Contents

Chapter
1. Evolution and Growth
Evolution and the Growth of the Service Sector - 1.1; Activities Coming
under Services 1.3; the Crawling Out Stage (Prior to 1980) 1.4:
Scurrying about Stage (1980-85) 1.4; Walking Erect Stage (from
1986) 1.4; Reasons for the Growth of the Service Sector-1.5;
Demographic changes 1.5; Economic Changes 1.5; Social changes
1.6; Political and Legal changes 1.6; Technological changes 1.7;
Impact of social environment on the growth of Services Marketing 1.7;
Impact of social environment on the growth of Services Marketing 1.7;
Significance of Services Marketing 1.8; Generation of employment
opportunities 1.8; Optimum Utilization of Resources 1.9; Capital
Formation 1.9; Increasing the Standard of Living 1.9; Use of
Environment-friendly Technology 1.10; Summary 1.10; Objective
Type Questions 1.11; Review Questions 1.13.
2. The Concept of Services
Meaning and Definition of Services 2.1; Components of Service 2.3;
The Physical product 2.4; Service product 2.4; Service Environment
2.5; Service Delivery 2.5; Characteristics of Services 2.6;
Intangibility 2.7; Inseparability 2.7; Heterogeneity (Individuality or
Variability) -2.9; Perishability 2.9; Ownership 2.10; Absence of
Quantitative measurement 2.10; Classification of Services 2.10;
Classification of Services by Adrian Payne 2.11; Classification of
Services by Christopher Lovelock 2.11; Nature of Service Act 2.11;
Type of relationship a service organization should have with customers
2.12; Relationship with Customer Nature of Delivery System 2.13;
Scope for Customization and Judgment in Delivery System 2.13;
Nature of demand and Supply for the Service 2.13; Methods of
Services 2.14; Consumer Service 2.14; Industrial Services 2.14;
Classification of Services 2.15;Philip Kotlers Classification of Services
2.16; Differences between Goods and Services 2.17; A Comparison
between Services and Goods 2.22; Summary 2.24; Objective Type
Questions 2.24; Review Questions 2.26.
3. Service Design
Design and Delivery Components 3.1; Factors to be considered in
Designing Service Process 3.3; guiding Principles in Service Design
3.5; Management model for the service design 3.7; Services Marketing
System 3.10; The Service operation system 3.12; The Service
delivery system 3.13; Basic technological decision - 3.15; Conversion

or materials decisions 3.16; Specific equipment decision 3.16;

Blueprinting 3.19; Components of service blueprints 3.20; Stages in
the preparation of a service blueprint 3.21; Putting the service in the
form of its molecular structure 3.21; Dividing the process into logical
steps 3.24; Recognizing the variability in the process 3.25;
Identifying the backstage elements in the process 3.25; uses of
service blueprint 3.26; Process flow charts 3.27; Line operations
3.30; Job shop operation 3.30; Intermittent operations 3.30; Process
Layout 3.31; Types of Services layouts 3.33; Product layout 3.34;
Group layout 3.34; Benchmarking 3.35; Application of benchmarking
3.36; Competitive benchmarking 3.36; Functional and generic
benchmarking 3.36; Economy 3.38; Production function 3.38;
Capacity utilization 3.38; White collar Productivity 3.38; Productivity
indicators 3.39; Reasons for low productivity in service industries
3.40; Improving Productivity 3.43; Technology and service productivity
3.45; Application of technology to Service activities 3.46; Hard
technology 3.46; Soft technology -3.46; Hybrid technologies 3.47;
Role of technology in service process- 3.48; Easy accessibility of service
3.48; New ways to deliver service 3.48; Close link with customers
3.48; Higher level of service 3.49; Global reach of service 3.49; Cost
rationalization 3.49; Service Mapping 3.49; Service Map 3.50;
Building Service Aspirations 3.51; Developing human resources 3.52;
Summary 3.53; Objective Type Questions 3.54; Review Questions
3.56.
4. Service Marketing Mix
Meaning of Marketing Mix 4.1; Service marketing mix 4.2; Definitions
of Service marketing mix 4.2; Characteristics of service marketing mix
4.3; Marketing mix, a blending process 4.3; Product (Service
product) 4.4; The total product concept 4.4; Price 4.6; Pricing
objectives 4.7; Promotion 4.8; Promotions mix (communication mix)
4.8; Advantages of personal selling 4.9; Personal contact function in
services 4.9; Relationship enhancement 4.10; Cross selling 4.10;
Sales promotion 4.11; Tools of sales promotion 4.11; Premiums and
free offers 4.11; Discounts, price off 4.12; Installment offers 4.12;
Exchange schemes, Money back offers 4.12; Consumer contests
4.12; Display at the point of purchase 4.12, Sales promotion on the
internet 4.12; Publicity or Public Relations(PR) 4.13; Word of mouth
promotion 4.13; Place 4.14; People 4.15; Physical evidence 4.16;
Types of physical evidence 4.16; Processes 4.17; Summary 4.18;
Objective Types Questions 4.18; Review Questions 4.20.
5. Service Product

Meaning of product 5.1; Definition 5.1; Concepts underlying the

service product 5.2; Customer benefit concept 5.3; The service
concept 5.4; Product levels 5.4; Core service level 5.5; Expected
service level 5.5; Augmented service level 5.5; Potential service
level 5.5; The service offer 5.6; Service elements 5.6; Service
forms 5.6; Service delivery system 5.7; The Service Package 5.7;
Tangible elements 5.7; Intangible elements 5.8; Core services and
peripheral services Accessibility of the services 5.9; Interaction with
the service organization 5.10; Customer participation 5.10;
Managing Service Offering 5.11; Product planning and development
5.11; Branding of Services 5.12; Definition 5.12; Characteristics of
brand 5.12; Service product branding 5.12; The product Surround
concept 5.13; Advantages of branding services 5.14; New service
development 5.14; Types of new services 5.14; Major innovation
5.15; Startup businesses 5.15; New services for the currently served
market 5.15; Service line extensions 5.15; Service improvements
-5.15; Style Changes 5.16; Stages in new service developments 5.16; Stages in service development- 5.16; Idea Generation 5.17;
Internal sources 5.17; External sources 5.17; Idea Screening 5.17;
Concept development and evaluation 5.18; Business analysis 5.18;
Service development and testing 5.19; Market testing 5.19;
Commercialization - 5.19; Post introduction evaluation 5.20; Service
Life Cycle Management 5.20; Introduction 5.20; Market growth stage
5.21; Maturity 5.21; Market decline stage 5.21; Quality
Management 5.22; Customers assessment of service quality 5.22;
Technical aspects 5.22; Functional Concepts 5.22; Total Quality
Management (TQM) 5.23; Dimensions or Elements of TQM 5.23;
Effects of Total Quality Management 5.24; Summary 5.26; Objective
Type Questions 5.26; Review Questions 5.28;
6. Pricing in Services
Meaning of Price 6.1; Pricing 6.1; Objectives of pricing 6.2; Survival
price 6.2; Current profit maximization price 6.2; Market share price
6.3 Service quality leadership 6.3; Characteristics of services and
prices 6.3; Factors affecting pricing decisions 6.4; Internal factors
6.5; Organizational policies 6.5; Service differentiation 6.5; Service
cost 6.5; Marketing mix 6.5; External factors 6.5; Approaches to
pricing services 6.7; Cost-based pricing 6.7; Special problems in
cost-based pricing for services 6.7; Approaches under cost based
pricing 6.8; Competition-based pricing 6.9; Demand-based pricing
6.10; Methods of Demand-based pricing 6.11; What the traffic can
bear pricing 6.11; Skimming pricing 6.11; Penetration pricing 6.12;

Customer knowledge of service prices 6.12; Role of non-monetary

costs in pricing of services 6.14; Pricing Strategies based on the
Perceived Value 6.15; Pricing strategies when the value is low price
6.16; Pricing strategy when the value is everything the customer
wants in a service 6.19; Rapid skimming 6.19; Slow skimming
6.20; Pricing strategies when Value is the quality he gets for the price
he pays 6.20; Value is all that customers get and all that they give
6.20; Summary 6.23; Objective Type Questions 6.23; Review
Questions 6.26.
7. Service Promotion
Market communication 7.1; Communication process 7.2; Steps in
developing effective communication 7.4; Identifying the target
audience 7.5; Determining the communication objectives 7.5;
Designing the message The AIDA Formula 7.6; Selecting the
communication channels 7.8; Personal Communication Channels 7.8;
Non-personal communication channels 7.8; Determining the total
promotion budget 7.8; Deciding on the promotion mix 7.9;
Measuring promotion results 7.9; Managing and coordinating the
marketing communication process 7.10; Service Communication
7.10; Objectives of Consumer promotion for services 7.10; Objectives
targeted at customers 7.10; Objectives targeted at Intermediaries
7.11; Objectives targeted at competition 7.11; Developing the
promotional mix 7.11; Advertising 7.14; Definition 7.14; Steps in
advertising process 7.14; Decisions in developing an advertisement
programme 7.14; Setting the Advertising objectives 7.15; Deciding
on the advertising budget 7.15; Choosing the advertising message
7.15; Uses of Advertising 7.15; Deciding on media 7.16; Major
Advertising Media and their Advantages and Limitations 7.16; Webbased advertising 7.17; Sales promotion 7.18; Kinds of Sales
Promotion 7.19; Major decisions in sales promotion 7.19;
Establishing Objectives 7.20; Selecting Sales Promotion tools 7.20;
Developing the sales Promotion programme 7.21; Personal Selling
7.25; Major aspects of personal selling 7.25; Exhibiting
professionalism 7.25; Personal selling process 7.25; Stages in the
Personal selling process 7.26; Negotiation 7.28; Relationship
Marketing 7.28; Guidelines for effective sales presentation in services
7.29; Public Relations and Publicity 7.29; Functions of public
relatio9ns department 7.30; Audience for Public Relations 7.31;
Direct Marketing 7.32; Special considerations in promotion of services
7.34; Objective Type Questions 7.35; Review Questions - 7.38.
8. Location of Services and Channels of Distribution

Location 8.1; Factors to be considered in choosing a service location

8.1; Classification of services by location 8.4; Channels 8.5; Methods
of distributing services 8.6; Factors governing the choice of direct sale
8.6; Advantages of direct distribution 8.7; Disadvantages of Direct
Distribution 8.8; Delivery of service through intermediaries or indirect
distribution- 8.8; Role of service intermediaries 8.9; Intermediaries for
service delivery 8.10; Franchising 8.10; Location of franchise 8.11;
Factors influencing location of franchise 8.11; Determination of the
number of franchises 8.12; Benefits of franchising 8.13;
Disadvantages of franchising 8.14; Agents 8.15; Types of agents
8.16; Classification of Agents Brokers 8.16; Advantages of Agents
and Brokers 8.17; Disadvantages of delivering service through agents
and brokers 8.18; Benefits of electronic channels 8.19; Strategies
for effective service delivery through intermediaries 8.21;
Classification of intermediary management strategies 8.22; Control
strategies 8.22; Empowerment strategies 8.23 Partnering strategies
8.24; Designing a Distribution System 8.24; Customer Segmentation
8.24; Influence of service characteristics of channel design -8.26;
Identifying and evaluating major channel alternatives 8.27; Common
issues in involving intermediaries 8.27; Summary 8.29; Objective
Type Questions 8.29; Review Questions 8.31.
9. People in Services Marketing Mix
Service Personnel 9.1; Contact Personnel 9.1; Boundary spanners
9.3; Support personnel or non-contact employees 9.3; Role of frontline
employees 9.4; Strategies for creating customer-oriented service
delivery 9.7; Hiring the right people 9.7; Developing People to
Deliver service quality 9.9; Providing the much needed support
system 9.11; Strategies ensuring internal support 9.11; Retaining
the best people 9.12; Service culture 9.13; Definitions of culture
9.14; Summary 9.14; Objective Type Questions 9.14; Review
Questions 9.16.
10.
Physical Evidence
Classification of physical evidence 10.1; Physical facility or servicescape 10.1; Other Tangibles 10.1; Role of the Service-cape
Tangibles 10.4; Classification of physical facilities 10.4; Essential
evidence 10.5; Peripheral evidence 10.5; Web pages 10.6 Types of
service scape 10.6; Service scape use 10.7; Complexity of the
service scape 10.7; Environmental dimensions of the service scape
10.8; Guidelines for Physical Evidence Strategy 10.9; Service Process
10.11; Summary 10.11; Objective type Questions 10.12; Review
Questions 10.14.
11.
Managing Demand and Supply

Introduction 11.1; Strategies for Managing Demand and Supply 11.2;

Understanding capacity constraints 11.2; Capacity Constraints 11.3;
Time 11.3; Labour 11.3; Equipment 11.4; Facilities 11.4;
Understanding demand patterns 11.4; Capacity Planning 11.5; Types
of Capacity Planning 11.6; Long term capacity planning 11.6; Shortterm capacity planning 11.8; Various strategies used in managing
capacity 11.9; Managing demand to match capacity 11.11; Adopting
Strategies to when demand and capacity cannot be matched (Waiting
Line Strategies) 11.13; Waiting lines 11.14; Reservation 11.14;
Differentiation for waiting customers 11.15; The psychology of waiting
time 11.17; Triage 11.17; Delaying service delivery 11.17; Yield
Management 11.17; Risks in using yield management 11.19;
Summary 11.20; Objective Type Questions- 11.20; Review Questions
11.23.
12.
Types of Marketing in Service Firms: Internal Marketing
Definition of internal marketing 12.1; Objectives of internal marketing
12.2; Role of internal marketing 12.2; Components of internal
marketing programmes 12.3; Steps in developing internal marketing
programmes 12.4; External marketing 12.5; Distractions between
External and Internal Marketing 12.6; Services Triangle 12.7;
Relationship Marketing 12.8; Changing emphasis on marketing 12.8;
Definition of relationship marketing 12.9; Transaction marketing Vs.
Relationship marketing- 12.9; Goals of relationship marketing 12.10;
Attracting new customers 12.10; Retaining existing customers
12.10; Enhancing customer relationship 12.11; The six- markets
model 12.11; Customer Relationship Management 12.13; Objectives
of CRM 12.14; Implementing CRM 12.15; Requisites for successful
implementation of CRM 12.16; Benefits of customer retention 12.16;
Benefits for customers 12.17; Benefits for the organization 12.18;
Levels of relationship strategies 12.18; Financial bonds 12.19; Social
bonds 12.20; Customization bonds 12.20; Structural bonds 12.21;
Summary 12.21; Objective Type Questions 12.22; Review Questions
12.23.
13.
Quality of Service
Quality of Service dimensions 13.1; Five Dimensions of service quality
13.1; Customers judgment of Five Dimensions of Service Quality
13.3; Gap analysis 13.4; Causes of Customer gap 13.4; Key factors
leading to the Customer gap 13.5; Provider Gap 1 : Not knowing what
customers expect 13.5; Provider Gap 2 : Not selecting the right
service quality designs and standards 13.6; Provider Gap 3 : Not
delivering to service standards 13.7 Provider Gap 4 : When promises

do not match with performance 13.8; Summary 13.9; Objective

Types Questions 13.9; Review Questions 13.11.
14.
Marketing of Services
Financial Services : Banking 14.1; Characteristics of marketing of
financial of services 14.1; Characteristics of financial services 14.1;
Role of personal selling in financial services 14.4; Importance of
personal selling 14.4; Marketing mix of financial services 14.4; The
Product mix 14.4; Product portfolio for banks 14.6; Insurance
Marketing 14.9; Market segmentation in the insurance organization
14.9; Significance of segmentation to the insurance business 14.9;
The formulation of marketing mix for insurance companies 14.30;
Product portfolio of the General Insurance Corporation 14.12;
Insurance products of the Life Insurance Corporation in India 14.14;
Health Service 14.16; Types of hospitals 14.8; Marketing mix for
hospitals 14.17; Indian Health Care Industry 14.21; Factors leading
to the growth of Health care in India 14.21; Tourism Service 14.22;
Users of tourism services 14.22; Marketing mix for Tourism 14.23;
Tourism products 14.24; Techniques of sales promotion for Tourism
14.26; Tour operators 14.29; Travel agent 14.29; Travel guides
14.30; Professional or Consultancy Services 14.30; Market
segmentation for consultancy organizations 14.30; Marketing mix of
professional service providers- 14.32; Telecommunication Services
14.36; The formulation of marketing mix for telecommunication
services 14.36; Summary 14.40; Objective Type Questions 14.41;
Review Questions 14.43.

Past University Questions Papers

Evolution and Growth

A Service is an act or performance offered by one party to another. Services
are economic activities which create value and provide benefits for
customers. Services are intangible activities which may be separately
identified or tied to a physical product. However, the performance of a service
is essentially intangible. It does not normally result in transfer of ownership as
in case of products. Of late, business organizations have been making
innovative efforts to market the various services offered by them. In services
generating organizations like banks, insurance companies, hotels, transport
companies, etc., application of marketing principles has become imperative
for their growth and success, i.e., a marketer plans, promotes and renders
services to customers or clients. So, services marketing focus on selling the
services to the satisfaction of users or customers. Services marketing is
primarily concerned with a scientific and planned management of services. It
makes possible synchronization of the interests of the services providers as
well as the users. Marketing a service therefore, means marketing something
intangible. Marketing services aims at profit making through users
satisfaction. For example a life insurance company basically sells the service
of protection that would be acceptable to the potential buyers and yield
profits to the company. Bank make available to the customers savings,
investment and credit facilities. The transport companies offer to their
customers safe and economic transport service. Likewise, tourist
organizations, hotels, communication organizations offer services to their
customers. By and large, all the services generating organizations practice
marketing for accomplishing the organizational goals. It is in this background,
the growth of the service sector should be studied.

