognized means of classification:

 Not-for-profit: The Scouts Association, charities, public sector leisure facilities.

 Commercial: banks, airlines, tour operators, hotel and catering services.

Profit Orientation
 Non profit services – Charitable trust, Philanthropic, institutions, memorial hospital
 Scout association
 Commercial or nonprofit making services – Banks, Airlines, Insurances, Hotels & Tour
operators.

5. Expertise & Skills

 Professional: medical services, legal services, accountancy, tutoring.
 Non-professional: babysitting, care taking, casual labour

REASONS FOR GROWTH OF SERVICE SECTOR IN INDIA

 Information technology
 BPO
 Information technology enabled services
 Travel and tourism
 Hospitality industry
 Professional services
 Health care services
 Banking and financial services
 Telecom services
 Education
 Entertainment services
 Public utility services
 Event management
 Infrastructure
 Retailing

Service sector is the lifeline for the social economic growth of a country. It is today the largest
and fastest growing sector globally contributing more to the global output and employing more
people than any other sector.

The real reason for the growth of the service sector is due to the increase in urbanization,
privatization and more demand for intermediate and final consumer services. Availability of
quality services is vital for the well being of the economy.

In advanced economies the growth in the primary and secondary sectors are directly dependent
on the growth of services like banking, insurance, trade, commerce, entertainment etc.

Indian Service Sector

In alignment with the global trends, Indian service sector has witnessed a major boom and is
one of the major contributors to both employment and national income in recent times. The
activities under the purview of the service sector are quite diverse. Trading, transportation and
communication, financial, real estate and business services, community, social and personal
services come within the gambit of the service industry.

One of the key service industries in India would be health and education. They are vital for the
country’s economic stability. A robust healthcare system helps to create a strong and diligent
human capital, who in turn can contribute productively to the nation’s growth.

1. Post Liberalization
The Indian economy has moved from agriculture based economy to a knowledge based
economy. Today the IT industry and ITE'S industry are the dominant industry in the service
sector. Media and entertainment have also seen tremendous growth in the past few years.

2. Information Technology Industry

the Information Technology industry has achieved phenomenal growth after liberalization. The
industry has performed exceedingly well amidst tough global competition. Being knowledge
based industry; India has been able to leverage the global markets, because of the huge pool of
engineering talent available and the proficiency in English language among the middle class.

3. ITES sector
The ITES sector has also leveraged the global changes positively to emerge as one of the
prominent industries. Some of the services covered by the ITES industry would be:

 Customer interaction services -Non voice and Voice.

 Back office, revenue accounting, data entry, data conversion, HR services.
 Medical Transcription.
  Content development and animation.
 Remote education, market research and GIS

4. Retailing
Prior to liberalization, India had one of the most underdeveloped retail sectors in the world.
After liberalization the scenario changed dramatically. Organized retailing with prominence on
self service and chain stores has changed the dynamics of retailing. In most of the tier I and tier
II cities supermarket chains mushroomed, catering to the needs of vibrant middle class. This
indirectly contributed to the growth of the packaged food industry and other consumer goods.

5. Financial Services-Banking and Insurance

Prior to liberalization these two sectors were controlled and regulated by the government.
Nationalized banks and insurance companies had a firm grip over the market. After
liberalization the banking and insurance domain opened up for private participation

6. Banking Sector
The three major changes in the banking sector after liberalization are:

 Step to increase the cash outflow through reduction in the statutory liquidity and cash reserve
ratio.
 Nationalized banks including SBI were allowed to sell stakes to private sector and private
investors were allowed to enter the banking domain. Foreign banks were given greater access
to the domestic market, both as subsidiaries and branches, provided the foreign banks
maintained a minimum assigned capital and would be governed by the same rules and
regulations governing domestic banks.
 Banks were given greater freedom to leverage the capital markets and determine their asset
portfolios. The banks were allowed to provide advances against equity provided as collateral
and provide bank guarantees to the broking community.

7. Insurance Sector
The Insurance Regulatory and Development Authority Act 1999 (IRDA Act) allowed the
participation of private insurance companies in the insurance sector. The primary role of IRDA
was to safeguard the interest of insurance policy holders, to regulate, promote and ensure
orderly growth of the insurance industry. The insurance sector could invest in the capital
markets and other than traditional insurance products; various market link insurance products
 were available to the end customer to choose from.

Some of the prominent insurance companies are:

 Bajaj Allianz Insurance Corporation

 Birla Sun Insurance Co Ltd
 HDFC Standard Insurance Co Ltd
 ICICI Prudential Insurance Co Ltd
 Max New York Insurance Co Ltd
 Tata AIG Insurance Co Ltd

Future Trends

 Globally outsourcing industry would continue to grow.

 Following the success of US and UK, more countries in the European Union would outsource
their business.
 Technological power shift from the West to the East as India and China emerge as major
players.
 Political backlash over outsourcing would come down as companies reap the benefit of
outsourcing.
Service Marketing Triangle

The marketing and selling of services requires a special set of tactics and priorities compared
with selling physical products. The service marketing triangle breaks the marketing tasks of
your business down into three types. As a service business, you must market both to your
employees so they understand the focus of your business and to your customers so they do
more business with you.

Points of the Triangle

Each side of the service marketing triangle represents a type of marketing, and the types
interact between the entities on the points where the sides meet. At the top of the triangle sits
your business organization. At each corner at the bottom of the triangle are your customers and
your employees who interact with and provide the services to your customers.

Internal Marketing
Internal marketing is the side of the triangle between your organization and your employees
who provide your services to customers. Marketing issues include adequate training on the
services to be delivered and customer satisfaction service techniques. Internal marketing
requires you to be involved with your employees and let them know the goals and even
problems facing the business. Internal marketing also can include a performance rewards
system for employees who deliver the highest level of customer service.

External Marketing
External marketing goes from your business organization out to customers and prospective
customers. This is the traditional form of business marketing, showing customers how the
services provided by your business benefit them. External marketing includes advertising, your
website and your company's social media efforts. The purpose of external marketing is to fill
the business pipeline with future business.

Interactive Marketing
The side of the triangle between your employees and customers is called interactive marketing.
This form of marketing revolves around how your employees deliver the services your
company provides. The goal is to have highly satisfied customers who become long-term,
repeat customers. The effectiveness of the interactive marketing relates back to the internal
marketing efforts of your business. Interactive marketing is also how your employees keep the
promises made by your external marketing efforts.
Questions

Section A

1. Define Services.

2. What is intangibility?

3. State few service sectors.

4. Define services marketing.

Section B

1. Give a brief note on services management.

2. Give an analytical note on the reasons for the growth of service sector

3. Explain the steps in service design process.

Section C

1. Explain in detail classification of services.

2. Explain in detail characteristics of services.

 UNIT 2 SERVICES MARKETING

Meaning of Service Marketing

Services’ marketing is a sub-field of marketing, which can be split into the two main areas of
goods marketing (which includes the marketing of fast moving consumer goods (FMCG) and
durables) and services marketing. Services marketing typically refer to both business to
consumer (B2C) and business to business (B2B) services, and include marketing of services
such as telecommunications services, financial services, all types of hospitality services, car
rental services, air travel, health care services and professional services.

Services are (usually) intangible economic activities offered by one party to another. Often
time-based, services performed bring about desired results to recipients, objects, or other assets
for which purchasers have responsibility. In exchange for money, time, and effort, service
customers expect value from access to goods, labour, professional skills, facilities, networks,
and systems; but they do not normally take ownership of any of the physical elements involved

Difference between Products (Goods) and services

 Goods are 100% tangible

 Goods have tangible standards against which the quality is assessed
 Production and consumption are possible to separate
 Production happens first followed by consumption
 Consumer is not a part of production process
 Goods are standardized and don’t have variations
 Some goods are not perishable in nature and can be stored for a long time
 Goods can be examined before purchasing
 Goods can be owned
 Marketing mix has four elements or P’s. They are product, place, price, promotion.
SERVICES:
 These are intangible
 Here the bench marks is defined in the minds of consumers
 It is inseparable. And service takes place simultaneously. Ex-hair cutting
 Consumer is a part of service. Ex- a fast food service
 Variations are possible
 If services are used at a particular place it perishes. Ex- unoccupied seats in the bus, train.
 Service can’t be examined but can be experienced
 Services can’t be owned.
 It has seven P’s: product, place, price, promotion. people, process and physical evidence

SIGNIFICANCE/IMPORTNACE OF SERVICES MARKETING

Proper marketing of services contributes substantially to the process of development. If

innovative marketing principles are followed in services marketing, the socio-economic
transformation will take place at a much faster rate. In future, the service sector would operate
in a conducive environment offering great potential. If the opportunities are properly utilised
by the service sector, it will lead to an all round development of the economy.

The significance of the service economy may be discussed under the following headings:

1. Generation of employment opportunities

2. Optimum utilisation of resources

3. Capital formation

4. Increased standard of living

5. Use of environment-friendly technology.

1. Generation of employment Opportunities The components of the service sector are wide
and varied. For example, the service sector includes personal care services, education services,
Medicare services, communication services, tourism services, hospitality services, banking
services, insurance services, transportation services, consultancy services; etc the organised and
systematic development of the service sector would create enormous employment
opportunities. Application of marketing principles in the service sector is instrumental to the
development of the economy. However, it is appropriate to mention that India has not been
successful in utilising the potential of the service sector. As seen in Table 1.1, in USA about 80
per cent of job opportunities are offered by the service sector compared to India's 60%. So, the
significance of the service sector lies in its capacity to create job opportunities. If the service
sector is properly developed, it will solve the problem of unemployment in India to a great
extent. After liberalisation policy, the service sector in India has been emerging as a dominant
component in the economy.

2. Optimum Utilisation of Resources India is bestowed with rich resources. Particularly, the
human resources available in India favour the growth of the service sector. While the labour
content in most manufacturing activities is dropping steadily with use of technology, the labour
content in the service sector is comparatively high. As India is rich in human resources, service
sector can grow steadily. Moreover, service sector offers excellent export opportunities too. In
fact, the important agenda of the World Trade Organisation (WTO) is opening up of market for
services. So, by exploiting these factors, India can maximise its services export. Though its
performance in the export of computer software is quite commendable already, it should
concentrate on other areas as well. Service firms such as personal care services, the
entertainment services, tourism services, hotel service contribute to the growth of the economy
without consuming any natural resources. In a sense, the growth of service firms of this kind
conserve natural resources. Thus, services marketing help conserve the valuable resources for
future generations.

3. Capital Formation There are indications that Services will grow more rapidly in the near
future. Economic, social and political factors signal an expansion of the service sector.
Investments and job generations are far greater in the service sector compared to
manufacturing. It is estimated that telecom alone will account for an investment of Rs. 150,000
crores in the coming years. Investment encourages capital formation. For the development of a
- 2 - nation, the flow of capital should be directed towards the most productive uses. If
investments are made in the service sector, it will contribute to the nation-building process.
With increased developmental activities, the per capita income increases which, in turn,
facilitates capital formation. Performance of profitable services can absorb higher investments,
thereby accelerating the rate of capital formation.

4. Increasing the Standard of Living The standard of living of the people in any country
would be decided on the basis of quality and standard of products consumed or services availed
in the day-to-day living. Any development is transparent only when the living conditions of the
masses improve. When compared with developed countries, the standard of living in India is
far from satisfactory. Standard of living cannot be improved by offering more opportunities for
earnings. On the other hand, the standard of living is determined by the availability of goods
 and services for citizens and a wise spending on them. The development of services industry is
sure to promote the standard of living of the people.

5. Use of Environment-friendly Technology: Now-a-days, almost all services are found

technology-driven. Developed countries are making full use of latest technology while
rendering services. Technologies used by service generating organisations such banks,
insurance companies, tourism, hotel services, , mmunicatiW1 services. and. education services
are not detrimental in any way to the environment. On the contrary, technologies used in
manufacturing organisations may have harmful effects on the environment. So, services
industry do not pollute the environment which is indeed laudable.

Service Marketing Mix or The 7 P’s of Services MANAGEMENT

 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.

The three additional ‘P’s of Service Marketing Mix

 Product
 Price
 Place
 Promotion
 People
 Physical evidence
 Process

Product

 Services are intangible, heterogeneous and perishable. Moreover, its production and
consumption are inseparable.
 Hence, there is scope for customizing the offering as per customer requirements.
 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 different than pricing of goods.

 While the latter can be priced easily by taking into account the raw material costs, but in case
of services other costs are also counted.
 For example, 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.

Place

 Since service delivery is simultaneous with its production.

 It 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

 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.

People

 People are the 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 departmental 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
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.

Importance of Service

1. Huge demand for professionally qualified technicians

2. Educational Services

3. Banking and insurance

4. Tourism and travel industries

5. Health Industry

6. Pollution Control Board, electricity, water

7. Professional like Lawyer, tax consultant

Service Management

Service management is about refining of the basic principles of management in service sector.

a. Service management is understanding the value customer receives

b. Understanding how total quality is perceived in customer relationships to facilitate such

value and how it changes over time.
Managing Demand and Supply in service industry

What makes service industries so distinct from manufacturing ones is their immediacy: the
hamburgers have to be hot, the motel rooms exactly where the sleepy travelers want them, and
the airline seats empty when the customers want to fly. Balancing the supply and demand sides
of a service industry is not easy.

Managing Demand & Supply

Besides electing to adopt one of the strategies just described, the service executive may select
one or another additional way to cope with a fluctuating demand schedule. To understand how
one business did it, see the sidebar, “Finding a Creative Solution.”

Altering Demand

The manager can attempt to affect demand by developing

 Off-peak pricing schemes

 Nonpeak promotions
 Complementary services
 Reservation systems

Pricing

One method managers use to shift demand from peak periods to nonpeak ones is to employ a
differential pricing scheme, which might also increase primary demand for the nonpeak
periods. Examples of such schemes are numerous. They include matinee prices for movies,
happy hours at bars, family nights at the ball park on week nights, weekend and night rates for
long-distance calls, peak-load pricing by utility companies, and two-for-one coupons at
restaurants on Tuesday nights.

Developing nonpeak demand

Most service managers wrestle constantly with ideas to increase volume during periods of low
demand, especially in those facilities with a high-fixed, low-variable cost structure. The impact
of those incremental revenue dollars on the profitability of the business is tremendous.
Examples of attempts to develop non-peak demand are not hard to find. Hamburger chains add
breakfast items to their menus, and coffee shops add dinners to theirs. Urban hotels, which
cater to the business traveller during the week, develop weekend “minivacation” packages for
the suburban population in their geographic areas, while resort hotels, jammed with pleasure
travellers during school vacations, develop special packages for business groups during off-
seasons.

SERVICE DESIGN PROCESS:

Like any process, the service design process can be improved by using a structured approach
that systematically collects information from both customers and service providers to design a
service process that meets customer needs, rather than a process that seems good to the
manager.

Exhibit: The Priority Sequence for Designing the Service Delivery Process

SERVICE SERVICE SERVICE SUPPORTING PROCESS

STRATEGY CONCEPT BLUEPRINT

PHASE 1: Service Strategy

The first step in designing a successful service delivery process is to develop a specific
service strategy by identifying and understanding the specific needs of the customer.
Through thoughtful market research, the target market can be identified and its needs
understood. The next step is to determine what it is that these customers really expect from a
particular type of service. Even within a given industry, customer expectations vary
significantly with the type of service and the particular customer needs. The challenge with
learning about customer needs is significantly magnified for new services. There has been
much debate in the literature about whether customers can, in fact, correctly identify what they
really want in a new service. Customers may not be able to specifically articulate a new service
concept, but they can certainly describe their basic needs and their basic expectations from a
service delivery process.

Example(1): A service like Chuck E. Cheese's addresses the needs of parents who want to take
their small children to a restaurant to have a fun meal away from home.
 It offers safe games and activities with small prizes for "winners" (all children win something)
and animatronics music and entertainment. Kids are permitted – and even encouraged – to run
around the facility and have fun while their parents enjoy an afternoon or evening away from
home. The prizes and animatronics might not have been identified by prospective customers as
part of a desired service, but the notion that kids like to move around and play games, that they
like to win and be rewarded, and that they are attracted to animals, music, and movement
would certainly be recognized by most parents. This chain's service concept clearly
incorporates both the needs of the customers and the creativity of the service designer.

Example (2): Apple has responded creatively to meeting customers' needs in the design of its
retail stores. Some of its customers know exactly what they're looking for and want to be able
to immediately locate their choice and pay for it quickly. Others, however, wish to wander,
browse, and play with the products before they make a decision. Apple stores have successfully
addressed the needs of both groups of customers in its service design: a carefully organized and
well-labeled floor plan; a “genius bar,” where customers can get advice about products and
help with problems; an efficient check-out system that is available for customers who want
efficiency and speed of service; and an airy, open layout design with products displayed on
tables to satisfy the needs of those just browsing. The store layout provides clear evidence of
the direct link to different customer preferences – and its creativity and innovative feel
differentiates Apple stores from those of its competitors.

PHASE 2: Service Concept

The actual design of the service delivery process begins with the service concept, which
provides the link between the service strategy and the service delivery process. The
service concept describes in detail exactly what the customers’ requirements are, in term
of how they perceive value, and how they are to be satisfied. The “what” focuses on
identifying the specific needs of the target customers; the “how” focuses on establishing the
organization’s competitive priorities that will allow it to meet those customer requirements in
the delivery of the service. The service concept has four elements:

 The service operation – the specific manner in which the service is delivered.
 The service experience – the customer’s direct experience with the service.
 The service outcome – the benefits and results for the customer receiving the service.
 The value of the service – the benefit that customers perceive from the service in comparison to
the cost of that service.

For example, nurse practitioners are able to perform physical examinations and treat medical
problems that in the past could only be done by a physician. Using nurse practitioners to
deliver care achieves two workforce goals: providing good care for patients and freeing
physicians to concentrate on the more complicated cases that may be more interesting to them
and that use their skill set more efficiently. Using nurse practitioners to provide care formerly
provided only by physicians can also reduce the total cost of providing care.

PHASE 3: Service Blueprints

Service blueprints are process flow charts that are used specifically for designing service
operations.

Service Blueprint is a process flow chart is a very effective tool for depicting the different
steps required in the completion of in a process.

As planning tools for service design, services blueprints help identify the points in the service
process. Service blueprints are often drawn to indicate where the part of the operation that is
visible to the customer (that is, the front office or front-of-the-house operations) is separated by
from the part of the operation that is visible only to the workers (that is, the back office or
back-of-the-house operations). Customers are primarily concerned with the parts of the
operation they interact with directly. It is important to remember here that "contact" need not
imply that the customer must be physically present at the service site. Customers interact with
service processes in many ways: personal face-to-face contact, voice contact (via telephone), e-
mail, and some service processes have no contact with service workers (such as automatic
teller machines (ATMs) and websites).

Regardless of the type of service, customers expect prompt attention (efficiency), appropriate
action (effectiveness), and courteous service from front-of-the-house operations.

There are four specific components of service blueprints:

 (a) Customer actions,

(b) Onstage contact employee actions,

(c) Backstage contact employee actions, and

(d) Support processes.

These components are separated in the blueprint by three lines: the line of interaction, the line
of visibility, and the line of internal interaction.

The physical elements of the service are listed across the top of the service blueprint. And
include both the environment in which the service takes place, as well as evidence that the
service is taking place.

With the checking in process at a hotel, for example, customers enter through the lobby, obtain
the keys for their rooms, and take elevators to the floors on which their rooms are located.

Customer actions are the steps in the process performed by the customer. Onstage contact
employee

Actions are the steps performed by the service provider in the presence of the customer.

For example,

 The waiter at a restaurant takes an order at a customer’s table.

 Backstage contact employee actions are the activities undertaken by the service provider
behind the scenes, which are outside the customers’ view. The backstage activities of that same
waiter may include communicating with the chef about the order, plating the salad course and
printing a check.
 Support processes include any actions taken by other members of the service team that support
the activities of the service providers.

 In the restaurant, a number of kitchen staff may be involved with preparing a meal in the
kitchen. Other employees may maintain inventories of ingredients and do clean-up.

