Mba III Service Marketing 10mbamm314 Notes

Service Marketing 10MBAMM314
Syllabus
Module I
Introduction to services: What are services, Why service marketing, Difference in goods
and service in marketing, Myths about services, Concept of service marketing triangle,
Service marketing mix, GAP models of service quality
Module II
Consumer behaviour in services: Search, Experience and Credence

property, Customer expectation of services, Two levels of expectation, Zone
of tolerance, Factors influencing customer expectation of services
Customer perception of services- Factors that influence customer
perception of service, Service encounters, Customer satisfaction, Service
quality, Strategies for influencing customer perception
Module III
Understanding customer expectation through market research: Using

marketing research to understand customer expectation, Types of service
research, Building customer relationship through retention strategies, Market
segmentation-Process & targeting in services, Retention strategies-
Monitoring relationship, 3 levels of retention strategies
Module IV
Customer defined service standards: ―Hard‖ & ―Soft‖ standards, Process

for developing customer defined standards
Leader ship & Measurement system for market driven service
Performance- Key reasons for GAP 2- service leadership- Creation of
service vision and implementation, Service quality as profit strategy, Role of
service quality in offensive and defensive marketing Service design and Positioning - New
service development – types, stages.Service blue printing- Using & reading blue prints.
Service positioning –
positioning on the Five dimensions of service quality, Positioning on service evidence
Module V
Employee role in service designing: Importance of service employee, Boundary spanning

roles, Emotional labour, Source of conflict, Quality –productivity trade off.
Strategies for closing GAP 3
Customers role in service delivery- Importance of customer & customers role in service
delivery, Strategies for enhancing- Customer participation,
Delivery through intermediaries- Key intermediaries for service delivery, Intermediary
control strategies.
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Module VI
Managing demand and capacity – Lack of inventory capability, Understanding demand
patterns, Strategies for matching capacity and demand, waiting line strategies
Module VII
Role of marketing communication – Key reasons for GAP 4 involving communication,

four categories of strategies to match service promises with delivery, Methodology to exceed
customer expectation
Pricing of services- Role of price and value in provider GAP 4,Role of nonmonetary cost,
Price as an indicator of service quality Approaches to pricing services, pricing strategies
Module VIII
Physical evidence in services: Types of service scapes, Role of servicescapes, Frame work
for understand service scapes & its effect on behaviour, Guidance for physical evidence
strategies
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INDEX
Contents Page No
Module I ………………........................................... 3-16
Module II ………………………………………….. 17-38
Module III………………………………………….. 39-48
Module IV…………………………………………. 49-71
Module V……………………………………………. 72-89
Module VI…………………………………………… 90-109
Module VII………………………………………….. 110-127
Module VIII…………………………………………. 128-137
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MODULE-I
Introduction to Services Marketing
Marketing:
Is the task of creating, promoting, & delivering the goods/services to consumers &
businesses.
What are Services?

A service is any act or performance that one party can offer to another that is essentially
intangible & does not result in the ownership of anything its production may or may not
tied to a physical product.
If you pay a plumber to mend a dripping tap, that's a service. The plumber has agreed to carry
out a service for an agreed amount of money.
Sometimes services will be supplied with goods. A new boiler being fitted will involve both
the supply of goods (the boiler) and a service (the fitting).
Some other examples of services are:
Dry Travel
Nurseries & Childcare Garages Hairdressers
Cleaners agents
There are three stages in the Service Sector Growth:
STAGE-I (1975-80) STAGE-II (1980-90) STAGE-III (90 onwards)

Service Marketing not Distinction made between Shift in thinking to service
Distinguished traditional marketing and quality & every business &
service marketing made. household need services
marketing
Why service marketing?
Services marketing, as the label suggests, relates to the marketing of services, as opposed to
tangible products (in standard economic terminology, a tangible product is called a good).
A typical definition of a service (as opposed to goods) is thus:
 The use of it is inseparable from its purchase (,i.e. a service is used and consumed
simultaneously)
 It does not possess material form, and thus cannot be smelt, heard, tasted, or felt.
 The use of a service is inherently subjective, in that due to the human condition, all
persons experiencing a service would experience it uniquely.
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As examples of the above points, a train ride can be deemed as a service. If one buys a train
ticket, the use of the train is typically experienced concurrently with the purchase of the
ticket. Moreover, a train ride cannot be smelt, heard, tasted or felt as such. Granted, a seat can
be felt, and the train can be evidently heard, nonetheless one is not paying for the permanent
ownership of the tangible components of the train.
Services (by comparison with goods) can also be viewed as a spectrum. Not all products are
pure goods, nor are all pure services. The aforementioned example of a train ride can be
deemed a pure service, whilst a packet of potato chips can be deemed a pure good. An
intermediary example may be a restaurant (as the waiter service is intangible, and the food
evidently is tangible in form).
A service is the action of doing something for someone or something. It is largely intangible
(i,e, not material) a product is tangible(i.e, material)since you can touch it and own it. A
service tends to be an experience that is consumed at the point where it is purchased and
cannot be owned since it quickly perishes. A person could go to a café one day and have
excellent service and then return the next day and have poor experience. So often marketers
talk about the nature of a service as:
Inseparable-From the point where it is consumed and from the provider of the service.
For e.g.: You cannot take a live performance home to consume it (A DVD of the same
performance would be a product,not a service).
Intangible-And cannot have a real, physical presence as does a product,

for e.g., motor insurance may have a certificate, but the financial service itself cannot be
touched i.e., it is intangible.
Perishable-In that once it has occurred it cannot be repeated in exactly the same way
For e.g,once a 100 meters Olympic final has been run there will be no other for 4 more years,
and even then it will be staged in a different place with many different finalist.
Variability-Since the human involvement of service provision means no that two services
will be completely identical.
For e.g., Returning to the same garage time and time again for a service on your car might see
different levels of customer satisfaction, or speediness of work.
Right of ownership- is not taken to the service, since you merely experience it,
for eg, an example an engineer may service your air-conditioning, but you do not own the
service, the engineer or his equipment. You cannot sell it on once it has been consumed, and
do not take ownership of it.
Types of Service Marketing:
1. Business Services-Consultation, Banking, Insurance, Medical, Lawyers.
2. Trade Services-Retailing, Repair, Wholesale, Advertising.
3. Infrastructure Services-Communication, Transportation, Oil, Power.
4. Personal Services-Restaurants, Health Clubs, Swimming pools, Gymnasium.
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5. Entertainment Services-Cinema, Amphi theatre, FM Radio, T.V.
6. Public Services-Education, Police, Defence, P.W.D.
7. Government Services-Railways, Postal etc.
In a service, components may be tangible or tangible.
Teaching-Intangible. This is pure service.
A house coated with new paint-Tangible
8. Continuous Supply Service/Casual Supply Services: Supply of communication service-

Specialized service obtained only when needed Musician during a party in marriage
9. Service Based on Consumer Participation:
Example1: Dental Care
Example2: Beauty Parlor-In these cases consumer involvement is more.
In some cases like polishing furniture at home to improve the look. Here consumer
participation is less. Psychological satisfaction is more.
10. Machine Oriented v/s Person/Oriented Services:

a) Machine oriented Services-Telephone, Fax.etc.
b) Man oriented Services-Legal Service, Teaching.
Service marketing involves 3 types of marketing:

1. EXTERNAL MARKETING
2. INTERNAL MARKETING
3. INTERACTIVE MARKETING
1. External Marketing: "Setting the Promise"

· Marketing to END-USERS.
· Involves pricing strategy, promotional activities, and all communication with
customers.
· Performed to capture the attention of the market, and arouse interest in the service.
2. Internal Marketing: "Enabling the Promise"
· Marketing to EMPLOYEES.
· Involves training, motivational, and teamwork programs, and all communication with
employees.
· Performed to enable employees to perform the service effectively, and keep up the
promise made to the customer.
3. Interactive Marketing: (Moment of Truth, Service Encounter)

· this refers to the decisive moment of interaction between the front-office employees
and customers, i.e. delivery of service.
· This step is of utmost importance, because if the employee falters at this level, all prior
efforts made towards establishing a relationship with the customer, would be wasted.
Reasons for Growth of Service Industries:
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II. Differences between services and goods
Goods Services Resulting Implications

Tangible Intangible Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Standardized Heterogeneous Service delivery and customer satisfaction depend on
employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Production Simultaneous Customers participate in and affect the transaction.
separate from production and Customers affect each other.
consumption consumption Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
Nonperishable Perishable It is difficult to synchronize supply and demand with
services.
Services cannot be returned or resold.
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Implications of Intangibility
 A service cannot be touched

 Services cannot be patented
 Services cannot be readily displayed or communicated
 Pricing is difficult
When you buy a cake of soap, you can see, feel, touch, smell and use it to check its
effectiveness in cleaning. But when you pay fees for a term in college, you are paying
for the benefit of deriving knowledge and education which is delivered to you by
teachers. In contrast to the soap where you can immediately check its benefits, there is
no way you can do so in case of the teachers who are providing you the benefits.
Teaching is an intangible service. When you travel by an aeroplane, the benefit which
you are deriving is a service (transaction) but it has some tangible aspects such as the
particular plane in which you fly (and the food and drink which is served). In this case
the service has both a tangible and intangible aspect as compared to teaching which
has hardly any tangible aspect.
Implications of Heterogeneity
 Service delivery and customer satisfaction depend on employee actions

 Service quality depends on many uncontrollable factors
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 There is no sure knowledge that the service delivered matches what was planned and
promoted
The human element is very much involved in providing and rendering services and
this makes standardization a very difficult task to achieve. The doctor who gave you
his complete attention in your last visit may behave a little differently the next time.
The new bank clerk who cashed your cheques may not be as efficient as the previous
one and you have to spend more time for the same activity. This is despite the fact
that rules and procedures have been laid down to reduce the role of the human
element and ensure maximum efficiency.
Airlines, restaurants, banks, hotels have large number of standardized procedures.
You have to reserve a room in a hotel and this is a straight forward procedure for
which all the steps are clearly defined. Human contact is minimal in the computerized
reservation systems, but when you go to the hotel there will be a person at the
reception to hand over the key of your room.
The way this person interacts with you will be an important factor in your overall
assessment of the service provided by the hotel. The rooms, the food, the facilities
may be all perfect, but it is the people interacting with you who make all the
difference between a favorable and unfavorable perception of the hotel.
Implications of Simultaneous Production and Consumption
 Customers participate in and affect the transaction

 Customers affect each other
 Employees affect the service outcome
 Decentralization may be essential
 Mass production is difficult
Implications of Perishability
 It is difficult to synchronize supply and demand with services

 Services cannot be returned or resold
Services cannot be stored and are perishable. A car mechanic who has no cars to
repair today, spare berths on a train or unsold seats in a cinema hall represent a
service capacity which is lost forever. Apart from the fact that a service not fully
utilized represents a total loss, the other dimension of this perishability aspect is that
most services may face a fluctuating demand. There is a peak demand time for buses
in the morning and evening (office hours).
Certain train routes are always more heavily booked than others. This fluctuating
demand pattern aggravates the perishability characteristic of services.
Myths about services:

Myth is a popular belief which is over simplified that tends to explain only part of
phenomena. The following are the myths commonly held about services.
Myth1-A Service Economy produces services at the expense of other sector.
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The service sector is growing at very fast pace. Eventually advanced countries will produce
only services and there will be no manufactured goods output at all. This belief is there
because sector is growing so rapidly that other sectors cannot grow at the same pace. This
fear is baseless. In fact both manufacturing and service sector have grown.
In manufacturing sectors there are more workers than before, the manufacture sector itself
needs services. Therefore service sectors support manufacturing sector and not growing at the
expense of manufacturing.
Secondly it is fact that need for services can be felt very easily modern day consumer spend
more money on services than for manufacturing of goods.
Thirdly some services in fact aid to improve and increase production and productivity.
Myth2-Service jobs are Low paying and Low level.

Many people think service jobs are of fast food employees, hairdressers, stores, clerks etc,
this is not true. There are service sectors like law, accounting, banking and medicine etc,
which are not of low pay category, another misconception about this sector is that service
business is small in size, though it may employ a large number of people and may dominate
GDP.
Myth3-Service production is labor intensive and low in productivity.

It is a myth service labor intensive; production is sluggish, creating a drag on the economy.
While hotel, travel agency may be less capital intensive, services like
airlines,telecommunication,insurance etc, are quite capital intensive.
Myth4-Service is necessary evil for manufacturing firms.

Traditionally many manufacturers were of view that so called after sales service was only
adding to cost and in no way it is profitable. The traditional view was that service was
equated to repair, maintenance and handling of complaints. Many manufacturers view
services as a profit centre and use it as a vehicle to differentiate their product from that of
competitors.
Myth5-Managing services is just like Managing manufacturing Business.

This myth will lead us to study of “service marketing” Many felt that there was not much
difference between product and services made out to be. It was only in 1980 that it was felt
by marketers and top management personal that there is a substantial difference between the
services and product marketing.
The Services Marketing Mix
A. Traditional Marketing Mix
All elements within the control of the firm that communicate the firm‘s capabilities
and image to customers or that influence customer satisfaction with the firm‘s product
and services:
 Product
 Price
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 Place
 Promotion
B. Expanded Mix for Services (7P's).
 Product: The product concept in service sector is the way in which organization seek
to satisfy consumer need. A product here refers to ―service rendered‖
Ex: Banks come under financial Sector,
Products are: Savings account, Fixed Deposit, Recurring Deposit, Current Account,
and Loan, therefore service rendered by banks are important. Therefore the product
concept in any financial sector is the financial rendered.
Ex: Loan Sanctioning is one such service.
 Price: This is similar to the product pricing. Total price, discount, mode of payment,
price discrimination are similar to these adopted in product marketing the vital factor
in pricing the service is the quality.
Quality of service determines the price of service. Time is also a determinant of price.
Ex: The rate of interest charged on loan is the rpice, 5% interest for 2years.This is
how price is determined for the service. Price discrimination also takes place.
Similarly student‘s concession in bus fares which is different for senior citizens
indicate the price differentiated.
 Place: This refers to distribution channel of service-How the service will reach the
customer?
Ex: Location Engineering institute,Where it has to be located? How students can

get the services of getting technical education, what is the level of demand for that
courses. All these issues are considered and engineering institute is established in
place convenient to large number of students.
Thus “Place” concept is refers to the accessibility to service provided.
 Promotion: Advertising public relations are used as promotional tool in services. But
in services, provider of services themselves becomes an important element of
promotion mix.
 People: Here people refer to service provider. In a product concept manufacturer will
have control measure as manufacturing operations are concerned Consumers are not
bothered about the way in which the product is manufactured. But in case of services,
the service provider is in direct touch with the customer. His behavior and operating
process decides the product quality. If the customer is not happy with the type of
service provided the producer of the service will lose the market.
 Process: In some services, consumers also become co-producers.Ex: A self service
hotel, where food provided in the counter to get his food. Here there are no servers at
the table. In some places, consumers themselves have to put the rubbish after eating in
to a disposable bin. Therefore production process is a part of marketing mix.
 Physical Evidence: This will form a part of marketing mix. The consumers of service
cannot examine the service before purchasing it, as in the case of products. Therefore
they need tangible evidence to satisfy themselves regarding the quality of service.
Ex:College
College- *Collect prospectus or brochure
*Visit the place of check infrastructure facilities
*Gather the experience of others
Concept of Service Marketing Triangle:
What is service triangle in service marketing?

Service marketing involves 3 types of marketing:
1. EXTERNAL MARKETING
2. INTERNAL MARKETING
3. INTERACTIVE MARKETING
1. External Marketing: "Setting the Promise"

· Marketing to END-USERS.
· Involves pricing strategy, promotional activities, and all communication with
customers.
· Performed to capture the attention of the market, and arouse interest in the service.
2. Internal Marketing: "Enabling the Promise"
· Marketing to EMPLOYEES.
· Involves training, motivational, and teamwork programs, and all communication with
employees.
· Performed to enable employees to perform the service effectively, and keep up the
promise made to the customer.
3. Interactive Marketing: (Moment of Truth, Service Encounter)
· This refers to the decisive moment of interaction between the front-office employees
and customers, i.e. delivery of service.
· This step is of utmost importance, because if the employee falters at this level, all prior
efforts made towards establishing a relationship with the customer, would be wasted.
GAP models of service quality: Fig. 1
Theory of the Gaps Model
Perceived service quality can be defined as, according to the

Model, the difference between consumers‘ expectation and
Perceptions which eventually depends on the size and the
Direction of the four gaps concerning the delivery of service
Quality on the company‘s side (Fig. 1; Parasuraman, Zeithaml,
Berry, ).
Customer Gap = f (Gap 1, Gap 2, Gap 3, Gap 4)
The magnitude and the direction of each gap will affect the
Service quality. For instance,
Gap 3 will be favorable if the
Delivery of a service exceeds the standards of service
required by the organization, and
It will be unfavorable when

the specifications of the service delivered are not met.
The key points for each gap can be summarized as follows:
Customer gap: The difference between Customer expectations and perceptions – the
Service quality gap.
Gap 1: The difference between what customers expected and management

Perceived about the expectation of customers.
Gap 2: The difference between Management‘s perceptions of customer Expectations

and the translation of those perceptions into service Quality specifications and designs.
Gap 3: The difference between Specifications or standards of service quality and the
actual service delivered to customers.
Gap 4: The difference between the services delivered to customers and the Promise
of the firm to customers about its service quality.
Applications of the Gaps Model
First of all the model clearly determines the two different types of gaps in service marketing,
namely the customer gap and the provider gaps. The latter is considered as internal gaps within a
service firm. This model really views the services as a structured, integrated model which
connects external customers to internal services between the different functions in a service
organization.
Ten determinants of Service Quality:

1. Access
2. Communication
3. Competence
4. Courtesy
5. Credibility
6. Reliability
7. Responsiveness
8. Securities
9. Tangibles
10. Understanding/Knowing Customers
MODULE – II
All Marketing activities are directed towards consumers, as they initiate production of
goods/services.
The ultimate success of all economic activities depends on producing what the buyer consider
suitable. Consumer purchases goods/services based on their mental and economic forces.
The mental force creates desires and wants to satisfy pride, fear, love, fashion etc.
The Economic force is the purchasing power which may decide the buying pattern to choose
between those wants and select according to priority of consumption.
Thus the marketers prime job is to find what, when, where, how, and from whom the consumer
decide to purchase goods and services.
The purpose of market research is to gain insight into the process and critical factors that
influence the decision making of the consumer.
-Analysis of market opportunities
-Selection of target market
-Determination of marketing mix elements
All of these depend on the life style, attitude and economic condition of the consumer.
There are many factors that influence consumer behavior. Potential customers are subject to
various stimuli. Service firm must understand how the consumer would respond to different
service features,price,appeals,etc,along with major forces in the marketing environment i.e.,
economic,social,cultural factors. All these stimuli influence the buyer‘s decision making process
and evoke positive or negative response towards products/service. This is called as the stimulus
response model.
It is clear from the above that the human behavior has two components:
*Buyers Characteristics
*Buyers Decision Making Process Models of Buyer Behavior
Mktg Stimuli Mktg Buyers Response
*Process *Economic Buyers Black Box
*Product Buyers Buyers *Product/Service Choice

*Technology Decision
*Dealer Choice
*Physical Evidence *Cultural Characteristics Making
Process *Purchase
*Price *Political
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*Place 17
*Promotion
Buyers Characteristics:
Cultural Factors:
Culture refers to the values; practice or customs of the people in the society. It is the social
heritage of the society & influences the life style of the people. Every culture evolves unique
patterns of food habits, clothing and social interaction, in some cases value becomes enforced
through legal system.
Cultural factors are influenced by religion. Ethnic groups, fashion, leisure time etc.Cultural
factors are not static but adaptive.
Increased value in health in western society is an emerging cultural norm. This reflects on
changes in food consuming patterns like low calorie food, hormone free meat etc.Also growth of
gum and other health care centers increase in leisure time also has influence on use of many
services like resorts, types of holidays etc.
While in india,a higher rate of literacy in women & more working women. This gives rise to
changes in banking hours which are more convient, availability of domestic service & growth for
child care centers.
Social Factors
a. Reference Group: Primarily in the form of friends and work colleagues or secondary in
the form of remote personalities with whom there is no two way interaction.
b.Family: Marketers are interested in the roles & influence of husband, wife, children &
parents on the purchase of goods & service.
Decision regarding package holidays are dominated by wives where as decisions on financial
investments are dominated by husbands.
Personal Factors
 Buyers age & life cycle
-Food & choice of restaurant, type of insurance required, banking facilities etc.
(Bachelor, married or retired stage)
 Occupation & Economic Circumstances
 Lifestyle
 Time is valued
Psychological Factors
 Determinants are motivation, perception, liking & beliefs & attitudes influence buying
behavior.
 Motive or Drive is a need that is sufficiently pressing to direct the person to seek
satisfaction of need.
 Perception is a process by which an individual selects, organizes & interprets information
to create a meaningful picture of what he/she has seen or heard.
 Learning Theory-Suggests that a learning is produced through interplay of drives, stimuli,
cues, responses etc.This helps service firms to answer.
-How do customers learn about the services offered for sale?