Evolution and the growth of the Service Sector

With the advent of industrial revolution in the eighteenth century,
dramatic changes took place in production. Consequently, service sectors
namely, financial structures, transportation and communication networks
developed appreciably. This all round development has ultimately made
available the benefits of large scale production. After the Second World War,
there has been a shift in importance from the traditional manufacturing to
service based enterprises. Countries like USA, UK, Germany, Japan, Canada,
Sweden etc., have changed from being goods dominated to services
dominated. The developed economies are renamed as service economics
which make significant contribution in terms of employment and Gross
Domestic Product (GDP). Table 1.1 reveals the significance of service sector
over the manufacturing sector.

Table 1.1 - Significance of Service Sector in Select Countries

Countries
% of GDP
Service
% of
Manufacturing
Employment
in Service
Sector
U.S.A
21
74
80%
Japan
29
58
60%
UK
32
69
77%
Australia
22
72
75%
Canada
24
70
79%
India
29
47
60%
Source: Statistical Year Book, 1998 Department of International Economic and
Social Affairs, U.N, New York.
In India, the service sector has started emerging as the dominant player
of the economy now. While agriculture and industry are growing at a slower
rate, the service sector is growing more rapidly. The contribution of services
to the Gross Domestic Product has increased from 36 per cent in 1980-81 to
44 per cent in 1997 98. During, 1997-98, the share of agriculture and
industry was just 24 per cent and 32 per cent respectively. In 1999-2000, the
share of service sector increased to 46 percent. The emergence of a strong
service sector is due to the increased availing of several services, like
education, entertainment, information, health care, travel, financial service,
etc. During the period, 1993-2000, health care has grown tremendously at a
compound rate of 26 percent annually. The growth of hotels and restaurants
was at the compound rate of 18 percent. The service sector is swarmed by
technology-based services. Use of technology like vending machines, coffee
and sandwich dispensing machines, computerized patient history cards has
increased considerably. Indias service exports in 1997 were $9.3 billion
against its merchandise exports of $32.2 billion. According to the National
Association of Software and Service Companies, the software exports
increased from $ 734 million in 1995-96 to $2625 million in 1998-99. It has
the potential to grow up to $45 billion by 2005-06.
For India, the service sector has been an engine of accelerated and
sustained growth and development. It is growing both in terms of domestic
productive capacity and exports. Service constitutes the biggest source of
employment and entrepreneurship. Services keep expanding in range and
sophistication. Figure 1.1 shows a wide coverage of activities undertaken by
the service sectors in India.

The evolution of services marketing may also be studied from the view
points of Fisk, Brown and Bitner. They have identified the following stages in
the evolution of services marketing.
1. The Crawling out Stage (prior to 1980)
2. The Scurrying about Stage (1980-86)
3. The Walking Erect Stage (From 1986 onwards)
1. The Crawling Out Stage (Prior to 1980)
The first and foremost stage in the evolution of services
marketing is known as Crawling out stage. During this stage, the
existence of a distinct body of literature was found imperative in order
to solve the problems in the service sector. Services marketing suffered
from the paucity of marketing theories. The marketing strategy that
could serve the specific need of services sector was not existing.
According to Donnelly, there are vast differences between the channels
used for services and those used for physical goods. The argument that
the service organizations need not have separate body of theory was
found baseless. The increased competition generated by the
Multinational Corporations called for the application of modern
marketing principles in service organization. They were convinced that
then only they could grow and make a significant contribution to the
economic development. It is in this context, the experts thought in
favour of practicing marketing principles in service sector.
2. Scurrying about Stage (1980-85)
Having realized the importance of application of modern
marketing principles in service organizations, adequate attention was
paid to the crucial issues of managing quality in service operations.
Zeithaml, Berry and Parasuraman developed a pioneering model known
as Gaps Model for services. The interpersonal aspects of service,
relationship marketing and international marketing were the other areas
found relevant to services marketing. Marketing mix (price, place,
promotion. People, process, physical evidence) was developed by
Dooms and Binter by taking into account the distinctive characteristics
of services in the crawling out stage, the study of characteristics of

services (intangibility, inseparability, heterogeneity) was given

importance. The services marketing mix developed by Booms and
Binter gave and expanded version of marketing mix. As a result of
varied efforts directed at promotion services marketing, books on the
subject came to limelight. Ultimately, services marketing emerged as a
separate field of academic study.
3. Walking Erect Stage 1986 on wards
The period subsequent to 1986 is identified as walking
erect stage. During this stage, having recognized the differences
between product and services, the focus was on specific marketing
problems of the service organizations. Particularly, attention was paid
on (i) the design of the physical layout of facilities where the service is
delivered (service design), (ii) setting and surrounding in which service
in delivered (service setting), (iii) blue printing to understand the
totality of a service as a process, (iv) finding the link between customer
needs and design elements, (v) service encounters, where the
consumer and producer meet in order to offer more benefits to
consumer, (vi) Internal Marketing to instill and maintain a strong service
mentality throughout and organization, (vii) relationship marketing to
turn new customers into regular clients - being strong supporters of the
company, (viii) Transactional strategy involving the integration of
strategy formulation ad implementation across all the countries in
which the company wishes to do business, etc.

Reasons for the Growth of the Service Sector

The Service Sector has increased dramatically in
importance only in the last decade. Deregulation of services, growing
competition, fluctuations in demand and the application of new
technologies have stimulated the growth of the Service Sector. Banks,
Housing societies, insurance companies, Professional service providers
such as accountants, lawyers, Airlines, Retailers, Telecommunication
Companies etc., are increasingly dependent upon service marketing
principles. The reasons for the growth of the services sector may be
analyzed under the following headings:
(1)Demographic Changes, (2) Economic Changes, (3) Social Changes, (4)
Political and Legal Changes (5) Technological Changes.
(1)Demographic Changes
Demographic factors are related to population. There is a general
increase in the population and increased life expectancy, etc.,
now in India. Rise in life expectancy has resulted in the
population increase of senior citizens. Their growing numbers

have paved the way for the growth of old age homes, health care
centres, nursing, tourism and hospitality services. Apart from
these, there has been a structural shift among people. Migration
of people form rural areas to urban areas has led to the
development of new towns of regions. This has increased the
need for providing infrastructure and support services. Since
1960s, services of numerous varieties have emerged. Hotels and
restaurants, beauty parlours and laundries, lodging, transport,
insurance, banking finance, communication (telephone and
postal), advertising and promotion, engineering, consultancy
services, tourism and travel and many other professional
services have grown in importance due to demographic changes.
(2)Economic Changes
The economic factors play a crucial role in the development of
the service sector. With the advent of globalization of business,
the world market has grown fast. The internationalization of
service companies has created a greater demand for services
such as communication, transport and information services.
Airlines and Air cargo companies which were predominantly
domestic have established extensive foreign route networks.
Besides the above, advertising agencies, hotel chains, fast food
restaurants, car rentals, accounting firms etc., operate on
several continents.
The revolution in information technology has also contributed to
the tremendous growth of the service sector. The IT sector is
contributing substantially to customers of late. In India, even a
common man can have access to facilities such as internet,
Multimedia and various computer applications now. This demand
for vital services has encouraged the Growth of professional
units engaged in services marketing. Thus, economic changes
have led to the development of specialized services and their
marketing as a distinct part of the every economy.
(3)Social Changes
The increased role of women in the workforce has led to the
growth of several services. Working women supplement the
income level of the family. With the increased income, the
demand for child care services, travel, beauty parlours, fast food,
etc., has increased. A part from this, twin-income households
demand consumer services including retailing, real estate and
personal financial service. International travel for visiting friends
and relatives settled abroad is responsible for several consumers
becoming more sophisticated. Consumers now-a-days demand a

wide range of services, including legal and investment counsel.

These social changes have significantly increased aspiration
levels. Consequently, students are making new demands on
learning institutions. They want to acquire the skills needs to
compete in the fast changing social environment.
(4)Political and Legal changes
Political and legal changes are the important causes of growth of
service sector. Globally, the resources of the government have
become vast permitting creation of huge service departments.
De-regularization has exposed many service industries to intense
competition. Enactments on Consumer Protection and
Environment Protection have been strengthened all over the
world. The increased government interaction in the trade sector
has promoted trade with various countries. Regional interests in
the global trade of goods and services are well protected by
trading blocks such as North American Free Trade Agreement
(NAFTA), European Common Market, Association of South East
Asia Nations (ASEAN), South Asian Association for Regional Cooperation (SAARC) etc. The expansion of global trade has given
scope for the creation of huge infrastructure. Financial services
are becoming increasingly important generation more
employment opportunities.
(5)Technological Changes
Adoption of new technologies has improved the quality of service
offered by several organizations. The integration of computers
and telecommunications has revolutionized communication
sector. The influence of internet on the service organization like
travel, banking, education, financial services, insurance etc., is
total. With the advent of national or even global electronic
delivery systems, they have totally transformed the scope of the
business. Further, they facilitate reengineering activities such as
delivery of information, execution of orders, settlement of claims
and payments, etc. These developments have enhanced the
service standards by permitting the creation of centralized
customer service departments and replacement of men by
machines.
Impact of Social environment on the growth of Services Marketing
The impact of social environment on the growth of the services
sector is revealed by the following table.
Environmental Trend

Service Market

1.

Consumer Affluence

2.

More Working Women

3.

Greater life expectancy

4.

Complexity of life

5.

Youth

6.

Corporate Crowd

7.

Product Innovation

Dine-out habits (hotels

and restaurants), travel,
entertainment, club,
repairs and servicing,
health care, carpet and
dry cleaning, domestic
services, banking and
investments, retailing,
insurance.
Domestic services,
travel, nurseries, fast
food restaurants,
financial services,
marriage counseling,
retailing, personal care.
Hospitals, nursing
homes, entertainment,
travel, resorts, leisure
services, investment,
banking.
Travel, legal aid, tax
counseling, professional
services, airlines,
courier services,
insurance, banking.
Entertainment, leasing,
food, travel, picnic
resorts, educational
institutes, tutorial aids,
counseling, retailing.
Hotel, advertising, Legal
services, recruitment
services, management
counseling, health care,
airlines, travel booking,
Courier services,
insurance, banking,
marketing research.
Repair and servicing,
Training education,
sharing services.

8.

Growing product
Expert, advice,
Complexities
specialists.
Table 1.2 Impact of Environment on the growth of service sector

(Adopted from Schoell W.F. and Ivy J.T. Marketing Contemporary

Concepts and Practices).
Significance 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 utilized 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 utilization 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 organized and
systematic development of the service sector would create enormous
employment opportunities. Application of marketing principles in the
service sector in instrumental to the development of the economy.
However, it is appropriate to mention that India has not been successful
in utilization the potential of the service sector. As seen in Table 1.1, in
USA about 80 percent of job opportunities are offered by the service
sector compared to Indias 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 liberalization policy, the service sector in
India has been emerging as a dominant component in the economy.
2. Optimum Utilization 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 babour 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 Organization (WTO) is opening up of market for services.
So, by exploiting these factors, India can maximize 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. 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 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
organization such banks, insurance companies, tourism, hotel services,

communication services and education services are not detrimental in

any way to the environment. On the contrary, technologies used in
manufacturing organization may have harmful effects on the
environment. So, services industry does not pollute the environment
which is indeed laudable.
SUMMARY
As consumers, we use a variety of services in our day-to-day life working on a
computer, watching TV, talking on the mobile phone visiting the dentist, sending
a message, drawing a cheque on bank account, visiting a beauty parlour,
refueling a car are all examples of service consumption. A service is an act or
performance offered by one party to another which does not result in transfer of
ownership as in the case of products. In India, the service sector is emerging as a
dominant component of the economy. The evolution and growth of the service
marketing are marked by three stages, namely, (i) the crawling out stage (Prior to
1980); (ii) the scurrying about stage (1980 86) and (iii) waling erect stage (1986
onwards). The reasons for the growth of the service sector include (1)
Demographic changes, (2) Economic changes, (3) Social changes (4) Political and
legal changes and (5) Technological Changes. Proper marketing of services
contributes substantially to the process of development. The significance of the
services industry lies in (i) Generation of employment opportunities (ii) Optimum
Objective
Type
Questions
utilization of resources
(iii) Capital
formation
(iv) Increased standard of living (v)

I Fill in the Blanks with correct answers:

1.

2.
3.
4.

A _____________ is an activity or benefit that one party can

offer to another that is essentially intangible and does not
result in the ownership of anything.
Finance, banking etc., are called ____________ services.
Restaurants, health care etc., are known as _________________
services.
Education, Government etc., are called ____________________
services.

II Choose the best answer from the following

1. Marketing Services aims at
(a) Profit making through users satisfaction
(b) Users satisfaction
(c) Profit making
(d) Resources utilization
2. Crawling out stage (prior to 1980) is marked by
(a) Existence of distinct body of service marketing literature
(b) Marketing strategies specific to service sector
(c) Application of marketing principles in the service sector.

(d) Paucity of marketing theories.

3. The study of characteristics of services was considered
important during
(a) The Crawling out stage
(b) Scurrying about stage
(c) Walking erect stage
4. Service marketing is important
(a) In service sector only
(b) In business enterprise only
(c) In service sector as well as business sector
(d) In manufacturing operations only.
5. The new service unit Old age Homes is expanding due to
(a) Increase in life expectancy
(b) Consumer affluence
(c) Complexly of life
(d) Corporate crowd.
III State the whether the following statements are True or False:
1. A services economy produces services at the expense of other
sectors.
2. Service jobs are low paying and menial.
3. Service production is labour - intensive and low in productivity.
4. The important feature of service is that ownership cannot be
transferred as in case of products.
5. If the source of products core benefit is more tangible than
intangible, it would be considered a good.
6. If the products core benefit source is more intangible than
tangible it would be considered a good.
7. The expansion for the growth of service is attrivuted to the
growth of final demand from consumers.
8. New technologies are radically altering the ways in which many
service organizations do business with their customers.
9. Services include all economic activities whose output is not a
physical product.
10.
Service is generally consumed at the time it is produced
and provides added value in the form of convenience,
amusement, timeliness etc., that are essentially tangible
concerns of its first purchaser.
Answer for objective Type Questions
Answers for the fill up the blanks
1. Service
3. Social or Personal

2. Business
4. Public Administration

Answers for choosing the best answer

1. (a)
3. (a)
5. (a)

2. (d)
4. (c)

Answers for True or False

1.
3.
5.
7.
9.

False
False
True
True
True

2. False
4. True
6. False
8. True
10. False
REVIEW QUESTIONS
Section A

1.
2.
3.
4.
5.

Define services.
What do you mean by services marketing?
Give any four reasons for the growth in service sector.
State few service sectors.
How does services marketing increase the standard of living of the
people?
Section B

1. What are the reasons for the growth of service organization?

2. Name the key factors which have contributed to the importance of the
service economy.
Section C
1. Explain the significance of services marketing in the Indian perspective.
2. Trace the origin and growth of services marketing in India.

Chapter 2

The Concept of Services

Meaning and Definition of Services
Services are revolutionizing the whole worlds. Today, we live in an
economy which is service-oriented. Marketers offer tangible goods with
supporting services such as pre-sale or after sale services, accompanying a
product. But as a distinctive area of study in marketing, attention is paid to
those services sold by business or professional concerns with profit seeking
motive. These are fundamentally commercial services offered in business.
These services may be labour services (domestic, office, factory, workers),
personal services (cooking, laundry, photographers, barber), professional
services (accountant, lawyer, musician, engineer) or institutional services
such as offered by transport, banking. Insurance, warehousing, advertising
and such other service organizations. Thus the term services has very wide
scope and application. So, it is appropriate to understand the concept of
services with various definitions offered by experts.
1. Services refer to social efforts which include even the government to
fight five giant evils, e.g., want, disease, ignorance, squalor and illness
in the society. Sir. William Beveridge
2. Services can also be defince as a human effort which provides succor
to the nnedy. It may be food to a hungry person, water to a thirsty
person medical services to an ailing person and education to a student,
loan to a farmer transport to a consumer, communication aid to two
persons who want to share a thought, pleasure or pain. Rao. A.V.S
3. Establishments, primarily providing a wide variety of services for
individuals, business and government establishments and other
organizations, hotels and other lodging places. Establishments,
providing personal services, repair and amusement services,
educational institutions, membership organizations and other
miscellaneous services are included. U.S Governments Standard
Industrial Classification
4. Services can also be defined as an action(s) of organization(s) that
maintains and improves the well-being and functioning of people.
Hasenfield Y and Richard A.E.
5. Services are those separately identifiable essentially intangible
activities, which provide want satisfaction when marketed to consumers
and/or industrial uses and which are not necessarily tied to the sale of a
product or another service. - Stanton.

