Introduction to Services Management

Ms. Kiran Sharma

How Important is the Service How Important is the Service Sector in Our Economy?Sector in Our Economy?

In most countries, services add more economic value than agriculture, raw materials and manufacturing combined

In developed economies, employment is dominated by service jobs and most new job growth comes from services

Jobs range from high-paid professionals and technicians to minimum-wage positions

Service organizations can be any size—from huge global corporations to local small businesses

Most activities by government agencies and nonprofit organizations involve services

Examples of Service IndustriesExamples of Service Industries

Health Care◦ hospital, medical practice, dentistry, eye care

Professional Services◦ accounting, legal, architectural

Financial Services◦ banking, investment advising, insurance

Hospitality◦ restaurant, hotel/motel, bed & breakfast ◦ ski resort, rafting

Travel◦ airline, travel agency, theme park

Others◦ hair styling, pest control, plumbing, lawn maintenance,

counseling services, health club, interior design

Services dominate the Services dominate the Economy in most nations – Economy in most nations – USA USA

Source: Bureau of Economic Analysis, May 2005

Finance, Insurance, Real Estate 20%

Wholesale and Retail Trade 16%

Transport, Utilities, Communications 8% Health

6%Business Services 6%

Other Services 11%

Government(mostly services) 13%

Manufacturing 17%

Agriculture, Forestry,Mining, Construction 2.3%

SERVICES

Service Sector – Indian Service Sector – Indian EconomyEconomyRanks 15th in servicesProvides employment to 23% of

total workforce in the country.Contributes most to Indian GDP

54%Construction, hospitality,

transport, food and beverages services, communication, insurance, financing …….

ServicesServicesServices – “acts, deeds,

performances, or efforts”Goods – “articles, devices,

materials, objects, or things”

Defining ServicesAre economic activities offered by

one party to another, employing time based performances to bring about desired results.

Services customers expect to obtain value from access to goods, professional skills but they do not normally take ownership of any physical elements.

Why study Services?Why study Services?Service-based economies

Service as a business imperative in manufacturing and IT

Deregulated industries by the government and professional service needs

Services marketing is differentService equals profitsBut “Service stinks”

Major Trends in Service SectorMajor Trends in Service Sector Government Policies (e.g., regulations,

trade agreements) Social Changes (e.g., affluence, lack of

time, desire for experiences) Business Trends

◦ Manufacturers offer service◦ Growth of chains and franchising◦ Pressures to improve productivity and

quality◦ More strategic alliances◦ Marketing emphasis by nonprofits◦ Innovative hiring practices

Advances in IT (e.g., speed, digitization, wireless, Internet)

Internationalization (travel, transnational companies)

Some Impacts of Technological Some Impacts of Technological ChangeChange

Create relational databases about customer needs and behavior, mine databanks for better insights

Enabling both customers and employees

Centralize customer service—faster and more responsive

Extending the global reach of services The Internet is a servicesThe dark side of technology and service

Marketing Relevant Differences Between Goods and Services

Characteristics of ServicesCharacteristics of ServicesCompared to GoodsCompared to Goods

Intangibility

Perishability

Simultaneous

Productionand

Consumption

Heterogeneity

Implications of Implications of IntangibilityIntangibilityServices cannot be inventoried

Services cannot be easily patented

Services cannot be readily displayed or communicated

Pricing is difficult

Implications of Implications of HeterogeneityHeterogeneityService delivery and customer

satisfaction depend on employee and customer actions

Service quality depends on many uncontrollable factors

There is no sure knowledge that the service delivered matches what was planned and promoted

Implications of Simultaneous Implications of Simultaneous Production and ConsumptionProduction and ConsumptionCustomers participate in and affect

the transaction

Customers affect each other

Employees affect the service outcome

Decentralization may be essential

Mass production is difficult

Implications of Implications of PerishabilityPerishabilityIt is difficult to synchronize

supply and demand with services

Services cannot be returned or resold

Distinguishing Characteristics of Distinguishing Characteristics of Services Services

