SERVICES MARKETING

NOTES
 CHAPTER -1
INTRODUCTION TO SERVICES
Concepts, contribution and reasons for the growth of services sector, difference in goods
and service in marketing, myths about services, characteristics of services, concept of service
marketing triangle, service marketing mix, GAP models of service quality. Marketing challenges
in service industry.

Objectives of Chapter 1:

• Explain what services are and identify service trends

• Explain the need for special services marketing concepts and practices
• Outline the basic differences between goods and services and the resulting
challenges for service businesses
• Introduce the service marketing triangle
• Introduce the expanded services marketing mix
• Introduce the gaps model of service quality

Introduction to Services
• Services are deeds, processes and performance
• Intangible, but may have a tangible component
• Generally produced and consumed at the same time
• Need to distinguish between SERVICE and CUSTOMER SERVICE
A service may be accompanied by a product or it may be pure service:-
Example:
 Computer and its service – product and service
 Play home – pure service
 Salt, sugar – pure product and no service

Challenges for Services

• Defining and improving quality
• Communicating and testing new services
• Communicating and maintaining a consistent image
• Motivating and sustaining employee commitment
• Coordinating marketing, operations and human resource efforts
• Setting prices
• Standardization versus personalization

General classification of services:-

 Business services- consultation, banking, insurance, lawyers, medical

 Trade services- retailing, wholesale, advertising
 Infrastructure services- communication, transportation, power
 Personal services- restaurants, health clubs, swimming pools
 Entertainment services- cinema
 Public services- education, police, defence
 Government services- railways, postal etc
 Examples of Service Industries
• Health Care: hospital, Clinic, dentistry, eye care
• Professional Services: accounting, legal, architectural
• Financial Services: banking, investment advising, insurance
• Hospitality: restaurant, hotel, resort,
• Travel: airlines, travel agencies,
• Others: hair styling, pest control, plumbing, lawn maintenance, counseling services, health club

Table showing difference between Goods and services

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

Characteristics of services
 Intangibility: service is not a physical object, buyer of service does not have the
opportunity to see, touch, hear, smell or taste them before they are brought. Ex: an airline
sells the ticket from destination A to B; here the service rendered is left entirely to the
perception of the customer.
 Perishability: services have high degree of Perishability; services cannot be stored or
reused. Empty rooms of 5 star hotels, vacant beds in private nursing home are examples
of how services go wasted; once they are wasted it is wasted for ever.
 Inseparability: services and service providers are inseparable. All the services are
created and offered at the same time. That is production and consumption takes place at
same time.
 Heterogeneity: it is not possible to set any standard for service. The heterogeneity of
services cannot be standardized. Also it is not possible to sell the same quality of service
to all the consumers, even if they pay the same price. Different customers will perceive
the service differently.
 Ownership: In case of services, the user can only use the services and cannot own them,
that is there is no transfer of ownership.
Introduction of service marketing

People use an array of services everyday, although some - like talking on the phone,
using a credit card, taking a bus ride, or withdrawing money from an ATM - may be so routine
that you hardly notice them unless something goes wrong. Other service purchases may involve
more forethought and may be more memorable - for instance, booking a cruise vacation, getting
financial advice, or having a medical examination. Your use of these services is an example of
service consumption at the individual, or business-to-consumer (B2C), level.

Organisations also use a wide array of business-to-business (B2B) services, varying to

some degree according to the nature of their industry, but usually involving purchases of a much
larger scale than those made by individuals or families. Nowadays, firms are outsourcing more
and more tasks to external service providers in order to focus on their core business.

What are services? The formal definition is services are an economic activity offered by
one party to another, most commonly employing time-based performances to bring about desired
results in recipients themselves or in objects or other assets for which purchasers have
responsibility. Time-based means something the firm does, which is within a certain time
period. Desired results are outcomes desired by the customer. For example, you go to a theatre
to be entertained and to a university to get an education. These are the desired results. In
exchange for their money, time and effort, service customers expect to obtain value from access
to goods, labour, professional skills, facilities, networks and systems. However, they do not
normally take ownership of any of the physical elements involved.

What is so special about services marketing? Services‘ marketing focuses on the

distinctive characteristics of services and how they affect both customer behaviour and
marketing strategy. For example, many services are produced and delivered with the customer
present at the service firm‘s facility.

Service marketing mix

In services marketing, the traditional 4Ps of the marketing mix (product, pricing,
promotion/market communications, and place/distribution) are adapted to the distinctive features
of services. Then, there are the 3 additional Ps of services marketing: people, physical evidence
and process.

 Product: the product concept in service sector is the way in which organization seeks to
satisfy consumer needs. A product here refers to ―service rendered‖.
 Price: this is similar to product pricing. Total price, discount, mode of payment etc. the vital
factor in pricing is the quality of service. i.e. the quality of the service determines the price
of the service. For instance, interest for different group of customers for a loan is an example
of price differentiation. Some discounts are given for early repayment of loans etc.
 Place: this refers to the distribution channel of service. ―How the service will reach
the customers‖? Thus place concept in service refers to the accessibility to service provided.
 Promotion: Advertising, public relations are used as promotional tool in services. But in
services provider of services themselves become an important element of promotion mix.
 Process: The process of service delivery is often as important as the function of the service.
A service is a process from the organisation‘s point of view, but an experience from the
customer‘s perspective. The quality of the experience is a function of the careful design of
customer service processes, adoption of standardised procedures, rigorous management of
 service quality, high standards of training and automation. Services‘ marketing helps to
ensure that these processes are designed from the customer‘s perspective.
 Physical evidence: Physical environment includes the appearance of buildings, landscaping,
interior furnishing, equipment, uniforms, signs, printed materials and other visible cues that
provide evidence of service quality and guide customers through the service process. The
design on the physical environment can have a profound impact on customer satisfaction and
service productivity.
 People: People refer to the frontline employees of the firm. From a customer‘s point of view,
when service employees are involved, the people are the service. This means that frontline
employees need to possess the required technical and interpersonal skills and a positive
attitude. People can be a key competitive advantage for many service firms.

Services marketing include building customer loyalty, managing relationships, complaint

handling, improving service quality and productivity of service operations, and how to become a
service leader in your industry.

Table showing 7 Ps

PRODUCT PLACE PROMOTION PRICE PEOPLE PHYSICAL PROCESS

Physical good Channel type Promotion Flexibility EVIDENCE
features blend Employees Facility design Flow of activities
Quality level Exposure Salespeople Price level
Accessories Intermediaries Advertising Terms Customers Equipment Number of steps
Packaging Outlet location Sales
promotion Differentiation Communicating Signage Level of customer
culture and values involvement
Warranties Transportation Publicity Allowances
Product lines Storage Employee research Employee dress

Branding
Other tangibles

Example

Imagine you want to open a new restaurant. Services marketing would then guide you on how
to develop the 7Ps including the:

 Core product: What is your value proposition? What sort of dining experience you wish
to deliver, for example, one that is ideal for romantic fine-dining or business lunches?
 Pricing: What price levels and menu designs you want to offer such as lower priced off-
peak menu?
 Promotion/market communications: How to reach your target audience and shape their
visitation behaviour?
 Place: Where do you locate your restaurant?
 People: How do you select, train, motivate and retain your front-line employees?
 Physical evidence: What will the interior of the restaurant look like?
 Process: How do you design service processes to satisfy customers? This can range from
seating to preparing the bill?

Services marketing would also help guide your thinking about how to develop long-term
profitable relationships with your customers, design complaint handling and service recovery
processes and policies, help you to systematically improve the quality of your service and the
productivity of the entire operations.
Ways to Use the 7 Ps
Overall Strategic Assessment
• How effective is a firm‘s services marketing mix?
• Is the mix well-aligned with overall vision and strategy?
• What are the strengths and weaknesses in terms of the 7 Ps?

Specific Service Implementation

• Who is the customer?
• What is the service?
• How effectively does the service marketing mix for a service communicate its benefits and
quality?
• What changes/improvements are needed?

The Services Marketing Triangle: It includes

Company (management)
Employees
Customers

Management & Employees – Internal marketing (enabling the promise)

Management & Customers – External marketing (setting the promise)
Employees & Customers – Interactive marketing (delivering the
promise)

Company (Management)

Internal marketing External marketing

(Enabling the promise) (Setting the promise)
SERVICE
MARKETING
TRIANGLE

Employees Customers

Interactive marketing
(Delivering the promise)

 External marketing: this involves setting up of customer expectation and making

promise to the customer regarding what is to be delivered. Anything that communicated
to the customer before service delivery can be viewed as part of the external marketing
function.

 Internal marketing: deals with the firms plan to train, motivate and reward employees
for their performance. This training is important because unless service employees are
able to and willing to deliver the promise made. The firm will not be successful in
marketing and the triangle will collapse.
  Interactive marketing: it is also called as real time marketing. This is the time when
actual delivery takes place and firm‘s employees interact directly with customers. It is the
point when promise delivered. All the external marketing in the world is useless if
promise cannot be kept.

Ways to Use the Services Marketing Triangle

Overall Strategic Assessment

• How is the service organization doing on all three sides of the triangle?
• Where are the weaknesses?
• What are the strengths?

Specific Service Implementation

• What is being promoted and by whom?
• How will it be delivered and by whom?
• Are the supporting systems in place to deliver the promised service?

Services Marketing Triangle Applications Exercise

 Focus on a service organization. In the context you are focusing on, who occupies each
of the three points of the triangle?
 How is each type of marketing being carried out currently?
 Are the three sides of the triangle well aligned?
 Are there specific challenges or barriers in any of the three areas?

Myths about services: - a myth is a popular belief. The following are the myths commonly held
about services:
 A market is service economy
 Service jobs are low paying
 Service production is labour intensive and low productivity
 Service is necessary evil for manufacturing firms
 Managing services is just like managing manufacturing business
 The Integrated Gap Model of Service Quality

Expected Service

Customer Gap
Customer

Perceived Service

External
Service communication to customers
Delivery
Gap 4

Company
Gap 3
Customer-Driven Service
Designs and Standards

Gap 1

Gap 2

Company Perceptions of
Customer Expectations

7
Scope of integrated Gap Model of Service Quality: -

Customer Gap
Module 2
 Consumer Behaviour in Services
 Customer Expectations of Service
 Consumer Perceptions of Service

Gap 1 – Not Knowing What the Customer Expects

Module 3
 Understanding Customer Expectations through Marketing Research
 Building Customer Relationships
 Service Recovery

Gap 2 – Not Having the Right Service Quality Designs and Standards
Module 4 & 8
 Service Development and Design
 Customer-Defined Service Standards
 Physical Evidence and the Servicescape

Gap 3 – Not Delivering to Service Standards

Module 5 & 6
 Employee‘s Roles in Service Delivery
 Customer‘s Roles in Service Delivery
 Delivering Services through Intermediaries and Electronic Channels
 Managing Demand and Capacity

Gap 4 – Not Matching Performance to Promises

Module 7
 Integrating Services Marketing Communications
 Pricing of Services

1. Key Factors Leading to the Customer Gap

Custome
r
 l Provider Gap 1: Not knowing what customers expect
Expectatio
 l Provider Gap 2: Not selecting the right service designs and standards

 l Provider Gap 3: Not delivering to service standards

 l Provider Gap 4: Not matching performance to promises

Custome
r 8
Perceptio
2. Key Factors Leading to Provider Gap 1

Customer
 Inadequate MarketingExpectatio
Research Orientation
 Insufficient
ns marketing research
 Research not focused on service quality
 Inadequate use of market research
 Lack of Upward Communication
 Lack of interaction between management and customers
 Insufficient communication between contact employees and managers
 Too many layers between contact personnel and top management
 Insufficient Relationship Focus
 Lack of market segmentation
 Focus on transactions rather than relationships
 Focus on new customers rather than relationship customers
 Inadequate Service Recovery

Company Perceptions
3. Key Factors Leading to Provider Gap 2
of Customer
Expectations

Customer-Driven
Service Designs and
 Poor Service Design
Standards
 Unsystematic new service development process.
 Vague, undefined service designs.
 Failure to connect service design to service Positioning
 Absence of Customer-Driven Standards
 Lack of customer-driven service standards
 Absence of process management to focus on customer requirements
 Absence of formal process for setting service quality goals
 Inappropriate Physical Evidence and Servicescape

Management Perceptions of
Customer Expectations

9
 4. Key Factors Leading to Provider GAP 3

Customer-Driven
 Deficiencies in Human Resource
Service Policies
Designs and
 Ineffective recruitment
Standards
 Role ambiguity and role conflict
 Poor employee-technology job fit
 Inappropriate evaluation and compensation systems
 Lack of empowerment, perceived control and teamwork
 Failure to Match Supply and Demand
 Failure to smooth peaks and valleys of demand
 Inappropriate customer mix
 Over-reliance on price to smooth demand
 Customers Not Fulfilling Roles
 Customers lack knowledge of their roles and responsibilities
 Customers negatively impact each other
 Problems with Service Intermediaries
 Channel conflict over objectives and performance
 Channel conflict over costs and rewards
 Difficulty controlling quality and consistency
 Tension between empowerment and control

Service Delivery
5. Key Factors Leading to Provider GAP 4

Service Delivery
 Lack of Integrated Services Marketing Communications
 Tendency to view each external communication as independent
 Not including interactive marketing in communications plan
 Absence of strong internal marketing program
 Ineffective Management of Customer Expectations
 Not managing customer expectations through all forms of communication
 Not adequately educating customers
 Overpromising
 Overpromising in advertising
 Overpromising in personal selling
 Overpromising through physical evidence cues
 Inadequate Horizontal Communications
 Insufficient communication between sales and operations
 Insufficient communication between advertising and operations
 Differences in policies and procedures across branches or units

External Communications 10
to Customers
Marketing challenges in service industry

There are some inherent challenges in marketing a service business, but they can be
overcome. When marketing services, you apply the same marketing mix principles used for
products: place, price, promotion and product -- which is your service. Added to this mix are
emphases on people, process and physical evidence. Develop a plan that carefully considers
these essentials so you can identify the challenges and devise strategies to overcome them.