-How do they learn to recall all goods & services?
-What process they develop in buying & consuming habits?
SEARCH, EXPERIENCE, AND CREDENCE

QUALITIES
One of the most significant differences between goods and services is that in
goods ―Search Qualities‖ dominate while services are dominated by
―Experience and Credence Qualities‖.
Search Qualities, Attributes that a consumer can determine before purchasing a product,
It includes color, style, price, fit, feel, hardness &smell.
Experience, Attributes that can be discerned only after purchase or during consumption,
It includes taste & wearability.products such automobiles, clothing, furniture and jewelry are
high in search qualities because their attributes can be determined before purchase.
Credence includes characteristics that the consumer may find impossible to evaluate even after
purchase & consumption. Examples are Appendix operation & brake relining on automobiles.
Search qualities are those attributes of a product which the consumer can determine before the
purchase. This is more common in physical goods. For example color, style, fit, feel, smell etc.
The second is the experience qualities, which are the attributes which can only be determined
after the purchase, or during the process of consumption. The third is the credence qualities i.e.
characteristics which the consumer cannot evaluate even after the consumption, like auto repair
or medical diagnosis.
For example, it may be difficult for a patient to assess whether or not a hospital provided
appropriate services. Such characteristics exist invariably in services.
In nutshell, most goods are high in search qualities and most services are high
in experience or credence qualities.
The following Figure gives a continuum of evaluation for different types of products based on
search, experience and credence qualities.
As services are rich in experience and credence qualities, the following important aspects related
to consumer decisions making process need to be understood.
WHAT IS MEANT BY CUSTOMER EXPECTATIONS?
Customer‘s expectation is nothing but belief about delivering of service. It is against this belief
that performance is judged. Customers compare their perceptions of performance with the actual
performance delivered. Therefore knowing “WHAT CUSTOMERS WANT” is the first step
for service provider. Not knowing “WHAT CUSTOMER WANTS COULD PROVE
DISASTER AND LOSS OF CUSTOMER”.
Among the various aspects of expectation what we need to explore is the following about service
marketing.
a. what type of expectations do customers hold about services ?
b. What factors most influence the formation of these expectations?
c. How to meet the expectations?
WHAT ARE THE VARIOUS TYPES OF EXPECTATIONS?
There are several types of expectations about service. The first one could be termed as Desired
Service and the second one as Adequate Service.
DESIRED SERVICE:
This is the level of service which customer hopes to receive or ―WISHED FOR‖ level of
performance. Desired service is a mixture of what customer believes “CAN BE” and
“SHOULD BE”.
E.g. Give a cloth to dry cleaner to remove dirt and stain. Desired service is to remove dirt and
stain. In the opinion of the customer this “CAN BE DONE” and “SHOULD BE DONE”.
Similarly if you go to a placement services to register your name, the following will be the
desired service.
a. Find you a Job.
b. Find you a right Job.
c. Find you right Job at right geographical location.
d. Find you right Job, right location & right salary.
That is what you hope and with for but you also know that due to economic reason or availability
of ideal job opening as above, you may have to think of something else. You want something but
you know pretty well that it is not possible. For this reason, a customer holds another lower level
expectation. This lower level of expectation is called “ADEQUATE SERVICE”. This level of
service is acceptable to the customer.
WHO IS A CUSTOMER
A Customer is the most important person in our office. A customer is not dependent on us, we
are dependent on him. A customer is not an interruption of/our work. He is the purpose of it. We
are not doing a favor by serving him. He is doing us a favor by giving us an opportunity to do so.
A customer is not someone to argue. No one has won an argument with a customer.
A customer is a person who brings us his wants. It is our job to handle them profitably to
him and to ourselves. Customer is always right.
DESIRED SERVICES And ACCEPTED SERVICES act as boundaries of EXPECTED

SERVICES i.e. what they desire, what is acceptable.
The important question that we need to ask is “WHETHER CUSTOMERS HOLD THE
SAME OR DIFFERENT EXPECTATION LEVELS FOR SERVICE FIRMS IN THE
SAME INDUSTRY”.
E.g Are service expectation is same from all placement bureaus? Or same for all dry cleaners?
Or same for all restaurants.
Let us take example of a restaurant. The restaurant can be classified into :
a. Fast Food restaurant
b. Expensive restaurant
c. Airport or Railway station restaurant
DESIRED SERVICE:
Customers desired service from fast food restaurant would be :
a. Quick
b. Tasty Food
c. Convenient
Customers desired service from expensive restaurant would be :
a. Fine Food
b. Excellent surroundings
c. Candle Light
d. Well dressed employees
In summary we can say that DESIRED SERVICE seem to be more or less same for SERVICE
PROVIDER.
But adequate service expectation level however is likely to vary for different firms within a
category i.e. within fast food restaurants or within 5 star restaurants, customer‘s expectation
might vary.
E.g.TAJ Group and OBEROI Group.
Expectation of adequate service could be different though both are 5 star hotels.
Types of Service Expectations:
Everyone says this restaurant is as good as one in France & I

want to go somewhere very special for my anniversary
Ideal Expectational Desire HIGH
As expensive as this restaurant is thought to have good food

& service
Normative Expectations
Most time this restaurant is good but when it gets busy the
service is slow
Experience Based Norms
I expect this restaurant to serve me in adequate manner
Acceptable Expectations
I expect terrible service from the restaurant but came

because the price is low
LOW
Minimum Tolerable Expectation
ZONE OF TOLERANCE:
Zone of Tolerance is the variation between desired service and Adequate Service.
The extent to which customers recognize and are willing to accept this variation is called ZONE
OF TOLERANCE.
If the service drops below the adequate service (the min level considered acceptable)-customers
will be frustrated & the satisfaction with the company will be undermined.
If service performance is higher than the zone of tolerance at the top end-where performance
exceeds desired services-customers will be pleased & probably quite surprised ―CUSTOMER
DELIGHT‖.
Zone of tolerance is the range or window in which customers do not particularly notice service
performance, when it falls outside the range (either +ve or-ve), services get customer attention.
This tolerance zone can expand or contract with in a customer. An airline customer zone of
tolerance will narrow when he/she is running late & is concerned about making the plane. A
minute seems much longer-adequate service level increases on the other hand a customer who
arrives at airport early have a larger tolerance level.
Different Customers possess different zones of tolerance.
*House wife Vs Working Women at shopping grocery items on week days.
When the price is more the customer tends to have less zone of tolerance about poor service.
Zone of tolerance also vary with service dimensions.
Customers are likely to be tolerable about unreliable service (broken promises or service errors)
than other service deficiency which means they have higher expectations for those factors.
WHAT FACTORS INFLUENCE CUSTOMER EXPECTATION OF SERVICE?
Customer expectation level can be divided into:
a. DESIRED LEVEL OF SERVICE
b. ADEQUATE LEVEL OF SERVICE
Now we need to analyze, what factors or what are the sources for Desired Service Level and
Adequate Service Level.
I. SOURCES FOR DESIRED SERVICE LEVEL:
Desired service level eminates from the following sources:
1. Personal need
2. Derived service expectations
3. Philosophy about services.
1. PERSONAL NEED:
Personal need could be
1. Physical
2. Psychological
3. Functional
Example : A cricket fan goes to watch a, match in the stadium. He stands in the Q, and enters the
stadium after 2-3 hours. Obviously he will be feeling thirsty and hungry. He hopes and desires
that food and drink vendor will passes through as early as possible.
Imagine another cricket fan who has brought lunch bag and water, entering the stadium by
standing in the Q. This person has Zero Level of desired service from the vendor. Personal
needs vary from individual to individual.
2. Derived Service Expectation:
Derived service expectation occurs, when another person or group of people drives customer
expectations.
E.g Take the case of an information services dept in an insurance company. The expectation of
the head of the information services is based on the insurance customer he serves. Now imagine
that the computer is down and his customers complain. The head of the IT department need to
keep the system up and running. It is not his own expectation but is derived from the pressure of
the customers.
E.g 2 A parents choosing a holiday resort for the family. Here service is chosen at the pressure of
children. Therefore parent derived this service from children.
3. Philosophy about Services:
Service Philosophy comes from those customers who are themselves in service business or
worked for a service business in the past. If you have ever been a waiter in a hotel, you are likely
to have a standard for restaurant services.
E.g You may feel that customer should not wait for more than 15 minutes to take the order. You
may be more tolerant for the little extra time that may take in the kitchen for preparation to be
ready than a person who has no such exposure.
In general, customers who are themselves in service business or have worked for them in the past
seem to have especially strong service philosophies.
II. SOURCES FOR ADEQUATE SERVICE EXPECTATION:
Adequate service means level of service the customer finds Acceptable. There are 5 factors,
which lead you to adequate service.
1. Transitory Service Intensifiers

2. Perceived Service Alternatives
3. Customers Self Perceived Service Role
4. Situational Factors
5. Predicted Service.
1. Transitory Service Intensifiers:
These are temporary in nature.
E.g Personal Emergency situations in which service is urgently needed.
E.g An accident where insurance is to be claimed or break down of an office equipment during
the busy period. These situations raise the level of adequate service expectation.
Performing a service right the first time is very important. Fixing thing right, second time is even
more critical than it was first time. Automobile repair proves this point. If there is a problem with
your automobile brakes and you send it to the service provider you expect the company to fix the
brakes. If you experience further problems with the brakes after the repair your Adequate Service
Level. Will increase. In general service recovery expectation is higher than initial service
expectations.
2. Perceived Service Alternatives: Perceived Service Alternatives are other providers from
whom the customer can obtain service. If customers have multiple service providers to choose
from or they can provide the service for themselves (cloth pressing or lawn mowing etc.) their
levels of adequate service are higher than those of customers, who believe that it is not possible
to get better service elsewhere, E.g., if you have only one hotel in your town, you have no
choice.
3. Customers Self Perceived Service Role: This means, that the customers expectation are
partly shaped by how well they believe they are performing their own roles in service delivery.
One of the key elements in the service is customer‘s active participation. When customer
believes they are doing their part in delivery, their expectations of adequate service is increases.
Eg. If your car needs a repair, prepare a list of items to be fixed. Give this list to the mechanic. In
this way you have played your role properly.
4. Situational Factors: Situation decides whether adequate service level should increase
decrease. Eg., Personal emergencies such as serious automobile accident likely to intensify
customer service expectations of the insurance companies. On the other hand, catastrophes that
affects a large number of people at one time like earthquake or flood may lower service
expectations because customers recognize that insurers are under pressure and totally submerged
with demands coming from several quarters. Customers who recognize and feel that these
contingencies are not the fault of the service company may accept lower level of service in this
given context. In general, we can say situational factors, temporarily lowers the level of adequate
service, thus widening the zone of tolerance.
5. Predicated Service: This is the final factor which influences adequate service. In this case,
customers anticipate certain performance level. If customers predict good services their level of
adequate service are likely to be higher than if the predicated service is poor. Eg., when colleges
are closed, for vacation, the expectation of the student is that, that will be faster service in the
canteen due to less students. This will probably lead them to have higher standards for adequate
service in the canteen during vacation.
Predicated service is nothing but estimate or calculation of the service a customer will receive.
Source of predicted Service :( Common factors affecting desired & adequate service)
The above are the sources of predicted services.
1. Explicit service Promises (Controllable factors by the Marketers):
There are statements made by organization to the customers. These statements could be
personal or impersonal. It is personal, if it is communicated by sales people or repair /
maintenance people. They are impersonal, when they come from advertising, or any other
written publications. One of the sources of predicted service is Explicit Service Promise.
If the service is delivered, exactly the way they are promised, then customers
expectations will be met. However this is not the case in practice. Sales Person, Over promise in
order to get orders and thereby they increase the predicted service level by the customers.
Eg: 24x7 ATM
2. Implicit Service Promises (Controllable factor by the marketers) :
Implicit Promises are those which can be got by cues such as price, tangible associated
with the service. In general, higher the price and more impressive the tangibles, the more a
customer will expect from the service.
Eg; 1. If 2 services (let us say TV or Video repair services) quote different prices, for
servicing the equipments, then, the customer feels that the service who has quoted a higher price,
gives service which is better than the one who has quoted less.
Eg., 2 : If a customer stays in a five star hotel is likely to expect higher standard of
service than the other who stays in a three star hotel.
3. Word of Mouth: Word of Mouth tends to be very important in services that are difficult to
evaluated before purchase. Word of mouth tells the customer about likely level of service. Based
on this the customer will predict.
4. Past Experience: Past experience of the customer has an effect on prediction of future
services, when you stay in a particular hotel, you are going to compare your present stay with all
other previous stays you may also compare you stay in other hotels. This past experience gives
rise to predicted level of service. It is true of hospital services, cable operator services, Telephone
services etc.,
FACTORS THAT INFLUENCE CUSTOMER PERCEPTIONS OF SERVICE :The figure

below illustrates the primary factors which influences the customer as to how he perceives the
service. There are four factors which are responsible for influencing the customer perception of
the service.
They are:
1. Service Encounters,
2. Evidence of service,
3. Image,
4. Price.
Service Encounter Evidence of Service
Perception of Service
Image Price
Service Encounter: From the customers point of view, the most vived impression of service
takes place in the serve encounter, i.e., when the customer interacts with the service firm.
For Eg., the customer goes to a Hotel and following are the encounters that he needs to face. 1.
Checking into the hotel, 2. Being taken to the room by an attendant, 3. Eating a restaurant meal,
4. Requesting a wakeup call, 5. Checking out of the hotel.
The customer would be thinking of these moments of service encounters which is as shown
below :
Check in Service Encounter for a Hotel Visit
Attendant takes room
Restaurant Meal
Wakeup call
Checkout
It is in these encounters that customers get an idea of organization‘s service quality. Each
Encounter contributes to the overall satisfaction of the customer and willingness to do business
with the organization again. From the organization point of view, each encounter presents an
opportunity to prove its quality of service and gain loyalty of customer.
Some services have few encounters and others have many. Mistakes or problems that
occur in the early level of service are particularly critical, because a failure at this point results in
greater risk for dis-satisfaction at the next level.
Service Encounter for an Industrial purchase :
Sales Call
Delivery and Installation
Servicing
Ordering of parts
Billing
Importance of Encounters: If a customer is interacting with the company for the first time, the
initial encounter will create first impression about the organization. A customer calling for repair
service on a household appliance (Say Geyser) may well hang up and call a different company if
he is treated rudely by the customer service representatives, put on hold for a lengthy period or
told that two weeks is earliest someone can be sent out to make the repair. If this is the kind of
replay a customer gets, even if the company is technically sound, in its repair service, the
company may not get a chance to do business if the initial telephone encounter drives the
customer away.
Even when the customer have multiple interactions with the firm, each individual
encounter is important in creating an image of the company in the mind of the customer. Many
positive experiences adds up to positive image of high quality, while many negative interaction
will leave the customer feeling unsure about the company‘s quality and consistency of service.
For eg., a customer wants to talk to a Nursing home regarding some health care problem.
He could have a poor encounter with the organization with regard to appointment but very
positive encounter with the Nurse and O.K. Encounter with both Lab Technician and the Doctor.
This mixture of experience will leave the customer wondering about the quality of organization
and the customer will be unsure of ―What to expect next from this organization‖.
Logically, not all encounters are equally important in building relationship. For every
organization, certain encounters are key to customer satisfaction. For eg., in the Hospital context,
a study of Patients showed that encounter with the Nurse and the Physician are more important
than the Receptionist and the Patient discharge person.
Apart from common key encounters, there are some memorable encounters like ―One bad
Apple‖, ruins the rest and drive the customer away, no matter how many are what type of
encounters have occurred in the past. These can occur with very important events, such as failure
to deliver an essential piece of equipment at a most crucial time. (life Saving Drug or X – Ray
film)
Type of Service Encounters:
A service encounter occurs every time a customer interacts with the service organization.
There are three types of service encounters. 1. Remote encounter, 2. Phone encounter, 3.
Face to Face encounter. A customer may experience any of these type of encounters alone or a
combination of all the three in his / her relations with the service firm.
Remote Encounter:
First, encounter can occur without any direct human contact such as when a customer
interacts with the bank through A.T.M. System. Or a Ticketing Machine. Remote encounter also
occurs when the firm sends billing statements or communications to customers by mail.
Although there is no direct human contact, each represents an opportunity for the company to
establish quality perception in the minds of the customers. In remote encounters the tangible
evidence of the service and the quality of technical process becomes the primary basis for
judging the quality.
Phone Encounter:
In many organizations for eg. Insurance companies, Telecommunications, the most
frequent type of encounter between the customer and the company occurs over the phone.
Almost all companies relay on phone encounters in the form of customer service, enquiry
attending and order booking. The judgment of quality in phone encounters is much more
complex than in remote encounters. Because there is a high possibility for variation in the
interaction, such as Tone of voice, Employee knowledge, Effectiveness in handing the customer.
These become important basis for judging these encounters.
For eg., to ensure quality in a Telephone encounter, when a customer telephones the firm,
if the call received by a person who cannot handle the customer, the least he could do to transfer
the customer to another executive of the company who can handle the customer and answer all
the quires.
Face to Face Encounter:
A third type of encounter is the one that occurs between the employee and the customer
in direct contact. This normally happens in a shopping situation or in a hotel or any service
organization. Determining an understanding service quality issues in Face to Face context is very
complex. Verbal and Nonverbal behaviors are both important ingredients of quality.
Also other tangible things like dress, equipment, information catalogue, physical settings
are equally important. In a Face encounter the customer also plays his role in communicating to
the organization, ―what is it that he is excepting for the present and for the future‖.
How to Measure the pleasure and displeasure in service encounters:
Due to the fact the service encounters are very important in building quality perceptions
and ultimately influence the customer satisfaction with the organization, a lot of research work
has been done to determine the sources of customer‘s favorable and unfavorable perceptions.
One such method used is called ―Critical Indecent technique‖ to get customers and employees to
provide stories about satisfying and dissatisfying service encounters they have experienced.
Customer Satisfaction v/s Service Quality:
Practioners & writers use satisfaction and quality interchangeable but researchers have
attempted to be more precise about the meanings and measurement.
Satisfaction is generally viewed as a broader concept, whereas Service quality focuses
specially on dimensions of services.
Based on this view, perceived service quality is a component of customer satisfaction
Reliability
Service Situational Factors

Responsiveness
Quality
Assurance
Empathy Customer
Product Customer
Quality Satisfaction Loyalty
Tangibles
Price Personal Factors

Eg:Service quality of an health club is judged based on attributes such as-Availability of

equipments, are in working order when needed, how responsive the staff are to customers need,
how skilled the trainers are & whether the facility is well maintained.
Customer satisfaction is broader concept & will certainly be influenced by perception of service
quality, but that will also include the perceptions of product quality, price of membership,
personal factors such as the consumer‘s emotional state & even uncontrollable situational factors
such as the wheather conditions & experience driving to and fro from health club.
“Satisfaction” is the consumer’s fulfillment response. It is a judgment that a product or service
features or the product/service itself, provides a pleasurable level of consumption-related
fulfillment‖.
In simple satisfaction is the customer‘s evaluation of a product or service in terms of whether
that product or service has met the customers need and expectations.
Failure to which leads to dissatisfaction.
In addition to a sense of fulfillment that one needs have been met, satisfaction can also be related
to other types of feelings, depending on the particular context or type of service.
Satisfaction can also be associated with feelings of Pleasure for services that makes the consumer
feel good are associated with a sense of happiness.
For those services that really surprise the consumers in a positive way, satisfaction may mean
DELIGHT.
In some situations where the removal of negative leads to satisfaction, the consumer may
associate RELIEF with satisfaction.
Finally, satisfaction may be associated with feelings of AMBIVALANCE where there is a mix
of positive & negative experiences associated with the product/service.
Determinants of Customer Satisfaction.

*Product/Service Features:
Customer satisfaction is mainly influenced by the customer evaluation of product or service
features.
Eg:A Resort hotel features-The pool area, access to golf facilities,Restaurants,room comfort and
privacy, helpfulness and courtesy of staff, room price Etc.
In conducting satisfaction studies most firms will determine through some means the important
features and attributes for their service & then measure perceptions of those features as well as
overall service satisfaction.
*Consumer Emotions:
Can also affect their perceptions of satisfaction with products and services.
These emotions can be stable, pre existing emotions.

(Eg: Mood state or life satisfaction)
Think of times when you are at a very happy stage of life (when you are on vacation) and your
good, happy mood and positive frame of mind have influenced how you feel about the services
you experience.
Alternatively when in bad mood, your –ve feelings may carry over into how you respond to
services, causing you to overreact or respond –vely to any little problem.
*Attributions for Service Success or Failure:

Attributions-The perceived causes of events-Influence perceptions of satisfaction as well, when
they have been surprised by an outcome (service-much better or much worse than expected)
Consumers tend to look back for reasons and their assessments of the reasons can influence the
satisfaction level.
Eg: Customer of a weight lose organization (VLCC) fails to lose weight as hoped and likely
search for the
Causes -Was it something he/she did
-Was the diet plan in effective?
-Did circumstances not allowed him/her to follow diet regiment
Before determining the level of satisfaction or dissatisfaction with the weight loss company.
*Perceptions of equity or Fairness:

Customers ask themselves
a) Have I been treated fairly compared with other customers?
b) Did other customers get better treatment better price or better quality service?
c) Did I pay a fair price for the service?
d) Was I treated well in exchange for what I paid and the effort I expended?
Particularly in service recovery situations notions of fairness are central to customers.
Perceptions of satisfaction with products & services
Satisfaction with a service provider following a service failure is largely determined by
perception of fair treatment.
*Other consumers, family members &Co –Workers:
In addition to products & service features & one‘s own individual feelings & belief, consumer
satisfaction is often influenced by other people.
Eg.Satisfaction with a family vacation trip is a dynamic phenomenon, influenced by reactions
and expressions of individual family members express in terms of satisfaction or dissatisfaction
with trip will be influenced by the stories that are retold among the family & selective memories
of the events.
Service Quality:
In case of pure service (HealthCare, Financial services, Education), service quality will be the
dominant element of customers evaluation.
In case of customer service or service offered in combination to a physical product (I.T services.
Auto services) service quality is critical in determining customer satisfaction.
Service Quality Dimensions:

1. Reliability (Delivering on Promises): Reliability means, ability to perform the promise to
service dependably and accurately. Reliability means that the company delivers as per the
promises. Customers want to do business with a company which keeps up the promise.
Eg, Medical Care-Appointments are kept on schedule, diagnosis prove to be accurate
Airline-Flights as promised-arrival and departure on time
2. Responsiveness (Being willing to help): Responsiveness means willingness to help customers
and provide prompt service. This deals with attentiveness and promptness in dealing with
customer request questions, complaints and problems. Responsiveness is communicated to the
customers in an indirect way as follows,
a) The length of time they have to wait for assistance
b) Answers received to the questions asked
c) How flexible and ability to provide custom built service products
e.g., Airlines-Timely, prompt, speedy system of ticketing, baggage handling efficient
Medical Care-No waiting time, willingness to listen
3. Assurances (Inspiring Trust & Confidence): Assurance means, employee‘s knowledge and
courtesy and their ability to inspire trust and confidence. This dimension is likely to be
particularly important for services that customer perceives as having high risk and feel uncertain
about their ability to evaluate outcomes.e.g. Medical, Banking and Legal Services
e.g., Medical Care-Knowledge, Skills, Good Credentials, Reputation
Car Repair-Knowledgeable mechanics who know their jobs very well.
4. Empathy (Treating customer as individual): Empathy means caring and individualized

attention to the customers. The essence of empathy is to convey the message that the customers
are unique and special. Customers want to feel that he is important to the company and to the
service provider. Personnel at small service firms often know the customers by name and build
relationship with them and meet their requirements and preferences. Such a small firm competes
with large firms; the ability to empathetic may give the small firm a clear advantage.
5. Tangible (Representing the service physically): Tangible means, appearance of physical
facilities, equipments personnel and written materials. All of these provide physical image of the
service. This is very important particularly to the new customers who will use this as criteria to
evaluate quality. A Service industry emphasizes tangibles in their strategy which includes
hospitability in services when the customers visit the establishment to receive services. While
tangibles are used by service companies to enhance their image, provide continuity and signal
quality to the customers.
Strategies for influencing customer Perception:

The following are the strategies for influencing customer perceptions.
1. Aim for customer satisfaction in every encounter
2. Plan for effective Recovery
3. Facilitate adoptability & flexibility
4. Encourage Spontaneity
5. Help employee cope with problem customers
6. Manage dimension of quality at the encounter level
7. Communicate realistically and use customers experience to reinforce images
8. Used price to enhance customer perception of quality & value.
1. Aim for customer satisfaction in every encounter:

Because every service encounter is potentially critical to retain the customer, many companies
aim for ―zero defects‖ or hundred persons satisfaction. To do this all documentation with this
regard to the customer‘s requirements should be available. The development of understanding of
customer expectation for each of these encounters is the next step. Build strategies to meet the
expectations of the customers. Items like recovery, adoptability, spontaneity and coping will help
the organization to aim at Zero Defects.
2. Plan for effective Recovery:

Service failures and sub sequent recovery create strong memories for customers. When service
customers have been disappointed on the first attempt. ―Doing it very right for the second time‖
is the essential to maintain customer loyalty. This means the service process and systems need to
analyzed to find out the root cause of failure, so that it can be rectified. Therefore every
organization must have a recovery system which should be known well to every employee in the
organization.
3. Facilitate adoptability & flexibility:

The customer‘s perception of service quality depends on the flexibility of the service provider.
This means that the system must be flexible to suit the needs of the customers.
Also it is necessary that the system should be capable of explaining.
‖Why a particular request cannot be granted‖. Knowledge of service concept, service delivery
system enables employees to inform customers ―what happened, what can be done,& why their
needs are requests cannot be accomidated‖.Such knowledge and willingness to explain will leave
a lasting positive impression on customer, even when their specific request cannot be met.
4. Encourage Spontaneity:
Memorable encounters occur for customers even when there is no system failure and no special
request.
While employee behaviors would appear to be somewhat random and uncontrollable, there are
things that organizations can do to encourage positive behavior and discourage negative
behavior.
Recruitment and selection procedures can be used to hire employees with strong service
orientation and who has natural tendency and service minded.
MODULE-III
BUILDING CUSTOMER RELATIONSHIPS THROUGH SEGMENTATION AND
RETENTION STRATEGIES
1. The objectives is to explain relationship marketing and the foundation of retention
marketing strategy.
2. Show the benefits of customer retention to both the customer and the organization.
3. Discuss how to segment and why market segmentation must be the foundation for
effective relationship strategies.
4. Present retention strategies used by organizations to build relationships with their
customers.
Relationship Marketing:
Relationship marketing (of relationship management) is a philosophy of doing business, a
strategic orientation that focuses on keeping and improving current customers, rather than on
acquiring new customers. This philosophy assumes that consumers prefer to have an ongoing
relationship with one organization than to switch continually among providers in their search for
value. Building on this assumption and the fact that it is usually much cheaper to keep a current
customer than to attract a new one, successfully marketers are working on effective strategies for
retaining customers. (easy to retain present customers. It costs roughly 5 times to find a new
customer).
It has been suggested that firms frequently focus on attracting customers (the ‗first act‘)
but then pay little attention to what they should do to keep them (the ―second act‖). Follow the
‗bucket theory of marketing‖. By this we mean that marketing can be thought of as a big bucket.
It‘s sales, advertising and promotion programs that fill the top of the bucket. As long as these
programs are effective, the bucket stays full. However, ‗There‘s only one problem if ―there is a
hole in the bucket‖. When the business is running well and the organ is delivering on its
promises, the hole is small, and few customers are leaving. When the operation is weak and
customers are not satisfied with what they get, however, people start falling out of the bucket
through the holes faster than they can be poured in through the top. Emptying is faster than
filling.
1. Goals of Relationship Marketing:
The primary goal of relationship marketing is to build and maintain a base of committed
customers who are profitable for the organization. To achieve this goal, the firm will focus on
the
1) attraction, 2) retention and 3) enhancement of customer relationship. First the firm will seek
to attract customers who are likely to become long-term relationship. First the firm will seek to
attract customers who are likely to become long-term relationship customers. Through market
segmentation (to attracts and retain segmentation has to be close), the company can come to
understand the best target markets for building lasting customer relationships. As the number of
these relationships grows, the loyal customers themselves will frequently help to attract (through
word of mouth) new customers with similar relationship potential.
Once they are attracted to begin a relationship with the company, customers will be more
likely to stay in the relationship when they are consistently provided with quality products and
services and good value over time. They are less likely to be pulled away by competitors if they
feel the company understands their changing needs and seems willing to invest in the
relationship by constantly improving and evolving its product and service mix.
A bank checking account customer becomes a better customer when she sets up a savings
account, takes out a loan, and / or uses the financial advising services of the bank. And a
corporate account becomes a better customer when it chooses to do 75 percent of its business
with a particular supplier rather than splitting the business equally among three suppliers. In
recent years, in fact, many companies have aspired to be the exclusive supplier of a particular
product or service for their customers. Over time these enhanced relationship can increase
market share and profits for the organization.
Benefits of Customer Retention:
Both parties in the customer / firm relationship can benefit from customer retention. That
is, it is not only in the best interest of the organization to build and maintain a loyal customer
base, but customers themselves also benefit from long term associations.
a) Benefits for Customers : Assuming they have a choice, customers will remain loyal to a
firm when they receive greater value relative to what they expect from competing firms.
Remember that perceived value is the consumer‘s overall assessment of the utility of a product
based on perceptions of what is received and what is given. Value represents a trade off for the
consumer between the ‗give‘ and the ‗get‘ components. Consumers are more likely to stay in a
relationship when he gets (quality, satisfaction, specific benefits) exceed the gives (monetary and
no monetary costs) When firms can consistently deliver value from the customer‘s point of view,
clearly the customers benefits and has an incentive to stay in the relationship.
b. In addition to the specific inherent benefits of receiving service vale, customers also
benefit from long-term relationships because such associations contribute to a sense of well-
being and quality of life. Building a long-term relationship with a service provider can reduce
consumer stress as initial problems, if any, are solved special needs are accommodated, and the
consumer learns what to expect. This is particularly true for complex services (eg. Legal,
medical, education), for services where there is high ego involvement (eg., hair styling, health
club, weight loss program), and for services that require large investments (eg. Corporate
banking, insurance, architecture). After a time the consumer begins to trust the provider and a
count on a consistent level of quality service. Ego investment, trust are the important factors.
c) Human nature is such that most of us would prefer not to change service providers,
particularly when we have a considerable investment in the relationship. If the service provider
knows us, knows our preferences, and has tailored services to suit our needs overtime, then
changing providers would mean educating a new provider on all of these factors. The costs of
switching are frequently high in terms of both costs of transferring business and the
psychological and time related costs. In fact one of the stressful and unsetting aspects of
relocating to a new geographic area is the need to establish new relationships with service
providers such as banks, schools retailers, doctors and hairdressers. This is the reason why
people would not like to change the area of residence.
d) Most consumers (Whether individuals or business) have many competing demands for
their time and money and are continually searching for ways to balance and simplify decision
making to improve the quality of their lives. When they can maintain a relationship with a
service provider they free up time for other concerns and priorities. And excellent example is the
case of dual career families, for which the decision about who should care for their children
during the workday is one of the most important decisions they make. Once they have identified
and established a satisfying relationship with a good caregiver (whether it be can individual a
day care center, or a preschool) family stress is reduced and the quality of family life is
improved. Should something happen, that requires a change in caregivers, or should the
relationship quality deteriorate for any reason, family stress levels immediately increase. Thus, a
stable relationship with a good child-care provider is directly reflected in quality of life.
Frequently families are willing to pay premium prices to maintain stable, predictable, high
quality care for their children. Eg: Boarding Schools, Hostel facilities, etc.,
II Benefits for the Organization : The benefits to an organization of maintaining and
developing a loyal customer base are numerous. They can be linked directly to the firm‘s bottom
line.
Increasing Purchase: As consumers get to know a firm and are satisfied with the quality
of its services relative to that if its competitors, they will tend to give more their business to the
firm. And as customers mature (in terms of age, life cycle, growth of business). They frequently
require more of a particular service. Eg: Laundry, Haircutting.
a) Lowest Costs: There are many start-up costs associated with attracting new customers.
The include advertising and other promotion costs, operating costs of setting up accounts and
systems, and time costs of getting to know the customer. Sometimes these initial costs can
outweigh their revenue expected from the new customers in the short term. A prime example
occurs in the insurance industry. Typically the insurer doen‘t recover its up-front selling costs
until the third of fourth year of the relationship. Thus, from a profit point of view, there would
seem to be great incentive to keep new customers once the initial investment has been made. Eg:
Hotels.
Even ongoing relationship maintenance costs are likely to drop over time. For example,
early in a relationship a customer is likely to have questions and to encounter problems as he or
she learns to use the service. Once learning has taken place the customer will have fewer
problems and questions (assuming the quality of service is maintained at a high level) and the
service provider will incur fewer costs in serving the customer. Eg: Hotels, Airlines.
b) Free Advertising through word of mouth: When a product is complex an difficult to
evaluate. And there is risk involved in the decision to buy it as is the case with many services
consumers most often look to others for advice on which providers to consider. Satisfied. Loyal
customers are likely to provide a firm with strong word of mouth endorsements. This form of
advertising can be more effective than any paid advertising the firm might use, and has the added
benefit of reducing the costs of attracting new customers. Eg: Consumer and Consumer durable
products.
c) Employee Retention: It is easier for a firm to retain employees when it has a stable base o
satisfied customers. People like to work for companies whose customers are happy and loyal.
Their jobs are more satisfying and they are able to spend more of their time fostering
relationships than scrambling for new customers, In turn, customers are more satisfied and
become even better customer a positive upward spiral. Because employees stay with the firm
longer, service quality improves and costs of turnover are reduced, adding further to profits.
Relationship building becomes difficult with new employees. Eg: Bank Manager.
d) Lifetime value of a customer; ―If companies knew how must it really costs to lose a
customer, they would be able to make accurate evaluations of investments designed to retain
customer. Unfortunately, today‘s accounting systems do not capture the value of a loyal
customer‖. One way of documenting the value of loyal customers is to estimate the increased
value or profits that accrue for each additional customer who remains loyal to the company
rather than defecting to the competition.
Customer Satisfaction
Customer Retention &
Increased Profits Quality Service
Employee Loyalty
Underlying logic of customer retention benefits to the organization
Process for Market Segmentation and targeting in services
Many aspects of segmentation and targeting for services are the same as those for manufactured
goods. There are differences, however. The most powerful difference involved the need for
compatibility in market segment. Because other customers are typically present when a service
is delivered, service providers must recognize the need to choose compatible segments or to
ensure that incompatible segments are not receiving service at the same time. A second
difference between goods and services is that service providers have a far greater ability to
customize service offerings than manufacturing firms have Consequently, a services marketer
can choose a broader set of segments or sub segments to serve than can many manufacturing
firms, particularly if they can keep these segments separate from or compatible with each other.
Eg: Serve one with soft drink in an aircraft and not the other.
1. Identify bases for segmenting the market: Market segments are formed by grouping
customers who share characteristics that are in some way meaningful to the design, delivery,
promotion, or pricing of the service. Common segmentation bases for consumer markets include
demographic segmentation, geographic segmentation, psychographic segmentation, and
behavioral segmentation. Segments may be identified on the basis of one of these characteristics
or a combination.
Marketing principles, Market Segmentation and Market Targeting:
Bases for market segmentation: Demographic segmentation: Dividing the market to form groups
based on variables such as age, sex, family size, income occupation, or religion.
Geographic Segmentation: Dividing the market to form different geographic units such as
nations, countries or states.
Psychographic Segmentation: Dividing buyers to form groups based on social class, life style
or personality characteristics.
Behavioral Segmentation: Dividing buyers to form groups based on knowledge, attitude, uses
or responses to a service.
Requirements for effective segmentation: Measurability: The degree to which the size and
purchasing power of the segments can be measured.
Accessibility: The degree to which the segments can be reached and served.
Substantiality: The degree to which the segments are large or profitable enough.
Action ability: The degree to which effective program can be designed for attracting and
servicing of the segments.
Criteria for Evaluation Market Segments for Market targeting: Segment size and Growth:
includes information on current sales, projected growth rates and expected profit margins.
Segment structural attractiveness: Includes current and potential competitors,
Substitute products and services, relative power of buyers and relative power of suppliers.
Company objectives and Resources: Involves whether the segment fits the company‘s
objective.
Demographic Segmentation: In other cases, geographic variables (nations, countries, states,
regions) form the base for dividing the market place of identifying potential unmet needs.
Psychographics Segmentation: Many times, it is not a particular demographic or geographic
variable that defines the market segment, but rather a shared sense of values, a common life
style, or common personality characteristic among consumers in the segment. A service based on
psychographic segmentation will focus on such factors in the design and delivery of the service.
Behavioral Segmentation: At other times, a segmentation strategy may be formed around
behavioral characteristics of consumer such as their knowledge, attitudes or usage patterns.
In businesses to business marketing the applications situation of the organization form the
basis for segmentation? Such applications situations as technology needs, product usage, or
service requirements are examples. To illustrate, an institutional food service provider may have
different service configurations for the large manufacturer segment that requires full service
executive dening facilities and large volume cafeterias than it would have for the hospital market
segment that uses a centralized kitchen facility to disperse a wide variety of dietary
configurations.
2. Develop profiles of Resulting Segments: Once the segments have been indentified, it is
critical to develop profiles of the in consumer markets, these profiles usually involve
demographic characterizations of psychographic or usage segments. Of most importance in this
stage is clearly understanding how and whether the segments differ from each other in terms of
their profiles. If they are not different from each other, the benefits to be derived from
segmentation, that is, from more precisely identifying sets of customers will not be realized.
3. Develop Measures of segment Attractiveness: The fact that segments of customers
exist does not justify a firm‘s choice of them as targets. Segments must be evaluated in terms of
their attractiveness. The size and purchasing power of the segments must be measurable so that
the company can determine if the segments are worth the investment in marketing and
relationship costs associated with the group. They must be profitable in the long term in terms of
revenues generated, and they also should not place a disproportionate drain on the firm‘s time
and /or human energy. These costs are not always easy to determine in advance.
The chosen segments also must be accessible, meaning that advertising or marketing
vehicles must exist to allow the company to reach the customers in the segments.
4. Select the Target Segments: Based upon the evaluation criteria in step 3, the services
marketer will select the target segment or segments for the service. The service firm must decide
if the segment is large enough and trending toward growth. Market size will be estimated and
demand forecasts completed to determine whether the segment provides strong potential.
Competitive analysis, including an evaluation of current and potential. Competitive analysis,
including an evaluation of current and potential competitors, substitute products and services and
relative power of buyers and relative power of suppliers, will also help in the final selection of
target segments. Finally, the firm must decide whether serving the segment is consistent with
company objectives and resources.
5. Ensure that the target segments are compatible: This step, of all the steps in
segmentation strategy, is arguably more critical for service companies than for goods companies.
Because services are often performed in the presence of the customer, the services marketer must
be certain that the customers are compatible with each other for example, families who are
attracted by the discounted prices and college students on their fees it may find that the two
groups do not merge well. It may be possible to manage the segments in this example so that
they do not directly interact with each other but if not, they may negatively influence each others
experiences, hurting the hotel‖ future business. In identifying segments it is thus important to
think through how they will use the service and whether segments will be compatible.
Retention Strategies:
1. Monitor Relationships: A basic strategy for customer retention is to implement a through
means of monitoring and evaluating relationship quality over time. Current customers should be
surveyed to determine their perceptions of value received, quality, satisfaction with services and
satisfaction with the provider relative to competitors. The organizations will also regularly
communicate with its customers in person or over the telephone. In a competitive market, it is
difficult to retain customers unless they are receiving a base level of quality and value.
A well designed customer data has is also a foundation for customer retention strategies.
Knowing who the organization‘s current customers are (names, addresses, phone numbers, etc.,)
what their buying behavior is, the revenue they generate, the related costs to serve them, their
preferences, and relevant segmentation information (ie., demographics, life style, usage patterns)
forms the foundation of a customer data base. In cases of customers leaving the organization,
information on termination would also existing the data base.
Three levels of Retention Strategies:

Level 1: At level 1 the customer is tied to the firm primarily through financial incentives lower
prices for greater volume purchases or lower prices for customers who have been with the
firm a long time. Examples of level 1 relationship marketing are not hard to find. Think
about the airline industry and related travel service industries like hotels and car rental
companies ―Frequent flyer‖ programs provide financial incentives and rewards for
travelers who bring more of their business to a particular airline. Hotels and car rental
companies do the same. One reason these financial incentive programs proliferate is that
they are not difficult to initiate and frequently result in at least short term advantages to a
firm since, unless combined with an other relationship strategy, they don‘t serve to
differentiate the firm from its competitors in the long run. Many travelers belong to
several frequent flyer programs and don‘t hesitate to trade off among them. And there is
considerable customer switching every month among the major telecommunication
suppliers. While price and other financial incentives are important to customers, they are
generally not difficult for competitors to imitate since the only customized element of the
marketing mix is price. Eg. Swiss air, Luftansa offer big gifts and discounts for fliers
exceeding certain Kilometers in a year.
Level 2: Level 2 strategies bind customers to the firm through more than pricing incentives.
While price is still assumed to be important, level 2 retention marketers build long-term
relationships through social as well as financial bonds. Customers are viewed as ―clients‖
not nameless faces and become individuals whose needs and wants the firm seeks to
understand. Services are customized to fit individual needs and marketers find ways of
staying in touch with their customers, thereby developing social bonds with them. For
example in a study of customer firm relationships in the insurance industry, it was found
that behaviours such as staying in touch with clients to assess their changing needs,
providing personal touches like cards and gifts and sharing personal information with
clients all served to increase the likelihood that the client would stay with the firm.
Personal relationship becomes very important.
―Social bonds‖ are common among professional service provides (eg. Lawyers,
accountants, teachers and their clients as well as among personal care providers (hair
dressers, counselors, health care providers) and their clients.
A dentist who takes a few minutes to review her patient‘s file before coming in to the exam room
is able to jog her memory on personal facts about the patient (occupation, family details,
interest, dental health history). By bringing these personal details into the conversation,
the dentist reveals her genuine interest in the patient as an individual and builds social
bonds. Eg: Car garage empathy plays a vital role.
Sometimes relationships are formed with the organization due to the social bonds that develop
among customers rather than between customers and the provider of the service. This is
frequently the case in health clubs, country clubs, educational settings and other service
environments where customers interact with each other. Over time the social
relationships they have with other customers are important factors that keep them not be
change the organization from switching to another organization. Women who exercise
together regularly at a health club may develop social ties and friendships that bind them
to each other and to the particular fitness center where they work out. People who
vacation at the same place during the same weeks every year build bonds with others who
vacation there at the same time. Social tie up acts as a motivator.
Level 3: Level 3 strategies are the most difficult to imitate and involve (1)
Structural as well as (2) financial and (3) social bonds between the customer and the firm.
Structural bonds are created by providing services to the client that are highly customized
and frequently designed right into the service delivery system for that client. Structural
bonds often are created by providing customized services to the client that are technology
based and serve to make the customer more productive. Some concrete examples will
help to demonstrate the effectiveness of structural bonds in building relationships.
By working closely with its hospital customer will improve hospital supply ordering,
delivery and billing that have greatly enhanced their value as a supplier.
For Example ―hospital specific pallet architecture‖ that meant all items arriving at a particular
hospital were shrink wrapped with labels visible for easy identification. Separate pallets were
assembled to reflect the individual hospital‘s storage system, so that instead of miscellaneous
supplies arriving in boxes they arrived on ―client friendly‖ pallets designed to suit the
distribution needs of the particular hospital. Eg: Supply of items from wholesaler to retailer with
proper identification.
II Retaining Customers when things go wrong: As we have seen, reliability and ―doing it
right the first time‖ are extremely important factors in Customers judgment of service quality.
Yet for even the best of firms, service failures and mistakes are inevitable and because service is
often performed in the presence of the customer errors and failures are difficult to hide or
disguise. It is usually not possible to ‗start over‖ as it might be with a manufactured product.
When things go wrong, the consumer is presented with a good reason to switch providers and to
tell others not to use the service. Effective recovery is thus essential to save and even build the
relationship. If the organization fails in recovery, it has failed the customer twice a double
deviation from customer expectations.
III Track and Anticipate recovery opportunities: ―The customer who complains is your
friend‖ customers who don‘t complain are likely not to come back, and further they may
influence other customers to not try the service. Building on this notion, organizations need
systems to track and identify failures, viewing them as opportunities to save and retain customer
relationships.
An effective service recovery strategy requires identification of failure points in the
system through listening to customers. This means not only monitoring complaints, but really
listening and being active in searching out potential failure points. Take complaint as a
compliment for corrective action.
IV Take Care of Customer problems on the Front Line: Form the customer‘s point of view,
the most effective recovery is accomplished, when a front line worker can take the initiative to
solve the problem on the spot. Acknowledgement of the problem, an apology, an explanation
when appropriate and a solution to the problems are often all the customer wants. Sometimes the
solution may be a refund retailers with liberal, return policies build customer loyalty through
refunding or trading in defective merchandise, no questions asked.
V Solve Problems Quickly: Once the failure points are identified, employees must act
quickly to solve problems as they occur. A problem not solved can quickly escalate. Sometimes
employees can even anticipate problems before they arise and surprise customers with a solution.
For Eg: flight attendants on a flight severely delayed due to weather anticipated everyone‘s
hunger, particularly the young children‘s. Once in flight they announced to the harried travelers.
―Thank you for your extreme patience in waiting with us. Now that we‘re on our way, we‘d like
to offer you complementary beverages and dinner. Because we have a number of very hungry
children on board, we‘d like to serve them first, if that‘s OK with all of you‖. The passengers
nodded and applauded their efforts, knowing that hungry, crying children could children could
make the situation even worse. The flight attendants has anticipated a problem and solved it
before it escalated.
IV Empower the front line to solve problems: For service employees, there is a specific and
real need for recovery training. Because customers demand that service recovery take place on
the spot and quickly, front line employees need the skills, authority and incentives to engage in
effective recovery. Effective recovery skills include hearing the customer‘s problems,
identifying solutions, improving and perhaps bending the rules from time to time. Recovery
skills are invoked when exceptions to the normal routine occur. Thus to be effective at recovery
front – line service employees have to be versatile, since they must typically follow rules, stick to
a routine and treat all customers alike.
They must also be empowered to employ their skills; they must have the authority, usually
within certain defined limits, to solve the customer‘s immediate problem. Further, they should
not be punished for taking action. In fact, incentives should exist that encourage employees to
exercise their recovery authority.
~~~~~~~~~~~~~~~
MODULE-IV
1. Company-defined and customer-defined service standards
o Company - defined standards are establish to reach internal company goals for
promoting productivity, efficiency, cost and technical quality.
o Customer - defined service standards are visible to and measured by customers
and are not sufficient to bring effectiveness to an organization.
2. Types of Customer-Defined Service Standards
o Hard Customer-Defined Standards
 Things that can be counted, timed, or observed through audits. Reliability
is the key to customer defined hard standards “Do it right first time”, this
means service is delivered as per customer‘s assessment.
o Soft Customer-Defined Standards –These are difficult to measure, and Soft
standard provide guidance and feed back to employees in ways to achieve
customer satisfaction.
 Opinion based measures that cannot be directly observed
 As Einstein said, ―Not everything that counts can be counted, and not
everything that can be counted, counts.‖
Examples of Hard Customer-Defined Standards
Examples of Soft Customer-Defined Standards
Customer-Driven Standards and Measurements Exercise Service Encounter Customer

Requirements Measurements Service Quality
Process for Setting Customer-Defined Standards
1. Identify existing or desired service encounter sequence
2. Translate customer expectations into behaviors/actions
3. Select behaviors/actions for standards
4. Set hard or soft standards
5. Develop feedback mechanisms Measure by audits or operating data Hard Soft Measure
by transaction- based surveys
6. Establish measures and target levels
7. Track measures against standards
8. Provide feedback about performance to employees
9. Update target levels and measures
Step1: Customer defined standards is what customer expects, it is a link between customer
expressed expectations and company‘s action to deliver these expectation...To do these identify
the existing service encounter sequence.
Step2: What do the customers expect further?
Step3:
a) Which behavior or action of the employer is most important to the Customers Company and
offered products and services? Customer defined standard tells the company what is most
important to the customers. This is what company should concentrate on.
b) There may be attributes in which company needs to improve. This should be focused and
company should make every effort to improve it.
Step4: Examine if hard/soft standard chosen are appropriate.

Examine the suitability of accepting to implement the standards-skills/suitability etc.
Step5: Feedback should be developed once standards are implemented. For eg: Soft standards
need employee monitoring, I‘e., Employee monitoring is done by superior listening in when the
employee is attending to customers call. The purpose of this monitoring is to prove feedback to
employee on their performance superior monitoring an employee‘s handling of a customer
service call, for example, should focus not so much on how quickly the employee gets the
customer off the phone but how adequately he/she handles customer request.
Step6:
Establish a Standard and set target level
Without setting a target level, the company lacks a way to qualify whether the standards have
been met or not, this method adopted is as follows. Each time a complaint was made to the
company and each time problem was resolved, employee should log the time.
They should also ask the customer his/her satisfaction with the performance in resolving the
complaint. The company will then plot this information for each complaint on the chart to
determine how well the company was performing and where the company wished to be in the
future.
Leadership & Measurement System for Market Driven Service Performance:

Key reasons for GAP2
The reason for GAP-2 is inadequate leadership. Service leadership does not mean meeting
companies‘ efficiency standards or productivity standard of the company. Service leadership
means trying to achieve “excellence” in the area of customer wants.
When mangers are not committed to service quality, fromthepoint of view of the customers, they
do not realize that the organization is not working towards customer satisfaction. Sometimes
managers think that the service quality adds to the cost and they do not contribute towards
profitability.
This is because; it is very difficult to find a link between quality and financial return. This is
similar to the link between quality and financial return. This is similar to the link between
advertising and sales, because, a sale does not go up due to advertising. There are many factors
such as, Pricing, Image, etc.
Service Leadership:
Service leadership can be discussed w.r.to, to the model as shown:
Vision
Vision Statement
*Formulating the vision
*Promoting Commitment
Implementation of Vision
Structuring
Selecting, Acculturating and Training
Motivating
Managing Information
Team Building
Promoting Change & Risk Taking
A leader creates a Vision: Vision is nothing but image of the future.

A leader must have developed a mental image of a possible future state of the organization. We
call this as vision, may be vague, like a dream, but the vision is the target, which the leader
should achieve.
It is necessary for a leader to have a vision, which is pre-requisite for service excellence. It has
been found that organizations with extremely good vision are found to be four times better rated
than companies with a poor vision.
1. Synthesizing the Vision:

I. Synthesizing means combining.
Here the leader is combining the past and the future.
The future is called FORESIGHT,
The past is called HINDSIGHT,
The Foresight will ensure that vision is quite appropriate with the future environment.
The Hindsight will ensure that organizational culture and tradition are not violated.
Considering both of the above, the leader‘s vision defines ‗what the organization should strive?
II.Clearly Articulating the vision. (Nothing but vision statement)
Service visions may be simple or complex, the best vision statement should be:
*Brief
*Clear
Eg: 1) To become the best nursing care system in the world
2) Any time, anywhere communication.
III.Promoting Commitment.
One of the examples for a service leader to create commitment is to travel to all the outlets and
supervise personally to find out ‗how service is going on and what is a satisfaction level of the
customers‘. This follows the principle that ‗if you are a leader, you better lead‘.Therefore, a
leader should lead by example.
This is one of the ways to motivate the other employees and let them know that you want to see
what they are doing and what they can do.
Implementation of Vision:
A leader implements the service vision. During the process of implementing the vision, the
leader should not only be involved fully, he should also engage in other actions such as
restructuring the organization, selecting and training the employees,motivating,team building and
promoting the change in addition to risk taking.
I. Structuring the organization
While formulating the organization structure, the leader must make sure that there are,
*Rigid Functional Boundaries
*Too many layers of management
*Rigid hierarchy and bureaucracy
This organizational structure should be process oriented, so that it satisfies the customer needs
instead of each function in the organization feeling satisfied about their own departmental
function. To do this,
The Following steps have to be followed:
a) Organize the structure based on the process and not on a task of the department. Assign
the owner for each process.
b) Flatten and eliminate all those work which does not add value.
c) Use teams to manage everything, give the teams a common purpose.
d) Let the customer drive the performance and derive satisfaction.

e) Reward team performance instead of individual performance.
f) Maximize service provider and customer contact.
g) Inform and train all the employees.
II.Selecting, Acculturating and Training

The major part of implementing service involves hiring, and training the right people, selecting
and acculturating.Selcting involves choosing the right service worker for each job. Acculturating
involves teaching and make the employee learn the organizational culture and vision. Training
helps to perform his responsibilities and duties.
III.Motivating
The leaders should motivate the employess, the method of motivating the subordinates includes:
*Use of authority
*Role model
*Build self confidence
*Delegate
*Introduce reward and punishment
IV.Manage Information
Effective leaders are those who are good listeners, these leaders listen to their subordinates and
to the customers. They are available and they are approachable. This message is sent to both
employees as well as to the people outside the organization. Service leaders read complaints
given by the customers and discuss the same with the team of service providers to avoid such
mistakes recurring future. These successful leaders will be unwilling to delegate the most
important function to others but want to be involved and gain knowledge themselves.
Leaders who keep their ears tuned to employees are using upward communication to understand
the activities. Leaders have two types of communications which they use effectively to solve any
given problem.
a. Formal Communication:
Eg: Complaint or Exceptionally good service delivery
B.Informal Communication:
Eg: Discussion with the contact people with regard to day to day problems. Leaders who stay
close to their contact people not only keep their employees happy, but also learn about their
customer.
V.Building Teams: Service leaders need to build teams, which work effectively to achieve the
goals. Among the strategies used to ensure that the employee‘s works together are, creating
cooperative goals that can be reached only by working together use teams and task forces for
implementing the service and reward the same.
VI.Promoting change and Risk Taking

It has been found that unsuccessful service organizations have leaders who have short term and
narrow thinking, i.e,they are willing to think creatively about customer needs and give excuses
for maintain status quo.Therefore one of the leader to have an open mind and encourage
innovation in the organization.
Service Quality as profit strategy

Service quality can be studied under two headings,
1. Profits earned by offensive effects
2. Profits earned through defensive effects
In the first case, profits are earned by increasing the market share and capturing the market.
In the second case, profits are earned by retaining the customer and by lowering marketing and
promotional costs. The diagram shows both these methods:
Costs
Defensive Volume of
Marketing purchases Margins
Price
Customer
Premium Profits
Service Retention
Quality
Word of
Mouth
Market Sales
Share
Offensive
Marketing
Reputation
Price
Premium
Role of Service Quality in Offensive and Defensive Marketing:

Offensive Marketing:
In this method, profit is obtained through sales, but the methodology adopted is sales increase
through repetition and higher market share. In this method, the services are charges higher than
that of competitive, Sales promotion and advertising are huge in this method.
This method is possible only for those companies which have a good reputation.
Defensive Marketing:
In this method the emphasis is on customer retention. This is because; we know that lost
customer must be replaced by a new customer when the replacement comes at the high cost
because of high advertising and promotion expenses. New customers may not be profitable in the
short term.
Eg: In cell phone industry, capturing the customer from other company is very expensive. A
greater degree of service improvement is necessary who make a customer switch from
competitor than to retain a current customer. In general, longer a customer remains with the
company, it is both profitable and companies‘ relationship with the customer will improve.
If the customer is served properly he generates more profits every year and stay with the
company. Longer the company keeps the customer, the more money it makes.
The Money a company makes from retention comes from four sources: as shown in the above
diagram
*Cost
*Volume
*Price Premium
*Word of Mouth
Lower Cost: If a company can lower the customer defection, it saves money. It has been found
that attracting a new customer is five times as costly as retaining a existing customer. Also it has
been by market research that customer defections have greater impact on the company‘s profit
compared to market share. It is also true that by retaining 5% more customers, company can
increase his profit varying between 25% to 50%.
Volume of Purchase: Customers who are satisfied with the company‘s services are likely to
increase the amount of money they spend with that company or the type of services produced. If
the person is satisfied with a bank, he will not only open a SB A/c, but he will also avail loan
facility from the same bank. Thus he will use more than one service from a service provider.
Price Premium: Customer who notices that the service provided by the company is excellent and
without any fault, he will have no hesitation to pay a price premium for the services.
Word of Mouth: Word of mouth communication is considered more creditable than any other
source of information. This is the best type of promotion for the service industry, where
experienced customers words carry lot of weight.
Service Design and Positioning:

The objective is to study the following:
1. Describe the challenges inherent in service design and positioning
2. Present helpful steps in the new service development process
3. Show the value of service blueprinting in new service design, service improvements, and
positioning strategies.
4. Demonstration how to build a service blueprint
5. Explain service positioning and the role of the service quality dimensions, service evidence
and blueprinting in positioning strategies
CHALLENGES IN SERVICE DESIGN & POSITIONING:
Since services are intangible, it is always difficult to describe and communicate. Because
services are delivered by employees to customers, they are heterogeneous; rarely two services
are alike and experienced in the same way. These characteristics of services are the heart of the
challenge to involve in designing and positioning service.
Risk of describing Services by words alone:

Lynn Shostack a pioneer in Developing design concepts for services, has pointed out,
Four Risks, of attempting to describe services in words alone..,
I. The first risk is oversimplification,shostack points out that to say that ‗portfolio management
‗means buying and selling stocks is like describing the space shuttle as something that flies,
some people will picture a bird, some a aero plane ,that means words are simply inadequate to
describe a whole service system.
II.The Second risk is Incompetencies, In describing services, people (employees, managers,
customers) tend to omit details or elements of the service with which they are not familiar person
might do a fairly credible job of describing how a discount stock brokerage service takes orders
from customers. But would that person be able to describe fully how monthly statements are
created, how the interactive computer system works and how these two elements of the service
are integrated into the order taking process.e.g,Surgen,Physician
III.The Third risk is Subjectivity, Any one person describing a service in words will be biased by
personal experiences, & degree of exposure to the service. There is natural and mistaken
tendency to assume that because all people have gone to a fast-food restaurant, they will
understand what that service is. Persons working in different functional areas of the same service
organization.
(e.g, A marketing persons, an operations person, or a finance person) are likely to describe the
service very differently as well, biased by their own functional blinders.
IV.The Final risk is Biased interpretation, No two people will define responsive, quick, and
flexible in exactly the same way. for e.g., a supervisor or manager may suggest to a front line
service employee, that the employee should try to be more flexible or responsive in providing
service to the customer.
Unless flexibility is further defined, the employee is likely to interpret the work differently from
the managers.
The above mentioned risks become very apparent in the new service development process, when
organizations may be attempting to design services never before experienced by customers. It is
critical that all involved (managers, frontline employees and behind the scenes support staff) be
working with the same concepts of the new service based on customer needs and expectations.
For a service that already exists any attempt to improve it will also suffer unless everyone has the
same vision of the service and associated issues
Business Strategy Development: It is assumed that an organization will have an overall

strategic vision and mission. Clearly a first step in new service development is to review that
vision and mission.
New Service Strategy Development: The types of new services that will be appropriate will
depend on the organization‘s goals, vision, capabilities & growth plans. By defining a new
service strategy (possibly in terms of markets)
Idea generation: Continuous systematic search for new product opportunities.
Marketing oriented sources--identify opportunities based on consumer needs, lab research is

directed to satisfy that research.
Laboratory oriented sources--identify opportunities based on pure research or applied research.
Intrafirm devises--brain storming, incentives and rewards for ideas. Hewlett Packards lab is open
24 hrs. day. Analyzing existing products, reading trade publications.
Brainstorming for your group project. Ideas should not be criticized, no matter how off-beat they
are.
Concept Development and Evaluation: After clear definition of the concept, it is important to
produce a description of the service that represents its specific features and characteristics and
then to determine initial customer and employee responses to the concept. The service design
document would describe the problem addressed by the service, discuss the reasons for offering
the new service, itemize the service process and its benefits, and provide a rationale for
purchasing the service, the role of customers and employees in the delivery process would also
be described. The new service concept would then be would then be evaluated by asking
employees and customers whether they are favorable to the concept and whether they feel it
satisfies an unmet need.
Business Analysis: Assuming the service concept is favorably evaluated by customers and
employees the concept development stage the next step is to determine its feasibility and
potential profit implications. Demand analysis, revenue projections, cost analysis, and
operational feasibility are assessed at this stage .
Because the development of service concepts is so closely tied to the operational system of the
organization, this stage will involve preliminary assumptions about the costs of hiring and
training personnel, delivery system enchancements,facility changes and any other projected
operations costs.
Service Development and Testing: In the development of new tangible products, this stage
involves construction of products prototypes and testing for consumer acceptance. Again because
services are intangible and largely produced and consumed simultaneously, this step is difficult.
To address the challenge this stage of service development should involve all who have stake in
the new service. Customers and contact employees as well as functional representatives from
marketing, operations and human resources. During this phase, the concept is refined to the point
where detailed service blue print representing the implementation plan for the service can be
produced. The blueprint is likely to evolve or a series of interactions on the basis of input from
all of the parties listed.
Market Testing: In this stage of the development process that a tangible product might be test
marketed in a limited number of trading areas to determine marketplace acceptance of the
product as well as other marketing mix variables such as promotion, pricing, and distribution
vehicles.Again, the standard approach for a new manufactured product is typically not possible
for a new service due to its inherent characteristics. The new service might be offered to
employees of the organization and their families for a time to assess their responses to variations
in the marketing mix. Or the organization might decided to test variations in pricing and
promotion in less realistic contexts by presenting customers with hypothetical mixes and getting
their responses in terms of try the service under varying circumstances. While this approach
certainly has limitations compared with an actual market test, it is better than not assessing
market response at all.
It is also extremely important at this stage in the development process to pilot run service to be
sure that the operational details are functioning smoothly. Frequently this purpose is overlooked
and the actual market introduction may be the first test of whether the service system functions
as planned. By this point, mistakes in design are harder to correct. As one noted service expert
says. There simply no substitute for a proper rehearsals when introducing new service. In the
case of the discount brokerage service described earlier, a pilot test was run by offering
employees a special price for one month. The offer was marketed internally, and allowed the
bank to observe the service process in action before it was actually introduced to the external
market.
Commercialization: At this stage in the process, the service goes live and is introduced to the
market place. This stage has two primary objectives. The first is to build and maintain
acceptance of the new service among large numbers of service delivery personnel who will be
responsible day to day for service quality. This task is made easier if acceptance has been built in
by involving key groups in the design and development process all long.
The second objective is to carry out monitoring of all the service during introduction and through
the complete service cycle. If the customer needs six months to experience the entire service then
careful monitoring must be maintained through at least six months.
Types of New Services:

1. Major Innovations: Are new services for markets as yet underlined
2. Start-up Business: consists of new services for a market that is already served by existing
products that meet the same generic needs.
3. New Services: for the currently served market represent attempts to offer existing customers of
the organization a service not previously available from the company.
4.Service line extensions: represent augmentations of the existing service line, such as a
restaurant adding new menu items an airline offering new routes, a law firm offering additional
legal services, a university adding new courses or degrees.
5. Service Improvements: represent perhaps the most common type of service innovation.
Changes in features of services that are already offered might involve faster execution of an
existing service process, extended hours of service, or augmentations such as added amenities in
a hotel room.
6. Service changes: represent the most modest service innovations. Changing the color scheme
of a restaurant, revising the logo for an organization, or painting aircraft a different color all
represent style changes. These do not fundamentally change the service, only its appearance,
similar to how packaging changes are used for consumer products.
Service Blue Printing:

A tool for simultaneously depicting the service process, the points of customer contact,
and the evidence of service from the customer‘s point of view.
Process
Service
Blueprint Point of contact
Evidence
What is Service Blueprint?

The manufacturing and construction industry have a long tradition of engineering and design.
You can‘t imagine a house being built without detailed specification nor can you build a car
without design. Though it is difficult o define specifications in exact terms still an attempt must
be made to get the blue point.
A service blue print is a picture or a map that shows the service system. So that the different