GAP MODEL/ SERVQUAL and Model of Service Quality Gaps:

Managers in the service sector are under increasing pressure to demonstrate that their services
are customer-focused and that continuous performance improvement is being delivered. Given
the financial and resource constraints under which service organisations must manage it is
essential that customer expectations are properly understood and measured and that, from the
customers’ perspective, any gaps in service quality are identified. This information then assists
a manager in identifying cost-effective ways of closing service quality gaps and of prioritizing
which gaps to focus on – a critical decision given scarce resources. While there have been
efforts to study service quality, there has been no general agreement on the measurement of the
concept. The majority of the work to date has attempted to use the SERVQUAL (Parasuraman
et al., 1985; 1988) methodology in an effort to measure service quality (e.g. Brooks et al.,
1999; Chaston, 1994; Edvardsson et al., 1997; Lings and Brooks, 1998; Reynoso and Moore,
1995; Young and Varble, 1997; Sahney et al., 2004). One of the aims of this study involves the
use of SERVQUAL instrument in order to ascertain any actual or perceived gaps between
customer expectations and perceptions of the service offered. Another aim of this paper is to
point out how management of service improvement can become more logical and integrated
with respect to the prioritized service quality dimensions and their affections on
increasing/decreasing service quality gaps. In the following, after a brief review of the service
quality concept, the model of service quality gaps and the SERVQUAL methodology is
demonstrated and an example is presented to pinpoint the application of the SERVQUAL
approach. Then, after a discussion, major conclusions are derived.

Service Quality (SERVQUAL)

Service quality is a concept that has aroused considerable interest and debate in the research
literature because of the difficulties in both defining it and measuring it with no overall
consensus emerging on either (Wisniewski, 2001). There are a number of different
"definitions" as to what is meant by service quality. One that is commonly used defines service
quality as the extent to which a service meets customers’ needs or expectations (Lewis and
Mitchell, 1990; Dotchin and Oakland, 1994a; Asubonteng et al., 1996; Wisniewski and
Donnelly, 1996). Service quality can thus be defined as the difference between customer
expectations of service and perceived service. If expectations are greater than performance,
then perceived quality is less than satisfactory and hence customer dissatisfaction occurs
(Parasuraman et al., 1985; Lewis and Mitchell, 1990). Always there exists an important
question: why should service quality be measured? Measurement allows for comparison before
and after changes, for the location of quality related problems and for the establishment of clear
standards for service delivery. Edvardsen et al. (1994) state that, in their experience, the
starting point in developing quality in services is analysis and measurement. The SERVQUAL
approach, which is studied in this paper is the most common method for measuring service
quality. Model of Service Quality Gaps There are seven major gaps in the service quality
concept, which are shown in Figure 1. The model is an extention of Parasuraman et al. (1985).
According to the following explanation (ASI Quality Systems, 1992; Curry, 1999; Luk and
Layton, 2002), the three important gaps, which are more associated with the external customers
are Gap1, Gap5 and Gap6; since they have a direct relationship with customers.

Gap1: Customers’ expectations versus management perceptions: as a result of the lack of a

marketing research orientation, inadequate upward communication and too many layers of
management.

Gap2: Management perceptions versus service specifications: as a result of inadequate

commitment to service quality, a perception of unfeasibility, inadequate task standardisation
and an absence of goal setting.

Gap3: Service specifications versus service delivery: as a result of role ambiguity and conflict,
poor employee-job fit and poor technology-job fit, inappropriate supervisory control systems,
lack of perceived control and lack of teamwork.
Gap4: Service delivery versus external communication: as a result of inadequate horizontal
communications and propensity to over-promise.

Gap5: The discrepancy between customer expectations and their perceptions of the service
delivered: as a result of the influences exerted from the customer side and the shortfalls (gaps)
on the part of the service provider. In this case, customer expectations are influenced by the
extent of personal needs, word of mouth recommendation and past service experiences.

Gap6: The discrepancy between customer expectations and employees’ perceptions: as a

result of the differences in the understanding of customer expectations by front-line service
providers.

Gap7: The discrepancy between employee’s perceptions and management perceptions: as a

result of the differences in the understanding of customer expectations between managers and
service providers.

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 customer’s 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.
Importance

In today’s 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
customer’s perception of, and reaction to, a brand. Moments of truth can make or break an
organization’s 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.

Questions

Section A

1. What do you mean by service marketing?

2. What do you mean by services management?

Section B

1. List out the difference between products and service.

2. What is the significance of service marketing?

3. Give a note on Managing demand and supply in service industry.

Section C

1. Explain in detail 7 Ps of service or Explain in detail Service Mix.

2. Write a detailed note on GAP MODEL/ SERVQUAL and Model of Service Quality Gaps
with the help of a diagram.
 UNIT 3: TOURISM AND HOSPITATLITY/HOTEL SEVICES

A.TOURISM SERVICES

INTRODUCTION

Today, tourism is one of the largest and dynamically developing sectors of external
economic activities. Its high growth and development rates, considerable volumes of foreign
currency inflows, infrastructure development, and introduction of new management and
educational experience actively affect various sectors of economy, which positively contribute
to the social and economic development of the country as a whole. Most highly developed
western countries, such as Switzerland, Austria, and France have accumulated a big deal of
their social and economic welfare on profits from tourism.

According to recent statistics, tourism provides about 10% of the world’s income and
employs almost one tenth of the world’s workforce. All considered, tourism’s actual and
potential economic impact is astounding. Many people emphasize the positive aspects of
tourism as a source of foreign exchange, a way to balance foreign trade, an “industry without
chimney” — in short, manna from heaven. For decades tourism industry growth has been a
major contributor to increased economic activity throughout the world. It has created jobs in
both large and small communities and is a major industry in many places. It is the dominant
economic activity in some communities.

The slogan ‘AthithiDevoBhava’ which means ‘guests are like God’ truly represents the
fact that Indians have been highly hospitable people and this trend is still present in modern
India. A guest is considered as highly revered person. Intricate arrangements are generally
made for a guest who visits somebody’s home for a holiday or other reasons. The family plans
well for the comfortable stay of a guest. More to this still the best crockery and bed sheets are
kept in store room just for the usage of the guests. Going through a broader picture, the tourist
visiting India find our country very enigmatic. They have a quest to watch the villagers walk
on the rope, eat the butter with rotis and partake in the ritual dance after sunset. Foreigners love
India as it is a storehouse for art, culture, dance and drama.

The ethnic culture is present in clothing which attracts several shoppers who love to
collect trinkets and serious artifacts. Responsible tourism is conducted by way of giving the
tourist the right concept in tours. Their accommodation in government lodges and private
hotels is always a luxury. The importance to tourism is essential as they carry the picture of our
culture and hospitality. Our courteous attitude reflects our inner self. On the economic context,
foreign currency in India can be gathered via tourism. Several tourist spots do well throughout
the year and in special seasons they perform exceptionally well in tourism as the foreign and
domestic tourists throng the places for sightseeing or holiday trips. A trip for any visitor has to
be trouble free.

With the betterment in information & technological facilities, the stay of tourists has
become more comfortable. Taxi cabs, translation books and a dependable guide all make the
trip interesting. The hygiene conditions in the areas are improving as well as the maintenance
of hotels and tourist spots. Ministry of tourism is looking for new ways to encourage tourism in
India. It is very much essential for a visitor to enjoy the stay and is enhanced by facilities like
road transport, guides and good hotels. Many hotels & restaurants have multi cuisines to
accommodate the choices of foreign and domestic visitors. Tour operators have become more
concerned about tourist plans. Complete details about weather conditions, clothes required and
facilities are given to the tourists to help them prepare for a holiday. This all has led to the
multi-dimensional changes in the tourism and travel industry. This requirement starts with
mitigating destination needs to the need for trained manpower for successful tourism
management. This unit is aimed at identifying the need of tourism industry, what kind of
information sources are available in tourism and exploring the role of the agencies
(governmental) for the development of tourism.

Evolution of Tourism

Tourism development in India has passed through many phases. At Government level the
development of tourist facilities was taken up in a planned manner in 1956 coinciding with the
Second Five Year Plan. The approach has evolved from isolated planning of single unit
facilities in the Second and Third Five Year Plans. The Sixth Plan marked the beginning of a
new era when tourism began to be considered a major instrument for social integration and
economic development.

But it was only after the 80’s that tourism activity gained momentum. The Government took
several significant steps. A National Policy on tourism was announced in 1982. Later in 1988,
the National Committee on Tourism formulated a comprehensive plan for achieving a
sustainable growth in tourism. In 1992, a National Action Plan was prepared and in 1996 the
National Strategy for Promotion of Tourism was drafted. In 1997, a draft new tourism policy in
tune with the economic policies of the Government and the trends in tourism development was
published for public debate. The draft policy is now under revision. The proposed policy
recognises the roles of Central and State governments, public sector undertakings and the
private sector in the development of tourism. The need for involvement of Panchayati Raj
institutions, local bodies, non-governmental organisations and the local youth in the creation of
tourism facilities has also been recognised.

The other major development that took place were the setting up of the India Tourism
Development Corporation in 1966 to promote India as a tourist destination and the Tourism
Finance Corporation in 1989 to finance tourism projects. Altogether, 21 Government-run Hotel
Management and Catering Technology Institutes and 14 Food Craft Institutes were also
established for imparting specialised training in hoteliering and catering.

Tourist Attractions

India is a country known for its lavish treatment to all visitors, no matter where they come
from. Its visitor-friendly traditions, varied life styles and cultural heritage and colourful fairs
and festivals held abiding attractions for the tourists. The other attractions include beautiful
beaches, forests and wild life and landscapes for eco-tourism, snow, river and mountain peaks
for adventure tourism, technological parks and science museums for science tourism; centres of
pilgrimage for spiritual tourism; heritage trains and hotels for heritage tourism. Yoga, ayurveda
and natural health resorts also attract tourists.

The Indian handicrafts particularly, jewellery, carpets, leather goods, ivory and brass work
are the main shopping items of foreign tourists. The estimates available through surveys
indicate that nearly forty per cent of the tourist expenditure on shopping is spent on such items.

Growth

Domestic tourism is as old as the Indian society. According to available statistics, domestic
tourism has grown substantially during the last one decade. It increased to 167 million in 1998
from just 64 million in 1990, thus registering a compound annual growth of 12.8 per cent.

The growth of inbound tourism since Independence has been quite impressive. It was just
around 17 thousand in 1951. From this level it rose to 2.36 million in 1998. Tourism receipts
on the other hand have grown at a phenomenal rate of 17 per cent to Rs.11,540 crore in 1998
from Rs.7.7 crore in 1951.

Economic Impact

Tourism has emerged as an instrument of employment generation, poverty alleviation and

sustainable human development. During 1998-99, employment generation through tourism was
estimated at 14.79 million.

Foreign exchange earnings from the tourism sector during 1998-99 were estimated at
Rs.12,011 crore. Tourism has thus become the second largest net foreign exchange earner for
the country.

Tourism also contributed Rs.24,241 crore during 1998-99 towards the country’s Gross
Domestic Product (GDP).

Thrust Areas

In order to speed up the development of tourism in the country several thrust areas have been
identified for accomplishment during the Ninth Five Year Plan (1997-2002). The important
ones are development of infrastructure, products, trekking, winter sports, wildlife and beach
resorts and streamlining of facilitation procedures at airports, human resource development and
facilitating private sector participation in the growth of infrastructure.

Organisation

The organisations involved in the development of tourism in India are the Ministry of
Tourism with its 21 field offices within the country and 18 abroad, Indian Institute of Tourism
and Travel Management, National Council for Hotel Management and Catering Technology,
India Tourism Development Corporation, Indian Institute of Skiing and Mountaineering and
the National Institute of Water Sports.

Boosting Tourism

Some of the recent initiatives taken by the Government to boost tourism include grant of
export house status to the tourism sector and incentives for promoting private investment in the
form of Income Tax exemptions, interest subsidy and reduced import duty. The hotel and
tourism-related industry has been declared a high priority industry for foreign investment
which entails automatic approval of direct investment up to 51 per cent of foreign equity and
allowing 100 per cent non-resident Indian investment and simplifying rules regarding the grant
of approval to travel agents, tour operators and tourist transport operators.

Celebrations

During the Golden Jubilee celebrations of India as a Republic, the Ministry of Tourism made
special efforts to publicise the tourism potential of India. The first-ever Indian Tourism Day
was celebrated on January 25, 1998. BauddhaMahotsav was organised from 24th October to
8th November 1998. The Year 1999 was celebrated as Explore India Millennium Year by
presenting a spectacular tableau on the cultural heritage of India at the Republic Day Parade
and organising India Tourism Expo in New Delhi and Khajuraho. The Wong La Millennium
was held from April 1999 to January 2001. A special calendar of events has been formulated
for highlighting contributions to Millennium events by various places in all the States. An
official website of the Ministry of Tourism has also been created for facilitating dissemination
of information on tourism.

Constraints

The major constraint in the expansion of international tourist traffic to India is non-
availability of adequate infrastructure including adequate air seat capacity, accessibility to
tourist destinations, accommodation and trained manpower in sufficient number.

Poor visitor experience, particularly, due to inadequate infrastructural facilities, poor

hygienic conditions and incidents of touting and harassment of tourists in some places are
factors that contribute to poor visitor experience.

To sum up, Indian tourism has vast potential for generating employment and earning large
sums of foreign exchange besides giving a fillip to the country’s overall economic and social
development. Much has been achieved by way of increasing air seat capacity, increasing trains
and railway connectivity to important tourist destinations, four-laning of roads connecting
important tourist centres and increasing availability of accommodation by adding heritage
hotels to the hotel industry and encouraging paying guest accommodation. But much more
remains to be done. Since tourism is a multi-dimensional activity, and basically a service
 industry, it would be necessary that all wings of the Central and State governments, private
sector and voluntary organisations become active partners in the endeavour to attain
sustainable growth in tourism if India is to become a world player in the tourist industry.

Define Tourism

Tourism is defined as “temporary, short term market of people to destination outside the
place where normally they live and work and their activities during their stay at these
destinations.”

Define Tourist

“Tourists are voluntary temporary travelers, travelling in the expectation of pleasure

from the novelty and charge experienced on relatively and non recurrent local trip.”

Characteristics of Tourism Industry

1. Inflexibility
The tourism industry is highly inflexible, during the off season the demand is less and capacity
is un-utilized. During the peak season the capacity if fixed and it is difficult to meet the
demand leading to inflexibility.

2. Perishable
Tourism industry is perishable in nature especially when there is non- utilization of capacity
affecting the profits of the business.

3. Location
Under tourism the location is always fixed and efforts are made to make the potential tourists
visit the location.

4. Investment
Modern tourist establishment requires large investment to start and maintain the services.
 Importance of Tourism
Tourism has wide impact on life of citizens.

1. Social
People visit their relations and friends, pleasure trips.

Business trips undertaken by the organizations for the growth of the business, local people are
benefitted economically because of the visitor.
E.g. Exhibitions, Seminars
2. Educational
People visit different places seeking knowledge.

3. Political
The elected representatives and government authorities visit places to establish political link
for economic and political growth.

Market Segmentation in Tourism

Market Segmentation bases

Socio- Geography Psychographic Purpose Demography

Holiday Demand
economic

1. Holiday: - The demand for tourism has increased due to holiday and vacations, festival
holidays and pleasure trips.

2. Demand: - The Demand for tourism has increased due to family reunion, religious functions,
spiritual interest and business needs.
3. Socio-economic: -The classification of Socio-economic needs are on basis of rich, poor, urban,
illiterate, literate and inflation, currency rate exchange, globalization, inflation, deflation.

4. Geographical: - comprises of cities, towns, regions, states

5. Psychographic: - the segmentation includes lifestyle of tourist, motive, and knowledge about
the location.

6. Purpose: - The purpose of business could be culture, convention or exhibition.

7. Demography: - the demography includes age, gender, occupation, class and religion.

Marketing Mix for Tourist Organization/ Elements of Tourism/ Components of Tourism

1. Accommodation
2. Restaurants
3. Attraction
4. Recreation
5. Shopping
6. Transportation

Package Tour – A Product Strategy

1. Tourist Site
The tourist site is carefully selected on basis of easy accessibility, safe, clean, fast and reliable
transportation in cases of emergency.

2. Transport
The tourist product must be safe, comfortable and should comprise of different modes of
transport. The tourist operator should provide attractive packages coupling road, rail and air
journey transport, because in case of emergency the failure of one mode of transport should not
cause delay and inconvenience to the passengers.
 3. Hotels
The hotels selected should clean, hygienic, calm, serene, child care services, well managed
restaurant, lounge area and spacious rooms containing TV, Balcony, washrooms.

4. Resorts
The owners or representatives of the resorts should be friendly, knowledgeable, accessible and
competent. The resort service should ensure quality and comfortable service to the guests.

5. Tour Operators
Tour operating agency should be genuine, honest, reliable and capable of inducing people to
take to quality tours.

6. Tour Agents
The Tour Agents should be friendly, humble, customer centered and knowledgeable in their
area of operations.

Impact of Tourism in India

1. Generating income and employment
2. Source of foreign exchange earnings
3. Preservation of national heritage and environment
4. Developing infrastructure
5. Promoting peace and stability

Service Marketing Mix for Services

 Product
Product in service is the experience and hospitability provided; it is the experience the tourist
value while using the service

 Price
Price of the tourism service depends on business and target market objectives, cost of
production, delivery, promoting the product, price charged by the competitors, availability of
substitute products and economic climate.
 It also depends upon:
1. Is the demand seasonal or throughout the year
2. Increase the price during demand and decrease the tariff during off seasons.
3. Are tourist price sensitive?
4. Competitors pricing on similar products.

 Place
Place in tourism is providing direction, maps, providing of estimated travel time and distances
from different market areas, recommending different travel routes, providing alternate methods
of conveyance and different channels of distribution

 Promotion
The tourist organizations have responsibility of creating awareness among potential customer.
Advertising through different media such as print media, electronic media, and hoardings could
be used to communicate messages to potential tourists. Sales promotion includes offers and
discount tariffs for accommodation, travelling and visiting places of prime importance.

 People
People are center for tourism which is human intensive sector. For hospitality and guest
relations it is important to focus on people. It plays a vital role in quality control, personal
selling and employee morale.

 Physical Evidence
The physical evidence depends on travel, experience, stay and comfort
E.g. bed in case of stay.

 Process
The process refers to trip planning and anticipation, travel to site area, recollection, trip
planning packages, information regarding lodging, food and quality.
 Travel Organizations
Travel organizations are supporting institutions supported by public and private organizations.
The Private Organizations provide finance, marketing, publication on guide assistance and
chalking out the timetable, insurance and guide services.

Government Institutions support by providing Visa, Passport, tourism promotions, promotion

councils, establishing tourism centre to give required information to the tourists, build and
maintain resorts and establish publicity offices.

Functions of Travel Organizations

1. They provide transportation to the tourists for required number and time specified.
2. They arrange attractive destination packages.
3. They arrange for hotel reservations at different places.
4. They arrange for food during the breakfast, lunch or dinner.
5. They provide connected service with the package.
6. They arrange for tour programs such as pilgrimage

Tour Operations
Tour operations refer to various types of package tours conducted by travel services and
agencies.
E.g. Thomas Cook, SOTC.

Tour Operators
Tour operators buy an element in the travel product and add value and sell as a package to the
clients. Tour operators are responsible for delivery of service required by the customer. He acts
on his own to buy and reserve the supply elements and offer it to the customers through Travel
Agents or through their office.

Travel Guides
Travel Guides are also called as Tourist Guides helping them to give required information
regarding a place, monument or on other places, providing explanation regarding places of
interest and historic information required for the benefit of the tourists.
 What is Medical Tourism?
Medical Tourism is defined as provision of ‘cost effective’ private medical care in
collaboration with the tourism industry for patients needing surgical or specialized treatment.

Modes of Transport in Tourism Industry

Road Transport

Modes
of
Rail Transport
Transport
in
Tourism
Industry Water Transport

Air Transport

1. Road Transport
Road Transport provides basic infrastructure in connecting people of remote village to the
mainstream of national life.

The inter-state bus system is developed and quality of buses varies from ordinary to semi
deluxe, deluxe and air conditioned coaches, taxi and rental vehicles.
a. National Highways
These are principal arterial routes connecting the union capital with state capital and major
parts of highways.

b. State Highways
State Highways maintained by state government connects industrial, trade and commercial
centers of state and national highways.
 c. District Highways
District Highways link important industrial and market places of district and local railway
stations.

d. Village Roads
Village roads are in rural parts as pucca and kutcha roads.