Intangible
One of the most obvious challenges in marketing services is that you are selling
something intangible. People can touch and see a product and are exchanging money for
something they need and can take home to use. Conversely, people only see the results of a
service, which may not always be immediate. It requires faith on the customers‗part that they
will get the desired results for their money. For example, if you own a cleaning service, you have
to convince your customers to trust you that their homes will be cleaned to their satisfaction.

Demonstrating Empathy
Convince your customers in your marketing efforts that you understand their problems
and are offering a solution. Do this using people, processes and physical evidence. For example,
if you and your employees have families and work full time, this identifies with working families
who have no time for housecleaning. Before-and-after pictures in your marketing materials, such
as your website, brochures and advertising, are all physical evidence.

Competitive Pricing
How you price your services is an important marketing element. You need to be
competitive, so research several competitors‗prices to gauge what your prospective customers
expect to pay. Then assess your costs -- your overhead such as rent, insurance, salaries and
supplies -- to determine if you can meet your costs and make a profit with that pricing.

People
As a services company, marketing your people, including you, is paramount. A service is
consumed when it‗s purchased or produced -- just the results or effects linger, and sometimes
temporarily. For example, your customer‗s home will get dirty again, so the result of your
cleaning delivery is temporary. The client may or may not call you again based on the overall
experience.
 Defining and improving quality
 Ensuring the delivery of consistent quality
 Designing and testing new services
 Communicating and maintaining a consistent image
 Accommodating fluctuating demand
 Motivating and sustaining employee commitment
 Coordinating marketing, operations, and human resource efforts
 Setting prices

Finding a balance between standardization versus customization

 CHAPTER -2
CONSUMER BEHAVIOUR IN SERVICES
Search, Experience and Credence property, consumer expectation of services, two levels
of expectation, Zone of tolerance, Factors influencing customer expectation of services.
Customer perception of services-Factors that influence customer perception of service, Service
encounters, Customer satisfaction, Strategies for influencing customer perception.

Search, Experience and Credence property of services

From a marketing perspective, products and services can be separated into three useful
classes: search products, experience products, and credence products.

 Search products or services have attributes customers can readily evaluate before
they purchase. A hotel room price, an airline schedule, television reception, and
the quality of a home entertainment system can all be evaluated before a purchase
is made. Well-informed buyers are aware of the substitutes that exist for these
types of products and thus are likely to be more price sensitive than other buyers,
unless there exists some brand reputation or customer loyalty. This sensitivity, in
turn, induces sellers to copy the most popular features and benefits of these types
of products. Price sensitivity is high with respect to products with many
substitutes, and since most buyers are aware of their alternatives, prices are held
within a competitive band.

 Experience products or services can be evaluated only after purchase, such as

dinner in a new restaurant, a concert or theatre performance, a new movie, or a
hairstyle. The customer cannot pass judgment on value until after he or she has
experienced the service. These types of products tend to be more differentiated
than search products, and buyers tend to be fewer prices sensitive, especially if it
is their first purchase of said product. However, since they will form an
opinion after the experience, if it is not favourable, no amount of differentiation
will bring them back. Product brand and reputation play an important role in
experience products, due to consistency of quality and loyalty. For instance, when
customers travel, so does brand reputation, as with airlines, hotels, rental cars, and
so forth.

 Credence products or services have attributes buyers cannot confidently evaluate,

even after one or more purchases. Thus, buyers tend to rely on the reputation of
the brand name, testimonials from someone they know or respect, service quality,
and price. Credence products and services include health care; legal, accounting,
advertising, consulting, and IT services; baldness cures; pension, financial, and
funeral services; and even pet food (since you have to infer if your pet likes it or
not). Credence services are more likely than other types to be customized, making
them difficult to compare to other offerings. Because there are fewer substitutes to
a customized service and there is more risk in purchasing these types of services,
price sensitivity tends to be relatively low — that is, the majority of customers
purchasing credence services are relatively price insensitive compared to search
or credence goods.
Consumer Expectation of Services
Customer expectations are beliefs about service delivery that function as standards or
reference points against which performance is judged
For successful service marketing the following aspects of expectations need to be
explored and understand.
 What types of expectation standards do customers hold about services?
 What factors most influence the formation of these expectations?
 What role these factors play in changing expectations?
 How can a service company meet or exceed customer expectations?

Two Levels of Expectation

Zone of Tolerance

It seems that customers have two levels of expectation:

 Adequate - what they find acceptable
 Desired -what they hope to receive.

The distance between the adequate and the desired levels is known as the 'zone of tolerance'

 The zone of tolerance is usually defined as the range of customer perceptions of a service
between desired and minimum acceptable standards ( Zeithaml, Berry, and Parasuraman,
1993 ).
 In essence it is the range of service performance that a customer considers satisfactory.
Performance below the zone is seen as dissatisfying and performance above the zone is
seen as delighting.
 The importance of this zone of tolerance is that customers may accept variation within a
range of performance, and any increase or decrease in performance within this area will
only have a marginal effect on perceptions. Only when performance moves outside this
range will it have any real effect on perceived service quality.
 If a customer's zone of tolerance is narrow, then he or she may be highly sensitive to the
service experience, with a greater likelihood of dissatisfying or delighting outcomes.
Conversely, if a customer has a wide zone of tolerance, then he or she may be much less
sensitive to the service experience, thus increasing the likelihood of a satisfactory or
acceptable outcome. The width of the zone of tolerance may vary from customer to
customer and from situation to situation.
Factors Influencing Customer Expectation of Services

a) Personal needs:
Those states or conditions essential to the physical or psychological well-being of the
customer are pivotal factors that shape what we desire in service. It can include physical, social,
psychological and functional needs.

b) Enduring service intensifiers:

They are individual, stable factors that lead the customer to a heightened sensitivity to
service. Enduring intensifier is personal service philosophy-i.e. the customer‗s underlying
generic attitude about the meaning of service and the conduct of service providers

Sources of Adequate service Expectations:

These factors are short term and fluctuate more than the factors that influence desired
service
 Transitory Service intensifiers: They are temporary, usually short term, individual
factors that make a customer more aware of the need for the need for service
 Perceived service Alternative: They are other providers from whom the customer can
obtain service. The customer‗s perception that service alternatives exist raises the level
of adequate service and narrow the zone of tolerance.
 Self-perceived service role: it is the perception of the degree to which customers exert
an influence on the level of service they receive i.e. how well they believe they are
performing their own roles in service delivery
 Situational Factors: Service performance conditions that customers view as beyond the
control of the service provider, in general situational factors temporarily lower the level
of adequate service, widening the ZOT
 Predicted service: the level of service customers believe they are likely to get. It is
typically an estimate of the service a customer will receive in an individual transaction
rather than in the overall relationship with a service provider.
Customer Perception of Services
Customer perception refers to the process by which a customer selects, organizes, and
interprets information/stimuli inputs to create a meaningful picture of the brand or the product. It
is a three stage process that translates raw stimuli into meaningful information.

Factors that Influence Customer Perception of Service

 Price
Price has a complex effect on consumer perception. On the one hand, consumers appreciate a
bargain and are often likely to favour an economically-priced item. On the other, consumers
often perceive very inexpensive items as cheap and discard able, ultimately damaging a
consumer's view of a product even if the product remains the same and the consumer is benefited
from a price reduction. Especially sophisticated or skeptical consumers are even prone to distrust
a product that is considerably cheaper than the alternatives. As a result, price should be part of a
comprehensive marketing plan, where even inexpensive products are depicted as favourable
alternatives with similar levels of quality to the competition, with a price that is somewhat lower
but still comparable with other possibilities.

 Evidence of service
Of course, the actual quality of a product is a vital part of a consumer's perception of a good
or service. Quality can describe any attribute in a set of characteristics that satisfy or disappoint a
consumer, including usability, reliability and durability. Marketing can influence a consumer's
perception of quality, but, in the end, and particularly with non-durable goods, a consumer's
actual experience with a product will determine his perception of quality. Outside the realm of
mass communication, word of mouth regarding quality also travels very quickly.

 Service encounters
Even in the case of goods that exhibit numerous flaws, excellent service quality can often
overshadow a negative experience with the product itself. If a consumer feels that he receives
exceptional attention when encountering a problem with a product, that consumer is somewhat
more likely to trust the brand or product knowing that the manufacturer or retailer provides a
prompt and effective response to problems. Humans are social animals and their consumer
behavior is often determined by the social relationships that surround a product, including
interactions with customer service representatives.

 Image
A product's reputation is built up over time and is usually a combination of actual experience
with the product, word-of-mouth recommendations and marketing campaigns that attempt to
establish a status or shared view of the product or brand. A consumer's perception of a product's
reputation, moreover, is not only determined by the product's brand identity and manufacturer
but by the whole chain of distribution. Even if a consumer trusts a product's manufacturer, for
example, that consumer may change his mind about the product upon seeing it available in a
retailer he associates with cheap, defective products.

Service Encounters
Service encounters are transactional interactions in which one person (e.g., a vendor,
office clerk, and travel agent) provides a service or good (e.g., a product, an appointment, airline
tickets) to another person.
 It is the from the service encounters that build their perceptions service encounters or
―moments of Truth‖. The most vivid impression of service occurs in the service encounters or
moment of truth when the customer interacts with the service firm

Types of service encounters

1) Remote Encounters
2) Phone Encounters
3) Face-To Face Encounters

1) Remote Encounters:
There is no direct human contact e.g. ATM, mail order, internet website etc. here the
tangible evidence of the service and the quality of the technical process and systems become the
primary bases for judging quality. Such encounters provide the firm an opportunity to reinforce
or establish quality perception in the customer

2) Phone Encounters
Almost all firms rely on phone encounters in the forms of customer service, general
inquiry or order taking functions. The judgment of quality is based on variability in the
interaction. Tone of voice, employee knowledge, and effectiveness/efficiency in handling
customer issues become important criteria for judging quality

3) Face-to-Face Encounters
It occurs between customer and salespeople, delivery personnel, maintenance rep,
professional consultant etc determining and understanding service quality issues in face to face
context is the most complex of all. Both verbal and nonverbal behaviors are important
determinants of quality, as are tangible cues such as employees dress and other symbols of
service like equipment, broachers, physical setting etc. in such customer, the customer also plays
a role in creating quality service for herself through her own behavior during interaction

Five dimensions of service quality (SERVQUAL)

  Tangibility - Since services are tangible, customers derive their perception of service
quality by comparing the tangible associated with these services provided. It is the
appearance of the physical facilities, equipment, personnel and communication materials.
In this survey, on the questionnaire designed, the customers respond to the questions
about the physical layout and the facilities that FFR offers to its customers.

 Reliability - It is the ability to perform the promised service dependably and accurately.
Reliability means that the company delivers on its promises-promises about delivery,
service provision, problem resolutions and pricing. Customers want to do business with
companies that keep their promises, particularly their promises about the service
outcomes and core service attributes. All companies need to be aware of customer
expectation of reliability. Firms that do not provide the core service that customers think
they are buying fail their customers in the most direct way.

 Responsiveness - It is the willingness to help customers and provide prompt service. This
dimension emphasizes attentiveness and promptness in dealing with customer's requests,
questions, complaints and problems. Responsiveness is communicated to customers by
length of time they have to wait for assistance, answers to questions or attention to
problems. Responsiveness also captures the notion of flexibility and ability to customize
the service to customer needs.

 Assurance - It means to inspire trust and confidence. Assurance is defined as employees'

knowledge of courtesy and the ability of the firm and its employees to inspire trust and
confidence. This dimension is likely to be particularly important for the services that the
customers perceives as involving high rising and/or about which they feel uncertain about
the ability to evaluate. Trust and confidence may be embodied in the person who links the
customer to the company, for example, the marketing department. Thus, employees are
aware of the importance to create trust and confidence from the customers to gain
competitive advantage and for customers' loyalty.

 Empathy - It means to provide caring individualized attention the firm provide its
customers. In some countries, it is essential to provide individual attention to show to the
customer that the company does best to satisfy his needs. Empathy is an additional plus
that the trust and confidence of the customers and at the same time increase the loyalty.
In this competitive world, the customer's requirements are rising day after day and it is
the companies' duties to their maximum to meet the demands of customers, else
customers who do not receive individual attention will search elsewhere.

Customer Satisfaction
Satisfaction is the customer‗s fulfillment response. It is a judgment that a product or
service feature, or the product or service itself, provides a pleasurable level of consumption
related fulfillment
 Satisfaction can be viewed as contentment, pleasure, delight. or even relief.
 Satisfaction is a dynamic , moving target that may evolve over time, influenced by a
variety of factors
Strategies for Influencing Customer Perception

We have just seen the factors responsible for influencing the perception of customers.
Now we will see the strategies that need to be developed, with the help of the above factors by
managing them:
1. Enhance Customer Satisfaction thro‘ Service Encounters: The service Firms should
train & educate their service personnel for positive service encounters, with respect to:
a. Recovery – by planning for effective recovery,
b. Adoptability – by facilitating adaptability and flexibility,
c. Spontaneity – by encouraging spontaneity,
d. Coping – by helping employees cope with problem customers,
e. The five dimensions of service quality – by managing the dimensions of quality
at the encounter level and relating every encounter to one of the dimensions.

2. Reflect Evidence of Service: The evidence of service – people, process, physical

evidence – discussed earlier provides a framework for planning the marketing strategies that
address the expanded marketing mix elements (4Ps to 7Ps). These new elements or a subset of
them cover essentially tangibles the service for the customer and thus represent important means
for creating positive perceptions. Because of their importance the new elements need to be
treated as strategic marketing variables, as are the product, price, place, promotions, and the
traditional mix elements.

