18420614 Service Marketing

8/14/2019 18420614 Service Marketing

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1. SERVICES

1.1. Meaning and Definition of ServiceA service is the non-material equivalent of a good. A service provision is an economic activity that does not

result in ownership, and this is what differentiates it from providing physical goods. It is claimed to be a processthat creates benefits by facilitating either a change in customers, a change in their physical possessions, or achange in their intangibleassets.

By supplying some level of skill, ingenuity and experience, providers of a service participate in an economywithout the restrictions of carryingstock (inventory) or the need to concern themselves with bulky raw materials.On the other hand, their investment in expertise does require marketing and upgrading in the face ofcompetition which has equally few physical restrictions.

In common parlance, the term cannot be only personal services like auto repairing, hair-cutting, services ofdentists, legal consultants and so on. The marketing experts view the problem in a bit different way. They feelthat the contents of services are much wider. There is no doubt in it that a number of experts have attempted todefine the services but no single definition has been accepted universally.

According to Philip Kotler, A service is an act or performance that one party can offer to another that isessentially intangible and does not result in the ownership of anything. Its production may or may not be tied toa physical product.

According to Zeithmal and Bitner, Services are deeds, processes and performances. Here, deeds are theactions of the service provider, processes are the steps in the provision of service, and performance is thecustomers understanding of how the service has been delivered.

According to the American Marketing Association, Services are activities, benefits or satisfaction, whichare offered for sale are provided in connection with the sale of goods. This definition makes it clear thatservices are activities, benefits or satisfaction and we find their uses for selling products which may be tangibleor even intangible.

A comprehensive definition of services must include the following elements:i) Lack of physical output or constructionii) Benefit to the receiver from the service rather than the product offerediii) The intangible nature of servicesiv) The possible combination of a service with the production of goodsv) Marketing of an idea or a concept

1.2. Characteristics of Services:1) Intangibility: Services are intangible. Unlike physical products, they cannot be seen, tasted felt, heard, or

smelled before they are bought. The person getting a face lift cannot see the exact results before thepurchase, and the patient in the psychiatrists office cannot know the exact outcome.

2) Inseparability: Inseparability is the next unique feature of services. Some experts refer to it by the termimmediacy. In fact, services are marked by two kinds of inseparability:i) Inseparability of production and consumption
http://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Possessionhttp://en.wikipedia.org/wiki/Possessionhttp://en.wikipedia.org/wiki/Possessionhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Possessionhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Stock


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ii) Inseparability of the service from the person who possesses the skill and performs the service

Services are typically produced and consumed simultaneously. This is not true of physical goods, which aremanufactured, put into inventory, distributed through multiple resellers, and consumed later. If a personrenders the service, then the provider is part of the service. Because the client is also present as theservice is produced, provider-client interaction is a special feature of services marketing. Both provider andclient affect the outcome.

3) Variability: Services are also marked by variability / individuality/ heterogeneity. This is so because of threereasons:i) The inseparability of the service from the provider leads to some variability; the provider of the service

being inseparable from the service, variability automatically enters the picture, depending on the personperforming the service.

ii) Services are highly people intensive. And, anything that is people intensive is bound to be marked byvariability. Services are often categorized on the basis of the type of people who provide them likeunskilled services, skilled services, and complete professional services. In the case of physicalproducts, who produces the product is immaterial.

iii) In services, the effect varies dependent on when and where the service is provided. As a combinedresult of the three factors, services are marked by a high degree of variability/individuality/

heterogeneity.4) Perishability Services are Perishable as Well: Services cannot be stored. Some doctors charge

patients for missed appointments because the service value existed only at that point. The perishability ofservices is not a problem when demand is steady. When demand fluctuates, service firms have problems.For example, public-transportation companies have to own much more equipment because of rush-hourdemand than if demand were even throughout the day.

5) Ownership: It is also ownership that makes it significant to market the services in a bit different way. Thegoods sold are transferred from one place to another, the ownership is also transferred and this provides tothe buyers an opportunity to resell. In the case of services, we do not find the same thing. The users havejust an access to the service. As for example a consumer can use personal care services or Medicareservices or can use a hotel room or swimming pool, however the ownership rests with the providers.

6) Service is a Performance: While products are produced, services are performed. In most cases, the latterare totally unconnected to any physical product.


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7) Simultaneity: Services cannot be delivered to customers or users. Services do not move through thechannel of distribution. For availing the services, it is essential that the users are brought to the providers orthe providers go to the users. It is right to say that the services have limited geographical areas.

8) Quality Measurement: The quality of service requires another tool for measurement. We cannot measure it interms of service level. It is very difficult to rate or quantify the total purchase. As for example, we can quantify thefood served in a hotel but the way a waiter or a carrier serves it or overall environment or behavior of other staffcant be ignored while rating the total process. Hence we can determine the level of satisfaction at which the usersare found satisfied. A firm sells atmosphere, conveniences, consistent quality, status, anxiety, moral etc.

9) Nature of Demand: While going through the features of services, we cannot underestimate the factorrelated to the nature of demand. Generally the services are found of fluctuating nature. Particularly duringthe peak season, we find an abnormal increase in the demand. As for example, the mobility of passengeris found increased, especially during the marriage season on during an important festival. The touristsprefer to go the tourist spots or resorts especially during summer when we find the weather conditionsuitable. The cricket stadiums are used in winter.

10) Consumer, a Part of the Production Process: In most services, the consumer is an integral part of theproduction process, as he has to be physically present when the service is produced. This is not true ofphysical products. In fact, a service situation requires the presence of not merely the consumer but that ofthe producer as well. Quite often, the consumer and the service provider are face to face when the serviceis produced. Hence, service provider-consumer interaction becomes a special feature of services.

Robert Johnston (Book Code 25.18) Pg No. 36-37

1.3. Types of ServicesEach sector of the service economy (such as financial services, tourism, leisure, charities and government,hospitals and business-to-business services) has its own set of specific challenges. This section describessome of the differences between the various types of services and outlines some of the particular challengesfaced by each sector. Therefore, it is necessary to be aware that each of these services will also have issuesrelating to aspects such as:1) Periodical Transactional Volume: The volume of transactions in a given time period stands as the major

consideration in the service industry. The hyper-market has very different operation challenges from the

local grocery store, not least in simply managing the flow of hundreds of customers in the store.2) Mode of Service Delivery: The retail sector provides a good example of this diversity, with face-to-faceservice in traditional stores, remote service through mail order or telephone shopping and more recently,Internet-based services.

Here, we explore some of the key differences in service provision between five broad sectors of the serviceeconomy (see table below).

3) Business-to-Business (B2B) services,4) Business-to-Consumer (B2C) services,5) Internal services,6) Public services (sometimes referred to as G2C Government-to-Consumer),7) Not-for-profit services.

It is important to note that we use the term customer as an all-embracing term that covers users, consumersand beneficiaries. For example,

Table: Types of Service

Business-to-Business (B2B)

Services

Business-to-Consumer

(B2C)Services

Internal Services Public Services(G2C)

Not-for-ProfitServices

Description Services providedfor businesses

Servicesprovided forindividuals

Services providedby internalfunctions withinorganizations.

Services provided bycentral or localgovernment.

Services provided byNon-GovernmentOrganizations (NGOs)or charities.

Examples MaintenanceConsultancy

Training Catering

ShopsHotels

BanksFood

FinancePurchasing

IT Personnel

PrisonsHospitals

SchoolsLeisure

HospicesCounseling

Faith organizationsAd agencies


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CustomersandPurchasers

Frequentlypurchased byprofessionals, whoare not necessarilythe end-users.

Usuallypurchased bythe individualconsumer.

Users have little orno choice of provider; frequentlyfunded by centralbudget.

Users may have littleday-to-day choice;funded throughtaxation with theallocation of resources influencedby political

processes.

Beneficiaries are self-selecting or chosenrecipients; fundedthrough individual andorganizational giving.

Challenges Providing high-quality services tobusiness customerswho frequently havehigh purchasingpower.

Providingconsistentservice to awide variety ofcustomers.

