Master of Business Administration – MBA Semester 4-SMU

ML0006 – Services Marketing and Customer Relationship

Management
Assignment Set- 1 & Set- 2
2 Credits (30 Marks)

Submitted by : L.V.R.SASTRY
Reg No : 510910051
 Master of Business Administration – MBA Semester 4
ML0006 – Services Marketing and Customer Relationship
Management
Assignment Set- 1
Note: Each question carries 10 Marks. Answer all the questions.
Q.1 a. Point out the distinctive characteristics of services with examples. (6 marks)
Sol.
Stanton points out that the special nature of services stems form several distinctive
characteristics and he singles out four for particular comment. They
1. Intangibility
2. Inseparability
3. Heterogeneity (Kotler terms this as variability), and
4. Perishability and fluctuating demand.
These four have been identified by Kotler also as the major characteristics greatly affecting the
design of marketing programmers for services.
1. Intangibility
Services are essentially intangible. Because services are performances or actions rather than
objects, they cannot be seen, felt, tasted, or touched in the same manner that we can sense
tangible goods. For example, health-care services are actions e.g. surgery, diagnosis,
examination, treatment performed on the patient, although the patient may be able to see and
touch certain tangible components of the service e.g. equipment, hospital room. In fact, many
services such as health care are difficult for the consumer to grasp even mentally. Even after a
diagnosis or surgery has been completed, the patient may not fully comprehend the service
performed.
Marketing Implications
Intangibility presents several marketing challenges. Services cannot be inventories, and therefore
fluctuations in demand are often difficult to manage. For example, there is tremendous demand
for resort accommodations in Simla/Ooty in May, but little demand in December. Yet resort
owners have the same number of rooms to sell year-round. Services cannot be patented legally,
and new service concepts can therefore be communicated to competitors. Services cannot be
readily displayed or easily communicated to customers, so quality may be difficult for consumers
to assess. Decisions about what to include in advertising and other promotional materials are
challenging, as is pricing. The actual cost of a “unit of service” is hard to determine and the
price/ quality relationship is complex.
2. Inseparability
Services are created and consumed simultaneously and generally they cannot be separated from
the provider of the service. The service provider customer interaction is a speciality of service
marketing.
Unlike the tangible goods, service cannot be distributed using conventional channels.
Inseparability makes direct sales as the only possible channel of distribution and thus delimits the
markets for the seller’s services. This characteristic also limits the scale of operation of the
service provider. For example, a doctor can give treatment to limited number of patients only in a
day.
This characteristic also emphasizes the importance of the quality provided to clients in services.
This poses another management challenge to the service marketer. For example, an airline
company may provide excellent fight service, but a discourteous onboard staff may keep the
customer permanently off that company.
There are exemptions also to the inseparability characteristic. A television coverage, travel
agency or stock broker may represent and help marketing the service provided by another service
firm.
Marketing Implications
Because services often are produced and consumed at the same time, mass production is difficult
if not impossible. The quality of service and customer satisfaction will be highly dependent on
what happens in “real time”, including actions of employees and the interactions between
employees and customers.
3. Heterogeneity
This characteristic is referred to as variability by Kotler. We have already seen that services
cannot be standardized. They are highly variable depending upon the provider, the time and
place where they are provided. A service provided on a particular occasion is somewhat different
from the same service provided on other occasions. Also the standard of quality perceived by
different consumers may differ accordingly. For example, the treatments given in a hospital to
different persons on different occasions cannot similar. Consumers of services are aware of this
variability and by their interaction with other consumers they also get influenced or influence
others in the selection of service provider.
Marketing Implications
The services are heterogeneous across time, organizations, and people ensuring consistent
service is fully controlled by the service supplier; such as the ability of the consumer to articulate
his or her needs, the ability and willingness of personnel to satisfy those needs, the presence (or
absence) of other customers, and the level of demand for the services.
4. Perishability and Fluctuating Demand
Perishability refers to the fact that a seat in an airplane or in a restaurant, an hour of a lawyer’s
time, or telephone line capacity not used cannot be reclaimed and used or resold at a later time.
This is in contrast to goods that can be in inventory or resold another day, or even returned if the
consumer is unhappy.
Marketing Implications
A primary issue that marketers face in relation to service perishability is the inability to
inventory. Demand forecasting and creative planning for capacity utilization is therefore
important in challenging the decision areas. The fact that services cannot typically be returned or
resold also implies a need for strong recovery strategies when things do go wrong. For example,
while a bad haircut cannot be returned, the hairdresser can and should have strategies for
recovering the customer’s goodwill if and when such a problem occurs.

