INTRODUCTION TO SERVICE INDUSTRY
Characteristics
Intangibility
Services are „experiences‟ created for customers. They comprise action rather than
objects. Bateson (1977) first described services as intangibles because „Services are
performances rather than objects, they cannot be seen, felt, tasted or touched in same
manner in which goods can be touched.‟ He identified intangibility as the critical
difference between goods and services from which all the other differences emerge
Bateson further categorized intangibility into physical intangibility, which is „not palpable
or cannot be touched‟ and mental intangibility, which is difficult for the consumer to
grasp or measure even mentally. For example, it is not easy to judge how thoroughly a
car has been serviced immediately after service. He thus concluded that services are
doubly intangible.
The intangibility of services results in the following implications for marketers:
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Services cannot be stored.
Services cannot be patented legally, hence they can be easily copied by
competitors.
Services cannot be readily displayed or easily communicated leading to difficulty
in assessing its quality.
Decisions regarding advertising and promotions are difficult.
Pricing services 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.
Some of the possible solutions for service marketers to overcome intangibility issues
can be:
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Use tangible cues
Stimulate, manage, and promote word-of-mouth communication
Use personal sources of information more than non-personal sources
Use post-purchase communication
Strengthen internal and external marketing
Use relationship marketing
Create strong organizational image
Use cost accounting to help set prices.
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Inseparability
This stands for inseparability of production and consumption. Services are created (by
the provider) and consumed (by the client/user) simultaneously and cannot be stored
like goods. Hence a mobile phone (product), which is manufactured in Korea and
shipped to Sweden, is sold four months later, and is used for years. On the other hand,
the transportation services of an airplane are first sold, and then produced and
experienced or consumed simultaneously (Zeithaml et al.1985). This also implies that
the customers have to be present during service production. Consumers frequently
interact with each other and may influence each others experience. Thus a service must
be provided at the right time, in the right place, and in the right way. Service producers
themselves play an important role as part of the product itself, as well as an essential
ingredient in the service experience for consumers.
We can thus summari ze that „Inseparability involves the presence of the customer,
customer‟s role as co-producer, customer to employee and customer to customer
interaction‟ (lovelock and gummesson 2004). A case in point has been the emergence
of healthcare tourism in India. Efficient and skilled healthcare at affordable costs has
made India a favorite global health destination. As services are „inseparable‟ and aimed
at giving the customer an „experience of a lifetime‟, several leading medical care chains
are tying up with hospitality chains to provide a unique combination of health and
tourism.
The inseparability of services results in the following challenges for those marketing
services:
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Centralized mass production becomes difficult if not impossible.
Customer experience depends upon the action of employees and interaction
between employees (service providers) and customers.
Operations need to be decentralized so that the service can be delivered directly
to consumers at convenient locations.
Due to simultaneous production and consumption, the customer involvement is
high and this influence the outcome of the service transaction.
Involvement of other customers in the production process becomes an
imperative.
Some of the probable solutions to overcome inseparability problems of services can be:
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Having strong selection and training programmes for personnel wko would be
dealing with public/clients
Announcing strong incentives and motivations to attract and satisfy the customer
Marketing at multi-site locations
Innovating techniques of indirect interaction
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Achieving standardization to the maximum extent possible
Resorting to consumer management
Focusing on personal attention
Developing a distribution network with quality control mechanism.
Variability
Services face the difficulty of achieving uniform output, especially labour-intensive
services. Olsen and Wyckoff (1978) described the challenge of setting up standards
when the behavior and performance vary not only among service workers, but even
between the same employee‟s dealings with different customers, and on different days.
Variability or heterogeneity also results because no two customers are alike in their
demands.
Thus, quality and essence of service vary from producer to producer, customer to
customer, and from day to day (Zeithaml et al.1985), and is largely the result of human
interaction and all the vagaries that accompany it. The implications for marketing due to
variability in services are:
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Difficulty in achieving standardization
Difficulty in setting quality controls
Determination of quality possible only after performance of service
Difficulty in communicating to the clients what exactly they would get.