2. Rail Services
Indian Railways are performing two important tasks
 Performing public utility concern
 Running the system as commercial undertaking

Service Mix for Railways

 Product
Passenger Traffic – Superfast, Fast Express, Shuttle services saves a lot of time.
Freight carrying – bulk goods

 Price
a. Pricing is dependent on seasonal fluctuations and raising of inputs
b. Demand of the service
c. Principle of differential charging
d. Principle of mileage rate
e. Network of services
 Place
Place refers to distribution of services to many remote areas.
It includes
a. Online facilities
b. Passenger current status
c. Enquiry fare
d. Enquiry reservations
e. Train between important stations
f. Tatkal scheme
g. Upgraded passenger list

 Promotion
Indian railways have a public monopoly therefore they will not face any stiff competition. Vital
components of promotion are advertising, publicity, sales promotion, personal selling and
network communication.

Advertising is adapted to sensitize the messages, slogans and appeals providing good
information system.

 People
The railway staff is imparted training every year enabling officers and staff in acquiring
knowledge and new set of technical and managerial skills.

3. Airways
Air travel has gained economic importance in India to cover distances nationally and
internationally because of its speed, range and it offers status.

Service Marketing Mix for Airways

 Product
Product includes on ground services, Duty free shopping, Reservation Counters, Flight
information, Screening and comfortable seating arrangement.
a. Passenger services – National and International flights
b. Goods carrying services
c. Mail services
d. Social services such as air operations in cases of floods, earthquakes and natural calamities
e. Charter service
f. Defense services
g. Pilgrimage services

 Price
The pricing depends upon demand and supply of the service.

a. The following aspects have to considered for fixing the price of service
b. The demand level for traffic
c. The supply of aircrafts and their usage
d. Infrastructural facilities available for safety operations
e. Depreciation on aircrafts
f. Strategy on competitor’s price fixing model

 Place
Place refers to distribution of services to many remote areas.

a. Booking offices for Airways

b. Travel Agents office
c. Air-hostess
d. On-ground staff pilots
e. Tour operating agents
f. Computerized reservation system
g. Baggage handling

 Promotion
The components of promotion are advertising, publicity, sales promotion, and personal selling
and network communication.
 a. Advertising through different media such as print media, electronic media, and hoardings could
be used to communicate messages to potential tourists.

b. Personal selling is used as art of influencing, stimulating and sensitizing the impulse buying.

c. Publicity is a powerful channel as a persuasion process with help of print media people, Public
Relations Officer and Travel Agents. Airline Organizations should maintain a very rapport
with the news agencies, publishers and magazines.

d. Sales Promotion is used as an aggressive promotion activity by offering attractive incentives

and discounts to the customers.

4. Water Transport(Travel by Sea)

Water Transport is mainly used for carrying cargo (both in domestic and overseas operation)
and passenger Transport.

Water Transport is classified as Inland water and overseas transport

a. Inland
Inland water consists of natural modes such as navigable rivers, backwaters and canals.

b. Overseas Shipping
Overseas Shipping has gained importance due to the role in India’s International Trade and
modernization of fleet, replacement of overaged fleet, acquisition of cellular container ships
and sophisticated product carriers achieving self sufficiency in tanker fleet.

IMPACTS OF TOURISM IMPACTS

The impacts of tourism can be sorted into six general categories:
1. Economic
2. Environmental
3. Social and cultural
4. Services
5. Taxes
6. Community attitude
Understanding that tourism development may result in many and complex impacts suggests
that local elected officials, the tourism industry, and community residents need to work
cooperatively and carefully to plan for its growth and development. Planning can help create an
industry that enhances a community with minimal costs and disruptions in other aspects of
community life. Having broad community involvement and embracing different perspectives
during planning helps identify and resolve concerns that would otherwise create problems later.

ECONOMIC IMPACT Tourism increases employment opportunities. Additional jobs,

ranging from low-wage entry-level to high-paying professional positions in management and
technical fields, generate income and raise standards of living. Particularly in rural areas, the
diversification created by tourism helps communities that are possibly dependent on only one
industry. As tourism grows, additional opportunities are created for investment, development,
and infrastructure spending. Tourism often induces improvements in public utilities such as
water, sewer, sidewalks, lighting, parking, public restrooms, litter control, and landscaping.
Such improvements benefit tourists and residents alike. Likewise, tourism encourages
improvements in transport infrastructure resulting in upgraded roads, airports, public
transportation, and non-traditional transportation (e.g., trails). Tourism encourages new
elements to join the retail mix, increasing opportunities for shopping and adding healthy
competitiveness. It often increases a community's tax revenues. Lodging and sales taxes most
notably increase but additional tax revenues include air travel and other transportation taxes,
business taxes, and fuel taxes. New jobs generate more income tax revenues. When considering
the economic impacts of tourism, it is essential to understand that tourism businesses often
include a significant number of low-paying jobs, often at minimum wage or less. T h e s e jobs
are often seasonal, causing under-employment or unemployment during off-seasons. Labour
may be imported, rather than hired locally, especially if particular skills or expertise is
required, or if local labour is unavailable. Some tourism-related businesses are volatile and
high-risk ventures that are unsustainable. Greater demand for goods, services, land, and
housing may increase prices that in turn will increase the cost of living. Tourism businesses
may claim land that could have higher- v a l u e or other uses. Additionally, non-local owners
and corporations may export profits out of the community. The community may have to
generate funds (possibly through increased taxes) to maintain roads and transportation systems
that have become more heavily used. Similarly, if additional infrastructure (water, s e w e r,
power, fuel, medical, etc.) is required, additional taxes may also be needed to pay for them.
ENVIRONMENTAL IMPACT Areas with high-value natural resources, like oceans, lakes,
waterfalls, mountains, unique flora and fauna, and great scenic beauty attract tourists and new
residents (in-migrants) who seek emotional and spiritual connections with nature. Because
these people value nature, selected natural environments are preserved, protected, and kept
from further ecological decline. Lands that could be developed can generate income by
accommodating the recreational activities of visitors. Tourist income often makes it possible to
preserve and restore historic buildings and monuments. Improvements in the area’s appearance
through cleanup or repairs and the addition of public art such as murals, water fountains, and
monuments (part of making a community ready for tourism) benefit visitors and residents
alike. Tourism is generally considered a "clean" industry, one that is based on hotels,
restaurants, shops and attractions, instead of factories.

SOCIAL AND CULTURAL IMPACT The social and cultural ramifications of tourism
warrant careful consideration, as impacts can either become assets or detriments to
communities. Influxes of tourists bring diverse values to the community and influence
behaviours and family life. Individuals and the collective community might try to please
tourists or adopt tourist behaviours. Interactions between residents and tourists can impact
creative expression by providing new opportunities (positive) or by stifling individuality
Increased tourism can push a community to adopt a different moral conduct such as improved
understanding between sexes (positive) or increased illicit drug use (negative). Safety and
health facilities and staffing tend to increase at the same time safety problems such as crime
and accidents increase. Tr a d i t i o n a l ceremonies may be renewed and revived by tourist
interest or lost in alternative activities. Community organizations can be invigorated by facing
the opportunities of tourism or overwhelmed by its associated problems. Calamities such as
natural disasters, energy shortages, terrorism, political upheaval, disease outbreak, a chemical
spill, or even widespread negative publicity could shut down tourism abruptly but sometimes
can attract curious visitors. Tourism can improve the quality of life in an area by increasing the
number of attractions, recreational opportunities, and services. Tourism offers resident’s
opportunities to meet interesting people, make friendships, learn about the world, and expose
themselves to new perspectives. Experiencing different cultural practices enriches experiences,
broadens horizons, and increases insight and appreciation for different approaches to living.
Often, dwindling interest in host cultures is revived by reawakening cultural heritage as part of
tourism development, which increases demand for historical and cultural exhibits. This interest
by tourists in local culture and history p r o v i d e s opportunities to support preservation of
historical artifacts and architecture. By learning more about others, their differences become
less threatening and more interesting. At the same time, tourism often promotes higher levels
of psychological satisfaction from opportunities created by tourism development and through
interactions with travelers. Establishing or developing a tourism industry involves expenditure
as well as gains, OR benefits. If these impacts are taken into consideration from the outset of
planning, strengths and opportunities can be maximized. Lists of potential benefits are
presented below.

Impacts of Tourism Economic Benefits

 Tourism generates local employment, directly in the tourism sector and in support and
resource management sectors.
 Tourism stimulates profitable domestic industries, hotels and other lodging facilities,
restaurants and food services, transportation systems, handicrafts and guide services.
 Tourism generates foreign exchange for the country and injects capital and new money into
the local economy.
 Tourism helps to diversity the local economy.
 Improved road systems and infrastructure that contributes to the entire destination can be
justified and supported by the benefits from tourism development.
 Often the jobs created through tourism can be low-paying and unskilled but they constitute
an important step for the poor to improve their economic condition.
 Increased tax revenues from tourism. Economic Benefits
 Tourism generates local employment, directly in the tourism sector and in support and
resource management sectors.
 Tourism stimulates profitable domestic industries, hotels and other lodging facilities,
restaurants and food services, transportation systems, handicrafts and guide services.
 Tourism generates foreign exchange for the country and injects capital and new money into
the local economy.
 Tourism helps to diversity the local economy.
 Improved road systems and infrastructure that contributes to the entire destination can be
justified and supported by the benefits from tourism development.
 Often the jobs created through tourism can be low-paying and unskilled but they constitute
an important step for the poor to improve their economic condition.
 Increased tax revenues from tourism. Social Benefits
 The quality of life of a community can be enhanced by economic diversification through
tourism.
 Recreational and cultural facilities created for tourism can be used by local communities as
well as domestic/international visitors.  Public spaces may be developed and enhanced
through tourism activity.
 Tourism enhances local community’s esteem and provides an opportunity for greater
understanding and communication among peoples of diverse backgrounds. Cultural Benefits 
Tourism can enhance local cultural awareness.
 Tourism can generate revenue to help pay for the preservation of archaeological sites,
historic buildings and districts.
 Despite criticism about the alteration of cultures to unacceptable levels, the sharing of
cultural knowledge and experience can be beneficial for hosts and guests of tourism
destinations and can result in the revival of local traditions and crafts. Physical Environmental
Benefits
 Parks and nature preserves may be created and ecological preservation supported as a
necessity for nature based tourism.
 Improved waste management can be achieved.  Increased awareness and concern for the
environment can result from nature-based tourism activities and development.

The Latest Trends In Indian Tourism

The diversity of India is legendary, presenting writers, marketers and travel agencies with
endless opportunities to sell its charms.

From the Himalayas to the desert of Rajasthan, to the natural beauty of Kerala and the cultural
intensity of Varanasi. India offers something for everyone. See? Easy! Give me a job!

But in recent years things have shifted. With the growth of the online travel industry, in all its
different guises, people now have a lot more information at their fingertips and the research
process has become a larger, richer part of holiday planning. At the same time, travel industry
providers have grown exponentially in India, so visitors now have more options than ever. In
turn, this means that India has to work harder to keep up with demand, and demands.

Here we take a look at some of the interesting micro trends we've seen across the evolving
Indian travel landscape.
The advent of hostels

Hostels were never really a part of the Indian tourism story. Yes, there have always been low
budget options for backpackers, but recently we've seen hostels mushrooming across the tourist
trail, most noticeably around Rajasthan and Agra.

Set-ups like Zostel and Moustache are offering a cheap, basic hostel experience, making life a
lot easier, and the country more accessible, for the lowest-budget traveller. And we're not
talking just international kids on a gap year, but young Indian kids out for adventure. So much
so that Zostel has plans for a staggering 30 more properties in the second half of 2015.
"Indian travellers' mindset has evolved significantly over the past few years" says Pavaan
Nanda, a co-founder of Zostel. "Travel is seen as a mode of self-realisation, exploration and
experiencing different forms of lifestyles. Leisure travel is not a product of luxury but rather
considered a necessity to consolidate one's energy."

This is the overarching trend we'll illustrate throughout this article, the change in mindset that
is manifest in young India, a different attitude to travel and an enthusiasm for the business of
travel.

The growth of boutique hotels

Boutique hotels, privately run small hotels, arty hotels with just a few rooms. However you
want to define what a boutique hotel is, and here at Tripzuki we pontificate on this quite a bit,
they have undoubtedly increased in number in recent years, particularly attracting foreign
tourists at all levels and especially those with deeper pockets. We think boutique hotels should
be a key element in India's plans to boost tourism, almost always presenting an opportunity for
tourists to be more engaged with their surroundings (and less in a resort 'bubble') while still
having a certain level of comfort.
Unfortunately, the 'boutique' tag is severely abused and misused by the ranks of private, old
school and often state-supported corporate hoteliers. Quality will always rise, surely, but the
lack of any consistent and trustworthy starring system remains an obstacle, and probably
always will.
Researching accommodation to find quality is where the internet comes into its own, but this is
also where the planning process gets tricky, even more so in India. We see a large disparity
between the tastes and standards of the emerging Indian middle class and those of the
established upper-middle class, the former having a huge presence on social media and hotel
review sites. The disparity becomes even more acute when western tourists are added to the
mix, thus Indian hotels are exposed to a wider mix of tastes than perhaps those of any other
country. Pleasing a young family from Ahmedabad, a designer from Mumbai and a couple of
grandparents from Denmark is a tricky thing!

New destinations

One of the clearest trends we are seeing is a willingness to explore new regions, amongst both
young upper-middle-class Indians and tourists from overseas. States like Gujarat, the stunning
North-East and 'heavenly' Kashmir have seen a lot of growth in tourism, both domestic and
international, as infrastructure improves and more providers come online.

In the already famous state of Rajasthan, lesser-known districts like Pali are now hitting the
international visitor's radar, boosted by their central locations and proximity to improved
airports and, in the case of the above, national parks and safari options.

Also, particularly in Rajasthan, small rural villages are now gaining popularity thanks to
boutique set-ups like Chandelao Garh and Deogarh, both representing authentic, intriguing,
safe and relatively accessible offbeat destinations, mostly appealing to Europeans.

Adventure sports opportunities

It's incredible really that with the length of India's coastline, the wildness of its interior and the
staggering beauty of the Himalayas, it does not already feature on the adventure/extreme sports
locations list. This is, of course, largely to do with the lack of infrastructure, but even that can't
stop the passion for adventure sports now apparent in young Indians. Couple that with Indians'
famous entrepreneurial drive and what we see now are adventure sports start-ups appearing
across the countryside.

Educated kids from the cities are spreading their wings, creating their own businesses and
setting up shop in far flung corners of the country. Now tourists can kite surf in Rameswaram,
ski in Gulmarg, whitewater raft in Rishikesh and go caving in the North East, the list goes on.
So far it seems these opportunities are largely lost on (and undermarketed to) international
visitors, who are much more likely to visit the Taj Mahal than the stunning mountain regions.
Piran Elavia organises socially responsible treks and caving trips in the North East via his
company Kipepeo and puts the split as high as "90% Indians and 10% foreigners". Previously,
he points out, "Indians were not very adventurous to tread off the beaten path", but the younger
generations clearly are. Once the foreign-inbound market catches on, the opportunity for
growth is immense.

The visa on arrival

In a country as bureaucratic and fast developing as India, government policies are, by default,
key for the growth of tourism. The visa on arrival began in 2014 and as of April 2015 applies
to tourists from over 40 countries, with a plan to expand this to around 100 nationalities over
the next few years.
Though a welcome shot in the arm for Indian tourism, citizens of Djibouti, Fiji, Nauru and
Tonga are all included in the program while those of China, Malaysia, UK and France are not.
One has to wonder whether politics and business sense can ever really go hand in hand.

Visitors to India

The largest percentage of travellers from overseas come from the USA and UK, with Canada,
Malaysia, Japan, France, Germany and Russia also heavily represented.

Lately though, at Tripzuki we've seen a healthy increase in the number of Australians looking
for accommodation in India. A nation of just 22 million people, famously adventurous but
previously more interested in south-east Asia and Europe, it seems Aussies are now broadening
their horizons and venturing to the sub-continent. A strange mix of the efforts of the Indian
Tourism Board and the bestselling bookShantaram (no, really) have surely played a large role
here, plus there's the visa on arrival, the recession-dodging Australian economy and the
confident, adventurous spirit of city-dwelling Australians. It's a trend we expect to increase
over the coming years.

Other changes happening within India

Overall, there's undoubtedly an accelerating understanding of what tourists in India want.
Customized tours, cookery schools, village boutique hotels, adventure sports, even campsites,
it's all happening.

The appeal and apparent (though illusionary) ease of running an online travel business is not
lost on the entrepreneurial spirit of the young Indian upper-middle class, many of whom, unlike
their parents, have now travelled for the sake of travelling and seen how things are done
overseas, Europe and Thailand in particular.

Every month we're seeing new start-ups providing travel services, and new blogs emerging to
inform travellers whilst exploring a passion for all things Indian. It's notable that the lure of
foreign currency is not necessarily a driving factor here, in fact we're seeing far more
businesses specialising in domestic tourism, perhaps due to the gap that exists there by neglect,
and the demand that exists due to the expansion of the middle class.

This is to some extent simply the maturation of an industry, but it can continue only with the
support of state and national government. The capital, New Delhi, haspromoted bed &
breakfast and 'homestay' accommodation, but safety for foreigners, rightly or wrongly, is still
perceived as an issue. The royal houses of Rajasthan haveconverted palaces and havelis into
hotels, and the increase of B&Bs in Himachal Pradesh is noticeable. But it must be made easier
for owners, with better access to liquor licenses, for example, not to mention the bizarrely
complex red tape and tax framework that has plagued India for decades. In Goa, which punches
way above its weight in tourist numbers (both domestically and internationally), there has been
a slow shift from grungy/hippy destination to something more family oriented, but low quality
tourism (domestic and foreign-inbound) and garbage are still huge issues.
The one unavoidable, overarching factor in the whole tourism issue however, is infrastructure,
or the lack thereof. The government seems determined to press ahead with spending in this
area, a strategy that affects so many facets of life, delivers more bang per buck than probably
any other investment of public money and ultimately should win votes. The Delhi metro, new
highways and recently opened new airports in Mumbai and Goa are big steps in the quest for
foreign visitors.
The positive trends of the last few years must surely flourish - the statistics all point the way -
but whether the government keeps up is another matter. It's still an exasperating place to
holiday (and an exasperating place to live!) but the rewards of travel in India remain as rich as
ever.
Types or Forms of tourism
Forms of Tourism

There are different purposes of visits

Based on the purpose of visit tourism is categorized into the following

Leisure Tourism

Tourists may travel to experience a change in climate and place and learn something new,
enjoy pleasant scenery, or to know more about the culture of a destination. Tourists, who seek
break from the stress of day to day life, devote their holiday to rest and relaxation, refresh
themselves. These tourists prefer to stay in some quiet and relaxed destination preferably at a
hill resort, beach resort or island resort. Nowadays tourists undertake various adventure sports
activities for leisure and to refresh themselves after working hard. This tourism includes
following forms based on the activities undertaken:

Cultural tourism

It is also called as heritage tourism. People are curious to know about foreign lands and their
cultures. Culture is most important factors which attracts tourists to a destination.

Cultural tourism gives insight to

 Way of life of the people of distant land

 Dress, jewellery, dance, music, architecture
 Customs and traditions
 Fairs and festivals
 Religions
 Culinary delights
Religious tourism

It is also called as Pilgrimage tourism / Spiritual tourism. It is a form of tourism, where people
travel individually or in groups for pilgrimage. The world's largest form of mass religious
tourism takes place at the annual Hajj pilgrimage in Mecca, Saudi Arabia. Modern religious
tourists are more able to visit holy cities and holy sites around the world. The most famous
holy cities are Jerusalem, Mecca and Varanasi.

Family Tourism

Family tourism involves the family unit and their participation in diverse forms of tourism
activity. This includes visiting one’s relatives and friends for interpersonal reasons. Many
people in India travel for visiting their friends and relatives. While visiting friends or relatives,
people also visit tourists’ attractions in and around the city.

