BAD: 5.4.

Marketing of Services
• Goods and services are an essential part of an economy, and these
two terms are used in most of the important economic discussions.
• There are many products that a consumer purchases in order to fulfill
their certain requirements. These products can be either in the form
of goods or services.
• Goods are tangible, as in these have a physical presence and they can
be touched, while services are intangible in nature.
• The purpose of both goods and services is to provide utility and
satisfaction to the consumer.
Services are the non-physical, intangible parts of our economy, as
opposed to goods, which we can touch or handle.
• For Eg: Banking, education, medical treatment, and transportation

Sometimes, it is difficult to differentiate between a service and a good.

For example, in healthcare what is the administration of a drug
combined with the diagnosis of a physical condition or disease? In fact,
it comprises both goods – medical and diagnostic devices – and
services – the expertise of medical professionals
The following points of difference between
services and goods can be discussed
Basis of Comparison Goods Services
Nature Tangible Intangible
Transfer of Ownership Possible Not Possible

Separable Goods can be separated from Services cannot be separated

the seller from the service provider

Storage Goods can be stored Services cannot be stored

Perishable Not all goods are perishable Services are not perishable

Production and Consumption Goods have a significant time Services are produced and
gap between production and consumed together
consumption
Characteristics of Services

In the following, we will go into the most relevant characteristics of

services. Characteristics of services apply universally to any service. The
most important characteristics of services are:
• Lack of ownership
• Intangibility
• Inseparability
• Variability
• Perishability
• User participation
Emergence of service economy
• Manufacturing industries grew because they produced tangible goods
which satisfied people’s physiological needs of food, shelter and
clothing.
• As the basic needs was fulfilled there was demand for improved
satisfaction, and this led to a proliferation of variations of the same
product and a number of companies involved in its manufacture.
• The growth of service industries can be traced to the economic
development of society and the socio-culture changes that have
accompanied it.
Three related events of 1990’s gave boost to service sector.
• Globalization of business and consumers taste powered boom in
accountancy, law, entertainment and retailing.
• Explosion in IT sector fuelled sectors like telecom, software, finance
and banking.
• The restructuring of manufacturing and stagnant agriculture further
provided fuel to Indian economy to jump from agriculture to services.
• 1. Reasons For Growth Of Services The growth of service industries
can be traced to the economic development of society and the socio-
cultural changes that have accompanied it. Changing environmental
forces brought out of the services in forefront of the economy. Those
environmental forces separately or in combination create new type of
service. The following environmental factors are responsible to make
a new service.
• 2. Economic affluence One, of the key factors for the growth of
demand for services is the economic affluence . The size of the middle
income consumer is raising fast and the percentage of the very poor
household’s declining. The rural households in the upper income
category are growing at a much faster pace than the urban
households in the corresponding categories. The Economic
liberalization Process has had a positive impact on the Indian
households. Their income as well as their expenditure has been
pushed, creating a demand for many goods and services
• 3. Changing Role of Women Traditionally the Indian woman was confined to
household activities. But with the changing time there has been a change in
the traditional way of thinking in the society. Women are now allowed to
work. They are employed in defense services, police services, postal
services, software services, health services, hospital services, entertainment
industries, Business Process Outsourcing and so on. The percentage of
working women has been growing rapidly. The changing role of women has
created a market for a number of product 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.
• 4. Cultural Changes Change is the underlying philosophy of culture
place of change in Indian culture is not uniform. However, during the
last century the factors of change are prominent. The emergence of
the nuclear family system in place of the traditional joint family
system creates a demand for a host of services like education, health
care, entertainment, telecommunication, transport, tourism and so
on. There has’ been a marked change in the thought Processes
relating to investment, leisure time perception and so on which has
created a huge demand for services.
• 5. I.T. Revolution For the last 15 years in India IT became one of the
key service businesses of the country. India has the largest software
skilled population in the world. The domestic market as well as the
international market has grown substantially
• 6. Development of Markets During the last few decades the
wholesaler and the retailer population has grown in the country.
Urban India has become a cluster of wholesaling and retailing
business. In the Semi – urban areas, retailing has spread to the nooks
and corners of the streets and in the rural areas retail business is
significantly present. A new breed of organizations, offering marketing
services has come up. The government also offers marketing services
to the small-scale agricultural farmers, artisans and other traditional
