SALALE UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MARKETING MANAGEMENT

Course Title: Services Marketing

Course Code: Mktm 3041
Credit Hours: 3hrs

Compiled by: Nardos Argeta

Reviewed by: Shawanesh Ayele (MA)

February, 2025
Fitche, Ethiopia
 Service Marketing module

Table of Contents
CHAPTER ONE ........................................................................................................................ 1
INTRODUCTION TO SERVICE MARKETING .................................................................... 1
1.1. The Concept of Services.................................................................................................. 1
1.2. Characteristics of Services Vs Products .......................................................................... 2
1.3. Rationale of Studying Marketing of Services ................................................................. 5
1.4 Impact of Technology on Services ................................................................................... 7
1.5 The Service Triangle ........................................................................................................ 9
1.6 Gap Model of Service Quality........................................................................................ 10
1.7 The Services Marketing Mix .......................................................................................... 12
ACTIVITY QUESTIONS .................................................................................................... 14
CHAPTER TWO ..................................................................................................................... 14
CONSUMER BEHAVIOR IN SERVICES ............................................................................. 14
2.1. Categories of Consumer Products: Search Qualities, Experience Qualities & ............. 15
Credence Qualities ............................................................................................................... 15
2.2 Consumer Decision Making Process .............................................................................. 16
2.3 Role of Culture in Services ............................................................................................ 18
ACTIVITY QUESTION ...................................................................................................... 19
CHAPTER THREE.................................................................................................................. 20
CUSTOMER EXPECTATIONS OF SERVICES ................................................................... 20
3.1. Meaning and Types of Service Expectation .................................................................. 20
3.2 Factors that Influence Customer Expectations of Service.............................................. 21
3.3 Model of customer service expectations ........................................................................ 24
3.4 Issues involved in customer service expectations .......................................................... 25
ACTIVITY QUESTIONS ........................................................Error! Bookmark not defined.
CHAPTER FOUR .................................................................................................................... 26
CUSTOMER PERCEPTION OF SERVICE ........................................................................... 26
4.1. Customer perception...................................................................................................... 26
4.2 Concept of customer satisfaction and service quality. ................................................... 26
4.3 Service quality dimensions............................................................................................. 28
i
Salale University, Department of Marketing Management
 Service Marketing module

4.4 Service Encounter or Moment of Truth ......................................................................... 30

4.5 Strategies for influencing customer perception .............................................................. 31
ACTIVITY QUESTIONS .................................................................................................... 32
CHAPTER FIVE...................................................................................................................... 33
BUILDING CUSTOMER RELATIONSHIPS ........................................................................ 33
5.1. Concept of Relationship Marketing .............................................................................. 33
5.2 Goals of Relationship Marketing ................................................................................... 33
5.3 Benefits of Long-Term Relationship to Customers and Firms ...................................... 34
5.4 Relationship Value of Customers ................................................................................... 35
5.5 Customer Profitability Segments.................................................................................... 36
5.6 Levels of Relationship Strategies ................................................................................... 37
ACTIVITY QUESTION ...................................................................................................... 39
CHAPTER SIX ........................................................................................................................ 40
SERVICE RECOVERY .......................................................................................................... 40
6.1 The Concept of Service Recovery .................................................................................. 40
6.2 Importance of Service Recovery .................................................................................. 41
6.3 The Service Recovery Paradox ...................................................................................... 41
6.4 Customer Complaint....................................................................................................... 42
6.5 Types of Customer Complaint Actions .......................................................................... 42
6.6 Service Recovery Strategies ........................................................................................... 43
6.7. Service Guarantees ........................................................................................................ 44
ACTIVITY QUESTIONS .................................................................................................... 46
CHAPTER SEVEN.................................................................................................................. 47
SERVICE DESIGN AND DEVELOPMENT ......................................................................... 47
7.1 Challenges of Service and Design .................................................................................. 47
7.2 New Service Development ............................................................................................. 47
7.3 Types of New Services ................................................................................................... 48
7.4 Stages in New Service Development ............................................................................ 49
7.5 Service Blueprinting ....................................................................................................... 52
7.6 Quality Function Development ...................................................................................... 53
ii
Salale University, Department of Marketing Management
 Service Marketing module

ACTIVITY QUESTIONS .................................................................................................... 53

CHAPTER EIGHT .................................................................................................................. 54
DELIVERING AND PERFORMING SERVICE ................................................................... 54
8.1 Employee‘s Role in Service Delivery ............................................................................ 54
8.2 Roles of Customers in Service Delivery ........................................................................ 56
8.3 Strategies for Enhancing Customer Participation .......................................................... 56
8.4 Concept of Service Intermediaries ................................................................................. 57
8.5 Common Issues Involving Intermediaries ...................................................................... 58
8.6 Concept of Electronic Channels and Its Challenges in Service Industry ....................... 59
8.7 Strategies for Effective Service Delivery through Intermediaries ................................. 61
ACTIVITY QUESTION ...................................................................................................... 61
CHAPTER NINE ..................................................................................................................... 62
INTEGRATED SERVICES MARKETING COMMUNICATIONS (IMC) .......................... 62
9.1 Concept of Integrated Marketing Communication ......................................................... 62
9.2 Reasons for Service Communication Problems ............................................................. 63
9.3 Strategies to Match Service Promises with Service Delivery ........................................ 64
9.4 Concept of Customer Expectations ................................................................................ 64
9.5 Managing Internal Marketing Communication .............................................................. 65
ACTIVITY QUESTIONS .................................................................................................... 66
CHAPTER TEN....................................................................................................................... 67
PRICING OF SERVICES ........................................................................................................ 67
10.1 Concept of Value to Customers.................................................................................... 67
10.2 Role of Price as an Indicator of Service Quality .......................................................... 67
10.3 Approaches to Pricing Services .................................................................................... 67
10.4 Strategies Used by Companies to Price Services ......................................................... 68
ACTIVITY QUESTION ...................................................................................................... 69
CHAPTER ELEVEN ............................................................................................................... 70
SERVICES DIFFERENTIATION, QUALITY AND ............................................................. 70
PRODUCTIVITY .................................................................................................................... 70
11.1 Improving Service Differentiation ............................................................................... 70
iii
Salale University, Department of Marketing Management
 Service Marketing module

11.2 Concept of service quality ............................................................................................ 71

11.3 The Gap model ............................................................................................................. 72
11.4 Measuring& improving service quality........................................................................ 74
11.5 Defining and Measuring Productivity .......................................................................... 75
11.6 Improving Service Productivity ................................................................................... 77
ACTIVITY QUESTIONS .................................................................................................... 80

iv
Salale University, Department of Marketing Management
 Service Marketing module

CHAPTER ONE
INTRODUCTION TO SERVICE MARKETING
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Services
 Outline the difference between Service and Physical goods
 Discuss the Reasons for Growth of Service Sector
 Understand the Basic Concepts of Services Triangle
 Explore the Impact of Technology on Services
 Examine the Gaps Model of Service Quality
 Discuss Service Marketing Mix
1.1. The Concept of Services
Economists have divided all industrial and economic activities in to three main groups: Primary, secondary,
and tertiary. Primary activities include agriculture, fishing and forestry. Secondary activities cover
manufacturing and construction; tertiary activities refer to the services and distribution. In the pre-
industrialized era, primary activities were the main stay of the economy. The industrial Revolution marked
the beginning of increasing importance of secondary activities and the gradually decreasing the status of
agriculture and allied activities. The period following World War II saw USA become the world‘s first
―service economy‖. The term service is rather general in concept, and it includes a wide variety of services.
Faced with such a broad spectrum we need to define the concept of service from a marketing view point.
Kotler offers one such definition: a service is any activity or benefit that one party can offer to another that is
essentially intangible and does not result in the ownership of anything. Its production may or may not be tied
to physical product. W. J. Stanton views services as fulfilling certain wants and states that ―services are those
separately identifiable, essentially intangible activities which provide want-satisfaction and are not
necessarily tied to the sale of a product or another service.
In common services have the following characteristics:-
 services are performed, not produced
 services are more people-based than technology- based
 services supply cannot be easily changed to meet the suddenly changed market needs
 service demand has greater elasticity
 services face unique quality control issues and a larger number of problems in customer servicing.

1
Salale university, Department of Marketing Management
 Service Marketing module

 service quality is an amalgam(combination ) of services.

WWII marked a milestone in the explosive rise of service industries. At the end of the war major social
and economic changes transformed western economies. Philip Kotler has distinguished four categories
of offer, varying from a pure good to a pure service:
 A pure tangible good such as soap, tooth paste or salt. no services accompany the product.
 A tangible good with accompanying services to enhance its consumer appeal. Computers are an
example.
 A major service with accompanying minor goods and services such as first class airline travel.
 A pure service like baby-sitting and psychotherapy.
This categorization starts to make it clear why it is difficult either to define or generalize about services.
Services vary considerably over a range of factors, including whether they are directed at businesses or
individual consumers; whether they require a customer‘s physical presence; and whether they are equipment
intensive or people intensive (involve).
1.2. Characteristics of Services Vs Products
Services have a number of unique characteristics that make them so different from products. Some of the
most commonly accepted characteristics are:
A. Intangibility: When you buy soap, you can see, feel, touch, smell and use it to check its
effectiveness in cleaning. But when you pay fees for a term in college, you are paying for the benefit of
deriving knowledge and education which is delivered to you by teachers. In contrast to the soap where
you can immediately check its benefits, there is no way you can do so in case of the teachers who are
providing you the benefits.
The distinguishing feature of a service is that its intangible aspect is dominant. J.Bateson has described
the intangible characteristics of services which make them distinct from products. These intangible
features are:
 A service cannot be touched
 Precise standardization is not possible
 There is no ownership transfer
 A service cannot be patented
 Production and consumption are inseparable
 There are no inventories of the service
 Middlemen role are different

2
Salale university, Department of Marketing Management
 Service Marketing module

 The consumer is part of the production process so the delivery system must go to the market or the
consumer must come to the delivery system.
B. Inseparability: In most cases a service cannot be separated from the person or firm providing it. A
service is provided by a person who possesses a particular skill (Singer) by using equipment to handle a
tangible product (dry cleaning or by allowing access to or use of physical infrastructure (hotel, train). A
plumber has to be physically present to provide the service; the beautician has to be available to
perform the message. This is in direct contrast to products which can be produced in the factory today,
stocked for the next two, three or more months and sold when an order is procured.
C. Heterogeneity: The human element is very much involved in providing and rendering services and
this makes standardization a very difficult task to achieve. The doctor who gave you his complete
attention in your last visit may behave a little differently the next time. The new bank clerk who cashed
your cheques may not be as efficient as the previous one and you have to spend more time for the same
activity. This is despite the fact that rules and procedures have been laid down to reduce the role of the
human element and ensure maximum efficiency. Airlines, restaurants, banks, hotels have large number
of standardized procedures.
D. Perishability: Services cannot be stored and are perishable. A car mechanic who has no cars to
repair today or unsold seats in a cinema hall represent a service capacity which is lost forever. Apart
from the fact that a service cannot fully utilized represents a total loss, the other dimension of this
perishability aspect is that most services may face a fluctuating demand. There is a peak demand time
for buses in the morning and evening (office hours). Certain train routes are always more heavily
booked than others. This fluctuating demand pattern aggravates the perishability characteristics of
services.
E. Ownership: When you buy a product you become its owner- be it a pencil, book, shirt, refrigerator
or car. In the case of a service, you may pay for its use but you never own it. by buying a ticket you can
see the evening film show in the local cinema theater; by paying wages you can hire the services of a
chauffeur who will drive your car; by paying the required charges you can have a marketing research
firm survey in to the reasons for you product‘s poor sales performance, etc. in case of a service, the
payment is not for purchase, but only for the use or access to or for hire of items or facilities.

A service is purchased for the benefit it provides. If we closely examine the reasons why products are
purchased, we find that they are bought because they provide certain intangible benefits and

3
Salale university, Department of Marketing Management
 Service Marketing module

satisfactions. From a marketing view-point, the same concepts and techniques are applicable for both
products and services.
Table 1.1: Differences between Physical Goods and Services
Physical good Service
A thing Activity or process
Tangible Intangible
Homogeneous Heterogeneous
Production and distribution are separated from consumption Production, distribution and consumption are simultaneous
process.
Core value produced in factory Core value produced in buyer-seller interactions.
Customers do not participate in the production process. Customer may participate in the production
Can be kept in stock Cannot be kept in stock
Transfer of ownership No transfer of ownership

Table 1.2 Implication of Service Characteristics and ways of overcoming them

Service Characteristics Implications Means of overcoming Characteristics
1.Intaangiability - Sampling difficult - Focus on benefit
- Difficult to judge quality and value - Use brand names
- Not possible to patent or have copy right - Personalize service
- Relatively difficult to promote - Develop reputation
- Increase tangibility
2. Inseparability - Requires presence of performer - Learn to work in larger group
- Direct sale - Work faster
- Limited scale of operations - Train more service performers
- Geographical limited market
3. Heterogeneity - Difficult to standardize quality -Careful selection and training of personnel
Reduce role of human
-Define behavioral norms
- Mechanise and automate maximum possible
operations
-Reduce role of human element

4. Perishability -Cannot be stored

4
Salale university, Department of Marketing Management
 Service Marketing module

-Problem of demand fluctuation

5. Lack of ownership - Customer has access to but not ownership of facility- Stress advantages of non-ownership such as
or activity easier payments
1.3. Rationale of Studying Marketing of Services
] There are various reasons for the growth of the service sector. These can be divided in to demographic,
social, economic, political and technological changes.
A. Demographic Changes
The study of population reveals a general increase in the world population, high birth rate has give scope for
childcare centers, education institutions etc. as the baby boom generation began entering its years of prime
capacity in the late eighties, it became a prime target for a variety of services- fast food, entertainment etc.
the considerable increase in life expectancy indicated expanding market in the age group over 55 years-this
has created a new market for health care, leisure and tourism. There has been a movement of population from
rural to urban areas for over century, and also shift from city to suburbs. This again causes the need for
infrastructures and support services.
B. Economic Changes
The growth of corporate market and stock market is usually an indicator of growth of an economy. With an
overall economic liberalization, resource mobilization through capital market has reached unprecedented
heights. The growth of large firms has brought about greater dependence on special service providers like
market research, and advertising agencies. The economic reforms have ushered consumerism. Moreover,
there have been changes in the consumer purchasing power and spending patterns with middle class
explosion which is now emerging as the ‗consumption community‘.
C. Political and Legal Changes
De-regulation has opened many service industries (airlines, banking) to more intense competition generating
greater innovation and expansion. At the same time, many countries continue to strengthen consumer
protection laws to improve public security and to protect the environment. To increase in government
interaction in the trade sector has increase trade relationships between nations leading to development
tourism and hotel industry. Trading blocs such as North American Free Trade Agreements (NAFTA),
European Common Market etc.
D. Social Changes
The increase in single person household, smaller families and working women mean more discretionary
income, more time for travel and entertainment and also need for child care services. Changing life styles of

5
Salale university, Department of Marketing Management
 Service Marketing module

the masses due to cultural exchange and communication networks has resulted in continued emphasis on
services.
E. Technological Changes
Recent development in computer science and information technology has brought about convergence of
various technologies like telecommunication, entertainment, and data transmission. The influence of internet
has resulted in creasing mobility of educated labor force among countries, and paradigm shift in many
service industries like travel, banking, education, financial services, insurance etc.
Classification of Services
Classifying a service offers several benefits, such as:
 providing a better understating of the particular service under consideration
 highlighting the similarities as well as the differences between the service being classified and
other services, and
 Assisting in the development of marketing strategies and tactics.
Services in the same categories will face the same types of challenges and the same marketing strategy will
normally work for all services in a given category. However application of the strategy may have some
variation within each category. The same is true for marketing activities such as promotion, pricing, and
distribution; the same tactics tend to work for all services within a single category.
Levels of Classification of services
1. Nature of the organization
The first level of classification system deals with the nature of the organization. At this level the purposes,
structure, and type of their service is identified. Who is the target customer- a household consumer or
business organizations? Is it a profit or a non-profit venture? For instance, the College offers a formal
education for individuals in its regular and extension program. Besides it offers an external training and
consultancy service to external business, government offices, and NGOs.
2. Nature of the service
The second level of the service addresses the nature of the service in terms of the degree of tradability and
merchantability. Tradability refers to the trade-off between goods and services offered by a service firm. It is
the relative involvement between goods and services in the production of the service.
Merchantability refers to distance from which a customer can make a transaction with a service firm. It is the
relative distance between the customer and the service provider in the acquisition or performance of the
service. In terms of tradability, AAUCC is a pure service directed toward people. It is low in terms of
merchantability, which means the customer and the service provider both must be present when the service is
6
Salale university, Department of Marketing Management
 Service Marketing module

performed, it cannot be performed at arm‘s length such as in the case of cable television (like DSTV), long-
distance telephone service, or through computer. AAUCC is a pure service provider and as such it has to
address the issues of intangibility and Perishability.
3. Customer Relationship
At the third level, relationship can be either formal or informal. Formal relationships are used by facilities as
Ethiopian Television (ETV) or DSTV that charge individuals an annual fee or Ethiopian Telecommunication
Corporation (ETC) that charges a monthly fee. Informal relationships are pay-as-use systems like most of the
fitness centers in town. Where there is an informal relationship, demand is more difficult to forecast.
4. Nature of Demand
In terms of the fourth level demand can be greater, equal, or less than supply capacity of the firm. To reduce
the negative impact of Perishability, service providers must develop strategies to cope with fluctuating
demand. This goal can be accomplished by making simultaneous adjustments in demand, supply, and
capacity. The goal of these strategies is achieve parity and balance among the three. Demand currently
exceeds capacity for AAUCC during September to June. However, during July and August the capacity is
idle in the day program.
5. Service package
Service package is a group services and goods offered by a service firm. AAUCC offers multiple of services
like formal education in different degree and diploma programs, consultancy, and an external training
services.
6. Proportion of Tangibility and Intangibility
Using the characteristic of intangibility of services, Shostack proposed that all goods and services can be
placed on a tangibility intangibility continuum, with services clustering towards low to high intangibility.
Accordingly, services can be classified as those with a low intangibility content (a fast food restaurant) and a
pure service, having very high intangibility content (Education, consultancy, medical advice).
Tangible elements Intangible elements
 Fast foods Babysitting
 Cosmetics Education
 Clothing Air travel
 Soft drinks Legal services
 Sugar
1.4 Impact of Technology on Services
Technology, in particular information technology, has influenced the nature services themselves, how they
are delivered, and the practice of service innovation and service management. Here we overview just a few of
these basic changes and trends by identifying some key themes. We will weave these general themes related
7
Salale university, Department of Marketing Management
 Service Marketing module

to technology and service throughout our discussion of the individual service quality gaps and strategies to
close them.
1. Inspiring Service Innovation
Technology has been a basic force behind many service innovations now taken for granted, such as
automated voice mail, interactive voice response systems, Internet-based services, and various smart services
for example the ―connected car,‖ smart meters for monitoring energy consumption, and remote health
monitoring services. Internet-based companies like Amazon, e-Bay, and Second Life have sprung up,
offering radically new services for consumers. And, established companies have developed brand new
services based on information technology. For example, the Wall Street Journal offers an interactive edition
that allows customers to organize the newspaper‘s content to suit their individual preferences and needs.
Advances in information technology are also making it possible for entire suites of services including phone,
Internet, video, photography, and e-mail to be available through one device such as the iPhone and similar
products.
2. Providing Options for Service Delivery
Technology is also providing new opportunities for delivering existing services in more accessible,
convenient, and productive ways. Technology facilitates basic customer service functions (bill paying,
answering questions, checking account records, tracking orders), purchase transactions (both retail and
business-to-business), and learning or information seeking.