Customers do not obtain ownership of servicesService products cannot be inventoried Intangible elements dominate value creationGreater involvement of customers in production

processOther people may form part of product

experienceGreater variability in operational inputs and

outputsMany services are difficult for customers to

evaluateTime factor is more important--speed may be keyDelivery systems include electronic and physical

channels

Marketing Implications - 1Marketing Implications - 1No ownership

◦ Customers obtain temporary rentals, hiring of personnel, or access to facilities and systems

◦ Pricing often based on time ◦ Customer choice criteria may differ for renting

vs. purchase--may include convenience, quality of personnel

◦ Can’t own people (no slavery!) but can hire expertise and labor

Services cannot be inventoried after production◦ Service performances are ephemeral -

perishable◦ Balancing demand and supply may be vital

marketing strategy

Marketing Implications - 2Marketing Implications - 2Customers may be involved in production process

◦ Customer involvement includes self-service and cooperation with service personnel

◦ Think of customers in these settings as “partial employees”◦ Customer behavior and competence can help or hinder

productivity, so marketers need to educate/train customers◦ Design service facilities, equipment, and systems with

customers in mind: user-friendly, convenient locations/schedules

Intangible elements dominate value creation◦ Understand value added by labor and expertise of personnel

◦ Effective HR management is critical to achieve service quality

Value Added by Tangible Value Added by Tangible vs.vs. Intangible Elements in Goods Intangible Elements in Goods and Servicesand Services

Fast food restaurantPlumbing repair

Office cleaningHealth club

Airline flightLife Insurance

Internet banking

Salt

Soft drinksCD Player

Golf clubs

New car

Tailored clothing

Lo Hi

Hi

Ta n

gibl

e E

lem

ents

Intangible Elements

Marketing Implications - 3Marketing Implications - 3Other people are often part of the service product

◦ Achieve competitive edge through perceived quality of employees

◦ Recognize that appearance and behavior of other customers can influence service experience positively or negatively

◦ Avoid inappropriate mix of customer segments at same time

◦ Manage customer behavior (the customer is not always right!)

Greater variability in operational inputs and outputs◦ Service execution differs among employees◦ Between same employees and different customers◦ Between one time of the day to another◦ The attitude, transaction speed, and quality of

performance vary greatly.

Marketing Implications - 4Marketing Implications - 4Often difficult for customers to evaluate services

◦ Educate customers to help them make good choices, avoid risk

◦ Tell customers what to expect, what to look for◦ Create trusted brand with reputation for considerate,

ethical behavior◦ Encourage positive word-of-mouth from satisfied

customersTime factor assumes great importance

◦ Offer convenience of extended service hours up to 24/7◦ Understand customers’ time constraints and priorities ◦ Minimize waiting time◦ Look for ways to compete on speed

Distribution channels take different forms◦ Tangible activities must be delivered through physical

channels◦ Use electronic channels to deliver intangible,

information-based elements instantly and expand geographic reach

Four Categories of Services Four Categories of Services Employing Different Underlying Employing Different Underlying ProcessesProcesses

People Processing Possession Processing

Mental Stimulus Processing

Information Processing(directed at intangible assets)

e.g., airlines, hospitals,haircutting, restaurants hotels,

fitness centers

e.g., freight, repair, cleaning, retailing, recycling

e.g., broadcasting, consulting,education, psychotherapy

e.g., accounting, banking, insurance, legal, research

TANGIBLE ACTS

INTANGIBLEACTS

DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS

What is the Nature of the Service Act?

Who or What is the Direct Recipient of the Service?