business sectors such ‘as promotion of regulated markets, export
promotion councils, development boards etc
• 7. Market orientation The changing competitive situation and demand
supply positions has forced the manufacturing organization to shift
their philosophy from production orientation to market orientation.
Market is a service function that has been added in the organization.
The pressures in the market has further forced the manufacturing
organizations to have marketing research, accounting, auditing,
financial management, human resource management and marketing
research divisions – all of which are services functions.
• 8. Health-Care Consciousness In India, the healthcare market has
grown substantially. The increased life expectancy is the result of the
consciousness of the people regarding the health issues. The growth
of fitness clubs, diagnostic centers, medical counseling, and
healthrelated information sites are the reflections of the growing
demands for health care services. The government as well as the
social organizations has taken up the mass campaigns in order to
create awareness among the illiterate persons and the rural
population on health service. Hence, the growth of health related
services.
• 9. Economic liberalization The economic liberalization of the 1991 has
brought many changes in the Indian scenario. With the Disinvestment
and the Privatization policies the state owned monopolies in many
service areas came to an end Multinationals were permitted to enter the
Indian market. Liberal lending policies and lower interest rates motivated
many people to become selfemployed. Different sectors like Banking,
Insurance, Power projects, Telecommunication, Hospitality sector, Health
Services, Entertainment, Air transport, and Courier services witnessed
intense competition, due to the entry of multinationals. The flow of time-
tested service technology from various parts of the world changed the
attitude of the Indian consumer towards sources.
• 10. Rampant migration One of the important reasons for the growth
of services in India is the rampant migration of rural to semi-urban
and urban areas. Migration to urban areas for the want of jobs and
livelihood has resulted in the expansion of cities and townships due to
which businesses like real estates, rentals, transportation and
infrastructure services are rapidly expanding
• 11. Export potential India is considered to be a Potential source for
services. There are a number of services that India offers to various
parts of the world like banking, insurance, transportation co data
services, accounting services, construction labor, designing,
entertainment, education, health services, software services and
tourism. Tourism and software services are among the major foreign
exchange earners of the country and that the growth rate is also very
high as compared to the other sectors
Service marketing Mix
• The service marketing mix is also known as an extended marketing
mix and is an integral part of a service blueprint design. The service
marketing mix consists of 7 P’s as compared to the 4 P’s of a product
marketing mix. Simply said, the service marketing mix assumes the
service as a product itself. However it adds 3 more P’s which are
required for optimum service delivery.
Value and Value drivers
• Value in marketing, also known as customer-perceived value, is the
difference between a prospective customer's evaluation of the
benefits and costs of one product when compared with others. Value
may also be expressed as a straightforward relationship between
perceived benefits and perceived costs: Value = Benefits / Cost.
• As per “Kotler, Keller”, 2006, The value reflects the perceived tangible
and intangible benefits and costs of the buyer; it can be represented
as a combination of quality, service, and price (CVT – “customer value
triad”
• The basic underlying concept of value in marketing is human needs.
The basic human needs may include food, shelter, belonging, love,
and self expression. Both culture and individual personality shape
human needs in what is known as wants. When wants are backed by
buying power, they become demands.
• With a consumers' wants and resources (financial ability), they
demand products and services with benefits that add up to the most
value and satisfaction.
Values should always be defined through the "eyes" of the consumer.
• Functional Value: This type of value is what an offer does; it's the
solution an offer provides to the customer.
• Monetary Value: This is where the function of the price paid is relative
to offerings perceived worth. This value invites a trade-off between
other values and monetary costs.
• Social Value: The extent to which owning a product or engaging in a
service allows the consumer to connect with others.
• Psychological Value: The extent to which a product allows consumers to
express themselves or feel better.
• For a firm to deliver value to its customers, they must consider what is known
as the "total market offering." This includes the reputation of the
organization, staff representation, product benefits, and technological
characteristics as compared to competitors' market offerings and prices. Value
can thus be defined as the relationship of a firm's market offerings to those of
its competitors.
• Value in marketing can be defined by both qualitative and quantitative
measures. On the qualitative side, value is the perceived gain composed of
individual's emotional, mental and physical condition plus various social,
economic, cultural and environmental factors. On the quantitative side, value
is the actual gain measured in terms of financial numbers, percentages, and
dollars.
• For an organization to deliver value, it has to improve its value: cost
ratio. When an organization delivers high value at high price, the