The strategies that can help in overcoming this aspect of services are:
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Stress upon standardization and performance
Focus on employee training programme, performance evaluation, and internal
marketing.
Consider licensing and other forms of credential requirements
Position variation as a strength of innovation
Industrialize service: Levitt (1972) suggested „Specific techniques to substitute
organized pre- planned system for individual service operations (for example,
travel agents could offer pre-packaged vacation tours to obviate the need for the
selling, tailoring, and haggling involved in customization). This strategy is the
opposite of customization.‟
Perishability
This implies that „services cannot be saved‟ (Zeithaml et al. 1985). Goods once
produced can be stored and then sold at a later date but service peter out. They
cannot be stored. An unutilized service capacity cannot be saved, stored for reuse
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later, resold, or even returned if the customer is unhappy(love lock and gummesson
2004). The marketing implication as a result of perishes ability of services are:
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Short-lived value of services
Services cannot be inventoried
There is a lot of time pressure in sales
Capacity of services is finite.
Marketing strategies that can be adopted to overcome the marketing implications
are:
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Demand forecasting and creative planning for capacity utilization to close
gaps between demand and supply
Formulate strategies to cope with fluctuating demand
Devise strong recovery strategies when things go wrong
Focus on competence and expertise
Continuous study of demand patterns and competitive parameters
Develop creative pricing options such as early bird or frequent flier specials.
Lovelock and gummesson (2004) have applied the four characteristics of services to
categorize services into four types based on whether the service offering is physical or
non-physical in nature and whether people themselves, owned objects, or information,
represent the central element that is processed to create the service. These four
categories are1. Physical action to the person of the customer (people processing) - example,
hair cut, beauty treatment, medical surgeries.
2. Physical action to an object belonging to the customer (possession
processing) - example, repair and maintenance of equipment, interior designing,
transportation of goods.
3. Non-physical actions directed at the customers mind (mental stimulus
processing) - example, advertising, theatre, lectures/talks.
4. Non-physical actions directed at data or intangible assets (information
processing) - example, information processing, consulting.
Classification of services
Service can be classified in several ways. Various authors have tried to classify services
on the basis of different features/ aspects such as the market segment, tangibility factor,
skill type, etc. they are enlisted as follows:
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Tangibility component
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Skill-type involved
Goals of the business
Regulatory dimension
Intensity of labour used
Consumer contact
Place and timing
Customization
Relationship with customers
Demand and supply.
Categorizing service processes
Various authors have classified services on the basis of the processes, which in turn are
differentiated on numerous factors. The various service classifications are discussed in
detail in this section.
Market segment: services can be classified on the basis of market segment they are
catering to. Thus we can have services catering to end-consumers, such as the hair
salon and beauty services, coaching classes, and car wash services or services
catering to organizational consumers such as management consulting, repair and
maintenance services for machines, and legal services (lovelock 1983, and Rampal and
Gupta 2002).
Degree of tangibility: according to lovelock and wright(1999) services can be
classified into tangible offerings, such as food services or dry cleaning, and intangible
services, such as teaching and medical services, Judd(1964) classified services as
rental goods services, such as hotel and lodging services, and car rental; owned-goods
services such as laundry, cleaning, repair of gadgets, etc. which involves repair or
improvement of goods owned by the customer; and non-goods services that cover
personal experiences such as legal services, educational services, and services (family
and counseling services, job training, etc.).
Skills of the services provider: services can be provided by
unskilled labour (Rampal and Gupta 2002). Thus services
professional, such as health/ medical services, engineering,
management, etc., and non-professional services such as
cleaning services, etc.
highly skilled labour or
can be classified as
accounting, research,
shoe shining, landry,
Goals of the service provider: At times, services are differentiated on the basis of the
goals they pursue-whether they are profit making or non-profit making. For example, an
organization can be a profit-oriented entity, such as airlines, hotels, or restaurants. Nonprofit organizations or services include state-owned post and telegraph services, public
libraries, etc. (kotler 1980). Degree of regulation: Services are also classified
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according to the extent of government regulation on them (Rathmill 1974). Services,
such as mass transportation systems, which include airlines, railways, and roadways,
are highly-regulated, while some face limited regulations. The hospitality sector faces
limited government regulation. There are some services that are not regulated at all; for
example, barber and beauty services, domestic help services, etc.
