ConceptServices marketingFrom Wikipedia, the free encyclopedia

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Services marketing is a sub field of marketing which covers the marketing of both goods and services. Goods marketing includes the marketing of fast moving consumer goods (FMCG) and durables. Services marketing typically refers to the marketing of both business to consumer (B2C) and business to business (B2B) services. Common examples of service marketing are found in telecommunications, air travel, health care, financial services, all types of hospitality services, car rental services, and professional services.A service, according to Vargo and Lusch (2004), is ‘the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself. Services are economic activities, rather than tangible products, offered by one party to another. Rendering a service to recipients, objects, or other assets depends on a time-sensitive performance to bring about the desired result. In exchange for money, time, and effort, service customers expect value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved.[1]Contents  [hide] 1   History 2   Aspects 3   The 7 P’s of Services Marketing 3.1   Product 3.2   Pricing 3.3   Place 3.4   Promotion 3.5   People 3.6   Process 3.7   Physical Evidence 4   Service sector 5   5 Fundamentals 6   See also 7   References History[edit]Services marketing is a relatively new phenomenon in the domain of marketing. It gained importance as a discipline towards the end of the 20th century. Services marketing first came into force in the 1980s when there was debate of whether the marketing of services was significantly different from that of products, and whether it should be classified as a separate discipline. Prior to this, services were considered as an aid to the production and marketing of goods, and were not deemed as having separate relevance on their own.The 1980s saw a shift in this thinking. As the service sector started to grow in importance in post-industrial societies and emerged as a significant employer and contributor to those

nations' GDPs, academia and marketing practitioners began to look at the marketing of services in a new light. Empirical research was conducted which brought to light the specific distinguishing characteristics of services.By the mid 1990s, services marketing was firmly entrenched as a significant sub-discipline of marketing with its own empirical research and data, growing significance in the increasingly service sector dominated economies of the new millennium. New areas of study in the field opened up and were the subject of extensive empirical research. This gave rise to concepts such as the product-service spectrum, relationship marketing, franchising of services, customer retention, and others.Aspects[edit]Due to the increasing homogeneity in product offerings, the attendant services provided are emerging as a key differentiator in the mind of the consumers. In case of two fast food chains serving a similar product, it is the service quality that distinguishes the two brands from each other, rather than the product. Marketers are able leverage their service offering to differentiate themselves from the competition and attract consumers.Relationships are a key factor when it comes to the marketing of services. Since the product is intangible, a large part of the customers’ buying decision will depend on the degree to which he trusts the seller. Hence, the need to listen to the needs of the customer, to fulfill them through the appropriate service offering, and to build a long lasting relationship is important because it would lead to repeat sales and positive word of mouth.Given a highly competitive scenario where multiple providers are vying for a limited pool of customers, retaining customers is even more important than attracting new ones. Since services are usually generated and consumed at the same time, they involve the customer in service delivery process by taking into consideration his expectations and feedback. Thus, they offer a greater scope for customization according to customer requirements, which increase satisfaction, leading to higher customer retention.When the physical product cannot easily be differentiated, the key to competitive success may lie in adding valued services and improving their quality. Rolls-Royce has ensured its aircraft engines are in high demand by continuously monitoring the health of its 3000 engines for 45 airlines through live satellite feeds. Under its "TotalCare" program, airlines pay Rolls a fee for every hour an engine in flight, and Rolls assumes the risks and costs of downtime and repairs in return.The 7 P’s of Services Marketing[edit]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 case of services.Product[edit]In case of services, the ‘product’ is intangible, heterogeneous and perishable. Moreover, its production and consumption are inseparable. Hence, there is scope for 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[edit]

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 cost of 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[edit]Since service delivery is concurrent with its production and cannot be stored or transported, the location of the service product assumes 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[edit]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.The final three elements of the services marketing mix - people, process and physical evidence - are unique to the marketing of services.People[edit]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[edit]The process of service delivery is crucial since it ensures that the same standard of service is repeatedly delivered to the customers. Therefore, most companies have a service blueprint which provides the details of the service delivery process, often going down to even defining the service script and the greeting phrases to be used by the service staff.Physical Evidence[edit]Since services are intangible in nature, most service providers strive to incorporate certain tangible elements into their offering to enhance customer experience. Many hair salons invest in comfortable and stylish sitting areas with magazines and plush sofas for patrons to read and relax while they wait. Similarly, many restaurants invest heavily in their interior design and decorations to offer a tangible and unique experience to their guests. [2]Service sector[edit]The services sector comprises a wide array of industries that sell to individual consumers and business customers, as well as to government agencies and nonprofit organizations.Services make up the bulk of the economy in post-industrial societies and account for most of the growth in new jobs. Unless a person is already predestined for a career in

family manufacturing or agricultural business, the probability is high that they will spend their working life in service organizationss.The size of service sector is increasing in almost all economies around the world. As national economy develops, the relative share of employment among the agricultural industry, and the service industry change dramatically. Even in emerging economies, service output is growing rapidly and often repressOrdering Ease: Ordering ease refers to how easy it is for the customer to place an order with the company.Delivery Ease: Delivery refers to how well the product or service is brought to the customer. It includes speed, accuracy, and care throughout the process.Installation: It refers to the work done to make a product or service operational in its planned location. Ease of installation becomes a true selling point, especially when the target market is technology novice.Customer Training: It refers to training the customer's employees to use the vendor's equipment properly and efficiently.cribes the service program for helping customers keep purchased products in good working order.[3]5 Fundamentals[edit]There are 5 widely used fundamentals of Services Marketing.Intangibility: This is perhaps the most important of all the fundamentals. Intangibility describes the lack of physical evidence that the customer will receive, particularly in what are know as "pure services" (eg, legal services). Therefore managers have to create tangibility through the Servicescape (Bitner, 1992)Hetrogeneity: Also known as variability, this fundamental explains how each service encounter is different. This can be due to situational factors (e.g. weather) or personal factors (e.g. personality traits). People respond differently to situations so employees need to be able to cope with an array of responses. Customers are the only people who can judge their satisfaction, and due to this subjective nature it can be difficult to standardize a service.Simultaneous Production and Consumption: Refers to the inseparability in the service environment between the production and consumption of the service. Both employees and customers affect the service outcome, implying that the customer is a co-producer of the service. Fot the service company, this emphasizes the importance of both employees and customers, so internal and external marketing are vital, as well as interactive marketing between customers and employees. It is therefore important to manage customer-employee interactions and keep employees well trained.Perishability: The immediate and time-bound nature of services means that they cannot be reused, returned or resold, unlike product-based companies. Without careful planning and market research, perisihabilty can lead to over-demand or alternatively unused capacity. To overcome this, part-time employees, just-in-time production and reservation systems can be used.Lack of Ownership: Services are experiential in nature, especially pure services. There is often nothing physical to take away from the service, relating back to intangibility. This can make it difficult for customers to compare brands, so it is important for managers to differentiate their service offering through physical evidence. For example, at a theme park, you might get a ride photo to take home. By creating enduring memories for

customers, the company can try and build customer loyalty and help to overcome the lack of differentiation.

Define ServicesA service is an act or performance offered by one party to another. They are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing desired change.According to Sir William B “Service refers to social efforts which includes the Govt. to fight five giant evils – wants, disease, ignorance, squalor and illness in the society”. Characteristics of servicesService is an act or performance offered by one party to another. They are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing about a desired change in or on behalf of the recipient of the service. The term service is not limited to personal services like medical services, beauty parlors, legal services, etc. According to the marketing experts and management thinkers the concept of services is a wider one. The term services are defined in a number of ways but not a single one is universally accepted. The distinct characteristics of services are mentioned below. Intangibility: Services are intangible we cannot touch them are not physical objects. According to Carman and Uhl, a consumer feels that he has the right and opportunity to  see,  touch, hear, smell or taste the goods before they buy them. This is not applicable to services. The buyer does not have any opportunity to touch smell, and taste the services. While selling or promoting a service one has to concentrate on the satisfaction and benefit a consumer can derive having spent on these services.For e.g. An airline sells a flight ticket from A destination to B destination. Here it is the matter’ of consumer’s perception of services than smelling it or tasting it. Perishability : Services too, are perishable like labor, Service has a high degree of perish ability. Here the element of time assumes a significant position. If we do not use it today, it labor if ever. If labor stops working, it is a complete waste. It cannot be stored. Utilized or unutilized services are an economic waste. An unoccupied building, an unemployed person, credit unutilized, etc. are  economic waste. Services have a high level of perish ability. Inseparability: Services are generally created or supplied simultaneously. They are inseparable. For an e.g., the entertainment industry, health experts and other professionals create and offer their service at the same given time. Services and their providers are associated closely and thus, not separable. Donald Cowell states ‘Goods are produced, sold and then consumed whereas the services are sold and then produced and consumed’. Therefore inseparability is an important characteristic of services which proves challenging to service management industry. Heterogeneity: This character of services makes it difficult to set a standard for any service. The quality of services cannot be standardized. The price paid for a service may

either be too high or too low as is seen in the case of the entertainment industry and sports. The same type of services cannot be sold to all the consumers even if they pay the same price. Consumers rate these services in different ways. This is due to the difference in perception of individuals at the level of providers and users. Heterogeneity makes it difficult to establish standards for the output of service firm. Ownership: In the sale of goods, after the completion of process, the goods are transferred in the name of the buyer and he becomes the owner of the goods. But in the case of services, we do not find this. The users have only an access to services. They cannot own the service.For e.g. a consumer can use personal care services or medical services or can use a hotel room or swimming pool, however the ownership remains with the providers.According to Philip Kotler, “A service is an activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. “From this it is clear that the ownership is not affected in the process of selling the services. Simultaneity: Services cannot move through channels of distribution and cannot be delivered to the potential customers and user. Thus, either users are brought to the services or providers go to the user. It is right to say that services have limited geographical area. According to Carman, “Producers of services generally have a small size area of operations than do the producers of items. largely because the producer must   to get the services or vice- versa.”When the producers approach the buyer time is taken away from the production of services and the cost of those services is increased. On the other hand it cost time and money for the buyers to come to producers directly. Here the economics of time and travel provide incentives to locate more service centers closer, to prospective customer, resulting in emergence of smaller service centers for e.g. aeroplane cannot be brought to customer, etc. Quality Measurement: A service sector requires another tool for measurement. We can measure it in terms of service level. It is very difficult to rate or quantify total purchase. E.g. we can quantify the food served in a hotel but the way waiter serves the customer or the behaviour of the staff cannot be ignored while rating the total process.Hence we can determine the level of satisfaction at which users are satisfied. Thus the firm sells good atmosphere convenience of customers, consistent quality of services, etc. Nature of demand- Generally, the services are fluctuating in nature. During the peak tourist seasons there is an abnormal increase in the demand of services. Therefore, while identifying the salient features of services one cannot ignore the nature of demand. E.g. tourists go to hill stations during summer season wherein public transport utilities are used substantially. This indicates that flexibility is the important feature of service.  1.1 IntroductionIn this lesson we will learn about the following topics:1. What is a service?

2. What is the difference between product and service?

3. What are the different types of services?         1.2 KeywordsService, continuum         1.3 What is a Service?Let us understand what we mean by the word service. Service means a helpful activity performed for others. Say, you have to send a message to your mother whom you cannot visit for some time. Your friend listens to your message, visits your mother and gives the message to your mother. In this way, your friend undertook an activity to fulfil your need. This helpful activity of your friend is an example of service.