3. Communicate & create a Realistic Image: Not only promises are made; they must be
kept, thereby enhancing the image, reputation of a service organisation. By this a positive word-
of-mouth can be created and spread.

4. Enhance Customer Perception of Quality & Value thro‘ pricing: Similarly the pricing
is also very critical & customers must feel that the service is worth the price they pay for.
 CHAPTER -3
UNDERSTANDING CUSTOMER EXPECTATION THROUGH MARKET
RESEARCH
Key reasons for GAP 1, using marketing research to understand customer expectation,
Types of service research, Building customer relationship through retention strategies –
Relationship marketing, Evaluation of customer relationships, Benefits of customer relationship,
levels of retention strategies, Market segmentation-Basis & targeting in services.

Key reasons for GAP 1

Customer
 Inadequate MarketingExpectatio
Research Orientation
 Insufficient
ns marketing research
 Research not focused on service quality
 Inadequate use of market research
 Lack of Upward Communication
 Lack of interaction between management and customers
 Insufficient communication between contact employees and managers
 Too many layers between contact personnel and top management
 Insufficient Relationship Focus
 Lack of market segmentation
 Focus on transactions rather than relationships
 Focus on new customers rather than relationship customers
 Inadequate Service Recovery

Company Perceptions
Using marketing research to understand customer
of Customer
Expectations
expectation Common Research Objectives for Services
• To identify dissatisfied customers
• To discover customer requirements or expectations
• To monitor and track service performance
• To assess overall company performance compared to competition
• To assess gaps between customer expectations and perceptions
• To gauge effectiveness of changes in service
• To appraise service performance of individuals and teams for rewards
• To determine expectations for a new service
• To monitor changing expectations in an industry
• To forecast future expectations
Types of service research

Stages in the Research Process

Stage 1: Define Problem
Stage 2: Develop Measurement Strategy
Stage 3: Implement Research Program
Stage 4: Collect and Tabulate Data
Stage 5: Interpret and Analyze Findings
Stage 6: Report Findings

Criteria for an Effective Services Research Program

Relationship marketing
Relationship marketing is a philosophy of doing business that focuses on keeping and
improving current customers, does not necessarily emphasize acquiring new customers is usually
cheaper (for the firm) - to keep a current customer costs less than to attract a new one goal = to
build and maintain a base of committed customers who are profitable for the organization thus,
the focus is on the attraction, retention, and enhancement of customer relationships

Goals:
Enhancing, Retaining, Satisfying and Getting

Value of a customer
 Income
 Expected Customer Lifetime
 Average Revenue (month/year)
 Other Customers convinced via WOM
 Employee Loyalty??
 Expenses
 Costs of Serving Customer Increase??

Loyal customers: is the one who

 Shows Behavioral Commitment
 buys from only one supplier, even though other options exist
 increasingly buys more and more from a particular supplier
 provides constructive feedback/suggestions
 Exhibits Psychological Commitment
 wouldn‗t consider terminating the relationship--psychological commitment
 has a positive attitude about the supplier
 says good things about the supplier

Evaluation of customer relationships

Evaluation of customer relationships done in the basis of Value equity, Brand equity
and Retention equity

Benefits of customer relationship

– Benefits for Customers

Assuming they have choice, customers will remain loyal to a firm when they receive
greater value relative to what they expect from competing firms. Remember that perceived value
is the consumers‘ overall assessment of the utility of a product based on perceptions of what is
received and what is given. Value represents a trade off for the consumer between the give and
the get components. Consumers are more likely to stay in a relationship when he gets (quality,
satisfaction, specific benefits) exceed the gives (monetary and no monetary costs) When firms
can consistently deliver value from the customer‘s point of view, clearly the customers benefits
and has an incentive to stay in the relationship.

In addition to the specific inherent benefits of receiving service vale, customers also
benefit from long-term relationships because such associations contribute to a sense of well-
being and quality of life. Building a long-term relationship with a service provider can reduce
consumer stress as initial problems, if any, are solved special needs are accommodated, and the
consumer learns what to expect. This is particularly true for complex services (eg. Legal,
medical, education), for services where there is high ego involvement (eg., hair styling, health
club, weight loss program), and for services that require large investments (eg. Corporate
banking, insurance, architecture). After a time the consumer begins to trust the provider and a
count on a consistent level of quality service. Ego investment, trust are the important factors.

Most consumers (Whether individuals or business) have many competing demands for
their time and money and are continually searching for ways to balance and simplify decision
making to improve the quality of their lives. When they can maintain a relationship with a
service provider they free up time for other concerns and priorities. And excellent example is the
case of dual career families, for which the decision about who should care for their children
during the workday is one of the most important decisions they make. Once they have identified
and established a satisfying relationship with a good caregiver (whether it be can individual a
day care center, or a preschool) family stress is reduced and the quality of family life is
improved. Should something happen, that requires a change in caregivers, or should the
relationship quality deteriorate for any reason, family stress levels immediately increase. Thus, a
stable relationship with a good child-care provider is directly reflected in quality of life.
Frequently families are willing to pay premium prices to maintain stable, predictable, high
quality care for their children. Eg: Boarding Schools, Hostel facilities, etc.,

– Benefits for the Organization

The benefits to an organization of maintaining and developing a loyal customer base are
numerous. They can be linked directly to the firm‘s bottom line.

Increasing Purchase: As consumers get to know a firm and are satisfied with the quality
of its services relative to that if its competitors, they will tend to give more their business
to the firm. And as customers mature (in terms of age, life cycle, growth of business).
They frequently require more of a particular service. Eg: Laundry, Haircutting.

Lowest Costs: There are many start-up costs associated with attracting new customers.
That includes advertising and other promotion costs, operating costs of setting up
accounts and systems, and time costs of getting to know the customer. Sometimes these
initial costs can outweigh their revenue expected from the new customers in the short
term. A prime example occurs in the insurance industry. Typically the insurer doesn‘t
recover its up-front selling costs until the third of fourth year of the relationship. Thus,
from a profit point of view, there would seem to be great incentive to keep new
customers once the initial investment has been made. Eg: Hotels.
Even ongoing relationship maintenance costs are likely to drop over time. For
example, early in a relationship a customer is likely to have questions and to encounter
problems as he or she learns to use the service. Once learning has taken place the
customer will have fewer problems and questions (assuming the quality of service is
maintained at a high level) and the service provider will incur fewer costs in serving the
customer. Eg: Hotels, Airlines.
Free Advertising through word of mouth: When a product is complex and difficult to
evaluate. And there is risk involved in the decision to buy it as is the case with many
services consumers most often look to others for advice on which providers to consider
satisfied. Loyal customers are likely to provide a firm with strong word of mouth
endorsements. This form of advertising can be more effective than any paid advertising
the firm might use, and has the added benefit of reducing the costs of attracting new
customers. Eg: Consumer and Consumer durable products.
Employee Retention: It is easier for a firm to retain employees when it has a stable base
o satisfied customers. People like to work for companies whose customers are happy and
 loyal. Their jobs are more satisfying and they are able to spend more of their time
fostering relationships than scrambling for new customers, In turn, customers are more
satisfied and become even better customer a positive upward spiral. Because employees
stay with the firm longer, service quality improves and costs of turnover are reduced,
adding further to profits. Relationship building becomes difficult with new employees.
Eg: Bank Manager.

Lifetime value of a customer: If companies knew how must it really costs to lose a
customer, they would be able to make accurate evaluations of investments designed to
retain customer. Unfortunately, today‘s accounting systems do not capture the value of a
loyal customer‖. One way of documenting the value of loyal customers is to estimate the
increased value or profits that accrue for each additional customer who remains loyal to
the company rather than defecting to the competition.

Retention strategies for building customer relationship

• Monitoring/Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Structural Bonds
– Customization Bonds
• Retaining customers when things go wrong: As we have seen, reliability and doing it
right the first time‖ are extremely important factors in Customers judgment of service
quality. Yet for even the best of firms, service failures and mistakes are inevitable and
because service is often performed in the presence of the customer errors and failures are
difficult to hide or disguise. It is usually not possible to start over‖ as it might be with a
manufactured product. When things go wrong, the consumer is presented with a good
reason to switch providers and to tell others not to use the service. Effective recovery is
thus essential to save and even build the relationship. If the organization fails in recovery,
it has failed the customer twice a double deviation from customer expectations.

• Track and Anticipate recovery opportunities: the customer who complains is your
friend‖ customers who don‘t complain are likely not to come back, and further they may
influence other customers to not try the service. Building on this notion, organizations
need systems to track and identify failures, viewing them as opportunities to save and
retain customer relationships. An effective service recovery strategy requires
identification of failure points in the system through listening to customers. This means
not only monitoring complaints, but really listening and being active in searching out
potential failure points. Take complaint as a compliment for corrective action.

• Empower front line to Take Care of Customer problems on the Front Line: Form the
customer‘s point of view, the most effective recovery is accomplished, when a front line
worker can take the initiative to solve the problem on the spot. Acknowledgement of the
problem, an apology, an explanation when appropriate and a solution to the problems are
often all the customer wants. Sometimes the solution may be a refund retailers with
liberal, return policies build customer loyalty through refunding or trading in defective
merchandise, no questions asked.

• Solve Problems Quickly: Once the failure points are identified, employees must act
quickly to solve problems as they occur. A problem not solved can quickly escalate.
 Sometimes employees can even anticipate problems before they arise and surprise
customers with a solution.

Levels of retention strategies

Market segmentation-Basis & targeting in services

The process of defining and subdividing a large homogenous market into clearly
identifiable segments having similar needs, wants, or demand characteristics. Its objective is
to design a marketing mix that precisely matches the expectations of customers in the targeted
segment.
Basis for Market Segmentation
 Steps in Market Segmentation and Targeting for Services

1. Identify bases for segmenting the market

Identify bases for segmenting the market: Market segments are formed by grouping
customers who share characteristics that are in some way meaningful to the design, delivery,
promotion, or pricing of the service. Common segmentation bases for consumer markets include
demographic segmentation, geographic segmentation, psychographic segmentation, and
behavioral segmentation. Segments may be identified on the basis of one of these characteristics
or a combination.
 Geographic Segmentation: Dividing the market to form different geographic units such
as nations, countries or states.
 Psychographic Segmentation: Dividing buyers to form groups based on social class, life
style or personality characteristics.
 Behavioral Segmentation: Dividing buyers to form groups based on knowledge,
attitude, uses or responses to a service.

Requirements for effective segmentation:

 Measurability: The degree to which the size and purchasing power of the segments can
be measured.
 Accessibility: The degree to which the segments can be reached and served.
 Substantiality: The degree to which the segments are large or profitable enough.
 Action ability: The degree to which effective program can be designed for attracting and
servicing of the segments.

Criteria for Evaluation Market Segments for Market targeting:

 Segment size and Growth: includes information on current sales, projected growth rates
and expected profit margins.
 Segment structural attractiveness: Includes current and potential competitors,
Substitute products and services, relative power of buyers and relative power of suppliers.
 Company objectives and Resources: Involves whether the segment fits the company‘s
objective.
 Demographic Segmentation: In other cases, geographic variables (nations, countries,
states, regions) form the base for dividing the market place of identifying potential unmet
needs.
 Psychographics Segmentation: Many times, it is not a particular demographic or
geographic variable that defines the market segment, but rather a shared sense of values,
a common life style, or common personality characteristic among consumers in the
segment. A service based on psychographic segmentation will focus on such factors in
the design and delivery of the service.
  Behavioral Segmentation: At other times, a segmentation strategy may be formed
around behavioral characteristics of consumer such as their knowledge, attitudes or usage
patterns. In businesses to business marketing the applications situation of the organization
form the basis for segmentation? Such applications situations as technology needs,
product usage, or service requirements are examples. To illustrate, an institutional food
service provider may have different service configurations for the large manufacturer
segment that requires full service executive dening facilities and large volume cafeterias
than it would have for the hospital market segment that uses a centralized kitchen facility
to disperse a wide variety of dietary configurations.

2. Develop profiles of resulting segments

Once the segments have been identified, it is critical to develop profiles of the in
consumer markets, these profiles usually involve demographic characterizations of
psychographic or usage segments. Of most importance in this stage clearly understands how and
whether the segments differ from each other in terms of their profiles. If they are not different
from each other, the benefits to be derived from segmentation, that is, from more precisely
identifying sets of customers will not be realized.

3. Develop measures of segment attractiveness

The fact that segments of customers exist does not justify a firm‘s choice of them as
targets. Segments must be evaluated in terms of their attractiveness. The size and purchasing
power of the segments must be measurable so that the company can determine if the segments
are worth the investment in marketing and relationship costs associated with the group. They
must be profitable in the long term in terms of revenues generated, and they also should not place
a disproportionate drain on the firm‘s time and /or human energy. These costs are not always
easy to determine in advance. The chosen segments also must be accessible, meaning that
advertising or marketing vehicles must exist to allow the company to reach the customers in the
segments.

4. Select the target segments

Based upon the evaluation criteria in step 3, the services marketer will select the target
segment or segments for the service. The service firm must decide if the segment is large enough
and trending toward growth. Market size will be estimated and demand forecasts completed to
determine whether the segment provides strong potential. Competitive analysis, including an
evaluation of current and potential. Competitive analysis, including an evaluation of current and
potential competitors, substitute products and services and relative power of buyers and relative
power of suppliers, will also help in the final selection of target segments. Finally, the firm must
decide whether serving the segment is consistent with company objectives and resources.