perceived value may be low. When it delivers high value at low price,
the perceived value may be high. The key to deliver high perceived
value is attaching value to each of the individuals or organizations—
making them believe that what you are offering is beyond expectation
—helping them to solve a problem, offering a solution, giving results,
and making them happy.
Very often managers conduct customer value analysis to reveal the company's
strengths and weaknesses compared to other competitors. the steps of which are as
followed.
• To identify the major attributes and benefits that customers value for choosing a
product and vendor.
• Assessment of the quantitative importance of the different attributes and benefits.
• Assessment of the company's and competitors' performance on each attribute and
benefits.
• Examining how customer in the particular segment rated company against major
competitor on each attribute.
• Monitor customer perceived value over time.
Value drivers
• Value drivers are anything that can be added to a product or service that
will increase its value to consumers. These differentiate a product or
service from those of a competitor and make them more appealing to
consumers.
• The greatest benefit of a value driver is that it provides a competitive
advantage to a business, giving that business an upper hand in its industry.
• Value drivers can come in many forms, such as superior brand awareness,
Customer care service, Delivery service, extended warranty, revolutionary
technology, etc.
Why are value drivers important?
• Value drivers will make a company’s products seem better than its competitors’.
By creating as many value drivers as possible, a company can boost its leverage
on the marketplace. They will further influence consumers to purchase that
product. These provide products with distinguishable traits that companies can
use to make their respective products more desirable in the eyes of the
consumer.
• To continuously add value to products and services, businesses should constantly
be monitoring the market so that they can be the first to take advantage of
changes in demand and consumer behavior. Value driver’s do not have to
directly relate to a product. Something such as a reputation of having great
customer service can be a value driver for a company.
Service market system
The components of the service system are:
• (1) The service operations system,
• (2) The service delivery system, and
• (3) The service marketing system
• The service operations system: comprises backstage activities, such as
staff training, stock replenishment, etc., as well as the front stage
aspects of the operation experienced directly by the customer, such
as how they are treated by employees as soon as they enter the
parlour, or how quickly they are moved around from the washbasins
to the cutting chair (if they are receiving a cut and blow for example).
• The service delivery system encompasses not only the visible
elements of the service operating system, employees and the physical
facilities, but also includes exposure to other customers. In many-
service businesses, positive on-site interaction can have a significant
impact on customers’ overall perception of their experience. In the
hairdressing parlour, customers may find themselves waiting for a
period of time for their particular stylist in a communal reception
area.
• The service marketing system incorporates elements of the service
experience which may contribute to the customer’s overall view of
the organisation but are not specifically part of the delivery system.
Clearly, many of these are the elements which the organisation may
not be able to control, such as conversations customers may have
about the parlour with friends or relatives at home, or exposure to
the service they may get from reading a hairdressing editorial in the
local paper.
Service system positioning
• Positioning is concerned with the identification, development and
communication of a differentiated advantage which makes the
organization’s products and service perceived as superior and
distinctive to those of its competitors in the mind of its target
customers.
• Importance of Positioning
•  To Make Entire Organisation Market-oriented
•  To Cope with Market Changes
•  To Meet Expectation of Buyers
•  To Promote Consumer Goodwill and Loyalty
•  To Design Promotional Strategy
•  To Attract Different Types of Consumers
•  To Face Competition
•  To Introduce New Product Successfully
•  To Communicate New and Varied Feature Added Later on
• Steps in Positioning of services
•  Determining the levels of positioning
•  Identification of attributes
•  Location of attributes on a positioning map
•  Evaluating position options
•  Implementing positioning
• Types of positioning
•  Positioning by features
•  Positioning by comparison
•  Positioning by benefit to consumer:
•  Positioning as an expert
•  Positioning through guarantees
•  Positioning as a leader
•  Positioning through smart tag lines
•  Positioning through emotion
Service delivery system
• Employees are the service and the brand
• Service culture
• Exhibiting service leadership
• Service triangle
• Company
• Customer
• Employees
Strategies for delivering service quality
through people
• Hire right people
• Develop people to deliver service quality
• Provide needed support system
• Retain best people
• Customers role in service delivery
• Customer receiving service
• Fellow customers
• Customer roles
• Customer as a productive resource
• Contributor to the service quality and satisfaction
• Customer as competitors
Service Blueprint
• It is a picture or a map that accurately portrays the service system so
that the different people involved in providing it can understand and
deal with it objectively regardless of their roles or their individual
points of view.