people involved in providing the service can understand their roles clearly.
A Service Blueprint does the following,
 It shows the service provided along with the process of how service is provided
 It tells us the role of the customers and employees
 It also tells us, what are the visible elements of the service
 Helps to break a service into many logical components
 It also helps us to know the steps involved in the process and the means by which the
given task is executed
 It also gives the evidence of service as customer experience it
Blue Print Components:

The Blueprint components are shown in the figure below,
They are:
1. Customer Actionsline of interaction
2. Onstage contact employee actionline of visibility
3. Back stage employee actionline of internal interaction
4. Support Process
Customer action
1. Line of interactions
Onstage contact employee action
2. Line of Visibility
Backstage contact employee action
3. Line of internal Interaction
Support processes
Customer Action: Customer action includes his choices, activities and interactions that the
customer has during the process of purchasing and consuming.
For e.g.: If a customer wants the service of lawyer, he has his choice,
1. To select the lawyer
2. To telephone him for an appointment
3. Have face to face meeting with the lawyer
4. Handover the documents if any
5. Recieved documents from the lawyer
6. Recieve the bill from lawyer for the service rendered and pay.
Onstage Employee Action: In legal service as above, the action of the lawyer that is visible to
the client are.
1. The face to face contact with the lawyer
2. Handling over of document to the lawyer
3. Receiving documents from the lawyer.
Backstage Employee Action: Preparation of documents to be handed over to the client.

Support Process: This is the service rendered by the assistants to the lawyer, preparing of the
document, and secretarial help such as preparing the summary of the meetings of the clients.
One of the most significant difference in service blueprint compared to any other type of flow
diagram is the inclusion of customers view about the service process.infact,it is best that the
diagram starts with the view point of the process as seen by the customer.
The Four key action areas are separated by the horizontal lines,
First is the line of interaction, represents direct interaction between the customer and the
organization. Any time a vertical line crosses the horizontal line of interaction a direct contact
between the customer and the organization is taking place.
The next horizontal line is critically important i.e., line of visibility. This line separates all
service activities that are visible to the customer from those that are not visible. By looking at the
blueprint, it is immediately obvious whether the customer is provided with much visible
evidence of service simply by analyzing how much the service occurs above the line of visibility
v/s activities carried out below the line. This line also separates‘ what contact employees do on
stage from what they do backstage.
The third line is the line of internal interaction represents internal service encounters. For eg.
When you hire a musician to perform at a function, 75% of this activity will be backstage and
25% will be onstage. But this is not the case of a hotel service. For e.g., the following are the
activities of onstage,
1. Welcoming you 2.Lead you to the seat 3.Turn the glass 4.Fill the glass with water
5.Give you menu card and provide an ashtray if required 6.Move the cutlery into the right
position if not done earlier 7.Switch on the music if not done earlier 8.Take the order
9.Service the food as ordered 10.Enquiry regarding the quality of food 11.Provide you
cheque 12.Help you to depart13.Wish you good day or good night and lead you to the
exit.
Backstage Service is as Follows:

1. Arrangement of the table, table cloth, flower vase, cutleries
2. Dusting the seats
3. Wearing uniform
4. Keeping the Menu card handy
5. Fill the water jug
Support Process is as Follows:

1. Interacting with the bar tender
2. Interacting with the cook and other kitchen employees to make sure that they prepare exactly
what customer wants?
3. Carrying the food from the counter to the customer in an orderly manner
4. Interaction with the billing section
5. Interacting with the D.J.
The following are the steps to be taken to prepare/build a service blueprint:

1. Identify the process to be blueprinted: here we must identify,
a. The Service,
b.A specific service component
2. Map the process keeping customers view point in mind
3. Draw the line of interaction
4. Draw the line of visibility
5. Map the process from the customer contact persons point of view
6. Distinguish between onstage and backstage
7. Link customer and contact person activities to need support functions
8. At each step show an evidence of service
9.
Benefits of Service Blueprinting:

1. It tells the organization what it can do to improve the service keeping customer orientation in
mind
2. It tells us the weak points and the weak links of the chain of service so that quality
improvement can be done
3. Line of interaction between external customer and employer shows the role of the customer
and where the customer experiences quality in service
4. Line of visibility tells us what the customer should actually see during the service.
5. Line of internal interaction tells us how various departments in the organization should
function towards quality improvements
6. Service map helps the advertising agency or in-house promotion team to review the service
and select suitable messages for communication, in case the service is to be advertised.
Example: Service Blue Print of a Luxury Hotel:
Reading & Using Service Blue Prints:

Reading Blue Prints:
If the purpose is to understand the customer‘s view of the process or the customer experience,
Blue print is read from left to right, tracking the events in customer area.
If the purpose is to understand the Contact employees it is read horizontally focusing on
activities directly above & below line of visibility.
If the purpose is to understand the integration of various elements of service process & how a
particular employee fit into bigger picture blue print can be analyzed vertically.
Using Service Blue Prints:

 If the purpose is service redesign blue print can be looked at as a whole to assess the
complexity of the process.
 Used to determine failure points
 Used to assess overall efficiency & productivity of service system.
Service Positioning:
Basic Positioning Steps:
 Perform S.W.O.T. analysis

 Evaluate positioning possibilities and select the most appropriate
 Develop the marketing mix that establishes in the eyes of target customers the adopted
position.
Developing a Positioning Strategy:

Market Analysis:
 Size
 Location
 Trends
Internal Corporate Analysis:

 Resources
 Constraints
 Values
Competitive Analysis:
 Strengths
 Weaknesses
 Current positioning
There are Five Dimensions of Service Quality,

They are,
1. Reliability
2. Tangible
3 Responsiveness
4 Assurances
5. Empathy.
1. Reliability: Reliability means, ability to perform the promise to service dependably and
accurately. Reliability means that the company delivers as per the promises. Customers want to
do business with a company which keeps up the promise.
Eg, Medical Care-Appointments are kept on schedule, diagnosis prove to be accurate
Airline-Flights as promised-arrival and departure on time
2. Tangible: Tangible means, appearance of physical facilities, equipments personnel and written
materials. All of these provide physical image of the service. This is very important particularly
to the new customers who will use this as criteria to evaluate quality. A Service industry
emphasizes tangibles in their strategy which includes hospitability in services when the
customers visit the establishment to receive services. While tangibles are used by service
companies to enhance their image, provide continuity and signal quality to the customers.
3. Responsiveness: Responsiveness means willingness to help customers and provide prompt

service. This deals with attentiveness and promptness in dealing with customer request questions,
complaints and problems. Responsiveness is communicated to the customers in an indirect way
as follows,
a) The length of time they have to wait for assistance
b) Answers received to the questions asked
c) How flexible and ability to provide custom built service products
e.g., Airlines-Timely, prompt, speedy system of ticketing, baggage handling efficient
Medical Care-No waiting time, willingness to listen
4. Assurances: Assurance means, employee‘s knowledge and courtesy and their ability to inspire
trust and confidence. This dimension is likely to be particularly important for services that
customer perceives as having high risk and feel uncertain about their ability to evaluate
outcomes.e.g. Medical, Banking and Legal Services
e.g., Medical Care-Knowledge, Skills, Good Credentials, Reputation
Car Repair-Knowledgeable mechanics who know their jobs very well.
5. Empathy: Empathy means caring and individualized attention to the customers. The essence
of empathy is to convey the message that the customers are unique and special. Customers want
to feel that he is important to the company and to the service provider. Personnel at small service
firms often know the customers by name and build relationship with them and meet their
requirements and preferences. Such a small firm competes with large firms; the ability to
empathetic may give the small firm a clear advantage.
Positioning on Service Evidence:

Services can also be positioned based on service evidence from the customers view point. The
evidence of service falls into three categories,
1. People
2. Physical Evidence
3. Process
1. People: Here people we are referring to as contact employees who come in contact with the
customer and offer service facility. How these people look how they act and who they are, will
influence the service position in the customer mind. Imagine yourself arriving in city for the first
time, seeking a place to have a dinner. As you wonder down a street with a number of different
restaurant, you glance at the board, notice the service personnel (what are they wearing) and
other customers (are they dressed in business attire or casual).Sometimes the dress worn by the
people is an indication of the service and this has a great bearing on positioning. Employee
uniform dress codes can also serve to convey a particular service position.
Eg. Lawyer in black dress, Doctor in a white coat are the indication of their service.
2. Physical Evidence: Physical evidence is similar to tangible elements. While tangibles may be
rated high by consumers in terms of their influence on quality physical evidence for positioning
places in a role.
Eg., All forms of communication such as brochures, advertising, business cards, billing
statements etc.,Let us take the example of an educational institution where all the details
regarding the courses offered, fees structure, study program content, food facility and hostel
facilty,library facility available etc,So the above are examples of physical evidence.
3. Process: Process can be used for position strategy.
Process are divided into,
a. Based on Complexity
b. Based on Divergence
Whether a service is high or low in complexity refers to the number of steps involved in
delivering the service. Divergence refers to variation in these steps,
Eg, A physician service is high both in complexity and divergence, and A Hotel services are high
in complexity, i.e. lots of steps in service delivery process, but low in divergence i.e. they have
standardized their services from room cleaning to check out. These are services which are low in
complexity but high in divergence.
Quality Function Deployment:

In Addn., to Blueprinting another approach is used to develop a service architecture is ―QFD‖.
―A system for translating customer requirement into Co., requirements at every stage, from
research through production, design & development to manufacture. Distribution, installation,
Marketing, sales & services‖
QFD is implemented via what is known as the “House of Quality”
House of Quality:
Which links customer requirements to design characteristics of the product or service
They linked to internal process such as:
*Product Planning,
*Process Planning,
*Production Planning &
*Parts Deployment.
MODULEV
Employees’ Roles in Service Delivery:

Demonstrate the importance of creating a service culture in which providing excellent service to
both internal and external customers is a way of life. Illustrate the critical importance of service
employees in creating customer satisfaction and service quality. Identify the challenges inherent
in Boundary-Spanning roles.
Provide examples of strategies for creating customer-oriented service delivery through hiring the
right people, developing employees to deliver service quality, providing needed support systems,
and retaining the best service employees.
Service Culture: ―A culture where an appreciation for good service exists, and where giving
good service to internal as well as ultimate, external customers, is considered a natural way of
life and one of the most important norms by everyone in the organization.‖ - Christian Gronroos
in (1990).
The Critical Importance of Service Employees:

• They are the service.
• They are the organization in the customer‘s eyes.
• They are the brand.
• They are marketers.
Their Importance is Evident in:

– The service Marketing Mix (people)
– The Service-Profit Chain
– The Service Marketing Triangle
The triangle shows the three interlinked groups that work together to develop, promote and
deliver services. These key players are labeled on the points of triangle: the company (or SBU or
Department or Management): the customers: and the providers. Providers can be the firm‘s
employees, subcontractors or outsourced entities who actually deliver the company‘s services.
Between these points on the triangle, three types of marketing must be successfully carried out
for a service to succeed: External Marketing, Interactive Marketing & Internal Marketing.
On the right side of the triangle are the ―external marketing ―efforts that the firm engages in to
set up its customers expectations & make promises to customers regarding what is to be
delivered. But external marketing is just the beginning for services marketers. Promise made
must be kept.
Interactive Marketing or Real time marketing. Here is where promises are kept or broken by the
firm‘s employees, subcontractors or agents. People are critical at this juncture. If promises are
not kept, customers become dissatisfied and eventually leave.Recruiting, training, motivating,
rewarding & providing equipment and technology. Unless service employees are able & willing
to deliver on the promises made, the firm will not be successful, and the services triangle will
collapse.
Ways to Use the Services Marketing Triangle:

• Overall Strategic Assessment
– How is the service organization doing on all three sides of the triangle?
– Where are the weaknesses?
– What are the strengths?
• Specific Service Implementation
– What is being promoted and by whom?
– How will it be delivered and by whom?
– Are the supporting systems in place to deliver the promised service?
There are Five Dimensions of Service Quality, They are,

1. Reliability
2. Tangible
3 Responsiveness
4 Assurances
5. Empathy
1. Reliability: Reliability means, ability to perform the promise to service dependably and
accurately. Reliability means that the company delivers as per the promises. Customers want to
do business with a company which keeps up the promise.
2. Tangible: Tangible means, appearance of physical facilities, equipments personnel and written
materials. All of these provide physical image of the service. This is very important particularly
to the new customers who will use this as criteria to evaluate quality. A Service industry
emphasizes tangibles in their strategy which includes hospitability in services when the
customers visit the establishment to receive services. While tangibles are used by service
companies to enhance their image, provide continuity and signal quality to the customers.
3. Responsiveness: Responsiveness means willingness to help customers and provide prompt
service. This deals with attentiveness and promptness in dealing with customer request questions,
complaints and problems. Responsiveness is communicated to the customers in an indirect way
as follows,
4. Assurances: Assurance means, employee‘s knowledge and courtesy and their ability to inspire
trust and confidence. This dimension is likely to be particularly important for services that
customer perceives as having high risk and feel uncertain about their ability to evaluate
outcomes.e.g. Medical, Banking and Legal Services
5. Empathy: Empathy means caring and individualized attention to the customers. The essence of
empathy is to convey the message that the customers are unique and special. Customers want to
feel that he is important to the company and to the service provider. Personnel at small service
firms often know the customers by name and build relationship with them and meet their
requirements and preferences. Such a small firm competes with large firms; the ability to
empathetic may give the small firm a clear advantage.
• Service Employees: Who are they?
Boundary Spanners -Frontline service employees because they operate at the organization’s
boundary.
• What are these jobs like?
Emotional labor-That goes beyond the physical or mental skills needed to deliver quality
service. Means delivering smiles, making eye contact, showing interest, and engaging friendly
conversation with clients.
• Person/Role
• Organization/Client
• Interclient
Quality/Productivity Tradeoffs:
As indicated in the figure Boundary Spanners provide a link between the external customers
and environment and the internal operations of the organization. They serve as critical
function in understanding, filtering and interpreting information and resources to and from the
organization and its external constituencies.
In industries such as fast food, hotels, telecommunication & retail, the boundary spanners are the
least skilled and lowest paid employees in the organization. They are order takers, front desk
employees, telephone operators, store clerks, truck drivers and delivery people.
In other industries boundary spanners are paid well, highly educated professionals. For example:
doctors, lawyers, accountants, consultants, architects and teachers.
Emotional Labor: Refers to the labor that goes beyond the physical or mental skills needs to
deliver quality service. It means delivering smiles, making eye contact, showing sincere interest
and engaging in friendly conversation with people who are essentially strangers and who may or
may not ever seen again,Friendlyness,empathy and responsiveness direct towards customers all
require huge amount of emotional labor frontline employees who shoulder this responsibility for
the organization.
Emotional labor draws on people‘s feelings (often requiring them to suppress their true feelings)
to be effective in their jobs.
Source of Conflict: Frontline employees often face interpersonal and interorganizational
conflicts on the job. Their frustrations and confusion can, if left unattended, lead to stress, job
dissatisfaction, a diminished ability to serve customers and burnout.
Boundary-Spanning Workers Juggle Many Issues:

• Person versus role
• Organization versus client
• Client versus client

Because they represent the customer to the organization and often need to manage a number of
customers simultaneously. Frontline employees inevitably have to deal with conflicts, including
Sources of Conflict:
*Person/role conflicts
*organizational/Client conflicts
*Interclient conflicts
Person/Role Conflicts: Arises when employees are required to wear specific clothing or change
some aspect of their appearance to confirm to the job requirements. A young lawyer, just out of
school, may feel an internal conflict with his new role when his employer requires him to cut his
long hair & trade his casual clothes for a three-piece suit.
Organizational/Client conflicts: A common type of conflict for front line service employees is
the conflict between their two bosses, the organization and the individual customer.
Service employees are rewarded for following certain standards, rules, & procedures. Ideally
these rules and standards are customer based.
For Eg, employees who depend on tips or commission are likely to face greater levels of
organization/client conflict because they have greater incentives to identify with the customer.
Interclient Conflict: Sometimes conflict occurs for boundary spanners when incompatible
expectations and requirements arise from two or more customers. This situation occurs most
often when the service provider is serving customers in turn (a bank teller, a ticketing agent, a
doctor) or is serving many customers simultaneously (teachers, entertainers).
Strategies for Closing GAP 3:

*Teamwork, Empowerment, Role clarity, Training
* Synchronize Demand & Capacity
* Communicating with customers
Empowerment:
• Benefits:
– Quicker responses to customer needs during service delivery
– Quicker responses to dissatisfied customers during service recovery
– Employees feel better about their jobs and themselves
– Employees tend to interact with warmth/enthusiasm
– Empowered employees are a great source of ideas
– Great word-of-mouth advertising from customers
• Drawbacks:
– Potentially greater dollar investment in selection and training
– Higher labor costs
– Potentially slower or inconsistent service delivery
– May violate customers‘ perceptions of fair play
– Employees may ―give away the store‖ or make bad decisions
Customers’ Roles in Service Delivery: Illustrate the importance of customers in

successful service delivery and co creation of service experiences. Discuss the variety of
roles that service customers play: productive resources for the organization; contributors
to quality and satisfaction; competitors.
How Customers Widen the Service Performance Gap: Lack of understanding of their roles,
not being willing or able to perform their roles, No rewards for ―good performance‖, interfering
with other customers Incompatible market segments.
Importance of Other (“Fellow”) Customers in Service Delivery:
 Other customers can detract from satisfaction:

– disruptive behaviors
– overly demanding behaviors
– excessive crowding
– incompatible needs
• Other customers can enhance satisfaction:
– mere presence
– socialization/friendships
– roles: assistants, teachers, supporters, mentors
Customers as Productive Resources: customers can be thought of as ―partial employees‖

– contributing effort, time, or other resources to the production process
• customer inputs can affect organization‘s productivity
Customers as Contributors to Service Quality and Satisfaction:

Customers can contribute to:
– their own satisfaction with the service
• by performing their role effectively
• by working with the service provider
– the quality of the service they receive
• by asking questions
• by taking responsibility for their own satisfaction
• by complaining when there is a service failure
Customers as Competitors: Customers may ―compete‖ with the service provider

―Internal exchange‖ vs. ―External exchange‖
Internal/External decision often based on:

– Expertise capacity
– Resources capacity
– Time capacity
– Economic rewards
– Psychic rewards
– Trust
– Control
Strategies for Enhancing Customer Participation: The overall goals of customer participation
will typically be to increase organizational productivity & customer satisfaction while
simultaneously decreasing uncertainty due to unpredictable customer actions.
Strategies for Enhancing Customer Participation:

I. Define customers’ jobs: The organization first determines what types of
participation it wants from customers, thus beginning to define the customer‘s job.
Identifying current level of customer participation can serve as a starting point.
Once the desired level of participation is clear the organization can define more
specifically what the customer‘s job entails. The customers‖ job description‖ will
vary with the type of service & the organizations desired position within its industry.
The job might entail.,
1. Helping oneself
2. Helping others
3. Promoting the company
II. Recruit, Educate and Reward Customers: Once the customer role is clearly
defined the organization can think in terms of facilitating that role.
In a sense the customer becomes a ―partial employee‖ of the organization at the same level. As
with the employees customer participation in service production & delivery will be facilitated
when.,
1. Recruit the right customers
2. Educate and train customers to perform effectively
3. Reward customers for their contributions
4. Avoid negative outcomes of inappropriate customer participation
II. Manage the customer mix:Eg:Single college students who want to party &
families with small children who want quiet-it may find two groups do not merge.
The process of managing multiple & sometimes conflicting segments is known as
compatibility management (C.M).
Compatibility management will be critically important for some businesses (such as
Public transportation, hospitals & clubs)
Delivering Service through Intermediaries: Identify the primary channels through which
services are delivered to end customers.
Provide examples of each of the key service intermediaries.
View delivery of service from two perspectives—the service provider and the service deliverer.
Discuss the benefits and challenges of each method of service delivery.
Outline the strategies that are used to manage service delivery through intermediaries.
Service Provider Participants:

• service principal (originator)
– creates the service concept
(Like a manufacturer)
• service deliverer (intermediary)
– entity that interacts with the customer in the execution of the service
(Like a distributor/wholesaler)
Services Intermediaries:
Franchisees: Service outlets licensed by a principal to deliver a unique service concept it has
created.
e.g., KFC, McDonald‘s,
Franchising
The other recent trend in distribution of services is that of franchising.
Franchising is the granting of rights to another person or institution to exploit a trade name, trade
mark or product in return for a lump-sum payment or a royalty.
Franchise is characteristed by the following features:
a) Ownership by one person of a name, an idea, a secret process or specialized piece of

equipment and the goodwill associated with it.
b) The grant of a license by that person to another permitting the exploitation of such name, idea
process or equipment and the goodwill associated his rights.
c) The inclusion in the license agreement of regulations relating to operation of the business in
the conduct of which the licensee exploits his rights.
d) The payment by the licensee of a royalty or some other consideration for the rights that are
obtained.
In service Industries franchises operate in the area of hotels, restaurants, car rentals, fast food
outlets, beauty parlors, pest control, travel agencies, office services, packers and movers,
couriers, business centre‘s, etc.
The advantages provided by a Franchising arrangement are as follows:
1. There are usually training materials already developed, for both franchisees and their workers.
2. Expansion through franchsing can proceed quickly.
3. The franchiser need apply only minimal controls; it does not have to develop as large a
bureaucracy to govern the business.
4. A franchiser's overhead is lower because the franchisee does hiring, collections, local
promotions, etc.
5. There are economies of scale to advertising and promotion.
6. The franchisee is responsible for most of the cost control.

7. There is often less risk attached to franchise expansion than with the creation of new service
ventures that may not have been tested as well.
8. Franchises usually have a better record for staying viable business than the typical service
business startup.
9. Local operators are committed because they have their own capital at risk.
10. The service tasks, service standards, and service delivery systems are usually well defined
and structured, and thus they work well. They have been prototyped, and many of the potential
problems with the operations have already been identified and ironed out.
Agents and Brokers: Representatives who distribute and sell the services of one or more service
suppliers
e.g., Travel agents, Independent insurance agents.
Agent: An agent is an independent intermediary, who may act in the name of, or for a principal.
His contract will define these provisions along with territorial rights, exclusivity and sales
commissions.
Broker: A broker is an independent intermediary between buyer and seller who bring parties
together to facilitate the conclusion of sales contract. A broker may have continuing relationship
for his client under a contract period;
For which he may charge fee for assistance. Alternately, a broker may be for a special job to be
undertaken.
There are obvious benefits in distributing services through Agents and Brokers.
Firstly, they help in reducing the selling and distribution costs besides a wider representation in
the market. Secondly, such intermediary's possess special skills and expertise and also the
knowledge of local markets.
However these agents and brokers also pose some challenges also. For example representation of
multiple service principals may lead to poaching in territories of others resulting in loss of
control over pricing and other aspects of marketing.
Functions of Agents and Brokers
The major function of these agents and brokers is, like any other intermediary, to bring the
producer of service and the user or consumer together.
For certain services, agents can be identified and deployed with selling as the chief function to be
performed by them. These agents can be compared with the agents for goods and they are
classified as brokers or sales agents. The
example of this kind of channel is transportation (travel agents) and office or factory workers
(employment agencies). However in some cases the agents may be trained in the creation and
production of service and then franchised to ell it (eg, Shahnaz Hussain Beauty Parlors).
In case of certain services, actual product is not transferable and therefore

tangible representations are created and transferred. This type of channel is
used for marketing insurance services, where a contact document exists as a

physical and tangible representation of the services.
Another characteristic of services is that the services are generally not

delivered to the buyer and the creation of time and place utilities is a vital
function in the services marketing. Irrespective of whether one uses agents or
middlemen or direct sales channel the factor of location keeping in view the
potential markets will be the most significant factor in channel selection
decision. Duane David et.al, are of the view that location considerations along
with personal sources of information are two of the critical factors in final
purchase decision of many services.
The problem of standardization and uniformity restrains the service organization

to use middlemen to any great extent and limit the geographical area which the
service organisations propose to reach and cover. This lays emphasis on the
significance of good selection to attain maximum coverage at the market place.
Banking organizations have started reliving this fact and introduced extension
counters, mobile banking apart from opening branches in rural areas.
Electronic Channels: all forms of service provision through electronic means.
e.g, ATMs, university video courses, Tax Cut software.
Benefits and Challenges for Franchisers of Service:

• Benefits:
– Leveraged business format for greater expansion and revenues
– Consistency in outlets
– Knowledge of local markets
– Shared financial risk and more working capital
– An established business format
– National or regional brand marketing
– Minimized risk of starting a business
• Challenges:
– Difficulty in maintaining and motivating franchisees
– Highly publicized disputes and conflict
– Inconsistent quality
– Control of customer relationship by intermediary
– Encroachment
– Disappointing profits and revenues
– Lack of perceived control over operations
– High fees
Benefits and Challenges in Distributing Services through Agents and Brokers:

• Benefits:
– Reduced selling and distribution costs
– Intermediary‘s possession of special skills and knowledge
– Wide representation
– Knowledge of local markets
– Customer choice.
• Challenges:
– Loss of control over pricing
– Representation of multiple service principals
Benefits and Challenges in Electronic Distribution of Services:
• Benefits:
– Consistent delivery for standardized services
– Low cost
– Customer convenience
– Wide distribution
– Customer choice and ability to customize
– Quick customer feedback
• Challenges:
– Price competition
– Inability to customize with highly standardized services
– Lack of consistency due to customer involvement
– Changes in consumer behavior
– Security concerns
