Short notes on services marketing

Students from # Osmania university,#JNTU-H, # IGNOU can refer to these notes

1. Define and explain the terms "Services" and "Service Marketing".
Answer

Introduction
Everyday we interact with various economic activities like - getting courier
delivered at the requested address, making phone call to friend, relative, or client,
having coffee at coffee shop, or taking metro to commute office. Such activities are
called services because they involves deed or act and offered by one party to
another for sale.
Services differ from goods in many ways. The way a product is produced,
distributed, marketed, and consumed is not the way a service is. Hence, a different
marketing approach is necessary for the marketing of services.
Today, in this post we are going to explain – What services are? What are the
characteristics of services? How services are marketed?
Definition of Services
According to American Marketing Association services are defined as “activities,
benefits or satisfactions which are offered for sale or provided in connection with
the sale of goods.”
According to Philip Kotler and Bloom services is defined as “any activity or
benefit that one party can offer to another that is essentially intangible and does not
result in the ownership of anything. Its production may or may not be tied to a
physical product.”

2. Characteristics of Services
Intangibility – Services are cannot be touched or hold, they are intangible in
nature. For example – you can touch your Smartphone. But, you cannot hold or
touch the services of your telecom service provider.
Inseparability – In case of services the production, distribution, and consumption
takes place simultaneously. These three functions cannot be separated.
Variability – It is impossible to provide similar service every time. You’ll
experience some change every time you buy a particular service from a particular
service provider. For example– Yesterday you had a coffee at CCD. Today, you
are again at CCD to have a coffee, but you have got different place to sit today; the
person served you coffee is different today; other people having coffee are also
different today. Hence, your experience of having coffee today is different as
compared to yesterday.
Perish-ability – You can store goods, but it is not so in the case of services.
Services get perished immediately.
Participation of customer – Customer is co-producer in production of services.
For delivery customer involvement is as important as is of the service provider. For
example – if you went to a parlour for haircut, how it cannot be possible without
your presence and involvement.
No ownership – In the sale of services, transfer of ownership not take place. It
means to say that consumer never own the services.

3. The 7 P’s of Services Marketing
The first four elements in the services marketing mix are the same as those in the
traditional marketing mix. However, given the unique nature of services, the
implications of these are slightly different in case of services.
Product: In case of services, the ‘product’ is intangible, heterogeneous and
perishable. Moreover, its production and consumption are inseparable. Hence,
there is scope for customizing the offering as per customer requirements and the
actual customer encounter therefore assumes particular significance. However, too
much customization would compromise the standard delivery of the service and
adversely affect its quality. Hence particular care has to be taken in designing the
service offering.
Pricing: Pricing of services is tougher than pricing of goods. While the latter can
be priced easily by taking into account the raw material costs, in case of services
attendant costs - such as labor and overhead costs - also need to be factored in.
Thus a restaurant not only has to charge for the cost of the food served but also has
to calculate a price for the ambience provided. The final price for the service is
then arrived at by including a mark up for an adequate profit margin.
Place: Since service delivery is concurrent with its production and cannot be
stored or transported, the location of the service product assumes importance.
Service providers have to give special thought to where the service would be
provided. Thus, a fine dine restaurant is better located in a busy, upscale market as
against on the outskirts of a city. Similarly, a holiday resort is better situated in the
countryside away from the rush and noise of a city.
Promotion: Since a service offering can be easily replicated promotion becomes
crucial in differentiating a service offering in the mind of the consumer. Thus,
service providers offering identical services such as airlines or banks and insurance
companies invest heavily in advertising their services. This is crucial in attracting
customers in a segment where the services providers have nearly identical
offerings.
We now look at the 3 new elements of the services marketing mix - people,
process and physical evidence - which are unique to the marketing of services.

4. People: People are a defining factor in a service delivery process, since a service is
inseparable from the person providing it. Thus, a restaurant is known as much for
its food as for the service provided by its staff. The same is true of banks and
department stores. Consequently, customer service training for staff has become a
top priority for many organizations today.
Process: The process of service delivery is crucial since it ensures that the same
standard of service is repeatedly delivered to the customers. Therefore, most
companies have a service blue print which provides the details of the service
delivery process, often going down to even defining the service script and the
greeting phrases to be used by the service staff.
Physical Evidence: Since services are intangible in nature most service providers
strive to incorporate certain tangible elements into their offering to enhance
customer experience. Thus, there are hair salons that have well designed waiting
areas often with magazines and plush sofas for patrons to read and relax while they
await their turn. Similarly, restaurants invest heavily in their interior design and
decorations to offer a tangible and unique experience to their guests.

5. Marketing of Services
A different marketing approach is necessary for services marketing, because
services differ from goods in many respects.
Difference between Services and Goods
Basis Services Goods
Tangibility Services are intangible in
nature. They cannot be
touched or hold.
Goods are tangible in
nature. They can be
touched and hold.
Separability Services are inseparable
in nature. Production,
distribution, and
consumption of service
take place
simultaneously.
Function of distribution
and consumption of goods
can be separated from the
function of production.
Ownership Services cannot be
owned. They can be
hired for a specific time
period.
Goods can be owned.
Perish-ability Services get perished
after a specific time
period. It cannot be
stored for future use.
Goods can be stored for
future use.
Heterogeneity Services are more
heterogeneous. It is very
difficult to make each
service identical.
Goods are less
heterogeneous. It is
possible to make each
goods identical.

6. Customer Service in a service firm is highly interactive in nature. Customer
interacts with the firm physical facilities, personnel, and tangible elements like the
price of the service. The success of any service firm depends on how its
performance is judged and perceived by the customer. Today, Service Firms are
becoming highly competitive, so, it is essential for service firms to provide high
quality services for their survival.
An expanded marketing mix for services was proposed by Booms and Bitner
(1981), consisting of the 4 traditional elements–product, price, place, and
promotion and three additional elements–physical evidence, participants, and
process. These additional variables beyond the traditional 4 P's distinguish
‘customer service’ for service firms from that of manufacturing firms.
Service Marketing Mix – 7 P’s of marketing
The service marketing mix is also known as an extended marketing mix and is an
integral part of a service blueprint design. The service marketing mix consists of 7
P’s as compared to the 4 P’s of a product marketing mix. Simply said, the service
marketing mix assumes the service as a product itself. However it adds 3 more P’s
which are required for optimum service delivery.
The product marketing mix consists of the 4 P’s which
are Product, Pricing, Promotions and Placement. These are discussed in my article
on product marketing mix – the 4 P’s.
The extended service marketing mix places 3 further P’s which include People,
Process and Physical evidence. All of these factors are necessary for optimum
service delivery. Let us discuss the same in further detail.

7. 1) Product
The product in service marketing mix is intangible in nature. Like
physical products such as a soap or a detergent, service products cannot be
measured. Tourism industry or the education industry can be an excellent example.
At the same time service products are heterogeneous, perishable and cannot
be owned.
The service product thus has to be designed with care. Generally service blue
printing is done to define the service product. For example – a restaurant blue print
will be prepared before establishing a restaurant business. This service blue print
defines exactly how the product (in this case the restaurant) is going to be.
2) Place
Place in case of services determine where is the service product going to be
located. The best place to open up a petrol pump is on the highway or in the city. A
place where there is minimum traffic is a wrong location to start a petrol pump.
Similarly a software company will be better placed in a business hub with a lot of
companies nearby rather than being placed in a town or rural area. Read more
about the role of business locations or Place element.
3) Promotion
Promotions have become a critical factor in the service marketing mix. Services
are easy to be duplicated and hence it is generally the brand which sets a service
apart from its counterpart. You will find a lot of banks and telecom companies
promoting themselves rigorously.
Why is that? It is because competition in this service sector is generally high and
promotions is necessary to survive. Thus banks, IT companies, and dotcoms place
themselves above the rest by advertising or promotions.
4) Pricing
Pricing in case of services is rather more difficult than in case of products. If you
were a restaurant owner, you can price people only for the food you are serving.
But then who will pay for the nice ambiance you have built up for your customers?
Who will pay for the band you have for music?

8. Thus these elements have to be taken into consideration while costing. Generally
service pricing involves taking into consideration labor, material cost and overhead
costs. By adding a profit mark up you get your final service pricing. You can also
read about pricing strategies.
Here on we start towards the extended service marketing mix.
5) People
People is one of the elements of service marketing mix. People define a service. If
you have an IT company, your software engineers define you. If you have a
restaurant, your chef and service staff defines you. If you are into banking,
employees in your branch and their behavior towards customers defines you. In
case of service marketing, people can make or break an organization.
Thus many companies nowadays are involved into specially getting their staff
trained in interpersonal skills and customer service with a focus towards customer
satisfaction. In fact many companies have to undergo accreditation to show that
their staff is better than the rest. Definitely a USP in case of services.
6) Process
Service process is the way in which a service is delivered to the end customer. Lets
take the example of two very good companies – Mcdonalds and Fedex. Both the
companies thrive on their quick service and the reason they can do that is their
confidence on their processes.
On top of it, the demand of these services is such that they have to deliver
optimally without a loss in quality. Thus the process of a service company in
delivering its product is of utmost importance. It is also a critical component in the
service blueprint, wherein before establishing the service, the company defines
exactly what should be the process of the service product reaching the end
customer.

7) Physical Evidence

9. The last element in the service marketing mix is a very important element. As said
before, services are intangible in nature. However, to create a better customer
experience tangible elements are also delivered with the service. Take an example
of a restaurant which has only chairs and tables and good food, or a restaurant
which has ambient lighting, nice music along with good seating arrangement and
this also serves good food. Which one will you prefer? The one with the nice
ambience. That’s physical evidence.

4 I’s Of Services
Services have four major characteristics that greatly affect the marketing programs.
1. Intangibility:
Unlike products, services cannot be held, touched, or seen before the purchase
decision therefore, they should be made tangible to a certain extent. Marketers
should “tangibilize the intangible” to communicate service nature and quality.
Insurance is a guarantee against risk and neither the risk nor the guarantee is
tangible. Insurance rightly come under services, which are intangible. Efforts have
been made by the insurance companies to make insurance tangible to some extent
by including letters and forms
2. Inconsistency:
Service quality is often inconsistent. This is because service personnel have
different capabilities, which vary in performance from day to day. This problem of
inconsistency in service quality can be reduced through standardization, training
and mechanization.
In insurance sector, all agents should be trained to bring about consistency in
providing service or, the insurance process should be mechanized to a certain
extent. Eg: the customers can be reminded about the payment of premium through
e-mails instead of agents.

3. Inseparability:
Services are produced and consumed simultaneously. Consumers cannot and do
not separate the deliverer of the service from the service itself. Interaction between

10. consumer and the service provider varies based on whether consumer must be
physically present to receive the service.
In insurance sector too, the service is produced when the agent convinces the
consumer to buy the policy and it is said to be consumed when the claim is settled
and the policyholder gets the money. In both the above cases, it is essential for the
service provider (agent) and the consumer (policy holder) to be present.
4. Inventory:
No inventory can be maintained for services. Inventory carrying costs are more
subjective and lead to idle production capacity. When the service is available but
there is no demand, cost rises as, cost of paying the people and overhead remains
constant even though the people are not required to provide services due to lack of
demand.
In the insurance sector however, commission is paid to the agents on each policy
that they sell. Hence, not much inventory cost is wasted on idle inventory. As the
cost of agents is directly proportionate to the policy sold.
CLASSIFICATION OF SERVICES
In order to be able to make a clear and relevant classification of services, we would first need to
understand the concept of the word itself. Services usually refer to processes and not physical
products. To understand more, read this article on difference between goods and services. Some
services may include people whereas other services (like online services) may including objects
which are managed by people.
Examples of services which include people can be a hair salon, education, theater, restaurants, and
public transportation. On the other hand services that include objects include repairs and
maintenance, dry cleaning, banking, legal services, insurance, etc.

11. 1. Classification of service based on Tangible Action

Wherever people or products are involved directly, the service classification can be done based on
tangibility.
(i) Services for people: Like Health care, restaurants and saloons, where the service is delivered
by people to people.
(ii) Services for goods: Like transportation, repair and maintenance and others. Where services
are given by people for objects or goods.
2. Classification of services based on Intangibility

12. There are objects in this world which cannot be tangibly quantified. For example – the number of
algorithms it takes to execute your banking order correctly, or the value of your life which is
forecasted by insurance agents. These services are classified on the basis of intangibility.
(i) Services directed at people’s mind: Services sold through influencing the creativity of humans
are classified on the basis of intangibility.
(ii) Services directed at intangible assets: Banking, legal services, and insurance services are
some of the services most difficult to price and quantify.
The most intangible form of service output is represented by information processing. The
customer’s involvement in this type is service is not required. Generally, customers have a personal
desire to meet face to face but there is no actual need in terms of the operational process.
Consultancy services can be an example of this type of services where the relationship can be built
or sustained on trust or telephone contact. However, it is more indicated to have a face-to-face
relationship in order to fully understand the needs of the customer.
A more general classification of services based on the type of function that is provided through
them can be as follows:
 Business services.
 Communication services.
 Construction and related engineering services.
 Distribution services.
 Educational services.
 Environmental services.
 Financial services.
 Health-related and social services.
 Tourism and travel-related services.
 Recreational, cultural, and sporting services.
 Transport services.
 Other services not included elsewhere.
GAPS MODEL
The gap model (also known as the "5 gaps model") of service quality is an important customer-
satisfaction framework. In "A conceptual model of service quality and its implications for future
research" (The Journal of Marketing, 1985), A. Parasuraman, VA Zeitham and LL Berry identify
five major gaps that face organizations seeking to meet customer's expectations of the customer
experience.

13. The five gaps that organizations should measure, manage and minimize:
 Gap 1 is the distance between what customers expect and what managers think they expect -
Clearly survey research is a key way to narrow this gap.
 Gap 2 is between management perception and the actual specification of the customer
experience - Managers need to make sure the organization is defining the level of service they
believe is needed.
 Gap 3 is from the experience specification to the delivery of the experience - Managers need to
audit the customer experience that their organization currently delivers in order to make sure it
lives up to the spec.
 Gap 4 is the gap between the delivery of the customer experience and what is communicated to
customers - All too often organizations exaggerate what will be provided to customers, or
discuss the best case rather than the likely case, raising customer expectations and harming
customer perceptions.
 Finally, Gap 5 is the gap between a customer's perception of the experience and the customer's
expectation of the service - Customers' expectations have been shaped by word of mouth, their
personal needs and their own past experiences. Routine transactional surveys after delivering the
customer experience are important for an organization to measure customer perceptions of
service

14. The Services Marketing Triangle: (or Services Triangle) shows the key actors
involved in marketing a service business. It also shows the key marketing activities that occur
between those actors.
Before we look at the model it is important to note that we are only concerned with the
marketing of services. The model does not apply to products. We define services using these
criteria:
 Intangible: you cannot see, taste, or touch them.
 Inseparable: you cannot separate production from consumption.
 Perishable: you cannot store them, save them, or return them.
 Heterogeneous: you cannot mass produce them as they are unique.
Examples of services include hotel rooms, flights, and health club membership.
Services businesses are marketed on promises. These are the promises we make to customers and
whether we keep or fail to keep those promises. The Services Marketing Triangle is a visual
strategic model. It reinforces the importance of people in a company’s ability to keep its
promises.
The Services Marketing Triangle
The Services Marketing Triangle is shown in the following diagram. It shows the key marketing
activities that happen between the key actors within services businesses.

15. Each actor works together to develop, promote, and deliver a company’s service. As you can see
from the diagram we represent actors by the points of the triangle. Our actors are:
 Company: refers to the leadership team of the company in question.
 Employees: refers to all employees, including subcontractors who deliver the company’s
service.
 Customers: refers to all customers and potential customers of the company.
The lines between the points show the different types of marketing that must occur:
 External Marketing: occurs between the company and its customers.
 Internal Marketing: occurs between the company and its employees.
 Interactive Marketing: occurs between the employees and the customers.
External Marketing
Companies use external marketing to make promises to customers. External marketing is any
communication to customers (or potential customers) that happens before service delivery starts.

16. Forms of external marketing include:
 Advertising
 Personal selling
 Public relations (PR)
 Direct marketing
We use external marketing to achieve many aims including:
 Creating awareness.
 Setting price expectations.
 Setting service level expectations.
 Informing customers if any prerequisites that must be in place before they can use the service.
Internal Marketing
Within a services business, we view employees as internal customers. They are a market which
we must please first as a company. The leadership team should be focused on satisfying its
employees so that they want to better serve customers.
Internal marketing involves motivating employees to work as a team to make customers
satisfied. This is obviously true for customer service representatives. It can equally be applied to
all employees. This results in everyone, at all levels of the organization, being empowered to
deliver great customer service.
Key components of internal marketing include:
 Motivating employees
 Teaching customer satisfaction techniques
 Communicating company goals regularly
 Management of change
 Training staff on how to use the company’s services

17.  Good pay and working conditions
Interactive Marketing
Interactive marketing occurs when employees and customers interact. It is here where the
promises made during external marketing are either kept or broken by employees or sub-
contractors.
Each significant interaction between an employee and a customer is known as a service
encounter.
Interactive marketing is important because it establishes both short-term and long-term
satisfaction. That is, if the customer is satisfied with the service they received in the short-term,
they are more likely to be satisfied over the longer term.
Services Marketing Triangle Example
To wrap things up let’s consider a simple example, that of a luxury hotel.
First, let’s consider external marketing. A luxury hotel may want to educate customers through
advertising and public relations. Here, they will want to inform customers that their rooms have
the finest quality fixtures, fittings, and toiletries. They are likely to also want to convey that their
staff are knowledgeable and very willing to help with whatever request a customer may have.
To deliver these promises the company focuses on internal marketing. It establishes more
concierge roles within the hotel than the industry average. This helps ensure that staff feel they
have the time they need to help each customer to the best of their ability. Employees are also
trained on the local area, local activities, and excursions. The company also teaches every
employee how to handle and diffuse difficult guests and situations.
One of the ways that the hotel handles interactive marketing is as follows. They employ someone
to manage their social media presence and reputation.
Now suppose a guest tweeted that they are in their room preparing for an important meeting the
next day. This would be noticed by the member of staff managing the hotel’s social media
presence. Then, whilst the guest is at their meeting the hotel might leave a handwritten note and
some chocolates in their room.