Demonstratingvalue for moneyagainst possibleexternalalternatives.

Balancing thevarious politicalpressures andproviding acceptablepublic services.

Dealing withdifferences betweenvolunteers, donors andbeneficiaries. Dealingwith emotional andsometimesoverwhelming needs.

1.4. Classification of Services1) By Market Segment:

2) By Degree of Tangibility:

3) By Skills of the Service Providers:

4) By Goals of the Provider:

OrganizationalConsumer

By Market Segment

Final Consumer

Coaching, Taxi, CarWash, Life Insurance

Management Consulting,Machinery Repair, Accounting

Services, Legal Services

Figure: Classification of Services by Market Segment

By Degree of Tangibility

Highly Tangible

Service Linked to TangibleGoods

Highly Intangible

Car rental, Vending machines,Telecommunications

Domestic appliance repair,Car service

Psychotherapy, Consultancy,Legal services

Figure: Classification of Services of by Degree of Tangibility

Non-Professional

By Skills of theService Providers

Professional

Medical services, Legal services,Accountancy, Tutoring

Babysitting, Caretaking, Casuallabor, uniformed security, Taxi

Figure: Classification of Services by Skills of the Service Providers

Commercial

By Goals of the Provider

Not-for-profit

Scouts Association, Charities,Public sector leisure facilities

Banks, Airlines, Tour Operators,Hotel and Catering services

Figure: Classification of Services by Goals of the Provider


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5) By Degree of Regulation: Government exercises control over the services by enacting regulation. Thesecan be classified by the extent of regulation exercised by the government. Some services like banking,insurance are highly regulated. Services like catering, fast food are subjected to limited regulations, forexample, used colors in sweets should be edible of specifications.

6) By Degree of Labor Intensiveness: People are involved in performing services. Therefore, humanlabor is involved in service delivery. The services differ according to extent of labor involved, forexample, computer assisted banking versus manual banking, manual car washing versus automatedcar washing. Labor intensity will increase if high volume/heavy weight equipment is installed atowners premises as it will involve loading, transportation, unloading and other handling activities. Do

it yourself services are performed by the consumers themselves.

LimitedRegulated

By Degrees of Regulation

Highly Regulated

Mass transit, Hospitals,Insurance, utilities

Catering, fast food

Non-regulated

Computer time, leisurelawn care, house

paintingFigure: Classification of Services by Degree of Regulation

Skilledlabor

Lawn careGuards

Cleaningservices

Appliancerepair

Plumbingrepair Catering

Degree of laborintensiveness

Automated Operated byrelatively unskilled

operators

Operatedby skilledoperators

Vendingmachine

automated carwash

Motion picturetheatres Dry

cleaning Taxis

ExcavatingAirlines

Computer TimeSharing

Equipment basedservices

People basedservices

Unskilledlabor Professionals


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The labor intensive services are categorized as equipment based and people based. Equipment basedservices are automated, monitored by relatively unskilled operations and operated by skilled operators. Forexample, automated coffee vending, automated car wash. People based service are those involvingprofessionals, i.e., lawyers, accountants; skilled, i.e., appliance repair, catering; unskilled, i.e., lawn care,guards etc. Figure above illustrates the classification of services by degree of labor intensiveness.

7) By Degree of Customer Contact:

1.5. Role of Services in an EconomyServices lie at the very center of economic activity in any society. Dorothy Riddle, in writing about the role ofthe service sector in world development, formulated the economic model shown in figure below. This model of

the economy shows the flow of activity among the three principal sectors of the economy, extractive (mining

and farming) manufacturing and service, which is divided into five sub-groups. All activity eventually leads to the

consumer. Examples of services in each of the five sub-groups are:

1) Infrastructure Services: Infrastructures such as transportation and communication are the essential linksbetween all sectors of the economy, including the final consumer. In a complex economy, infrastructureservices and trade services function as intermediaries between the extractive and manufacture sectors andas the channel of distribution to the final consumer. Infrastructure services are a prerequisite for aneconomy to become industrialized, therefore, no advanced society can be without these services.

Examples: Communications, transportation.

Interactive Model of an Economy

PublicAdministration

ExtractiveSector

ManufacturingSector

InfrastructureServices

BusinessServices

TradeServices

Consumer

Social/PersonalServices

By degrees of CustomerContacts

High contact

Low contact

Universities, large appliancerepair, Air travel, hotel

Lawn care, Automated carwash, Janitorial services

Figure: Classification of Services by Degree of Customer Contact


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2) Business Services: In an industrialized economy, specialized firms can supply business services tomanufacturing firms more cheaply and more efficiently than the manufacturing firms can supply the servicesfor themselves. Thus, more often we find advertising, consulting, financing, and other business functionsbeing provided for the manufacturing sector by service firms.

Examples: Consulting, finance, banking.

3) Trade Services: Service activities are absolutely necessary for the economy to function and to enhance thequality of life. Consider, for example, the importance of banking industry to transfer funds and transportationindustry to move food to areas that cannot produce them.

Examples: Retailing, maintenance and repair.

4) Social/PersonalServices: Moreover, a wide variety of social and personal services such as restaurants,lodging, cleaning and child care have been created to move former household functions into the economy.

Examples: Restaurants, health care.

5) Public Administration: It plays a critical role in providing a stable environment for investment andeconomic growth. In communities and countries where public administrative services are weak or heavilyskewed solely by political or idealistic concerns, essential services are inaccessible to many citizens.

Examples: Education, Government

Thus, it is imperative to recognize that services are not peripheral activities but, rather, integral parts of society.They are central to the functioning of a healthy economy. The service sector not only facilitates but also makespossible the goods producing activities of the extractive and manufacturing sectors. Services are the crucialforce for change towards a global economy.

1.5.1. Service Sector in IndiaThe main features of service sector in India can be summarized as below:1) Employee Oriented: The service industry is highly employee oriented and heavily overstaffed.

2) Regulated By Government: It is mostly under government control where social objectives often takeprecedence over commercial implications. Further when evaluating the achievement of social objectives,

service to beneficiaries appears to be neglected.3) Beyond Comparison: The difference in operating environment between Indian service organizations and

similar ones in other countries is so vast that comparisons become meaningless.4) Monopolistic Players: Organizations dealing with the service sector are monopolistic and dominated by

procedures and statistics rather than service to customers, whereas service depends primarily on peoplesattitude rather than on procedures.

From a predominantly agricultural economy in the earlier times, the country has come a long way in its developmentsince its independence in 1947.

The usual method adopted by economists to understand the relative importance of various segments of aneconomy is to divide it into three main sectors representing the origin of Gross Domestic Product (GDP).1) Primary Sector: The contribution of this sector comes from fisheries, agriculture, forestry, mining and

quarrying, and so on. In short, it is predominantly dependent on natural resources. Construction is also

included in the primary sector.

2) Secondary Sector: This sector comprises manufacturers and industries. It is mainly dependent on theproducts of the primary sector as raw materials and produces goods for consumption. The secondarysector produces goods that can be used either by other industries or by end consumers.

3) Tertiary Sector: This is the services sector where the output is not goods or construction but various servicesthat make life comfortable. This sector comprises government (defense, social welfare), financial (investing,broking, insurance, banking), education (schools, colleges), health (hospitals, gymnasiums, spas, etc.), and evenentertainment (sports, television, cinema, radio) services.

2. SERVICES MARKETING

Services marketing is marketing based on relationship and value. It may be used to market a service or aproduct. Marketing a service-base business is different from marketing a goods-base business.


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We term marketing as a function by which a marketer plans, promote and deliver goods and services to thecustomers or clients. In the marketing of services, the providers are supposed to influence and satisfy thecustomers or users. An institution or an individual may act as a provider who requires professional excellence toinfluence the impulse of prospects and to transform them into actual customers. When we buy services offeredby a service generating organization in a true sense we buy the time, knowledge, skill or resources. The

application of marketing principles in the services sector is the main thing in the services marketing.

The following key points regarding the concept or perception of services marketing are:i) It is a managerial process of managing the services.

ii) It is an organized effort for providing a sound foundation for the development of an organization.

iii) It is a social process helping an organization to understand the emerging social problems and to take part inthe social transformation process to justify its existence in the society.


