Service Marketing

Contents 1.Definition of services 2.Characteristics of services 3.Challenges of services 4.Understanding how a service is different 5.Growing Importance of Services sector in India 6.Service Marketing Management Process 7.Consumer Behavior in services & Measuring Service Quality 8.Defining and measuring Service Quality & Customer Satisfaction 9.SERVIQUAL GAP-MODEL 10.Service Recovery

Every day 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 involve 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.”

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 take 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 will not take place. It means to say that consumer never own the services.

Marketing of Services

A different marketing approach is necessary for services marketing, because services differ from goods in many respects.  The difference between goods and services are as follows:

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.

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.

Challenges of Services 

It is a challenging task to manage a service or product industry. These challenges however are different and unique for each industry. Some of the challenges that are faced while managing, growing and making profit from a service industry are discussed below, these factors do not readily apply to the product industry. 

• Services are intangible and so customers cannot see or hold them before they buy it. Buyers are therefore uncertain about the quality of service and feel they are taking a risk. The buyer is unable to conceptualize and evaluate a service from beforehand. From the seller’s perspective he finds it challenging to promote, control quality and set the price of the service he is provide. Unlike products the intangible nature of service causes difficulties to both client and the firm.
• Defining and improving quality in the service industry is a major challenge. Unlike products very often services are produced and consumed simultaneously. As a result service quality management faces challenges that the product industry never ever comes across. In the product industry the manufacturer gets ample opportunity to test his products before they reach the market. In case of a quality issue the problem is taken care of during the quality check and customer satisfaction is taken care of. However during service production the customer is right in front. To guarantee customer satisfaction in this scenario is a major challenge.
• In case of the service industry the customer first needs to develop trust in the service organization before he buys their services. The client often gives more importance to the amount of faith he has on the service organization than the services being offered and their value proposition.
• Service industry faces competition not only from fellow service industry but also from their clients who often question themselves whether or not they should engage a service at all!
• Most of the product companies have dedicated sales staff while in the service industry the service deliverers often do the selling. Coordinating marketing, operations and human resource efforts is a tedious task.
• Passion works for the service industry. More the passion, spirit and desire among the service staff more is the revenue generation and success generated every day. There is a direct correlation between staff passion and financial success and similarly lack of passion leads to failure in the service industry. Staffs need to be constantly motivated and efforts have to make to sustain employee commitment.
• While testing new services is a constant challenge communicating about these services simultaneously is also not easy.
• Setting prices does not come easily for service industry.
• Standardization versus personalization is another major issue the service industry has to face.

In order to assess that, you need to understand the key points yourself.

Understanding how a service is different

A product is a physical thing, something you can touch. Usually something you buy and take away. Services are different. But how? And why does it matter?

The easiest way to explain is to use an example. Let’s look at wedding photography.

It’s intangible

You will get images of some sort as an end result, but they’re not necessarily a physical product. You can turn them into a physical product. A wedding album. A calendar. A fridge magnet. You may even get one or more of those physical products as part of your overall service package. But what you are really buying is the time and expertise of your photographer. The ability to create great images and memories of your special day.

It’s variable

The photos of your wedding will not be the same as the photos of anyone else’s wedding.

• The circumstances are different. The location. The weather. The guests. The time of day.
• The photographer is (often) different. Even if two wedding parties use the same photographic studio, the individual photographer on the day may not be the same. Stylish Sally and Winsome Will have different shooting styles.
• Even the same photographer may deliver differently on different days. Maybe Stylish Sally has a stinking cold and doesn’t want to be out in the rain. She’ll do her best to deliver a great job, but she may not have the easy touch she does on a sunny day when she’s feeling fine.
• Intangibility and Variability make it hard for customers (and service providers, too) to set expectations and define quality.
• How do you know, in advance, that you’re going to get great photos of your wedding? You don’t. You can’t test them. How do you know which service provider to trust?
• How do you compare one offering to another?
• What if you don’t like the end result? Are you entitled to a full refund? Sally has already spent all that time and effort on your wedding. You can’t give it back or get it exchanged, the way you would a camera or a washing machine which didn’t work.
• How do you assess the quality anyway? What’s the objective standard for a ‘good’ or a ‘great’ wedding photo?

It’s inseparable

You went with Stylish Sally over Winsome Will. If Stylish Sally is sick on the day and sends Winsome Will instead, you won’t be happy. The photography service is inextricably linked to the person providing it.

It’s also linked to the wedding. The photographer has to be at the wedding – there’s no other way to get the photos. And the customer – the bride, the groom, their families and friends – are equally linked. The customer is, in a very real way, part of the service.

It’s perishable

There’s no way to ‘stock up’ on a service. No way to store inventory. Your wedding is a one-off event, and everything you want, including your photographer, has to be available on that day.

Inseparability and Perishability present other challenges for services which don’t apply to products.

Quality

If your service is dependent on the customer, how do you ensure consistent quality? The customer dependency is clear in photography, but it’s equally applicable in other service businesses.  If you’re supporting an IT network and your client has a 7 year old server and won’t invest in a new one, how do you ensure reliability? What if you’re completing a tax return and they won’t provide receipts and details of expenses? At No Bill we provide marketing services. We need to know who your target client is. ‘Everyone’ is not a clear answer or a good target – but we’ve had clients say that! (At least at the beginning, we work to pin them down.)

Scheduling

Most weddings are on Saturdays. A specialist wedding photographer may be turning work away because he’s booked every weekend for the next 12 months, but still have nothing to do from Monday to Friday. What about a landscape gardener or a builder?

Growth and scalability

You only have so many hours.  You can’t just get more of your service produced.  You can take on staff, but then you have to handle the ‘variability’ issue all over again.  How do you ensure your new staff are delivering to the same standard? And how do you recoup the overhead you spend training them?

You can use incentives like variable pricing to spread the demand a bit, but that raises a whole set of other issues.

Pricing

A cake costs the same on Monday as it does on Saturday. Does a photographer? Probably not. But how much should the price difference be?

What about your new junior photographer, who’s handling your overflow work? You vouch for his work, but he’s not you. Your customers aren’t quite so confident. Would a lower price get him more work? Or would it cut into your margin too much? Would it make people think you were overcharging for your own time and expertise?

…and how do you handle the client with champagne tastes and a beer budget?

Payment Terms

For most products, you pay and you take the product away. Or you pay online and it’s delivered soon after. (If it’s a high price item like a car, you may get financing to spread the cost. But that’s an add-on service, which you pay extra for. It’s not the product itself.) But what happens with a service? No one wants to be paying the photographer at the wedding itself.