In this example, your friend delivered the service free of cost. Alternatively, you could use postal service or SMS to deliver the message to your mother. In that case you would have to pay the price for using the service. Those services are called professional services as the shareholders and employees of those companies provide the services to earn their livelihood. Those are also examples of services undertaken for earning a profit over and above the cost of delivering the service. On the other hand several non-profit organisations provide professional services to raise the standard of living of a community. In this case the surplus money is used by the organisation to further attain their social objectives and the surplus is not redistributed among the shareholders of the company. You will learn more about the nature of services in Lesson 2.         1.4 Difference between Product and ServiceYou might have heard about, banking products, insurance products, etc. You have also heard about banking and insurance services. You might be wondering, what is the difference between products and services. In 1976 Adam smith wrote in his book “The Wealth of Nations, books I – III”, that products are result of productive labour while services, however honourable ... useful, or ... necessary” were the result of unproductive labour. However, in 1803 Jean-Bapliste Say argued in his book “A Tretise on Political Economy”, that production and consumption occurred simultaneously in services and therefore services were “immaterial products”. Products have been classified into four generic categories called hardware, software, processed materials and services in ISO 9000: 2000 standard. Tangible goods which can be discretely counted, like our PC, are called hardware. Intangible information like computer programs, music, etc. can be called software. Processed materials are products that can be measured on a continuous scale like oil.

In ISO 9000: 2000 standard, a service has been defined as “the result of at least one activity necessarily performed at the interface between the supplier and customer that is essentially intangible”. Take the example of a haircut. The activity cannot proceed without interaction between the barber and the client. As explained in the previous section, the hair cutting activity bears the characteristic of palpable intangibility. While mining and agriculture provide natural products, manufacturing produces tangible products, and services deliver intangible benefits during servercustomer interactions.Although software has been characterised as an intangible product (ISO 9000: 2000) software (information related) businesses like information technology services,

architectural service, advertising service, etc. have been traditionally categorized as service businesses.

All product forms including hardware, software, processed materials and services finally deliver intangible benefits to customers and are used in the service of people. For instance, a photocopier machine is used in providing photocopying services. We visit restaurants to have food, yet, we say that restaurants provide a service because the restaurant undertakes all activities to produce the food and help us consume the food. So, the restaurant provides both goods and services. In 1992, Professor Mary Jo Bitner wrote that products and services lie on a product-service continuum as illustrated in Figure 1.1. While pure products lie at the tangible end, pure services lie at the intangible end. Marketers have to focus on the tangible characteristics of products to meet the need of their customers. On the other hand service marketers have to focus more on the consumers as consumers become part and parcel of the service delivery.

Figure 1-1: Goods-Service Continuum

         1.5 What are the different types of services?In the previous paragraph we have discussed how the service of your friend satisfied your need. How many types of needs do we have? Professor Manfred Max‐Neef classified the fundamental human needs in 1987. We can list various services that entrepreneurs like you can offer to satisfy each of the fundamental needs of people. Read this list written in Table 1-1 below.Table 1-1: Classification of Services based on Max-Neef’s Fundamental Human Needs

Need Being(qualities)

Having(things)

Doing(actions)

Interacting(settings)

Types of Services

subsistence physical and food, shelter, feed, living Feeding, Health

mental health work clothe, rest, work

environment, social setting

care, Retail andSupply services

protectioncare, adaptability, autonomy

social security, health systems, work

co-operate, plan, take care of, help

social environment, dwelling

Housing, Clothing, Security, Safety, Maintenance and Insurance services

affection

respect, sense of humour, generosity, sensuality

friendships, family, relationships with nature

share, take care of, make love, express emotions

privacy, intimate spaces of togetherness

Friendship, Dating, Marriage and Gifting services

Understand-ing

critical capacity, curiosity, intuition

literature, teachers, policies, educational

analyse, study, meditate, investigate

schools, families, universities, communities

Education, Investigation and Meditation services

participation

receptiveness, dedication, sense of humour

responsibilities, duties, work, rights

cooperate, dissent, express opinions

associations, parties, churches, neighbourhoods

Trade, Conference, Communication and Travel services

leisureimagination, tranquillity, spontaneity

games, parties, peace of mind

day-dream, remember, relax, have fun

landscapes, intimate spaces, places to be alone

Entertainment services

creation

imagination, boldness, inventiveness, curiosity

abilities, skills, work, techniques

invent, build, design, work, compose, interpret

spaces for expression, workshops, audiences

Self-service

identity

sense of belonging, self-esteem, consistency

language, religions, work, customs, values, norms

get to know oneself, grow, commit oneself

places one belongs to, everyday settings

Club, Association, Prayer services

freedom autonomy, passion, self-esteem, open-mindedness

equal rights dissent, choose, run risks, develop

anywhere Justice and Enforcement services

awareness

Now that we have discussed the kind of services we can offer, we have to provide these services professionally. For that, we have to learn about the management of professional services. This includes various disciplines like operations management, finance management, human resource management, information systems management and marketing management. In this subject, we will learn about managing the marketing of the services that we can offer to society to earn our livelihood.

You can recollect various services that you use everyday, like, electric supply, water supply, retail, transportation, telecommunication, ATM and education services. You may be already providing some professional service to a company and earning your livelihood from the company. You must have heard people complaining about some service with which they were dissatisfied. You may have been dissatisfied with some service in the past as the service failed to satisfy you completely. You might have wondered why the company cannot provide better service. You might have further wondered what could improve the quality of a service.

At the same time, you might have been satisfied with a service or even delighted with a service. We like to purchase the service from a particular service provider again and again because we are satisfied with the service offer, unless we do so because of the unavailability of any alternative. You may like to offer a service to society and make it an excellent offer that is appreciated by your customers. You will then wonder what qualities should be there in the service that you offer so that it is appreciated by your customers. At the same time, you would want to earn handsome profits from your venture so that you cangrow your business year after year. In order to be able to achieve those objectives, you have to learn about services marketing.          1.6 Concluding RemarksIn this lesson we have discussed what is meant by a service, what are the differences between products and services and what are the different types of services. In the next lesson we will turn our attention to what we understand various aspects of marketing of services.          1.8 AnswersQ1. Write the definition of services.       Answer: In ISO 9000: 2000 standard, a service has been deficend as “the result of at least one activity necessarily performed at the interface between the supplier and the customer that is essentially intangible”Q2. What are the different types of fundamental human needs that services can satisfy?

       Answer: According to Professor Manfred Max‐Neef, services can satisfy nine types of fundamental human needs. These are: 1. Subsistence, 2. Protection, 3. Affection, 4. Understanding, 5. Participation, 6. Leisure, 7. Creation, 8. Identity, and 9. Freedom.

Q3. Analyse the product‐service continuum illustrated in Figure 1.1. Place fire‐fighting services, car repair services and health club services on this continuum. What is the significance of the product‐service continuum?

       Answer: The product‐service continuum illustrated in Figure 1.1 places products and services of a graph ranging from tangible dominant to intangible dominant. It shows that customers have low involvement in the production of tangible products while they have high involvement in the production of services while have a dominant intangible component. Thus, service managers have to manage customers while they are involved in co‐producing a service, to the extent that they must be satisfied (or delighted) with their experience of service co‐production and consumption. For example, when customers have to do a range of activities in the bank or a self‐service restaurant, they must find the activities to be easy and satisfying, rather that being intriguing, difficult and irritating in nature. Fire‐fighting services can be placed at the intangible end of the continuum, while car repair services and health club services can be placed towards the intangible end as these may involve the delivery of some products like spares and health products respectively.        2.1 IntroductionIn this lesson we will learn about what is meant by the terms marketing and marketing management. We will also discuss the easons for studying services marketing management?         2.2 Keywordsmarketing, management          2.3 What is Marketing?When we take a bag and go for purchasing products from a market, it is called shopping, although many people would erroneously call the activity as marketing. Marketing involves all the steps beginning with creating a product or service that can be used by people and ending with earning the cost and surplus for delivering the product or service to the customers. Marketing includes identifying the needs of customers, creating the product or service, communicating the value provided by the product or service being offered, delivering the product or service to the customers, earning the price of the product or service, and sustaining the business through after‐sales service, maintaining relationships, managing the brand and developing new products or services among other activities.

An SMS service provider would identify our need for communicating with someone, would ensure that each of us have a telephone with SMS facilities, communicate about their service to us so that we understand how the service can fulfil our needs, sell the service at a retail outlet so that we are able to subscribe to the service, educate us as to how to use the service, and recover the cost and surplus in the form of service charge once we have used the service. They would also provide after sales service in case we face any difficulties, would maintain a relationship with us so that they can continue to provide their services to us and earn cost plus surplus from their offering, create new variations of the service to provide us better facilities than before, and manage their brand name to position themselves as a company different from others in order to protect their services from their competitors.

The American Marketing Association (2004) defined marketing as “an organizational function and a set of processes for creating, communicating, and delivering value to

customers and for managing customer relationships in ways that benefit the organization, its stakeholders and the society in general.”          2.4 What is Marketing Management?Professors Kotler, Keller, Koshy and Jha (2009) defined marketing management as the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. Management means planning, monitoring and controlling all aspect of the activities of an organisation so that the activities are carried out as per plan in order to attain organisational objectives. Similarly, all activities required for marketing of services need to be properly managed so that customers can receive the benefits and pay for the same to the company.

     2.5 Why Study Services Marketing Management?As you know, people can work in any one of the following three sectors in any country, i.e. 1. extraction (including farming and mining), 2. manufacturing, and 3. services. Currently services account for the maximum share of the gross domestic product (GDP) of most countries around the world.

Figure 2-1: Contribution of Various Sectors of Economy to World GDP in 2009We can see in Figure 2-1 that services contributed an estimated 63.4% of the world’s GDP in 2009 followed by industries (30.6%) and agriculture (6.1%). Similarly, it was estimated that services contributed 62.6% of India’s GDP and 76.9% of the GDP of USA in 2009 (CIA, 2010). Around the world, 40.4% of the labour force was engaged in the service sector while 22.1% was engaged in industry and 37.5% in agriculture in the year 2009.

However, services contribute less than industry or agriculture to the GDP of few countries including Algeria, Angola, Botswana, Congo, Equatorial Guinea, Falkland Islands, Indonesia, Iran, Iraq, North Korea, Kuwait, Laos, Lesotho, Liberia, Libya, Sierra Leone, Somalia, Swaziland, Thailand, Trinidad and Tobago, United Arab Emirates, Vietnam and Yemen. How can this information be useful for you?

Let us now examine the service sector in India. The service sector has been the fastest growing sector in India in recent times, with a large potential for growth and employment in the country. 34% of India’s labour force is employed in the service sector, while 52% of them are employed in agriculture and 14% are employed in Industry. The contribution of services to the country’s GDP has gone up from 28% in 1950‐51 to 62.6% in 2008‐09. According to the Economic Survey of India (2008), transportation and communication are the fastest growing service sectors in India in 2007‐08 followed by trade, hotels, financing, real estate and housing services. This is illustrated in Figure 1.1.1. According to the consulting firm, McKinsey & Co. (2009), the consumption of services by Indians has been estimated to increase from 37% in 1995 to 69% in 2025 while the proportion of products consumed during the same period will decline from 63% in 1995 to 33% in 2025. This is shown in Figure 1.1.2. The above data indicates that a lot of business opportunity will be available in the service sector in India.

With rising standard of living, customers around the world are spending more on complex goods as well as personal, domestic and commercial services. Hence, there is a scope for development of the service sector all over the world. Once we learn about services marketing management we can contribute to this sector as a professional and earn our livelihood from the same.

Lecture2 - What is Marketing Management?