• They are useful at the design stage of service development

• It depicts the service by simultaneously depicting the process of
service delivery, the points of customer contact, the roles of
customers and employees, the visible element of service.
components
• Customer Actions
• “Onstage” contact employee action
• Backstage contact employee actions
• Support processes
• Customer action area: steps choices, activities and interactions that customer
performs in the process of purchasing, consuming and evaluating the service.
• The steps and activities that the contact employees perform that are visible to
the customers are the onstage contact employees actions
• The steps and activities that the contact employees perform that are not
visible to the customers are the backstage contact employees actions.
• The support process action covers the internal services, steps and interaction
that take place to support the contact employees in the delivery of service.
• Physical evidence is the evidence the office
•.
Building a blueprint
• Step 1 : identify the process to be blue printed
• Step2: Identify the customer or customer segment
• Step 3: Map the process from the customer’s point of view
• Step4: Map contact employee actions, onstage and backstage and/or
technology actions
• Step 5: Link contact activities to needed support functions
• Step 6: Add evidence of service at each customer action step
Service buying behavior
CONSUMER CHOICE
• The first important area of consumer behavior that marketers are
concerned with is how customers choose and make decision and the
steps that lead to the purchase of a particular service.
Service decision making process
• Need recognition
• Physiological, safety and security, social, ego needs
• Information search
• Personal and Non personal, perceived risk
• Evaluation of services alternatives
• Service Purchase
CONSUMER EXPERIENCE
• The choice process is inherently risky with many unknowns, the
EXPERIENCE itself often dominates the evaluation process.