• Some services are completely prepaid, like concert tickets.
• Others are generally paid for afterwards.  You get a bill after you’ve eaten your meal, not before.
• Many have more complex terms, including a deposit and a final payment.  When you stay in a hotel, you generally give a credit card in advance, then settle up on departure.

With a service, once it’s delivered, you can’t get it back. There’s risk for the customer if they don’t get what they want and they’ve paid already. There’s risk for the provider if nothing is paid upfront. Payment terms are a way of balancing those risks.

Growing Importance of Services Sector in India

In India, the importance of services sector has been increasing continuously decade after decade. With the continuous expansion of services sector, both in terms of volume and diversity, the importance of services sector has been increasing at a high speed.

The following are some of the importance of services sector in Indian economy:

Contribution of GDP:

• The share of total services sector in India’s GDP (at constant prices), which is constituted by trade, hotels, transport, storage and communications, banking, insurance, real estate, community and personal services, but excluding construction increased from 28.5 per cent in 1950-51 to 31.8 per cent in 1970-71 and then finally to 51.3 per cent in 2013-14.
• But the share of total services sector, excluding construction, to India’s GDP at factor cost (at current prices) increased rapidly from 30.5 per cent in 1950- 51 to 50.8 per cent in 2010-11 and then to 55.7 per cent in 2011-12.
• If construction is also included, then the same share of services sector increased from 56.8 per cent in 2000-01 to 59.6 per cent in 2013-14. Among the major components of services sector, the share of transport, Communication and trade in India’s GDP (at constant prices) increased from 11.0 per cent in 1950-51 to 18.6 per cent in 2013-14.
• The share of community and personal services to GDP (at constant prices) marginally increased from 8.5 per cent in 1950-51 to 12.9 per cent in 2013-14. The share of finance insurance, real-estate and business services increased from 9.0 per cent in 1950-51 to 19.8 per cent in 2013-14.

Thus, it has been observed that the contribution of services sector into GDP of India has been increasing at considerable proportion and thereby it has proved to be a major sector among all the three sectors of the economy.

Higher CAGR and Rapid Growth of Services Sector:

• The importance of services sector to Indian economy can also be traced from its attainment of higher Compound Annual Growth Rate (CAGR). The CAGR of the services sector attained at 10.0 per cent for the period 2004-05 to 2011-12 has been found to be higher than the 8.6 per cent of CAGR of Gross Domestic Product (GDP) of India during the same period, which clearly indicates that the services sector has outgrown both the industry and agriculture sectors, showing its supremacy among all three sectors of the economy in recent years. Such rapid growth of the service sector has resulted considerable changes in the GDP of the country.
• Moreover, the growth has been specifically marked in the public services, information technology and financial services. Of late, India has just become a service-oriented economy. The country did not follow the traditional growth models and thereby skipped the manufacturing growth stage to directly jump from agricultural growth stage to services growth stage.
• However, the growth in services sector will definitely support growth process in agriculture and industrial sector in reasonable proportion and thereby assist the economy in generating employment and raising overall productivity.
• The rating up of the overall growth rate (CAGR) of the Indian economy from 5.7 per cent in the 1990s to 8.6 per cent during the period 2004-05 to 2009-10 was to a large measure due to the acceleration of the growth rate (CAGR) in the services sector from 7.5 per cent in the 1990s to 10.3 per cent during the period 2004-05 to 2009-10.
• The services sector growth was significantly faster than the 6.6 per cent for the combined agriculture and industry sectors annual output growth during the same period. Although, the agricultural sector has been a dominant player initially, but of late the share of services sector has also been increasing over the years, which has been challenging the dominance of primary sector or agriculture in the later stage of development.

Horizontally Higher Share of Services in GSDP:

• The service sector has been contributing towards the Gross State Domestic Product (GSDP) of different states and union territories (UTs) satisfactorily in recent years. A comparison of the shares of services in the GSDP of different states and union territories in 2011- 12 shows that the services sector is the dominant sector in most states of India.
• States and UTs such as Tripura, Nagaland, West Bengal, Mizoram, Maharashtra, Bihar, Tamil Nadu, Kerala, Delhi and Chandigarh have recorded a higher share of services sector to its GSDP which are again higher than all India shares (55.7 per cent) of its services sector.
• Chandigarh with an 85 per cent share and Delhi with 81.8 per cent share top the list. This has results a horizontal spread of higher share of services sector in GSDP of a number of states.

Employment Generation of Services Sector:

• The important of services sector can also be realised from its contribution towards generation of employment in India. Although the primary sector (mainly agriculture) is the dominant employer followed by the services sector, the share of services sector has been increasing over the years and that of the primary sector has been decreasing.
• Between 1993-94 to 2009-10, there has been a sharp fall in the share of primary sector in employment from 64.75 per cent in 1993-94 to 53.2 per cent in 2009-10.
• But the consequent rise in share of employment of the other two sectors was almost equally divided between secondary and tertiary sectors. However, while agriculture continues to be the primary employment providing sector, the services sector (including construction) is in the second place.
• During the same period, the share of services and construction sectors in employment increased from 19.70 per cent to 25.30 per cent and 3.12 per cent to 9.60 per cent respectively.
• As per National Sample Survey Organisation (NSSO) report on Employment and Unemployment Situation in India in 2009-10, on the basic usually working persons in the principal and subsidiary statuses, for every 1000 people employed in rural India, 679 people are employed in the agriculture sector, 241 in the services sector (including construction) and 80 persons in the industrial sector.
• Again, in urban part of India, 75 persons are employed in the agriculture, 683 persons in the services sector (including construction) and 242 persons in the industrial sector. Moreover, construction, trade, hotels and restaurants and public administration, education and community services are the three important employment providing service sectors.
• Studies further reveals that the tertiary employment share have strong upward slopes in all the income quintiles covered both in urban and rural areas with higher income quintiles having higher share in each successive NSSO round. Thus tertiary employment growth is steadying moving from being an absorber of low income of labour to providers of high income jobs.
• State-wise, there are wide differences in the share in employment of different sectors in rural India. It is found that some work-eastern states like Sikkim, Tripura and Manipur have a high share of employment in the services sector and again some city states like Chandigarh and Delhi also have very high shares of employment in services like 826 and 879 respectively out of 1000 employed people.
• Moreover, among the major states, Kerala has a high share of employment in the rural services sector at 511 persons out of 1000 persons. Construction; trade, hotels and restaurant; and public administration, education and community services are the three major employment providing services sectors in all these different states.
• In urban India the shares of employment in services in most of the states varied like 833 in Assam, 877 in Meghalaya, 732 in Bihar, 787 in Jharkhand, 711 in Kerala, 716 in Maharashtra, 743 in Rajasthan, 653 in Uttar Pradesh, 641 in Gujarat, 586 in Tamil Nadu and 683 in West Bengal out of 1000 employed people.