– Competition from widening geographies
Common Issues Involving Intermediaries:
 Conflict over objectives and performance,

 Difficulty controlling quality and consistency across outlets,
 Tension between empowerment and control,
 Channel ambiguity.

Strategies for Effective Service Delivery through Intermediaries:
• Control Strategies:
– Measurement
– Review
• Partnering Strategies:
– Alignment of goals
– Consultation and cooperation
• Empowerment Strategies:
– Help the intermediary develop customer-oriented service processes
– Provide needed support systems
– Develop intermediaries to deliver service quality
– Change to a cooperative management structure
Module VI
Managing Demand and Capacity
Considering the following Eg. During the tourist season i.e., from April to June the
demand for Hotel rooms is high in all tourist spots such as Hill station and sometimes the
demand exceeds the available space in the hotel. On the contrary, during the rainy season the
demand for the rooms are less, thus there is a fluctuation in demand in the hotel business. The
same is true of a hospital or a nursing home or a bank. In a bank there could be long queues at a
certain hour and empty counters at certain other hours. Therefore there is need to smoothen the
peaks and valleys of demand for various facilities. Further continuing our eg., we can think of
tax consultants, air conditioning maintenance service people, who also face seasonal demand
fluctuation. Services like train, bus also face this kind of demand fluctuation every hour.
Over use or under use of a service can cause GAP 3 to increase i.e. failure to deliver what
was designed and specified. For eg. When demand for service exceeds maximum capacity, the
quality of service may drop because staff and facilities are over taxed. Some customers may have
to go back, not receiving the service at all. During periods of slow demand it may be necessary to
reduce the price or to cut service facilities or change the nature of service to avoid the risk of not
delivering any service to the customers.
Our main focus is to study the following.
1. a. Challenges of matching supply and demand in capacity – constrained services,
b. implications of capacity constraints in the form of time, labour, equipment and
facilities.
c. Implication of different types of demand pattern and matching of supply and
demand.
2. Strategies for matching supply and demand through
a. Shifting demand to match capacity
b. Flexing capacity to meet demand
3. To study the benefits and risk of yield management strategies in bringing a balance in
capacity utilization, pricing, market segmentation and financial return.
4. Provide strategies for managing waiting lines, when capacity and demand cannot be
aligned.
Why do service organizations lack the capacity to inventory their service?
1. a. Challenges of matching supply and demand in capacity:
The main issue here is, ―Lack of Inventory capability‖. The basic issue is lack of
inventory capability of both supply and demand. Like manufacturing firms, service firms
cannot build inventories during period of slow demand and to use later when the demand
increases. This lack of inventory capabilities is due to perishibility of services and also
simultaneous production and consumption of services. A seat in an Aeroplane that is not
sold on a given flight cannot be resold the following day. The productive capacity of that
seat has perished. Similarly a day loss of rent in a hotel cannot recovered the next day.
This lack of inventory capability leads to 4 possible scenarios at any given time.
VARIATIONS IN DEMAND RELATIVE TO CAPACITY:
1. Excess demand; in this case, the level of demand exceeds maximum capacity. In this
situation, some customers will have to be sent back resulting in loss of business. For
customers who do not receive any service, the quality of service is quiet immaterial.
2. Demand exceeds optimum capacity: No one is sent back without service but the service
may still suffer due to overuse, crowding or the service staff being too much strained
beyond the abilities to deliver the service consistently.
3. Demand and supply are balanced at the level of optimum capacity: Here staff and
facilities are occupied at an ideal level. No one is over worked, strained and facilities can
be maintained. Customers are receiving quality service without delay.
4. Excess Capacity: Demand is below optimum capacity. Resources in the form of labour,
equipment and facilities are under utilized resulting in loss of productivity and loss of
profits. Customers may receive excellent quality and also individual attention because
they can used the facilities fully and there is no waiting time and complete attention is
given from the staff.
Not all firms will be challenged equally in terms of managing supply and demand. The
seriousness of the problem will depend on the extent the demand fluctuation over time, and
extend to which supply is constrained” some type of organizations will experienced wide
fluctuations in the demand. Eg. Telephone service, hospitals, nursing homes, public transport,
while others will have narrow fluctuation. Eg. Laundry, Insurance, Banking. For some, peak
demand can be met even when the demand fluctuates eg., Electricity, while for others peak
demand may frequently exceed capacity eg., Theaters, Hotels.
To identify effective strategies for managing supply and demand fluctuations, an
organization need to understand clearly the constraints on its capacity and also the demand.
Discuss the 4 common types of Constraints facing services business and give examples of
each.
1. b. Time, Labor, equipment, facility (capacity constraints):
a. Time: For some services, primary constraint is time. For eg., a lawyer, a consultant, a
hair dresser a counselors, all these people sell time. If their time is not used productively profits
are lost. If there is excess demand, time cannot be created to satisfy it. From the point of view of
individual service provider, time is constrained.
b. Labor : For some other firms labor may be a constrained. Eg., A service provider of air-
conditioner, computer or a fax machine, may face a demand situation where they are unable to
provide service due to shortage of labor. This is because the existing staff is already working at
peak capacity also it is not advisable to hire extra people because the demand is not constant all
the times.
c. Equipment : For some firms, equipment may be a constraint. For eg. a travel service
may be unable to send a taxi due to shortage of it. Similarly telephone companies face equipment
constraint since everyone wants to use the telephone line during peak hours.
d. Facilities : Eg., shortage of rooms in a hotel no availability of seat in an airline or
educational institution, theaters.
Optimal Versus Maximal Use of Capacity
How does Optimal capacity utilization differs from Maximal capacity Utilization? Give an
example of a case when the two might be the same and an example of where they are
different?
We should understand the difference between maximum and optimal capacity. Optimal and
maximum capacity are not the same. Using capacity at an optimum level means that resources
are fully employed but not overused, and the customers are receiving quality service in a timely
manner. Maximum capacity represents the absolute limit of service availability. For eg., In a
class room it is usually not desirable for students or faculty to have every seat filled. In this case,
optimal capacity is less than maximal.
On the other hand in a football game it is desirable to have every seat filled in the stadium to get
most profit. In this case the optimum and maximal capacity are the same. In some cases,
maximal use of capacity may result in excessive waiting time by customers as in the case of a
restaurant. From the point of view of customer satisfaction, optimum use of restaurant capacity
will have to be less than maximal.
In the case of equipment of facility constraints, the maximal capacity at any given time
is obvious. This is because; there are a certain number of seats in the aeroplane or a limited
amount of space in a cargo carrier.
In case of limitations in labor, the maximal capacity is different to specify, since people
are more flexible than facilities and equipment. When an individual service provider exceeds this
maximal capacity, the result is decreased service in quality. Customer dissatisfaction and
employee turnover. These outcomes are immediately observable even to the employee himself.
Therefore it is necessary to know which is maximal and which optimal capacity is.
1. c. Understanding demand pattern: To manage fluctuating demand in a service
business, it is necessary to understand the demand pattern. i.e.. Why they vary, which market
segment is varying etc., towards this the following need to be done.
a. Record the demand pattern: First, the organization need to record the demand pattern
over a period of time. Eg., daily, weekly, monthly etc.,
Eg: A tax consultant will be busy during the end of the financial year. This is because most of his
client would like to file their income tax returns. Therefore tax consultant can predict the demand
based on when the tax is due from the clients. Similarly services catering to children can predict
the demand based on vacations.
Transports can predict the demand based on the opening and closing of most offices.
b. Random demand fluctuation; Sometimes the pattern demand is random. The demand
cannot be predicted. Eg. is Hospital or a Nursing home. This is because accidents, ill health,
heart attacks etc., cannot be predicted in advance. Therefore the level of demand for a hospital
service cannot be determined in advance. Similarly natural disasters such as flood, earth quake,
can change the service requirements of insurance and health care dramatically.
2. Which market segment is varying: Take the examples of Bank. Here the visit by its
current account holders may be daily at a predictable time, whereas SB A/c holders may visit the
bank at random intervals. Similarly those who want to have regular or routine checkup of their
health may visit the clinic once a month say, the first Monday of every month. Whereas those
who falls sick will visit the clinic as and when required.
II Strategies for Matching Capacity and Demand.
Describe the two basic strategies for matching supply and demand and give alteast two
specific examples of each.
Once the capacity constraints and demand pattern is known to the organization. It is very
easy to develop strategies for matching supply and demand. There are 2 approaches to do this. 1.
Shift the demand to match the supply 2. Adjust the capacity to match the fluctuations in demand.
1. Shifting demand to match capacity: In this strategy, to organization seeks to shift the
customers aware from periods in which demand exceeds capacity. This can be done by
convincing them to use the service during the period when the demand is slow. This may be
possible for some customers but not for others. This can be done in a number of ways.
1) Varying the service offering.
2) Communicating with the customer
3) Modifying timing and location of service delivery
4) Differentiation in the price.
1. Varying the service offering: One approach is to change the nature of service depending
upon the season of the year, day of the week or time of the day.
Eg. An airline can change the configuration of their seating to match the demand for different
market segments.
Eg. In some planes they may not be any first class section at all. On routes with a large demand
for first class seating, a significant proportion of seats may be placed in first class. While
changing the service offering, all other aspects of marketing mix variable such as promotion,
pricing, staffing should match the new offering.
1. Strategies for shifting demand to match the capacity SHIFT DEMAND
Demand Too High: Offer incentives to customers to use during non peak times, take
care of loyal or ―regular customers first, Advertise peak usage
times benefits of nonpeak use, charge full price for the service no
discounts.
Demand Too Low: Modify the service offering to appeal to new market segment,
Offer discount or price reductions, Modify hours of operation,
Bring the service to the customers.
2. Communicate with customers: In shifting the demand, the customer must be
communicated with regard to times of peak demand periods. So
that we can choose to use the service at alternative times and avoid
crowding are delays.
For eg. Signs in bank and post offices that let customers know their busiest hours and busiest
days of the week can serve as a warning, allowing customers to shift their demand to another
time impossible. Forewarning customers about busy times and possible wait can have added
benefit. The same can be made applicable at ATM also.
3. Modify timing and locating of service delivery:
Examples are
1. Introduction of banking hours on Sunday or extended hours during working day.
2. Introduction of extra show hours in a movie theatre. Another strategy may involve
moving the services to a new location to meet customer demand are even bringing
service to the customers. Eg. Mobile training facilities, libraries.
4. Differentiate the price:
During periods of slow demand discount is offered. However all segments of the market
may not be price sensitive. Eg. A business traveler may not be price sensitive. Whereas an
individual with his family travelling may be price sensitive. Heavy use of price differentiation to
smoothen the demand can be a very risky strategy. This over reliance on price can result in a
price war in the industry where all competitors will suffer. Price wares are well known in the
airline industry where total industry profits have suffered. As a result of airlines simultaneously
trying to attract customer through price discount. Another risk of relying on price is that,
customers get accustomed to the lower price and expect to get the same deal the next time they
use service. If communication with customer is not clear, customer may not understand the
reason for discounts and will expect to pay the same during peak demand period. Therefore
overuse of price as a strategy to smoothen the demand is very risky.
Flexing Capacity to Meet Demand
II b. A second approach to match supply and demand is by adjusting or flexing the
capacity. The fundamental idea here is to adjust, stretch and align capacity to match customer
demand. During period of peak demand, the organization will seek to stretch or expand its
capacity as much as possible. During period of slow demand it will try to shrink capacity. There
are 4 factors which come under stretching or shrinking (Time, People, Equipment, and Facility.
Stretching existing capacity: The existing capacity can often the expanded temporarily
to match the demand. In such a case no new resources or added but rather people, facilities and
equipment are asked to work harder and longer to meet the demand.
a. Stretch time: Extend the hours of working temporarily to accommodate the demand. Eg.
Shopping hours, clinic hours etc. Sunday working is one method.
b. Stretch labor: In some organizations, employees are asked to work longer and harder
during peak periods of demand. This amounts to working overtime.
c. Stretch facilities: Theatres, restaurants, class rooms can sometimes be expanded on a
temporary basis by the addition of tables, chairs, and other equipments.
d. Stretch Equipment: Computers, telephone lines and maintenance equipment can be
stretched beyond what would be considered the maximum capacity for a short period to
accommodate to meet demand. In using this type of stretch strategies, the organizations
need to recognize the wear and tear on resources.
Sufficient time is to be given to maintain the equipment in good condition. And also to
provide refreshment for the people.
Strategies for flexing Capacity to Match Demand.
Demand too high Flex Capacity Demand Too Low.
 Stretch time, Labour, facilities & Perform, maintenance renovations,
equipments cross-train employees Schedule vacations
 Hire part-time employees Schedule employee training
 Request overtime work form Lay off employees.
employees.
 Rent or share facilities
 Rent or share equipment
 Subcontract or outsource
activities.
Align capacity with demand fluctuations:
This basic strategy is sometimes called as chase demand strategy. By adjusting service
resources like time, labour, facilities and equipments it is possible to align the capacity with the
demand. The specific action to be taken are as follows:
Use part time employees:
In this case, the organization‘s labour resource is being aligned with demand. Part time
employees are hired during peak season to do extra work.
Eg. Restaurants which works in shifts.
Rent or share facilities or equipments:
For some organizations, it is best to rent additional equipment or facilities during the
peak period. For eg., Transport sector can run extra buses to meet the peak demand by hiring the
bus from the private operators. Similarly schools can hire buildings to accommodate students.
Schedule down time during period of low demand:
If people, equipment and facilities are used at maximum capacity during peak periods,
then it is necessary to schedule repair, maintenance, renovation during off peak periods. This will
ensure that resources are in top condition when they are needed. Similarly for employees
vacation or training can be planned during slow demand periods.
Cross – Training employees:
If employees are cross trained, they can be shifted from one task to another when most
needed. This will increase efficiency of the whole system and avoids under utilization of
manpower. Cross training means training in more than one area. Eg: some Airline employees can
be used for ticketing. They can be moved from here to Airport for public relations.
Modify or Move facilities and equipments:
Sometimes, it is possible to adjust, move or creatively modify existing capacity to meet
demand fluctuations. The Airline industry typically use this approach known as demand driven
dispatch.
For eg. In the new Boeing 777 aircraft it is possible to reconfigure the seating arrangement
within an hour. So that more number of seats could be allotted based on the demand. A second
eg: is to partition the class room as required depending upon the demand

III a. Yield Management – Balancing Capacity Utilization, Pricing, Market
segmentation and Financial Returns:
What is yield management? Discuss the benefits and the risks in adopting yield
management strategy:
Yield Management: The goal of the yield management is to produce the best financial return
from a limited available capacity. Specifically, yield management has been defined as ‗The
process of allocating the right type of capacity to the right kind of customer at the right price
so as to maximize revenue or yield.
Benefits: By adopting yield management principle, revenue or yield can be maximized since this
is the ultimate goal of any organization. Yield management is nothing but the ratio of actual
revenue to potential revenue for a particular measurement period.
Where actual revenue = actual capacity used X average actual price.
Potential revenue = total capacity X maximum price.
This equation indicates that yield in the function of price and capacity. We know that
capacity constraints can be in the form of time, labour, equipment or facilities. Yield is a
measure of ―to what extent organization‘s resources of utilized for generating maximum
revenue‖. Yield can be raised by increasing capacity used or by increasing the price.
Take the examples of a hotel which has 200 rooms that it can rent at the rate of Rs. 100/-
per night. This means that the potential revenue is Rs. 20,000/-. One night if it rents all the rooms
at a reduced rate of Rs. 50/- per night, the revenue is Rs. 10,000/- Although capacity was used to

the maximum level than night, yield was only 50%. (10,000 / 20,000). If on the other hand, the
hotel has charged its full rate, it might of sold only 40% of its rooms due to customer price
sensitivity.
The yield under these circumstances would have been 40% (8000/20000) At Rs. 100/- rate, the
hotel may thus be maximizing the per – Room price but not the potential yield – or revenue
generation for the entire hotel. A combination of the two factors would be the best solution. If
the hotel fills 40% of the rooms at Rs. 100/- per night and the remaining 60% at Rs. 50/-, the
revenue would be Rs. 14000/- resulting in a yield of 70% (14000/20000).
Yield management makes attempt to manage demand to meet capacity (fixed number of
rooms) by deciding what amount of capacity to offer at what price to what market segment in
order to maximize its revenue over a particular period. To implement, yield management system,
an organization needs detailed data on past demand pattern by market segment.
Allocation of capacity for specific segment can then be communicated to sales representatives or
counter sales people for selling rooms, seats or other limited resources. Sometimes the
allocations, once made remains fixed. At other times allocation may change weekly or even daily
in response to new information received from the customers. Airlines used this strategy vary
often. Decisions are made daily on how many seats to allocate to discount travelers, how many to
the groups, and how many for last minute full fare customers. Also n
―No shows is also to be considered in the above‖
III B. Risks or challenges in using yield management: There is no doubt that yield
management will improve revenues. However there are number of risks associated with the
implementation of yield management by the organization.

a. Loss of Competitive focus: Service quality might suffer.
b. Customer alienation: If customers learn that they are paid hire price for service than
someone else, they may perceive that the organization is unfair, particularly if they do not
understand the reasons. Customer education is therefore essential for effective
implementation of yield management.
c. Employee morale problems: While some employees may agree to implement as per
guideline given by the management, others might resent the rules and restrictions placed
on their decision making ability.
d. Incentive and reward system: Employees may be unhappy with yield management
system, if it does not match with incentive structure. For eg. Many managers are
rewarded on the basis of capacity utilization or on the average rate charged, whereas
yield management balances the two factors.
e. Lack of employee training: Employee need to understand the purpose, how it works,
how he should make decisions and how the system will affect their jobs.
f. Inappropriate organization: To be most effective with yield management, an
organization must have a centralized reservation. While airlines and large hotel chains
have this other small organizations do not have this. They have decentralized reservation
system and thus find it difficult to operate yield management system effectively.
IV Waiting line strategies – when demand and capacity cannot be aligned:
Describe the 4 basic waiting line strategies, and given an example of each one preferably
based on your experience as a consumer.
Sometimes it is not possible to manage capacity to match demand. It may be too costly
for a health clinic to add additional facilities or hire additional doctors to handle peak demand

during the winter season when the flu is common and many patients have to wait for the doctor.
These are instances where demand is unpredictable and the service capacity is very inflexible (it
cannot be easily stretched to meet the demand) Some times waiting may occur for eg., even
through patients are scheduled by appointments in the physicians office, frequently there is wait.
This is because some patients take longer to serve than the time allotted to them. For most
service organization, waiting customers are a fact of life at some point. Waiting can occur on the
telephone – customers are put on hold when they call in to ask for information, order something,
and make complaint. The waiting can occur at a bank or a post office or doctors clinic. Waiting
can also occur with transactions like postal delay in delivery.
In today‘s fast life, waiting is not something which most people tolerate well. As people
work longer hours, individuals have less leisure, and families have fewer hours together, the
pressure on people‘s time is greater than before. In this environment customers are looking for
quick service with no wait Organizations will loose the customer.
To deal with the waiting line problem several strategies are adopted by the organization
and they are as follows:
1. Employ operational logic.
2. Establish a reservation process.
3. Make waiting fun or at least tolerable.
4. Differentiate waiting customers.
1. Employ operational logic: If customer wait is common, then the first step for the
organization is to analyse the operational process to remove the influences. It may be
possible to redesign the system so that the queue can move faster Eg. Additional counters
at bank, post office during all hours or technological improvements to be made (use of

computers or ATM) when queue is inevitable, the organization should take a decision on
―What kind of queuing system to used or how to configure the queue‖. Queue
configuration refers to the number of queues, their location, space requirement etc., There
are several possibilities. In a multiple queue, the customer arrives at the service facility
and must decide which queue to join, and customer arrives at the services facility and
must decide which queue to join, and whether to switch later if the wait appears to be
shorter in the other line. In the single queue alternative, since first – come, first o served
principle is followed. However customer may leave if there perceive, that the line too
long, and there is no opportunity to meet the service provider. Another option is to take a
number, as soon as the customer arrives at the service providers palace.
This number will indicate their position in the line and also avoids line jumping. The
disadvantage is that the customer must be alert to hear the number when it is called.
2. Establish a reservation process: When waiting cannot be avoided, a reservation system
can help to spread the demand. Hotels, transport companies. Theatres and many other
service providers use reservation system to avoid long waits. The idea behind reservation
system is that the service should be available positively when the customer arrives. In
addition to the reduction in the waiting time, the reservation system has the added benefit
of potentially shifting the demand to less desirable time periods.
The danger this system is that if the customer does not turn up then and alternative
arrangement has to be made. Eg. a customer ―who books a room in a hotel, does not turn
up then the hotel staff will be in a dilemma as to how long should they wait‖.
3. Differentiate the waiting customer: Not all customers need to wait the same length of
time for service. One the basis of need or customer priority organizations differentiate

among customers, allowing some to have shorter waits for service than others. This is
known as queue discipline. This differentiation reflects management policies regarding
whom to select next for service. The most popular discipline is first come and first
served. However differentiation is based as follows.
a. Importance of customer : Frequent customers or customers who spend large amounts
with the organizations can be given priority in service by providing them with a special
waiting area or segregated line.
b. Urgency of the Job: Those customers with most urgent need or served first. This is
followed in medical emergency case. It is also used by service people such as air-
conditioning repair, who give priority to customers whose airconditoners are not working
compared to those who call them for routine maintenance.
c. Duration of the service transaction: In many situations express lanes are created when
the service provider knows that the transaction is going to take extra time, and then the
customer is referred to a designated provider who deals only with these special need
customers. Eg. Special tickets purchased at a temple.
4. Making waiting fun, or at least tolerable: Even when they to wait, customers can more
or less satisfied depending on how the wait is handled by the organization. But it is not
just the actual time spent waiting that has been impact on customer satisfaction – it is
how customer feels about the wait and their perception during that time. The subject of
psychology of waiting lines, proposes several principles regarding waiting, each of
which has implication on ―How organizations can make waiting a pleasure or at least
tolerable‖.

Unoccupied time feels longer than occupied time: When customers are not occupies, they are
likely to be bored and will notice that passage of time is more than when they have something to
do. Providing something for the waiting customer to do can improve the customer‘s experience
and may benefit the organization also.
Eg. providing some interesting magazines at a clinic, playing some music over the phone then
the customer is on hold etc.,
Pre-process wait feel longer than in Process wait: If wait time is occupied with activities that
relate to the upcoming service, customer may perceive that the service has shorted and they are
no longer actually waiting. This in – process activity make length of the wait seem shorted and
will also benefit the service provider by making the customer better prepared when the service
actually does begin. Filling out medical information while waiting for a doctor or reading a menu
while waiting on a seat in a restaurant on all activities that can at the same time educate the
customer and reduce the perception of waiting.
Anxiety makes wait seem longer: when customers fear that they have been forgotten or don‘t
know how long they will have to wait, they become anxious, and this anxiety can increase the
negative impact of waiting. Anxiety also results when customers are forced to choose a multiple
line situation and when they discover that they have chosen the ―wrong line‘ To combat waiting
line anxiety, organizations can provide information on the length of the wait. Using a single line
strategy also alleviates customer anxiety over having chosen the wrong line. Explanations and
reassurances that no one has forgotten them alleviate customer anxiety by taking away their
cause for worry.
Uncertain waits are longer than known, finite waits: Anxiety is intensified when customers
don‘t know how long they will have to wait. Health care provider‘s combat this by letting

customers knows when they check in, how far behind the physician is that day. Some patients
resolve this uncertainty themselves by calling ahead to ask. Customers who arrive early for an
appointment will wait patiently until the scheduled time, even if they arrive very early. However,
once the expected appointment time has passed, customers grow increasingly anxiour. Before the
appointment time the wait time is known, after that, the length of the wait is nit known.
Unexplained waits are longer than explained waits: When people understand the causes for
waiting, they frequently have greater patience and are less anxious, particularly when the wait is
justifiable. Being provided with an explanation can reduce customer uncertainly and may help
customers to make at least a ballpark estimate of how long they will be delayed. Customers, who
don‘t know the reason for a wait, begin to feel powerless and irritated.
Unfair waits are longer than equitable waits; When customers perceive that they are waiting
while others who arrived after them have already been served, the apparent inequity will make
the wait seem even longer. This can easily occur when there is no apparent order in the waiting
area and many customers are trying to be served. Queuing systems that work on a first-come,
first served rule are best at overcoming perceived unfairness; But there can be some expectation
to the above. For eg. In an emergency medical care situation, the most seriously ill or injured
patients would be seen first.
The more valuable the service, the longer the customer will wait: Higher the value of service
the more tolerant the person is who is receives the service. For eg. In a super market, a customer
who has to dull cart of groceries to be purchased will generally wait longer than customers who
have only a few items to buy. Similarly the wait time is more in an expensive restaurant than in a
fast food restaurant.
***********************************

Module VII
Role of Marketing Communication
Key Reasons for GAP 4 Involving communication:
Inadequate Management of Service Promises:
A discrepancy between service delivery and promises occurs when companies fail to manage
service promises the promises made by sales people, advertising, and service personnel. One of
the primary reasons for this discrepancy is that the company lacks the information to fulfill the
promises. Sales people often sell services particularly new business services, before their actual
availability and without having an exact date when they will be ready for market. Demand and
supply variations also contribute to the problem of fulfilling service promises. They make service
