Short notes on services marketing

Define and explain the terms "Services" and "Service Marketing".
Answer
Introduction
Everyday we interact with various economic activities like - getting courier
delivered at the requested address, making phone call to friend, relative, or client,
having coffee at coffee shop, or taking metro to commute office. Such activities are
called services because they involves deed or act and offered by one party to
another for sale.
Services differ from goods in many ways. The way a productis produced,
distributed, marketed, and consumed is not the way a service is. Hence, a different
marketing approachis necessary for the marketing of services.
Today, in this postwe are going to explain – What services are? What are the
characteristics of services? How services are marketed?
Definition of Services
According to American Marketing Association services are defined as “activities,
benefits or satisfactions which are offered for sale or provided in connection with
the sale of goods.”
According to Philip Kotler and Bloom services is defined as “any activity or
benefit that one party can offer to another that is essentially intangible and does not
result in the ownership of anything. Its productionmay or may not be tied to a
physical product.”

CharacteristicsofServices
Intangibility – Services are cannot be touched or hold, they are intangible in
nature. For example – you can touch your Smartphone. But, you cannot hold or
touch the services of your telecom service provider.
Inseparability – In case of services the production, distribution, and consumption
takes place simultaneously. These three functions cannot be separated.
Variability – It is impossible to provide similar service every time. You’ll
experience some change every time you buy a particular service from a particular
service provider. For example– Yesterday you had a coffee at CCD. Today, you
are again at CCD to have a coffee, but you have got different place to sit today; the
personserved you coffee is different today; other people having coffee are also
different today. Hence, your experience of having coffee today is different as
compared to yesterday.
Perish-ability – You can store goods, butit is not so in the case of services.
Services get perished immediately.
Participationof customer – Customer is co-producerin production of services.
For delivery customer involvement is as important as is of the service provider. For
example – if you went to a parlour for haircut, how it cannot be possible without
your presence and involvement.
No ownership – In the sale of services, transfer of ownership not take place. It
means to say that consumer never own the services.

The 7 P’s ofServices Marketing
The first four elements in the services marketing mix are the same as those in the
traditional marketing mix. However, given the unique nature of services, the
implications of these are slightly different in caseof services.
Product: In case of services, the ‘product’ is intangible, heterogeneous and
perishable. Moreover, its production and consumption are inseparable. Hence,
there is scopefor customizing the offering as per customer requirements and the
actual customer encounter therefore assumes particular significance. However, too
much customization would compromise the standard delivery of the service and
adversely affect its quality. Hence particular care has to be taken in designing the
service offering.
Pricing: Pricing of services is tougher than pricing of goods. While the latter can
be priced easily by taking into account the raw material costs, in case of services
attendant costs - such as labor and overhead costs - also need to be factored in.
Thus a restaurant not only has to charge for the costof the food served but also has
to calculate a price for the ambience provided. The final price for the service is
then arrived at by including a mark up for an adequate profit margin.
Place:Since service delivery is concurrent with its productionand cannot be
stored or transported, the location of the service productassumes importance.
Service providers have to give special thought to where the service would be
provided. Thus, a fine dine restaurant is better located in a busy, upscale market as
against on the outskirts of a city. Similarly, a holiday resort is better situated in the
countryside away from the rush and noise of a city.
Promotion: Since a service offering can be easily replicated promotion becomes
crucial in differentiating a service offering in the mind of the consumer. Thus,
service providers offering identical services such as airlines or banks and insurance
companies invest heavily in advertising their services. This is crucial in attracting
customers in a segment where the services providers have nearly identical
offerings.
We now look at the 3 new elements of the services marketing mix - people,
process and physical evidence - which are unique to the marketing of services.

People:People are a defining factor in a service delivery process, since a service is
inseparable from the person providing it. Thus, a restaurant is known as much for
its food as for the service provided by its staff. The same is true of banks and
department stores. Consequently, customer service training for staff has become a
top priority for many organizations today.
Process:The process ofservice delivery is crucial since it ensures that the same
standard of service is repeatedly delivered to the customers. Therefore, most
companies have a service blue print which provides the details of the service
delivery process, oftengoing down to even defining the service script and the
greeting phrases to be used by the service staff.
PhysicalEvidence: Since services are intangible in nature most service providers
strive to incorporate certain tangible elements into their offering to enhance
customer experience. Thus, there are hair salons that have well designed waiting
areas often with magazines and plush sofas for patrons to read and relax while they
await their turn. Similarly, restaurants invest heavily in their interior design and
decorations to offer a tangible and unique experience to their guests.

Marketing of Services
A different marketing approach is necessary for services marketing, because
services differ from goods in many respects.
Difference between Services and Goods
Basis Services Goods
Tangibility Services are intangible in
nature. They cannot be
touched or hold.
Goods are tangible in
nature. They can be
touched and hold.
Separability Services are inseparable
in nature. Production,
distribution, and
consumption of service
take place
simultaneously.
Function of distribution
and consumption of goods
can be separated from the
function of production.
Ownership Services cannot be
owned. They can be
hired for a specific time
period.
Goods canbe owned.
Perish-ability Services get perished
after a specific time
period. It cannot be
stored for future use.
Goods canbe stored for
future use.
Heterogeneity Services are more
heterogeneous. It is very
difficult to make each
service identical.
Goods are less
heterogeneous. It is
possible to make each
goods identical.

Customer Service in a service firm is highly interactive in nature. Customer
interacts with the firm physical facilities, personnel, and tangible elements like the
price of the service. The success ofany service firm depends on how its
performance is judged and perceived by the customer. Today, Service Firms are
becoming highly competitive, so, it is essential for service firms to provide high
quality services for their survival.
An expanded marketing mix for services was proposedbyBooms and Bitner
(1981), consisting of the 4 traditional elements–product, price, place, and
promotion and three additional elements–physical evidence, participants, and
process. Theseadditional variables beyond the traditional 4 P's distinguish
‘customerservice’ for service firms from that of manufacturing firms.
Service Marketing Mix – 7 P’s of marketing
The service marketing mix is also known as an extended marketing mix and is an
integral part of a service blueprint design. The service marketing mix consists of 7
P’s as compared to the 4 P’s of a productmarketing mix. Simply said, the service
marketing mix assumes the service as a product itself. However it adds 3 more P’s
which are required for optimum service delivery.
The productmarketing mix consists of the 4 P’s which
are Product, Pricing, Promotions and Placement. These are discussed in my article
on productmarketing mix – the 4 P’s.
The extended service marketing mix places 3 further P’s which include People,
Process and Physical evidence. All of these factors are necessary for optimum
service delivery. Let us discuss the same in further detail.

1) Product
The productin service marketing mix is intangible in nature. Like
physical products suchas a soap or a detergent, service products cannot be
measured. Tourism industry or the education industry can be an excellent example.
At the same time service products are heterogeneous, perishable and cannot
be owned.
The service productthus has to be designed with care. Generally service blue
printing is done to define the service product. Forexample – a restaurant blue print
will be prepared before establishing a restaurant business. This service blue print
defines exactly how the product(in this case the restaurant) is going to be.
2) Place
Place in case of services determine where is the service product going to be
located. The best place to open up a petrol pump is on the highway or in the city. A
place where there is minimum traffic is a wrong location to start a petrol pump.
Similarly a software company will be better placed in a business hub with a lot of
companies nearby rather than being placed in a town or rural area. Read more
about the role of business locations or Place element.
3) Promotion
Promotions have becomea critical factor in the service marketing mix. Services
are easy to be duplicated and hence it is generally the brand which sets a service
apart from its counterpart. You will find a lot of banks and telecom companies
promoting themselves rigorously.
Why is that? It is because competition in this service sector is generally high and
promotions is necessary to survive. Thus banks, IT companies, and dotcoms place
themselves above the rest by advertising or promotions.
4) Pricing
Pricing in case of services is rather more difficult than in case of products. If you
were a restaurant owner, you can price people only for the food you are serving.
But then who will pay for the nice ambiance you have built up for your customers?
Who will pay for the band you have for music?

