1. [SEMESTER 5] [SERVICE SECTOR MANAGEMENT]
SERVICE SECTOR MANAGEMENT
WHAT IS SERVICES
Services include all economic activities whose output is not a physical
product or construction, is generally consumed at the time it is produced and
provides added value in forms (such as convenience, timeliness, comfort or
That is essentially intangible concerns of its first purchaser.
DIFFERENCES BETWEEN SERVICES AND CUSTOMER SERVICES
A company like IBM offers repair and maintenance service of equipment,
consultancy, training services etc. These services may include a tangible
product like a report or train manual. Customer Services , however is the
service provided in support of a company’s core product – ike answering
question , taking orders ,dealing with billing issue , handling complaints etc
Typically there is no charge for customer service is essential for building
customer relationship . Customer services are hence different from services
provided for sale by a company. Federal Express market and delivers
services. It also provides a high level of customer services. Its services are
overnight package delivery, and logistics services. Its customer services
include well trained staff who can answer all question on telephone, on line
tracking of parcels etc.
CONCEPT OF ‘SERVICE MARKETING’
The perception of service marketing focuses on selling the services in the
best interest of users/customers. Marketing a service is meant marketing
something intangible. It is marketing a promise. It is more selling yourself. In
the marketing of services, we go through a number of problems directly or
indirectly influencing the business index. The problems like market
segmentation, marketing information system, behavioural management are
studied minutely which simplify the task of formulating a sound mix for
marketing, such as Product mix, Promotion mix, Price mix and the Place mix.
It is important to mention that we find “People” an
important mix of marketing services. If we market the services in a right
direction, the available opportunities can be capitalized on optimally and also
it contributes substantially to the process of development. In view of the
above, we observe the following key points regarding the concept or
perception of services marketing:
It is a managerial process of managing the services.
It is an organized effort for providing a sound foundation for the
development of an organization.
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It is a social process helping an organization to understand the emerging
social problem and to take part in the social transformation process to justify
its existence in the society.
Service Management is :
1) To understand the utility the customers rceicve by consuming or using the
service offering of the organization
2) To understand how the organization (personnel, technology, physical
resources, systems and
customers)will b able to produce and deliver this utility
3) To understand how the organization should be developed and managed so
that the intended quality can be achieved
4) To make the organization function so that this quality can be delivered on
a continuous basis
GOODS SERVICE CONTINUUM
As per Theodore Levit “There is no such things as service industries. There
are some service industries whose service component are greater (or less)
than those of other industries”. Everybody is in service. The point that
Leavitt was trying to put across is that with almost every tangible physical
product an intangible servicecomponent is associated. Therefore every body
is in service.He has further put that goods can be put into two categories
Philip kotler suggests 4 categories
1) Pure tangible (salt)
2) Major tangible with minor intangibles (soap)
3) Minor tangible with major intangibles (consultancy)
4) Pure service (teaching)
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The above diagram shows the Service – goods continuum – some goods
being tangible dominant others being service dominant. The fast food outlets
has almost 50/50 of tangible and intangible parts i.e. in this case both
tangible factors such (food) and intangible such as (services) is important.
That is the reason it come in the middle.
In case of other products like salt there services won’t play any important
role so it is more towards tangible and in case of teaching profession it is
purely service dominated. We never known about service with out
experiencing and in this manner various goods fall in place according to its
category i.e. less service oriented or more service oriented.
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** American Marketing association has defined services as “activities,
benefits or satisfactions, which are offered for sale or provided in connection
with sale o goods”. This definition took a limited view of services as it
proposed that services are offered only in connection with sale of goods.
** Robert Judd defined services as “ a market transaction by an enterprise or
entrepreneur, where the object of market transaction is other than the
transfer of ownership of a tangible commodity”
This recognised three broad areas of services
The right to possess and use a product (rented goods service)
The customs creation, repair, or improvement of a product (owned goods
No product elements but rather experience or what might be termed as
experiential possession (nongoods service)
** Blois defines services, as “a service is an activity offered for sale which
yields benefits and satisfactions without leading to physical change in the
form of a good”
** Kotler and Bloom defines services as “an activity or benefit that one party
can offer to another that is essentially intangible and dos not result in the
ownership of any thing. Its production may not my not be tied up to a
** Gummesson says, “ Services is something which can be bought and sold
but which you cannot drop on your foot”.
** According Gronross “a service is an activity or series of activities of more
or less intangible in nature that normally, not necessarily, take place in
interactions between the customer and the service employees and/or
physical resources or goods and/or system of the service provider, hich are
provided as solution to customer problems.”
From this it follows that
Services are by and large activities, or a series of activities rather than
As a result they are intangible
They take place in interaction between the customer and service provider –
which means that services are produced and consumed simultaneously
Customer has a role to play in the production process as services are
provided in response to the problems of customers as a solution.
1.8 Characteristics of Services and its Marketing Implications
The main Characteristics of Services are :
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Services are actions and hence they are intangible. Due to this it is not
possible to stock services and hence fluctuations in demand becomes
difficult to manage. Hotels have same number of rooms all through the year
but the customers requiring the room are always varying with some months
seeing very few customers while other months seeing a rush of customers.
Further services cannot be patented and any new concept can be easily
copied by competitors. These cannot be readily displayed or easily
communicated, and hence it will be difficult for the consumers to assess the
quality. This also creates a problem for what to include in advertisements and
promotional materials. Further the actual cost of “unit service” is difficult to
determine and hence pricing becomes difficult.
Services are generally created or supplied simultaneously. They are
inseparable. For e.g., the entertainment industry, health experts and other
professionals create and offer their service at the same given time. Services
and their providers are associated closely and thus, not separable. Donald
Cowell states ‘Goods are produced, sold and then consumed whereas the
services are sold and then produced and then consumed.’ A service is
produced when it is consumed eg. a dinning experience. Thus the customers
are present when the service is produced thus other customer play an
important role in satisfaction. The service producer also plays an important
role in quality. Thus mass production is impossible, it is not possible to get
economy of scale by centralisation, operations has to be decentralised to
deliver to the consumer directly at convenient locations. A “problem
customer” can result in disruption of service production process creating a
dissatisfaction forhimself, other customers and also to the service producer.
As services are produced by humans, hence no two services can be identical.
Further no two customers are precisely alike and hence their experiences of
the same service are different. Even the same customer can be with different
frame of mind at different times – which results in differing satisfactions from
the same service at different times.
Eg. A tax consultant may provide different a service experience to two
different customers on the same day depending upon their needs and on
whether the consultant is meeting the customer when he is fresh in the
morning or tired at the end of the day. Because of this ensuring a consistent
quality becomes a challenging job. The quality depends upon a number of
factors like the customer, service provides, other customers (their presence
or even absence) etc., hence the service provider cannot know if the service
is delivered in a manner which has been originally planned and promoted.
Sometimes services are provided by a third party further increasing the
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Services cannot be stored, saved, resold or returned. A bad haircut cannot be
returned or resold to another customer. Hence demand forecasting and
creative planning to meet the demand is a problem. Further one has to be
right the first time or if things go wrong one should have strong recovery
strategies to retain the customer goodwill. Due to these characteristics of
services the marketeers face a major challenge in marketing of Services.
REASONS FOR THE GROWTH OF SERVICE INDUSTRY
• It is obvious that the growth in the services sector has been
substantive. The reasons for this
• growth are quite a few, some of which are summarized as follows.
• Affluence: - The increase in per capita income from Rupees 238.8 in
1950 to Rupees 11,934.5 in 1998 is an indicator of he increase in
general affluence has given rise to service like pest-control, personal
security, interior designer, etc.
• Leisure time: - People do get some time to travel and holiday and
therefore there is a need for travel agencies, resorts, hotels, and
entertainment. There are other’s who would like to utilize this time to
improve their career prospects and therefore there is a need for adult
education/distance learning/part time courses.
• Life expectancy: - The health programmed have significantly
contributed to an increase in life
• expectancy given rise to services like old age homes, nursing homes,
health care, etc.
• Working wives: - As more and more women have started working, the
need for day care for children has increased, and so is the care with
packed food and home delivery.
• Product complexity: - A large no. of products are now being purchased
in households which can be serviced only by specialized persons like
water purifies, micro wave ovens, home computers, etc. giving rise to
the need for services like after sales service agents for durables,
maintenance service providers, etc.
• Life complexity: - As the daily routine gets busier, individuals find it
difficult to manage things on their own. Their leads to an obvious need
for tax consultants, legal advisors, property advisers, etc.
• Resource scarcity and ecology: - As the natural resources are
depleting and need for conservation is increasing, we have seen the
coming up of service providers like pollution control agencies, car,
pools, water management, etc.
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• New products: - the development in information technology has given
rise to services like PCOs, Pager service providers, Web Shoppe, etc
CONTRIBUTION OF SERVICE INDUSTRY TO INDIAN ECONOMY AND
• as economy shifts from developing to developed stage, they will show
more and more shift toward services
• today, the fastest growing segments of the US economy is services
• in 1948 54% of the GDP of US was generated by services which is
• employment in this sector which was 55% in 1950 is now 83%
• the US balance of trade in goods has remained in the red for many
years, but there has been a trade surplus in services
• today service sector dominates the economics of many developed
nations. As countries develop the role of agriculture in the economy
declines and that of services increase.(china has 50% GDP from
service, 35% from industry, and 15%from agriculture)
• during recession it has been seen that service output declines less
than industrial output – the service employment is less sensitive to
business cycle fluctuation
• globalisation as strategy for service firm is becoming more important
• The service sector now accounts for more than half of India's GDP:
51.16 per cent in 1998-99. This sector has gained at the expense of
both the agricultural and industrial sectors through the 1990s. The rise
in the service sector's share in GDP marks a structural shift in the
Indian economy and takes it closer to the fundamentals of a developed
economy (in the developed economies, the industrial and service
sectors contribute a major share in GDP while agriculture accounts for
a relatively lower share).