Contribution to India’s Services Trade:

• The services sector is also playing an important role sector in raising the volume of exports in the country. Thus India is moving towards a services-led export growth in recent years. During 2004-05 to 2008-09 as per the Balance of Payment (BoP) data, merchandise and services exports grew by 22.2 and 25.3 per cent respectively.
• Again India’s share of services exports in the world export of services, which increased from 0.6 per cent in 1990 to 1.0 per cent in 2000 and further to 3.3 per cent in 2011, has been increasing faster than the share of merchandise exports in world exports. Services growth slowed in 2009-10 as a result of the global recession, but the decline was less pronounced than the slowdown in merchandise export growth and has recovered rapidly in 2010-11.
• As per BoP data of the RBI, India’s services exports grew at a CAGR of 20.6 per cent during the period 2004-05 to 2010-11, compared to the 19.7 per cent CAGR of merchandise exports during the same period. If we enter into the details of services sector, CAGRs of financial services (29.2 per cent) were at higher level while that of software at 21 per cent was at lower level.
• In terms of size, software is a major services export category, accounting for 41.7 per cent of total services exports in 2010-11. The CAGR for import of services was 20.2 per cent compared to the CAGR of merchandise imports, at 21.4 per cent. Among the various items of services imports, non-software services (22.6 per cent) and transportation (20.5 per cent had high CAGRs.
• Moreover, the overall openness of the economy reflected by total trade including services as a percentage of GDP showed a higher degree of openness at 55.0 per cent in 2011-12 compared to 25.4 per cent in 1997-98 and 38.1 per cent in 2004-05.

Contribution towards Human Development:

·         Services sector has a lot of contribution towards human development in our country. Accordingly, services sector has been rendering some valuable services, viz., health services, educational facilities, IT and IT Enabled Services (ITES), skill development, health tourism, sports, cultural services etc. which are largely responsible for human empowerment and improvement of quality of life of the people in general.

Services Sector Growth and FDI Inflows:

• Modest growth of services sector has made ample scope for the smooth inflow of FDI into the country. FDI also plays a major role in the dynamic growth of the services sector. On the positive side, at global level, medium term prospects for services are generally better than those manufacturing sector with international investment in the services sector expected to grow relatively faster.
• Moreover, many transnational companies, which some years ago were mainly focused on their home markets, are now pursuing their internationalization strategies involving ambitious investments abroad. Developing and transition economies particularly in Asia are considered as most attractive destinations. Accordingly, India has been largely considered as favoured destination for increasing flow of FDI.
• Although flow of Foreign Direct Investment (FDI) into services sector of the country is maintaining a positive trend but the ambiguity in classifying various activities under the services sector poses differently in the measurement of flow of FDI into this sector.
• However, the combined FDI share of financial and non- financial services, computer hardware and software, telecommunications and housing and real estate can be broadly taken as rough estimates of FDI share of services.
• Such FDI share of services was 40.5 per cent of cumulative FDI equity in flows during the period April 2000 to December 2012. Including the construction sector (6.5 per cent), the share of services in FDI inflows increases to 47.0 per cent.
• If the shares of some other services like hotels and tourism, trading, information and broadcasting, consultancy services, ports, agriculture services, hospital and diagnostic centres, education, air transport including air freights and retail trading are included then the total share of cumulative FDI inflows to the services sector would be around 58.4 per cent.
• However, in terms of cumulative FDI equity inflows during April 2000 to December 2011, the financial and non-financial services are found to be the largest recipients with 20.1 per cent, ($ 31.7 billion), which is again followed by telecommunications with 7.9 per cent ($ 12.5 billion), computer hardware and software with 6.9 per cent ($ 10.9 billion), housing and real-estates with 6.9 per cent ($ 10.9 billion), and construction activities 6.5 per cent ($ 10.2 billion) share.
• The shares of financial and non-financial services sector in total FDI inflows from these sourcing countries are Mauritius 20.1 per cent Singapore 30.6 per cent, U.K 29.5 per cent, USA 21.9 per cent and Japan 11.9 per cent.

Contribution towards Development of Infrastructure and Communication Services:

• Services sector has also been playing an important role in developing expanding and management of infrastructure with a special emphasis on development of transportation and communication services. In a developing country like India the importance of development of infrastructural facilities is quite high.
• The contribution of transport, storage and communication to the GDP at factor cost (at current prices) in India ranges from 8.2 per cent in 2006-07 to 7.1 per cent in 2011-12.

Contribution towards Growth of IT and ITES:

• The services sector has also paved the way for a continuous growth of its IT and IT Enabled Services (ITES) sector and thereby helping the economy of the country to attain higher growth both in terms of GDP share, employment, exports etc. which has put India on the global map.
• The IT and ITES sector of the country has developed an image of a young and resilient global knowledge power and has earned a brand identity in this sector.
• The IT and ITES industry has four major sub-components : IT services, business process outsourcing (BPO), engineering services and research and development (R&D), and software products. This IT and ITES sector has been generating considerable amount of revenues and employment in the economy.
• As per NASSCOM estimates, India’s IT and BPM sector (excluding hardware) revenues were to the tune of US $ 95.2 billion in 2012-13 and has been able to generate direct employment for nearly 2.8 million persons and indirect employment of around 8.9 million persons in the country.
• Moreover, as a proportion of national GDP, IT and ITES sector revenues have grown considerably from 1.2 per cent in 1997-98 to an estimated 7.5 per cent in 2011-12.
• Software exports from India in 2011-12 stands as US $ 69 billion as compared to US $ 59 billion in 2010-11. It is also observed that exports continue to dominate the IT and ITES industry and constitute about 78.4 per cent of total industry revenue. Moreover, the CAGR of the domestic sector has also been remained at high level of 12.8 per cent as compared to the 14.2 per cent for exports during the Eleventh Plan period.
• The growth rate of the domestic sector of IT-ITES and exports sector in 2010-11 were 20.6 per cent and 18.8 per cent respectively as compared to that of 9.7 per cent and 16.4 per cent growth rate attained respectively in 2011-12. Consistent and growing demand from US is largely responsible for increasing its share in total exports of India’s IT and ITES services from 61.5 per cent to 62.0 per cent in 2011-12.
• Moreover, emerging markets of Asia Pacific and the rest of the world also contributed to overall growth of IT and ITES sector of the country. Thus the Twelfth Plan aims to harness the potential of the software and services sector to contribute to country’s development and growth, particularly in terms of investments, exports employment generation and contributive to GDP and to retain India’s leadership position as a global IT-BPO destination.

