THAKUR COLLEGE OF SCIENCE AND COMMERCE

DEPARTMENT OF COMMERCE

FYBCOM SEMESTER-II

COMMERCE II- SERVICE SECTOR AND RETAIL MANAGEMENT

 Course Objectives:
 To familiarize the learners with basic concepts of Services.
 To make learners aware of current trends in Retail Sector.
 To explain the recent trends in services with reference to ITES sector, Banking and
Logistics.
 To explain the dynamics of E-Commerce

Modules at a Glance
Sr. Modules No. of
No. Lectures

1 Concepts of Service 15

2 Retailing 15

3 Recent Trends in Service Sector 15

E- Commerce
4 15

Total 60

Course/Learning Outcome:
• .Learners will be able to understand the conceptual learning’s of services with its
orientation in business.
• Learners will be able to apprehend the current trends in the retail industry.
• Learners will be able to gain knowledge and understand the applications of IT in
business
• Learners will be able to analyze current trends of E-Commerce which will enhance
their employability

1
Sr. Modules / Units
No.

1 Concepts of Service
• Introduction: Meaning, Characteristics, Scope and Classification of Services –
Importance of service sector in the Indian context
• Marketing Mix For Services: Consumer expectations, Services Mix, - Product, Place,
Price, Promotion, Process of Services delivery, Physical evidence and people Service
Strategies: Market research and Service development cycle,
• Managing demand and capacity, opportunities and challenges in service sector

2 Retailing
• Introduction: Concept of organized and unorganized retailing, Trends in retailing,
growth of organized retailing in India, Survival strategies for unorganized Retailers
• Retail Format: Store format, Non – Store format, Store Planning, design, and layout
• Retail Scenario: Retail Scenario in India and Global context – Prospects and
Challenges in India. Mall Management – Retail Franchising.
• FDI in Retailing, Careers in Retailing
• Case studies in Retail Management

3 Recent Trends in Service Sector

• ITES Sector: Concept and scope of BPO, KPO, LPO and ERP.
• Banking and Insurance Sector: ATM, Debit & Credit Cards, Internet Banking –
Opening of Insurance sector for private players, FDI and its impact on Banking and
Insurance Sector in India
• Logistics: Networking – Importance – Challenges

4 E- Commerce
• Introduction: Meaning, Features, Functions and Scope of E-Commerce-Importance
and Limitations of E-Commerce
• Types of E-Commerce: Basic ideas and Major activities of B2C, B2B, C2C.
• Infrastructure & E- Payment: Internet & its role in E-Commerce, Procedure of
registering Domain, Transaction through internet, Requirements of E- Payment
System

2
 UNIT 1. CONCEPTS OF SERVICE
Contents:
• Introduction: Meaning, Characteristics, Scope and Classification of Services –
Importance of service sector in the Indian context
• Marketing Mix For Services: Consumer expectations, Services Mix, - Product, Place,
Price, Promotion, Process of Services delivery, Physical evidence and people Service
Strategies: Market research and Service development cycle,
• Managing demand and capacity, opportunities and challenges in service sector

CONCEPT OF SERVICES

A service is an act or performance offered by one party to another. Although the

process may be tied to a physical product, the performance is essentially intangible
and does not normally result in ownership of anyof the factors of production.

Services are economic activities that create value and provide benefits for customers
at specific times andplaces as a result of bringing about a desired change in – or on
behalf of – the recipient of the service.

MEANING AND DEFINITION

More amusingly, services have been described as “something that
may be bought and sold, but which cannot be dropped on your
foot.”

The term services is not limited to personal services like auto servicing, beauty
parlors, Medical Services, legal service, Consultancy services etc. On the contrary, it
has other connotations according to managementgurus. Services have been defined
in several ways but there does not exist any universal definition. Some definitions
have been mentioned below:

‘Establishments’ primarily engaged to provide various services to individuals,

businesses and government establishments, other organizations, hotels and other
lodging places, establishments providing personal services as per individual
requirement, entertainment services. Educational institutions, membership
organizations and other miscellaneous services are included’ -Saser, Olson and

3
Wyekoffs

‘Services refer to social efforts which include government to fight five giant evils,
want, disease, ignorance,squalor and illness in the society.’-Sir William Bieveridge

‘Services can also be defined as an action(s) of organization(s) which maintain and

improve the well – beingand functioning of people”. Hasenfield

‘Services are activities, benefits or satisfactions which are offered for sale or are
provided in connection withthe sale of goods.’ -American Marketing Association

Philip Kotler and Bloom (1984) Philip Kotler and Bloom defined service as “any
activity or benefit that oneparty can offer to another that is essentially intangible and
does not result in the ownership of anything. Its production may or may not be tied
to a physical product.” This definition more or less follows the earlier ones. The
focus was given to the absence of ownership as a special feature of services, which
has significantbusiness implications.

FEATURES

For services marketing, the distinguishing features or characteristics of services are

important in the designof an appropriate marketing mix. The core characteristics are
defined below:

Intangibility:
Even though many services include tangible aspects such as an airline seat, a
classroom, a restaurant table and food, the service performance leading to a
customer’s experience is intangible. The benefits of buying aservice are from the
nature of the performance. In comparison to physical goods, services cannot be
stored or readily displayed. They are difficult to communicate, cannot be protected
through patents and prices are difficult to set. The intangible nature of services
often means that customers have difficulty in evaluating and comparing services.
As a result they may use price as a basis for assessing quality and they may place
greater emphasis on personal information sources. All this leads to consumers
having higher levels of perceived risk.

Inseparability:
Because services are processes, deeds or acts, customers are involved in the

4
production of a service. Also other consumers may be involved in the production
environment and centralized mass production is difficult, particularly if the service
is more complex or customized. For most services both the buyer and theseller need
to be at the same place at the same time for the service to occur. Because centralized
mass production is difficult, consumers often have to travel to the point of service
production. For example, it is hard to imagine a haircut without both customer and
hairdresser. For a bank clerk or hairdresser the manner in which the service is
produced is an essential element of the total promotion of the service.

Thus the behavior and attitude of other consumers may have an impact upon the
nature and experience of a service. For example, a loud or over – demanding
customer can deflect the service staff’s attention and impact the quality of service
delivery to other consumers. In this circumstance it may be difficult for the service
providers to control the quality and consistency of the service, unless the staff has
been trained to deal with such situations in a precise and effective manner.

Perishability:
Given the intangible nature of services, they cannot be inventoried, stored
warehoused or re – used. A lawyer cannot store parts of his or her knowledge for
others to use while the lawyer is in court or on holiday.The hairdresser cannot store
haircuts so that when a rush occurs on a Sunday morning all customers can have
their hair cut at once. Thus the availability of enough opportunities for service
delivery at relevant times is important for service managers.

Customer participation/ Simultaneity

Service production is not a one – sided activity. Customers are co – producers of
service. The production quality of the service greatly depends upon the ability, skill
and performance of the employees as well as the ability and performance of the
customer. In the service interaction, although the employees and the customers do
not play an equal part in production, the role of the customer cannot be
overemphasized.
Service firms should make the customers cannot be overemphasized. Service
firms should make the customers aware of the service package and the production
process through proper communication media.They should take necessary steps to
train customers, if necessary, to provide quality experience of the service.