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Figure 2-2: Contribution of Services to the Indian GDP

Figure 2-3: Share of Services to the Indian Economy         2.6 Concluding Remarks

In this lesson we have introduced the concept of services. We have discussed how most countries are shifting towards a service economy as services are contributing the greatest proportion of the GDP of those countries. As a services marketing professional we will have lots of opportunity to provide services in many countries including India. We have also introduced the topic of marketing management and given the reason why learning about the managing services marketing will be useful for us to be able to offer professional services not only in India, but across the globe..

      2.8 AnswersQ1. How is services marketing management different from services marketing?

        Answer: While services marketing include the identification of target market and creating, communicating and delivering the service alongwith customer management and new service development in order to earn value for the stakeholders of the company, services marketing management involved planning, monitoring and controlling the above activities so that the objectives of the service organisation can be realised.Q2. Analyse Figure 2-1, Figure 2-2 and Figure 2-3. How can your analysis be useful for you?

         Answer: Figure 2-1 is the pie chart showing the contribution of various sectors of human activity to the world’s GDP. It shows that services have the maximum contribution at 63.4% of the world’s GDP in 2009.

Figure 2-2 is the bar diagram showing the growth of various sectors of India’s economy in 2007‐08 over the previous year. It show that transportation and communication, trade and hotels and financing, real estate and housing were the sectors which witness the highest growth in the countries economy in 2007‐08 over the previous year.

Figure 2-3 illustrates the change in household consumption in India from 1995 to 2025. It implies that while the consumption of products will decrease from 63% to 33% during the 30 year period, the consumption of services will increase from 37% in 1995 to 67% in 2025.

The implication of the above figures is that future managers can invest in building service business as this sector is witnessing increasing demand nowadays, not only in India but in countries across the world.        3.1 Introduction   In this lesson we will learn about the service delivery process and the service system in detail.           3.2 Keywordsprocess, system          3.3 The Service ProcessWe may be aware that any product is produced as a result of the application of some transformation processes on the inputs. Let us now analyse the service process in detail in order to understand how services are produced and delivered in the following sections.           3.4 The Service System

        The service process can be understood by using the service system model. Now, what is a system?Robb wrote in 1984 that a system can be described as a black box in which a transformation activity performs on an input to produce an output. We can see a picture of the service system model in Figure 2.1. We can see that the service system broadly consists of the input, the process and the output. We see that the process mainly takes place within the servicescape. The servicescape is the space where the service is delivered, like a classroom or a bank or a post office. Sometimes the servicescape is also called a service factory like a hospital. There are feed forward and feedback processes in the system too.        Service Inputs

Let us now focus on the inputs to the service system. As we can see in the inputs to the service system are customers’ possessions. The customer brings his possessions like his body or his mind looking out for entertainment, his car or watch needing repair, or his accounts needing an audit or tax advice to the service system. He is willing to give reasonable amount of time that may be required to transform his possessions.

In order to transform his possessions, the service provider has to spend time, and use resources, like energy, space in the servicescape, equipment like computers or cookers, and materials, like semi‐cooked food, spare parts or facial creams depending upon the requirement of the service.

         Customer Feed‐forward

The customer now tells the service provider what he requires. This is part of the information that is fed forward into the service system. As explained earlier, the customer’s requirements consist of two components: 1. his needs (i.e. what is needed by the customer) and, 2. his expectations (i.e. how the customer wants his needs to the fulfilled). For example, in a restaurant customers would want food (what) to satisfy their hunger (need). The diners would expect that the food is served politely (how) by the waiters in order to give them a pleasant experience.

Customers can state their requirements to the restaurant staff or these requirements may be generally implied as a common practice. Some of the requirements may be obligatory for service providers. For instance, it is obligatory for restaurants to provide freshly prepared, clean and pathogen‐free food and cutlery. These form part of the information that is fed‐forward into the service system.

On receipt of this vital feed‐forward, the service provider gives a feed‐back to the customer as to which of his needs and expectations (i.e. requirements) are likely to be met. He should also tell the customer about the time that will be required to fulfil his requirements and the price that he has to pay on receipt of the service outcomes.      The Service Process

Once the customer agrees upon the terms and conditions of the service, the

transformation activities are carried out upon the customer’s possessions. These intangible transformation activities are part of the core service. The transformation process may be of the following types:a. exchange (e.g. trading and barter services)

b. informational (e.g. investigation and communication services)

c. intellectual (training and education services)

d. locomotion (e.g. transport and travel services)

e. physical (e.g. repair and remodelling services)

f. physiological (e.g. beauty and healthcare services)

g. psychological (e.g. counselling and entertainment services)

h. spatial (e.g. experience of ambience and location, like museum, art galleries, movies etc.), and;

i. temporal (e.g. parking, leasing, hiring and storage services)As the transformation process progresses, the customer may provide voluntary feedback to the service provider in order to fine‐tune the service delivery to closely match his needs and expectations. However, good service systems have in‐built processes by which the service provider requests the customer to give them feedback from time to time which the service provider endeavours to fulfil as far as possible.

         The Service Output

At the conclusion of the service process, customers are left with tangible outcomes in the form of: 1. new or modified customer possessions, and 2. intangible outcomes in the form of an experience. The tangible outcomes and the intangible experience together constitute the output of the service system. Tangible and intangible outcomes provide value to the customer when these match his requirements (i.e. needs and expectations). It is mentioned in ISO 9004 – 2: 1991 that the ratio of tangible outcomes to intangible ones varies across the product‐service continuum discussed in Error! Reference source not found.. ISO 9004 – 2: 1991 is an Indian standard providing guidelines on quality management and quality system elements for services.        The Organisational Environment

Let us now turn our attention to the service environment. The environment consists of organisational and extra‐organisational factors. Organisational environment includes the following:a. the structure of the organisation,

b. the people (shareholders and stakeholders) and their shared values,

c. the strategy for sustenance and growth, and

d. the system and style of value creation and exchange with society.The extra‐organisational society sets the context within which the service transaction takes place. The same service would be perceived differently in different cultures. The society validates the ethics and acceptability of any service process. The extra‐organisational environment further includes current natural, demographic, politico‐legal, economic, socio‐cultural, and technological situation at the local, national, regional and global levels.

         The Servicescape

The service environment, called ‘servicescape’ by Professor Mary Jo Bitner in 1990, includes the immediate surroundings where the service is being delivered. A cheerful ambiance can add to the value of the service provided. Alternatively, the service can be perceived to be of a poor quality if it is delivered in an uncomfortable environment. The servicescape consists of:a. the physical facility including layout, equipments, etc., and,

b. the ambience, which may be comfortable, crowded, noisy, pleasant, etc.The servicescape may be stationary, or mobile, like a bus or an aeroplane as in case of transportation services. The servicescape can be at the supplier’s location or situated at the customer’s location as in case of home‐delivered services like domestic services.

        Customer FeedbackCustomers may voice or write their opinion about the service through voluntary feedback during service delivery thereby allowing the service provider to make modifications. Sometimes, the customer may react or complain during or after receiving an unsatisfactory service. This gives an opportunity to the service provider to satisfy him/her and attempt to help the customer recover from the erroneously delivered products and experiences. Customers’ feedback can affect the nature of inputs (customers’ tangible and intangible possessions and raw materials) that enter the service system in future. It can also affect the service process and may effect modifications in the service environment or servicescape. Customers may continue to experience their modified or newly acquired possessions long after the service has been delivered or purchased. Similarly, they can continue to influence various components of the service system in future.

        By‐Services

By‐products (or by‐services) and service waste; form part of the output of the service system. For instance, customers can gain a kinaesthetic experience while using the transportation service (may be called by‐service). Similarly, customers can gain some new knowledge or useful information while taking an unrelated service (e.g. at a salon).

        Service Waste

Examples of service waste include vacant berths that are not allocated to passengers even when many people are desirous of travelling due to systemic incapability, or the duration that a telephone operator might lie idle without receiving incoming calls. By‐services can be used to satisfy and even delight customers. However, wasted services can only result in missed opportunities and operational losses for the service provider and a dissatisfying experience for potential customers.

        Post‐Service Customer Activities

Having experienced a service offering, a person might ponder about their experience and conclude the level of satisfaction that they have received from the experience. The level of satisfaction derived by the customer is dependent upon what she/he expected to receive. Customers’ expectations are not only formed by the information that they have received before requesting the service, but also, on their attitude and the frame of mind with which they consume the service. Customers are likely to be more satisfied with a service consumption experience when they are in a pleasant mood than when an unpleasant experience could have spoilt their mood before the current service process. They might also share and compare their experience with others. The level of satisfaction again undergoes modification, following which; they are likely to assign a subjective value to their individual and collective experience.

Figure 3-1:  Model of the Service System         3.5 Concluding RemarksIn this lesson we have discussed the process of service delivery in detail. We have used a model of the service system for understanding the process. The service system consists of the input, process and output. The process takes place in an environment called the

servicescape. The process can be adjusted to suit the requirements of the customers using the feed forward and feed back that customers offer to the service providers. It is important to understand and meet customer requirements fully in order to satisfy them with the service outcome. Service providers must reduce service waste in order to remove inefficiency and reduce the cost of providing the service.Q1. Draw the service system for a transportation service and a coffee café service.

        Answer: The service systems for a transportation service and a coffee café service are illustrated in Figure Error! No text of specified style in document..2 and Figure Error! No text of specified style in document..3 respectively.

Figure 3-2: Model of Transportation ServiceQ2. What is the role of feed forward and feed back in satisfying customer requirements?

        Answer: A customer asks for various service deliverables (what) to the service provider, without which the service provider would not know the requirement of the customer. The service provider now knows that delivering what the customer needs will satisfy him/her.

A customer has certain expectations about how the service is to be delivered to him. He may need the service fast or at a medium pace, and he would expect certain level of courtesy from the service provider. When a customer explicitly tells about his expectations to the service provider, the latter understands the customer’s requirement of how the service is to be delivered to him/her in order to satisfy him/her fully. On the contrary, if the customer keeps quite about the way the service is being delivered to him, the service provider would not know how the customer likes the service to be delivered, and would not know how to satisfy the customer.

Customers can either volunteer to provide feed‐forward or feed‐back, or they can be requested by the service provider to do so. Customers can indicate the gaps in the service

being delivered to him/her through feedback and the service provider can endeavour to provide the service in order to address the gaps and provide the service as required by the customer. Customer may also provide feedback for later improvement of the service. In this way, feed‐forward and feed‐back interactions can help the service provider to deliver exactly what the customer needs and how he/she needs it in order to satisfy the customer fully.Characteristics 4.1 IntroductionIn this lesson we will learn about the definition and the characteristics of services.          4.2 Keywordsdefinition, characteristics         4.3 Definition of ServicesAs early as 1963, Regan defined professional services as activities, benefits or satisfactions which are offered for sale, or are provided in connection with the sale of goods. In 1987, researchers Quinn, Baruch and Paquette wrote that services include all economic activities whose output is not a physical product or construction, they are generally consumed at the time they are produced, and provide added value in forms that are essentially intangible. We have also read in Lesson 1 that in the ISO 9000: 2000 standard, a service has been defined as the result of at least one activity necessarily performed at the interface between the supplier and customer and is essentially intangible. Services can thus be defined as those activities that provide intangible benefits and experiences to customers while transforming their possessions. Services are basically meant to help customers in getting what they need.In 2004, Lovelock and Gummesson wrote that services could be considered as some sort of rental for using the plant, equipment, manpower or possessions of the service supplier. For example, we can avail ourselves of housing services by taking the house of the supplier on rent. Similarly, when we get our document photocopied at a shop, the price we pay consists of the cost of the paper and ink, which are tangible products, and the price (or rent) of temporary usage of the shopkeeper’s photocopier, stapler, shop, etc.