The Services

Marketing Mix

Elements of The Services Elements of The Services Marketing Mix:Marketing Mix: “7Ps” “7Ps” vs.vs. the Traditional “4Ps” the Traditional “4Ps”

Rethinking the original 4PsProduct elementsPlace and timePromotion and educationPrice and other user outlays

Adding Three New Elements

Physical environmentProcessPeople

Expanded Mix for Services --Expanded Mix for Services --The 7 PsThe 7 Ps Product Price Place Promotion People

◦ All human actors who play a part in service delivery and thus influence the buyer’s perceptions: namely, the firm’s personnel, the customer, and other customers in the service environment.

Physical Evidence◦ The environment in which the service is delivered and where

the firm and customer interact, and any tangible components that facilitate performance or communication of the service.

Process◦ The actual procedures, mechanisms, and flow of activities by

which the service is delivered—the service delivery and operating systems.

Expanded Marketing Mix for Expanded Marketing Mix for ServicesServices

The 7Ps: (1)Product The 7Ps: (1)Product ElementsElements

All Aspects of Service Performance that Create Value

Core product features—both tangible and intangible elements

Bundle of supplementary service elements

Performance levels relative to competitionBenefits delivered to customers

(customers don’t buy a hotel room, they buy a good night’s sleep)

Guarantees

The 7Ps:(2) Place and The 7Ps:(2) Place and TimeTime

Delivery Decisions: Where, When, and How

Geographic locations served

Service schedules

Physical channels

Electronic channels

Customer convenience

Channel partners/intermediaries

The 7Ps:(3) PromotionThe 7Ps:(3) PromotionInforming, Educating, Persuading, and Reminding

CustomersMarketing communication tools

◦ media elements (print, broadcast, outdoor, retail, Internet, etc.)

◦ personal selling, customer service◦ sales promotion◦ publicity/PR

Imagery and recognition◦ branding◦ corporate design

Content◦ information, advice◦ persuasive messages◦ customer education/training

The 7Ps: (4) PriceThe 7Ps: (4) Price

Marketers Must Recognize that Customer Outlays Involve More than the Price Paid to Seller

Traditional Pricing Tasks

Selling price, discounts, premiums

Margins for intermediaries (if any) Credit terms

Identify and Minimize Other Costs Incurred by Users

Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, baby sitting,etc.)

Time expenditures, especially waiting Unwanted mental and physical effort

The 7Ps:(5) Physical The 7Ps:(5) Physical EnvironmentEnvironment

Create and maintaining physical appearances◦buildings/landscaping

◦interior design/furnishings

◦vehicles/equipment

◦staff grooming/clothing

◦sounds and smells

◦other tangibles

7Ps:(6) Process7Ps:(6) Process

Method and Sequence in Service Creation and Delivery

Design of activity flows

Number and sequence of actions for customers

Nature of customer involvement

Role of contact personnel

Role of technology, degree of automation

The 7Ps: (7) PeopleThe 7Ps: (7) PeopleManaging the Human Side of the Enterprise The right customer-contact employees performing

tasks well◦ job design◦ recruiting/selection◦ training◦ motivation◦ evaluation/rewards◦ empowerment/teamwork

The right customers for the firm’s mission◦ fit well with product/processes/corporate goals◦ appreciate benefits and value offered◦ possess (or can be educated to have) needed skills (co-

production)

Managing the 7Ps Requires Collaboration Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR between Marketing, Operations, and HR FunctionsFunctions

Customers

Operations Management

Marketing Management

Human Resources Management

Challenges for ServicesChallenges for ServicesDefining and improving qualityDesigning and testing new servicesCommunicating and maintaining a

consistent imageAccommodating fluctuating demandMotivating and sustaining employee

commitmentCoordinating marketing, operations,

and human resource effortsSetting pricesEnsuring the delivery of consistent

quality

Traditional Marketing MixTraditional Marketing MixAll elements within the control of the firm that communicate the firm’s capabilities and image to customers or that influence customer satisfaction with the firm’s product and services:◦ Product◦ Price◦ Place◦ Promotion

Ways to Use the 7 PsWays 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

services marketing mix for a service communicate its benefits and quality?

◦ What changes/ improvements are needed?