5. Ensure that segments are compatible

This step, of all the steps in segmentation strategy, is arguably more critical for service
companies than for goods companies. Because services are often performed in the presence of
the customer, the services marketer must be certain that the customers are compatible with each
other for example, families who are attracted by the discounted prices and college students on
their fees it may find that the two groups do not merge well. It may be possible to manage the
segments in this example so that they do not directly interact with each other but if not, they may
negatively influence each other‘s experiences, hurting the hotel‖ future business. In identifying
segments it is thus important to think through how they will use the service and whether
segments will be compatible.
 CHAPTER -4
CUSTOMER DEFINED SERVICE STANDARDS
“Hard” & “Soft” standards, process for developing customer defined standards
Leadership &Measurement system for market driven service performance-key reasons for GAP-
2 service leadership- Creation of service vision and implementation, Service quality as profit
strategy, Role of service quality in offensive and defensive marketing. Service design and
positioning-Challenges of service design, new service development-types, stages. Service blue
printing-Using & reading blue prints. Service positioning-positioning on the five dimensions of
service quality, Service Recovery.

Introduction
According to one long-term observer of service industries, standardization of service can
take two forms: -
 Substitution of technology for personal contact and human effort
 Improvement in work methods
Technology and work improvement methods facilitate the standardization of service necessary to
provide consistent delivery to customers.

• Customer service standards are based on pivotal customer requirement that are visible to
and measured by customers.
• They are operations standards sets to correspond to customer expectations and priorities
rather than to company concerns such as productivity or efficiency.
• Two major types of customer defined service standards: -
– Hard customer defined standards
– Soft customer defined standards

“Hard” & “Soft” standards

―Hard‖ customer defined standards: Things that can be counted, timed, or observed through
audits (time, numbers of events)
―Soft‖ customer defined standards: Opinion-based measures that cannot be observed and must
be collected by talking to customers (perceptions, beliefs)

• Hard customer defined standards

– Hard standards and measures, things that can be counted, timed, or observed
through audits.
– To ensure speed or promptness, handle complaints, answer questions, arrive for
repair calls etc.
• Soft customer defined standards
– All customer priorities cannot be counted, timed, or observed through audits.
– It provides guidance, direction, and feedback to employees in ways to achieve
customer satisfaction.

28
Service Encounter (Building Blocks)
Service encounters are transactional interactions in which one person (e.g., a vendor, office
clerk, and travel agent) provides a service or good (e.g., a product, an appointment, airline
tickets) to another person.
 A customer‘s overall service quality evaluation is the accumulation of evaluations of
multiple service experiences.
 Service encounters are the building blocks for service quality and the component pieces
needed to establish service standards in a company
 The service encounter view provides information that allows service companies to better
diagnose their strengths and weaknesses, translating requirements into specific behaviors
customers are expecting.

Types of Service Encounter

A service encounter occurs every time a customer interacts with the service organization.
There are three general types of service encounters – remote encounters, phone encounters, and
face-to-face encounters. A customer may experience any of these types of service encounters, or
a combination of all three in his/her relations with a service firm.

1. Remote Encounter: Encounter can occur without any direct human contact is called as
Remote Encounters. Such as, when a customer interacts with a bank through the ATM
system, or with a mail-order service through automated dial-in ordering. Remote encounters
also occur when the firm sends its billing statements or communicates others types of
information to customers by mail. Although there is no direct human contact in these remote
encounters, each represents an opportunity for a firm to reinforce or establish perceptions in
the customer. In remote encounter the tangible evidence of the service and the quality of the
technical process and system become the primary bases for judging quality. Services are
being delivered through technology, particularly with the advent of Internet applications.
Retail purchases, airline ticketing, repair and maintenance troubleshooting, and package and
shipment tracking are just a few examples of services available via the Internet. All of these
types of service encounters can be considered remote encounters.

2. Phone Encounters:- In many organizations, the most frequent type of encounter between
a customer and the firm occurs over the telephone is called as phone encounter. Almost all
firms (whether goods manufacturers or service businesses) rely on phone encounters in the
form of customer-service, general inquiry, or order-taking functions. The judgment of quality
 in phone encounters is different from remote encounters because there is greater potential
variability in the interaction. Tone of voice, employee knowledge, and
effectiveness/efficiency in handling customer issues become important criteria for judging
quality in these encounters.

3. Face-to-Face Encounters: A third type of encounter is the one that occurs between an
employee and a customer in direct contact is called as Face-to-Face Encounter. In a hotel,
face–to–face encounters occur between customers and maintenance personnel, receptionist,
bellboy, food and beverage servers and others. Determining and understanding service
equality issues in face–to–face context is the most complex of all. Both verbal and non-
verbal behaviours are important determinants of quality, as are tangible cues such as
employee dress and other symbols of service (equipment‘s, informational brochures, physical
settings). In face–to–face encounters the customer also play an important role in creating
quality service for her through his/her own behavior during the interaction. For example,
at Disney theme parks, face-to-face encounters occur between customer and ticket-takers,
maintenance personnel, actors in Disney character costumes, ride personnel, food and
beverage servers, and others. For a company such as, IBM, in a business-to-business setting
direct encounters occur between the business customers and salespeople, delivery personnel,
maintenance representatives, and professional consultants.

Process for developing Customer Defined Standards

 1. Identify existing or desired service encounter sequence
 First stage in developing customer defined service standards is to identify existing
service encounter sequence.
 Identify the strength and weakness of the encounter sequence.
 Try to establish a desired service encounter sequence according to the customer –
driven standards
 Companies should distinguish service interactions by the role of the company
personnel involved (such as sales person, technical person, and manager etc to
understand encounter sequence clearly.

2. Translate customer expectations into behaviour & actions

 Abstract customer requirements and expectations must be translated into concrete,
specific behaviors and actions associated with each encounter.
 Research techniques for eliciting behaviors and actions include in-depth interviews,
focus group interviews etc.
 Behaviors are translated into specific service standards so that employees will
understand what they are being asked to deliver.

3. Select behaviours and actions for standards

This stage involves prioritizing the behaviors and actions. The following are the most important
criteria: -
 The standards are based on behaviors and actions that are very important to customers
 The standards cover performance that need to be improved or maintained
 The standards cover behaviors and actions employees can improve
 The standards are accepted by employees
 The standards are predictive rather than reactive
 The standards are challenging but realistic

4. Decide whether Hard or Soft standards are appropriate

 This step involves deciding whether hard or soft standards should be used to capture
the behaviour and action.
 Unless the hard standard adequately captures the expected behaviour and actions, it is
not customer defined.
 Right first time strategy
 There is a high degree of positive correlation between hard and soft standards.
 The following figure shows the linkage between speed of complaint handling (a hard
measure) and satisfaction (a soft measure).

5. Develop feedback mechanisms for measurement to standards

 To be effective, standards must be measured and reviewed regularly.
 Without measurement and feedback, corrections to quality problems will probably not
occur.
 On critical aspect of developing feedback mechanisms is ensuring that they capture the
process from the customer‘s view rather than the company‘s view.
 The following slide demonstrates the difference between customer – driven standards v/s
company – driven standards

6. Establish measures and target levels

 Companies should establish target levels for the standards.
 Without this stage the company lacks a way to quantify whether the standards have been
met.
  Both internal and competitive benchmarking run the risk of being defined internally by
the company, either by looking only within the organization for best practices and
measures or by defining the competitive set for the business.
 In both of these types benchmarking, company – defined rather than customer – defined
standards could be generated.

7. Track measure against standards

 Report has to be prepared to have a track on practical measures against standards set
by the company.
 Root cause analysis is designed to identify the source of problem if measure is not up
to the standards.

8. Periodically update target levels and measures

 The final stage involves revising the target levels measures and even customer
requirements on a regular enough basis to keep up with customer expectations.

Key reasons for GAP-2

Customer-Driven
Service Designs and
 Poor Service Design
Standards
 Unsystematic new service development process.
 Vague, undefined service designs.
 Failure to connect service design to service Positioning
 Absence of Customer-Driven Standards
 Lack of customer-driven service standards
 Absence of process management to focus on customer requirements
 Absence of formal process for setting service quality goals
 Inappropriate Physical Evidence and Servicescape

Management Perceptions of
Customer Expectations
 LEADERSHIP &MEASUREMENT SYSTEM FOR MARKET DRIVEN SERVICE
PERFORMANCE

Service Leadership- Creation of service Vision and Implementation,

 Service leadership means trying to achieve excellence in the area of customer wants.
 Service leadership does not mean meeting companies‘ efficiency standards or
productivity standards.
 When managers are not committed to service quality from the point of view of the
customers, they do not realize that the organization is not working towards customer
satisfaction.
 Sometimes, managers think that the service quality adds to the cost and they do not
contribute towards profitability.

1. VISION
 A leader creates a vision. Vision is nothing but image of the future.
 A leader must have developed a mental image of a possible future state of the
organization.
 It may be vague, like a dream, but the vision is the target, which the leader should
achieve.
 It has been found that organizations with extremely good vision are found to be four
times better rated than companies with a poor vision.

2. SYNTHESIZING VISION
 Synthesizing means combining. Here, the leader is combining the past and the future. The
future is called FORESIGHT, and the past is called HINDSIGHT.
 The foresight will ensure that the vision is quite appropriate with the future environment.
 The hindsight will ensure that organizational culture and tradition are not violated.
 Combining both, the leaders vision defines
―What the organization should strive‖?
3. FORMULATING THE VISION
 Service vision may be simple or complex.
 The best vision statement should be,
 Brief
 Clear
Ex: - to become the best knowledge provider in the world

4. PROMOTING COMMITMENT
One of the examples for a service leader to create commitment is to travel to all the
outlets and supervise personally to find out ‗how service is going on and what is a
satisfaction level of the customers‗. This follows the principle that ‗if you are a leader, you
better lead. Therefore, a leader should lead by example. This is one of the ways to motivate
the other employees and let them know that you want to see what they are doing and what
they can do.

5. IMPLEMENTATION OF VISION
A leader implements the service vision. During the process of implementing the vision,
the leader should not only be involved fully, he should also engage in other actions such as
restructuring the organization, selecting and training the employees, motivating, team building
and promoting the change in addition to risk taking.
a. Structuring the organisation
While formulating the organization structure, the leader must make sure that there are:
□ Rigid Functional Boundaries
□ Too many layers of management
□ Rigid hierarchy and bureaucracy
This organizational structure should be process oriented, so that it satisfies the customer
needs instead of each function in the organization feeling satisfied about their own departmental
function. To do this, the Following steps have to be followed:
o Organize the structure based on the process and not on a task of the department.
Assign the owner for each process.
o Flatten and eliminate all those work which does not add value.
o Use teams to manage everything, give the teams a common purpose
o Let the customer drive the performance and derive satisfaction.
o Reward team performance instead of individual performance.
o Maximize service provider and customer contact.
o Inform and train all the employees.

b. Selecting, acculturating & training

The major part of implementing service involves hiring, and training the right people,
selecting and acculturating. Selecting involves choosing the right service worker for each job.
Acculturating involves teaching and makes the employee learn the organizational culture and
vision. Training helps to perform his responsibilities and duties.

c. Motivating
 The leaders should motivate the employees. The method of motivating the subordinates
includes: -
Use of authority
Role model
Build self-confidence
Delegate
Introduce reward and punishment
 d. Managing
information
 Effective leaders are good listeners
 Leaders listen to their subordinates and to the customers
 Successful leaders will be unwilling to delegate the most important function to the others,
but want to be involved and gain knowledge.
 Leaders have two types of communications which they use effectively to solve any given
problems
o Formal communication
o Informal communication

e. Team building
 Service leaders need to build teams, which work effectively to achieve the goals.
 Strategies have to be implemented to ensure that the employees work together.
 Achieving co-operative goals that can be reached only by working together
 Use teams and task forces for implementing the service and reward the same.

f. Promoting change & risk taking

 It is found that unsuccessful service organizations have leaders who have short term and
narrow thinking.
 One of the duty of the leader is to have an open mind and encourage innovation in the
organization
 Change is the only thing remains constant and every other things changes
 Leader should have the mindset to take challenges in the future uncertain environment.

SERVICE QUALITY AS PROFIT STRATEGY

Role of service quality in Offensive and Defensive Marketing

Service Design and Positioning

The objective is to study the following

• Describe the challenges inherent in service design
• Present steps in the new service development process
• Show the value of service blueprinting and quality function deployment (QFD) in new
service design and service improvement
• Demonstration how to build a service blueprint
• Explain service positioning and the role of the service quality dimensions, service
evidence and blueprinting in positioning strategies

Challenges of Service Design

Since services are intangible, it is always difficult to describe and communicate. Because
services are delivered by employees to customers, they are heterogeneous; rarely two services
are alike and experienced in the same way. These characteristics of services are the heart of the
challenge to involve in designing and positioning service.

Risk of describing Services by words alone:

Lynn Shostack a pioneer in Developing design concepts for services, has pointed out,
Four Risks, of attempting to describe services in words alone..,
1. Over Simplification, Shostack points out that to say that portfolio management means
buying and selling stocks is like describing the space shuttle as something that flies, some
people will picture a bird, some a aero plane ,that means words are simply inadequate to
describe a whole service system.
2. Incompetency, In describing services, people (employees, managers, customers) tend to
omit details or elements of the service with which they are not familiar person might do a
fairly credible job of describing how a discount stock brokerage service takes orders\
from customers. But would that person be able to describe fully how monthly statements
are created, how the interactive computer system works and how these two elements of
the service are integrated into the order taking process. e.g,Surgen, Physician
3. Subjectivity, Any one person describing a service in words will be biased by personal
experiences, & degree of exposure to the service. There is natural and mistaken tendency
to assume that because all people have gone to a fast-food restaurant, they will
understand what that service is. Persons working in different functional areas of the same
service organization (e.g, A marketing persons, an operations person, or a finance person)
are likely to describe the service very differently as well, biased by their own functional
blinders.
4. Biased interpretation, No two people will define responsive, quick, and flexible in
exactly the same way. For e.g., a supervisor or manager may suggest to a front line
service employee, that the employee should try to be more flexible or responsive in
providing service to the customer.