Over the past few decades, companies have moved from face-to-face service to telephone-based service to
widespread use of interactive voice response systems to Internet-based customer service and now to wireless
service. Technology also facilitates transactions by offering a direct vehicle for making purchases and
conducting businesses.

Finally, technology provides an easy way for customers to learn, do research, and collaborate with each
other. Access to information has never been easier. For example, more than 20,000 websites currently offer
health-related information, resulting in consumers having increasing involvement in their health decisions
and care.
3. Enabling Customers and Employees
Technology enables both customers and employees to be more effective and productive in receiving and
providing service. Through self-service technologies, customers can now serve themselves more effectively.
Via online banking, for example, customers can access their accounts, check balances, apply for loans, and
8
Salale university, Department of Marketing Management
 Service Marketing module

take care of just about any banking need they might have—all without the assistance of the bank‘s
employees. These online banking services are just one example of the types of self-service technologies that
are proliferating across industries. For employees, technology can provide tremendous support in making
them more effective and efficient in delivering service. Customer relationship management, sales support,
and product information software are broad categories of technology-based information that can aid frontline
employees in providing better service. These types of software also allow employees to customize and co-
create services to fit customer needs.
4. Expanding Global Reach
Technology also results in the potential for reaching out to customers around the globe in ways not possible
when, in the not-so-distant past, services were limited to local provision. The Internet itself knows no
boundaries, and therefore information, customer service, and transactions can move across countries and
across continents, reaching any customer who has access to the Web. Technology also allows employees of
international companies to stay in touch easily to share information and serve on virtual work team together,
thus allowing employees to work remotely and services to be provided by global workers.
1.5 The Service Triangle
The total marketing in services includes three different types of marketing. These are:
 External Marketing
External marketing goes from your business organization out to customers and prospective customers. This is
the traditional form of business marketing, showing customers how the services provided by your business
benefit them. External marketing includes advertising, your website and your company's social media efforts.
The purpose of external marketing is to fill the business pipeline with future business.
 Interactive Marketing
The side of the triangle between your employees and customers is called interactive marketing. This form of
marketing revolves around how your employees deliver the services your company provides.
The goal is to have highly satisfied customers who become long-term, repeat customers. The effectiveness of
the interactive marketing relates back to the internal marketing efforts of your business. Interactive marketing
is also how your employees keep the promises made by your external marketing efforts.
 Internal Marketing
Internal marketing is the side of the triangle between your organization and your employees who provide
your services to customers. Marketing issues include adequate training on the services to be delivered and
customer satisfaction service techniques. Internal marketing requires you to be involved with your employees

9
Salale university, Department of Marketing Management
 Service Marketing module

and let them know the goals and even problems facing the business. Internal marketing also can include a
performance rewards system for employees who deliver the highest level of customer service.

As can be seen from the triangle, the traditional marketing mix and marketing departments basically
address to ―External Marketing‖ only. However, all three sides are critical to successful services
marketing and the triangle cannot be supported in the absence of any one of the sides.
1.6 Gap Model of Service Quality
The Gap model of service quality was developed by Parasuraman, Berry and Zeithaml (1985), and more
recently described in Zeithaml and Bitner (2003). It has served as a framework for research in services
marketing, including hospitality marketing, for over two decades. The Service Quality Model, also known as
the GAP Model. Highlights the main requirements for delivering a high level of service quality by
identifying seven ‗gaps' that can lead to unsuccessful delivery of service.
GAP 1: The knowledge Gap
The first gap is known as the knowledge gap. This occurs when there is a disconnect between what a
customer wants or expects in service quality and what the management team of the service provider thinks
the customer wants or expects from the service delivery. This gap often occurs because there is a lack of
understanding, by the service provider, of what a customer expects from the service. Customers‘ expectations
from the service may vary based on past experience with the service, personal need, or word-of-mouth.
Service providers who do little to no customer research may experience this gap. In order to close the gap or
ensure a gap is not created, it is important for service providers to stay familiar to customers‘ needs and
wants before the service is provided, well as understand their satisfaction after the service is provided. Both
can be accomplished by conducting market research. Furthermore, gathering employee feedback can also
help understand more about the customer experience and the knowledge gaps that may exist, as employees
often speak directly with customers. These insights can similarly be gathered by conducting research,
10
Salale university, Department of Marketing Management
 Service Marketing module

although the target of the research in this case would be employees (and their insights into customers) rather
than the customers themselves. An advantage of this technique is that whereas consumers may be
uncomfortable to discuss, or may forget to mention, certain negative aspects of their experiences, employees
can provide these insights as outside observers.
GAP 2: Standard Gap
The second gap is the standards gap. This occurs when there is a difference between what the management
team wants and the actual service delivery specification that management develops for employees to follow
in delivering the service. The service delivery specifications are the detailed requirements in terms of how
and what service should be provided. This can occur because of management‘s inability to translate customer
expectations in to delivery systems that can meet those needs. The other way to look at it is that the
management team has not provided the appropriate service design and standards for employees to deliver the
expected service. In order to close or prevent this gap, it is necessary for management to develop policies and
procedures on how to deliver the service and to what standard. It also becomes important for management to
develop metrics to measure the service standard and to provide the appropriate training to employees.
GAP 3: The Delivery Gap
The third gap is the delivery gap. This gap can occur when there is a disconnect between the service standard
and the actual service delivered to the customer. If the first two gaps are closed, then the delivery gap can
occur when employees are unable to do what should be done to deliver the service. This can occur when
employees are not given the proper tools to deliver the service and the appropriate feedback when the service
delivered does not meet the standard. Again training, tools and feedback are critical to close this gap.
GAP 4: The External Communication Gap
The fourth gap is the communications gap. This happens when there is a difference in what the customer is
told they can expect and what service is actually delivered. Customers develop their expectations based on
marketing communications materials developed by the service provider. It is the difference between what is
promised to customers, either explicitly or implicitly, and what is being delivered. Hospitality companies use
advertising, personal selling, and sales promotion to inform, persuade, and remind guests about its products
and services. Showing beautifully appointed hotel rooms, refreshing swimming pools and luxurious lobby
areas in an advertisement communicates to the target customers. The extent of communications between the
company and the advertising agencies will affect the size of the gap. Over promising is commonly
responsible for the communication gap. Each gap has a cumulative effect from the preceding gaps. To close
this gap, it becomes especially important to be as realistic, honest, and accurate in marketing communications

11
Salale university, Department of Marketing Management
 Service Marketing module

to provide consumers with an accurate representation of what they should expect when the service is
delivered.
GAP 5: The Perception Gap
This gap can appear when there is a difference in what the customer expects from the service (prior to
consumption or purchase) and what the customer perceives of the service after it has been provided. This gap
can be either positive or negative and can affect the customer perception of service quality. Therefore, it is
important to understand customer perceptions through ongoing market research to manage their expectations.
GAP 6: The Interpretation Gap
This gap exists when the customers thinking about promises is inconsistent with the pre-service promises of
the service provider.
GAP7: The Service Gap
This gap results when service perception is not matching with customers‘ expectation, or the difference
between customer‘s expected service delivery and what they think they received.
1.7 The Services Marketing Mix
Companies are competing strategically through service quality for greater differentiation in today's
competitive marketplace. Successful companies focus on the services-dominant paradigm with investment in
people, technology, human resources policies, and compensation linked to service performance of
employees. This is important because contact employees‘ attitudes and behaviors significantly influence the
quality of service. They present the ―face and voice‖ of their organizations to customers.

The 4Ps marketing mix which represents Product, Process, Pricing and Promotion, have been most widely
employed as a model for product marketing. It shows the company preparing an offer mix of the product and
price, with an integrated promotion mix to reach the target consumers through the selected distribution
channels. The 4Ps of marketing have been the key areas where marketing managers allocate scarce corporate
resources to achieve the business objectives. Services have unique characteristics: intangibility,
heterogeneity, inseparability and perishability. To discern the differences between services and physical
products, Booms and Bitner suggested the extension of the 4Ps framework to include three additional factors:
People, Physical evidence and Process as marketing mix variables for services marketing. The 3Ps together
represent the service and provide the evidence that makes services more tangible.

3Ps of Services Marketing:- People

12
Salale university, Department of Marketing Management
 Service Marketing module

By people, we mean those people who are directly or indirectly involved in the delivery of the service. This
typically means employees of the company. But it can also mean subcontractors with direct interaction with
customers. It can even refer to existing and past customers of the company. These customers represent the
company through word of mouth.

People are a very important factor in the 7 P‘s because services tend to be produced and consumed at the
same time. Because of this, the behavior of these people is very important in determining the experience of
the customer. All service businesses should ensure that staffs are well trained and motivated. But there is
another way to adjust the people tactic. This can be done by adjusting customer experience to meet the needs
of individual customers. As an example, imagine a hotel guest tweets that they‘re at your hotel preparing for
an important meeting the next day. Then the next day while the guest is out, your staff place a handwritten
note in their room wishing them every success in their meeting. Alongside this, staffs place some
complimentary chocolates in the guest‘s room.

This tailoring of customer experience will tend to make the customer more satisfied in the short term. It also
makes them more likely to become a long-term customer. Furthermore, they are more likely to tell their
friends and colleagues about their great experience in your hotel.
3Ps of Services Marketing:- Physical Evidence
As we‘ve already defined, services are intangible. Despite this, their delivery often involves tangible
elements. Physical evidence is defined as both:
 The environment or place where the service is delivered.
 Any tangible elements that facilitate the service or provide information about the service.
Based on this definition, physical evidence includes such things as: The Company‘s website, Annual
accounts, Business cards, Logos and brochures, Equipment, Buildings. As an example, consider a potential
customer who wishes to visit a hotel for the first time. The physical evidence might include pictures of the
hotel, past customer reviews, and the hotel‘s proximity to the center of town.
3Ps of Services Marketing: - Process
Process refers to the procedures, mechanisms, and flow of activities that occur when the customer and the
business interact with each other. When, for example, a customer books a hotel room a process is triggered.
When the customer then checks into the hotel another process is triggered, and when they check-out yet
another process is triggered. All of these processes need to be tightly controlled to ensure consistent customer
experience.
13
Salale university, Department of Marketing Management
 Service Marketing module

ACTIVITY QUESTIONS
1. Explain the difference between Service and Physical goods.
2. Services marketing become difficult because of
A. No demand
B. More complex market
C. Intangibility
D. Perishability
Answer:- C
Explanation:- Intangible characteristics of services which make them distinct and difficult from
products.

CHAPTER TWO
CONSUMER BEHAVIOR IN SERVICES
CHAPTEROBJECTIVES
14
Salale university, Department of Marketing Management
 Service Marketing module

At the end of this chapter, students should be able to do the following:

 Understand the Concept of Search qualities, experience qualities and credence qualities of Services
 Discuss the Decision Making Roles
 Explain the Consumer Decision Making Process
 Identify Factors Influencing Buyer Behavior in the case of Services
2.1. Categories of Consumer Products: Search Qualities, Experience Qualities &
Credence Qualities
All marketing activities are directed towards consumers, as they initiate production of goods/services. The
ultimate success of all economic activities depends on producing what the buyer considers suitable. Since
long before recorded history, the buyer had some freedom of rejecting or accepting the product or service of
the seller. They purchase goods/ services based on their mental and economic forces. The mental force
creates desires and wants to satisfy pride, fear, love, fashion, etc. and economic forces (purchasing power)
which may decide the buying pattern to choose between those wants and select according to priority of
consumption. Thus, the marketers task is to find-what, when, where, how and from whom the consumers
decide to purchase goods and services. The purpose of marketing research is to gain insight into the process
and critical factors that influence the decision making of the consumer.
The difference between characteristic of goods and services
There are three basic attributes on the basis of which the differentiation of evaluation of goods and
services tale place. They are search, experience and credence (SEC) as explained below.
1. Search qualities: This is characteristics that can be estimated before purchase or consumption of a
product. This is the quality on the basis of which some goods/services can be searched. Goods have
higher degree of this search quality as compared to services.
a. For goods it can be all physical attributes like, price, color, design, looks, style, shape, size, etc.
so they are easy to search.
b. For services this can be price, Convenience, presentation, promptness of service, ambience,
mannerism, courtesy, etc. here these are not easy to search, so other factors like tangibility are used
for help in searching.
2. Experience qualities: This quality of goods and services are those which can only be assessed after
purchase, utilization, use/consumption I.e. after experience. Services have higher experience attributes
than goods.
3. Credence qualities: There are certain attributes of goods and services that cannot be assessed even
after use/utilization/consumption. Because the customers lack certain ability to analyze or estimate
15
Salale university, Department of Marketing Management
 Service Marketing module

them, like the effect of some nutritious food/vitamin. Example some health service provider may claim
that the food contains organically produced fertilizers-but there is no way to ascertain it. However,
when services are offered by experts, professionals, specialists, it creates credence for the services.
2.2 Consumer Decision Making Process
To develop effective marketing strategies, we must understand how people think and make decisions about
buying and using a service; and what the experience of service delivery and consumption is like for
customers, and how they evaluate that experience. A person's decision to buy and use a service reflects
arousal of an underlying need.

The buyer behavior is a process involving a series of related and sequential stages or activities. The process
begins with the discovery or recognition of an unsatisfied need or want. This becomes a drive. Consumers
begin a search for information followed by evaluation of alternatives and purchase decision. In the post
purchase behavior, the consumer evaluates the purchase and the satisfaction he derives. The major difference
between goods and services is that the greater portion of evaluation of services succeeds purchase and
consumption than in the case of the goods. The intangible nature of service and the general inability of the
consumer to check quality of a service until it is used/consumed adds to the importance of understanding the
decision and evaluation process.
1. Need/problem recognition
The buying process begins with the buyer recognizing a problem or a need. The need may be triggered by
internal or external stimuli. The internal stimuli consist of one‘s normal needs such as hunger and thirst.
From past experience the person learns to cope with this drive and is motivated towards a class of objects that
will that satisfy the drive. The need can be triggered by external stimuli. A person passing a bakery and
seeing freshly baked bread stimulates his/her hunger. The marketer must identify the stimuli, which induce
interest and develop marketing programs based on the stimuli. This close knowledge of consumers can be
found through marketing research.
2. Information search
Aroused needs can be satisfied promptly only when desired service is not only known but also easily
available. When consumers are not aware of the type of the service that can best satisfy the need, how and
where it can be secured, the will have to search for relevant information. The consumer can get this
information from many personal sources like family, friends, reference groups, their past experience with the
service firm, etc.

16
Salale university, Department of Marketing Management
 Service Marketing module

The service marketer thus identifies effective source of information and the importance of each source as it is
critical in preparing effective communication to target customers.
3. Evaluation of alternatives
With the availability of information the consumer evaluates the alternative service that satisfies his needs.
The basic elements in the process of evaluation are distinctive service features, image of the service provider,
quality and price. In the case of the service the alternatives available are similar than goods, because brand
choice in the service is limited, quality of the service can only be experienced While evaluating alternatives
for purchase decision, research indicates that the customers rank in the order of importance the factors that
contribute towards purchase decision. For example the choice of restaurant lies in the following key factors:
food quality, menu variety, price, atmosphere and convenience.
4. Purchase Decision
After evaluating the alternatives the customer chooses that the service provider who will be able to satisfy his
needs. The purchase of the service is an experience, which leads to the satisfaction of customer needs.
Service production and consumption is a simultaneous activity. The service encounter involves the
interaction of the service provider and the customer. The success of the service delivery depends up on the
service encounter. Therefore, apart from motivating the staffs who deliver the service the service provider
must also be aware of the moods and emotions of the customer and should attempt to influence those moods
and emotions in a positive way. Many service factors can be used to influence moods-the ambience, and
design of physical setting, the process associated with the service delivery, limiting waiting times in lines,
scheduling of customer, and training and motivating staff who interact with customers.
5. Post Purchase Evaluation
Only after experiencing the service the customer will be able to judge the service quality, in relation to his
expectation the actual service received. The evaluation of the service received is further complicated by the
role played by the customer in the delivery process. Customers attribute some of their dissatisfaction with the
services to their own disability to specify their needs or failure to perform their part of the service, rather than
blame the service provider completely.

