Professor Vipin 2014
Unit 4
Introduction to Service Management
Meaning of Service Management
Service management is a system integral of supply chain management that connects actual company
sales and the customer. The goal of service management is to maximize service supply chains as they
are typically more complex that the supply chain of finished goods. The purposes of service
management are to reduce high costs by integrating products and services and keep inventory levels
smaller.
Characteristics of Service Management
1. Intangibility: Services are activities performed by the provider, unlike physical products they
cannot be seen, tasted, felt, heard or smelt before they are consumed. Since, services are
not tangibles, they do not have features that appeal to the customer’s senses, their
evaluation, unlike goods, is not possible before actual purchase and consumption. The
marketer of service cannot rely on product-based clues that the buyer generally employs in
alternative evaluation prior to purchase. So, as a result of this, the services are not known to
the customer before they take them. The service provider has to follow certain things to
improve the confidence of the client:
a) The provider can try to increase the tangibility of services. For example, by
displaying a plastic or a clay model showing patients an expected state after a
plastic surgery.
b) The provider can emphasize on the benefits of the service rather than just
describing the features.
c) Not all the service product has similar intangibility. Some services are highly
intangible, while the others are low i.e. the goods (or the tangible component) in
the service product may vary from low to high.
d) For example: Teaching, Consulting, Legal advices are services which have almost
nil tangible components; While restaurants, fast food centers, hotels and
hospitals offer services in which their services are combined with product
(tangible objective) , such as food in restaurants, or medicines in hospitals etc.
2. Inseparability: Services are typically produced and consumed simultaneously. Incase of
physical goods, they are manufactured into products, distributed through multiple resellers,
and consumed later. But, incase of services, it cannot be separated from the service
provider. Thus, the service provider would become a part of a service.
For example: Taxi operator drives taxi, and the passenger uses it. The presence of taxi driver
is essential to provide the service. The services cannot be produced now for consumption at
a later stage / time. This produces a new dimension to service marketing. The physical
presence of customer is essential in services. For example: to use the services of an airline,
hotel, doctor, etc a customer must be physically present.
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Inseparability of production and consumption increases the importance of the quality in
services. Therefore, service marketers not only need to develop task-related, technical
competence of service personnel , but also , require a great input of skilled personnel to
improve their marketing and inter personal skills.
3. Perish ability: Services are deeds, performance or act whose consumption take place
simultaneously; they tend to perish me the absence of consumption. Hence, services cannot
be stored. The services go waste if they are not consumed simultaneously i.e. value of
service exists at the point when it is required.
The perishable character of services adds to the service marketer’s problems. The
inability of service sector to regulate supply with the changes in demand; poses many quality
management problems. Hence, service quality level deteriorates during peak hours in
restaurants, banks, transportation etc. This is a challenge for a service marketer. Therefore,
a marketer should effectively utilize the capacity without deteriorating the quality to meet
the demand.
4. Variability: Services are highly variable, as they depend on the service provider, and where
and when they are provided. Service marketers face a problem in standardizing their service,
as it varies with experienced hand, customer, time and firm. Service buyers are aware of this
variability. So, the service firms should make an effort to deliver high and consistent quality
in their service; and this is attained by selecting good and qualified personnel for rendering
the service.
Types of Services
Christopher Lovelock gives the classification of services based on the customer involvement in
production process:
1. People processing: tangible actions to people’s bodies, such as airline transportation,
haircutting and surgery. Customers need to be physically present throughout service
delivery in order to receive the desired benefits of such services. It is important to figure the
process and output to identify the benefits created. Also some non- financial costs are to be
identified – such as time, mental and physical effort and even tear and pain – that customers
incur in obtaining these benefits.
2. Possession Processing: Tangible actions to goods and other physical possessions, such as air
freight, lawn mowing, and janitorial services. In these instances, the object requiring
processing must be present, but the customer need not be.
3. Mental Stimulus Processing: intangible actions directed at people’s mind, such as
broadcasting and education. In this instance the customers must be present mentally but
can be located either in specific service facility or in a remote location connected by
broadcast signals or telecommunication linkages. Services that interact with people’s mind
have the power to shape attitudes and influence behavior. So when the customer is in a
position of dependency or there is a potential for manipulation, strong ethical standards and
careful oversight is required. This type of service can easily be converted to digital bits or
analog signals, recorded for prosperity, and transformed into a manufactured product, such
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as a compact disc, videotape, or audio cassette, which may then be packaged and marketed
much like any other physical good
4. Information Processing: Intangible actions directed at intangible assets, such as insurance,
investment banking, and Consulting. For these services, no direct involvement with the
customer may be needed, once the request for the service is initiated. Services highly
dependent on effective collection and processing of information include financial services,
accounting, law, marketing research, management consulting, medical diagnosis and a
variety of other professional services. Tradition and a personal desire to meet the supplier
than often determine the extent of customer involvement in such services more by the
needs of operation process.