5
Perfection from the organization’s side in service production cannot ensure
positive results unlessthe consumers are involved with the process.

Therefore, specific and special orientation to different groups of customers is

necessary.

No Ownership:
Service consumers will have experiences but not ownership. Since the services are
intangible and perishable, the question of ownership doesn’t arise. But this
characteristic will add to the problems of the service marketer. Convincing the
customer with tangible goods on which he will have ownership through transfer of
title is much easier than selling an experience where nothing remains after
consumption, exceptthe memory of it. Customer dissonance would be higher in the
case of services than of goods.

Variability or Non – Standardization or Heterogeneity.

The service industry suffers from a curious characteristic – Variability – that greatly
affects its offer. Theservice offer is never consistent in its quality and delivery. The
same service product is never delivered in the same way to the same customer across
two different time periods; a customer perceives the service transaction as having a
different quality when delivered from two different places – or even on two different
occasions at the same service outlet. By its very nature, it can never be an identical,
repeatable experience every time – only an approximation thereof. This is so unlike
goods, where the customer is convinced that the product that he buys is the same-
irrespective of where he has purchased it and whom he has purchased from. The
Dove bath soap that Mrs. Roy buys from her retailer in Mumbai would be the same
if she bought it in Chennai during her business trip or in Kodaikanal, Tamil Nadu
while holidaying. Thus, while there is homogeneity or some kind of standardization
in the product features of goods, a service offer lacks them.

Quality measurement: Service quality cannot be measured easily as it needs

separate tools for quality measurement. It is very difficult to measure the quality of
services. e.g. we may quantify about the food served by the restaurant but the
behavior of the hotel staff cannot be ignored while providing food to the customers.

Difficulty in Valuation: Valuation of goods is easy but Valuation of service is

6
difficult due to the flexibility in cost of service depends upon the service provider.
e.g. Valuation of a Singer is difficult

SCOPE OF SERVICES

Services have many sub-sectors, they are connected with each other. The
following are the variousareas/scope of services:

7
1. Transportation: It brings place utility. It helps in moving the goods
from one place to another Transportation includes roadways, railways,
waterways and airways. It helps in bridging the gap between service
provider and service user. Transportation helps to distribute the goods
and services. It promotes industrial, agricultural and economic
development.
2. Warehousing: Warehousing creates time utility. It is the storehouse or
godown. It helps in storingthe goods on a large scale. Warehousing also
protects the goods from the sun, wind and rain. It helps in providing
regular supply of goods to the consumer.
3. Banking: Banks provide loans and advances and also help in
depositing money. Banks provide financial services to the individual
as well as the corporate. It provides the ATM services, debit cards,
credit cards, net banking, and locker facility and so on. These services
are helpful in increasing the companies’ capital which in turn raise the
GDP of the country.

4. Insurance: Insurance service is taken by the individuals as well as by

the corporates. It helps inreducing risk in the personal as well as in the
corporate life. Insurance is taken for protection of various risks and
uncertainties like health, theft, natural calamity, fire and so on.
5. Education: Education is also a part of the service sector. It also adds
to the economy of India. There are many universities and courses,
nationally and internationally. Indian universities alsohave tie-ups with
other foreign institutions. It gives a very wide variety and exposure in
servicesector.

6. Information Technology (IT) Services: IT is the leading service in our

country now. It is important for the economic growth of India. Wipro,
Drade Financial, Tata Consultancy and Infosys are a few well-known IT
companies. IT generates lot of employment to India and also adds to the
economic growth of our country.
7. Tourism: This sector has given a tremendous income to our country. It is
the faster growing sector in India. There has been a steady rise in the total
number of foreign tourists arriving in India. It brings lot of revenue to our

8
 country. The Government of India has allowed100% FDI to this sector.
8. Health: Healthcare is one of the most important service sectors. There are
many private and public hospitals in the society. Not only hospitals but
there are many dispensaries, clinics and nursing homes to provide quality
medical service to the patients. Health services also add to the GDP of our
country.

9. Retailing: Retail sector is the growing sector in India. In India,

unorganized retailing is very common like kirana shops, pan beedi shops,
etc. India has a lot of scope in the organized sector likemalls, departmental
stores, multi-brand outlets, etc. The Government of India allowed 100%
FDI in single brands and 51% FDI in multiple brands. It helps to promote
the economic development ofIndia.

10. Hotel Industry: Hotel industry is also an important service sector. As

India has good holiday destinations, many tourists visit India. Internally
also, many people travel from one part of the country to the other. This
gives rise to the hotel industry, which also plays an important role in the
economic development of India. Taj Group of Hotels, J.W. Marriott and
ITC Hotels are a few reputed names in the hotel industries in India, with
the best amenities and arrangements.
11. Other Services: There are many other services that are important in the
day-to-day activities of thepeople. They also boost the economic and social
development of India. They are:

(a) Media

(b) Communication

(c) Repairs and maintenance

(d) Recreation services

(e) Defense services

(f) Courier services.

CLASSIFICATION OF SERVICES

The services can be classified or segregated into various types. Following are the

9
types of services.

1. Degree of Tangibility: Services are mostly intangible. Few services are

followed by tangible goods or products. For instance, if a banker tries to
explain the benefits of a new scheme, then he ispurely selling services. But
if a banker tries to explain the benefits of the new credit card and tries to
sell it, then in this case, services are followed with goods.
2. Degree of Relation with Customer: Services are classified on the basis of
customers’ demands. Itmay be formal or informal in nature. For instance,
if a teacher teaches in a class, then it is formal, but if a teacher gives
tuition to weak student at home, then it is informal in nature.

3. Degree of Customization: When the services are classified on the need of

the customers, it is said to be customized service. For instance, if a
readymade garment shop sells its products, it is less customized, but if it is
stitched by a tailor as per the customer’s needs, then it is giving a high
degree of customization.
4. Degree of Skill: Services are also divided on the basis of the employee’s
skill. If a service is divided on the basis of expertise, it may be
professional or non-professional. Professional servicesmay be like those
of doctors, teachers and bankers. Non-professional services may be like
the services provided by maids or domestic workers.

5. Degree of Labour-intensiveness: Services can also be divided on the

basis of labour- intensiveness. Few services require a lot of labourers,
like people working in a handicrafts or repairs unit. But few services are
low labour-intensive, like ATMs or automatic packing of goodsand other
mechanised services.
6. Degree of Business Goals: Services may be also depend upon the
business goals or objectives of abusiness objective is to earn profit, then
the services provided may be very costly and if the business objective is to
increase market share, the services may be slightly cheaper.
7. Depends on Place and Time: Services also depend on the place and time
of service delivery. The service may be given at the place and time of
service provider, like a beauty salon, or it may be given at the place and

10
 time of the services user, e.g., a beautician visiting home as per the
customer needs.
8. Degree of Government Rules: Some services are highly governed by
the government, like railways, defense, and so on. While some services
have very little or no government control, like private cars or private
schools and colleges.