18. The note will wish that their meeting went well. The chocolates will make them feel cared about
and listened to. This makes the customer feel valued in the short term. It also makes them more
likely to remain a customer over the long-term.
Summary
The Services Marketing Triangle is a strategic marketing model. It provides a visual way of
understanding the importance of people in a services business.
The model is based on the fact that all services businesses are about promises. The business
makes promises to its customers through external marketing. The business facilitates its
employees to keep those promises through internal marketing. Finally, the business delivers its
promises with interactive marketing.
What Are the Causes of Rapid Growth in the Service Industry?

The service industry or sector includes a wide swath of the market. Business that do not deal in
the extraction or manufacture of raw materials fall into the service category. The service sector
has seen massive changes in recent history, many being attributed to outsourcing, automation
and digital based business that have altered traditional business models.
Companies are also recognizing how professional services such as consultancy, training or
marketing can help them improve their business performance. That’s good news for small
businesses that provide these types of services, and also for the larger companies that use their
services.
The diverse service industry is seeing a general growth of services trend and Market Research
forecasts the majority of job growth in the United States will come from this sector between
2016 to 2020, with a 5.4% overall growth rate being projected in the time period. The service-
driven economy accounts for a large number of jobs in the United States in general.
Rising Demand for Services
Demand for services is on the rise with a stable middle class and growth in upper-income
families. A sector of the economy becoming less concerned about material needs. In the
consumer sector, this leads to increasing demand for services such as health, education and
entertainment.
In business, companies recognize that many activities can be handled more efficiently by a
service provider. Outsourcing services allows a business to concentrate on the activities that

19. are critical to its success. These are called core activities in the world of professional services,
and they include sales and marketing, accounting, technology, quality, product and service
delivery, management, human resources, finance and product development.
The digital world has also opened the door to more service based growth with disruptive based
technology and the ability to operate a business with location independence. The local
economy is no longer a limiting factor and businesses take their services online and offer them
to a larger audience.
An accountant in a rural community for example, can grow a national client base through an
online business. This opens the door to more operators looking to expand alongside the general
_growth of service_s on a national level.
Disruptive Technology
Outsourcing services is also important if a business is undergoing change or shifting the
business model to capitalize on a growing freelance market that offers qualified service
providers on a contractual basis.
Technology is driving major shifts in the service sector as well with traditional roles like taxi
services being replaced by Lyft, Uber and other options that connect a large, part-time
workforce to a specific market. Airbnb opened the rental market to individual property owners
by cutting out management companies and placing a large audience directly in touch with
owners.
Numerous sectors of the service economy are seeing shifts in the way employment and labor is
perceived as new technologies disrupt markets and open more opportunities to individuals and
contractors. The benefits that come with traditional employment are often lost but the overall
service sector is open to more individuals and the technology ultimately facilitates growth in
what were once perceived as locked markets.
REASONS FOR THE GROWTH OF SERVICES IN INDIA:
1. Economic affluence: One, of the key factors for the growth of demand for services is the
economic affluence. According to the NCAER study the size of the middle income consumer is
raising fast and the percentage of the very poor household’s declining. The rural households in
the upper income category is growing at a much faster pace than the urban households in the
corresponding categories. The Economic liberalisation Process has had a positive impact on the
Indian households. Their income as well as their expenditure has been pushed, creating a demand
for many goods and services.
2. Changing Role of Women: Traditionally the Indian woman was confined to household
activities. But with the changing time there has been a change in the traditional way of thinking
in the society. Women are now allowed to work. They are employed in defence services, police
services, postal services, software services, health services, hospital services, entertainment
industries, Business Process Outsourcing and so on.
The percentage of working women has been growing rapidly. The changing role of women has
created a market for a number of product and services. Earning women prefer to hire services in

20. order to minimise the innumerable roles that they are required to perform. The demand by
woman is forcing service organisations to be more innovative in their approach.
3. Cultural Changes: Change is the underlying philosophy of culture place of change in Indian
culture is not uniform. However, during the last century the factors of change are prominent. The
emergence of the nuclear family system in place of the traditional joint family system creates a
demand for a host of services like education, health care, entertainment, telecommunication,
transport, tourism and so on. There has’ been a marked change in the thought Processes relating
to investment, leisure time perception and so on which has created a huge demand for services.
4. I.T. Revolution: For the last 15 years India’6aste,en occupying a vital position in the area of
Information Technology. IT became one of the key service businesses of the country. India has
the largest software skilled population in the world. The domestic market as well as the
international market has grown substantially. Realising the potential for this area many state
governments have made IT as their most, prioritized segment states such as Karnntnka, Andhra
Pradesh, Madhya Pradesh Maharashtra and Delhi have already achieved substantial progress in
Information Technology the In Ile years to come ‘Lille IT enabled se Aces will have a bright
future. The growth. of’ population, industrialisation and indiscriminate consumptions have
affected the, natural resources, environment and the ecological balance. Due to this there is an
imbalance of the ecology various service organisations have been promoted in order to take up
social marketing. Thousands of crores of rupees are being spent on safeguarding the rare animals
and birds, water pollution, conservation of oil & energy and research to develop new
technologies that can promote effective use of natural resources and safeguard the environment.

5. Development of Markets: During the last few decades the wholesaler and the retailer
population has grown in the country. Urban India has become a cluster of wholesaling and
retailing business. In the Semi – urban areas, retailing has spread to the nooks and corners of the
streets and in the rural areas retail business is significantly present. A new breed of organisations,
offering marketing services has come up. The government also offers marketing services to the
small-scale agricultural farmers, artisans and other traditional business sectors such ‘as
promotion of regulated markets, export promotion councils, development boards etc.
6. Market orientation: The changing competitive situation and demand supply positions has
forced the manufacturing organisation to shift their philosophy from production orientation to
market orientation. Market is a service function that has been added in the organisation. The
pressures in the market has further forced the manufacturing organisations to have marketing
research, accounting, auditing, financial management, human resource management and
marketing research divisions – all of which are services functions.
7. Health-Care Consciousness: In India, the healthcare market has grown substantially. The
increased life expectancy is the result of the consciousness of the people regarding the health
issues. The growth of fitness clubs, diagnostic centres, medical counselling, health-related
information sites are the reflections of the growing demands for health care services. The
government as well as the social organisations have taken up the mass campaigns in order to
create awareness among the illiterate persons and the rural population on health service. Hence,
the growth of health related services.

21. 8. Economic liberalisation: The economic liberalisation of the 1991 has brought many changes in
the Indian scenario. With the Disinvestment and the Privatisation policies the state owned
monopolies in many service areas came to an end Multinationals were permitted to enter the
Indian market. Liberal lending policies and lower interest rates motivated many people to
become self-employed. Different sectors like Banking, Insurance, Power projects,
Telecommunication, Hospitality sector, Health Services, Entertainment, Air transport, and
Courier services witnessed intense competition, due to the entry of multinationals. The flow of
time-tested service technology from various parts of the world changed the attitude of the Indian
consumer towards sources.
9. Rampant migration: One of the important reasons for the growth of services in India is the
rampant migration of rural to semi-urban and urban areas. Migration to urban areas for the want
of jobs and livelihood has resulted in the expansion of cities and townships due to which
businesses like real estates, rentals, transportation and infrastructure services are rapidly
expanding.
10. Export potential: India is considered to be a Potential source for services. There are a number
of services that India offers to various parts of the world like banking, insurance, transportation
co data services, accounting services, construction labour, designing, entertainment, education,
health services, software services and tourism. Tourism and software services are among the
major foreign exchange earners of the country and that the growth rate is also very high as
compared to the other sectors.
11. Service tax: The growth in the service sector attracted the attention of the government as a
tax generating source. Over the years, the number of services brought under service tax has
increased- Service tax is levied on hotels and restaurants, transport, storage and communications,
financial services, real states, business services and social and personal services.

What Are the Different Distribution Channels in a Service Business?
Business distribution channels are the avenues a business uses to sell or deliver its product or
service. Distribution channels for sellers of products include brick-and-mortar stores, online
stores, direct mail solicitations, catalogs, sales reps, wholesalers, distributors and direct
response advertising. Service providers don’t offer something a consumer can touch, feel and
put in a bag, so if you're selling a service, you must figure out additional ways to deliver it.
On-Site Consulting
One way to distribute your services is by providing on-site work. For example, a human
resources consultant might spend time at the headquarters of a client, meeting with staff
members. The consultant would use the same software the employees use; examine the
company’s HR policy guide; observe how staff members interact; review the company’s
recruiting, retention and succession strategies; look at legal compliance issues; and review the

22. company’s benefits. The consultant would deliver his findings and make recommendations at a
meeting of the executive or directors who hired him.
Virtual Delivery
Expand your ability to distribute your services by offering virtual service. The HR consultant
in the example would interact with clients via phone, email, online surveys, teleconferences
and cloud-based project software. In some cases, consultants who work virtually travel for an
initial meeting with clients, then work on the project off site and deliver written
recommendations and reports. Thanks to the Internet, many freelance writers and graphic
artists do all of their work remotely. Nonprofit association managers also run trade associations
from their home offices or a multi-client headquarters that services multiple associations across
a state or country.
Third-Party Consulting
You could distribute your services by working for another service provider who does the
marketing and legwork of finding clients. In this situation, you might get hired by XYZ
Consulting, which has ABC Widgets as a client. You perform work for ABC Widgets, but you
receive your instructions and pay from XYZ Consulting. In this type of arrangement, you often
sign a noncompete clause, agreeing not to work directly for ABC Widgets in the future. This
prevents service providers from cutting out the companies that find clients for them.
Workshops and Seminars
Some service providers conduct workshops and seminars, charging multiple companies a lower
price for general information, rather than charging one client a higher price for information
specific to her business. For example, an HR consultant might offer a seminar on employee
benefit planning for small-business owners. This type of seminar can make a profit for the
service provider or lead to client engagements. Some service providers offer free workshops so
they have the opportunity to showcase their services to targeted customer groups.
Publications
Generate additional revenue by delivering some of your services via a print or online
newsletter, blog, book or website. You might offer a newsletter as an added-value benefit to
paying customers so you can keep your business in front of them between engagements. A
motivational speaker might publish a book. A customer service consultant can publish a
training workbook or offer a library of password-protected materials at her website for a
client's customer service representatives.

23. Bookers/Referrals
Not every service provider enjoys marketing or is even capable of finding business.
Professional speakers often use bookers, who are individuals or companies that find work for
speakers, taking a commission for each engagement booked. Wedding and party planners rely
on referrals from the industry professionals they work with. Planners agree to cross-promote
services with photographers, caterers, DJs, dressmakers, limo companies and cake makers. Pet
sitters work with groomers, vets, shelters and pet stores. Offer clients a discount on future
services or a commission on each lead they send you that turns into an engagement.
SERVICE QUALITY MEASUREMENTS
In the service industry, definitions of service quality tend to focus on meeting customers needs
and requirements and how well the service delivered meets their expectations (Lewis and Booms
1983). In order to deliver and maintain service quality, an organization must first identify what it
is that constitutes quality to those whom it serves (Gronross 1984). Gronross (1984) classified
service quality into two categories: technical quality, primarily focused on what consumers
actually received from the service; and functional quality, focused on the process of service
delivery.
Perceptions of quality by those who provide services and those who consume them have been
defined as the outcome of comparison between expectations of a service and what is perceived to
be received (Czepiel et al.1985; Parasuraman et al 1985)
Delivering quality service is one of the major challenges facing hospitality sector. It is an
essential condition for success in the emerging keenly competitive and global hospitality
markets. Quality is the key to achieving customer satisfaction. Quality is a dynamic state
associated with products, services, people and environments that meets or exceeds expectations.
Quality is also rapidly embracing the nature or degree of impact an organization has of its
stakeholders, environment and society. Your customers of your business is based on the product
or service you deliver and on the day-to-day contact they have with your staff. (Munro and Jones
1993)
The key to ensuring good service quality is meeting or exceeding what customers expect from
the service. It was clear to us that judgements of low and high quality service depend on how
customers expect from the service. It was clear to us that judgments of high and low service
quality depend on how customers perceive the actual service performance in the context of what
they expected. Service quality as perceived by customers can be defined as the extent of
discrepancy between customer’s expectations or desires and their perceptions. Service delivery is
concerned with where, when and how the service product is delivered to the customer.
Moreover, service quality is a perceived judgment resulting from an evaluation process where
customers compare their expectations with the service they have received (Gronroos 1984 a).

24. Bolton and Drew argued that while service quality is an overall attitude towards a service firm,
customer satisfaction is specific to an individual service encounter.
Therefore, it is very difficult to come to a consensus as to a definition of service quality. We can
however conclude the perspectives of different authors that is about providing something
intangible in a way that pleases the consumer and that preferably gives some value to that
consumer.
Service Quality Dimensions
Gronroos (1984b) identified two service quality dimensions the technical aspect that is “what”
service is provided and functional aspect and “how” the service is provided. The customers
perceive what he/she receives as the outcome of the process in which the resources are used that
is the technical quality. But he also and more often importantly, perceives how the process itself
functions that is the functions quality.
The SERVQUAL Instrument
The SERVQUAL instrument developed by Parasuraman et al (1991) has proved popular, being
used in many studies of service quality. This is because it has a generic application and is a
practical approach to any area. A number of researchers have applied the SERVQUAL model to
measure service quality in the hospitality industry with modified constructs to suit specific
hospitality situations.
Parasuraman et al (1985) developed the gap model and the subsequent SERQUAL instrument
designed to identify and measure the gaps between customers’ expectations and perceptions of
the service received. Service quality from the consumer’s perspective depends on the direction
and degree of difference between the expected service and the perceived service. Thus by
comparing customer’s expected service with customer’s perceived service, hotels, for example
can determine whether its service standard is appropriate. The gap between expectations and
perceptions of performance determines the level of service quality from a customer’s
perspective.
The servqual instrument consists of 22 statements for assessing consumer perceptions and
expectations regarding the quality of a service. Respondent are asked to rate their level of
agreement or disagreement with the given statements. Consumer’s perceptions are based on the
actual service they receive while consumer’s expectations are based on past experiences and
information received. The statements represent the determinants or dimensions of service
quality.
The five dimensions of service quality measured by the SERVQUAL Instrument
The SERVQUAL Instrument measures the five dimensions of Service Quality. These five
dimensions are: tangibility, reliability, responsiveness, assurance and empathy.

25. Tangibility
Since services are tangible, customers derive their perception of service quality by comparing the
tangible associated with these services provided. It is the appearance of the physical facilities,
equipment, personnel and communication materials. In this survey, on the questionnaire designed,
the customers respond to the questions about the physical layout and the facilities that FFR offers
to its customers.
Reliability
It is the ability to perform the promised service dependably and accurately. Reliability means that
the company delivers on its promises-promises about delivery,sevice provision, problem
resolutions and pricing. Customers want to do business with companies that keep their promises,
particularly their promises about the service outcomes and core service attributes. All companies
need to be aware of customer expectation of reliability. Firms that do not provide the core service
that customers think they are buying fail their customers in the most direct way.
Responsiveness
It is the willingness to help customers and provide prompt service. This dimension emphasizes
attentiveness and promptness in dealing with customer’s requests, questions, complaints and
problems. Responsiveness is communicated to customers by length of time they have to wait for
assistance, answers to questions or attention to problems. Responsiveness also captures the notion
of flexibility and ability to customize the service to customer needs.
Assurance
It means to inspire trust and confidence. Assurance is defined as employees’ knowledge of
courtesy and the ability of the firm and its employees to inspire trust and confidence. This
dimension is likely to be particularly important for the services that the customers perceives as
involving high rising and/or about which they feel uncertain about the ability to evaluate. Trust
and confidence may be embodied in the person who links the customer to the company, for
example, the marketing department. Thus, employees are aware of the importance to create trust
and confidence from the customers to gain competitive advantage and for customers’ loyalty.
Empathy
It means to provide caring individualized attention the firm provide its customers. In some
countries, it is essential to provide individual attention to show to the customer that the company
does best to satisfy his needs. Empathy is an additional plus that the trust and confidence of the
customers and at the same time increase the loyalty. In this competitive world, the customer’s
requirements are rising day after day and it is the companies’ duties to their maximum to meet the
demands of customers, else customers who do not receive individual attention will search
elsewhere.