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2.1. Why Marketing of Services?1) Upward Trend in the Disposable Income: We cannot negate that of late the disposable income of masses

has been found moving upward. This trend is found even in the developing countries like ours where thedevelopment-oriented sector has opened new job opportunities and the liberalization of economy is openingnew vistas for development. The development of corporate sector makes ways for the transformation ofindustrial economy. If we find more job opportunities, the masses get an opportunity to earn more and whenthey earn more, it is quite natural that they want to spend more. The positive developments in thedevelopment sector thus open doors for an increase in the disposable income. The moment we find anincrease in the disposable income, the process of demand generation gains a rapid momentum provided thepressure of inflation and the economic depression are not to slow down the tempo. These facts are a mutetestimony to the proposition that even in the Indian economy we find positive developments which have beencreating new opportunities for the development of services sector.

2) Increasing Specialization: We are living in an age of specialization in which only perfection is to berewarded suitably. More and more sophistication in the process of economic transformation is due mainly tothe increasing specialization. In the industrial economy, the magnitude of technological sophistication isfound increasing. Of course, this is due to the growing importance of specialization. The organizations havenow no option but to promote specialization since this helps them in making possible cost effectiveness.The firms prefer to engage specialists for almost all the purposes. Experts and professionals like the

management consultants, legal advisers, financial experts, technocrats, play a decisive role in managing anorganization.

This makes it clear that increasing importance of specialization would activate the demand cycle whichwould make ways for the development of banking services, insurance services, transportation services,communication services and many other services would be motivated.

3) Growing Fashion: With the development of corporate culture and the emergence of a well establishedservices sector, there would be a basic change in the lifestyles. Since the information technologies wouldshow their influence in almost all the areas, it is natural that fashion would take shape of an industry. Thehair dressing, beauty parlors, jogging and gym centres would flourish since the masses would be foundmore conscious to their physical health.

4) Professionalism in Education: The development of human resources would be given a transcendental

priority by almost all the organizations either producing goods or generating services. Or course, thecorporate culture makes an advocacy in favor of performance-orientation but it is not possible unless weassign due weightage to employee-orientation. The professional excellence thus would get a new priorityand the masses would be tempted to the professional education.

5) Information Explosion: Of late, the developed countries have been found making sincere efforts to build asuperhighway for communications. The inventions and innovations in the field of communications havebeen found fuelling information explosion. It is in this context that we now find globe like a village. To bemore specific after the development of satellite communication facilities, we find beginning of a new chapterin almost all the areas. The tremendous opportunities generated by communications would influence almostall the sectors.

6) Sophistication in Market: With the development of communication services, it is natural that we findsophistication in the market where customers expectations would be found high. The westernized life

styles would change the hierarchy of needs and requirements and fashion-oriented, comforts-generating household items would have a profitable market. The living conditions would be changed,the food habits would be changed, the dresses and hair styles would be changed, the drinks would bechanged, the vehicles would be changed and the style of homes and apartments would be changedand so on and so forth. This makes it clear that multi-dimensional changes in almost all the areaswould change the nature of market vis--vis the products/services required for that market.

7) Increasing Governmental Activities: The expanding governmental activities due mainly to theparticipation of state in almost all sectors of the economy would also make ways for the developmentof services sector. The trade and cultural exchange policies, the global partnership, the conventionindustry, the hospitality industry etc. would have a profitable market.

2.2. Nature of Services Marketing

Marketing of service product is different from marketing of products. Following are the features of servicemarketing:


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1) IntangibilityServices are said to be intangible, they cannot be seen or tasted. This can cause lack of confidence on the partof the consumer. Consumer decides on basis of his understanding of service and marketer promise ofperformance. If the service is complex, consumer may spend considerable time in evaluation of alternatives.


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2) Low Price SensitivityIn service sector, consumers have low price sensitivity. Consumers are willing to pay a higher price as longas they feel assured that they get a better quality. Consumer decision in service marketing is based on twoparameters, price sensitivity and performance expectation. A consumer will accept a low performance inservice if the price of service is low. Similarly he will expect high quality of service if price of service is high.

3) No InventoryIn service industry there is zero time gap between production and consumption. Services that are producedhave to be consumed as they are produced. Marketers have to keep this aspect in mind while planningoperations. Marketer need to balance demand and supply of service. This is important for profitability.

4) Value Creation ProcessMarketer can create value in service process through people, procedure, proof of performance and the pace atwhich service is delivered. Most of the marketers ignore these four Ps and concentrate on traditional Ps. Avalue service product is created through integrated marketing mix.

5) Providing Tangibility to the IntangibilityHow can a marketer overcome the drawback of intangibility? Fortunately for him, there are ways and means toovercome this particular unique characteristic of the service industry. These are the ways in which intangibilitycan be overcome:i) Visualization: The marketer should find ways and means to help the customer visualize the transaction

process and the service transaction benefits of consuming the service product. Pictures, films, etc., shouldbe used evocatively.

ii) Association: The intangibility of the service offer makes it difficult for the marketer to convince consumersabout its credibility, character, or the ability to keep its word, service delivery, etc. This can be overcomeby associating the offer with some living persona, or known inanimate objects.

iii) Physical Representation: The intangibility factor in a service offer forces a marketer to go for tangiblerepresentations symbolizing the existence and character of service industries. The tangibles help in makingthe offer believable. Some of the ways in which this can be used are:

a) Uniforms: This has been in use by many service organizations over a long period of time effectively.They not only covey uniformity, discipline and conformity but also professionalism. They also improvevisibility for the service organization.


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b) Colors: This is used in services capes like interiors, stationery, glow sign, buildings, etc. The corporatecolors are a part of their logo and other corporate communication tools.

c) Logos and Mascots: This is not unique to service firms but has been effectively used by themto overcome intangibility. Logos, derived from the Greek word logos, implied word. Kings used it intheir royal seals and English Lords and other nobility used them in their family crests. Service firms havesought to convey their mission and vision through them. Most schools, colleges and universities have

them to convey their core values, through mottos and distinctive badges

iv) Documentation: The documentation is used by service providers to tangibilize their intangibles. They citefacts and figures in their promotions to support the claim of their performance in terms of dependability,reliability and responsiveness.

v) Selling Services: In practice, face-to-face selling tends to be more prevalent in service industry. This is, inlarge part, because many such services are also delivered in a personal form; with some service providersusing professionals of specialization rather than salesperson. It is because personal contact may be seenas necessary to establish the credentials the integrity of the service provider, where the service itself isan intangible quantity.

vi) Tangibilizing Services through Benefits: The AT&T, the Citibank and the Times Group arerevolutionizing the credit card industry by offering tangible benefits to customers; discounts on long distancetelephone calls, frequent flyer programmes.

vii) Tangibilizing through Positioning: The intangibility of services makes positioning decisions difficult. Unlikegoods positioning, which may stress attributes and consumer analysis (such as touching, tasting and so on) priorto purchase the service positioning must rely on performance attributes (such as how well a truck handlesfollowing a tune up) which can be measured only after a purchase.

2.3. Difference between Product/Goods and Services MarketingServices and goods are not synonymous. There are a number of salient features that establish a clear cutdifference between the two. Something which can be physically touched, verified, attracted or exchanged withor even without making profits are known as goods. On this basis, goods are food, clothes, books, otherdomestic and industrial items that can be carried home, can be stored at a place and are tangible. On the otherhand, the services are hotel business, personal care, legal or medical services, banking services, insuranceservices, transportation services and many other services which cannot be stored at a place and one has to

hire someone else to perform the services. The effects are pleasure, joy, and entertainment, a relief fromailment or so. The following points clarify the difference between the two(make this into tabular form)1) Tangibility: By tangibility, we mean anything which can be viewed. On the basis of tangibility, goods are

found tangible since we can view the goods bought by us. Contrary to it, the services are found intangiblebecause it is not possible to view the services. We can just realize the services used by us.