Thus these elements have to be taken into consideration while costing. Generally
service pricing involves taking into consideration labor, material costand overhead
costs. By adding a profit mark up you get your final service pricing. You can also
read about pricing strategies.
Here on we start towards the extended service marketing mix.
5) People
People is one of the elements of service marketing mix. People define a service. If
you have an IT company, your software engineers define you. If you have a
restaurant, your chef and service staff defines you. If you are into banking,
employees in your branch and their behavior towards customers defines you. In
case of service marketing, people can make or break an organization.
Thus many companies nowadays are involved into specially getting their staff
trained in interpersonal skills and customer service with a focus towards customer
satisfaction. In fact many companies have to undergo accreditation to show that
their staff is better than the rest. Definitely a USP in case of services.
6) Process
Service process is the way in which a service is delivered to the end customer. Lets
take the example of two very good companies – Mcdonalds and Fedex. Both the
companies thrive on their quick service and the reason they can do that is their
confidence on their processes.
On top of it, the demand of these services is such that they have to deliver
optimally without a loss in quality. Thus the process ofa service company in
delivering its productis of utmost importance. It is also a critical component in the
service blueprint, wherein before establishing the service, the company defines
exactly what should be the process ofthe service productreaching the end
customer.
7) Physical Evidence

The last element in the service marketing mix is a very important element. As said
before, services are intangible in nature. However, to create a better customer
experience tangible elements are also delivered with the service. Take an example
of a restaurant which has only chairs and tables and good food, or a restaurant
which has ambient lighting, nice music along with good seating arrangement and
this also serves good food. Which one will you prefer? The one with the nice
ambience. That’s physical evidence.
4 I’s Of Services
Services have four major characteristics that greatly affect the marketing programs.
1. Intangibility:
Unlike products, services cannot be held, touched, or seen before the purchase
decision therefore, they should be made tangible to a certain extent. Marketers
should “tangibilize the intangible” to communicate service nature and quality.
Insurance is a guarantee against risk and neither the risk nor the guarantee is
tangible. Insurance rightly come under services, which are intangible. Efforts have
been made by the insurance companies to make insurance tangible to some extent
by including letters and forms
2. Inconsistency:
Service quality is often inconsistent. This is because service personnel have
different capabilities, which vary in performance from day to day. This problem of
inconsistency in service quality can be reduced through standardization, training
and mechanization.
In insurance sector, all agents should be trained to bring about consistency in
providing service or, the insurance process should be mechanized to a certain
extent. Eg: the customers can be reminded about the payment of premium through
e-mails instead of agents.
3. Inseparability:
Services are produced and consumed simultaneously. Consumers cannot and do
not separate the deliverer of the service from the service itself. Interaction between

consumer and the service provider varies based on whether consumer must be
physically present to receive the service.
In insurance sector too, the service is produced when the agent convinces the
consumer to buy the policy and it is said to be consumed when the claim is settled
and the policyholder gets the money. In both the above cases, it is essential for the
service provider (agent) and the consumer (policy holder) to be present.
4. Inventory:
No inventory can be maintained for services. Inventory carrying costs are more
subjective and lead to idle productioncapacity. When the service is available but
there is no demand, costrises as, costof paying the people and overhead remains
constant even though the people are not required to provide services due to lack of
demand.
In the insurance sectorhowever, commission is paid to the agents on each policy
that they sell. Hence, not much inventory costis wasted on idle inventory. As the
costof agents is directly proportionate to the policy sold.
CLASSIFICATION OF SERVICES
In order to be able to make a clear and relevant classification of services, we would first need to
understand the concept of the word itself. Services usually refer to processes and not physical
products. To understand more, read this article on difference between goods and services. Some
services may include people whereas other services (like online services) may including objects
which are managed by people.
Examples of services which include people can be a hair salon, education, theater, restaurants, and
public transportation. On the other hand services that include objects include repairs and
maintenance, dry cleaning, banking, legal services, insurance, etc.

1. Classification of service based on Tangible Action
Wherever people or products are involved directly, the service classification can be done based on
tangibility.
(i) Services for people: Like Health care, restaurants and saloons, where the service is delivered
by people to people.
(ii) Services for goods: Like transportation, repair and maintenance and others. Where services
are given by people for objects or goods.
2. Classification of services basedon Intangibility

There are objects in this world which cannot be tangibly quantified. For example – the number of
algorithms it takes to execute your banking order correctly, or the value of your life which is
forecasted by insurance agents. These services are classified on the basis of intangibility.
(i) Services directed at people’s mind: Services sold through influencing the creativity of humans
are classified on the basis of intangibility.
(ii) Services directed at intangible assets: Banking, legal services, and insurance services are
some of the services most difficult to price and quantify.
The most intangible form of service output is represented by information processing. The
customer’s involvement in this type is service is not required. Generally, customers have a personal
desire to meet face to face but there is no actual need in terms of the operational process.
Consultancy services can be an example of this type of services where the relationship can be built
or sustained on trust or telephone contact. However, it is more indicated to have a face-to-face
relationship in order to fully understand the needs of the customer.
A more general classification of services based on the type of function that is provided through
them can be as follows:
 Business services.
 Communication services.
 Construction and related engineering services.
 Distribution services.
 Educational services.
 Environmental services.
 Financial services.
 Health-related and social services.
 Tourism and travel-related services.
 Recreational, cultural, and sporting services.
 Transport services.
 Other services not included elsewhere.
GAPS MODEL
The gap model (also known as the "5 gaps model") of service quality is an important customer-
satisfaction framework. In "A conceptual model of service quality and its implications for future
research" (The Journal of Marketing, 1985), A. Parasuraman, VA Zeitham and LL Berry identify
five major gaps that face organizations seeking to meet customer's expectations of the customer
experience.

The five gaps that organizations should measure, manage and minimize:
 Gap 1 is the distance between what customers expect and what managers think they expect -
Clearly survey research is a key way to narrow this gap.
 Gap 2 is between management perception and the actual specification of the customer
experience - Managers need to make sure the organization is defining the level of service they
believe is needed.
 Gap 3 is from the experience specification to the delivery of the experience - Managers need to
audit the customer experience that their organization currently delivers in order to make sure it
lives up to the spec.
 Gap 4 is the gap between the delivery of the customer experience and what is communicated to
customers - All too often organizations exaggerate what will be provided to customers, or
discuss the best case rather than the likely case, raising customer expectations and harming
customer perceptions.
 Finally, Gap 5 is the gap between a customer's perception of the experience and the customer's
expectation of the service - Customers' expectations have been shaped by word of mouth, their
personal needs and their own past experiences. Routine transactional surveys after delivering the
customer experience are important for an organization to measure customer perceptions of
service

The Services Marketing Triangle: (or Services Triangle) shows the key actors
involved in marketing a service business. It also shows the key marketing activities that occur
between those actors.
Before we look at the model it is important to note that we are only concerned with the
marketing of services. The model does not apply to products. We define services using these
criteria:
 Intangible: you cannot see, taste, or touch them.
 Inseparable: you cannot separate production from consumption.
 Perishable: you cannot store them, save them, or return them.
 Heterogeneous: you cannot mass produce them as they are unique.
Examples of services include hotel rooms, flights, and health club membership.
Services businesses are marketed on promises. These are the promises we make to customers and
whether we keep or fail to keep those promises. The Services Marketing Triangle is a visual
strategic model. It reinforces the importance of people in a company’s ability to keep its
promises.
The Services Marketing Triangle
The Services Marketing Triangle is shown in the following diagram. It shows the key marketing
activities that happen between the key actors within services businesses.

Each actor works together to develop, promote, and deliver a company’s service. As you can see
from the diagram we represent actors by the points of the triangle. Our actors are:
 Company: refers to the leadership team of the company in question.
 Employees: refers to all employees, including subcontractors who deliver the company’s
service.
 Customers: refers to all customers and potential customers of the company.
The lines between the points show the different types of marketing that must occur:
 External Marketing: occurs between the company and its customers.
 Internal Marketing: occurs between the company and its employees.
 Interactive Marketing: occurs between the employees and the customers.
External Marketing
Companies use external marketing to make promises to customers. External marketing is any
communication to customers (or potential customers) that happens before service delivery starts.

Forms of external marketing include:
 Advertising
 Personal selling
 Public relations (PR)
 Direct marketing
We use external marketing to achieve many aims including:
 Creating awareness.
 Setting price expectations.
 Setting service level expectations.
 Informing customers if any prerequisites that must be in place before they can use the service.
Internal Marketing
Within a services business, we view employees as internal customers. They are a market which
we must please first as a company. The leadership team should be focused on satisfying its
employees so that they want to better serve customers.
Internal marketing involves motivating employees to work as a team to make customers
satisfied. This is obviously true for customer service representatives. It can equally be applied to
all employees. This results in everyone, at all levels of the organization, being empowered to
deliver great customer service.
Key components of internal marketing include:
 Motivating employees
 Teaching customer satisfaction techniques
 Communicating company goals regularly
 Management of change
 Training staff on how to use the company’s services

 Good pay and working conditions
Interactive Marketing
Interactive marketing occurs when employees and customers interact. It is here where the
promises made during external marketing are either kept or broken by employees or sub-
contractors.
Each significant interaction between an employee and a customer is known as a service
encounter.
Interactive marketing is important because it establishes both short-term and long-term
satisfaction. That is, if the customer is satisfied with the service they received in the short-term,
they are more likely to be satisfied over the longer term.
Services Marketing Triangle Example
To wrap things up let’s consider a simple example, that of a luxury hotel.
First, let’s consider external marketing. A luxury hotel may want to educate customers through
advertising and public relations. Here, they will want to inform customers that their rooms have
the finest quality fixtures, fittings, and toiletries. They are likely to also want to convey that their
staff are knowledgeable and very willing to help with whatever request a customer may have.
To deliver these promises the company focuses on internal marketing. It establishes more
concierge roles within the hotel than the industry average. This helps ensure that staff feel they
have the time they need to help each customer to the best of their ability. Employees are also
trained on the local area, local activities, and excursions. The company also teaches every
employee how to handle and diffuse difficult guests and situations.
One of the ways that the hotel handles interactive marketing is as follows. They employ someone
to manage their social media presence and reputation.
Now suppose a guest tweeted that they are in their room preparing for an important meeting the
next day. This would be noticed by the member of staff managing the hotel’s social media
presence. Then, whilst the guest is at their meeting the hotel might leave a handwritten note and
some chocolates in their room.