Contribution towards Development of Some Social Services:

• Services sector is also playing an important role in the development and expansion of some social services like sports, cultural services etc. Sports promotes physical fitness and develops human personality which also played an important role in national identity, community bonding and international bonding.
• Moreover, cultural activities, or services include recreation and entertainment and radio and TV broadcasting besides other related cultural services. To meet the objective of preserving and promoting all forms of art and culture, a variety of activities are being undertaken by the Government of India.
• A total allocation of Rs 3,555 crore was made to this sector during the Eleventh Plan. However, cultural activities are becoming increasing by important in the modern post industrial knowledge based economy.
• Throughout the world they have been recognized as an important component of growth and job creation as well as a vehicle of cultural identity. India exported US $ 4 billion worth of creative services in 2010 at a CAGR of 26 per cent.
• As per the report of Ernst and young, the Indian media and entertainment industry is valued at US $ 16.3 billion in 2010 and is projected to grow at a CAGR of 12 per cent in the next four years (2011-14) to reach a value of US $ 26 billion.
• Thus, services sector has been playing an important role in promoting some valuable social services for overall enrichment of the society. Thus, services sector has attained a considerable size and dimension in its forms of activities and has been playing an important role in a highly populous country like India.
• However, the outlook and status of the services sector which had once fallen due to the global economic slow-down and financial crisis faced by US, but the same sector has turned its heads towards its revival and growth once again. The growing opportunities in this sector has been generating employment to many across the nation and are also attracting FDIs for attaining success in future.
• However, the challenge faced by this sector will be to retain India’s competitiveness in those areas where the country has made a mark viz. telecommunications, IT and ITES etc. Besides, India has to face another challenge to penetrate into some traditional areas such as tourism, shipping where other countries have already established its mark.
• However, India’s potential for success in the sector is very high. Thus, these challenges faced by India need to be addressed if the country wants to realize its pipe dream of attaining double digit growth and generating large number of employment opportunities for its growing population in the days to come.
• Finally, in a country like India, having a large size of population and presently enjoying the merit of population dividend in the form of growing proportion of working age population, the prospect and potential of the services sector in generating income and employment for its people is quite bright.
• Moreover, the growing volume of income and employment generated by services of sector has been working as booster or major force for the other two sectors, viz. industry and agriculture by creating new demand for its product which in turn help these two sectors to attain higher growth.

Service Marketing Management Process

An analysis of the 5 Cs, i.e. our company, customer, competitor and collaborators as parts of the micro-environment, and the context or the macro-environment, is required to identify the value that we can offer customers. Segmenting the market and targeting the market are processes in identification of the customers that we decide to serve. The positioning statement is a culmination of the identification of the value to be offered to selected customers. 

Then we move ahead with designing the service product, i.e. the service outcomes that the customer will be left with at the end of service delivery. We have to design the service process, i.e. a blueprint of how the service is going to be delivered. We may have noted that at this stage we are mainly creating value for the customers.

Next we have to think of delivering the value created in the above steps. We have to develop the people, both service personnel and the customers, who would be involved in producing and consuming the service as both of them are simultaneous activities in the case of services. We have to think about the channels through which we are going to distribute and deliver our services. Who would be our franchisees, retailers, agents, etc. helping to sell our service? Would customers have to come to our services cape to receive the service or would they receive the service where they desire it to be delivered? Would part or whole of the services be delivered over the telephone or the Internet? These channels of service distribution and delivery are termed as the ‘place’. The ambience of the place, the aesthetics of the equipment, merchandise, art and artefacts contribute to the feeling of satisfaction or delight for the customer. Hence, these physical evidences of the service have to be given special attention for delivering the service value.

Now we have to communicate about the service to prospective customers through the process called promotion so that they are aware of how our service can meet their needs and the benefits that they would receive from the service. This will attract them to our services and help them decide to purchase our services. We would also take measures to brand our service in order to distinguish it from competitive services according to our positioning statement. This part of the marketing process is called communicating the service value.

Till now we have worried about providing value to our customers. It is now time to think about capturing part of the value so that our company makes a profit to sustain and grow in the marketplace.

Moreover, the shareholders of our company would expect some dividend from our company. We can earn revenues through the price that customers pay for our services.

The above 7Ps, i.e., product, process, people, place, physical evidence, promotion and price are collectively called the marketing mix for services. The marketing mix has to be designed so that they are consistent with each other and provide an image consistent with the positioning of our service in the minds of the customer.

Once the business starts rolling, we have to plan for sustaining our business for a long period of time. This can be done by developing new services and retaining existing customers. 

Consumer Behaviour in Services & Measuring Service Quality

Consumer Behaviour in Services

Consumer behaviour is the study of how individual customers, groups or organizations select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants.

It refers to the actions of the consumers in the marketplace and the underlying motives for those actions. Marketers expect that by understanding what causes the consumers to buy particular goods and services, they will be able to determine—which products are needed in the marketplace, which are obsolete, and how best to present the goods to the consumers.

The study of consumer behaviour assumes that the consumers are actors in the marketplace. The perspective of role theory assumes that consumers play various roles in the marketplace. Starting from the information provider, from the user to the payer and to the disposer, consumers play these roles in the decision process.

 The roles also vary in different consumption situations; for example, a mother plays the role of an influencer in a child’s purchase process, whereas she plays the role of a disposer for the products consumed by the family.

Some selected definitions of consumer behavior are as follows: 

1. According to Engel, Blackwell, and Mansard, ‘consumer behavior is the actions and decision processes of people who purchase goods and services for personal consumption’.
2. According to Louden and Bitta, ‘consumer behavior is the decision process and physical activity, which individuals engage in when evaluating, acquiring, using or disposing of goods and services’. Consumer behavior is the study of how individual customers, groups or organizations select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants. It refers to the actions of the consumers in the marketplace and the underlying motives for those actions.

