Services Marketing

Module 1 Introduction to Services Marketing

Services Marketing - Characteristics - Tangibility Spectrum -
Classification of Services - Growth of Services in Indian
economy - Influencing Factors - Goods Vs Services Marketing -
Challenges for Service Organizations

Services
The American Marketing Association defines services as -
“Activities, benefits and satisfactions which are offered for sale
or are provided in connection with the sale of goods.”
• Philip Kotler ---”service is any activity of benefit that one party
can offer to another that is essentially intangible and does not
result in the ownership of anything. Its production may or may
not be tied to a physical product

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

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

Heterogeneity/Variability: Given the very nature of services,

each service offering is unique and cannot be exactly repeated
even by the same service provider. While products can be mass
produced and be homogenous the same is not true of services.
eg: All burgers of a particular flavor at McDonalds are almost
identical. However, the same is not true of the service rendered
by the same counter staff consecutively to two customers.
Perishability: Services cannot be stored, saved, returned or
resold once they have been used. Once rendered to a customer
the service is completely consumed and cannot be delivered to
another customer. eg: A customer dissatisfied with the services
of a barber cannot return the service of the haircut that was
rendered to him. At the most he may decide not to visit that
particular barber in the future.
Inseparability/Simultaneity of production and consumption:
This refers to the fact that services are generated and consumed
within the same time frame. Eg: a haircut is delivered to and
consumed by a customer simultaneously unlike, say, a takeaway
burger which the customer may consume even after a few hours
of purchase. Moreover, it is very difficult to separate a service
from the service provider. Eg: the barber is necessarily a part of
the service of a haircut that he is delivering to his customer.
Types of Services
1. Core Services: A service that is the primary purpose of the
transaction. Eg: a haircut or the services of lawyer or teacher.
2. Supplementary Services: Services that are rendered as a
corollary to the sale of a tangible product. Eg: Home delivery
options offered by restaurants above a minimum bill value.
Difference between Goods and Services
 Given below are the fundamental differences between physical goods and services:

Goods Services

A physical commodity A process or activity

Tangible Intangible

Homogenous Heterogeneous

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

Can be stored Cannot be stored

Transfer of ownership is possible Transfer of ownership is not possible

Importance of Marketing of Services

Given the intangibility of services, marketing them becomes a
particularly challenging and yet extremely important task.
 A key differentiator: Due to the increasing homogeneity in
product offerings, the attendant services provided are emerging
as a key differentiator in the mind of the consumers. Eg: In case
of two fast food chains serving a similar product (Pizza Hut and
Domino’s), more than the product it is the service quality that
distinguishes the two brands from each other. Hence, marketers
can leverage on the service offering to differentiate themselves
from the competition and attract consumers.
 Importance of relationships: Relationships are a key factor
when it comes to the marketing of services. Since the product is
intangible, a large part of the customers’ buying decision will
depend on the degree to which he trusts the seller. Hence, the
need to listen to the needs of the customer and fulfill them
through the appropriate service offering and build a long lasting
 relationship which would lead to repeat sales and positive word
of mouth.
 Customer Retention: Given today’s highly competitive
scenario where multiple providers are vying for a limited pool of
customers, retaining customers is even more important than
attracting new ones. Since services are usually generated and
consumed at the same time, they actually involve the customer
in service delivery process by taking into consideration his
requirements and feedback. Thus they offer greater scope for
customization according to customer requirements thus offering
increased satisfaction leading to higher customer retention.

Classification of services
1) Classification of service based on tangible action
Wherever people or products are involved directly, the service
classification can be done based on tangibility.
a) Services for people – Like Health care, restaurants and
saloons, where the service is delivered by people to people.
b) Services for goods – Like transportation, repair and
maintenance and others. Where services are given by people for
objects or goods.

2) Classification of services based on intangibility

There are objects in this world which cannot be tangibly
quantified. For example – the number of algorithms it takes to
execute your banking order correctly, or the value of your life
which is forecasted by insurance agents. These services are
classified on the basis of intangibility.
a) Services directed at people’s mind – Services sold through
influencing the creativity of humans are classified on the basis
of intangibility.
b) Services directed at intangible assets – Banking, legal
services, and insurance services are some of the services most
difficult to price and quantify.
Growth of Services in Indian economy

Introduction to the Service Sector in India

The growth of the Services Sector in India is a unique example
of leap-frogging traditional models of economic growth. Within
a short span of 50 years since independence, the contribution of
the service sector in India to the country’s GDP is a lion’s share
of over 60%. However, it still employs only 25% of the labour
force. Consequently, agriculture (which is stagnant) and
manufacturing (which has not yet risen to its full potential)
continue to sustain the majority of our employed population.
This presents a unique challenge to future economic growth in
India and requires out of the box solutions that will help rapidly
harness the potential of the service industry in India. Invest
India takes a look at the contribution of the services sector in the
Indian economy, its successes and also explores potential
enablers for future equitable economic growth.