Degree of labour intensiveness: Services employees play a vital role in the delivery
of services and sometime are also a part of the service delivery (Varoglu and Eser
2006). However, services may vary according to the extent of the labour involved. Thus,
there can be equipment-based services on the one hand and people-based services on
the other (Thomas 1978). Equipment-based services, as the name suggests, could
include completed automated services such as ATMs and vending machines, or an
offering through a machine with little or unskilled human intervention, as in movie
theaters, dry cleaners, etc. They also include services that are operated by skilled
professionals, such as airlines, BPOs, etc. People -based services can again be
classified into unskilled (guards and cleaning services); skilled (appliance repair,
printing, catering, etc.); and professionals like engineering, management consulting,
data processing, medical services, etc.
Degree of customer contact: Chase (1978) classified organizations on the basis of
the contact time between the customers and the services staff. Thus organizations
could be high-contact or low-contact ones depending upon the time a customer spent
with the service provider. High contact service system, like in education and hospitality
industry; while low contact service is one in which the contact with service system
ranges from a few minutes to some hours. For example, appliance repair services,
postal services, etc.
Place and time: According to lovelock (1983), services can be classified on the basis
of the place and time of services-delivery. Thus, there can be service-site, customersite, and service-delivery services.
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Service-site service: the customer needs to visit the service location to avail the
service; for example, watching a movie in a theatre.
Customer-site service: the services are delivered to the customer, like home
delivery of food items.
Service delivery: service delivery involves the interaction between the customer
and the service provider through a physical channel such as e-mail, as in case of
online reservation of airline, railway tickets, etc
Customization: According to Silvestro et al. (1992), „a high degree of customization is
when the service process can be adapted to suit the needs of individual customers‟.
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Lovelock (1983) has also classified services as customized and standardized. A
standardized service is where the services to be provided is predetermined and
predesigned. A customer may be offered several options, all of which are
predetermined and the customer can make a choice.
Relationship with customers: Lovelock (1983) classified services according to the
nature of relationship with customers. According to him, the relationship can be formal,
informal, ongoing, or a membership-based one. A formal relationship is exemplified in
banks, where each transaction is noted; while an informal relationship is one in which
customers are anonymous and the transactions are short-lived, as in case of watching
television. An ongoing relationship is epitomized by services of a barber or in a
restaurant, where proactive measures need to be taken to enjoy continued patronage of
clients. A membership relationship is one in which patrons (clients) must apply to
become members and their performance is reviewed over time. Sometimes service
providers create special memberships or frequent user programmes to reward loyal
users. For example, airline companies offer frequent flyer programmes for regular
customers.
Demand and supply: Some services organizations can be classified according to the
demand for the service and the ability of the service organizations to match the demand
(Lovelock 1983). Thus the grouping can be categorized as steady, like colleges where
there is a „steady‟ demand for the services; or „fluctuating‟ as in the hospitality industry
where the demand is not constant over a period of time.
Facilities, equipment, and people: Equipment, facilities, and people form the
tangible elements of service delivery. It is important because customers use tangible
clues to assess the quality of a service provided. The more intangible a service is, the
greater is the need to make it tangible (Rafiq and Pervaiz 1995). For example, in a
college the classrooms, tables and chairs, the overhead projector, and the faculty from
a part of the tangible elements (Lovelock and Wright 1999).
Degree of discretion: Silvestro et al. (1992) classified services according to the
degree of discretion. A high degree of discretion is exercised when front office
personnel can use judgment in altering the service package or process without referring
to superiors, as in case of management consultancy. A low degree of discretion is
where changes to service provision can be made only with authorization from superiors,
like in services by news agents and confectioners.