• Services are high in experience and credence qualities relative to

goods.
• Service as processes
• Service provision as drama
• Service role and scripts
• The compatibility of service customer
• Customer coproduction
• Emotion and mood
POSTEXPERIENCE EVALUATION
• Word of mouth
• Attribution of dissatisfaction
• Positive and negative biases
• Brand loyalty
• UNDERSTANDING DIFFERENCE AMONG CONSUMERS
• Global differences: the role of culture
• Values and attitudes differ across cultures
• Manners and customs
• Material culture
• Aesthetics
• Educational and social institutions
• Group decision making
• Households
• Organizations
Service marketing strategy
• The marketing strategy of service industry focuses on delivering
experiences processes and other intangible is to the customers and
not physical goods like product industry. It also involves a focus on all
functions equally
7 Steps to create an efficient service strategy
• 1) Crafting a service vision
• 2) Contemplating the customer needs
• 3) Right hiring
• 4) Goal setting for the service team
• 5) Constant training and development
• 6) Accountability
• 7) Awards and recognitions
SERVICE MARKET SEGMENTATION
AND TARGETING
• Segmenting , targeting and positioning are strategic fundamentals of
marketing used to generate competitive advantage, which can be
translated into business opportunities that form the success story of
organization. Defining a market is the basis of segmentation. Service
firms vary widely in their abilities of serving. It would then , not be
wise to compete in an entire market. Instead, organisations should
focus on the set of customers they can serve best.
• For a service organisation, the company’s focus can be described on
two dimensions- the service focus and the market focus. Taking the
two variables of service offered and the market served, organisation
can be grouped into four types:-
• I. Unfocused
• II. Service focused
• III. Market focused
• IV. Fully focused
• Market segmentation is defined as the process of dividing the market
into distinct groups that share common characterstics,
needs ,purchasing behaviour, or consumption patterns. Market
segmentation is a strategy that recognises the need of ‘specialisation’
to suit the needs of a segment of the market rather then trying to be
‘all things to all people
Why market segmentation is important ?
• It leads to efficient and effective utilization of resources.
• Improves manageability of the market by dividing the markets into
smaller parts.
• Helps to improve the company’s ability to satisfy customers.
OBJECTIVES OF SEGMENTATION
• Identify the similiarity of needs of potential buyers within a segment
and persue them with taliored products.
• Identify the difference between needs of buyers among segments and
try to cater to these different needs.
• Once the specific segment has been chosen for the marketing
efforts ,the organization is more focused in its efforts and there is a
potential for increased return on investment.
• It is cost effective for the marketers to assign the buyers to different
segment on the basis of a number of parameters
TARGETING
Targeting is the choice of a single segment or group of segments that
the organisation wishes to select. Companies can evaluate and select
market segment on the basis of:-
• Segment size and growth
• Segment structural attractiveness
• Company objective and resources
Selecting market segments
Once the segments have been evaluated the market to
be targeted can be selected on the basis of-
• Undifferentiated marketing
• Differentiated marketing
• Concentrated marketing
• Customised or micro marketing
Unit 5
• Meaning of Service Quality:
• Service quality is generally viewed as the output of the service
delivery system, especially in the case of pure service systems.
Moreover, service quality is linked to consumer satisfaction.
• Although there is no consensus in the research community
about the direction of causality relating quality and satisfaction,
the common assumption is that service quality leads to satisfied
customers.
service quality has been defined as
• The delivery of excellent or superior service relative to customer
expectations.
• Quality is behavior – an attitude – that says you will never settle for
anything less community, your stockholders or colleagues with whom
you work every day.
• When we want to be effective – delivering good quality to the
customer – we must produce services that meet “as much as possible”
the needs of the consumer.
• Quality is providing a better service than the customer expects.
• Some researchers found that customers consider following five
dimensions in their assessment of service quality:
• Reliability
• Responsiveness
• Assurance
• Empathy:
• Tangibles
• SERVQUAL is based on a set of five dimensions which have been
consistently ranked by customers to be most important for service
quality, regardless of service industry.
Customer Feedback
• Successful businesses work proactively to obtain information from their
customers to ensure they are meeting their needs.
• Service quality generally refers to a customer’s comparison of service
expectations as it relates to a company’s performance. A business with a
high level of service quality is likely capable of meeting customer needs
while also remaining economically competitive in their respective
industry. Successful businesses who remain competitive and relevant in
the marketplace work proactively to obtain information from their current
or potential customer base so they can ensure they are meeting their needs.
• Customer feedback can be collected by:
• Asking consumers directly: 
• Questionnaires
• Focus groups
• Telephone
• Virtual online communities or private consumer panels:
The Gap Model
• Customers compare the service they ‘experience’ with what they
‘expect’ and when it does not match the expectation, a gap arises.
• GAP 1: Gap between consumer expectation and management perception: arises
when the management or service provider does not correctly perceive what the
customers wants or needs.
• GAP 2: Gap between management perception and service quality specification:
this is when the management or service provider might correctly perceive what
the customer wants, but may not set a performance standard.
• GAP 3: Gap between service quality specification and service delivery: may
arise pertaining to the service personnel. This could arise due to there being
poor training, incapability or unwillingness to meet the set service standard.
• GAP 4: Gap between service delivery and external communication: consumer
expectations are highly influenced by statements made by company
representatives and advertisements. The gap arises when these assumed
expectations are not fulfilled at the time of service delivery.
• GAP 5: Gap between expected service and experienced service: this gap arises
when the consumer misinterprets the service quality.
Resolving Problems Quickly
• The best method of resolving problems – often before they arise – is
through the delivery of excellent customer service.
• Problem Resolution Through Excellent Customer Service
Delivering Excellent Service Quality