The above mentioned risks become very apparent in the new service development process,
when organizations may be attempting to design services never before experienced by
customers. It is critical that all involved (managers, frontline employees and behind the scenes
support staff) be working with the same concepts of the new service based on customer needs
and expectations. For a service that already exists any attempt to improve it will also suffer
unless everyone has the same vision of the service and associated issues
New Service Development

1. Business Strategy Development: It is assumed that an organization will have an overall

strategic vision and mission. Clearly a first step in new service development is to review
that vision and mission.
2. New Service Strategy Development: The types of new services that will be appropriate
will depend on the organization‘s goals, vision, capabilities & growth plans. By defining
a new service strategy (possibly in terms of markets)
3. Idea generation: Continuous systematic search for new product opportunities. Marketing
oriented sources--identify opportunities based on consumer needs, lab research is directed
to satisfy that research. Laboratory oriented sources--identify opportunities based on pure
research or applied research. Intra firm devises--brain storming, incentives and rewards
for ideas. Hewlett Packard‘s lab is open 24 hrs. Day. Analyzing existing products,
reading trade publications. Brainstorming for your group project. Ideas should not be
criticized, no matter how off-beat they are.
4. Concept Development and Evaluation: After clear definition of the concept, it is
important to produce a description of the service that represents its specific features and
characteristics and then to determine initial customer and employee responses to the
concept. The service design document would describe the problem addressed by the
service, discuss the reasons for offering the new service, itemize the service process and
its benefits, and provide a rationale for purchasing the service, the role of customers and
employees in the delivery process would also be described. The new service concept
would then be will then be evaluated by asking employees and customers whether they
are favorable to the concept and whether they feel it satisfies an unmet need.
5. Business Analysis: Assuming the service concept is favorably evaluated by customers
and employees the concept development stage the next step is to determine its feasibility
and potential profit implications. Demand analysis, revenue projections, cost analysis,
 and operational feasibility are assessed at this stage. Because the development of service
concepts is so closely tied to the operational system of the organization, this stage will
involve preliminary assumptions about the costs of hiring and training personnel, delivery
system enhancements, facility changes and any other projected operations costs.
6. Service Development and Testing: In the development of new tangible products, this
stage involves construction of products prototypes and testing for consumer acceptance.
Again because services are intangible and largely produced and consumed
simultaneously, this step is difficult. To address the challenge this stage of service
development should involve all who have stake in the new service. Customers and
contact employees as well as functional representatives from marketing, operations and
human resources. During this phase, the concept is refined to the point where detailed
service blue print representing the implementation plan for the service can be produced.
The blueprint is likely to evolve or a series of interactions on the basis of input from all of
the parties listed.
7. Market Testing: In this stage of the development process that a tangible product might
be test marketed in a limited number of trading areas to determine marketplace
acceptance of the product as well as other marketing mix variables such as promotion,
pricing, and distribution vehicles again, the standard approach for a new manufactured
product is typically not possible for a new service due to its inherent characteristics. The
new service might be offered to employees of the organization and their families for a
time to assess their responses to variations in the marketing mix. Or the organization
might decided to test variations in pricing and promotion in less realistic contexts by
presenting customers with hypothetical mixes and getting their responses in terms of try
the service under varying circumstances. While this approach certainly has limitations
compared with an actual market test, it is better than not assessing market response at all.
8. Commercialization: At this stage in the process, the service goes live and is introduced
to the market place. This stage has two primary objectives. The first is to build and
maintain acceptance of the new service among large numbers of service delivery
personnel who will be responsible day to day for service quality. This task is made easier
if acceptance has been built in by involving key groups in the design and development
process all long.

Types of New Services:

1. Major Innovations: Are new services for markets as yet underlined
2. Start-up Business: consists of new services for a market that is already served by existing
products that meet the same generic needs.
3. New Services: for the currently served market represent attempts to offer existing
customers of the organization a service not previously available from the company.
4. Service line extensions: represent augmentations of the existing service line, such as a
restaurant adding new menu items an airline offering new routes, a law firm offering
additional legal services, a university adding new courses or degrees.
5. Service Improvements: represent perhaps the most common type of service innovation.
Changes in features of services that are already offered might involve faster execution of
an existing service process, extended hours of service, or augmentations such as added
amenities in a hotel room.
6. Service changes: represent the most modest service innovations. Changing the color
scheme of a restaurant, revising the logo for an organization, or painting aircraft a
different color all represent style changes. These do not fundamentally change the
service, only its appearance, similar to how packaging changes are used for consumer
products.
Service Blue Print
A service blueprint is an operational planning tool that provides guidance on how a
service will be provided, specifying the physical evidence, staff actions, and support systems /
infrastructure needed to deliver the service across its different channels. For example, to plan
how you will loan devices to users, a service blueprint would help determine how this would
happen at a service desk, what kinds of maintenance and support activities were needed behind
the scenes, how users would learn about what‘s available, how it would be checked in and out,
and by what means users would be trained on how to use the device.

Service Blueprints may take different forms – some more graphic than others – but
should show the different means/channels through with services are delivered and show the
physical evidence of the service, front line staff actions, behind the scene staff actions, and
support systems. They are completed using an iterative process – taking a first pass that
considers findings from personas, journey maps, and location planning and then coming back to
the blueprint to refine it over time. Often blueprints raise questions that cannot be readily
answered and so need to be prototyped; for instance by acting out an interaction or mocking up a
product. Generally, one blueprint should be created for each core service, according to the right
level of detail for each.

A Service Blueprint does the following,

It shows the service provided along with the process of how service is provided
It tells us the role of the customers and employees
It also tells us, what are the visible elements of the service
Helps to break a service into many logical components
It also helps us to know the steps involved in the process and the means by which the
given task is executed
It also gives the evidence of service as customer experience it
 1. Customer Action: Customer action includes his choices, activities and interactions that
the customer has during the process of purchasing and consuming.
For e.g.: If a customer wants the service of lawyer, he has his
choice, To select the lawyer
To telephone him for an appointment
Have face to face meeting with the lawyer
Handover the documents if any
Receive documents from the lawyer
Receive the bill from lawyer for the service rendered and pay.

2. Onstage Employee Action: In legal service as above, the action of the lawyer that
is visible to the client are.
The face to face contact with the lawyer
Handling over of document to the lawyer
Receiving documents from the lawyer.

3. Backstage Employee Action: Preparation of documents to be handed over to the client

4. Support Process: This is the service rendered by the assistants to the lawyer, preparing
of the document, and secretarial help such as preparing the summary of the meetings of
the clients.

One of the most significant differences in service blueprint compared to any other type of
flow diagram is the inclusion of customers view about the service process. In fact it is best that
the diagram starts with the view point of the process as seen by the customer.

The Four key action areas are separated by the horizontal lines,
First is the line of interaction, represents direct interaction between the customer and the
organization. Any time a vertical line crosses the horizontal line of interaction a direct
contact between the customer and the organization is taking place.

The next horizontal line is critically important i.e., line of visibility. This line separates all
service activities that are visible to the customer from those that are not visible. By
looking at the blueprint, it is immediately obvious whether the customer is provided with
much visible evidence of service simply by analyzing how much the service occurs above
the line of visibility v/s activities carried out below the line. This line also separates‗
what contact employees do on stage from what they do backstage.

The third line is the line of internal interaction represents internal service encounters. For
e.g. when you hire a musician to perform at a function, 75% of this activity will be
backstage and 25% will be onstage. But this is not the case of a hotel service. For e.g., the
following are the activities of onstage,
o Welcoming you,
o Lead you to the seat,
o Turn the glass,
o Fill the glass with water,
o Give you menu card and provide an ashtray if required,
o Move the cutlery into the right position if not done earlier,
o Switch on the music if not done earlier,
o Take the order,
o Service the food as ordered,
 o Enquiry regarding the quality of food,
o Provide you cheque,
o Help you to depart
o Wish you good day or good night and lead you to the exit.

Backstage Service is as Follows:

o Arrangement of the table, table cloth, flower vase, cutleries
o Dusting the seats
o Wearing uniform
o Keeping the Menu card handy
o Fill the water jug

Support Process is as Follows:

o Interacting with the bar tender
o Interacting with the cook and other kitchen employees to make sure
that they prepare exactly what customer wants?
o Carrying the food from the counter to the customer in an orderly
manner
o Interaction with the billing section
o Interacting with the D.J.

Building Service Blueprint

Reading & Using Service Blue Prints:

Reading Blue Prints:

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

Using Service Blue Prints:

□ If the purpose is service redesign blue print can be looked at as a whole to assess the
complexity of the process.
□ Used to determine failure points
□ Used to assess overall efficiency & productivity of service system.
Benefits of Service Blueprinting:
o It tells the organization what it can do to improve the service keeping customer
orientation in mind
o It tells us the weak points and the weak links of the chain of service so that quality
improvement can be done
o Line of interaction between external customer and employer shows the role of the
customer and where the customer experiences quality in service
o Line of visibility tells us what the customer should actually see during the service.
o Line of internal interaction tells us how various departments in the organization
should function towards quality improvements
o Service map helps the advertising agency or in-house promotion team to review
the service and select suitable messages for communication, in case the service is
to be advertised.
Service positioning
 Positioning is defined as the process of establishing and maintaining a distinctive place in
the market for an organization and/or its products/services offerings.
 This is the creating of a distinct place in the minds of a customer, or the perception of a
customer w.r.t. other companies or their products/services.

Positioning Strategies
 Benefit Positioning: Based on some benefit the customer derives using a particular
service, like some new generation private banks offering ATMs and internet banking, etc.
 Attribute Positioning: Based on a single attribute or feature of a service, like Malayala
Manorama- no.1 in circulation, Allahabad Bank- the oldest bank, etc.
 User Positioning: Based on the requirements of some specific target groups.
 Use/Application Positioning: Positioning as the best for a particular service application,
like SBI offering education loans, etc.
 Competitor Positioning: This service is positioned primarily against a particular
competitor, like IIPM positioning itself against IIMs – dare to think beyond IIMs.
 Quality/Price Positioning: On the basis of quality standard at a particular price, like
Oberoi hotels offer high class service at a high price range.
 Category Positioning : Positioning as a leader of a particular category, so that it
becomes synonymous with that service, like Xerox means photocopying,

Positioning on the five dimensions of service quality

1. Reliability: Reliability means, ability to perform the promise to service dependably and
accurately. Reliability means that the company delivers as per the promises. Customers
want to do business with a company which keeps up the promise. Eg, Medical Care-
Appointments are kept on schedule, diagnosis prove to be accurate Airline-Flights as
promised-arrival and departure on time
2. Tangible: Tangible means, appearance of physical facilities, equipments personnel and
written materials. All of these provide physical image of the service. This is very
important particularly to the new customers who will use this as criteria to evaluate
quality. A Service industry emphasizes tangibles in their strategy which includes
hospitability in services when the customers visit the establishment to receive services.
While tangibles are used by service companies to enhance their image, provide continuity
and signal quality to the customers.
3. Responsiveness: Responsiveness means willingness to help customers and provide
prompt service. This deals with attentiveness and promptness in dealing with customer
request questions, complaints and problems. Responsiveness is communicated to the
customers in an indirect way as follows,
a) The length of time they have to wait for assistance
b) Answers received to the questions asked
c) How flexible and ability to provide custom built service products
e.g., Airlines-Timely, prompt, speedy system of ticketing, baggage handling efficient Medical
Care-No waiting time, willingness to listen
4. Assurances: Assurance means, employees knowledge and courtesy and their ability to
inspire trust and confidence. This dimension is likely to be particularly important for
services that customer perceives as having high risk and feel uncertain about their ability
to evaluate outcomes. E.g. Medical, Banking and Legal Services e.g., Medical Care-
Knowledge, Skills, Good Credentials, Reputation Car Repair-Knowledgeable\ mechanics
who know their jobs very well.
 4. Empathy: Empathy means caring and individualized attention to the customers. The
essence of empathy is to convey the message that the customers are unique and special.
Customers want to feel that he is important to the company and to the service provider.
Personnel at small service firms often know the customers by name and build relationship
with them and meet their requirements and preferences. Such a small firm competes with
large firms; the ability to empathetic may give the small firm a clear advantage.

Positioning on Service Evidence:

Services can also be positioned based on service evidence from the customers view point.
The evidence of service falls into three categories,

1. People: Here people we are referring to as contact employees who come in contact
with the customer and offer service facility. How these people look how they act and who
they are, will influence the service position in the customer mind. Imagine yourself
arriving in city for the first time, seeking a place to have a dinner. As you wonder down a
street with a number of different restaurant, you glance at the board, notice the service
personnel (what are they wearing) and other customers (are they dressed in business attire
or casual).Sometimes the dress worn by the people is an indication of the service and this
has a great bearing on positioning. Employee uniform dress codes can also serve to
convey a particular service position. Eg. Lawyer in black dress, Doctor in a white coat
are the indication of their service.

2. Physical Evidence: Physical evidence is similar to tangible elements. While tangibles

may be rated high by consumers in terms of their influence on quality physical evidence
for positioning places in a role. Eg., All forms of communication such as brochures,
advertising, business cards, billing statements etc.,Let us take the example of an
educational institution where all the details regarding the courses offered, fees structure,
study program content, food facility and hostel facilty,library facility available etc,So the
above are examples of physical evidence.

3. Process: Process can be used for position strategy. Process are divided into,
a. Based on Complexity
b. Based on Divergence
Whether a service is high or low in complexity refers to the number of steps involved in
delivering the service. Divergence refers to variation in these steps, Eg, A physician service is
high both in complexity and divergence, and A Hotel services are high in complexity, i.e. lots of
steps in service delivery process, but low in divergence i.e. they have standardized their services
from room cleaning to check out. These are services which are low in complexity but high in
divergence.

