Unit 1: Introduction to Services Marketing

Introduction to Services Marketing

Services marketing is a branch of marketing that focuses on selling intangible offerings—services instead of physical products. As economies grow, the service sector becomes the largest contributor to GDP, employment, and customer experience. Companies like banks, hotels, telecom firms, hospitals, airlines, and IT firms depend heavily on services marketing to attract and retain customers.

Definition of Services

A service is an act, performance, or process that one party offers to another, which is essentially intangible and does not result in the ownership of anything.

Important definitions

1. Kotler:
   “A service is any act or performance that one party can offer to another that is essentially intangible and does not result in any ownership.”

2. AMA:
   “Services are activities, benefits, or satisfactions offered for sale.”

Characteristics of Services (4 I’s / IHIP)

Services are different from physical products because of the following characteristics:

(1) Intangibility

• Services cannot be seen, touched, or stored. Example: You cannot see the teaching; you only experience it.

(2) Inseparability

• Production and consumption happen simultaneously. Example: A haircut is produced and consumed at the same time.

(3) Heterogeneity (Variability)

• Service quality varies because human involvement is high. Example: The same hotel may offer different experiences on different days.

(4) Perishability

• Services cannot be stored for future use. Example: An unsold airline seat cannot be stored and sold tomorrow.

Additional Characteristics

5. Lack of Ownership

• Customers only get temporary access, not ownership. Example: You do not own the car when you take a taxi.

6. High Customer Participation

• Customer involvement is high in service delivery. Example: In a gym, results depend on customer participation.

7. Relationship-based

• Long-term customer relationship is crucial for service success.

Classification of Services

Services can be classified in multiple ways:

A. Based on Degree of Tangibility

• Pure Services – No tangible product (e.g., teaching, consulting, banking)
• Mixed Services – Tangible + intangible parts (e.g., hospital provides treatment + medicines)
• Tangible Goods with Services (e.g., car with after-sales service)

B. Based on Type of Customers

• Consumer Services – For individuals (e.g., hair salon, hotels)
• Business Services – For companies (e.g., advertising agencies, legal services)

C. Based on Skill Requirement

• Professional Services – High skill (e.g., doctors, lawyers)
• Non-professional Services – Basic skill (e.g., housekeeping, delivery services)

D. Based on Nature of Service

• People Processing – Service done on people (e.g., healthcare, spa, transportation)
• Possession Processing – Done on customer’s belongings (e.g., repair services, laundry)
• Mental Stimulus Processing – Directed at mind (e.g., education, entertainment)
• Information Processing – Data-based (e.g., banking, insurance, telecom)

Difference Between Product and Services Marketing

(Exam-focused comparison)

Basis	Products	Services
Nature	Tangible	Intangible
Production & Consumption	Separate	Simultaneous
Storage	Can be stored	Cannot be stored
Quality	Standardized	Variable
Ownership	Ownership transferred	No ownership
Customer Involvement	Low	High
Return/Exchange	Possible	Not possible
Marketing Focus	Features & quality	Experience & satisfaction

Paradigms in Services Marketing

Paradigms are major concepts/frameworks that guide services marketing:

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(1) Service Marketing Mix (7 Ps)

An extension of the traditional 4 Ps.

1. Product – Service design
2. Price – Pricing strategies
3. Place – Service delivery channel
4. Promotion – Communication activities
5. People – Employees + customers
6. Process – Workflow of delivering services
7. Physical Evidence – Service environment

(2) Services Quality Paradigm (SERVQUAL Model)

Created by Parasuraman, Zeithaml, and Berry.

Measures service quality using 5 dimensions:

• Reliability
• Assurance
• Tangibles
• Empathy
• Responsiveness

(3) Relationship Marketing Paradigm

Focus on customer retention instead of only customer acquisition.

(4) Gap Model of Service Quality

Identifies 5 gaps between customer expectations and service delivery.

(5) Service-Dominant Logic (SDL)

• Value is co-created with customers.
• Services are the basis of all marketing.

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Conclusion

Services marketing is a vital field due to the growing service sector and increasing customer expectations. It requires a strong focus on experience management, people, processes, and relationship building, which makes it different from traditional product marketing.

Present Marketing Environment

The marketing environment refers to all external and internal factors that influence a company’s ability to serve customers effectively. In today’s dynamic world, the marketing environment of services is rapidly changing due to technology, competition, and customer expectations.