Health Tourism

Health tourism is also called as Medical tourism. People have been travelling for centuries to
improve and rebuild their health and stamina. Today, many people travel great distances to
exotic locations or health care facilities in faraway countries, in search of medical treatment
and care. Medical tourism is an age-old concept that has gained popularity in the recent times.
Many developing countries are emerging as hot medical tourism destinations capitalizing on
low cost advantages. Many hospitals have specially designed packages including resorts
facilities. Thus health tourism covers one or more of the following aspects-

 Change of climate
 Alternative therapy- Ayruvedic treatment, hot Sulphur springs, Naturopathy and art of
living
 Medical treatment
Sports Tourism

Sports Tourism refers to travel which involves either viewing or participating in a sporting
event staying apart from their usual environment. Sport tourism is a fast growing sector of the
global travel industry. Sports tourism refers to people travelling to participate in a competitive
sport event. Normally these kinds of events are the motivators that attract visitors to visit the
events like Olympic Games, FIFA World Cup. Sports tourism can be adventurous also.
Adventure sport tourism is also called as Adventure tourism. Adventure sport tourism is more
challenging because it takes the tourists into regions which are less frequently visited and may
not have easy access. According to the National Tour Association, adventure tourism is a "tour
designed around an adventurous activity such as rafting, hiking, or mountain climbing."

Adventure sports tourism is a package of

 Recreation
 Enjoyment
 Education
 Thrills of participating in an adventure

Adventure tourism has various forms, which can be broadly categorized as follows:

Educational Tourism

Educational tourism developed, because of the growing popularity of teaching and learning of
knowledge and the enhancing of technical competency outside of the classroom environment.
In educational tourism, the main focus of the tour visiting another country to learn about the
culture, such as in Student Exchange Programs and Study Tours, organizingspecialized lectures
of the eminent personalities and for research. image:Research.png|100px
image:Learning.png|100px image:Teaching.png|100px

Business Tourism

The business traveler’s main motive for travel is work. Tourists visit a particular destination for
various reasons pertaining to his /her work such as attending a business meeting, conferences,
conventions selling products, meeting clients. Business tourism is popularly called as MICE
(Meetings, incentives, conferences, and exhibitions) tourism (MICE
Tourism:http://www.slideshare.net/SahilGumber1/mice-tourism-ppt )

Alternative forms of Tourism

Alternative tourism aims at seeking a change from impersonal, traditional tourism to

establishing cardinal rapport between visitors and the local community. Instead of using
touristic commodities these tourists prefer to use or share the services of local people. The
focus in these travels is the preserved natural environment, authentic atmosphere and cuisine,
and local traditions. Alternative tourism is nowadays regarded as a key to sustainable
development. It is also known as special interest tourism. It is of various types

 Ecotourism
 Food tourism
 Agro-rural tourism
 B. HOTEL/ HOSPITALITY SERVICES

HOTEL INDUSTRY

The hospitality industry is a broad category of fields within the service industry that
includes lodging, event planning, theme parks, transportation, cruise line, and additional fields
within the tourism industry. The hospitality industry is a multibillion-dollar industry that
depends on the availability of leisure time and disposable income. A hospitality unit such as a
restaurant, hotel, or an amusement park consists of multiple groups such as facility
maintenance and direct operations (servers, housekeepers, porters, kitchen workers, bartenders,
management, marketing, and human resources etc.).

Usage rate, or its inverse "vacancy rate", is an important variable for the hospitality industry.
Just as a factory owner would wish a productive asset to be in use as much as possible (as
opposed to having to pay fixed costs while the factory is not producing), so do restaurants,
hotels, and theme parks seek to maximize the number of customers they "process" in all
sectors. This led to formation of services with the aim to increase usage rate provided by hotel
consolidators. Information about required or offered products are brokered on business
networks used by vendors as well as purchasers.

In looking at various industries, "barriers to entry" by newcomers and competitive advantages

between current players are very important. Among other things, hospitality industry players
find advantage in old classics (location), initial and ongoing investment support (reflected in
the material upkeep of facilities and the luxuries located therein), and particular themes
adopted by the marketing arm of the organization in question (for example at theme
restaurants). Also very important are the characteristics of the personnel working in direct
contact with the customers. The authenticity, professionalism, and actual concern for the
happiness and well-being of the customers that is communicated by successful organizations is
a clear competitive advantage.

A Brief History of India's Hotel Industry

Before World War II, most hotels in India were developed in locations that were frequented by
the British and Indian aristocracy. This period saw the development of hotels being undertaken
by individual British and Indian entrepreneurs, with only a few companies owning hotels in
India, such as The Taj Group--Indian Hotel Company (owned by J. R. D. Tata) and
Faletti'sHotel, East India Hoteldberoi Group. The important hotels that were built during
India's British period were: The Rugby, Matheran (1876) The ~aj Mahal Hotel, Mumbai (1900)
The Grand, Calcutta (1930) The Cecil Hotels, Shimla and Muree (1935) The Savoy, Mussoorie
(1936) t India gained independence in 1947, and the hotel industry had a period in which no 1
hotel development took place. Upon his return from the Non-Aligned Movement Conference in
1956, Late Pundit Jawaharlal Nehru, then Prime Minister of India, recognized that tourism
could be an engine for the country's economic growth and was inspired to / build quality hotels
in India for visiting foreign dignitaries. This led to the first-ever gov- / ernment investment in
the hotel industry with the building of the Ashoka Hotel in New Delhi.

The India Tourism Development Corporation (ITDC) was set up in 1966 as a corporation
under the Indian Companies Act of 1956, with the merger of Janpath Hotel India Ltd. and India
Tourism Transport Undertaking Ltd. Today, ITDC provides a complete range of tourism
services, including accommodation, catering, entertainment and shopping, hotel consultancy,
duty free shops, and an in-house travel agency.

The government gave the tourism industry another boost when it created the Ministry of
Tourism and Civil Aviation in 1967, separating it from the Ministry of Transport and Shipping,
thereby recognizing that tourism was not simply about transporting people from point A to
point B but had a much wider role to play in the nation's economy. Concurrently, Rai Bahadur
M. S. Oberoi, Chairman of East India Hotels Ltd., was expanding his empire by constructing
New Delhi's first modern multi-story hotel, which was franchised to U.S.-based Inter-
Continental Hotels.

The portfolio of Oberoi hotels consisted of The Cecil, Shimla; The Oberoi Grand, Calcutta;
The Oberoi Clarks, Shimla; The Oberoi Palm Beach; and Gopalpur on the Sea. The Taj Mahal
Hotel in Bombay was the next to follow this franchising trend in 1970 when it adopted an
Inter-Continental hotel franchise for its new hotel in Bombay. Simultaneously, the Oberoi
Tower Hotel under construction in Bombay entered into a franchise and management
agreement with Sheraton. Holiday Inn also made its entry into India through franchising its
hotel project in Bombay.

This was the beginning of the methodical planning, designing, decorating, and furnishing of
hotels in India, along with the installation of systems for operating various departments in a
hotel. The training of managerial and other personnel was an important franchise benefit, and
the first few batches of managers trained by the Inter-Continental Hotel Company set a new
trend of competent professional hotel management for India's hotels that continues to influence
and guide India's hotel industry today. Before the marketing impact of hotel franchising and
hotel management by expatriate managers could be assessed and could proliferate, however,
there was a surge of nationalism in India, resulting in the elimination of management service as
an integral part of franchise agreements.

In 1975 ITDC launched its hotel business with the acquisition of a hotel in Chennai, which was
rechristened "Hotel Chola." The objective of ITDC's entry into the hotel industry was rooted in
the concept of creating value for the nation. ITDC chose the hotel industry because of its
potential to earn high levels of foreign exchange, create a tourism infrastructure, and generate
large-scale direct and indirect employment. Three Welcome Group Hotels were commissioned
between 1975 and 1977; these were non-franchised hotels, inspired by the slogan "Be Indian,
Buy Indian" and using Indian expertise. Ultimately, however, these hotels adopted the Sheraton
system in 1978 and used the services of expatriates for the purposes of upgrading staff training
and installing Sheraton operating systems-all without a management contract. This gave the
Welcome Group a good start.

The Concept of Hotel

 Hotel belongs to service activity

 It is place where people will stay by paying the prescribed charges.
 They get personal comforts like comfortable living for any number of days for which
they have to pay on daily basis and also availing other services like obtaining desired
food, calm and independent stay.
 Besides basic living amenities, one can get entertainment, sports facilities, sightseeing
and various other comfortable services on paid basis.

Definition of Hotel

“ Primarily and fundamentally, a hotel is an establishment which supplies boarding and lodging
not engaged in interstate or intrastate commerce, competitive with or affective inter-state
commerce.”

Meaning of Motel

This is a term initially used for the services rendered to foreign and local tourists. This are road
side hotels having rooms arranged around parking area, serving especially motorist. The term
“MOTEL” is coined by two terms “MOTOR” and “HOTEL”. Motel is a term used to explain
the hotel services provided to motor travelers who would like to have short stay during travel,
to ease out monotony of travel and make fresh journey.

Facilities provided in Hotels

 Reception
 Lodging
 Boarding
 Entertainment
 Shopping
 Personal care
 Medical facility
 Transport

Guest Cycle-The Concept and Phases

Traditional Way

GUEST ARRIVAL OCCUPANCY DEPARTURE

Modern Way

Most likely, the guest cycle consists of four main stages:

1. pre-arrival
2. arrival
3. occupancy
4. departure
These stages are work in a cycle so these are known as guest cycle in whole.
1. Pre-arrival in other words is reservation. It is the stage where the guest chooses the hotel
and makes the reservation. Important information is gathered at this stage, which allows the
next stage to run smoothly. Normal reservation, confirm reservation and guarantee reservation
are the three types of reservation in this stage. Normal reservation means the guest have book
the room only. Confirm reservation is that the customer will receive a confirmation number
from the hotel regarding to the booking for a room at a particular date, and the guest do not
need to pay at this stage. Guarantee reservation will charge the guest for the first room night
even if they didn’t occupy the room; however they will guarantee to have a room at all stage.
2. The arrival stage is when the guest actually arrives and registers at the hotel (check-in).
Here the guest verifies the information gathered previously at the reservation stage, confirms
method of payment, signs the registration card, and collects the key. The guest will classify for
their room type first, then the hotel will reserve a room from the whole; and hence, after
deducting credit limits from their credit card, the guest will collect the key.
3. The occupancy stage deals with security of the guest along with the coordination of guest
services to ensure guest satisfaction and try to encourage repeat guests. The front desk plays an
important part at this stage as this is the area where guests will make their requests or raise
their problems, to which the front desk staffs need to respond in a timely and accurate manner.
At this stage the front desk need to keep guest accounts up-to-date so that the final stage of the
cycle runs smoothly.
4. Departure is the moment when the guest is ready to check out. The main objective here is to
settle the guest account, check if there is more guest charges after checking the room, update
room status information, and create a guest history record. In an attempt to ensure repeat
guests, it is important to find out if the guest has enjoyed their stay at this point.

Three key performance indicators:

1. Percentage of Occupancy
Percentage of occupancy in hotel industry refers to the percentage of rooms occupied in a hotel
at a given time. The occupancy rate helps a hotel’s administrators evaluate their business and
determine whether the hotel has a vacancy for letting out rooms to walk-in guests. A hotel
front-desk clerk or manager should know the information required to determine the hotel
occupancy.
Percentage of occupancy is determined by dividing the number of occupied rooms by the
number of available rooms. Conversely, the vacancy rate is the number of rooms in a hotel that
are not rented out as compared to the total number of rooms in the hotel.

Percentage of Occupancy = (Rooms Occupied/Total Hotel Rooms )x 100%

For example, if the hotel has 88 rooms and 44 occupied rooms, the formula for hotel
occupancy would be: 44 divided by 88, which equals 0.50 or a 50 percent hotel occupancy.
The vacancy rate is also equals to 0.50 or a 50 percent (44/88)
A 200-room hotel with 150 rooms occupied would have a 75% occupancy rate. And the
vacancy rate is 25% (200-150/200)
2. Double/Multiple Occupancy Percentage
This is the proportion of a hotel’s rooms that are occupied by more than one person. This
percentage indicates that sales mix and helps balance room rates with future occupancy
demand.

It is a measure of a hotel’s staff ability to attract more than one guest to a room; the method to
compute double/multiple occupancy percentage is:

(Number of Double Rooms Occupied) or (Number of multiple Rooms Occupied) (Total

Number of Double Rooms) or (Total Number of multiple Rooms)

For example, ABC Hotel has 204 rooms: 45 are triple, 60 are double and the remaining is
single. On the night of May 9th, the auditor counted 195 rooms occupied, 43 are triple, 58 are
double, and the remaining is single.
Double Occupancy Rate = 58 / 60 *100 = 96.67 %
Triple Occupancy Rate = 43 / 45 *100 = 95.56 %
3. Average Daily Room Rate (ADR)
It is widely used in the hospitality industry to indicate the average realized room rental per day.
Average daily rate is one of the core indicators; it is used to measure the operating performance
of a lodging unit such as a hotel or motel. Hotels use this measure to calculate the average price
at which they are booking hotels each night.

Total Rooms Revenue/Total Number of Rooms Sold

For example, if a hotel has average daily revenue over a calendar quarter of $50,000 and has
500 rooms available per day, the ADR would be $100 (50,000/500). This ADR would be used
to compute the trend over time, particularly in relation to the ADR in the previous calendar
quarter and the ADR in the year-ago quarter. It would also be used as a basis for comparing
operating performance against other hotels that have similar characteristics such as size,
clientele and location.

Types of Hotels or classification of hotel by type

Hotels are classified according to the hotel size, location, target markets, levels of service ,
facilities provided, number of rooms , ownership and affiliation etc.

1.Size - Or number of rooms

Under 200 rooms

200 to 399 rooms

400 to 700 rooms

More than 700 rooms

These categories enable hotels of similar size to compare operating procedures and statistical
results .

2.Target Markets

Hotel targets many markets and can be classified according to the markets they attempt to
attract their guests. Common type of markets include business, airport, suites, residential, resort
, timeshare , casino , convention and conference hotels .

 Business Hotels: - These hotels are the largest group of hotel types and they primarily
cater to business travellers and usually located in downtown or business districts . Although
Business hotels primarily serves business travellers , many tour groups, individual tourists
and small conference groups find these hotels attractive. Guest amenities at business hotels
may include complimentary newspapers, morning coffee, free local telephone calls , Break
fast etc.

 Airport Hotels: - These type of hotels typically target business clientele, airline passengers
with overnight travel layovers or cancelled flights and airline crews or staff. Some hotels
 might give free transport between hotel and airport . Some Ariport hotels also charges the
guest by hour instead of normal daily night charges.

 Suite Hotels: - These kind of hotels are the latest trend and the fastest growing segments in
the hotel industry . Such hotels have a living room and a separate bedroom. Professionals
such as accountants, lawyers, business men and executives find suite hotels particularly
attractive as they can work and also entertain in an area besides the bedroom.

 Extended Stay Hotels: - Extended stay hotels is somewhat similar to the suite hotels , but
usually offers kitchen amenities in the room . These kind of hotels are for longstayers who
wants to stay more than a week and does not want to spend on hotel facilities.

 Serviced Apartments: - Serviced Apartment / Residential hotels provide long-term or

permanent accommodation for Guest. Usually guest makes a lease agreement with the
hotel for minimum of one month up to a year. Rooms generally include living room ,
bedroom, kitchen , private balcony , washing machines , kitchen utensils etc. Unlike
normal hotels Serviced apartment only provide weekly one housekeeping service.

 Resort Hotels: - Resort hotels are usually located in the mountains, on an island , or in
some other exotic locations away from city's . These hotels have recreational facilities ,
scenery , golf , tennis , sailing , skiing and swimming . Resort hotels provide enjoyable and
memorable guest experiences that encourage guest to repeat to the resort.

 Bed and Breakfast / Homestays :- These are houses with rooms converted into overnight
facilities , this can size up to 1 to 10 guest rooms . They are also known as 'Home Stay's'.
The owner of the B&B usually stay on the premises and is responsible for serving breakfast
to guest .

 Timeshare / Vacation Rentals: - Another new type or segment of the hospitality industry
is the timeshare hotels. These are sometimes referred to as " Vacation-interval" hotels .
Timeshare hotels are where the guests who purchase the ownership of accommodations for
a specific period.These owners may also have the unit rented out by the management
company that operates the hotel.
 Casino Hotels :- Hotels with gambling facilities are called Casino Hotels .Although the
food and beverage operations in casino is luxurious their functions is secondary to and
supportive of casino operations.
 Conference and Convention Centres: - These type of hotels focus on meeting and
conferences and overnight accommodation for meeting attendees. They also provide video
confrencing facility, audiovisual equipments, business services , flexible seating
arrangements , flipchart etc. These hotels mostly located outside the metropolitan areas and
have facilities like golf , swimming pools , tennis courts , fitness centres , spas etc.

3. Levels Of service

 World class service: - These are also called luxury / Five Start hotels , they target top
business executives, entertainment celebrities , high- ranking political figures, and wealthy
clientele as their primary markets . They provide upscale restaurants and lounges , Valet,
concierge services and also private dining facilities .

 Mid-Range Service: - Hotels offering mid-range or otherwise 3 to 4 star hotels service

appeal the largest segment of the travelling public . This kind of hotels does not provide
elaborate service and have a adequate staffing . They also provide uniformed service , food
and beverage room service, in room entertainment's and also Wi-Fi etc.

 Budget / Limited Service: These hotels provide clean , comfortable , safe , inexpensive
rooms and meet the basic need of guests . Budget hotels appeal primarily to budget minded
travellers who wants a room with minimum services and amenities required for
comfortable stay, without unnecessary paying additional cost for costly services.

4. Ownership and Affiliations

 Independent / Single Owner Hotels :- They do not have identifiable ownership or

management affiliation with other properties. Example for the same would be family
owned and operated hotel that is not following any corporate policies or procedures.

 Chain hotels :- Hotels which are part of a hotel chain and these kind of ownership usually
imposes certain minimum standards, rules , policies and procedures to restrict affiliate
activities . In general the more centralized the organization the stronger the control over the
individual property .
Front Office Systems-Technology used for front office recordkeeping and equipment

3 Stages of Front Office System:

 Non – Automated System (Manual):-A system of front office

recordkeepingcharacterized by the exclusive use of handwritten forms. The elements of
non – automated systems determined the structure of many front office processes in
even the most advanced automated facilities.

 Semi – Automated System (Electro-Mechanical):- Also called electro – mechanical,

front office system that uses both handwritten and machine-produced forms

 Fully – Automated System (Computer Based):- A computer-based system of front

office recordkeeping that eliminates the need for many handwritten and machine-
produced forms common in non – automated and semi – automated systems

The Hotel/ Hospitality Marketing Mix

 Defining a proper marketing mix for hotel industry is crucial for the success of hotels
marketing efforts. A marketing mix is used to indicate the several marketing variables
used by the sales team to target specific guests or target market segments (E.g.:
Corporate, Transient, Groups, Conference, Leisure etc.).
 Marketing mix is normally prepared by the Director of sales and marketing / Sales
mangers. The hotel should have the right facilities / services, define good promotional
strategies (both online and offline) and finally with the right pricing.
1) Service / Facilities:

This is considered as the first because without this hotel marketing team will have nothing to
deliver to the potential guest/ customers.

Hotel industry Offer products like:

 Guest rooms
 Food and beverage
 Banqueting rooms
 Conference facilities
 Recreational facilities
 Health and wellness facilities
 Executive lounge
 Express check-in checkout services
 Travel desk
 Business centre
 Parking facilities etc.

Hotels generally cater to different market segments and each of these market segments has
different requirements. E.g.: A leisure guest on a family trip looks for recreational and
wellness facilities of the hotel where as a business traveller gives importance on hotels business
facilities like business centre, video conferencing, good in room internet connectivity etc.

This analysis done by the sales and marketing department can help the top management to
identify these specific requirements and work along with the management to either develop
such facilities or make the required improvements.

2) Place and Distribution:

This refers to the accessibility of the products to consumers. When comparing to other products
normally hotels products doesn't travel to customers but the customers come to the product.

Place or Location of the hotel e.g; choices like in city, outskirts of city, resort area, hill station.
Or a chain of hotels with presence in multiple locations.

Hotel uses either direct or indirect distribution methods to reach out its potential customers,
below are few methods or channels used by hotels.

Direct methods

 Sales through the hotel sales team

 Personal telephone calls
 Online pay per click or Banner Advertisements (Google ads, Facebook ads etc.)
 Printed media Advertisements
 Other Media Advertisements
 Hotel Website Booking System (WBS)
 Global distribution system (GDS)

Indirect methods

 Travel Agents
 Independent Travel agents
 Event Planners
 Online Travel Agents (Expeida, booking.com, Agoda etc.)
 Online Travel portals ( Trip Advisor, HotelIQ etc.)
 Independent hotel representative.