17
Salale university, Department of Marketing Management
 Service Marketing module

Illustration 1: Consumers decision making process

2.3 Role of Culture in Services
Many factors have an influence on consumer behavior. Some are described below:
1. Culture: culture consists of values, norms, roles and customs shared by members of a society. It
differs from place to place. The culture of a place plays a vital role in determining the value and attitude
of the people of that place, and in turn their purchase behavior. So, marketers should have an
understanding of the culture of different places, in which they like to market services.
2. Sub-culture: subcultures are similar divisions in a society with similar norms, values, behavior
patterns, which make them distinct from the main culture. As life style, geography, ethnicity, race and
religion form the base for the subculture.
3. Social class: people having similar life styles, interest, values, behaviors and norms are grouped
under social class. Their similarity in beliefs forms the base for market segmentation, and affects their
shopping patterns or kind of product/service they purchase. Thus, marketers offer products aimed at
social class of the people.
4. Reference groups: an individual uses the perspectives of a reference group as the base for his action,
judgment and opinion. Marketers make use of reference group influences to develop advertisings by
associating products/services or some behaviors with some type of reference groups.
5. Family: purchases are often not made by individual alone, but a whole lot of other people to have a
say in purchase decision. Marketers need to recognize the role played by these various individuals in
the purchase decision, in order to target their marketing message at them.

18
Salale university, Department of Marketing Management
 Service Marketing module

ACTIVITY QUESTIONS
1. ------------ is characteristics that can be estimated before purchase or consumption of a product.
A. Experience qualities
B. Search qualities
C. Credence qualities
D. None
Answer:- B
Explanation:- search quality is the quality on the basis of which some goods/services can
be searched.
2. Which one of the following is correct?
A. Need recognition, Information search, Purchase decision, Alternative evaluation,
Post- purchase behavior
B. Information search, Need recognition, Purchase decision, Alternative evaluation,
Post-purchase behavior
C. Need recognition, Information search, Alternative evaluation, Purchase decision,
Post-purchase behavior
D. Purchase decision, Alternative evaluation, Need recognition, Information search,
Post-purchase behavior
Answer:- C, Explanation:- Consumer decision making process :- Need recognition, Information
search, Alternative evaluation, Purchase decision and Post-purchase behavior.

19
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER THREE
CUSTOMER EXPECTATIONS OF SERVICES
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Customer Expectation
 Identify Different Types of Service Expectation
 Identify Factors Influencing Customer Expectations on Services
3.1. Meaning and Types of Service Expectation
Customer‘s expectations are beliefs about service delivery that function (serve) as standards or reference
points against which performance is judged. Because customers compare their perceptions of performance
with these reference points when evaluating service quality, through knowledge about customer expectations
is critical to services marketers. Knowing what the customer expects is the first and possibly most critical
step in delivering quality service. Being wrong about what customers want can mean losing a customer‘s
business when another company hits the target exactly. Being wrong can also mean expending money, time,
and other resources on things that do not count to the customer. Being wrong can even mean not surviving in
a fiercely competitive market. There are three types of service expectations: predicted service, desired service
and adequate service
1. Predicted Service: It is a probability expectation that reflects the level of service the customer believes is
likely to occur, Customer satisfaction evaluations are developed by comparing predicted service with
perceived service received
2. Desired Service: It is an ideal expectation that reflects what customers actually want compared with
predicted service, which is what is likely to occur. Desired service reflects a higher expectation than
predicted service.
3. Adequate Service: It is a minimum tolerable expectation and reflects the level of service the customer is
willing to accept. It is based on experience or norms that develop over time. Comparing adequate service
with perceived service produces a measure of perceived service adequacy.
The Zone of Tolerance
Services are heterogeneous in that performance may vary across providers, across employees from the same
provider, and even with the same service employee. The extent to which customers recognize and are willing
to accept this variation is called the zone of tolerance. But to what extent do customers tolerate variations?
The zone of tolerance reflects the difference between desired service and adequate service. It expands and
contracts. Factors affecting include the service, conditions under which the
20
Salale university, Department of Marketing Management
 Service Marketing module

service is provided, price etc. desired service is less subject to change than adequate service. If service
drops below adequate service-the minimum level considered acceptable-customers will be frustrated
and their satisfaction with the company will be undermined. If service performance is higher than the
zone of tolerance at the top end-where performance exceeds desired service-customers will be very
pleased and probably quite surprised as well. You might consider the zone of tolerance as the range or
window in which customers do not particularly notice service performance. When it falls outside the
range (either very low or very high), the service gets the customer‘s attention in either a positive or
negative way. As an example, consider the service at a checkout line in a grocery store.

Most customers hold a range of acceptable times for this service encounter- probably somewhere
between 5 and 10 minutes. If service consumes that period of time, customers probably do not pay
much attention to the wait. If a customer enters the line and finds sufficient checkout personnel to serve
her in the first two or three minutes, she may notice the service and judge it as excellent. On the other
hand, if a customer has to wait in line for 15 minutes, he may begin to grumble and look at his watch.
The longer the wait is below the zone of tolerance, the more frustrated he becomes.
3.2 Factors that Influence Customer Expectations of Service
Because expectations play such a critical role in customer evaluation of services, marketers need and want to
understand the factors that shape them. Marketers would also like to have control over these factors as well,
but many of the forces that influence customer expectations are uncontrollable.
Sources of Desired Service Expectations
The two largest influences on desired service level are personal needs and philosophies about service.
Personal needs those states or conditions essential to the physical or psychological well-being of the
customer, are pivotal factors that shape what customers desire in service. Personal needs can fall in too many
categories, including physical, social, psychological, and functional. A fan who regularly goes to baseball
games right from work, and is therefore thirsty and hungry, hopes and desires that the food and drink vendors
will pass by his section frequently, where as a fan who regularly has dinner elsewhere has a low or zero level
of desired service from the vendors. A customer with high social and dependency needs may have relatively
high expectations for a hotel‘s ancillary services, hoping, for example, that the hotel has a bar with live music
and dancing.

Some customers are more demanding than others, having greater sensitivity to, and higher expectations of
service.
21
Salale university, Department of Marketing Management
 Service Marketing module

Lasting service intensifiers are individual, stable factors that lead the customer to a heightened sensitivity to
service. One of the most important of these factors can be called derived service expectations, which occur
when customer expectations are driven by another person or group of people. Business-to-business customers
may also derive their expectations from their managers and supervisors. Employees of a marketing research
department may speed up project cycles (increase their expectations for speed of delivery when pressured by
their management to deliver the study results. Purchasing agents may increase demands for faster delivery at
lower costs when company management is emphasizing cost reduction in the company.

Another lasting service intensifier is personal service philosophy- the customer‘s underlying generic
attitude about the meaning of service and the proper conduct of service providers. If you have ever been
employed as a wait person in a restaurant, you are likely to have standards for restaurant service that were
shaped by your training and experience in that role.

Sources of Adequate Service Expectations

A different set of determinants affects adequate service, the level of service the customer find acceptable. In
general, these influences are short-term and tend to fluctuate more than the factors that influence desired
service. In this section we explain the five factors that influence adequate service:
1. Temporary service intensifiers
2. Perceived service alternatives
3. Customers self-perceived service role
4. Situational factors
5. And predicted services
The first set of elements, temporary service intensifiers, consists of short-term, individual factors that make a
customer more aware of the need for service. Personal emergency situations in which service is urgently
needed (such as an accident and the need for automobile insurance or a breakdown in office equipment
during a busy period) raise the level of adequate service expectations, particularly the level of responsiveness
required and considered acceptable. Problems with the initial service can also lead to heightened
expectations. Performing a service right the first time is very important because customers value service
reliability above all other dimensions.

22
Salale university, Department of Marketing Management
 Service Marketing module

If the service fails in the recovery phase, fixing it right the second time (that is, being reliable in service
recovery) is even more critical than it was the first time. Perceived service alternatives are other providers
from whom the customer can obtain service.

If customers have multiple service providers to choose from, or if they can provide the service for
themselves (such as lawn care or personal grooming), their levels of adequate service are higher than those of
customers who believe it is not possible to get better service elsewhere. A third factor affecting the level of
adequate service is the customer‘s self-perceived service role. We define this as customer perceptions of the
degree to which customers exert an influence on the level of service they receive. In other words, customers‘
expectations are partly shaped by how well they believe they are performing their own roles in service
delivery. One role of the customer is to specify the level of service expected.

A final way the customer defines his or her role is in assuming the responsibility for complaining when
service is poor. A dissatisfied customer who complains will be less tolerant than one who does not voice his
or her concerns. Levels of adequate service are also influenced by situational factors, defined as service
performance conditions that customers view as beyond the control of the service provider. For example,
where personal emergencies such as serious automobile accidents would likely intensify customer service
expectations of insurance companies (because they are temporary service intensifiers), catastrophes that
affect a large number of people at one time (tornados or earthquakes) may lower service expectations because
customers recognize that insurers are inundated with demands for their services. The final factor that
influences adequate service is predicted service, the level of service that customers believe they are likely to
get. This type of service expectation can be viewed as predictions made by customers about what is likely to
happen during an impending transaction or exchange.
Service Encounter Expectations versus Overall Service Expectations
Customers hold expectations of the quality of each service encounter, just as they hold expectations about the
overall service quality of a firm. When the expectations are about individual service encounters, they are
likely to be more specific and concrete (such as the number of minutes one must wait for a front desk clerk)
than the expectations about overall service quality (like speedy service).
Sources of both Desired and Predicted Service Expectations
When consumers are interested in purchasing services, they are likely to seek or take in information from
several different sources. In this section one internal and three external factors that influence both desired
service and predicted service expectations.
23
Salale university, Department of Marketing Management
 Service Marketing module

 Explicit service promises: these are personal and non -personal statements about the service made
by the organization to customers. The statements are personal when they are communicated by
salespeople or service or repair personnel; they are non -personal when they come from advertising,
brochures, and other written publications. Explicit service promises are one of the few influences on
expectations that are completely in the control of the service provider. Explicit service promises
influence the levels of both desired service and predicted service. They shape what customers desire in
general as well as what they predict will happen in the next service encounter from a particular service
provider or in a certain service encounter.
 Implicit service promises: these are service-related cues other than explicit promises that lead to
inferences about what the service should and will be like. These quality ques are dominated by price
and the tangibles associated with the service. In general, the higher the price and the more impressive
the tangibles, the more a customer will expect from the service.
 Word-of-mouth communications: the importance of word-of-mouth communication in shaping
expectations of service is well documented. These personal and sometimes non personal statements
made by parties other than the organization convey to customers what the service will be like and
influence both predicted and desired service. Word-of-mouth communication carries particular weight
as an information source because it is perceived as un-biased. Word of mouth tends to be very
important in services that are difficult to evaluate before purchase and before direct experience of them
 Past experience: the customer‘s previous exposure to service that is relevant to the focal service, is
another force in shaping predictions and desires. The service relevant for prediction can be previous
exposure to the focal firm‘s service.
Service evaluations are often based on comparison of the current service encounter to other encounters
with the same provider, other providers in the industry, and other providers in other industries.
3.3 Model of customer service expectations
The full model of customer Service expectations and is shown in Figure. At the center of the model is the
detailed view of expectations showing the two levels, desired and adequate, and the zone of tolerance that
separates them? How might a manager of a service organization use this model to create, improve, or market
services? First, managers need to know the pertinent expectation sources and their relative importance for a
customer population, a customer segment, and perhaps even a particular customer. They need to know, for
instance, the relative weight of word of mouth, explicit service promises, and implicit service promises in
shaping desired service and predicted service.

24
Salale university, Department of Marketing Management
 Service Marketing module

3.4 Issues involved in customer service expectations

As the market is customer-oriented the customer demands whatever he/she wants irrespective of the nature
and domain of the service provider. The service provider has to decide which benefit is to offer to him/her as
per its business model. Since every service desired by the customer has some cost and the service provider is
doing business, it must include the trade-off. Hence, it is essential to maintain a balance between the price
and the benefits. For example, while travelling through airways, the customer wants to secure the best quality
food at the least possible price. Similarly, different modem facilities like air conditioning, music or live
shows or a comfortable ambience are desired by the service customers in a restaurant and they do not want to
pay for that.
1. Ever-Increasing Customer Expectations
It is also a challenging issue for service marketers. It is vital for the service organization to have a clear
understanding of the rate of rising in the customers‘ expectations. It is quite likely, that by providing good
quality services, the customers expect better services next time. They expect even higher services each time
as the old ones are met. Service providers are also responsible for such increasing service expectations of the
customers. In order to compete with their competitors, service providers continuously launch different kinds
of schemes and offers. These, in return, increase customer expectations.
2. Exceeding the Customer Expectations
In today‘s world of cutthroat competition, it is not only essential to fulfill the expectations of the customers
but to exceed them by offering even better services. This varies from company to company, how they
supersede others in the market and exceed beyond the customers‘ expectation levels.
3. Deciding the Limit for Meeting Customer Expectations
It is not easy for service organizations to maintain pace with the constantly rising expectations of the
customers, as the cost is incurred for every service decision. It is not wise to ignore the financial
considerations for meeting the customers‘ expectations.
1. Explain types of service expectation.
2. Discuss the Factors that Influence Customer Expectations of Service.

25
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER FOUR
CUSTOMER PERCEPTION OF SERVICE
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
 Define Customer perception
 Understand the Concept of customer satisfaction and service quality
 Discuss Service quality dimensions
 Identify Service Encounter or Moment of Truth
 Discuss Strategies for influencing customer perceptions
4.1. Customer perception
How customers perceive services, how they assess whether they have experienced quality service and
whether they are satisfied are the subject of this chapter. As we move through this chapter, keep in mind that
perceptions are always considered relative to expectations. Customers perceive service in terms of quality of
the service and how satisfied they are overall with their experiences. Companies today recognize that they
can compete more effectively by distinguishing themselves with respect to service quality and improved
customer satisfaction.

A consumer perception is defined as the process by which an individual selects, organizes, and interprets
stimuli into a meaningful and Coherent picture of the world. A stimulus is any unit of input to any of the
sense. Examples of stimuli (i.e sensory input) include products, packages, brand names, advertisements, and
commercials (Leon andLeslie, 1997). Perceptions are defined in various ways; strydom, Jooste and Cant
(2000) define customer perception as the process of receiving, organizing and assigning meaning to
information of stimuli detected by the customer‘s five senses and opine that it gives meaning to the world
that surrounds the customer. Perceptions are also described as the end result of a number of observations by
the customer.
4.2 Concept of customer satisfaction and service quality.
Satisfaction VS service quality
Practitioners and writers in the popular press tend to use the terms satisfaction and quality interchangeably,
but researchers have attempted to be more precise about the meaning and measurement of the two concepts,
resulting considerable debate. Consensus is growing that the two concepts are fundamental different in terms
of their underlying causes and outcomes. While they have certain things in common, satisfaction is generally

26
Salale university, Department of Marketing Management
 Service Marketing module

viewed as broader concept while service quality assessment focuses specifically on dimensions of service.
Based on this view, perceived service quality is a component of customer satisfaction.
Service quality is a focused evaluation that reflects the customer‗s perception of specific dimensions of
service reliability, responsiveness, assurance, empathy, tangibles. Satisfaction, on the other hand, is more
inclusive: it is influenced by perceptions of service quality, product quality and price as well as situational
factors and personal factors.
Customers Satisfaction
Building from previous definitions, Richard L. Oliver offers his own formal definition. Satisfaction is the
consumer‗s fulfillment response. It is a judgment that a producer or service feature or the product or service
itself provides a pleasurable level of consumption-related fulfillment. In less technical terms, we translate this
definition to mean that satisfaction is the customers‘ evaluation of a product or service in terms of whether
that product or service has met their needs and expectations. Failure to meet needs and expectations is
assumed to result in dissatisfaction with the product or service. According to Kottler and Keller (2006),
customer satisfaction is a person‗s feeling of pleasure or disappointment resulting from comparing a
product‗s perceived performance (or outcome) in relation to his or her expectations.
If the performance falls short of expectations, the customer is dissatisfied. If the performance matches the
expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly
satisfied or delighted.
What determine customer satisfaction?
Customer satisfaction is influenced by specific product or service feature perception of product and service
quality and price. In addition personal factor such as the customer mood or emotional state and situational
factors such as family member opinions will also influence satisfaction.
A. Product and service feature
Customer satisfaction with a product or service is influenced significantly by the customer evaluation of
product or service features. For service such as a resort hotel important feature might include the pool area,
access to golf facilities, restaurant room comfort and privacy helpfulness and courtesy of staff , room price.
The customer service will make trade off among different service feature eg. Price level vs quality vs
friendliness of personnel vs level of customization depending on the type of service being evaluated and the
criticality of the service.
B. Consumer emotion
Customers‘ emotions can also affect their perceptions of satisfaction with products and services. These
emotions can be stable, pre-existing emotions- for example, mood state or life satisfaction. Think of times
27
Salale university, Department of Marketing Management
 Service Marketing module

when you are at a very happy stage in your life ( such as when you are on vacation), and your good, happy
mood and positive frame of mind have influenced how you feel about the services you experiences.
Alternatively, when you are in a bad mood, your negative feelings may carry over in to how you respond to
services, causing you to over-react or respond negatively to any little problem.
C. Attribution for service success or failure
Attribution;- the perceived causes of events influence perception of satisfaction as well. When they have been
surprised by an outcome (the service is either much better or much worse than expected), consumers tends to
look for the reasons and their assessment of the reasons can influence their satisfaction.
D. Perception of equity or fairness.
Customer satisfaction is also influenced by perception of equity and fairness. Customers ask themselves;-
1. Have I been treated fairly compared with other customers?
2. Did other customers get better treatment, better price, or better quality service?
3. Did I pay a fair price for the service?
4. Was I treated well in exchange for what I paid and the effort I expended?
Notion of fairness are central to customer perception of satisfaction with product and service.
E. Other consumer, family member and coworkers.
In addition to product and service features and one's own individual feelings and beliefs, customer
satisfaction is often influenced by other people. Eg. Satisfaction with a family vacation trip is dynamic
phenomenon, influenced by the reaction and expressions of individual‘s family member over the duration of
the vacation.
4.3 Service quality dimensions
Defining and measuring quality in services might be difficult due to the intangible nature of the service
offering. For the purpose of measuring customer satisfaction with respect to different aspects of service
quality, a survey instrument developed by Parasuraman, Zeithaml and Berry in 1988. the instrument is called
SERVQUAL. The basic assumption of the measurement was that customers can evaluate a firms service
quality by comparing their perception with their expectations.
The SERVQUAL scale includes five principal dimensions. These are: Reliability, Responsive, Assurance,
Empathy, and Tangibles.
1. Reliability: ability to perform the promised service dependably and accurately.
2. Responsiveness: willingness to help customer and providers servicprompte.
3. Assurance: employees‘ knowledge and courtesy and their ability to inspire trust and confidence.
4. Empathy: carrying individualized attention given to customers.
28
Salale university, Department of Marketing Management
 Service Marketing module