Service Failures
Even with the best service organizations, failures can just happen – they may be due to
the service not available when promised, it may be delivered late or too slowly (some times too
fast??), the outcome may be incorrect or poorly executed, or employees may be rude or uncaring.
All these types of service failures bring about negative experiences. If left unfixed they can result
in customers leaving, telling others about the negative experiences or even challenging through
consumer courts. Research has shown that resolving the problems effectively has a strong impact
on the customer satisfaction, loyalty, and bottom-line performance. Customers who experience
service failures, but are ultimately satisfied based on recovery efforts by the firm, will be more
loyal.
How Customers Respond to Service Failure
If customers initiate action following service failure, the action can be various types. A
dissatisfied customer can choose complaint on the spot to the service provider, giving the
company the opportunity to respond immediately. This is often the best-case scenario for the
company it has the second chance right at that movement to satisfy the customer, keep his or her
business in the future, and potentially avoids any negative word of mouth.

Some customer chooses not to complaint directly to the provider but rather spread
negative word of the mouth about the company to friend, relatives, and co-workers. This
negative word of mouth can be extremely detrimental because it can reinforce the customer‘s
feeling of negativism and spread that negative impression to other as well. Further, the company
has no chance to recover unless the negative word of mouth is accompanied by a complaint
directly to the company.

When there is a failure, customer can respond in a variety of ways. It is assumed that
following are the failure, dissatisfaction at some levels will occur for the customer. In fact,
research suggest that variety of negative emotion can occur following service failure, including
such feeling as anger, discontent, disappointment, self-pity and anxiety. Many customers are
very passive about their dissatisfaction, simply saying or doing nothing, take action or not, at
some point the customer will decide weather to stay with that provider or switch to a competitor.
Service Recovery
A "Service recovery converting a previously dissatisfied customer into a loyal customer"
It is the action a service provider takes in response to service failure. By including also customer
satisfaction into the definition, service recovery is a thought-out, planned, process of returning
aggrieved/dissatisfied customers to a state of satisfaction with a company/service Service
recovery differs from complaint management in its focus on service failures and the company‘s
immediate reaction to it. Complaint management is based on customer complaints, which, in
turn, may be triggered by service failures.

However, since most dissatisfied customers are reluctant to complain, service recovery
attempts to solve problems at the service encounter before customers complain or before they
leave the service encounter dissatisfied. Both complaint management and service recovery are
considered as customer retention strategies recently, some researches proved that strategies such
as value co-creation, follow up, etc. can improve the effectiveness of service recovery efforts

Service Recovery Strategies

 CHAPTER -5
EMPLOYEE ROLE IN SERVICE DESIGNING
Importance of service employee, Boundary spanning roles, Emotional labour, Source of
conflict, Quality- productivity trade off, Strategies for closing GAP 3. Customer’s role in service
delivery-Importance of customer & customer’s role in service delivery, Strategies for enhancing-
Customer participation, Delivery through intermediaries-Key intermediaries for service delivery,
Intermediary control strategies.

The Importance of Employees in Customer Satisfaction & Retention

In the world of business, keeping customers satisfied and retaining them is vital to
continued success. Often, the employees who work face-to-face with these customers are the
ones who determine their levels of satisfaction, keeping them content with the company and
preventing them from looking elsewhere for someone to meet their needs. Instead of ignoring the
impact your employees can have upon the overall satisfaction levels of your client base, keep this
power in mind and encourage employees to make the most of the power they wield, helping your
business achieve success.

 Ensuring Customer Satisfaction While those who don't deal directly with customers
may be able to hypothesize what will make customers happy, only those who interact
face-to-face can ensure that they are truly satisfied. To do this, however, employees must
feel as if they are able to make modifications to the general business practices to truly
satisfy their customers. If your employees feel compelled and empowered to meet
customer needs, you can ensure higher levels of customer satisfaction and likely
improved customer retention.

 Environment Creation Customers' impressions of a business depend in large part on the

environment present in the workplace. While managers may have a preference as to how
their workplace will feel, employees are the ones who actually set the scene. Employees
impact the business environment through the ways in which they interact with each other
as well as how they respond to customers. If employees behave in a professional-yet-
inviting manner, they may be better able to please customers and make the business
environment an inviting one.

 Relationship Building ideally, customers and workers create relationships, keeping

customers coming back. To craft these relationships, workers must do more than just the
bare minimum and create connections with the individuals they serve. This may entail
asking customers for details about their lives or remembering customers' common orders,
allowing them to expedite the process in a fashion quite pleasing to the repeat customers.
While management cannot enforce the building of relationships, they can select
employees who appear open and willing to build relationships.

 Representing the Product Employees often provide customers with their initial
impressions of the products the company offers. Though the workers who deal directly
with customers may not be the people who select or develop products, they are the ones
who give customers information about them, selling the products and proving to the
customers that the products in question are ones they need. To ensure that workers can
represent the products they sell effectively, managers must educate their workers on these
products and ensure that they possess the knowledge necessary to tell workers about them
in an informed and engaging manner.
Boundary Spanning Roles
Job positions where individual employees are required to come in direct contact with the
public or employees of other firms are called boundary spanning roles.

Emotional Labour
Emotional labour is a requirement of a job that employees display required emotions
toward customers or others. More specifically, emotional labour comes into play during
communication between worker and citizen and between worker and worker.

This includes analysis and decision making in terms of the expression of emotion,
whether actually felt or not, as well as its opposite: the suppression of emotions that are felt but
not expressed. Roles that have been identified as requiring emotional labour include but not
limited to those involved in public administration, flight attendant, day-care worker, nursing
home worker, nurse, doctor, store clerk, call centre worker, teacher, social worker, as well as
most roles in a hotel, motel, tavern/bar/pub and restaurant, as well as jobs in the media, such as
TV and radio.

As particular economies move from a manufacturing to a service-based economy, many

more workers in a variety of occupational fields are expected to manage their emotions
according to employer demands.
Source of Conflict

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

Quality- Productivity Trade Off

Key Factors Leading to Provider GAP 3

Customer-Driven
 Deficiencies in Human Resource
Service Policies
Designs and
 Ineffective recruitment
Standards
 Role ambiguity and role conflict
 Poor employee-technology job fit
 Inappropriate evaluation and compensation systems
 Lack of empowerment, perceived control and teamwork
 Failure to Match Supply and Demand
 Failure to smooth peaks and valleys of demand
 Inappropriate customer mix
 Over-reliance on price to smooth demand
 Customers Not Fulfilling Roles
 Customers lack knowledge of their roles and responsibilities
 Customers negatively impact each other
 Problems with Service Intermediaries
 Channel conflict over objectives and performance
 Channel conflict over costs and rewards
 Difficulty controlling quality and consistency
 Tension between empowerment and control

Human Resource StrategiesService Delivery

for closing GAP 3
Benefits:
Quicker responses to customer needs during service delivery
Quicker responses to dissatisfied customers during service recovery
Employees feel better about their jobs and themselves
Employees tend to interact with
warmth/enthusiasm Empowered employees are a
great source of ideas Great word-of-mouth
advertising from customers

Drawbacks:
Potentially greater dollar investment in selection and training
Higher labor costs
Potentially slower or inconsistent service delivery
May violate customers‗ perceptions of fair play
Employees may ―give away the store‖ or make bad decisions

Customers’ Roles in Service Delivery: Illustrate the importance of customers in successful

service delivery and co creation of service experiences. Discuss the variety of roles that service
customers play: productive resources for the organization; contributors to quality and
satisfaction; competitors.

How Customers Widen the Service Performance Gap: Lack of understanding of their roles,
not being willing or able to perform their roles, No rewards for ―good performance‖, interfering
with other customers Incompatible market segments.

Importance of Other (“Fellow”) Customers in Service Delivery:

Other customers can detract from satisfaction:
o Disruptive behaviors
o Overly demanding behaviors
o Excessive crowding
o Incompatible needs
• Other customers can enhance satisfaction:
o Mere presence
o Socialization/friendships
Customers as Productive Resources: customers can be thought of as partial employees‖
– contributing effort, time, or other resources to the production process
o customer inputs can affect organizations productivity

Customers as Contributors to Service Quality and Satisfaction:

Customers can contribute to:
– Their own satisfaction with the service
o By performing their role effectively
o By working with the service provider
The quality of the service they receive
o By asking questions
o By taking responsibility for their own satisfaction
o By complaining when there is a service failure

Customers as Competitors: Customers may compete‖ with the service provider

Internal exchange‖ vs. ―External exchange‖
Internal/External decision often based on:
Expertise capacity
Resources capacity
Time capacity
Economic rewards
Psychic rewards
Trust
Control

Strategies for Enhancing Customer Participation:

1. Define customers’ jobs: The organization first determines what types of participation it
wants from customers, thus beginning to define the customer‘s job. Identifying current
level of customer participation can serve as a starting point. Once the desired level of
participation is clear the organization can define more specifically what the customer‘s
job entails. The customers‖ job description‖ will vary with the type of service & the
organizations desired position within its industry. The job might entail.,
Helping oneself
Helping others
Promoting the company
2. Recruit, Educate and Reward Customers: Once the customer role is clearly defined
the organization can think in terms of facilitating that role. In a sense the customer
becomes a ―partial employee‖ of the organization at the same level. As with the
employees customer participation in service production & delivery will be facilitated
when.
Recruit the right customers
Educate and train customers to perform effectively
Reward customers for their contributions
Avoid negative outcomes of inappropriate customer participation

3. Manage the customer mix: Eg: Single college students who want to party & families
with small children who want quiet-it may find two groups do not merge. The process of
managing multiple & sometimes conflicting segments is known as compatibility
management (C.M). Compatibility management will be critically important for some
businesses (such as Public transportation, hospitals & clubs)
Delivering Service through Intermediaries
Identify the primary channels through which services are delivered to end customers.
Provide examples of each of the key service intermediaries. View delivery of service from two
perspectives—the service provider and the service deliverer. Discuss the benefits and challenges
of each method of service delivery. Outline the strategies that are used to manage service
delivery through intermediaries.

Service Provider Participants:

• Service principal (originator): creates the service concept (Like a manufacturer)
• Service deliverer (intermediary)
– Entity that interacts with the customer in the execution of the service

Services Intermediaries:

Franchisees: Service outlets licensed by a principal to deliver a unique service concept it has
created. e.g., KFC, McDonald‗s,

Franchising
The other recent trend in distribution of services is that of franchising. Franchising is the
granting of rights to another person or institution to exploit a trade name, trade mark or product
in return for a lump-sum payment or a royalty.
Franchise is characterized by the following features:
a) Ownership by one person of a name, an idea, a secret process or specialized piece of
equipment and the goodwill associated with it.
b) The grant of a license by that person to another permitting the exploitation of such
name, idea process or equipment and the goodwill associated his rights.
c) The inclusion in the license agreement of regulations relating to operation of the
business in the conduct of which the licensee exploits his rights.
d) The payment by the licensee of a royalty or some other consideration for the rights that
are obtained.

In service Industries franchises operate in the area of hotels, restaurants, car rentals, fast
food outlets, beauty parlors, pest control, travel agencies, office services, packers and movers,
couriers, business centers, etc.

The advantages provided by a Franchising arrangement are as follows:

1. There are usually training materials already developed, for both franchisees and their workers.
2. Expansion through franchising can proceed quickly.
3. The franchiser need apply only minimal controls; it does not have to develop as large a
bureaucracy to govern the business.
4. A franchiser's overhead is lower because the franchisee does hiring, collections, local
promotions, etc.
5. There are economies of scale to advertising and promotion.
6. The franchisee is responsible for most of the cost control.
7. There is often less risk attached to franchise expansion than with the creation of new service
ventures that may not have been tested as well.
8. Franchises usually have a better record for staying viable business than the typical service
business startup.
9. Local operators are committed because they have their own capital at risk.
10. The service tasks, service standards, and service delivery systems are usually well defined
and structured, and thus they work well. They have been prototyped, and many of the potential
problems with the operations have already been identified and ironed out.

Agents and Brokers: Representatives who distribute and sell the services of one or more service
suppliers. e.g., Travel agents, Independent insurance agents.

Agent: An agent is an independent intermediary, who may act in the name of, or for a principal.
His contract will define these provisions along with territorial rights, exclusivity and sales
commissions.

Broker: A broker is an independent intermediary between buyer and seller who bring parties
together to facilitate the conclusion of sales contract. A broker may have continuing relationship
for his client under a contract period; For which he may charge fee for assistance. Alternately, a
broker may be for a special job to be undertaken.

There are obvious benefits in distributing services through Agents and Brokers. Firstly,
they help in reducing the selling and distribution costs besides a wider representation in the
market. Secondly, such intermediary's possess special skills and expertise and also the
knowledge of local markets. However these agents and brokers also pose some challenges also.
For example representation of multiple service principals may lead to poaching in territories of
others resulting in loss of control over pricing and other aspects of marketing.

Functions of Agents and Brokers

The major function of these agents and brokers is, like any other intermediary, to bring
the producer of service and the user or consumer together. For certain services, agents can be
identified and deployed with selling as the chief function to be performed by them. These agents
can be compared with the agents for goods and they are classified as brokers or sales agents. The
example of this kind of channel is transportation (travel agents) and office or factory workers
(employment agencies). However in some cases the agents may be trained in the creation and
production of service and then franchised to ell it (eg, Shahnaz Hussain Beauty Parlors).

In case of certain services, actual product is not transferable and therefore tangible
representations are created and transferred. This type of channel is used for marketing insurance
services, where a contact document exists as a physical and tangible representation of the
services. Another characteristic of services is that the services are generally not delivered to the
buyer and the creation of time and place utilities is a vital function in the services marketing.
Irrespective of whether one uses agents or middlemen or direct sales channel the factor of
location keeping in view the potential markets will be the most significant factor in channel
selection decision. Duane David et.al, are of the view that location considerations along with
personal sources of information are two of the critical factors in final purchase decision of many
services. The problem of standardization and uniformity restrains the service organization to use
middlemen to any great extent and limit the geographical area which the service organisations
propose to reach and cover. This lays emphasis on the significance of good selection to attain
maximum coverage at the market place. Banking organizations have started reliving this fact and
introduced extension counters, mobile banking apart from opening branches in rural areas.

