Service Marketing- Module I

Topic covered
• Introduction to service sector/ origin
• Growth in service sector Reference:
• What is service? Service marketing -Lovelock,
Service marketing –Zeithmal,
• Categories of services
Service marketing-Balaji.

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

How important is the Service Sector in an Economy?

 In most countries, services add more economic value than agriculture, raw materials and
manufacturing combined
 In developed economies, employment is dominated by service jobs and most new job growth
comes from services
 Jobs range from high-paid professionals and technicians to minimum-wage positions
 Service organizations can be any size—from huge global corporations to local small businesses
 Most activities by government agencies and nonprofit organizations involve services

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

Share of
Employment Agriculture

Services

Industr Source: IMF, 2007

y
Time, per Capita Income
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Service Marketing- Module I

Changing Structure of Employment as Economic Development Evolves

The Service Sector

• Includes businesses, government agencies, nonprofits
• Jobs range from high-paid professionals and technicians to minimum-wage positions
• Service organizations can be any size--from huge global corporations to local small businesses
• In most countries, adds more economic value than agriculture, raw materials and manufacturing
combined
• In the USA -- world’s largest economy -- services account for 73% of GDP and 76% of jobs
• In India contribution of service sector in 2008 is 55% of GDP and 23% of job employment,
with a increasing rate 7.3 %. The balance of payment has increased from 2% in 2000 to 50% in
2008. The highest contributors to Indian service sector GDP is from IT and ITES.

Service Sector in India

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

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

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

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

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

Finance,
Agriculture, Forestry, Insurance,
Mining, Construction 8% Real Estate
20%

Manufacturing
14%

Wholesale and
Retail Trade
Government 16%
(mostly
services)

Other Services 11% Transport, Utilities,

Communications
8%
Business Health
Services 6%
5%

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

Finance, Insurance,
Trade, hotels, transports
Real Estate & business service
and communication
14%
27%

Community,
social & Agriculture, Forestry,
personal Fishing 18%
services
14%

Manufacturing 16% Construction

7%

Mining & Electricity, gas &

quarring water supply
2% 2%

Contribution of Service Industries to India’s GDP, 2007

Agriculture sector (including mining) : 20.46%

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Service Marketing- Module I

Industrial sector( manufacturing, electricity, watersupply and construction) 24.60%

Services sector: 54.94%
(Source: CIA World Fact Book, 2007)

What is a Service?

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

“Services are deeds, processes, and performances” or

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

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

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

Major Trends in Service Sector

 Government Policies (e.g., regulations, trade agreements)

 Social Changes (e.g., material comfort, lack of time, desire for experiences)
 Business Trends
 Manufacturers offer service
 Growth of chains and franchising
 Pressures to improve productivity and quality
 More strategic alliances
 Marketing emphasis by nonprofits
 Innovative hiring practices
 Advances in IT (e.g., speed, digitization, wireless, Internet)
 Internationalization (travel, transnational companies, mergers and alliances )

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Service Marketing- Module I

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

To study service marketing and management, it is important to draw distinctions between service
industries and companies, service products, customer service and derived service. Some times when
people think of service they think of customer service, but service can be divided into four distinct
categories.

1. Service industries and companies- includes those industries and companies typically
classified within the service sector whose core product is a service. All of the following
companies can be considered as pure service companies: Sheraton Hotels (lodging), Indian
Airlines (transportation), Reliance Life(Insurance), Indiainfoline (financial services), Appolo
(health care). The total service sector comprises of wide range of service industries, as
suggested in the service sector contributors diagram. Companies in these industries sell services
as their core offerings.
2. Services as products- represents the wide range of intangible product offerings that customer
valu and pay for in the marketplace. Service products are sold by service companies and by
non-service companies such as manufacturers and technology companies. Ex- TCS and HP
offer information technology consulting services to the marketplace, competing with firms
such as Accenture, which are traditional pure service firms. Or department stores like Reliance
fresh that sell services such as gift wrapping and shipping.
3. Customer service- is a critical aspect of what we mean by “service”. Customer service is the
service provided in support of a company’s core products. Companies typically do not charge
for customer service. Customer service can occur on site, or it can occur over the phone or via
the Internet. Many companies operate customer service call centers, often staff around the
clock. Quality customer service is essential to building customer relationship.
4. Derived services- is yet another way to look at what service means. The value derived from
physical goods is really the service provided by the goods, not the good itself. Ex- they suggest
that pharmaceutical provides medical services, a razor provides barbering services and
computer provides information and data manipulating services; this view suggests that in future
we may think of service as more border term and with derived benefits than we currently do.

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

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Service Marketing- Module I

Reasons for the growth of the service economy-

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

Factor Examples
Increasing affluence Greater demand for personal care, lawn care, carpet cleaning, and other services
that consumers used to provide for themselves.
More leisure time Greater demand for travel agencies, travel resorts, adult education courses
Higher percentage of Increased demand for day care nursing, house keepers, away-from-home meals,
women in labor force personality training institutes, beauty parlors.
Greater life expectancy Greater demand for health care services, insurance services
Greater complexities of Greater demand for skill specialists to provide maintenance for such complex
products products as cars, computers and electronic items.
Increase in complexities Greater demand for income tax planning, marriage counselors, legal advisiors,
of life employment firms.
Greater concern about Demand for purchases or leased services, such as door to door bus service and
ecology and resource car rental instead of car ownership
scarcity
Increasing number of new The computer sparked development of such service industries as programming,
products software development and others.

Definitely there are certain limitations on growth in service industries.-

Two forces which could limit the growth are external forces and internal forces.
1. External Forces- some constraints on growth include:
• Customers can perform services themselves. The degree of essentiality of service
purchase varies (Ex- people can eat at home instead of eating at restaurants).
• Manufactured goods will be produced which replace service roles( DVD’s replacing
cinema hall, dismantle furniture replacing services skilled labor like carpenters, easy
care fabrics cleaning and laundry services)
• Manufactured goods will be produced which require less service attention (cars with
longer service intervals, equipment with throwaway replaceable parts.)

2. Internal Forces- some internal constraints on growth include:

• The small size of the average firms;
• The shortage of people with certain special skills( doctors, engineers )
• The limited competition in some service sub-sectors( rail transport, local authority services)
• Little emphasis on research and development in many service fields; the general failure to
recognize the importance of marketing in some service business.

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