3) Promotions and communications:

The director of Sales & Marketing should work out the most effective promotion and
communication mix for the hotel. Promotion is the way hotels communicate to target
customers.

Below are few promotions and communication channels used by hotels:

 Brochures
 Television commercials
 Hotel Websites
 Twitter Channel
 Facebook Page
 Google + Page
 Hotel pens & pencils
 Scratch pads with hotel logo
 Billboards
 T V Commercials

4) Room Rate or Pricing:

Defining the correct pricing strategy is one of the most important aspects of the marketing mix.
If the hotel products like Guest rooms, Food and beverage menu etc. are not priced
competitively then the potential guest may reject the use of hotel services.

In this very competitive market guests are strongly influenced by the pricing and packages.
The hotel rate codes and packages are defined keeping in mind to attract or impress guest.

Generally the hotel room rates are defined as per the below season:

Peak Season

This is the period when demand for a hotel and its services is highest and the hotel can charge
the highest prices to the guest. There is no defined peak period for all hotels it vary from hotel
to hotel

Valley Season / Off Season

This is the time of the year with the lowest demand for rooms. Hotels generally offer the
reduced rates and packages eg: Stay for 3 and pay for 2 nights, Discounted Package rates etc.

Shoulder Season

This period falls between peak season and off season, And this time is considered as the best
time to attract new business as the rooms are available and a medium or highest rates can be
charged. The sales and marketing activities should be the highest during this period.

IMPORTANT CONCEPTS

1. Travel agents: A travel agent is a person/private retailer/public service that

provides travel and tourism related services to the public on behalf of suppliers such as
airlines, car rentals, cruise lines, hotels, railways, and package tours

2. Tour Operators: A tour operator typically combines tour and travel components to create
a package holiday. They advertise and produce brochures to promote their products, holidays
and itineraries.

3. Rolling Stock: The term Rolling stock originally referred to any vehicles that move on a
railway. It has since expanded to include the wheeled vehicles used by businesses on
roadways. It usually includes both powered and unpowered vehicles, for example locomotives,
railroad cars, coaches, and wagons.

4. Occupancy Rate: The percentage of all rental units (as in hotels) are occupied or
rented at a given time.

5. Rail-Road Coordination: Railroad coordination is required if a project crosses or is

adjacent to a railroad, and which potentially has an impact on the railroad facilities or
operation. This includes roadway design features (e.g., roadway widening, earthwork) which
obviously require work on railroad right-of-way, and not-so-obvious impacts (e.g.,
maintenance of traffic, contractor work activities during construction) which may impact the
safe operations of the affected rail line. The highway and railroad networks are both vital
components of our transportation system. Each includes its own unique set of design,
construction, operational, and maintenance considerations. Where these two modes intersect,
are adjacent to, or otherwise encroach upon each other, problems may develop if the operations
of one mode affect the other. Highway agencies and railroad companies are each generally
responsible for constructing, maintaining, and operating their own facilities. However, close
coordination and cooperation between the two is needed where they interact to ensure that the
design, construction, operation, and maintenance of both modes are compatible.

6. Inland Water Ways: India has an extensive network of inland waterways in the form
of rivers, canals, backwaters and creeks. The total navigable length is 14,500 km, out of which
about 5200 km of the river and 4000 km of canals can be used by mechanised crafts. Freight
transportation by waterways is highly under-utilised in India compared to other large countries
and geographic areas like the United States, China and the European Union. The total cargo
moved (in tonne kilometres) by the inland waterway was just 0.1% of the total inland traffic in
India, compared to the 21% figure for United States. Cargo transportation in an organised
manner is confined to a few waterways in Goa, West Bengal, Assam ,and Kerala. Inland
Waterways Authority of India (IWAI) is the statutory authority in charge of the waterways in
India. Its headquarters is located in Noida, UP. It does the function of building the necessary
infrastructure in these waterways, surveying the economic feasibility of new projects and also
administration.

Question

Section A

1. What do you mean by tourism management?

2. What is tourism marketing mix?

3. Give the meaning of rolling stock.

4. What is a motel.

5. What do you mean by occupancy rate.

Section B

1. Write a note on segmentation in tourism.

2. What impact can tourism create on society?

3. Write how “Word of Mouth” can influence tourist.

4. Write a note on Rail-Road Co-Ordination

Section C

1. Explain how tourism can bring economic development of a country.

2. How do you promote tourism in India?

3. Explain in detail the marketing mix in tourism.

4. Explain in detail the marketing mix in Hotel/Hospitality services.

 Chapter 4 BANKING AND INSURANCE SERVICES

A. BANKING SERVICES

INDIAN BANKING SYSTEM AND SERVICES:

INTRODUCTION:

1786-1969
In the year 1786, the General Bank of India was set up, followed by Bank of Hindustan and
Bengal Bank. The East India Company formed Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent banks and called them as Presidency Banks.
These three banks were unified in 1920 and Imperial Bank of India was formed. In 1865
Allahabad Bank was established, In 1894 Punjab National Bank ltd was formed in 1894.From
the year 1906 to 1913 Bank of India, Central Bank of India, Bank of Baroda, Canara Bank,
Indian Bank and Bank of Mysore were established. The RBI was founded in 1935.

During this period the development of banks was sluggish and banks suffered regular failures.
To bring about greater stability in the bank’s the Government of India passed The Banking
Companies Act 1949, which was later modified as Banking Regulation Act 1949.The act of
1965 entrusted the Reserve Bank of India with authority to control the functioning of other
nationalized banks heralding a new beginning in Indian banking. In 1955 the Imperial Bank of
India was nationalized. The State Bank of India was established to act as the controlling
authority for RBI and to take care of banking transactions of the Union and State governments
across the country. In 1960 seven banks were nationalized and assigned as subsidiary of SBI.

After Nationalization

In 1969 under directions from the then Prime Minister Mrs. Indira Gandhi 14 major
commercial banks in the country was nationalized. In 1980 seven more banks were
nationalized, resulting in 80% of the banking sector coming under the control of the
government. The national banks played a vital role in both rural and urban economies and in
making banking services accessible to the masses.
Post Liberalization
Reforms were introduced in the banking sector to strengthen Indian banks and make them
internationally competitive and for banks to play a vital role in the economic development of
the country. The Banking Industry was opened up for private participation and the entry of new
private banks and foreign banks increased competition. The efficiency of the banking sector
improved as suggested by indicators such as gradual reduction in cost of intermediation and
decline in nonperforming loans. Efficiency in the banking sector was driven by improved
technology and competition.
Bank definition:

“ A system of trading money which provides a safe place to save excess cash, known as
deposits supplies liquidity to the economy by loaning this money out to help businesses
grow and to allow consumers to purchase consumer products, homes, cars etc.”

Reserve Bank of India

The Reserve Bank of India is India's central banking institution, which controls the monetary
policy of the Indian rupee. It commenced its operations on 1 April 1935 during the British Rule
in accordance with the provisions of theReserve Bank of India Act, 1934. The original share
capital was divided into shares of 100 each fully paid, which were initially owned entirely by
private shareholders.Following India's independence on 15 August 1947, the RBI was
nationalised on 1 January 1949.

The RBI plays an important part in the Development Strategy of the Government of India. It is
a member bank of the Asian Clearing Union. The general superintendence and direction of the
RBI is entrusted with the 21-member Central Board of Directors: theGovernor, 4 Deputy
Governors, 2 Finance Ministry representatives, 10 government-nominated directors to
represent important elements from India's economy, and 4 directors to represent local boards
headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards
consists of 5 members who represent regional interests, and the interests of co-operative and
indigenous banks.
Indian Banking System

Bank is an institution that accepts deposits of money from the public.

Anybody who has account in the bank can withdraw money. Bank also lends money.

Indigenous Banking:
The exact date of existence of indigenous bank is not known. But, it is certain that the old
banking system has been functioning for centuries. Some people trace the presence of
indigenous banks to the Vedic times of 2000-1400 BC. It has admirably fulfilled the needs of
the country in the past.

However, with the coming of the British, its decline started. Despite the fast growth of modern
commercial banks, however, the indigenous banks continue to hold a prominent position in the
Indian money market even in the present times. It includes shroffs, seths, mahajans, chettis, etc.
The indigenous bankers lend money; act as money changers and finance internal trade of India
by means of hundis or internal bills of exchange.

Defects:
The main defects of indigenous banking are:
(i) They are unorganised and do not have any contact with other sections of the banking world.

(ii) They combine banking with trading and commission business and thus have introduced
trade risks into their banking business.

(iii) They do not distinguish between short term and long term finance and also between the
purpose of finance.

(iv) They follow vernacular methods of keeping accounts. They do not give receipts in most
cases and interest which they charge is out of proportion to the rate of interest charged by other
banking institutions in the country.
Suggestions for Improvements:
(i) The banking practices need to be upgraded.

(ii) Encouraging them to avail of certain facilities from the banking system, including the RBI.

(iii) These banks should be linked with commercial banks on the basis of certain understanding
in the respect of interest charged from the borrowers, the verification of the same by the
commercial banks and the passing of the concessions to the priority sectors etc.

(iv) These banks should be encouraged to become corporate bodies rather than continuing as
family based enterprises.

Structure of Organised Indian Banking System:

The organised banking system in India can be classified as given below:
Reserve Bank of India (RBI):
The country had no central bank prior to the establishment of the RBI. The RBI is the supreme
monetary and banking authority in the country and controls the banking system in India. It is
called the Reserve Bank’ as it keeps the reserves of all commercial banks.

Commercial Banks:
Commercial banks mobilise savings of general public and make them available to large and
small industrial and trading units mainly for working capital requirements.

Commercial banks in India are largely Indian-public sector and private sector with a few
foreign banks. The public sector banks account for more than 92 percent of the entire banking
business in India—occupying a dominant position in the commercial banking. The State Bank
of India and its 7 associate banks along with another 19 banks are the public sector banks.

Scheduled and Non-Scheduled Banks:

The scheduled banks are those which are enshrined in the second schedule of the RBI Act,
1934. These banks have a paid-up capital and reserves of an aggregate value of not less than
Rs. 5 lakhs, hey have to satisfy the RBI that their affairs are carried out in the interest of their
depositors.

All commercial banks (Indian and foreign), regional rural banks, and state cooperative banks
are scheduled banks. Non- scheduled banks are those which are not included in the second
schedule of the RBI Act, 1934. At present these are only three such banks in the country.

Regional Rural Banks:

The Regional Rural Banks (RRBs) the newest form of banks, came into existence in the middle
of 1970s (sponsored by individual nationalised commercial banks) with the objective of
developing rural economy by providing credit and deposit facilities for agriculture and other
productive activities of al kinds in rural areas.

The emphasis is on providing such facilities to small and marginal farmers, agricultural
labourers, rural artisans and other small entrepreneurs in rural areas.

Other special features of these banks are:

(i) their area of operation is limited to a specified region, comprising one or more districts in
any state; (ii) their lending rates cannot be higher than the prevailing lending rates of
cooperative credit societies in any particular state; (iii) the paid-up capital of each rural bank is
Rs. 25 lakh, 50 percent of which has been contributed by the Central Government, 15 percent
by State Government and 35 percent by sponsoring public sector commercial banks which are
also responsible for actual setting up of the RRBs.

These banks are helped by higher-level agencies: the sponsoring banks lend them funds and
advise and train their senior staff, the NABARD (National Bank for Agriculture and Rural
Development) gives them short-term and medium, term loans: the RBI has kept CRR (Cash
Reserve Requirements) of them at 3% and SLR (Statutory Liquidity Requirement) at 25% of
their total net liabilities, whereas for other commercial banks the required minimum ratios have
been varied over time.

Cooperative Banks:
Cooperative banks are so-called because they are organised under the provisions of the
Cooperative Credit Societies Act of the states. The major beneficiary of the Cooperative
Banking is the agricultural sector in particular and the rural sector in general.

The cooperative credit institutions operating in the country are mainly of two kinds:
agricultural (dominant) and non-agricultural. There are two separate cooperative agencies for
the provision of agricultural credit: one for short and medium-term credit, and the other for
long-term credit. The former has three tier and federal structure.

At the apex is the State Co-operative Bank (SCB) (cooperation being a state subject in India),
at the intermediate (district) level are the Central Cooperative Banks (CCBs) and at the village
level are Primary Agricultural Credit Societies (PACs).

Long-term agriculture credit is provided by the Land Development Banks. The funds of the
RBI meant for the agriculture sector actually pass through SCBs and CCBs. Originally based in
rural sector, the cooperative credit movement has now spread to urban areas also and there are
many urban cooperative banks coming under SCBs.
Functions of Banks
TERM DEPOSITS:
Fixed Deposit:
 It is one of the oldest and most popular forms of investment across India.
 Fixed deposit a/c allows you to deposit your money for a set period of time, thereby
earning you a higher rate of interest in return.
 At the end of maturity period the depositor gets its principal amount plus interest
earned over the maturity period.
 FDs also give you a higher rate of interest than a savings bank account.

Correspondent Banking:

 Most major banks maintain correspondent banking relationships with local banks in market
areas in which they wish to do business. e.g. “SunTrust Bank" may have a correspondent
relationship with a bank in Brasilia, Lagos, Cairo, London, etc.

* Correspondent services include: accepting drafts, honoring letters of credit, furnishing credit
info, collecting/ disbursing internal funds, investing funds in international money markets.

* In its basic form, Correspondent Banking describes an active clearing account relationship
between two banks. Through correspondent banking, a domestic bank is able to meet the
requirement of their domestic customers' foreign exchange and trade dealings.

i) Current Deposit

Also called ‘demand deposit’, current deposit can be withdrawn by the depositor at any time by
cheques. Businessmen generally open current accounts with banks. Current accounts do not
carry any interest as the amount deposited in these accounts is repayable on demand without
any restriction. The Reserve bank of India prohibits payment of interest on current accounts or
on deposits upto 14 Days or less except where prior sanction has been obtained. Banks usually
charge a small amount known as incidental charges on current deposit accounts depending on
the number of transaction. Savings deposit/Savings Bank Accounts Savings deposit account is
meant for individuals who wish to deposit small amounts out of their current income. It helps
in safe guarding their future and also earning interest on the savings. A saving account can be
opened with or without cheque book facility. There are restrictions on the withdrawals from
this account. Savings account holders are also allowed to deposit cheques, drafts, dividend
warrants, etc.drawn in their favour for collection by the bank. To open a savings account, it is
necessary for the depositor to be introduced by a person having a current or savings account
with the same bank. Fixed deposit The term ‘Fixed deposit’ means deposit repayable after the
expiry of a specified period. Since it is repayable only after a fixed period of time, which is to
be determined at the time of opening of the account, it is also known as time deposit. Fixed
deposits are most useful for a commercial bank. Since they are repayable only after a fixed
period, the bank may invest these funds more profitably by lending at higher rates of interest
and for relatively longer periods. The rate of interest on fixed deposits depends upon the period
of deposits. The longer the period, the higher is the rate of interest offered. The rate of interest
to Functions of Commercial Banks: 27 be allowed on fixed deposits is governed by rules laid
down by the Reserve Bank of India.

ii) Recurring Deposits

Recurring Deposits are gaining wide popularity these days. Under this type of deposit, the
depositor is required to deposit a fixed amount of money every month for a specific period of
time. Each installment may vary from Rs.5/- to Rs.500/- or more per month and the period of
account may vary from 12 months to 10 years. After the completion of the specified period, the
customer gets back all his deposits along with the cumulative interest accrued on the deposits.

Grant of loans and advances

The second important function of a commercial bank is to grant loans and advances. Such
loans and advances are given to members of the public and to the business community at a
higher rate of interest than allowed by banks on various deposit accounts. The rate of interest
charged on loans and advances varies depending upon the purpose, period and the mode of
repayment.
The difference between the rate of interest allowed on deposits and the rate charged on the
Loans is the main source of a bank’s income.

i) Loans

A loan is granted for a specific time period. Generally, commercial banks grant short-term
loans. But term loans, Functions of Commercial Banks: 23 that is, loan for more than a year,
may also be granted. The borrower may withdraw the entire amount in lump sum or in
installments. However, interest is charged on the full amount of loan. Loans are generally
granted against the security of certain assets. A loan may be repaid either in lump sum or in
installments.

ii) Advances

An advance is a credit facility provided by the bank to its customers. It differs from loan in the
sense that loans may be granted for longer period, but advances are normally granted for a
short period of time. Further the purpose of granting advances is to meet the day to day
requirements of business. The rate of interest charged on advances varies from bank to bank.
Interest is charged only on the amount withdrawn and not on the sanctioned amount. Modes of
short-term financial assistance Banks grant short-term financial assistance by way of cash
credit, overdraft and bill discounting.

a) Cash Credit

Cash credit is an arrangement whereby the bank allows the borrower to draw amounts upto a
specified limit. The amount is credited to the account of the customer. The customer can
withdraw this amount as and when he requires. Interest is charged on the amount actually
withdrawn. Cash Credit is granted as per agreed terms and conditions with the customers.
b) Overdraft

Overdraft is also a credit facility granted by bank. A customer who has a current account with
the bank is allowed to withdraw more than the amount of credit balance in his account. It is a
temporary arrangement. Overdraft facility with a specified limit is allowed either on the
security of assets, or on personal security, or both.24: Business Studies
c) Discounting of Bills

Banks provide short-term finance by discounting bills that is, making payment of the amount
before the due date of the bills after deducting a certain rate of discount. The party gets the
funds without waiting for the date of maturity of the bills. In case any bill is dishonored on the
due date, the bank can recover the amount from the customer.

Different methods of Granting Loans by Bank

The basic function of a commercial bank is to make loans and advances out of the money
which is received from the public by way of deposits. The loans are particularly granted to
businessmen and members of the public against personal security, gold and silver and other
movable and immovable assets. Commercial bank generally lends money in the following
form:

i) Cash credit
ii) Loans
iii) Bank overdraft, and
iv) Discounting of Bills
i) Cash Credit

A cash credit is an arrangement whereby the bank agrees to lend money to the borrower upto a
certain limit. The bank puts this amount of money to the credit of the borrower. The borrower
draws the money as and when he needs. Interest is charged only on the amount actually drawn
and not on the amount placed to the credit of borrower’s account. Cash credit is generally
granted on a bond of credit or certain other securities. This very popular method of lending in
our country.
ii) Loans:

A specified amount sanctioned by a bank to the customer is called a ‘loan’. It is granted for a
fixed period, say six months, or a year. The specified amount is put on the credit of the
borrower’s account. He can withdraw this amount in lump sum or can draw cheques against
this sum for any amount. Interest is charged on the full amount even if the borrower does not
utilize it. The rate of interest is lower on loans in comparison to cash credit. A loan is generally
granted against the security of property or personal security. The loan may be repaid in lump
sum or in installments. Every bank has its own procedure of granting loans. Hence a bank is at
liberty to grant loan depending on its own resources. The loan can be granted as

a) Demand loan
b) Term loan

a) Demand loan

Demand loan is repayable on demand. In other words it is repayable at short notice. The entire
amount of demand loan is disbursed at one time and the borrower has to pay interest on it.
The borrower can repay the loan either in lump sum (one time) or as agreed with the bank.
Loans are normally granted by the bank against tangible securities including securities like
N.S.C., Kisan Vikas Patra, Life Insurance policies and U.T.I. certificates.

b) Term loans

Medium and long term loans are called ‘Term loans’. Term loans are granted for more than one
year and repayment of such loans is spread over a longer period. The repayment is generally
made in suitable installments of fixed amount. These loans are repayable over a period of 5
years and maximum upto 15 years.

