Intro to Service

Service Marketing- Module I

Topic covered Introduction to service sector/ origin Growth in service sector What is service? Categories of services

Reference: Service marketing -Lovelock, Service marketing –Zeithmal, Service marketing-Balaji.

Introduction- The service sector is going through almost revolutionary change, which dramatically affects the way in which we live and work. New services are continually being launched to satisfy our existing needs and to meet needs that we did not even know we had. 10 years ago people did not anticipated he need for email, online banking, web hosting, online reservations, and many other new services. But today many of us feel we cannot survive without them. Similar transformation is happening in B2B marketing. Service organizations vary widely in size. At the one end are the huge international corporations operating in such industries as tourism, airlines, banking, telecommunications etc. where as on the other end of the scale is a vast array of locally owned and operated small businesses, including parlors, hotels, laundries, and numerous B2B services.

How important is the Service Sector in an Economy?

In most countries, services add more economic value than agriculture, raw materials and manufacturing combined

In developed economies, employment is dominated by service jobs and most new job growth comes from services

Jobs range from high-paid professionals and technicians to minimum-wage positions Service organizations can be any size—from huge global corporations to local small businesses Most activities by government agencies and nonprofit organizations involve services

Structure of the service sector- The service sector is remarkably diverse. It comprises of a wide array of industries that sell to individual consumers and business customers, as well as government agencies and nonprofit organizations.

Faculty-J.Rai, IIPM-School of Management, Kansbahal

Time, per Capita Income

Share of Employment

Industry

Services

Agriculture

Source: IMF, 2007

1


Changing Structure of Employment as Economic Development Evolves

The Service Sector• Includes businesses, government agencies, nonprofits• Jobs range from high-paid professionals and technicians to minimum-wage positions• Service organizations can be any size--from huge global corporations to local small businesses• In most countries, adds more economic value than agriculture, raw materials and manufacturing

combined • In the USA -- world’s largest economy -- services account for 73% of GDP and 76% of jobs • In India contribution of service sector in 2008 is 55% of GDP and 23% of job employment,

with a increasing rate 7.3 %. The balance of payment has increased from 2% in 2000 to 50% in 2008. The highest contributors to Indian service sector GDP is from IT and ITES.

Service Sector in India

Service Sector in India today accounts for more than half of India's GDP. According to data for the financial year 2006-2007, the share of services, industry, and agriculture in India's GDP is 55.1 per cent, 26.4 per cent, and 18.5 per cent respectively. The fact that the service sector now accounts for more than half the GDP marks a watershed in the evolution of the Indian economy and takes it closer to the fundamentals of a developed economy.

Services or the "tertiary sector" of the economy covers a wide gamut of activities like trading, banking & finance, infotainment, real estate, transportation, security, management & technical consultancy among several others. The various sectors that combine together to constitute service industry in India are:

Trade Hotels and Restaurants Railways Other Transport & Storage Communication (Post, Telecom) Banking Insurance Dwellings, Real Estate Business Services Public Administration; Defence Personal Services Community Services Other Services

There was marked acceleration in services sector growth in the eighties and nineties, especially in the nineties. While the share of services in India's GDP increased by 21 per cent points in the 50 years between 1950 and 2000, nearly 40 per cent of that increase was concentrated in the nineties. While almost all service sectors participated in this boom, growth was fastest in communications, banking, hotels and restaurants, community services, trade and business services. One of the reasons for the sudden growth in the services sector in India in the nineties was the liberalization in the regulatory framework that gave rise to innovation and higher exports from the services sector.

The boom in the services sector has been relatively "jobless". The rise in services share in GDP has not Faculty-J.Rai, IIPM-School of Management, Kansbahal 2


accompanied by proportionate increase in the sector's share of national employment. Some economists have also cautioned that service sector growth must be supported by proportionate growth of the industrial sector, otherwise the service sector grown will not be sustainable. In the current economic scenario it looks that the boom in the services sector is here to stay as India is fast emerging as global services hub.

Services dominate the United States Economy:GDP by Industry, 2001

Contribution of Service Industries to India’s GDP, 2007

Agriculture sector (including mining) : 20.46%Industrial sector( manufacturing, electricity, watersupply and construction) 24.60%Services sector: 54.94%

Faculty-J.Rai, IIPM-School of Management, Kansbahal 3

Finance, Insurance, Real Estate 20%

Wholesale and Retail Trade 16%

Transport, Utilities, Communications 8%

Other Services 11%

Government(mostly

services)13%

Manufacturing 14%

Agriculture, Forestry,Mining, Construction 8%

Health 6%

Business Services 5%

Finance, Insurance, Real Estate & business service 14%

Construction 7%

Manufacturing 16%

Community, social & personal services

14%

Agriculture, Forestry,Fishing 18%

Electricity, gas & water supply

2%

Mining & quarring 2%

Trade, hotels, transports and communication

27%


(Source: CIA World Fact Book, 2007)

What is a Service?