Value addition: Silvestro et al. (1992) grouped services on the basis of value addition
done by the front-office or back-office staff. According to this parameter, service can be
classified into back-office and front-office services. „A back-office-oriented service is
(one) where proportion of front- office (customer contact) staff to total staff is small and
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a front-office-oriented service is (one) where proportion of front-office staff to total staff
is large,‟ for example, in management consultancy and in hospitality sector the focus is
on front-office orientation, whereas in transport service back-office orientation is
predominant.
Product and process: Silvestro et al. (1992) also classified services as productoriented, where emphasis is on what the customer buys, and process-oriented, where
the focus is on how the service is delivered to the customer. Thus, restaurants and
transport service are product-focused, whereas hotels are process focused.
Utility creation perspective: Hsieh and Chu (1992) classified the service business
from the utility creation perspective. According to them. The value of a service business
depends on its ability to create a utility. They identified time utility and space utility as
dimensions of the service product, and people or things as the service recipients. For
example, they classified hair styling and beauty salon as time utilities where recipients
could obtain better appearance in a short while. Similarly, a space utility for people is
created by a hotel to widen the area of lodgers‟ activities.
Customers’ role in service delivery
The changing business dynamics has re-defined the role of consumers in the service
process. Customers can increasingly participate in the service delivery. They can
actually control or contribute to their own satisfaction (Schneider and Bowen 1995).
Martin and Pranter (1989) have defined compatibility management as, „A process of
first attracting homogeneous consumers to the service environment; then, actively
managing both the physical environment and customer-to-customer encounters; for
example, health clubs, hospitals, public transportation‟. The level of participation may be
different across different service areas (Hubbert 1995). It could be low, moderate, or
high.
1. Low: Consumer presence required during service delivery; for example fast food
delivery or online payment.
2. Moderate: Consumer inputs required for service creation; for example, hair cut
or full-service restaurant.
3. High: customer co-creates the service product; for example, counseling,
consulting, gym, or insurance plan.
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Customer role in service processes
Customers play different roles in different service segments. Customer role is defined
as a set of behavior patterns learned through experience and communication,
performed by an individual in a certain social interaction, in order to attain maximum
effectiveness in goal accomplishme nt (Bateson 1989). There is still a lot of room for
research on the customer role in service processes. The customer behavior in services
in usually perceived as volatile and unpredictable. Chervonnya (2003) has identified 10
major customer roles in services and has tried to relate them to specific service
processes.
Depending on the specific requirements of the role, customers can be expected to
possess different types of skills. „The ten role which a customer can perform can be
identified with the help of existing academic studies and fit into the eight categories
listed below. The roles “inert” and “idle” can be coupled together with the first item and
“decision-maker” and “hunter” can be coupled together in the eighth item‟(Chervonnaya
2003). These eight categories are discussed as under.
Passive consumer: A customer could act as a passive consumer of service benefits;
for example. A passive patient or an „inert‟ patient. They have low motivation or it could
by virtue of their socio-economic or demographic background. It could also depend on
the category of service that is being accessed and by the demand=supply situation, in
India, for example, given the large number of patients who frequent out-patients even if
they would want information on line of treatment, do not get satisfactory answers. This
is on account of demand-supply mismatch, and long queues, which doctors have to
manage
Learning: A customer can be a source of producer learning. These are referred to as
„instructor customers‟. In an educational set up, the experience with various cohorts of
students is an immense source of learning.
Resource: customers often serve as resource by contributing information input. Such
customers are referred to as „ingredient customers‟. The decision of service employees
is linked to their ability to clarify the problem (Mill and Marulies 1980)
Co-producers: these are customers who have to participate in the service process;
for example, student talking up full-time courses, patients undergoing medical
treatment, consultancy, wherein the attitude and the nature of process impacts the
delivery process.
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Auditor customer: here, the customer evaluates service quality not only on
outcomes but also in the process of service delivery itself.
Competitor:
He/she is a self-service consumer who is competing with the
companies that supply the same service (Zethaml and Bitner 2000)
Marketing:
Here the customer recommends the services to others.
Decision- maker: The customer often engages in the decision-making process,
he/she decides whether to produce service on his/her own or which producer to choose.