Term loan is required for the purpose of setting up of new business activity, renovation,
modernization, expansion/extension of existing units, purchase of plant and machinery,
vehicles, land for setting up a factory, construction of factory building or purchase of other
 immovable assets. These loans are generally secured against the mortgage of land, plant and
machinery, building and other securities. The normal rate of interest charged for such loans is
generally quite high.

ii) Bank Overdraft

Overdraft facility is more or less similar to cash credit facility. Overdraft facility is the result of
an agreement with the bank by which a current account holder is allowed to withdraw a
specified amount over and above the credit balance in his/her account. It is a short term facility.
This facility is made available to current account holders who operate their account through
cheques. The customer is permitted to withdraw the amount as and when he/she needs it and to
repay it through deposits in his account as and when it is convenient to him/her. Overdraft
facility is generally granted by bank on the basis of a written request by the customer.
Sometimes, banks also insist on either a promissory note from the borrower or personal
security to ensure safety of funds. Interest is charged on actual amount withdrawn by the
customer. The interest rate on overdraft is higher than that of the rate on loan.

iii) Discounting of Bills

Apart from granting cash credit, loans and overdraft, banks also grant financial assistance to
customers by discounting bills of exchange. Banks purchase the bills at face value minus
interest at current rate of interest for the period of the bill. This is known as ‘discounting of
bills’. Bills of exchange are negotiable instruments and enable the debtors to discharge their
obligations towards their creditors. Such bills of exchange arise out of commercial transactions
both in internal trade and external trade. By discounting these bills before they are due for a
nominal amount, the banks help the business community. Of course, the banks recover the full
amount of these bills from the persons liable to make payment.

Besides these two main activities, commercial banks also render a number of ancillary
services. These services supplement the main activities of the banks. They are essentially non-
banking in nature and broadly fall under two categories:

i) Agency services, and

ii) General utility services.
 i) Agency Services
Agency services are those services which are rendered by commercial banks as agents of their
customers. They include:
a) Collection and payment of cheques and bills on behalf of the customers;
b) Collection of dividends, interest and rent, etc. on behalf of customers, if so instructed by
them;
c) Purchase and sale of shares and securities on behalf of customers;
d) Payment of rent, interest, insurance premium, subscriptions etc. on behalf of customers, if so
instructed;
e) Acting as a trustee or executor;
f) Acting as agents or correspondents on behalf of customers for other banks and financial
institutions at home and abroad.

ii) General utility services

General utility services are those services which are rendered by commercial banks not only to
the customers but also to the general public. These are available to the public on payment of a
fee or charge. They include:

1. Issuing letters of credit and travelers’ cheque

Meaning:
Cheques issued by a financial institution which functions as cash but is
protected against loss or theft. Traveler's checks are useful when traveling, especially in case of
overseas travel when not all credit and debit cards carried by a person will be accepted. A
charge or commission is usually incurred when a person exchanges cash for traveler's checks,
though some issuers provide them free of charge. Available in five foreign currencies– United
States Dollars, Euros, Great British Pounds, Canadian Dollars and Japanese Yen Lost or stolen
travelers cheques can be replaced with a single telephone call – usually within 24 hours
virtually anywhere in the world
Accepted worldwide– at stores, restaurants, hotels, banks, foreign exchange bureaus.
Specimen image of a traveler’s cheque
(1)

(2)

b) Underwriting of shares, debentures, etc.

c) Safe-keeping of valuables in safe deposit lockers: All banks provide safety deposit locker
facilities. Lockers are small boxes which have a pair of keys. One pair is with the bank and the
other is with the customer. Unless both keys are used simultaneously the locker won't open.
Also, these lockers are kept in a room that is guarded heavily and has solid iron doors or
concrete walls around it. It is literally impossible to force our way into the locker room without
having the key to the doors.
Each customer is charged an annual fee for holding the locker with the bank. The amount will
vary with the size of a locker. For Ex: In India you will be charge approximately Rs. 1000/- per
year for the smallest locker available and the amount can be as high as Rs. 25000 or even more
for large sized ones

d) Underwriting loans floated by government and public bodies.

e) Supplying trade information and statistical data useful to customers;
f) Acting as a referee regarding the financial status of customers;
g) Undertaking foreign exchange business. () letter of credit)
A letter of Credit is the Buyer’s Banker’s promise to the Bank of the Seller / Exporter that the
bank will honor the Invoice presented by the Exporter on due date and make payment

RECENT TRENDS IN BANKING

1) Electronic Payment Services – E Cheques

Now-a-days we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the
same manner, a new technology is being developed in US for introduction of e-cheque, which
will eventually replace the conventional paper cheque. India, as harbinger to the introduction of
e-cheque, the Negotiable Instruments Act has already been amended to include;
Truncated cheque and E-cheque instruments.

2) Real Time Gross Settlement (RTGS)

Real Time Gross Settlement system, introduced in India since March 2004, is a system
through which electronics instructions can be given by banks to transfer funds from their
account to the account of another bank. The RTGS system is maintained and operated by the
RBI and provides a means of efficient and faster funds transfer among banks facilitating their
financial operations. As the name suggests, funds transfer between banks takes place on a ‘Real
Time' basis. Therefore, money can reach the beneficiary instantaneously and the beneficiary's
bank has the responsibility to credit the beneficiary's account within two hours.
 3) Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make
payment to another person/company etc. can approach his bank and make cash payment or
give instructions/authorization to transfer funds directly from his own account to the bank
account of the receiver/beneficiary. Complete details such as the receiver's name, bank
account number, account type (savings or current account), bank name, city, branch name etc.
should be furnished to the bank at the time of requesting for such transfers so that the amount
reaches the beneficiaries' account correctly and faster. RBI is the service provider of EFT.

4) Electronic Clearing Service (ECS)

Electronic Clearing Service is a retail payment system that can be used to make bulk
payments/receipts of a similar nature especially where each individual payment is of a
repetitive nature and of relatively smaller amount. This facility is meant for companies and
government departments to make/receive large volumes of payments rather than for funds
transfers by individuals.

5) Automatic Teller Machine (ATM)

Automatic Teller Machine is the most popular devise in India, which enables the
customers to withdraw their money 24 hours a day 7 days a week. It is a devise that allows
customer who has an ATM card to perform routine banking transactions without interacting
with a human teller. In addition to cash withdrawal, ATMs can be used for payment of utility
bills, funds transfer between accounts, deposit ofcheques and cash into accounts, balance
enquiry etc.

6) Point of Sale Terminal

Point of Sale Terminal is a computer terminal that is linked online to the computerized
customer information files in a bank and magnetically encoded plastic transaction card
that identifies the customer to the computer. During a transaction, the customer's account is
debited and the retailer's account is credited by the computer for the amount of purchase.
 7) Tele Banking

Tele Banking facilitates the customer to do entire non-cash related banking on

telephone. Under this devise Automatic Voice Recorder is used for simpler queries and
transactions. For complicated queries and transactions, manned phone terminals are used.

8) Electronic Data Interchange (EDI)

Electronic Data Interchange is the electronic exchange of business documents like

purchase order, invoices, shipping notices, receiving advices etc. in a standard, computer
processed, universally accepted format between trading partners. EDI can also be used to
transmit financial information and payments in electronic form.

IMPLICATIONS

The banks were quickly responded to the changes in the industry; especially the new
generation banks. The continuance of the trend has re-defined and re-engineered the banking
operations as whole with more customization through leveraging technology. As technology
makes banking convenient, customers can access banking services and do banking transactions
any time and from any ware. The importance of physical branches is going down.

CHALLENGES FACED BY BANKS

The major challenges faced by banks today are as to how to cope with competitive
forces and strengthen their balance sheet. Today, banks are groaning with burden of NPA’s. It
is rightly felt that these contaminated debts, if not recovered, will eat into the very vitals of the
banks. Another major anxiety before the banking industry is the high transaction cost of
carrying Non Performing Assets in their books. The resolution of the NPA problem requires
greater accountability on the part of the corporate, greater disclosure in the case of defaults, an
efficient credit information sharing system and an appropriate legal framework pertaining to
the banking system so that court procedures can be streamlined and actual recoveries made
within an acceptable time frame. The banking industry cannot afford to sustain itself with such
high levels of NPA’s thus, “lend, but lent for a purpose and with a purpose ought to be the
slogan for salvation.”

The Indian banks are subject to tremendous pressures to perform as otherwise their very
survival would be at stake. Information technology (IT) plays an important role in the banking
sector as it would not only ensure smooth passage of interrelated transactions over the electric
medium but will also facilitate complex financial product innovation and product development.
The application of IT and e-banking is becoming the order of the day with the banking system
heading towards virtual banking.

As an extreme case of e-banking World Wide Banking (WWB) on the pattern of World
Wide Web (WWW) can be visualized. That means all banks would be interlinked and
individual bank identity, as far as the customer is concerned, does not exist. There is no need to
have large number of physical bank branches, extension counters. There is no need of person-
to-person physical interaction or dealings. Customers would be able to do all their banking
operations sitting in their offices or homes and operating through internet. This would be the
case of banking reaching the customers.

Banking landscape is changing very fast. Many new players with different muscle
powers will enter the market. The Reserve Bank in its bid to move towards the best
international banking practices will further sharpen the prudential norms and strengthen its
supervisor mechanism. There will be more transparency and disclosures. In the days to come,
banks are expected to play a very useful role in the economic development and the emerging
market will provide ample business opportunities to harness. Human Resources Management is
assuming to be of greater importance. As banking in India will become more and more
knowledge supported, human capital will emerge as the finest assets of the banking system.
Ultimately banking is people and not just figures.
India's banking sector has made rapid strides in reforming and aligning itself to the new
competitive business environment. Indian banking industry is the midst of an IT revolution.
Technological infrastructure has become an indispensable part of the reforms process in the
banking system, with the gradual development of sophisticated instruments and innovations in
market practices.
IT IN BANKING

Indian banking industry, today is in the midst of an IT revolution. A combination of

regulatory and competitive reasons has led to increasing importance of total banking
automation in the Indian Banking Industry. Information Technology has basically been used
under two different avenues in Banking. One is Communication and Connectivity and other is
Business Process Reengineering. Information technology enables sophisticated product
development, better market infrastructure, implementation of reliable techniques for control of
risks and helps the financial intermediaries to reach geographically distant and diversified
markets.

The bank which used the right technology to supply timely information will see
productivity increase and thereby gain a competitive edge. To compete in an economy which is
opening up, it is imperative for the Indian Banks to observe the latest technology and modify it
to suit their environment. Not only banks need greatly enhanced use of technology to the
customer friendly, efficient and competitive existing services and business, they also need
technology for providing newer products and newer forms of services in an increasingly
dynamic and globalize environment. Information technology offers a chance for banks to build
new systems that address a wide range of customer needs including many that may not be
imaginable today.

 It is becoming increasingly imperative for banks to assess and ascertain the benefits
of technology implementation. The fruits of technology will certainly taste a lot sweeter
when the returns can be measured in absolute terms but it needs precautions and the
safety nets.
 It has not been a smooth sailing for banks keen to jump onto the IT bandwagon.
There have been impediments in the path like the obduracy once shown by trade unions
who felt that IT could turn out to be a threat to secure employment. Further, the
expansion of banks into remote nooks and corners of the country,
where logistics continues to be a handicap, proved to be another stumbling stock.
Another challenge the banks have had to face concerns the inability of banks to retain
the trained and talented personnel, especially those with a good knowledge of IT.
 The increasing use of technology in banks has also brought up ‘security' concerns.
To avoid any pitfalls or mishaps on this account, banks ought to have in place a well-
 documented security policy including network security and internal security. The
passing of the Information Technology Act has come as a boon to the banking sector,
and banks should now ensure to abide strictly by its covenants. An effort should also be
made to cover e-business in the country's consumer laws.
 Some are investing in it to drive the business growth, while others are having no
option but to invest, to stay in business. The choice of right channel, justification of IT
investment on ROI, e-governance, customer relationship management, security
concerns, technological obsolescence, mergers and acquisitions, penetration of IT in
rural areas, and outsourcing of IT operations are the major challenges and issues in the
use of IT in banking operations. The main challenge, however, remains to motivate the
customers to increasingly make use of IT while transacting with banks. For small
banks, heavy investment requirement is the compressing need in addition to their
capital requirements. The coming years will see even more investment in banking
technology, but reaping ROI will call for more strategic thinking.
 The banks may have to reorient their resources in the form of reorganized branch
networks, reduced manpower, dramatic reduction in establishment cost, honing the
skills of the staff, and innovative ways of attracting talented managerial pool. The
Government of India and the Reserve Bank of India (RBI) on their part would
strengthen the existing norms in terms of governing and directing the functioning of
these banks. Banks needs to strengthen their audit function. They would be evaluated
based on their performance in the market place. It is in this context that we have invited
the chief executive officers of Indian banks to respond to the issues mentioned earlier

FUTURE OUTLOOK

Everyone today is convinced that the technology is going to hold the key to future of
banking. The achievements in the banking today would not have make possible without IT
revolution. Therefore, the key point is while changing to the current environment the banks has
to understand properly the trigger for change and accordingly find out the suitable departure
point for the change.

Although, the adoption of technology in banks continues at a rapid pace, the

concentration is perceptibly more in the metros and urban areas. The benefit of Information
Technology is yet to percolate sufficiently to the common man living in his rural hamlet. More
and more programs and software in regional languages could be introduced to attract more and
more people from the rural segments also.

Standards based messaging systems should be increasingly deployed in order to address

cross platform transactions. The surplus manpower generated by the use of IT should be used
for marketing new schemes and banks should form a ‘brains trust' comprising domain experts
and technology specialists.
B. INSURANCE SERVICES

CONCEPT OF LIFE INSURANCE

Life insurance is a contract under which the insurer (Insurance Company) in consideration of a
premium paid undertakes to pay a fixed sum of money on the death of the insured or on the
expiry of a specified period of time whichever is earlier.
In case of life insurance, the payment for life insurance policy is certain. The event insured
against is sure to happen only the time of its happening is not known. So life insurance is
known as ‘Life Assurance’. The subject matter of insurance is life of human being. Life
insurance provides risk coverage to the life of a person. On death of the person insurance offers
protection against loss of income and compensate the titleholders of the policy.

IMPORTANCE OF LIFE INSURANCE.

Life Insurance is of great importance to individuals, groups, business community and general
public.

Some of the main benefits of life insurance are given below.

i) Protection against untimely death: Life insurance provides protection to the dependents of
the life insured and the family of the assured in case of his untimely death. The dependents or
family members get a fixed sum of money in case of death of the assured.

ii) Saving for old age: After retirement the earning capacity of a person reduces. Life
insurance enables a person to enjoy peace of mind and a sense of security in his/her old age.

iii) Promotion of savings: Life insurance encourages people to save money compulsorily.
When a life policy is taken, the assured is to pay premiums regularly to keep the policy in force
and he cannot get back the premiums, only surrender value can be returned to him. In case of
surrender of policy, the policyholder gets the surrendered value only after the expiry of
duration of the policy.

iv) Initiates investments Life Insurance Corporation encourages and mobilizes the public
savings and channelizes the same in various investments for the economic development of the
country. Life insurance is an important tool for the mobilization and investment of small
savings.

v) Credit worthiness: Life insurance policy can be used as a security to raise loans. It
improves the credit worthiness of business.

vi) Social Security: Life insurance is important for the society as a whole also. Life insurance
enables a person to provide for education and marriage of children and for construction of
house. It helps a person to make financial base for future.

vii) Tax Benefit: Under the Income Tax Act, premium paid is allowed as a deduction from the
total income under section 80C.

TYPES OF INSURANCE

1. LIFE INSURANCE
2. GENERAL INSURANCE

TYPES OF LIFE INSURANCE POLICIES

Life insurance policies can be grouped into the following categories:

TERM POLICY
In case of Term assurance plans, insurance company promises the insured for a nominal
premium to pay the face value mentioned in the policy in case he is no longer alive during the
term of the policy. Term assurance policy has the following features: It provides a risk cover
only for a prescribed period. Usually these policies are short-term plans and the term ranges
from one year onwards. If the policyholder survives till the end of this period, the risk cover
lapses and no insurance benefit payment is made to him. The amount of premium to be paid for
these policies is lower than all other life insurance policies. As savings and reserves are not
accumulated under this policy, it has no surrender value and loan or paid-up values are not
allowed on these policies. This plan is most suitable for those who are initially unable to pay
high premium when income is low as required for Whole Life or Endowment policies, but
requires life cover for a high amount.

WHOLE LIFE POLICY

This policy runs for the whole life of the assured. The sum assured becomes payable to the
legal heir only after the death of the assured. The whole life policy can be of three types.
(1) Ordinary whole life policy – In this case premium is payable periodically throughout the
life of the assured.
(2) Limited payment whole life policy – In this case premium is payable for a specified period
(Say 20 Years or 25 Years) Only.
(3) Single Premium whole life policy – In this type of policy the entire premium is payable in
one single payment.

ENDOWMENT LIFE POLICY

In this policy the insurer agrees to pay the assured or his nominees a specified sum of money
on his death or on the maturity of the policy whichever is earlier. The premium for endowment
policy is comparatively higher than that of the whole life policy. The premium is payable till
the maturity of the policy or until the death of the assured whichever is earlier. It provides
protection to the family against the untimely death of the assured.

WITH PROFIT AND WITHOUT PROFIT POLICY

Under with profit policy the assured is paid, in addition to the sum assured, a share in the
profits of the insurer in the form of bonus. Without profit policy is a policy under which the
assured does not get any share in the profits earned by the insurer and gets only the sum
assured on the maturity of the policy. With profit and without profit policies are also known as
participating and non participating policies respectively
POLICIES FOR WOMEN

Women, now a days are free to take life assurance policies. However, some specially designed
policies suit their needs in a unique manner; the synopsis of some these policies are as follows:
a. JeevanSathi is also known a Life Partner plan where the husband and wife are covered under
this endowment policy, which gives the following benefits.
i. On maturity, provided both are alive, full sum assured with bonus is paid.
ii. On the death of one of the assured during the period of the policy, basic sum assured
is paid to the surviving partner, who is not required to pay any further premiums.
iii. The surviving partner remains covered for the full sum assured. If she/he dies, then
the sum assured is paid to the nominee, but this is before the maturity date.
iv. The surviving partner will be paid sum assured with bonuses if he survives till the
maturity date. Hence this policy gives a comprehensive family protection.

b. JeevanSukanya is highlighted by the following points.

i. Only female child aged between 1 to 12 years is covered in this plan.
ii. band is automatically covered under the policy after marriage.
iii. Risk of the child starts either after 2 years of taking the policy or not before the age
of 7, whichever is early.
iv. Premium paying period is 20 years minus age at entry.
v. On surviving the age of 20, the life assured receives the sum assured as survival
benefit and the policy continues to cover the life assured till maturity date when vested
bonus will be paid only. If life assured dies before maturity, sum assured with bonuses
will be paid.

MONEY BACK POLICY

In this case policy money is paid to the insured in a number of separate cash payments. Insurer
gives periodic payments of survival benefit at fixed intervals during the term of policy as long
as the policyholder is alive.
GENERAL INSURANCE:
Fire Insurance:

Fire insurance policy is suitable for the owner of a property, one who holds property in trust or
in commission, individuals/financial institutions who have financial interest in the property. All
immovable and movable property located at a particular premises such as buildings, plant and
machinery, furniture, fixtures, fittings and other contents, stocks and stock in process along
with goods held in trust or in commission including stocks at supplier’s/ customer’s premises,
machinery temporarily removed from the premises for repairs can be insured.

Along with the basic coverage against loss or damage by occasional fire, the standard fire and
special perils policy provides protection from a host of other perils such as:
1. Lightning
2. Explosion/implosion
3. Aircraft and articles dropped there from, i.e. any damage to the insured property
caused either due to an aircraft falling on the property or any object dropped from
the aircraft damaging the insured’s property.
4. Impact damage due to rail/road or animal; other than insured’s own vehicle
5. Riots, strike, malicious and terrorism damage
Machinery insurance policy
Machinery Insurance Policy was developed to grant industry effective insurance cover for plant
and machinery and mechanical equipment at work, at rest or during maintenance operations.
Normally financial institutions insist on insurance cover against fire, riot and strike and Acts of
God perils. With the advancement of technology, the machines used in the industry are
becoming increasingly complicated. Now machines are manufactured with increased
capacities, higher speeds of operation, reduced energy consumption, reduced maintenance
time, reduced life, cheaper substitutes for reducing costs etc. The machineries are getting more
and more sophisticated and delicate. The guarantees given by the manufacturers are very
vague. It is very difficult to prove whether a loss was due to manufacturing defect or not.

The vital equipments such as main compressors, turbine, turbo alternator sets, process and their
motors blowers, transformers and boiler feed water pumps,
Marine Cargo Insurance

Marine insurance is as old as civilization. This system of marine insurance owes its origin and
evolution to mankind’s fear of future uncertainty and consequent search for security. It began
probably in the cities of Northern Italy by the Lombardy merchants around the end of the 12th
century. Marine insurance became a full-fledged and specialized activity some centuries later.
The humble coffee house of the Lloyds opened by Edward Lloyd around 1680 AD saw the
beginning of marine insurance. From these humble beginnings it has now grown into a
business of vast proportions.