Market Size of Service Industry

A quick comparison with the American and Chinese economy
reveals the unique nature of India’s GDP growth from the
contribution of the Service sector and its linkages to
employment and income distribution (Figures in bracket
indicate employment). Over time, a robust manufacturing and
productive agriculture sector leads to the Service industry in
India becoming the mainstay of GDP and employment. In our
context, the Service sector has become extremely important to
grow not only our GDP, as well as make it the key vehicle for
employment generation. However, the question is - how to
increase value add to GDP from Service companies in India,
while reducing employment dependency from agriculture, as
well as boosting the manufacturing industry.
Service Sector in India: Sectors and Growth potential
Let us now look at the list of service sectors in India that
perform, as well as demonstrate strong potential for future
growth.

IT-BPM/ Fintech
The IT/ITeS & Fintech segments provide over $ 155 bn in gross
value add and have the potential to grow between 10 -15% p.a.
Exports form its largest component. So far, our key advantage
has been low - cost labour arbitrage in a predominantly English-
speaking country. Going forward, the IT and ITeS segments
require significant upskilling to move beyond a ‘low - cost low
value add service provider’ to a ‘high value add partner’.
Indian IT companies can also leverage their skill sets to provide
fintech solutions to global financial customers. Financial risk
management services, insurance, natural disaster modelling and
underwriting are examples of high value add services performed
within India for a global audience.

Healthcare & Tourism

The current contribution of the healthcare industry is over $ 110
bn and is expected to touch $ 280 bn by 2020. Availability of
world - class medical facilities, skilled doctors, technicians and
pharmaceuticals are some of our advantages. With digital
communication and interfaces, diagnostic medicine can also be
tapped into as a service for global customers.

Similarly, for tourism, India is renowned for its places of natural

beauty and historical significance. Tourism presently contributes
$ 47 bn to the country’s GD, compared with $ 115 bn for China.
Thus, tourism has exponential possibilities to boost the Indian
services sector in the next decade.

To attract significant revenues, improved customer experience

(medical or tourism) is the key factor that will determine its
future growth. In this context, government initiatives such as e -
Visas, better infrastructure facilities, safety, connectivity etc. are
enablers in the right direction.

Space
India captured the world's attention last February when it broke
the record for launching the most number of satellites into
space. Moreover, this was done at a fraction of the cost incurred
by other space powers.
Indian services in the space domain, with proven expertise in
multiple launch technologies, provide it with a significant
advantage over its peers in the global space transportation
industry. Our launch capabilities have a near 100% track record.
Many countries are actively looking to piggyback on India’s
launch facilities. This demonstrates great potential. The
government is actively proving its ability, but more can be done
to build capacity in military and non - military space
applications. In this context, public - private participation is key
to ensure the flow of capital, as well as to strengthen
competencies in this area.
Logistics & Transportation
India’s natural coastline and vast river network give it a
competitive edge in providing transportation and logistics
services, both domestically and internationally. These can be
classified into ports and ports services, warehousing, trans -
shipment services, e - logistics, inland waterways for freight and
passengers, expressways and dedicated freight corridors. India’s
logistics service sector itself is expected to grow from $ 115 bn
to $ 360 bn by 2032.