The note will wish that their meeting went well. The chocolates will make them feel cared about
and listened to. This makes the customer feel valued in the short term. It also makes them more
likely to remain a customer over the long-term.
Summary
The Services Marketing Triangle is a strategic marketing model. It provides a visual way of
understanding the importance of people in a services business.
The model is based on the fact that all services businesses are about promises. The business
makes promises to its customers through external marketing. The business facilitates its
employees to keep those promises through internal marketing. Finally, the business delivers its
promises with interactive marketing.
What Are the Causes of Rapid Growth in the Service Industry?
The service industry or sector includes a wide swath of the market. Business that do not deal in
the extraction or manufacture of raw materials fall into the service category. The service sector
has seen massive changes in recent history, many being attributed to outsourcing, automation
and digital based business that have altered traditional business models.
Companies are also recognizing how professional services such as consultancy, training or
marketing can help them improve their business performance. That’s good news for small
businesses that provide these types of services, and also for the larger companies that use their
services.
The diverse service industry is seeing a general growth of services trend and Market Research
forecasts the majority of job growth in the United States will come from this sector between
2016 to 2020, with a 5.4% overall growth rate being projected in the time period. The service-
driven economy accounts for a large number of jobs in the United States in general.
Rising Demand for Services
Demand for services is on the rise with a stable middle class and growth in upper-income
families. A sector of the economy becoming less concerned about material needs. In the
consumer sector, this leads to increasing demand for services such as health, education and
entertainment.
In business, companies recognize that many activities can be handled more efficiently by a
service provider. Outsourcing services allows a business to concentrate on the activities that

are critical to its success. These are called core activities in the world of professional services,
and they include sales and marketing, accounting, technology, quality, product and service
delivery, management, human resources, finance and product development.
The digital world has also opened the door to more service based growth with disruptive based
technology and the ability to operate a business with location independence. The local
economy is no longer a limiting factor and businesses take their services online and offer them
to a larger audience.
An accountant in a rural community for example, can grow a national client base through an
online business. This opens the door to more operators looking to expand alongside the general
_growth of service_s on a national level.
Disruptive Technology
Outsourcing services is also important if a business is undergoing change or shifting the
business model to capitalize on a growing freelance market that offers qualified service
providers on a contractual basis.
Technology is driving major shifts in the service sector as well with traditional roles like taxi
services being replaced by Lyft, Uber and other options that connect a large, part-time
workforce to a specific market. Airbnb opened the rental market to individual property owners
by cutting out management companies and placing a large audience directly in touch with
owners.
Numerous sectors of the service economy are seeing shifts in the way employment and labor is
perceived as new technologies disrupt markets and open more opportunities to individuals and
contractors. The benefits that come with traditional employment are often lost but the overall
service sector is open to more individuals and the technology ultimately facilitates growth in
what were once perceived as locked markets.
REASONS FOR THE GROWTH OF SERVICES IN INDIA:
1. Economic affluence: One, of the key factors for the growth of demand for services is the
economic affluence. According to the NCAER study the size of the middle income consumer is
raising fast and the percentage of the very poor household’s declining. The rural households in
the upper income category is growing at a much faster pace than the urban households in the
corresponding categories. The Economic liberalisation Process has had a positive impact on the
Indian households. Their income as well as their expenditure has been pushed, creating a demand
for many goods and services.
2. Changing Role of Women: Traditionally the Indian woman was confined to household
activities. But with the changing time there has been a change in the traditional way of thinking
in the society. Women are now allowed to work. They are employed in defence services, police
services, postal services, software services, health services, hospital services, entertainment
industries, Business Process Outsourcing and so on.
The percentage of working women has been growing rapidly. The changing role of women has
created a market for a number of product and services. Earning women prefer to hire services in

order to minimise the innumerable roles that they are required to perform. The demand by
woman is forcing service organisations to be more innovative in their approach.
3. Cultural Changes: Change is the underlying philosophy of culture place of change in Indian
culture is not uniform. However, during the last century the factors of change are prominent. The
emergence of the nuclear family system in place of the traditional joint family system creates a
demand for a host of services like education, health care, entertainment, telecommunication,
transport, tourism and so on. There has’ been a marked change in the thought Processes relating
to investment, leisure time perception and so on which has created a huge demand for services.
4. I.T. Revolution: For the last 15 years India’6aste,en occupying a vital position in the area of
Information Technology. IT became one of the key service businesses of the country. India has
the largest software skilled population in the world. The domestic market as well as the
international market has grown substantially. Realising the potential for this area many state
governments have made IT as their most, prioritized segment states such as Karnntnka, Andhra
Pradesh, Madhya Pradesh Maharashtra and Delhi have already achieved substantial progress in
Information Technology the In Ile years to come ‘Lille IT enabled se Aces will have a bright
future. The growth. of’ population, industrialisation and indiscriminate consumptions have
affected the, natural resources, environment and the ecological balance. Due to this there is an
imbalance of the ecology various service organisations have been promoted in order to take up
social marketing. Thousands of crores of rupees are being spent on safeguarding the rare animals
and birds, water pollution, conservation of oil & energy and research to develop new
technologies that can promote effective use of natural resources and safeguard the environment.
5. Development of Markets: During the last few decades the wholesaler and the retailer
population has grown in the country. Urban India has become a cluster of wholesaling and
retailing business. In the Semi – urban areas, retailing has spread to the nooks and corners of the
streets and in the rural areas retail business is significantly present. A new breed of organisations,
offering marketing services has come up. The government also offers marketing services to the
small-scale agricultural farmers, artisans and other traditional business sectors such ‘as
promotion of regulated markets, export promotion councils, development boards etc.
6. Market orientation: The changing competitive situation and demand supply positions has
forced the manufacturing organisation to shift their philosophy from production orientation to
market orientation. Market is a service function that has been added in the organisation. The
pressures in the market has further forced the manufacturing organisations to have marketing
research, accounting, auditing, financial management, human resource management and
marketing research divisions – all of which are services functions.
7. Health-Care Consciousness: In India, the healthcare market has grown substantially. The
increased life expectancy is the result of the consciousness of the people regarding the health
issues. The growth of fitness clubs, diagnostic centres, medical counselling, health-related
information sites are the reflections of the growing demands for health care services. The
government as well as the social organisations have taken up the mass campaigns in order to
create awareness among the illiterate persons and the rural population on health service. Hence,
the growth of health related services.

8. Economic liberalisation: The economic liberalisation of the 1991 has brought many changes in
the Indian scenario. With the Disinvestment and the Privatisation policies the state owned
monopolies in many service areas came to an end Multinationals were permitted to enter the
Indian market. Liberal lending policies and lower interest rates motivated many people to
become self-employed. Different sectors like Banking, Insurance, Power projects,
Telecommunication, Hospitality sector, Health Services, Entertainment, Air transport, and
Courier services witnessed intense competition, due to the entry of multinationals. The flow of
time-tested service technology from various parts of the world changed the attitude of the Indian
consumer towards sources.
9. Rampant migration: One of the important reasons for the growth of services in India is the
rampant migration of rural to semi-urban and urban areas. Migration to urban areas for the want
of jobs and livelihood has resulted in the expansion of cities and townships due to which
businesses like real estates, rentals, transportation and infrastructure services are rapidly
expanding.
10. Export potential: India is considered to be a Potential source for services. There are a number
of services that India offers to various parts of the world like banking, insurance, transportation
co data services, accounting services, construction labour, designing, entertainment, education,
health services, software services and tourism. Tourism and software services are among the
major foreign exchange earners of the country and that the growth rate is also very high as
compared to the other sectors.
11. Service tax: The growth in the service sector attracted the attention of the government as a
tax generating source. Over the years, the number of services brought under service tax has
increased- Service tax is levied on hotels and restaurants, transport, storage and communications,
financial services, real states, business services and social and personal services.
What Are the DifferentDistribution Channels in a Service Business?
Business distribution channels are the avenues a business uses to sell or deliver its product or
service. Distribution channels for sellers of products include brick-and-mortar stores, online
stores, direct mail solicitations, catalogs, sales reps, wholesalers, distributors and direct
response advertising. Service providers don’t offer something a consumer can touch, feel and
put in a bag, so if you're selling a service, you must figure out additional ways to deliver it.
On-Site Consulting
One way to distribute your services is by providing on-site work. For example, a human
resources consultant might spend time at the headquarters of a client, meeting with staff
members. The consultant would use the same software the employees use; examine the
company’s HR policy guide; observe how staff members interact; review the company’s
recruiting, retention and succession strategies; look at legal compliance issues; and review the

company’s benefits. The consultant would deliver his findings and make recommendations at a
meeting of the executive or directors who hired him.
Virtual Delivery
Expand your ability to distribute your services by offering virtual service. The HR consultant
in the example would interact with clients via phone, email, online surveys, teleconferences
and cloud-based project software. In some cases, consultants who work virtually travel for an
initial meeting with clients, then work on the project off site and deliver written
recommendations and reports. Thanks to the Internet, many freelance writers and graphic
artists do all of their work remotely. Nonprofit association managers also run trade associations
from their home offices or a multi-client headquarters that services multiple associations across
a state or country.
Third-Party Consulting
You could distribute your services by working for another service provider who does the
marketing and legwork of finding clients. In this situation, you might get hired by XYZ
Consulting, which has ABC Widgets as a client. You perform work for ABC Widgets, but you
receive your instructions and pay from XYZ Consulting. In this type of arrangement, you often
sign a noncompete clause, agreeing not to work directly for ABC Widgets in the future. This
prevents service providers from cutting out the companies that find clients for them.
Workshops and Seminars
Some service providers conduct workshops and seminars, charging multiple companies a lower
price for general information, rather than charging one client a higher price for information
specific to her business. For example, an HR consultant might offer a seminar on employee
benefit planning for small-business owners. This type of seminar can make a profit for the
service provider or lead to client engagements. Some service providers offer free workshops so
they have the opportunity to showcase their services to targeted customer groups.
Publications
Generate additional revenue by delivering some of your services via a print or online
newsletter, blog, book or website. You might offer a newsletter as an added-value benefit to
paying customers so you can keep your business in front of them between engagements. A
motivational speaker might publish a book. A customer service consultant can publish a
training workbook or offer a library of password-protected materials at her website for a
client's customer service representatives.