Nature of Consumer Behaviour

• Influenced by various factors: a. Marketing factors such as product design, price, promotion, packaging, positioning and distribution. b. Personal factors such as age, gender, education and income level. c. Psychological factors such as buying motives, perception of the product and attitudes towards the product. d. Situational factors such as physical surroundings at the time of purchase, social surroundings and time factor. e. Social factors such as social status, reference groups and family. f. Cultural factors, such as religion, social class—caste and sub-castes.
• Undergoes a constant change: Consumer behavior is not static. It undergoes a change over a period of time depending on the nature of products. For example, kids prefer colourful and fancy footwear, but as they grow up as teenagers and young adults, they prefer trendy footwear, and as middle-aged and senior citizens they prefer more sober footwear. The change in buying behavior may take place due to several other factors such as increase in income level, education level and marketing factors. 
• Varies from consumer to consumer: All consumers do not behave in the same manner. Different consumers behave differently. The differences in consumer behavior are due to individual factors such as the nature of the consumers, lifestyle and culture. For example, some consumers are technoholics. They go on a shopping and spend beyond their means. They borrow money from friends, relatives, banks, and at times even adopt unethical means to spend on shopping of advance technologies. But there are other consumers who, despite having surplus money, do not go even for the regular purchases and avoid use and purchase of advance technologies.
• Varies from region to region and country to county: The consumer behavior varies across states, regions and countries. For example, the behavior of the urban consumers is different from that of the rural consumers. A good number of rural consumers are conservative in their buying behaviors. The rich rural consumers may think twice to spend on luxuries despite having sufficient funds, whereas the urban consumers may even take bank loans to buy luxury items such as cars and household appliances. The consumer behavior may also varies across the states, regions and countries. It may differ depending on the upbringing, lifestyles and level of development.
• Information on consumer behavior is important to the marketers: Marketers need to have a good knowledge of the consumer behavior. They need to study the various factors that influence the consumer behavior of their target customers. The knowledge of consumer behavior enables them to take appropriate marketing decisions in respect of the following factors: a. Product design/model b. Pricing of the product c. Promotion of the product d. Packaging e. Positioning f. Place of distribution
• Leads to purchase decision: A positive consumer behavior leads to a purchase decision when there are alternative services available for the customers who avail the different services from the used goods.

Accounting procedures may baffle you, and legal statutes may daze you, but if you’re like many small-business owners, the one facet of your business that you can comprehend and that sustains your interest is marketing, perhaps because it involves the relatable yet always surprising realm of human behavior.

Unfortunately, most of what you read focuses on marketing a product, not a service.

If your specialty is a service, the question that probably drives you most is What factors affect consumer behavior in the service disciplines? Along with that, you are probably curious about whether consumers follow the same decision-making process while they shop for a service as they do when they shop for a product.

Dive Right In to Consumer Behavior Theory

Point your learning curve in the right direction by:

• Understanding how consumers shop for financial services, health care, lawyers and home service contractors, all of which provide fascinating insights about consumer behavior in services in general.
• Revisiting the five steps in the traditional decision-making process.
• Reviewing suggestions for positioning services in the marketplace.

Contradictions Riddle Consumer Behavior

Brace yourself for some beguiling truisms about the significance of consumer behavior. Given what you already know about marketing, these observations shouldn’t come as much of a surprise:

•  Consumers know exactly what they want.
• Consumers sometimes know little about what they want.
• Consumers can make careful, methodical decisions.
• Consumers can make impulsive decisions.
• Consumers say they would use online tools to expedite their search for services.
• Consumers don’t use online tools even when they’re available.

Smart Phone Usage Transformed Marketing

Rather than feel perplexed by these truisms, they should remind you that sometimes you must trust your instincts to guide you. Those same instincts fortified you to start a small business in the first place.

Also as you think about the most effective ways to market your service, it may help to keep certain facts about the factors affecting consumer behavior in mind. This information shouldn’t surprise you, but it should inform your most important marketing decisions.

Most Americans own smart phones, not just cell phones. In fact, 95 percent of people ages 18 to 34 and 67 percent of people ages 50 and up own smart phones.

People rely on their smart phones more than desktop computers or tablets to make searches for services. Since 2016, these digital searches have been one of the most dominant factors affecting consumer behavior, for both products and services. Beyond making purchasing decisions on the go, this insight suggests that consumers aren’t particularly interested in comparison shopping.

Consumer Behavior With Financial Services

If you sell banking, financial or insurance services – or any service, for that matter – you’ll want to bookmark Accenture’s 2019 Global Financial Services Consumer Study for a later read. The company surveyed 47,000 customers across Asia-Pacific, Europe, Latin America, the Middle East, Africa and North America and developed four customer personas that could arguably benefit anyone who wants a crash course in consumer behavior theory.

“The differences between these personas are striking and highlight how traditional demographic segmentation, such as age or wealth, can miss important nuances of how consumers view their financial providers,” the report says.

Four Personas May Sound Familiar

The personas identify:

1. Pioneers: Pioneers are the risk-takers who are tech-savvy and crave innovation. They are the ones most eager to engage with banking, financial and insurance providers on their smart phones.
2. Pragmatists: Pragmatists view technology dispassionately. For them, it’s a means to an end rather than an all-consuming passion.
3. Skeptics: These people are wary of technology and financial providers. Ironically, more than one-third are age 35 and under, which means they can be a tricky target group to engage.
4. Traditionalists: This older-than-55 group still values personal connections, tends to avoid technology and is losing faith in service providers.

Assess Conclusions About Consumer Behavior in Economics

Despite these differences, the study discerned five findings about consumer behavior in economic matters:

• Consumers expect providers to provide solutions to their needs.
• Consumers appreciate personalized service, such as offering a discount for a safe driving record.
• Consumers expect their online experiences – desktop, tablet and smart phone – to be fully integrated.
• Consumers trust their financial providers, and this feeling appears to be increasing.
• Consumers are more likely to share their personal information as long as they get something for it in return, such as a better deal.

The report distills a great deal and says a mouthful about consumer behavior in economics and marketing in general – when it concludes: What brings customers together sets them apart.

Consumer Behavior With Health Care Services

Any small-business owner whose interests even occasionally enter the health care field can benefit from the findings of a survey of 4,530 adults conducted by the Deloitte Center for Health Solutions. Certain factors affecting consumer behavior underscore most of the findings: Consumers are more practical than ever, focusing on issues such as cost and convenience, perhaps because these commodities elude them.

The study found that:

• Consumers are relying more on quality ratings, though a gap exists between their expressed interest and how often they use this tool.
• Consumers are amenable to new health care services, especially at-home diagnostic testing.
• The number of people who wear devices to track their health information has more than doubled since 2013. Moreover, many of these people are willing to share the information with a health care provider – an insight that could present an opportunity for a niche marketing campaign. 

Ailing Consumers Want a Seamless Experience

These findings about consumer behavior in health care services led researchers to suggest that business owners, marketers and other people vested in the patient journey should:

• Offer online tools when they’re needed most, or when consumers search for a caregiver, look for alternatives, and shop for testing or diagnostic services. 
• Create a seamless and communicative experience among the patient, caregiver and other members of a care team.