26. CUSTOMER HAS NEEDS AND EXPECTATIONS
Customers buy goods and services to meet specific needs. Needs are often deeply rooted in
people’s unconscious minds and may concern long-term existence and identify issues. When
people feel a need, they are motivated to take action to fulfil it. In many instances, purchase of a
good or service may be seen as offering the best solution to meeting a particular need.
Subsequently, consumers may compare what they received against what they expected, especially
if it cost them money, time, effort that could have been devoted to obtaining an alternative solution.
Customer expectations embrace several elements, including desired service, adequate service,
predicted service and a zone of tolerance that falls between the desired and adequate service levels
Desired and Adequate Service Levels
The type of service customers hope to receive is termed as desired service. It is a wished-for level:
a combination of what customers believe can and should be delivered in the context of their
personal needs. However, most customers are realistic and understand that companies can’t always
deliver the desired level of service; which is defined as the minimum level of service customers
will accept without being dissatisfied. Among the factors that set this expectation are situational
factors affecting service performance and the level of service that might be anticipated from
alternative suppliers? The levels of both desired and adequate service expectations may reflect
explicit and implicit promises by the provider, word-of-mouth comments, and the customer’s past
experience,
Predicted Service Level
The level of service that customers anticipate receiving is known as predicted service, which
directly affects how they define “adequate service” on that occasion. If good service is predicted
the adequate level will be higher than if poorer service is predicted. Customer predictions of service
may be situation specific.
Zone of Tolerance
The inherent nature of services makes consistent service delivery difficult across employees in the
same company and even by the same service employee from one day to another. The extent to
which customers are willing to accept this variation is called the zone of tolerance. A performance
that falls below the adequate service level will cause frustration and dissatisfaction, where as one
that exceeds the desired service level will both please and surprise customers. Another way of
looking at the zone of tolerance is to think of it as the range of service within which customers
don’t pay explicit attention to service performance. When service falls outside the range, customers
will react either positively or negatively. The zone of tolerance can increase or decrease for
individual customers depending on such factors as competition, price or importance of specific
service attributes. These factors most often affect adequate service levels which may move up or

27. down in response to situational factors where as desired service levels tend to move up very slowly
in response to accumulated customer experiences.
It is known that expectations are not stable in the sense that they may change over time due to
changes in aspiration levels or need at a particular moment in time. Customers’ expectations about
what constitutes good service vary from one business to another. Expectations are not determined
by individuals themselves but also by reference groups, external situations, norms, values, time
and service provider. Generally speaking, expectations can be formulated in terms of “what should
be done” and in terms of what should be done” Expectations change over time influenced by both
supplier-controlled factors such as advertising, pricing, new technologies and service innovation
as well as social trends advocacy by consumer organization and increased access to information
through the media and the internet.
According to Berry and Parasuraman (1991) discuss two levels of expectations and concluded:
“Our finding indicates that customer’s service expectations exist at two different levels; a desired
level and an adequate level. The service level reflects the service the customer hopes to receive. It
is blend of what the customer finds acceptable. It is part, a function of the customer’s assessment
of what service will be i.e. the customers predicted service level. The difference between the
desired service; level and the adequate service level can be called zone of tolerance, the extent to
which customers recognize and are willing to accept heterogeneity.

Service Guarantee: Definition, Features, Benefits, Types and Design
Contents:
Introduction to Service Guarantee
Meaning and Definitions of Service Guarantee
Features of a Good Guarantee
Benefits of Service Guarantee
Types of Service Guarantees
Impacts of Guarantees on Customer Perceptions
Design of Service Guarantees
Service Guarantees Expedite Service Recovery
Organizational Impacts of Service Guarantee
Theoretical Perspectives for Investigating the Service Guarantee

28. Introduction to Service Guarantee:
Service offerings are largely intangible in nature. Customers are thus unable to assess the
purchase outcome prior to experience, rendering the risk of possible customer dissatisfaction
very high. It is argued that the concept of service guarantees proposed by services management
theory can be effectively utilised to reduce the perceived risk of dissatisfaction for the customer
in service organisations.
Additionally, it is suggested that service guarantees force management to undertake activities
which elevate the superiority of the organisation in the eyes of the customer and, thus, the
opportunity to transform one-time customers into loyal ones. The purpose of this text is twofold
– first, to illustrate how customers’ behavioural intentions can be influenced by the use of a
service guarantee; and second, to outline a systematic process that can help service business
managers to develop and implement an effective service guarantee.

2. Meaning and Definitions of Service Guarantee:
Various definitions of service guarantees can be found in the literature. For instance, Hart,
Schlesinger and Maher define a service guarantee as ‘…a statement explaining the service
customers can expect (the promise) and what the company will do if it fails to deliver (the
payout).’ Evans, Clark, and Knutson define a service guarantee as … ‘a policy, express or
implied, advertised or unadvertised, that commits the operation to making its guests happy.’
Callan and Moore (1998) state that, ‘a service guarantee can be represented as a promise to the
customer and is often advertised as such.’
As per the dictionary definition ‘service guarantee’ as defined, “an assurance of the quality of or
length of use to be expected from product offered for sale, often with a promise of
reimbursement.” A guarantee is a particular type of recovery tool. Although guarantees are
relatively common for manufactured products, they have only recently been used for services.
Traditionally, many people believed that services simply could not be guaranteed given their
intangible and variable nature. What would be guaranteed? With a product, the customer is
guaranteed that the product will perform as promised and if doesn’t, that it can be returned. With
services, it is generally not possible to take returns or to “undo” what has been performed. Again,
this raised the question for many of what could be guaranteed, and how.
The skepticism about service guarantees is being dispelled; however, as more and more
companies find they can guarantee their services and that there are tremendous benefits for doing
so. Companies are finding that effective service guarantees can complement the company’s
service recovery strategy—serving as one tool to help accomplish the service recovery strategies.

29. Inconsistencies in Definitions:
Currently, a lack of consensus about what exactly constitutes a guarantee is evident. While some
researchers view it as a policy, others suggest it is a firm promise. Also, confusing the scope with
its elements has led to inconsistent definitions of different guarantee types. For instance, an
unconditional guarantee has sometimes been used to refer to the circumstances under which a
guarantee may be invoked.
Others have used it to refer to the firm goal of assuring complete customer satisfaction, or
assume that it implies compensation in full. This confusion has led to idiosyncratic
operationalisation of concepts in studies define “Satisfaction guaranteed” as a selling policy
when no customer is worse off after purchase and all costs are refunded if the guarantee is
invoked. This makes it difficult for researchers to compare results across studies, raises concerns
about construct validity, and hinders replication.
We suggest that a guarantee contains two typical elements:
(i) A service promise or pledge that expresses the firm’s willingness to engage in behaviours
considered desirable by its customers and
(ii) A compensation offer in case of service failure. Thus, unconditional and specific may be
used to represent the service promise (about all or specific attributes of the service respectively)
guaranteed by the firm, while compensation is separately specified. Empirical evidence shows
that firms provide full refunds (e.g., money-back guarantees), partial refunds (e.g., assessment
based upon damage or use, exchanges less restocking fees or shipping charges), or award
punitive damages (e.g., token credits or payouts) when guarantees are invoked.
Compensation and claim procedures may be either implied or explicitly stated in the guarantee.
In addition to resolving definitional problems, this distinction potentially increases the
combinations of promises and compensation schemes available for study. This allows for a richer
investigation of the effects of service guarantees.

3. Features of a Good Guarantee:
A good guarantee has the following features:
(i) Easy to Collect – The remedy should be supplied immediately. For example, a dis-satisfied
customer at Hampton Inn should receive an immediate credit for the price of the dissatisfying
service. The customer should not have to drive across town to obtain payment, nor should the
customer have to fill out a laborious form or accumulate a tedious amount of documentation.
(ii) Easy to Invoke – Let us consider the Hampton Inn guarantee, for example – Suppose the
customer’s air conditioning did not work on a hot summer night, and the problem could not be

30. rectified, in spite of bringing it to the management’s attention. For the guarantee to be effective,
management should make that night free, without waiting for the customer to ask. If it evident
that the customer is dissatisfied, and the problem has not been solved, then management should
invoke the guarantee itself.
In most cases, management does not really trust the guarantee, and, therefore, puts up barriers to
invoking it. Management may be concerned about loss of revenues, which may be linked to
management compensation. This creates a natural tension between the intended corporate
culture, as desired by top management, and the actual corporate culture, as implemented by
middle management, may be the front line. Counteracting an employee’s natural reluctance to
invoke or carry out the guarantee requires careful training.
(iii) Easy to Understand – If the customer does not understand the guarantee, then that customer
will not see any benefit. For maximum effectiveness, the guarantee should be specific. For
example, Domino’s pizza guaranteed delivery in 30 minutes. That is much better than
guaranteeing “fast delivery,” which is hard to pin down. Be specific.
(iv) Meaningful – The guarantee must be about things that customers care about. A fast-food
restaurant guaranteeing 10-minute service at lunch will probably do better than one guaranteeing
to address customers by their first name. This is because fast service at lunch is important to fast-
food customers, whereas personal familiarity is not.
(v) Unconditional – If a guarantee applies only to left-handed people on Friday in a leap year
when there is a full moon, few customers will be very interested. By comparison, consider the
Hampton Inn guarantee. It says simply, “If you’re not completely satisfied, we don’t expect you
to pay.
This is unconditional and you don’t need to be a lawyer to understand it. A guarantee loses
power as conditions are placed on it. Consider the Lufthansa on-time guarantee, for example.
The conditions exempted 95% of the cases to which it might be applied, reducing its
effectiveness by at least that percentage.
4. Benefits of Service Guarantee:
The benefits to the company of an effective service guarantee are as follows:
(i) Sets Clear Standards for the Organisation – It prompts the company to clearly define what it
expects of its employees and to communicate that to them. The guarantee gives employees
service-oriented goals that can quickly align employee behaviours around customer strategies.
(ii) Forces the Company to Focus on its Customers – To develop a meaningful guarantee, the
company must know what is important to its customers — what they expect and value. In many
cases “satisfaction” is guaranteed, but in order for the guarantee to work effectively, the

31. company must clearly understand what satisfaction means for its customers (what they value and
expect).
(iii) A Good Service Guarantee Studies the Impact on Employee Morale and Loyalty – A
Guarantee generates pride among employees. Through feedback from the guarantee,
improvements can be made in the service that benefits customers, and indirectly employees.
(iv) Immediate and Relevant Feedback from Customers – It provides an incentive for customers
to complain and, thereby, provides more representative feedback to the company than simply
relying on the relatively few customers who typically voice their concerns. The guarantee
communicates to customers that they have the right to complain.
(v) Reduces their Sense of Risk and Builds Confidence in the Organisation for Customers –
Because services are intangible and often highly personal or ego involving, customers seek
information and cues that will help reduce their sense of uncertainty.

5. Types of Service Guarantees:
Further, previous research has identified four types of service guarantees:
(i) Specific,
(ii) Unconditional,
(iii) Implicit and
(iv) Internal.
(i) A Specific Guarantee — Signals firm commitment on specific attribute performance such as
delivery time or price. Specific guarantees allow customers to evaluate service by disconfirming
attribute performance expectations. From the firm’s perspective, a specific guarantee can serve
not only as a benchmark to guide employee efforts and firm process design, but also as a
performance measure. However, the narrow focus on some attributes may not be highly valued
or appreciated by a heterogeneous customer base, although it may appeal to certain segments.
(ii) An Unconditional Guarantee — Promises performance on all aspects of service, and “in its
pure form, promises complete customer satisfaction, and at a minimum, a full refund or
complete, no cost problem resolution for the payout.” Unconditional guarantees require a slightly
different firm approach since variables that determine customer satisfaction such as effect and
cognitive evaluations of attribute performance (Oliver) are not within the firm’s control.
Implementation of unconditional guarantees requires firms to focus efforts on managing
customer interactions instead of specific service attributes. The distinction between specific or

32. overall (unconditional) performance is important as it defines the scope of the marketing effort
required to communicate and support the guarantee, and has widely different implications for
service guarantee design and management.
(iii) Implicit Guarantee — As the term suggests, it is an unwritten, unspoken guarantee that
establishes an understanding between the firm and its customers. Customers may infer that an
implicit guarantee is in place when a firm has an outstanding reputation for service quality. The
focus of an implicit guarantee is customer satisfaction. Previous research suggests that customers
are more likely to rely on explicit firm promises instead of implicit cues to make inferences
about the firm.
(iv) An Internal Guarantee — Is “a promise or commitment by one part of the organization to
another to deliver its products or services in a specified way or incur a meaningful penalty,
monetary or otherwise.” Since implicit guarantees are unconditional guarantees (without formal
expression of explicit commitment) and the focus of internal guarantees is limited to
coordinating functions and employees, the subsequent discussion includes only specific and
unconditional guarantees.
6. Impacts of Guarantees on Customer Perceptions:
Service promises can foster and strengthen customer-firm relationships due to their attention to
specific attributes such as price or delivery time, or because of unconditional assurances aimed at
increasing customer satisfaction. Ostrom and Iacobucci suggest that service guarantees serve as
external cues (just like price or brand reputation) that are used by Customers to evaluate service
quality and reduce risk.
In an experimental study, they found that service guarantees improved customer evaluations only
in the absence of other quality information. As expected, perceptions of risk were lower when a
guarantee was offered. In the same study, they also found that service guarantees had a greater
impact on customer evaluations when quality variation was perceived to be high among service
providers. In addition, the uniqueness of a guarantee has been found to amplify its effect on
customer evaluations.
Wirtz notes that in general, service guarantees favorably influence customer attitudes and beliefs,
thereby increasing purchase intention. However, Tucci and Talaga found that service guarantees
did not necessarily increase subject likelihood of choice. They found that guarantees increased
choice likelihood for expensive services, but negatively influenced choice when prices were low.
In a later study, Wirtz et al. found that the impacts of service guarantees on customer evaluations
of quality, risk, and purchase intention were significantly moderated by firm reputation.
Specifically, they found that change in customer evaluations was higher for a good quality
provider than for an outstanding quality provider when guarantee availability was varied. This

33. may be due to information redundancy or a ceiling effect where a firm with a reputation for
outstanding quality is unable to signal higher quality since it is already a quality leader.
Consequently, Wirtz et al proposed an inverted U hypothesis suggesting that firms with moderate
or good quality reputation benefit the most from service guarantees, while those at the high or
low ends gain the least. They also found that explicit guarantees did not lower customer
evaluations of service quality for high or outstanding quality providers as proposed earlier in the
literature.
In summary, these studies suggest that not all customers and firms benefit equally from service
guarantees. The level of risk (which could be a function of price or degree of quality variation),
availability of other information (e.g., brand, price), uniqueness of the guarantee, or firm
reputation (low, high, or outstanding), may considerably moderate the ability of service
guarantees to improve customer evaluations.
7. Design of Service Guarantees:
In a text summarizing past research, Wirtz proposed that well designed service guarantees should
be unconditional, easy to understand and communicate, meaningful to customers, easy to invoke,
easy to collect on and credible. McDougall, Levesque, and VanderPlaat found that survey
respondents preferred a specific service guarantee to an unconditional guarantee when their
attention was focused on invoking the guarantee. In this study, specific guarantees were
preferred on three dependent measures – risk reduction, ease of obtaining refunds, and
confidence in dealing with the firm.
However, when it came to selecting a firm based on the type of guarantee offered, firms offering
unconditional guarantees were preferred. McDougall et al concluded that a guarantee that
combined the best of both types, i.e., an unconditional guarantee with specific payout clauses
would appeal to a broader audience. Chu et al. have shown that a no-questions-asked refund
policy is superior to a verifiable-problems-only or no-refund policy.
They derived optimal refund policies for service firms under different conditions of salvage
value, complaining costs, customer dissatisfaction, and frequency of use during trial, and price.
Using theoretical modeling, Chu et al. showed that a partial refund policy was optimal when
customer opportunism was high and an unrestricted money-back policy was appropriate when
customer opportunism was low.
Fruchter and Gerstner have suggested that satisfaction-guaranteed (unconditional guarantee with
a full refund plus hassle costs) is optimal from a theoretical standpoint when firms are able to set
high prices that equal the willingness to pay of satisfied customers. They also showed that such a
guarantee would be most profitable even when returned products had no salvage value.

