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Services - Marketing, Operations and Management:

Chapter 1:

Agenda:

© Oxford University Press 2009. All rights reserved. 3 Agenda Introduction to service economy Service characteristics Classification of services Factors responsible for growth of services sector Challenges confronted by the service sector Critical factors for success International trade regulations for service sector Service Management Services Marketing environment

Introduction to service economy:

© Oxford University Press 2009. All rights reserved. 4 Introduction to service economy Services account for 54% of the GDP and is the fastest growing sector of the economy. India’s export of services worth USD 76.2 billion grew by 32.1% in 2006-2007 Among the services ‘transport and communications’ is fastest growing with growth averaging 15.3% per annum Banking, insurance and business services grew at 13.9%

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Service Defined:

© Oxford University Press 2009. All rights reserved. 9 Service Defined “An activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as a solutions to customer problems” Gronroos (1990)

Service Defined:

© Oxford University Press 2009. All rights reserved. 10 “ Any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may not be tied to a physical product” Kotler, 1991. Service Defined

Service Defined:

© Oxford University Press 2009. All rights reserved. 11 “A set of activities or benefits which produce a good, which is normally intangible in nature, perishable, involving temporary transfer of ownership or as long as the service is being used and which gratify the customers needs or problems. Services can also be provided in connection with sale of tangible goods for creating value perceptions among customers.” Service Defined

Characteristics of services:

Intangibility:

© Oxford University Press 2009. All rights reserved. 13 Intangibility Service cannot be stored Service cannot be patented legally and hence can be easily copied by competitors. Service cannot be readily displayed or easily communicated to customers leading to difficult in assessing the quality. Decisions regarding advertising and promotions are difficult. Pricing is difficult as it is hard to determine the actual cost of a “unit of service” and price/quality relationship is complex. It is less efficient than goods production. Design of total service package is not possible. For example: Services rendered by banks, restaurants, airlines etc. An airline traveller cannot know the kind of experience he is going to have during a flight at the time of making the purchase for the first time.

Intangibility - Emerging Marketing strategy:

© Oxford University Press 2009. All rights reserved. 14 Intangibility - Emerging Marketing strategy Some of the possible solutions to overcome intangibility problems of services can be: Use tangible cues (for example see reading : Incredible India Packs in a Cosmetic Touch) Stimulate manage and promote word of mouth communication. Use personal sources of information more than non-personal sources. Use post purchase communications Strengthening internal and external marketing. Use relationship marketing Create strong organisational image. Use cost accounting to help set prices.

Inseparability :

© Oxford University Press 2009. All rights reserved. 15 Inseparability Centralized mass production is difficult if not impossible. Customer experience depends upon action of employees and interaction between employees and customers. Operations need to be decentralized so that service can be delivered directly to consumers in convenient locations. Due to simultaneous production and consumption, the customer involvement is high and this may affect the outcome of the service transaction. Involvement of other customers in the production process.

Inseparability - Emerging Marketing strategy:

© Oxford University Press 2009. All rights reserved. 16 Need strong selecting and training programmes for public contact personnel Strong incentives and motivations to always satisfy the customer Use multi-site locations. Innovating techniques of indirect interaction. Standardisation to maximum extent possible. Consumer Management Focus on personal attention Develop distribution network with quality control mechanism Inseparability - Emerging Marketing strategy

Variability/Heterogeneity :

© Oxford University Press 2009. All rights reserved. 17 Variability/Heterogeneity Standardisation is difficult to achieve. Hard to set up a quality control. Quality can be determined only after the service has been performed. Not possible to communicate what exactly the customer is going to receive.

Heterogeneity - Emerging Marketing strategy:

© Oxford University Press 2009. All rights reserved. 18 Stress standardisation and performance Focus on employee training programme, performance evaluation and internal marketing. Consider licensing and other forms of credential requirements. Positioning variation as strength of innovation. Promote research and innovation. Industrialize service: Levitt 1972, “suggested specific techniques to substitute organized pre-planned systems for individual service operations. This strategy is the opposite of customization”. Customize services. Heterogeneity - Emerging Marketing strategy

Perishability:

© Oxford University Press 2009. All rights reserved. 19 Perishability Value is short lived. Cannot be inventoried Time pressure in sales Capacity is finite For example: An airline seat on a particular flight, if not sold cannot be stored for sale during the next flight.

