1. Introduction to Services Management Ms. Kiran Sharma

2. How Important is the Service 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

3. Examples 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

4. Services dominate the Economy in most nations – 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

5. Service Sector – Indian Economy Ranks 15 th in services Provides 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 …….

6. Services Services – “acts, deeds, performances, or efforts” Goods – “articles, devices, materials, objects, or things”

7. Defining Services Are 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.

8. 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 different Service equals profits But “Service stinks”

9. Major 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)

10. Some Impacts of Technological Change 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 services The dark side of technology and service

11. Marketing Relevant Differences Between Goods and Services

12. Characteristics of Services Compared to Goods Intangibility Perishability Simultaneous Production and Consumption Heterogeneity

13. Implications of Intangibility Services cannot be inventoried Services cannot be easily patented Services cannot be readily displayed or communicated Pricing is difficult

14. Implications of Heterogeneity Service 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

15. Implications of Simultaneous Production and Consumption Customers participate in and affect the transaction Customers affect each other Employees affect the service outcome Decentralization may be essential Mass production is difficult

16. Implications of Perishability It is difficult to synchronize supply and demand with services Services cannot be returned or resold

17. Distinguishing Characteristics of Services Customers do not obtain ownership of services Service products cannot be inventoried Intangible elements dominate value creation Greater involvement of customers in production process Other people may form part of product experience Greater variability in operational inputs and outputs Many services are difficult for customers to evaluate Time factor is more important--speed may be key Delivery systems include electronic and physical channels

18. Marketing Implications - 1 No 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

19. Marketing Implications - 2 Customers 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

20. Value Added by Tangible vs. Intangible Elements in Goods and Services Fast food restaurant Plumbing repair Office cleaning Health club Airline flight Life Insurance Internet banking Salt Soft drinks CD Player Golf clubs New car Tailored clothing Lo Hi Tangible Elements Intangible Elements

21. Marketing Implications - 3 Other 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.

22. Marketing Implications - 4 Often 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 customers Time 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

23. Four Categories of Services Employing Different Underlying Processes 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 INTANGIBLE ACTS DIRECTED AT PEOPLEDIRECTED AT POSSESSIONS What is the Nature of the Service Act? Who or What is the Direct Recipient of the Service?

24. The Services Marketing Mix

25. Elements of The Services Marketing Mix: “7Ps” vs. the Traditional “4Ps” Rethinking the original 4Ps Product elements Place and time Promotion and education Price and other user outlays Adding Three New Elements Physical environment Process People

26. Expanded Mix for Services -- The 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.

27. Expanded Marketing Mix for Services

28. The 7Ps: (1)Product Elements 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 competition Benefits delivered to customers (customers don’t buy a hotel room, they buy a good night’s sleep) Guarantees

29. The 7Ps:(2) Place and Time Delivery Decisions: Where, When, and How Geographic locations served Service schedules Physical channels Electronic channels Customer convenience Channel partners/intermediaries

30. The 7Ps:(3) Promotion Informing, Educating, Persuading, and Reminding Customers Marketing 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

31. The 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

32. The 7Ps:(5) Physical Environment Create and maintaining physical appearances ◦ buildings/landscaping ◦ interior design/furnishings ◦ vehicles/equipment ◦ staff grooming/clothing ◦ sounds and smells ◦ other tangibles

33. 7Ps:(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

34. The 7Ps: (7) People Managing 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)

35. Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions Customers Operations Management Marketing Management Human Resources Management

36. Challenges for Services Defining and improving quality Designing and testing new services Communicating and maintaining a consistent image Accommodating fluctuating demand Motivating and sustaining employee commitment Coordinating marketing, operations, and human resource efforts Setting prices Ensuring the delivery of consistent quality

37. Traditional Marketing Mix All 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

38. Ways 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?