provision possible at sometimes improbable at others and difficult to predict GAP 4 can also
occur when companies neglect to inform customers of special offers to ensure quality that are not
visible to customers. Customers are not always aware of everything done behind the scenes to
serve them all or to fulfill what they expect.
GAP4 Service Delivery

Key Factors Related to communication:
Inadequate management of service promises
Overpromising in advertising ad personal selling
Insufficient customer education
Inadequate horizontal communication
Differences in policies and procedures across branches or units
External communications to customers
Key reasons for GAP4

They assume that an overview at the beginning of the service, or manual or set of instructions
will equip customer. Unfortunately this is rarely sufficient, for the customers because they can
neither understand the process nor appreciate the value received from service.
A final condition under which customer education can be beneficial involves services where
demand and supply are not synchronized.
If the customer is not informed about peaks and valleys in demand, service overloads and
failures not to mention underutilized capacity are likely to result.Sevice organizations need to
advise customers about variations in demand and supply to ensure that customers will not be
disappointed when they need service.

Inadequate Horizontal Communication:

Another major difficulty associated with GAP4 provider is that multiple functions in the
organization such as marketing and operations must coordinated to achieve the goal of service
provision. Because service advertising and personal selling promise ―what people do‖, frequent
and effective communication across functions-horizontal communication is critical. If horizontal
communication is poor, perceived service quality is at risk. If company advertising and other
promises are developed without input from operations, contact person may not be able to deliver
service that matches the image claimed in marketing efforts.
All need horizontal communication between the sales force and service providers. Unfortunately
salespeople and operations employees are often in conflict, each function believing that the other
makes work difficult. Operations employees feel that sales people constantly promise more than
they can deliver in order to get or maintain the business. Salespeople believe that, operations
employees are unwilling to push hard enough to deliver to customer expectations. A spirit of
misunderstanding and mistrust can develop.
Horizontal communication also must occur between the human resources and to inform and
marketing departments. To deliver excellent customer service, firms must be certain to inform
and motivate employees to deliver what their customers expect. If those who understand
customer expectations (Mktg and sales personnel) do not communicate this information to
contact employees through training, motivation, compensation and recognition, the lack of
knowledge will affect the quality of service that employees deliver.
Differences in policies and procedures across distribution outlets:

A final form of coordination for providing service quality is consistency in policies and
procedures across departments and branches. If a service organization operates many outlets
under the same name, whether franchised or company owned customers expect similar
performance across those outlets. If managers of individual branches or outlets have significant
autonomy in procedures and policies, customer may not receive the same level of service quality
across the branches.
A question frequently asked by companies is ―How much standardization can we achieve across
branches without taking away the autonomy and perceived control of employees.
Four Categories of Strategies to Match Service Promises with Delivery:
Reset Customer
Expectation
Manage Delivery > or = Manage Service

Horizontal Promises
Communications Promises

Improve customer
Education
Above fig shows four categories of strategies to match or exceed service delivery with promises
1. Manage Service promises
2. Reset customer expectations
3. Improve customer education
4. Manage Horizontal communications
1. Manage Service promises involves coordinating the promises made by all employees in
the company t ensure that they are consistent and feasible.
2. Reset customer expectations, a more dramatic strategy that tells customers, that the firm
can no longer provide the level of service that it has provided in the past and the customer
expectation must be lowered due to significant changes in the environment.
3. Educating customers means providing customers with information about the service or
evaluate criteria that inform them about aspects of service.
4. Finally, managing horizontal communication means transmitting information across
functional boundaries-between marketing and operations, human resources and finance to
align all functions with customer expectations.
1. Managing Service promises:

In manufacturing physical goods, the departments that make promises and those that
deliver them can operate independently. Goods can be fully designed and produced and
then turned over to marketing for promotion and sale. In services, however, the sales and
marketing departments make promises about what other employees in the organization
will fulfill. Because what employees do cannot be standardized the way physical goods
produced mechanically.Sucessful services advertising and personal selling become the
responsibility of both marketing and operations. Marketing must accurately report and
tell what happens in actual service encounters and operations must deliver what is deliver
what is promised in advertising.
If advertising or personal selling sets up unrealistic expectations for customers, the actual
encounter will disappoint the customer. In a similar way operations must cooperate with
advertising to carry out themes of courtesy, responsiveness, and reliability.
a. Make Realistic Promises: The expectations of customers about the service affect
their evaluations of its quality, the higher the expectation, the higher the delivered
service must be to be perceived as high quality.Therefore,promising reliability in
advertising is appropriate only when reliability is actually delivered. Promising no

surprises at a hotel is disastrous if what actually happens in the delivery process

includes many surprises. It is essential for the marketing or sales department to
understand the actual levels of service delivery. (I.e. percentage of times the service is
provided correctly, percentage and number of problems that arise) before making
promises about reliability. To be appropriate and effective, communications about
services quality must accurately show what the customer will actually receive n the
service encounter.
b. Offer Service Guarentee: Service guarantees are formal promises made to
customers about aspects of the service they will receive. While many services carry
implicit service satisfaction guarentees,the true benefits from them an increase in the
likelihood of a customer choosing or remaining with the company come only when
the customer knows the guarantees exist and trusts that the company will stand
behind them.
MANAGING SERVICE PROMISES
Make Offer Service Keep Negotiate Set prices

Delivery Realistic Guarantees Customer Unrealistic to match
>or=Promises Promises informed expectations quality
about levels
changes
An effective service guarantee is one which is unconditional. Easy to understand and

communicate and easy to collect. Unconditional means that no exceptions are built into the
promise, the guarantee should cover either all elements of service or all elements that the firm
can control. Ease of understanding and communication means that the guarantee should be
simple and pinpoint the promise enough to tell employees what to do and customers can
expec.Guarentees should also be meaningful, both by covering service aspects that are important
to customers and by providing significant payout when the promise is not kept. A guarantee of
service within twenty four hours will not be meaningful if the customer really wants service at a
preappointed time.
C.Keep Customers informed about Provider availability:

Responsiveness and access are important aspects of service quality. Being able to reach a person
who can help immediately or who can confirm a time by which help will arrive can be
comforting to customers, particularly when they are experiencing service interruptions.
E.g.: Cable Operators.

D.Keep customers informed about changes to schedules and offerings:

More than anything, service quality means keeping promises. We all know this is true and yet we
also realize that situations do arise when promises can‘t be met. In airline service, the weather
sometimes prohibits takeoffs. In software service, problems in the program are discovered after
the introduction of the software. In professional services such as medical services, a delayed test
from lab makes the doctor‘s diagnosis late. The reasons for unmet promises may involve the
company, the customer, or the other parties. In case the question arises, how soon do we let the
customer to know about the delay? Do we wait until we are sure there are no further
delays/problems/issues or do we inform the customer quickly? This approach is particularly
relevant to business to business services that are customized, such as marketing research,
consulting and computer programming services. In Industries that perform project work for other
companies, schedules often slip because of their unpredictability.
This happens because customer himself sometimes changes the requirement of his project half
way through. In these cases service provider need to inform clients of departures from schedule
as soon as possible and as often as the changes are made.
3. Improving Customer Education:

Customer must perform their roles properly for many services to be effective. If customer forgets
to perform this role, or performs it improperly, disappointment may result for this reason
communication to customers can take the form of customer education.
a. Prepare Customers for the service Process

Customers of management consulting services, purchase intangible benefits, such as
finding out marketing effectiveness, schemes for motivating work forces or downsizing
the organization. The very fact that companies purchase these services usually indicates
that they do not know how to perform these functions. Many customers will also not
know what to look for. A similar approach is sometimes necessary and effective with
individual service customers.
4. Managing Horizontal Communications

Coordination between marketing and operations can result in communication that
accurately reflects service delivery, thus reducing the gap between customer expectations
and actual service delivery. Integration of effort between marketing and human resources
can improve the ability of each employee to become a better marketer. Coordination
between finance and marketing can create prices that accurately reflect the customer‘s
evaluation of a service. In service firms, the functions need to be integrated to produce
consistent message and to narrow the service quality.
Approaches for Managing Horizontal Communication:

a. Align back office and support personnel with external customers through
interaction or measurements:
As companies become increasingly customer focused, front line personnel develop
improved skills in knowing what customers require. As they become more

knowledgeable about and empathetic toward external customers, they also experience
intrinsic rewards for satisfying customers.
Back office or support personnel, who typically do not interact directly with
externalcustomers, miss out on this bonding and as a consequence, fail to gain the skills
and rewards associated with it.
Interaction: Companies are creating ways to facilitate the interaction between back
office and support personnel and external customers.
Xerox for Example, created a program called ―Adopt a district‖ to allow employees to
meet and build relationships with particular customers. When actual interaction is
difficult or impossible some companies have videotaped customers in their service
facilities during the purchase and consumption process to vividly portray needs and
requirements of customers and to show personnel the support front line people need to
deliver.
b. Open channels of communication between advertising and operations

When a company creates advertising that depicts the service encounter, it is essential that
the advertising accurately reflect what customers will experience in actual service
encounters. Coordination and communication between advertising and service providers
are important.
EXCEEDING CUSTOMER EXPECTATIONS

When attempt is being made exceed customer expectations a company must understand?
1. What type of expectations can and should exceed?
2. What customer group or segment is to be targeted?
3. The impact of exceeding the expectations has no future expectation of the customers?
A. Demonstrate understanding of customer expectations

Before exceeding customer expectation, we need to know and communicate back to the
customer, what his or her expectations are; sometimes just the simple act of trying to understand
itself exceeds expectations.
For eg., if you are contacting a customer by phone and instead if you go and personally meet
him, this amounts to exceeding the service, similarly if the car to be taken to the service garage
by the owner is substituted by the garage personnel coming and collecting the car for service is
an example of exceeding the expected level of service.
B.Exceed expectations of selected customers

One reason many companies have difficulty meeting, much less exceeding, customer
expectations is that they do not distinguish among groups of customers to be served. Except for
public and nonprofit firms that must treat all customers equally nearly all service companies have
some customers that are more important than others.

Eg: In a Hotel it is possible to identify regular customers v/s casual customers.
C.Underpromise and Over deliver

One proposal for delighting customers on a continuing basis is to deliberately under promise the
service to increase the likelihood of exceeding customer expectations. This strategy is to under
promise and overdeliver.If every service promise is less than what will eventually happen,
customers can be delighted frequently. While this reasoning sounds logical two potential
problems should be weighed before using this strategy.
First, customers with whom the company interacts on a regular basis are likely to notice the
under promising and adjust their expectations accordingly. Customers with easily recognize the
pattern of under promising when time after time the firm promises one delivery time and yet
constantly exceeds it.
D.Position unusual service as unique, not the standard

At times the escalation of expectations as a result of improved service leads some companies to
question the wisdom of exceeding customer expectations. They reason that, exceeding customer
expectations today will lead to higher expectations tomorrow, making the job of satisfying
customers that much harder in the future. If they perform a miracle today won‘t customers accept
more miracles tomorrow and the next day? One way to avoid this escalation while still surprising
customer is to position unusual service as unique rather than standard.
For eg. If an Air flight is extremely short(less than 45 min)it is not possible to serve beverages.
The Airline may announce that the crew will try best to serve but all of them may not get it. In
this case the airline has positioned its service as unique by telling the passengers are delighted,
but their expectations for regular service is not increased by this action.
PRICING OF SERVICES
Pricing of Services-Role of price and Value in Provider GAP4, Role of non Monitory cost, Price
as an indicator of service quality, Approaches to pricing services, Pricing Strategies
I. REFERENCE PRICE
A reference price is a price point in memory for goods or services, and can consist of the
price last paid, the price most frequently paid, or the average of all prices customers have paid
for similar offerings.
1. To see how accurate your reference prices for services are, you can compare them with
the actual price of these services from the providers in your home town.

Because services are intangible and are not created on a factory assembly line, service
firms have great flexibility in the configurations of services they offer. Firms can conceivably
offer an infinite variety of combinations and permutations leading to complex and complicated
pricing structures. As an example, consider how difficult it is to get comparable price quotes
when buying life insurance. With the multitude of types (e.g., whole life versus term), features
(different deductibles), variations associated with customers (age, health risk, smoking or non
smoking), few insurance companies offer exactly the same features and the same prices, only an
expert customer, one who knows enough about insurance to completely specify the options
across providers, is likely to find prices that are directly comparable.
2. Another reason customers lack accurate reference prices for services is that many
providers are unable or unwilling to estimate price in advance. Consider most medical or legal
services. Rarely are legal or medical service providers willing – or even able – to estimate a price
in advance. The fundamentals reason in many cases is that they do not know themselves what the
services will involve until have fully examined the patient or the client‘s situation or until the
process of service delivery (such as an operation in a hospital or a trial) unfolds. In a business –
to – business context, companies will obtain bids or estimates for complex services such as
consulting or construction, but this type of price estimation is typically not undertaken with end-
consumers; therefore, they often buy without advance knowledge about the final price of the
service.
Another factor that results in the inaccuracy of reference prices is that individual customer needs
vary. A service as simple as a hotel room will have prices that vary greatly : by size of room,
time of year, type of room availability, and individual versus group rate. These two examples are
for very simple services.
Still another reason customers lack accurate reference prices for services is that , with
most goods, retail stores display the products by category to allow customers to compare and
contrast the prices of different brands and sizes. Rarely is there a similar display of services in a
single outlet. If customers want to compare prices (for example, for dry cleaning), they must
drive to or call individual outlets.
II THE ROLE OF NONMONETARY COSTS
It has been recognized that monetary price is not the only sacrifice consumers make to
obtain products and services. Demand, therefore, is not just a function of monetary price but is
influenced by other costs as well. Non monetary costs represent other sources of sacrifice
perceived by consumers when buying and using a service. Time costs, search costs, often enter
into the evaluation of whether to buy or rebury a service, and may at times be more important
concerns than monetary price.
Most services require direct participation of the consumer and thus consume real time;
time waiting as well as time when the customer interacts with the service provider. Consider the
investment you make to exercise, see a physician, or get through the crowds to watch a concert
or game. Not only are you paying money to receive these services : you‘re also expending time.
Time becomes a sacrifice made to receive service is multiple ways. First because service

providers cannot completely control the number of customer to be serviced, service customers
are likely to expend time waiting to receive the service.
Waiting time for a service is virtually always longer and less predictable than waiting
time to buy goods.
Search costs the effort invested to identify and select among services you desire are also
higher for services than for physical goods. Price for services are rarely displayed on shelves of
service establishments for customers to examine as they shop, so these prices are often known
only when a customer has dedicated to experience the service.
There are also convenience costs of services. If customers have to travel to a service, they
incur a cost, and the cost becomes greater when travel is difficult, as it is for elderly persons.
Further, if service hours do not coincide with the customer‘s available time, she must arrange her
schedule to correspond to the company‘s schedule.
Often the most painful nonmonetary costs are the psychic costs incurred in receiving
some services fear of not understanding (insurance), fear of rejection (bank loans), fear of
uncertainty (including fear of high cost) – all of these constitute psychic costs that customers
experience as sacrifices when purchasing and using services. All change, even positive change,
brings about psychic costs that customers factor into the purchase of services. When banks first
introduced ATMs, customer resistance was significant, particularly to the idea of putting money
into a machine : customers felt uncomfortable with the idea of lettings go of their checks and
bank cards.
III HOW PRICE AS AN INDICATOR OF SERVICE QUALITY
When service cues to quality are readily accessible, when brand names provide evidence
of a company‘s reputation, or when level of advertising communicates the company‘s belief in
the brand, customers may prefer to use those cues instead of price. In other situations, however,
such as when quality is hard to detect or when quality or price varies a great deal within a class
of services, consumers may believe that price is the best indicator of quality.
Many of these conditions typify situations that face consumers when purchasing services.
Another factor that increases the dependence on price as a quality indicator is the risk associated
with the services purchase. In high – risk situations, many of which involved credence services
such as medical treatment or management consulting, the customer will look to price as a
indicator for quality.
Because customers depend on price as a cue to quality and because price sets
expectations of quality, service prices must be determined carefully. In addition to being chosen
to cover costs or match competitors, prices must be chosen to convey the appropriate quality
signal. Pricing too low can lead to inaccurate inferences about the quality of the service. Pricing
too high can set expectations that may be difficult to match in service delivery.
APPROACHES TO PRICING SERVICES

Three pricing structures typically used to set prices:
1. Cost Based 2. Competition based 3. Demand based companies need to consider each of the
three to some extant in setting prices.
C0ST – BASED PRICING
In cost – based pricing, a company determines expenses from raw materials and labor
adds amount or percentages for overhead and profit and thereby arrives at the price. This method
is widely used by industries such as utilities, contracting, wholesaling and advertising. The basic
for cost – based pricing is
Price = Direct costs + overhead cost + Profit margin
SPECIAL PROBLEM IN COST – BASED PRICING FOR SERVICES
One of the major difficulties in cost based pricing involves defining the units in which a
service is purchased. Thus the price per unit – a well – understood concept in pricing of
manufactured goods is a vague entity. For this reason many services are sold in term of input
units rather than units of measured output. For example, most professional service (such as
consulting, engineering, architecture, psychotherapy and tutoring) are sold by the hour.
What is unique about services, when using cost – based approaches to pricing? First, costs are
difficult to trace or calculate in services business, particularly where multiple services are
provided by the firm. Consider how difficult it must be for a bank to allocate teller time
accurately across its checking, saving, and money market accounts in order to decide what to
charge for the services. Second, a major component of cost is employee time rather than
materials and the value of people‘s time, particularly non professional time, is not easy to
calculate or estimate.
EXAMPLE OF COST – BASED PRICING STRATEGIES IN SERVICES
Cost – plus pricing is a commonly used approach in which component costs are calculated and
markup added. In product pricing this approach is quite simple, in service industries, however, it
is complicated because the tracking and identification of costs are difficult. The approach is
typically used in industries where cost must be estimated in advance, such as construction
engineering and advertising. In construction or engineering, bids are solicited by clients on the
basis of the description of the service desired. Using their knowledge of the costs of the
components of the service (including both professional and unskilled) and margin, the company
estimated and present to the client a price for the finished service.
Fee for service is the pricing strategy used by professionals; it represents the cost of the
time involved in providing the service. Consultants, psychologists, accounts and lawyers, among
other professionals, charge for their services on an hourly basis.

COMPETITION – BASED PRICING
This approach focuses on the prices changed by other firms in the same industry or
market. Competition – based pricing does not always imply changing the identical rate others
changes but rather using others prices as an anchor for the firms price. This approach is used
predominantly in two situations.
1. When services are standard across providers, such as in the dry cleaning industry.
2. In oligopolies where there is a small number of large service providers, such as in the airline
or rental car industry.
SPECIAL PROBLEMS IN COMPETITION – BASED PRICING FOR SERVICES
Small firms may charge too little and not make margins high enough to remain in
business.
Further, the heterogeneity of services across and within providers makes this approach
complicated. Bank services illustrate the wide disparity in service prices. Customers buying
checking accounts, money orders, or foreign currency, to name a few services, will find prices
are rarely similar across providers.
EXAMPLE OF COMPETITION BASED PRICING INDUSTRIES
In this type of market, any price offered by one company will be matched by competitors
to avoid giving a low – cost seller a distinct advantage. The airline industry exemplifies price
signaling in services.
DEMAND BASED PRICING
The two approaches to pricing just described are based on the company and its
competitors rather than on customers. Neither approach takes into consideration that customers
may lack reference prices, may be sensitive to no monetary prices, and may judge quality on the
basis of price. All of these factors can and should be accounted for in a company‘s pricing
decisions. The third major approach to pricing, demand – based pricing involves setting prices
consistent with customer perceptions of value; prices are based on what customers will pay for
the services provided.
SPECIAL PROBLEMS IN DEMAND – BASED PRICING FOR SERVICES
One of the major ways that pricing of services differs from of goods in demand – based is
that, no monetary cost and benefits must be factored into the calculation of perceived value to the
customers. When services require time, inconvenience, and psychic and search costs, the
monetary price must be adjusted to compensate. And when services save time, inconvenience,
and psychic and search costs, the customer is likely to be willing to pay a higher monetary price.

Another way services and goods differ with respect to this from of pricing is that
information on services costs may be less available to customers.
FOUR MEANINGS OF PERCEIVED VALUE
One of the most appropriate ways that companies price their services is basing the price
on the perceived value of the service to customers. Among the questions a services marketer
needs to ask are the following. What do consumers mean by value? How can we quantify
perceived value in rupees that we can set appropriate prices for our services? Is the meaning of
value similar across consumers and services? How can value perceptions be influenced? To fully
understand demands- based pricing approaches, we must fully understand what value means to
customers.
This is not simple task. Customers define value in four ways.
1. Value is low Price
2. Value is whatever I want in a product or service.
3. Value is the quality I get for the price I pay.
4. Value is what I get for what I give.
Let‘s take a look at each of these definitions more carefully.
VALUE IS LOW PRICE
Some customers equate value with low price.
For dry cleaning: ―Value means the low price‖
For airline travel: ―Value is when airline tickets are discounted‖
VALUE IS WHATEVER I WANT IN A PRODUCT OR SERVICE
Rather than focusing on the money given up, some consumers emphasize the benefits
they receive from a service or products as the most important component of value. In this value
definition, price is far less important than the quality or features that match what the consumer
wants. In the telephone industry, for example, business customer strongly value the reliability of
the systems and are very willing to pay for the safety and confidentiality of the telephone lines.
Service customer describe this definition of value as follows for an MBA degree : ―Value is the
best education I can get‖.
For medical services: ―Value is high quality‖.
VALUE IS THE QUALITY I GET FOR THE PRICE I PAY

Other consumers see value as trade off between the money they give up and the quality
they receive.
For a hotel for vacation: ―Value is price first and quality second‖.
For a computer services contract: ―Value is the same as quality.
No, value is affordable quality‖.
VALUE IS WHAT I GET FOR WHAT I GIVE
For a housekeeping service: ―Value is how many rooms I can get cleaned for what the
price is‖.
For executive education : ―Value is getting a good educational experience value is the customer‘s
overall assessment of the utility of a service based on perceptions of what is received and what is
given. While what is received varies across consumers (eg. some may want volume, other high
quality, still others convenience, some are concerned only with money expended, other with time
and effort). Value represents a trade – off between give and get components. Customers will
make a purchase decision on the basis of perceived value, not solely to minimize the price paid.
PERCEIVED MONETARY PRICE:
This is the price the customer perceives the service to be, whereas objective price is the
actual price. As we discussed earlier, many consumers do not attend to, know, and remember
actual prices of services. Instead they reframe prices in ways that are meaningful to them. Some
consumers may notice that the price of dry cleaning a shirt is Rs.12. others may perceive and
remember the price only as ―expensive‖ or ―cheap.‖ Still others may not pay any attention to the
price at all.
PERCEIVED NON MONETARY PRICE:
This price represents the others costs we discussed earlier in this chapter that are
perceived by consumer when buying and using a service : time costs, search costs and psychic
costs.
PERCEIVED SACRIFICE:
Perceived sacrifice includes all that the customer perceives has to be given up to obtain a
service. All form of price monetary and no monetary feed into this perceptual concept.
PERCEIVED QUALITY:
Perceived is defined as the customers judgment about a services overall superiority or

excellence.

PERCEIVED VALUE:
Perceived value is defined as the consumer‘s overall assessment of the utility of a service
based on perceptions of what is received.
INCORPORATING PERCEIVED VALUE INTO SERVICE PRICING:
It is the buyer‘s perception of total value that prompts the willingness to pay a particular
price for a service. To translate the customer‘s value perceptions into an appropriate price for a
specific service offering, the marketer must answer a number of question.
1. What benefits does the service provide?
2. How important is each of these benefits to the others?
3. How much is it worth to the customer to receive a particular benefit in a services.
4. At what price will the service be economically acceptable to potential buyers?
5. In what context is the customer purchasing the service?
The most important thing a company must do and often a difficult thing- is to estimate the
value of the company‘s services to the customers. Value may be perceived differently by
consumers because of tastes, knowledge about the service, buying power, and ability to pay. In
this type of pricing, what the consumer values is important for pricing and not what he pays.
Therefore its effectiveness rests solely on accurately determining what the market perceives the
service to be worth.
PRICING STRATEGIES THAT LINK TO THE FOUR DEFINITIONS
1. PRICING STRATEGIES:
When the customer means ―Value Is Low Price‖
Some of the specific pricing approaches appropriate when customers define value as low