India should closely look into the development of the service

industry, given the potential and need for sustained large scale
investment. Investments typically have a long gestation period.
However, once the infrastructure is created, linkages to the rest
of the economy provide significant multiplier effects. For
example, the Mumbai - Pune expressway and the development
of service industries in Pune.
 Other services
Media & Entertainment (animation, gaming, dubbing),
Education (online platforms such as MOOC), and Sports (IPL,
IFL, Sports Management), Legal/ Paralegal services, Risk
management and advisory functions, etc. are areas that can lead
to an immense contribution of service industry in the Indian
economy.
Factors Influencing Services Marketing
1. Size and Structure of the Firm: usually several services
providers are specialised and work on a small scale such as
lawyer, plumbers, accountants, carpenters, etc previously, they
served the local community, Moreover, there was no need to
employ, marketing experts in these firms as competition was not
much operation size was limited and they served only local
community.
2. Restrictions by Regulatory Bodies: The working of several
service providers were limited by the regulatory bodies. At
present, restrictions are imposed by the regulatory bodies for
curbing the quantity and the kind of advertising; especially in
the arena of medical and legal professionals. Rules and
regulations also curb the trade activities of the charitable
services and the public sectors.
3. Expansion of Services Sector: The expansion of the services
sector like banking hospitality, tourism, etc., has led to novel
ide3as of marketing. Novel technologies and thoughts are
provoked with the advancement and achievement of services
sectors in several respects. The service sector is designed today
as per the needs of the consumers; it is catering to the actual
needs of the market and not to the perceived ideas about the
same.
4. Customer-Employee Interaction: In the marketing of services,
if is much important to establish good relationship w3ith the
 customers. Hence, soft skills and business etiquettes play a
significant role in the marketing of the services. A few more
related concepts which have come out recently are relationship
marketing and internal marketing these ideas are widely
accepted in the conventional marketing and are also used
beyond marketing of the services.
5. Services Quality: The quality of the services and the
programmes for rendering quality services also play a crucial in
services marketing. The marketing of the services has laid
emphasis on improving the quality of the services based on a
better understanding of what is considered to be ‘quality
services’ by the customers.
6. Particular Service Sectors: Recently, a few particular services
have attracted the intere3st of marketers, especially the
professional services and non-profit organizations. , Moral
values and principles are considered vital in these sectors. Even
some public sectors also have such obligations. These services
sectors have flourished by adopting the market strategies
devised by the experts.

Challenges for Service Organizations

 Module 2 Buyer Behaviour & Selecting Service
Markets
Consumer Decision Making Process in Services -
Customer Expectations & Zone of Tolerance -
Determinants - Segmentation, Targeting &
Positioning - Service Strategy - Managing Demand
and Capacity

Consumer Decision Making Process in Services

A consumer goes through several stages before purchasing a

product or service.
NEED
↓
INFORMATION GATHERING/SEARCH
↓
EVALUATION OF ALTERNATIVES
↓
PURCHASE OF PRODUCT/SERVICE
↓
POST PURCHASE EVALUATION
1. Step 1 - Need is the most important factor which leads to buying
of products and services. Need infact is the catalyst which
triggers the buying decision of individuals.
An individual who buys cold drink or a bottle of mineral water
identifies his/her need as thirst. However in such cases steps
such as information search and evaluation of alternatives are
 generally missing. These two steps are important when an
individual purchases expensive products/services such as laptop,
cars, mobile phones and so on.
2. Step 2 - When an individual recognizes his need for a particular
product/service he tries to gather as much information as he can.
An individual can acquire information through any of the
following sources:
 Personal Sources - He might discuss his need with his
friends, family members, co workers and other
acquaintances.
 Commercial sources - Advertisements, sales people (in
Tim’s case it was the store manager), Packaging of a
particular product in many cases prompt individuals to buy
the same, Displays (Props, Mannequins etc)
 Public sources - Newspaper, Radio, Magazine
 Experiential sources - Individual’s own experience, prior
handling of a particular product (Tim would definitely
purchase a Dell laptop again if he had already used one)
3. Step 3 - The next step is to evaluate the various alternatives
available in the market. An individual after gathering relevant
information tries to choose the best option available as per his
need, taste and pocket.
4. Step 4 - After going through all the above stages, customer
finally purchases the product.
5. Step 5 - The purchase of the product is followed by post
purchase evaluation. Post purchase evaluation refers to a
customer’s analysis whether the product was useful to him or
not, whether the product fulfilled his need or not?
Customer Expectations & Zone of Tolerance
 Customer expectations are beliefs about service delivery that
serve as standards or reference. points against which
performance is judged

Zone of Tolerance
 The range of expectations between desired and adequate…
• can be wide or narrow
• can change over time
• can vary among individuals
may vary with the type of product/service

mmnmmnmnm
 Segmentation, Targeting & Positioning
Segmenting , targeting and positioning are strategic
fundamentals of marketing used to generate competitive
advantage, which can be translated into business opportunities
that form the success story of organization.
Defining a market is the basis of segmentation. Service firms
vary widely in their abilities of serving.
It would then , not be wise to compete in an entire market.
Instead, organisations should focus on the set of customers they
can serve best.
For a service organisation, the company’s focus can be
described on two dimensions- the service focus and the market
focus. Taking the two variables of service offered and the
market served, organisation can be grouped into four types:-
I. Unfocused
II. Service focused
III. Market focused
IV. Fully focused
Market segmentation is defined as the process of dividing the
market into distinct groups that share common characterstics,
needs ,purchasing behaviour, or consumption patterns.
Market segmentation is a strategy that recognises the need of
‘specialisation’ to suit the needs of a segment of the market
rather then trying to be ‘all things to all people’.