6. Services are activities, benefits or satisfaction which are offered for

sale or provided in connection with sale of goods. - The American
Marketing Association.
7. Any primary or complementary activity that does not directly produce
a physical product, that is, the non-goods part of transaction between
buyer (customer) and seller (provider). The service Industries Journal.
8. A Service is an activity or benefit that one party can offer to another
that is essentially intangible and does not result in the ownership of
anything. Its production may or may not be tied to a physical product.
Kotler and Armstrong (1991).
9. The production of an essentially intangible benefit, either in its own
right or as a significant element of a tangible product, which through
some form of exchange, satisfies an identified need. Adsin Palmer.
10.
Objects of transaction offered by firms and institutions that
generally offer services or that consider themselves service
organizations. Gronroos.
The above definitions reveal the following
1. Different types of services form the basis for the service establishments
offering services to both categories of customers the individuals as
well as the organization.
2. Organization such as hospitals, health centres, communication centres,
educational institutions offer social services by taking social efforts.
3. Services are human efforts. Services do not mean services for the sake
of services or services without charging any fee.
4. While defining the concept of services, the well-being of people is
important.
5. Services are activities, benefits of satisfaction and their uses for selling
products may be intangible.
6. Services include activities, benefits and satisfaction which are offered
for sale.
7. When a customer buys a service in the service market, he busy the
time, knowledge, skill or resources of someone else who is the provider
or supplier of a service.
8. The buyer receives satisfaction or benefits from the activities of the
provider who may be an individual, a firm, a company or nay other
institution specializing in selling certain benefits or satisfaction.
9. Service is frequently augmented by a tangible product attached to the
service.
10.
Some definitions of service (Stanton) exclude supplementary
services that support the sale of goods or other services.

11.
Any organization that considers itself to be a service operator can
utilize the range of research that has been developed specially to deal
with problems related to services.
12.
Products that are primarily intangible are classified as services.
Components of Service
Understanding the nature of the service is the first task in services
marketing. The nature of service gives useful clues on the benefits expected
by customers from it. Having found out the needs of the customers, the
marketer has to ascertain whether his products meet customers
specifications. Generally, customers needs are rarely satisfied by physical
products alone. The intangible element of a product is a key element in
maintaining a satisfied customer. The services may be divided into four
components, namely, (1) Physical product, (2) Service product, (3) Service
environment and (4) Service delivery. These components must be properly
managed in order to meet customers needs. Figure 2.1 shows the
components of a service.

Figure 2.1 Components of a Service

(1)The Physical Product
The various products marketed by a firm involve the physical transfer of
ownership of those products. They are tangible and their quality is
standardized. For example, physical products include. T.V., Radio,
Refrigerators, Computers, hair oil, Vacuum Cleaner, Washing Machine,
etc. But service firms offer purely intangible products. Different service
firms offer different services. For example, colleges and schools offer
education, insurance companies risk coverage, banks credit and
financial service, beauticians personal an beauty care, hotel
accommodation and convenience, cinema theaters entertainment, dry
cleaners cleaning services, solicitors legal advice, police security and
protection, management consultants professional advice, and couriers
offer communication and delivery. All these service offering units are
customer-oriented.

All manufacturing organizations should develop standards to ensure

that products comply with customers specifications. Quality of products
should be ensured in all modern organizations. The quality control
department is responsible for ensuring compliance of the product with
the customers specifications. Japan is the pioneering country which
developed QFD in 1970s in an endeavor to coordinate the work of
marketing managers and production engineers towards the common
goal of meeting customer needs. QFD links engineering design features
to specific customer needs assuring increased products value to
customers.
(2)Service Product
A service is an activity or benefit that one party can offer to another
which is essentially intangible in nature. Service involves some
interaction with customers without effecting transfer of ownership. For
example, people vising exhibitions, trade fairs are allowed to inspect
the consumer durables without being approached by sales
representatives. Salesmen are trained in making proper approach to9
the customers visiting their showrooms. The price labels carried by the
products reduce the anxiety of price sensitive customers and relieve
them from the botheration of price negotiations. So, the service
providers should plan their interaction with customers in order to
provide better service experience to them.
(3)Service Environment
The potential customers form an impression about the service on the
basis of service environment. The service environment represents the
physical back drop that surrounds the service. For example, providing
hygienic food is the core service in a hotel or restaurant. Customers
expect the restaurants to be maintained clean, offer flexible dining
hours prompt service, soft music, dcor, exotic menu, etc. These
elements of service environment have an important impact on the
service experience. The service environment appropriate to one firm
may be inappropriate for others. For example, a fast food restaurant
needs bright lighting while a luxurious and romantic restaurant needs
high dcor and dim lighting. A hair dressing saloon displays the pictures
of famous stylists, range of treatments, etc., and offer journals and
materials facilitating light reading.
(4)Service Delivery
The Service delivery is one of the important components of service.
Service delivery is of great importance to the customers overall
perception about the quality of service. The service provider should
give due consideration the way service is rendered to customers.
Services are created as they are consumed. The customer is often the

topic in production process. So, the thrust is more for tailoring the
service to meet the needs of individual customers. While deciding the
method of service delivery the following questions should be
considered.
(i) Should the service be delivered at a single site or through
multiple outlets?
(ii) What is the most convenient type of transaction for customers?
(iii) If the type of interaction is changed, would the service quality
improve or deteriorate?
(iv) Is it possible to use suitable intermediaries to achieve multiple
outlets?
Services with multiple outlets help ensure quality and consistency in
the service offering. There are two types of interaction between
customer and service organization (i) Customer goes to service
organization and (ii) Service organization comes to customers.
When services require the customers to come to the supplier, there
is a great scope for exercising control over the delivery of service,
For example, when a patient visits a dentist, he may be favorably
influenced by the dcor of the waiting hall, courtesy of the
receptionist, etc.

Table 2.1 provides some examples showing the components of service.

Nature of Physical
Service
Product
Universit
-Degree
y

Super
market

-Goods

Service
Service
Product
Environment
-Courses
-Lecture
Guidanc
halls
-Libraries
e
-Laboratorie
-Placement
s
Employm
-Language
ent
Lab
-Playground
-Canteen
-Hostels
-Display
Sales Floor
-Assortment Racks
-Assistance

Service Delivery
-Teaching
Performan
ce
-Tutorial
system
-Counseling
-Placement

-Speed
-Friendliness
-Market

-Credit
-Inventory
Hotels

Couriers

-Stay
-Food

Communicat
ion

-Bill
settleme
nt
-Messages
- Wake-up
calls

-Service
time
-Collection
Centres

-Information
-Lobby
-Parking
Space
-Rooms
Reception

-Waiting hall
-Sorting
space
-Parcel
Office

-Laundry
-Transport
Arrangem
ent
-Multi
cuisines
-Room
Service
-Room
Cleaning
-Promptness
in
Delivery
-Billing
section

Characteristics of Services
Every product is a bundle of physical (tangible) and non-physical
(intangible) attributes. Products which are intangible in nature are classified
as services. Goods are produced while services are performed. The special
nature of service comes from many distinctive characteristics. These
characteristics of services call for marketing programmes that are
substantially different from those found in product marketing. So, it is
essential for the service marketers to carefully study the characteristics of
services. These are give below:
(1)Intangibility
(2) Inseparability
(3)Heterogeneity
(4) Perishability
(5)Ownership
(6) Pricing of Services.
1. Intangibility
Services are essentially intangible. So, it is impossible for customers to
see, feel, taste, hear or smell services before they are bought. This
feature of services makes their nature an abstract phenomenon. So, the
sales force or a companys promotional programme, while selling or
promoting the sale of a service should concentrate entirely on the
benefits to be derived from the service. An insurance company
promotes service benefits such as guaranteed payment of childs
education expenses, or a retirement income. Promotion of package
holidays focuses on use of an aircraft, a transfer coach and a hotel
room. The strategies developed by the service providers for

communicating the benefits of service are based on (i) tangible

representation of the service and (ii) focus on the service provider
himself rather than on the service.
(i) Tangible Representation of Service: Developing a physical object
that represents the service makes services more tangible. Banks
promoting the sale of credit cards emphasize physical
manifestation of credit. By possessing a credit card, customers
can store credit. Credit card is the physical object of credit service
offered by the banks and financial institutions. It symbolizes the
convenience in availing credit. The tangibility of the credit card
permits the banks to market their credit service under different
brand names and images. For example, the Central Card of the
Central Bank of India and Gold Card of American Express, etc.
(ii) Focus on the Service Provider: Sometimes, service providers are
more tangible than the services themselves. For example, airline
ticketing, life insurance agent, and doctor are more tangible than
their services such as air cover travel, life insurance cover, and
medical care respectively. Service providers are known for their
skill and expertise which represent their service. So, advertising
campaigns focus on the competence of the service providers.
Buyers infer quality from the place, people, equipment, sales
literature, materials, symbols and price chart that they see. So,
the marketers of the service providers should successfully
manage and control these physical attributes and tangibles the
intangible. Service marketers must be able to transform
intangible services into concrete benefits.
2. Inseparability
Generally, physical products are first manufactured and then put into
inventory and distributed through multiple resellers and consumed
later. But this is not true of services. Typically, services are produced
and consumed simultaneously. When a person renders a service, then
the provider is part of the service. Personal service cannot be separated
from the individual. Service providers such as dentist, musician, dancer
and such other professionals create and offer service simultaneously.
The client is also present as the service is produced. Both the provider
and client affect the outcome of the service. Due to inseparability,
direct sale of service is the only channel of distribution. As an individual,
the service provider is able to sell his service only to a limited number
of customers in a day. But when an institution is acting as a creator of a
service, it may extensively market its service through agents. For
example, a travel agent, an insurance broker, a finance broker etc., may
represent a tourist organization, insurance company and financial

institution respectively. Inseparability bears certain market implications

(i) Simple distribution, (ii) Multiple locations, (iii) Image of the service
providers.
(i) Simple Distribution: Services are produced and consumed
simultaneously. In other words, the production process is
associated with the enjoyment of service. Active participation of
consumer in the production process of service is inevitable.
(Student and teacher, patient and doctor, credit card holder and
ATM etc.,). So, distribution of services must be simpler than the
distribution of goods. The service provider should learn to work
with larger groups. For example, by increasing the working hours,
a dentist can attend to more patients daily.
(ii) Multiple Locations: Services cannot be stored or transported. So,
service providers can eliminate the role of intermediaries while
providing service. But services must be offered in May locations.
The service organizations can train more service providers and
build up clients confidence. Service establishments such as
banks, cinema halls, restaurants, beauty parlours, dry cleaners
must be located close to the consumers. Since offering services in
more locations increases cost, the number of service locations
must be optimum.
(iii) Image of the Service Provider: In the case of entertainment and
professional services, buyers are very particular about a specific
provider. When clients have strong provider preferences, price is
increased in accordance with the providers limited time. The
image of the service provider extends to the service facility
offered by him. In order to maintain sufficient image,
professionals spend a considerable amount on furniture and office
dcor. The dcor of the professionals office convey an image of
competence.
3. Heterogeneity (Individuality or Variability)
It is not possible to standardize the quality of service offered by the
competing firms. Even the quality of the output of services sold by one
provider is not uniform. Each unit of service is different from other units
of the same service provider. For example, a mechanic cannot offer
service of uniform quality while repairing a number of refrigerators.
Some surgeons are successful in performing certain operations and less
successful on some other occasions. By being aware of this variability,
service buyers are careful in selecting a service provider. However,
service variability is comparatively less in respect of equipment-based
service. For example, services provided by STD booths fail only when
the equipment fails. Variability of services affects the image of service

providers. When service varies from customer to customer, it is difficult

to develop a service brand for an organization. Provision of consistent
quality in operations is not possible and consumers are in a
disadvantageous position, as they have to avail services with a high risk
factor. Service firms should, therefore, take steps towards enhancing
quality. First, they should appoint right service employees and train
them. The second step consists of standardizing the service
performance process throughout the organization. The third step is
monitoring customer satisfaction by being attentive to their suggestions
and complaints, customer surveys and comparison shopping.
4. Perishability
Services cannot be stored. Unused electric power, vacant seats in a
transport system, empty rooms in lodges, idle mechanics etc.,
represent business that is lost forever. A service not used today is lost
forever. It cannot be stored or carried forward. So, the service providers
try to maintain a constant demand for their services. But the market of
services fluctuates considerably due to seasonal changes. Sasser has
advocated the following strategies for maintaining a balance between
demand and supply in a service business.
Demand Side
(i) Differential pricing may be used to shift demand from peak to
non-peak periods. For example, lower rates for long distance
telephone calls during slack times. Low-priced air-conditioned
machines during winter, etc.
(ii) Demand may be stimulated during non-peak periods. For
example, hotels offer attractive mini vacation packages during
the week days.
(iii) Complementary services may be developed during peak time.
For example, automatic teller machines in banks.
(iv) Service providers such as airlines, hotels and physicians follow
reservation system to regulate their clients.
Supply Side
(i) Hiring part time employees may be useful while serving peak
demand. For example, textile shops employ part time
salesmen to attend on customers during festival season.
(ii) Employees can perform only essential tasks during peak periods
and non-essential tasks during slack periods.
(iii) Shared services can be developed. Organizations can share
services of their laboratories, costlier equipment etc.

(iv)

Self-service system may be introduced among customers. For

example, operating self-service section in restaurants during
peak times.
5. Ownership
The very important feature of service is that ownership cannot be
transferred. The service user cannot buy and own the services. Services
are, therefore, provided to consumers. The provider sells the service
and consumer consumes it. But he cannot won the service provided to
him. If goods are bought, the buyers acquire the little of the goods. But
in case of service, ownership is not transferred from seller to buyer. A
service is an activity or benefit that one party can offer to another that
is essentially intangible and does not result in ownership of anything.
In case of products the ownership is transferable and the act of transfer
serves as a motivational tool, both for the seller and the buyer. But in
case of services, marketers do not find any scope for the transfer of
ownership. So, they have to be more careful while marketing the
services.
6. Absence of quantitative measurement
Since services are intangibles, they do not permit quantitative
measurement. In fact, quality measurement is highly difficult. For
example, we can quantify the distance covered by a transport, but the
way the transport operator serves the passengers cannot be ignored
while rating the service. So, it is possible to determine only the level of
satisfaction attained by the user of service.
CLASSIFICATION OF SERVICES
Service marketers experience difficulty in differentiating their services. The
service sector covers a diverse range of activities leading to diversity of firms.
This diversity in the service sector makes generalization of strategies difficult.
So, classification of services helps in understanding the nature of services
very clearly. It provides an insight into effective application of marketing
principles in service industries. A thorough understanding of competitive
service firms is necessary for a firm to formulate its service strategy. Experts
have paid much attention in order to classify the services. The classification
methods adopted by Adrian Payne and Christopher Lovelock are discussed in
the following paragraphs.
(1)Classification of Services by Adrian Payne
According to Adrian Payne, the simplest way of classifying services is by
exclusion. Services are that part of the economy left over after the
exclusion of agriculture, manufacturing and mining. Another means of

defining services is to simply list service industries. A description of

services includes the following industry schemes:
(i) Communications and information services
(ii) Public utilities, government and defence
(iii) Health care
(iv) Business, Professional and Personal services
(v) Recreational and hospitality services
(vi) Education; and
(vii) Other non-profit organizations.
(2)Classification of Services by Christopher Lovelock
The classification scheme developed by Lovelock attempts to answer
five specific questions.
(i) What is the nature of the service act?
(ii) What type of relationship does the service organization have with its
customers?
(iii) How much room is there for customization and judgement?
(iv) What is the nature of demand and supply for the services?
(v) How is the service delivered? - We shall study about each of them
briefly.
(i) Nature of Service Act
This classification of services is based on the intangibility of services
and their recipients. The service act consists of tangible and intangible
actions. The tangible actions in turn, are directed at people and things.
Tangible actions directed at people relate to health care, beauty salons,
and restaurants. Tangible actions directed towards things relate to
freight, transportation, dry cleaning and veterinary services.
Further, intangible actions are directed at customers intellect and
their assets. The service actions and recipient of services are evident
from the following table.
Nature or Service
Act
Tangible Actions

Intangible Actions

Recipient of Services
People
Things
Health care
Freight,
Beauty Saloons
Transportation
Restaurants
Dry cleaning
Education
Veterinary Services
Information
Banking
Legal Services
Services
Entertainment
Insurance

The above classification scheme raises questions as to:

o Whether the customer needs to be physically or mentally present

during the service delivery?
o How does the customer benefit?
o How the customer is charged on the receipt of the service activity?
This enables the service provider to decide about the location and
schedule of convenience where people have to be present to receive
the service. The Manager of a service providing firm can restructure
the service activity to standardize it in such a way that it is more
convenient to the customer in terms of service delivery. If the
customer needs to be physically present, then they must travel to
the service facility (say, going to ATM). Alternatively, the provider of
service must travel to the location of customers (opening extension
counters by banks in educational institutions).
(ii) Type of relationship that the service organization has with
its customers
Services may be classified on the basis of relationship between the
service provider and customers. Such relationship may be formal or
informal. For example, there is continuous delivery of service when
there is a formal relationship between the service organization and its
customers. Members of Insurance Corporation, Telephone subscription,
College enrolment, Bank and Trade associations are assured of
continuous delivery of service. On the other hand, in provision of certain
services, no formal relationship exists between the service providers
and users. Radio station, police, light house etc. They are the sources of
services not based on any formal relationship with users.
These are called discrete transactions where the user pays for each
specific service provided. In such cases, customers using the services
remain anonymous and the service provider does not have much
information about the users. When no formal relationship exists, the
service provider must try to establish enduring relationship through a
membership club or subscription.
(iii) Scope for Customization and Judgment in Delivery System
Both creation of service as well as consumption of service take
place simultaneously. The customer is actually involved in the
production process. Services are created as they are consumed. This
character is called inseparability of services where services are typically
produced and consumed at the same time with customer participation

in the process. This offers enormous scope for tailoring the service to
meet the needs of individual customers, through customization.
Customization means making services customer-oriented. So, the
service marketer should decide to what extent the service offer should
be customized. For example, and educational institution can offer
English lessons via a one-to-one tutor relationship or by mail through
the provision of audio or video tapes and tutorial books. Airlines offer
first class, business class and economy class. Hotels offer luxurious
suites, double rooms and single rooms.
Banks and Housing finance companies offer home loans for repayment
periods varying between 5 years and 20 years. The repayment of loan
by way of equated monthly installment (EMI) varies considerably.
Consequently, availing a loan needs a careful assessment in delivery
system of the banks and housing finance companies. The following
Table illustrates this point.
SI.
No.
1.
2.
3.
4.
5.
6.