34. The evidence suggests that both, specific and unconditional guarantees have positive effects on
customer evaluations. However, their efficacy differs depending upon the task facing the
customer, and size, type, and procedures for claiming compensation. Firms should decide refund
policies based upon the level of customer opportunism and would do well to compensate
customers for inconvenience as well as basic exchanges or repairs. Note that there is much scope
to empirically validate the results obtained by Chu et al and Fruchter and Gerstner.
8. Service Guarantees Expedite Service Recovery:
Callan and Moore used attribution theory to explain how customers evaluate service quality and
failure. However, they did not discuss how service guarantees affect customer evaluations in the
event of failure (or success) and how firms can design guarantees to assist in service recovery.
Tax, Brown and Chandrashekharan have used social justice theory to explain how customers
evaluate service complaint experiences.
While their work did not focus on service guarantees per se, they provided a comprehensive
discussion of the variables that influence satisfaction with complaint handling. They found that
customers seek fair outcomes, fair processes, and fair interactions. Their framework is very
useful for reasoning how service guarantees might affect customer evaluations during service
recovery.
In summary, previous research has identified theoretical approaches that explain how customers
evaluate service failure and recovery. Attribution theory is useful for understanding customer
reactions to service failure while social justice theory is well suited for explaining satisfaction
with complaint experiences. However, there aren’t any studies that specifically investigate how
service guarantees affect customer evaluations in the event of failure, or how they may be used
to assist service recovery. Such knowledge can help firms not only conceive and design effective
guarantees, but also assist in their implementation.
9. Organizational Impacts of Service Guarantee:
While much anecdotal evidence has been cited, little formal research has addressed how service
guarantees affect employees and organizations. Wirtz has suggested that service guarantees force
firms to identify performance expectations of customers and the importance they attach to
different elements of the service process. Citing anecdotal evidence, Wirtz also contends that
guarantees cause firms to improve their service delivery processes by identifying and working
towards eliminating potential fail points.
Guarantees help firms set performance standards for employees. Therefore, service guarantees
have positive impacts on personnel management by inducing firms to hire and train employees to
deliver guaranteed service. Hart suggests that firms can improve internal quality problems by
offering internal guarantees.

35. To summarize, the research on employee impacts and organizational benefits is based largely on
anecdotal evidence. There is a lack of empirical research or theory to support the hypothesized
positive impacts of service guarantees on firm processes and performance.
(i) Need for multiple theoretical perspectives.
(ii) Existing service guarantee research still leaves a number of important questions unanswered;
(iii) When do firms benefit from service guarantees and why?
(iv) How should guarantees be designed to minimize the effects of service failure?
(v) How do guarantees affect customer evaluations when service fails?
(vi) How do guarantees affect employees and firms?

10. Theoretical Perspectives for Investigating the Service Guarantee:
It is apparent that these questions cut across a number of functions and disciplines, necessitating
a variety of theoretical perspectives for investigation. We utilize four theoretical perspectives
(below) to help researchers approach these questions more systematically and explain seemingly
disparate findings of service guarantee effects. Each theoretical perspective is developed into a
conceptual framework with an accompanying set of arguments and propositions.
The first three frameworks pertain to guarantee effects on external markets (customers), while
the fourth explains impacts of guarantees on internal markets (firms and employees). By
examining different stages and facets of the consumption process, the customer frameworks
complement one another. Note that we do not advocate a specific perspective; rather we hope
that these multiple viewpoints will provide richer insight into the domain of guarantees.
We expect these frameworks will advance existing knowledge by helping answer the following
four questions:
(i) When do Firms Benefit from Service Guarantees and Why?
From a firm’s perspective, it is necessary to understand why and how customers infer higher
quality, value, and satisfaction when service is guaranteed. Although previous research has
identified a number of benefits sought by customers of service firms (Gwinner et al.), not much
attention has been given to specific relational benefits (or processes by which they are realized)
of service guarantees.
Our framework utilizes signalling theory to explain when and how different types of guarantees
communicate higher quality and lower risk perceptions. It provides a reasonable basis for

36. reconciling the observed findings and can guide firms seeking to incorporate guarantees into
their service strategy.
(ii) How should Guarantees be Designed to Minimize the Effects of Service Failure?
Guarantee design from the standpoint of choosing between service firms (McDougall et al.;
Tucci and Talaga). Consequently, design impacts on customer expectations of procedures for
invoking guarantees and compensation for service failure have been ignored.
Further, researchers have examined design from the firm perspective of managing resources
(Chu et al.; Fruchter and Gerstner), paying scant attention to customer psychology and the need
for restoring equity and justice. Therefore, social justice theory is used to develop a framework
that explains how customers judge the fairness of outcomes and resolution procedures. This is
valuable for designing guarantees to mitigate the effects of service failure.
(iii) How do Guarantees Affect Customer Evaluations when Service Fails? or When Service
Succeeds?
Much work has focused on improvements in pre-purchase customer evaluations of quality and
satisfaction. Service guarantees have been viewed almost exclusively as marketing tools and
most research has focused on how customers use them to reduce risk perceptions, or choose
between competing providers.
Failure to recognize post consumption guarantee effects has diminished their worth in the
services research agenda. A framework using attribution theory is developed to reason the effects
of specific and unconditional guarantees on customer evaluations after service has been
experienced. This is important for understanding how guarantees assist service recovery or
reinforce service success.
(iv) How do Guarantees Affect Employees and Firms?
While it is noteworthy that some researchers have recognized that service guarantees may have
merit due to their beneficial impacts on both customers and firms, there has been a lack of
systematic effort to utilize marketing or management theories to ground future empirical
investigation. Several issues bear investigation. For instance, what type of guarantee improves
the market orientation of a firm?
How do different types of guarantees affect the design of service delivery and recovery
processes? The proposed framework uses previous research on market orientation, service
recovery, and total quality management to elaborate the effects of guarantees on employees and
organizations. This would help managers formulate service strategy by explaining process and
resource requirements for effective support of guarantees.

37. The role of non-monetary costs
When a customer buys a product, he is not only spending money, he is spending other things as
well. These things are called non-monetary costs and they are spent in the form of time,
convenience, effort and psychology (Businessdictionary, n.d.). In recent years economists have
recognized that monetary price is not the only sacrifice consumers make to obtain products and
services. Demand, therefore, is not just determined by monetary price but is influenced by other
costs as well. Non-monetary costs has become an important concept in social marketing.
Types of non-monetary costs
Non-monetary costs represent other sources of sacrifice perceived by consumers when buying
and using a service. Time costs, search costs, and psychological costs often enter into the
evaluation of whether to buy or rebuy a service, and may at times be more important concerns
than monetary price. Customers will trade money for these other costs as mentioned below:
Time costs
Most services require direct participation of the consumer and thus consume real time: time
waiting as well as time when the customer interacts with the service provider (Zeithaml, 1996).
Consider the investment you make to exercise, see a physician, or get through the crowds to
watch a concert or baseball game. Not only are you paying money to receive these services;
you’re also expending time. Time becomes a sacrifice made to receive service in multiple ways.
First, because service providers cannot completely control the number of customers or the length
of time it will take for each customer to be served, customers are likely to expend time waiting to
receive the service. Waiting time for a service is virtually always longer and less predictable than
waiting time to buy goods.
Search costs
When a consumer decides to buy a product/ service, he makes effort in searching for the best one
among all the choices. This effort is called “search cost” and is a type of non-monetary costs
(Lovelock, 2011). Search costs—the effort invested to identify and select among services you
desire—are also higher for services than for physical goods. Prices for services are rarely
displayed on shelves of service establishments for customers to examine as they shop, so these
prices are often known only when a customer has decided to experience the service. Another
factor that increases search costs is that each service establishment typically offers only one
“brand” of a service (with the exception of brokers in insurance or financial services), so a
customer must initiate contact with several different companies to get information across sellers.
Convenience costs

38. There are also convenience (or perhaps more accurately inconvenience) costs of services. If
customers have to travel to a service, they incur a cost, and the cost becomes greater when travel
is difficult, as it is for elderly persons. The inconvenience a person undergoes to avail a product/
service is called convenience cost, and it is a type of non-monetary costs (Zeithaml, 2011).
For example, if service hours do not coincide with the customers’ available time, they must
arrange their schedules to correspond to the company’s schedule. This causes inconvenience.
Another example: if consumers have to spend effort to prepare to receive a service (such as
removing all food from kitchen cabinets in preparation for an exterminator’s spraying), they
make additional sacrifices.
Psychological costs
Often the most painful non-monetary costs are the psychological costs incurred in receiving
some services. Fear of not understanding (insurance), fear of rejection (bank loans), fear of
uncertainty (including fear of high cost)— all of these, constitute psychological costs that
customers experience as sacrifices when purchasing and using services (Zeithaml, 1996). All
change, even positive change, brings about psychological costs that consumers factor into the
purchase of services.
A firm needs to find the perfect balance of monetary and non-monetary costs in order to sell its
product. This balance can be achieved by the firm itself. For example, a coffee shop owner may
choose to increase the price of his coffee in exchange for payment convenience- by offering the
credit card payment facility. It is up to the consumers whether they are willing to pay more
money for convenience, or pay less money in return for extra efforts.
Definition of Services Trade and Modes of Supply
The definition of services trade under the GATS is four-pronged, depending on the territorial
presence of the supplier and the consumer at the time of the transaction. Pursuant to Article I:2,
the GATS covers services supplied
from the territory of one Member into the territory of any other Member
(Mode 1 — Cross border trade);

in the territory of one Member to the service consumer of any other Member
(Mode 2 — Consumption abroad);

by a service supplier of one Member, through commercial presence, in the territory of any other
Member
(Mode 3 — Commercial presence); and

39. by a service supplier of one Member, through the presence of natural persons of a Member in the
territory of any other Member

gives examples of the four modes of supply.
The above definition is significantly broader than the balance of payments (BOP) concept of
services trade. While the BOP focuses on residency rather than nationality — i.e. a service is
being exported if it is traded between residents and non-residents — certain transactions falling
under the GATS, in particular in the case of mode 3, typically involve only residents of the
country concerned.
Commercial linkages may exist among all four modes of supply. For example, a foreign
company established under mode 3 in country A may employ nationals from country B (mode 4)
to export services cross-border into countries B, C etc. Similarly, business visits into A (mode 4)
may prove necessary to complement cross-border supplies into that country (mode 1) or to
upgrade the capacity of a locally established office (mode 3).
Box A: Examples of the four Modes of Supply (from the perspective of an
“importing” country A)
Mode 1: Cross-border
A user in country A receives services from abroad through its telecommunications
or postal infrastructure. Such supplies may include consultancy or market research
reports, tele-medical advice, distance training, or architectural drawings.

Mode 2: Consumption abroad
Nationals of A have moved abroad as tourists, students, or patients to consume the
respective services.
Mode 3: Commercial presence
The service is provided within A by a locally-established affiliate, subsidiary, or
representative office of a foreign-owned and — controlled company (bank, hotel
group, construction company, etc.).

40. Mode 4: Movement of natural persons
A foreign national provides a service within A as an independent supplier (e.g.,
consultant, health worker) or employee of a service supplier (e.g. consultancy firm,
hospital, construction company).
Modes (four) of services trade under GATS
The General Agreement on Trade in Services regime of the WTO classifies services in terms of
its delivery modes. As per the GATS, there are four modes of services
Modes of Services Supply
The GATS define services in four ‘modes’ of supply: cross-border trade, consumption abroad,
commercial presence, and presence of natural persons.
Mode 1: Cross Border
Services which themselves cross-frontiers from one country to another e.g. Distance learning,
consultancy, BPO services.
Mode 2: Consumption abroad
Services, which are made available within a country for foreign consumers’, e.g.: tourism,
educational students for students, medical treatment etc.
Mode 3: Commercial Presence
Services supplied by an entity of one country, which is commercially pressed in another e.g.:
banking, hotel etc.
Mode 4: Movements of natural persons
This is a foreign national providing services like that of doctor, nurse, IT engineer etc. functioning
as a consultant, employee, from one country to another.

41. Product Support: An Essential Part of Good Marketing Strategy

Product Support is a service provided by some retailers —primarily ones dealing in electronics
and IT goods— that provides the consumers with a resource for product-related information and
help if the product does not function as it is meant to. The purpose of Product Support is to
ensure that, after the sale, consumers derive maximum value from use of the product. As the
finale in the 3-stage product lifecycle, Product Support almost never gets the necessary
marketing attention as compared to the other two – the Core Product and the Actual Product.
Given the sustained boom in the IT products industry, the relevant question in this context would
be – is marketing investment in Product Support a good bet? Given that the White House Office
of Consumer Affair found that satisfied customers who get their issue resolved tell about 4-6
people about their experience while dissatisfied customers tell between 9-15 people about their
bad experiences each, it just might be worth the effort.
The Marketing Lifecycle
The Core Product is the end benefit of any purchase, such as pain relief when one buys an
aspirin. The aspirin in this case is the Actual Product. No Product Support is necessary in this
instance, but if the Real Product were a camera or a printer, support articles such as warranty,
after-sales service, and delivery will be necessary to complete the total product offering.
Why the sudden interest in Product Support?
The informed consumers of today are a demanding lot. Millennials are totally aware of their own
requirements and also understand the international standards where advanced Product Support is
concerned, thus increasing their expectations from even local vendors. Empowered by mobile
and social technology, they are increasingly impatient as well. In fact, 45% of consumers in the
US abandon online transactions if their questions are not addressed quickly found out Forrester.
Increasing consumer expectations due to their awareness and familiarity with global trends is
putting strong pressure on companies to intensify the importance of Product Support in their
comprehensive strategy. It is small wonder then that a well-rounded, successful marketing
strategy of our times will pay careful attention to Product Support, and in the way that they meet
consumer expectations.
How to get the equation just right?
The sheer lack of precedent deters many marketing managers from even beginning to develop
and execute Product Support strategies with marketing sway. To have any kind of marketing
impact, the primary requirement of a strategy is to have a clear understanding of the consumers’

42. (target audience) expectations. A clear, tangible appreciation of such information is very
essential to the process of developing a strategy based on appropriate markets dynamics.
Then there is the balancing act between the impact and the expenditure at the development stage.
There is never an easy settlement between these two opposing forces. Therefore, managers have
to keep a very clear head when developing a feasible structure to accommodate these two.
How to develop an effective Product Support Strategy
In nascent markets, consumers are usually focused on the tangible technology features of Product
Support, such as after-sales service and replacement of parts. But as the market matures,
requirements gradually lean towards the more sophisticated. Companies have to gauge the stage
the market and consumers are at and shift gears of their marketing strategy accordingly.
In any case, a clear Product Support strategy is mandatory. Be it availability of spare parts,
reliable product and services, or appropriate training of the support team, all these components
have to be clearly delineated.
Here are a couple of points to ensure the success of the strategy –
Ensure Ownership – Clearly mark the responsible individuals and departments to be contacted
for support, because collective responsibility is no one’s responsibility. Therefore, it makes more
sense to clearly mention individual and departments responsible for each and every Product
Support task. Leave nothing to interpretation; it creates unnecessary confusion and dilutes the
impact of the strategy.
Start at the beginning – Think through Product Support needs right from the beginning of the
development cycle. At each stage of the entire product lifecycle, contemplate challenges and
issues that consumers might face and look for solutions for the same. Do not wait till the entire
product or service is ready to go-to-market before you begin this brainstorming.
According to McKinsey, almost 70 percent of buying experiences are dictated by how consumers
feel they are being treated, and Product Support is an important part of the deal. So, no, there is
no way to wish away just how essential Product Support plans have become to the
comprehensive marketing strategy. With its growing importance, it is best that marketing
managers take cognizance of this powerful tool and use it as a means to win more customer
loyalty through careful planning.
Given that a 10-percent hike in customer retention results in a whopping 30-percent increase in
the value of the company (Bain & Co), it definitely makes good business sense for the enterprise.

43. Consumer behavior in marketing – patterns, types, segmentation
How many times throughout the day do you make decisions? What should I wear today, what
perfume should I put on? What am I going to have for lunch?
If you think about it, we make many buying decisions every day without giving them much
thought.
These decisions, however insignificant they may seem, keep marketers up at night. Because
decoding the processes behind them means that we can use that info to boost revenue.
What is the meaning of consumer behavior
Consumer behavior is the study of consumers and the processes they use to choose, use
(consume), and dispose of products and services, including consumers’ emotional, mental, and
behavioral responses.
Consumer behavior incorporates ideas from several sciences including psychology, biology,
chemistry, and economics.
In this guide we’ll take a look at the different aspects and facets of consumer behavior, and we’ll
discuss the most effective types of customer segmentation.
Consumers are really complex in needs and expectations, but if you segment them accordingly
and understand their behavior, you will know how to treat your customers and increase the
number of loyal ones.

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full potential out of your business.
Why is consumer behavior important
Studying consumer behavior is important because this way marketers can understand what
influences consumers’ buying decisions.
By understanding how consumers decide on a product they can fill in the gap in the market and
identify the products that are needed and the products that are obsolete.
Studying consumer behaviour also helps marketers decide how to present their products in a way
that generates maximum impact on consumers. Understanding consumer buying behaviour is the
key secret to reaching and engaging your clients, and convert them to purchase from you.
A consumer behavior analysis should reveal:

44. What consumers think and how they feel about various alternatives (brands, products, etc.);
What influences consumers to choose between various options;
Consumers’ behavior while researching and shopping;
How consumers’ environment (friends, family, media, etc.) influences their behavior.
Consumer behavior is often influenced by different factors. Marketers should study consumer
purchase patterns and figure out buyer trends.
In most cases, brands influence consumer behavior only with the things they can control; like
how IKEA seems to compel you to spend more than what you intended to every time you walk
into the store.
So what are the factors that influence consumers to say yes? There are three categories of factors
that influence consumer behavior:
1. Personal factors: an individual’s interests and opinions that can be influenced by
demographics (age, gender, culture, etc.).
2. Psychological factors: an individual’s response to a marketing message will depend on their
perceptions and attitudes.
3. Social factors: family, friends, education level, social media, income, they all influence
consumers’ behavior.
Types of consumer behavior
There are four main types of consumer behavior:
1. Complex buying behavior
This type of behavior is encountered when consumers are buying an expensive, infrequently
bought product. They are highly involved in the purchase process and consumers’ research
before committing to invest. Imagine buying a house or a car; these are an example of a complex
buying behavior.
2. Dissonance-reducing buying behavior
The consumer is highly involved in the purchase process but has difficulties determining the
differences between brands. ‘Dissonance’ can occur when the consumer worries that they will
regret their choice.
Imagine you are buying a lawnmower. You will choose one based on price and convenience, but
after the purchase you will seek confirmation that you’ve made the right choice.