Marketing Mix in Service Industry
The product marketing mix consists of the 4 P’s which are Product, Pricing, Promotions and
Placement. These are discussed in my article on product marketing mix – the 4 P’s.
The extended service marketing mix places 3 further P’s which include People, Process and Physical
evidence. All of these factors are necessary for optimum service delivery. Let us discuss the same in
further detail.
1. Product – The product in service marketing mix is intangible in nature. Like physical products
such as a soap or a detergent, service products cannot be measured. Tourism industry or the
education industry can be an excellent example. At the same time service products are
heterogenous, perishable and cannot be owned. The service product thus has to be
designed with care. Generally service blue printing is done to define the service product. For
example – a restaurant blue print will be prepared before establishing a restaurant business.
This service blue print defines exactly how the product (in this case the restaurant) is going
to be.
2. Place - Place in case of services determine where is the service product going to be located.
The best place to open up a petrol pump is on the highway or in the city. A place where
there is minimum traffic is a wrong location to start a petrol pump. Similarly a software
company will be better placed in a business hub with a lot of companies nearby rather than
being placed in a town or rural area.
3. Promotion – Promotions have become a critical factor in the service marketing mix. Services
are easy to be duplicated and hence it is generally the brand which sets a service apart from
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its counterpart. You will find a lot of banks and telecom companies promoting them
rigorously. Why is that? It is because competition in this service sector is generally high and
promotions are necessary to survive. Thus banks, IT companies, and dotcoms place
themselves above the rest by advertising or promotions.
4. Pricing – Pricing in case of services is rather more difficult than in case of products. If you
were a restaurant owner, you can price people only for the food you are serving. But then
who will pay for the nice ambience you have built up for your customers? Who will pay for
the band you have for music? Thus these elements have to be taken into consideration while
costing. Generally service pricing involves taking into consideration labor, material cost and
overhead costs. By adding a profit mark up you get your final service pricing.
Here on we start towards the extended service marketing mix.
5. People – People is one of the elements of service marketing mix. People define a service. If
you have an IT company, your software engineers define you. If you have a restaurant, your
chef and service staff defines you. If you are into banking, employees in your branch and
their behavior towards customers defines you. In case of service marketing, people can
make or break an organization. Thus many companies nowadays are involved into specially
getting their staff trained in interpersonal skills and customer service with a focus towards
customer satisfaction. In fact many companies have to undergo accreditation to show that
their staff is better than the rest. Definitely a USP in case of services.
6. Process – Service process is the way in which a service is delivered to the end customer. Let’s
take the example of two very good companies – McDonalds and Fedex. Both the companies
thrive on their quick service and the reason they can do that is their confidence on their
processes. On top of it, the demand of these services is such that they have to deliver
optimally without a loss in quality. Thus the process of a service company in delivering its
product is of utmost importance. It is also a critical component in the service blueprint,
wherein before establishing the service, the company defines exactly what should be the
process of the service product reaching the end customer.
7. Physical Evidence – The last element in the service marketing mix is a very important
element. As said before, services are intangible in nature. However, to create a better
customer experience tangible elements are also delivered with the service. Take an example
of a restaurant which has only chairs and tables and good food, or a restaurant which has
ambient lighting, nice music along with good seating arrangement and this also serves good
food. Which one will you prefer? The one with the nice ambience. That’s physical evidence.
Several times, physical evidence is used as a differentiator in service marketing. Imagine a
private hospital and a government hospital. A private hospital will have plush offices and
well dressed staff. Same cannot be said for a government hospital. Thus physical evidence
acts as a differentiator.
This is the service marketing mix (7p) which is also known as the extended marketing mix.
Growth of Service Sector in India
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Service Sector of Indian Economy contributes to around 55 percent of India's GDP during 2006-07.
This sector plays a leading role in the economy of India, and contributes to around 68.6 percent of
the overall average growth in GDP between 2002-03 and 2006-07.