       4.4 Characteristics of ServicesLet us now understand the characteristics of services. The two primary characteristics of services are intangibility and simultaneity. These primary characteristics lead to two secondary characteristics, namely, perishability and variability. These characteristics are discussed in the following sub-sections.

        IntangibilityWe have read an example in Lesson 1 in which your friend performs the activity of giving a message to our mother. This activity of our friend, meant to help you fulfil your need, is called a service. This activity is intangible as the activity cannot be touched. This type of intangibility is called palpable intangibility. While goods are tangible products, services are those activities that provide intangible benefits and experiences to customers while transforming their possessions. For example, a hotel provides intangible benefits like shelter and rest along with a host of experiences while transforming the guest’s possessions (mind, body, clothes, etc.). Software products also possess the characteristic of palpable intangibility. Although software has been characterised as intangible product

(ISO 9000: 2000), software (or information related) businesses like information technology services, architectural service, advertising service, etc., have been traditionally categorized as service businesses. Hence, intangibility is a primary characteristic of services.What are the implications of this service characteristic? Customers are unable to know and understand what will be delivered by a particular service business from its name alone. They require audio-visual communication regarding the service to understand it better. They are unable to judge the quality of the service unless tangibles cues are presented to them. For instance, IDBI bank has to illustrate through an advertisement that it is trustworthy. HSBC bank communicates that it caters to the different needs of different types of people through another advertisement. MasterCard “Priceless” set of advertisements.

Secondly, as the physical facilities act as a cue used by a customer to estimate the level of service quality, service organisations have to build and maintain their facilities (i.e. servicescapes) and visual merchandise at a level consistent with the level of service they wish to deliver and charge for.

Intangible services can be transformed into tangible products. For instance, recorded music, insurance, counselling or architectural design services, etc., can be consumed for a long period once the intangible service has been embedded or transformed into tangible products or possessions like audio tapes, insurance deeds, modified mental states, blue prints, etc., in order to offer long-term services to customers.        Simultaneity

What is the next primary characteristic of services? Service delivery and consumption are inseparable from each other and must be produced and consumed simultaneously. As we know, we have to be in the class on time to learn what the instructor is teaching there. If we arrive late, we miss part of the lecture. Then, we have to depend on the notes taken by our class mates to learn about what was taught. This is because one cannot receive a service after the service is over, unless the intangible service has been tangiblised into some form of tangible product like our friend’s class notes. Hence, services are delivered and consumed simultaneously. This is the primary characteristic of services. Other forms of products, like hardware, software, or processed materials can be stored for later use and do not have to be produced and consumed simultaneously. So, simultaneity of production and consumption is a primary and unique characteristic of services.

What are the implications of this characteristic of services? As services must be delivered and consumed simultaneously, service personnel and customers must interact with each other during the process of service delivery. As customer requirements consist of both what is delivered and how it is delivered, it is important for service personnel to carefully note what customers require and deliver it to them. As customers care about how the service is delivered, service personnel must take extra care about how they behave with customers during their interactions with the latter.

Although service providers might find an opportunity to correct a service after it has been

incorrectly delivered the first time, this process can result in inefficiencies and involve unnecessary expenditure and poor reputation.        Perishability

Since services must be produced and consumed at the same time, these cannot be stored for future use, unless these are converted into tangible forms. We have to listen to a concert when it is being played. Alternatively, the concert can be recorded into a tangible form in a CD and we can listen to the CD later on. However, the tangible CD is a hardware product and ceases to be a pure service. It can, at best, be part of a service, but not the service itself. So, services perish once they are delivered. Hence perishability is a characteristic of services.

Services would not be perishable unless they were simultaneously produced and consumed. Hence the perishable characteristic of services stems from its primary characteristic of simultaneity as described in section 0 above. We can now remember that perishability is a secondary characteristic of services. Other product forms like hardware and processed materials also perish after some time gap.Hence, perishability is not a unique characteristic of services. However, a service perishes as soon as it is delivered and cannot be stored in the form of an intangible service for future consumption.

Once again, let us explore the implications of this service characteristic. As services embody simultaneity and perishability, the service must be delivered when the customer visits the servicescape. Customers generally visit a service organisation at some time of the day, while there would be no customers at other times of the day. We can understand this phenomenon by observing how facilities like restaurants get overcrowded during lunch and dinner times but have low loads during other times. The service manager has to match the supply of service with its demand in order to satisfy customers. However, in order to keep his resources working uniformly throughout the business hours, he has to entice customers to purchase and consume services during off-peak periods. This is why, restaurants like McDonalds offer ‘Happy Hour’ discounts to customers who consume their services during off peak periods.         Variability

Since services are intangible, these are variable too. You may have noticed how services provided by stewards in airplanes vary from airline to airline. Similarly the services provided by restaurants vary from time to time. Services would not be variable unless they were intangible. Variability of services stem from its intangibility characteristic. Hence, variability is a secondary characteristic of services. Since, products can also suffer from variability; it is not a unique characteristic of services.

Using a service-good analysis, Professors Langford and Cosenza illustrated in 1998 that an automobile insurance policy is an intangible service, which is not characterised by inseparability (simultaneity), heterogeneity (variability) and perishability. They argued that intangible benefits of the insurance policy (like asset protection, peace of mind, and credit worthiness) are consumed throughout the policy period extending much beyond the

moment of purchase. However, an insurance policy is a case of a long-term continuous service that remains dormant, and the benefits remain latent, until they are claimed. The service regains its simultaneity as soon as the claims are initiated. The service perishes as soon as the policy (service) term is over. Variability creeps in during the interactions between customers and service providers, particularly when service personnel have not been trained to provide standardised services.

These service characteristics give birth to quality issues as perceived by customers (see Table4-1). Simultaneity of the delivery-consumption process automatically draws attention to the quality of the interaction that takes place at the interface between the server and the customer. Brady and Cronin (2001) found the quality of interactions between service providers and customers to be an important factor in determining service quality. Other authors have illustrated the importance of assurance, empathy (Parasuraman, Zeithaml and Berry, 1988), and care (Lewis, 1991) in influencing customers’ perception of service quality. Similarly, Brady and Cronin (2001) opined that customers use tangible cues from the condition of physical facilities, merchandise, and other articles present in the servicescape to evaluate the quality of services being delivered. Customers are generally unhappy to wait for services that are temporarily unavailable as a consequence of inadequate resources such that no service provider is ‘free’ to attend them (Taylor, 1994). Thus, perishability dictates that service providers must be responsive to customer demands and provide timely services (Parasuraman, Zeithaml and Berry, 1988). Many authors have stressed that reliability, dependability, credibility, consistency and accuracy (Parasuraman, Zeithaml and Berry, 1985) must be enhanced in order to reduce the inherent variability of services.Table 4-1: Service Characteristics and Quality Issues

Primary characteristics Quality issues

Intangibility Tangible cues(environment, tangibles, etc.)

Simultaneity(Unique characteristic)

Interactions(assurance, empathy, care etc.)

Secondary characteristics

Perishability Provide service right first time to avoid recovery

Variability(Conditional characteristic)

Reliability, dependability, credibility, consistency, accuracy

The service characteristics listed in Table 4-1 provide an opportunity for customizing services to suit customer requirements. In order to satisfy customers, their expectations must be accurately estimated and addressed through appropriate service design and delivery mechanisms (Morris and Johnston, 1987).           4.5 Concluding RemarksIn this lesson we have discussed the definition and characteristics of services. Intangibility, simultaneity, perishability and variability are characteristics that distinguish services from other product forms. We have discussed how these service characteristics

affect the quality of services delivered by an organisation.

Now that we have understood the nature of services and its delivery, it is time learn the methods of identifying service business opportunities available in the society. We shall discuss this issue in the next chapter.         4.7 AnswersQ1. Define services with the help of an example.

        Answer: Services can be defined as those activities that provided intangible benefits and experiences to customers while transforming their possessions. For example, banking services provide customers the benefit of keeping their money safe and accruing interest on them. In this way, customers of a bank receive intangible benefit when their wealth gets transformed by remaining in safe custody and accruing interest on the principal amount.Q2. List the primary and secondary characteristics of services.

        Answer: Intangibility and simultaneity are primary characteristics of services. Services are intangible as it cannot be touched. Services are to be delivered and consumed simultaneously.

Perishability and variability are secondary characteristics of services. As services are to be produced and consumed simultaneously and are intangible in nature, these cannot be stored for future use unless the service is tangiblised into a tangible product. As services are produced and consumed at the same time the delivery of a service varies from time to time, unless the service is delivered by personnel trained on a service script or the service is provided by a machine like an ATM.Q3. How do various service characteristics affect the quality of services being delivered? Illustrate with the example of restaurant or repair service.

        Answer: Services are intangible, so customers cannot touch and feel a service before it is actually delivered. Hence, customers have to be provided with a sample of the service, so that they are able to understand the quality of the service. In case of restaurant or repair service, a customer cannot understand the quality of the service unless he/she experiences the service at least once. In order to give cues about the quality of the service, service providers communicate tangible cues like clean, shinning, well decorated and painted facilities and equipment to the customers. They might also give a free sample service, to communicate the quality of the service they provide.

Services are delivered and consumed simultaneously during interactions between the customer and service personnel. In order to ensure that the interactions deliver value and are of a high quality, service personnel have to rehearse and practice the service script several times before delivering the actual service. They have to focus not only on what they deliver to customers, but also how they do so. For instance, restaurant and repair personnel have to learn and perform the service courteously with the customers; otherwise customers would be offended and dissatisfied with the service. Service personnel must learn to deliver the service with empathy and care to the customers.

Services are perishable in nature. So services have to be tangiblised in the form of video demonstrations, tape records, testimonials, etc. so that customers can feel the quality of the service even when the actual service is not being delivered. As services perish once it is delivered, any mistake in the service provision would call for redoing that part of the service, which is called service recovery. Service recovery can lead to unnecessary expenditure for the service provider. So service providers have to learn and practice delivering the service right first time and each time. In short, they have to ensure that the services they provide are reliable in nature.

Services are variable in nature as these are intangible and simultaneous in nature. Hence, the same service delivered by different people varies and the service provided by the same person at different times varies from time to time. Hence, service personnel have to learn the service script well and deliver the service strictly as per the service script in order to minimise the variability of the service and increase its reliability, dependability, credibility, consistency and accuracy. Customers perceive the restaurant service as reliable when they provide the same quality and level of service each and every time the customer purchases the service from the restaurant.Characteristics of Services A number of characteristics have been suggested to help distinguish goods and services. It is the combination of these characteristics which create the specific context in which a service organisation must develop its marketing policies. The more commonly stated characteristics of services are: (a) intangibility; (b) performed activities (c) inseparability; (d) heterogeneity; (e) perishability; (f) ownership. (g) essentiality versus postponability Intangibility Services are essentially intangible. It is often not possible to taste, feel, see, hear or smell services before they are purchased. Opinions and attitudes may be sought beforehand, a repeat purchase may rely upon previous experience, the customer may be given something tangible to represent the service, but ultimately the purchase of a service is the purchase of something intangible. Wilson

suggests that the concept of tangibility may be divided further, although somewhat arbitrarily, into services providing pure intangibles (e.g. security service, museums) services providing added value to a tangible (e.g. insurance, launderettes) and services that make available a tangible (e.g. financial services, retailing). This sub-division of services is similar to another idea which suggests there is a goods- services continuum with pure goods at one extreme and pure services at the other; but with most economic products falling between these two extremes. Bateson has refined the concept of intangibility further. He suggests that intangibility as the critical characteristic distinguishing products from services and that intangibility means both 'palpable' THE MARKETING ASSOCIATION OF AUSTRALIA AND NEW ZEALAND ______________ WEB: www.marketing.org.au E-MAIL: info@marketing.org.au 6 intangibility (i.e. the service is difficult for the consumer to grasp mentally). He suggests that these two aspects of intangibility account for some of the characteristics which separate product and service marketing: • a service cannot be touched; • precise standardisation is difficult; • there is no ownership transfer; • a service cannot be patented; • production and consumption are inseparable; • there are no inventories of the service; middlemen roles are different; (the consumer is part of the production process so the delivery system must go to the market or the customer must come to the delivery system so in market location and multi- site operations are common.) Performed Activities Goods are produced whereas services are performed. Thus the quality of a service derives not