Consumer Behavior With Legal Services

You might conclude that people who shop for legal services tend to fit the traditionalist persona identified in Accenture’s financial services study. This is the commonality that binds many of the findings in the Legal Trend Report, which is billed as “the most comprehensive and the most granular analysis of lawyer activity ever published.”

The findings paint a picture of consumers who know what they want and are determined to find it, even if they rely on traditional means of communication to do so. Nearly 70 percent of the respondents say they prefer a law firm that promptly answers their first phone call or email.

Legal Consumers Are Money Conscious

Once that initial line of communication is open, the factors affecting consumer behavior include:

• A free, initial consultation. Nearly 65 percent of the respondents referred to this offer as a deal-breaker.
•  Fixed fees was cited by nearly half of the people in the poll.
• Finances and customer service. In this category, 28 percent of people say they choose a firm if it accepts credit card payments, while 27 percent say that pleasant text message exchanges weighed heavily in their decision-making process, and nearly 20 percent say the firm’s website lured them. 

The significance of this last consumer behavior cannot be overstated. Although consumers are shopping for legal services online and presumably are nudged into filling out and sending online contact me cards, they prefer to pick up the phone or send an email instead.

Consumer Behavior With Home Services

Consumers make more than 5 billion Google searches a day, and many of them are for contractors who specialize in home services such as electrical, plumbing, roofing and carpentry work.

By now, the owners of these companies know that their business must have a website that clearly explains the scope of their services. Research shows that 63 percent of consumers search for a home service company by scanning websites, and 30 percent of consumers won’t consider a business that doesn’t have one.

Consumers Are Impatient With Websites

However, the factors affecting consumer behavior with regard to home services don’t end there. More consumers than ever are conducting searches from their smart phones, and they’re in a big hurry to find what they’re looking for. Consider:

• Nearly half of consumers expect a web page to load in 2 seconds or less, and they’ll abandon a website and move onto another if it doesn’t.
• Google says that for every 1-second delay, conversions – turning a visitor into a potential customer – drop by 12 percent.
• Nearly 85 percent of consumers will abandon a site where they’re prepared to make a purchase if the connection is not secure.

Word-of-Mouth Still Matters

Despite their dependence on technology, consumers shopping for home services still rely on one of the oldest forms of marketing: word-of-mouth. Small-business owners in this field should know that:

• Recommendations can increase conversions by up to 5.5 times.
• Converted customers acquired through word-of-mouth boast a retention rate that is nearly 40 percent higher than customers acquired by other means.
• Social media reviews and comments can influence the behavior of nearly 70 percent of consumers. 

Word-of-Mouth Affects Consumer Behavior

Word-of-mouth remains one of the most influential factors affecting consumer behavior throughout the entire, five-step decision-making process. It’s a point worth remembering as you market your service and lead potential customers through the process, both online and in person.

A fundamental consumer behavior theory is that most consumers follow this progression for services and products before signing a contract or making a purchase:

• Recognize a need or problem
• Gather information about how to fill that need or solve that problem
• Compare and contrast worthwhile alternatives
• Make a decision
• Evaluate the wisdom of the decision

Develop Your Brand, Develop Yourself

It’s a lot of information to digest, although the parallels among consumer behavior in services can be so striking that they should leave an indelible mark on your memory and your marketing decisions. In addition to following your gut instinct, other tips about marketing services should assist your best efforts:

• Assuming that people do business with people they know, like and trust (and check out via word-of-mouth), go out of your way to develop a rapport with potential customers.
• Develop a keen understanding of your customer’s needs. If you do this and find a way to address these needs, you have likely found a customer for life.
• To a certain extent, you are the product,so you must sell yourself too, touting your own features and benefits.

Start thinking of yourself, not only your company, as a brand_._ Everything you do – everything you say, how you dress, how you conduct a business meeting – and everything else you embody are part of your brand. It helps if you clearly differentiate your brand from others. If you’re uncomfortable drawing a direct contrast and citing competitors’ names, then be sure to explicitly state who you are, what you stand for and why you’re decidedly different and better.

Perhaps no better definition of personal branding exists than the one offered by Amazon founder Jeff Bezos: “Your brand is what people say about you when you’re not in the room.”

Defining and Measuring Service Quality and Customer Satisfaction

Every customer has an ideal expectation of the service they want to receive when they go to a restaurant or store. Service quality measures how well a service is delivered, compared to customer expectations. Businesses that meet or exceed expectations are considered to have high service quality. Let’s say you go to a fast food restaurant for dinner, where you can reasonably expect to receive your food within five minutes of ordering. After you get your drink and find a table, your order is called, minutes earlier than you had expected! You would probably consider this to be high service quality

There are Nine practical techniques and metrics for measuring your service quality:

1. SERVQUAL

This is the most common method for measuring the subjective elements of service quality. Through a survey, you ask your customers to rate the delivered service compared to their expectations.

Its questions cover what SERVQUAL claims are the 5 elements of service quality: RATER.

•  Reliability– the ability to deliver the promised service in a consistent and accurate manner.
• Assurance– the knowledge level and politeness of the employees and to what extend they create trust and confidence.
• Tangibles– the appearance; of e.g. the building, website, equipment, and employees.
• Empathy– to what extend the employees care and give individual attention.
• Responsiveness– how willing the employees are to offer a speedy service.

2. Mystery Shopping

This is a popular technique used for retail stores, hotels, and restaurants, but works for any other service as well. It consists out of hiring an ‘undercover customer’ to test your service quality – or putting on a fake moustache and going yourself, of course.

The undercover agent then assesses the service based on a number of criteria, for example those provided by SERVQUAL. This offers more insights than simply observing how your employees work. Which will probably be outstanding — as long as their boss is around.

3. Post Service Rating

This is the practice of asking customers to rate the service right after it’s been delivered.

With Userlike’s live chat, for example, you can set the chat window to change into a service rating view once it closes. The customers make their rating, perhaps share some explanatory feedback, and close the chat.

Something similar is done with ticket systems like Help Scout, where you can rate the service response from your email inbox.

It’s also done in phone support. The service rep asks whether you’re satisfied with her service delivery, or you’re asked to stay on the line to complete an automatic survey. The latter version is so annoying, though, that it kind of destroys the entire service experience.

Different scales can be used for the post service rating. Many make use of a number-rating from 1 – 10. There’s possible ambiguity here, though, because cultures differ in how they rate their experiences.

People from individualistic cultures, for example, tend to choose the extreme sides of the scale much more often than those from collectivistic cultures. In line with stereotypes, Americans are more likely to rate a service as “amazing” or “terrible”, while the Japanese will hardly ever go beyond “fine” or “not so good”. Important to be aware of when you have an international audience.