Electronic Channels: all forms of service provision through electronic means. e.g, ATMs,
university video courses, Tax Cut software.
Benefits and Challenges for Franchisers of Service:

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

Benefits and Challenges in Distributing Services through Agents and

Brokers: Benefits:
– Reduced selling and distribution costs
– Intermediary‘s possession of special skills and knowledge
– Wide representation
– Knowledge of local markets
– Customer choice.

• Challenges:
– Loss of control over pricing
– Representation of multiple service principals

Benefits and Challenges in Electronic Distribution of Services:

• Benefits:
– Consistent delivery for standardized services
– Low cost
– Customer convenience
– Wide distribution
– Customer choice and ability to customize
– Quick customer feedback

Challenges:
– Price competition
– Inability to customize with highly standardized services
– Lack of consistency due to customer involvement
– Changes in consumer behavior
– Security concerns
– Competition from widening geographies
Common Issues Involving Intermediaries:
 Conflict over objectives and performance,
 Difficulty controlling quality and consistency across outlets,
 Tension between empowerment and control,
 Channel ambiguity.

Strategies for Effective Service Delivery through Intermediaries:

• Control Strategies:
– Measurement
– Review

• Partnering Strategies:
– Alignment of goals
– Consultation and cooperation

• Empowerment Strategies:
– Help the intermediary develop customer-oriented service processes
– Provide needed support systems
– Develop intermediaries to deliver service quality
– Change to a cooperative management structure
 CHAPTER - 6
ROLE OF MARKETING COMMUNICATION
Key reasons for GAP 4 involving communication, four categories of strategies to match
service promises with delivery, Methodology to exceed customer expectation. Pricing of
services-Role of price and value in provider GAP 4, Role of non monitory cost, Price as an
indicator of service quality –Approaches to pricing services, pricing strategies

Key Factors Leading to Provider GAP 4

Service Delivery
 Lack of Integrated Services Marketing Communications
 Tendency to view each external communication as independent
 Not including interactive marketing in communications plan
 Absence of strong internal marketing program
 Ineffective Management of Customer Expectations
 Not managing customer expectations through all forms of communication
 Not adequately educating customers
 Overpromising
 Overpromising in advertising
 Overpromising in personal selling
 Overpromising through physical evidence cues
 Inadequate Horizontal Communications
 Insufficient communication between sales and operations
 Insufficient communication between advertising and operations
 Differences in policies and procedures across branches

External Communications
Four categories of strategies to match service promises with delivery
to Customers
1. Approaches for Managing Service Promises

2. Approaches for Managing Customer Expectations

3. Approaches for Improving Customer Education

 4. Approaches for Managing Internal Marketing Communications

Methodology to exceed Customer Expectation

• Be a good listener. Take the time to identify customer needs by asking questions and
concentrating on what the customer is really saying. Don't make assumptions.
• Identify and anticipate their needs. Customers don't buy products or services. They buy
good feelings and solutions to problems.
• Make customers feel important and appreciated. Treat them as individuals. Always
use their name and find ways to compliment them, but be sincere.
• Help customers understand your technology as simple as possible. Your company
may have the world's best technology, but if customers don't understand it, they may get
confused and impatient.
• Give more than expected, and give the unexpected. Think of ways to elevate yourself
above the competition.
• Get regular feedback from your customers. Encourage and welcome suggestions about
how you could improve.
• Appreciate the power of "Yes". When customers have a (reasonable) request tell them
that you can do it. And, always do what you say you are going to do.
• Know how and when to apologize. When something goes wrong, apologize. It's easy
and customers like it. The customer may not always be right, but the customer should
always feel like "they won".
• Treat staff well. Employees are your internal customers and need a regular dose of
appreciation. Thank them and find ways to let them know how important they are.
PRICING OF SERVICES-ROLE OF PRICE AND VALUE IN PROVIDER GAP 4

I. Reference Price
A reference price is a price point in memory for goods or services, and can consist of the
price last paid, the price most frequently paid, or the average of all prices customers have paid
for similar offerings.
1. To see how accurate your reference prices for services are, you can compare
them with the actual price of these services from the providers in your home town.
Because services are intangible and are not created on a factory assembly line, service
firms have great flexibility in the configurations of services they offer. Firms can
conceivably offer an infinite variety of combinations and permutations leading to
complex and complicated pricing structures. As an example, consider how difficult it is
to get comparable price quotes when buying life insurance. With the multitude of types
(e.g., whole life versus term), features (different deductibles), variations associated with
customers (age, health risk, smoking or non smoking), few insurance companies offer
exactly the same features and the same prices, only an expert customer, one who knows
enough about insurance to completely specify the options across providers, is likely to
find prices that are directly comparable.

2. Another reason customers lack accurate reference prices for services is that
many providers are unable or unwilling to estimate price in advance. Consider most
medical or legal services. Rarely are legal or medical service providers willing – or even
able – to estimate a price in advance. The fundamentals reason in many cases is that they
do not know themselves what the services will involve until have fully examined the
patient or the client‗s situation or until the process of service delivery (such as an
operation in a hospital or a trial) unfolds. In a business – to – business context, companies
will obtain bids or estimates for complex services such as consulting or construction, but
this type of price estimation is typically not undertaken with endconsumers; therefore,
they often buy without advance knowledge about the final price of the service.

3. Another factor that results in the inaccuracy of reference prices is that

individual customer needs vary. A service as simple as a hotel room will have prices that
vary greatly : by size of room, time of year, type of room availability, and individual
versus group rate. These two examples are for very simple services. Still another reason
customers lack accurate reference prices for services is that , with most goods, retail
stores display the products by category to allow customers to compare and contrast the
prices of different brands and sizes. Rarely is there a similar display of services in a
single outlet. If customers want to compare prices (for example, for dry cleaning), they
must drive to or call individual outlets.

II. The Role of Nonmonetary Costs

It has been recognized that monetary price is not the only sacrifice consumers make to
obtain products and services. Demand, therefore, is not just a function of monetary price but is
influenced by other costs as well. Non-monetary costs represent other sources of sacrifice
perceived by consumers when buying and using a service. Time costs, search costs, often enter
into the evaluation of whether to buy or rebury a service, and may at times be more important
concerns than monetary price. Most services require direct participation of the consumer and
thus consume real time; time waiting as well as time when the customer interacts with the service
provider.
 Consider the investment you make to exercise, see a physician, or get through the crowds
to watch a concert or game. Not only are you paying money to receive these services : you‗re
also expending time. Time becomes a sacrifice made to receive service is multiple ways. First
because service providers cannot completely control the number of customer to be serviced,
service customers are likely to expend time waiting to receive the service. Waiting time for a
service is virtually always longer and less predictable than waiting time to buy goods. Search
costs the effort invested to identify and select among services you desire are also higher for
services than for physical goods. Price for services are rarely displayed on shelves of service
establishments for customers to examine as they shop, so these prices are often known only when
a customer has dedicated to experience the service.

There are also convenience costs of services. If customers have to travel to a service, they
incur a cost, and the cost becomes greater when travel is difficult, as it is for elderly persons.
Further, if service hours do not coincide with the customer‗s available time, she must arrange
her schedule to correspond to the company‗s schedule. Often the most painful nonmonetary
costs are the psychic costs incurred in receiving some services fear of not understanding
(insurance), fear of rejection (bank loans), fear of uncertainty (including fear of high cost) – all
of these constitute psychic costs that customers experience as sacrifices when purchasing and
using services. All change, even positive change, brings about psychic costs that customers
factor into the purchase of services. When banks first introduced ATMs, customer resistance was
significant, particularly to the idea of putting money into a machine: customers felt
uncomfortable with the idea of lettings go of their checks and bank cards.

III. How Price as an Indicator of Service Quality

When service cues to quality are readily accessible, when brand names provide evidence
of a company‗s reputation, or when level of advertising communicates the company‗s belief in
the brand, customers may prefer to use those cues instead of price. In other situations, however,
such as when quality is hard to detect or when quality or price varies a great deal within a class
of services, consumers may believe that price is the best indicator of quality.

Many of these conditions typify situations that face consumers when purchasing services.
Another factor that increases the dependence on price as a quality indicator is the risk associated
with the services purchase. In high – risk situations, many of which involved credence services
such as medical treatment or management consulting, the customer will look to price as a
indicator for quality. Because customers depend on price as a cue to quality and because price
sets expectations of quality, service prices must be determined carefully. In addition to being
chosen to cover costs or match competitors, prices must be chosen to convey the appropriate
quality signal. Pricing too low can lead to inaccurate inferences about the quality of the service.
Pricing too high can set expectations that may be difficult to match in service delivery.

Approaches to Pricing Services: Three pricing structures typically used to set prices:
1. Cost Based 2. Competition based 3. Demand based companies need to consider each of the
three to some extant in setting prices.

Cost – Based Pricing

In cost – based pricing, a company determines expenses from raw materials and labor
adds amount or percentages for overhead and profit and thereby arrives at the price. This method
is widely used by industries such as utilities, contracting, wholesaling and advertising. The basic
for cost – based pricing is
Price = Direct costs + overhead cost + Profit margin
Special Problem in Cost – Based Pricing For Services
One of the major difficulties in cost based pricing involves defining the units in which a
service is purchased. Thus the price per unit – a well – understood concept in pricing of
manufactured goods is a vague entity. For this reason many services are sold in term of input
units rather than units of measured output. For example, most professional service (such as
consulting, engineering, architecture, psychotherapy and tutoring) are sold by the hour.

First, costs are difficult to trace or calculate in services business, particularly where multiple
services are provided by the firm. Consider how difficult it must be for a bank to allocate teller
time accurately across its checking, saving, and money market accounts in order to decide what
to charge for the services. Second, a major component of cost is employee time rather than
materials and the value of people‗s time, particularly non-professional time, is not easy to
calculate or estimate. Example of Cost – Based Pricing Strategies in Services

Cost – plus pricing is a commonly used approach in which component costs are
calculated and markup added. In product pricing this approach is quite simple, in service
industries, however, it is complicated because the tracking and identification of costs are
difficult. The approach is typically used in industries where cost must be estimated in advance,
such as construction engineering and advertising. In construction or engineering, bids are
solicited by clients on the basis of the description of the service desired. Using their knowledge
of the costs of the components of the service (including both professional and unskilled) and
margin, the company estimated and present to the client a price for the finished service. Fee for
service is the pricing strategy used by professionals; it represents the cost of the time involved in
providing the service. Consultants, psychologists, accounts and lawyers, among other
professionals, charge for their services on an hourly basis.

Competition – Based Pricing

This approach focuses on the prices changed by other firms in the same industry or
market. Competition – based pricing does not always imply changing the identical rate others
changes but rather using others prices as an anchor for the firms price. This approach is used
predominantly in two situations.
1. When services are standard across providers, such as in the dry cleaning industry.
2. In oligopolies where there is a small number of large service providers, such as in the
airline or rental car industry.

Special Problems in Competition – Based Pricing For Services

Small firms may charge too little and not make margins high enough to remain in
business. Further, the heterogeneity of services across and within providers makes this approach
complicated. Bank services illustrate the wide disparity in service prices. Customers buying
checking accounts, money orders, or foreign currency, to name a few services, will find prices
are rarely similar across providers.

Example of Competition Based Pricing Industries

In this type of market, any price offered by one company will be matched by competitors
to avoid giving a low – cost seller a distinct advantage. The airline industry exemplifies price
signaling in services.

Demand Based Pricing

The two approaches to pricing just described are based on the company and its
competitors rather than on customers. Neither approach takes into consideration that customers
may lack reference prices, may be sensitive to no monetary prices, and may judge quality on the
basis of price. All of these factors can and should be accounted for in a company‗s pricing
decisions. The third major approach to pricing, demand – based pricing involves setting prices
consistent with customer perceptions of value; prices are based on what customers will pay for
the services Provided.

Special Problems in Demand – Based Pricing For Services

One of the major ways that pricing of services differs from of goods in demand – based is
that, no monetary cost and benefits must be factored into the calculation of perceived value to the
customers. When services require time, inconvenience, and psychic and search costs, the
monetary price must be adjusted to compensate. And when services save time, inconvenience,
and psychic and search costs, the customer is likely to be willing to pay a higher monetary price.
Another way services and goods differ with respect to this from of pricing is that information on
services costs may be less available to customers.

Perceived Monetary Price:

This is the price the customer perceives the service to be, whereas objective price is the
actual price. As we discussed earlier, many consumers do not attend to, know, and remember
actual prices of services. Instead they reframe prices in ways that are meaningful to them. Some
consumers may notice that the price of dry cleaning a shirt is Rs.12. others may perceive and
remember the price only as ―expensive‖ or ―cheap.‖ Still others may not pay any attention to
the price at all.

Perceived Non-Monetary Price:

This price represents the others costs we discussed earlier in this chapter that are
perceived by consumer when buying and using a service : time costs, search costs and psychic
costs.

Perceived Sacrifice:
Perceived sacrifice includes all that the customer perceives has to be given up to obtain a
service. All form of price monetary and no monetary feed into this perceptual concept.

Perceived Quality:
Perceived is defined as the customers judgment about a services overall superiority or
excellence.

Perceived Value:
Perceived value is defined as the consumer‗s overall assessment of the utility of a service
based on perceptions of what is received.

Incorporating Perceived Value Into Service Pricing: It is the buyer‗s perception of total value
that prompts the willingness to pay a particular price for a service. To translate the customer‗s
value perceptions into an appropriate price for a specific service offering, the marketer must
answer a number of question.
1. What benefits does the service provide?
2. How important is each of these benefits to the others?
3. How much is it worth to the customer to receive a particular benefit in a services.
4. At what price will the service be economically acceptable to potential buyers?
5. In what context is the customer purchasing the service?
The most important thing a company must do and often a difficult thing- is to estimate
the value of the company‗s services to the customers. Value may be perceived differently by
consumers because of tastes, knowledge about the service, buying power, and ability to pay. In
this type of pricing, what the consumer values is important for pricing and not what he pays.
Therefore its effectiveness rests solely on accurately determining what the market perceives the
service to be worth.