from its physical characteristics but from its performance. A challenge facing the providers of services is to ensure the consistency and quality of the service being performed even when that service may be relatively routinised and standard; though of course a number of services are of a non-routine and a non-standard nature. Another feature of some services is that the value of the service and the benefits derived are often as dependent upon the skills, knowledge and participation of the buyer as of the seller. Inseparability Services often cannot be separated from the person of the seller. A corollary of this is that creating or performing the service may occur at the same time as full or partial consumption of it. Goods are produced, sold and consumed whereas services are sold and then produced and consumed. Heterogeneity It is often difficult to achieve standardisation of output in services. Even though standard systems may be used, for example to handle a flight reservation, to book in a customer's car for service or to quote for insurance on his life. Each 'unit' of a service may differ from other 'units'. Franchise operations, like McDonald's, attempt to ensure a standard of conformity, but ultimately it is difficult to ensure the same level of output in terms of quality. From the customers' viewpoint too it is difficult to judge quality in advance of purchase; although this element also applies to some product marketing. Perishability Services are perishable and cannot be stored. Spare seats on a package tour or an empty hotel room represent capacity lost forever. In addition, with some services, there is fluctuating demand which may aggravate the perishability feature. Key decisions have to be taken on what maximum capacity

level should be available to cope with surges in demand before service levels suffer. Equally, attention has to be given in times of low levels of usage on whether spare capacity will lie idle orwhether short term policies (e.g. differential pricing, special promotions), will be adopted to even out fluctuations in demand.The Need to Manage Demand Some types of services organisations cannot store their product to meet fluctuations in demand, and there are no simple manufacturing changes that can be used to adapt supply of the services to demand fluctuations. Often, therefore, services organisations are concerned with managing demand. Indeed, where demand for the services provided is excessive, a strategy of 'demarketing' may be pursued where organisations may actively discourage customers on a permanent or a temporary basis. Other strategies may seek to synchronise supply and demand to even out irregularities in supply and demand. Ownership Lack of ownership is a basic difference between a service industry and a product industry because a customer may only have access to or use of a facility (e.g. a hotel room, a credit card). Payment is for the use of, access to or hire of items. With the sale of a tangible good, barring restrictions imposed say by a hire purchase scheme, the buyer has full use of the product. There are other characteristics of some services too which may be important to their marketing. Some services (e.g. fixed term loans, mortgages and life insurance) imply some commitment where the purchaser is bound to some form of contract over time. Other services carry important risk factors from the purchaser's point of view (e.g. savings and investment accounts), and from the seller's point of view require emphasis upon safety, accessibility and liquidity. Essentiality versus Postponability Some services are essential. For example, car drivers need to have minimal insurance cover before

they can legally drive a motor vehicle. However, there may be discretion over the precise form of insurance. But equally some services are not essential and do not need to be bought. Their use or purchase may be unessential or, even where it becomes essential, may be delayed or postponed for some time. The above illustrates the emphasis that service characteristics may have upon their purchase and therefore upon their sale. For example, where tangibility is an important characteristic then a great burden is placed upon the seller's promotional programme to describe the service. The sellers of services like assurance and savings funds need to develop effective promotional strategies to reach their target markets adequately. Both direct (e.g. advertising) and indirect (e.g. word of mouth) methods of communication are required to sell the benefits of their services. Where fluctuating demand is an important characteristic of a financial service then product planning, pricing and promotion challenges are offered. Non-peak usage may be encouraged by heavier promotional expenditure and lower pricing or service charges; higher prices may be charged when demand is high. There is some dispute in the marketing literature as to whether some of the characteristics outlinedabove do help discriminate between Essentiality versus Postponability tangible products (goods) and intangible products (services). Wyckham et al. provide cogent counter arguments for why intangibility, heterogeneity, and perishability at least are not of themselves sufficiently discriminating. They believe that there are too many exceptions to their use for services alone. They suggest that what is required is not a simple product/service scheme which differentiates on the basis of characteristics of the offer itself, but a more complex taxonomy of offerings which differentiates on the basis of product/service characteristics and market characteristics. Classifications of Services

The elusiveness of a widely accepted definition of services has not prevented the development of a variety of schemes which attempt to classify services. Some believe that classifications are not very helpful; because they can misdirect marketing thinking and often perpetuate a product orientation. Others believe that classification is helpful; for it acts as a first step in obtaining an understanding of the ways in which markets operate. Certainly, when undertaken from a consumer viewpoint, valuable insights can be gained into reasons for making a purchase and the ways in which products are bought. This kind of information is then useful for helping to develop marketing strategies for services and for evaluating the current strategies and tactics in use by a service marketing organisation. Many of the classification schemes suggested for services are derived from those used in marketing goods. Also it should be borne in mind that many schemes are based on assumptions about what is or not a service. A common method of classification is on a 'Seller Related' basis. Thus service marketing organisations may be classified according to whether they are 'private' or 'public'; and within each grouping whether they are 'profit motivated' or non-profit' motivated. The 'function performed' by the organisation may too be used as a basis of classification. Thus, for example, organisations may perform educational, health, insurance or financial functions. The 'source of income' may too be used as a basis of classification. Service marketing organisations may derive their income from taxation, from the marketplace, from donations or from a combination of sources. 'Buyer Related' bases include the type of market, whether consumer or industrial; the way in which the service is bought, whether as a convenience, shopping, speciality or unsought service: and the motives for purchase. Swan and Pruden suggest that establishing whether the motives for purchase are 'instrumental' - that is the service is a means to an end - or 'expressive' - that is the service is

an end in itself - may also provide a useful framework for classifying some services. The last example shows classifications which are 'Service Related'. These may be in terms of service form, (e.g. uniform or bespoke); human based or equipment based; or may involve high levels of personal contact or low levels of personal contact. Further Classification of Services Services can also be classified in several ways, according to whether they are delivered by people or equipment(2) whether they are profit or non profit, or (3) whether or not they are government sponsored, (4) the qualifications of the people delivering the service. Delivery by People or Equipment Equipment-based services do not have the marketing concerns of inconsistency because people are removed from provision of the service. Video game equipment provides entertainment without relying on people except to service the machines. Profit or Non profit Organisations Many organisations involved in services also distinguish themselves by their tax status as profit or non profit organisations. In contrast to profit organisations, non profit organisations' excesses in revenue over expenses are not taxed or distributed to shareholders. When excess revenue exists, the money goes back into the organisation's treasury to allow continuation of the service. Based on the corporate structure of the non profit organisation, it may pay tax on revenue-generating holdings not directly related to its core mission. Government Sponsored or Not A third way to classify services is based on whether they are government sponsored. Although there is no direct ownership and they are non profit organisations, governments at the federal, state, and local levels provide a broad range of services.

Qualifications Another way of classifying services is based on the training or qualifications of the people delivering the service. For example doctors and lawyers provide a professional service, while plumbers and electricians provide a trade service Obviously there is no one classification for a particular service. Different customers may view the same service in different ways at the same time. Thus a hotel may be chosen at random by a tired passing motorist because it is convenient. Another traveller may have studied local tourist brochures, obtained recommendations from friends and telephoned in advance to make a reservation. In addition the bases shown can be developed further to add additional dimensions to those suggested (e.g. temporal or spatial categories; rational or emotional motives; high urgency - low urgency services). Such categories may be determined by judgement or through marketing research. The "Hidden Service Sector" and the "Official Service Sector" Today, (some) firms have come to realise that competition is now so severe that mere technicalsolutions offered to customers are not sufficient to create a competitive edge. In most cases, technically superior products are not a sufficient guarantee for success in the marketplace. Most manufacturing firms in the so-called industrial sector of the economy have to offer their customers a higher level of services as an integral part of their total offerings. A good solution in a technical sense only is not enough in an increasing number of situations today. To put it in a somewhat too simplified way: everybody can produce the goods. But the source for a competitive edge has to be found elsewhereCLASSIFICATION OF SERVICES. (FRAMWORKS FOR ANALYSIS OF SERVICES).

Problem: narrow exposure of managers to the variety of service industries; managers perceive their service as unique; management personnel is usually inbred; as a result, marketing thought in the field of services is underdeveloped.E.g., hoteliers often spend their whole life in the industry or even one company, most airline managers have grown up in the commercial aviation industry, bankers and hospital administrators usually work within the confines of banking and health care, respectively.Managers from manufacturing sector find themselves unprepared to deal with servicing problems.

Services are neither a homogeneous group, nor different in-between according to industry classification. Services can be segmented into clusters that share certain marketing-relevant characteristics.

Classifications.Import from tangible products domain:Copeland’s convenience, shopping, specialty goods. (Retail service institutions can also use this approach; e.g., from financial services providers to restaurants).Durability. (For services: durability of benefits is relevant to repurchase frequency).Consumer/industrial. (Different evaluation of competing alternatives, purchasing procedures and usage behavior is also transferable to services).

Operations approach to classification: every service is different (insisting that airlines’ marketing has nothing to do with banks, insurance, motels, etc.).However, marketing views demonstrate a lot of similarities in sharply different services; valid classification highlights implications for managers – concepts and strategies can be shared between industries.

Classification will have managerial value if it offers strategic insight – i.e. implications for managers. This includes both the core and supplementary services.

CATEGORIZING SERVICE PROCESS:WHAT IS THE NATURE OF THE SERVICE ACTIVITY?

Different types of processes result in different levels of customer involvement.If services are “deeds, acts, or performances”, two questions arise:at whom (or what) is the activity directed;is the activity tangible or intangible.

What is the nature of the service act?

Who or what is the direct recipient of the service?People Possessions

Tangible actions I. Service directed at people’s bodies:passenger transportation;

II. Services directed at physical possessions:freight transportation;

health care;lodging;beauty saloons;physical therapy;fitness centers;restaurants;haircutting;funeral services

repair and maintenance;warehousing/storage;janitorial services;retail distribution;laundry and dry cleaning;refueling;landscaping/lawncare;disposal/recycling.

Intangible actions III. Services directed and people’s minds:advertizing/PR;arts and entertainment;broadcasting/cable;management consulting;education;information services;concerts;psychotherapy;religion;voice telephone.

IV. Services directed at intangible assets:accounting;banking;data processing;data transmission;insurance;legal services;programming;research;securities investment;software consulting.

I. People processing.Managers should think about the process and output in terms of what happens to the customer (or other object process) to identify what benefits are being created.Reflecting on the service process itself helps to identify some of the non-financial costs – time, mental and physical effort, and even fear and pain – that customers incur in obtaining the services.Critical factors:moving to the “service” factory (or service people going to clients);getting into contact and cooperation;

II. Possession processing.Frequently – quasi-manufacturing operations.The services are the entire chain of activities that may take place during the lifetime of the object in question.Receivers are not necessary to be present.

III. Mental stimulus processing.Strong ethical standards and careful oversight may be required.Receivers’ physical presence is not necessary, but communication/participation is required.

IV. Information processing.Customer involvement is determined by traditions and personal desire; operationally it is not required.