• The service sector's share has grown from 43.69 per cent in 1990-91
to 51.16 per cent in 1998-99. In contrast, the industrial sector's share
in GDP has declined from 25.38 per cent to 22.01 per cent in 1990-91
and 1998-99 respectively. The agricultural sector's share has fallen
from 30.93 per cent to 26.83 per cent in the respective years.
• Some economists caution that if the service sector bypasses the
industrial sector, economic growth can be distorted. They say that
service sector growth must be supported by proportionate growth of
the industrial sector, otherwise the service sector grown will not be
sustainable. It is true that, in India, the service sector's contribution in
GDP has sharply risen and that of industry has fallen (as shown above).
But, it is equally true that the industrial sector too has grown, and
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grown quite impressively through the 1990s (except in 1998-99). Three
times between 1993-94 and 1998-99, industry surpassed the growth
rate of GDP. Thus, the service sector has grown at a higher rate than
industry which too has grown more or less in tandem. The rise of the
service sector therefore does not distort the economy.
• the share of agriculture sector to GDP has come down from 50% in
1960 to 24%
• service sector contribution to GDP is around 54% with an annual
growth of 8%
• employment in this sector is around 50%
• the response to liberation has been more in service sector, partly
because lower fixed investment requirements, example:- today’s
concept of banking
• technological advances have made it possible for India to compete on
global basis in areas like
• SOFTWARE, IT, HEALTH, EDUCATION, etc.,
• in addition lower wage structure has helped to develop CALL
• TRANSCRIPTION, etc.,
• from 1996 BSE has given a prominent place to service industry in it’s
30 share index
• since no tax is imposed on agriculture sector, most of the tax came
from manufacturing sector. now services are being taxed
• service tax collection is to the tune of 5000 crore. 83% of this is
contributed by service sectors. 51% - Telecom, others are Insurance,
AD agencies, Courier and stock brokers.
• many export benefits like EPCG is now extended to the service sector.
• in last 25 years the increase in employment in the organized sector is
57% while if only service sector is considered it is 70%(other than
service sector it 41%)
• India’s service exports in1997 were 9.3 billion $ against its
merchandized exports of $32.2 billion. It is expected that service
exports could a third of merchandize exports now this will be well
above the global average of ¼. It implies that India which has failed to
catch the bus in the exports of manufactures is among the early
leaders of the developing world in the race for service exports.
• Within the services sector, the share of trade, hotels and restaurants
increased from 12.52 per cent in 1990-91 to 15.68 per cent in 1998-99.
The share of transport, storage and communications has grown from
5.26 per cent to 7.61 per cent in the years under reference. The share
of construction has remained nearly the same during the period while
that of financing, insurance, real estate and business services has risen
from 10.22 per cent to 11.44 per cent.
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• The fact that the service sector now accounts for more than half the
GDP probably marks a watershed in the evolution of the Indian
UNDERSTANDING THE CONSUMER
1 KNOWLEDGE OF THE BUYER
In buying decisions many times other people also influence the decision. In
services these roles are played by many persons. In purchase of any service
six distinct roles are played
• Initiator : The person who has a specific need and proposes to buy a
• Influencer : The person or group of persons whom the decision maker
refers to or who advice the decision maker.
• Gate Keeper : The person or organization or promotional material,
which act as filter on the range of services which enter the decision
• Decider : The person who makes the buying decision
• Buyer : The person makes the actual purchaser
• User : The actual user.
For example if a sales executive wants to do a market tour …….
His boss may be the initiator
• The travel agency may act as a Gatekeeper
• The finance department may be the influencer
• The administrative department the buyer
• The executive the user. In this case the user may have no role in the
buying process. Hence while targeting a customer the service provider
may have to influence other persons.
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CONSUMER DECISION MAKING.
The consumer’s decision to purchase or reject a product or service is the
moment of final truth for the marketer. It signifies the marketing strategy has
been wise, insightful and effective, whether it was poorly planned and
missed the mark. Marketer are, therefore, interested in the consumer
decision-making process by which a consumer selects an alternative
amongst the lot available. The decision not to buy is also an alternative.
A simple consumer decision-making model, ties together the psychological,
social and cultural concepts into an easily understood framework. The
decision model has three distinct sets of variables:
1. Input Variables,
2. Process Variables,
3. Output Variables.
Input variables are those variables which affect the decision making process
and include commercial marketing efforts as well as non-commercial
influences from the consumer’s socio-cultural environment.
The decision process variables are influenced by consumer’s own
psychological fields, which affect their recognition of a need, their pre-
purchase search for information and their evaluation of alternatives.
The output phase of the model includes the actual purchase (either trial or
repeat purchase) and post purchase evaluation. Both pre-purchase and post-
purchase evaluation feed back in the form of experience into the consumer’s
psychological field and serves to influence future decision processing. (On a
holiday a customer may change hotels in between his stay).
Factors Influencing The Buying Behaviour
• Situational Factors : Time, Store’s atmosphere, Marketing Stimuli (the
• Personal Factors : Personality, life style, Other demographic factors like
age, gender, occupation etc.
• Social Factors : Culture, reference group, family
• Psychological Factors : Perception, attitude, motivation
TEN SUCH QUALITIES WHICH INFLUENCE THE CONSUMER’S
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SERVICES (Quality Dimensions of Services)
Consistency: - it involves consistency and reliability of performances and
dependability. It means that the firm performs the service right the first
time. It also means that the firm honours its promises especially in terms of
accuracy in billing, record keeping and performing the service at the
Concern:-it is the willingness or responsiveness of employees to provide
the service. It involves timeliness of service or giving prompt service, calling
the customer back quickly or mailing the transaction slip immediately.
Competence: - it means having the required skills and knowledge to
perform the service. It involves knowledge and skill of the contact personnel,
knowledge and skill of operating support personnel and research capability
of the organization. E.g. securities brokerage firm.
Contact:- it involves approachability, access and ease of contact. It means
that the service is easily accessible by telephone; waiting time to receive the
services is not extensive, convenient hours of operation and convenient
location of service facility.
Courtesy:- it involves politeness, report, consideration and friendliness of
contact personnel. It includes consideration for the consumer’s property.
Clean and neat appearance of public contact personnel. E.g. no muddy shoes
on the carpet, proper telephone operators etc.
Communication:- it means keeping consumers informed in a language
that they can understand and listen to them. It may mean that the company
has to adjust its language for different consumers – increasing the level of
sophistication with a well educated consumer and speaking simply and
plainly with a novice. It involves explaining the service itself and how much
the service will cost explaining
the trade-off between service and cost and assuring the customer that a
problem will be handled.
Credibility: - it involves trustworthiness, believability, honesty. It involves
having the customer’s best interest at heart thus contributing to credibility,
company name and reputation, personal characteristics of the contact
personnel and degree of hard sell involved in interaction with the customer.
Confidentiality: - the security and the freedom from risk or doubt,
involving physical safety, financial security or confidentiality.
Customer knowledge: - it involves making the effort to understand the
customer’s needs, i.e. learning the customer’s specific requirements,
providing individualized attention and recognizing the regular customer.
Tangibles: - it includes physical evidence of the service, physical facilities,
and appearance of
personnel tools or equipments used to provide the service, physical
representations of the service such as a plastic credit card or a bank
statement and other customers in the service facility.
THE SERVICE ENCOUNTERS (“MOMENT OF TRUTH.”)
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MOMENTS OF TRUTH
From the customer’s point of view, the most vivid impression of service
occurs in the service encounter or “Moment Of Truth,” when the
customer interacts with the service firm. This is the foundation to
“Satisfaction of Service Quality” – it is where the promises are kept or
broken. This concept was put forth by Richard Norman, taking the metaphor
from Bull Fighting. Most services are results of social acts, which take place in
direct contact between the customer and the service provider. At this stage
the Customer realises the perceived service quality.
Every Moment of Truth is Important – according to Scandinavian Airlines,
each one of their 10 million customers come in contact with 5 employees.
Thus the airlines say there 50 million moments of truth – each one is
managed well and “They prove they are the BEST”.
However some encounters are more critical. The encounter cascade refers to
a series of encounters right from the time a customer comes to take the
service. The encounter cascade can be important as any encounter can be
critical, as it determines customer satisfaction and loyalty. If it’s the first
interaction of the customer then the initial interaction will be the first
impression. So, these interactions have to be given importance, as they are
critical and influences customer’s perception of the organization.
A customer calling for the repair service may switch to some other company
if he is put on hold for a long time or even treated rudely. Even if the
technical quality of that firm is superior, the firm may not get a chance to
prove themselves in front of the customer. When the customer has had many
interactions with firm, each encounter will be important as it will create a
combined image of that firm. Many positive experiences will give an image of
High Quality and many negative experiences will represent a bad image.
Combination of positive and negative interactions will leave the customer
confused about the Quality.