Bank
Bank of
Baroda
HDFC
ICICI Bank
SBI
Syndicate
Bank
Union Bank
India

Period of Repayment
5 Years
10 Years
Rs.
Rs.
2,168
1,240
2,016
1,201
2,028
1,214
2,028
1,240
1,992
1,201
2,004
1,227

15 Years
Rs.
980
942
956
985
956
985

20 Years
Rs.
884
821
837
884
852
868

(EMI Rs. In Lakh)

Source: The Hindu, December 4, 2005
(iv) Nature of demand and Supply for the Service
Service has a perishable nature. Services cannot be stored as in
case of products. For example, Tangible products like soaps, tooth paste
etc., can be stored. But service firms cannot develop an inventory. If the
demand exceeds the supply of a particular service, the business will be
lost to another provider. If one particular restaurant is full, the customer
who is hungry will go to another. So, a service manager should
understand demand pattern over a period of time. It helps him to know
the peak period, to design alternative strategies for smoothing the

demand. For example, the alternative strategies may be of the

following:
(a) Charging premiums for peak periods and discounts for non-peak
periods.
(b)Methods of increasing capacity at peak time.
(c) Generally, service firms such as hotels, theatres, restaurants, retail
banking etc., experience excess demand over supply during peak
periods. Indian Railways in order to cope with increased number of
passengers, operate special trains during festival and summer
seasons.
(v) Methods of Service Delivery
Customer convenience is a key consideration and the service
provider explores the ways to achieve it. When services of a firm are
available at multiple sites, it will be highly convenient to customers. For
example, the Paramount Airways which plans to operate daily flight
from Coimbatore to New Delhi has innovative ticketing sales plans.
Ticket will be sold at shopping malls, airports, railway stations,
amusement parks, cinemas, hotels and other major business complexes
to facilitate purchase of tickets round the clock. With internet-driven
kiosk, it will accept all major credit cards and provide instantaneously
the printed e-ticket. It will also provide information on fares, the
departure and arrival timings of Paramount Airways flights and details
of its frequent flyer programme.

Apart from the classification provided by Adrian Payne and Christopher

Lovelock, the following may be considered for a broader understanding
of classes of services.
(I)

Consumer Service
1. Food Services, 2. Hotels and Motels, 3. Personal Care Services, 4.
Car Service firms (Garages), 5. Entertainment Services, 6.

(II)

Transport Services, 7. Communications Services, 8. Insurance

Services, 9. Financial Services
Industrial Service
1. Financial Services, 2. Insurance Services, 3. Transport and
Warehousing Services, 4. Engineering Services, 5. Advertising and
promotion Services, 6. Office Services, 7. Management
Consultancy Services.

Philip Kotler Classifies the Services as follows*

(1)
Pure Tangible Goods
The offering consists primarily of tangible goods such as soap,
toothpaste, or salt. No services accompany the product.
(2)
Tangible goods with Accompanying Services
The offering consists of tangible goods accompanies by one or more
services. Levit observes that the more technologically sophisticated is
the generic product (e.g. Computers), the more dependent are its sales
on the quality and availability of its accompanying customer services
(e.g. repairs and maintenance, application aids, operator training,
installation advice, warranty fulfillment). In this sense, General Motors is
probably more service-intensive than manufacturing intensive. Without
its services, its sales would shrivel
(3)
Hybrid
The offering consists of equal parts of goods and services. For example,
diners patronize restaurants for both food and service.
(4)
Major service with accompanying minor goods and services
The offering consists of a major service along with additional services or
supporting goods. For example, airline passengers buy transportation
service. The offer includes some tangibles such as food and drinks, a
ticket stub, and an airline magazine. These services require a capital
intensive good - an airplane for its realization, but the primary item is
a service.
(5)
Pure Service
The offering consists primarily of a service. Examples include babysitting, psychotherapy and massage.
*Marketing Management by Philip Kotler PP 429.
The categories of services mix as shown by Philip Kotler, point out
certain generalizations about services:
(1)
Equipment-based Services: Services may be equipment-based or
people-based. Automatic car washes, vending machines etc., are
examples for equipment-based services. Repairs of watches, television,

two wheelers, accounting services etc., are people-based services.

People involved the performance of services may be unskilled, skilled or
professionals.
(2)
Clients presence: The presence of client is required for the
performance of certain services. For example, hair dressing, brain
surgery. But a watch repair does not require the presence of customers.
When customers are present, the service provider must take into
consideration the special needs of the client. In order to attract clients,
attention may be paid to shop dcor, background music, light
conversation with clients, etc.
(3)
Personal Services vs Business Services: The services are rendered in
order to meet the personal needs or business needs of the customers.
For example, when the physician attend the patients visiting his clinic,
the personal needs of the clients are met. If the physician conducts a
general medical check up for the employees of an organization on a
prepaid company health plan, the business needs of the company are
met.
(4)
Objectives and Ownership: Service providers differ in their
objectives and ownership. The objectives of the performance of services
may be for a profit. But non-charity organizations operate on non-profit
basis. Further, the ownership of the service unit may be public or
private. Depending upon the ownership, the price and quality of the
service differ.
Differences between Goods and Services
Generally, it is regarded that a good is a thing and a service is and act. In
other words, goods represent an object, or material whereas services is a
deed or a performance. Both services and goods are interlinked. For example,
the airline passenger while availing the services of airport enjoy consumption
of food, etc., So, it is comparatively difficult to conceive a pure service or pure
good. Apure good gives benefits containing no element of service. Likewise, a
pure service would contain no element of goods. Goods can be physically
touched and verified. They can also be carried home and can be stored at a
place. But services like banking, insurance, personal care, baby sitting,
transportation etc., cannot be stored at a place. The effects of services
include, pleasure, entertainment, relief from ailment, etc. The differences
between goods and services may be studied under the following heads:
1.
3.
5.
7.

Tangibility,
Heterogeneity,
Resale,
Small Firm Size

2. Transportability,
4. Existence,
6. Storage,
8. Difficult quality control,

9. Labour Intensity,
10. Legal and Ethical Barriers,
11.
Fluctuating demand,
12. Sampling,
13.
Restricted Applicability of a Portfolio Theory 14. Establishment of
Large Market Shares.
(1)Tangibility
Tangibility
Tangibility means anything which can be viewed or touched or felt.
Services are intangibles as they cannot be seen tasted, felt, heard or
smelt before they are bought. Services are intangibles as it is not
possible to view them. But goods are tangible economic objects. They
are capable of being seen, touched, tasted, heard or smelt. We can only
realize the services used by us. A service by nature is an abstract
phenomenon and carries intangible perceptions. According to Carman
and Uhl, A buyer of products has an opportunity to see, touch, hear,
smell or taste them before they buy. But these things are not possible
in case of services.
(2)Transportability
Goods can be transferred from one place to another. Manufacturers
transport goods form factory to the market. Customers carry home
goods bought by them. So, there is transfer of goods from the point of
sale to the point of use. Thus, transferability of goods necessitates a
physical distribution channel. But it is not possible to physically transfer
the services from the point of sale to the point of use. Many service
businesses either use electronic channels (computer, TV, Radio) or
contact the customers personally. As physical distribution channel is
absent in case of services, there is no need of intermediaries like
wholesalers or retailers as in the case of goods.
(3)Heterogeneity
Services are heterogeneous in nature. For the diagnosis of the
physician, the physical presence of the patients is essential. Services
vary according to the customers as services are created according to
the specific needs of the customers. The heterogeneity of service
makes it difficult to establish standards. However, the variability of
service is less in case of machine oriented service. Due to services
variability, the service provider is not able to provide a consistent
quality in operation. This heterogeneous nature is not true with goods
or products. Use of technology has made possible large scale
production of goods in anticipation of future demand. The quality of
goods produced is identical.
(4)Existence
Services are non-existent in nature. They can only be realized by
availing them at the time of their production. But goods are existent.

So, the goods produced at one point are distributed by others at other
points. Since goods are existent, they are produced, sold and then
consumed. But services are sold, produced and then used.
(5)Resale
Goods manufactured at one point are made available for distribution at
different centres. Physical inspection of goods is possible before they
are bought. The physical attributes of goods such as colour, size, shape,
taste, etc., can be determined in advance of their purchase. But it is
highly difficult for the customer to evaluate in advance the quality of
service. Moreover, when goods are sold, the ownership is transferred in
favour of the buyer. But sale of service does not result in transfer of
ownership. So these two attributes, namely, physical inspection and
transfer of ownership permit the intermediaries such as wholesalers
and retailers to purchase goods for resale.
(6)
Storage
As services are perishable, they cannot be stored. Service value exists
only at the time it is produced. Unutilized or underutilized services are
regarded a waste. Vacant rooms in a lodge, vacant beds in a hospital,
unsold seats in the aircraft, unbooked marriage hall all represent a
permanent loss. If the service provider fails to sell the services, it may
be lost forever. But products like machines, equipment, soap,
toothpaste can be preserved till they are sold.
(7)Small firm Size
As services are not transportable, many service firms remain small in
size. As a matter of fact, the small size does not permit marketing
sophistication. Though service organizations like accounting and
advertising agencies tend to be big, they are divided into smaller
branch offices. Efficient service companies are known for adopting a
marketing plan. They respond positively to the ever changing market
conditions. The marketing process employed by them is the same as in
the case of tangible products. Service firms being small and single unit
operations are not able to fully realize the economies of scale. But
organizations marketing tangible goods are generally big in size and are
able to realize the economies of scale.
(8)Difficult Quality Control
Quality should be the mantra and be included in all operations of the
organization. It is difficult to define the quality concept. The service
provider can exercise quality control through standards or specification
in the manufacturing process. From the point of view of customer,
quality occurs only when the services provided to them satisfy their
needs. The idea of quality is, thus, strongly linked to the needs and
expectations of the customers. It is very difficult to achieve quality in

services as many services are provided only at the point of sale.

Consumers find it difficult to judge the quality of service as they have
less information about the quality of service offered. But control of
quality is easy in respect of tangible products as they have physical
features. These physical features can be objectively controlled in order
to provide quality products to customers.
(9)Labour Intensity
Generally, service organizations are labour - intensive in nature. This
factor prevents many service organizations form realizing economies of
scale. As services are intangibles and consumed simultaneously with
production, it is difficult for the service provider to increase his output.
Many services are personally produced considering the specific needs
of the individual client. But in case of tangible products, it is easy to
apply assembly line techniques for the reducing the number of workers.
(10)
Legal and ethical barriers
Service units are increasing. There has been a significant move towards
service industries from manufacturing activities. As a result, a large
number of Small Service Business Enterprises (SSBES) have emerged
which compete for market share by expanding the service offered. But
professional ethics prevent many service providers from practicing
certain kind or marketing activities. Pressure from respective
associations prevent professionals such as doctors, attorneys, chartered
accountants from developing marketing programmes of their choice.
(11)
Fluctuating Demand
Services are of perishable nature. Like manufacturing, services cannot
stock their output in a warehouse till demand materializes. Matching of
supply and demand is difficult in service marketing. When demand is
less then capacity, then the cost of services will be more. As a result,
profitability will come down and the provision of such a service will
remain unproductive. On the other hand, if the demand far exceeds
supply, it cannot be met satisfactorily by the service organizations. But
the manufacturing organizations can store goods for a later sale. So,
they can meet any excessive demand by supplying the goods from
warehouse. The variability of service output poses challenges to service
providers. Brand building in service is very difficult when compared with
tangible goods. It is relatively easy for the marketer of tangible
products to incorporate quality control measures into production
processes. In case of providing service on a one-to-one basis, such as
hair dressing, standardization of output also becomes difficult.
(12)
Sale through sample
Sale through sample is not applicable in case of services. Tangible
goods bought by one can be resold. The owners have a legal right to

resell them. Products like groceries, grains, rice etc., are popular for
sale by sample. But we cannot do the same with services. If we book a
room in a hotel, we do not have the right of reselling it. Goods are
tangible economic products that are capable of being seen and
touched, heard or smelt. By examining a small portion of the
agricultural produce like grains, the characteristics of the whole lot can
easily determined. This facilitates sale of tangible goods through
sample.
(13)
Measurement of Service Quality
In case of tangible goods, their quality can be assessed by examining
them. If products do not conform to specifications, they can be rejected.
But services cannot be measured or verified before sale. Since service
is inseparable from the service provider, the delivery of service greatly
influences its quality. The intangibility of most services do not allow
assessment and evaluation of service quality. Moreover, setting
standards is difficult as services vary from person to person.
(14)
Establishment of Large Market Share
Generally, goods are produced before they are sold while services are
sold before they are produced. Further, services marketing has a limited
influence on consumers before the purchase is made. Normally,
customers must experience the intangible services in order to have
sufficient information about the service. So, services marketing starts
with the critical needs identification in the market. But the entry into
market for intangible services is comparatively easier when compared
with tangible goods. Service industries present fewer barriers to enter
the market. Thus, competitors may easily gain an entry into the service
market. Thus, competitors may easily gain an entry into the service
market, being lured by the profitability of a particular kind or service. As
a result , there will be a mushroom growth of service firms marketing
similar services. The existence of a large number of fast food
franchisers is an example of this fact. Moreover, service firms being
small in size are not able to realize economies of scale by acquiring a
large market share.
The following is a comparison between services and goods on aspects such as
(A) Characteristics; (B) Market Planning; (C) Marketing Strategy; (D)
Operations; and (E) Organization.
A Comparison between Services and Goods
Dimensions
A. Characteristics
1. Entity

Services

Goods

Intangible

Tangible.

2. Storage
3. Quality
4. Producer
Status
5. Labour
Intensity
6. Life
B. Market Planning
7. Demand
8. Supply
9. Title
10. Seasonality
11. Consumer
reaction
12. Pricing
13. Need
satisfied
14. Basis of
Competition
15. Channels
16. Repairs
17. Replacement
18. Forecasting
19. Forecast
20. Image
21. Physical
movement
22. Cost
allocation
C. Marketing
Strategy
23. Orientation
24. Focus
25. Approach
D. Operations
26. Production
27. Customer
involvement
28. Physical
Presence of the
customer
29. Physical
Surrounding

Not Possible
Varies with time and
person
Inseparable from
service
High
Stillborn

Possible
Standardized
Separable from goods
Low
Longer

Fluctuating
Constrained
No ownership
Present
Spontaneous
Labour-based
More emotional
Personalization

Stabilized
Flexible
Possibility of ownership
Goods Specific
Delayed
Material-based
More physical
Technology

Shorter Direct
Impossible
Rare
Short run
Consumer behavior and
arrival time
Corporate
Of the provider

Lengthy in most cases

Possible
Common
Long run
Products to place to
inventory
Brand
Of the goods

Difficult
Easy
External and Internal
Customer Expectation
Focused

Internal
Customer needs
Can be diffused

Spontaneous
High

Time spread
Low/absent

Essential

Hardly necessary

Very important

Not so important

Only for routine services

All over

30. Standardizati
on
31. Facility
Location
32. Facility
Design
33. Product
Design
34. Process
Design

Close to customers
To accommodate
physical or
psychological needs
Environment plays a
vital role
Immediate effect on
Consumers
As per customer interest
Smoothing results in
losses

Near supply
To enhance production
Only physical product
Customers not involved
Completion date
Possible
Raw Material
Fixed
Zero defect
Technical
Tight
Average
Unit based
Generally hard
Separate from
production

35. Scheduling
36. Production
Personnel
Planning
Variable Standards
37. Inventory
Zero defection
38. Quality
Interaction
Control
Loose
39. Quality
Fluctuation
Objective
Time based
40. Worker skill
Generally soft
41. Time
Along with production
Standard
42. Capacity
Planning
43. Wage
payment
44. Type of
technology
45. Delivery
Summary
E. Organization
46. Structure
Flatter
Taller
Services
is taking
place
all
over
the
world.
Today, we live in an
47. revolution
Role of higher
Supportive
Demanding
economylevels
which is service-oriented. A service is an activity or benefit that one
48.
Communicati
party offers
to another that
is essentially intangible and
does
not result in the
Criss-cross
Mainly
vertical
on
ownership of anything. ItsOrganic
production possesses certain
characteristics that
Rational
49.
Desired
suggest some marketing approaches for the adoption of service providers.
design
The characteristics
of services include intangibility, inseparability,
(Source:
Services
Marketing
Management,
By B. Balaji,
Chand &
heterogeneity, perishability, and
non-transfer
of ownership
etc.S.Further,
inCo.
order
Ltd.,
PP19-20)
to have a better understanding of services, they are classified on suitable
basis. As such, the broader classification of services is consumer services and
industrial services. It is comparatively difficult to conceive a pure service or
pure good. A pure good gives benefit containing no elements of good.
Likewise, a pure service would contain no element of service. Goods can be
physically touched and verified. But services are intangible and only their
effects could be known. The effects of services include pleasure,
entertainment, relief from ailment etc. The primary differences between

Objective Type Questions

I.

II.