5. Tangibles: appearance of physical facilities equipment personnel and written materials.

These dimensions represent how consumers organize information about service quality in their mind.
1. Reliability: delivering on promises
It is defined as the ability to perform the promised service dependably and accurately. Broadly;-mean that the
company delivers on its promises. Promises about delivery, service provision, problem resolution and
pricing. Customers want to do businesses with companies that keep their. Particularly their promise about the
service outcome and core service attributes.
2. Responsiveness: being willing to help
It is the willingness to help customers and to provide prompt service. It emphasizes attentiveness and
promptness in dealing with customer requests, questions, complaints and problem. Responsiveness is
communicated to customers by the length of time they have to wait for assistance, answers to question or
attention to problem. It also capture the notion of flexibility and ability to customize the service to customer
need.
3. Assurance: inspiring trust and confidence
It is defined as employee‘s knowledge and courtesy and the ability of the firm and its employee to inspire
trust and confidence. It is particularly important for service that customers as high risk or for service of which
they feel uncertain about their ability to evaluate outcomes. Trust and confidence may be embodied in the
person who links the customer to the company, such as securities brokers, insurance agents, and lawyers or
seeks to build trust and loyalty between key contact people and individual customer.
4. Empathy: treating customer as individuals
It carrying individualized attention that the firm provides its customer (includes access, communication and
understanding the customer). The essence of empathy is conveying, through personalized or customized
service, that customers are unique and special and that their needs are understood. In business to business
service customers want supplier firms to understand their industries and issues. Many small computer
consulting firms successfully compete with large venders by positioning themselves as specialists in
particular industries even though larger firm have superior resource the small firms are perceived as more
knowledgeable about customers issues and needs and are able to offer more customized service.
5. Tangible: representing the service physically
It is the appearance of physical facilities, equipment, personnel, and communication material. It provides
physical representation or image of the service that customer particularly new customers will use to evaluate
quality. Tangible are often used by Service Company to enhance their image, provide continuity and signal

29
Salale university, Department of Marketing Management
 Service Marketing module

quality to customers most companies combine tangible with another dimension to create a service quality
strategy for the firm.
4.4 Service Encounter or Moment of Truth
Service encounter are where promise are kept or broken and where the proverbial rubber meet the road
sometime called real-time marketing. It is when customers interact with the service or product for the first
time. It is a transactional interaction in which one person provides service or good. we classify service
encounter into three types. These are
1. Remote encounters
2. Phone encounters and
3. Face to face encounter.
1. Remote encounter; - it can occur without any direct human contact such as customer interacts with bank
through the ATM system. It can also occur when the firms send its billing statement or communicate other
type of information to customers by mail. Although there is no direct human contact in this remote
encounters, each represent an opportunity for the firm to reinforce or establish quality perception in the
customer. In remote encounter the tangible evidence of the service and the quality of technical processes and
systems become the primary bases for judging quality.
2. Phone encounters: it can be occur between an end customer and the firm over telephone such as
insurance companies, utilities and telephone communication. The judgments of quality in phone encounter
are different from remote encounter because there is greater potential variability in the interaction. Tone of
voice employee knowledge and effectiveness, efficiency in handling customer issues become important
criteria for judging quality in these encounters.
3. Face to face encounter: it occur between an employee and a customer in direct contact. Determining and
understandings service quality issue in face to face encounter is the most complex of all. Both verbal and
nonverbal behaviors are important determinants of quality as are tangible cues such as employee dress and
other symbol of service (equipment, informational brochures, physical setting) the customer also play a role
of creating quality service for herself through her own behavior during the interaction.
Technology based service encounter.
All the research on service encounter described thus far and the resulting themes underlying service i.e. face
to face encounters between customers and employees of service organization, These type of encounter
involves customer interacting with internet based service automated phone service, service delivered via CD
often these system are referred to as self-service technologies (SST) because the customer essentially
provides his or her own service.
30
Salale university, Department of Marketing Management
 Service Marketing module

For satisfying SST:

solved on intensified need;- customers in this category were thrilled that the technology could bail them out
of a difficult situation e.g. a cash machine that come to the rescue, allowing the customer to get cash to pay a
cab driver and get to work on time when a car had broken down. Better than alternative;- many SST stories
related to how the technology based service was in some way better than the alternative, easy to use, save
time, available when and where the customer needed it, saved money.
For dissatisfying SST:
1. Technology failure: It relates to technology simply not working as promised, it is not available when
needed pin number do not work, or systems are off line.
2. Process failure: Often the technology seems to work, but later the customer discovers that a back
office or follow up process, which the customer assumed was connected does not work, e.g. a product
order seems or the wrong product is delivered.
3. Poor design: It relate with how the technology is designed in terms of either the technical process
technology is confusing, menu options are unclear or the actual service design delivery takes too long,
service is inflexible.
4. Customer driven failure: in some case the customers told stories of their own in abilities or failure to
use the technology properly.
4.5 Strategies for influencing customer perception
The following strategies will be developed for influencing customer perceptions.
a. Measure and manage customer satisfaction service quality: Track the trends, diagnose problems,
and link to other customer focused strategies.
b. Aim for customer quality and satisfaction in every service encounter: Every service encounter is
critical to customer retention. Thus many firms aim for zero defects or 100% satisfaction. Clear
documentation of all the points of contact between the organization and its customers
c. Plan for effective recovery: When service customers have been disappointed on the first try doing
right the 2nd time is essential to maintain customer loyalty. This implies a need for service process
and system analysis to determine the root cause of failure and redesign the service system.
d. Facilitate adaptability and flexibility: The existence of this encounter theme suggested the need to
know when and how the system can flex, and when and how to explain to customers.
e. Encourage spontaneity: Recruitment and selection procedures can be used to hire employees with
strong service orientation whose natural tendency is to be service minded. Strong service culture,
employee empowerment, effective supervision and monitoring should be done.
31
Salale university, Department of Marketing Management
 Service Marketing module

f. Help employees cope with problem customers: Employees need appropriate training and tools to
deal with problem customers. Training the customers is essential so that they know what to expect and
know the appropriate behavior in the situations.
g. Manage the dimensions of quality at the encounter level: Whenever the customer is encountering
the service, the service firm should take measures to maintain the dimensions of service of service
quality.

ACTIVITY QUESTIONS
1. Which one of the following is true about Empathy?
A. Its ability to perform the promised service dependably and accurately.
B. Its willingness to help customer and providers service prompt.
C. Its carrying individualized attention given to customers.
D. employees‘ knowledge and courtesy and their ability to inspire trust and confidence.
Answer:- C
Explanation:- It carrying individualized attention that the firm provides its customer (includes
access, communication and understanding the customer).
2. Which one of the following is odd?
A. Reliability
B. Intangible
C. Assurance
D. Empathy
Answer:- B
Explanation:-Except Intangible all are service quality dimensions.

32
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER FIVE
BUILDING CUSTOMER RELATIONSHIPS
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Relationship Marketing
 Discuss the Goals of Relationship Marketing
 Explain the Benefits of Long-term Relationship to Customers and firms
 Identify Relationship value of Customer
 Identify Customer Profitability Segments
 Discuss the Levels of Relationship Strategies
5.1. Concept of Relationship Marketing
There has been a shift from transaction to relationship focus in marketing. Customers become partners and
the firm must make long-term commitments to maintaining those relationships with quality, service, and
innovation.Relationship marketing essentially represents s paradigm shift within marketing away from an
acquisitions/transaction focus toward retention/ relationship focus. Relationship marketing is a strategic
orientation that focuses on keeping and improving relationships with current customers, rather than on
acquiring new customers.

This philosophy assumes that many consumers and business customers prefer to have an ongoing
relationship with one organization than to switch continually among providers in their search for value.
Building on this assumption and the fact that it is usually much cheaper to keep a current customer than to
attract a new one, successful marketers working on effective strategies for retaining customers, It has been
suggested that firms frequently focus on attracting customers (the first act), but then pay little attention to
what they should do to keep them (second act).
5.2 Goals of Relationship Marketing
The primary goal of relationship marketing is to build and maintain a base of committed customers who are
profitable for the organization. To achieve this goal, the firm will focus on the attraction, retention, and
enhancement of customer relationships.
First, the firm will seek to attract customers who are likely to become long-term relationship customers.
Through market segmentation the company can come to understand the best target markets for building

33
Salale university, Department of Marketing Management
 Service Marketing module

lasting customer relationships. As the number of these relationships grows.The loyal customers themselves
will frequently help to attract (through word of mouth) new customers with similar relationship potential.
Once they are attracted to begin a relationship with the company, customers will be more likely to stay in the
relationship when they are consistently provided with quality products and services and good value over
time, they are less likely to be pulled away by competitors if they feel the company understands their
changing needs and seems willing to invest in the relationships by constantly improving and evolving its
product and service mix.

Finally, the goal of customer enhancement suggests that loyal customers can be even better customer id they
buy more products and services from the company over time. Loyal customers not only provide a solid base
for the organization, they may represent growth potential. In recent years, many companies have aspired to
be the ―exclusive supplier‖ of a particular product or service for their customers. Over time these enhanced
relationships can increase market share and profits for the organization.
5.3 Benefits of Long-Term Relationship to Customers and Firms
Both parties in the customer-firm relationship can benefit from customer retention. That is, it is not only in
the best interest of the organization to build and maintain a loyal customer base, but customers themselves
also benefit from long-term associations.
A. Benefits for Customers
There are three benefits the customers can experience in long-term service relationships:
Confidence Benefits-these benefits comprise of trust or confidence in the provider, along with a sense of
reduced anxiety and comfort in knowing what to expect. Human nature is such that most of us would prefer
not to change service providers, particularly when we have a considerable investment in the relationship. If
the service provider knows us, knows our preferences, and has tailored services to suit our needs over time,
then changing providers would mean educating a new provider on all of these factors. The costs of switching
are frequently high in terms of both dollar costs of transferring business and the psychological time-related
costs.
Social benefit: overtime customers develop a sense of familiarities and even a social relationship with their
service providers. These ties make less likely that they will switch, even if they learn about a competitor that
might have better quality or a lower price.
Special treatment benefits: special treatments include things such as being given a special deal or price,
getting preferential treatment, etc.
B. Benefits for the Organization
34
Salale university, Department of Marketing Management
 Service Marketing module

The major benefits include:

Increasing sales and profits: as customers mature (in terms of age, life cycle, growth of business) they
frequently require more of a particular service.
Lower costs: there are many startup costs associated with attracting new customers. They include,
advertising and other promotion costs, operating costs of setting up accounts and systems, and time costs of
getting to know the customer, sometimes these initial costs can outweigh the revenue expected from the new
customer in the short term.
Free advertising through word of mouth: when a product is complex and difficult to evaluate, and there is
a risk involved in the decision to buy it-as is the case is the many services consumers most often look to
others for advice on which providers to consider. Satisfied, loyal customers are likely to provide a firm, with
strong word-of –mouth endorsements. This form of advertising can be more effective than any paid
advertising the firm might use, and has the added benefit of reducing the costs of attracting new customers.
Employee retention: and indirect benefit f customer retention is employee retention. It is easier for a firm to
retain employees when it has a stable base of satisfied customers. People like to work for companies whose
customers are happy and loyal. Their jobs are more satisfying and they are able to spend more of their time
fostering relationships than scrambling for new customers.
5.4 Relationship Value of Customers
Relationship value of a customer is a concept or calculation that looks at customers from the point of view of
their life time revenue and or profitability contributions to a company. This type of calculation is obviously
needed when companies start thinking of building long-term relationships with their customers. Just what is
the potential financial value of those long-term relationships? And what are the financial implications of
losing a customer?
Factors That Influence Relationship Value
The life time or relationship value of a customer is influenced by the length of an average ‗‘ life time‘, the
average revenues generated per relevant time period over the life time, sales of additional products and
services over time, referrals generated by the customer over time, and costs associated with serving the
customer. Lifetime value sometimes refers to life time revenue stream only; but most often when costs are
considered, life time value truly means‘‘ life time profitability‖
Estimating Customer Lifetime Value
If companies knew how much it really costs to lose a customer, they would be able to accurately evaluate
investments designed to retain customers. One way of documenting the dollar value of loyal customers is to

35
Salale university, Department of Marketing Management
 Service Marketing module

estimate the increased value or profits that accrue for each additional customer who remains loyal to the
company rather than defecting to the competition.
Linking Customer Relationship Value to Firm Value
The emphasis on estimating the relationship value of customers has increased substantially in the past
decade. Part of this emphasis has resulted from an increased appreciation of the economic benefits that firms
accrue with the retention of loyal customers. Interestingly, recent research suggests that customer retention
has a large impact on firm value and that relationship value calculations can also provide a useful proxy for
assessing the value of a firm. That is, a firm‘s market value can be roughly determined by carefully
calculating customer life time value. The approach is straightforward: estimate the relationship value of a
customer, forecast the future growth of the number of customers, and use these figures to determine the value
of a company‘s current and future base.
5.5 Customer Profitability Segments
Companies may want to treat all customers with excellent service, but they generally find that customers
differ in their relationship value and that it may be neither practical nor profitable to meet (and certainly not
to exceed) all customers‘ expectations. Federal Express Corporation, for example, has categorized its
customers internally as the good, the bad, and the ugly- based on their profitability. Rather than treating all its
customers the same, the company pays particular attention to enhancing their relationships with the good,
tries to move the bad to the good, and discourages the ugly. Other companies also try to identify segments-or,
more appropriately, tiers of customers that differ in current and/or future profitability to a firm. This
approach goes beyond usage or volume segmentation because it tracks costs and revenues for segments of
customers, thereby capturing their financial worth to companies. After identifying profitability bands, the
firm offers services and service levels in line with the identified segments. Building high-loyalty customer
base of the right customer‘s increases profits.
Profitability Tiers- The Customer Pyramid
There are four use full tier systems
1. The platinum tier:- describes the company‘s most profitable customers, typically those who are heavy
users of the product, are not overly price sensitive, are willing to invest in and try new offerings, and are
committed customers of the firm.
2. The gold tier:- differs from the platinum tier in that profitability levels are not as high, perhaps because
the customers want price discounts that limit margins or are not as loyal. They may be heavy users who
minimize risk by working with multiple vendors rather than just the focal company.

36
Salale university, Department of Marketing Management
 Service Marketing module

3. The iron tier:- contains essential customers who provide the volume needed to utilize the firm‘s capacity,
but their spending levels, loyalty, and profitability are not substantial enough for special treatment.
4. The lead tier:- consists of customers who are costing the company money. They demand more attention
than they are due given their spending and profitability and are sometimes problem customers-complaining
about the firm to others and tying up the firm‘s resources.

Once a system has been established for categorizing customers, the multiple levels can be identified,
motivated, served, and expected to deliver differential levels of profit. Companies improve their
opportunities for profit when they increase shares of purchases by customers who either have the greatest
need for the services or show the greatest loyalty to a single provider. By strengthening relationships with the
loyal customers, increasing sales with existing customers, and increasing the profitability on each sale
opportunity, companies thereby increase the potential of each customer.
5.6 Levels of Relationship Strategies
Relationship Bonds
Level 1: Financial Bonds
At level 1, the customer is tied to the firm primarily through financial incentives- lower prices for greater
volume purchases or lower prices for customers who have been with the firm a long time.
Examples of level 1 relationship marketing are not hard to find. Think about the airline industry and related
travel service industries like hotels and car rental companies. Frequent flyer programs provide financial
incentives and rewards for travelers who bring more of their business to a particular airline. Hotels and car
rental companies do the same. Long distance telephone companies in the United States have engaged in a
similar battle trying to provide volume discounts and other price incentives to retain market share and build a
loyal customer base. Unfortunately, financial incentives do not generally provide long-term advantages to a
firm because, unless combined with another relationship strategy, they do not differentiate the firm from its
competitors in the long run. Many travelers belong to several frequent flyer programs and do not hesitate to
trade off among them. Although price and other financial incentives are important to customers, they are
generally not difficult for competitors to imitate because the primary customized element of the marketing
mix is price.
Level 2: Social Bond
Level 2 strategies bind customers to the firm through more than financial incentives. Although price is still
assumed to be important, level 2 retention marketers build long-term relationships through social and

37
Salale university, Department of Marketing Management
 Service Marketing module

interpersonal as well as financial bonds. Customers are viewed as ―clients,‖ not nameless faces, and become
individuals whose needs and wants the firm seeks to understand.