Pricing Strategies that Link to the Four Definitions

1. Pricing Strategies:
When the customer means ―Value Is Low Price‖ Some of the specific pricing
approaches appropriate when customers define value as low price include discounting, odd
pricing, synchro pricing, and penetration pricing.

Discounting
Service providers offer discounts or price cuts to communicate to price sensitive buyers
that are receiving value.

Odd Pricing
This is the practice of pricing services just below the exact Rupee amount to make buyers
perceive that they are getting a lower price Rs.199.90

Syncro – Pricing
Synchro –pricing is the use of price to manage demand for a service by using customer
sensitivity to prices. Certain services, such as tax preparation, passenger transportation, long –
distance telephone, hotels, and theaters have demand that fluctuates over time as well as
constrained supply at peak times. For companies in these and other industries, setting a price that
provides a profit over time can be difficult. Pricing can however, play a role in smoothing
demand and synchronizing demand and supply.

Place differentials are used for services where customers have a sensitivity to location.
The front row at concerts, the 50 – yard line in foot ball, center court in tennis or basketball,
ocean – side rooms in resort hotels – all these represent place differentials that are meaningful to
customers and that therefore command higher prices. Time differentials involve price variations
that depend on when the service in consumed. Telephone service after 11 p.m., hospital rooms
on weekends, airline tickets that include a Saturday night stay, are time differentials that reflect
slow periods of service. By offering lower prices for under used time periods, a service company
can smoothen demand and also gain incremental revenue.

Penetration Pricing:
Penetration pricing is a strategy in which new services are introduced at low prices to
stimulate trial and widespread use. The strategy is appropriate when (1) sales volume of the
service is very sensitive to price, even in early stages of introduction (2) a service faces threats of
strong potential competition very soon after introduction; and (3) there is no class of buying
willing to pay a higher price to obtain the service. (2) pricing strategies when the customer
means ―value is everything I what in a service‖ when the customers is concerned principally
with the ―get‖ components of a service, monetary price is not of primary concern.

Prestige Pricing
This is a special from demand – based pricing by service marketers who offer high –
quality or status services. For certain services – restaurants, health clubs, airlines, and hotels – a
higher price is charged for the luxury end of the business. Some customers of service companies
who use this approach may actually value the high price because it represents prestige or a
quality images. Others prefer purchasing at the high end because they are given preference in
seating or accommodations and are entitled to other special benefits. In prestige pricing, demand
may actually increase as price increases because the costlier service has more value in reflecting
quality or prestige.

Skimming Pricing
This is a strategy in which new services are introduced at high prices with large
promotional expenditures. In this situation many customers are mor concerned about obtaining
the service than about the cost of the service allowing service providers to skim the customers
most willing to pay the highest prices. Pricing strategies when the customers means ―value is
the quality i get for the price i pay‖ The task of the marketer is to understand what quality means
to the customers (or segments of customers and then to match quality level with price level.

“Value Pricing”
This widely used term has come to mean ―giving more for less‖ in current usage it
involves assembling a bundle of services that are desirable to a wide group of customers and then
pricing them lower than they would cost alone.

Market Segmentation Pricing

In this from of pricing, service marketer charges different prices to groups of customers
for what are perceived to be different quality levels of services, even though there may not be
corresponding differences in the costs of providing the service to each of these groups. This
pricing is based on the premise that different segments show different price elastic ties of
demand and desire different quality levels. Companies also use market segmentation by service
version, recognizing that not all segments want the basic level of service at lowest price. When
they can identify a bundle of attributes that are desirable enough for another segment of
customers, they can charge a higher price and service points appealing to different groups in the
market. Hotels, for example, Offer standard rooms at a basic rate but then combine amenities and
tangibles related to the room to attract customers willing to pay more.

Price Framing:
Because many customers do not possess accurate prices for services, services marketers
are more likely than product marketers to organize the price information for customers, so that
they know how to view it customers naturally look for price anchors, as well as familiar services
against which to judge focal services. If they accept the anchors, they will view the price and
service package favorably.

Price Bundling
Some services are consumed more effectively in conjunction with other services; other
services accompany the products they support (e.g. extended service warranties, training, and
expedited delivery). When customers find value in a package of services that are interrelated,
price bundling is an appropriate strategy. Bundling, this means pricing and selling services as a
group rather than individually, has benefits to both customers and service companies. Customers
find that bundling simplifies their purchase and payment, and companies find that the approach
stimulates demand for the firm‗s service line, there by achieving cost economics for the
operations as a whole while increasing net contributions. Bundling also allows the customers to
pay less than she would in purchasing each of the services individually, which contributes to
perceptions of value.

Approaches to bundling include mixed bundling, mixed – leader bundling, and mixed –
joint bundling. In mixed bundling, the customer can purchase the services individually or as a\
package. But a price incentive is offered for purchasing the package. An example, a health club
customer may be able to contract for aerobics classes at 25 per month. Weight machines at
Rs.15, and pool privileges at Rs.15 or the group of three services for Rs.27 (a price incentive of
Rs.5 per month.). in mixed – leader bundling, the price of one service is discounted if the first
service is purchased at full price. For example, if cable TV customers buy one channel at full
price for first T.V., they can acquire a second T.V. channel at a reduced monthly rate. In mixed –
joint bundling, a single price is formed for the combined set of services with the objective to
increase demand for both services by packing them together.

Complementary Pricing
This pricing includes three related strategies captive pricing, two – part pricing, and loss
leadership. Services that are highly interrelated can be leveraged by using one of these forms of
pricing. In captive pricing, the firm offers a base service or product and then provides peripheral
services needed to continue using the service. In this situation the company could off – load
some part of the price for the basic service to the peripherals. For example, cable services often
drop the price for installation to a very low level, then compensate by charging enough for the
peripheral services to make up for the loss in revenue. With services firms, this strategy is often
called ―two – part pricing‖ because the service price is broken into a fixed fee plus variable
usage fee (also found in telephone services). Loss leadership is the term typically used in retail
stores when providers place a familiar service on special largely to draw the customer to the
stores and then reveal other levels of service available at higher prices.

Contingency Pricing
The most commonly known form of results – based pricing (used when uncertainty is
high) is a practice called contingency pricing used by lawyers. In this approach, lawyers do not
receive fees or payment until the case is settled, when they are paid it is a percentage of the
pricing makes sense in part because most clients in these cases are unfamiliar with the outcomes.
Their biggest fears are high fees for a case that may take years to settle. By using contingency
pricing, clients are assured that they pay no fees until they receive a settlement.
 CHAPTER - 7
PHYSICAL EVIDENCE IN SERVICES
Types of service spaces- Role of service scapes, Frame work for understanding service
scapes & its effect on behaviour-Guidance for physical evidence strategies

Service Scape:
Servicescape is a concept that was developed by Booms and Bitner to emphasize the
impact of the physical environment in which a service process takes place. The concept of
servicescape can help assess the difference in customer experience between a fast-food franchise
restaurant and a small, family-run restaurant. Whereas the quality of the food may be the same,
the customer may perceive higher quality in the latter over the former based on the environment
in which the service is provided.

Booms and Bitner defined a servicescape as "the environment in which the service is
assembled and in which the seller and customer interact, combined with tangible commodities
that facilitate performance or communication of the service".

The servicescape includes the facility's exterior (landscape, exterior design, signage,
parking, surrounding environment) and interior (interior design and decor, equipment, signage,
layout, air quality, temperature and ambiance).

Service scape can influence, customer choice, expectation, satisfaction and other
behavior Eg., Retailers (shopper stop, food world) know that customers are influenced by smell,
décor, music, store layout. Because services generally are purchased and consumed
simultaneously employees and customers will interact with each other in the service scape. Thus,
the same physical evidence setting that communicates with the customer and influences him to
buy the service will also affect the employees of the firm, i.e., affect the employee by way of
motivation, productivity, satisfaction. Therefore service setting is to be designed (stay physical
layout) in such a way that is meets the need of the customer and employee.

Types of Service Spaces

Role of Service Scapes
• Packaging – servicescape act as a package in tangible goods. Physical evidence wrap the
service and convey an external image of what is inside the service organisation for
customers.
• Facilitator – a well designed, functional facility can make the service a pleasure to
experience from the customers point of view.
• Socializer – properly designed servicescape tells the customers in which part of the
servicescape customers are welcome and which are for employees only. How they should
interact, and what type of interaction is allowed.
• Differentiator – design of physical facility can differentiate a firm from its competitors.
Ex: - A/c v/s non – a/c bus

1. Package:
Similar to a tangible product‗s package, the service-scape and other elements of physical
evidence essentially ―wrap‖ the service and convey an external image of what is ―inside‖ to
consumers. The service-scape is the outward appearance of the organization and thus can be
critical in forming initial impressions or setting up customer expectations – it is a visual
metaphor for the intangible service. This packaging role is particularly important in creating
expectations for new customers and for newly established service organizations that are trying to
build a particular image. The physical surroundings offer an organization the opportunity to
convey an image in a way not unlike the way an individual chooses to ―dress for success‖.

2. Facilitator:
The service-scape can also serve as a facilitator in aiding the performances of persons in
the environment. How the setting is designed can enhance or inhibit the efficient flow of
activities in the service setting, making it easier or harder for customers and employees to
accomplish their goals. A well-designed, functional facility can make the service a pleasure to
experience from the customer‗s point of view and a pleasure to perform from the employee‗s.
On the other hand, poor and inefficient design may frustrate both customers and employees.

3. Socializer:
The design of the service-scape aids in the socialization of both employees and customers
in the sense that it helps to convey expected roles, behaviours, and relationships. For example, a
new employee in a professional services firm would come to understand her position in the
hierarchy partially through noting her office assignment, the quality of her office furnishings,
and her location relative to others in the organization. The design of the facility can also suggest
to customers what their role is relative to employees, what parts of the service-scape they are
welcome in and which are for employees only, how they should behave while in the
environment, and what types of interactions are encouraged.

4. Differentiator:
The design of the physical facility can differentiate a firm from its competitors and signal
the market segment the service is intended for. Given its power as a differentiator, changes in the
physical environment can be used to reposition a firm and/or to attract new market segments. In
shopping malls the colours used in decor and displays and type of music wafting from a store
signal the intended market segment. The design of a physical setting can also differentiate one
area of a service organization from another. This is commonly the case in the hotel industry
where one large hotel may have several levels of dining possibilities, each signed by differences
in design.
Frame work for Understanding Service Scapes & its effect on Behaviour
Environment and behaviour

Environment and cognitive

• Servicescape can be viewed as a form of non – verbal communication.
• Clues such as type of office furniture, décor, dress etc may influence clients belief about
whether the service provider is successful or not, is he expensive or not etc.
• Similarly service provider whose facilities were more organized and professional were
viewed more positively that those whose facilities were disorganized and unprofessional.

Environment and emotion

• This refers to a situation, where a person feels in a particular places, happy, relaxed or
depressed.
• The color, décor, music and other elements of the atmosphere can have an unexplained
sub consciousness efforts on the moods of the people in the place.
• People would like to spend money in an environment which is pleasant environment.

Environment and psychology

• The noise that is too loud may cause physical discomfort
• The temperature of the room may cause the people to perspire the air quality may make it
difficult to breathe.
• The glare of lighting may decrease ability to see and cause pain to the eyes.
• All of these responses may in turn directly influence whether people stay in and enjoy a
particular environment.

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

Guidance for Physical Evidence Strategies

1. Recognize the Strategic Impact of Physical Evidence: For an evidence strategy to be effective
it must be linked clearly to the organization‘s overall goals and vision. Thus, planners must know
what those goals are and then determine how the evidence strategy can support them. At a
minimum, the basic service concept must be defined, the target markets (both internal and
external) identified, and the firm‘s broad vision of its future known. Because many evidence
decisions are relatively permanent and costly (particularly servicescape decisions), they must be
planned and executed deliberately.

2. Map the Physical Evidence of Service: Everyone should be able to see the service process
and the existing elements of physical evidence. An effective way to depict service evidence is
through the service map, or blueprint. From the map one can read the actions involved in service
delivery, the complexity of the process, the points of human interaction that provide evidence
opportunities, and the tangible representations present at each step. To make the map even more
useful, photographs or videotape of the process can be added to develop a photographic
blueprint.

3. Clarify Roles of the Servicescape: Sometimes the servicescape may have no role in service
delivery or marketing from the customer‘s point of view. This is essentially the case for
telecommunication services or express mail services. Clarifying the roles played by the
servicescape in a particular situation will aid in identifying opportunities and deciding just who
needs to be consulted in making facility design decisions.

4. Assess and Identify Physical Evidence Opportunities: Once the current forms of evidence
and the roles of the servicescape are understood, possible changes and improvements can be
identified. A strategy might be developed to provide more evidence of service to show customers
exactly what they are paying for. Or the pricing or the facility design would need to be changed,
depending on the restaurant‘s overall strategy.

5. Be Prepared to Update and Modernize the Evidence: Some aspects of the evidence,
particularly the servicescape, require frequent or at least periodic updating and modernizing.
Even if the vision, goals, and objectives of the company don‘t change, time itself takes a toll on
physical evidence, necessitating change and modernization. There is clearly an element of
fashion involved, and over time different colours, designs, and styles may come to communicate
different messages. Organizations obviously understand this when it comes to advertising
strategy, but sometimes they overlook other elements of physical evidence.

6. Work Crossfunctionally: In presenting itself to the consumer, a service firm is concerned

with communicating a desired image, with sending consistent and compatible messages through
all forms of evidence, and with providing the type of service evidence the target customers want
and can understand.