“A form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything.” or

“Services are deeds, processes, and performances” or

“An act or performance offered by one party to another (performances are intangible, but may involve use of physical products)” or

“An economic activity that does not result in ownership” or

“A process that creates benefits by facilitating a desired change in customers themselves, physical possessions, or intangible assets”Some Industries in the Service Sector• Banking, stock-broking• Lodging• Restaurants, bars, catering• Insurance• News and entertainment• Transportation (freight and passenger)• Health care• Education• Wholesaling and retailing• Laundries, dry-cleaning• Repair and maintenance• Professional (e.g., law, architecture, consulting)

Major Trends in Service Sector

Government Policies (e.g., regulations, trade agreements) Social Changes (e.g., material comfort, lack of time, desire for experiences) Business Trends

Manufacturers offer service Growth of chains and franchising Pressures to improve productivity and quality More strategic alliances Marketing emphasis by nonprofits Innovative hiring practices

Advances in IT (e.g., speed, digitization, wireless, Internet) Internationalization (travel, transnational companies, mergers and alliances )

Service Industries, Service as Products, Customer Service, and Derived Services

To study service marketing and management, it is important to draw distinctions between service industries and companies, service products, customer service and derived service. Some times when



people think of service they think of customer service, but service can be divided into four distinct categories.

1. Service industries and companies- includes those industries and companies typically classified within the service sector whose core product is a service. All of the following companies can be considered as pure service companies: Sheraton Hotels (lodging), Indian Airlines (transportation), Reliance Life(Insurance), Indiainfoline (financial services), Appolo (health care). The total service sector comprises of wide range of service industries, as suggested in the service sector contributors diagram. Companies in these industries sell services as their core offerings.

2. Services as products- represents the wide range of intangible product offerings that customer valu and pay for in the marketplace. Service products are sold by service companies and by non-service companies such as manufacturers and technology companies. Ex- TCS and HP offer information technology consulting services to the marketplace, competing with firms such as Accenture, which are traditional pure service firms. Or department stores like Reliance fresh that sell services such as gift wrapping and shipping.

3. Customer service- is a critical aspect of what we mean by “service”. Customer service is the service provided in support of a company’s core products. Companies typically do not charge for customer service. Customer service can occur on site, or it can occur over the phone or via the Internet. Many companies operate customer service call centers, often staff around the clock. Quality customer service is essential to building customer relationship.

4. Derived services- is yet another way to look at what service means. The value derived from physical goods is really the service provided by the goods, not the good itself. Ex- they suggest that pharmaceutical provides medical services, a razor provides barbering services and computer provides information and data manipulating services; this view suggests that in future we may think of service as more border term and with derived benefits than we currently do.

Growth in Service Sector- On global bases the growth of service sector has been tremendous after year 2000 and in India after GPL the service sector has also emerged as more prominent sector in 2001. In the year 2000 contribution to the world’s total GDP by service sector was 20%. Currently the service sector contributes to 2/3 of the world’s GDP. Thus in past 1 decade the service sector has grown to become the largest contributing sector with highest employment base. In numerous countries, increased productivity and automation in agriculture and industry, combined with growing demand for both new and traditional services, have jointly resulted in a continuing increase over time in the percentage of the manpower that is employed in services. There’s a hidden service sector within many large corporations that are classified by government statisticians as internal services in manufacturing, agricultural, natural resources industries. These so called internal services cover a wide range of activities, including recruitment, legal and accounting services, payroll administration, office cleaning, landscape maintenance, supply chain management. Organizations are increasingly choosing to outsource the internal services that can be performed more efficiently by a separate subcontractor. When these services are outsourced, they become part competitive marketplace and are therefore more easily identifiable as contributing to the services component of the economy. The growing demand for many services has made an opening up of the service economy means that there will be greater competition.

Reasons for the growth of the service economy-A number of reasons have been there for the growth of service economy. Some of them are-

Factor Examples



Increasing affluence Greater demand for personal care, lawn care, carpet cleaning, and other services that consumers used to provide for themselves.

More leisure time Greater demand for travel agencies, travel resorts, adult education coursesHigher percentage of women in labor force

Increased demand for day care nursing, house keepers, away-from-home meals, personality training institutes, beauty parlors.

Greater life expectancy Greater demand for health care services, insurance servicesGreater complexities of products

Greater demand for skill specialists to provide maintenance for such complex products as cars, computers and electronic items.

Increase in complexities of life

Greater demand for income tax planning, marriage counselors, legal advisiors, employment firms.

Greater concern about ecology and resource scarcity

Demand for purchases or leased services, such as door to door bus service and car rental instead of car ownership

Increasing number of new products

The computer sparked development of such service industries as programming, software development and others.

Definitely there are certain limitations on growth in service industries.- Two forces which could limit the growth are external forces and internal forces.

1. External Forces- some constraints on growth include: Customers can perform services themselves. The degree of essentiality of service

purchase varies (Ex- people can eat at home instead of eating at restaurants). Manufactured goods will be produced which replace service roles( DVD’s replacing

cinema hall, dismantle furniture replacing services skilled labor like carpenters, easy care fabrics cleaning and laundry services)

Manufactured goods will be produced which require less service attention (cars with longer service intervals, equipment with throwaway replaceable parts.)

2. Internal Forces- some internal constraints on growth include: The small size of the average firms; The shortage of people with certain special skills( doctors, engineers ) The limited competition in some service sub-sectors( rail transport, local authority services) Little emphasis on research and development in many service fields; the general failure to

recognize the importance of marketing in some service business.


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Intro to Service