Social, interpersonal bonds are common among professional service providers (lawyers, accountants, and
teachers) and their clients as well as among personal care providers (hairdressers, counselors, health care
providers) and their clients. A dentist who takes a few minutes to review her patient‘s file before coming in
to the exam room is able to jog her memory personal facts about the patient (occupation, family details,
interests, dental health history). By bringing these personal details in to the conversation, the dentist reveals
her genuine interest in the patient as an individual and builds social bond.

Interpersonal bonds are also common in business-to-business relationships in which customers develop
relationships with sales people and or relationship managers working with their firms. Social bonds alone
may not tie the customer permanently to the firm, but they are much more difficult for competitors to imitate
than are price incentives. In the absence of strong reasons to shift to another provider, interpersonal bonds
can encourage customers to stay in a relationship. In combination with financial incentives, social bonding
strategies may be very effective.
Level 3: Customization Bonds
Level 3 strategies involve more than social ties and financial incentives, although there are common elements
of level 1 and 2 strategies encompassed with in a customization strategy and vice versa. Two commonly used
terms fit within the customization bonds approach: mass customization and customer intimacy. Both these
strategies suggest that customer loyalty can be encouraged through intimate knowledge of individual
customers and through the development of one-to-one solutions that fit the individual customer‘s needs.
Mass customization has been defined as ―the use of flexible processes and organizational structures to
produce varied and often individually customized products and services at the price of standardized, mass-
produced alternatives. Mass customization does not mean providing customers with endless solutions or
choices that only make them work harder for what they want; rather, it means providing them through little
effort on their part with tailored services to fit their individual needs.

38
Salale university, Department of Marketing Management
 Service Marketing module

Level 4: Structural Bonds

Level 4 strategies are the most difficult to imitate; they involve structural as well as financial, social and
customization bonds between the customer and the firm. Structural bonds are created by providing services
to the client that are frequently designed right in to the service delivery system for that client. Often structural
bonds are created by providing customized services to the client that are technology based and make the
customer more productive.
ACTIVITY QUESTION
1. What is the goal of relationships marketing?
A. Acquiring customer
B. Retaining customer
C. Enhancing customer
D. All
Answer:- D
Explanation :- The primary goal of relationship marketing is to build and maintain a base of committed
customers who are profitable for the organization. So all are the goals of relationship marketing.

39
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER SIX
SERVICE RECOVERY
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Service Recovery
 Discuss the Importance of Service Recovery
 Explain the Service Recovery Paradox
 Identify Customer Complaint
 Identify the Types of Customer Complaint actions
 Discuss the Issues of Service Guarantees
6.1 The Concept of Service Recovery
Service recovery is a firms reaction to a compliant that results in customer satisfaction and goodwill. It also
refers to the action taken by an organization in response to a service failure. Service failures are breakdowns
in the delivery of service, service that does not meet customer expectations. The reasons failures are inherent
events in the service encounter are directly related to the unique characteristic that distinguish services from
goods described in chapter 3. Due to intangibility, customer comparison of perceptions to expectations is a
highly subjective evaluation; consequently not all customers are doing to be satisfied given their individual
expectations and the individual perceptions of the world around them. Due to heterogeneity, variations in the
service delivery process are going to occur, and not every service encounter is going to be identical to the
last. As a result customers openly wonder why their past experiences with a firm are not quite the same as
their current experiences.

The unique service characteristics of perishability provide another source of potential problems. Due to
perishability, supply and demand problems are common occurrence within service firms, which in turn cause
customers to wait for service. When the wait becomes excessive, customers become unhappy. Finally, the
unique service characteristic of inseparability often places the service provider in a face to face interaction
with the customer, which provides apandoras box of service failure possibilities. In fact service providers
face to face contacts with the customers has been termed critical incidents or moments of truth, highlighting
the importance of the possible gains and losses that may result due to this interaction. An effective serviced
recovery strategy has multiples potential impacts. It can increase customer satisfaction and loyalty and
generate positive word of mouth as noted earlier.

40
Salale university, Department of Marketing Management
 Service Marketing module

A well-designed, well documented service recovery strategy also provides information that can be used to
improve as` part of a continuous improvement effort. By making adjustments to service processes, systems
and outcomes based on learning from service recovery experiences, companies increase the likely hood of
―doing it right the first time.‖
N.B: unless the recovery effort is absolutely superlative, it cannot overcome the negative impressions of the
initial experience enough to build repurchase intentions beyond where they would be if the service had been
right in the first place. The adage ―do it right the first time‖ is still the best bet.
6.2 Importance of Service Recovery
-Increase customer satisfaction
- Make customers being loyal (locality increase)
-Impress the customers
-Increase consumption of service (profitability of the provider) and etc.
6.3 The Service Recovery Paradox
Occasionally some businesses have customers who are initially dissatisfied with a service experience and
then experience a high level of excellent service recovery, seemingly leading them to be even more satisfied
and more likely to repurchase than if no problem had occurred at all; that is, they appear to be more satisfied
after they experience a service failure than they otherwise would have been! To illustrate, consider a hotel
customer who arrives to check in and finds that no room is available. In an effort to recover, the hotel front
desk person immediately upgrades this guest to a better room at the original price. The customer, thrilled
with this compensation, reports that she is extremely satisfied with this experience, is even more impressed
with the hotel than she was before, and vows to be loyal in to the future.

Although such extreme instances are relatively rare, this idea-that initial disappointed customer who has
experienced good service recovery might be even more satisfied and loyal as a result-has been labeled the
recovery paradox. So, should a firm ―screw up‖ just a little so that it can ―fix the problem‖ superbly? If doing
so would actually lead to more satisfied customers, is this strategy worth pursuing? The logical, but not very
rational, conclusion is that companies should plan to disappoint customers so they can recover well and
(hopefully) gain even greater loyalty from them! What are the problems with such approach? First, as we
indicated earlier, a vast majority of customers do not complain when they experience a problem (like passive
complaints). The possibility of a recovery exists only in situations in which the firm is aware of a problem
and is able to recover well; if customers do not make the firm aware of the failure- and most do not-
dissatisfaction is most likely to be the result.
41
Salale university, Department of Marketing Management
 Service Marketing module

Second, it is expensive to fix mistakes; recreating or reworking a service may be quite costly to a firm. Third,
it would appear somewhat ludicrous (very foolish) to encourage service failures-after all, reliability (―doing it
right to the first time‖) is the most critical determinant of service quality across industries. Finally, although
the recovery paradox suggests that a customer may end up more satisfied after experiencing excellent
recovery, there is certainly no guarantee that the customer actually will end up more satisfied. The recovery
paradox is highly dependent on the context and situation; although one customer may find it easy to forgive a
restaurant who provides him with a gift certificate for a later date for having lost his dinner reservation,
another customer who had planned to propose marriage to his date over dinner may not be all that happy with
the same recovery scenario.
6.4 Customer Complaint
Customer complaint is an expression of dissatisfaction on a behalf to a responsible part. Many customers are
very passive about their dissatisfaction, simply saying or doing nothing. Those who do not complain are least
likely to return. For companies, customer passivity in the face of dissatisfaction is a threat to future success.
If customers take action following service failure, that action can be of various types. A dissatisfied customer
can choose to complain on the spot to the service provider, giving the company to respond immediately.

This is often the best case scenario for the company because it has a second chance right at that moment to
satisfy the customer, keeps its business in the future, and potentially avoid any negative word of mouth.
Complainers are telling the firm that it has some operational or managerial problems that need to be
corrected. Hence, complainers are offering the company a free gift that is they act as consultants and
diagnose the firms problems at no fee. Moreover complainers provide the firm with the chance to reestablish
a customer‘s satisfaction. Most importantly, complainers are more likely to do business with the firm again
than are non-complainer. Consequently, successful firms view complaints as an opportunity to satisfy
unhappy customers and prevent defections as well as unfavorable word of mouth communications.
6.5 Types of Customer Complaint Actions
First customers can choose to take action or they can do nothing. Some customers choose not to complain
directly to the provider but rather spread negative word of mouth to friends, relatives, and co-workers. The
company has no chance to recover unless word of mouth is accompanied by a complaint directly to the
company.Customers may choose to complain to third parties such as the Better Business Bureau, to
customers affairs arms of the government, to a licensing authority, a professional association or potentially to
private attorney.

42
Salale university, Department of Marketing Management
 Service Marketing module

Types of complainers
Complainers can be classified in to four groups:
1. Passive - least likely to take any action. They are unlikely to say anything to the provider, less likely than
others to spread negative word of mouth, and unlikely to complain to third party. They often doubt the
effectiveness of complaining, thinking the consequences will not merit the time and effort they will spend.
These folds tend to fell less alienated from the marketplace than irates and activists.
2. Voices: these customers actively complain to service provider, but they are less likely negative word of
mouth, to switch patronage or to go to third parties with their complaints. These customers should be viewed
as service provider‘s best friends. Similar to passive, these customers are less alienated from the market
place.

They tend to believe complaining has social benefits and therefore don‘t hesitate to voice their opinions.
Their personal norms are consistent with complaining.
3. Irates: these customers are more likely to engage in negative word of mouth to friends and relatives and to
switch provider than others. They about average in their propensity to complain to the provider. They are
unlikely to complaint to third parties. These folks (group) tend to feel alienated from the market place. As
their label suggest, they are angrier with the provider, although they do believe that complaining to the
provider has social benefit. They are less likely to give the service provider a second chance and instead will
switch to a competitor, spreading the word to friends and relatives along the way.
4. Activists: these consumers are characterized by above average propensity to complain on all dimensions:
they will complain to the provider, they will tell others, and they are more likely than any other group to
complain to third parties. Complaining fits with their personal norms. Similar to irates, these consumers are
more alienated from the market place than other groups. They have a very optimistic sense of sense of the
potential positive consequences of all types of complaining. In extreme cases, these consumers can become
―terrorist‖.
6.6 Service Recovery Strategies
Thankfully not all companies are doing poorly at service recovery. There are many who have learned the
importance of providing excellent recovery for disappointed customers. It will become clear that excellent
service recovery is really a combination of a variety of strategies that need to work. The major service
recovery strategies are:

43
Salale university, Department of Marketing Management
 Service Marketing module

1. Do it right the first time: in this way, recovery is necessary, customers get what they expect, the cost of
managing the service and compensating for errors can be avoided. What specific strategies do firms employ
to achieve reliability?
The adoption of Total Quality Management (TQM ), practices aimed at ―zero defects‖: are commonly used.
2. Welcome and encourage complain: even in a zero defect organization that aims for 100% service
quality, failures occur. A critical component of service strategy is therefore welcoming and encouraging
complaints.

The complaining customer should be viewed as a friend. Part of encouraging complain also involves
customers how to complain.
3. Act quickly: complaining customers require quick response. Thus, if the company welcomes, even
encourages complaints, it must be prepared to act on them quickly. This requires systems and procedures that
allow for action, as well as empowered employees.
4. Treat customers fairly: in responding quickly, it is also critical to reach each customer fairly.
5. Learn from recovery experiences: problem-resolution situations are more than just opportunities to fix
flawed services and strengthen ties with customers. They are also valuable-but frequently ignored or
underutilized-source of diagnostic, prescriptive information for improving customer service.
6. Learn from lost customers: another key component of an effective service recovery strategy is to learn
from the customers who defect or decide to leave.
6.7. Service Guarantees
When you buy consumer durables like refrigerator, TV, washing machine etc., they invariably came with a
product warranty where in the company agrees to replace or repair the product if something goes wrong. But
what about services? as compared to manufactured products, guarantees in case of services are a more recent
phenomenon. Because of the intangible nature of services it was often thought as to what can be guaranteed.
Products being tangible can be returned but can services be returned back offering service guarantees which
may take the form of a satisfaction guarantee or guarantying specific aspect of service delivery.

A bank may offer a guarantee that an account will be opened or a credit card will be issued within a specified
number of working days otherwise it will pay the customer a specified amount depending on the period of
delay.

44
Salale university, Department of Marketing Management
 Service Marketing module

Why offer a Service Guarantee?

More and more service firms have started to realize that a good guarantee can act as a marketing tool for
attracting customers as well as help in retaining customers. It also helps in cultivating and maintains quality
throughout an organization. Some of the benefits of an effective service guarantee are highlighted below
 Implementing a guarantee forces a company to focus on customers.
 Offering a guarantee provides employees with a service related goal and facilitates goal
alignment between employees and the organization. It can also increase employee morale and loyalty.
 It encourages customers to complain and provides the opportunity to the organization to make
amends, there by retaining the customers.
 A well designed service guarantee can lead to increased service quality expectations, lower
perceived risk and increased purchase intent.
 Service companies have greater opportunity than manufacturers to differentiate themselves
through a guarantee.
Features of a Good Service Guarantee
Hart summarizes them in to following main characteristics
i. Unconditional: A guarantee should not have ―ifs‖, ―and‖, or ―buts‖. It should make the promise
unconditionally.
ii. Easy to Understand and Communicate: It should be easy to understand for the customers as to
what to expect as well as for the employees as to what to do. The message should be short and
memorable and the standard clear.
iii. Meaningful: The guarantee should be meaningful in terms of what is being promised (things that
customers care about) as well as in terms of the payout.
iv. Easy to make request and collect: A good guarantee should be easy to request. Service marketers
should understand that once poor service has been delivered, easy and quick settlement should be
ensured.

45
Salale university, Department of Marketing Management
 Service Marketing module

ACTIVITY QUESTIONS
1. Which one of the following is true about voicers?
A. These customers are least likely to take any action
B. These customers are more likely to engage in negative word of mouth to friends and
relatives
C. These customers actively complain to service provider, but they are less likely negative
word of mouth
D. All
Answer:- C
Explanation:- These customers actively complain to service provider, but they are less likely negative
word of mouth. These customers should be viewed as service provider‘s best friends.
2. Discuss service recovery strategies.

46
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER SEVEN
SERVICE DESIGN AND DEVELOPMENT
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Challenges of Service and Design
 Discuss the New Service Development Process
 Identify the Types of New Services
 Explain the Stages in New Service Development
 Understand Service Blue Printing
 Discuss the Issue of Quality Function Development
7.1 Challenges of Service and Design
Because service is largely intangible and process oriented, they are difficult to describe and communicate.
When services are delivered over a long period, their complexity increases, and they become even more
difficult to define and describe. Further, because services are delivered by employees to customers, they are
variable. Rarely are two services are alike or experienced in the same way. These characteristics of services
we explored in the first chapter are the heart of the challenge involved in designing services. Because
services cannot be touched, examined, or tried out, people frequently resort to words in their efforts to
describe them. Lynn Shostack, a pioneer in developing design concepts for service, has pointed out four risks
of attempting to describe services in words alone.
o Oversimplification (eg. Inadequate words to describe complex service)
o Incompleteness ( not detailed)
o Subjectivity ( by personal experience and degree of exposure to services) and
o Biased interpretation (eg, no two people will define ‗quick‘, ‗responsive‘ or ‗flexible‘.
7.2 New Service Development
Research suggests that products that are designed and introduced via the steps in structured planning
framework have a greater likelihood of ultimate success than those not develop within framework. The fact
that services are intangible makes it even more imperative for new service development system to have four
basic characteristics:
A . It must be objective, not subjective
B . It must be precise, not vague
C . It must be a fact driven, not opinion driven

47
Salale university, Department of Marketing Management
 Service Marketing module

D . It must be methodological, not philosophical

The development of new services should follow a structured process with well-defined stages, but it
should not become excessively rigid or bureaucratic. Too often, new services are introduced based on
managers‘ and employees‘ subjective opinions rather than objective designs that incorporate data on
customer perceptions, market needs, and feasibility. Since services are produced and consumed
simultaneously and often require direct interaction between employees and customers, it is essential to
involve both groups in the development process.

Employees play a crucial role in service delivery, often embodying the service itself. Their participation in
selecting and designing new services can be highly beneficial, as they have firsthand experience with
customer interactions. Contact employees, in particular, are well-positioned to identify customer needs for
new services. Additionally, since customers frequently participate in service delivery, they should also be
engaged in the development process. Beyond simply providing input on their own needs, customers can
contribute to designing the service concept and delivery process, especially when they are actively
involved in executing parts of the service.
7.3 Types of New Services
Not all new services are ―new‖ to the same degree. Major Service options can run the gamut (series)
from major innovations to minor style changes:
 Major or radical innovations-are new services for markets as yet undefined. Many innovations now
and in the future will evolve from information, computer, and internet based technologies.
 Start-up businesses –consists of new services for a market that is already served by existing products
that meet the same generic needs. Service examples include the creation of health maintenance
organizations to provide an alternative for of health care delivery, online banking for financial
transactions, and door to door airport shuttle services that compete with traditional taxi and limousine
services.
 New service for the currently served market represent attempts to offer existing customers of the
organization a service not previously available from the company (although it may be available from
other companies).
 Service line extensions represent augmentations of the existing service line, such as a restaurant
adding new menu items, an airline offering new routes, a law firm offering additional legal services,
and a university adding new courses or degrees.