Bookers/Referrals
Not every service provider enjoys marketing or is even capable of finding business.
Professional speakers often use bookers, who are individuals or companies that find work for
speakers, taking a commission for each engagement booked. Wedding and party planners rely
on referrals from the industry professionals they work with. Planners agree to cross-promote
services with photographers, caterers, DJs, dressmakers, limo companies and cake makers. Pet
sitters work with groomers, vets, shelters and pet stores. Offer clients a discount on future
services or a commission on each lead they send you that turns into an engagement.
SERVICE QUALITY MEASUREMENTS
In the service industry, definitions of service quality tend to focus on meeting customers needs
and requirements and how well the service delivered meets their expectations (Lewis and Booms
1983). In order to deliver and maintain service quality, an organization must first identify what it
is that constitutes quality to those whom it serves (Gronross 1984). Gronross (1984) classified
service quality into two categories: technical quality, primarily focused on what consumers
actually received from the service; and functional quality, focused on the process of service
delivery.
Perceptions of quality by those who provide services and those who consume them have been
defined as the outcome of comparison between expectations of a service and what is perceived to
be received (Czepiel et al.1985; Parasuraman et al 1985)
Delivering quality service is one of the major challenges facing hospitality sector. It is an
essential condition for success in the emerging keenly competitive and global hospitality
markets. Quality is the key to achieving customer satisfaction. Quality is a dynamic state
associated with products, services, people and environments that meets or exceeds expectations.
Quality is also rapidly embracing the nature or degree of impact an organization has of its
stakeholders, environment and society. Your customers of your business is based on the product
or service you deliver and on the day-to-day contact they have with your staff. (Munro and Jones
1993)
The key to ensuring good service quality is meeting or exceeding what customers expect from
the service. It was clear to us that judgements of low and high quality service depend on how
customers expect from the service. It was clear to us that judgments of high and low service
quality depend on how customers perceive the actual service performance in the context of what
they expected. Service quality as perceived by customers can be defined as the extent of
discrepancy between customer’s expectations or desires and their perceptions. Service delivery is
concerned with where, when and how the service product is delivered to the customer.
Moreover, service quality is a perceived judgment resulting from an evaluation process where
customers compare their expectations with the service they have received (Gronroos 1984 a).

Bolton and Drew argued that while service quality is an overall attitude towards a service firm,
customer satisfaction is specific to an individual service encounter.
Therefore, it is very difficult to come to a consensus as to a definition of service quality. We can
however conclude the perspectives of different authors that is about providing something
intangible in a way that pleases the consumer and that preferably gives some value to that
consumer.
Service Quality Dimensions
Gronroos (1984b) identified two service quality dimensions the technical aspect that is “what”
service is provided and functional aspect and “how” the service is provided. The customers
perceive what he/she receives as the outcome of the process in which the resources are used that
is the technical quality. But he also and more often importantly, perceives how the process itself
functions that is the functions quality.
The SERVQUAL Instrument
The SERVQUAL instrument developed by Parasuraman et al (1991) has proved popular, being
used in many studies of service quality. This is because it has a generic application and is a
practical approach to any area. A number of researchers have applied the SERVQUAL model to
measure service quality in the hospitality industry with modified constructs to suit specific
hospitality situations.
Parasuraman et al (1985) developed the gap model and the subsequent SERQUAL instrument
designed to identify and measure the gaps between customers’ expectations and perceptions of
the service received. Service quality from the consumer’s perspective depends on the direction
and degree of difference between the expected service and the perceived service. Thus by
comparing customer’s expected service with customer’s perceived service, hotels, for example
can determine whether its service standard is appropriate. The gap between expectations and
perceptions of performance determines the level of service quality from a customer’s
perspective.
The servqual instrument consists of 22 statements for assessing consumer perceptions and
expectations regarding the quality of a service. Respondent are asked to rate their level of
agreement or disagreement with the given statements. Consumer’s perceptions are based on the
actual service they receive while consumer’s expectations are based on past experiences and
information received. The statements represent the determinants or dimensions of service
quality.
The five dimensions of service quality measured by the SERVQUAL Instrument
The SERVQUAL Instrument measures the five dimensions of Service Quality. These five
dimensions are: tangibility, reliability, responsiveness, assurance and empathy.

Tangibility
Since services are tangible, customers derive their perception of service quality by comparing the
tangible associated with these services provided. It is the appearance of the physical facilities,
equipment, personnel and communication materials. In this survey, on the questionnaire designed,
the customers respond to the questions about the physical layout and the facilities that FFR offers
to its customers.
Reliability
It is the ability to perform the promised service dependably and accurately. Reliability means that
the company delivers on its promises-promises about delivery,sevice provision, problem
resolutions and pricing. Customers want to do business with companies that keep their promises,
particularly their promises about the service outcomes and core service attributes. All companies
need to be aware of customer expectation of reliability. Firms that do not provide the core service
that customers think they are buying fail their customers in the most direct way.
Responsiveness
It is the willingness to help customers and provide prompt service. This dimension emphasizes
attentiveness and promptness in dealing with customer’s requests, questions, complaints and
problems. Responsiveness is communicated to customers by length of time they have to wait for
assistance, answers to questions or attention to problems. Responsiveness also captures the notion
of flexibility and ability to customize the service to customer needs.
Assurance
It means to inspire trust and confidence. Assurance is defined as employees’ knowledge of
courtesy and the ability of the firm and its employees to inspire trust and confidence. This
dimension is likely to be particularly important for the services that the customers perceives as
involving high rising and/or about which they feel uncertain about the ability to evaluate. Trust
and confidence may be embodied in the person who links the customer to the company, for
example, the marketing department. Thus, employees are aware of the importance to create trust
and confidence from the customers to gain competitive advantage and for customers’ loyalty.
Empathy
It means to provide caring individualized attention the firm provide its customers. In some
countries, it is essential to provide individual attention to show to the customer that the company
does best to satisfy his needs. Empathy is an additional plus that the trust and confidence of the
customers and at the same time increase the loyalty. In this competitive world, the customer’s
requirements are rising day after day and it is the companies’ duties to their maximum to meet the
demands of customers, else customers who do not receive individual attention will search
elsewhere.

CUSTOMER HAS NEEDS AND EXPECTATIONS
Customers buy goods and services to meet specific needs. Needs are often deeply rooted in
people’s unconscious minds and may concern long-term existence and identify issues. When
people feel a need, they are motivated to take action to fulfil it. In many instances, purchase of a
good or service may be seen as offering the best solution to meeting a particular need.
Subsequently, consumers may compare what they received against what they expected, especially
if it cost them money, time, effort that could have been devoted to obtaining an alternative solution.
Customer expectations embrace several elements, including desired service, adequate service,
predicted service and a zone of tolerance that falls between the desired and adequate service levels
Desiredand Adequate Service Levels
The type of service customers hope to receive is termed as desired service. It is a wished-for level:
a combination of what customers believe can and should be delivered in the context of their
personal needs. However, most customers are realistic and understand that companies can’t always
deliver the desired level of service; which is defined as the minimum level of service customers
will accept without being dissatisfied. Among the factors that set this expectation are situational
factors affecting service performance and the level of service that might be anticipated from
alternative suppliers? The levels of both desired and adequate service expectations may reflect
explicit and implicit promises by the provider, word-of-mouth comments, and the customer’s past
experience,
Predicted Service Level
The level of service that customers anticipate receiving is known as predicted service, which
directly affects how they define “adequate service” on that occasion. If good service is predicted
the adequate level will be higher than if poorer service is predicted. Customer predictions of service
may be situation specific.
Zone of Tolerance
The inherent nature of services makes consistent service delivery difficult across employees in the
same company and even by the same service employee from one day to another. The extent to
which customers are willing to accept this variation is called the zone of tolerance. A performance
that falls below the adequate service level will cause frustration and dissatisfaction, where as one
that exceeds the desired service level will both please and surprise customers. Another way of
looking at the zone of tolerance is to think of it as the range of service within which customers
don’t pay explicit attention to service performance. When service falls outside the range, customers
will react either positively or negatively. The zone of tolerance can increase or decrease for
individual customers depending on such factors as competition, price or importance of specific
service attributes. These factors most often affect adequate service levels which may move up or