Fill in the blanks with correct answers:

1. ________________are activities, benefits or satisfaction which are
offered for sale in connection with the sale of goods.
2. _______________ are produced and consumed simultaneously.
3. When an offering consists primarily of a service like baby-sitting,
it is called ____.
4. The character which prevents services from being stored is known
as _________.
Choose the best answer from the following
1. A Service is
(a) Primary activity
(b) Complementary
activity
(c) Not a physical product
(d) All of the above
2. Professional services are characterized by
(a) Advisory and problem solving
(b) Provision of tangible
goods
(c) Tangible goods and provision of service.
(d) Provision of
intangible goods
3. Where the user pays for each specific service provided, it is
called:
(a) Discrete transaction
(b) Continuous delivery of
service
(c) Customization
(d) Tutor relationship
4. Member relationship exists in case of
(a) Public transportation
(b) Movie theatre
(c) Restaurant
(d) College enrolment
5. Inseparability of services results in

III.

(a) The customers being co-producers of the service

(b)Service perishability
(c) Unpredictability of demand
(d)Reduction in perceived risks
State whether the following statements are True of False
1. The lack of transportability of many services has encouraged the
development of small firms.
2. As many services are offered at the point of sale. Standardization
in the level of service and quality are difficult to achieve.
3. The labour-intensive nature many service organizations has made
possible realization of economies of scale.
4. Service industries tend to be labour-intensive while
manufacturing is more capital intensive.
5. The tangibility of services makes advertising and promotion more
difficult than for products.
6. Products that are primarily intangible are classified as services.
7. Services are first produced, then stored, and finally sold and
consumed.
8. Services cannot be stored for sale or use later.
9. Where services are people changing or people procession. The
degree of heterogeneity will be greater.
10.
The service product is the core performance purchased by
the customer.
11.
Services are non-standardized and there will be uncertainty
about the outcome of the service purchased.
12.
Inseparability of services leads to customers having to
travel to the point of service production.
Answers for the Objective type Questions

Answers for fill in the blanks

1. Service

2. Services 3. Pure Service

4. Perishability

Answer for the Choose the best answer

1. (d)

2. (a)

3. (a)

4. (d)

5. (a)

Answer for True or False

1. True

2. True

3. False

6. True

7. False

4. True
5. True
8. True
9. True
True

10. True

11. True

12.

REVIEW QUESTIONS
Part A
1. Define services.
2. State the characteristic features of services.
3. Name few service sectors.
4. What are pure services?
5. What do you mean by intangibility of service?
6. What do you mean by heterogeneity of service?
7. Write a short note on perishability of service.
8. Mention any four bases for classification of services.
9. Mention any four bases for classification of services.
10.
What do you mean by customization of services?
Part B
1. Explain the reasons for fluctuations in demand for services.
2. Explain the classification scheme for services on the basis of the nature
of the services.
3. Describe the classification scheme for services on the basis of the types
of relationship between the service organization and its customers.
Part C
1.
2.
3.
4.
5.

Explain the differences between goods and services.

Explain the differences between goods and services.
Services possess some key distinguishing characteristics Discuss.
Discuss the concept Services.
Discuss the characteristics of services marketing.

Chapter 3
Service Design
A service involves creation and delivery of core benefits in order to
satisfy an identified need of the customer. As a process, it refers as to how a
service is provided or delivered to a customer. In a competitive market, the
importance of the actual process in service delivery has been recognized. The
service providers have developed the service process as a tool for gaining
competitive advantage. Use of technology has enabled the service sector to
design the processes effectively. Service design depends upon customers
expectations from the service and performance standards required to satisfy
them. Organized efforts are undertaken to solve issues relating to location,
facility and design layout for definitions for service providers. The concept of
service design can be understood clearly by looking into its components.
Figure 3.1 shows design and delivery components.

Figure 3.1 Design and Delivery Components

From the above figure, it is understood that there are two important divisions
of design and delivery components, namely, (i) Service design and (ii) Service
delivery. Service design depends upon service requirements and service
performance standards, whereas customer expectations and customer
experience relating to service largely influence the service delivery. Service
design, in turn, consists of (a) Product design (b) Facilities design (c) Service
Operations process design; and (d) Customer service process design. The
determinants of service delivery are (i) Service encounter Environment (ii)
Provider behavior, and (iii) Customer Provider interaction.
Service product design denotes the design of the physical attributes of
the service. Every service has certain physical attributes. For example, sale of
magazines and subscription options, withdrawal of money from the bank
account through ATM (Automatic Teller Machines), various classes in the
aircraft, etc. Provision of the attributes is possible through assembly of raw
materials, developing software, etc. The service product design helps to
arrange the physical attributes of the service.

Service facility design is different from service product design. While

service product design relates to the physical attributes of a service, facility
design stands for the physical layout of the facilities where the service is
delivered. For example, car parking space, reception hall, dcor, reading
rooms etc., constitute the interior and exterior arrangements of a hotel. In
order to attain service quality, an attractive physical layout is essential where
the service is delivered. Attributes such as cleanliness, spaciousness, lighting,
communication facilities constitute the service environment where the service
is performed. Apart from these aspects of the environment, which are visible
to the customers, there are some interior portions such as kitchen, storage of
materials, accommodation for employees, etc., that are invisible to the
customers. Configuration of all these facilities largely determines the
efficiency of service.
Service operations process design refers to all those activities which are
undertaken to deliver and maintain a service. Some service operations are
experienced directly by the customers as they are treated by the employees
as soon as they enter the service organization. For example, in a hotel, warm
greeting by the receptionist, knowing the preference of the customer in room
selection, accepting credit card, allotment of room, assistance of the room
boy in carrying the luggage, etc. These aspects create a good impression
instantly.
Customer service process design relates to the interaction between the
customer and service provider. This design involves activities in addition to
the operational steps taken at the time of allotment of room. After providing a
room to the customer, greeting the customer promptly, directing his visitors
properly, knowing his food habits, arranging him transport for shopping etc.,
are some activities which relate to customer service process design. So, all
the activities involved in service operations process design and customer
service process design needs to be designed together for the appreciable
quality of the service experience.
Factors to be considered in Designing Service Process
Designing a service process system involves a careful consideration of
factors related to services. Various issues such as location, facility design, and
layout for effective work flow procedures and job definitions for service
providers, customer involvement, equipment selection, etc., should be
decided while designing service process. Apart from these, the following
factors should be considered in the process design and implementation.

(1)The service itself (2) Customer participation in the process, (3)

Location of service delivery, (4) Level of customer contact, (5)
Degree of Standardization, (6) Complexity of the service.
(1)
The Service Itself
The importance of the actual process in service delivery is being
recognized of late. By employing some principles, the service and
delivery process can be designed, implemented and monitored. The
service itself is dependent upon its process. Even intangible services
such as legal representation, equipment-based services (services
through vending machine, ATM etc., are dependent upon their process.
While designing a service, it is necessary for the service provider to
carefully understand the process on which the service is dependent.
(2)
Customer Participation in the Process
The presence of the customer is a must when some services are being
performed. The consumer is a part of the production process and there
is a close interaction between the service provider and the consumer.
For example, services in a self service restaurant, hair dressing saloon,
beauty parlours, etc., necessitate the participation of customers in the
production process. Sometimes, the customer instead of being a
passive by-stander acts as productive labour if needed. Customer
participation enhances the degree of customization. For example, the
education service rendered by a college would depend upon the quality
of student participation in the programmes offered by the college.
Through customer participation, the service provider identifies the
impact the receiver of the benefit has on the service.
(3)
Location of Service Delivery
The issues related to accessibility and availability of services is crucial.
Priority must be given in decisions about location of premises and
services distribution. Provision of service may take place at the service
providers premises or at the customers home. For example, air
conditioning and plumbing services should be provided at the
customers home, while dry cleaning of clothes is carried out at service
providers outlet. Public services such as telephone, banking, insurance
etc., should be easily accessible to the customers. Generally, the
service provider should choose to provide a location convenient to the
customers.
(4)
Level of Customer Contact
The physical presence of the customer in the system is called customer
contact. The level of customer contact can be measured by the
percentage of time the customer spends in the system relative to the
total system. The level of contact with customers largely depends upon
the type of service received. From this point of view, a service may be

high-contact service or low-contact service. Where performance of a

service is fully based on equipment (automatic weighing machines,
ATM, public telephone), the level of contact between the customer and
service provider is nil. In case of professional and medical services, the
level of contact is very high. The service system should be planned
according to high contact and low contact operations in order to
achieve overall service quality.
(5)
Degree of Standardization
The services may be standardized services or customized services. In
case of standardized services, services are delivered in a very standard
format. A standardized service is generally, designed for high volumes
with a focused service. For example, pre recorded messages provided
by telephone companies. The tasks involved in standardized services
require a workforce with relatively low levels technical skill. Service
providers deviate from the standard to meet the needs of different
customers. This is called divergence. Customized services involve high
divergence where flexibility and judgment are called for on the part of
the service provider. He interacts with the customers in order to identify
the needs of latter. The interaction between the service provider and
customer may be in terms of resources facility such as expertise, skill,
attention, attitudes, personnel, space, cleanliness etc. In other words,
interaction is more between the customer and the employees of the
service provider. Provision of customized service requires high levels of
technical skill. Generally, customized services are unprogrammed and
not well defined before they are provided. For example, counseling of
students, house decoration, tailoring etc.
(6)
Complexity of the service
Complexity refers to the number of steps involved in delivering the
service the customers. So, the degree of complexity can be measured
on the basis of the number of activities which contribute towards the
service delivery. Some services are high in complexity as well as high in
divergence. For example, a doctors service is highly complex and
highly divergent. Every case history of the patient is so different, yet
they always diagnose correctly. But catering services are high in
complexity and low in divergence.
Guiding Principles in Service Design
Service process can be designed, implemented and monitored by
employing certain principles. These principles are not different from those
relevant for the fields of manufacturing, computing and soon. Ronald T. Rust

has provided certain guiding principles in service design as shown in Figure

3.2.

Figure 3.2 Guiding Principles in Service Design

(1)
Improving Service Continually
The very important assumption in modern service marketing is that the
customers requirements are constantly changing. Goods demanded by
customers today may get rejected tomorrow. So, services must be
designed to meet the changing needs of the customers. When Titan
entered the wrist watch business, mechanical watches dominated the
market. In its effort aimed at product augmentation, Titan offered a
wide and attractive range of quality watches to customers. The watches
are all contemporary in style. New models and dials are added at
regular intervals in order to meet the changing needs of the customers.
Value added devices such as dual time, world time, alarm and long
battery life, weather reports etc., are introduced by the Titan which is
offering over 1,000 designs.
(2)
Concentrating on the areas which are most important to
customer retention
Under this principle, emphasis is placed more on customer retention
than on customer attraction. One of the basic premises in service
marketing is that customers expect many benefits from the service. So,
service marketers have to extend as many benefits as possible.
Customers compare and contrast service offering in the market in terms
of value. In fact, every benefit promised by the service carries a
measure of value to the customer. It is his perception and it is called
customer perceived value. In order to retain customers, service
providers should know how value creation satisfies customers.
Standard Chartered Bank offers global credit card to all its card-holders
while most other banks have only country specific credit cards. The
customers of the Standard Chartered Bank get a very useful service at
no extra cost.
(3)
Using Customer Satisfaction to expand revenues
The marketing concept was born out of the fact that the business
should start with the assessment of consumer wants and end with

satisfaction of those wants. It stipulates that any business should aim at

first stimulating and then meeting customers requirements. The
customer not the corporation, has to be the core of business
existence. As Drucker says, the entire business has to be seen from the
point of view of the customer. All departments of the organization
should recognize that their actions shall have a profound impact on the
companys ability to create and retain a customer. Every worker and
manager can visualize service improvement through revenue expansion
and customer satisfaction. This leads to increased market share and
larger profits, resulting in more returns to the stakeholders.
(4)
Ensuring that service improvement efforts are financially
accountable
Consumer satisfaction too, is not an end in itself. The marketing
concept does not stress that a firm must focus on consumer satisfaction
and forego its own interest. In fact, it treats consumer satisfaction as
the means to accomplish the organizational goal. The company should
treat any expenditure for the improvement of service as an investment.
The service organization is ultimately responsible to the shareholders
for getting them decent a return. Though the main object of the
organization is to satisfy its customers, service improvement efforts
should be taken just by considering the rate of return.
(5)
Delighting the customers
Competition becomes intense in the market due to the threat of new
entrants, bargaining power of the suppliers and customers, rivalry
among existing players and threat form substitutes. Marketers who are
able to satisfy and retain their customer-base become the winners. So,
the competitive advantage derived by the market through customer
satisfaction will be based on a higher order of customer satisfaction.
This extended version of customer satisfaction is known as Customer
Delight In addition to satisfying the customers, the service marketers
should delight the customers by offering surprising and exceptional
services. The concept of customer delight is practiced in the cell phone
industry. The public sector telecom corporations Mahanagar Telephone
Nigam Ltd., (MTNL) and Bharat Sanchar Nigam Ltd., (BSNL) through
their aggressive price policy keep their tariffs lower than those
prescribed by Telecom Regulatory Authority of India (TRAI). The
schemes announced by them from time to time never failed to delight
the cell phone users. The customer delight factor helps these
corporations to expand their revenue considerably.
Management model for the service design

The management model for the service design consists of eight stages,
namely, (i) defining design attributes (ii) Specifying design performance
standards (iii) generating and evaluating design concept (iv) developing
design details (v) implementing the design (vi) measuring performance (vii)
assessing satisfaction; and (viii) improving performance. Figure 3.3 shows the
various stages involved in the management model for the service design.

SERVICE DESIGN
Figure 3.3 The service design and Management model
The above model involves several stages which are explained below:
1. Designing design attributes
The various operations undertaken while defining attributes include the
following:
(i)
Identification of key customers for the service.
(ii)
Determination of the needs of the customers and how services
fulfill these needs.
(iii) Giving priority to the needs of the customers.
(iv) Specifying the attributes of the service which satisfy these needs.
(v)
Creating quantitative measures for the design attributes.
(vi) Establishing the relationship between the needs and attributes.
(vii) Finally, deciding the most important attributes.
2. Specifying design performance standards
The second step in the management model for the service design is
specifying design performance standards. Performance standards for
the design attributes are determined as follows:
(i)
Identifying the performance level desired by the customer in
relation to reach attribute of the service design.
(ii)
Studying the performance of competitors.
(iii) Establishing the relationships between the performance and
customer satisfaction.
(iv) Specifying performance standards for each design attribute.
3. Generating and evaluating design concepts
After specifying the performance standards, the design concept is
generated and evaluated. This step consists of the following activities:
(i)
Defining the key functions required for the provision of the
service.
(ii)
Assembling these key functions into processes.
(iii) Documentation of these processes with the help of flow charts.
(iv) Creation of alternative design concepts for the service.
(v)
Selection of a concept for detailed design.
4. Developing design details

After the design concept is selected, pertinent details related to that

concept are developed. The activities enumerated below are
undertaken for developing design details.
(i)
Dividing the concept into process level design details.
(ii)
Developing design alternatives for each component.
(iii) Deciding the expected performance of each design alternative.
(iv) Evaluating and choosing alternatives for each component.
(v)
Evaluating and choosing design for implementation.
(vi) Assessing the performance of overall service design.
(vii) Introducing necessary modifications to the design.
(viii) Specifying functional requirements.
5. Implementing the design
After developing the design details, the next step undertaken is
implementation of the design. The activities required for the
implementation of the design are outlined below:
(i)
Preparing implementation project plan
(ii)
Preparing a service construction plan
(iii) Preparing a pilot testing plan
(iv) Preparing a communication plan
(v)
Preparing a roll out and transition plan
(vi) Preparing a service management plan
(vii) Finally, implementing all these plans.
6. Measuring performance
After the design is implemented, its performance has to be measured.
While measuring the performance of the design due consideration is
given to the following:
(i)
Choosing the key attributes to be analyzed.
(ii)
Measuring the performance of attributes against the standards.
(iii) Measuring the capability of attributes.
(iv) Measuring the efficiency key processes involved in the design.
(v)
Designing the procedures for analysis and reporting of the
performance.
(vi) Locating attributes which fail to meet standards.
(vii) Analyzing the causes for the low performance.
(viii) Initiating corrective actions to rectify the defects in performance.
7. Assessing satisfaction
Having measured the effectiveness of the performance, satisfaction
derived by the customers is assessed. Assessing satisfaction requires
the following steps:
(i)
Measuring satisfaction derived by the customer from the
performance of the design.
(ii)
Measuring satisfaction derived from the performance of the
design against the satisfaction expected by the customer.
(iii) Measuring the customer satisfaction against the level of
satisfaction derived from the competitors.

(iv) Evaluating the customer satisfaction and arriving at conclusions.

8. Improving performance
The final stage in the management model is improving the
performance. Performance of the design can be improved through the
following:
(i)
Estimating the relationships between financial objectives and
overall satisfaction.
(ii)
Setting strategic targets for satisfaction and attribute
performance.
(iii) Determining the relationships between satisfaction and attribute
performance.
(iv) Choosing attributes for improvement and fixing targets.
(v)
Establishing the relationships between the service levels
attributes and process level attributes.
(vi) Choosing alternatives for process level improvement.
(vii) Evaluating various improvement alternatives in terms of costs
and benefits.
(viii) Selecting and implementing optimal improvement initiatives at
process level.
Services marketing System
In service organizations, various service operations are undertaken for
the provision of services. These relate to (i) Processing of inputs (ii) Creating
the elements of service product (iii) Assembling the elements of the service,
and (iv) Delivery of the service to the customers while other parts are
invisible which are known as the technical core of the system. The visible
parts are also known as front office or front stage. Likewise, the invisible
elements are known as back office or back stage. For example, in any service
organization computer system, staff training and recruitment, staff meetings
etc., constitute back office operations. The front office consists of parts visible
to customers such as car parking, waiting hall, exterior dcor, reception, etc.
According to Lovelock, the service marketing system consists of two divisions,
namely, the service operation system and the service delivery system. Figure
3.4 shows the service operation system and Figure 3.5 shows services
marketing system.