Perishability - Emerging Marketing strategy:

© Oxford University Press 2009. All rights reserved. 20 Demand forecasting and creative planning for capacity utilization to achieve a closer match between demand and supply. Use strategies to cope with fluctuating demand. Strong recovery strategies when things go wrong. Focus on competence and expertise Continuous study on demand patterns and competitive parameters. Creative pricing like early bird specials. Perishability - Emerging Marketing strategy

In-class exercise:

© Oxford University Press 2009. All rights reserved. 21 In-class exercise Can you now apply these characteristics for: Banking service Hospitality service Beauty saloon How do these characteristics vary across the sectors?

Classification of services:

Differentiation between goods and services:

© Oxford University Press 2009. All rights reserved. 23 Differentiation between goods and services Ownership Performance Customer involvement People as a part of the product Variability Evaluation Inventory Distribution channel

Factors – Growth of Service Sector:

© Oxford University Press 2009. All rights reserved. 24 Factors – Growth of Service Sector Foreign Direct Investment Better living standards High disposable income Convenience factors Dual income households New technological devices Concern for productivity

Challenges confronted by Service Sector:

Critical factors for success:

© Oxford University Press 2009. All rights reserved. 26 Critical factors for success Focus on customers Caring for employees Identification of value drivers Deploying technology to a firm’s advantage Demand management Adequate systems

International trade regulations for service sector:

© Oxford University Press 2009. All rights reserved. 27 International trade regulations for service sector The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization and the first multilateral trade agreement to cover trade in services at the global level.

Basic purpose of GATS:

© Oxford University Press 2009. All rights reserved. 28 Basic purpose of GATS GATS is intended to contribute to trade expansion under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries. Thus we can conclude that the GATS' contribution to world services trade rests on two main pillars: (a) Ensuring increased transparency and predictability of relevant rules and regulations, (b) Promoting progressive liberalization through successive rounds of negotiations.

Scope and application:

© Oxford University Press 2009. All rights reserved. 29 Scope and application A service is traded when the supplier and customer are from different countries, regardless of location of the transaction” (Hibbert, 2003). GATS apply to measures by Members affecting trade in services. The measure can be taken at central, regional or local government level, or by non-governmental bodies exercising delegated powers. The relevant definition covers any measure, "whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form, ... in respect of: The purchase, payment or use of a service; The access to and use of, in connection with the supply of a service, services which are required by Members to be offered to the public generally; The presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member

Basic principles:

© Oxford University Press 2009. All rights reserved. 30 Basic principles All services are covered by GATS. Most-favored-nation treatment applies to all services, except the one-off temporary exemptions. National treatment applies in the areas where commitments are made. Transparency in regulations, inquiry points. Regulations have to be objective and reasonable. International payments: normally unrestricted. Individual countries' commitments: negotiated and bound. Progressive liberalization: through further negotiations.

Services Marketing Mix:

Product:

Price:

Promotion:

Place:

People:

Process:

Physical evidence:

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Services Marketing Environment:

Political environment:

© Oxford University Press 2009. All rights reserved. 41 Political environment According to Kotler et al. (2006) the ‘political environment is made up of laws, government agencies and pressure groups that influence and limit the activities of various organizations and individuals in society’ and its basic purpose is to protect: companies from unfair competition consumers from unfair practices the society from unimpeded business behavior. In India a number of laws have been constituted to protect the rights of the stakeholders of a business. For instance, laws relating to working hours, conditions of services and employment, employment and training, labour laws, wage laws, etc. protect the rights of employees.

Economic Environment :

© Oxford University Press 2009. All rights reserved. 42 Economic Environment This consists of factors that affect consumer purchasing power and spending patterns. Attention should be paid to income distribution and average income.

Demographic Environment:

© Oxford University Press 2009. All rights reserved. 43 Demographic Environment ‘Demography is the study of human population in terms of size, density, location, age, gender, race, occupation and other statistics’. (Kotler et al., 2006) The demographics of a country is of major interest to marketers because it represents the target customers for products and services.

Socio-cultural Environment:

© Oxford University Press 2009. All rights reserved. 44 Socio-cultural Environment A society’s cultural environment includes institutions and other forces that affect the basic values, perceptions, preferences, and behaviors of its members. This is particularly relevant in the diverse Indian culture as culture varies like the vast geography of India. People speak in different languages, dress differently, follow different religions, eat different food etc.

Technological Environment:

© Oxford University Press 2009. All rights reserved. 45 Technological Environment The most remarkable force that is shaping our destiny today is technology. We are still at the threshold of Internet technology, which has given us countless opportunities at a negligible cost.