2) Transferability: On the basis of transferability, the goods can be transferred from one place to another. Wecan carry goods bought by us. We find transfer of goods from the point of sale to the point of use. Justreverse to it, it is not possible to transfer the services from the point of sale to the point of use.

3) Existence: The goods bought by us remain existent. The durables continue for a long time and even if thenon-durables have limited existence. We do not find the same thing with the services since we find servicesnon-existent in nature.

4) Heterogeneity: On the basis of heterogeneity, the services can hardly be standardized. Contrary to it, thegoods can be standardized. It is very difficult to measure the quality of services but it is easier to measurethe quality of goods.

5) Re-selling: The goods bought by us can be resold. After a limited use, the owners are in a position andthey do also possess a legal right to resale the same. We dont find the same thing with the services. If webuy a seat in the air craft, if we book a room in a hotel, if we buy a seat in a cinema hall; we have no optionbut to use or surrender. We dont bear the right of reselling the same.

K. Rama Mohana Rao (Book Code 25.3) Pg No 7-8

6) Point of Production: Services are produced in buyer-seller interactions. Goods are produced in thefactory.

7) Functional Integration: Production, distribution and consumption take place simultaneously in the case of

services. In the case of goods, the three are separate and independent functions.


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8) Customer Role: Consumers are co-producers in services. Customers do not generally participate in theproduction of goods.

9) Storage: Services cannot be stored. Goods can be stored.

Difference between Services and Goods

Basis Services Could be Either Goods

Intangibility Fully intangible may be physicalevidence

Partially tangible Fully tangible

Inseparability of Buyerand Provider

Both must be present Remote transactionspossible

Remote transactions easy

Ease of Inventory Cannot store or ware-house theservice

Easily inventoried

Sensitivity to Time Needed on demand, or sale islost

Can usually wait to receive theproduct

Difficulty in Measuringand Controlling Quality

Measure and control people andprocesses instead of products

Measure and controlpeople, processes, andproducts

Measure and control productquality only

High Degree of Risk/Difficulty of Experimentation

Cost of failure very high; maynot be possible make whole orreplace the service

Partial replacement ispossible

Product can be replaced

Consumption of theOffering

Customization likely to enhancecustomer perception of perceived quality

Customization hasperipheral affect onperceived quality

Customization increasescosts, but unlikely to affectperceived product quality

Personalization of BuyerRelationship

Relationship can be asimportant as service.

Relationship can playan important role

Product is the focus of thetransaction

2.4. Goods/Services ContinuumIn reality, most products are a combination of goods and services. The purchase of a pure good like a Car stillhas service components, such as bringing it to the dealer for maintenance work. The purchase of a pureservice like a makeover at a department store has product components, for example, lotions, powders, andlipsticks the cosmetologist uses to create the new you.

The service continuum in figure below shows that some products are dominated by either tangible orintangible characteristics, for instance, salt versus teaching, whereas others tend to include a mixture ofgoods and services, such as flying in an airplane. A products placement on this continuum gives someguidance as to which marketing issues are likely to be most relevant. As the product approaches the tangiblepole of this continuum, there is fairly little emphasis on service. The physical product itself is the focal pointand people will choose one over others based on the product's function or image. But, as the product getsnear the intangible pole, the service encounter plays a key role in shaping the service experience. In the mid-

dle of the continuum, both goods and services contribute substantially to the quality of the product becausethese products rely on people to satisfactorily operate equipment that will deliver quality service. Let'sconsider each of these three positions as we move from products dominated by tangibles to those dominatedby intangibles.1) Good-Dominated Products: Many tangible products are accompanied by supporting services, even if this

only means that the company maintains a toll-free telephone line for questions or provides a 30-daywarranty against defects. Including a service with the purchase of a physical good is termed embodying.Embodying is a strategy in the computer industry, especially for companies that are trying to break intointernational markets saturated with cheap products but with insufficient guidance in their use.

Salt

Necktie

Dog food

House

Automobile

Tailored suit

Fast-food shopBalanced Entity

Tangibleelements (most

goods)

Television

Air travel

Advertising agencyTheatre

Teaching

Intangibleelements (most

services)

Scale of (In) Tangibility

Nursing


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2) Equipment- or Facility-Based Services: Some products require a mixture of tangible and intangibleelements. Many hospitals and restaurants fall in the middle of the continuum because they rely onexpensive equipment or facilities and skilled personnel to deliver a product. Facility-driven services, such asautomatic car washes, amusement parks, museums, movie theaters, health clubs, tanning salons, andzoos, must be concerned with the three factors.i) Operational Factors: Technologies must move customers smoothly through the service. Clear signs

and other guidelines must show customers how to use the service. In particular, firms need to minimizewaiting times. Marketers have developed a number of tricks to give impatient customers the illusion thatthey arent waiting too long. One hotel chain, responding to complaints about the long wait for elevators,installed mirrors in the lobby; People tend to check themselves out until the elevators arrive, and lo andbehold protests decreased. Burger Kings research showed that multiple lines create stress incustomers especially if one moves faster than the others so it shifted to single lines in whichcustomers at the head of the line order at the next available register.

ii) Location Factors: These are especially important for frequently purchased services, such as drycleaning or retail banking that are obtained at a fixed location. Blockbuster Entertainment estimates that

70 percent of the U.S. population lives within a 10-minute drive of a Blockbuster store.

iii) Environmental Factors: Service managers who operate a storefront service requiring people to cometo their location realize they must create an attractive environment to lure customers. That's why NFLstadiums are upgrading their facilities by offering plush sky boxes to well-heeled patrons and a betterassortment of food and merchandize to the rest of us. One trend is for such services to adopt a moreretail-like philosophy, borrowing techniques from clothing stores or restaurants to create a pleasantenvironment. Banks, for example, are creating signature looks for their branches through the use oflighting, color, and art.

2) People-Based Services: At the intangible end of the continuum are people-based services.

Because people have less and less time to perform various tasks, the importance of people-based services isincreasing. Self-improvement services such as those offered by wardrobe consultants and personal trainers are

becoming increasingly popular, and in some cities even professional dog walkers do a brisk business. Many ofus hire someone to do our legal work, repair our cars and appliances, and do our tax returns.

2.5. Factor Affecting Development of Services Marketing1) Organization Size and Structure: Many service providers are typically small and specialized plumbers,

lawyers and accountants are representative of the traditional service provider. In the past, they cateredexclusively for the existing local demand. Marketing specialists were not employed due to the size of theoperations, which may have been sole trader or partnership based, and due to limited competition,especially on a local scale.

2) Regulatory Bodies: Regulatory bodies have also restricted the activities of many service providers.Restrictions still exist today on the amount and type of advertising which can be undertaken by certainprofessional services, particularly in the medical and legal fields. Public sector services and charities are

also frequently constrained in their business activities by various forms of legislation and regulations.


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3) Growth in Service Industries: However, growth in major services industries such as banking, hotel andcatering and tourism services has been accompanied by new developments in marketing. Services marketingideas and techniques have grown alongside the growth of the service economy. Marketing has contributed tothe growth and success of service industries in a number of ways. The design of the service product, oroffering, has shifted from a product-based focus to a customer focus the organization provides what themarket needs, not what the organization thinks the market wants.

4) Characteristics of Services: The characteristics of services intangibility, inseparability, heterogeneityand perishability mean that there are new considerations facing services marketers. These differences ledto the development of the expanded marketing mix to focus on issues perceived by customers to beimportant in services marketing.

5) Customer/Employee Interaction: The customer/employee interaction takes on a far more significant role inservices marketing than in the marketing of physical goods. Consequently, services marketing attaches moreemphasis to training and better communications. Relatively new concepts have emerged to support servicesmarketing such as internal marketing and relationship marketing. These are now finding increasingacceptance in mainstream marketing and are being applied to areas outside service.

6) Service Quality: Services marketing also places a clear focus on service quality and programmes forimplementing service quality. The development of a clearer understanding of perceived service quality and thecustomers perception of quality based on the total service experience has addressed specific quality issues in

services marketing.