down in response to situational factors where as desired service levels tend to move up very slowly
in response to accumulated customer experiences.
It is known that expectations are not stable in the sense that they may change over time due to
changes in aspiration levels or need at a particular moment in time. Customers’ expectations about
what constitutes good service vary from one business to another. Expectations are not determined
by individuals themselves but also by reference groups, external situations, norms, values, time
and service provider. Generally speaking, expectations can be formulated in terms of “what should
be done” and in terms of what should be done” Expectations change over time influenced by both
supplier-controlled factors such as advertising, pricing, new technologies and service innovation
as well as social trends advocacy by consumer organization and increased access to information
through the media and the internet.
According to Berry and Parasuraman (1991) discuss two levels of expectations and concluded:
“Our finding indicates that customer’s service expectations exist at two different levels; a desired
level and an adequate level. The service level reflects the service the customer hopes to receive. It
is blend of what the customer finds acceptable. It is part, a function of the customer’s assessment
of what service will be i.e. the customers predicted service level. The difference between the
desired service; level and the adequate service level can be called zone of tolerance, the extent to
which customers recognize and are willing to accept heterogeneity.
Service Guarantee:Definition, Features, Benefits, Types and Design
Contents:
Introduction to Service Guarantee
Meaning and Definitions of Service Guarantee
Features of a Good Guarantee
Benefits of Service Guarantee
Types of Service Guarantees
Impacts of Guarantees on Customer Perceptions
Design of Service Guarantees
Service Guarantees Expedite Service Recovery
Organizational Impacts of Service Guarantee
Theoretical Perspectives for Investigating the Service Guarantee

Introduction to Service Guarantee:
Service offerings are largely intangible in nature. Customers are thus unable to assess the
purchase outcome prior to experience, rendering the risk of possible customer dissatisfaction
very high. It is argued that the concept of service guarantees proposed by services management
theory can be effectively utilised to reduce the perceived risk of dissatisfaction for the customer
in service organisations.
Additionally, it is suggested that service guarantees force management to undertake activities
which elevate the superiority of the organisation in the eyes of the customer and, thus, the
opportunity to transform one-time customers into loyal ones. The purpose of this text is twofold
– first, to illustrate how customers’ behavioural intentions can be influenced by the use of a
service guarantee; and second, to outline a systematic process that can help service business
managers to develop and implement an effective service guarantee.
2. Meaning and Definitions of Service Guarantee:
Various definitions of service guarantees can be found in the literature. For instance, Hart,
Schlesinger and Maher define a service guarantee as ‘…a statement explaining the service
customers can expect (the promise) and what the company will do if it fails to deliver (the
payout).’ Evans, Clark, and Knutson define a service guarantee as … ‘a policy, express or
implied, advertised or unadvertised, that commits the operation to making its guests happy.’
Callan and Moore (1998) state that, ‘a service guarantee can be represented as a promise to the
customer and is often advertised as such.’
As per the dictionary definition ‘service guarantee’ as defined, “an assurance of the quality of or
length of use to be expected from product offered for sale, often with a promise of
reimbursement.” A guarantee is a particular type of recovery tool. Although guarantees are
relatively common for manufactured products, they have only recently been used for services.
Traditionally, many people believed that services simply could not be guaranteed given their
intangible and variable nature. What would be guaranteed? With a product, the customer is
guaranteed that the product will perform as promised and if doesn’t, that it can be returned. With
services, it is generally not possible to take returns or to “undo” what has been performed. Again,
this raised the question for many of what could be guaranteed, and how.
The skepticism about service guarantees is being dispelled; however, as more and more
companies find they can guarantee their services and that there are tremendous benefits for doing
so. Companies are finding that effective service guarantees can complement the company’s
service recovery strategy—serving as one tool to help accomplish the service recovery strategies.

Inconsistencies in Definitions:
Currently, a lack of consensus about what exactly constitutes a guarantee is evident. While some
researchers view it as a policy, others suggest it is a firm promise. Also, confusing the scope with
its elements has led to inconsistent definitions of different guarantee types. For instance, an
unconditional guarantee has sometimes been used to refer to the circumstances under which a
guarantee may be invoked.
Others have used it to refer to the firm goal of assuring complete customer satisfaction, or
assume that it implies compensation in full. This confusion has led to idiosyncratic
operationalisation of concepts in studies define “Satisfaction guaranteed” as a selling policy
when no customer is worse off after purchase and all costs are refunded if the guarantee is
invoked. This makes it difficult for researchers to compare results across studies, raises concerns
about construct validity, and hinders replication.
We suggest that a guarantee contains two typical elements:
(i) A service promise or pledge that expresses the firm’s willingness to engage in behaviours
considered desirable by its customers and
(ii) A compensation offer in case of service failure. Thus, unconditional and specific may be
used to represent the service promise (about all or specific attributes of the service respectively)
guaranteed by the firm, while compensation is separately specified. Empirical evidence shows
that firms provide full refunds (e.g., money-back guarantees), partial refunds (e.g., assessment
based upon damage or use, exchanges less restocking fees or shipping charges), or award
punitive damages (e.g., token credits or payouts) when guarantees are invoked.
Compensation and claim procedures may be either implied or explicitly stated in the guarantee.
In addition to resolving definitional problems, this distinction potentially increases the
combinations of promises and compensation schemes available for study. This allows for a richer
investigation of the effects of service guarantees.
3. Features of a Good Guarantee:
A good guarantee has the following features:
(i) Easy to Collect – The remedy should be supplied immediately. For example, a dis-satisfied
customer at Hampton Inn should receive an immediate credit for the price of the dissatisfying
service. The customer should not have to drive across town to obtain payment, nor should the
customer have to fill out a laborious form or accumulate a tedious amount of documentation.
(ii) Easy to Invoke – Let us consider the Hampton Inn guarantee, for example – Suppose the
customer’s air conditioning did not work on a hot summer night, and the problem could not be

rectified, in spite of bringing it to the management’s attention. For the guarantee to be effective,
management should make that night free, without waiting for the customer to ask. If it evident
that the customer is dissatisfied, and the problem has not been solved, then management should
invoke the guarantee itself.
In most cases, management does not really trust the guarantee, and, therefore, puts up barriers to
invoking it. Management may be concerned about loss of revenues, which may be linked to
management compensation. This creates a natural tension between the intended corporate
culture, as desired by top management, and the actual corporate culture, as implemented by
middle management, may be the front line. Counteracting an employee’s natural reluctance to
invoke or carry out the guarantee requires careful training.
(iii) Easy to Understand – If the customer does not understand the guarantee, then that customer
will not see any benefit. For maximum effectiveness, the guarantee should be specific. For
example, Domino’s pizza guaranteed delivery in 30 minutes. That is much better than
guaranteeing “fast delivery,” which is hard to pin down. Be specific.
(iv) Meaningful – The guarantee must be about things that customers care about. A fast-food
restaurant guaranteeing 10-minute service at lunch will probably do better than one guaranteeing
to address customers by their first name. This is because fast service at lunch is important to fast-
food customers, whereas personal familiarity is not.
(v) Unconditional – If a guarantee applies only to left-handed people on Friday in a leap year
when there is a full moon, few customers will be very interested. By comparison, consider the
Hampton Inn guarantee. It says simply, “If you’re not completely satisfied, we don’t expect you
to pay.
This is unconditional and you don’t need to be a lawyer to understand it. A guarantee loses
power as conditions are placed on it. Consider the Lufthansa on-time guarantee, for example.
The conditions exempted 95% of the cases to which it might be applied, reducing its
effectiveness by at least that percentage.
4. Benefits of Service Guarantee:
The benefits to the company of an effective service guarantee are as follows:
(i) Sets Clear Standards for the Organisation – It prompts the company to clearly define what it
expects of its employees and to communicate that to them. The guarantee gives employees
service-oriented goals that can quickly align employee behaviours around customer strategies.
(ii) Forces the Company to Focus on its Customers – To develop a meaningful guarantee, the
company must know what is important to its customers — what they expect and value. In many
cases “satisfaction” is guaranteed, but in order for the guarantee to work effectively, the

company must clearly understand what satisfaction means for its customers (what they value and
expect).
(iii) A Good Service Guarantee Studies the Impact on Employee Morale and Loyalty – A
Guarantee generates pride among employees. Through feedback from the guarantee,
improvements can be made in the service that benefits customers, and indirectly employees.
(iv) Immediate and Relevant Feedback from Customers – It provides an incentive for customers
to complain and, thereby, provides more representative feedback to the company than simply
relying on the relatively few customers who typically voice their concerns. The guarantee
communicates to customers that they have the right to complain.
(v) Reduces their Sense of Risk and Builds Confidence in the Organisation for Customers –
Because services are intangible and often highly personal or ego involving, customers seek
information and cues that will help reduce their sense of uncertainty.
5. Types of Service Guarantees:
Further, previous research has identified four types of service guarantees:
(i) Specific,
(ii) Unconditional,
(iii) Implicit and
(iv) Internal.
(i) A Specific Guarantee — Signals firm commitment on specific attribute performance such as
delivery time or price. Specific guarantees allow customers to evaluate service by disconfirming
attribute performance expectations. From the firm’s perspective, a specific guarantee can serve
not only as a benchmark to guide employee efforts and firm process design, but also as a
performance measure. However, the narrow focus on some attributes may not be highly valued
or appreciated by a heterogeneous customer base, although it may appeal to certain segments.
(ii) An Unconditional Guarantee — Promises performance on all aspects of service, and “in its
pure form, promises complete customer satisfaction, and at a minimum, a full refund or
complete, no cost problem resolution for the payout.” Unconditional guarantees require a slightly
different firm approach since variables that determine customer satisfaction such as effect and
cognitive evaluations of attribute performance (Oliver) are not within the firm’s control.
Implementation of unconditional guarantees requires firms to focus efforts on managing
customer interactions instead of specific service attributes. The distinction between specific or