There has been a 9.4 percent growth in the Indian economy during 2006-07 as against a rise of 9
percent in the same during 2006-06. During this growth in Indian economy, the service sector
witnessed a rise of 11 percent in the year 2006-07 against the 9.8 percent growth in 2005-06. The
service sectors of Indian economy that have grown faster than the economy are as follows:
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Information Technology (the most leading service sectors in Indian economy)
IT-enabled services (ITeS)
Telecommunications
Financial Services
Community Services
Hotels and Restaurants
There has been a 13 percent hike in the service sectors of trade, hotels, transport and
communication in India's economy as compared to the 10.4 percent rise in the previous year. The
financial services that comprise of banks, real estate, insurance, and business services witnessed a
rise of 11.1 percent during 2006-07 against the 10.9 percent growth in the previous year. Service
sectors including community, social, and personal services experienced a growth of 7.8 percent
during 2006-07 as against 7.7 percent growth in the previous year.
The service sector of India has also witnessed a remarkable rise in the global market apart from the
Indian market. It has experienced a rise of 2.7 percent in 2006 from that of 2 percent in 2004. The
broad-based services in the trade sector have undergone a large-scale rise. A statistics concerning
the growth of India's service sectors are listed below:
a) The software services in Indian economy increased by 33 percent which registered a
revenue of USD 31.4 billion
b) Business services grew by 82.4 percent
c) Engineering services and products exports grew by 23 percent and earned a revenue of USD
4.9 billion
d) Services concerning personal, cultural, and recreational had a growth of 96 percent
e) Financial services had a rise of 88.5 percent
f) Travel, transport, and insurance grew by 23 percent
The software services in Indian economy along with the export of products is growing at a massive
pace and thereby witnessed an alarming rise of 35.5 percent and reached a lumpsum amount of USD
18 billion. The ITES and BPO sectors grew by 33.5 percent and earned revenue of USD 8.4 billion. The
service sector of Indian economy has been the most high-powered sector in India's economy. It has
also been focusing in various investments of late. As Indian economy is looking forward for more
liberalization, sectors like banking are on its way to loom large and occupy a more significant
position in India's economy.
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Designing the Service Process / Delivery
According to Philip Kotler, service marketing requires both external marketing and internal as well as
interactive marketing. The three types of marketing in service industries are shown in the figure. The
right side of the triangle shows the external marketing (setting promises). It is the normal activity of
the firm to develop price, promote and distribute the service offering to the customers. Anything
that is communicated to the customer before service delivery is seen as a part of external marketing.
The left side of the triangle shows the internal marketing (enabling the promise). The internal
marketing activities of the firm are to train and motivate its employees to work as a team in order to
deliver the service. It emphasis on the critical role that enables the employees to keep the promises
made to the customer.
The bottom part of the triangle describes the employee’s skill in handling customer contact. It is the
real time marketing of “moments of truth” where the employees directly interact with the customer
in order to fulfil the promise.
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All the three sides mentioned in the triangle are critical to successful services marketing. The service
triangle also has a number of fundamental strategic implications:
1. The key factor is customer focus and, not functions. Customer satisfaction should be the
function of the entire organisation.
2. The internal environment is reflected in the external culture. It is directly linked to how the
staff serves the customer.
3. One who delivers the service must not only have the skill and knowledge but also the
authority to serve the customer to his satisfaction.
4. The organizational values, in relation to the service culture need to be simple, clear and
shared by all
5. During interaction the customers infer the quality. Therefore, it becomes necessary to
develop good delivery associated activities.
Back office Services
A back office is a part of most corporations where tasks dedicated to running the company itself take
place. The term "back office" comes from the building layout of early companies where the front
office would contain the sales and other customer-facing staff and the back office would be those
manufacturing or developing the products or involved in administration but without being seen by
customers. Although the operations of a back office are seldom prominent, they are a major
contributor to a business.
Back offices may be located somewhere other than company headquarters. Many are in areas and
countries with cheaper rent and lower labor costs
In banking, the back office includes a heavyweight IT processing system that handles position
keeping, clearance, and settlement.
In investment firms, the back office includes the administrative functions that support the trading of
securities, including record keeping, trade confirmation, trade settlement, and regulatory
compliance.
In sales, the back office typically plays a key role internally, providing support to the sales force for
administrative duties such as legal, finance, marketing, order management, operations support, as
well as customer facing roles typically positioned to include functions that support customer order
fulfilment and duties involved with readying customer-support call centres.
Front Office Services
Front office is a business term that refers to a company's departments that come in contact with
clients, including the marketing, sales, and service departments.
In the hotel industry, the front office welcomes guests to the accommodation section: meeting and
greeting them, taking and organizing reservations, allocating check in and out of rooms, organizing
porter service, issuing keys and other security arrangements, passing on messages to customers and
settling the accounts.
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