• Customer Service
• Customer Support
One of the earliest attempts to grapple with the service quality concept came
from the so-called Nordic School. In this approach, service quality was seen as
having two basic dimensions:
• Technical quality: What the customer receives as a result of interactions with
the service firm (e.g. a meal in a restaurant, a bed in a hotel)
• Functional quality: How the customer receives the service; the expressive
nature of the service delivery (e.g. courtesy, attentiveness, promptness)
The technical quality is relatively objective and therefore easy to measure.
However, difficulties arise when trying to evaluate functional quality.
Demand and supply management in service
• The underlying issue of demand and supply management in service is
the lack of inventory capability.
• Service Firms cannot build up inventory during periods of slow
demand to be used up later when demand increases.
• Due to its perishable nature of services and its simultaneous
production and consumption.
• The lack of inventory capability combined with fluctuating demand
leads to a variety of potential outcomes:
• Excess demand
• Demand exceeds optimum capacity
• Demand and supply are balanced at the level of optimum capacity
• Excess capacity
• Constraints to capacity:
• TIME
• LABOR
• EQUIPMENT
• FACILITIES
Demand patterns
• To manage fluctuating demands in service business it is necessary to
understand the demand patterns.
• The charting of demand pattern
• Predicable cycles
• Random demand fluctuations
• Demand patterns by market segment
Strategies for matching capacity and demand
• Shifting demand to match capacity
• Vary the service offering
• Communicate with customers
• Modify timing and location of service delivery
• Differentiate on price
• Adjusting capacity to meet demand
• Stretch existing capacity
• Stretch time
• Stretch labor
• Stretch facilities
• Stretch equipment
• Align capacity with demand fluctuations
• Use part-time employees
• Outsourcing rent or share facilities or equipment
• Schedule downtime during periods of low demand
• Cross-train employees
• Modify or move facilities and equipment
Service culture
• The behavior of employees will be heavily influenced by the culture of
an organization.
• Corporate culture has been defined as the pattern of shared values
and beliefs that give the members of an organization meaning and
provide them with the rules for behavior in the organization.
• Service culture has been linked to competitive advantage in
companies.
Service culture begins with
• Exhibiting service leadership
• Developing a service culture
• Transporting a service culture
Management by values
• Management by values  (MBV or Value Based Management)
is a theory that involves intentionally leveraging an
organization's values into how an organization operates at
every level. Using this method of management can help
guide decision making by "allow[ing] for creative responses
to the challenges, issues, and risks associated with an
increasingly complex environment"
• Traditionally organizations, including sport organizations,
have been managed by objective; they do what they need to
do to produce a specific output. Research is now showing
that this method may no longer be sufficient and with trends
moving towards quality, client satisfaction, autonomy,
professional responsibility, and working in flat structures,
managing by values may need to be introduced in order to
increase organizational effectiveness and to remain
competitive in the job market 
Managing by values uses following tools:
• company mission,
• vision,
• values ​important to the company - core values,
• code of conducts,
• identification and analysis of various ethical factors affecting
business.
The theory of management by values is ​based on three axes:
• Economic and pragmatic values ​are necessary to maintain and connect
variety of organizational subsystems. These relate to: performance,
performance standards and discipline. These values ​have an impact on
activities such as planning, ensuring quality and accounting.
• Ethical and social values common to all employees determine how people
behave in groups. This is related to human behaviour, including relationships
and social values ​such as honesty, respect, integrity and loyalty.
• Emotional and development values are the basis for creating new
opportunities for action. These are related to: freedom, happiness and
confidence. Examples of such values ​are creativity, creating of concepts, life,
self-awareness, self-confidence, influence, adaptability, flexibility.
• It all began with Dolan and colleagues’ description of
the evolution of the school of thoughts in management
due to the increasing complexity in the environments
that organisations operate. Figure 1 summarises this
evolution that started with MBI (Managing by
Instructions) to MBO (Managing by Objectives) and
finally to MBV (Managing by Values). The evolution is
driven by the need to manage environmental and intra-
organisational complexities
Service recovery and empowerment
• Service Recovery Refers to the actions by an organization in response
to a service failure.
• Deviations in Services
• Service Failures
• Customer Response to Failures
• i. In general, most of the customers do not complain when they get dissatisfied. A large
majority of dissatisfied customers (between 70 and 75 per cent) of manufactured goods
do not complain.
• ii. Demographically, complaining customers belong to young-age groups, high-income
categories and educated class.
• How People Complain
• Tom Williams has studied customer complaining behaviour, and he proposes
that the customer complains in various ways: complaint as grumble, informal
complaint, written complaint and personal conversation
• Effective Recovery First strategy for a service firm is to make sure that
failures do not happen. The system planning and implementation
must make sure that things should not go wrong in the first place. But
when they do, then efforts must be made to recover from the slide in
the best possible manner.
• Ingredients of Recovery:
• Apology
• Recovery Capability
• Measure the cost of lost customer
• Failure Types
• Recovery Service
Empowerment
• Meaning
• Empowerment means committing to employees and the
customers. Stated plainly, it is the removal of obstacles and
barriers that prevent employees from doing their jobs in order to
create satisfied customers. This involves pushing down and
distributing the decision making to the lowest levels of the
organization.
Benefits and Costs of Empowerment
• Bowen and Lawler provide a framework for answering some of the critical questions
associated with empowerment. The benefits associated with empowerment must be
weighed against the costs.
Benefits :
• i. Quicker response to customer needs during delivery: The rulebook model does not
permit employees to bend rules in any condition. Strict regimentation does not allow any
deviation even when there is a potential to delight customer without involving any cost
• Employee empowerment: A process of increasing the sense of self-
sufficiency among the members of an organization.