It is suggested that not all encounters are equally important in building long-
term relations. For every organization, certain encounters can act as a key to
customer satisfaction. For example: for MARRIOT hotels, it is the early
encounters that are important. In a hospital context, a study of patients
revealed that encounters with the nursing staff were more important in
predicting the customer satisfaction. As it is rightly said “one bad apple can
ruin the whole basket of apples.” The same applies in this too; one negative
encounter can drive the customer away, no matter how many encounters
had taken place in the past. So a firm has to give a lot of importance to such
encounters. “A customer who has been using a bank for nearly 15 years is
quite happy with the service. He has a huge deposit and many accounts. One
fine morning, when he comes out of the bank the watch man asks Rs. 10 for
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parking charges of his car. He goes inside the bank and informs the clerk at
the counter, who directs him to the officer. The officer directs him to the
Manager, who says he is helpless as this is a new policy of the bank. The
customer who was so happy with the bank services decides to close all his
accounts – “Some encounters can be very Critical”.
Among the service encounters a hotel customer experiences are checking in,
being taken to the room by a bell person, eating a restaurant meal etc as
shown in the figure. It is in these encounters that the customer receives an
overall view of the organizations service quality and encounter contributes to
customer satisfaction and willingness to do business with the organization
again. As for the company, each encounter represents an opportunity to
prove its potential as a quality service provider and to increase customer
Some services have few service encounters and others have many. Mistakes
or problems that occur in the early levels of the service cascade can e critical
because failure at one point results in greater risk of dissatisfaction in the
long run. MARRIOT Hotels learned this through their extensive customer
survey to determine what service element contributes to customer loyalty.
They found that 4 out of 5 factors came into play in the first 10 minutes of
the guest’s stay.
TYPES OF ENCOUNTERS
A service encounter occurs every time a customer interacts with the service
organization. There are three general types of encounters - remote
encounters, phone encounters, and face – to – face encounters. A customer
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may experience any of these types of encounters, or a combination of all
three in his or her relations with a service firm.
Encounter can occur without any direct human contact is called as Remote
Encounters. Such as, when a customer interacts with a bank through the ATM
system, or with Ticketron through an automated ticketing machine, or with a
mail-order service through automated dial-in ordering. Remote encounters
also occur when the firm sends its billing statements or communicates others
types of information to customers by mail. Although there is no direct
human contact in these remote encounters, each represents an opportunity
for a firm to reinforce or establish perceptions in the customer. In remote
encounter the tangible evidence of the service and the quality of the
technical process and system become the primary bases for judging quality.
Services are being delivered through technology, particularly with the advent
of Internet applications. Retail purchases, airline ticketing, repair and
maintenance troubleshooting, and package and shipment tracking are just a
few examples of services available via the Internet. All of these types of
service encounters can be considered remote encounters.
In many organizations, the most frequent type of encounter between a
customer and the firm occurs over the telephone is called as phone
encounter. Almost all firms (whether goods manufacturers or service
businesses) rely on phone encounters in the form of customer-service,
general inquiry, or order-taking functions. The judgment of quality in phone
encounters is different from remote encounters because there is greater
potential variability in the interaction. Tone of voice, employee knowledge,
and effectiveness/efficiency inhandling customer issues become important
criteria for judging quality in these encounters.
Face-to –Face Encounters:-
A third type of encounter is the one that occurs between an employee and a
customer in direct contact is called as Face-to-Face Encounter. In a hotel,
face – to – face encounters occurs between customers and maintenance
personnel, receptionist, bellboy, food and beverage servers and others.
Determining and understanding service equality issues in face – to –face
context is the most complex of all. Both verbal and non-verbal behaviours
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are important determinants of quality, as are tangible cues such as
employee dress and other symbols of service (equipments, informational
brochures, physical settings). In face – to – face encounters the customer
also play an important role in creating quality service for herself through her
own behaviour during the interaction. At Disney theme parks, face-to-face
encounters occur between customer and ticket-takers, maintenance
personnel, actors in Disney character costumes, ride personnel, food and
beverage servers, and others. For a company such as, IBM, in a business-to-
business setting direct encounters occur between the business customers
and salespeople, delivery personnel, maintenance representatives, and
professional consultants. Of
all determining and understanding service quality issues in face-to-face
context is the most complex. Both verbal and non-verbal behaviours are
important determinants of quality, as are tangible cues such as employee
dress and other symbols of service (e.g., equipment, informational
brochures, and physical settings). In face to- face encounters the customer
also plays a role in creating quality service for herself through her own
behaviour during the interaction.
SERVICE FAILURES AND RECOVERY
• SERVICE FAILURES
Even with the Best organizations failures can just happen – they may be due
to the service not available when promised, it may be delivered late or too
slowly (some times too fast ??), the outcome may be incorrect or poorly
executed, or employees may be rude or uncaring. All these types of failures
bring about negative experiences. If left unfixed they can result in customers
leaving, telling others about the negative experiences or even challenging
through consumer courts. Research has shown that resolving the problems
effectively has a strong impact on the customer satisfaction,
loyalty, and bottom-line performance. Customers who experience service
failures, but are ultimately satisfied based on recovery efforts by the firm,
will be more loyal.
THE RECOVERY PARADOX.
It is suggested that customers who are dissatisfied, but experience a high
level of excellent service recovery, may be more satisfied and more likely to
repurchase than are those who are satisfied at the first place.
A hotel customer who arrives & finds there is no room available. In an effort
to recover, the front-desk person immediately upgrades this guest to a
better room at the same price. The customer is so thrilled with this
compensation that he is extremely satisfied with this experience, is even
more impressed with the hotel than he was never before, and vows to be
loyal into future. The logical, but not very rational, conclusion is that
companies should plan to disappoint customers so they can recover &gain
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even greater loyalty from them as a result. This idea is known to be as
Recovery Paradox. The recovery paradox is more complex than it seem.
First of all it is expensive to fix mistakes and would appear ridiculous to
encourage service failure-as reliability is the most important aspect of
service quality. According to a research it is observed that a customer weight
their recent experiences heavily in their decision to buy again. If the
experience is negative, overall feelings about the company will decrease and
intentions will also reduce. If the recovery effort is absolutely superlative
then the negative impression can be overcome.
Then there is a recent study which shows no support to recovery paradox. It
shows the overall satisfaction was consistently lower for those customers
who had experienced a service failure than for those who had experienced
no failure, no matter what the recovery effort is. The explanation for why no
recovery paradox is suggested by the magnitude of the service failure in this
study it is-a three hour airplane flight delay. This type of failure may be too
much to be overcome by any recovery effort. Considering mixed opinions on
if recovery paradox exists it is safe to say “doing it right the first time” is the
best and safest strategy. When a failure does occur then every effort at
superior recovery should be made. In cases where the failure can be fully
overcome the failure is less critical, or the recovery effort is clearly
superlative, it may be possible to observe evidence of the recovery paradox.
HOW CUSTOMERS RESPOND TO SERVICE FALIURE
If customers initiate action following service failure, the action can be various
types. A dissatisfied customer can choose complaint on the spot to the
service provider, giving the company the opportunity to respond
immediately. Thos is often the best-case scenario for the company it has the
second chance right at that movement to satisfy the customer, keep his or
her business in the future, and potentially avoids any negative word of
Some customer chooses not to complaint directly to the provider but rather
spread negative word of the mouth about the company to friend, relatives,
and coworkers. This negative word of mouth can be extremely detrimental
because it can reinforce the customer’s feeling of negativism and spread that
negative impression to other as well. Further, the company has no chance to
recover unless the negative word of mouth is accompanied by a complaint
directly to the company.
When there is a failure, customer can respond in a variety of ways as
illustrated in the figure. It is assumed that following are the failure,
dissatisfaction at some levels will occur for the customer. In fact, research
suggest that variety of negative emotion can occur following service failure,
including such feeling as anger, discontent, disappointment, self- pity and
anxiety. Many customers are very passive about their dissatisfaction, simply
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saying or doing nothing, take action or not, at some point the customer will
decide weather to stay with that provider or switch to a competitor.
When the company fails to stand for its promises made to the customer on
the basis they build expectation, it’s to be said that there is service failure.
When the service failure occurs, there can be again severe ramification.
Customer is considered to be the bread and butter, hence retaining them is
the biggest challenge, and however service failure acts as an obstacle to it.
In such failures,
1) The customer wants what they were promised.
2) Customer wants personal attention
3) Customer wants a decent apology
4) Customers want that they should not be made to feel that they are
the cause of the problem. (Though in many cases they are
responsible for nuisance)
There are again five steps involved in order to deal with service failure. They
are mentioned as below
step: Acknowledgement and apology for the fact.
step: Listening to the customers.
step: Avoid defending the company and offer a rational explanation.
step: Offer some extra benefits
step: Have a proper follow up and make sure no mistakes this time, so
that he can easily forget about the service failure and is retained.
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A customer expects 3 shorts of fairness in case of service recovery. They are
mentioned as below.
1. Interaction fairness: - when there is service failure, first the company
is supposed to acknowledge the customer. Due to this the customer might
turn erate, but he still expects fairness and courtesy in the language and
tone used by the addresser
2. Procedure fairness: - to know in detail about the incidence of service
failure or to avail the compensation. There should be simplicity in
procedure, which is involved. Service failure and complexity in procedure
both together might result in a disaster as far as customer is concern.
3. Outcome fairness: - now when the company realizes that there is
service failure they should end up compensating, arranging for some
alternative mode of transporting or complies with the customer condition.
The outcome should be taken by considering the customer, his needs and
the company’s policy.