It is a system of financial protection against the happenings of accidental or fortuitous events,

such as;
a) During sea transportation’ the goods may be lost due to sinking of the vessel.
b) Damaged due to incursion of seawater into the holds of the ship during rough weather.
c) During land transit, the goods may be lost damaged by the derailment of railway wagons or
collision of motor goods vehicle.
d) During transit and whilst in storage incidental to transit, the goods may catch fire or may be
stolen.
These hazards or causes of loss are referred to as perils or risks in insurance terminology And
may result in the following types of losses:
a) Total loss - e.g. an entire shipment is lost due to the sinking of the vessel or due to outbreak
of fire
b) Partial loss - cargo is damaged by seawater during heavy weather

Motor insurance business is commonly divided as follows:

a) Private cars (not used for carrying passengers for hire or reward)
b) Motor cycles
c) Commercial vehicles (including private cars carrying passengers for hire or reward)
d) Motor trade road risk
e) Motor trade internal risk
• Private Cars
This category comprises cars of private type including station wagons used for social, domestic
and pleasure purposes and business or professional purposes (excluding the carriage of goods
other than samples).
• Motor Cycles
Motorcycles with or without sidecars, pedal cycles or mechanically assisted pedal cycles and
motor scooters with or without sidecars come under this category.
• Commercial vehicles
All vehicles other than Private Cars or Motor Cycles excluding vehicles running on rails come
under this category.
• Motor trade road risk
Essentially this classification is a sub class of commercial vehicles and the road risks of
vehicles
belonging to motor traders, before being sold to the ultimate customers, are covered under this
class.

Burglary Insurance:
The Burglary policy covers theft of property after forcible violent entry or theft followed by
actual violent forcible exit. The policy is issued to cover the stocks, furniture, fixtures,
calculators etc. as well as damage to the building caused by burglary. Cash in safe can also be
covered provided the cash is kept in burglar proof safe and the burglary happens following
violent and forcible methods to obtain the key or in opening the safe. The policy can be
extended to cover the risk of riots, strike and terrorism.

Individual Mediclaim
This policy seeks to reimburse the expenses incurred by the insured for hospitalization/
domiciliary (residence) hospitalization arising out of an illness/accident.
• Hospitalization
The following expenses are reimbursed under this policy provided the illness /accident are
sustained during the policy period:
1. Room and Boarding charges in hospital/nursing home.
2. Nursing expenses.
3. Surgeon, anesthesia and other specialist doctor fees.
4. Operation theatre, diagnostic materials, blood, pacemaker requirements etc.
5. The treatment should be taken in a nursing home/hospital which is –
 i. registered
ii. has at least 15 inpatient beds (10 for C class cities)
iii. has an operation theatre which is fully equipped
iv. fully qualified nursing staff round the clock.
6. It is a requirement that patient should be admitted for at least 24 hrs. However this is not
applicable for dialysis, chemotherapy, dental surgery etc. that is those ailments where the
treatment is given and the patient is discharged on the same day.
7. Medical expenses incurred 30 days prior to and 60 days after hospitalization are also paid
provided it is incurred for the same ailment for which the patient has been hospitalized.

THE ROLE OF INSURANCE INTERMEDIARIES

Introduction
The importance of insurance in modern economies is unquestioned and has been recognized
for centuries. Insurance “is practically a necessity to business activity and enterprise.” But
insurance also serves a broad public interest far beyond its role in business affairs and its
protection of a large part of the country’s wealth. It is the essential means by which the
“disaster to an individual is shared by many, the disaster to a community shared by other
communities; great catastrophes are thereby lessened, and, it may be, repaired.”
Insurance is an essential element in the operation of sophisticated national economies
throughout the world today. Without insurance coverage, the private commercial sector would
be unable to function. Insurance enables businesses to operate in a cost-effective manner by
providing risk transfer mechanisms whereby risks associated with business activities are
assumed by third parties. It allows businesses to take on credit that otherwise would be
unavailable from banks and other credit-providers fearful of losing their capital without such
protection, and it provides protection against the business risks of expanding into unfamiliar
territory – new locations, products or services – which is critical for encouraging risk taking
and creating and ensuring economic growth. Beyond the commercial world, insurance is vital
to individuals.
Lack of insurance coverage would leave individuals and families without protection
from the uncertainties of everyday life. Life, health, property and other insurance coverages are
essential to the financial stability, well-being and peace of mind of the average person.
Insurance is a financial product that legally binds the insurance company to pay losses of the
policyholder when a specific event occurs. The insurer accepts the risk that the event will occur
in exchange for a fee, the premium. The insurer, in turn, may pass on some of that risk to other
insurers or reinsurers. Insurance makes possible ventures that would otherwise be prohibitively
expensive if one party had to absorb all the risk. Advancements in medicine, product
development, space exploration and technology all have become a reality because of insurance.
Consumers buy automobile insurance to cover both their cars and people who may be injured
in accidents. Homeowners and renters buy insurance policies to protect their property and
protect themselves from liability.
People buy life and health insurance to protect themselves and their families from
financial disaster in case of illness or death. In some instances, governments require businesses
to purchase insurance. Known as financial responsibility requirements, government-mandated
purchases of insurance is intended to ensure that injured parties will be compensated.
Businesses also require other businesses to buy insurance. For instance, a retailer may require
its suppliers to carry product liability insurance. Similarly, hospitals may require doctors to
carry medical malpractice insurance, and mortgage firms often require their clients to insurance
the properties used as collateral. Distribution of insurance is handled in a number of ways. The
most common is through the use of insurance intermediaries.
Insurance intermediaries serve as the critical link between insurance companies
seeking to place insurance policies and consumers seeking to procure insurance coverage.
Intermediaries, traditionally called “brokers” or “agents” or “producers,” offer advice,
information and other services in connection with the solicitation, negotiation and sale of
insurance. Over the last two decades, many professional intermediaries have developed
services that go beyond the services related to the transferring of risk from insureds to insurers;
Intermediaries now offer services such as the evaluation and implementation of alternative
means of funding for potential losses, risk management strategies and claims management.
This paper will explain what an insurance intermediary is, the role of intermediaries in the
insurance marketplace and the wider economy, and the services provided by intermediaries to
insurance providers and consumers. It will also briefly describe the legal and regulatory
regimes governing the business of insurance around the world.
Insurance Intermediaries
Insurance intermediaries facilitate the placement and purchase of insurance, and
provide services to insurance companies and consumers that complement the insurance
placement process. Traditionally, insurance intermediaries have been categorized as either
insurance agents or insurance brokers. The distinction between the two relates to the manner in
which they function in the marketplace.
Insurance Agents
 Insurance agents are, in general, licensed to conduct business on behalf of insurance
companies. Agents represent the insurer in the insurance process and usually operate under the
terms of an agency agreement with the insurer. The insurer-agent relationship can take a
number of different forms. In some markets, agents are “independent” and work with more
than one insurance company (usually a small number of companies); in others, agents operate
exclusively – either representing a single insurance company in one geographic area or selling
a single line of business for each of several companies.
Agents can operate in many different forms – independent, exclusive, insurer-employed
and self-employed.
Insurance Brokers
Insurance brokers typically work for the policyholder in the insurance process and act
independently in relation to insurers. Brokers assist clients in the choice of their insurance by
presenting them with alternatives in terms of insurers and products. Acting as “agent” for the
buyer, brokers usually work with multiple companies to place coverage for their clients.
Brokers obtain quotes from various insurers and guide clients in determining the
adequate policy from a range of products. In some markets, there are distinctions among
brokers depending upon the types of insurance they are authorized (licensed) to intermediate –
all lines of insurance, property and casualty or life/health coverage. While most, if not all,
brokers are active in commercial lines, some also intermediate personal lines policies.
There are also distinctions between “retail brokers,” who negotiate insurance contracts
directly with consumers, and “wholesale brokers,” who negotiate insurance contracts with
retail brokers and agents, but not directly with consumers.
Reinsurance brokers solicit, negotiate and sell reinsurance cessions and retrocessions on
behalf of ceding insurers seeking coverage with reinsurers. Reinsurance brokers can also be
involved in a reinsurer’s retrocession of parts of its risk.
As a technical matter, a broker’s role may change during an insurance transaction and
over the course of an on-going relationship with a client. Many brokers sometimes act as an
“agent” of the insurer and other times as a “broker” of the client when assisting a client with
insuring its risk exposures through an insurance contract with a traditional carrier.
For example, the broker acts on behalf of the client when negotiating the contract of
insurance and placing the policy. When the broker provides services that would otherwise be
handled directly by the insurance company, such as premium payments and claims handling,
the broker is essentially acting as agent for the company. This unique concept makes the
insurance process more efficient for both the policyholder and the insurer. As a practical
matter, regardless of the legal role in which a broker is acting, the manner in which the broker
approaches all such placements for their clients is as an intermediary – working on behalf of
their clients to facilitate the consummation of insurance contracts with carriers that have the
ability and capacity to properly insure their risks. Having said that, determining whether an
intermediary is legally an agent or broker is not always clear-cut. An intermediary’s status is
determined by the totality of the facts regarding the specific transaction at issue. An
intermediary might be called a “broker,” but actually represent the insurance company in a
particular transaction. In such situations, the broker is actually – and legally – considered the
company’s agent, not that of the customer. Although, such an activity-based approach is
increasingly used around the world, the legal status of insurance intermediaries varies
throughout the international insurance market. For purposes of this memorandum, included
within the term “intermediary” are insurance agents, brokers, producers, advisors and
consultants. The Role of Insurance Intermediaries As players with both broad knowledge of the
insurance marketplace, including products, prices and providers, and an acute sense of the
needs of insurance purchasers, intermediaries have a unique role – indeed many roles – to play
in the insurance markets in particular and, more generally, in the functioning of national and
international economies. Intermediary activity benefits the overall economy at both the national
and international levels: The role of insurance in the overall health of the economy is well-
understood. Without the protection from risk that insurance provides, commercial activities
would slow, perhaps grinding to a halt, thus stunting or eliminating economic growth and the
financial benefits to businesses and individuals that such growth provides. The role of
insurance intermediaries in the overall economy is, essentially, one of making insurance – and
other risk management products – widely available, thereby increasing the positive effects of
insurance generally – risk-taking, investment, provision of basic societal needs and economic
growth.

There are several factors that intermediaries bring to the insurance marketplace that
help to increase the availability of insurance generally:
Innovative marketing Insurance intermediaries bring innovative marketing practices
to the insurance marketplace. This deepens and broadens insurance markets by increasing
consumers’ awareness of the protections offered by insurance, their awareness of the multitude
of insurance options, and their understanding as to how to purchase the insurance they need.
Dissemination of information to consumers Intermediaries provide customers with
the necessary information required to make educated purchases/ informed decisions.
Intermediaries can explain what a consumer needs, and what the options are in terms of
insurers, policies and prices. Faced with a knowledgeable client base that has multiple choices,
insurers will offer policies that fit their customers’ needs at competitive prices.
Dissemination of information to the marketplace Intermediaries gather and evaluate
information regarding placements, premiums and claims experience. When such knowledge is
combined with an intermediary’s understanding of the needs of its clients, the intermediary is
well-positioned to encourage and assist in the development of new and innovative insurance
products and to create markets where none have existed. In addition, dissemination of
knowledge and expansion of markets within a country and internationally can help to attract
more direct investment for the insurance sector and related industries.
Sound competition Increased consumer knowledge ultimately helps increase the
demand for insurance and improve insurance take-up rates. Increased utilization of insurance
allows producers of goods and services to make the most of their risk management budgets and
take advantage of a more competitive financial climate, boosting economic growth.
Spread insurers’ risks Quality of business is important to all insurers for a number of
reasons including profitability, regulatory compliance, and, ultimately, financial survival.
Insurance companies need to make sure the risks they cover are insurable – and spread these
risks appropriately – so they are not susceptible to catastrophic losses. Intermediaries help
insurers in the difficult task of spreading the risks in their portfolio. Intermediaries work with
multiple insurers, a variety of clients, and, in many cases, in a broad geographical spread. They
help carriers spread the risks in their portfolios according to industry, geography, volume, line
of insurance and other factors. This helps insurers from becoming over-exposed in a particular
region or a particular type of risk, thus freeing precious resources for use elsewhere.
Reducing costs By helping to reduce costs for insurers, broker services also reduce the
insurance costs of all undertakings in a country or economy. Because insurance is an essential
expense for all businesses, a reduction in prices can have a large impact on the general
economy, improving the overall competitive position of the particular market. Of course, the
insurance cycle of “hard” and “soft” markets can have a significant impact on the benefits –
both good and bad – of increased availability. Generally, however, increased availability
benefits the consumer by leading to product competition, price competition, and improved
services. By reducing insurance costs across markets, intermediaries make an important
contribution to improving the economic conditions in a country
Personal Accident Insurance (PA)
Bodily injury – While this excludes any disease from natural causes, however any disease
proximately caused by accident is payable. While shock or grief is not covered, disablement
arising out of shock is payable.
i. Solely and Directly - This means that the bodily injury should be a direct and sole
cause of the accident. An accident may cause a disease, which in turn may result in death. The
proximate cause is accident; hence the claim will be paid. For eg. a man 55 is thrown off a
horse and is so injured he cannot walk. While lying in bed as a result of the injury, he contacts
pneumonia and dies. The proximate cause is the accident and there is no break in the chain of
events, hence a claim under PA policy would be considered.
ii. Accident – An accident is an unexpected, unintended act. However, sometimes even
voluntary acts are considered as accidents. For eg. a man jumping from a burning building
sustaining injuries, murder, snakebite, frostbite etc. are also considered as accidents.
iii. External, violent and visible means – Cause of accident should be external but
injuries can be internal.
iv. Disablement – Disability refers to the inability of the insured to attend to
occupation/ work.

Marketing --Mix For Insurance Companies

The two best meet the needs of its targeted market. The Insurance business deals in selling
services and therefore due weight-age in the formation of marketing mix for the Insurance
business is needed. The marketing mix includes sub-mixes of the 7 P's of marketing i.e. the
product, its price, place, promotion, people, process & physical attraction. The above
mentioned 7 P's can be used for marketing of Insurance products and banking services, in the
following manner:

1. PRODUCT
A product means what we produce. If we produce goods, it means tangible product and when
we produce or generate services, it means intangible service product. A product is both what a
seller has to sell and a buyer has to buy. Thus, an Insurance company sells services and
therefore services are their product. In India, the Life Insurance Corporation of India (LIC) and
the General Insurance Corporation (GIC) are the two leading companies offering insurance
 services to the users. Apart from offering life insurance policies, they also offer underwriting
and consulting services.

2. PRICING
With a view of influencing the target market or prospects the formulation of pricing strategy
becomes significant. The pricing in insurance is in the form of premium rates. The three main
factors used for determining the premium rates under a life insurance plan are mortality,
expense and interest. The premium rates are revised if there are any significant changes in any
of these factors.
 Mortality (deaths in a particular area) When deciding upon the pricing strategy the average
rate of mortality is one of the main considerations. In a country like South Africa the threat to
life is very important as it is played by host of diseases. • Expenses: The cost of processing,
commission to agents, reinsurance companies as well as registration are all incorporated into
the cost of installments and premium sum and forms the integral part of the pricing strategy.

 Interest: The rate of interest is one of the major factors which determine people's willingness
to invest in insurance. People would not be willing to put their funds to invest in insurance
business if the interest rates provided by the banks or other financial instruments are much
greater than the perceived returns from the insurance premiums.

3. PLACE
This component of the marketing mix is related to two important facets
i) Managing the insurance personnel, and
ii) Locating a branch.
The management of agents and insurance personnel is found significant with the viewpoint of
maintaining the norms for offering the services. This is also to process the services to the end
user in such a way that a gap between the services- promised and services offered is bridged
over. In a majority of the service generating organizations, such a gap is found existent which
has been instrumental in making worse the image problem. The transformation of potential
policyholders to the actual policyholders is a difficult task that depends upon the professional
excellence of the personnel. The agents and the rural career agents acting as a link, lack
professionalism.
4. PROMOTION:
The insurance services depend on effective promotional measures. In a country like India, the
rate of illiteracy is very high and the rural economy has dominance in the national economy. It
is essential to have both personal and impersonal promotion strategies. In promoting insurance
business, the agents and the rural career agents play an important role. Due attention should be
given in selecting the promotional tools for agents and rural career agents and even for the
branch managers and front line staff. They also have to be given proper training in order to
create impulse buying. Advertising and Publicity, organization of conferences and seminars,
incentive to policyholders are impersonal communication.

Arranging Kirtans, exhibitions, participation in fairs and festivals, rural wall paintings and
publicity drive through the mobile publicity van units would be effective in creating the
impulse buying and the rural prospects would be easily transformed into actual policyholders.

5. PEOPLE

Understanding the customer better allows designing appropriate products. Being a service
industry which involves a high level of people interaction, it is very important to use this
resource efficiently in order to satisfy customers. Training, development and strong
relationships with intermediaries are the key areas to be kept under consideration. Training the
employees, use of IT for efficiency, both at the staff and agent level, is one of the important
areas to look into. Human resources can be developed through education, training and by
psychological tests. Even incentives can inject efficiency and can motivate people for
productive and qualitative work.
6. PROCESS:

The process should be customer friendly in insurance industry. The speed and accuracy of
payment is of great importance. The processing method should be easy and convenient to the
customers. Installment schemes should be streamlined to cater to the ever growing demands of
the customers. IT & Data Warehousing will smoothen the process flow. IT will help in
servicing large no. of customers efficiently and bring down overheads.

Technology can either complement or supplement the channels of distribution cost effectively.
It can also help to improve customer service levels. The use of data warehousing management
and mining will help to find out the profitability and potential of various customers product
segments.

7. PHYSICAL DISTRIBUTION:
Distribution is a key determinant of success for all insurance companies. Today, the
nationalized insurers have a large reach and presence in India. Building a distribution network
is very expensive and time consuming. Technology will not replace a distribution network
though it will offer advantages like better customer service. Finance companies and banks can
emerge as an attractive distribution channel for insurance in India. In Netherlands, financial
services firms provide an entire range of products including bank accounts, motor, home and
life insurance and pensions. In France, half of the life insurance sales are made through banks.
In India also, banks hope to maximize expensive existing networks by selling a range of
products. The physical evidences include signage, reports, punch lines, other tangibles,
employee‘s dress code etc.

A. Tangibles: banks give pens, writing pads to the internal customers. Even the passbooks,
cheque books, etc reduce the inherent intangibility of services.
B. Punch lines: punch lines or the corporate statement depict the philosophy and attitude of the
bank. Banks have influential punch lines to attract the customers. Banking marketing consists
of identifying the most profitable markets now and in future, assessing the present and future
needs of customers, setting business development goals, making plans-all in the context of
changing environment.
Conclusion

In India, banks hope to maximize expensive existing networks by selling a range of products. It
is anticipated that rather than formal ownership arrangements, a loose network of alliance
between insurers and banks will emerge, popularly known as bank assurance. Another
innovative distribution channel that could be used is the non-financial organizations. We can‘t
deny the fact that if foreign banks are performing fantastically, it is not only due to the
sophisticated information technologies they use but the result of a fair synchronization of new
information technologies and a team of personally committed employees. The development of
human resources makes the ways for the formation of human capital.

Questions

Section A

1. What do you mean by Regional Rural Banks?

2. What is Development Banking?
3. What are Co-operative societies?
4. Give the Meaning of the following
 Life policy
 General Insurance Policy
 Premium
 Endowment policy
 Whole life policy
 Marine insurance

Section B
1. Distinguish between Life Insurance and General Insurance.
2. Write a note on Marine Insurance
3. Write a note on Fire Insurance
4. Write a note on Mediclaim Policy.
Section C
1. Explain the service mix in Banking
2. Explain the service mix in Insurance
3. Mention the advantages of E-Banking
4. Explain in detail the structure of Indian Commercial Bank.
5. Explain the impact of Information Technology in Banking Sector.
 Unit 5 HEALTH CARE AND INFORMATION TECHNOLOGY ENABLED
SERVICES (ITES)

A.HEALTH CARE

The healthcare industry (also called the medical industry or health economy) is an
aggregation and integration of sectors within theeconomic system that provides goods and
services to treat patients with curative, preventive, rehabilitative, and palliative care. It includes
the generation and commercialization of goods and services lending themselves to maintaining
and re-establishing health. The modern healthcare industry is divided into many sectors and
depends on interdisciplinary teams of trained professionals and paraprofessionals to meet
health needs of individuals and populations.