7) Specific Service Sectors: Specific areas of services marketing have attracted interest, especially not-for-profit organizations and professional services. Marketers in these organizations are faced with ethicalconsiderations and other constraints. Certain public sector services are similarly constrained. The adoptionof marketing by these organizations, and the growth or marketing expertise in the area, is leading to agreater marketing orientation.

2.6. Significance of Services Marketing1) Creation and Expansion of Job Opportunities: The mounting problem of unemployment especially in the

Indian perspective makes it essential that whatever the development plans we formulate are instrumental increating and expanding the job opportunities. We cannot deny that the development of services sectorwould open doors, search new vistas for the development of even those sectors which have either

remained untapped or have partially been tapped.

2) An Optimal Utilization of Resources: The most important thing in the development process is to makepossible an optimal development of the different types of resources available in a country. Since we havebeen facing the problem of a non-optimal demographic structure, it is pertinent that we make an assault onthe misuse of resources. It is in this context that we find the services marketing important since this sectorof the economy if marketed properly regulates the unproductive use of resources. By marketing services,we prefer to use resources which remain unutilized or underutilized generally found to be a burden on theexchequer.

3) Paving Avenues for the Formation of Capital: To energize the process of development, it is essential that wespeed up the process of capital formation so that the problem of inadequacy of financial resources is minimized. Itis against this background that we need to assign due weightage to the development of services sector. Theformation of capital is substantially influenced by the contributions of production processes to the national economy.

If our investments are found to be productive, we contribute substantially to the development process.4) Increasing the Standard of Living: The philosophy of development is coiled in the essence of improving

the living conditions of masses which in turn help increasing the standard of living. If we offer quality livingconditions for the masses, the faculty of development would be proved to be productive. The qualitativedevelopments in the society are substantially influenced by the pattern or system of development adoptedby the policy makers. If we turn our eyes on the standard of living of the Indian society, of course we findourselves far behind the developed countries. At the same time, it is right to mention that we find goodauguries and are optimistic. For increasing the standard of living, it is only not essential that we makeavailable to the masses opportunities to earn more but it is also essential that we make sincere efforts toincrease public awareness so that they know how to spend, where to spend, what to eat, how much to eat,how to develop our personality, how to keep the health sound and so on. These things contributeconsiderably to the standard of living.

5) Environment-Friendly Technology: Of late, we find use of technologies even in the services sector sincealmost all the services are now found technology-driven. To be more specific the developed countries havebeen found practicing the same. There is no doubt in it that we find a beginning even in the Indian condition


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but it is at the nascent stage. The basic difference that we find in the nature and types of technologies usedfor managing and offering the services is its negligible or even dismal negative effective on theenvironment. The banking services, insurance services, tourism services, hostel services, communicationservices, education services and by and large almost all the services are now technology-driven butenvironment friendly.

2.7. Paradigms in Services MarketingProgress in any scientific field requires a paradigm, which is conceived as a fundamental set of assumptionsthat is shared by members of a particular scientific community. Defined in this way, in contrast to its traditionaldictionary definition of a pattern, exemplar, example (Oxford English Dictionary), a paradigm shapes theformulation of theoretical generalizations, focuses data gathering, and influences the selection of researchprocedures and projects. Although paradigms can facilitate researcher and generate axioms that are useful forboth teaching and practice, they are not absolutes and the validity of the underlying assumptions may be opento challenge.

2.7.1. Service as a ProcessIn service marketing today, service brand is built by taking the process perspective. This means that unlikemanufacturing, differentiation between operations and marketing is blurred in the services industry. Internal

customer focus is as important as external customer orientation. Further, since customers are often involved inthe production of services (for example, the customer in a food chain wherein he places the order, picks up theorder himself and then after finishing clears the table), marketers need to understand the nature of the serviceprocess and the stages in this process that are exposed to customers. The process is a special method ofoperation wherein several steps or activities are performed in a defined sequential manner.

It is obvious that people and objects are two major inputs processed in thee service industry. In most cases,customers are important inputs in the service process, as reflected by restaurant, airline or beauty salonbusinesses. In other cases, the key input is an object that needs to be either produced or repaired. Forexample, a burger is an object to be produced by McDonald in a defined manner and time so as too ensureconsistent quality, production and delivery. In another case, like the computer hardware industry, amalfunctioning computer is an object that requires service support. Thus keeping in mind the category of inputsand whether the action required is at the tangible or intangible level, one can have a four-way classification of

services as shown in Figure aside. In the Figure, quadrant A is categorized as people processing services,quadrant B as product or possession processing, while quadrant C is mental stimulus processing and the lastquadrant D is information processing.

In the Figure above, quadrant A is categorized as people processing services, quadrant B as product orpossession processing, while quadrant C is mental stimulus processing and the last quadrant D is informationprocessing.

Restaurant/HealthCare

Transportation/Warehousing

Education/ManagementConsultancy

LegalServices/Insurance

People Objects/ProductsInputs

ActionRequired

Tangible

Intangible

Classification of Services


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i) People Processing Services: People processing servicesare targeted at themselves. In order to receivethese types of services the customer must physically enter the service system or the service factory. Forexample, an aircraft where both people and equipment or technology, or either of them, create and deliverservice benefit. Today it is possible that the service producer may come to the customer along with thenecessary tools of his trade. The goal of this service provider is to create a new set of values in theindustry, for the customers. For example, a banker may walk up to the customer and complete all the

necessary transactions that the customer may want to do at his/her place of work or residence at a timemost convenient to him/her.

ii) Product Processing or Possession Processing: In product processing or possession processing services,customers are less physically involved. In most such cases customer involvement is usually limited to calling forthe services, explaining the problem and subsequently making the payment. The pre and after sales servicehere will involve issues relating to customer response management. From the marketing viewpoint, these are arange of services, which are going to add value to the customer and hence, the marketer needs to understandthe entire value chain process of the customer. For example, the logistics services provider needs to understandthe role of his services in the value creation process of an exporter or of the shares department of a largeindustrial house. It is important to note here that the customer evaluates such services on the basis of tangiblepromises being delivered within a defined time period and at a pre-negotiated price.

Thus the marketer has to ensure that there are no problems in delivering the promised service.

iii) Mental Stimulus Processing: Services that are categorized under mental stimulus processing includeeducation, entertainment and management consultancy. It also includes religious services being offered by alarge number of religious gurus and their ashrams. These services impact the consumer mind and have thepotential to shape their attitudes, behavior and lifestyle. In a way, this relationship of the marketer with thecustomer is one of dependency, in which the customer is dependent on the Guru. This can often lead toproblems relating to manipulation, extortion and even unethical behavior or practices. To avoid such a negativeimage, such organizations and individuals need to evolve a code of conduct acceptable to the customer andcreate high ethical standards.

iv) Information Processing Services: In the context of information processing services, the marketer has tounderstand that information is a most intangible form of service output and, in todays context, most vital

from the point of view of the customers own competitive advantage. In this era of information technologycustomers shop for information in areas as diverse as accounting, legal research, medicine, insurance, andfinancial products. The customers involvement in these situations is very high and hence is categorized ashigh involvement purchase decisions. From the customers view point these are high cost (both financialand non financial) and high risk service situations. Hence the customer tries to avoid going into the servicefactory to shop for the service product. From a marketers perspective, this poses a challenge to bring thecustomer to the factory and motivate him to buy and consume the services.

2.7.2. Doing Right the First TimeSince there is no 99 percent quality in the service product, there is no question of reworking or repairing of badservice product. This is because unlike the manufacturing sector, there are no inventories in the service industryas there is zero time gap between the production and consumption of a service. Hence it is extremely importantthat each and every employee involved in service production and delivery do his or her job right the very first time.

A bad service delivery not only creates a dissatisfied customer but also severely impacts the brand equity. In themanufacturing sector, one can still make amends by repairing or replacing defective products, but not so in theservice sector.