Figure 3.4 Services operation system

Services marketing system

Figure 3.5 The services marketing system
The service operation system
The service operation system is the important part of the marketing
system. The service operations system is made up of two parts, namely, (i)
front office or front stage and (ii) back office or back stage. While the front
stage is visible, the back stage is invisible to the customers. As soon as the
customers enter the service, they are exposed to the front stage components.
It is the front office where the customers are treated by the employees of the
service organization. Generally, the back office components are not
experienced by those customers visiting the service organization.
The back office is that part of the service operations system from which
the customer is excluded. Basically, it is the manufacturing side of the
service. It relates to the technical core of a service organization which is
otherwise known as decoupling. Though both back office and front office
constitute the services operation system as a whole, they are independent in
their functioning. The working of on is not hindered by the other. The
existence of these front office and back office aims at maximization of the
production process. A complex interactive process with the variable and
unpredictable customers takes place in the front office. But operations in the
back office are not influenced by the customer contact. Service organizations
which use devices such as ATMs and mechanical ticket machines encourage
hard forms of contact. Such service organizations distance themselves form
the customer. The use of back office is helpful in designing strategies for
improving or reducing customer contact.
The service delivery system
The service delivery system consists of both visible and invisible
components. It settles the issues relating to where, when and how the service

product is delivered to the customer. Since the production and consumption

processes are simultaneous, a direct contact prevails between the service
provider and the customer. However, the use of technology has considerably
reduced this personal contact while providing service. With reducing contacts
with the customer, the visible part of the service delivery system is dwindling.
Now-a-days, electronic delivery is replacing fast the manual delivery of
service. Electronic devices of delivery are accessible at any place convenient
to the customers. Customers who resist the use of electronic delivery should
be educated about the advantages of electronic delivery.
Besides the service operations and service delivery system, certain
other elements are required for the smooth functions of the service
organizations. Advertising and sales departments, telephone calls, receipt of
letter from customers, billing done by the accounting department, service
personnel, flash news in the media, contact with customer, market research
studies etc., are giving a support for the smooth functioning of the service
marketing system.
Figures 3.6 and 3.7 show the service marketing system for high contact
of service and service marketing system for low contact of service
respectively.

Figure 3.6 Service marketing system for high contact of service

Figure 3.7 Service marketing

System for low contact of service
Strategic decisions of the service process planning

While designing a service process system, factors such as location, facility design, layout
for customer and work flow, customer involvement, equipment selection, adequate service
capacity etc., should be carefully considered. After the service becomes operational, service
delivery system may be suitably modified in order to promote the overall service quality. A part
from these factors, the service planning involves consideration of certain strategic decisions.
Figure 3.8 shows the various strategic decisions involved in the matters related to service process
planning.

Figure 3.8 Types of decisions in service process planning

1. Basic technological decision
Service firms extend their operations across vast areas. So, the corporate managers
become far removed from their customers. Hence, service firms develop programmes for
building closer ties with customers. It is possible through centralization of certain
functions that do not require face to face contact. Computer technology and
telecommunication enable the service provider to provide national online service from a
central location. Service providers are able to serve customers who require information
and wish to place orders. Technology is also helpful for getting a constructive feedback
from the market. The service provider while taking technological decision, should see
whether an appropriate technology is available or not. If it is available, he may have to
develop it to deliver the service. Sometimes, the technology may be available but not in
customized form. For example, though telephone was invented in 1876 it became popular
among the public only after 15 years later. In1891, telephone became available in
customized form with the introduction of telephone dial. It was the use of telephone dial
which made the operation of the telephone easy.
2. Conversion or materials decisions
Decisions regarding conversion process are dependent upon technological, market and
economic considerations. Such dependence has made the conversion process complex.
When each person or machine engages in providing a specific service, the conversion
process becomes specialized. For example, ATM is capable of offering only a limited
range of transactions. Since the conversion process through ATM is a specialized one,
efficiency is achieved by serving a large number of customers within minimum time. But
effectiveness suffers when specialization is aimed at in the conversion process.
Effectiveness in provision of service can be achieved by the flexibility in the conversion
process. Flexibility in the conversion process means supply of broadest range of services.

While an ATM involves specialized services with no flexibility, a branch manager is

capable of providing all services related to banking.
3. Specific equipment decision
Technology is available in various forms. Advances in the form of computers and
telecommunication have expanded the information based services. Such expansion is quite
evident in all other areas of service marketing. For example, automated teller machines in
banks and self service petrol or diesel pumps make the services available 24 hours a day.
So, equipment selection of technology selection is an important decision for any service
provider. The equipment chosen must fully support the design of the service. Further, it
should be capable of creating the demand requirements for all parts of the operating
system. The service provider should carefully study the physical process of providing a
service before deciding the equipment and process technology. In other words, while
selecting the equipment for a service system, the following factors should be considered:
The type of basic conversion system, operational and strategic tradeoffs, equipment
capabilities and operational requirements, life cycle cost etc.
(i)
Type of basic conversion system
The selection of equipment for a service would depend on the type of conversion
system chosen by the service firm. There are three groups of conversion systems,
namely, (a) fixed position (b) process based; and (c) product or service based.
(a) Fixed position: Fixed position is the most simple type of service conversion
process. Under this system, the customer to be serviced remains at one station
and materials and labour needed for the provision of service are moved to that
station. Customers require the service to be performed in one location. For
example painting of a house cleaning of swimming pool, beautification of the
campus, installing equipment in playground, etc. Depending upon the nature of
equipment, the customers to be served are brought to one location. Moving the
patient to the operation theatre, X-ray machines, etc. Fixed position type of
service generally involves highly skilled personal service.
(b) Process based: Provision of some services is based on the process where
similar machines are grouped together. This arrangement enables the service
firms to produce batches of services. For example, in automobile workshops
water service can be provided in one area, tools and equipment needed for
engine work in another area, equipment needed for body polishing and painting
can be grouped together in another area. Similarly, in a vast campus of a
college, students are educated in batches who move from class to class. The
classes are grouped on the basis of discipline and are engaged by professors
belonging to that discipline.
(c) Product or service based: The product in a broader sense includes goods,
services, places, persons and ideas. A product that provides benefits can be an
intangible good. A hotel providing a service in the form of a comfortable stay, a
cosmopolitan club providing cross-cultural experience, a person preaching
religious values, an idea creating an awareness among the public are all
services. In the service based conversion system, the equipment needed for the

service are arranged according to the steps involved in the service process. The
customers to be served receive the service on a continuous basis without any
interruption. It also provides sufficient room for the installation of special
purpose equipment needed for the performance of a specific task.
(ii)
Operational and strategic tradeoffs in equipment selection
The process of equipment selection is governed by strategic tradeoffs between the
factors affecting the service process. For example, equipment are selected on the
basis of their capacity to serve customers. A fleet of small vehicles for carrying
passengers may be compared against a single large capacity vehicle remaining
partially idle till the demand from passengers ripens. In civil aviation, purchase of
wide bodied aircraft reduces the operating cost. On the other hand, several smaller
aircraft may ensure more options to the customers in terms of flights, destinations
and schedules.
(iii)
Equipment capabilities and operational requirements
There are two important aspects connected with equipment, namely, equipment
capability and operational requirement. A machine is capable of performing certain
physical activities which are better described as equipment capabilities. Capacity,
materials, range of activities and quality of output are some indicators of
equipment capabilities. Another factor defining the way the equipment is operated
is known as operational requirements. They reflect how a machine is started,
stopped, changed over from one product item to another, regulation of the speed,
etc. Further, operational requirement will have influence upon human input
(number of workers and their skills), space, utility, material input etc.
(iv)
Life cycle cost
Experts consider life cycle cost in the selection of equipment because equipment
cost determines the economies of service business. Equipment cost includes all the
expenses incurred initially such as purchase price of the equipment, installation
costs and operating costs such as labour, material, maintenance and utilities. The
entire cost of the machine after deducting the salvage value is spread over the
economic life of the machine. Reduction in salvage value on account of changes in
technology, reduced operating capacity with the passing of years and obsolescence
caused by the changes in technology are given due consideration. The net cash
outflow of money on account of investment and inflow of cash in the form of
returns from the investment are, then, discounted for the time value of money.
4. Process flow decision
Deciding on the process flow is very critical to the success of the provision of a service. In
fact, it is obviously related to the conversion decisions and specific equipment decisions.
Process involves sequencing of operations for achieving an end result in a service
organization. The equipment and people involved in the production process perform
certain operations. These operations are arranged in a sequence in order to facilitate a
smooth work flow. With a critical review of the proposed process flow, the selection of
conversion process or equipment may be suitably revised. The process flow decisions are
based on the flow process charts, blue prints, layouts and benchmarking.

5. Decision on People
The people element is very important is service marketing. It includes the service
personnel and customers who play an important role in service delivery. Since the
production and consumption of service cannot be separated, customers come into contact
with service delivery. Service organizations should also decide over the number of people
to be employed and the skills required for the effective provision of service. After
understanding the customers and the benefits they derive from the services offered, the
labour cost relative to the capital cost in the long run is decided. To a great extent, the
decision on people must be closely related to equipment and process flow decisions. The
relationship between men and machines is understood in terms adaptability. While
machines have limited adaptability of change, men are quick to adapt to changing
environment. The capabilities of machines are predetermined but people can be trained to
perform many tasks as demanded by the changing environment. Knowledgeable and
motivated workforce is always essential to have a better adaptability. Structuring the
content of service personnel is another important area of decision making. Their
responsibilities should be redefined from the view point of customers. This will win the
support of the customers over the service process of the firm.
Blueprinting
Basically, a service blueprint is a flow chart of the service process. It conveys the service
concept by showing all the elements or activities and their sequencing and interaction. It is
pictorial description of the service system showing the service at an overview level. It explains
how each job or department functions in relationship to the service as a whole. Blueprinting was
developed by Shostak in 1987. Blueprinting is a technique which enables one to understand the
totality of service as a process. As a management tool, it serves the management in the following
ways:
1. It highlights the importance of service design.
2. It focuses attention on process modeling.
3. It encourages the development of other diagrammatic techniques such as service mapping,
PERT (Programme, Evaluation and Review Technique) and CPA (Critical Path Analysis).
Flow charting is helpful in visualizing input, output and interactive process.
4. Blueprinting identifies those stages of the service that have a high statistical probability of
generating problems. Having identified the problem areas, the stages of the services can be
possibly redesigned.
5. Blueprint helps objective graphical depiction of the service. Lynn Shostack developed the
rationale behind the service blueprinting which is evident from figure 3.9.

Figure 3.9 Components of service blueprints

Components of Service blueprints
According to Rust blue printing is a technique that helps to understand the totality of a
service as a process, So that fail points, of those stages of the services that have a high
statistical probability of generating problems can be identified, understood and possibly
redesigned. There are four key actions areas (figure 3.9) in a service blue print, namely,
customer actions, on stage employee action, backstage contact employee action and support
processes.
Customer actions are marked by line of interaction. This represents direct interactions
between the customer and the organization. Whenever a customer enters the service
organization, a direct contact between the customer and the organization or a service
encounter occurs. On stage contact employee actions are those activities which are visible to
the customers. The line of visibility separates all service activities which are visible to the
customers from those that are not visible. In a lawyers office rendering legal services, the
actions of the attorney, such as the initial interview, intermediate meetings, final delivery of
legal documents are on stage activities. The backstage activities are undertaken by the
backstage contact employees. These activities intend to support the on stage activities. For
example, consulting law books, meetings with juniors before the preparation of final
documents by the attorney are known as backstage contact employee actions. The support
process section is one of the important key actions areas. The support process activities cover
the internal services, steps and interactions which support the contact employees in delivering
the service. In the above example, research by staff preparation of documents and secretarial
support to set up meetings constitute support process in the blueprints for legal service. The
line of internal interaction which separates contact employee activities from those of other
service support activities and people.
Stages in the preparation of a service blueprint
Preparing the services blueprints is the first step in developing a service process structure
that will position the firm in the competitive market. The blueprint is a comprehensive model of a
service process providing a readymade guide to identify strong and weak links in the process. The
preparation of service blue-print involves the following stages.
1.
2.
3.
4.

Put the service in the form of its molecular structure.

Divide the process into logical steps.
Recognize the variations in the process.
Identify the backstage actions in the process.

1. Put the service in the form of its molecular structure.

A service is a bundle of tangible and intangible elements. For example, in hair dressing,
tools such as hair drier, scissors etc., are tangible elements while hair cutting skill, hair
styling skill and the ambience of the saloon represent intangible elements of hair dressing
service. In the first stage of preparing molecular structure, the intangible elements are
represented by circles and tangible elements by squares. Figure 3.10 shows the molecular
structure of a hair dresser.

Figure 3.10 Molecular structure for hair dressing

The above diagram shows both tangible elements and intangible elements. Tangible
elements include hair care products, shop and equipment, while intangible elements of fair
dressing service include hair cutting stills, hair styling skills and ambience. Of various
intangible elements, hair cutting skills are the key element of the service being represented
by the larger circle. The remaining elements such as hairstyling skills, ambience and the
tangible elements are subsidiary to the customers needs for haircut. Shostack who
developed blueprinting in 1987 identified broken line squares as essential service
evidence. An essential service evidence is understood to have some special features. It is
the physical evidence required for the provision of the service but it is not available for
sale. A part from essential service evidence, there may be some peripheral tangible
evidence like newspapers or magazines meant for light reading. Though they are not
required for the provision of the core service, they enhance customer satisfaction.
Figure 3.11 shows the blueprint for unisex hairdressing saloon. A unisex hairdressing
saloon is designed to be suitable for both sexes in style or function.
Figure 3.11 Multi-staffed unisex hairdresser
(Adapted from Services Marketing by P.N. Reddy and others)
The intangible skills, namely, haircutting skills and hair styling skills are represented by
circles in figures 3.10 and 3.11.
The relative importance of these skills change in these figures. While hair cutting skills get
higher importance in Figure 3.10, hair styling skills are given more importance by putting them in
big circle in Figure 3.11.
2. Divide the process into logical steps.
The whole process of provision of service should be carefully analysed by dividing it into
many steps. Let us consider the blueprint for floating hospital service to aid hurricane
victims (Figure 3.12). The floating hospital service is divided into two major divisions (i)
Casualties brought aboard by helicopter or boat and (ii) The patient flow. The second
division is further divided into operations connected with (a) casualty reception (b) X-ray,

blood bank (c) operating complex; and (d) recovery cell or intensive care unit.
Considering another example of a small restaurant, the operations involved are as follows:
(i)
A customer arrives and sees whether a table is available.
(ii)
He orders at the table by going through the menu.
(iii)
Serving and consumption is repeated for each item ordered.
(iv)
Customer takes dessert (any sweet dish like pie, tart, ice cream) at the end of a
meal or coffee.
(v)
Table cleaning.
(vi)
The service finishes with the presentation of the bills.
Thus, the entire operations may take between 20 and 40 minutes. Care is needed to ensure
that customers do not wait unnecessarily. Proper procedures should be developed to ensure
this. The time taken for the operations can be useful in determining how many diners can
be served in one evening with existing staff levels.
3. Recognize the variations in the process.
The service personnel should carefully identify the variability in the process of providing
service. Variability may be of two types: Planned and controlled by the service provider
and unplanned. Planned services can be understood with a simple example. When the
customer asks for the type of hair dressing offered, the hairdresser plans to offer only a
limited number of options or a range of latest styles. Though customers need to know
different styles, the variability of the customer needs is controlled by the hairdresser. In
case of unplanned services, the customers do not have any pre-conceived idea about the
variability in service. They are influenced by the style followed by other customers.

Figure 3.12 Blueprint for floating hospital service to aid hurricane victims *Source: the
Hindu, September 2, 2005, Page 22)
4. Identify the backstage actions in the process.
Backstage activities are not visible to customers. But in case of service organizations like
banks, housing societies etc., the back office is visible to the customers. The front office is
that part of the system which is directly experienced and back office responsibilities is a
difficult exercise. The backstage elements are essential for providing satisfactory services.
The service provider can enhance the utility of services by properly using the blueprint.
The identification of backstage activities plays a crucial role in designing the blueprint.
Uses of service blueprint
A blueprint helps understand the totality of a service as a process. It provides a graphical
depiction of the services. The service system blueprint simplifies service complexities by
displaying the operation of an existing system. The benefits of service blueprinting can be
explained as follows:

1. A blueprint is useful in several ways in managing a service. A blueprint can be used to

improve the design for an existing service or to design a new service. When the current
operation is explicit, managers know how they will operate in the future. The service
system blueprint is task oriented. It describes about the object of the organization and
enables the company to face its competition. It performs the task in such a way that the
customers are attracted towards the organization.
2. A blueprint serves as a guide for implementing the service plan by showing the sequence
of steps needed to deliver a service. It coordinates the work done by the service personnel
in the organization by pointing out their role in the overall system.
3. Service unit managers employ blueprints in their decision-making activities. Decisions on
strategy setting, allocation of resources, integration of service functions, and evaluation of
performance, are taken with the help of blueprints.
4. Detailed service blueprints help marketing and communication people. Marketing
managers employ blueprint in consumer research in order to identify the key elements
contributing to consumer satisfaction. Communication managers use them for the
development of consumer materials for conveying the invisible actions.
5. Human resource managers use service blueprints in the preparation of job description, job
specification, job evaluation, performance standards, training and appraisal schemes and
compensation schemes.
6. Blueprinting reinforces a customer-oriented focus among employees.
7. It helps in identifying weak links in the chain of service activities and facilitates
continuous quality improvement.
8. In blueprint, key action areas are separated by horizontal lines - The line of interaction
represents the direct interaction between the customer and the organization. It illuminates
the customers role and demonstrates where the customer experiences quality.
9. The line of visibility separates activities of the front office where customers obtain
tangible evidence of the service form the back office processing. Thus, line of visibility
determines what customers should see and which employee will be in contact with
customers.
10. The service blueprint through line of internal interaction clarifies interfaces across
departmental lines thereby strengthening continuous quality improvement.
11. Blueprint illuminates the elements and connections that constitute the service leading to
effective strategic discussions between the service personnel and customers.
12. Blueprint provides a concrete basis for identifying and assessing cost, revenue and capital
invested in each element of the service.
13. Blueprint supports both external and internal marketing. The advertising agency can select
essential message for communication through an overview of a service.
14. Blueprint enables managers to identify, channel and support quality improvement efforts
of grass roots employees working on both frontline and support teams.
Process flow charts
The process flow chart is the primary tool for developing the conversion system. It
describes the conversion system by providing information about the action performed on

materials, information or people in providing the service and the relationships among the
processes. Relationships among the processes are established by ascertaining the actions which
are to be performed first, which can be performed in parallel and what has to be completed before
the next step begins. Flow process chart employs some standardized pictorial symbols to describe
the process. The important symbols include operations, customer contact, travel delay and
inspection. Figure 3.13 shows the category of symbols used and their description.
S No.
1.