ACTION PLAN TO SOLVE THE PROBLEM :
Handling complaints is a big challenge for every company today. Before
understanding how to handle, let us see what are the factors, which can
result in customer’s complaints.
There are ten steps involved in handling such airline flights delayed
departure complaints effectively. They are mentioned below.
1) The frontline employee handling complaints should stay calm under
2) Let the customer get the story off their chest- do not interrupt, this
will only cause irritation. In this case listening skills comes into
3) Avoid admitting any liability at this stage. The officer just need to
show concern like, “I’m sorry for the inconvenience, let me see what
I can do”. Give attention to the customer, make him feel important.
4) Get facts by using question and try to find out the real and whole
story behind it.
5) After listening and collecting data, just identify appropriate action
considering company’s policy and customer’s expectation.
6) Take action if you have authority or involve manager or concerned
7) If corrective action cannot be taken immediately, tell the customer.
It’s better to give bad news rather giving false news.
8) Record the action to be taken and inform anyone else in the
9) Look into the matter, provide a proper follow-up.
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This ten approaches if followed effectively, complaints can be handled
properly and possibly a customer can be retained. (Solution is only for
the taken example. i.e. delayed departures of flights).
• Control costs, reduce waste
• Set productive capacity to match average demand
• Automate labor tasks
• Upgrade equipment and systems
• Train employees
• Leverage less-skilled employees through expert systems
• Change timing of customer demand
• Develop customer trust
• Understand customers’ habits and expectations
• Pretest new procedures and equipment
• Publicize the benefits
• Teach customers to use innovations and promote trial
• Monitor performance, continue to seek improvements
EIGHT COMPONENTS OF INTEGRATED SERVICE MANAGEMENT
The Marketing Mix (THE 5 P’s OF SERVICES MARKETING)
In order for your business to sell its products and services as successfully as
possible, you need to look at what products you are selling in detail to ensure
they will be attractive and needed; the price to ensure it is not too cheap or
too expensive; where you are best distributing your product; and finally, how
you can create interest and awareness for your products. All these elements
need to be targeted at the right people at the right time. In order for your
business to tackle this correctly, you need to get the right type of mix
(marketing mix), the mix should include four main elements: Product, Price,
Place and Promotion, by examining each and carefully and adapting them to
your customer's needs, you will continue to produce and needed products
1) Product element: Managers must select the feature of both the core
product (either a good or service) and the bundle of supplementary service
elements surrounding it, with reference to the benefit desired by customers
and how well competing products perform. In short, they must be attentive
to all aspects of the service performance that have the potential to create
value for customers
2) Price and other user costs: - This components addresses management
of the expenditures and other outlays incurred by customers in obtaining
benefits from the service product. It is not only related to traditional pricing
tasks of establishing selling price to customers, setting trade margins and
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getting credit terms but also, how to minimize other burdens of customers
while purchasing such as time, mental and physical efforts and unpleasant
sensory experiences such as noises and smells.
3) Place , cyberspace and Time:- Delivering product elements to
customers involves decisions on the place and time of delivery as well as on
the methods and channels employed. Delivery may involve physical or
electronics distribution channels or both),depending on the nature of the
service being provided.
4) Promotion and education:- No marketing program can succeed without
effective communications. This component plays three vital roles: -
a)Providing needed information and advice (awareness).
b)Persuading target customers of the merits of a specific product.
(Concentrating on a particular segment of the market).
c)Encouraging to take action at a specific time (purchase).
Communication is educational in nature for new customers.
Communication can be delivered by individuals such as sales people and
trainers, media such as TV, radio, newspaper, magazines, postures,
This promotion is usually used as incentives to catch customer’s attention
and to motivate them to act. The above four are the traditional marketing
mix. The EXTENDED marketing mix for services marketing isas follows :
5) People: - Many services depend on the direct, personal interaction
between customers and a firm’s employees (such as getting a haircut or
eating at a restaurant). This interaction strongly influences the customer
perception of service quality. So, successful service firm devote significant
effort to recruitment, training and motivating their personnel.
6) Physical evidence:- The appearance of buildings, landscaping, vehicle,
interior furnishing, equipment, staff members, signs, printed materials, and
other visible cues all provide tangible evidence of the firms service quality.
The service firms need to manage physical evidence carefully because it can
have a profound impact on customers’ impression as the service itself is
intangible. A tangible element such as insurance and advertising is often
employed to create meaningful symbols.
E.g.: - umbrella may symbolize protection and a fortress, security.
7) Process: - It is the method and sequence of actions in which service
operating system works.
Badly designed process: - annoys customers which leads to likelihood of
8) Productivity and quality: - Productivity relates to how inputs are
transformed into outputs that are valued by customers. Improving
productivity keeps costs under control
Quality refers to the degree to which a service satisfies customers by
meeting their needs, wants and expectations. Service quality helps in
product differentiation and building customer loyalty. Invest in quality
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profitably i.e. by considering incremental cost and incremental revenue.
Thus, these are the 8ps of service management, which are the essence of it.
The integration of each p’s is necessary for the successful service
management Collectively these are the tools organizations uses to develop
offerings to satisfy their target market(s) ... the only tools at their disposal.
Remember: If your marketing mix doesn't meet their needs they will not be
satisfied - and if they aren't satisfied you are unlikely to meet your
The marketing mix should be viewed as an integrated and coordinated
package of benefits that reflect the characteristics of customers and various
targeted publics and satisfy their needs, wants, and expectations. Note that
the elements of the marketing mix should be integrated because each
element of the mix usually has some impact, direct or indirect, on the other
For example, if you improve the product or service you probably have to
change the price because it costs more to produce. Although you may not
have to change where the product is delivered to the customer, you will
almost certainly have to change the promotion or communication with the
customer because you need to tell the customer about the changes you have
made in the product and how the changes will make it more desirable and
satisfying. One problem in many organizations is that different divisions may
be responsible for different elements of the marketing mix. This happens
even in well-managed organizations. The result is that the offering is
confusing to the target market. Lack of communication among divisions
makes this problem worse. And if they don't share the same view of
organizational objectives, the problem is worse still.
‘Product’ includes name, design, features, quality, operational case,
packaging, warranties, appearance, range and size. It also includes pre-sale
and post-sale services like training, repairs, maintenance and replacements.
According to Philip Kotler “a product is anything that can be offered to
market for attention, acquisition use or consumption that satisfy a want or
need. It includes physical objects (TV), service (banking), person (political
person), place (holiday resort), organization (red cross) and idea (aid
awareness).” Conventionally, a product is an object, which is delivered and
consumed. However, in services there is no or very little tangible elements.
Hence, what is offered for sale is benefits. Service is a bundle of benefits and
has relevance for a specific target market. Hence, the package of benefits
should have a customer’s perspective.
Levels of product:
Kotler has identified 5 levels of a product
1) Core product
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2) Basic product
3) Expected product
4) Augmented product
5) Potential product
Kotler suggested that a product should be viewed in three levels.
1. Level 1: Core Product. What is the core benefit your product offers?
This is the fundamental benefit or service that the customer is buying.
For eg. A customer going to a Hotel is buying rest, sleep etc.
2. Level 2 Basic Product: Basic functional attributes. All Hotels provide
rest and sleep. The aim is to ensure that your potential customers
purchase your one service. Thus the functional attributes like Room,
Bed, Bath are important.
3. Level 3 : Expected product : Set of attributes that the buyer expects
(Clean room, large towels, quietness)
4. Level 4: Augmented product: What additional non-tangible benefits can
you offer? This meets the customer’s desires beyond his expectations –
(Prompt room service, music, aroma etc)
5. Level 5 : Potential product : The possible evolutions that can be made
to make the product a distinguishedoffer (all suite room)
In a Bank these can be
• Core Product (Safety of deposits, Interest, Easy loans
• Basic product : Savings deposit, FD, Recurring deposit
• Expected product : Correct transaction records, timely service,
• Augmented product : Congenial waiting room, Water cooler
• Potential product : Greetings for New Year, 24 hour banking
The PACKAGE CONCEPT of Service product – suggests that what you offer to
the market si a bundle of different services – tangible and intangible. There is
a core service and around it are built the auxiliary or facilitator service.
Without this the service would collapse (a bell boy in a Hotel). Yet another
service is the supporting service – it is used to increase the product value (a
car rental in a hotel). The basic product is not equivalent to the service
product which the customer perceives, which is in fact based on customer’s
experience and evaluation. Therefore there is a need for an augmented
product – like Accessibility (number and skills of personnel, convenient
timing, location, infrastructure etc.,) Interaction with service organization
(Between employees and customer, with physical and technical resources,
with other customers) Consumer participation.(how well the customer is
aware about the process of service delivery, his willingness to share
information and use service equipments)
The package should also include the management of service image through
encouraged word of mouth and market communication.
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When placing a product within a market many factors and decisions have to
be taken into consideration.
• Consumer benefits – assess what benefits the consumer looks for
• Service concept – To translate it to suitable service offer
• Develop augmented offer
One of the most important decisions a marketing manager can make is about
branding. The value of brands in oday’s environment is phenomenal. Brands
have the power of instant sales; they convey a message of confidence,
quality and reliability to their target market. Brands have to be managed
well, as some brands can be cash cows for organizations. In many
they are represented by brand managers, who have huge resources to
ensure their success within the market. A brand is a tool, which is used by an
organization to differentiate itself from competitors. Ask yourself what is the
value of a pair of Nike trainers without the brand or the logo? How does your
perception change? Increasingly brand managers are becoming annoyed by
‘copycat’ strategies being employed by supermarket food retail stores
particular within the UK. Coca-Cola threatened legal action against UK
retailer Simsbury after introducing their Classic Cola, which displayed similar
designs and fonts on their cans. Internet branding is now becoming an
essential part of the branding strategy game. Generic names like Bank.com
and Business.com have been sold for £m’s. (Recently within the UK banking
industry we have seen the introduction of Internet banks such as
cahoot.com and marbles.com the task by brand managers is to insure
that consumers understand that these brands are banks!