2.7.3. Speedy ResponseSpeed in responding to the customer holds the key to brand planning in the service industry. It is, therefore,necessary that the service strategist pushes for speed and accuracy everywhere. For example, in the case ofthe courier industry, pick up of the package or parcel, from the customers premises taking it to the collectionpoint and to the airport are crucial moments in creating a credible brand. Likewise, on reaching the destinationthe same speed has to be maintained upto the point at which the package or parcel is to be delivered. Speed inproviding correct and accurate information on the status of the delivery is yet another critical moment. Thisclearly means that the marketer needs to reduce the time gap between two successive stages in the service

process. He needs to benchmark each of these stages in terms of time and evaluate the variance that maycome about between the customers defined time standard and the actual time taken for the product to bedelivered. This is possible through the development of a standardized service design and simplified processes.


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This is also possible through the application of state-of-the-art technology for each successive stage, such thatthe employee interface is reduced to the bare minimum. This is important because often people tend to bring intheir own perceptions and prejudices into service delivery. Human behavior cannot be standardized orpredicted and in fact human interactions create multiple levels and types of responses. Increasingly it is beingfelt in the service industry that in order to ensure that customers get the desired brand value, services should bestandardized and delivered in a consistent manner.

2.7.4. Keeping Customers PerspectiveService marketing cannot succeed without always maintaining the customers perspective at all levels of theorganization.

2.8. Component Tasks in Services Marketing1) Understanding the nature of the service2) Understanding the customer and his expectation of the service3) Giving a shape to the service (developing the service product)4) Organizing delivery systems and creating channels/intermediaries5) Pricing6) Promotion

7) Harnessing the special elements of service marketing:i) Peopleii) Physical Evidenceiii) Process

8) Achieving differentiation9) Measuring service quality10) Monitoring customer satisfaction

3. CUSTOMER RELATIONSHIP MANAGEMENT:

SPECIFIC FOR SERVICE INDUSTRY

Customer Relationship Management (CRM) is a strategy adopted by business firms in recent years andincludes the formulation of methodologies and tools that help businesses manage customer relationships in anorganized way. CRM processes are extremely helpful in identifying and targeting the best customers of thebusiness firm and generating quality sales leads, as well as in the planning and implementation of marketingcampaigns with definite goals and objectives. The processes involved in CRM can help the firm maintain acustomized relationship with the customers for creating higher-level customer satisfaction and offering the finestcustomer service. CRM also endows the employees of the organization with the information they need to knowabout their customers wants and needs and to build a long-term sustained relationship between the firm and itscustomers.

According to Gartner, CRM is a business strategy designed to optimize profitability, revenue and customersatisfaction.

According to PwC Consulting, CRM is a business strategy that aims to understand/appreciate, manage andpersonalize the needs of an organizations current and potential customers.

According to Parvatiyar and Sheth, CRM is a competitive strategy and process of acquiring, reacting andpartnering with selective customers to create superior value for the company and the customer.

3.1. Mass Marketing to Relationship MarketingCustomer Relationship Management (CRM) is used to define the process of creating and maintainingrelationships with business customers or consumers. CRM is a holistic process of acquiring, retaining, andgrowing customers. It sprang from the relationship marketing concept after the advent of the Internet and othertechnologies but has not grown to include all online and offline relationship management. Increasingly, firms arerecognizing that if they dont keep their customers happy, someone else will.


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It is important to keep and improve relationship with customers for the following reasons:

1) Higher Marketing Costs in Generating New Customers: There are higher marketing costs associatedwith generating interest in new customers as opposed to already informed existing customers.

The marketing costs involved in the creation of interest in an uninformed new customer far outweigh thoseinvolved in maintaining the relationship necessary to continue exchanges between buyer and seller.

It has been estimated that the cost of attracting new customers can be as high as six times that of retainingexisting customers.

Mass Marketing

Discrete transactions

Short-term emphasis

One-way communication

Acquisition focus

Share of market

Product differentiation

Relationship Marketing

Continuing transactions

Long-term emphasis

Two-way communication and collaboration

Retention focus

Share of mind

Customer differentiation

Continuum from Mass Marketing to Relationship Marketing


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2) Better Exchange Opportunities in Long-term Relationships: Close and long-term relationships with customersimply continuing exchange opportunities with existing customers at a lower marketing cost per customer.

Across a wide range of businesses, the pattern is the same: the longer a company keeps a customer, themore money it tends to make.

3) Customer's Confidence as a Revenue Stream: Viewing customer exchanges as a revenue stream, as

opposed to a compendium of isolated transactions, enables cross-selling of related services over time andpremium pricing for the customer's confidence in the business.

4) More Practical Ideas for New Products: Strong customer relationships with a high degree of familiarityand communications on both sides can generate more practical new product ideas from customers andcontact personnel.

5) Positive Word-of-mouth: Good relationships with customers can result in good word-of-mouth fromsuccessful exchanges and minimal bad word-of-mouth in the event of unsuccessful exchanges. Servicequality cracks can often be papered over where good relationships have existed previously.

Net Matter

3.2. Customer Relationship Management in the Service IndustriesGlobalization and deregulation, combined with advances in information technology, have radically changed themanagerial context of service industries. Although the origin of CRM was initially in the industrial context, theservice industry is also focused on maintaining and enhancing customer relationships. Services are producedand delivered by the same institutions. The success of a service provider is dependent on long-termrelationships that develop between the provider and customer of the service. A greater emotional bond andtrust between the service provider and service user creates the need for maintaining and enhancing thisrelationship.

In todays deregulated world, members of financial services industry are continuously faced to seek new waysto gain advantages over their competitors and to outdo one another in terms of effectively satisfying their retail

customers demands for increasingly sophisticated financial products and services. As they have moved awayfrom traditional broad-based marketing to retailing, relationship service needs to be provided to attract and holdcustomers, to cross-sell products and most importantly, to attract customers to avail of multi-products andservices. CRM is thus of the utmost importance to financial services industry for survival and growth.

In order to retain customers in todays competitive environment, financial institutions are increasing the depth ofcustomer relationships through the implementation of CRM programmes. A successful CRM programme in thefinancial services addresses four key areas of business, i.e., strategy, people, technology and process. In afinancial services industry, it is unusual to find website interactions in one database, lease agreements in anadministration system, call centre history in another and payment history in the accounting system.

Although difficult, integrating such a huge information system can provide valuable insight into a financialcustomers behavioral pattern and preferences and signals for intended behaviors. Advanced data analysis

models can provide valuable information on customer behavior and can help in projecting behavior in a moreaccurate way about the likelihood of purchase of specific products and services, the best next offer information

TopManagement

MiddleManagement

Front Line

People

Customers

Modern Customer OrientedOrganizational Chart

Cus

tomers

Cus

tomers

TopManagement

MiddleManagement

Front LinePeople

Customers

Traditional Organizational Chart

Customer Relationship Management


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and the probability of defection to the competitor brands. These models are customized to that organizationsbusiness domain and customer behavior and are based not on any behavioral or non-behavioral correlates buton the actual interactions of customers with financial institutions.

3.3. Characteristics of CRM

1) Share of Customer: Historically, marketers have measured success in a product category by their share ofmarket. For example, if there are 100 million pairs of athletic shoes sold each year, a firm that sells 10million of them has a 10 per cent market share. If the shoemakers marketing objective is to increasemarket share, it may lower the price of its shoes, increase its advertising, or offer customers a freebasketball with every pair of shoes purchased. Such tactics may increase sales in the short run but,unfortunately, they may not do much for the long-term success of the shoemaker. In fact such tactics mayactually decrease the value of the brand by cheapening its image with giveaways.

Because it is always easier and less expensive to keep an existing customer than to get a new customer,CRM firms focus on increasing their share of customer, not share of market.

2) Lifetime Value of the Customer: With CRM, a customers lifetime value is identified and is the true goal,not an individual transaction. It just makes sense that a firms profitability and long-term success are goingto be far greater if it develops long-term relationships with its customers so those customers buy from itagain and again. Costs will be far higher and profits lower if each customer purchase is a first-time sale.

3) Customer Equity: Today an increasing number of companies are considering their relationships withcustomers as financial assets. Such firms measure success by calculating the value of their customerequitythe financial value of customer relationships throughout the lifetime of the relationships. To do this,firms compare the investments they make in acquiring customers, retaining customers, and relationshipenhancement with the financial return on those investments. The goal is to reap a high return on theinvestments made in customer relationships and maximize the value of a firms customer equity.