The healthcare industry is one of the world's largest and fastest-growing industries. Consuming
over 10 percent of gross domestic product (GDP) of most developed nations, health care can
form an enormous part of a country's economy.

Indian Healthcare Services

‘Health Care’ is a concept which explains every person should take care of their health, to have
a sound physical body which motivates to maintain sound mental health.

Health Care is dynamic and changing industry which includes yoga Kendras, health
maintainenace organizations, health clinics, gymnasiums and nature care centers, all playing
role of the Hospital.

Define Hospital
Hospitals are institutions running in a single building or campus working for people suffering
from pain, ailments, diseases or illness.

It is place for availing various medical facilities including the doctors and nursing care. The
quality of the hospitals is determined by quality of doctors, medical facilities, hospitality and
quality of administration.
 General Hospitals
General Hospitals deal with different kinds of disease and injury or emergency leading to
immediate threat could be treated in a General Hospital.

Medical Centers
Medical Centers are large hospitals which conduct operations in every field of modern
medicine.

Specialized Centers
Specialized Centers deal with specific medical needs such as psychiatric problems, Trauma
Centers, Seniors Hospital and Children’s Hospital.

Classification of Hospitals
The classification of hospital depends upon various factors. Every hospital follows general
administrative hierarchy and designing formal structure for smooth functioning of operations.

Hospital Classification

Location Kinds Ownership Purpose

1. City Hospitals 1. Allopathy 1. Government 1. Teaching & Research

2. District Hospitals 2. Ayurveda 2. Private 2. General
3. Taluk Hospitals 3. Homeopathy 3. Semi- 3. Specialized
4. Primary Health 4. Unani government
Centers 5. Nature Care Voluntary
Agencies
4. Private
Charitable
 Hospital Administration

Board of Governors
(Head – Chairman / President)

Chief Executive Officer (CEO)

Services Finance Marketing Maintenance

General Manager General Manager General Manager General Manager

Working Staff Field Staff Engineering Staff

OPD IPD Surgery Nursing

The administrative aspects are:-

1. Appoints & Schedules

2. Organizational decision making
3. Fee Structure
4. HR Practices
5. Safety Management
6. Risk Management
7. Service Innovations
8. Marketing Aspects and financial issues
9. Safety Management
 Hospital Facilities/ Services
1. Occupational medicine
2. Physical services in diagnostic centers
3. Emergency services
4. Heart Services
5. Hospice
6. Mother-baby care service
7. Catering service for patients
8. Psychiatric services

Hospital Services/ Facilities

Care Services Supportive Services Ancillary Service

Out Patient Registration
Radiology
In-Patient
Laboratory Engineering
Intensive Care
Nursing Hospital Maintenance
Surgery
Catering Ambulance

Laundry Record Store

Blood Bank

Hospital Service Extensions

Service Extension in hospitals means rendering medical services out of campus with assistance
of NGO’s like Rotary International

E.g. conducting an eye camp outside the hospital to provide expert service to the needy people
and weaker sections of the society
 Nursing

Nursing is also called Para Medical Services. The concept of Midwife is critical factor in
hospital administration as nursing care helps the patient to cure at faster rate. Nurses use
psychotherapy especially if the patients are scared of the treatment.

Midwife (Junior Health Assistants) is referred as female expert who attends to child birth
process. She provides support during labour and delivery, supervising the women and child
after birth. Therefore nurse-midwife receives specific training in the care of pregnant patients
and delivery of babies. Midwives help to reduce the complications during child birth.
Midwives pay special attention to the cultural values and personal preferences of the women in
their care.

The continuous presence of the midwife during the labour can reduce:

1. The length of labour

2. The need for pain reduction
3. The likelihood of forceps or other operative devices during delivery
4. The possibility of cesarean delivery

Pharmacy
Pharmacy unit in hospitals serve the patients by supplying appropriate and adequate medicines.
These units are run by trained Pharmacists. Pharmacists will have basic knowledge of drugs
and diseases. Pharma unit in hospitals serve stock life saving drugs, latest medicines and
auxiliary equipments.

Medical Transcription (MT)

Medical Transcription is a process where one accurately and swiftly transcribes medical
records dictated by doctors and others including history, physical reports, clinic notes, office
notes, operative reports, consultation notes, discharge summaries, laboratory reports, X-Ray
reports and pathology reports.

The process of MT involves dictation by tape, digital system or voice file and using ear phones,
a foot pedal for start-stop control and word processing program. It requires good listening
skills, language skills and computer skills.
Medical Transcriptionists listen to dictated recordings made by physicians and transcribe them
into medical reports, correspondence and other administrative material.

Risk Involved in Health Care Services

Every day, healthcare providers make decisions that directly impact people’s health and safety.
A single error on their part could cause irreversible damage to a patient’s life, and lead to
expensive lawsuits, billions of dollars in damages, and a permanently tarnished reputation.

As if that wasn’t challenging enough, healthcare providers also have to cope with the risks of
health information security breaches, privacy violations, regulatory non-compliance and
internal fraud.

Mitigating these risks effectively requires a robust and efficient risk management framework.
But implementing such a framework can be extremely difficult, considering the complexity of
organizational hierarchies, as well as the ever-increasing number of risks and regulations.

Can risks be managed in a way that protects patients and stakeholders without draining costs?
Can threats be identified and mitigated before they occur? Can risk management systems be
sustainable and flexible enough to adapt to future risks?

Answering these questions is critical to the success of a risk management program. But before
that, it is important to understand the major risks and challenges associated with healthcare
operations.

Key Risks in the Healthcare Industry

Patient Safety Risks

Patient’s lives and health are put at risk when diseases are misdiagnosed, wrong treatments are
prescribed, or accidents occur in the operating room. All it takes is a moment of laxity,
ignorance or distraction to cause immense harm to patients and their families. Law suits are
inevitable, and reputational damage is long-lasting.
 Fraudulent Claims Risks
Fraudulent claims - be it in the form of billing for services not rendered, administering
unnecessary tests and treatments, or unbundling lab services - can exhaust health benefits, and
drain the economy. Every year, the US loses between $70 billion and $234 billion to fraud.

Documentation Risks
Data entry errors, while unavoidable, can often be costly, and sometimes fatal. For instance,
wrongly documented medicine dosages, or allergies to a particular drug could adversely affect
a patient’s health. Billing or calculation errors could result in overpayments or underpayments
which would invite questioning from RAC auditors, and cause a loss of credibility.

IT Risks
Over the last few years, path-breaking developments in technology have taken healthcare to the
next level. However, the increasing use of technology has also introduced new levels of
complexity and threats such as:

Security Breaches: Hacking and other kinds of security breaches can cause confidential
information to fall into the wrong hands. This, in turn, could expose millions of patients to
hazards such as illegal altering of information, public exposure of confidential data, stolen
identities and blackmail.

 Malicious Attacks: The increasing sophistication of IT viruses, worms and other malicious
attacks poses a significant threat to the security, confidentiality and integrity of valuable health
information. If firewalls are not strong enough, the information may not be retrievable or
traceable.

 Internal IT Fraud: Healthcare organizations take great pains to safeguard themselves against
external security threats. But some of the most dangerous threats lie within the organization.
Insiders have broad access to sensitive data, and know which system it lies in, where the
system it is, and how it works. This makes it easier for them to steal valuable information, and
illegally use it for financial gain.
 System Failures: As so many healthcare services depend on IT systems, a localized failure
could be dangerous. For instance, if ER data systems are suddenly disconnected from the
central network, a doctor will be unable to view a patient’s record in time to make critical
decisions about treatment.

 Business Continuity: Unlike banks, schools, and other institutions, hospitals need to stay up
and running during disasters such as earthquakes, hurricanes, volcanoes, wars or a terrorist
attack. Yet their infrastructure and facilities may be damaged during the disaster. Moreover,
many members of the staff may flee. The situation may worsen as the load of patients in the
hospital increases.

Regulatory Risks
Healthcare is one of the most heavily regulated industries with mandates
spanning HIPAA/HITECH, PSQIA and the Affordable Care Act, as well as cross-industry
regulations such as SOX, PCI DSS and FCPA. Each of these mandates and regulations comes
with hundreds of requirements for systems, functions and processes. Regulatory scrutiny is
intense, and non-compliance penalties are heavy – not just in terms of monetary fines, but also
brand impact.

Ethics and Integrity Risks

The allure of easy money prompts incidents of internal corruption such as accepting kickbacks
for patient referral, stealing confidential information or wrongfully altering patient records for
financial gain. Not only are these acts illegal, but they are also harmful to patient security and
well-being.

Environmental and Health Risks

If medical waste is not disposed of properly, or proper hygiene and sanitation standards are not
followed, they could have a devastating effect on the environment and the external public. In a
worst case scenario, an infection could seep out and lead to a full-blown pandemic. To the
healthcare provider, this could spell immense financial loss, and even the shut-down of
operations.
 Risks of Leveraging Social Media
Healthcare organizations are engaging with social media for numerous reasons, including
marketing, communicating with patients, interacting with other physicians, and collecting
information about new developments in the industry. But, using social media can expose
organizations to potential regulatory, legal and reputational risks ranging from privacy
violations, to data abuse and theft.

B.INFORMATION TECHNOLOGY ENABLED SERVICES (ITES)

Information technology enabled services, or ITES is a form of outsourced services which has
emerged due to involvement of IT in various fields such as banking and finance, telecom,
insurance etc.

Firms usually develop countries outsource such services to countries like India, China and
Philippines in order to gain from large talent pool and low labour cost.

IT enabled service has the following structure:

SERVICE
TRADITIONAL DELIVERY
IT ENABLE
SERVICES

BUSINESS PROCESS
VALUE ADDITION
REENGINEERING(BPO)

The most important aspect is the Value addition of IT enabled service. The value addition
could be in the form of- Customer Relationship Management, improved database, improved
look and feel etc. The outcome of an IT enabled services is in the two forms
1. Direct Improved Services 2. Indirect Benefits
The Key IT enabled services are:
 Call centers
 Electronic Publishing
 Medical Transcription
 Data Centers
 GIS Mapping
 Portals
 ERP
The issues in ITES
 High Capital Investments
 High Volume Transactions
 Continuous Business Availability
 Time Turnaround
 High Communications cost
 Lack of trained and reliable resources
 Role Model/Guide or Help to start-ups
Application Areas of ITES
 Telemarketing
 Helpdesk
 Customer Support Centers
 Data Ware Houses
 Transcription Centers
Types of ITES
 Animation
 BPO
 Collection services
 Customer Care
 Interaction Services
 Data Digitization
 Digital Content development
 Website Services
 Transcription
 Growth of ITES industry in India
India is the world's largest sourcing destination for the information technology (IT) industry,
accounting for approximately 67 per cent of the US$ 124-130 billion market. The industry
employs about 10 million workforce. More importantly, the industry has led the economic
transformation of the country and altered the perception of India in the global economy. India's
cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than
the US, continues to be the mainstay of its unique selling proposition (USP) in the global
sourcing market. However, India is also gaining prominence in terms of intellectual capital
with several global IT firms setting up their innovation centres in India.
The IT industry has also created significant demand in the Indian education sector, especially
for engineering and computer science. The Indian IT and ITeS industry is divided into four
major segments – IT services, business process management (BPM), software products and
engineering services, and hardware.
The IT-BPM sector in India grew at a Compound Annual Growth rate (CAGR) of 15 per cent
over 2010-15, which is 3-4 times higher than the global IT-BPM spend, and is estimated to
expand at a CAGR of 9.5 per cent to US$ 300 billion by 2020.
Market Size
The Indian Information Technology (IT) sector is expected to grow 11 per cent per annum and
triple its current annual revenue to reach US$ 350 billion by FY 2025, as per National
Association of Software and Services Companies (NASSCOM).
India, the fourth largest base for new businesses in the world and home to over 3,100 tech start-
ups, is set to increase its base to 11,500 tech start-ups by 2020, as per a report by NASSCOM
and Zinnov Management Consulting Pvt Ltd.
India’s internet economy is expected to touch Rs 10 trillion (US$ 151.6 billion) by 2018,
accounting for 5 per cent of the country’s gross domestic product (GDP), according to a report
by the Boston Consulting Group (BCG) and Internet and Mobile Association of India
(IAMAI). India’s internet user base reached over 350 million by June 2015, the third largest in
the world, while the number of social media users grew to 143 million by April 2015 and
smartphones grew to 160 million.
Public cloud services revenue in India is expected to reach US$ 838 million in 2015, growing
by 33 per cent year-on-year (y-o-y), as per a report by Gartner Inc. In yet another Gartner
report, the public cloud market alone in the country was estimated to treble to US$ 1.9 billion
by 2018 from US$ 638 million in 2014. Increased penetration of internet (including in rural
areas) and rapid emergence of e-commerce are the main drivers for continued growth of data
centre co-location and hosting market in India.
Investments
Indian IT's core competencies and strengths have attracted significant investments from major
countries. The computer software and hardware sector in India attracted cumulative Foreign
Direct Investment (FDI) inflows worth US$ 18.17 billion between April 2000 and September
2015, according to data released by the Department of Industrial Policy and Promotion (DIPP).
Indian start-ups are expected to receive funding worth US$ 5 billion by the end of 2015, a 125
per cent increase in a year, according to a report by IT Industry association NASSCOM.
The private equity (PE) deals increased the number of mergers and acquisitions (M&A)
especially in the e-commerce space in 2014. The IT space, including e-commerce, witnessed
240 deals worth US$ 3.8 billion in 2014, as per data from Dealogic.
India also saw a ten-fold increase in the venture funding that went into internet companies in
2014 as compared to 2013. More than 800 internet start-ups got funding in 2014 as compared
to 200 in 2012, said Rajan Anandan, Managing Director, Google India Pvt Ltd and Chairman,
IAMA.
About 554 start-ups received funding this year compared to 342 during last year. Seed and
venture capital funds made investments worth US$ 3.4 billion this year, three times the
investment made last year. VC funding to the IT/ITes sector amounted to 55 per cent of total
VC funding made this year.
Most large technology companies looking to expand have so far focused primarily on bigger
enterprises, but a report from market research firm Zinnov highlighted that the small and
medium businesses will present a lucrative opportunity worth US$ 11.6 billion in 2015, which
is expected to grow to US$ 25.8 billion in 2020. Moreover, India has nearly 51 million such
businesses of which 12 million have a high degree of technology influence and are looking to
adopt newer IT products, as per the report.
Some of the major developments in the Indian IT and ITeS sector are as follows:
 Housejoy, an online home services provider, has raised Rs 150 crore (US$ 22.4 million)
in a Series B round of funding led by Amazon, and which also includes new investors
such as Vertex Ventures, Qualcomm and Ru-Net Technology Partners.
 Global private equity (PE) firm Blackstone Group has acquired a minority stake in an
Indian travel, transportation and logistics software firm, IBS Software, for US$ 170
million, by buying the stake from General Atlantic and few other shareholders
 India’s top-tier information technology (IT) company, Infosys Ltd, has bought a
minority stake worth US$ 3 million in Whoop, which is a US-based start-up that makes
activity trackers worn by athletes.
 Microsoft Ventures is planning to incubate 500 start-ups in India in the next five years
with a vision to create a viable and profitable business out of the booming start-up
sector in India.
 National Association of Software and Services Companies (NASSCOM) plans to open
four more tech start-up incubation centres in different parts of India, in addition to
existing three, in support of Government of India’s ‘Start-up India’ initiative.
 Nasscom Foundation, a non-profit organisation which is a part of Nasscom, has
partnered with SAP India to establish 25 National Digital Literacy Mission (NDLM)
centres in 12 cities across India, as a part of Government of India's Digital India
initiative.
 Infosys, India’s second largest Information Technology services company has acquired
US-based Noah Consulting, a provider of advanced information management
consulting services for the oil and gas industry.
 US-based Callidus Software Inc, a cloud-based sales, marketing, learning and customer
experience solutions provider, has opened its centre in Hyderabad and also launched its
‘The Lead to Money’ suite in Indian markets.
 Wipro Ventures, Wipro’s US$ 100 million corporate venture arm, plans to invest in
early-stage venture capital (VC) funds based in the US to pursue a strategy of
investing/partnering country-focussed VCs.
 A recent study by research firm International Data Corporation (IDC) suggests that
India may soon be able to catch up with the global technology trends that have
disrupted enterprises, industry and the way consumers behave and transact.
 Reliance is building a 650,000 square feet (sq ft) data centre in India—its 10th data
centre in the country—with a combined capacity of about 1 million sq ft and an overall
investment of US$ 200 million.
 Intel Corp plans to invest about US$ 62 million in 16 technology companies, working
on wearable, data analytics and the Internet of Things (IoT), in 2015 through its
investment arm Intel Capital. The Indian IoT industry is expected be worth US$ 15
billion and to connect 28 billion devices to the internet by 2020.
  Indian e-commerce industry is expected to grow at a CAGR of 35 per cent to reach US$
100 billion size in the next five years, as per a study by Assocham-
PricewaterhouseCoopers.
Government Initiatives
Some of the major initiatives taken by the government to promote IT and ITeS sector in India
are as follows:
 The Human Resource Development (HRD) Ministry has entered into a partnership with
private companies, including Tata Motors Ltd, Tata Consultancy Services Ltd and real-
estate firm Hubtown Ltd, to open three Indian Institutes of Information Technology
(IIITs), through public-private partnership (PPP), at Nagpur, Ranchi and Pune.
 Government of India is planning to develop five incubation centres for 'Internet of
Things' (IoT) start-ups, as a part of Prime Minister Mr Narendra Modi's Digital India
and Startup India campaign, with at least two centres to be set up in rural areas to
develop solutions for smart agriculture.
 According to research firm Gartner Inc, the Indian government is expected to increase
its spending on information technology (IT) products and services by 5.2 per cent to
US$ 6.88 billion in FY 2015-16.
 The Government of India has launched the Digital India program to provide several
government services to the people using IT and to integrate the government
departments and the people of India. The adoption of key technologies across sectors
spurred by the 'Digital India Initiative' could help boost India's gross domestic product
(GDP) by US$ 550 billion to US$ 1 trillion by 2025, as per research firm McKinsey.
 India and the United States (US) have agreed to jointly explore opportunities for
collaboration on implementing India's ambitious Rs 1.13 trillion (US$ 18.22 billion)
‘Digital India Initiative’. The two sides also agreed to hold the US-India Information
and Communication Technology (ICT) Working Group in India later this year.
 The Government of Telangana has begun construction of a technology incubator in
Hyderabad—dubbed T-Hub—to reposition the city as a technology destination. The
state government is initially investing Rs 35 crore (US$ 5.3 million) to set up a 60,000
sq ft space, labeled the largest start-up incubator in the county, at the campus of
International Institute of Information Technology-Hyderabad (IIIT-H). Once
completed, the project is proposed to be the world’s biggest start-up incubator housing
1,000 start-ups.
Road Ahead
India is the topmost offshoring destination for IT companies across the world. Having proven
its capabilities in delivering both on-shore and off-shore services to global clients, emerging
technologies now offer an entire new gamut of opportunities for top IT firms in India. Social,
mobility, analytics and cloud (SMAC) are collectively expected to offer a US$ 1 trillion
opportunity. Cloud represents the largest opportunity under SMAC, increasing at a CAGR of
approximately 30 per cent to around US$ 650-700 billion by 2020. The social media is the
second most lucrative segment for IT firms, offering a US$ 250 billion market opportunity by
2020. The Indian e-commerce segment is US$ 12 billion in size and is witnessing strong
growth and thereby offers another attractive avenue for IT companies to develop products and
services to cater to the high growth consumer segment.

Job Opportunities in ITES

 Customer interaction and support

 Human Resource management
 Finance and administration
 Supply chain
 Banking
 Insurance
 Travel
 Manufacturing
 Data analytics
 Telecommunications

Questions

Section A

1. What do you mean by Health care services?

2. Give the meaning of Hospitals.

3. Who is a mid wife?

4. What is Pharma?
Section B

1. Give a note on Hospital Development.

2. Write a note on ancillary services in the hospital.

3. Give a note on Information Technology

Section C

1. Explain in detail classification of hospitals

2. Briefly explain the various types of services rendered in the hospitals.