Insights and implications.The model helps answering a question “what business are we in?” and formulating the benefits provided by services to the users.Customer satisfaction is influenced by:encounters with service personnel;appearance and features of service facilities – both exterior and interior;interactions with self-service equipment;characteristics and behavior of other customers.Advancement of telecommunication forms a uniform channel for informational-type services delivery - internet.Trend is the move from “high-contact” service into a “low-contact” with offering customers greater convenience.

HOW IS THE SERVICE DELIVERED?Issues:the current method of delivery andthe number of distribution sites.Key question: does the firm currently require customers to be in direct physical contact with personnel, equipment, and facilities?If the firm does require direct physical contact, do customers have to visit the facilities of the service organization or will the latter send personnel and equipment to customer’s own sites?Alternatively, can transactions between provider and customer be completed at arm’s length?Another issue: distribution – does the company require one or multiple distribution sites?

Nature of interaction b/w customer and service organization

Availability of service outletsSingle site Multiple sites

Customer goes to service organization

Theater;Barbershop.

Bus service;Fast-food chain.

Service organization comes to customer

Lawncare service;Pest control service;Taxi

Mail delivery;Auto club road service.

Customer and service organization transact at arm’s length (mail or through Internet)

Credit card company;Local TV station.

Broadcast network;Telephone company.

Insights and implications.How and where service is delivered forms the basis of distribution strategy. It also affects the nature of customers’ service experiences – including the encounters they have with specific service personnel – and impacts the cost they incur in obtaining service.

Combination of facilities, equipment and personnel generate value and costs.Key issues: convenience; costs involved in travel; appeal of the retail facilities relative to competing alternatives.Mostly, companies require customers to visit the “factory”. However, niches of premium customers should be considered, who agree to pay for the servicemen visit.

WHAT IS THE NATURE OF DEMAND FOR THE SERVICE?Empty seats in an airplane or rooms in a hotel are lost forever if unoccupied.Productive capacity of an auto repair shop is wasted if no one brings a car.Conversely, when demand for service exceeds supply, the excess business may be lost.However, demand and supply imbalances are not found in all service situations.

Extent to which supply is constrained

Extent of demand fluctuations over timeWide Narrow

Peak demand can usually be met w/o a major delay

Electricity;Natural gas;Telephone;Hospital maternity unit;Police and fire emergencies

Insurance;Legal services;Banking;Laundry and dry cleaning.

Peak demand regularly exceeds capacity

Accounting and tax preparation;Passenger transportation;Hotels/motels;Restaurants;Theaters.

(Services, similar to those in cell above, but which have insufficient capacity for their base level of business).

Insights and implications.Managing demand is the major challenge for many service marketers, especially in people-processing and possession-processing services when opportunities to manage the level of physical capacity (facilities or personnel) are tightly constrained.Questions, managers should answer:Are demand fluctuations cyclical, what is the cycle period?What are the underlying causes of fluctuations?Do fluctuations reflect customer habits that can be changed by marketing? Or are they formed by 3d parties (working or classroom hours)? Or random events?

Smoothing demand is done through marketing strategies that affect customer behavior or queuing system (which inventories demand rather than supply). Reservation system can also be implemented. (What other implementations are possible to smooth demand?).

WHAT ARE THE ATTRIBUTES OF THE SERVICE EXPERIENCE?Equipment- or people-based, or both.The parameters are rather continuous.

Insights and implications.The greater the degree of physical involvement by the customer in the service process, the more likely service personnel, equipment, and facilities are to form an important part of the service experience.Customers may choose suppliers by the appraisal of these elements and evaluation of the output.Managers may get insights from other service businesses with similar facilities/people emphasis. (E.g. hospitals may import from hotels, public accounting firm – management consulting company).However, marketing strategies used by one type of service in an industry may not be generalizable to other services offered by that same industry (e.g. conventional and electronic banking, hotels and motels).People based services are harder to manage than equipment-based (in general).General trend – switch to self-service (in what industries?).

WHAT TYPE OF RELATIONSHIPS DOES THE SERVICE ORGANIZATION HAVE WITH ITS CUSTOMERS?Continuous relationship or discreet transaction?

Nature of service delivery

Type of relationship between the service organization and its customersMembership relationship No formal relationship

Continuous delivery of service

Insurance;Cable TV subscription;

Radio station;Police protection;

College enrollment;Banking

Lighthouse;Public highway.

Discrete transactions Long-distance calls;Theater series subscription;Travel on commuter ticket;Repair under warranty;Health treatment for HMO member.

Car rental;Mail service;Toll highway;Pay phone;Movie theater;Public transportation;Restaurant.

Insights and implications.Advantage of membership relationships is that it knows who its current customers are and, usually, what use they make of the services offered.Pricing also is “easier” with membership relationship through periodic (monthly) fees.However, multiple transaction payments may seem more fair.Continuous delivery is typical only for “public goods”.Discrete transactions make customers “anonymous” what makes marketing harder, since suppliers are less informed about who their customers are and what use each customer makes of the service.In general, businesses tend to create formal on-going relationships with customers. (Why? Examples?)

HOW MUCH ROOM IS THERE FOR CUSTOMIZATION AND JUDGMENT?In contrast to “tangible world”, services are frequently custom made.Customization can proceed at least at two dimensions:how much the characteristics of the service and its delivery system lend themselves to customization and how much judgment customer-contact personnel are able to exercise in defining the nature of the service received by individual customers.

Extent to which customer-contact personnel exercise judgment in meeting individual customer needs

Extent to which service characteristics are customizedHigh Low

High Legal services;Health care/surgery;Architectural design;Real estate agency;Taxi service;Beautician;Plumber;Education (tutorials).

Education (large classes);Preventive health programs.

Low Telephone service;Hotel services;Retail banking (excluding major loans);Good restaurant.

Public transportation;Routine appliance repair;Fast-food restaurant;Movie theater;Spectator sports.

Insights and implications.Customization has its costs.Constant struggle b/w marketing (add value) and operations (reduce costs through standardization).Customization is not necessarily important to success.Standardized services tend to imitate customization (naming clients in hotels, morning calls, etc).

In general, customers like to get expected results.In first quadrant, providers’ role is first diagnosing the nature of the situation and then designing a solution. In this case neither provider nor receiver have clear vision what the result will be.Dividing the service in to diagnosis and implementation can be the options.Trial encounters can also remedy the uncertainty to some degree.

OTHER APPROACHES TO CLASSIFICATONDuration of benefits. Implications – relationships with clients (random vs. long-lasting ties).Duration of service delivery. (Telephone call vs. college). Longer services make more likely longer relationships with supplementary services.(Your service classification ideas?)

Buying process for services Procurement of Services: Basic Process This section describes the basic process for the procurement of externally performed services.The following graphic outlines all the possible steps in this process: 

  The procurement of services may involve the following steps:Determination and recording of requirementsDetermination of possible sourcesBid invitation procedureEntry of data from quotations submitted by biddersComparison of quotationsAward phase (order placement)Monitoring of purchase ordersEntry of services actually performedAcceptance of services performedVerification of invoices for services The following sections describe these steps in more detail.Determination and Recording of RequirementsDetermining RequirementsA need for certain services can arise in a user department of your enterprise, within the framework of a project (such as the translation of software) or with regard to regular maintenance work (such as the outsourcing of routine electrical jobs) for instance.The user department can either prepare a purchase requisition itself, or request Purchasing to do so. In each case, the requisition is the trigger for procurement activities in MM Purchasing.In the case of large-scale projects involving the use of the SAP application component PS Project System, purchase requisitions with precise performance dates are created from networks. These requisitions are transmitted to the MM Purchasing component

automatically. Service specifications from existing standard networks can be utilized to simplify the creation of such networks.If you use PM Plant Management in your enterprise, specifications for regular maintenance work or servicing will similarly be created outside the MM component and automatically forwarded to MM Purchasing for further processing. The purchase requisition is created without the need for any further entry of data by simply passing on the service specifications from an existing general maintenance task list, or from the maintenance task list for a functional location or piece of equipment, for example.Recording RequirementsAt the time a need is established, a document is created in the system as the basis for the procurement process. This can be a purchase requisition or an external purchasing document such as a request for quotation (RFQ) or a purchase order.The document can contain a set of service specifications with details of the necessary service or group of services.In this early phase of the procurement process, however, you also have the option of dispensing with service specifications altogether and only making rough provision for unplanned services by setting value limits.This method is especially suitable when outside firms are employed, since in this case the precise nature and extent of the relevant services are often unclear until the time they are actually performed.If you wish to ensure that the dual control principle applies to requisitions (and also purchase orders), you can subject these documents to a release (approval) procedure.This guarantees, for example, that the goods or services covered by a purchase requisition that exceeds a specified value may not be ordered without the approval, say, of an appropriate technical expert and the responsible head of department. The conditions for the release of a requisition for ordering purposes, and the points in your enterprise (individuals or departments) that must effect release (signify approval) are freely definable.

To ensure that the release process runs smoothly, you can make use of SAP Business Workflow. This ensures that even users who are unfamiliar with the SAP System can release (approve) purchase requisitions without any trouble by processing a mail in their integrated inbox.Determination of Possible SourcesAs a rule, a live system contains a large volume of purchasing data. In the source determination facility, MM External Services Management offers you an instrument for analyzing this data, enabling you to establish whether suitable potential bidders exist for the requested services and whether longer-term business relationships have already been set up with certain service providers in the form of contracts.The price simulation function can help you to choose the desired source of supply from the sources suggested by the system. In this case, the requisition can then be converted directly into a standard purchase order or a release order to be issued against a contract that already exists with the service provider.The system accelerates the award phase by automatically converting requisitions into standard Pos or contract release orders. The routine work involved in assigning sources can thus be eliminated.

In the event that services are requested for which there has previously been no requirement, i.e. for which no source currently exists in the system, a bid invitation process must be carried out.

MM Vendor Evaluation can simplify the task of searching for a suitable service provider. If you have assigned scores for quality and the timeliness of service performance to the service entry sheets of your existing providers, the analysis and comparison functions of MM Vendor Evaluation provide you with an additional decision criterion.For more information on this subject, please refer to the

MM - Vendor Evaluation documentation.The Process of Source Determination in the SystemInformation in various forms is available to the system in the process of determining potential sources for a requested service. The information it uses is as follows (in order of use):1. Vendor service conditionsThe system first checks whether master conditions whose validity period covers the delivery date shown in the purchase requisition exist for the service.If master conditions exist for one or more vendors, the system suggests these vendors as sources of supply.The prices and conditions of the relevant master condition are then suggested when you create a PO with reference to the assigned requisition.2.ContractsIf contracts that either contain the material group or the service shown in the purchase requisition exist in the system, the system suggests these contracts as sources of supply.If a purchase requisition has been assigned to a contract, the system can generate release orders (call-offs) against it.