 It leads to efficient and effective utilization of resources.

 Improves manageability of the market by dividing the markets
into smaller parts.
 Helps to improve the company’s ability to satisfy customers.
 Targeting is the choice of a single segment or group of
segments that the organisation wishes to select.
Companies can evaluate and select market segment on the basis
of:-
Segment size and growth
Segment structural attractiveness
Company objective and resources

Once the segments have been evaluated the market to be

targeted can be selected on the basis of-
• Undifferentiated marketing
• Differentiated marketing
• Concentrated marketing
• Customised or micro marketing

Service Strategy

The marketing strategy of service industry focuses on delivering

experiences processes and other intangible is to the customers
and not physical goods like product industry. It also involves a
focus on all functions equally.

Role of the functions of a company like selling, marketing,

operations, human resources, and other functions must work
efficiently and together in order to create an excellent service
strategy. A service strategy is more customer-centric and is
centered on the usage of customers and their relationships.
The companies of an strive to device a service strategy in such a
way that the gap is minimum. The wider the gap more difficult
it will be for the company to sustain in the market. The
strategies used by the organizations vary on the nature of the
offering and the business.

However, service strategy should be formed in such a way that it

satisfies the customer expectations or comes closest to it. the
success of a company is measured in terms of the service that
they provide which is why it is crucial for organizations to not
run the make good products but also provide an excellent
service.

Companies which are exclusive in service industries like hotel

business or hospitality or entertainment should constantly
upgrade themselves and should modify their offerings in order
to meet the change in demand from the customers. However,
there are companies which are both into the offerings of the
product as with the service for example companies like Dell and
Apple.

Managing Demand and Capacity

Demand is the amount of a particular economic good or

service that a consumer or group of consumers will want
to purchase at a given price
• Managing Capacity means managing the limits of an
organization's resources, such as its labor force,
manufacturing and office space, technology and
equipment, raw materials, and inventory
 • Capacity is usually constant whereas demand usually
fluctuates
• Overuse or underuse of a service results in Gap 3 of
the Gap model- failure to deliver what was designed and
planned

Module 3 Elements of Services Marketing Mix

Inadequacy of 4 Ps - Extended Services Marketing
Mix - Service Product Development - Role of
Customer & Value Creation - Branding of Services -
Pricing of Services - Strategies - Educating &
Promoting Services - Managing People for service
advantage - Mediocrity & Success - Process in
Services - Services Blueprinting - Service
Environment - Servicescapes - Physical Evidence &
Challenges

Inadequacy of 4 Ps
Product are tangible – Services are intangible in nature.
Part of promotion of services takes place at the time of
consumption itself.
PSU producing services –partly subsidized, standardized
– Mkt.mix ignores this aspect.
Dual role of service customers – co- producers and end
consumers- unnoticed by 4Ps.
4ps fails to capture – distribution services.
 Extended Services Marketing Mix

• People- Co. invest in People(attracting, Training,

retaining best talent
• Process – ATMs- reduce human intervention / errors/
increase
customer satisfaction.
• Physical evidence – TV commercial / brochures etc for
holiday destination..
 Product is your core offering.This is “the thing” that will
fulfill the needs of your customer. If your product is
faulty, every thing else fails. The attributes of the
product, vis-a-vis the attributes offered by competing
products and substitutes, are important in estimating the
competitive scenario for the marketing strategy
formulation.
 Price has a lot of impact on the service buyer’s
satisfaction level. Often, paying a higher price makes a
customer more satisfied. Price is often considered a
proxy for quality and vice-versa. What is important to
note that services being all the more intangible, the price
becomes an important factor for the actual service
consumption to happen, after service awareness and
service acknowledgement.
 Place often offers a different side of value (utility) to the
customer. Who would want to travel 10 miles to have a
regular dinner, even if that is priced very competitively
and has a super quality? Services are often chosen for
their place utility. Closer to the customer means higher
probability of purchase. Place utility is important to
evaluate, for strategizing on the other 6 Ps.
 Promotion plays a role in the perception the possible
target audience may have about your service. There has
to be a fit between the promotion and the positioning.
Promotion leads to service (brand) recognition and
further establishes a proxy to evaluate quality of services
based by potential customers. Many different
promotional tools are often used like internet
advertisement, special events, endorsements which
 happen out of the store or in-store merchandising
like branded boxes from Custom Boxes Now, plastic
dump bins and digital signage.
 People are crucial in service delivery. The best food may
not seem equally palatable if the waitress is in a sour
mood. A smile always helps. Intensive training for your
human resources on how to handle customers and how to
deal with contingencies, is crucial for your success.
 Processes are important to deliver a quality service.
Services being intangible, processes become all the more
crucial to ensure standards are met with. Process
mapping ensures that your service is perceived as being
dependable by your target segment.
 Physical evidence affects the customer’s satisfaction.
Often, services being intangible, customers depend on
other cues to judge the offering. This is where physical
evidence plays a part. Would you like eating at a joint
where the table is greasy or the waitresses and cooks
look untidy and wear a stained apron? Surely you would
evaluate the quality of your experience through proxies
such as these.