45. 3. Habitual buying behavior
Habitual purchases are characterized by the fact that the consumer has very little involvement in
the product or brand category. Imagine grocery shopping: you go to the store and buy your
preferred type of bread. You are exhibiting a habitual pattern, not strong brand loyalty.
4. Variety seeking behavior
In this situation, a consumer purchases a different product not because they weren’t satisfied
with the previous one, but because they seek variety. Like when you are trying out new shower
gel scents.
What affects consumer behavior?
Many things can affect consumer behavior, but the most frequent factors influencing consumer
behavior are:
1. Marketing campaigns
Marketing campaigns influence purchasing decisions a lot. If done right and regularly, with the
right marketing message, they can even persuade consumers to change brands or opt for more
expensive alternatives.
Marketing campaigns can even be used as reminders for products/services that need to be bought
regularly but are not necessarily on customers’ top of mind (like insurance for example). A good
marketing message can influence impulse purchases.
2. Economic conditions
For expensive products especially (like houses or cars) economic conditions play a big part. A
positive economic environment is known to make consumers more confident and willing to
indulge in purchases irrespective of their personal financial liabilities.
Consumers make decisions in a longer time period for expensive purchases and the buying
process can be influenced by more personal factors at the same time.
3. Personal preferences
Consumer behavior can also be influenced by personal factors, likes, dislikes, priorities, morals,
and values. In industries like fashion or food personal opinions are especially powerful.
Advertisements can, of course, help but at the end of the day consumers’ choices are greatly
influenced by their preferences. If you’re vegan, it doesn’t matter how many burger joint ads you
see, you’re probably not gonna start eating meat because of that.
4. Group influence

46. Peer pressure also influences consumer behavior. What our family members, classmates,
immediate relatives, neighbors, and acquaintances think or do can play a significant role in our
decisions.
Social psychology impacts consumer behaviour. Choosing fast food over home-cooked meals,
for example, is just one of such situations. Education levels and social factors can have an
impact.
5. Purchasing power
Last but not least, our purchasing power plays a significant role in influencing our behavior.
Unless you are a billionaire, you will take your budget into consideration before making a
purchase decision.
The product may be excellent, the marketing could be on point, but if you don’t have the money
for it, you won’t buy it.
Segmenting consumers based on their buying capacity will help marketers determine eligible
consumers and achieve better results.
Customer behavior patterns
Buying behavior patterns are not synonymous with buying habits. Habits are developed as
tendencies towards an action and they become spontaneous over time, while patterns show a
predictable mental design.
Each customer has his unique buying habits, while buying behavior patterns are collective and
offer marketers a unique characterization. Customer behavior patterns can be grouped into:
1. Place of purchase
Most of the time customers will divide their purchases in several stores even if all items are
available in the same store. Think of your favorite hypermarket: although you can find clothes
and shoes there as well, you’re probably buying those from actual clothing brands.
When a customer has the capability and the access to purchase the same products in different
stores, they are not permanently loyal to any store, unless that’s the only store they have access
to. Studying customer behavior in terms of choice of place will help marketers identify key store
locations.
2. Items purchased
Things to consider: the items that were purchased and how much of each item was purchased.
Necessity items can be bought in bulk while luxury items are more likely to be purchased less
frequently and in small quantities.

47. The amount of each item purchased is influenced by the perishability of the item, the purchasing
power of the buyer, unit of sale, price, number of consumers for whom the item is intended, etc.
Analyzing a shopping cart can give marketers lots of consumer insights.
3. Time and frequency of purchase
Customers will go shopping according to their feasibility and will expect service even during the
oddest hours; especially now in the era of e-commerce where everything is only a few clicks
away.
It’s the shop’s responsibility to meet these demands by identifying a purchase pattern and match
its service according to the time and frequency of purchases.
One thing to keep in mind: seasonal variations and regional differences must also be accounted
for.
4. Method of purchase
A customer can either walk into a store and buy an item right then and there, or order online and
pay online via credit card or on delivery.
The method of purchase can also induce more spending from the customer (for online shopping,
you might also be charged a shipping fee for example).
The way a customer chooses to purchase an item also says a lot about the type of customer he is.
Customer behavior segmentation
Customer segmentation, types of buyers, has always been important, but now that
personalization and customer experience are factors that determine a business’
success, effective segmentation is even more important.
Traditionally, most marketers use six primary types of behavioral segmentation.
1. Benefits sought
A customer who buys toothpaste can look for four different reasons: whitening, sensitive teeth,
flavor, or price.
When customers research a product or service, their behavior can reveal valuable insights into
which benefits, features, values, use cases, or problems are the most important motivating factors
influencing their purchase decision.

48. When a customer places a much higher value on one or more benefits over the others, these
primary benefits sought are the defining motivating factors driving the purchase decision for that
customer.
2. Occasion or timing-based
Occasion and timing-based behavioral segments refer to both universal and personal occasions.
Universal occasions apply to the majority of customers or target audience. For example holidays
and seasonal events when consumers are more likely to make certain purchases.
Recurring-personal occasions are purchasing patterns for an individual customer that consistently
repeat over a period of time. For example birthdays, anniversaries or vacations, monthly
purchases, or even daily rituals such as stopping for a cup of coffee on the way to work every
morning.
Rare-personal occasions are also related to individual customers, but are more irregular and
spontaneous, and thus more difficult to predict. For example attending a friend’s wedding.
3. Usage rate
Product or service usage is another common way to segment customers by behavior, based on
the frequency at which a customer purchases from or interacts with a product or service. Usage
behavior can be a strong predictive indicator of loyalty or churn and, therefore, lifetime value.
4. Brand loyalty status
Loyal customers are a business’ most valuable assets. They are cheaper to retain, usually have
the highest lifetime value, and can become brand advocates.
By analyzing behavioral data, customers can be segmented by their level of loyalty so marketers
can understand their needs and make sure they are satisfying them.
Loyal customers are the ones who should receive special treatment and privileges such as
exclusive rewards programs to nurture and strengthen the customer relationship and incentivize
continued future business.
5. User status
There are many different possible user statuses you might have depending on your business. A
few examples are:
Non-users
Prospects

49. First-time buyers
Regular users
Defectors (ex-customers who have switched to a competitor).
6. Customer journey stage
Segmenting the audience base on buyer readiness allows marketers to align communications and
personalize experiences to increase conversion at every stage.
Moreover, it helps them discover stages where customers are not progressing so they can identify
the biggest obstacles and opportunities for improvement, even on postpurchase behaviours.
Besides these traditional ways, another type of segmentation is the RFM model.
RFM comes from Recency, Frequency and Monetary Value.
Recency = how recent a customer placed the last order on your website
Frequency = how many times a customer purchased something from your website in the
analyzed period of time
Monetary Value = how much each customer spent on your website since the first order
The RFM model analysis can be executed in 2 ways:
Manually – exporting your database in a spreadsheet and analyse your customers following the
rules for RFM analysis
Automatically – through certain tools that are creating RFM dashboards
From the RFM segmentation and analysis you can not only reveal what are your most loyal and
profitable customers or less profitable customers but also:
Reveal what brands and products are dragging your business down
Build custom recommendations for your customers
Solve certain Customer Experience problems
Before making decisions based on gut feeling regarding your customers and your audience,
observe their behavior, listen to them and build a relationship before your competitors do.

50. Benefits of Good Customer Service
Successful businesses tend to provide a high level of customer service which results in high
customer satisfaction.
The potential benefits to the firm from providing a consistently high level of customer service
include:
Increased sales – more likely to try out other products/services too
Customer loyalty –more likely to be a source of repeat business and to recommend the business
to friends and family
Enhanced public image – helps build a brand and provides protection if there is a slip-up in
customer service
More effective workforce – satisfied customers help create a positive working environment
It should be evident from the points made above that the benefits of good customer service are
interrelated, i.e.
Satisfied customers will lead to more sales from their own repeat business and from the new
customers generated by their recommendations
A positive public image will generate more sales by attracting new customers
Staff who deliver good customer service receive their customers' appreciation and are further
motivated to offer good customer service and so on
Customer Benefit
Definition
The term customer benefit is tied to the customer’s needs, which are satisfied by a particular
product or service. This need determines which product or service the customer buys. The term
benefit sounds very rational. But even needs like fun, luxury or a certain image can be a
customer benefit. In most cases, the customer benefit is comprised out of a main benefit and
several additional benefits. For example:
Main benefit: A customer wants to buy a bike in order to get from A to B. Almost all bikes that
are there on the market satisfy that need.
Additional benefit: The customer also pays special attention to the fact that the bike is low-
maintenance and very stable. Furthermore, it should not cost too much. Which bike the customer
finally buys depends on those points.

51. Importance for your Business Plan
Only if your product or your service offers a benefit to your customer, you will be successful.
Therefore, the customer benefits should be the focus of your planning! Working out the customer
benefits, can be a long and hard process and should be completed before the actual work on the
business plan.
You can convincingly present the results in your business plan. What is the customer’s need?
How has it been satisfied until now? How can you do it better? “Better” here may refer to
various aspects such as quality, time, cost or service.
Two things to note:
The benefit of your proposition (the significant additional benefit) must be so relevant to the
audience that they depend their purchase decision on it.
The benefit of your proposition (the significant additional benefit) must be recognizable to the
target audience.
You identify the customer advantage by answering the following three questions:
Who are my customers?
What is the problem (or need)?
How does my offer solve this problem (or need)?
In order to answer question 1, it is helpful to think about what kind of people visit your
restaurant, buy your clothes or use your consulting services. Where do they live? Are they
younger or older, men or women, families with children or singles? What is their income? What
interests, values or preferences do they share?
For business customers, you can state whether it is a large or small company, whether they
belong to creative or traditional sectors and where their headquarters are located.
Only by having an accurate picture of your target audience, can you determine and explain their
needs (question 2) and satisfy them (question 3).
The following aspects help you with that. It’s best to ask your potential customers directly! Just
start a small street survey or call some companies. Explain to your business partners that you are
an entrepreneur and that their counsel is needed. Most people like to help:
What benefit does your product or your service offers to potential customers? How can you solve
their problems? Ask your potential customers: Why exactly are you not satisfied with the

52. previous offers? What bothers you, and why? The answer is the problem or the need of your
customers.
What is important for your customers? Do they put more emphasis on a reasonable price or high
quality? Do they care about a fast delivery, to have a comprehensive customer service or a high
level of discretion? Question: If I solve your problem, then what would be different for you? The
answer is: the customer benefits.
After this exercise, you know how your customer benefit differs from that of your competitor.
Now you can clearly identify your unique selling point.
By asking the customer, what he would be willing to pay for the product, you can set your prices.
Now you can decide whether it is worth starting the business, or not.

Almost no start-up is about reinventing the wheel, it is rather about what added value the product
offers.
A look at online review sites is helpful, to determine what the customer looks for: What is
constantly criticized? What is positively mentioned?
Only start a company if the customers find the solution you offer to be of importance: Should I
start a business to solve your problem?
A typical mistake is to define something as a customer benefit, which you personally define as
valuable and important.
A very practical example from us: During the development of SmartBusinessPlan, we spoke with
12 founders, who was writing their business plans, about their experiences. More than half cited
three problems:
“I do not know exactly what is expected of me. There are so many conflicting templates and
different structures on the Internet. That wastes time and unsettles me.“
“I’d like to see successful examples.”
“I need help with the figures.”
The answers, how much they would be willing to pay for a solution for these problems,
fluctuated between 20 and 150 EUR. So we knew: This is a relevant problem and we can create
customer benefits with our product. We defined customer benefits as: 1. A technically good and
accepted structure, 2. Real examples of real (successful) founders 3. Wizards that prevent typical
errors and reduce complexity. Voilà!

53. Franchising
Definition: A continuing relationship in which a franchisor provides a licensed privilege to the
franchisee to do business and offers assistance in organizing, training, merchandising, marketing
and managing in return for a monetary consideration. Franchising is a form of business by which
the owner (franchisor) of a product, service or method obtains distribution through affiliated
dealers (franchisees).
If buying an existing business doesn't sound right for you but starting from scratch sounds a bit
intimidating, you could be suited for franchise ownership. Just what is a franchise--and how do
you know if you're cut out to be a franchisee? Essentially, a franchisee pays an initial fee and
ongoing royalties to a franchisor; in return, the franchisee gains the use of a trademark, ongoing
support from the franchisor, and the right to use the franchisor's system of doing business and sell
its products or services.
In addition to a well-known brand name, buying a franchise offers many other advantages that
aren't available to the entrepreneur starting a business from scratch. Perhaps the most significant
is that you get a proven system of operation and training in how to use it. New franchisees can
avoid a lot of the mistakes startup entrepreneurs typically make because the franchisor has already
perfected daily operations through trial and error.
Reputable franchisors conduct market research before selling a new outlet, so you'll feel greater
confidence that there's a demand for the product or service. The franchisor also provides you a
clear picture of the competition and how to differentiate yourself from them.
Finally, franchisees enjoy the benefit of strength in numbers. You'll gain from economics of scale
in buying materials, supplies and services, such as advertising, as well as in negotiating for
locations and lease terms. By comparison, independent operators have to negotiate on their own,
usually getting less favorable terms. Some suppliers won't deal with new businesses or will reject
your business because your account isn't big enough.
Once you've decided a franchise is the right route for you, how do you choose the right one? With
so many franchise systems to choose from, the options can be dizzying. Start by investigating
various industries that interest you to find those with growth potential. Narrow the choices to a
few industries you're most interested in, then analyze your geographic area to see if there's a market
for that type of business. If so, contact all the franchise companies in those fields and ask them for
information on their franchise opportunity. Any reputable company will be happy to send you
information at no cost.
Of course, you shouldn't rely solely on these promotional materials to make your decision. You
also need to do your own detective work. Start by visiting your library or going online to look up
all the magazine and newspaper articles you can find about the company you're considering. Is the
company depicted favorably? Does it seem to be well managed and growing?

54. Once you've decided on a certain franchise through your preliminary research, you need to find
out if this opportunity is as good as it sounds. Your next step is to analyze it thoroughly to
determine whether it's really worth buying.
Much of the information you'll need to gather in order to analyze a franchise will be acquired
through the following:
 Interviews with the franchisor
 Interviews with existing franchisees
 Examination of the franchise's Uniform Franchise Offering Circular (UFOC)
 Examination of the franchise agreement
 Examination of the franchise's audited financial statements
 An earnings-claim statement or sample unit income (profit-and-loss) statement
 Trade-area surveys
 List of current franchisees
 Newspaper or magazine articles about the franchise
 A list of the franchisor's current assets and liabilities
Through this research, you want to find out the following:
 If the franchisor--as well as the current franchisees--are profitable
 How well-organized the franchise is
 If it has national adaptability
 Whether it has good public acceptance
 What its unique selling proposition is
 How good the financial controls of the business are
 If the franchise is credible
 What kind of exposure the franchise has received and the public's reaction to it
 If the cash requirements are reasonable
 What the integrity and commitment of the franchisor are
 If the franchisor has a monitoring system
 Which goods are proprietary and must be purchased from the franchisor
 What the success ratio is in the industry
Don't be shy about asking for the required materials from the franchisor. After all, they'll be
checking you out just as completely. If they aren't, that should sound a warning bell. Another
warning sign is if the franchisor asks you to sign a disclaimer stating you haven't relied on any
representations not contained in the written agreement. Such a requirement could indicate the
franchisor doesn't want to be held responsible for claims made by its sales representatives.

55. Physical Evidence: Elements, Types and Role of Physical Evidence
in Service Marketing
Elements:
Services being intangible, customers often rely on tangible cues, or physical evidence, to
evaluate the service before its purchase and to assess their satisfaction with the service during
and after consumption. General elements of physical evidence are shown in Table 9.1. They
include all aspects of the organization’s physical facility (the services cape) as well as other
forms of tangible communication.
Elements of the services cape that affect customers include both exterior attributes (such as
parking, landscape) and interior attributes (such as design, layout, equipment, and decor).
Physical evidence examples from different service contexts are given in Table 9.2. It is apparent
that some services communicate heavily through physical evidence (e.g. hospitals, resorts, child
care), while others provide limited physical evidence (e.g. insurance, express mail).

56. Role of service evidence:
A distinction is made in services marketing between two kinds of physical evidence:
(a) Peripheral evidence;
(b) Essential evidence.
(a) Peripheral Evidence:
Peripheral evidence is actually possessed as part of the purchase of a service. It has however
little or no independent value. Thus a bank cheque book is of no value unless backed by the
funds transfer and storage service it represents.
An admission ticket for a cinema equally has no independent value. It merely confirms the
service. It is not a surrogate for it. Peripheral evidence ‘adds to’ the value of essential evidence
only as far as the customer values these symbols of service.
The hotel rooms of many large international hotel groups contain much peripheral evidence like
directories, town guides, pens, notepads, welcome gifts, drink packs, soaps and so on. These
representations of service must be designed and developed with customer needs in mind. They
often provide an important set of complementary items to the essential core service sought by
customers.