In Customizing for Purchasing, you can define the requirements under which the sources for services are to be determined.For example, you can specify that a contract is to be suggested as a source if it contains at least oneservice from the requisition. Alternatively, you can specify that a contract is only to be suggested if it coversall the requested services.This means that you decide yourself, on the basis of the data situation in your system, whether the system is to suggest as many sources as possible (which may be more or less suitable), from which you then make your choice, or whether the system is to suggest the ideal source only.If your system only contains a small volume of data, the former approach is recommended. If you have a very well maintained system, you will wish to keep the number of suggested sources down and see only the best possible one. You can also enter the source for a purchase requisition manually. This function enables you to assign the requisition to a provider from whom you have not previously procured services, for example.Bid Invitation Procedure

The bid invitation phase is divided into two parts. First you create RFQs and then you record the incoming quotation data.Creating an RFQIf a bid invitation process is to be initiated for services, an RFQ must be created. In doing so, you can simplify and speed up the data entry process by referencing the preceding document, the purchase requisition.You can assign the RFQ to any number of different potential bidders. The system creates a separate RFQ for each bidder, each with a unique number. The RFQs are then transmitted to the bidders.Entry of Data From Quotations Submitted by BiddersWhen quotations (bids) are received from bidders, the latter’s prices and conditions are entered in the RFQs that already exist in the system. The status of the RFQs is then changed: the RFQs in fact become quotations.Comparison of QuotationsWhen all quotations have been received and entered, the most favorable one is quickly determined using the price comparison list.The price comparison list evaluates the quotations for you at different levels. You can make your decision on the basis of list of all quotations ranked by total value or compare the quotations at individual outline levels. The system provides you with comparative data right down to the individual service (task or activity) level if required.When you have identified the most favorable quotation, you award the work (issue a PO) to the bidder of your choice. Rejection letters can be sent to unsuccessful bidders automatically.Award Phase (Order Placement)The successful bidder receives either a standard purchase order or a release order issued against an existing contract, either of which is created by conversion of the relevant quotation (i.e. you are making use of already existing data in this case too).Monitoring of Purchase OrdersDuring the phase of service performance, the cumulative " actual" values (for the services actually performed) are continually updated in the underlying purchase order (standard PO or contract release order). This enables you to monitor the progress of a procurement project on an ongoing basis.You can obtain follow-on information on a PO via the monitoring functions PO history and release (order) documentation, and the comparison of planned/actual values within the service specifications. If necessary, you can monitor the completion confirmation for each individual service line.In addition, the comprehensive analyses provided by the SAP Logistics Information System (LIS) are available to you. These enable you to examine data such as the cost of maintenance measures in the first quarter of the current year and compare the cost situation in that quarter with the situation in the corresponding quarter of the preceding year, for example.Entry of Services Actually PerformedYou enter services that have actually been performed by means of service entry sheets. In doing so, you can reference the PO. This procedure accelerates the entry of planned services in particular. Each individual service is recorded together with quantities and values.

If a value limit for unplanned services has been set in the purchase order, you can maintain specifications for such services at the time you record their actual performance. The services are recorded with their precise value, and the system checks that the limit has not been exceeded.Acceptance of Services PerformedAfter services that have been performed for your firm have been recorded in the service entry sheet, one or more responsible persons can check that the work is satisfactory and formally accept the services.You can separate the process of service acceptance from that of service entry in order to maintain the dual control principle. However, it is also possible to have entry and acceptance carried out by the same individual or department in your enterprise.You have a choice between different procedures for service acceptance:The fastest option is acceptance at the touch of a key in the service entry sheet by the person responsible.However, you also can make service entry sheets subject to a release (approval) procedure.Depending on the setting in Customizing, there may be different release procedures involving different "release points" (individuals or departments) within your enterprise, each of which must successively signify their approval. The document is not regarded as accepted until the last release point has released it. This procedure enables you to ensure both technical and commercial correctness.Verification of Invoices for ServicesAt the conclusion of the procurement process, the service provider’ s invoices are checked for correctness. This involves comparing the value from the accepted entry sheet with that shown in the invoice and checking that the tax amounts are correct. If the value in the entry sheet is exceeded, the system issues a warning message. Invoices that have been verified and released to Financial Accounting are then paid automatically.

Instead of the conventional method of invoice verification, you can use the Evaluated Receipt Settlement (ERS) procedure. In this case, you do not wait for the service provider to submit an invoice, but create one in the SAP System on the basis of the data in the PO. The service provider receives a credit memo and a log enabling him to check the correctness of the former.With this, the procurement process for services is concluded. 

Excellent customer service and high customer satisfaction must start with

understandingcustomer expectations. You need to know who your customers are and what

they want.

When measuring customer satisfaction, companies generally ask customers whether their

product or service has met or exceeded expectations. This is an important question to ask and is

a key factor behind satisfaction.

When customers have high expectations and the reality fall short, they will be disappointed and

will likely rate their experience as less than satisfying. For this reason, luxury resort, for example,

might receive a lower satisfaction rating than a budget motel—even though its facilities and

service would be deemed superior in ‘absolute’ terms.” - Marketing MetricsCustomer expectations set the bar for customer satisfaction which also affects repurchase

decisions and customer loyalty. If a customer feels like you did not deliver a service that was

expected, they won’t come back and buy from you again. On the flip-side, if you deliver a service

that exceeds customer expectations, you can bet they will come back to buy again, and tell all their friends about the experience.

One of my favorite quotes about customer expectations is from Roy Hollister Williams, a best-

selling author and marketing consultant best known for his Wizard of Ads trilogy.

“The first step in exceeding your customer’s expectations is to know those expectations.” – Roy Hollister WilliamsHere’s what you’ll find in this complete guide to customer expectations:

The hard facts with included research

Benefits of understanding customer expectations

Knowing your customers’ needs

Setting customer expectations

Meeting customer expectations

Fixing and resetting expectations

4 examples of companies exceeding customer expectations

The hard facts about customer expectations

A study by A. Parasuraman, Leonard L. Berry and Valarie A. Zeithaml which was posted by

the MIT Sloan Review, found these key insights when they were researching customer

expectations across 16 focus group participants:

Customers expect service basis – there is a perceived expectation that every customer

has when going into a business relationship. For example, a hotel customer thinks that

when they pay more they expect more.

The service process is the key to exceeding expectations – companies are supposed

to be accurate and dependable and provide the service they promised. It’s unlikely for

a hotel to exceed customer expectations if they only just have the customers room

ready. The opportunity lies in the ability to surprise the customer with an

uncommon swiftness, face, courtesy, competence, commitment, or understanding.

Customer expectations are duel-leveled – The study found that customers’

expectations had two levels: desired and sufficient. The desired level is the service the

customer hopes to obtain while the sufficient level is the service which the customer

finds acceptable.

Customers want relationships – relationships are important to customers. Many of the

customers interviewed want to be ‘relationship customers’, they want ongoing,

personalized relationship with the same representative from the company. They want

a company representative to contact them, rather than always having to initiate contact

themselves.

Manage promises – to manage expectations, companies can first start managing their

promises. The study found that some observers recommended deliberately under-

promising the service to increase the likelihood of exceeding customer

expectations. This is something I regularly recommend to our customers all the

time. There’s nothing worse than over-promising and under-delivering! Keep in mind

that there are some risks with under promising as it can reduce your competitive

appeal, so make sure you are aware of your competitive environment.

It is essential for businesses to manage customer satisfaction. To be able do this, firms need a

reliable way to measure satisfaction. A customers’ expectation is that metric.

A lot can go wrong during your business relationship with customers; it’s necessary to make sure

you are always thinking about setting expectations, meeting expectations or resetting

expectations.

The benefits of understanding customer expectations

Customer satisfaction is a result of the service level you deliver compared to what your customer

expects to receive.

Here are the four benefits you can get from understanding customer expectations:

It lets you know what service levels are expected to keep customers happy and achieve

high customer satisfaction

It enables employees to focus on fulfilling customers’ expectations

It gives you the opportunity to exceed expectations and create raving advocates

It can help you resolve customer complaints. Since complaints are a result of failing to

meeting expectations, you have the ability to quickly fix the problems and retain the

business

Understanding your customers’ needs

Excellent customer service means different things to different customers. In order to understand

what your customers feel is a good level of service, you first need to,ask them. Find out what your

customer wants from your product or service. Now work out how and whether you can meet

those needs.

If your customers need 24/7 live chat support, you must find a way to make it available. I like to

you set expectations based on customer needs.But I can’t afford to give them 24/7 support, Ross.

That might well be the case, so you must ensure your product or service is priced accordingly so

you can meet needs while being profitable. Something might have to give, but remember the

minute you start not meeting customer’s needs, that’s when you risk losing their business.

Most customers have a set of basic needs that they want from a service, make sure you

understand them and work them into your customer service strategy.

Read more: Know your customers’ needs

Setting customer expectations

Right from the first contact you have with a customer it’s important to set expectations. Too many

times I’ve talked to customers where they’ve had sales guys over promise and set expectations

so high that their poor account managers had no chance of meeting them.

Once you now know what your customer needs, you can begin setting expectations. Here you

can tell customers what service levels they can expect to receive, what support is available to

them, what results they should be getting and what KPI’s you’ll be working towards. Every

industry and even every customer might have a different set up expectations. This is because

there needs will be different, so you must adjust accordingly.

At R&G Technologies, the sales guys and account managers are very transparent with all

customers. They take the approach of leaning on the side of under-promising so that they are

always seen to be exceeding customer expectations. This works very well for them because they

get a lot of happy customers and a lot of business referrals. Gordon Tan, Managing Director of

R&G, instructs his employees to treat every customer interaction as if they were going to ask for

a business referral once the job was complete. This is a great way to set the scene and

encourage employees to give a super level of service.

Related: How to set and meet customer expectations

Meeting customer expectations

Meeting customer expectations is the most valuable part of customer satisfaction. A satisfied

customer is one that has had their expectations met. To do this, you must make sure you deliver

a consistent level of service that is based on the key areas and KPI’s you have set for each

customer when you set expectations.

There are many ways you can do this. I recommend breaking your product or service packages

up into different levels. For example, at KISSmetrics they have Starter, Basic and Professional

plans. Each plan has different customer expectations that have been established and need to be

met.

The goal here is to not just meet customer expectations; it should be to ‘wow’ customers and

exceed them. When you exceed expectations, you create an experience that the customer

remembers. This experience is often passed onto friends which generates word of mouth

referrals and can help create a positive impression of your company.

An awesome example of exceeding expectations was showed by a customer service rep at

Netflix. He went above and beyond the required level of service when chatting to a customer via

live chat. Netflix service rep Michael responded to a live chat inquiry by introducing himself as

“Captian Mike of the good ship Netflix” and then asked which member of the crew he was

speaking with. “Lieutenant” Norm took the bait, responding as if he was a ranking Star Fleet offer

from Star Trek. The live chat correspondence continued for five minutes while the problem was

identified and a solution provided. Michael didn’t need to add the personal touch and act like he

was on Star Trek, but he did. That experience exceeded Norm’s expectations and he felt the

need to post it up on social media sites. It soon went viral.

See also: The full article about the Awesome Netflix Customer Service Conversation.

Fixing and resetting customer expectations

From time to time you are going to fail to meet customers’ expectations. It’s the nature of the

beast. There are a number of reasons why this might happen from poor customer service, under-

trained staff, expectations set incorrectly, or even growing pains where expectations have

changed.

The key is how,you go about acknowledging you have stuffed up and how you put systems in

place to fix and reset customer expectations. What I like to recommend is immediately when you

have find out that you’ve failed to meet expectations is to call your customer. Get the complete

picture of what’s going on and try to tee up a face to face meeting. This shows that you really

care about their business.

See also: 9 Customer Retention Strategies that work

At the meeting your aim will be to fix any discrepancies that have caused the problem in the first

place. Some will be fixable like training employees, but you may also need to reset customer

expectations. Here you’ll have to explain to your customer that things have changed. For

instance, one of our Client Heartbeat customers (an IT Support company) was experiencing

some really bad customer satisfaction scores. It turns out that the expectations from the

customers were off. The company had grown significantly over the past three years and the initial

customers who would get serviced within two hours, now had to wait up to six hours. The

company’s service levels had changed, as it grew bigger, they were not able to be as quick and

responsive as they use to be. They were now a much bigger company and had bigger systems in

place to manage the service levels.

Unfortunately during this growth, the change was not passed on to the early customers, so as a

result; there expectations were still as if they were three years ago. They were expecting to be

serviced within two hours,  just like it use to be.

Now that it was taking six hours, they felt the service was not living up to expectations and

considered it bad. You should of seen the customer satisfaction scores, they were 4/10 … 5/10 –

really worrying!

