Prelude to the 7 ‘P’s

1. SERVICES MARKETING Text and Cases Prelude to the 7 ‘P’s CHAPTER 1 by RAJENDRA NARGUNDKAR

2. Importance of Services • Many developed countries have 70 percent or higher GDP coming from services • Even in India, around 50 percent of our GDP now comes from the service sector • This makes it important to understand services marketing

3. Major differences between goods and services • Higher Intangibility • Lack of Ability to Store Them for Future Sale • Greater Interaction between the Customer and the Service Factory • Greater Variability in Service Delivery • Greater Variability Among Service Customers’ Expectations

4. Some Examples of Service Businesses • An airline • A courier service • A hotel • A restaurant • A beauty saloon • A theme park • Marketing research • Advertising • Consultancy • Education (schools, colleges, tutorials) • Legal services • Medical services (labs, hospitals, doctor’s consulting rooms)

5. Examples…contd. • Retailing • Maintenance and repair of equipment, goods, homes, offices, etc. • Information Technology services (software, IT Enabled Services) • R&D services • Product design or industrial design • Banking services • Investment advising • Accounting and tax services

6. The fastest growing services in India ? • According to a survey by the ASCON, in 2003, these 3 ranked highest- 1. Cellular phone service, with 115 percent growth, 2. Housing finance, with 35 percent growth, and 3. IT services, with 20 percent growth

7. The ITES Industry • GE Caps, Citigroup, Daksh and Wipro Spectramind are some of the top players in the ITES (call centres, back office operations) industry in India. • Indian players’ biggest competition is not from other Indian contact centres but from the US companies setting up captive units.

8. The Nature of Services • Government Services • Private Services • Pure Services • Product Support/Maintenance/After Sales services

9. The Service Experience • It is the sum of all encounters, feelings about a service during purchase, immediately after and sometimes long after buying/using a service.

10. Contd….the service experience For example, many things happen when a customer undertakes a train journey. The reservation process may precede the actual journey in many cases. But the journey itself is a multifaceted experience. Transport to the railway station, the appearance of the station, the ease of finding your seat, the co-passengers’ behaviour and appearance, the availability of food, the on-time departure and arrival of the train, and many other features make up the total experience of a railway journey for the consumer. Some more experiences could be related to carrying and storing luggage or finding a porter to help carry it. For these reasons, it is appropriate to think of a service as an experience comprising many tangibles, intangibles, processes and encounters.

11. Some other popular ways of looking at services …. • As “moments of truth” • In terms of the Servuction model • As a “Service Theatre” • As the playing out of a Role as per a Script.

12. Moments of Truth Every encounter a customer has with the service provider in any form- personal, on the phone etc. is a moment of truth, the phrase popularised by Jan Carlzon, the ex-CEO of Scandinavian Airlines

13. The Servuction Model This states that there are two components- the Visible and the Invisible, on the service provider’s end, comprising both people and inanimate environment. The customer interacts with the visible part of this setup, and with other customers present there at the same time. The inanimate environment is similar to the tangible elements mentioned earlier. Since a large part of services are intangible, there may be a tendency to draw conclusions about service quality based on a look at the tangibles.

14. The Service Theatre This compares the experience of service planning, design and delivery to that of a theatrical performance. Elements that the authors (Stephen Grove and Raymond Fisk) find similar in the two activities or experiences are actors (visible service providers in contact with customers), teamwork of frontstage and backstage people in the success of a ‘performance’ (service task), and impression management including prior communication about the service, managing expectations of the customer, and creating an impact with a sincere and effective performance.

15. Playing Out of a Role as per a Script Services can be treated as a script to be played out by the service provider and the customer. If these roles are played according to the script, it creates a satisfied customer and service provider. For example, in a classroom setting, it is understood that a teacher is in charge, and the rules are laid out by him. But if a student transgresses his role and misbehaves, the service experience goes bad for both the student and teacher. The same could happen in an airline, where a drunken passenger misbehaves with a co-passenger or an employee, leading to a behaviour which is not as per his role or the script.