9. Facilities or Equipment’s used: Services may also be classified on the

basis of facilities or equipment’s provided. For instance, a fitness Centre
may require more facilities and equipment’sthan a house painter.

Importance of the Service Sector in India

Service sector is the fastest growing sector in India. It has contributed to the
growing employment, increase in GDP and also raised the standard of living of the
people in India. It also helps to generate foreign exchange in the country. The
following are the details of growing importance of the service sector inIndia.

1. Share of Services in GDP: The contribution of service sector to GDP has

tremendously grown. After 1991, the concept of liberalization,
privatization and globalization increased. It gave rise to the service sector.
India has the fastest-growing service sector which is contributing over
50% to the country’s GDP. This sector has witnessed 10.8% growth in the
first half of 2021-22 and as per first advance estimates, the gross value
added (GVA) in the service sector is estimated to grow at 9.1% in FY23.
The growth of India’s service sector has drawn global attention because,
unlike other countries where economic growth has led to a shift from
agriculture to industries, India has registered a shift from agriculture to the
service sector. The growth of the service sector has led to the development
of various industries such as IT, healthcare, tourism, transport, and
finance, among all others. Gross Value Added (GVA) at current prices
for the services sector is estimated at 96.54 lakh crore INR in 2020-21 and
accounts for 53.89% of total India’s GVA of 179.15 lakh crore Indian
rupees. Thus, holds the highest share in the country’s Net National
Product.
2. Generates Employment: It plays a very important role in generating

11
 employment. India has the second fastest growing service sector after
China. The share of service sector is more in the urbanareas, as compared
to the rural areas in India.

3. Promotes industrialization: The service sector provides various

facilities such as transportation, banking, electricity, repair, or
communication in support of the distribution of the manufactured goods
which directly affects the development of an industry in a country. For
example-transport systems help to carry laborers, raw material and
finished goods to their destination, communication networks are required
to make a market for the product and for the industries to prosper, we
require banking and electricity. Moreover, the feedback from the
marketplace, fast delivery as well as the ability to customize products are
all dependent on the service industry..
4. It Helps in Social Development & Provides Good Quality Life:
Service sector helps in the development of the society. It strengthens the
social development. The services like education, health, insurance,
media, etc. are very important for the social development of India. By
providing better services in the field of education and health, banking
and insurance as well as communication and transportation, the service
sector has helped in increasing the quality of life in the country and thus
helping in raising the country’s human development index (HDI),
5. It Helps to Improve Efficiency& increases productivity: It plays an
important role to improve the efficiency of the people in an organization. It
helps to improve through good education, training and development, research
and development, etc. in various fields. The improvement in the person helps
to improve the quality of the goods and services and reduce wastage of
resources. The service sector helps in providing appropriate technical
knowledge/education to the workers as well as provide them with proper
medical facilities. Moreover, the service sector also facilitates an organized
network of communication and transport systems which helps in increasing
mobility and information among the workers. This results in an increase in
the productivity
6. It Builds Reputation: Service sector development helps to build

12
 reputation of the country. It helps to create a goodwill in the global
market for India due to the improvement in goods andefficiency in the
service provided.
7. Increase in international trade: India’s trade in services recorded
substantial growth as the country became globally competitive in
ICT services which increased exports manyfold and led to an
increase in India’s trade surplus. Service exports have contributed to
the inclusive economic processes by increasing the amount of well-
paid jobs and by reallocating labor to a high-productivity sector.
8. Removes regional disparities: The service sector has made it possible to
connect every small town and village through a well-organized system of
communication and transport. Moreover, the expansion of education,
medical as well as banking services in various backward areas of the
country has helped in removing the regional imbalances and disparities
throughout the nation.
9. Increase in standard of living: The service sector has a tremendous
growth in the GDP of India. It has contributed to GDP about 64% in
2015-16 and employment of about 20% of the total workplace in 2012.
This has led to improved standard of living for the citizens of our
country, as the income of the employees has increased. The purchasing
power of the people has also increasedthe country.

CONSUMER EXPECTATIONS OF SERVICES:

Customer Expectations

Customer expectations are beliefs about service delivery that function as

standards or reference point against which performance is judged. Customers
compare their perceptions of service delivery with these reference points when
evaluating service quality and therefore knowing what customers expects is
criticalin gaining competitive advantage.

Levels of Customer Expectations

13
 Customers hold different types of expectations about service, the highest type
of these are desiredservice and adequate service.

1. Desired Service: This is the highest level of customer expectation.

Desired service is the level ofservice the customer hopes to receive. It is
a combination of what customers believe “can be” and “should be”. It
signals the level of customer hopes and wishes and belief that they may
be fulfilled. Thus, failure to meet these expectations may result to
customers cutting down on purchase.

For instance, in case of banking services, one expects prompt service,

better complaint handling, highinterest on savings, online availability of
services, etc.

2. Adequate Service: Customers generally accept that the service would not
always be performed according to their expectations and this is known as
adequate service. Adequate service is the level of service that customers
will accept. Though customers’ hopes and wishes may still be high, they
have a certain level of understanding in cases where receiving desired
service does not seem possible at all.

For example, customers are used to the self-service approach used in

supermarket and therefore have certain levels of understanding or
tolerance towards food retailers’ service delivery.

The Zone of Tolerance

Services are heterogeneous in that performance may vary across providers, across
employees from the same provider, and even with the same service employee. The
extent to which customers recognize and arewilling to accept this variation is called
the zone of tolerance. The zone of tolerance is defined as the degree to which
customers recognize and are willing to accept service performance variations.
Customers assess service performance on the basis of two boundaries: what they
desire and what they consider acceptable.

14
  If service drops below adequate service level, customers get

frustrated and this may cause dissatisfaction with the service

provided by the company.
 If service is above the zone of tolerance, where service performed by
the business exceeds thedesired level, customers will have favorable
responses to the business.

The
zone of
toleranc
e

It is to be noted that: Different customers possess different zones of tolerance,

Zones of tolerance vary
for service dimensions/attributes, factors.

Factors influencing customer expectations of services

Because expectations play such a critical role in customer evaluation of

services, marketers need andwant to understand the factors that shape them.

Factors Influencing Desired Service Expectation: One of the largest

influences on desired service level are personal needs and personal service
philosophy.

1. Personal Needs: Personal needs are, those states essential to the physical
or psychological well- being of the customer. For instance, a cinema-goer

15
 who regularly goes to see films straight from work, and is therefore thirsty
and hungry, hopes and desires that the food and drink counters at the
cinema will have short queues and attentive staff, whereas a cinema- goer
who regularly has dinner elsewhere has a low or zero level of desired
service from the food and drink counters.
2. Personal Service Philosophy: It is the customer’s underlying generic
attitude about the meaning of service and the proper conduct of service
providers. For instance, if a person have ever been employed as a
member of waiting staff in a restaurant, he is likely to have standards for
restaurantservice that were shaped by his training and experience in that
role. He might, for example, believe that waiters should not keep
customers waiting longer than 15 minutes to take their orders.
3. Other Miscellaneous Factors:

 Generally, better the image of the service organization,

higher is the customer serviceexpectation.