4) Greater Focus on High-Value Customers: Using a CRM approach, customers must be prioritized andcommunication customized accordingly. For example, any banker will tell you that not all customers areequalwhen it comes to profitability. So, some banks (about one out of every eight at this point) now useCRM systems to generate a profile of each customer based on factors such as value, risk, attrition, andinterest in buying new financial products. This automated system helps the bank decide which current orpotential customers it will target with certain communications or how much effort to expend on retaining apersons accountall the while cutting its costs by as much as a third.

3.4. Need for CRMThe purpose of CRM is not limited to merely improving customer service, it also allows companies to acquirecustomers and serve them, increase the value of the customer to the organization, retain good customers anddetermine which customers can be retained or given a higher level of service.

A good CRM programme can improve customer service by:1) Provides Updated Information: Providing product information and technology assistance with an

accessibility for 24 hours a day, seven days a week,2) Customized Strategies: Identifying the difference in qualities perceived by different customers and then by

designing a suitable service strategy for each customer based on expectation,

3) Anticipates Problems: Helping identify potential problems quickly, even before they occur,4) Prompt Follow-Up: Providing a fast mechanism for managing follow-up sales calls to assess post-

purchase problems, re-purchase probabilities, repurchase times, frequencies, etc.5) Problem Resolving Mechanism: Providing a fast mechanism for handling problems and complaints, etc.6) Assesses Customer Interests: Using Internet cookies to track customer interests,7) Integrating Functional System: Integrating other functional systems and thereby providing accounting

and production information to customers when they need it.


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3.5. Aspects of CRMCRM includes many aspects which relate directly to one another:1) Front Office Operations: Direct interaction with customers, e.g. face to face meetings, phone calls, e-mail,

online services etc.2) Back Office Operations: Operations that ultimately affect the activities of the front office (e.g., billing,

maintenance, planning, marketing, advertising, finance, manufacturing, etc.)3) Business Relationships: Interaction with other companies and partners, such as suppliers/vendors and

retail outlets/distributors, industry networks (lobbying groups, trade associations). This external networksupports front and back office activities.

4) Analysis: Key CRM data can be analyzed in order to plan target-marketing campaigns, conceive businessstrategies, and judge the success of CRM activities (e.g., market share, number and types of customers,revenue, profitability, etc.).

netmatter

3.6. Difference between CRM and Relationship MarketingRelationship marketing is a broader overriding concept. Relationship marketing is marketing based oninteractions within networks ofrelationships.

A network is a set of relationships which can grow into enormously complex patterns. In the relationship, as thesimple dyad grows into a complex networks, the parties enter into active contact with each other. This is calledinteraction. The relationship between the one who sells something and the one who buys something forms theclassic dyad of marketing, a two-party relationship. This is the party relationship of marketing.

Table: Levels of Relationship Marketing

HighMargin

Medium Margin Low Margin

Many Customers/Distributors Accountable Reactive Basic or reactive

Medium Number of Customers/Distributors

Proactive Accountable Reactive

Few Customers/Distributors Partnership Proactive Accountable

CRM is the values and strategies of relationship marketing with particular emphasis on customerrelationship turned into practical application. CRM does not deal with networks but focuses on the customer-supplier interaction.

Gummesson has converted the philosophy of Relationship Marketing into tangible relationships that becomepart of the companys marketing and business planning. This has been done by defining thirty relationships, thethirty Rs.These thirty Rs. are divided into four broad categories:1) Classic-Market Relationships: Classic-Market Relationships consisting of the relationship between the

supplier and the customer, between the customer-supplier competitor and the classic network distributionchannels.

2) Special-Market Relationships: Relationships via full-time marketers and part time marketers, interactionbetween customers and service providers, relationship in industrial and business marketing, e-relationship,green relationship (environment and health-based, law-based).

3) Mega Relationships: Personal and social network, mass media.

RelationshipMarketing

Relationships Interactions

Networks

Figure: Relationship Marketing


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4) Nano Relationships: Introduction of profit centers in an organization, relationship between internalcustomers and internal suppliers, the relationship between operations management and marketing,relationship with the employee market, etc.

The first two types are market relationships, be it classic-market relationships or special-market relationships.The next two types are non-market relationships which directly influence efficiency of market relationship.

netmatter

3.7. Types of CRMTypes of CRM can be broadly understood by looking at two different ways of categorization. These two typesof categorization are as follows:

1) Proactive versus Reactive CRM: In this type of categorization, the practice of a company to anticipate andrespond to the customer needs with suitable offerings is contrasted with the practice of simply respondingto the customer stimulus that comes in through suggestions or complaints.

In an increasingly dynamic business world, companies with progressive outlook are those who not onlyunderstand and translate their customer value proposition through their entire offering but also attempt toaccommodate the future needs of their customers. Needless to say, companies attempting Proactive CRMare generally those which are increasing the level of personalization and are practicing one-to-onemarketing as shown in figure below.

2) Operational, Collaborative and Analytical CRM: Another type of CRM which is often referred to is thesecond one which attempts to distinguish and delineate the scope of Operational, Collaborative andAnalytical CRM.

i) Operational CRM: Today, the consumer approaches the business in far too many ways than in thepast. Also known as front-office CRM, it involves the areas where direct customer contact occurs.These interactions are referred to as customer touchpoints. CRM is a process by which a companymaximizes the process of gathering and understanding customer information from all touchpoints, i.e.,point of sale, call centers, web, etc., in an effort to increase customers loyalty and to retain them overtheir lifetime. It is not a short-term goal based on isolated transactions resulting in sporadic clientservice.

The customer touchpoints are classified into:

a) Face-to-Face Touchpoints: Sales/Service/Channel/Events/Stores/Promotions.b) Database-driven Touch-points: Telephones/E-mail/Mail/SMS/Fax/LoyaltyCards/ ATMs.c) Mass Media: Advertising/PR/Website.

Proactive

Customer Data Analytics

Interactive

Customer Facing Business Processes

Responsive/Reactive

Customer Interaction Management

Types of CRM Mapped against Degree of Personalization

PerOsS

onalization

Figure: Types of CRM Mapped Against Degree of PersonalizationasDependent on Level of Personalization


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At any of these touchpoints, any number of the following transactions can take place:

Financial transaction,

Sale,

Payment,

Return of sale,

Information transaction, Request for information,

Complaint,

Suggestion.

Operational CRM enables and streamlines communication to and from the customer. But this does notnecessarily mean optimizing service. Here Optimization means letting marketers plan and prioritize allinbound and outbound customer communications in order to maximize effectiveness while balancing theorganizations capacity to deliver and the likelihood that customers will respond.

ii) Collaborative CRM: Collaborative CRM is a specific functionality that enables a two-way dialogbetween a company and its customers through a variety of channels to facilitate and improve the

quality of customer interactions. Since the primary goal is to build a long-term and profitablerelationship with the chosen customers, it is necessary that all the concerned parts of the organizationwork in collaboration with aligned purpose, objective and strategy to achieve this outcome. A lifetimevalue extraction is possible only through close collaboration of internal stakeholders and customers.

The mandate of Collaborative CRM is to manage various partners of the company, be it businesspartners, agents, brokers, OEMs, intermediaries like distributors, dealers, re-sellers and retailers. Bymanaging all these partners, it tries to in turn facilitate the integration of various activities likeMarketing, Sales, Service/Support and Quality.

iii) Analytical CRM: Also known as back-office or strategic CRM, it involves understanding the customeractivities that occurred in the front-office. It involves analyzing large amounts of cross-functional datausing data mining and other methods and feeding the result (knowledge gained) back to operational

CRM. It also studies consumer behavior patterns that help to know what products to position for cross-selling/up-selling and the level and kind of service to deliver to meet customer demand.To enable allthe above, technology is deployed as a facilitator. Technology involves a progressive approach ingathering customer data via multiple inter-connected delivery channels. This mass of data has to befurther transformed into business knowledge for it to be effectively utilized and deployed. Knowledge-like-behavior patterns, preferences, values, etc., are the various attributes that are drawn by analysis ofdata from different sources and touch points drawn in by the operational CRM. This knowledge helpsthe collaborative CRM layer to position right products and services, offer cross-sell and up-sell optionsand tailor-made solutions for the customers.