Branding of Services and its Importance
Philip Kotlar defines a brand as “a name, a term, a symbol, or a designed or a
combination of them which is intended to identify the goods and services of
one seller or a group of sellers and to differentiate them from those of
Brand decision is important for tangible goods. But in the case of service
offering branding is still in its infancy, there importance is expected to rise
due to the following reason.
1. Service market is getting more competitive and there is as increasing
proliferation of brands in the service sector.
2. It is five times cheaper to retain customer than to attract new ones.
3. As a new service development assumes greater importance, the risk of
product launch is reducing in the context of umbrella branding.
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4. As service itself does not offer unique tangible benefits, brand
development tangibilises the service. Customer gives more significance to
the service provider than the individual service products that the
provideroffers. Therefore, this leads to branding the service providers
cooperate image. Banks especially have recognized the importance of
corporate image and identity and have used slogans, logos and other means
to brand themselves. Ones the corporate brand is developed it is found that
service firms move with relative easy to other service product categories.
Primarily companies resorts to corporate brand building with a goal of
maximizing market capitalization and creating shareholders wealth. In case
of service firms corporate branding reflects the service itself. Airlines, fast-
food restaurants, banks, professional firm are usually differentiated on the
basis of their corporate name and reputation rather than the specific service
they offer. The service organization brand name is reinforce by courteous
employees, professional looking uniform, advertising etc. However no matter
how good the corporate brands may be the quality of service determines the
success of the image. There are instance where the service itself is branded.
Example Suvidha Account of Citibank, the various schemes of LIC like Jeevan
Kishore, Jeevan Mitra etc.
Advantages of branding services
1. To tangibilise the intangible.
2. To support the positioning strategy.
3. Offers a powerful tool for relationship building.
4. To create an image of quality and consistency.
5. To reduce price comparison.
6. Keeps current customers satisfied by developing and sustaining a unique
7. Encourages repeat usage using sales promotions.
This element of the marketing mix is related to the decision influencing the
fee structure, rate of interest, commission charged and paid by the service
generating organizations. It is considered to be the most critical component
of the marketing mix. Both from economic and social standpoint, the
management of pricing is important but at the same time more critical and
challenging. We find pricing decisions important because the pricing
decisions are to influence the maintenance, development and expansion
plans of an organization.
Guidelines for service pricing:
1) Pricing strategy should enable handling demand fluctuations successfully.
As services cannot be inventoried, pricing should encourage customers to
use the service during period of low demand.
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2) As services need to have some tangible element attached to it, service
pricing should be based on costs so as to take into account the tangible
3) Service price as an indicator of quality: Services not having specific brand
names to indicate
quality, customers use price as an indicator of quality. This in particular in
some cases, where the price variation is too much with in a particular class
of service (e.g. Tour operators). Also, where the risk associated with the
service is high (e.g. Heart surgery). Price is taken as an indicator of quality.
Thus pricing too low can give wrong signals and pricing too high can set
expectations that the firm may find it difficult to match in service delivery.
Because goods are dominated by search qualities. Price is normally not used
to judge quality.
4) Pricing strategy should cope-up with the degree of competition operation
with in certain geographic and time zone. E.g. Bus operators will have to
consider prices of train. It also includes the stage ofstrategic low pricing to
attract first time customers.
Approaches to pricing services:
The 3 approaches to pricing services are:
1) Cost-based pricing
2) Competition-based pricing.
3) Demand–based pricing.
1) Cost-based pricing:
In cost-based pricing, a company determines expenses from raw materials
and labor, adds amounts 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 formula for cost-based
pricing is Price = Direct costs + Overhead costs + Profit margin
Direct costs involve materials and labor that are associated with the service,
overhead costs are a share of fixed costs, and the profit margin is a
percentage of full costs (direct + overhead)
Problems in cost-based pricing services:
a) It is difficult to define the units in which a service is purchased. Thus the
concept of price or
unit is vague. Thus many services are sold in terms of input units rather than
units of measured
output. E.g. consultant, teacher etc.
b) Where a firm provides multiple services. The costs being a major
component of employee time are difficult to allocate.
c) Service cost may not represent true value. For e.g. a darner charging
same price for a expensive suit and an ordinary pant.
2) Competition-based pricing:
This approach focuses on the prices charged by other firms in the same
industry or market. Competition-based pricing does not always imply
charging the identical rate others charge but rather using others prices as an
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anchor for the firm’s price. This approach is used predominantly in two
situations: (a) When services are standard across providers, such as in the
dry cleaning industry. (b) In oligopolies where there are a few large service
providers, such as in the airline.
Problems in competition-based pricing:
(a) Small firms may charge too little and not make margins high enough to
remain in business.
(b) Heterogeneity of services across and within providers makes this
approach complicated. E.g. Banks charge different rates of commission for
drafts and other services.
3) Demand-based pricing:
The first two approaches of pricing are based on the company and its
competitors rather than on customers. Neither approach takes into
consideration that customers may lack reference price, may be sensitive to
nonmonetary 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.
Problems in demand-based pricing:
(a) There is an element of non-monetary costs and benefits which must be
considered while calculating perceived value. E.g. services requiring time,
inconvenience, psychological and search costs should be riced lower. It is
difficult to convert this non-monetary cost into monetary cost. (b)
Information on service may be less available to customer, making it difficult
to assess the price.
THE PLACE MIX.
Another important element of the marketing mix is place mix, which focuses
our attention on the offering of services by the providers to the ultimate
users and the place of location for the service generating organizations. In
some of the cases we find that providers have no option but to locate the
units/branches as per the instructions of the apex body. Some of the
essential features are taken into consideration such as easy and convenient
accessibility, safety or protection availability of the infrastructural facilities,
attractive and healthy surroundings or so.
Due to the intangibility, services cannot be stored, transported and
inventoried. Hence the traditional channels of product marketing like
wholesalers cannot be used. Eevn retailing cannot be an independent
activity. Similarly because of inseparability they have t be produced and sold
simultaneously. Due to this tehe channels of distribution are made very
short. At the most there can be one agent like in the case of insurance, travel
agency, courier eye. The better thing is direct selling. Agents when employed
can have two types of functions – either they market the services lke travel
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agents, insurance agents etc, who market the tangible part of the service
offering OR there can be agents who are trained to provide the service Like a
Shahnaz Hussain Beauty parlour. Further as there is no actual transfer of
ownership, the creation of time and place utility is very important. Hence
proper location to cover maximum cuxtomers becomes important. Banks
often have extension counters
or use money collectors.
It is not sufficient that we are interested only in managing our present. It is
much more significant that we keep our eyes open, minds active to know
about the future and continue to enrich our potentials to manage the future.
The organizations not managing the future fail in managing the demand and
supply position, make it difficult to optimize the development of marketing
resources to cope with the changing requirements, make possible a
contraction in their resistance power and both on quantitative and qualitative
fronts, we find them moving backward. By capacity planning, our emphasis is
on the management of strength. Capacity planning is known as planning the
capacity in the face of future. This throws light on both the aspects-first, the
organizations are supposed to know the demand position so that the
potentials are enriched to increase the quantity or capacity of generating the
services and second, the organizations are also required to know about the
likes and dislikes, preferences, expectations, attitudes which make an
advocacy in favor of technologies to fulfill their expectations and this is not
possible unless we think in favor capacity planning. The strategic plan would
make the ways for the mobilization of financial resources to cater to their
requirements. We can’t deny the fact that if an organization succeeds in
maintaining the process of profit generation, the financial health of that
organization becomes so sound that the task of satisfying the employees and
investors is simplified considerably. If an organization is strong, the task of
facing the challenges and threats in the markets is simplified considerably. It
is against this background that strategic planning assumes a place of
outstanding significance. When we talk about capacity planning, our prime
focus is on strategic planning since the process of enriching strength can’t be
made possible within a couple of days.
How much of what (service) will be needed to achieve its pre-determined
goals is an important consideration that makes an advocacy in favor of
capacity planning and scheduling. There are a number of critical variables
requiring due consideration in the process such as, goals of the service firm,
availability of capital and the quality of human resources, market segments
served and the level of service quality aimed at. A detailed scheduling of
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man, materials, money and machines (four M’s) is essential for each element
of the service mix.
The promotion mix is found instrumental in informing, sensing and
persuading the prospects or customers. The marketers bear the
responsibility of using the different components of promotion in such a way
that the measures adopted for promoting the goods or services are found
productive. The promotion communicates to customer’s information on the
other elements of marketing mix, such as product, pricing and place. The
advantage of product itself, details on the place through which it is sold and
details on the pricing are transmitted through promotion.
COMPONENTS OF THE PROMOTION MIX:
Advertising is paid form of persuasive promotion since it plays an effective
role in informing and
sensing the customers. The creativity is found to be an essential aspect of
advertising, which increases the importance of professional excellence in
making the advertising processes productive.