 Customers expect high service level from the high charged/priced

services, and vice versa.

 Information about service.

FACTORS INFLUENCING ADEQUATE SERVICE EXPECTATIONS:

1. Temporary Service Intensifiers: It consists of short-term, individual

factors that make a customer more aware of the need for service.
Personal emergency situations in which service isurgently needed such
as an accident raise the level of adequate service expectation.

2. Perceived Service Alternatives: These are other providers from whom

the customer can obtain service. If customers have multiple service
providers to choose from, or if they can provide the service for
themselves (such as lawn care or personal grooming), their levels of
adequate service are higher than those of customers who believe it is not
possible to get better service elsewhere. For instance, an airline customer
who lives in a provincial town with a small airport, for example, has a
reduced set of options in airline travel. This customer will be more

16
 tolerant of the service performance of the carriers in the town because
few alternatives exist. The customer’s perception that service alternatives
exist raises the level of adequate service and narrows the zone of
tolerance.
3. Customer’s Self-perceived Service Role: It is the customer perceptions
of the degree to which customers exert an influence on the level of service
they receive. In other words, customers’ expectations are partly shaped by
how well they believe they are performing their own roles in service
delivery. For instance, a customer may give special instructions to the air
hostess regarding specific services required, which raises his expectation
level.
4. Situational Factors: It is defined as service performance conditions that
customers view as beyond the control of the service provider. For
example, during monsoon, delay in railway service. Customers who
recognize that situational factors are not the fault of the service company
may accept lower levels of adequate service given the context.

5. Predicted Service: It is the level of service that customers believe they

are likely to get. This type of service expectation can be viewed as
predictions made by customers about what is likely to
6. happen during transaction. Higher the level of predicted service, higher the
expectation of thecustomers.

MARKETING MIX FOR SERVICES:

The service marketing mix is also known as an extended marketing mix. The
product marketing mix consists of the 4Ps which are Product, Pricing, Promotions
and Placement. The extended service marketing mix places 4 further Ps which
include People, Process, Physical Evidence and Productivity and Quality. All of
these factors are necessary for optimum service delivery.

1. Product: The product in service marketing mix is intangible in nature.

At the same time, service products are heterogeneous, perishable and

17
 cannot be owned. The service product, thus, has to bedesigned with care.
In the service industry, the production and consumption of the product
are simultaneous and the product is intangible. The nature of this
‘product’ allows for on-the-spot customization. Firms must try to
differentiate its service product from other competitors so as to get
competitive advantage in the market. For instance, ICICI Bank offers
account opening at the doorstep of the customers. Some of the elements
of a firm’s product mix are:
 core service offered

 quality of service

 service warranties and after-sale service

 Product line and related services, etc.

2. Place: Place in case of services determine where the service product is

going to be located. As mentioned, the service is produced and consumed
in the same place. It cannot be owned and takenaway from the location.
This is why the place at which this transaction occurs is of vital
importance. The location of the service provision is carefully analyzed to
allow ease of access and the desire to make the effort to reach it. For
instance, 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. Elements of place mix are:
 channel selection

 transportation

 area coverage

 Location of store.

3. Price: Since a service cannot be measured by what material goes into its
creation nor is the actualtangible cost of production measurable, it can be
challenging to put a price tag on it. There are some tangibles of course,
such as the labour costs and overheads. Firm can add mark up to the costto
determine price. But additionally, the ambiance, the experience and the
brand name are also factors in the final price offering.

18
4. 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 its competitors. To prevent a
service from becoming interchangeable with its competitors, it becomes
vital to create a desirable brand image and name in the market. Thus, firm
should adopt proper promotion mix. This will not only create awareness
but will also attract both new and repeat

customers. Elements of promotion mix are:

 advertising

 sales promotion (discounts, free gifts, etc.)

 salesmanship

 publicity.

5. People: This is a vitally important element of the service marketing mix.

When a service is being delivered, the person delivering it is not different
from the service itself. Customers make judgments about service provision
and delivery based on the people representing organization. This is
because people are one of the few elements of the service that customers
can see and interact with. The staff requires appropriate interpersonal
skills, aptitude, and service knowledge inorder to deliver a quality service.
For instance, when dining at a restaurant, if a rude waiter is encountered,
the entire experience will be labeled as bad service. Elements of people
mix are:
 recruitment

 selection

 training and development

 performance appraisal

 compensation

6. Process: This is the way in which a service is delivered to the end

customer. This element of the marketing mix looks at the systems used to
deliver the service. All services need to be underpinned by clearly defined

19
 and efficient processes. This will avoid confusion and promote a
consistent service. In other words, processes mean that everybody knows
what to do and how to do it. For instance, service process, in case of
Domino’s pizza, states home delivery in 30 minutes. In case of banking
service, process for depositing money can be:
 taking token number

 waiting for one’s turn, till the token is called

 interaction between service person and customer, whereby service

persons verify details ofthe customers from record and counts the
money

 entering transaction details in the bank record by staff

 issuing counterfoil to customer after stamping Elements of process mix

are:
 service procedure and process

 quality control

 follow-up of customers

7. Physical Evidence: Services are intangible in nature. However, to create

a better customer experience, tangible elements are also delivered with
the service. Often, physical evidence is usedas a differentiator in service
marketing. The level of comfort and attractiveness of a service location
may make a lot of difference to the user experience. A calm and soothing
environment, with thoughtful comfortable measures, may provide a sense
of security to a new customer which will make them return. Customers
will make judgments about the organization based on the physical
evidence. For example, imagine a private hospital and a government
hospital. A privatehospital will have plush offices and well-dressed staff.
Same cannot be said for a government hospital. Thus, physical evidence
acts as a differentiator.
Key elements in physical evidence mix are:
 appearance/ambience of the store

 internal store decor (furniture, sanitation, lighting, ventilation, etc.)

20
  appearance of the staff

Apart from these 7Ps, there is one more additional ‘P’ of service marketing.

8. Productivity and Quality: Productivity, which is sometimes known as

performance, examines how well a company’s services compete in the
marketplace. This may include how consistent the service is and how
well its features translate into benefits as it is being delivered.
Productivity and quality must work hand in hand. Improving productivity is key to
reducing costs. Improving and maintaining quality is essential for building
customer satisfaction and loyalty. Ideally, strategies should be sought to improve
both productivity and quality simultaneously.