48
Salale university, Department of Marketing Management
 Service Marketing module

 Service improvements represent perhaps the most common type of service innovation. Changes in
features of services that are already offered might involve faster execution of an existing service
process, extended hours of served, or augmentations such as added amenities in a hotel room (eg. The
addition of wireless internet connections).
 Style changes represent the most modest service innovations, although they are often highly visible
and can have significant effects on customer perceptions, emotions and attitudes. Changing the color
of scheme of a restaurant, revising the logo for an organization, redesigning a website, or paintings
aircraft a different color all represent style changes. These innovations do not fundamentally change
the service, only its appearance, similar to how packaging changes are used for consumer products.
7.4 Stages in New Service Development
The steps can be applied to any type of new service. Much of what is presented in this section has direct
parallels in the new product development process for manufactured goods. Because of the inherent
characteristics of services, however, the development process for new service requires adaptations. Although
these steps may be similar to those for manufactured goods, their implementation is significantly different.
1. Business strategy development or review
It is assumed that an organization will have an overall strategic orientation, vision, and mission. Clearly a
first step in new service development is to review that mission and vision. The new service strategy and
specific new service ideas must fit within the large strategic mission and mission of the organization. In
addition to its strategic mission, the company‘s underlying orientation toward growth will affect how it
defines its new services strategy. Becoming aware of the organization‘s overall strategic orientation is
fundamental to plotting a direction for growth. Noted strategy researchers suggest four primary strategic
orientations that are taken by companies:
i. Prospectors-seek to be innovative, searching out new opportunities and taking on risks
ii. Defenders-are experts in their own areas and tend not to seek new opportunities outside their domain
of expertise
iii. Analyzers- maintain stability in certain areas of operation but are open to experimenting and seeking
out opportunities on the margin
iv. Reactors- seldom make adjustments unless forced to do so by environmental pressures.
Another noted management strategist suggests that firms can be distinguished by whether they
primarily pursue a cost –leadership strategy, a differentiation strategy, or a focused strategy.

49
Salale university, Department of Marketing Management
 Service Marketing module

2. New service strategy development

Research suggests that without a clear new product or service strategy, a well-planned portfolio of new
products and services, and an organizational structure that facilitates product development via ongoing
communications and cross- functional sharing of responsibilities, front-end decisions become ineffective.
Thus product portfolio strategy and a defined organizational structure for new product or service
development are critical-and are the foundations-for success.

The type of new services that will be appropriate will depend on the organization‘s goals, vision, capabilities,
and growth plans. By defining a new service strategy, the organization will be a better position to begin
generating specific ideas. For example, it may focus its growth on new services at particular level of the
describe continuum from major innovations to style changes.
One way to begin formulating a new service strategy is to use a framework shown below.
Current customers New customers
Existing Share building Market development
service
New service Service development Diversification
The above framework allows an organization to identify possible directions or growth and can be helpful as
catalyst for creative ideas. The framework may also serve as initial idea screen if, for example, the
organization chooses to focus its growth efforts on one or two of the four cells in the matrix.
3. Idea generation
The next step is the formal solicitation of new ideas. Formal brainstorming, solicitation of ideas from
employees, and customers, lead user research, and learning about competitors‘ offerings are some of the most
common approaches. Some companies are still collaborative with outsiders (competitors, vendors, an alliance
partners).
4. Service concept development and evaluation
Once an idea surfaces that is regarded as a good it with both the business and new service strategies, it is
ready for initial development. In the case of tangible product, this next step would mean formulating the
basic product definition and then presenting consumers with descriptions and drawings to get their reactions.
Inherent characteristics of services, particularly intangibility and simultaneous production and consumption,
place complex demands on this phase of the process. By involving multiple parties in sharpening the concept
definition, it often becomes apparent that individual views of the concept are not the same. After clear
definition of the concept, it is important to produce a description of the service that represents its specific
50
Salale university, Department of Marketing Management
 Service Marketing module

features and characteristics and then to determine initial customer and employee responses to the concept.
The service design document would describe the problem addressed by the service, discuss the reasons for
offering the new service, itemize the service process and its benefits, and provide a rationale for purchasing
the service. The roles of customers and employees in service delivery process will also be described. The
new service concept would then be evaluated by asking employees and customers whether they understand
idea of proposed service, whether they are favorable to the concept, whether they feel it satisfies unmet
needs.
5. Business analysis
Assuming the service concept is favorably evaluated by customers and employees at the concept
development stage, the next step is to estimate its economic feasibility and potential profit implications.
Demand analysis, revenue projections, cost analysis and operational feasibility are assessed at this stage. This
stage will involve preliminary assumptions about the costs of personnel hiring and training, delivery system
enhancements, facility changes, and any other projected operations costs.
6. Service development and testing
In the development of new tangible product, the development and testing stage involves construction of
product prototypes and testing for consumer acceptance. Again services are intangible and largely produced
and consumed simultaneously, this stage presents unique challenges. To address these challenges, this stage
of service development should involve all who have stake in the new service: customers and contact
employees as well as functional representatives from marketing, operations and human resources. During this
phase, the concept is refined to the point at which a detailed service blueprint representing the
implementation plan for the service can be produced. The blueprint is likely to evolve over a series of
iterations on the basis of input from all the involved parties.

For example, when a large state hospital was planning a new computer-based information service of doctors
throughout its state, it involved many groups in the service development and evaluation stage, including
medical researchers, computer programmers and operators, librarians, telecommunication experts, and record
clerks as well as the physician customers. A final step is for each area involved in rendering the service to
translate the final blueprint into specific implementation plans for its part of the service delivery process.
7. Market testing
At the market testing stage, a tangible product might be test marketed in a limited number of trading areas to
determine marketplace acceptance of the product as well as other marketing mix variables such as
promotion, pricing and distribution systems. Again, the standard approach for a new manufactured product is
51
Salale university, Department of Marketing Management
 Service Marketing module

typically not possible for a new service Because of its inherent characteristics. Because new service offerings
are often intertwined with the delivery system for existing services, it is difficult to test new services in
isolation. And in some cases, again, it may not e possible to introduce the service to an isolated market area
because the organization has only one point of delivery. There are alternative ways of testing the response to
marketing mix variables, however. The new service might be offered to employees of their organization and
their families for a time to assess their responses in terms of intensions to try the service under varying
circumstance. This approach certainly has limitations compared with an actual market test, but it is better
than not assessing market response at all. It is also extremely important at this stage in their development
process to do a pilot run of the service to be sure that the operational details are functioning smoothly.
8. Commercialization
During the commercialization stage, the service goes live and is introduced to the marketplace. This stage
has two primary objectives. The first is to build and maintain acceptance of the new service among large
numbers of service delivery personnel who will be responsible day to day for service quality. This task is
made easier if an acceptance has been built in by involving key groups in the design and development
process all along. The second objective is to monitor all aspects of the service during introduction and
through the complete service cycle. If the customer needs sic months to experience the entire service, then
careful monitoring must be maintained through at least six months.
9. Post introduction evaluation
At this point, the information gathered during commercialization of the service can be reviewed and changes
made to the delivery process, staffing or marketing mix variables on the basis of actual market response to
the offering. No service will ever stay the same. Whether deliberate or unplanned, changes will always
occur. Therefore, formalizing the review process to make that change that enhances service quality from the
customer‘s point of view is critical.
7.5 Service Blueprinting
The manufacturing and construction industries have a long tradition of engineering and design. Can you
imagine a house being built without detailed specifications? Yet services commonly lack concrete
specifications. A service, even a complex one, might be introduce without any formal Objective depiction of
the process.
A service blueprint is a picture or map that accurately portrays the service system so that the different people
involved in providing it can understand and deal with it objectively regardless of their roles or their
individual points of view. Blueprints are particularly useful at the design stage of service development. A

52
Salale university, Department of Marketing Management
 Service Marketing module

service blueprint visually displays the service by simultaneously depicting the process of service delivery, the
points of customer contact, the roles of customers and employees, and the visible elements of the service.
Steps involved in building a service blue print are the following:
1. Identify the process to be blue printed
2. Identify the customer or customer segment
3. Map the process from the customer‘s point of view
4. Map employee actions, onstage and backstage, and/or technology actions
5. Link contact activities to needed support functions
6. Add evidence of service at each customer action step
7.6 Quality Function Development
In addition to service blueprinting, another approach than can be used to develop service architecture is
quality function development (QFD). QFD has been defined a ―system for translating customer requirements
into appropriate company requirements at every stage, from research through production design and
development to manufacture; distribution; installation; and marketing, sales, and services.‖ Because QFD is
used as a means of integrating marketing and engineering personnel in the development process, it has more
applications in manufacturing than in services. Its ideas are also applicable to services; however, QFD is
implemented via what is known as the ―house of quality,‖ which links the customer requirements to design
characteristics of the product or service.
These are then linked to internal processes such as product planning, process planning, and production
planning and parts development.
The result of house of service quality comprises three distinct sections:
i. Customer quality criteria (what customer perceives)
ii. Service company facets (how these criteria are created by the firms)
iii. The relationship grid (how the two are related).

ACTIVITY QUESTIONS
1. Discuss the steps or stages of new service development?
2. Explain types of new service?

53
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER EIGHT
DELIVERING AND PERFORMING SERVICE
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the role of Employee‘s and Customers in Service Delivery
 Identify the Strategies for Enhancing Customer Participation
 Explain the Concept of Service Intermediaries
 Discuss the Common Issues Involving Intermediaries
 Understand the Concept of Electronic Channels and its Challenges in Service Industry
 Identify Strategies for Effective Service Delivery through Intermediaries
8.1 Employee’s Role in Service Delivery
In this chapter we focus o service employees and human resource practices that facilitate delivery of quality
services. The assumption is that even when customer expectations are well understood (gap1) and services
have been designed and specified to conform to those expectations (gap2), there may still be discontinuities
in service quality when the service is not delivered as specified. These discontinuities are labeled gap3-the
service performance gap-in the service quality framework. Because employees frequently deliver or perform
the service, human resource issues are a major cause of this gap.By focusing on the critical role of service
employees and by developing strategies that will lead to effective customer-oriented service, organizations
can begin to close the service delivery gap.

The failure to deliver services as designed and specified can result from a number of employee and human
performance factors: ineffective recruitment of service-oriented employees; role ambiguity and role conflict
among contact employees; poor employee-technology-job fit; inappropriate evaluation and compensation
systems; and lack of empowerment, perceived control, teamwork.

The behavior of employees in an organization will be heavily influenced by the culture of an organization, or
the pervasive norms and values that shape individual and group behavior. Corporate culture has been defined
as ―the pattern of shared values and beliefs that give the members of an organization meaning, and provide
them with the rules for behavior in the organization.‖ Culture has been defined more informally as ―the way
we do things around here.‖ Suppose that you have been a member of churches, fraternities, schools, or

54
Salale university, Department of Marketing Management
 Service Marketing module

associations. Your behavior and the behavior of others were no doubt influenced by the underlying values,
norms and culture of the organization. Even when you firs t interview for a new job, you can begin to get a
sense of the culture through talking to an number of employees and observing behavior. Once you are on the
job, your formal training as well as informal observation of behavior will work together to give you a better
picture of the organization‘s culture.

Experts have suggested that a customer-oriented service-oriented organization will have at its hear a service
culture, defined as ―a culture where an appreciation for good service exists, and where giving good service to
internal as well as ultimate, external customers is considered a natural way of life and one of the most
important norms by everyone.‖

Service culture has been linked to competitive advantage in companies. Why is it so important? No realistic
amount of supervision would allow a firm to exercise sufficient control over all employee behavior, in many
service settings, employees interact with customers with no management present. In such instances, the firm
must rely on its service culture it influence employee thoughts, feelings and behaviors.
Strategies for delivering service quality through people
 hire the right people
 Compete for the best people
 Hire for service competencies and service inclination
 Be the preferred employer
 develop people to deliver service quality
 Train for technical and interactive skills
 Empower employee
 Promote teamwork
 provide needed support system
 Measure internal service quality
 Provide supportive technology and equipment
 Develop service-oriented internal process
 Retain the best people
 Include employees in the company‘s vision
 Treat employee as customers

55
Salale university, Department of Marketing Management
 Service Marketing module

 Measure and reward strong service performers

8.2 Roles of Customers in Service Delivery
Service customers are often present in the ―factory‖(the place the service is produced and /or consumed),
interacting with employees and with other customers. For example, in classroom or training situation,
students (customers) are sitting in the factory interacting with instructor and other students as they consume
and co-create the educational services. Because they are present during service production, customers can
contribute to or detract from the successful delivery of the service and to their own satisfaction.

In a manufacturing context, rarely does the production facility contend with customer presence on the factory
floor, nor does it rely on the customer‘s presence on the factory floor, nor does it rely on the customer‘s
immediate real-time input to manufacture the product. Because customers are participants in service
production and delivery, they can potentially contribute to the widening of gap3. That is, customers
themselves can influence whether the delivered service meets customer-defined specifications. Sometimes
customers contribute to gap3 because they lack understanding of their roles and exactly what they should do
in a given situation, particularly if the customers confronting a service concept for the first time.
Customer participation at some level is inevitable in service delivery and co-creation as the customers play
the following roles as well as what we mentioned so far.
 Customer receiving the service
 Customer influencing fellow customers
 Customer as productive resource
 Customer as contributor to service quality and satisfaction
 Customers as competitors- if self-service customers can be viewed as resource of the fir, or as‖
partial employees,‖ they could in some cases partially perform the service or perform the entire
service for themselves and not need the provider at all.
8.3 Strategies for Enhancing Customer Participation
The level and the nature of customer participation in the service process are strategic decisions that can
impact an organization‘s productivity, its positioning relative to competitor, its service quality, and its
customer‘s satisfaction. The overall goals of a customer participation strategy will typically be to increase
organizational productivity and customer satisfaction while simultaneously decreasing uncertainty due to
unpredictable customer actions.
Strategies that can enhance customer participation are as follows:

56
Salale university, Department of Marketing Management
 Service Marketing module

1. Defining customers‘ jobs-the job might entail helping oneself, helping others, or promoting the
company. See also individual difference: not everyone wants to participate.
2. Recruit, educate and reward customers
3. Manage the customer mix-because customers frequently interact with each other in the process of
service delivery and consumption.
8.4 Concept of Service Intermediaries
Except for situations such a distance learning, where electronic channels can distribute services, providers
and consumers come into direct contact in service provision. Because of the inseparability of production and
consumption in service, providers must either be present themselves when customers receive service or find
ways to involve others in distribution. Involving others can be problematic because quality in service occurs
in the service encounter between company and customer. Unless the service distributor is willing and able to
perform in the service encounter as the service principal would, the value of the offering decreases and the
reputation of the original service may be damaged. In spite the challenge from the use of intermediary, most
service companies may face an even more formidable task: attaining service excellence and consistence when
intermediaries represent them to customers.
Two distinct service marketers are involved in delivering service through intermediaries: the service
principal, or originator, and the service deliverer, or intermediary. The service principal is the entity that
creates the service concept (whose counterpart is the manufacturer of physical goods), and the service
deliverer is the entity that interacts with the customer in the actual execution of the service (whose
counterpart is the distributor or wholesaler of physical goods).
Direct delivery of service
In fact, many services` are delivered directly from the service producer to the consumer. i.e, in contrast to
channels for goods, channels for services are often direct-with the creator of the service (the service
principal) selling directly to and interacting directly with the customer. Because services cannot be owned,
there are not titles or rights to most services that can be passed along a delivery channel.

Because services are intangible and perishable, inventories cannot exist, making warehousing a dispensable
function. In general, because services cannot be produces, warehoused, and the retailed, as goods can many
channels available to goods producers are not feasible for service firms. Thus, many of the primary functions
that distribution channels serve-inventorying, securing, and taking title of goods have no meaning in services,
allowing the service principal to deliver the service directly to the customer.

57
Salale university, Department of Marketing Management
 Service Marketing module

Delivery of service through intermediaries

Even though many of the functions that intermediaries provide for goods manufacturers are not relevant for
service firms, intermediaries often deliver services and perform several important functions for service
principals. First, they may co-produce the service, fulfilling service principals‘ promises to customers,
franchise services such as haircutting , key making, and dry cleaning are produced by the intermediary (the
franchisee) using a process developed by the service principal. Service intermediaries also make services
locally available, providing time and place convenience for the customer. Because they represent multiple
service principals, such intermediaries as travel and insurance agents provide a retailing function for
customers, gathering together in one place a variety of choices. And in many financial or professional
services, intermediaries function as the glue between the brand or company name and the customer by
building the trusting relationship required in these complex and expert offerings.

The primary types of intermediaries used in service delivery are franchisees, agents, brokers, and electronic
channels. Franchises are service outlets licensed by a principal to deliver a unique service concept it has
created or popularized. Examples include fast-food chains (McDonald‘s, Burger king), video stores
automobile repairs services and hotels.
8.5 Common Issues Involving Intermediaries
Key problems with intermediaries include conflict over objectives and performance, difficulty controlling
quality and consistency across outlets, tension between empowerment and control, and channel ambiguity.
Channel conflict over objectives and performance
The parties involved in delivering services do not always agree about how the channel should operate.
Channel conflict can occur between the service provider and the service intermediary, among intermediaries
in a given area, and between different types of channels used by a service provider (such as when a service
principal; has its own outlets as well as franchised outlets). The conflict most often center on the parties
having different goals, competing roles and rights, and conflicting views of the way the channel is
performing. Sometimes the conflict occurs because the service principal and its intermediaries are too
dependent on each other. Difficulty controlling quality and consistency across outlets One of the biggest
difficulties for both principals and their intermediaries involves the inconsistency and lack of uniform quality
that result when multiple outlets deliver services. When shoddy performance occurs, even at single outlet, the
service principal suffers because the entire brand and reputation are jeopardized, and other intermediaries
endure negative attributions to their outlets. The problem is particularly acute in highly specialized services

58
Salale university, Department of Marketing Management
 Service Marketing module

such as management consulting or architecture, in which execution of the complex offering may be difficult
to deliver to the standards of the principal.
Tension between empowerment and control
McDonald‘s and other successful service businesses were founded on the principle of performance
consistency. Both they and their intermediaries have attained profits and longevity because the company
controls virtually every aspect of their intermediaries ‗business. McDonald‘s for example, is famous for its
demanding and rigid service standards (such as ―turn, never flip, hamburgers on the grill‖), carefully
specified supplies, and performance monitoring. Control, however, can have negative ramifications within
intermediaries. Many service franchisees, fro example, are entrepreneurial by nature and select service
franchising because they can own and operate their own business. If they are to deliver according to
consistent standards, their independent ideas must be integrated into and often subsume by the practices and
policies of the service principal. In these situations they often feel like automations with less freedom than
they have anticipated as their own business.
Channel ambiguity
When control is not the chosen strategy, doubts exist about the roles of the company and the intermediary.
Who will undertake market research to identify customer requirements, the company or an intermediary?
Who owns the results and in what way are they to be used? Who determines the standards for service
delivery, the franchiser or the franchisee?
8.6 Concept of Electronic Channels and Its Challenges in Service Industry
Electronic channels are the only service distributors that do not require direct human interaction. What they
do require is some predesigned service (almost always information, education, or entertainment) and an
electronic vehicle to deliver it. You are all familiar with telephone and television channels and the internet
and web and may be aware of other electronic vehicles that are currently under development. The consumer
and business services that are made possible through these vehicles include movies on demand, interactive
news and music, banking and financial services, multi-media libraries and databases, distance learning,
desktop videoconferencing, remote health services, and interactive, network-based games.