57. (b) Essential Evidence:
Essential evidence, unlike peripheral evidence, cannot be possessed by the customer.
Nevertheless essential evidence may be so important in its influence on service purchase it may
be considered as an element in its own right. The overall appearance and layout of a hotel; the
‘feel’ of a bank branch; the type of vehicle rented by a car rental company; the type of aircraft
used by a carrier are all examples of physical evidence.
Managing the Evidence:
Service organizations with competing service products may use physical evidence to
differentiate their service products in the marketplace and give their service products a
competitive advantage. A physical product like a car or a camera can be augmented through the
use of both tangible and intangible elements.
A car can be given additional tangible features like a sliding roof or stereophonic radio
equipment; a camera can be given additional tangible features like control devices which enable
use in a wide variety of light conditions.
A car may be sold with a long life antirust warranty or cost- free service for the first year of
ownership; a camera with a long-life warranty or free lens insurance. Tangible and intangible
elements may be used to augment the essential product offer. In fact organizations marketing
tangible dominant products frequently use intangible, abstract elements as part of their
communications strategy.
Service marketing organizations also try to use tangible clues to strengthen the meaning of their
intangible products.
Make the Service more Tangible:
The bank credit card is an example of the tangible representation of the service, ‘credit’. The use
of a credit card means:
(a) The service can be separated from the seller;
(b) Intermediaries can be used in distribution thereby expanding the geographic area in which the
service marketer can operate;
(c) The service product of one bank can be differentiated from the service product of another
bank (e.g. through colour, graphics and brand names like Visa).
(d) The card acts as a symbol of status as well as providing a line of credit.
Make the Service Easier to Grasp Mentally:
There are two ways in which a service can be made easier to grasp mentally.

58. (a) Associate the service with a tangible object which is more easily perceived by the customer.
This approach may be used in advertising messages where the intangible nature of service is
transferred into tangible objects representing that service. These may have more significance and
meaning for customers. It is easier for the customer to grasp what their service means compared
with competitors.
With this approach it is obviously vital to:
(a) Use tangible objects that are considered important by the customer and which are sought as
part of the service. Using objects that customers do not value may be counter-productive.
(b) Ensure that the ‘promise’ implied by these tangible objects in fact is delivered when the
service is used. That is, the quality of the goods must live up to the reputation implied by the
promise.
If these conditions are not met, then incorrect, meaningless and damaging associations can be
created.
(b) Focus on the Buyer-seller Relationship:
This approach focuses on the relationship between the buyer and the seller. The customer is
encouraged to identify with a person or group of people in the service organization instead of the
intangible services themselves.
Advertising agencies use account executives; market research agencies assemble client teams;
the Bank uses ‘personal’ bankers. All encourage a focus on people performing services rather
than upon the services themselves.
However before a service organisation can translate intangibles into more concrete clues it must
ensure that it:
(a) Knows precisely its target audience and the effect being sought by the use of such devices.
(b) Has defined the unique selling points which should be incorporated into the service and
which meet the needs of the target market.

59. Customer strategy foundation: Search, Experience and Credence (SEC)
analysis determines how customers buy
Knowing whether buyers conduct consideration with complete, partial or minimal information
about the qualities of goods they seek is an essential starting point for customer experience
strategy.
This method puts customer purchases on a continuum of how easy or hard it is for buyers to
evaluate the qualities of a potential purchase. In my fifteen years of advising management teams,
this has been a durable and enlightening way to understand how buyers engage, select and
recommend sources of good and services.
This model is especially productive because it recognizes that the trust required to overcome a
buyer’s own reservations is linked to the kind of the purchase they are considering. Enabling
experience strategists and marketers to recognize these dynamics is like enabling sailors to
anticipate the currents they’ll need to accommodate in their travels.
The model uses a continuum of three types of goods: Search, Experience and Credence.
Identifying which type of good an offering is can help companies better engage buyers in
consideration, or to create experiences that shift offerings from one category to another.
Search goods

Search goods are commodities such as dollar bills, gallons of 91 octane gas, or heart medicine.
When a buyer shops for any of these, they have a clear perception of what they want and a high
degree of certainty it will be useful in a predictable way.
As commodities, you know what they are as soon as you find them. Drug stores provide highly
uniform drugs, banks provide highly uniform money. A can of Libby’s peaches at one grocery
stores is the same as the ones at others. Groceries, banks and pharmacies at their root provide
search goods.
Naturally, businesses which distribute commodity products will attempt to differentiate
themselves through experiences which add value to the commodities. Clean restrooms don’t
make the gas more valuable, but they may make a visit to the gas station better. Personable
bankers don’t make the money more valuable, but it makes getting it less taxing. A grocery store
that dusts their cans of peaches can make them more appetizing. You get the picture.
When will people pay extra for experience?
Or to state this as an economist, when might improving customer experience make buyers less
price sensitive? When the price of search goods is highly visible, buyers are the most price
sensitive. Consider how prominently gas prices are displayed on giant signs. A price difference

60. of a penny or two per gallon is frequently enough to get drivers to go out of there way when
getting gas. This type of behavior is less likely when people are shopping for commodities which
aren’t as directly linked to price, such as prescription medicine where it might be rare to know
one’s post-insurance cost until the end of the checkout process.
Experience goods
Experience goods are those where price, quality or some other attribute remains unknown until
purchase. When visiting a new restaurant or buying a new wine, for example, consumers show a
willingness to take a risk on how satisfying the product will be. Compare that with purchasing
gas where quality of the product is expected to be satisfying regardless of what station you buy
from.
Yet, with experience goods, once a person has consumed the food or wine they can readily
evaluate their satisfaction with it. The knowledge of prior customers’ satisfaction is highly
influential to those considering the same choice. This dynamic makes Yelp, Angie’s List, or
other buyer reviews, especially influential in the purchase of experience goods.
Is work a search or experience good?
Access to information can change which category a good falls into. This can be seen in labor
pricing. The practice of employers keeping salary information confidential can be seen be a way
of preventing the kind of comparison between opportunities that would turn job opportunities in
to search goods. The formalization of function and reward brought by union contracts, would
serve as a counter force to this, making these jobs more predictable and thus more like search
goods. Seen in this light, union wage standardization and work rules commoditize jobs to the
benefit of applicants, just as more transparent work and pay histories would commoditize
applicants.
Credence goods
Credence goods may be the most interesting to marketers, because even after their purchase and
use, customers may still be unable to assess their quality. This is often the case with expert or
high-end services like lawyers, surgeons, mechanics, management consultants and prestigious
universities. Most of my professional life has been spent helping these services to market and
position their brands among other hard to evaluate competitors.
But don’t customers know best?
Often not with credence goods. In areas such as law and medicine, the clients of even the best
practitioners often don’t get the outcomes they seek. But this may have more to do with their
own circumstances than the skill of experts helping them.
Conversely, clients may experience superior outcomes that have nothing to do with expert
services: patients sometimes make recoveries where none was expected. Unless customers

61. frequently purchase such services and are experts themselves, they may be responding more to
the result they obtained, rather than the service which facilitated it.
Finding the best expert is hard
Since customer opinions are less useful in respect to credence goods, there is a tendency to turn
toward data to create objective scoreboards. The attempt to do this both in law and medicine are
endless. However, performance data are often confounded by human selection, as people with
the most difficult cases may seek out highly accomplished practitioners, so make comparison to
their peers uneven.
Prestige is the currency of credence goods
Absent a true success metric, the trappings of success such as high fees, architecture with marble
columns, and professional endorsements stand-in to influence selection. Consider higher
education, which has previously been a classic credence good. A prestigious university may
draw the brightest applicants and note years later how bright and successful they remain. Yet it is
difficult to know if their advantage is an effect of association with a prestigious brand, being in a
high functioning cohort, or that their academic training created this difference.
Prestige and rankings by expert judges about credence goods play a similar role to customer
reviews of experience goods. We see this in the importance of U.S. News and World Report
rankings of higher education and healthcare competitors. They pay substantial fees to use this
seal of approval in their marketing. Some even devote staff to maintaining their strong rankings.
Now, do you know anyone who subscribes to U.S. News magazine today? I’m not sure they still
publish regular news. That shows how powerful rankings are in selecting credence goods.
Consumers will accept prestige markers, even knowing they may to some extent be contrived or
bogus.
Credence goods call for professional ethics
In many cases, consumers of credence goods may be unable to evaluate to what extent they even
need these goods at all. Buyers of credence goods often rely on expert opinions to both assess
their need, and to fix the situation they have diagnosed.
In his article, Credence Goods and Fraudulent Experts, economist Winand Emons points out that
“brake shoes changed prematurely work just as if the shoes replaced had been faulty”. Likewise,
a patient whose appendix was removed un-necessarily has the same prospect of health as one
who needed and received that procedure. In such cases, buyers may be unable to determine the
extend or urgency of own need, or later gauge how expert services helped them.
In answer to this challenge, experts of all kinds are finding ways to use digital technology to
improve these experiences. In medicine from Orthopedics to Gastroenterology and Dentistry,
digital imaging and modeling are helping doctors to record what they are treating and its effects.
In previous generations patients would have taken the world of these experts that something
needed to be fixed, now they can see the dimension of their need and the benefits of care.

62. This asymmetry of information which comes credence goods, creates a need for practitioners to
adhere to and police ethical precepts to prevent the exploitation of such expert advantages.
Professional licenses, union certifications, and standing in learned associations are all revocable
signs of good conduct, used by these communities to protect their specialties’ reputation.
Let the customer strategy fun begin!
So, now that you have this way of looking at buyer relationships, how do you use it? The next
time you see a ranking shield on a website, you might be more likely to reflect on how much
certainty it really gives you have about that service.
There are also examples of firms which use innovation to move their goods from one SEC
category to another. Part of the genius of McDonalds is how it made its restaurants in to search
goods (commodities). They provide a predictable experience supported by metrics to perpetuate
that uniformity.
In higher education, a classic credence good, there is a long-standing current of to provide
training and certification which is measurable to the point of being a search good. (Example:
Where did you do your Project Management training? Beats me, but I passed the exam!)
Numerous online services also allow students to review their professors, which could make
higher education into something closer to an Experience Good, defined by customer satisfaction
scores and reviews.
SEC analysis informs content marketing
In my own life, thinking about SEC goods absolutely influenced my decision to make an index
ranking hospital digital experiences. Knowing that hospital teams already valued external
rankings, it made sense to approach them with the kind of expert analysis that aligns to credence
purchases.
Since this method is rooted in economic theory, few customer-experience professionals know
about it or use in to ground experience strategy. But as they empathize with buyers, it is helpful
to understand the level of information consumers have in a buying process can be determined by
the type of good, and that this creates recognizable dynamics which companies can address as
they engage with buyers.

63. Marketing Mix & Service Extension (3Ps)
The Marketing Mix is a set of controllable variables that the organisation can use to influence the
buyer’s response (Philip Kotler, 2009)1. The Chartered Institute of Marketing (CIM, 2008)
promotes the philosophy of a Market Oriented organisation, where by the target market and user
is central to every single decision made, and that decision should be in the best interests of the
target market, whilst doing so at a profit. It is within this approach of placing the user at the
center that marketing and design share a mutual dialogue.
An organisation will execute its strategy through the application and blending of the marketing
mix; describing the combination of tactics used by an organisation to achieve its objectives by
marketing its products or services effectively to a particular target market / segment. More
commonly it is also referred to as the ‘4 Ps’ – Product, Price, Promotion and Place:
Product - this involves ultimately what products and services will be marketed. Key decisions
include design, core product benefits and features, quality, branding and packaging.
Price - as the only element in the mix that develops revenue you can appreciate it is one of the
most important, decisions include price levels, methods of payment and discounts.
Place - deals with making products and service available, decisions relate to items such as shop
fronts, warehouse, distribution channels and market coverage.
Promotion - decisions relate to advertising, PR, direct marketing, sales and items such as
exhibitions. Each of these items can be used in many, many ways. With such a broad range of
media available the possibilities are endless, but as with all things in the plan we need to
maintain out customer focus and this will help determine channels used.
With the growth of the service economy the Marketing sector made consideration of the service
characteristics which resulted in the creation of an additional three marketing mix elements, the
service extension, to Borden’s original 4Ps; product, price, place and promotion.
These extra considerations gives the marketer the framework to deal with some of the
issues raised by ‘service characteristics’. It also allows for further tailoring of the service to
best resonate with the target market.
People:
In the process of meeting customer needs an organisations staff will directly or indirectly affect
the quality of the service delivered. Often this element relates to the direct contact with the
customer in service marketing and consumption. This makes this element a powerful tool of the
marketing mix in building a sustainable competitive advantage. The ‘people’ element also
considers the possibility of consumer-consumer interaction.

64. Automation of a service provides the benefit of removing one side of the service; that of the
service provision. The customer will still judge the quality of the service based on their
experience, how easy or how quick, for example the automation is to use.
Even within the traditional manufacturing sectors the importance of quality customer service, the
‘people’ element is recognised and included in the mix to develop competitive advantage.
Physical Evidence:
This element relates to the physical properties of the services and the tools used to market the
service offer. With tangible products the customer can actual touch the product, a physical object
that they can interact with before a decision has been made on whether it meets their needs and
ultimately should they purchase the item or not. With services, and their intangibility, this is not
possible. This can be particularly problematic when dealing with a customer who has not used
the service before. The customer will use other physical signals as evidence in evaluating the
service providers offering.
Process:
The process element relates to how the customer accesses the product or service. ‘Process’
provides a framework for analysing the delivery of the service. Although developed with service
marketing in mind its importance has again become recognised when marketing physical
products.
SERVICE QULAITY MODELS
Products and Services that meet or exceed customer expectations result in customer
satisfaction. Quality is the expected product/service being realized. Before a customer makes a
purchase (exchanges money for a product/service) he or she does a mental calculation: “Is the
worth of the product/service (as I perceive and expect) equal to the money that I am about to
exchange?”
Products/services that are produced and manufactured to specifications that are appropriate to the
price (money to be given in exchange by the customer) of the product/service is an operational or
manufacturing view of quality. Here, the customer receives the value that he or she expects since
operations has built quality standards into the product. An operations view of quality is a common
view of the concept of quality.
However, quality is a function of how the customer views the product/service that he or
she receives. The customer view always compares what they expect with what they actually
receive regardless of how operations conceives quality. How do customers arrive at their
expectations?

65. Marketing, especially sales, has a major effect on how the customer views quality. As mentioned
earlier, customer satisfaction is based on receiving the actual product/service as expected. When
marketing and sales enthusiastically promises a product/service that manufacturing or operations
(in the case of a hospitality service) cannot deliver, then expectations are not met, the customer is
dissatisfied, and quality (in the customers’ eyes) is not realized.

Quality is not an absolute to be determined by operations or manufacturing. Variables that
affect quality are: (a) customer expectations (obtained from marketing and sales, as well as word
of mouth and previous experience), (b) actual product/service received (how a service is performed
by operational people and actual tangibles received (cold food for example). The following
models explain these basic concepts.
Discussion
What is Quality?
There are two perspectives and lenses through which to view quality: Tangible Product
Orientation and Intangible Service Delivery Orientation. Both are necessary, however, the latter
is the most important since most tangible hospitality products are becoming
Tangible Product Orientation. Here focus is on the product itself but from another two
perspectives (Kotler, Bowen, and Makens, 1996):
1. Product/Service Features. The product/service is seen as a set of features that enhance
customer satisfaction. While this may or may not be a customer focus (depending if the customer
truly asked what product enhancements they wanted), in reality adding additional features in a
hope that they will create customer satisfaction is the approach. This approach adds to the cost of
the product. Justification for these added features must be paid for by additional customer
expenditure or the organization gaining a pay-off due to increased customer loyalty.
Company image, word-of-mouth, and marketing/sales (promotion and price-levels) form
customer expectations. A hotel guest staying at the Ritz and paying $300 per night will have very
different expectations than a hotel guest of Motel 6 paying $45 per night. Thus, both the guest at
Motel 6 and the guest at the Ritz may conclude after their stay that they received quality rooms.
Why can both Motel 6 and Ritz deliver a quality room? Because the room at the Ritz and Motel
6 are not compared against one another. The in each case, the customers’ expectations were met
by the room received for the price (which is one variable that signals expectations) that they paid.
Product features quality relates to customer expectations.