overall (unconditional) performance is important as it defines the scope of the marketing effort
required to communicate and support the guarantee, and has widely different implications for
service guarantee design and management.
(iii) Implicit Guarantee — As the term suggests, it is an unwritten, unspoken guarantee that
establishes an understanding between the firm and its customers. Customers may infer that an
implicit guarantee is in place when a firm has an outstanding reputation for service quality. The
focus of an implicit guarantee is customer satisfaction. Previous research suggests that customers
are more likely to rely on explicit firm promises instead of implicit cues to make inferences
about the firm.
(iv) An Internal Guarantee — Is “a promise or commitment by one part of the organization to
another to deliver its products or services in a specified way or incur a meaningful penalty,
monetary or otherwise.” Since implicit guarantees are unconditional guarantees (without formal
expression of explicit commitment) and the focus of internal guarantees is limited to
coordinating functions and employees, the subsequent discussion includes only specific and
unconditional guarantees.
6. Impacts of Guarantees on Customer Perceptions:
Service promises can foster and strengthen customer-firm relationships due to their attention to
specific attributes such as price or delivery time, or because of unconditional assurances aimed at
increasing customer satisfaction. Ostrom and Iacobucci suggest that service guarantees serve as
external cues (just like price or brand reputation) that are used by Customers to evaluate service
quality and reduce risk.
In an experimental study, they found that service guarantees improved customer evaluations only
in the absence of other quality information. As expected, perceptions of risk were lower when a
guarantee was offered. In the same study, they also found that service guarantees had a greater
impact on customer evaluations when quality variation was perceived to be high among service
providers. In addition, the uniqueness of a guarantee has been found to amplify its effect on
customer evaluations.
Wirtz notes that in general, service guarantees favorably influence customer attitudes and beliefs,
thereby increasing purchase intention. However, Tucci and Talaga found that service guarantees
did not necessarily increase subject likelihood of choice. They found that guarantees increased
choice likelihood for expensive services, but negatively influenced choice when prices were low.
In a later study, Wirtz et al. found that the impacts of service guarantees on customer evaluations
of quality, risk, and purchase intention were significantly moderated by firm reputation.
Specifically, they found that change in customer evaluations was higher for a good quality
provider than for an outstanding quality provider when guarantee availability was varied. This

may be due to information redundancy or a ceiling effect where a firm with a reputation for
outstanding quality is unable to signal higher quality since it is already a quality leader.
Consequently, Wirtz et al proposed an inverted U hypothesis suggesting that firms with moderate
or good quality reputation benefit the most from service guarantees, while those at the high or
low ends gain the least. They also found that explicit guarantees did not lower customer
evaluations of service quality for high or outstanding quality providers as proposed earlier in the
literature.
In summary, these studies suggest that not all customers and firms benefit equally from service
guarantees. The level of risk (which could be a function of price or degree of quality variation),
availability of other information (e.g., brand, price), uniqueness of the guarantee, or firm
reputation (low, high, or outstanding), may considerably moderate the ability of service
guarantees to improve customer evaluations.
7. Design of Service Guarantees:
In a text summarizing past research, Wirtz proposed that well designed service guarantees should
be unconditional, easy to understand and communicate, meaningful to customers, easy to invoke,
easy to collect on and credible. McDougall, Levesque, and VanderPlaat found that survey
respondents preferred a specific service guarantee to an unconditional guarantee when their
attention was focused on invoking the guarantee. In this study, specific guarantees were
preferred on three dependent measures – risk reduction, ease of obtaining refunds, and
confidence in dealing with the firm.
However, when it came to selecting a firm based on the type of guarantee offered, firms offering
unconditional guarantees were preferred. McDougall et al concluded that a guarantee that
combined the best of both types, i.e., an unconditional guarantee with specific payout clauses
would appeal to a broader audience. Chu et al. have shown that a no-questions-asked refund
policy is superior to a verifiable-problems-only or no-refund policy.
They derived optimal refund policies for service firms under different conditions of salvage
value, complaining costs, customer dissatisfaction, and frequency of use during trial, and price.
Using theoretical modeling, Chu et al. showed that a partial refund policy was optimal when
customer opportunism was high and an unrestricted money-back policy was appropriate when
customer opportunism was low.
Fruchter and Gerstner have suggested that satisfaction-guaranteed (unconditional guarantee with
a full refund plus hassle costs) is optimal from a theoretical standpoint when firms are able to set
high prices that equal the willingness to pay of satisfied customers. They also showed that such a
guarantee would be most profitable even when returned products had no salvage value.

The evidence suggests that both, specific and unconditional guarantees have positive effects on
customer evaluations. However, their efficacy differs depending upon the task facing the
customer, and size, type, and procedures for claiming compensation. Firms should decide refund
policies based upon the level of customer opportunism and would do well to compensate
customers for inconvenience as well as basic exchanges or repairs. Note that there is much scope
to empirically validate the results obtained by Chu et al and Fruchter and Gerstner.
8. Service Guarantees Expedite Service Recovery:
Callan and Moore used attribution theory to explain how customers evaluate service quality and
failure. However, they did not discuss how service guarantees affect customer evaluations in the
event of failure (or success) and how firms can design guarantees to assist in service recovery.
Tax, Brown and Chandrashekharan have used social justice theory to explain how customers
evaluate service complaint experiences.
While their work did not focus on service guarantees per se, they provided a comprehensive
discussion of the variables that influence satisfaction with complaint handling. They found that
customers seek fair outcomes, fair processes, and fair interactions. Their framework is very
useful for reasoning how service guarantees might affect customer evaluations during service
recovery.
In summary, previous research has identified theoretical approaches that explain how customers
evaluate service failure and recovery. Attribution theory is useful for understanding customer
reactions to service failure while social justice theory is well suited for explaining satisfaction
with complaint experiences. However, there aren’t any studies that specifically investigate how
service guarantees affect customer evaluations in the event of failure, or how they may be used
to assist service recovery. Such knowledge can help firms not only conceive and design effective
guarantees, but also assist in their implementation.
9. Organizational Impacts of Service Guarantee:
While much anecdotal evidence has been cited, little formal research has addressed how service
guarantees affect employees and organizations. Wirtz has suggested that service guarantees force
firms to identify performance expectations of customers and the importance they attach to
different elements of the service process. Citing anecdotal evidence, Wirtz also contends that
guarantees cause firms to improve their service delivery processes by identifying and working
towards eliminating potential fail points.
Guarantees help firms set performance standards for employees. Therefore, service guarantees
have positive impacts on personnel management by inducing firms to hire and train employees to
deliver guaranteed service. Hart suggests that firms can improve internal quality problems by
offering internal guarantees.

To summarize, the research on employee impacts and organizational benefits is based largely on
anecdotal evidence. There is a lack of empirical research or theory to support the hypothesized
positive impacts of service guarantees on firm processes and performance.
(i) Need for multiple theoretical perspectives.
(ii) Existing service guarantee research still leaves a number of important questions unanswered;
(iii) When do firms benefit from service guarantees and why?
(iv) How should guarantees be designed to minimize the effects of service failure?
(v) How do guarantees affect customer evaluations when service fails?
(vi) How do guarantees affect employees and firms?
10. Theoretical Perspectives for Investigating the Service Guarantee:
It is apparent that these questions cut across a number of functions and disciplines, necessitating
a variety of theoretical perspectives for investigation. We utilize four theoretical perspectives
(below) to help researchers approach these questions more systematically and explain seemingly
disparate findings of service guarantee effects. Each theoretical perspective is developed into a
conceptual framework with an accompanying set of arguments and propositions.
The first three frameworks pertain to guarantee effects on external markets (customers), while
the fourth explains impacts of guarantees on internal markets (firms and employees). By
examining different stages and facets of the consumption process, the customer frameworks
complement one another. Note that we do not advocate a specific perspective; rather we hope
that these multiple viewpoints will provide richer insight into the domain of guarantees.
We expect these frameworks will advance existing knowledge by helping answer the following
four questions:
(i) When do Firms Benefit from Service Guarantees and Why?
From a firm’s perspective, it is necessary to understand why and how customers infer higher
quality, value, and satisfaction when service is guaranteed. Although previous research has
identified a number of benefits sought by customers of service firms (Gwinner et al.), not much
attention has been given to specific relational benefits (or processes by which they are realized)
of service guarantees.
Our framework utilizes signalling theory to explain when and how different types of guarantees
communicate higher quality and lower risk perceptions. It provides a reasonable basis for