Simpler scales are more robust to cultural differences and more suited for capturing service quality. Customers don’t generally make a sophisticated estimation of service quality.

“Was it a 7 or an 8…? Well… I did get my answer quickly… On the other hand, the service agent did sound a bit hurried…” No. They think the service was “Fine”, “Great!”, or “Crap!”.

That’s why at Userlike we make use of a 5-star system in our live chat rating, why Help Scout makes use of 3 options (great – okay – not good), and the US government makes use of 4 smileys (angry – disappointed – fine – great). Easy does it.

4. Follow-Up Survey

With this method you ask your customers to rate your service quality through an email survey – for example via Google Forms. It has a couple advantages over the post-service rating.

For one, it gives your customer the time and space for more detailed responses. You can send a SERVQUAL type of survey, with multiple questions instead of one. That’d be terribly annoying in a post-service rating.

It also provides a more holistic overview of your service. Instead of a case-by-case assessment, the follow-up survey measures your customers’ overall opinion of your service.

It’s also a useful technique if you didn’t have the post service rating in place yet and want a quick overview of the state of your service quality.

But there are plenty of downsides as well. Such as the fact that the average inbox already looks more like a jungle than a French garden. Nobody’s waiting for more emails – especially those that demand your time.

With a follow-up survey, the service experience will also be less fresh. Your customers might have forgotten about it entirely, or they could confuse it with another experience.

And last but not least: to send an email survey, you must first know their emails.

5. In-App Survey

With an in-app survey, the questions are asked while the visitor is on the website or in the app, instead of after the service or via email. It can be one simple question – e.g. ‘how would you rate our service’ – or it could be a couple of questions.

6. Customer Effort Score (CES)

This metric was proposed in an influential Harvard Business Review article. In it, they argue that while many companies aim to ‘delight’ the customer – to exceed service expectations – it’s more likely for a customer to punish companies for bad service than it is for them to reward companies for good service.

While the costs of exceeding service expectations are high, they show that the payoffs are marginal. Instead of delighting our customers, so the authors argue, we should make it as easy as possible for them to have their problems solved. That’s what they found had the biggest positive impact on the customer experience, and what they propose measuring.

Looking for better customer relationships?

Test Userlike for free and chat with your customers on your website, Facebook Messenger, and Telegram.

Don’t ask: “How satisfied are you with this service?” – its answer could be distorted by many factors, such as politeness. Ask: “How much effort did it take you to have your questioned answered?”.

The lower the score, the better. CEB found that 96% of the customers with a high effort score were less loyal in the future, compared to only 9% of those with low effort scores.

7. Social Media Monitoring

This method has been gaining momentum with the rise of social media. For many people, social media serve as an outlet. A place where they can unleash their frustrations and be heard.

And because of that, they are the perfect place to hear the unfiltered opinions of your customers – if you have the right tools. Facebook and Twitter are obvious choices, but also review platforms like TripAdvisor or Yelp can be very relevant. Buffer suggests to ask your social media followers for feedback on your service quality.

Two great tools to track who’s talking about you are Mention and Google Alerts.

8. Documentation Analysis

With this qualitative approach you read or listen to your respectively written or recorded service records. You’ll definitely want to go through the documentation of low-rated service deliveries, but it can also be interesting to read through the documentation of service agents that always rank high. What are they doing better than the rest?

The hurdle with the method isn’t in the analysis, but in the documentation. For live chat and email support it’s rather easy, but for phone support it requires an annoying voice at the start of the call: “This call could be recorded for quality measurement”.

9. Objective Service Metrics

These stats deliver the objective, quantitative analysis of your service. These metrics aren’t enough to judge the quality of your service by themselves, but they play a crucial role in showing you the areas you should improve in:

• Volume per channel. This tracks the amount of inquiries per channel. When combined with other metrics, like those covering efficiency or customer satisfaction, it allows you to decide which channels to promote or cut down.
• First response time. This metric tracks how quickly a customer receives a response on her inquiry. This doesn’t mean their issue are solved, but it’s the first sign of life – notifying them that they’ve been heard.
• Response time. This is the total average of time between responses. So let’s say your email ticket was resolved with 4 responses, with respective response times of 10, 20, 5, and 7 minutes. Your response time is 10.5 minutes. Concerning reply times, most people reaching out via email expect a response within 24 hours; for social channels it’s 60 minutes. Phone and live chat require an immediate response, under 2 minutes.
• First contact resolution ratio. Divide the number of issues that’s resolved through a single response by the number that required more responses. Forrester research showed that first contact resolutions are an important customer satisfaction factor for 73% of customers.
• Replies per ticket. This shows how many replies your service team needs on average to close a ticket. It’s a measure of efficiency and customer effort.
• Backlog Inflow/Outflow. This is the number of cases submitted compared to the number of cases closed. A growing number indicates that you’ll have to expand your service team.
• Customer Success Ratio. A good service doesn’t mean your customers always finds what they want. But keeping track of the number that found what they looked for versus those that didn’t, can show whether your customers have the right ideas about your offerings.
• ‘Handovers’ per issue. This tracks how many different service reps are involved per issue. Especially in phone support, where repeating the issue is necessary, customers hate HBR identified it as one of the four most common service complaints.
• Things Gone Wrong. The number of complaints/failures per customer inquiry. It helps you identify products, departments, or service agents that need some ‘fixing’.
• Instant Service / Queueing Ratio. Nobody likes to wait. Instant service is the best service. This metric keeps track of the ratio of customers that were served instantly versus those that had to wait. The higher the ratio, the better your service.
• Average Queueing Waiting Time. The average time that queued customers have to wait to be served.
• Queueing Hang-ups. How many customers quit the queueing process. These count as a lost service opportunity.
• Problem Resolution Time. The average time before an issue is resolved.
• Minutes Spent Per Call. This can give you insight on who are your most efficient operators.

Some of these measures are also financial metrics, such as the minutes spent per call and number of handovers. You can use them to calculate your service costs per service contact. Winning the award for the world’s best service won’t get you anywhere if the costs eat up your profits.

Some service tools keep track of these sort of metrics automatically, like Talk Desk for phone and User like for live chat support. If you make use of communication tools that aren’t dedicated to service, tracking them will be a bit more work.

One word of caution for all above mentioned methods and metrics: beware of averages, they will deceive you. If your dentist delivers a great service 90% of the time, but has a habit of binge drinking and pulling out the wrong teeth the rest of the time, you won’t stick around long.

A more realistic image shapes up if you keep track of the outliers and standard deviation as well. Measure your service, aim for a high average, and improve by diminishing the outliers.