2.

3.

4.

5.

Symbol
Operation

Symbol

Description
An operation
performed by the
server off-line or
customer self-service.
It is a possible service
failure point.
Customer contact
An occasion when
server and customer
interact. An
opportunity to
influence customer
service perceptions.
Travel
The movement of
customers, servers or
information between
operations.
Delay
Delay resulting in a
queue and a need for
waiting space for
customers.
Inspection
An activity by
customer or server to
measure service
quality.
Figure 3.13 services process chart categories and symbols

Process flowcharts are employed to track the flow of products, customers or information.
Figure 3.14 shows process flow chart for mortgage application and approval.

Figure 3.14 Flow process chart for mortgage application and approval

(Adapted from Services Marketing by Vasanti Venugopal amd V.N. Raghu)

Flow charts are used to explain how a service is created and delivered. It identifies each
interaction that a particular type of customer has while using a specific service.
After the interactions of the customers are identified, they are arranged in the sequence in
which they occur. The service managers identify possible bottlenecks in the process and estimate
the capacity required at each stage. They also identify the information requirement at each stage
of the process. The processes which are relevant to service organizations include line operations,
job operations and intermittent operations.
Line operations
The production of service involves a sequence of operations of activities, Service
operating and delivery processes are composed of a series of discrete activities performed by
numerous players. Logical arrangement of these operations ensures that customers are not lost in
the system. The service firm understands the nature of the process and the needs of the customers.
Customers move through a sequence of stages. The weakest links in the system and holdups are
identified and speedy performance is ensured.
Job shop operations
Since the needs of the customers are varying, the services are tailored to the specific needs
of the customers. Job shop operations help the service firms produce a variety of services, using
different combinations of activities. Job shop operations are commonly found in restaurants and
professional firms. The services providers employing job shop operations remain flexible in order
to serve better the specific needs of the customer. However, it is difficult to schedule the job shop
operations which operate efficiently and effectively to give service management considerable
promotional advantage. They offer competitive advantage by differentiating service products on
the basis of customer needs.
Intermittent operations
Intermittent operations refer to service projects which are unique in themselves. They are
infrequently repeated by remaining confined to specific projects. Examples of intermittent
operations include construction of new service facilities, the design of the advertisement
campaign, the installation of computer network, etc. Since the projects involving intermittent
operations are vast, their management is a complex task. Many project controls and scheduling
techniques like critical path analysis are employed in order to maximize the benefits from
projects.
Process layout
The layout of service organization has an impact on service quality which is two-fold.
First, it directly influences the quality perception of customers because customers interact with the

systems. If they feel comfortable with a certain system, it is probably service-oriented. On the
other hand, if they feel that they are forced to adjust to a system, then it is not service oriented.
Second, the system and routines have an internal impact on employees. If a certain system is
considered not service-oriented, they will get frustrated. So, the layout of service organization
should be considered from the viewpoints of both the customer and employees of the service firm.
For example, while designing the layout of a hospital, it is necessary to consider the relationships
among the location of reception, different wards, operating theatres and departments such as
radiology, pharmacy, pathology etc. In the layout of the hospital, the concern might be staff
convenience or patient convenience. Figure3.15 shows a scheme of layout decision-making.

Figure 3.15 Layout decision making for a hospital

Types of service layouts
The service layouts used by the service industry may be of the following 1. Process
layout 2. Product layout; and 3. Group layout
1. Process layout
In process layout, the resources are arranged on the basis of the particular stage in
the process. The layout strategy is to meet the superior needs of the organization as
well as the customers at the lowest cost. Basically, it is a type of departmental
structure. According to the process layout for hospital, various departments such as
reception, pharmacy, radiology, ward, operation theatres etc., are arranged in order
to ensure patient convenience. Figure 3.16 shows the process layout for the air
passengers.

Figure 3.16 - Process Layout for air passengers

(Services Marketing by Vasanti Venugopal, Raghu V.N)
Service providers following process layouts do specific tasks efficiently. Service tasks
organized on the basis of process layout do not stop for shortage of resources. Even if one or two
staff members do not report for duty, the service process continues. Process layout is flexible in
the sense that customers can select the resources according to their specific requirements.
Product layout

Product layout is commonly followed in service units engaged in car servicing, processing
documents, preparing fast food etc. In these cases, services become complete only when they pass
through distinct stages in the servicing process. After identifying the requirements of a specific
group of customers, resources are established in a sequential order. Customers, who are to be
served, move from one stage to another until the service is complete. For example, in car
servicing cars are washed, dried and waxed and the interiors are vacuum cleaned. Each stage is
equipped with necessary resources (equipment) in order to avoid any possible delay in rendering
the service. Queues do not form since the time spent at each stage is the same for each customer.
Product layout suffers from some disadvantages, it assumes that time spent at each stage is the
same for each customer. But depending upon the individual needs of the customers, the time spent
at each stage varies considerably.
Group layout
Group layout places resources together to serve the customers with similar needs. For
example, a restaurant located at busy centres have different serving areas, the first for hot drinks,
the second for cool drinks and the third for snacks. In banks separate counters are opened for
collection of bills and cheques, issuing cash, demand draft purchase, cash credit etc. Group layout
enables the performance of a wide variety of jobs in the same premises, thus building stronger
links with the customers. Figure 3.17 shows group layout of a restaurant situated on a highway.

Figure 3.17 Layout of a highway restaurant

Benchmarking
The concept of benchmarking owes its birth to land surveying. It is the reference point
serving as a standard for measurement. Benchmarking finds out the best performers in an area so
that one could match ones own performance with them and even surpass them. Benchmarking is
the part of the process of continuous improvement. The term benchmarking is defined as follows:
1. Benchmarking is process of identifying, understanding and adopting outstanding
practices from within the same organization of from other businesses to help improve
performance. Sarah Look
2. The practice of being humble enough to admit that someone else is better at something,
and being wise enough to learn how to match and even surpass them at it. The
American Productivity and Quality Centre
3. Benchmarking is defined as measuring the performance of a business against that of
strongest competition in order to establish best practice.

Application of benchmarking
Figure 3.18 shows the application of benchmarking in practical situations.

Figure 3.18 Application of benchmarking

1. Internal benchmarking
Internal benchmarking is a comparison between units or departments of the same
organization. Generally, it is carried out in the large organization by way of comparison
between operations units. For example, (i) the supermarket may benchmark operations
across branches, (ii) different hospitals under the same health authority, (iii) different
colleges under the same education authority, etc. Measurements of performance aim at
quality improvement, customer service improvement, and also comprehensive
improvement, customer service improvement, and also comprehensive improvement.
Customer service benchmarking has adopted by many companies such as HDFC, Infosys,
Kirloskar Curmmins, Modi Xerox, Thermax etc. Companies such as Reliance, Hindustan
Lever, Maruti Udyog, Hero Honda etc., have adopted benchmarking to improve their
comprehensive practices.
2. Competitive benchmarking
Competitive benchmarking is a direct comparison of ones own performance against the
best competitors. Since customers participate in the service process, competitive
benchmarking is applied in service environment. An airline director can understand the
practices adopted by a competitor by travelling in a flight offered to him. A comparative
impression is gained of the service of the competitor without examining the different facts
in a structured way. Competitive benchmarking is done in an informal manner.
Competitive benchmarking acts as a reference point for the purpose of measuring the
performance, process or strategies of an organization. The data informally collected enable
one to know where he stands.
3. Functional and generic benchmarking
The third approach is functional or generic benchmarking which compares the processes
or functions, against non-competitive organizations in the same technological area.
Generic benchmarking compares ones own process against the practices followed
anywhere in the organization. Specific functions like distribution and after sales service
are compared and the present status of the organization is known through analysis of data.
The concept of value added is useful by examining the difference between output and
input. The ability of the student at the time of starting the course is compared against the
ability he has acquired at the end of the course. This would be a better performance
measure for a school or college.

Service productivity: Productivity stands for the measure of relationship between input
and output. Such relationship is arrived at by dividing the output with input (output\input).
It is easier to measure productivity on an assembly line than, a service business whose
product represents customers intangible experiences. Again services themselves vary in
terms of their susceptibility to measurement. Experts have experienced considerable
difficulty in applying productivity measures in service firms. For example, quantitative
input and output measures and the relationships prevailing between them are not readily
available for a transportation service. Service productivity can be better understood by
studying the following service production concepts. (i) Efficiency (ii) Effectiveness (iii)
Economy (iv) Production function; and (v) Capacity utilization.
(i)
Efficiency: Efficiency signifies the rate at which inputs are converted into outputs.
Efficiency in provision of service enables the service provider to secure the
maximum output from the minimum input. For example, in a fast food efficiency
in operation. Because waiting in line for service can be boring or cause irritation,
especially when one is hungry. Consumer inputs (information and materials) are
necessary for an adequate outcome in services such as marriage counseling,
personal training, dissertation, advising, weight-reduction programmes, etc.
Services can be created only by dealing with the customers efficiently.
(ii)
Effectiveness: The difference between efficiency and effectiveness is very
important for a service provider. Efficiency is doing things right while
effectiveness is doing right things. The interpretation of this statement amounts to
say that efficiency is the rate at which inputs are converted into outputs and
effectiveness, the extent to which purposes are being achieved. While efficiency
places and emphasis on quantitative measurement, effectiveness stresses
qualitative measurement. A service organization is more effective, if everyone is
working to accomplish the same goals. The service strategy should amply indicate
to the employees and customers exactly what the organization is, what the
organization does, and what the organization believes in. To be effective, the
service strategy must also identify the customers who will be served and the value
they will receive.
3. Economy
In service industries, productivity is achieved with the pursuit of economy in operations.
The form of simplifying work routines, hiring workers as cheaply as possible to perform
repetitive tasks, reduction in employee turnover, reducing the negative aspects of jobs,
recruiting and retaining the best available employees, use of technology to control quality,
minimization of training etc., are some devices for attaining economy in operations.
4. Production function
The service sector will show more progress than manufacturing sector in productivity
improvement, There are encouraging signs that service are beginning to catch up with an
emphasis on productivity. Using technology to replace laour, permitting customer-selfservice, reengineering of processes for avoiding unnecessary steps and speeding up
operations etc., have resulted in effective utilization of resources, The capacity to produce

relevant service has led to a perceived value in appreciating the quality and convenience of
services.
5. Capacity utilization
Productive capacity refers to the resources or assets that a firm can employ to create goods
and services. Capacity utilization is measured with the ratio of intermediate output to final
output. For example, the capacity utilization in a restaurant is measured by the percentage
of seats occupied up by customers. The number of hours that facilities, labour and
equipment are productively employed in revenue operation and the percentage of available
space that is actually utilized in revenue operations are the important measures of capacity
utilization. Many service firms have constraints in the form of limited facilities. Number
of rooms in the hotel and hospital number of seats in the aircraft, number of seats in the
course offered by colleges etc., are limited and they constrain the capacity of the service
firms. Understanding the primary capacity constraint, a service firm should make full
utilization of its capacity.
White collar Productivity
Workers may be divided into two categories, namely, blue collar worker and white collar
worker. The blue collar worker belongs to a category in which tasks are standardized and
repetitive. Railway porter, catering assistant, bus driver etc., are blue collar workers. The details
of a working day for a blue collar worker are clearly determined in advance. The particulars of
tasks to be accomplished and time taken to perform them are specified. As regards the blue collar
work, the tasks to be performed and time taken to do them are left to the own judgment of white
collar workers. The white collar worker performs a variety of jobs involving different sets of
authority, responsibility and duties. The process of measuring white collar productivity is fraught
with the following difficulties (i) difficulties in deciding white collar productivity (ii) undue
importance given to measurement of activities rather than the results (iii) hogged effect in the
sense that input may not show up in output until sometime later (iv) difficulties in determination
of quality of output (v) not maintaining the difference between efficiency and effectiveness
(efficiency is doing things rightly while effectiveness is doing right things. Naturally, the white
collar worker is efficient at developing reports but ineffective by attending meetings and work
outside the area of expertise (vi) tendency of the white collar workers towards measurements is
that they are not accustomed to being measured.
Though difficulties are experienced in measuring white collar productivity, they can be
overcome by giving work. The issues which are worthy of consideration include: (i) the inputs
should be straight forward by prescribing the number of hours worked, number of hours paid,
resources issued, etc. (ii) Understanding the creativity of while collar employees in developing
and implementing new ideas. (iii) Knowing how far the working day is efficient and effective (iv)
knowing the extent of satisfaction derived by the customers from the white collar worker (v)
knowing the capabilities of the white collar worker in crisis management and his ability to handle
non-standard situations (vi) studying the communicative skills and success of the white collar
worker in keeping others properly informed.

Productivity indicators
The term productivity stands for the measure of relationships between an input and output,
namely, productivity = Output/input. For the manufacturing industry as whole, total productivity
is measured as follows: Total productivity = Total output/sum of all inputs while measuring total
productivity, the specific measures used include:
P = [Production / machine hours]
P = [Production / number of employees]
P = [Sales / number of square feet]
P = [Passenger miles / number of guards]
The figure 3.19 shows productivity indicators of hospitals.

Figure 3.19 Productivity indicators of hospitals

Reasons for low productivity in service industries
According to Peter Drucker, managers in service industries are beset with the problem of
low productivity. They are under the compulsion to raise the productivity of knowledge and
service workers. The following reasons are attributed for the low level of productivity prevailing
in the service sector.
1. Service industries need team development
Services are marked by certain unique characteristics resulting in certain unique problems.
Service provision is a team-task rather than an individual one. A network of employees is
involved in providing service and generating customer satisfaction. There will be
employees who come into close and lengthy contact with the customer. There will be
those who come into contact with the customers for a very short duration. There will be
employees who take care of the backroom activities. All these employees should combine
and generate customer satisfaction. Team development, therefore, becomes especially
important in service marketing. Services marketers have to develop teams and ensure that
personnel work as teams. Failure to develop a team work will adversely affect the
productivity in the service sector.

Figure 3.20 Indicators of hotel productivity

2. Service industries are labour - intensive
Services are highly people-intensive unlike physical products which are material intensive.
While in the case of physical products, a bad product can be taken back or replaced. But a
bad service rendered cannot be taken back or replaced. So, it has to be performed right the
first time and every time. This obviously means people matter a great deal in service
business. To increase output in service firms larger and larger amounts of labour are
needed.
Tangible goods production is most often capital-intensive. This means that
increasing output needs more capital in the form of more and better machine technology. It
is comparatively easier to lower per unit cost of output in capital-intensive industries than
in labour-intensive industries. There has been a hike in the wages payable to the personnel
engaged in the provision of services. Service industries cannot meet the increasing cost of
labour by rising output per worker.
3. Measuring and monitoring service quality are difficult
The importance of quality assurance in service marketing can never be over emphasized.
A service must be performed right the first time and every time. The damage done on any
one occasion leaves a permanent scar and the effect of a badly rendered service cannot be
mitigated. While quality assurance is of utmost importance in services, it is highly difficult
to assure quality to the customers. Even measuring quality is difficult in services. Quality
aspects in respect of service are more difficult to define. Quality of a service includes
many subjective elements. Service quality is ensured only by enhancing productivity. In
the case of physical products, one can exercise a rigorous control over the quality of all
ingredients. But in services there is no scope for maintaining productivity through a
quality control department.
4. Most service establishments are of small size
Service firms, in general, are small in size. It is obvious that speed is a vital element in a
service offer. Both response time and actual time are important. One can always improve a
service by improving response time and actual service time. The firm should ensure that
infrastructure and man power for meeting the standard are adequate. To be effective,
employees in service business need good communication skill. So, they should be given
suitable training. Apart from this, the employees in the service firm should be given
behavioral training. It depends on whether the employee is in a high contact situation or a
low contact situation with customers. In a restaurant for example, the waiter is in a high
contact situation while the cook is in a low contact situation and is practically invisible.
Services marketers should devote particular attention to the behavioral aspects of training.
Being small in size, most the service firms find it difficult to meet the cost of training
employees in various areas of skills.
5. Using machine technology and other labour saving devices is difficult
Most service firms employ relatively a small number of people. Service workers are
generalists, not specialists. So, there is a little scope in the small firms to develop
specialization. Labour costs often constitute the largest portion of the service products

total price. In services it is extremely difficult to increase output with machines. Only
people are needed in a large number to generate an increased output. Further quality also
depends upon people. In other words, only service personnel by using technology can
satisfy customers with right quality of service. Mere use of technology cannot assure
customers quality.
Improving Productivity
Raising the productivity in service industries it the single greatest challenge the managers
are facing at present. Peter Drucker considers the diversity in knowledge, skill, responsibility,
social status and pay essential for raising the productivity of knowledge of service workers. He
further views that mere replacement of labour with technology does not raise productivity. Three
fundamental questions need to be answered in raising productivity of the service sector. What is
task? What are we trying to accomplish? Why do we do it at all?
Reengineering aims at improving various processes in order to meet the customers
requirements of quality, speed, innovation, customization and services. Nowadays, Business
Process Reengineering (BPR) is attracting the attention of large service organizations.
Reengineering involves reinventing the process to achieve a higher level of customer satisfaction.
It enables the service provider to redesign the business process by taking advantage of the
enormous potential of the computers and information technology. It strives to breakaway from the
old rules about how a service provider organizes and conducts his business. BPR simplifies the
work flow, reduces the number of stages involved in the process, speeds up customer service and
involves fewer staff.
In order to improve the productivity of a service organization, its employees may be asked
to air their views on matters affecting their work. Giving importance to the views of subordinates
will encourage them to work positively for the betterment of the service organization. It will
prove to be an important source of feedback for everyone concerned with the service. Employees
can evaluate the role of their boss by contributing their views on performance of the boss,
improvement of the existing systems, initiating action on urgent issues, keeping people well
informed and handling a disruptive employee.
The service manager should carefully decide as to what to appraise and how to do it.
Appraisal by subordinates may be encouraged since they are directly affected by the management
performance. The views of subordinates may be compared against those of management. In
concise, the following steps may be taken to improve productivity in terms of efficiency and
effectiveness.
Steps to be taken for improving productivity
(i)
(ii)
(iii)

Exercise of careful cost control by the management.