A. Micro Environment (Internal Environment)

These are factors close to the company and directly impact service delivery.

1. Company / Organization

• Vision, mission, service strategies, and culture.

2. Employees

• Service personnel play a huge role because services are people-driven.

3. Customers

• Service marketing puts the customer at the center. Example: banks designing digital banking for customer convenience.

4. Competitors

• Competition is intense in telecom, banking, aviation, hotels, and e-commerce.

5. Suppliers

• Service industries depend on suppliers for technology, software, equipment, etc.

6. Marketing Intermediaries

• Agents, brokers, franchises, online platforms.

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B. Macro Environment (External Environment)

These are broad factors affecting all service firms (PESTEL).

1. Political Environment

• Government policies, regulations, GST rules, RBI guidelines.

2. Economic Environment

• Inflation, unemployment, purchasing power, economic growth.

3. Social and Cultural Environment

• Lifestyle changes, education level, age groups, social trends.

4. Technological Environment

• AI, chatbots, online booking, digital payments, automation.

5. Environmental Factors

• Green marketing, sustainability, eco-friendly services.

6. Legal Environment

• Consumer protection laws, data privacy laws, service quality standards.

Services Marketing Mix: The 7 P’s

The traditional 4 Ps (Product, Price, Place, Promotion) are expanded to 7 Ps for services due to their unique characteristics.

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1. Product (Service Offering)

• It includes the core service, additional features, and value-added services. Example: A hotel’s core service is accommodation; add-ons include Wi-Fi, breakfast, and gym.

2. Price

• Pricing strategies depend on demand, competition, service quality, and value.

Types:

• Penetration pricing
• Skimming pricing
• Differential pricing
• Bundling (e.g., telecom packages)

3. Place (Distribution)

• How the service is delivered to customers.
• Physical locations + digital channels. Example: Banks → Branch + ATM + Internet banking + Mobile app.

4. Promotion

• Communicating service benefits to customers.
• Tools: Advertising, sales promotion, PR, digital marketing, social media.

5. People

• Employees, staff, and customers involved in service delivery.
• Employee training, behavior, attitude, and communication are critical.

6. Process

• Step-by-step procedure of delivering the service.
• Smooth, simple, and quick processes increase customer satisfaction. Example: Online ticket booking → Search → Select → Pay → Receive ticket.

7. Physical Evidence

• Tangible parts of services that help customers judge quality. Example: cleanliness of hotels, office layout, staff uniforms, websites.

Strategies for Services Marketing

Service firms use strategic tools such as STP (Segmentation – Targeting – Positioning) and Differentiation.

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A. Segmentation

Dividing the total market into smaller groups based on similar needs.

Types of Market Segmentation

1. Geographic – Region, city, climate
2. Demographic – Age, income, gender
3. Psychographic – Lifestyle, personality
4. Behavioral – Usage rate, loyalty, buying behavior
5. Benefit-based – Segmentation by benefits customers seek (Example: Some hotel customers want low price; others want luxury)

B. Targeting

Selecting the segment(s) that the company can serve best.

Targeting strategies

1. Undifferentiated Targeting – Same service for all (e.g., basic train service)
2. Differentiated Targeting – Different services for different segments (e.g., airlines: economy, business class)
3. Niche Targeting – Focus on a specific small group (e.g., luxury resorts for honeymoon couples)

C. Positioning

Creating a unique place in the customer’s mind.

Positioning strategies

• Based on service quality
• Based on price (affordable, premium)
• Based on benefits (fastest delivery, best experience)
• Based on service attributes (cleanliness, reliability)

Example: OYO positions itself as “affordable and standardized rooms”.

D. Differentiation

Differentiation means making your service different and better than competitors.

Types of Differentiation in Services

1. People Differentiation

• Well-trained, polite, and professional staff Example: Taj Hotels’ hospitality

2. Service Delivery Differentiation

• Fast, reliable, consistent service Example: Domino’s 30-minute delivery

3. Process Differentiation

• Easy, smooth, and fast processes Example: Digital check-in at airports

4. Physical Evidence Differentiation

• Modern design, cleanliness, and ambience Example: Starbucks café experience

5. Technology Differentiation

• Apps, AI, self-service kiosks, chatbots Example: Banking apps with 24x7 services

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Conclusion

The modern services marketing environment is dynamic and competitive. Companies must use a strong 7 Ps strategy, combined with effective STP and differentiation, to attract customers, deliver superior service, and build long-term relationships.