16. Classifying Services Some ways of classifying services- • Degree of tangibility of the service • Whether the service is directed at the customer or his possessions • The time and place of service delivery • Level of customisation versus standardisation • Formal or Informal relationship with Customers • Extent to which demand and supply fluctuate • Interaction with people or inanimate objects/environment

17. STP of Services Marketing • At the strategic level, you need to define your Segments, Target Markets, and Positioning. These are the STP of your marketing Strategy • Implementation is through the 7 Ps of Services Marketing, which we will tackle in detail later

18. Segmentation Some Segmentation Variables • Customer Type: corporate customers / Individuals • Age: Kids/ Teenagers/ Young Adults/ Middle aged/ Old • Sex: male/female • Rural/Urban • Income Level: Rupees per month (less than 5000, 5001-10000, 10001-20000, more than 20000, etc.) • Preferences: Indoor activities, Outdoor activities • Personality Types: Introvert, Extrovert or other classifications • Ethnic background/state/region: Konkani, Bengali, South Indian, Marwari, etc. • Profession: Salaried, Businessperson, Artist, Lawyer, Doctor etc. • Attitude towards Risk: Risk taker, risk averse, etc.

19. Does Size Matter? HDFC targets small cities • HDFC once had 70 percent of its business coming out of the metros. Now, it is down to 50 percent. And it may go down further in the days to come. This is because the housing loan provider has targetted smaller cities and towns for future growth. Though the average size of the housing loan (HDFC’s service product) is smaller there, there is a lot of untapped market. • Some towns being targetted for new offices are Nellore, Tuticorin, Pondicherry and Quilon. Currently, HDFC has 22 offices and 150 service centres across India. • (based on an article in The Business Line, Sept. 5, 2003)

20. Segmenting Institutional Customers Some segmentation variables • Volume of purchase (big buyer versus small buyer based on order size in rupees for a given period) • Amount of paperwork involved (for example, government orders involve a lot of paperwork) • Decision-making type(centralised versus decentralised, one person versus committees) • Price sensitive versus Quality sensitive • Technically aware versus unaware (for example, some companies have a large maintenance staff on their payroll, who are knowledgeable about the service you provide) • Final user versus intermediate buyer (example, contractors who subcontract)

21. New Segments in the Indian I.T. Market ? • According to IDC India, I. T. vendors of Enterprise (ERP and related) products have refocussed their sights on Small and Medium Businesses (SMBs), a segment they had earlier neglected as being too small. While the individual sizes are still small in these firms (defined as a company with 10-499 employees), the SMBs when taken together constitute a large market segment. There are approximately two lakh such companies in India, with an estimated spending of about Rs. 9,800 crores, constituting around 37 percent of the total I.T. spending in India. • Thus, a formerly unattractive segment may become attractive, once the larger segment gets saturated or overpopulated with competitors, or both. - from a news report in Business Line, July 26, 2003

22. Segmenting Customers in Travel Industry • Exercise • Can you segment consumers in the following industries? 1. Air 2. Bus 3. Train

23. Targetting Niche Markets: RelQ Shows the Way RelQ Software has set up a software verfication and validation centre for Intel in Bangalore. It has satellite testing centres in the US, Europe and in the Asia Pacific region. It is a niche business, and there is a perception that it is a low end job, though it is a critical component of the software development life cycle. Software verification and validation is a service provided to software development companies, like a quality certification programme for manufacturing companies. RelQ has chosen this as a niche business segment for itself. From Economic Times, 13 August 2002, p. 11

24. Positioning for the Selected Segments Example of Banks’ Image among Customers - Public Sector -“slow”, “bureaucratic”, “technologically backward”, but still, “safe”, - New private sector (like ICICI Bank, UTI Bank, HDFC Bank)- “aggressive, technologically advanced, and customer-friendly”

25. Different Ways of Positioning a Service • Positioning by features • Positioning by comparison • Positioning by benefit to consumer • Positioning as an expert • Positioning through guarantees • Positioning as a leader • Positioning through smart tag lines • Positioning through Emotions

26. Building the Brand - Nationally and Globally • Positioning is the articulation of a brand-building strategy for a service. It would be ultimately tested when the service brand is built up through a combination of marketing and branding initiatives • The process of building a new service brand can take a few years, particularly across a large geographical area.

27. BIG Brands - How Does India Fare? • Not very well, except in I.T. consulting • Even domestic service brands are not very big, and still in their infancy by global standards • In the US, the biggest company is a service company, Wal-Mart • We have a few big domestic brands like NIIT, Food World

28. The Role of Marketing Research • Research is critical to all the stages of services- -Introduction -Growth, Maturity and -Decline Though a lot of focus is on customer satisfaction research when talking about services, it is actually every kind of research that is needed, depending on the stage of the service life cycle.