Analytical CRM requires technology (to compile and process the mountains of customer data tofacilitate analysis) and new business processes (to refine customer facing practices in order toincrease customer loyalty and raise profitability).

The inter-relationship between the three is shown in figure below.


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3.8. Building Customer Relationship ManagementStep 1: Acquisition: It is a vital stage in building customer relationship. The acquisition process comprises ofthe following stages:1) Enquiry,2) Interaction,3) Exchange,4) Co-ordination,5) Adoption.

Each one of the above stages assumes a significant role in the acquisition process. In the enquiry stage, theprospective buyer undertakes a detailed enquiry with regard to several aspects pertaining to the organization,

product, nature of transaction and all other related aspects.

The terms of exchange, mode of delivery and other things related to the exchange are settled at the exchange

DirectInteractio

n

KioskATM Web/Chat Voice

ProviderDirect

AgentBroker

Inter-Mediate

Partners

Multi-Channel Synchronization Integration

Distribution Channel Synchronization Integration

Marketing SalesService/Support

Application Integration

CustomerActivity

Data Mart

CustomerData Mart

ProductData MartAnalytical

BusinessIntelligence

Customer Generic Data Warehouse

Figure: Inter-relationship between Operational, Collaborativeand Analytical CRM

OperationalCRM

CollaborativeCRM

AnalyticalCRM

Voice


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stage. Further coordinated effort on either side would lead the customers to move towards the adoption of theproduct or service concerned, and that completes the acquisition process.


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Step 2: Customer Interaction Management (CIM): Interaction plays a leading role in building customerrelationships. CIM constitutes the customer relationship technologies with additions of technology-basedinteractive solutions. The interactive channels that are currently available enable very effective customerinteractive communications, which lead to CIM, which further leads to relationship building.

In view of technology growth, the interaction management is facilitated by communication in terms of media,

message, speed, accuracy, distance, content, reach, repetition, etc.

CIM can assume the following routes:1) Online Routes: E-mails, web communities, chat rooms.2) Offline Routes: Telephone, fax, mails, interactive television network.3) Outsourcing.

Step 3: Customer Retention: The focus of the organization is more on customer retention than simply oncustomer acquisition. Customer retention is the process of keeping customers in the customer inventory for anunending period by meeting the needs and exceeding the expectations of those customers. It is the approach ofconverting a casual customer into a committed and loyal customer.

CRM is a complete system with a number of inter-linkages, beginning with what type of consumers should be

targeted to finally obtaining efficiency in it. Online processing or customer call-centers alone cannot lead to asuccessful CRM.

A CRM has to start with a good database of consumers and it should have a historical perspective on them.

3.9. Requirements for CRM Success/ Ways to gain Success withCustomer Relationship ManagementThe most important thing is to get started with simple improvements to how to profitably deliver value tocustomers. And then to learn from these early experiences as expand CRM into other areas.

1) Develop a Customer Centric Strategy: An organization should understand that customer relationshipmanagement is not a one-time expense. It is a set of strategies that deal with the maintenance of customerinformation and their demands in order to ensure customer satisfaction.

2) Must have Department-wise Strategies: An enterprise must have department-wise strategies, which arealigned with its customer touch points. An organization should understand that strategy comes first. Astrategy is of highest importance in planning for a business. Technology serves as the means to executethe strategies.

3) Translate Customer Information: It is necessary for an organization to translate its customer informationinto profitability and interpret customer information in the form of future plans for increasing business.Models of the customer segments of a business help the business, set goals for achieving profits. Anorganization should work towards building and refining processes that can enhance customer relations andlead the organization to success.

4) Plan for the Pitfalls: It is important for an enterprise to plan for the pitfalls in its path and plan forprospective financial losses. It is necessary to plan ahead in time while looking for the 'quick-wins'. Anorganization should consider its potential need to change.

5) Every Business Process is Important: An enterprise must give every business process its dueimportance and plan strategically towards an effectively managed customer relationship managementsystem.

6) Deliver Value: It is very important to delivervalue with proper quality and satisfaction. It must be deliveredquick & slowly.

3.10. Benefits/importance of CRM1) Increased Sales Revenues and Reduced Cost of Sales: Increased sales result from spending more time with

customers, which results from spending less time chasing, needed information (i.e., productivity improvement).

Usually existing customers are more responsive customers. Better knowledge of your channels ordistributors drives more effectiveness in the relationship. CRM will also reduce marketing campaign costs

and provide higher ROI in marketing and customer communications.

2) Increased Win Rates: Win rates improve since companies can withdraw from unlikely or bad deals earlier


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on in the sales process.

3) Increased Margins: Increased margins resulting from knowing customers better, providing a value-sell,and discounting prices.

4) Improved Customer Satisfaction Ratings: This increase occurs since customers find the company to bemore responsive and better in touch with their specific needs. Larger wallet-share; more follow-up sales; more

referrals from higher customer satisfaction and services; ability to cross-sell or up-sell from present purchases.5) Decreased General Sales and Marketing Administrative Costs: This decrease occurs since the company

has specified its target segment customers, it knows their needs better, and thus it is nor wasting money andtime, for example, on mailing information to all customers in all existing and potential target segments.

6) Lower Costs of Recruiting Customers: Savings on marketing, mailing, contact, follow-up, fulfillment, andservices, and so on. No need to recruit so many customers to maintain a steady volume of business(especially in business-to-business marketing environments).

7) Increased Customer Retention and Loyalty: Customers stay longer, buy more, contact for theirrequirements (which increases the bonding relationship), and customers buy more often. CRM, therefore,increases the opportunity and accomplishment of real lifetime value.

8) Evaluation of Customer Profitability: Knowing which customers are truly profitable, which customers

should be changed from low/no profit through cross-selling/up-selling; which customers might not everbecome profitable; which customers should be managed by external channels; and which customers drivefuture business.

3.11. Barriers toCustomer Relationship ManagementLike all other things, CRM also have few shortcomings that they need to overcome. Following are the majordisadvantages that stop CRM from becoming a perfect tool for any business:

1) Company Ownership is based on Capitalist System: The problem with CRM is actually one that isn'tpart of CRM. It's based in the company ownership, which again is based on the capitalist system. There it'sreally only about money, about ever-increasing profits and growth, about a system that is thoroughlyunsustainable to any but the most unenlightened, ignorant and greedy.

2) Require Top-Management Support: If top management still needs convincing that (the real) CRM is

absolutely necessary to make life of both the company and the customer easier, then no amount oflobbying will do. Without top management support, CRM cannot be deployed successfully.

3) Confusion in Attributes: Generally reason for barrier is because, most organizations that actually employCRM, experience a lot of confusion about its attributes and what it really is. Some would define it as abusiness strategy while others view it as something to do with technology.

4) Problem in Implementation: There is a major problem in Implementation. One of the original purposes ofCRM (customer relationship management) has always been to develop a technique that will helpcompanies improve customer retention, customer satisfaction and customer loyalty. However, if it is trulyanalyzed, relationship with vendors, or many companies' relationships with their vendors, it can be find thatin most cases, customers are taken for granted and therein lies the root of the problem.

5) Building Relationship: The other main barrier is building relationship. When a marketer fails to contact itscustomers frequently, no relationship is built. As a result, the customer has no reason to be loyal. Most

companies are unintentionally committing the above mistakes, but in this day and age when the customershave many choices, it is the violation of all Ten Commandments of business, not to mention CRM, to ignorecustomers and not try to show appreciation and care in order to keep that customer loyal.

6) Not Functionally Organized: Most organizations are still not functionally organized.

7) Customer Dissatisfaction: Although several businesses have implemented CRM to focus on customers,several clients are still dissatisfied with its execution.

8) Not Customer Centric: Training to the front line support staff are still not be customer centric.

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