2) Publicity/public relations:
All the organizations need to develop and strengthen the public relation
activities to promote their business. This component of promotion is found
effective though the organization don’t make any payment for publicity. The
most important thing in the context of public relations is the instrumentality
of executives in projecting a positive image of the services offered. They
should have the potentials to throw a positive imprint on the prospects. It is
also significant that they know the art of developing rapport with the media
3) Personal selling:
The personal selling is found instrumental in promoting the business of
service generating organizations. Personal selling is a process of informing
the customers besides persuading them to purchase products being
influenced by personal communication. It is just a process of communication
in which an individual exercises his or her personal potentials, tact, skill and
ability to influence the impulse of prospects and to transform them into
customers. Personal selling is basically a method of communication. It
involves not only individual but the social behavior too; each of the person in
face-to-face contact, salesman and prospect influence the other. Thus we
find personal selling a personal communication, seller-buyer interaction,
inter-personal communication and more so direct selling. The following facts
are observed regarding the personal selling:
a) It is a direct personal relation between the buyer and seller.
b) It is an oral presentation in conservation.
c) It is two-way communication.
d) It is personal and social behavior.
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e) It is an exercise for selling the goods and services.
f) It is found more effective in the service generating organizations.
g) It is based on the professional excellence of an individual.
h) It is an important element of the promotion mix.
4) Sales promotion:
Marketing activities other than personal selling, advertising and publicity that
stimulate customers and dealers effectively, such as display shows,
exhibitions, demonstrations and various non-recurrent selling efforts not in
the ordinary routine are the sales promotion measures. Sales promotional
activities are devices aimed at reaching the consumer at home or in his
business establishment. The tools are generally in the form of samples,
contest, demonstrations and coupons. Sales promotion directed at
consumers may be done with a view to increase the products rate of use
among existing customers or to attract new customers to the company’s
Tools of sales promotion:
c) Discount and commission
e) Travel and tours
f) Additional allowance
g) Fairs and shows
These are some of the tools of sales promotion offered to both, the providers
as well as the users. The motivesare increasing the selling activities,
touching the target, excelling the competition, increasing the market share,
clearing the old products to be declared absolute in the near future.
5) Word-of-mouth promotion:
Much communication about the performance of the service generating
organizations actually takes place by word-of-mouth information, which is
also as word-of-mouth promotion. The word-of-mouth recommendations the
hidden sales force make the process of communication effective. The
growing sensitivity of the words and experiences of hidden sales force
simplify the task of promoting the business. The advertisements, sales
promotion measures, the personal selling may of course be effective but the
word-of mouth recommendations are found acceptable in all the conditions
by almost all the prospects.
Telemarketing is found instrumental in promoting the business. The
telemarketing helps in activating the process of advertisement in addition to
its instrumentality in increasing the sale. The service generating
organizations in general and the banking, insurance, transport, hotel, tourism
organizations in particular have been found using telemarketing with the
two-fold objectives of selling and advertising. The instrumentality of
telephones and televisions are found effective in the process of promoting
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the business. The instrumentality of telemarketing in persuading the users is
substantially influenced by the quality of personnel supposed to discharge
the responsibility. The telemarketing minimizes the dependence of service
generating organizations on the sales people since just a counter or a center
listed in the call numbers serves multi-dimensional purposes.
1) Develop personal relation with client
2) Make a strong impression of competency, honesty and sincerity
3) Should be able to use indirect selling techniques (create a derived
demand – mobile companies give free sim card)
4) Manage to maintain a fine image by positive word of mouth
5) Packing and customization of service offering
1) Buyer (or user/influencer/gatekeeper)
2) Employees (discussed in detail under people)
PLANNING THE PROMOTION MIX
1) Advertisement should have positive effects on contact personnel
2) It should be able to capitalise on word of mouth
3) It should provide tangible clues to the customers
4) It should make the service offering easily understandable
5) It should promise only what is possible to deliver
6) It should contribute to the continuity
CONSUMER PROMOTION IN SERVICE MARKETING
1) Sampling is less frequently used compared to Goods (Sampling gives
consumer a free trial – though now becoming popular)
2) Gift premiums are frequently used to give an element of tangibility
3) Price/quantity promotions can be used to get long term commitments
from consumer (frequent flyer programme or group booking in Hotels)
4) Use of coupons are less frequent (coupon with straight price cut OR
discount or fees waiver for one or more purchases with original purchase OR
Discounts on augmented products – like a free wax polish with car wash)
5) Future discounts are less frequent
6) Prize promotions are frequently used (prize for mobile bank use etc)
GUIDELINES FOR SELLING SERVICES
1) It is personal relationship rather than the service itself that results in
2) Buyer’s confidence in the seller’s ability to deliver the results is important
– hence make a strong impression of competency, sincerity, and honesty.
3) As what is sold is intangible – indirect selling techniques have to be
adopted (Hotels selling tour programmes)
4) As word of mouth is important – building up a favourable is image is
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5) A service provider sells “services” and not just a single service – hence
ability to customise the service offering is important (Jain food in Air-lines
6) Public relations becomes important – particularly in industries where
advertisement cannot be used as a promotional tool like Hospital industry.
The employees of an organization represent the organization in the eyes of
the customers. If they are not give proper training in representing the
organization and its goals the service efforts will fail. Hence the most
important marketing strategy is to market the service first to the
organization’s employees. There are two types of contact personnel – HIGH
CONTACT PERSONNEL and LOW CONTACT PERSONNEL (eg .in a hospital a
nurse is a high contact personnel and ward boy may be a low contact
personnel) In addition there can be a NON CONTACT PERSONNEL
When company makes efforts to do external marketing, it should have
strategies of Internal marketing. External marketing is nothing but promises
made,which needs to be fulfilled – this needs internal marketing enabling the
comapany to keep up the promises made. Unless the employees are able
and willing to deliver, the servicepromises will fail. This will result in proper
interaction of thecustomers with the service providers which helps the
organization to keep the promises (Interactive marketing)
EMPLOYEE SATISFACTION, CUSTOMER SATISFACTION, AND PROFITS
There is concrete evidence that satisfied employees make more satisfied
customers (and satisfied customers can, in turn, reinforce employees’ sense
of satisfaction in their jobs). Some have even gone so far as to suggest that
unless service employees are happy in their jobs, customer satisfaction will
be difficult to achieve. The underlying logic connecting employee satisfaction
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and loyalty to customer satisfaction and loyalty and ultimately profits is
illustrated by the service profit chain shown in the figure. The service profit
chain suggest that there are critical linkages among internal service quality;
employee satisfaction; productivity; the value of services provided to the
customers; and ultimately customer satisfaction; retention and profits.
Service profit chain researchers are careful to point out that the model does
not cause customer satisfaction; rather the two are interrelated and feed ff
each other. The model does imply that companies that exhibit high levels of
success on the elements of the model will be more successful and profitable
than those who do not.
HUMAN RESOURCE STRATEGIES:
Human resources decisions and strategies primary goal is to motivate and
enable employees to deliver customer-oriented promises successfully. The
strategies presented here are organized around four basic themes. To build a
customer-oriented, service-minded workforce, an organization must:
1) Hire the right people
2) Develop people to deliver service quality
3) Provide the needed support systems
4) Retain the best people
1) Hire the right people:
One of the best ways to close gap 3 is to start with the right service delivery
people from the beginning. This implies that considerable attention should
be focused on hiring and recruiting service personnel.
a) Compete for the best people:
To get the best people, an organization needs to identify them and compete
with other organizations to hire them. The firm act as marketers in their
pursuit of the best employees, just as they use their marketing expertise to
compete for customers. Thinking of recruiting as a marketing activity results
in addressing issues of market (employee) segmentation, product (job)
design, and promotion of job availability in ways that attract potential long-
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b) Hire for service competencies and service inclination:
Once potential have been identified, organizations need to be conscientious
in interviewing and
screening to truly identify the best people from the pool of candidates. It has
been suggested that service employees need two complementary capacities:
they need both service competencies and service inclination. Service
competencies are the skills and knowledge necessary to do the job.
Achieving particular degrees and certifications validates competencies, such
as attaining a doctor of law degree and passing the relevant state bar
examinations for lawyers. Service competencies may not be degree related,
but may instead relate to basic intelligence or physical requirements.
c) Be the preferred employer:
One way to attract the best people is to be known as the preferred employer
in a particular industry or in a particular location. Other strategies that
support a goal of being the preferred employer include providing extensive
training, career and advancement opportunities, excellent internal support
and attractive incentives and offering quality goods and services that
employees a proud to be associated with.
2) Develop people to deliver service quality:
To grow and maintain a workforce that is customer oriented and focused on
delivering quality, an organization must develop its employees to deliver
service quality. That is, once it has hired the right employees, the
organization must train and work with these individuals to ensure service
a)Train for technical and interactive skills:
To provide quality service, employees need ongoing training in the necessary
technical skills and knowledge and in process or interactive skills. Examples
of technical skills and knowledge are working with accountingsystems in
hotels, cash machine procedures in a retail store, underwriting procedures in
an insurance company, and any operational rules the company has for
running its business. Most service organizations are quite conscious of and
relatively effective at training employees in technical skills. Companies are
increasing their use of information technology to train employees in the
technical skills and knowledge needed on the job. Service employees also
need training in interactive skills that allow them to provide courteous,
caring, responsive, and empathetic service.
b) Empower employees:
Empowerment means giving employees the desire, skills, tools, and authority
to serve the customer. While the key to empowerment is giving employees
authority to make decisions on the customer’s behalf, authority alone is not
enough. Employees need the knowledge and tools to be able to make these
decisions and theyneed incentives that encourage them to make the right
decisions. Organizations are well suited to empowerment strategies to ones
in which (1) the business strategy is one of differentiation and customization,
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2) customers are long-term relationship customers, (3) technology is
nonroutine or complex, (4) the business environment is unpredictable, and
(5) managers and employees have high growth and social needs and strong
c) Promote teamwork:
The nature of many service jobs suggests that customer satisfaction will be
enhanced when employees work as teams. Because service jobs are
frequently frustrating, demanding and challenging, a teamwork environment
will help to alleviate some of the stresses and strains. Employees who
supported and that they have a team backing them up will be better able to
maintain enthusiasm and provide quality service. By promoting teamwork an
organization can enhance the employee’s abilities to deliver excellent
service while the camaraderie and support enhance their inclination to be
excellent service providers.