Service as a process
A process involves the conversion of an input into an output. In services, two broad
categories-people and objects-are processed. The nature of service act can be tangible
or intangible. From an operational perspective, Lovelock and Wright (1999) categorized
service process into four board groupspeople processing (services directed at people on their person),
possession processing (services directed at goods and other physical
possession),
Mental stimulus processing (services directed at peoples minds), and
Information processing (services directed at intangible assets).
People processing: This involves noteworthy action directed towards people, in
particular, the bodies of persons, such as haircut, surgery, etc. Here customers must
enter the service factory/location where service providers (people/machines or both)
deliver the service benefits to them. Sometimes service providers, come to the
customers along with their tools to provide the desired benefits at locations of
customers‟ choice.
Management implications: If managers think about the process and output in
terms of people/or objects being processed, it helps them to identify the benefits
being created and the non-financial costs-time, fear, pain, and mental and
physical effort-that customers incur.
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Possession processing: This includes concrete actions to physical goods belonging
to customers. In this case, customers need not be present, but objects requiring
processing must be present. For example, lawn mowing, warehousing, laundry, etc.
many such activates are quasi-manufacturing operations, and do not always involves
simultaneous production and consumption.
Management implications: The manager should note that the output in each
instance should be a satisfactory solution to the customer‟s problem/need or
there must be some tangible enhancement/improvement of the item in question
The nature of services needs to be understood. Depending on the target
segment, the offering needs to be packaged appropriately.
Mental stimulus processing: This kind of service focuses on intangible actions
directed at the minds of people. It includes education, news, entertainment, sport,
theatre, etc. In such instants customers must be present mentally, but could be
physically located either in specific services facility, or in a remote place connected by
broadcast signals or telecommunication linkages. Thi9s is in sharp co ntrast to people
processing where people must be present physically, e.g. hair cut, or air travel. As these
kinds of services, i.e. advertising, consulting, etc. pertain to peoples minds and have the
power to influence attitudes, there is lot of scope for manipulation; hence, strong moral
standards and cautious oversight is required on the part of the service providers.
Management implication:
As core content of all services in this category is
information-based, which can easily be recorded and transformed to
manufactured product, this service can thus be „inventoried‟.
Information processing:
This describes indistinguishable action directed at the
customer‟s belongings or assets. In service sectors such as insurance and banking,
little direct contact is needed with the customer, once the request for service has been
set in motion. The extent of customer involvement is determined more by convention,
and a personal desire to meet the supplier face to face than by operational need.
Management implication: Information is the most intangible form of service
output but can be transformed into more enduring tangible forms such as reports,
books, tapes, diskettes, etc. Although professionals and clients prefer one -to-one
meetings to know more about each others need on trust. This relationship can
also be created and maintained of managing people-processing service.
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Importance of classification system
The purpose of the development of classification system for services can be
multidimensional. Hafer (1987) compiled the following reasons to classify
products/services and the advantages thereof:
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Classification helps to understand the needs of consumers and their motivation
for making purchases. This helps a marketer to stay abreast of changes in the
needs of the consumers.
It helps a marketer to understand pre-purchase and post-purchase the buyer
behavior. This provides insights into the consumers approach at evaluating
services. Their sources of information, and judgment of a products absolute and
relative performance.
Classification can help service providers formulate strategies for groups of
products/services. Such strategies save time and effort and can become the
foundation for the marketing mix of the firm.
Classification helps to identify whether products/services have complements in
other industries or business and identify strategies for possible adoption. It is a
benchmark to list the service types or organizations, which are felt to fit into the
groupings.
Classifying services acts as a checklist of service dimensions possessed by
service providers and helps to determine their strategic positioning. This
Further helps to determine the strengths and weaknesses of a particular service,
i.e., determine areas of excellence as well as areas that need to be worked upon,
abolished, or reduced.
It also helps to determine the competitor set. This also leads to the determination
of the competitor‟s strengths and weaknesses, which could enable a marketer to
identify strategic gaps that represent growth potential or high risk.
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