Process of Service Delivery

The process of Service Delivery can be explained through the service blueprint.
Service Process – Elements of Blueprinting

A service blueprint depicts the entire service process on a map and shows the
various stages of customer interaction with the service provider, and provides minute
details of the service delivery processes, the tangibleevidence of the service, and the
people involved in carrying it out. Blueprinting helps in breaking up the service
delivery process into a series of logical steps. Blueprinting can be used in either
designing or redesigning service products.
Elements of Blueprinting:

These elements are discussed by Zeithaml and Bitner in “Services Marketing”. The
complexity of the service determines the type of symbols used and the number of
lines in the blueprint. However, the rules in sketchingthe blueprint are not rigid.
The following are the various elements of a blueprint:

1. Customer Role:

This element involves all the steps a customer goes through in selecting a particular
service, purchasing it, consuming that service, and finally rating it. For example, a
customer visits a restaurant depending on the type of food he wants to eat and his
financial position, he interacts with the service personnel in the restaurant andorders

21
the food, he consumes the food, pays the bill, offers a tip, and finally he evaluates the
whole experience.
2. Onstage and Backstage Employee Actions:

Onstage employee action can be any activity performed by the service employees
that can be seen by the service personnel. Onstage employees’ action may include
the manner in which a waiter takes the order, the way he serves, etc., which can be
seen by the customer. On the other hand, backstage employees’ actions include those
activities performed by the service personnel, which are necessary to support the
onstage service personnel. Backstage employees are involved in preparing the food
for the customers, arranging them, billingthe service, etc.
3. Support Processes:

A service blueprint maps all the support services, activities, or processes that help
the service personnel in producing and delivering the services. For example, a hotel
may provide training for its service personnel (both onstage and backstage) on the
aspects of service creation and delivery. This training is a support process.
4. Technology:

A service provider needs to look into different aspects of the available technology
and the extent to which it needs to be upgraded for delivering the desired services at
the expected quality. For example, banks that are planning to introduce internet
banking should analyse the available technologies, and upgrade their systems to
offer services through the internet.
5. Conversion Process:

A service provider is required to choose a method of converting inputs into the

desired output from the pool of alternatives available. For example, a bank can
communicate with its customers through direct mail, facsimile, telephone, courier,
internet, mobile phone, etc. The choice should be based on the organisation’s ability
to bear the costs involved, customer preferences, the service quality level offered by
each alternative, user friendliness of each alternative and the speed at which it
delivers the services.
6. Equipment:

A service provider should opt for equipment that is compatible with the other
systems in the process. He should also analyze the extent to which it is useful in the

22
process, compare its operating costs with the resultantbenefits, assess the knowledge
required by the operators to work with the equipment and finally, estimate its
maintenance costs. This will help in choosing the right equipment for the process.
7. Flow of Process:

Process flow determines the flow of work from one stage to another to produce the
final output. It involves the logical arrangement of service personnel and equipment to
perform the operations according to the process.For example, McDonalds has a well-
laid process flow with service personnel operating the equipment to deliver the
standard services on time. Generally, companies use flow charts to develop the
process flow.
8. Service Personnel:

Service personnel play an important role in production and delivery of services. In

fact, they provide a competitive advantage to the service provider. A service
provider should therefore be careful to hire the rightpeople in terms of qualification
and skills. He should then give them the right jobs to do, train and develop them
continuously, and motivate them to deliver the best quality service.
9. Service Location:

As services are intangible in nature, customers attach importance to the service

location. They perceive it asan evidence of the quality of service offered Therefore,
service providers should choose a location that is easily accessible to customers,
has a good infrastructure and the right atmosphere. For example, foreign banks and
private banks in India today look entirely different from the old nationalized banks.

Market Research.

Marketing research is a systematic method of finding solution to the

marketing problems in the areasof product, pricing, promotion and distribution.

According to American Marketing Association, “Marketing research is

systematic gathering, recording and analyzing of data about problems relating to
marketing of goods and services.”

Features of marketing research

The characteristics of marketing research are :

1. Systematic process - Market research is a systematic process of gathering,

23
recording and analyzing of the data of specific problems and opportunities in the
area of marketing. Since the marketing environment is highly dynamic, marketing
research is a continuous activity.

2. Scope - Marketing research has a wide scope. It includes service product

research, service pricing research, consumer research, service delivery process
research, studying about physical environment in which services are delivered and
so on. It is used to solve marketing problems related to services and to take
marketing decisions.

3. Applied research

Marketing research is not a fundamental research. It is categorized under

applied research as it is used for solving problems. Further, it has a practical value.
The marketing problems may be related to pricing, service delivery process, study
of competitors’ service offerings and so on.

4. Science and art

A science collects knowledge in a systematic manner while an art uses this

knowledge for solving problems. Since marketing research collects data, it is
science. It then uses this data for solving marketing problems. Hence it is an art.

5. Different methods

Marketing research is conducted with the help of various methods. These

include survey method, observation method and experimentation. Depending upon
the nature of problem, the method is selected.

6. Methods of data collection

In marketing research, the information can be obtained from primary sources

or secondary sources. While primary data is the data collected for the first time,
secondary data is readily available. It can be collected from books, journals,
reports, internet and so on

7.Tool for decision making The services marketing manager has to take
several decisions. For this, he requires information. Marketing research provides
the required data which helps him to take decisions.Therefore, marketing research
is an important tool for decision-making.

8. Limitations

Marketing research suffers from few limitations. Since it not an exact science,
24
 it does not give accurate results. It only provides suggestions and not solutions to
problems. It acts as a facilitator and not a guarantor for accurate decision making. It
is also a time consuming and costly process.

Steps in Marketing Research Process

Formulating the Problem: Formulating a problem is the first step in the research
process. In many ways,research starts with a problem that the management is facing.

25
This problem needs to be understood, the cause diagnosed, and solutions developed.
For instance, if the problem is ‘declining sales’, the firm should try to identify its
cause from customers or sales staff. It may be due to poor quality, improper pricing,
faulty promotion, poor after-sales service, etc. It provides information needed to
solve the problem.

Determining Data Needs: The marketer should decide data needs and sources.
Depending on the nature of the problem, primary or secondary data should be
selected. Again, firm should decide on internal or externalsources of data.

Preparation of the Research Design: Research design is an overall plan of the

research investigation. It lays down structure within which research would be
conducted. Research design involves the following elements:

(i) Areas of study

(ii) Sources of data

(iii) Techniques and tools for collecting and analyzing data

(iv) Time available for research

(v) Cost factor relating to study.

The preparation of such design facilitates research to be efficient with minimum time,
effort and money.

Collection of Data: This is the most important step in the research process. In this
step, researcher collects information to solve a research problem. Data can be
primary or secondary.

 Primary data is firsthand information. Primary data can be

collected through experiments,surveys, observation, interview, or
questionnaires.
 Secondary data is in the form of various published sources such
as journals, magazines,reports, etc.

 The researcher should select appropriate method of data collection

keeping in mind objective and scope of inquiry, finance and time
available and nature of study.

Organization/Processing of Data: The collected data is available in a raw form

26
and needs to be processed. This processing involves classification, coding, editing
and tabulation. This process is known as organizing. Such organization of data
makes it ready for analysis.

Data Analysis and Interpretation: Data analysis involves application of different

statistical tools such as percentages, coefficients on organized data. This enables a
researcher to establish relation between the problem and the information.

Analysis refers to conclusions arrived at from research findings. It involves

generalization of researchfindings.
The Research Report: The research process concludes with the research report.
This report will include allof your information, including an accurate description of
your research process, the results, conclusions, andrecommended courses of action.
The report should provide all the information the decision-maker needs to
understand the project.