SERVQUAL GAP-Model

The SERVQUAL Model is an empiric model by Zeithaml, Parasuraman and Berry to compare service quality performance with customer service quality needs. It is used to do a gap analysis of an organization’s service quality performance against the service quality needs of its customers. That’s why it’s also called the GAP model.

It takes into account the perceptions of customers of the relative importance of service attributes. This allows an organization to prioritize.

There are five core components of service quality:

• Tangibles – physical facilities, equipment, staff appearance, etc.
• Reliability – ability to perform service dependably and accurately.
• Responsiveness – willingness to help and respond to customer need.
• Assurance – ability of staff to inspire confidence and trust.
• Empathy – the extent to which caring individualized service is given.

The four themes that were identified by the SERVQUAL developers were numbered and labelled as:

1. Consumer expectation – Management perception gap (Gap 1)

Management may have inaccurate perceptions of what consumers (actually) expect. The reason for this gap is lack of proper market/customer focus. The presence of a marketing department does not automatically guarantee market focus. It requires the appropriate management processes, market analysis tools and attitude.

2. Service Quality Specification gap (Gap 2)

There may be an inability on the part of the management to translate customer expectations into service quality specifications. This gap relates to aspects of service design.

3. Service delivery gap (Gap 3)

Guidelines for service delivery do not guarantee high-quality service delivery or performance. There are several reasons for this. These include: lack of sufficient support for the frontline staff, process problems, or frontline/contact staff performance variability.

4. External communication gap (Gap 4)

Consumer expectations are fashioned by the external communications of an organization. A realistic expectation will normally promote a more positive perception of service quality. A service organization must ensure that its marketing and promotion material accurately describes the service offering and the way it is delivered

5. These four gaps cause a fifth gap (Gap 5)

This is the difference between customer expectations and perceptions of the service actually received Perceived quality of service depends on the size and direction of Gap 5, which in turn depends on the nature of the gaps associated with marketing, design and delivery of services. So, Gap 5 is the product of gaps 1, 2, 3 and 4. If these four gaps, all of which are located below the line that separates the customer from the company, are closed the gap 5 will close.

Service Recovery

In any given context of business services, service failure is inevitable as all services conforms to characteristic of service; Intangible, heterogeneity, Simultaneous production & consumption and perishablility. No two service encounters are precisely alike, hence increases discrepancy from each service encounters.

A service failure is usually described as service performance that falls below customer’s expectations which will have adverse effects on their satisfaction level for service encounters.

Therefore, a service recovery involves taking proactive and reactive actions by the service organization to get things right for the affected customers following a service failure. In order to conduct an effective service recovery from the perspective of organization, they must understand the implications of service recovery and take specific set of actions to conduct effective service recovery tactics and strategies.

Implications to Service Marketing

The implication for service recovery affects service organization in many folds. We can infer the first two implications from Love lock et al. equation on customer satisfaction as follows:

Source: Lovelock, CH, Patterson, PG & Walker RH 2007, Services Marketing: An Asia-Pacific and Australian perspective, Pearson, NSW

Firstly, consumer research has shown that resolving a service failure effectively has strong impact on customer satisfaction level, loyalty, positive word-of-mouth and organization performance. Customers who have experienced initial service failures and then experienced high level of excellent service recovery will lead to more satisfaction and loyalty towards the service organization, labeling as a service recovery paradox effect. (Zeithaml, Bitner, and Gremler 2009)

Secondly, a well-designed, well-documented service recovery strategy will aid in the improvement effort for service output, which correlates to ‘Doing the job right the first time’ that contributes to the increased customer satisfaction and loyalty towards the organization. (Zeithaml, Bitner, and Gremler 2009)

Thirdly, should the service failure not be handled effectively or ignored, customers would be enraged as they are not served their due justice and become ‘irates’. These customers are more likely than others to engage in negative word-of-mouth and switch provider. They believe that complaining to the provider can provide social benefits and go through troubles to create blogs and stuffs on internet to share their frustrations with others. Research has found that customers who are dissatisfied will talk to about 18.5 people about it, damaging reputation in the process. The role of Justice in complaint-handling procedure is also not served as shown in the model adopted from S. Tax and S.W.Brown as follow:

Lastly, service employees will also be affected and demoralized should the service failure keeps repeating themselves.

Service Recovery Strategies

When a service failure occurs, service recovery strategies will be needed to be implemented by service organizations. This long-term strategy will be embedded as part of organization’s overall service strategy. Service recovery is about the combination of a variety of strategies to solve the specific context of the problem. The proposed eight strategies by Zeithaml et al. are:

• The first strategy is to make the service fail-safe by doing it right the first time. It avoids negativities of failures and it is the most important dimension of service quality. In order to achieve that, there must be a top management commitment and a positive firm culture of ‘zero defection’ and appreciate ‘relationship value of customers’ to uphold the standards of service without blindly adopting the Total Quality Management from the product perspective.
• The second strategy is to encourage and track complaints. According to research, almost 50% of customers encountered problems by do not complain. This segment will have a higher chance of switching to competitor as organization has no control over it. Encouraging complaint is healthy and it will allow organization to learn. Tracking complaints will ensure no complaints are left out. Technology can be used to aid in handling of complaints.
• The third strategy is to act quickly. Complaining customers want quick responses and do not want to be ping-pong around different employees, which will seem to be shirking responsibilities. Even when full resolution is likely to take longer, fast acknowledgement is required to appease them. There is positive correlation between fast service recovery with satisfaction and loyalty.
• The fourth strategy is to provide adequate explanations. This allows customers to understand why the failure occurred. According to attribution theory, customer will understand and appreciate what is going on and they will be more forgiving. The content and the style of the delivery must be suitable to the affected customers subjectively.
• The fifth strategy is to treat customers fairly. They want justice in their complaint-handling process, which involves procedure (speed, convenience, follow-up etc), interaction (behavior of service representatives) and outcome. Therefore it is important that the process be handled properly to return them the justice they seek. Recent research indicates that justice considerations have a large impact on how customers evaluate firm’s recovery effort. Therefore, if they do not perceive themselves being just, they will rate the recovery badly even when it is perfectly done. (Tax and Brown 2000)
• The sixth strategy is to cultivate relationship with customers. Long term relationship will allow customers to be more forgiving and open to the recovery process. Cultivation of strong relationship can provide an important buffer to service firms when failures occur. The biggest challenge would be to restore their confidence and trust again.
• The seventh strategy is to learn from recovery experience. Organizations can learn through using tools to help evaluate experiences. They can use blueprinting, control charts, fishbone diagram (cause and effect diagram) to use those acquired knowledge in their recovery effort. The last strategy is to learn from lost customers through market research and get into the root cause analysis of why they left.