The more service relies on technology and/or equipment for service production and the less it relies on face-
to-face contact with service providers, the less the service is characterized by inseparability and no
standardization.
Benefits of Electronic channels
 Consistent delivery of standardizes services
59
Salale university, Department of Marketing Management
 Service Marketing module

 Low cost than interpersonal media

 Customer convenience
 Wide distribution
 Presence of customer choice and ability to customize
 Quick customer feedback is also possible
Challenges in distributing services through electronic channels
 Price competition-one of the traditional differences between goods and services has been the
difficulty of directly comparing features and prices of services with each other. Whereas goods can
typically be compared in retail settings, few retail settings exist that offer services from multiple
sources. The internet has changed all that. Services such as Travelocity of service.
 Inability to customize with highly standardized electronic services-in electronic classes-as in the
video-conferences that are springing up in many businesses-the quality of the service can be impeded
by the way the audience reacts (or does not react) in those situations. People talk among them, leave,
laugh, and criticize, among other behaviors.
 Lack of consistency because of customer involvement-although electronic channels are very effective
in minimizing the inconsistency from employees or providers of service, customer variability still
presents a problem. Many times customers use the technology themselves to produce the service and
can lead to errors or frustration unless the technology is highly user friendly. Maneuvering online can
sometimes be overwhelming, and not all websites are easy to use. Furthermore, many customers may
not have computers and , even if they do, may be reluctant to use this medium.
 Changes in consumer behavior-a consumer purchasing g a service through electronic channels
engages in very different behavior than a consumer entering a retail store and talking to a salesperson.
Considerable changes-in the willingness to search for information, in the willingness to perform some
aspects of the services themselves, in the acceptance of different levels of service-are necessary when
customers use electronic channels. Behavior change is difficult, even for a consumer wanting to make
a change; therefore, marketers wishing to motivate consumers to alter long-established patterns will
be challenged.
 Security concerns-particularly for health and financial information. Eg. Cyber attack and vandalism.
 Competition from widening geographies-historically, many services were somewhat protected from
competition because customers had limited choice among the providers they could physically drive to
banks, for example Supplied all local customers with checking accounts, savings accounts, and
mortgages, in fact, it use to be said that because services could not be transported they were limited
60
Salale university, Department of Marketing Management
 Service Marketing module

in their scope. Not any linger-and not with electronic channels. Through the interknit, many services,
including financial services, can be purchased from service providers far from the local area.
8.7 Strategies for Effective Service Delivery through Intermediaries
Service principals, Of course, want to manage their service intermediaries to improve service performance,
solidify their images, and increase profits and revenues. The principal has a variety of choices, which range
from strict contractual and measurement control to partnering with intermediaries in a joint effort to improve
service to the customer. One of the biggest issues a principal faces is whether to view intermediaries as
extensions of its company, as customers, or as partners.
Below are categories of intermediary management strategies:
1. Control strategies-in the control strategies category, the service principal believes that
intermediaries will perform best when it creates standards both for revenues and service
performance, measures results, and compensates or rewards on the basis of performance.
2. Empowerment strategies-in which service principal allows greater flexibility to intermediaries
based on the belief that their talents are best revealed in participation rather than acquiescence are
useful when the service principal is new or lacks sufficient power to govern the channel using control
strategies. In empowerment strategies, the principal provides information, research, or processes to help
intermediaries perform well in service.
 Help the intermediary develop customer-oriented service process- to this the standard can be no client
will wait more than 30 minutes in the waiting area phone calls will be answered by the fourth ring, no
caller will be on hold for more than one minute.
 Provide needed support systems
 Develop intermediaries to deliver service quality
 Have a cooperative management structure
3. Partnering Strategies important activities for this are:
Alignment of goals Consultation and cooperation.
ACTIVITY QUESTION
1. Which one of the following is Strategies for delivering service quality through people ?
A. Hire the right people
B. Develop people to deliver service quality
C. Provide needed support system
D. Retain the best people
E. All
Answer:- E, All are the strategies used for delivering service quality through people.

61
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER NINE
INTEGRATED SERVICES MARKETING COMMUNICATIONS (IMC)
CHAPTER OBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of integrated services marketing communications
 Identify the Reasons for service communication problems
 Discuss the Strategies to match service promises with service delivery
 Understand the Concept of customer expectations
 Discuss on Managing internal marketing communication

9.1 Concept of Integrated Marketing Communication

IMC is a strategy that carefully integrates all external and internal communication channels to present a
consistent message to customers. IMC is defined as "a comprehensive plan that evaluates the strategic roles
of a variety of communication disciplines and combines these disciplines to provide clarity, consistency and
maximum communication impact. The primary idea is to create a seamless experience for consumers across
different aspects of the marketing mix. The brand's core image and messaging are reinforced as each
marketing communication channel works together as parts of a unified whole rather than in isolation.

Prior to the emergence of IMC during the 1990s, mass communications - information to large segments of
the population through television, radio, and other media dominated marketing. Marketing was a one-way
feed. Advertisers broadcasted their offerings and value propositions with little regard for the diverse needs,
tastes, and values of consumers. This "one size fits all" approach was costly and uninformative. Marketers
were increasingly able to correlate promotional activities with consumer purchasing patterns. Now,
marketing is viewed more as a two-way conversation between marketers and consumers. This transition can
be summarized by the following market trends: a shift from mass media ad to multiple forms of
communication the growing popularity of more specialized (niche) media, which considers individualized
and increased segmentation of consumer tastes and preferences the move from a manufacturer-dominated
market to a retailer-dominated, consumer-controlled market the growing use of data-based marketing as
opposed to general-focus ad and marketing greater business accountability, particularly in ad. Unlimited
Internet access and greater online availability of goods and services. a larger focus on developing marketing
communications activities that produce value for target audiences while increasing benefits and reducing
costs.
62
Salale university, Department of Marketing Management
 Service Marketing module

9.2 Reasons for Service Communication Problems

 People are not trained:- When an organization does not spend the time to fully train their people.
Solution: Dedicate resources (time and money) for training. Employees should be fully informed about
company goals, the products and services. Emphasis and training should be focused upon the
importance of listening and responding to the customer‘s requests. People can only do the job if they
are given the right tools and objectives. It costs money to train people. It will cost more if you decide
not to train them.
 People don’t care:- Selecting the correct personality is crucial for your business success. Apathetic
or self centered personality types have no place in a business that requires customer contact.
Solution: Focus the selection and evaluation process to identify personalities that do not fit the required
profile. Get the wrong people out immediately, it also sends a clear message to everyone.
 Sabotage:- Angry or frustrated employees can actively work to sabotage and try to destroy the
company.
Solution: Keep honest and open communications with employees. Informally and formally review
performance, goals, objectives and feelings to stop potential problems before they reach the customers.
Get these people out of the front lines immediately.
 Employees don’t believe in the company, product or service:- If the image, marketing and
promotion of the company is quite different from the reality, workers will not be able to sustain a
positive attitude in the face of problems they know exist.
Solution: Be honest. Work closely with customer service, marketing and quality control to identify real
problems and fix them. Don‘t let marketing advertise over problems, solve them.

 Personal problems reflected in work:- When an employee‘s personal life is in crisis or out of
control, they may exercise control, aggression and negativism toward customers in an attempt to put
some part of their life in order.
Solution: Clear communications with employees, If their personal life is affecting work performance,
talk about it. Time off, access to counseling or just listening may prevent more serious problems.
 Burnt out:- Too much negative, too many complaints can lower a person‘s level of commitment and
move their positive and helpful attitude to an apathetic one.
Solution: Constant communication helps to identify who is burning out and why. Get customer service
people together to talk of success and how to deal with the frustrations. Provide recognition or
incentives for excellence in dealing with problems.
63
Salale university, Department of Marketing Management
 Service Marketing module

 Not providing the correct solutions to customers, lack of empowerment: There is nothing worse
than dealing with an employee who listens to a problem, then shrugs and says they have to ask someone
else in the company to intervene and provide a solution.
 Don’t see the benefits:- don‘t understand their role in the company.
Solution: Employees project an image of the company. They are the company, they should be reminded
of their importance and value to the customer and to the company. Incentives, recognition, training and
constant reinforcement are important.
 Apathetic from hearing the same problems over and over:- Provide constant feedback on how
customers view the company, the products and the service. If this feedback is not analyzed and acted
upon by upper management a feeling of apathy and frustration is created.
Solution: Set up a model and procedure for the accumulation, analysis and implementation of solutions
for the problems identified by customer service.
 Incentives/salary not tied to results.
Solution: If you insist that the company depends upon people, and that people are the key to success,
implement compensation packages, evaluations and incentives that support and reinforce this.
9.3 Strategies to Match Service Promises with Service Delivery
Customers expect certain things when they walk into a business. When expectations are not met by the
performance of customer service representatives, customer dissatisfaction will be the result.
Customer Expectations + Service Performance = Customer Satisfaction
The quality of your customer service is determined by your ability to meet your customer expectations. You
can have the greatest service team, but if your customers perceive their needs are not being met, your service
reputation suffers. Service quality is largely determined by customer's perception. Identifying Customer
Expectations it can be very challenging to know precisely what those expectations might be Have customers‘
complete surveys about your products and service. Next time you see a customer, ask if his expectations of
your business are being met. If not, find out why and what you can do to make your service better.
9.4 Concept of Customer Expectations
Common customer expectations include:
 Fast, efficient and accurate service
 High quality products at a competitive price
 Friendly, helpful service staff to provide information and answer questions
 Prompt responses to their inquiries, whether online, by phone or in person
 Sufficient stock to meet their needs without long waits
64
Salale university, Department of Marketing Management
 Service Marketing module

 A trained staff that can handle their questions without referring them on
 A clean facility or easy to navigate website
All of these expectations comprise the minimum of what your top-notch service should look like. When
you are able to accurately identify and adequately meet your customers' expectations, your customer
service reputation will automatically be enhanced.
Some of the benefits of meeting your customers' expectations are:
 Customers that transform from first-time visitors to loyal clients
 Increased sales as customers feel more comfortable doing business with you
 More referrals from satisfied customers who bring in additional business by word
of mouth
By meeting or exceeding them consistently, your company is likely to enjoy happier customers and a
healthier bottom line.
9.5 Managing Internal Marketing Communication
Internal marketing communication needs well-coordinated efforts among different functions of the
organization to work for the same goal. Horizontal communication that should take place among functions
does not go on resulting in not keeping everyone informed or getting everyone‘s input. Any
miscommunication between any two departments like marketing and operations or these two and the HR can
cause a situation that may create missing links and hence disintegrated communication. Until marketing
communications are fully integrated and spread across the organization, it is quite very difficult to keep all
the employees informed of real communication objectives. Informed employees get motivated to offer a
service in a manner that minimizes the gap. Therefore, there is a tremendous need for coordinating marketing
communications. There are a few more factors in addition to inadequate internal communication that build
unrealistic expectations.

The availability of competitive offerings, customers‘ perceptions of competitive offerings and the general
word of mouth play a role toward that. Also, the sheer fact that customers have certain needs to fulfill, they
develop certain expectations. These factors are of such extraneous nature that it is difficult for the company
to control them. The company, however, can control the tools of communication at its disposal in a way that
the impact of extraneous factors gets subsided.

65
Salale university, Department of Marketing Management
 Service Marketing module

ACTIVITY QUESTIONS
1. What is integrated marketing communications?
2. Explain the Reasons for service communication problems ?

66
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER TEN
PRICING OF SERVICES
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Value to Customers
 Discuss the Role of Price as an Indicator of Service Quality
 Explain the different Approaches to Pricing Services
 Identify Strategies used by Companies to Price Services
10.1 Concept of Value to Customers
Service companies must understand how pricing works, but first they must understand how customers
perceive prices and price changes. If you are like many consumers, you feel quite uncertain about you
knowledge of the prices of services, and the reference prices you hold in memory for services are not
generally as accurate as those you hold for goods. Some of the reasons for this difference are:
- Service variability limits knowledge
- Provider are unwilling to estimate prices
- Individual customer needs vary
- Collection of price information is overwhelming in services
- Prices are not visible
10.2 Role of Price as an Indicator of Service Quality
Because services are intangible and experienced in nature, the price becomes more important to
consumers as a cue of what to expect.
 In the absence of other form of communication from the company, price becomes the sole decisive
factor in the selection of a service. Customers look for cues like information through advertising,
brand image, etc.
 In certain services which are perceived as high risk like consultancy services and medical treatment the
customer‘s associate price with quality assurance.
 Too low price an act as a repellant. It could send negative signals.
10.3 Approaches to Pricing Services
What Makes Service Pricing Strategy Different and Difficult?
 Harder to calculate financial costs than a manufactured good
 Difficulty in defining a ―unit of service‖
 Services hard to evaluate
67
Salale university, Department of Marketing Management
 Service Marketing module

 Customers may be prepared to pay more for faster delivery

 Delivery through physical or electronic channels—may create differences in perceived value
There are three bases for pricing:
1. Cost based/cost plus
2. Competition based
3. Demand based
1. Cost based
Cost based Pricing: Used in services like advertising, contracting etc.
Price = Direct Cost+ Overhead Cost+ Profit Margin
2. Competition based pricing
This approach is based on using the competitors‘ price as the point of reference
Eg: Fitness clubs, Driving classes, Computer classes etc.
When services are standard across providers:
 In oligopolies where there are few large service providers : Airlines
 Going-rate Pricing
 Sealed bid pricing: govt. tenders
 Demand based pricing
Based on establishing prices consistent with customer perception of value i.e. pricing depends on what
customers are likely to pay for the services provided
10.4 Strategies Used by Companies to Price Services
New service pricing strategies:
1. Price skimming strategy,
2. Price penetration
Differential pricing/market segmentation pricing
Price discrimination may be resorted on the following basis:
1. Group of buyers-where different groups pay different prices. Eg. Children below ten are charged less
in amusement parks.
2. Differential points of consumption-where different rates are charged for the same service in different
locations. Eg. Higher price in cities than suburbs.
3. Different time of consumption- where different prices are charged to even out the peak and slack
period of demand.
Service mix pricing
68
Salale university, Department of Marketing Management
 Service Marketing module

Service firms with multiple services offering that are more often interrelated may resort to:
Optional additional service: when the service provider gives an option to consumer to purchase the optional
service with the core service. Eg. Holiday resorts may keep their room tariff low to attract tourists but will
charge more on optional services like swimming pool, restaurant, health club facilities, etc. Captive service-
in this strategy the customer has not choice but to get additional service from the service provider along with
the core service. Eg. Software developing firm also offer software maintenance contracts with an agreement
to provide free upgrades of software that enters into maintenance contracts with them. Competing services-
in this strategy the service provider may offer a new service offering similar to the existing one but at low
price. In this strategy the service firm competes with its own offerings.
Price bundling
In this strategy the service provider prices his entire service offering as a package at a single price. Bundling
means pricing and selling services as a group rather than as individual offering.
Relationship pricing
It is an appropriate form of pricing where there is an ongoing contact between the service provider and the
customer. This strategy follows the market oriented approach of value based pricing of all services provide to
the customer and makes a potential profit stream over a given period of time.

In other words it takes the life time of the customer into account. The main objective of this strategy is
to encourage customer loyalty.
ACTIVITY QUESTION
1. Strategies Used by Companies to Price Services are
A. Price skimming
B. Price penetration
C. Cost based pricing
D. A and B
Answer:- D
Explanation: The strategies used by Companies to Price Services are price skimming and price
penetration. Cost based pricing is the approaches to pricing services.

69
Salale university, Department of Marketing Management
 Service Marketing module

CHAPTER ELEVEN
SERVICES DIFFERENTIATION, QUALITY AND
PRODUCTIVITY
CHAPTEROBJECTIVES
At the end of this chapter, students should be able to do the following:
 Understand the Concept of Service Differentiation
 Discuss the Measurement of Productivity
 Explain the Mechanism of Improving Productivity
11.1 Improving Service Differentiation
In these days of intense price competition, service marketers often complain about the difficulty of
differentiating their services from those of competitors. To the extent that customers view the services of
different providers as similar, they care less about the provider than the price.

The solution to price competition is to develop differentiated offer, delivery and image.
The ‗offer can include innovative features that set one company‘s offer apart from competitors ‗offers. Some
hotels offer car-rental, banking, and business-center services in their lobbies and free high-speed Internet
connections in their rooms. Airlines differentiate their offers though frequent flyer award programs and
special services, For example, Qantas offers personal entertainment screens at every seat and "Sky beds" for
international business class flyers.
Lufthansa provides wireless Internet access and real-time surfing to every seat-it makes "an airplane feel like
a cyber cafe." And British Airways offers spa services at its Arrivals Lounge at Heathrow airport and softer
in-flight beds, plumper pillows, and cozier blankets. Says one ad: "Our goal is simple: to deliver the best
service you can ask for, without you having to ask."