• The provision or sharing of information together with training and

encouragement are essential components of employee
empowerment (Tan, 2007: 55).
• When empowered, service employees will have more power and
autonomy while performing their individual tasks, thus:

• Empowered employees are expected to make faster decisions to

meet customers’ needs and expectations (Gazzoli, Hancer and Park,
2012: 5).

• Empowered employees will have the ability and authority to engage

in recovery of service failures (Thomas and Velthouse, 1990: 678).
Importance of Employee Empowerment in
Relation to Service Recovery

Carson et al. (1998) classifies employees;

 who may be empowered but reluctant to handle service recoveries and neglect service recovery as
empowered neglecters
 who may not be empowered but eager to handle service recoveries and avoid service recovery as
learned avoiders
 who may not be empowered but eager to handle service recoveries as recovery riskers
 who may be both empowered and eager to handle service recoveries as effective recoverers.
• Hocutt and Stone’s (1998) service recovery model emphasises the
role of empowerment and autonomy in job satisfaction.
Relationship marketing
• It is a philosophy of doing business that focuses on keeping and
improving relationships with current customers rather than on
acquiring new customers.
• Evolution of customer relationship
• Customer as strangers
• Customer as acquaintances
• Customer as friends
• Customer as partners
Goal of relationship marketing
• Maintain a base of committed customers who are profitable for the
organization.
• Acquiring
• Satisfying
• Retaining
• Enhancing
• Benefits:
• Benefits for customer
• Confidence benefit
• Social benefit
• Benefits for firms
• Economic benefits
• Customer behavior benefit
• HRM benefits
Customer lifetime value
• Customer lifetime value is a primary metric for understanding your
customers. It’s a prediction of the value your relationship with a
customer can bring to your business. This approach allows
organizations to demonstrate the future value they can generate from
their marketing initiatives.
• Focusing on CLV helps you design an efficient strategy with concise
budget planning. However, some customers bring your business more
value than the others. That’s why it’s crucial to know which ones you
should focus on first and invest in.
Why you should calculate customer lifetime value (CLV)
• One of the key reasons for measuring CLV is customer retention.
• By measuring CLV you can better evaluate how much you should
invest in retaining your customers. It also enables your organization to
define marketing goals, plan spending to lower acquisition costs and
keep retention high.
Customer lifetime value provides you with relevant information on your
users and clients. It lets you answer some key questions, such as:
• How much should I spend to acquire a customer?
• How much should I invest to retain or win back my customers?
• How much time should my sales and marketing team spend on
customer acquisition?
• Are my offers well-suited for my best customers?
To measure CLV, you need to include the following:
• Customer lifespan
• Retention rate
• Customer churn rate
• Average profit margins (per customer)
What is Customer Bonding?
Customer bonding is, just as the term implies, the process through
which a company or organization makes connections with its
customers. The goal of customer bonding is to develop a
relationship and sense of community, including the customers so
that they:
• Feel welcomed
• Are more likely to continue patronizing the company (and its 
products or services)
• Are more likely to recommend the company to friends and family
• By engaging in customer bonding, companies are able to
generate a sense of loyalty and boost revenue. However,
along the way, they tend to find that there are a number of
other benefits that come from bonding with customers. For
example, getting regular customer feedback can help a
company improve its products or services, thereby making
them more appealing to consumers.
Competitive differentiation
• Differentiation is a basic business and marketing strategy, by
which a company focuses on distinct differences in its offering
to customers as the basis for establishing a competitive
advantage. For service-oriented businesses, you can focus on
quality differentiation as a strategy to attract and retain core
customers. To succeed in this approach, you must typically
distinguish your business in a variety of service components.
• Service Performance
• Service Experience
• Service Resolution
• Challenges
Competitive advantage and value chain
analysis
• A competitive advantage is an advantage over competitors gained by
offering consumers greater value, either by means of lower prices or
by providing greater benefits and service that justifies higher prices.
• Porter suggested four "generic" business strategies that could be
adopted in order to gain competitive advantage. The strategies relate to
the extent to which the scope of a business' activities are narrow
versus broad and the extent to which a business seeks to differentiate
its products.
Cost leadership
With this strategy, the objective is to become the lowest-cost producer in the
industry. The traditional method to achieve this objective is to produce on a large
scale which enables the business to exploit economies of scale.
To be the lowest-cost producer, a firm is likely to achieve or use several of the
following:
• High levels of productivity
• High capacity utilisation
• Use of bargaining power to negotiate the lowest prices for production inputs
• Lean production methods (e.g. JIT)
• Effective use of technology in the production process
• Access to the most effective distribution channels
Differentiation focus
The generic strategy of focus rests on the choice of a narrow competitive scope
within an industry. The focuser selects a segment or group of segments in the
industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in 
(b) differentiation focus a firm seeks differentiation in its target segment. Both
variants of the focus strategy rest on differences between a focuser's target
segment and other segments in the industry. The target segments must either
have buyers with unusual needs or else the production and delivery system
that best serves the target segment must differ from that of other industry
segments. Cost focus exploits differences in cost behaviour in some segments,
while differentiation focus exploits the special needs of buyers in certain
segments
Differentiation leadership
• With differentiation leadership, the business targets much larger
markets and aims to achieve competitive advantage across the whole
of an industry.
• This strategy involves selecting one or more criteria used by buyers in
a market - and then positioning the business uniquely to meet those
criteria. This strategy is usually associated with charging a premium
price for the product - often to reflect the higher production costs and
extra value-added features provided for the consumer.
Value Chain Analysis
• Introduced by Harvard Business School professor, Michael Porter, in
1985, the value chain model is a representation of all the business
activities needed to create a product from start to finish.
Porter's value chain model organizes these internal activities into two
categories-
1.Primary Activities directly add value to the final product, such as
operations and logistics
2.Support Activities indirectly add value to the product, such as human
resource management and tech development
Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and support
of a product or service. They consist of the following:
• Inbound logistics – These are all the processes related to receiving, storing, and
distributing inputs internally. Your supplier relationships are a key factor in creating
value here.
• Operations – These are the transformation activities that change inputs into outputs
that are sold to customers. Here, your operational systems create value.
• Outbound logistics – These activities deliver your product or service to your
customer. These are things like collection, storage, and distribution systems, and they
may be internal or external to your organization.
• Marketing and sales – These are the processes you use to persuade clients to
purchase from you instead of your competitors. The benefits you offer, and how well
you communicate them, are sources of value here.
• Service – These are the activities related to maintaining the value of your product or
service to your customers, once it's been purchased.
Support Activities
These activities support the primary functions above. In our diagram, the dotted lines show
that each support, or secondary, activity can play a role in each primary activity. For
example, procurement supports operations with certain activities, but it also supports
marketing and sales with other activities.
• Procurement (purchasing) – This is what the organization does to get the resources it
needs to operate. This includes finding vendors and negotiating best prices.
• Human resource management – This is how well a company recruits, hires, trains,
motivates, rewards, and retains its workers. People are a significant source of value, so
businesses can create a clear advantage with good HR practices.
• Technological development – These activities relate to managing and processing
information, as well as protecting a company's knowledge base. Minimizing information
technology costs, staying current with technological advances, and maintaining technical
excellence are sources of value creation.
• Infrastructure – These are a company's support systems, and the functions that allow it
to maintain daily operations. Accounting, legal, administrative, and general management
are examples of necessary infrastructure that businesses can use to their advantage.
Unit 2
Production, marketing, human resources
• The poor quality of service is often caused by lack of focus and
integration among these functions.
Operation-dominated services
• All service traditionally have been a collection of people who perform
various operations leading to cumulative outcome of service
experience.
• Operations constitutes the core functions without whose contribution
service provisions are not possible.
• Operation function is therefore the largest function in service firms.
• Operations department controls the physical resources.
• Operations enjoys position in the front office this gives the
responsibility of customer interactions.
Marketing trends
• Competition is new to service markets.
• Marketing is staffed by few people as it is at its infancy in service
sector.
• In service sector, the customer interacts with the operations instead
of the marketing personnel.
Human resource
• Human resource management addresses all issues that are related to
acquisition and utilization of Human resources of a firm. Although
technology has displaced human element.