Implementation of Findings: Researchers should submit research report to the

management for implementation. Findings and recommendations of research report
should be implemented to solve researchproblems.

New Service Development Cycle

Developing a new service includes the complete journey from generating the
initial idea to bringingthe service product to the market.

By setting out the steps involved, and sticking to them, your product
development will become a morefocused and flexible approach that can be adapted
for all different types of products and services.

1. Idea Generation: The development of a new service will start with the
generation of idea about new service. Ideas can come from many different
directions. Ideas can be generated through:

 Undertaking market research

 Listening to suggestions from target audience – including feedback

on your current products’strengths and weaknesses

 Encouraging suggestions from employees and partners

 Looking at competitors’ successes and failures.

27
 2. Idea Screening: This step is crucial to ensure that unsuitable ideas, for
whatever reason, are rejected as soon as possible. Ideas need to be
considered objectively, ideally by a group or committee. Specific
screening criteria like return on investment, affordability and market
potential of the idea needs to be considered. Proper answers to above
criteria help in avoiding product failure.
3. Concept Development and Testing: In case of new service
development, concept testing means formulating the basic product
definition and then presenting the same to consumers with descriptions
to get their reactions. Along with clear definition of the concept,
description of the service representing its specific features and
characteristics are produced to the customers and employees to
determine their response to the service. For instance, a bank may intend
to offer insurance policy to their customers. Bank can explain the types
and benefits of policies orally to their customers to find out their
reactions. These reactions will help to understand the following things:
 Do they understand the concept?

 Do they want or need it?

This stage gives you a chance to develop the concept further, consider their
feedback, and also start thinkingabout what your marketing message will be.

4. Business Analysis: Once the concept has been tested and finalized, a
firm should assess whether the new product/service will be profitable.
This should include a detailed marketing strategy, highlighting the target
market, product positioning and the marketing mix that will be used.
This analysis needs to include: whether there is a demand for the
product, a full appraisal of the costs, competition and identification of a break-
even point.
5. Service Development: If the new service is approved in analysis stage,
it will be passed to the technical and marketing development stage. This
means the firm investigates exact design and specifications. It develops
value-added service attributes that brings customer satisfaction. At this

28
 stage, concept is refined after considering inputs from customers,
employees and other stakeholders and service blueprint is developed.
Blueprint describes service in terms of people, process and physical
evidence.
6. Test Marketing: At this stage, before launching the service on large
scale, it is launched in a limited market area to a small group of customers
for a limited period at a special price. This stageaims to obtain customer
feedback.
7. Commercialization: If the test marketing results are favorable, final
decisions needs to be made to move the product to its launch into the
market. At this stage, the service goes live and introduced to the
marketplace. Pricing and marketing plans need to be finalized and the
sales teams and distributors are briefed, so that the service and company is
ready for the launch. Proper promotion mix should be adopted to create
product awareness.
8. Post-production Evaluation: At this stage, the information
gathered during the commercialization stage is reviewed and
changes are made in the delivery process, staffing, marketing mix
variables, etc. on the basis of the market response to the offerings.

Managing Demand and Capacity

Service, being intangible and perishable, cannot be produced in anticipation

of demand and cannot be stocked. These features of service creates problem of
managing demand and capacity in case of demand fluctuations. Demand
fluctuations, in relation to supply capacity, results in three possible outcomes:

1. Excess demand (lower capacity)

2. Balance between demand and capacity

3. Excess capacity (lower demand)

There are two general approaches for accomplishing demand and capacity.

A. To smooth the demand fluctuations themselves by shifting demand to match

existing supply.

29
 B. To adjust capacity to match fluctuations in demand.

A. Shifting Demand to Match Capacity

By shifting demand and capacity, an organization seeks to shift customers

away from periods in whichdemand exceeds capacity. Perhaps by convincing them
to use the service during periods of slow demand.

During periods of slow demand, the organization seeks to attract more and/or
different customers to utilize its productive capacity. Firm can use a variety of
approaches listed below to increase demand to match capacity.

1. Vary the Service Offering: One approach is to change the nature of the
service offering, depending on the season of the year, day of the week, or
time of day. For instance, airlines can change the configuration of their
plane seating to match the demand from different market segments. In
some planes, there may be no first-class section at all. On routes with a
large demandfor first-class seating, a significant proportion of seats may
be placed in first class. Movie theaters are sometimes rented during
weekdays by business groups. It is an example of varying the service
offering during a period of low demand.
2. Communicate with Customers: Another approach for shifting demand
and capacity is to communicate with the customers. It helps them know
the times of peak demand so that they can choose to use the service at
alternative times and avoid crowding or delays. For example, signs in
banks and post offices which let customers know their busiest hours and
busiest days of the weekcan serve as a warning. This allows customers to
shift their demand to another time if possible. In addition to signage
communicating peak demand times to customers, advertising and other
formsof promotion can emphasize different service benefits during peak
and slow periods.
3. Modify Timing and Location of Service Delivery: Some firms adjust
their hours and days of service delivery to match customer demand. For
instance, banks can operate for extended hours,especially till evening or
may operate on weekends to cater to working customers. Theaters also

30
 accommodate customer schedules by offering matinees on weekends
and holidays when peopleare free during the day for entertainment.

4. Differentiate on Price: A firm can offer services at discounted prices

during slow demand of the service. This strategy relies on basic
economics of supply and demand, i.e., demand rises when price falls.
Any hotel, airline and restaurant can offer discounts during off-season.
But the goal isalways to ensure the highest level of capacity utilization
without sacrificing profits.

B. Adjust Capacity to Meet Demand

A second strategic approach to matching demand and capacity focuses on

adjusting or flexing capacity. The idea here is to adjust, stretch and align
capacity to match customer demand. During periods of peak demand, the
organization seeks to stretch or expand its capacity as much as possible. During
periods of slow demand, it tries to shrink the capacity so as not to waste
resources.
(i) Stretch Existing Capacity

The existing capacity of service resources can often be expanded temporarily

to match demand. In such cases, no new resources are added. Rather people,
facilities, and equipment are asked to work harderand longer to meet demand.

1. Stretch Time: It may be possible to extend the hours of service

temporarily to accommodatedemand. For instance, retailers are open
longer hours during the Diwali shopping season. And accountants
have extended appointment hours (evenings and Saturdays) before
tax deadlines.

2. Stretch Labour: In many service organizations, employees are asked to

work longer and harder during periods of peak demand. For example,
service personnel in banks, tourist attractions, restaurants and
telecommunication companies are asked to serve more customers per
hour duringbusy times.
3. Stretch Facilities: Theatres, restaurants and classrooms can sometimes be
expanded temporarily bythe addition of tables, chairs, or other equipment

31
 needed by customers. Again, extra coach can beadded in a train during
peak season.

4. Stretch Equipment: Computers, telephone lines and maintenance

equipment can often be stretched beyond what would be
considered the maximum capacity for short periods to
accommodate peak demand.