66. 2. Freedom from Deficiencies. In the example above, the rooms at both the Ritz and Motel
6 must be clean and the beds made-up daily. NOTE: Is there a price level below which even these
deficiencies ARE acceptable, for example, a low-end and run-down motel?
Seriously, products must work. At a basic level, they must operate as they are
supposed to or the customer will determine that the quality is inadequate.
Intangible Service Delivery Orientation. Here the focus is on the process of delivering the
service. This involves two basic components: (a) Technical quality – the means of service delivery
and (b) Functional quality – the how of service delivery.
1. Technical Quality. This includes the systems and infrastructure designed and created to
organize delivery of the service. For example: computerized systems, machines technical
solutions, and know-how.
2. Functional Quality. The hospitality customer goes through many interactions with
employees in the creation and delivery of a hospitality experience. A successful meeting is the
result of all functional areas of a hotel being synchronized and focused on creating a beautiful
symphony. Technical quality must be in place to facilitate such coordination and allow the
employees to work together. Functional quality includes employee: attitudes, behavior, service
mindedness, appearance, accessibility internal relations and customer contacts.
Quality Models
Models help us understand the complexity of service quality. First, we will discuss an early
foundational model: The Perceived Service Quality Model developed by Christian Gronroos in
1982. Second, we will discuss an evolutionary form of the Gronroos model, the Gap Analysis
Model developed by V. A. Zeithaml, A. Parasuraman, and L. L. Berry in 1988. This last model,
currently packaged as the SERVQUAL Model, is widely used in the hospitality industry to
understand and improve the quality of hospitality service.
Perceived Service Quality Model (Figure 1)
In 1982, Christian Gronroos, of the Swedish School of Economic, Helsinki, Finland,
introduced The Perceived Service Quality Model (see Figure 1). According to Gronroos, service
quality studies and subsequent model development has from the beginning beenbased on what
customers perceive as quality. In other words, service quality is an outgrowth of the marketing
concept; focus on the customer. What is important is what is perceived as quality by the customer
and not what designers or operations people feel is good or bad quality.

Customer buying behavior theories have strongly influenced many service quality models. The
notion that the customer’s post-purchase perception is a function of his or her pre-purchase

67. expectations is the foundation of the confirmation/disconfirmation concept of service quality. The
confirmation/disconfirmation concept is the foundation concept of both Gronroos’ 1982,
Perceived Service Quality Model and the well-known (1988) Gap Analysis and SERVQUAL
models by V. A. Zeithaml, A. Parasuraman, and L. L. Berry (Gronroos, 1991).

According to the Perceived Service Quality model (Figure 1), the quality of a service, as perceived
by the customer, is the result of a comparison between the expectations of the customer and his or
her real-life experiences. If the “experienced quality” exceeds “expected quality,” the “total
perceived quality” is positive. If expectations are not met by performance or the actual experience,
the perceived quality is low. There are multiple customers in an internship program: students,
internship suppliers, and sponsoring entities, for example. Final success is dependent on initial
expectations compared to actual performance.












Figure 1
The Perceived Service Quality Model
Source: Gronroos, C. (1991). “Quality Comes to Service,” in The Service Quality Handbook.

68. The Five-Gap Model of Service Quality (Figure 2)
Another widely used model of service quality is known as the five gap model (Kotler, Bowen,
and Makens, 1996, pp. 357 - 361). Knowing what coustomers expect is the first and possibly the
most critical step in delivering service quality. Thus, the marketing/ organization must know what
customers expect to be able to provide services that customers perceive as excellent. This an
extension of the marketing concept and consultative selling approach that: (a) first, learns through
thorough questioning (read extensive market research) what the customer needs and wants
(customer’s problem that they want to be solved) and (b) second, delivering the product/service
benefits that will solve the problem (satisfy the needs/wants).

69. The Gap Analysis Model of Service Quality
Source: Adapted from Kotler, P, Bowen, J and Makens, J. (1996). Marketing for Hospitality
and Tourism. Upper Saddle River, NJ: Prentice Hall, p. 358.
Gap 1: Consumer Expectations vs. Management Perceptions
Often hospitality managers fail to understand what customers expect in the offered
product/service. And, this includes understanding which features (of the product) are necessary to
deliver high-quality service. Gap 1 occurs when this breakdown of understanding occurs. For
example, a manager might develop a system to ensure that all guests wait no longer than 15 minutes
to check in. If the hotel guest gets upset after a 10 minute wait, then Gap 1 exists.
Often, hospitality firms initially survey customers to understand their
expectations. However, over time these customer expectations change (change is constantly
happening). If the product/service does not adapt to these changes, then Gap 1 widens.
Ongoing research is essential to stay apprised of the changing customer
expectations. Formal research plus informal research (managers walking around and talking to
hospitality guests, for example) is one source of information. The salesforce, especially, for
complex group business, is a vital source of changing customer expectations.
Gap 2: Management Perception vs. Service Quality Specifications
When hospitality managers know what customers expect, BUT cannot or will not develop
products/services and systems to deliver it, then Gap 2 occurs. Several reasons for Gap 2 are:
1. Inadequate commitment to service quality,
2. Lack of perception of the feasibility of addressing customer expectations
3. Inadequate task standardization (within the hospitality organization)
4. Absence of goal-setting by management and inability to get employee “buy-in.”
The hospitality industry has been accused of being short-term oriented. Short-term profits
and unwillingness to invest in human resources and technological tools and equipment almost
always causes service quality delivery problems.
Gap 3: Service Quality Specifications vs. Service Delivery
When hospitality managers know what customers expect AND have developed
products/services, systems, and specifications to deliver it BUT employees are unable or unwilling
to deliver the service, then Gap 3 occurs. Several reasons for Gap 3 are:
1. Employees are not given the tools and working conditions to do the job.

70. 2. Employees are not correctly selected, trained, and motivated.
3. Employees are not properly “led” by managers (Are managers really “leaders?”)
Gap 4: Service Delivery vs. External Communications
When hospitality management (represented by marketing and sales executives) promises
more in its external communications than it can deliver (operations) then Gap 4 occurs. External
communications includes, but is not limited to, advertising, public relations, pricing messages, and
personal selling.
Hospitality marketers must ensure that operations can deliver what marketing (external
communications) promises. General managers must fully understand the marketing/selling
process as well as operational processes. Why? Because it is obvious that the two areas must
“seamlessly” work together to meet customer expectations.
Gap 5: Expected Service vs. Perceived Service
Gap 5 is where the “rubber-meets-the-road.” The size of Gap 5 is dependent on all of the
other gaps.
1. Expected Service is what the customer expects to receive from the hospitality
organization.
2. Perceived Service is what the customer believes or perceives that he or she has actually
received from the hospitality organization (after the service experience).
3. Gap 5 is the Difference between the above. Customer satisfaction and quality is
dependent upon this gap being reduced or eliminated. Hospitality management is responsible for
managing the absence or presence of this gap.
Summary of Models.
The two above quality models significantly affect the service industry. These models offer ways
for management to think about the way that they manage service quality. Instead of the
ineffective bandages of exhortations to employees to “smile,” managers have these models to
guide real structural changes that, if implemented, will be both effective and efficient.
Benefits of Service Quality
The hospitality industry has a reputation for being short-term oriented. Often, in this fast
moving industry, there is a large amount of “fire-fighting” that occurs. When problems arise seem
to completely surround the hospitality manager, survival is key. Thus, simply handling the
problem and moving to next is the pattern of activity. Long-term planning and serious thought
seems to be often overlooked.

71. Ancient wisdom continuously reminds the human being that, “if you don’t know where
you are going, any road will take you there” (said the Cheshire Cat to Alice in Through the
Looking-glass by Lewis Carroll written in the 1800s). The same can be said for effective planning
and implementation by circumspect hospitality leadership. The hospitality industry offers products
and services that are often “me-toos” and similar to undifferentiated commodities such as salt or
gasoline. Anybody can spend the money to build a beautiful hotel, but not everybody can produce
superior service quality. And, meeting customers’ expectations, as we have seen above, translates
into service quality.
Those hospitality organizations that deliver service quality escape the “commoditization”
of the hospitality industry: they “stand-out” from their competitors. This differentiation leads to
competitive advantage as well as other benefits. Some major benefits of delivering service quality
are:
1. Retaining Customers – This means “repeat business.”
2. Referrals – Satisfied customers are happy to generate positive word-of-mouth.
3. Avoidance of “Price” Competition – If your organization is seen by customers as the same
as others, then your product/service is essentially undifferentiated or like a commodity. As
mentioned above, Differentiation is a strategy upon which to effectively compete. Price strategy
is another way to compete, however this may not always be possible or desirable. Attaining service
quality allows competition based on a differentiation strategy.
4. Retention of Good Employees – Employees like to work for a “quality” organization.
5. Reduction of Costs – When quality is achieved, costs of correcting problems (after they
have occurred) is reduced. Since a focus on quality stresses preventative maintenance, then these
costs are reduced. Of course, many other costs are reduced such as lowing employee turnover and
the cost of having to motivate uninspired employees (Kotler, Bowen, and Makens, 1996, pp. 362
- 364).
Summary
Services are unique in the since that they are intangible and, thus, customers must have
trust before they purchase. In predominantly selling services, as in the hospitality industry, quality
and perception of quality is essential. Service quality has many benefits including the ability for
the organization to compete with a “differentiation” strategy in a world of “look-alike” hospitality
products/services.
The good news is that thinking hospitality managers have service quality models that can guide
them in planning and implementing service quality systems. And, these systems are almost
guaranteed to deliver “competitive advantage.”

72. The goal of service recovery strategies…
is to identify customers with issues and then to address those issues to the customers’ satisfaction
to promote customer retention. However, service recovery doesn’t just happen. It is a systematic
business process that must be designed properly and implemented in an organization. Perhaps
more importantly, the organizational culture must be supportive of the central tenant of service
recovery strategies — that customers are important and their voice has value.
Research has shown that customers who have had a service failure resolved quickly and properly
are more loyal to a company than are customers who have never had a service failure —
significantly more loyal. Service Recovery practices are a critical element in a Customer Loyalty
Program.
Think about your own experiences with service or product problems. Did you get a quick
acknowledgement of the problem, speedy resolution of the problem, and — perhaps —
compensation for your troubles? (Imagine if you got a truly sincere apology and not some phony
empathy?) Weren’t you more likely to buy from that company again because of the confidence
you now had in their business practices? That’s the key value to effective service recovery and
complaint handling: customer retention.
One way to think about service recovery is that it is a positive approach to complaint
handling. Complaint handling has serious negative connotations; whereas, service recovery has
positive connotations. Complaint handling is placating people, minimizing a negative. Service
recovery practices are a means to achieve the potential, latent value a customer holds for a
company by fostering an ongoing positive relationship.
Service recovery has a secondary value. It creates positive word-of-mouth about your company
and minimizes the bad spin that lack of service recovery practices can create.
Next, we’ll present how to frame the argument for building Service Recovery Practices, and then
we’ll examine the stages of maturity an organization may display for this vital feedback process.
Why Does Service Recovery Get No Respect?
So why isn’t service recovery part of every organizations’ business processes? No easy answer
exists. Perhaps it’s the contention between operations and marketing.
Customer acquisition is sexy. Marketing conducts expensive research, fine tunes the 4Ps that
comprise its marketing strategy (Product, Place, Promotion, and Price), and penetrates new
customer bases through its sales and marketing programs. Companies spend big bucks on
achieving sales growth and expanding market share.
Service Recovery isn’t sexy. It’s an operational task that involves negotiating with angry
customers. The budget typically falls in the customer service department — one of those

73. loathsome cost centers that drain profit. Isn’t it easier to just dismiss these upset customers and
move on to greener fields?
Customer Experience Management
We evaluate clients’ current feedback processes and drive improvements for customer recovery
and bonding.
In some cases, it probably is easier and appropriate. Some customers cannot be recovered, only
ameliorated so they don’t bad-mouth the organization. This may seem like heresy from a self-
proclaimed customer service nut, but customers are not always right. (Great Brook had a person
from a Pacific island nation contact us to buy our Customer Survey book. They weren’t willing
to pay prior to shipment; they wanted to be invoiced. And they wanted an electronic copy of the
book. We declined their business.)
However, most customers can be recovered through simple application of the Golden Rule. And
those recovered and retained customers become profit centers. They buy more and they give
positive recommendations to friends and colleagues, which is the most important form of
“advertising”.
For a rough calculation on the potential value of a Service Recovery Program in your
organization find out the annual sales volume per customer, then apply the operating profit
margin to find the profit per customer. Next, find out the annual customer churn, that is, how
many customers stopped buying from you — especially long-standing customers. Multiply, the
churn by the profit margin and you have the potential value of the Service Recovery Program’s
annual budget. You’ll probably find that even reducing a small amount of the churn will more
than pay for the program. And this doesn’t even include the reduced sales from customers who
didn’t leave but still have issues with the organization!
What Are the Maturity Stages of Service Recovery Strategies?
Service Recovery in an organization progresses through a series of maturity stages, shown in the
nearby pyramid. Where do you stand?

74. Stage 1: Moribund. There is no complaint handling. Angry customers are
ignored. Drugstore.com is an example of a company with totally moribund service recovery
practices. Letters to VPs and even the CEO about a damaged shipment go unanswered.
Stage 2: Reactive. Customer complaints are heard, and a response is made. But it’s a haphazard
process with no defined goals for the response and no one owning this business process.
Stage 3: Active Listening. At this stage, the response to issues voiced by customers is
structured. Specific people have the responsibility to respond to complaints and guidelines are in
place for the response. However, it is still reactive.
Stage 4: Solicitous. The critical change from Stage 3 to 4 is the move from reactive to proactive
solicitation of customers with issues. The reason this is so important is that most customers don’t
bother to complain. They just move on to other suppliers of products. Haven’t we all done
this? It’s a lot of work to complain!
The solicitous role is accomplished by encouraging customer to voice their complaints. Event
surveys (also known as transactional or transaction-driven survey) are a commonly used
technique to get issues voiced. The survey design must be such that more than just high level
measurement of customer satisfaction is captured. The design must allow for action to be
taken. The desire for anonymity complicates the task. (Our Survey Workshops help attendees
create such actionable survey instruments.)
Stage 5: Infused. The pinnacle of Service Recovery Practices is achieved when the complaint
identification merges with business process improvement or six sigma programs to support root

75. cause identification and resolution. The owners of business processes that cause customer issues
are notified of the occurrences to prompt reexamination of the process design.
In essence, we see two levels of feedback loops. First, feedback from the customer to the
organization. Second, feedback from the customer-facing groups to its business partners within
the organization. While company culture is clearly critical to implementing this level of feedback
management, certain technologies can infuse this information sharing into business practice.

Distribution Channels for Banks

Distribution in banking A distribution channel is a route to the market for a supplier789. In the
case of a bank, the distribution channel is the way the banking product or service takes from the
bank to the customer. Most banks have multiple channels to serve their customers. Today, they
can choose between branches, contact centers, ATMs and online channels, portals and web banks.
Types of distribution channels
1. Branches. These are the face of the bank and the place where the client meets the bank. The
distribution is made by the traditional counter. The bank’s president is far away and not always
known to customers. However, the client manager is close, he advises, listens to the client, makes
clients’ financial life easier790. According to a survey carried out by Accenture in September
2008791, the branch is the most preferred channel for all the interactions that emotionally involve
customers, such as buying complex products (76% preference) receiving financial advise (71%)
and resolving an issue (59%). 73% of the customers visiting a branch say that they are looking for
a personalized contact. In this respect, the branch is a distribution channel where the human factor
plays a dominant role.
2. Specialized branches have been created as an alternative for the classic branches. These
specialized branches are focused on a certain type of activity such as: operations for individuals,
for small business or for corporate clients. Banks have opened such branches in supermarkets or
malls. The main reason for establishing such branches was to have a close relationship with these
corporate customers and to provide services of interests for their clients. Their primary activities
are the consumer loans and basic operations for individuals (payments, foreign exchanges etc.).
These branches are accessible all week long (even in Saturdays and Sundays) as long as the 789
Julian Dent – Distribution Channels. malls are open. BRD-GSG, ING Bank were the first banks
to open such branches in Romania.
3. In order to better serve certain ranges of clients, banks have also created corporate branches or
private banking branches. These clients require more sophisticated products and services and high

76. standards of quality. Therefore the staff employed in these branches should be seniors in terms of
products knowledge and the quality of service delivery.
4. Among the specialized branches, we can also mention: the mortgage branches whose focus is
on selling mortgage loans. Raiffeisen Bank created such a branch named „Raiffeisen – Casa Ta”
as a result of the high demand for mortgage loans and the complexity of these products.
5. Self banking branches were first created by ING. These branches have two areas: one where the
customers are served by bank employees (usually 3 or 4 persons) during the normal working hours
and one where the customers can use self banking devices. These can be used all day long (24h/24,
7 days/7) and the access to this area is given to all the bank customers who have a debit card. Here,
the clients can make deposits, payments, cash withdrawals, invoice payments, repayments of loans
installments. BRD-GSG, RBS have also created such self banking branches.
6. Mobile branches were first used by Raiffeisen Banca pentru Locuite. The bank did not have a
branch network and the products were delivered by the help of sales agents. The bank started a
banking caravan which reached the most important cities in Romania. The aim of this caravan was
to promote and to sell the bank’s products. BRD-GSG has also created a flexible and movable
branch. ( BRD BLITZ) located mainly in rural areas. In this respect, the branch wanted to reach
the rural population (neglected by all others banks). These branches had a rapid installation (2
weeks) and can be easily relocated to another place (if necessary). The opening hours were 2-3
days/week, 3-4 hours/day.
7. Banking cafes were first settled in Romania by Banca Transilvania. The banking cafe is the
result of a partnership between a bank and a cafe. The branch that is located in a cafe can offer a
full range of products and services (information point which offer leaflets, brochures with the
bank’s products and services to the existing and potential customers along with financial
newspapers and magazines). This concept was later developed by ING, Volksbank, BRD. These
banking cafes are in the major cities of Romania (where there is a large business community).
8. Direct mail is another distribution channel for banking products and services. In the same time,
direct mail is also a promotional tool. The aim of delivering the banking products and services by
mail can be, not only just simply informing the clients about a new product but also convincing
the client to buy a certain product. The main advantage of delivering by mail is the fact that the
bank can promote its products and services to a certain segment of clients. In this way, the bank
can target a certain group of clients in order for the message and products to be tailored
accordingly.
9. Automatic teller machines (ATMs) were first introduced in Romania in 1995 and they have
evolved ever since. By the end of 2006, the number of ATMs overcame the number of branches.
This fact is explained by the difference of operation costs involved by these two distribution
channels. ATMs have been rapidly moving from just a cash-dispensing machine to a self-service
banking channel. The driving forces of this movement are: firstly, the pursuit of operational