reconciling the observed findings and can guide firms seeking to incorporate guarantees into
their service strategy.
(ii) How should Guarantees be Designed to Minimize the Effects of Service Failure?
Guarantee design from the standpoint of choosing between service firms (McDougall et al.;
Tucci and Talaga). Consequently, design impacts on customer expectations of procedures for
invoking guarantees and compensation for service failure have been ignored.
Further, researchers have examined design from the firm perspective of managing resources
(Chu et al.; Fruchter and Gerstner), paying scant attention to customer psychology and the need
for restoring equity and justice. Therefore, social justice theory is used to develop a framework
that explains how customers judge the fairness of outcomes and resolution procedures. This is
valuable for designing guarantees to mitigate the effects of service failure.
(iii) How do Guarantees Affect Customer Evaluations when Service Fails? or When Service
Succeeds?
Much work has focused on improvements in pre-purchase customer evaluations of quality and
satisfaction. Service guarantees have been viewed almost exclusively as marketing tools and
most research has focused on how customers use them to reduce risk perceptions, or choose
between competing providers.
Failure to recognize post consumption guarantee effects has diminished their worth in the
services research agenda. A framework using attribution theory is developed to reason the effects
of specific and unconditional guarantees on customer evaluations after service has been
experienced. This is important for understanding how guarantees assist service recovery or
reinforce service success.
(iv) How do Guarantees Affect Employees and Firms?
While it is noteworthy that some researchers have recognized that service guarantees may have
merit due to their beneficial impacts on both customers and firms, there has been a lack of
systematic effort to utilize marketing or management theories to ground future empirical
investigation. Several issues bear investigation. For instance, what type of guarantee improves
the market orientation of a firm?
How do different types of guarantees affect the design of service delivery and recovery
processes? The proposed framework uses previous research on market orientation, service
recovery, and total quality management to elaborate the effects of guarantees on employees and
organizations. This would help managers formulate service strategy by explaining process and
resource requirements for effective support of guarantees.

The role of non-monetary costs
When a customer buys a product, he is not only spending money, he is spending other things as
well. These things are called non-monetary costs and they are spent in the form of time,
convenience, effort and psychology (Businessdictionary, n.d.). In recent years economists have
recognized that monetary price is not the only sacrifice consumers make to obtain products and
services. Demand, therefore, is not just determined by monetary price but is influenced by other
costs as well. Non-monetary costs has become an important concept in social marketing.
Types of non-monetary costs
Non-monetary costs represent other sources of sacrifice perceived by consumers when buying
and using a service. Time costs, search costs, and psychological costs often enter into the
evaluation of whether to buy or rebuy a service, and may at times be more important concerns
than monetary price. Customers will trade money for these other costs as mentioned below:
Time costs
Most services require direct participation of the consumer and thus consume real time: time
waiting as well as time when the customer interacts with the service provider (Zeithaml, 1996).
Consider the investment you make to exercise, see a physician, or get through the crowds to
watch a concert or baseball game. Not only are you paying money to receive these services;
you’re also expending time. Time becomes a sacrifice made to receive service in multiple ways.
First, because service providers cannot completely control the number of customers or the length
of time it will take for each customer to be served, customers are likely to expend time waiting to
receive the service. Waiting time for a service is virtually always longer and less predictable than
waiting time to buy goods.
Search costs
When a consumer decides to buy a product/ service, he makes effort in searching for the best one
among all the choices. This effort is called “search cost” and is a type of non-monetary costs
(Lovelock, 2011). Search costs—the effort invested to identify and select among services you
desire—are also higher for services than for physical goods. Prices for services are rarely
displayed on shelves of service establishments for customers to examine as they shop, so these
prices are often known only when a customer has decided to experience the service. Another
factor that increases search costs is that each service establishment typically offers only one
“brand” of a service (with the exception of brokers in insurance or financial services), so a
customer must initiate contact with several different companies to get information across sellers.
Convenience costs

There are also convenience (or perhaps more accurately inconvenience) costs of services. If
customers have to travel to a service, they incur a cost, and the cost becomes greater when travel
is difficult, as it is for elderly persons. The inconvenience a person undergoes to avail a product/
service is called convenience cost, and it is a type of non-monetary costs (Zeithaml, 2011).
For example, if service hours do not coincide with the customers’ available time, they must
arrange their schedules to correspond to the company’s schedule. This causes inconvenience.
Another example: if consumers have to spend effort to prepare to receive a service (such as
removing all food from kitchen cabinets in preparation for an exterminator’s spraying), they
make additional sacrifices.
Psychological costs
Often the most painful non-monetary costs are the psychological costs incurred in receiving
some services. Fear of not understanding (insurance), fear of rejection (bank loans), fear of
uncertainty (including fear of high cost)— all of these, constitute psychological costs that
customers experience as sacrifices when purchasing and using services (Zeithaml, 1996). All
change, even positive change, brings about psychological costs that consumers factor into the
purchase of services.
A firm needs to find the perfect balance of monetary and non-monetary costs in order to sell its
product. This balance can be achieved by the firm itself. For example, a coffee shop owner may
choose to increase the price of his coffee in exchange for payment convenience- by offering the
credit card payment facility. It is up to the consumers whether they are willing to pay more
money for convenience, or pay less money in return for extra efforts.
Definition of Services Trade and Modes of Supply
The definition of services trade under the GATS is four-pronged, depending on the territorial
presence of the supplier and the consumer at the time of the transaction. Pursuant to Article I:2,
the GATS covers services supplied
from the territory of one Member into the territory of any other Member
(Mode 1 — Cross border trade);
in the territory of one Member to the service consumer of any other Member
(Mode 2 — Consumption abroad);
by a service supplier of one Member, through commercial presence, in the territory of any other
Member
(Mode 3 — Commercial presence); and

by a service supplier of one Member, through the presence of natural persons of a Member in the
territory of any other Member
gives examples of the four modes of supply.
The above definition is significantly broader than the balance of payments (BOP) concept of
services trade. While the BOP focuses on residency rather than nationality — i.e. a service is
being exported if it is traded between residents and non-residents — certain transactions falling
under the GATS, in particular in the case of mode 3, typically involve only residents of the
country concerned.
Commercial linkages may exist among all four modes of supply. For example, a foreign
company established under mode 3 in country A may employ nationals from country B (mode 4)
to export services cross-border into countries B, C etc. Similarly, business visits into A (mode 4)
may prove necessary to complement cross-border supplies into that country (mode 1) or to
upgrade the capacity of a locally established office (mode 3).
Box A: Examples of the four Modes of Supply (from the perspective of an
“importing” country A)
Mode 1: Cross-border
A user in country A receives services from abroad through its telecommunications
or postal infrastructure. Such supplies may include consultancy or market research
reports, tele-medical advice, distance training, or architectural drawings.
Mode 2: Consumption abroad
Nationals of A have moved abroad as tourists, students, or patients to consume the
respective services.
Mode 3: Commercial presence
The service is provided within A by a locally-established affiliate, subsidiary, or
representative office of a foreign-owned and — controlled company (bank, hotel
group, construction company, etc.).

Mode 4: Movement of natural persons
A foreign national provides a service within A as an independent supplier (e.g.,
consultant, health worker) or employee of a service supplier (e.g. consultancy firm,
hospital, construction company).
Modes (four) of services trade under GATS
The General Agreement on Trade in Services regime of the WTO classifies services in terms of
its delivery modes. As per the GATS, there are four modes of services
Modes of Services Supply
The GATS define services in four ‘modes’ of supply: cross-border trade, consumption abroad,
commercial presence, and presence of natural persons.
Mode 1: Cross Border
Services which themselves cross-frontiers from one country to another e.g. Distance learning,
consultancy, BPO services.
Mode 2: Consumption abroad
Services, which are made available within a country for foreign consumers’, e.g.: tourism,
educational students for students, medical treatment etc.
Mode 3: Commercial Presence
Services supplied by an entity of one country, which is commercially pressed in another e.g.:
banking, hotel etc.
Mode 4: Movements of natural persons
This is a foreign national providing services like that of doctor, nurse, IT engineer etc. functioning
as a consultant, employee, from one country to another.