price include discounting, odd pricing, synchro pricing, and penetration pricing.
DISCOUNTING
Service providers offer discounts or price cuts to communicate to price sensitive buyers that
are receiving value.
Odd PRICING
This is the practice of pricing services just below the exact Rupee amount to make buyers
perceive that they are getting a lower price Rs.199.90

SYNCRO – PRICING
Synchro –pricing is the use of price to manage demand for a service by using customer
sensitivity to prices. Certain services, such as tax preparation, passenger transportation, long –
distance telephone, hotels, and theaters have demand that fluctuates over time as well as
constrained supply at peak times. For companies in these and other industries, setting a price that
provides a profit over time can be difficult. Pricing can however, play a role in smoothing
demand and synchronizing demand and supply.
Place differentials are used for services where customers have a sensitivity to location. The
front row at concerts, the 50 – yard line in foot ball, center court in tennis or basketball, ocean –
side rooms in resort hotels – all these represent place differentials that are meaningful to
customers and that therefore command higher prices.
Time differentials involve price variations that depend on when the service in consumed.
Telephone service after 11 p.m., hospital rooms on weekends, airline tickets that include a
Saturday night stay, are time differentials that reflect slow periods of service. By offering lower
prices for under used time periods, a service company can smoothen demand and also gain
incremental revenue.
―Value is low price‖ ―Value is every thing I

Discounting want in a service.‖
Odd pricing Prestige Pricing
Syncro-pricing Skimming pricing
Penetration pricing
―value is the quality I ―value is every thing I

get for the price pay‖ want in a service.‖
value pricing Prestige Pricing
market Segmentation Skimming Pricing
pricing
(summary of service pricing strategies for four customer definitions of value)
PENETRATION PRICING:
Penetration pricing is a strategy in which new services are introduced at low prices to
stimulate trial and widespread use. The strategy is appropriate when (1) sales volume of the
service is very sensitive to price, even in early stages of introduction (2) a service faces threats of
strong potential competition very soon after introduction; and (3) there is no class of buying
willing to pay a higher price to obtain the service.

(2) PRICING STRATEGIES WHEN THE CUSTOMER MEANS ―VALUE IS EVERYTHING

I what in a service‖ when the customers is concerned principally with the ―get‖ components of a
service, monetary price is not of primary concern.
PRESTIGE PRICING
This is a special from demand – based pricing by service marketers who offer high –
quality or status services. For certain services – restaurants, health clubs, airlines, and hotels – a
higher price is charged for the luxury end of the business. Some customers of service companies
who use this approach may actually value the high price because it represents prestige or a
quality images. Others prefer purchasing at the high end because they are given preference in
seating or accommodations and are entitled to other special benefits. In prestige pricing, demand
may actually increase as price increases because the costlier service has more value in reflecting
quality or prestige.
SKIMMING PRICING
This is a strategy in which new services are introduced at high prices with large
promotional expenditures. In this situation many customers are mor concerned about obtaining
the service than about the cost of the service allowing service providers to skim the customers
most willing to pay the highest prices.
(3) PRICING STRATEGIES WHEN THE CUSTOMERS MEANS ―VALUE IS THE

QUALITY I GET FOR THE PRICE I PAY‖
The task of the marketer is to understand what quality means to the customers (or
segments of customers and then to match quality level with price level.
“VALUE PRICING”
This widely used term has come to mean ―giving more for less‖ in current usage it
involves assembling a bundle of services that are desirable to a wide group of customers and then
pricing them lower than they would cost alone.
MARKET SEGMENTATION PRICING
In this from of pricing, service marketer charges different prices to groups of customers
for what are perceived to be different quality levels of services, even though there may not be
corresponding differences in the costs of providing the service to each of these groups. This
pricing is based on the premise that different segments show different price elastic ties of
demand and desire different quality levels.
Companies also use market segmentation by service version, recognizing that not all
segments want the basic level of service at lowest price. When they can identify a bundle of
attributes that are desirable enough for another segment of customers, they can charge a higher
price and service points appealing to different groups in the market. Hotels, for example,

Offer standard rooms at a basic rate but then combine amenities and tangibles related to the room
to attract customers willing to pay more.
(4) PRICING STRATEGIES WHEN THE CUSTOMER MEANS ―VALUE IS ALL THAT I
GET FOR ALL THAT I GIVE‖
PRICE FRAMING:
Because many customers do not possess accurate prices for services, services marketers
are more likely than product marketers to organize the price information for customers, so that
they know how to view it customers naturally look for price anchors, as well as familiar services
against which to judge focal services. If they accept the anchors, they will view the price and
service package favorably.
PRICE BUNDLING
Some services are consumed more effectively in conjunction with other services; other
services accompany the products they support (e.g. extended service warranties, training, and
expedited delivery). When customers find value in a package of services that are interrelated,
price bundling is an appropriate strategy. Bundling, this means pricing and selling services as a
group rather than individually, has benefits to both customers and service companies. Customers
find that bundling simplifies their purchase and payment, and companies find that the approach
stimulates demand for the firm‘s service line, there by achieving cost economics for the
operations as a whole while increasing net contributions. Bundling also allows the customers to
pay less than she would in purchasing each of the services individually, which contributes to
perceptions of value.
Approaches to bundling include mixed bundling, mixed – leader bundling, and mixed –
joint bundling. In mixed bundling, the customer can purchase the services individually or as a
package. But a price incentive is offered for purchasing the package. An example, a health club
customer may be able to contract for aerobics classes at 25 per month. Weight machines at
Rs.15, and pool privileges at Rs.15 or the group of three services for Rs.27 (a price incentive of
Rs.5 per month.). in mixed – leader bundling, the price of one service is discounted if the first
service is purchased at full price. For example, if cable TV customers buy one channel at full
price for first T.V., they can acquire a second T.V. channel at a reduced monthly rate. In mixed –
joint bundling, a single price is formed for the combined set of services with the objective to
increase demand for both services by packing them together.
COMPLEMENTARY PRICING
This pricing includes three related strategies captive pricing, two – part pricing, and loss
leadership. Services that are highly interrelated can be leveraged by using one of these forms of
pricing. In captive pricing, the firm offers a base service or product and then provides peripheral
services needed to continue using the service. In this situation the company could off – load
some part of the price for the basic service to the peripherals. For example, cable services often
drop the price for installation to a very low level, then compensate by charging enough for the

peripheral services to make up for the loss in revenue. With services firms, this strategy is often
called ―two – part pricing‖ because the service price is broken into a fixed fee plus variable
usage fee (also found in telephone services). Loss leadership is the term typically used in retail
stores when providers place a familiar service on special largely to draw the customer to the
stores and then reveal other levels of service available at higher prices.
CONTINGENCY PRICING
The most commonly known form of results – based pricing (used when uncertainty is
high) is a practice called contingency pricing used by lawyers. In this approach, lawyers do not
receive fees or payment until the case is settled, when they are paid it is a percentage of the
pricing makes sense in part because most clients in these cases are unfamiliar with the outcomes.
Their biggest fears are high fees for a case that may take years to settle. By using contingency
pricing, clients are assured that they pay no fees until they receive a settlement.

MODULE-VIII
Roles of Service Scapes:
 Package
 conveys expectations
 influences perceptions
 Facilitator
 facilitates the flow of the service delivery process
 Provides information (how am I to act?)
 Facilitates the ordering process (how does this work?)
 Facilitates service delivery
 Socializer
 facilitates interaction between:
 customers and employees
 customers and fellow customers
 Differentiator
 sets provider apart from competition in the mind of the consumer
Guidelines for Physical Evidence Strategy:

 Recognize the strategic impact of physical evidence.
 Blueprint the physical evidence of service.
 Clarify strategic roles of the servicescape.
 Assess and identify physical evidence opportunities.
 Be prepared to update and modernize the evidence.
 Work cross-functionally.
Examples of Physical Evidence from the Customer‘s Point of View

Physical Evidence
What is Physical Evidence?
Physical Evidence is the environment in which service is delivered. It is the environment
in which customers and firm interact. Physical evidence is any tangible commodity which
facilitates communication.
Physical evidence includes all aspects of the organizational physical facility physical
facility is also called as servicescape. There are 2 elements of service scape. 1. Exterior 2.
Interior . Exterior refers to parking, signboard, landscape etc., Interior refers to layout, decor and
equipment. Some service communicate heavily through physical evidence eg., hospital, resorts.
Some other services provide limited service evidence eg., Insurance.
Some of the elements of service evidence are as follows:

Servicescape Other tangibles

Parking Billing statements
Exterior landscape Uniforms
Gardening Stationeries
Employee dress
Utensils / Cutleries
Interior layout
Air temperature
Physical evidence of different services from customers view point are as follows services.
Service Scape Other tangibles
Hospital Parking Uniforms

Signs Reports
Admission office
Medical equipment
Waiting area
Airport Lounge Tickets

Security Food
Enclosure
Departure
Waiting
Area
Insurance Not applicable Policy

Periodic
Statements
Brochure
Service Scape :
Servicescape can influence, customer choice, expectation, satisfaction and other behavior
Eg., Retailers (shopper stop, food world) know that customers are influenced by smell, décor,
music, store layout. Because services generally are purchased and consumed simultaneously
employees and customers will interact with each other in the servicescape. Thus, the same
physical evidence setting that communicates with the customer and influences him to buy the

service will also affect the employees of the firm, i.e., affect the employee by way of motivation,
productivity, satisfaction. Therefore service setting is to be designed (stay physical layout) in
such a way that is meets the need of the customer and employee.
Uses of servicescape:
The organizations must first find out “who is going to come into the service
facility”?
Is it customer, or employee or both groups. The design of servicescape depends on this
factor. There could be a self service environment where the customer performs must of the
activities and no employee is involved.
1. ATM 2. Vending machine.
At the other extreme, we have remote service, where there is no customer involvement,
i.e., customer does not see the physical facility or service scape E.g., Mail order, Telemarketing,
utilities, (KEB. Water supply). In these remote services, the service scape should be designed, to
meet only employee‘s needs, and preferences. The place should be so designed so as to keep the
employees motivated, facilitate increase in productivity improve team work and efficiency. In
this case the consideration for designing service-scape is to achieve only organizational goal
since customers do not see the servicecape.
Interpersonal service are inbetween the 2 extremes and in this case both customers and
employee must be present in the servicesape. Eg., Hotels, Hospitals, Educational Institute etc., In
this case servicescape must be planned to attract, satisfy both customers and employees
simultaneously.
Organization must ask the following 3 questions.
1. Who should be consulted in making services scape and other evidence decisions. The
answer to this is ―Who is involved in service scape‖
2. What organizational goal might be targeted through servicescape design?
For self service firm : Marketing goals such as customer attraction and customer
satisfaction.
For remote service : Priority is given to employee motivation, productivity while
designing servicescape.
3. How complex is the service scape
1. Is it lean or 2. Is it elaborate
Lean means simple service environment with few elements, few space, few pieces of
equipment. Eg., Pushcart Kitchen, small travel agent for hiring a car .
Elaborate means – complex service environment like hospital with many floors. How
servicescape plays each of the following role. a. Packing b. Facilitator c. Socializer d.
differentiator.
Packing: Servicecape act as a package in tangible goods. Physical evidence wrap the
service and convey an external image of what is ―inside‖ the service organization for customers.
Just as product package given image of the product servicescape gives the image of service.

Facilitator : How the setting is designed can enhance or inhibit the flow of activities in
service settings, making it easier or harder for customers and employees to accomplish their
goals. A well designed, functional facility can make the service a pleasure to experience from the
customers point of view. Eg., III designed bank layout, where token issue clerk and manager
passing the cheque sitting quite apart or ill designed airport where there is no ventilation or no
sign boards.
Socializer: The design of servicesape helps in socializing. It helps both employees and
customer to play their roles, behavior properly. For eg., a new employee in a professional service
would come to understand his/her position in the hierarchy partially by noticing the quality of
his/her office furnishing and her physical locations; (non cabin staff) servicesape if properly
designed tells the customers. ‗In which part of the servicesape customers are welcome, and
‗which are for employees only. How they should interact, and what type of interaction is
allowed.
Differentiator: Design of physical facility can differentiate a firm from its competitors.
Make changes in the physical environment can be used to reposition a firm or to attract new
market segments. This is common in hotel industry where there 2 dining halls. Eg. A/C and non
A/C price differentiation is also often achieved through variations in physical setting. Eg., first
class in a train will cost more than economy class.
What is stimulus – organism response? How it connects effects of service scape on
customers and employees?
Environment acts as a stimulus. Customers and employees are the organisms who
respond to the stimulus. The behavior of the customers / employees directed towards the
environment are the response.
Imagine, that you are in a college, there is a short break from the class and you are
strolling in the campus and you see a pushcart and aroma of your favourate dish will have impact
on you. Assume you are a hungry student.
The aroma attracts you. You are attracted and decide to buy that dish and eat quickly
since you may have another class to attend before you can break for lunch. Here the aroma is the
stimulus, you are the organism and purchase of that dish is the behavior directed towards
servicescape.
S.R.Model
Environment --------- Internal ---------------- Behaviour
Responses
What type of behavior are influenced by the service scape?
Individual behavior : It is observed that when individuals react to places. The behavior takes 2
forms. 1. Approach 2. Avoidance.
Approach behaviours include all positive behaviours that might be directed at a particular
place such as desire to stay. Avoidance behavior reflect the opposite, a desire not to stay. This
behavior is influenced by the environment.

The environment, in addition to attracting or determining entry can also influence the
customers, and employees in executing their plan once inside the servicescape. Each individual
comes to a particular service organization with a goal or purpose that may be aided or hindered
by setting. Take a hotel situation when a customer enters. He needs easy access to parking, clear
sign boards, directing him to reception, efficient food service, clean rooms etc., The ability of an
employee to do their hobs is also influenced by the servicescape. Adequate space, proper
equipment, comfortable temperature all these contribute to employee‘s comfort and job
satisfaction.
Social Interaction: In addition to the effect of servicessape on individual behavior,
servicescaoe influence the nature and quality of employee interactions, most directly in
interpersonal service. The social interaction is affected by the physical container in which it
occurs. The ‗physical container‘ can affect the nature of social interaction in terms of the
duration of interaction and progression of events. In some service situation, the firm may want to
limit the duration of service. Environmental variables such as seating arrangements, size, time
limit the social interaction occurring between customers and other customers (Cinema) or in a
train. The close physical proximity of passengers on the train will in itself prescribe certain
patterns of behavior.
The physical setting decides the nature of social interaction. Friendship formation,
participation, helping others have are been influenced by environment conditions. It is also found
that proper physical setting will also help employees in developing friendship, group work etc.,
One of the challenges in designing environments is to enhance individual approach
behaviours and encourage the appropriate social interactions is that the best design from one
person or group may not be best design for others. It has been fund that, when customers are in
the bank, they have different needs and desires for their physical surroundings compared to an
employee whose physical surrounding requirement are quire different.
What are the various managerial issue regarding various type of behaviours:
1. Self service firms want to predict and manage customer behavior.
Main concern for manager would be
1. Customer attraction
2. Customer satisfaction
3. Customer retention
2. Remote service firms Managerial problem will be
1. Productivity
2. Increase in efficiency
3. Team work
3. Interaction service a. Behaviour of customers and employees
Environment and behavior
People respond to environment in different ways i.e., they 1. Respond 2. Cognitively 3.
Emotionally. 4. Psychologically

The response of customer influence ―how they behave in he environment. We will

discuss one by one. 1. Environment and Cognition 2. Environment and emotion 3. Environment
and physiology.
Environment and cognition:
We know that servicescape can be viewed as a form of non verbal communication. Eg.
Environmental cues such as type of office furniture‘s. décor, dress worn by the lawyer may
influence a potential clients belied about whether the lawyer is successful or not successful, Is he
expensive or not expensive. Is he trustworthy or not trustworthy. Similarly it has been found that
description of store atmosphere were found to alter beliefs about a product (say perfume) sold in
the store. Similarly travel agents whose facilities were more organized and professional were
viewed more positively than those whose facilities were disorganized and unprofessional.
Perceptions of the servicescape may help people to distinguish a firm by influencing how
it is categorized. Categorization is the process by which people assign a label to an object. When
people see s feathered animal flying through the air, it is categorized as a ‗bird‘ not a ‗fish‘.
Similarly the overall perception of the servicescape enables the consumer to categorize the firm
mentally. Eg: ―In the restaurant industry a particular configuration of environment cues suggests
―fast food‖ whereas another configuration suggests ―elegant sit down restaurant‖. In such cases
environmental cues service as a shortcut device to enable the customer to categorize.
Environmental and Emotion:
This refers to a situation, where a person feels in a particular places, happy, relaxed or
depressed, sad and gloomy, the colour, décor, music and other elements of the atmosphere can
have an unexplainable sub consciousness effect on the moods of the people in the place. For
some people certain environmental stimuli (noise) Eg., (Dental clinic) can bring a feeling of fear
and anxiety. In a very different context a marble interior and exterior like Taj Mahal may call up
a feeling of pride on a moon lit night. In all the above example, the response from the customer
probably does‘t involve thinking, but it is an unexplained feeling.
Emotions caused by environment whether natural or man made can be classified into 1.
Pleasure / displeasure 2. Degree of arousal. People would like to spend money in an
environment which is pleasant and avoid unpleasant environment.
Environment and Psychology:
The perceived servicescape may also affect people in purely physiological ways. The
noise that is too loud may cause physical discomfort, the temperature of the room may cause the
people to perspire the air quality may make it difficult to breathe, and the glare of lighting may
decrease ability to see and cause pain to the eyes. All of these responses may in turn directly
influence whether people stay in and enjoy a particular environment. It is well known that the
comfort of seating in a restaurant cause most people to leave within a predicable period of time.
We know that servicescape affects the response of every individual, but why is
everyone not affected in exactly the same way?
We know that people respond to environment in 3 different ways:
1. Cognitive 2. Emotions 3. Psychological

The response of the customers will not be the same for every individual every time. The same
individual responds to the same servicescape differently from other individuals, This is called
―Intutal response moderators‖. Personality differences temporarily conditions such as mood of
the consumers cum and cause variations in ―How people respond to a services cape‖. Let us take
the example of one personality trait. Some people prefer ―arousal seeking‖. Arousal seekers
enjoy and look for high level of stimulation, whereas arousal avoiders prefer lower level of
stimulation. Thus, all arousal avoiders, who find himself in a loud bright disco with flashing
noon light show strong dislike for the environment, whereas an arousal seeker would be very
happy. A person who is on an airplane for a one hour flight will likely be less affected by the
atmosphere on the plane than another traveler who is embarking on a 10 hour overseas flight. A
patient who is the hospital for a day is likely to be less sensitive and less demanding than a
person who is spending to weeks in the hospital.
A person who is feeling frustrated and tired after a long days work is likely to be affected
differently than a person would be after relaxing three day weekend. Similarly people who are in
a hurry are likely to be more sensitive to elements of the environment such as crowding than they
would be on a different day when they are not ‗under time pressure‖
The important thing to remember is that, not every person will respond in the same way
to the environment. Individual moods, purpose and expectation may influence the response.
All environmental factors are classified into 3 dimensions.
1. Ambient condition
2. Spatial layout and functionality
3. Signs, Symbols.
1.Ambient conditions : Ambient condition includes characteristics of the environment such as

temperature, noise, music, lighting. All of these factors affect ―how people feel think and
respond‖ to a particular services establishment. For example people attending a musical program
in the hall, where the air conditioning has failed and the air is hot and stuffy will be
uncomfortable and their discomfort will be reflected in how they feel about the musical program.
if the temperature and air quality were within a comfort tolerance zone, these ambient factors
would probably go unnoticed.
Ambient conditions also have great effect when the customer or employee spends considerable
time in the services cape.
In the hall where music program is going on, quality of air and noise level is more important than
in dry cleaning where most customers spend only very little time. Since employees spend more
hours in the services cape than the customers, ambient conditions are very important in creating a
satisfying work environment.
2. Spatial layout and functioning : Because service environment exists to fulfill specific
purpose or needs of the customer, spatial layout of the surroundings are very important. Spatial
layout refers to the way in which equipment, furnishing are arranged. The size, and shape of
those items, and spatial relationships among them functionality refers to the ability of the same
item to facilitate the accomplishment of customer and employee goal.

Examples : The seat arrangement in the theatre is an example of spatial and functional
arrangement. The spatial layout and functionality of the environment are particularly important
for customers in self service environment, where they must perform the service on their own and
cannot depend on employees to assist them. Therefore function of ATM machine, self operate
petrol pump, vending machine are examples of spatial layout and functionality.
Layout and functionality are very important, when the task to be completed are complex and
when customers are under time pressure. Think of an airport, where people come and go, often
under extreme time pressure to make a connecting flight. If the airport layout is such that, it is
difficult to identify the gates and facilitate easy movements, then we can say that the spatial
layout is poor. Similarly if the connecting gates are located great distance apart, and the sign
board is poor and there are no side walks to move quickly through the airport, the travelers will
be frustrated.
3.Signs and Symbols : Signs displayed on the exterior and interior of a structure are examples of
explicit communications. They can be used as labels (eg., Name of the company, Name of Dept,
Entrance, exit) and to communicate rules of behavior (Eg., No. smoking, children not allowed)
Sings, symbols are particularly important informing first impressions of customers and for
communicating services. Art work, photograph on the wall can all communicate symbolic
meaning and create an overall aesthetic impression. For eg., Hotel manager for example know
that white table cloth with subdued lighting symbolically convey full services.
Various approaches used to understand and learn about users reaction and preference for
different types of environment.
There are four approaches,
1. Environmental survey,
2. Direct observation,
3. Experiment,
4. Photographic blue printing.
Environment Surveys : A questionnaire is prepared and both customers and employee are
asked to answer the same. The only disadvantage of this method is that, the answers to the
survey questions may not truly reflect ―how people will behave‖.
Direct observation : This method calls for observing and recording the behavior of customers
and employees in a services cape. This method requires highly trained people and skill is
required.
The disadvantage of this method is that, it takes time, it costs lot of money. Also these
specialists who observe the services cape must be allowed to observe for a long period of time. It
is labour intensive, since results cannot be entered on to the computer.

Experiments : This involves exposing groups of customer to different environmental

configurations and measuring the reaction. For eg., 2 Groups were formulated. Eg. One group
was shown a photo of a travel agent who was organized and the other was shown a photo of a
travel agency which is disorganized. Results showed that subjects exposed to the organized
travel agency were more satisfied with the service and were more forgiving of the agents errors,
that customers were exposed to disorganized agency.
The advantage of this method is that, if experiment were done properly, the results are
valid.
Photo blue prints : Blueprints provides a visualization of the service at each customer action
step. Visual can be slide or a video tape. Blue print given a clear picture of physical evidence.
Before changes are made, the current state of physical evidence should be made clear to all
concerned.
Guidelines for physical evidence strategy:
1. Recognize the impact of physical evidence
2. Map the present physical evidence
3. Clarify the role of servicescape.
4. Identify the opportunities to improve the servicescape.

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Service Marketing 10MBAMM314

Consumer behaviour in services: Search, Experience and Credence

Understanding customer expectation through market research: Using

Customer defined service standards: ―Hard‖ & ―Soft‖ standards, Process

Employee role in service designing: Importance of service employee, Boundary spanning

Role of marketing communication – Key reasons for GAP 4 involving communication,

Module II ………………………………………….. 17-38

Module III………………………………………….. 39-48

Module IV…………………………………………. 49-71

Module V……………………………………………. 72-89

Module VI…………………………………………… 90-109

Module VII………………………………………….. 110-127

Module VIII…………………………………………. 128-137

Introduction to Services Marketing

What are Services?

Some other examples of services are:

There are three stages in the Service Sector Growth:

STAGE-I (1975-80) STAGE-II (1980-90) STAGE-III (90 onwards)

Why service marketing?

A typical definition of a service (as opposed to goods) is thus:

Intangible-And cannot have a real, physical presence as does a product,

Types of Service Marketing:

1. Business Services-Consultation, Banking, Insurance, Medical, Lawyers.

2. Trade Services-Retailing, Repair, Wholesale, Advertising.

3. Infrastructure Services-Communication, Transportation, Oil, Power.

4. Personal Services-Restaurants, Health Clubs, Swimming pools, Gymnasium.

5. Entertainment Services-Cinema, Amphi theatre, FM Radio, T.V.

6. Public Services-Education, Police, Defence, P.W.D.

7. Government Services-Railways, Postal etc.

In a service, components may be tangible or tangible.

Teaching-Intangible. This is pure service.

A house coated with new paint-Tangible

8. Continuous Supply Service/Casual Supply Services: Supply of communication service-

10. Machine Oriented v/s Person/Oriented Services:

Service marketing involves 3 types of marketing:

1. External Marketing: "Setting the Promise"

3. Interactive Marketing: (Moment of Truth, Service Encounter)

Reasons for Growth of Service Industries:

II. Differences between services and goods

Goods Services Resulting Implications

 A service cannot be touched

 Service delivery and customer satisfaction depend on employee actions

Implications of Simultaneous Production and Consumption

 Customers participate in and affect the transaction

 It is difficult to synchronize supply and demand with services

Myths about services:

Myth1-A Service Economy produces services at the expense of other sector.

Myth2-Service jobs are Low paying and Low level.

Myth3-Service production is labor intensive and low in productivity.

Myth4-Service is necessary evil for manufacturing firms.

Myth5-Managing services is just like Managing manufacturing Business.

The Services Marketing Mix

A. Traditional Marketing Mix

B. Expanded Mix for Services (7P's).

Ex: Banks come under financial Sector,

Ex: Loan Sanctioning is one such service.

Ex: Location Engineering institute,Where it has to be located? How students can

Thus “Place” concept is refers to the accessibility to service provided.

College- *Collect prospectus or brochure

*Visit the place of check infrastructure facilities

*Gather the experience of others

Concept of Service Marketing Triangle:

What is service triangle in service marketing?

Process Economic Buyers Black Box

Product Buyers Buyers Product/Service Choice