Designing jobs by the management in pursuit of productivity enhancement.
Replacing human labour with automation.

(iv)

Improving employee motivation by studying the employees perception about

organizational culture.
(v)
Making employees feel part of the organization.
(vi)
Offering rewards in commensurate with the work accomplished.
(vii) Selecting people disposed more towards productivity
(viii) Achieving the benefits of the manufacturing technology by extending the activities of
back office.
(ix)
Deployment of resources according to the fluctuation in the level of customer demand.
(x)
Encouraging more involvement of the customers in the production and delivery of
service.
(xi)
Avoiding entrusting work to highly skilled employees that could be accomplished by
untrained staff.
(xii) Improving the knowledge, skills, attitudes and behavior of existing and new staff is
sure to improve the productivity. There should be better methods of recruitment.
Training should be given to those service personnel who come into direct contact with
customers. Some visible elements of service are performed by the staff in the form of
handling queries and complaints. Staff may be encouraged to work hard by allowing
them to share the gains resulting from increased productivity of the organization.
(xiii) Reducing service levels: Reducing service levels suggests that the service provider can
reduce the quantity of service without affecting the quality of service. For example, a
doctor may spend less time with each patient he is treating. However, in case of
delivery of high levels of services, reducing service levels may adversely affect the
prospects of the service organizations.
(xiv) Substituting products for services: Substituting a product for the service can well
improve the productivity of services. For example, the telegram service has been
replaced with a new data transfer technology.
(xv) Introducing new services: An effective service may be designed in the place of a less
effective service. For example, the offer of credit card by banks has reduced the need
for an overdraft.
(xvi) Customer interaction: The measure of customer interaction may be carefully adopted
for improving the productivity of the service organization. After analyzing the
consumer behaviors and its underlying causes, consumers may be involved more in the
production process. The involvement of consumers in service delivery may be active
or passive. It is appropriate to use new managerial approaches, changed organizational
structures, the employment of para professionals and changed role of the service
manager for encouraging the active role of the customers.
(xvii) Reducing the mismatch between supply and demand: In many service organization, a
mismatch exists between the supply of service and demand for the same. A service
provider should always aim at striking a balance between these two factors. He may
use spare capacity to cope up with the increasing demand. Where demand for the
service is excessive, he may reduce the demand. Kotler has formulated the concept of
demarketing where an organization can discourage additional customers on a
temporary or permanent basis. He also uses the term syncro marketing which

explains the strategy adopted by the organization to bring supply and demand into
better balance.
Technology and service productivity
Service organization can improve their productivity by introducing systems and
technology in their operations. Under the systems approach to services marketing technology,
engineering and management sciences are implemented into service industries. The systems
approach looks at the task as a whole, the systems approach identifies the key operations to be
performed, devises new ways of performing each operation, eliminates superfluous practices
though new methods and improves the coordination of processes within the system. Also system
approach lays emphasis on alternative layouts, better job design and consideration of overall costs
of the system. The pace of technological developments in recent years has had a major impact on
service delivery process and practices. Service technologies deliver lowest cost outputs and
maximize customization for customers. Technology enables the service organizations to handle
larger volume of services, to offer multitude of services, to provide prompt service and to permit
more efficient management. Use of technology in provision of service not only achieves cost
effectiveness and customer satisfaction but makes front employees more efficient as well. They
start working faster and smarter. Employees become more capable of meeting customer needs
even the service personnel who are inexperienced can perform the sophisticated tasks quickly.
Application of technology to service activities
Technology can be applied to service activities in three ways as shown by Figure 3.21.

Figure 3.21 - Application of technology to service activities

1. Hard technology
Hard technologies substitute machinery, tools and other engineering devices for labour
intensive performance of service work. The following examples can be offered for the
application of hard technologies in the service sector.
Automatic car washes, airport x-ray surveillance equipment, automatic car parking,
automatic vending equipment, audio visual equipment, computers, the consumer credit
card and bank balance checking machine, automatic coin receivers at bridges, subway
entrances, highways and buses. Hard technologies ensure convenience to the customers.
For example, use of airport x-ray surveillance equipment in the place of a personal body
search avoids embarrassing personal search of luggage. In car wash, washing and waxing

by hand is both laborious and time consuming. But automatic car wash can serve a large
number of customers within a limited time.
2. Soft technology
Soft technology means substituting pre-planned systems for individual service operations.
Though the systems involve some technology, the basic characteristic is the system itself.
Use of soft technologies is quite common in service firms such as fast food restaurants,
safe materials, restaurants, open tool rooms in factories, open stack libraries, pre-packaged
vacation tours etc.
Fast food restaurants such as MC Donald, Wendy, Pizza Hut, Kentucky Fried
Chicken follow rationale division of labour. Use of soft technologies in these
organizations ensures the benefits in the forms of high quality, cost control, speed and
efficiency, cleanliness and low prices. Prepackaged vacation tours eliminate the need for
time consuming personal selling.
3. Hybrid technology
Hybrid technologies combine hardware with carefully engineered systems to bring greater
efficiency, order and speed to the service process. Use of hybrid technologies is commonly
found in truck routing and scheduling, banking, retailing, insurance, railways, pre order
shipment, computerized repair facilities courier service, postal services, construction, etc.
The cost of energy can be substantially saved by careful programming for types
and grades of roads location of stops, congestion of roads, toll road costs and missing
point access. A new generation of automatic teller machines will allow customer access to
personalized in information on mortgages or insurance with on the spot quotations,
information on standing orders and direct debits, travelers cheques and foreign currency
and travel insurance. Many supermarkets have installed Electronic point of sale scanning
systems. This system provides detailed information on which products are selling best and
how fast. The electronic Data interchange (EDI) system transfers orders and invoices
between computers in the retailers depots and those in their suppliers warehouses at the
press of a button. The EDI system replaces the labourious paper work replenishing orders
automatically. The insurance industry has benefited by the use of Direct line insurance
software. The telesales personnel sell the policy by incorporating underwriting decisions
in the computer software. Particulars of the caller such as age, address and the type of the
vehicle owned by him are keyed into the software programme and a quotation is produced.
Introduction of hybrid technologies in the insurance industry leads to rapid response to
customer enquiries, a good quality service and a greater degree of control. Railways make
use of electronic signal box which gives the benefits of computer based automation. It
replaces the labourious tasks of a signalman. The pre order shipment system copes with
the increased consumption of lemonade caused by high temperatures. Expecting the raise
of temperature, loads of lemons are sent in train even before orders are placed. Use of selfdiagnosing machines and modular manufacturing has helped the provision of repair
service. Courier service benefits from introduction of Technology. For example, Federal
Express uses machines which weigh a parcel, call for parcel pick up, print shipping labels
calculate the cost, invoice the customer and charge back that cost to the user department.

There is an electronic fund transfer from the customers bank to Federal express Bank in
payment of the invoice. Postal services use automated sorting and barcodes. Use of these
devices has enabled the postal services to offer a fast and reliable service. Construction
units use computer Assisted Design (CAD) technology which has decreased the design
and revision time.
Role of technology in service process
Technology is influencing the practice of services marketing. It has resulted in tremendous
potential for new service offerings. It is shaping the field of service enabling both customers and
employees to get and provide customized services. The technology has been the basic force
behind the service innovation. Automated voice mail, interactive voice response systems, fax
machines, ATMs etc., are possible only because of new technology. The role of technology and
physical aids in service delivery system are summarized below:
1. Easy accessibility of service
Internet based companies find that internet makes offer of new services possible. The Wall
street Journal offers an interactive edition where customers organize the newspapers
content according to their needs. Internet based bill paying service ensures convenience to
the customers while availing services. The connected car will allow people to access all
kinds of services while on the road. Cars are equipped with map and routing software
which direct drivers to specific locations. Accessing the Web via cell phones is possible
nowadays. Thus, technology is a vehicle for delivering existing services in more useful
ways.
2. New ways to deliver service
In addition to providing new service offerings, technology has introduced new ways of
delivering service. It is providing vehicles for delivering existing services in more
convenient ways. It is true to say that technology facilitates basic customer service
functions like bill paying, checking accounts records, tracking orders, seeking
information, etc. The face of customer service has changed with the influx of technology.
Before the development of technology every customer service was provided face to face
through direct personal interaction between employees and customers. Nowadays, large
organizations centralize their customer service functions. It is possible by establishing a
few large call centres that could be located anywhere in the world. IBMs customer service
calls are typical example for consolidation call centres by the large organizations.
Introduction of automated voice response system has improved the customer service in
telecommunications. Ford Motor Companys technology allows customers to set their own
service appointments and monitor the status of their vehicles through online. Also, a good
number of websites offer health related information.
3. Close link with customers
Financial service companies achieve a close link with their customers by employing the
latest technology. Computers are linked into clients information system. Companies
engaged in goods distribution instal order terminals, inventory control terminals of other

equipment at their customers premises. This provides the client with better service by
facilitating an integrated client relationship. Financial companies provide online financial
services. Services are provided on the basis of online orders which go directly into the
information management system without human intervention.
4. Higher level service
Technology enables both customers and employees to be more effective in receiving and
providing service respectively. Self-service technologies enable customers to serve access
to their accounts, check balances, apply for a loan and transfer money among various
accounts. Computer information system allows banks and insurance companies to furnish
data to their customers without delay. By having immediate access to information about
their service offerings, the employees are able to serve their customers well. This allows
employees to customize their services to fit the customers needs. Technology provides
tremendous support in making the employees more efficient in delivering service.
Customer relationship management and sales support software aid frontline employees in
providing better service.
5. Global reach of service
Infusion of technology in service industry offers enormous scope for reaching out to
customers around the globe. The internet is just one big service which knows no
boundaries. Information, customer service and transactions can move across countries.
The service provider can reach any customer who has access to the web. Technologybased service can be extended to the customers living around the globe.
6. Cost rationalization
Customer expectations are high because of the excellent service they receive from some
companies. They expect high quality of service at reasonable cost. Just as in the
manufacturing sector, technology can be used in the service industries. It can replace less
skilled people working in frontline service jobs. This substitution reduces the costs of
services. For example, automatic car wash and automatic cash dispenser are desired by the
customers for their promptness in work. Websites providing answers to specific disease,
drug and treatment details are another standing example for cost rationalization.
SERVICE MAPPING
Service maps show the process and structure of providing the service. Preparation of
service maps is essential in large organizations in order to enable the employees to understand the
service logic. A service map has four dividing lines namely, (i) the line of interaction (ii) the line
of visibility (iii) the line of internal interaction and (iv) the line of implementation.
The line of interaction denotes the difference between the customers and frontline
employees parts in the service encounter. The work of frontline employee is above the line of
visibility. But the work carried out below the line of visibility is out of sight of the customer. The
frontline employees and the operations support staff work in the service organization in
fulfillment of the needs of the customers. The division between these staff members is represented
by the line of interaction. The internal interactions among these members are not in the sight of
the customers. The line of implementation represents the division between operations staff and

general management services. They are not directly involved in implementing the service. Figure
3.22 denotes the four lines in the service map.

Figure 3.22 Service Map

When service maps are prepared on the basis of blue print, they make management
information about the service organization more meaningful:
(i)

(ii)

(iii)

Service maps explain how customers interact with the service organization. The
actions of the customers and the response of the service personnel are clearly shown
by service maps.
Basically, a service map is a visual representation of the structure of the service. The
additional vertical layers drawn in the diagram vividly explain the structure of the
service.
There are some backstage activities in service organization which are not visible to the
customers. These backstage activities are divided into those provided by frontline
employees, support staff and management services.
BUILDING SERVICE ASPIRATIONS

The service generating organizations build service aspirations in the process of generating
demand for the services. The aspirations may be generated in two ways, namely, generating
aspirations to serve the users and generating aspirations to use the services. Service aspirations
of organization engaged in generating services focus on offering quality services. Quality is
generally conceptualized as an attitude towards service. Customer satisfaction with service quality
can be defined by comparing perceptions of service received with expectation of service desired.
The organizations build up service aspirations in such a way that promised services are made
available to the customers. When expectations of the customers are met, then quality is regarded
satisfactory. When expectations are not met, then service quality is unacceptable. The gap
between the services promised and services offered represents the inefficiency of the organization
in building service aspirations. Generally, the professionals working in the organizations are
responsible for building service aspirations. The employees engaged in offering the services
should work with the aim of offering quality service to the customers. Lack of employeeorientation and lack of training to employees are some of the important reasons which cause a gap
between the services promised and the services offered. Employees are oriented through training
and motivation. Figure 3.23 shows the process of building service aspirations.

Figure 3.23 Building service aspirations

The potential users or prospects must be interested in using the services offered by an
organization. They must realize the importance of services to be demanded. In building the
service aspirations among the prospective customers, innovative promotional measures can be
followed. Culture is important in services marketing because of its effects on the ways customers
evaluate and use services. Development of a good corporate culture will find a basis for using the
services of different types of organizations.
Developing human resources
Use of sophisticated technologies enhances the efficiency of the service organizations.
Sophisticated technology alone will not have any impact, if the human resources in the service
organizations are not properly tapped. The performance of the service units will be commendable
only when there is a fair synchronization of information technologies and a team of personally
committed employees. It is a commonly accepted fact that generation of efficiency is substantially
influenced by the quality of human resources. Experts advocate developing quality people and
people management has been recognized as an important part of the marketing mix of service
generating organizations. Quality is an aggregation of all the properties which are essential for
generating efficiency. The human resource management is concerned with selecting and
motivating staff in such a way that maximize their ability to deliver a special standard of service
which meets identified customer needs. The figure 3.24 shows the interface between marketing
management, operations management and human resource management.

Figure 3.24 Interface between marketing management, operations management and human
resource management
The development of human resources paves the way for the formation of human capital. If
we do not mange people properly, the efforts for innovating the technology and improving quality
of services would become futile. So, the management experts all over the world give importance

to the management of human resources. Apart from obtaining subjective knowledge about human
resources, emphasis should be placed on realization of right and wrong, fair and unfair, ethical
and unethical practices.

Summary
The service process refers to how a service is provided to or delivered to a customer.
Designing a service4 delivery system is a creative process. Designing a service process
system involves issues such as location, facility, design and layout for effective work flow, etc.
the design consists of four related components namely, service product design, service
facility design, service operations process design and customer service process design. The
management model for the service design consists of eight stages namely, (1) defining
design attributes, (2) specifying performance standards, (3) generating and evaluating design
concept, (4) developing design details, (5) Implementing the design (6) measuring
performance, (7) assessing satisfaction and (8) improving performance. While designing a
service process system, various strategic decisions are involved in the matters related to
service process planning. These include basic technological decisions, material decisions,
specific equipment decision, process flow decisions and people decision. A service blue print
is a flow chart of the service process. It convevs the service concept by showing all the
elements or activities and their sequencing and interaction. It also explains how each job or
department functions in relationship to the service as a whole. The preparation of a blueprint
involves certain stages. (1) put the service in the form of its molecular structure (2) divide the
process into logical steps (3) recognize the variability in the process; and (4) Identify the
backstage elements in the process Apart from service blueprint organizations use service lay
outs which include (1) process layout (2) products layout; and (3) group layout.
Benchmarking finds out the best performers in an area as that one could match ones own
performance with them and even surpass them. The measure of relationship between input
and output is called productivity measurement. It is related to service production concepts
such as efficiency effectiveness economy, production function and capacity utilization. There
are certain reasons for low productivity in service industries. In order to improve productivity,
certain steps must be taken by the service firms. Service organizations can improve their
productivity by introducing systems and technology in their operations. Service maps show
the process and structure of providing the service. The service generating organizations build

Objective type Questions

1. Fill in the blanks with correct answer
1. _____________ refers to the design of the physical attributes of the service.
2.