3) Provide need support systems:
To be efficient and effective in their jobs, service workers require internal
support systems that are aligned with their need to be customer focused.
Without customer-focused internal support and customer-oriented systems, it
is nearly impossible for employees to deliver quality service no matter how
much they want to. In examining customer service outcomes researchers
found that internal support from supervisors, teammates, and other
departments as well as evaluations of technology used on the job were all
strongly related to employee satisfaction and ability to serve customers.
a) Measure internal service quality:
One way to encourage supportive internal service relationships is to measure
and reward internal service. By first acknowledging that everyone in the
organization has a customer and then measuring customer perceptions of
internal service quality, an organization can begin to develop an internal
quality culture. Internal customer service audits and internal service
guarantees are two strategies used to implement a culture of internal service
quality. Through the audit, internal organizations identify their customers,
determine their needs, measure how well they are doing, and make
b) Provide supportive technology and equipment:
When employees don’t have the right equipment, or their equipment fails,
they can be easily frustrated in their desire to deliver quality service. To do
their jobs effectively and efficiently, service employees need the right
equipment and technology. having the right technology and equipment can
extend into strategies regarding workplace and workstation design.
c) Develop service-oriented internal processes:
To best support service personnel in their delivery of quality service on the
front line, an organization’s internal processes should be designed with
customer value and customer satisfaction in mind. In other words, internal
procedures must support quality service performance. In many companies
internal processes are driven by bureaucratic rules, tradition, cost
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efficiencies, or the needs of internal employees. Providing service and
customer oriented internal processes can therefore imply a need for total
redesign of systems. This kind of wholesale redesign of systems and
processes has become known as “process reengineering.”
4) Retain the best people:
An organization that hires the right people, trains and develops them to
deliver service quality, and provides the needed support must also work to
retain the best ones. Employee turnover, especially when the best service
employees are the ones leaving, can be very detrimental to customer
satisfaction, employee morale, and overall service quality. Some firms spend
lot of time attracting employees but then tend to take them for granted,
causing these good employees to search for job alternatives.
a) Include employees in the company vision:
For employees to remain motivated and interested in sticking with the
organization and supporting its goals, they need to share an understanding
of the organization’s vision. People who deliver service day in and day out
need to understand how their work fits into the big picture of the
organization and its goals.
b) Treat employees as customers:
If employees feel valued and their needs are taken care of, they are more
likely to stay with the organization. Many companies have adopted the idea
that employees are also customers of the organization, and thus basic
marketing strategies can be directed at them. The products that the
organization has to offer its employees are a job and quality of work life. To
determine whether the job and work life needs of employees are being met,
organizations conduct periodic internal marketing research to assess
employee satisfaction and needs.
c) Measure and reward strong service performers:
If a company wants the strongest service performers to stay with the
organization, it must reward and promote them. Often the reward systems in
organizations are not set up to reward service excellence. Reward systems
may value productivity, sales or some other dimension that can potentially
work against good service. Reward systems need to be linked to the
organization’s vision and to outcomes that are truly important.
6.6.5 IMPORTANCE OF EMPOWERING PEOPLE IN SERVICES
An organization that emphasizes customer service needs people at the
frontline to do the service, to use discretions be concerned about the
customer, to take initiative to provide satisfaction through exceptional
service. The person at the front must fell empowered to do in the
circumstances. Empowering cannot be done through a formal delegation of
authority. A person with authority may not exercise that authority, if he does
not feel empowered.
A peon who takes responsibility to direct the fireman in a burning office to
areas housing the most important documents is acting without formal
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authority. He feels empowered to do so, meaning that feels a sense of
dedication to the organization, that he feels it is his duty to save the
organization as much as possible , that he is doing the right thing .
Following are the importance of empowering the people in services:-
1) An empowered employee focuses on results. He is not inhabitant by
formalities of position , authorityor function .
2) He does not consider himself bound by rules and procedure.
3) He believes that the organization expects him to be aware of the ends to
be achieved and to act in furtherance thereof. He “sees” constraints but not
does not feel prevented thereby , from what is to be done , instead he tries
to overcome the constraints.
4) He believes that the organization will not find fault with him for having one
something new and nusual. On the contrary, he believes that the
organisation will applaud him for having done
something that had to be done.
5) He believes that he is expected to take the initiative and ensure that the
customer needs are met and thereby maintain and enhance the reputation of
6) He feels that he is dedicating to satisfy the customer to upgrade
7) An empowered employee may be willing to challenge company policies at
meetings with sensors.
PHYSICAL EVIDENCE MIX
THE EVIDENCE OF SERVICE
As services are intangible, the customers are searching for evidence of
service in every interaction they have with an organization. The figure
depicts the three major categories of evidence as experienced by the
customer: people, process, and physical evidence. These categories together
represent the service and provide the evidence that tangibilizes the offering.
The new mix elements essentially are evidence of service in each moment of
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All of these evidence elements, or a subset of them are present in every
service encounter a customer has with a service firm and are critically
important in managing service encounter quality and creating customer
When a guest enters the hotel for a stay the first encounter of the guest is
the door attendant and frequently with receptionists at the reception. The
quality of that encounter will be judged by how the registration process
works (How long is to wait? Is the registration system computerized and
accurate?) The actions and attitudes of the people (Is the receptionist
courteous, helpful, knowledgeable? Does she handle the enquiries fairly and
efficiently?) and the physical evidence of the service (is the awaiting area
clean and comfortable). The three types of evidence may be differentially
important depending on the type of service encounter
(remote, phone, face – to – face). All these types will operate in face – to-
face service encounters as in the one just described.
It is the environment in which the service is delivered and where the firm and
customer interact, and any tangible components that facilitate performance
or communication of service.
It includes all tangible representations of the service-such as brouchers,
letter head, equipment etc. in somecases the physical facilities where service
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is offered is important e.g., in a hotel the parking lot, surroundings are
important. In other services such as telecommunication the physical facilities
may be irrelevant. In this case other tangibles like billing statements become
important. Physical evidence includes
(A) Physical facilities (essentials and peripherals)
(B) Physical setting (appearance of premises)
(C) Social setting (appearance of staff)
The decision on the physical evidence will differ in terms of customer-
employee interaction. At one end is self-service of customer without any
interaction with employee (ATM) where physical facilities must be to attract
customer and user friendly.
At other end employee performs without any interaction (mail order
business) here physical evidence is designed to promote operational
efficiency. Between the two extremes is a situation where both customer and
employee interact. In this case physical evidence must be planned to
facilitate the activities of both. (E.g., Banks, Airlines). Certain service
environments are simple requiring very little space or equipment (ATM,
Vending machine). They are called lean environment. Others like hospitals,
hotels are elaborate environment where proper planning is needed.
(a) Physical facilities: The potential customers form impression about the
service organization on the basis of physical evidence like building, furniture
Essential Evidence: They are dominant features like building area, parking
Peripheral Evidence: They are less dominant like admission card, medical
(b) Consist of service environment
• Ambient factors (light, colour, temperature)
• Space (spatial layout and functionality- i.e., ability of equipment and
furniture to accomplish interactions)
• Decor and artefacts
(c) Social setting: Employee uniform, appearance etc. of service scape can
influence customer expectation,satisfaction and other behavior. In shopping
mall soft music is played/crossroads had hired separate parking space.
Bitner identifies Physical Facilities and Environment as SERVICE SCAPES
However too much decor may make customers feel that they are paying for
the expensive décor. Employees however feel that an investment in
environments is an indication of management’s concern for their job
satisfaction. Hence the challenge is to strike a balance.
MANAGING SERVICE QUALITY
To compete successfully a firm must define how the customers perceive the
service quality and in what way the service quality is influenced. The quality
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can be of seen from two angles (1) Technical quality (What is delivered) (2)
Functional quality (How it is delivered). When a customer comes to the
service provider he comes with some expected quality. When he takes the
service he experiences a service quality – this is his perceived quality.
PERCEIVED SERVICE QUALITY
Customer service is about perception. Perceptions are judgment of the
consumers about the actual service performance or delivery by a company.
Since service are intangible, customers search for the evidence of quality in
every interaction they have with a service firm. The evidence of service that
are experience by the customer are people, process and physical evidence.
• People – contact employees, other customers or the customer himself.
• Dimensions – reliability, assurance, empathy and responsiveness.
• Process – operational flow of activities.
• Dimensions – reliability and promptness of service.
• Physical evidence – tangible aspect of service.
Apart from these the corporate image of the service provider as well as the
service can also influence the perceived quality.
While comparing the expected and perceived service quality the following
may be the outcome.