I worked with the company to develop a strategy that involved resetting customer expectations and educating customers on what service level they should expect moving forward.

The initial customers were told why this change had happened and be assured their business

was still extremely important to the company.

So far everything has been going well for the company and the news has been well received by

customers. A lot of customers only knew the company had experienced growth and that the

environment was different to what it was like three years ago. They just needed to be educated

and informed.

4 amazing examples of companies exceeding customer expectations

1. Amazon exceeds expectations with delivery

Amazon has been known for outstanding customer service, consistently outdoing their customers’

expectations. One particular example of this involved Joe Nocera in the Christmas of 2007.

Joe bought a PlayStation 3 from Amazon, a $300 gift for his son. Like most things you buy online,

it was shipped to Joe’s apartment and since he was at work, left at the doorstep (signed by a

neighbor). Unfortunately for Joe, someone saw the package and took it before he arrived home.

Distraught, Joe contacted Amazon, knowing full well it was not their responsibility but thought

he’d give it a go, a Hail Mary.

To Joe’s surprise, the Amazon customer service representation was very understanding and

without a blink, had another PlayStation 3 shipped out to Joe, arriving on Christmas Eve, just in

time! Amazon didn’t even charge him for shipping!

This is a great example of Amazon exceeding Joe’s expectations. They went above and beyond,

something that 99% of companies wouldn’t have done. As a result, they have one very happy

and loyal customer who will forever be spreading the love and talking about his amazing

experience.

Fun fact:

Amazon actually aims to get you your packages faster than your predicted delivery date. So when

it says three days to arrive, they’ll do all they can to get it there in two –exceeding your

expectations. Crazy right? But how can they do that? According to theGrasshopper blog,

Amazon takes advantage of local distributors and freelance couriers.

Read more about the lost PlayStation 3: Put Buyers First? What a Concept2. Zappos – never argue about returns“Zappos is a customer service company that just happens to sell shoes.” – Tony Hsieh, CEO of Zappos.com

Zappos is considered by many as the company that delivers the worlds best customer service.

They are always going out of their way to exceed customer expectations – it’s literally ingrained in their culture.

In this particular instance, one customer required some new hard-soled shoes as she had just

come out of some harsh medical treatments which left here feet number and sensitive to

pressure. Unaware of what shoes would work, she ordered six pairs, knowing the company had

a 100% returns policy.

The shoes arrived promptly and two hit the mark, perfectly. So she got on the phone to chat with

a customer service representative to find out what she needed to do to return the other four. One

thing led to another and the two got chatting about diabetes-related issues that the customer and

customer service rep’s father had in common.

Two days later, an enormous bouquet of lilies and roses arrived at her door, from the Zappos

customer service representative!

This gesture showed exactly what Zappos is all about. They really cared about their customer

and went beyond what was expected to send her some beautiful flowers that left a lasting

impression. The customer has since vowed to buy every pair of future shows from Zappos.

By focusing on delivering superior customer service, Zappos had exceeded expectations.

Read more about this amazing customer service from Zappos

Fun fact:

Zappos has a 100 percent satisfaction guaranteed return policy. The company will never fuss

about any return. In fact, Zappos actually encourages customers to order several products, check

them out, and return what they don’t want. Here’s a Zappos-produced video on the company’s

return policy. – Armando Roggio3. How Callaway keeps customers coming backI came across this great example of excellent customer service in Gregory Ciotti’s recent article

on the HelpScout Blog.

It involves Callaway, an upmarket manufacturer of golf equipment. In this instance of exceeding

customer expectations, George, an avid Callaway user, emails the Callaway Customer Service

Team to inquire about getting a replacement grip for his putter. George noted in the email that he

had been searching the internet for a place to buy a replacement grip, but just couldn’t find

anywhere (see the transcript below).

The email requested if Calloway had any grips in stock and he’d be happy to pay a fair

amount for a replacement, that’s how much he loved his putter J.

The response from Callaway representative Sean was impressive. He simply asked for a home

address and said he’d ship one over for free. Easy, taken care of, no questions asked.

This is a great example of a company doing something small, but certainly exceeding a

customers’ expectations for the service. George was happy to pay (probably a premium), but

Callaway recognized this is an opportunity to offer excellent customer service and arrange a

replacement for free.

George shared his story via Reddit and the community was very impressed. Here are a couple

of quotes from Reddit users.

Bmcclure937 said, “Callaway definitely has great customer service. This is part of the reason why

I love their products (bags, irons, drivers, putters).”

Casfacto added, “Customer Service win! I just wish I used my putter enough to need a new grip.”

And George (george91) also followed up with, “I want to buy more Callaway products. Lots

more.”

All in all, great job by Callaway, definitely setting the bar high for all golf manufacturers!

If you enjoyed this example, I definitely suggest you check out Gregory’s seven examples of excellent customer service. You won’t be disappointed.

4. Good example of failure to meet customer expectations, then fixing itNot every customer experience is going to turn out a winner for your company. It’s important to

realize when you’ve stuffed up and make it right, quickly.That’s exactly what happened to a customer who purchased a wallet from Rogue Wallet. Reddit

user br4in,  shared his experience with the company via a on Reddit.br4in had bought a wallet from Rogue Industries in 2009 and had noticed some material coming

loose. Then, out of the blue (he never contacted the company), he received a package from

Rogue containing a brand new replacement and this letter. Here’s an extract from the letter:

The unit which we shipped out to you may not meet your expectations. And at the end of the day,

those the  only ones that really count. If those expectation were met, that is great – but if they

haven’t been, then please accept our apologies.

Based upon some very appreciated customer feedback, I have decided to replace your existing

vegan wallet with a complete free upgrade. Out supplier let us down but that responsibility,

ultimately, is our and ours alone. - Rogue Industries

What a stunning thing to do. My hat is off to Rogue Industries, this is a great example of

recognizing the company had failed to meet expectations, then went about fixing the expectations

and sending out a replacement product, free.

All their customers must be feeling very satisfied, and I dare say Rogue Industries has gone a long way to retaining some of their not so satisfied customers who may have been upset with the

quality of the original product.

Read the entire Reddit Conversation here

High Customer Satisfaction starts with understanding customer expectations

By understanding customer expectations and knowing how to set and meet

them, you can go a long way to achieving high customer satisfaction. Customers

know what is a good level of service and what sucks. Use the information I’ve

discussed today to sure you set expectations correctly right from the first

encounter. Then implement the strategies I’ve recommended to ensure you meet

expectations and keep customers happy.

Customer Expectations: 7 Types all Exceptional Researchers Must UnderstandDecember 10, 2012

Customer satisfaction reflects the expectations and experiences that the customer has with a product or service. Expectations reflect both past and current product evaluation and use experiences.

Think about any major purchases you’ve made recently. Did you research your purchase? Did you collect information from advertising, salespersons, friends, associates, or even test the product?

This information influences our expectations and gives us the ability to evaluate quality, value, and the ability of the product or service to meet our needs.

Customers hold both explicit and implicit performance expectations for attributes, features, and benefits of products and services.

The nature of these expectations will dictate the form and even the wording of customer satisfaction surveyquestions.Let me repeat this: the nature of these expectations will dictate the form and even the wording of your satisfaction questions.

Understanding the following 7 customer expectations is critical before you set out to measure customer satisfaction.

1. Explicit Expectations

Explicit expectations are mental targets for product performance, such as well-identified performance standards.

For example, if expectations for a color printer were for 17 pages per minute and high quality color printing, but the product actually delivered 3 pages per minute and good quality color printing, then the cognitive evaluation comparing product performance and expectations would be 17 PPM – 3 PPM + High – Good, with each item weighted by the associated importance.

2. Implicit ExpectationsImplicit expectations reflect established norms of performance. Implicit expectations are established by business in general, other companies, industries, and even cultures.

An implicit reference might include wording such as “Compared with other companies…” or “Compared to the leading brand…”

3. Static Performance ExpectationsStatic performance expectations address how performance and quality are defined for a specific application. Performance measures related to quality of outcome may include the evaluation of accessibility, customization, dependability, timeliness, accuracy, and user friendly interfaces.

Static performance expectations are the visible part of the iceberg; they are the performance we see and—often erroneously—are assumed to be the only dimensions of performance that exist.

4. Dynamic Performance ExpectationsDynamic performance expectations are about how the product or service is expected to evolve over time. Dynamic expectations may be about the changes in support, product, or service needed to meet future business or use environments.

Dynamic performance expectations may help to produce “static” performance expectations as new uses, integrations, or system requirements develop and become more stable.

5. Technological ExpectationsTechnological expectations focus on the evolving state of the product category.

For example, mobile phones are continually evolving, leading to higher expectations of new features.

Mobile service providers, in an effort to limit a consumer’s ability to switch to new technology phones, have marketed rate plans with high cancellation penalties for switching providers, but with liberal upgrade plans for the phones they offer.

The availability of low profile phones with email, camera, MP3, blue tooth technology, and increased storage will change technology expectations as well as the static and dynamic performance expectations of the product.

These highly involving products are not just feature based, but raise expectations that enhance perceptions of status, ego, self-image, and can even evoke emotions of isolation and fear when the product is not available.

6. Interpersonal ExpectationsInterpersonal expectations reflect the relationship between the customer and the product or service provider.

Person to person relationships are increasingly important, especially where products require support for proper use and functioning.

Support expectations include interpersonal sharing of technical knowledge, ability to solve a problem, ability to communicate, reduced time to problem resolution, courtesy, patience, enthusiasm, helpfulness, assurance that they understood my problem and my situation, communication skills, and customer perceptions regarding professionalism of conduct, often including image and appearance.

7. Situational ExpectationsIn building a customer satisfaction survey, it is also helpful to evaluate why pre-purchase expectations or post-purchase satisfaction may or may not be fulfilled or even measurable.

The following conditions may be considered:

Expectations may not include unanticipated service attributes that are new to that consumer.

Expectations may be based on vague images, thereby creating wide latitude of acceptable performance and expected satisfaction.

Product performance expectations and evaluations may be sensory and not cognitive, as in expectations of taste, style or image. Such expectations are not only difficult to evaluate and understand, but may change over time and with consumption.

The product use may attract so little attention as to produce no conscious affect or cognition (evaluation). When measured, this results in meaningless satisfaction or dissatisfaction information.

There may have been unanticipated benefits or consequences of purchasing or using the product (such as a uses, usage situations, or features not anticipated with purchase).

The original expectations may have been unrealistically high or low.

The product purchaser, influencer and user may have each been a different type of individual, each having different expectations.

Your research study may also benefit from considering expectations related to perceived quality and value.

Customer ExpectationsRemember to keep these 7 customer expectations in mind before you set out to measure customer satisfaction. Understanding these will ensure that your customer satisfaction research will provide accurate insights. Having a top-notch online survey software is one thing, using it correctly is another.

Service marketing mixThe 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 product marketing 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 product marketing mix consists of the 4 P’s which are Product, Pricing, Promotions and Placement. These are discussed in my article on product marketing 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.Product – The product in service marketing mix is intangible in nature. Like physical products such as 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 heterogenous, perishable and cannot beowned. The service product thus has to be designed with care. Generally service blue printing is done to define the service product. For example – 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.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.Promotion – Promotions have become a 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.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 ambience 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 cost and 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.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.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 of a service company in delivering its product is 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 of the service product reaching the end customer.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. Several times, physical evidence is used as a differentiator in service marketing. Imagine a private hospital and a government hospital. A private hospital will have plush offices and well dressed staff. Same cannot be said for a government hospital. Thus physical evidence acts as a differentiator.This is the service marketing mix (7p) which is also known as the extended marketing mix.