77. efficiency and then, the battle for differentiation in the service being offered. ATMs can increase
the marketing potential by providing services to clients in others places than the bank branches.
ATMs are an alternative for crowded desks in branches. Cash withdrawals were moved from the
cash desks to the ATMs and this transfer is encouraged by most of the Romanian banks by lower
fares for these services. This can reduce the waiting time in branches. The numbers of ATMs users
has increased in Romania. The clients appreciate the user-friendly feature of ATMs , the large
number of operations that can be done through ATMs, the speed and the security of these devices
and last but not least the theoretically unlimited availability of ATMs. Besides all these, all the
transactions are automatic, which reduces the risk of human mistakes in transactions. 1088 9.
EFTPOS (Electronic Funds Transfer at Point of Sale) is a payment method that can be described
as a distribution channel. EFTPOS is a system by which the clients pay the services they acquired
just by using a bank card. This system is very used when shopping, travelling, buying tickets. In a
society where time is money, there has been a huge request from the customers for more accessible
distribution channels. The computers and the mobile phones were the best choice. As a result the
banks have made considerable investments in the development of services that are not based in the
branch and which are accessible through the Internet or mobiles phones. The development of
electronic distribution channels has resulted in the appearance of a new concept: the virtual bank.
This is the bank where the contact can be reached by a large variety of distribution channels, but
maintaining the same interface and having access to the same services. The client has the
possibility of choosing from a large variety of channels: phone, ATM, POS, Internet. As a result,,
a new form of banking has appeared. „Martini banking” which signifies the presence of the
banking products and services „anywhere and any time”.
10. Mobile banking appeared in Romania in 2003. At the beginning, only some services were
available: account balance, information about exchange rates etc. At present, all the banks provide
mobile banking and the range of services provided is very wide: payments, direct debits,
information about the nearest ATM/branch etc.
11. Call centers - Raiffeisen Bank was the first bank to start up a call center in Romania in 2004.
Up until that moment, the only possibility to contact the bank by phone was through the branches’
numbers. The only dedicated phone-line for a bank was the one related to card problems. The
client used to pay the price of an ordinary phone call. By means of call centers, the contact with
the bank was made through a toll-free phone-line which makes this distribution channel very
accessible. Through call centers, all the information is received for free and one client can choose
from a large range of services (information about accounts balance, payments, exchanges, applying
for a credit etc.) The most important issue is to ensure the security of this service. The client is
authenticated for each transaction by certain devices. Nowadays, the call centers are used as a
marketing tool. Through it, the bank can start marketing researches, can sell products and services.
As the mobile phone is an almost indispensable accessory, incomparably easier to handle than a
computer, the phone banking is becoming a more advantageous alternative to Internet banking.
12. Internet banking. There is a debate about the impact of technology in services marketing, for

78. example the Internet. The Internet-driven information revolution is widely seen to be transforming
the way both business and consumer operate. This is particularly relevant in banking services,
where transactions do not require interpersonal interaction. In such cases the Internet becomes a
new distribution channel. However in other context the Internet is widely used as an information
source or a promotional tool792. Internet banking was launched in Romania in 2003. At that time,
the bank posted on the Internet information concerning only the bank and the range of products
and services provided. Later on, the Internet became a distribution channel by providing an entire
range of services: payments, information about account balances. The Internet facilitates payments
for services (event the state taxes) by the help of virtual cards. The Internet is also a tool for
acquiring new clients by online applications for different products. In terms of clients’ preference,
the internet is more preferable to other distribution channels by simplicity, availability and
customization793. The only constraint is the fact that the Internet is not accessible to all the clients.
13. As banking market is highly competitive, the banks have looked for new formats to
successfully develop market and deliver its services. Further promising approaches to distribution
can be found outside banking. In many sectors, a rapidly growing number of franchise systems
works with self-employed entrepreneurs as franchisees, who sell the franchisor’s products or
services, benefiting from a standardized sales and marketing concept. In Romania, ING and
Volksbank operate through franchises. Besides, the banks started also to deliver through sales
agents. The Romanian banks use this distribution channel for specialized services. Raiffeisen Bank
, for example, have created teams of sales agents whose sales’ focus is on credit cards and loans
for SMEs. According to Finalta/EFMA Multichannel Survey 2009794, the proportion of all retail
banking sales made through each of the main distribution channels is shown in the following chart:

What Makes Pricing Services Different?
While there are many similarities in pricing strategy between selling products and selling
services, there are also plenty of differences that make pricing services more difficult. Applying
the same pricing methods used in products to sell services is a formula for disaster.

Why are services so hard to price? It is because, in the case of products, it is relatively easier to
identify either your product acquisition cost or the cost of direct materials. Usually they serve to
help as a starting point for many pricing strategies. In the case of services, cost components are
harder to attribute.

In the case of a pure service business like consultancy or manpower services, there are two basic
problems. First is determining your costs. The main difficulty, however, is when you have to put
a price on your own value if you are the one providing the service, as in the case of
consultancies.

79. It is even more complicated if what you are selling is a combination of products and services.
Since there is a tangible product to cost, there is a strong tendency to continue treating this as
only a product business. Unfortunately, this is often the situation. Due to intense competition,
there is a strong tendency to add services to products sold and the same is true to a lesser degree
in the case of services.

In the case of mixed products and services, a multiplier or a fixed percentage is often applied to
the materials used. A prime example of this is the costing technique used often in printing
presses. I will use a printing press as an example frequently because it is, in fact, both a service
and a product business. In many printing presses, the paper cost and other readily seen material
costs are just multiplied by a factor of three to take care of various untraced expenses and profit
margins.

This may work in some situations, but in competitive bidding where you must know your cost
accurately, you either will be pricing too high or too low. For example, if your materials cost P10
per piece and the order is for one million units, if you multiply the cost by three, the price
becomes P30 per unit. You are then in a dilemma if a competitor prices at P27 since you do not
know how much you can lower your price and still make a profit. If you knew that your cost
would be P20, then you could bid P25 and have a better chance of winning the bid.

Due to fixed costs per unit decreasing as volume increases, usually the pricing style mentioned
above results in too low a price for very low volumes, but too high if the order is huge. Either
way, you will lose if you do not know your exact cost.

Entire books have been written on pricing and I can just offer a few guidelines in this short
article. Nevertheless, these basic pricing tips should help you get started on finding your best
pricing strategy:

Learn how to get an accurate total cost of your service. Although I advocate pricing based on
value, the cost of the service is vital in determining how low you can price. In calculating costs,
few people have an accurate figure because the focus is mostly on the materials used. One very
useful approach is to use activity-based costing. This technique is used to trace overhead
expenses to a particular product or service. Going back to our printing press example, we
stopped offering calling cards despite very high markups on the materials used. This is because
overhead expenses like salesman time and order processing traceable to the item were too high
for the usually very low peso value of the calling card orders.

Base your price on value, not cost. The customer does not care that you are so inefficient that
you have higher costs, nor would clients mind if your high productivity enables you to have
lower costs. What is important is the value of your service as compared to your competitors.

80. Give options. While there are major advantages in having a single type of offer, you can close
more sales and earn more profits if you offer options. There are two major reasons for this. The
first is that you can sell based on different types of services. Customer can buy only the services
they need. Clients who see the different types of services are more likely to find the things that
they want. You may also offer options based on price affordability. You can have one for the
price conscious buyer, another for those willing to pay for top quality, and one for the majority
who wants a mid-range option.

Pricing services is often more difficult than pricing products especially for small firms or
individual professional ventures. The difference in complexity lies in costs being harder to
compute in services, unlike when you are selling tangible products. However, learning more
accurate ways of pricing can mean a great deal to your company’s bottom line.

What is Customer Retention?
Put simply, customer retention is the act of deterring customers from defecting to another
company or the actions a company takes to encourage customers to stay. Most companies focus
more attention on the acquisition of new customers than customer retention. In fact, around 44%
of companies have more focus on customer acquisition, around 18% focus more on customer
retention and around 40% focus equally on both. However, customer retention is actually much
cheaper for companies than customer acquisition. This trend appears on all studies on the topic
of retention vs acquisition, but exactly, how much cheaper is hard to determine, some studies say
five times, some say as high as 25 times. So, if customer retention is cheaper, then why are so
many companies focused on the acquisition?
The simple answer is that all companies need both, and more new customers mean more
customers you can convince to stay with your business and your product or service.
Why Is Customer Retention so Important for Your Business?
Repeat customers always make up a substantial portion of an organization’s profits, and the more
times they buy, the more likely they are to buy again. One study showed that after one purchase,
the customer is only 25% likely to buy from your company again. However, after two purchases
they were 45% more likely to make a third purchase, and after three purchases, they were 54%
more likely to make a fourth.
Even the ‘Big Fish’ companies experience high rates of shopping cart abandonment. For
example, software giant Adobe reported having a shopping cart abandonment rate of 75.5% in
2016. There are lots of reasons for shopping cart abandonment but the most common are as
follows:

81. The cost of shipping – Your customer may get to the end of their shopping process and head to
the checkout, only to find shipping costs were more than they expected.
Trust – Customers are often wary of parting with their debit or credit card details for fear of
having them exposed.
Payment options – Some customers prefer credit card, some prefer PayPal, and some may not
have their card on them and were hoping to use ApplePay or AndroidPay. If your site has limited
payment options, it may deter some customers.
The good news is, if a customer has bought from you once, then they have overcome these
hurdles already. You’re a lot more likely to be successful selling to an existing customer than to
a new one, around 40% more likely in fact.
Repeat Customers Spend More
You’ve already convinced an existing customer to buy from you, and the more purchases they
make, the more likely they are to spend more money. One study found that by a shopper’s fifth
purchase, they were spending 40% more than their first purchase. By the time the customer hit
the tenth purchase, they were spending a massive 80% more!
Word-of-Mouth and Loyalty
Happy customers are more likely to recommend your brand to their friends and family, and
happy customers are repeat customers. Customer loyalty is a hugely important factor in word-of-
mouth marketing and having a solid customer retention policy increases customer loyalty.
More Data
Data is the big buzzword right now, and with good reason – it recently overtook oil as the
world’s most valuable resource! Existing and repeat customers will generate more data for your
business, and you can use this data to gain actionable insights that can increase profits. For
example, you’re more likely to get a complete profile of an existing customer than a new one.
This means you can gain key insights into who they are, why they like your products, and if there
is a pattern to their buying habits. You can then use this information to design marketing
strategies for certain demographics of the population.
How to Build a Customer Retention Strategy
The best customer retention strategies are formed around business goals and insights. For
example, one goal may be increasing customer loyalty, and in this case, you’d want to pick
strategies that focus on this. You may want to signal that your service is consistent and reliable
with solid brand awareness. You may want to focus on developing a more personal relationship
with your existing customers. If your customers come to your business because you offer the best
prices, then your customer retention strategy should revolve around reminding them of this and

82. get straight to costs! Whatever niche your business falls into should be reflected in your
customer retention strategy and knowing what your goals are will help you pick the right strategy
for your business. Now, let’s look at eight customer retention strategies that actually work and
can boost your retention stats.
1. Surprise Gifts and Discounts
Customers are people and people love to feel appreciated. One way you can show your
customers that you appreciate them is through surprise gifts and discounts. You can offer them a
discount on products they frequently purchase, along with a short and sweet message from the
customer service team telling them why they are receiving the surprise. The exact wording of the
message will depend on your company brand and style, but the message should make it clear that
they are getting this discount for being a loyal customer.
Another way to do this is to make a VIP list for your repeat customers and send them VIP only
discounts. This is great for customers because they get a discount, they will feel appreciated, and
like they are part of a special club – which they are!
It doesn’t always have to be a discount either, you can send your customers gifts too. For
example, you can send them a card on their birthday, and maybe include a voucher for your
store.
Offering surprise gifts and discounts not only encourages customers to buy again, but it can also
elevate your brand. Customers who receive surprise gifts often post them to social media,
increasing your exposure which can help attract new customers to your business. Master Card
expertly used this strategy to reward loyal customers by sending cardholders free surprise gifts of
cupcakes, concert tickets, and VIP celebrity meetings.
2. Provide Excellent Customer Service
This may seem a little obvious at first glance, but you need to consider what a company
considers excellent customer service doesn’t always match up with what the customer thinks is
excellent customer service. There’s often a huge gap in perception. In fact, around 75% of
organizations believe they are customer-centric, but only 30% of customers believe the same. A
2017 study found that 8 out of 10 customers are so frustrated by this that they’re actually willing
to pay more to have a better experience.
Here are a couple of ways you can boost your customer service to the next level:
Provide a cohesive and consistent experience – a customer should always feel like they’re getting
the same care and attention whether you’re talking to them on the phone, via email, or on a live
messaging service.
Provide multiple contact channels to accommodate a range of communication preferences.

83. Route the right agents to the right customers by assessing the customer’s needs and assigning the
agent most skilled in that area.
3. Customer Surveys
Send your customers a quick online survey to complete to gain a better insight into what’s
working, and what isn’t. You’ll never please every customer on every issue, but surveys can help
you identify patterns that you’ve missed. A good survey should have a mixture of multiple-
choice questions and free text answer fields to allow the customer to express their opinions more
thoroughly where needed. Design a strategy for when you’re going to send out a survey – will it
be every six months, or once a year?

4. Be Active in Your Community
Customers are becoming increasingly socially conscious, and that means you should too.
Customers pay attention to whether your organization gives to charity, whether the employees
take part in community improvement schemes, and who you engage and partner with. You don’t
necessarily need to have an elaborate Corporate Social Responsibility (CSR) plan or donate to
charity, there are also simpler ways to show you care about the community. For example, if
you’re a tech company you could offer to go into a local school to give advice to the next
generation of techies. Even simpler, you could write blogs on how to get into the industry or
record a short podcast on the subject. The key is to be creative with your brand. Customers don’t
want to feel like they’re dealing with a cold corporate entity, they want the companies they buy
from to feel well-rounded, sincere, and like a real person.
5. Keep Customers Informed
Make customers feel a part of your wider team by keeping them up to date on new developments
such as new product lines, new partnerships, or exciting milestones for the company. You can do
this through a monthly newsletter over email.
6. Customer Onboarding
Onboarding will vary depending on your company’s niche, but the aim is to educate a customer
about your products and your brand. You don’t want to overwhelm them with a wall of text
about your business philosophy but being too quiet can make the customer feel ignored. When a
customer buys one of your products, you can send them an email with a short tutorial on how to
use it and the details of the customer service team, so they know who to contact if they have any
issues.
7. Use Gamification

84. Gamification is a fun way to reward loyal customers for benefitting your company, and it’s a
very successful strategy. You can offer customers a discount for referring a friend, you can
award them redeemable points for each purchase, or you can give them a visual appreciation
boost in the form of a badge.
8. Be Personal
You’re collecting lots of data on your customers, so use this data to improve their experience.
Before reaching out to a customer you should know how they like to be contacted, what they
have bought previously, and what previous interactions looked like. Customers don’t want to feel
like just another number, and they will become frustrated if they have to repeat the same
information over and over. By offering a personalized experience they will feel like a part of
your team and associate your company with a smooth and easy experience.

THE IMPORTANCE OF BRANDING IN FINANC IAL SERVICES
The Importance of Branding in Financial Services
Branding is critical in the financial sector given its integral role in society. In a time where there
is increasing difficulty differentiating between companies, branding has never been more
important. Branding gives a company a unique personality that sets it out from the rest and helps
build the company a strong reputation and as well as creating value.
How a strong brand will impact your business:
1. Branding is a key component in gaining recognition. Every aspect, from a website, to
photography, to corporate design, to e-promos is defined by your brand. Every touch point is an
opportunity to increase brand awareness and improve client loyalty.
2. Branding creates and builds trust. Building a strong brand with loyal clients is of crucial
importance as it provides considerable competitive and economic benefits to a firm. People are a
lot more likely to do business with a company that is well polished and presented.
3. Branding is a valuable asset. Branding builds financial value and generates future business.
Brands strengthen differentiation against peers, driving demand and sales, helping market share
growth and building shareholder value.
4. A strong brand generates referral business, bringing you new clients. People love telling others
about brands they have positive experiences with.
5. Strong brands attract talent and motivate staff, giving them something to believe in and to
stand behind.

85. Branding is at the heart of every business. It’s vital to define what your brand stands for. Your
brand is the way your client and potential client perceive you. It is fundamental to be aware of
your brand experience and to make sure it is an experience you would want to have. Good
branding elevates and differentiates your products and services, and gives clients a reason to
choose you over your peers. A strong brand doesn’t just happen; it takes time, effort and a well
thought out plan. As niche specialists in the sector we are uniquely placed to help provide insight
on how our clients can find a point of difference.