(ii) Align Capacity with Demand Fluctuations

By adjusting service resources creatively, organizations can match capacity

with customer demandpatterns. Specific actions might include the following:

1. Use Part-time Employees: In this case, the organization’s labour

resource is being aligned with demand. Retailers hire part-time employees
during the holiday rush, tax accountants engage temporary help during tax
season, and tourist resorts bring in extra workers during peak season andso
on.
2. Outsourcing: Firms that find they have a temporary peak in demand for a
service that they cannotperform themselves may choose to outsource the
entire service. For example, firm can outsource some of its services like
after-sales service (repairs and maintenance), especially when it is
difficult to hire and train new staff for the same.

3. Rent or Share Facilities or Equipment: For some organizations, it is

best to rent additional equipment or facilities during periods of peak
demand. For example, express mail delivery services rent or lease trucks
during the peak holiday delivery season. It would not make sense to buy
trucksthat would sit idle during the rest of the year.
4. Schedule Downtime during Periods of Low Demand: If people,
equipment, and facilities are being used at maximum capacity during
peak periods, then it is imperative to schedule repair, maintenance and
renovations during off-peak periods. This ensures that the resources are
in topcondition when they are most needed. With regard to employees,
this means that vacations and training are also scheduled during slow
demand periods.

32
OPPORTUNITIES IN SERVICE SECTOR

The services sector contributes significantly to the growth of the economy. It

provides employment, generates foreign exchange and contributes to the GDP of
a nation. In India and in several other countries the services sector offers great
opportunities, which are due to the following reasons:
1. Liberalization of Policy: The Industrial Policy of 1991 has liberalized
the Indian economy, including the services sector. The services sector is
opened up to the private sector. For example, the banking, insurance,
telecommunications, airlines, etc., have been privatized. Prior to 1991,
these sectors were the monopoly of public sector. Due to privatization,
there is good competition between the private sector and the publicsector.
The Competition has improved efficiency of the firms. Therefore,
liberalization of the Indian economy has opened up opportunities for
private parties in the services sector.

2. Growth in the Services Sector: The services sector is growing at a

faster rate as compared to primary andthe secondary sector. The growth
in services sector provides good opportunities to the existing firms and to
those who want to enter into the services sector. Currently the services
growth rate is about 10% despite economic slowdown in the world.

India is the second fastest emerging country in the services growth, behind
China. In some of the services sectors, the growth is very high. For
instance, at present, the overall growth in the IT services is over 20% per

33
 year.

3. Increase in Earning Capacity: There is huge potential for growth in the

services sector due to increase in disposable income, increasing
urbanization, and growing middle class.

According to one study, India's middle class would increase to 267 million
by 2015, and over 580 million by 2025, and further to 600+ million by
2030.

India's middle class is likely to overtake US, China and Europe in terms of
consumption in the years to come. A study by H. Kharas - (The Emerging
Middle Class in Developing Countries) indicates that by 2020 India is
likely to get the third rank for consumption behind China, and USA and
by 2030; India is likely to be the number 1 in terms of total consumption,
followed by China and USA.

The study by H. Kharas indicates that by 2020 India would have 11% (US
$3733 billion) of the global sharein terms of consumption, and by 2030
India's share in global consumption would increase to 23% (US $ 12777
billion).

4. Foreign Direct Investment: The service sector is likely to gain

considerably due to FDI inflows, which gives good opportunities for
professionals to enter into the services sector.

The Government has allowed FDI even upto 100% in certain sectors. For
instance, sectors like exports,consultancy, advertising, tourism, etc., FDI is
allowed upto 100%. In sectors like private banking and telecom, FDI is
allowed upto 74%. The Indian services sector was the largest recipient of
FDI inflows worth US$ 105,400,88 billion between April 2000 june 2023.
Accprding to the Ministry of Commerce and Industry, the service sector
received US4 7.1 billion in FDI equity inflows in FY22.

5. Increase in Export Earnings: The services export sector provides

good opportunities for entrepreneurs. During 2022-23, the country's
services exports rose by 42 per cent to USD 322.72 billion from USD
254 billion in 2021-22, according to provisional data from

34
 the commerce ministry. The services sector in India is the largest
contributor to the country’s economy. It accounts for over 50% of the
GDP of India

6. Population Growth: India is fastest growing in terms of population. At

present, India is second largest inpopulation terms after China. India is
likely to take world Number 1 position in population by 2030. The
growth in India's population would be a great opportunity for certain
service sectors such as education, insurance, banking, retail and so on.

7. Free Trade Agreements: India is looking forward to conclude a pact

with ASEAN nations for opening uptrade in services and liberalization of
investment norms in the near future. India has already signed FTA with
ASEAN nations in the goods sector in 2009 and came into force since
2010.

The India-ASEAN free trade agreement in services will open up a host

of business opportunities and projects, especially in construction for
Indian business firms. Construction of bridges, canals, roads, water-
treatment plants, construction of buildings would provide a good
opportunity for Indian firms in the 10 ASEAN member nations
(Malaysia, Philippines, Indonesia, Thailand, Singapore, Brunei, Laos,
Cambodia,Vietnam, and Myanmar). Indian entrepreneurs in the telecom,
consultancy, accounting, health, etc., would also get opportunity once
the free trade agreement is finalized in the near future.

India is also in negotiations to sign free trade agreements in goods and

services with European Union (27nations) and also with Australia. Once,
the free trade agreements are finalized and come into operation, Indian
entrepreneurs would have good opportunities in such countries.

8. Growing Professionalism: India is growing pool of competent

professionals. Various management institutes are grooming up
professionals in the field of banking, insurance, hospitality, logistics,
media, andso on. The availability of competent professional has a strong

35
 effect on the growth of services sector in India. Therefore, Indian
entrepreneurs would have good opportunities in the service sector in the
years to come.

9.Increase in disposable income

One of the key factors for the growth of demand for services is the
increase in disposable income. The economic liberalization process has
had a positive impact on Indian households.The size of the middle
income consumer is raising fast. Even the income of the rural households
is increasing. At the same time, their expenditure is increasing, creating a
demand for many goods and services.

10.Changing role of women

Traditionally the Indian woman was confined to household activities. But

with the changing time, there has been an increase in working women.
The changing role of women has created a market for a number of
products and services. Earning women prefer to hire services in order to
minimize the innumerable roles that they are required to perform. The
demand by woman is forcing service organizations to be more innovative
in their approach

CHALLENGES IN SERVICE SECTOR:

The services sector is facing a number of challenges mainly on

account the unique characteristics. Some of the challenges are as
follows:

1. Intangibility: The intangibility characteristic of services creates

certain challenges such as: Demonstration of services is difficult.Pre-
purchase evaluation is not possible.

2. Inseparability: Services cannot be easily separated from the service

provider. This characteristic ofservices creates certain problems such
as:Restricts geographical reach.Physical presence of the customer and
36
 service provider is essential.

3. Inconsistency: Service performance may vary from one person to

another within the same organization. This Characteristic of services
creates certain problems such as lack of standardization and quality
control.

4. Perishability: Services are highly perishable. Therefore, there is a

mismatch between demand and supply. This characteristic of services
poses certain challenges such as - Services cannot be kept in
inventory.

5. Managing High Demand: At times, a service firm may get very high
demand, especially during the peaktimings. Therefore, there is need to
manage demand and capacity.