Service companies can differentiate their service delivery by having more able and reliable customer contact
people, by developing a superior physical environment in which service product is delivered or by designing
a superior delivery process. For example, many grocery chains now offer online shopping and home delivery
as a better way to shop than having to drive, park, wait in line, and tote groceries home. Service companies
also can work on differentiating their images through symbols and Branding, the Harris Bank of Chicago
adopted the lion as its symbol on its stationery, in its advertising, and even as stuffed animals offered to new
depositors. The well-known Harris lion confers an image of strength on the bank. Other well-known service
symbols include Merrill Lynch's bull, MGM's lion, McDonald's Golden Arches, and Allstate's "good hands."
70
Salale university, Department of Marketing Management
 Service Marketing module

Finally, a service firm can differentiate itself by delivering consistently higher quality than its competitors do.
Like manufacturers before them, most service industries have now joined the customer-driven quality
movement, and like product marketers, service providers need to identify what target customers expect
concerning service quality.
11.2 Concept of service quality
Service quality is a measure of how an organization understands its users‘ needs and fulfills their
expectations. Understanding how to improve the service quality of your product is the key step to growth for
any organization. Measuring and improving service quality is a valuable art. But this requires research and
expertise. To learn more about service quality we need to understand the key dimensions of service quality.
The 5 Service Quality Components
The key dimensions can be categorized into 5 components. Let‘s take a deep dive into the above points and
learn how to make your product the best in the market:
1. Service Quality Reliability
Consistency all year round will not only ensure the probability that a product or service will operate as
desired but also make sure that there is no breakage in the deliveries as set out. This helps in uncovering the
customer experience measures well as potential risks in losing customers to the competition.
There might be numerous factors that could potentially cause disruption or breakage of a quality of a service
being provided, especially in the case of continuous service delivery enterprises. Analyzing these deadlocks,
and sources and coming up with strategies to mitigate the risks so that the end customers get consistent
service delivery is a key component in making sure. For instance, in a multi-tenant architecture fluctuation
of end-customer volumes can be quite uneven- while regular web traffic can be quite manageable, we might
end up having exponential requests on the first working day of the month. It is absolutely necessary that
proper contingency plans be developed during the inception phase so that there is a smooth transition in
handling these anomaly scenarios.
2. Service Quality Tangibility
Customers should feel a palpable sense of quality in the level of services being offered to them. Total
perceived quality is generally based on the juxtaposition of expected quality vs. experience quality. In
general, Expected quality is usually deduced from various marketing campaigns, sales promotions, brand
images, and word-of-mouth. Multiple types of research have shown the experienced quality can be measured
with either:
 Technical Quality: The What?
 Functional Quality: The How?
71
Salale university, Department of Marketing Management
 Service Marketing module

Sometimes, organizations can also derive their custom indicators to measure tangible service
experience with the help of well-formulated questionnaires and surveys.
3. Responsiveness
Being responsive to your consumers, making them feel heard, and giving them the right directions is a key
factor in service quality. If you have a product and are facing issues with it, and the service team for the
product is taking ages to get the issue resolved, would that make you want to use the product? Or will you
find a product with a great Time-To-Resolution and better service?
How can you be better at Responsiveness?
Understanding your customer, providing consistent support experience, providing them with resourceful self-
help guides, using canned responses for a quicker process, training the employees, setting performance goals
for your employees, and monitoring them are some of the key factors that will benefit your organization and
the product.
4. Service Quality Assurance
It is worth noting that consumers are getting bombarded with targeted digital advertisements all over. It is
difficult to measure the reliability of each of these on a daily basis and with less attention span on a digital
platform for end-users for e.g. e-commerce sites, trusting a brand is very important.
Assurance measures the ability of service providers to relay trust to the customers which are paramount in
getting confidence in customers to stick with the organization as opposed to the competition. Assurance can
be marked in different ways – Brand loyalty might be the first. People generally tend to trust a brand they are
familiar with. But this might be a bit difficult for new startups. New aspiring companies need to pay special
attention to delivering sales pitches which magnifies their commitment to reliable service delivery in the long
run.
5. Empathy
Understanding the consumer‘s use case, how the product will be useful to them, guiding them and helping
them achieve their goals, and being empathetic to their needs is a very important process for an organization.
This is what separates a human from a bot, the ability to empathize with your customer and make them feel
valued.Empathizing with your clients would make them feel valued and it will lead the user to be loyal to
your product and services.
11.3 The Gap model
Service Quality Gaps
With a framework in place to analyze customer expectations and perceptions of service quality, the next
step is to look for gaps between expected performance and perceived performance.
72
Salale university, Department of Marketing Management
 Service Marketing module

In order for the service provider to satisfactorily perform services it must understand customer
expectations, be able to perform according to those expectations and communicate effectively with the
customer throughout the entire process. Each customer‘s expectations will be influenced by the
provider‘s communication as well as by other external factors, including previous experiences and input
from other customers.

There can be gaps during each one of these steps. The service provider organization may fail to understand
customer expectations. Even if the expectations are understood, the provider may fail to translate those
expectations into adequate service quality specifications. Even if the service quality specifications are
adequate, the organization may fail to deliver according to those standards.

Lastly, there may be a mismatch between what the organization is able to achieve and what it is
communicated to the customer. The combined gaps in any of these steps will ultimately create a gap between
what customers expect and how they perceive the organization‘s performance.
The Management Perception Gap: A gap between customer expectations and management‘s
understanding of those expectations can arise due to insufficient market research or management that is too
far removed from front line customer interaction.
The Quality Specification Gap: A gap between management understands of customer

73
Salale university, Department of Marketing Management
 Service Marketing module

expectations and the service quality specifications of the organization can arise due to a lack of
standardization, insufficient planning or a lack of commitment to service quality.
The Service Delivery Gap: A gap between service quality standards and actual service delivery can arise
due to lack of teamwork, low morale, ineffective management or insufficient capacity to meet demand.
Marketing Communication Gap: A gap between actual service delivery and the promised service delivery
can arise due to inadequate communication between service delivery and sales or marketing or failure to
manage customer expectations throughout the service delivery process.
Perceived Service Quality Gap: The overall gap between expected service and the perceived level of
service can usually arise due to the previous four gaps combined with the unique background and previous
experiences of each customer.
The Interpretation Gap:-This gap exists when the customers thinking about promises is inconsistent with
the pre-service promises of the service provider.
The Service Gap:-This gap results when service perception is not matching with customers‘ expectation, or
the difference between customer‘s expected service delivery and what they think they received.
11.4 Measuring& improving service quality
Tangible products tend to have concrete specifications with objective ways to measure adherence to those
specifications. Measuring the quality of the products is typically done by the quality assurance or quality
control function. When it comes to services however there are some challenges posed by their intangible
nature. When purchasing services the customer is usually interested in the outcome or experience being
provided. This means that the quality of the service is based on an subjective evaluation from the point of
view of the customer. This makes it more difficult for the service provider organization to objectively
measure service quality. These challenges however can be overcome through a structured approach to
measuring, analyzing and improving service quality.

The first step of improving service quality is to start measuring service quality; it is hard to improve that
which is not measured. The second step is to start identifying gaps between the customers‘ perception of
service quality and the service provider‘s desired level of performance. The final step is to use this new found
information to look for ways to improve service quality.
Measuring Service Quality
When it comes to ensuring service quality there are two important aspects to consider: the customer‘s
expectations and the customer‘s perception of the performance. If the perceived

74
Salale university, Department of Marketing Management
 Service Marketing module

performance exceeds expectations, the customer can be considered satisfied. If the expectations are not met,
the customer will typically be dissatisfied. These expectations and the resulting perception of performance
can be analyzed along five dimensions: responsiveness, assurance, tangibles, empathy and reliability.
Responsiveness: refers to how promptly the service provide is able to respond to the needs of the customer.
Assurance: is the level of confidence the customer has that the service will be performed adequately.
Tangibles: refers to the physical aspects involved in the rendering of services. This includes the facility,
equipment and personnel that are performing the services.
Empathy: is the service provider‘s sense of caring and understanding of the customer and their needs.
Reliability: is the ability of the service provider to consistently provide services dependably and accurately
compared to what was promised.
These five dimensions are part of the RATER model, which originated from the SERVQUAL service quality
framework. This framework was developed in 1977 by Zethaml, Parasuraman, and Berry. This was the most
complete attempt at building a framework for thinking about and measuring service quality. It originally
used ten aspects of service quality: competence, courtesy, credibility, security, and access, communication,
knowing the customer, tangibles, reliability, and responsiveness.

In 1988 seven of these were collapsed into assurance and empathy, leading to the simplified dimensions
found in RATER. These dimensions are not completely independent. For example, the quality of the
facilities, considered under tangibles, can have an effect on the customer‘s level of confidence, considered
under assurance. They are also not necessarily equal in importance. The importance of each dimension may
depend on the specific services being provided as well as on the specific customers and their needs and
expectations. This leads to some challenges with using SERVQUAL as a quantities model for measuring
service quality. But the dimensions provide a useful qualitative model for analyzing and improving service
quality.
11.5 Defining and Measuring Productivity
What is productivity? Simply defined, productivity measures how efficiently a company can transform inputs
into outputs. Inputs vary according to the nature of the business but may include labor (both physical and
intellectual), materials, energy, and capital (land, buildings, equipment, information systems, and financial
assets). Service outputs are the final outcomes of the service delivery process as perceived and valued by
customers. Improving productivity requires increasing the ratio of outputs to inputs.

75
Salale university, Department of Marketing Management
 Service Marketing module

Why is improving productivity important to marketers? One reason is that it helps keep costs down. Lower
costs mean either higher profits or the ability to hold down prices. The company with the lowest costs in an
industry has the option to position itself as the low-price leader usually a significant advantage among price-
sensitive market segments. Firms with lower costs than their competitors also generate higher margins,
giving them the option of spending more on marketing and customer service activities. They may also be
able to offer higher margins to attract and reward the best distributors and intermediaries. These companies
are also better able to invest in new service technologies. A second reason that productivity improvements
are important to marketers is that they are often associated with faster operating procedures. To the extent
that speed of service is valued by customers, it becomes a competitive advantage.

The intangible nature of service performances often makes it difficult to measure the productivity of service
industries. The measurement task is perhaps the most straightforward in possession-processing services
because many are quasi-manufacturing organizations, performing routine tasks with easily measurable inputs
and outputs that often include physical elements. Examples include quick-service garages, which change a
car's oil and rotate its tires, or fast-food restaurants, which offer limited and simple menus. But the task is
more complicated when the customer's vehicle has an engine problem, or when the restaurant in question is
famous for its varied and exotic cuisine.

In a people-processing service like a hospital, we can look at the number of patients treated in the course of a
year and at the hospital's census, or average bed occupancy. But how do we account for the different types of
procedures performed removal of cancerous tumors, treatment of diabetes, or setting of broken bones and the
almost inevitable variability between one patient and another? And how do we evaluate the difference in
service outcomes? Some patients get better, some develop complications, and some never recover. There are
relatively few standardized procedures in medicine that offer highly predictable outcomes. Information-based
services also pose measurement issues. How should we define the output of a bank or a consulting firm? And
how does an architect's output compare to a lawyer's?
Some lawyers like to boast about their billable hours. But what were they actually doing during those hours,
and how do we measure their output as opposed to their fees? It's alleged that some lawyers strive to bill for
more than 24 hours of work per day, but is that really an accurate indication of productivity?

Finally, measuring productivity is a challenge for mental stimulus services like education. Many universities
are under pressure to document outputs, and they have been struggling with how to measure the hours
76
Salale university, Department of Marketing Management
 Service Marketing module

professors spend preparing for class, interacting with students, providing service to the university and the
community, and contributing to their professional fields. And how do colleges (or their graduates) quantify
the value of a college degree? Or the value of a good professor versus a mediocre one Variability is a major
problem in measuring service productivity.

Unfortunately, traditional measures of service output tend to ignore variations in the quality of service
delivered and its perceived value to customers. In freight transportation, for instance, a ton-mile of output for
freight that is delivered late is treated the same for productivity purposes as a similar shipment delivered on
time.30 Another approach, counting the number of customers served per unit of time, suffers from the same
shortcoming. What happens when an increase in the speed with which customers are served is achieved at the
expense of perceived quality? Suppose a hair stylist serves three customers per hour and finds she can
increase her output to four by giving what is technically just as good a haircut but using a faster but noisier
hair dryer, eliminating all conversation, and rushing through the process. Even if the haircut is identical in
quality, her customers may rate the overall service experience less positively because it did not meet their
expectations of an adequate (or desired) level of service on multiple dimensions.
11.6 Improving Service Productivity
Efforts to improve productivity often affect customers. It's the marketer's responsibility to ensure that
negative impacts are avoided or minimized and that new procedures are carefully presented to customers.
When the impact is a positive one, the improvements can be promoted as a new advantage. Finally, as we'll
see, there are opportunities for marketers themselves to help improve productivity by involving customers
actively in service production and delivery. In situations where customers are deeply involved in the service
production process (most typical in people-processing services), operations managers should examine how
customers' inputs can be made more productive. Marketing managers should be thinking about what
marketing strategies can be employed to influence customers to behave in more productive ways. Two
strategies, in particular, may be helpful: changing the timing of customer demand and involving customers
more actively in the production process.
Managing capacity and Customer Demand
Managing demand in capacity constrained service businesses is a recurring theme in this book. Customers
often complain about crowding and congestion, reflecting time-of-day, seasonal, or other cyclical peaks in
demand. During the off-peak periods in those same cycles, managers often worry that there are too few
customers and that their facilities and staff are not fully productive. By shifting demand away from peaks,
managers can make better use of their productive assets and provide better service. However, some demand
77
Salale university, Department of Marketing Management
 Service Marketing module

cannot easily be shifted without the cooperation of third parties like employers and schools, who control
working hours and holiday schedules.
To fill idle capacity during off-peak hours, marketers may need to target new market segments with different
needs and schedules, rather than focusing exclusively on current segments, productivity will improve.
Strategies for matching capacity and demand
To match supply and demand,
A. Determine demand pattern.
B. Assess causes of demand variations.
C. Develop methods for managing capacity.
D. Develop methods for managing demand.
Managing Demand
There are two approaches by which demand for service offers can be managed:
1. Shift demand from high to low demand periods.
2. Flexing capacity to meet demand.
1. Strategies for shifting demand to match capacity.
Demand Too High Demand too low

-use signage to communicate busy days and times - use sales and advertising to increase business from
- offer incentives to customers for usage current market segments
-Take care of loyal or regular customers first - Offer discounts or price reductions
- Charge full price for the service--no discounts - Bring the service to the customer
- Advertise peak usage times - modify hours of operation

Advantages of shifting demand

 Business is not lost.
 Service quality is not adversely affected.
 Increased efficiency
Disadvantages of shifting demand
 Customers may not want to shift.
 Customers may not have control over when they use the service.
Flexing capacity to meet demand
A. Capacity flexing strategies when demand is high
78
Salale university, Department of Marketing Management
 Service Marketing module

 Stretch time, labor, facilities and equipment,

 Cross-train employees
 Hire part- time employees
 Request over time work from employees
 Rent or share facilities
 Rent or share equipment
 Sub-contracting or outsourcing activities
B . Capacity flexing strategies when demand is low
 Perform maintenance and renovation: slack seasons are the best periods for service firms to
perform maintenance work for equipment and other infrastructures.
 Schedule vacations: scheduling the vacation of employees during the period of low demand
helps the organization to have continued service of the employees during peak period of
demand.
 Schedule employee training
 Lay-off employee: this is the last resort available to service organizations to reduce costs
during non-peak periods. However, labor laws of respective countries should permit such an exercise
by service firms.
Involving Customers More in Production
Customers who assume a more active role in service production and delivery can take over some labor
tasks from the service organization. Benefits for both parties may result when customers perform self-
service. Some technological innovations are designed to enable customers to perform tasks previously
undertaken by service employees. For instance, many companies are trying to encourage customers to
use a corporate Web site to obtain information and place orders, rather than telephoning customer
service staff directly. For such changes to succeed Web sites must be made user-friendly and easy to
"navigate" and customers must be convinced that it is safe to provide credit card information over the
Internet. Some companies have offered promotional incentives (like a credit of air miles to a frequent
flyer program or a discount on merchandise) to encourage customers to make an initial reservation or
place an order on the Web.

Restaurants, which have traditionally had a high labor component and relatively low productivity,
represent another service in which customers have been asked to do more of the work. We've become
accustomed to self-service salad bars and buffets. Despite the reduction in personal service, this
79
Salale university, Department of Marketing Management
 Service Marketing module

innovation has been positioned as a benefit that lets customers select the foods they want, without
delay, in the quantities they desire.

Quality and productivity improvements often depend on customers' willingness to learn new
procedures, follow instructions, and interact cooperatively with employees and other people. Customers
who arrive at the service encounter with a set of preexisting norms, values, and role definitions may
resist change. In fact, research results suggest that some customers may be more willing than others to
serve themselves.

A large-scale study presented respondents with the choice of a do-it-yourself option versus traditional
delivery systems at gas stations, banks, restaurants, hotels, airports, and travel services. A particular
scenario was outlined for each service, since earlier interviews had determined that decisions to choose
self-service options were very situation specific, depending on such factors as time of day, weather
conditions, presence or absence of others in the party, and the perceived time and cost involved.

The results showed that in each instance a sizable proportion of respondents would select the self-
service option even in the absence of time or monetary savings. When these inducements were added,
the proportions choosing self-service increased. Further analysis showed an overlap for some
respondents in terms of their self-service behaviors across different services. If respondents didn't pump
their own fuel, for instance, they were less likely to use an ATM and more likely to prefer being served
by a bank clerk.

ACTIVITY QUESTIONS
1. What is the service quality gap, and how does it impact businesses?

2. How is productivity defined, and why is it important?

3. What strategies can be used to manage capacity and customer demand effectively?

80
Salale university, Department of Marketing Management