Service Product Development

Idea generation is the continuous and systematic
quest for new product opportunities, including
updating or changing an existing product. The goal
is to generate ideas for new products or services --
or, improvements to products or services -- that
address a gap in the market.
Idea screening takes the less attractive, infeasible
and unwanted product ideas out of the running.
Unsuitable ideas should be determined through
objective consideration, including through early
testing and feedback with consumers.
Concept development and testing is vital. The
internal, objective analysis of step two is replaced
by customer opinion in this stage. The idea, or
product concept at this point, must be tested on a
true customer base. The testers' reactions can then
be leveraged to adjust and further develop the
concept according to the feedback. One example of
concept development is the concept cars developed
by car manufacturers. These prototypes are made
of clay and shown at auto shows for consumer
feedback.
Market strategy/business analysis identifies the
strategy of how to optimally market and sell your
product or service. It is comprised of four P's,
which are product, price, promotion and placement.
Product -- The service or good that's been designed
to satisfy the demand of a target audience.
Price -- Pricing decisions affect everything; profit
margins, supply and demand, and market strategy.
Promotion -- The goals of promotion are to present
the product to the target audience -- increasing
demand by doing so -- and to illustrate the value of
the product. Promotion includes advertisements,
public relations and marketing campaigns.
Placement -- The transaction may not occur on the
web, but in today's digital economy, the customer
is generally engaged and converted on the Internet.
Whether the product will be provided in bricks-
and-mortar or clicks-and-mortar shops, or available
through an omnichannel approach, the optimal
channel, or channels, for placement must be
determined if the targeted potential customers are
to become actual customers.
Feasibility analysis/study yields information that
is critical to the product's success. It entails
organizing private groups that will test a
beta version, or prototype, of the product, then
evaluate the experience in a test panel. This
feedback communicates the target market's level of
interest and desired product features, as well as
determines whether the product in development has
the potential to be profitable, attainable and viable
for the company, while satisfying a real demand
from the target market.
Questions to be answered during feasibility
analysis include:
Do you have the labor and materials required?
What is the price of production, delivery and
promotion?
Do you have access to the right distribution
channels?
Product technical design/Product
development integrates the results of the feasibility
analyses and feedback from beta tests from stage
five into the product. This stage consists of turning
that prototype or concept into a workable market
offering; ironing out the technicalities of the
product; and alerting and organizing the
departments involved with the product launch, such
as research and development, finance, marketing,
production or operations.
Test marketing, or market testing, differs from
concept or beta testing in that the prototype product
and whole proposed marketing plan, not individual
segments, are evaluated. The goal of this stage is to
validate the entire concept -- from marketing angle
and message to packaging to advertising to
distribution. Test marketing is often performed by
offering your product to a random sample of your
target market. By testing the entire package before
launch, the company can critically review the
reception of the product before a full go-to-
market investment is made.
Market entry/commercialization is the stage in
which the product is introduced to the target
market. All the data obtained throughout the
previous seven stages of this approach are used to
produce, market and distribute the final product to
and through the appropriate channels. The product
is now available to everyone and the "product
lifecycle" begins. The life of the product is shaped
by the reception of the target market, the
competition and subsequent enhancements to the
product offering.

Product development is an always-evolving and

fluid process, and just as some steps will change,
depending on the nature of the project, so will the
person who manages product development. In
some organizations, there is a dedicated team that
researches and tests new products. Some smaller
organizations may outsource their new product
development to a design team. In midsize
organizations, the product manager is often the
person in charge of product development, and he or
she may be part of the marketing team, while tech
shops selling business-to-business (B2B) products
and services that have very technical requirements
may have their product managers report to
engineering. Regardless of what framework is used
and who is in charge of new product development,
the new part is just one aspect of the entire product
lifecycle management (PLM).