6. Customer Retention: Service providers face the challenges of

customer retention. Customers may switch over to the competitors.

Therefore, a service firm needs to undertake customer satisfaction

surveys, and make changes in marketing mix, including introduction
of new and innovative services.

7. Managing Workforce Diversity: Diversity among employees is an

asset because it brings to the organization a range of skills and talents.
At the same time, individual differences pose a challenge tomanagers.
Managers must be sensitive to individual differences and manage them
effectively.

8. Employees' Retention: Nowadays, there is growing attrition among

service sector employees, especially in software, advertising,
consultancy, media, etc. Certain amount of employee turnover is good
for the organization because it gives chances to talented outsiders to
join the organization. However, frequent employee turnover is bad for
the organization as it increases selection and training costs, and it also
affectsthe performance of employees. Therefore, the service providers
need to introduce certain measures to overcome the problem of
employee retention.

37
9. Infrastructure is vital to the proliferation of service sector. The
infrastructure like electricity, telecommunication net work, and other
basic utilities are required to be available by the government both for
public and private sector in order to enhance contribution of service
sector to economic growth. Marketing complexes, go-downs, and
similar other infrastructure are required to be constructed for
enhancing the effectiveness of service sector in an economy.

10. The effective operation of service sector requires skilled

manpower. Therefore, in recent year demand for management and IT
professional is on the rise because of the rise in service sector in the
economy. In the developed countries, service sector provides
employment to more than 75% of the total employment in their
economies. The developing countries are required to generate skilled
manpower for the proliferation of service sector in their economies. To
produce required amount of skilled manpower for the effective

proliferation of the service sector is a challenge before the developing

economies.

11. Tax administration, governance and corruption are challenges to

services sector. A simple taxation system with minimum hassle will
entice the entrepreneurs to venture into service sector activities. The
corruption in the developing countries is the main hurdle in the path of
growth of service sector. Good governance is necessary pre-requisite
and bad governance a challenge for service sector.

12. Low wages and less employment are features of services sector in
the developing economies. Despite its enhanced contribution to GDP,
the rate of employment in the service sector particularly in developing
countries has not been substantially enhanced as it is happening in
developed countries of North America and Europe. Another woe of
service sector in developing countries is low wage rate for people
employed in the service sector. The low wage rate particularly in the
service sector operating in urban areas is affecting the quality of life of
people engaged in service sector.

38
 13. Formation of appropriate regulatory mechanism is also a
challenge before the government of developing countries. Urban
management is a big problem. The functioning of local self-
government institutions and effective implementation of urban
development programmes are also a big challenge for effective
administration of urban development projects and programmes.

14. One of the important challenges before the service sector is the
measurement of the performance of service sector. Unlike the two
other sectors like agriculture and industry, it is very difficult to
measure service sector output. Therefore, the performance of service
sector in the economic development progress is scantly known to the
lay man.

Additional Reading:
RECENT INVESTMENTS/ DEVELOPMENTS BY GOVERNMENT

Some of the investments/ developments in the services sector in the recent past
are as follows:
• The Indian services sector was the largest recipient of FDI inflows worth US$
105,400.88 billion between April 2000-June 2023.

• According to the Ministry of Commerce and Industry, the service sector received US$
7.1 billion in FDI equity inflows in FY22.

• Since the launch of the Startup India initiative in 2016, DPIIT has recognized 98,119
entities as startups as of 30th April 2023.

• By 2023, the fintech sector in India is expected to be US$ 1 trillion in Assets Under
Management (AUM) and US$ 200 billion in revenue. The sector is estimated to reach
US$ 150 billion by 2025.

• India took the lead with the fintech adoption rate of 87%, substantially higher than the
world average of 64%.

• According to the IVCA-EY monthly PE/VC roundup, October 2022 recorded

investments worth US$ 3.3 billion across 75 deals, including six large deals worth
39
 US$ 2.2 billion. Exits were recorded at US$ 1.6 billion across 15 deals in October
2022.

• The healthcare industry is growing at a CAGR of 16% and the total public and private
spending on healthcare is 4% of GDP. India's healthcare industry is expected to grow
to US$ 50 billion in size by 2025.

• According to RBI:

o Bank credit stood at Rs. 132.81 trillion (US$ 1.61 trillion) as of January 23,
2022.

o Credit to non-food industries stood at Rs. 126.08 trillion (US$ 1.54 trillion) as
of September 23, 2022.

o Coforge Limited, a global digital services and solutions provider announced

the opening of its centre of excellence (CoE) for the Metaverse and Web3 on
August 30, 2022.

40
 • In June 2022, HCL Technologies (HCL), a leading global technology company,
announced the opening of its new 9,000 sq. ft. delivery centre in Vancouver, Canada.
The new centre will significantly expand its presence in the country to serve clients
primarily in the HiTech industry.

• India’s telephone subscriber base stood at 1,172.34 million as of March 2023.

• The country’s total broadband subscriber base stood at 846.57 million, as of March
2023 2021. Teledensity (defined as the number of telephone connections for every
100 individuals) in India stood at 84.51%, as of March 2023.

• At the end of March 23, the top five service providers controlled 98.37% of the total
broadband subscribers. These service providers were Reliance Jio Infocomm Ltd
(438.56 million), Bharti Airtel (241.90 million), Vodafone Idea (124.83 million),
BSNL (25.37 million), and Atria Convergence (2.14 million).

• The IT-BPM sector holds the potential to grow between 10-15% per annum. The IT
and fintech segments provide over US$ 155 billion in gross value to the economy
annually.

• The IT and business services market will grow at a CAGR of 8.3% between 2021-26,
reaching a US$ 20.5 billion valuation by the end of 2026.

• By October 2021, the Health Ministry’s eSanjeevani telemedicine service, crossed 14

million (1.4 crore) teleconsultations since its launch, enabling patient-to-doctor
consultations, from the confines of their home, and doctor-to-doctor consultations.

• The Indian healthcare industry is expected to shift to digitally enabled remote

consultations via teleconsultation. The telemedicine market in India is expected to
increase at a CAGR of 31% from 2020 to 2025.

In December 2020, the 'IGnITE’ programme was initiated by Siemens, BMZ and MSDE to
encourage high-quality training and technical education. 'IGnITE' aims to develop highly
trained technicians, with an emphasis on getting them ready for the industry and future,
based on the German Dual Vocational Educational Training (DVET) model. By 2024, this
programme aims to upskill ~40,000 employees
Summary:

41
 Services are economic activities that create value and provide benefits for customers at
specific times andplaces as a result of bringing about a desired change in – or on behalf of
– the recipient of the service.

Service sector is the fastest growing sector in India. It has contributed to the growing
employment, increase in GDP and also raised the standard of living of the people in India.
It also helps to generate foreign exchange in the country. The services sector contributes
significantly to the growth of the economy. It provides employment, generates foreign
exchange and contributes to the GDP of a nation. In India and in several other countriesthe
services sector offers great opportunities. There are lot of challenges faced by the service
industry which needs to be addressed properly.

42
43
44