Product Support: An EssentialPartof GoodMarketing Strategy
Product Support is a service provided by some retailers —primarily ones dealing in electronics
and IT goods— that provides the consumers with a resource for product-related information and
help if the product does not function as it is meant to. The purpose of Product Support is to
ensure that, after the sale, consumers derive maximum value from use of the product. As the
finale in the 3-stage product lifecycle, Product Support almost never gets the necessary
marketing attention as compared to the other two – the Core Product and the Actual Product.
Given the sustained boom in the IT products industry, the relevant question in this context would
be – is marketing investment in Product Support a good bet? Given that the White House Office
of Consumer Affair found that satisfied customers who get their issue resolved tell about 4-6
people about their experience while dissatisfied customers tell between 9-15 people about their
bad experiences each, it just might be worth the effort.
The Marketing Lifecycle
The Core Product is the end benefit of any purchase, such as pain relief when one buys an
aspirin. The aspirin in this case is the Actual Product. No Product Support is necessary in this
instance, but if the Real Product were a camera or a printer, support articles such as warranty,
after-sales service, and delivery will be necessary to complete the total product offering.
Why the sudden interest in Product Support?
The informed consumers of today are a demanding lot. Millennials are totally aware of their own
requirements and also understand the international standards where advanced Product Support is
concerned, thus increasing their expectations from even local vendors. Empowered by mobile
and social technology, they are increasingly impatient as well. In fact, 45% of consumers in the
US abandon online transactions if their questions are not addressed quickly found out Forrester.
Increasing consumer expectations due to their awareness and familiarity with global trends is
putting strong pressure on companies to intensify the importance of Product Support in their
comprehensive strategy. It is small wonder then that a well-rounded, successful marketing
strategy of our times will pay careful attention to Product Support, and in the way that they meet
consumer expectations.
How to get the equation just right?
The sheer lack of precedent deters many marketing managers from even beginning to develop
and execute Product Support strategies with marketing sway. To have any kind of marketing
impact, the primary requirement of a strategy is to have a clear understanding of the consumers’

(target audience) expectations. A clear, tangible appreciation of such information is very
essential to the process of developing a strategy based on appropriate markets dynamics.
Then there is the balancing act between the impact and the expenditure at the development stage.
There is never an easy settlement between these two opposing forces. Therefore, managers have
to keep a very clear head when developing a feasible structure to accommodate these two.
How to develop an effective Product Support Strategy
In nascent markets, consumers are usually focused on the tangible technology features of Product
Support, such as after-sales service and replacement of parts. But as the market matures,
requirements gradually lean towards the more sophisticated. Companies have to gauge the stage
the market and consumers are at and shift gears of their marketing strategy accordingly.
In any case, a clear Product Support strategy is mandatory. Be it availability of spare parts,
reliable product and services, or appropriate training of the support team, all these components
have to be clearly delineated.
Here are a couple of points to ensure the success of the strategy –
Ensure Ownership – Clearly mark the responsible individuals and departments to be contacted
for support, because collective responsibility is no one’s responsibility. Therefore, it makes more
sense to clearly mention individual and departments responsible for each and every Product
Support task. Leave nothing to interpretation; it creates unnecessary confusion and dilutes the
impact of the strategy.
Start at the beginning – Think through Product Support needs right from the beginning of the
development cycle. At each stage of the entire product lifecycle, contemplate challenges and
issues that consumers might face and look for solutions for the same. Do not wait till the entire
product or service is ready to go-to-market before you begin this brainstorming.
According to McKinsey, almost 70 percent of buying experiences are dictated by how consumers
feel they are being treated, and Product Support is an important part of the deal. So, no, there is
no way to wish away just how essential Product Support plans have become to the
comprehensive marketing strategy. With its growing importance, it is best that marketing
managers take cognizance of this powerful tool and use it as a means to win more customer
loyalty through careful planning.
Given that a 10-percent hike in customer retention results in a whopping 30-percent increase in
the value of the company (Bain & Co), it definitely makes good business sense for the enterprise.

Consumer behavior in marketing – patterns, types, segmentation
How many times throughout the day do you make decisions? What should I wear today, what
perfume should I put on? What am I going to have for lunch?
If you think about it, we make many buying decisions every day without giving them much
thought.
These decisions, however insignificant they may seem, keep marketers up at night. Because
decoding the processes behind them means that we can use that info to boost revenue.
What is the meaning of consumer behavior
Consumer behavior is the study of consumers and the processes they use to choose, use
(consume), and dispose of products and services, including consumers’ emotional, mental, and
behavioral responses.
Consumer behavior incorporates ideas from several sciences including psychology, biology,
chemistry, and economics.
In this guide we’ll take a look at the different aspects and facets of consumer behavior, and we’ll
discuss the most effective types of customer segmentation.
Consumers are really complex in needs and expectations, but if you segment them accordingly
and understand their behavior, you will know how to treat your customers and increase the
number of loyal ones.
Improve your Retention Rate
Take a ride with to get the
full potential out of your business.
Why is consumer behavior important
Studying consumer behavior is important because this way marketers can understand what
influences consumers’ buying decisions.
By understanding how consumers decide on a product they can fill in the gap in the market and
identify the products that are needed and the products that are obsolete.
Studying consumer behaviour also helps marketers decide how to present their products in a way
that generates maximum impact on consumers. Understanding consumer buying behaviour is the
key secret to reaching and engaging your clients, and convert them to purchase from you.
A consumer behavior analysis should reveal:

What consumers think and how they feel about various alternatives (brands, products, etc.);
What influences consumers to choose between various options;
Consumers’ behavior while researching and shopping;
How consumers’ environment (friends, family, media, etc.) influences their behavior.
Consumer behavior is often influenced by different factors. Marketers should study consumer
purchase patterns and figure out buyer trends.
In most cases, brands influence consumer behavior only with the things they can control; like
how IKEA seems to compel you to spend more than what you intended to every time you walk
into the store.
So what are the factors that influence consumers to say yes? There are three categories of factors
that influence consumer behavior:
1. Personal factors: an individual’s interests and opinions that can be influenced by
demographics (age, gender, culture, etc.).
2. Psychological factors: an individual’s response to a marketing message will depend on their
perceptions and attitudes.
3. Social factors: family, friends, education level, social media, income, they all influence
consumers’ behavior.
Types of consumer behavior
There are four main types of consumer behavior:
1. Complex buying behavior
This type of behavior is encountered when consumers are buying an expensive, infrequently
bought product. They are highly involved in the purchase process and consumers’ research
before committing to invest. Imagine buying a house or a car; these are an example of a complex
buying behavior.
2. Dissonance-reducing buying behavior
The consumer is highly involved in the purchase process but has difficulties determining the
differences between brands. ‘Dissonance’ can occur when the consumer worries that they will
regret their choice.
Imagine you are buying a lawnmower. You will choose one based on price and convenience, but
after the purchase you will seek confirmation that you’ve made the right choice.

3. Habitual buying behavior
Habitual purchases are characterized by the fact that the consumer has very little involvement in
the product or brand category. Imagine grocery shopping: you go to the store and buy your
preferred type of bread. You are exhibiting a habitual pattern, not strong brand loyalty.
4. Variety seeking behavior
In this situation, a consumer purchases a different product not because they weren’t satisfied
with the previous one, but because they seek variety. Like when you are trying out new shower
gel scents.
What affects consumer behavior?
Many things can affect consumer behavior, but the most frequent factors influencing consumer
behavior are:
1. Marketing campaigns
Marketing campaigns influence purchasing decisions a lot. If done right and regularly, with the
right marketing message, they can even persuade consumers to change brands or opt for more
expensive alternatives.
Marketing campaigns can even be used as reminders for products/services that need to be bought
regularly but are not necessarily on customers’ top of mind (like insurance for example). A good
marketing message can influence impulse purchases.
2. Economic conditions
For expensive products especially (like houses or cars) economic conditions play a big part. A
positive economic environment is known to make consumers more confident and willing to
indulge in purchases irrespective of their personal financial liabilities.
Consumers make decisions in a longer time period for expensive purchases and the buying
process can be influenced by more personal factors at the same time.
3. Personal preferences
Consumer behavior can also be influenced by personal factors, likes, dislikes, priorities, morals,
and values. In industries like fashion or food personal opinions are especially powerful.
Advertisements can, of course, help but at the end of the day consumers’ choices are greatly
influenced by their preferences. If you’re vegan, it doesn’t matter how many burger joint ads you
see, you’re probably not gonna start eating meat because of that.
4. Group influence

Peer pressure also influences consumer behavior. What our family members, classmates,
immediate relatives, neighbors, and acquaintances think or do can play a significant role in our
decisions.
Social psychology impacts consumer behaviour. Choosing fast food over home-cooked meals,
for example, is just one of such situations. Education levels and social factors can have an
impact.
5. Purchasing power
Last but not least, our purchasing power plays a significant role in influencing our behavior.
Unless you are a billionaire, you will take your budget into consideration before making a
purchase decision.
The product may be excellent, the marketing could be on point, but if you don’t have the money
for it, you won’t buy it.
Segmenting consumers based on their buying capacity will help marketers determine eligible
consumers and achieve better results.
Customer behavior patterns
Buying behavior patterns are not synonymous with buying habits. Habits are developed as
tendencies towards an action and they become spontaneous over time, while patterns show a
predictable mental design.
Each customer has his unique buying habits, while buying behavior patterns are collective and
offer marketers a unique characterization. Customer behavior patterns can be grouped into:
1. Place of purchase
Most of the time customers will divide their purchases in several stores even if all items are
available in the same store. Think of your favorite hypermarket: although you can find clothes
and shoes there as well, you’re probably buying those from actual clothing brands.
When a customer has the capability and the access to purchase the same products in different
stores, they are not permanently loyal to any store, unless that’s the only store they have access
to. Studying customer behavior in terms of choice of place will help marketers identify key store
locations.
2. Items purchased
Things to consider: the items that were purchased and how much of each item was purchased.
Necessity items can be bought in bulk while luxury items are more likely to be purchased less
frequently and in small quantities.

Short notes on services marketing

Short notes on services marketing

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