1). Perceive quality > expected quality.
Result = delighted customer.
2). Perceive quality = expected quality.
Result = satisfied customer.
3). Perceive quality < expected quality.
A very important factor in important service quality is to always keep
promises and not guarantee which the firm cannot deliver
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ZONE OF TOLERANCE
The services provided are varying between organizations, between
employees and even with in employees at different times. The extent to
which the customers recognize and are willing to accept this variation is
called as zone of tolerance. If the service levels fall below this level,
customers will be frustrated.
• Different customers possess different zones of tolerance
• Zones of tolerance vary for different dimensions fo service
• Zones of tolerance vary for first time and recovery service
To manage the perceived quality of a service one has to match the expected
service and perceived service to each other so that consumer satisfaction is
achieved. To keep the gap between expected service minimal, two things are
• The promises about how the service will perform given by traditional
marketing activities and communicated by word-of-mouth, must not be
unrealistic when compared to service received by the customer.
• Managers have to understand how the technical and functional
quality of a service is influenced and how the customers perceive these
quality dimensions. In order to develop greater understanding of the
nature of service quality and how it is achieved in an organization, ‘A
Gap Model Of Service Quality’ was developed. The model clearly
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indicated that the consumer’s quality perceptions are influenced by a
series of five distinct gaps occurring in the organizations, which are as
Gap1 (Marketing Information Gap) : Difference between consumer
expectations and management perceptions of consumer expectations arising
due to inadequate or inaccurate management understanding of customers’
Gap2 (Standard gaps) : Difference between management perceptions of
consumer expectations and service quality specifications arising due to
Management’s failure to develop performance specifications reflecting
Gap3 (Service Performance Gap) : Difference between service quality
specifications and the service actually delivered.
Gap4 (Communication Gap) : Difference between service delivery and
what is communicated about the service to consumers resulting in
discrepancy between communications to customers describing the service
and the service actually delivered.
Gap5: Difference between the perceived service and expected service. This
gap depends on the size and direction of the first four gaps associated with
the delivery of service quality.
These Gaps develop due to the following reasons
GAP 1 :
• Lack of adequate market research
• Lack of upward communication between front line staff and
• Lack of interaction with the customers
• Lack of segmentation to identify specific needs of the customers
GAP 2 :
• Lack of commitment from Management (they may perceive that
customer expectations are unreasonable)
• Lack of Goal setting
• Lack of resources
GAP 3 :
• Ineffective recruitment
• Role ambiguity
• Lack of training/incentives to perform to the staff
• Lack of training to customer on use of service and their roles
• Lack of pre-testing when new procedures are introduced
• Lack of understanding of customer habits – how they prefer to
consume a service (a customer may prefer a slow delivery of food in an
exclusive restaurant compared to an Udipi restaurant)
GAP 4 :
• Exaggerated promises
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• Ineffective communication
• Lack of Horizontal communications with in the organization
Too much of Gaps (1 to 4)
To close the gaps the following things should be implemented: -
1. Develop customer trust through long-term strategy rather than a snip-
shot superficial programme.
2. Understand customers’ habits on how they prefer to consume a service.
eg., a customer wouldprefer extended hours for a meal in a exclusive
3. Pre-test new procedures and equipments before introducing them. The
failure of a productivity improvement programme is more damaging than
otherwise, e.g., when Indian Airlines introduced computerized reservation
system to improve its service, it found that at most places the system
remained down most of the time. It created more confusion, both among
customers and employees, and proved to be countered productive.
4. Understand the determinants of consumer behaviour in terms of their
choice; by force or by any other external forces, e.g., shopping behaviour is
not even throughout the month. It changes between the first weeks to the
fourth week of the month; it changes between weekdays and weekends.
5. Teach consumers how to use service innovations—most people don’t know
how to go about
treatment in government hospitals—there is a need to make people aware of
how to go about from registration to appointment to check—up and
treatment, in the same way as traffic routes at India Gate or Connaught
Place are notified through press and television before introducing them.
6. Promote the benefits and stimulate trial. The success in innovation lies in
encouraging trial by
making the benefit obvious.
7. Monitor and evaluate performance. One can learn from experience—good
or bad. As one goes along introducing changes, corrective measures should
also be taken simultaneously. These measures should be restricted to
redesign of facilities and procedures or extending to educating,
communicating and promoting the efforts.
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THE 5 DIMENSIONS OF SERVICE QUALITY ARE AS FOLLOWS On Which
The Service Quality
Reliability: means the ability to perform the promised service dependably
and accurately. In other words reliability means that the company delivers on
its promises – promises about delivery, service provisions, problem
resolution, and pricing. For example, FedEx, this company effectively
communicates and delivers on the reliability dimension.
Responsiveness: is the willingness to help customers and provide prompt
service. This dimension emphasizes on attentiveness and promptness in
dealing with customer’s request, questions, complaints and problems.
Responsiveness also captures the notion of flexibility and ability to customize
the service to the customers needs.
Assurance: is defined as employee’s knowledge and courtesy and the
ability of the firm and its employees to inspire trust and confidence. This
dimension is likely to be particularly important for service for services that
the customer perceives as involving high risk and / or about which they feel
uncertain about their ability to evaluate outcomes. For examples, banking,
insurance, brokerage, etc.
Empathy: is defined as carrying individualized attention the firm provides
its customers. The essence of empathy is conveying through personalized or
customized service, the customers are unique and special. Customers want
to feel understood by and important to that provide service to them. For
example, personnel at small firm know customers by name and build
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relationships that reflect their personal knowledge of customer’s
requirements and preferences. When such a small firm competes with large
firms, the ability to be empathetic may give the small firm a clear advantage.
Tangible: tangibles are defined as the appearance of physical facilities,
equipment’s, personnel and communication materials. All of these provide
physical representations or images of the service that customers particularly
new customers, will use to evaluate quality. Although tangibles are used by
Service Company’s to enhance their image, provide continuity, and signal
quality to consumers, most company combine tangibles with another
dimension to create a service quality strategy for the firm.
Examples of how customers judge the 5 dimensions of service
Car repair (consumers):
1. Reliability: problem fixed the 1st time and ready when
2. Responsiveness: accessible, no waiting, respond to request.
3. Assurance: knowledgeable mechanics.
4. Empathy: acknowledges customers by name, remembers previous
problem and preferences.
5. Tangibles: repair facility, waiting areas, uniform, and equipment’s.
1. Reliability: flights to promise destination, depart and arrives on time.
2. Responsiveness: prompt and speedy system of ticketing, in flight baggage
3. Assurance: trusted name, good safety records & competent employees.
4. Empathy: understanding of special individual needs, anticipates consumer
5. Tangibles: aircraft, ticketing counters, uniforms, and baggage areas.
Medical care (consumer):
1. Reliability: appointments are kept on schedule diagnoses prove accurate.
2. Responsiveness: accessible, no waiting, willingness to listen.
3. Assurance: knowledge, skills, credentials, and reputation.
4. Empathy: acknowledges patients as a person, remembers previous
problems, good listening, and patients.
5. Tangibles: waiting room, exam rooms, and equipment, written materials.
1. Reliability: delivers plans when promised and within budget.
2. Responsiveness: returns, phone calls, adapt to change.
3. Assurance: credential, reputation, and name of the community, knowledge
4. Empathy: understanding clients industry acknowledges and adapts to
specific clients needs, gets to know the client.
5. Tangibles: office areas, report, plan themselves, billing statement, dress of
Information processing (internal):
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1. Reliability: provides needed information whenever requested.
2. Responsiveness: prompt response to request not “bureaucratic’ deals with
3. Assurance: knowledgeable staff, well trained, credentials.
4. Empathy: knows internal customers as individuals and departmental
5. Tangibles: internal reports, office areas, and dress of employees.
Internal brokerage (consumer and business):
1. Reliability: provides correct information and executes customer’s requests
2. Responsiveness: quick website with easy access and no down time.
3. Assurance: credible information sources on the site, brand recognition
credential apparent on site.
4. Empathy: ability to respond with human interaction as needed.
5. Tangibles: appearance of the website and collateral.
BENCHMARKING OF SERVICES
Benchmarking means measuring the performance of a business against that
of the competitors in order to establish ‘best practice’. Benchmarking is a
part of process of continuous improvement. Benchmarking can
be applied at three levels:
1. Internal Benchmarking.
2. Competitive Benchmarking.
3. Functional or Generic Benchmarking.
Internal Benchmarking is normally carried by large organization by way of
comparison between operation units. For e.g.. Super market chain might
benchmark operations across stores, financial across branches, different
colleges under the same authority. But important thing is how performance is
measured &this is clear link to the strategy of organization.
At a second level competitive Benchmarking can be used. This is probably
the most frequently use where comparisons are made with directly
competitive organization. Customer participation is necessary because of
which it will be easy to achieve in some service environments. For e.g: As a
hotel owner, it is possible to ‘sample’ the service to competitor simply by
‘posing’ the guest. Often however, this is done in informal manner. A
comparative impression gained of the service without examining the
different facets in a structured way & attempting to measure them.
Functional or Generic Benchmarking:
The third approach is Functional or Generic Benchmarking, which compares
specific functions such as distribution and after sale service. The advantage
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47. [SEMESTER 5] [SERVICE SECTOR MANAGEMENT]
here is that information is sometime easier to obtain than when comparison
are being made with competitors.
Care has to be taken in selecting the dimension & sales to be used for
performance measuring and ensuring that due account is taken of all
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