29. Pre-Introduction Stage • Service design is the major issue, apart from viability of the proposed service • Special techniques like Conjoint Analysis are especially suitable for concept/design testing • Focus Groups and other qualitative techniques may also be useful

30. Post-Launch Research Some possible research areas are - • Service attributes which the customer is happy about, and those which are creating dissatisfaction. • Improvements in Service Delivery, Waiting Areas, Tangibles or Attitudes of Service Deliverers etc.

31. Credit Cards in India: Defining Competition Who are the biggest competition for a credit card in India ? • No, not the competing cards.. • It’s CASH, and Cheques, the substitute payment options, according to Mr. Ramachandran of Citibank credit cards

32. Some startling facts... • The percentage of card spends to overall PCE (personal consumption expenditure) is less than one per cent. • As of date (2003), there are only around 1.1 lakh card-accepting merchants in the country.

33. Churn Prevention • Churn is basically a customer defecting away from a service provider • Dissatisfaction with service is one reason for churn, but other reasons may be better offers from competitors, boredom, or low switching costs for consumers

34. CRM and data mining Service companies are the major users of CRM and data mining. For example, Foodworld, a retailer, mines consumer data about their basket of purchases, frequency and quantity of purchases, and other insights into their shopping patterns to design special promotions and to stock more or less of certain goods.

35. Contd…data mining • Systematically analysed, these types of data, usually picked up from transactions at the store, can provide numerous consumer insights. But the amount of data are huge, so it is not always possible to undertake the data storage and analysis in-house. • But service providers such as retailers, airlines, telephone companies and banks are increasingly trying to do more with data that they already have, and trying to analyse it for useful patterns. Sometimes they outsource the data storage (warehousing) and analysis (mining) job.

36. CRM…the Downside • Sometimes, call centres result in worse service for the customer, who is not provided any alternative other than calling a call centre, so he is actually unable to contact any company employee at all. • Another criticism has been that these initiatives are extremely expensive to install and maintain. • As usual with any initiative, there are pros and cons of having a CRM programme, and it is up to each company to decide on the suitability, after a thorough cost-benefit analysis.

37. Behaviour of Service Consumers • Intangibility makes consumers very wary of a new service provider. He may seek reassurance from many sources. This may include word of mouth - this is essentially a risk reduction technique. • Anxiety levels of service consumers is also high because services exhibit high variability in many cases.

38. Contd…consumer behaviour in services • There are also elements of anxiety in the customer if he wants to be seen by others as receiving “good service”, to show others that he is important. You may recall friends who behave very demandingly even if the service happens to be good, just to “show off”. This caters to their own need for “status” or “recognition”, similar to the status or ego need being fulfilled when they buy or use an expensive product. • Thus, it is much more difficult to predict how a service consumer will actually react to various facets of your service.

39. Search, Experience and Credence Attributes • Services are high on Experience and Credence attributes, while goods are high on Search attributes. • Attributes that can be evaluated before purchase are called search attributes.

40. Experience, Credence... In services, usually the experience is needed before you can evaluate them. Sometimes, you cannot be sure even after the experience. For example, after servicing your car, you may still feel (justifiably or otherwise) that the mechanic or service company has ripped you off.

41. Fewer Options in the Consideration Set • Consumers of services may consider fewer brands of service when contemplating a purchase. This is because unlike retail stores, where it is convenient to look at multiple brands of goods at one place, extra effort is needed to shop around for services. • If you are looking for insurance, you would have to go to four or five insurance companies and interact with them to get a quotation. • Many consumers may be limited by the lack of time or inertia, and may settle for a “satisficing” solution, which is any solution that meets basic requirements without too much of a hassle.

42. Contd…fewer brands considered • The impact of this on a service brand is that it is critical to be in a consumer’s consideration set. • This can be done through convenient location, timing, or through effective communication strategies like advertising or direct mail. • This may explain why a lot of service companies keep advertising or doing promotions all the time.

43. Product Support Services • Customers have three concerns- • Reliability and failure frequency • Downtime duration • Out-of-pocket costs of maintenance and repair • Life-cycle cost The service provider has to effectively plan to tackle each of these concerns

44. END OF THE CHAPTER