b. Discuss briefly the significance of process and physical evidence in services marketing. (4
marks)
Sol.
Process
The process by which the service is created and delivered to the customer is critical to the service
operations as customer often perceive the service delivery system as part of the service itself.
Process means all work activities. Process involve the procedures, tasks schedules, mechanisms,
activities and routines by which a product or service is delivered to the customer. It involves
policy decisions about customer involvement and employee discretion. Identification of process
management as a separate activity is a must for service quality improvement. Its importance in
service businesses is evident because of the inseparability of production and consumption. The
customer not only thinks about the service product alone but also attaches importance to the
manner in which it is delivered. Under these circumstances, a poorly designed service process
leads to poor service quality. Banks provide a good example of this. By reconfiguring the way
they deliver service through the introduction of automatic teller machines (ATMs) banks have
been able to free staff to handle more complex customer needs by diverting cash only customers
to the ATMs.
Processes are seen as structural elements that can be engineered to help deliver a desired
strategic positioning. They can be analyzed according to the complexity and divergence.
Processes can be changed to reinforce the positioning. A clear understanding of the configuration
processes in terms of this complexity and divergence, on a balance of marketing and operations
activities are important factors for improving service systems. Processes are thus a marketing
mix element which can have a substantial role in reinforcing positioning and in product
development.
Physical Evidence
The environment in which the service is delivered and where the firm and customer interact, and
any tangible components that facilitate performance or communication of the service is known as
physical evidence in service.
The physical evidence of service includes all of the tangible representations of the service such
as brochures, letterhead, business cards, report formats, signage, and equipment. In some cases, it
includes the physical facility. Physical evidence cues provide excellent opportunities for the firm
to send consistent and strong messages regarding the organization’s purpose, the intended market
segments and the nature of the service.
Developing a Marketing Mix Strategy
These seven elements of the services marketing mix interact with each other. They should be
developed in a mutually supportive manner to obtain the best possible match between the
internal and external environments of the organization. In developing a marketing mix strategy,
service marketers need to consider the relationship between the elements of the mix.
It has been pointed out that there are three degrees of interaction between the marketing mix
elements.
· Consistency, where there is a logical and useful fit between two or more elements of the
marketing mix.
· Integration, which involves an active harmonious interaction between the elements of the mix.
· Leverage, which involves a more sophisticated approach and is concerned with using each
element to best advantage in support of the total marketing mix.
Thus, effective relationship marketing mix element has an impact on the market segment
selected ensuring that there is a fit between the marketing mix and each target segment; a fit
between the marketing mix and the company’s strategic capabilities, emphasizing its strengths
and minimizing the impact of its weaknesses; and recognition of competitor’s capabilities which
involves evading their strengths and capitalizing on their weaknesses. Hence, an effective
marketing plan outlining the marketing mix strategy has to be developed and implemented.
Q.2 Briefly explain the gaps model in service marketing. (10 marks)
Sol.
Theory Of The Gaps Model In Service Marketing
History of the Gaps Model
The gaps model of service quality was first developed by a group of authors, Parasuraman,
Zeithaml, Berry, at Texas A&M and North Carolina Universities, in 1985 (Parasuraman,
Zeithaml & Berry). Based on exploratory studies of service such as executive interviews and
focus groups in four different service businesses the authors proposed a conceptual model of
service quality indicating that consumers’ perception toward a service quality depends on the
four gaps existing in organization – consumer environments. They further developed in-depth
measurement scales for service quality in a later year (Parasuraman, Zeithaml, Berry, 1988).

Theory of the Gaps Model

Perceived service quality can be defined as, according to the model, the difference between
consumers’ expectation and perceptions which eventually depends on the size and the direction
of the four gaps concerning the delivery of service quality on the company’s side (Fig. 1;
Parasuraman, Zeithaml, Berry, 1985).
Customer Gap = f (Gap 1, Gap 2, Gap 3, Gap 4)
The magnitude and the direction of each gap will affect the service quality. For instance, Gap 3
will be favourable if the delivery of a service exceeds the standards of service required by the
organization, and it will be unfavourable when the specifications of the service delivered are not
met.

The key points for each gap can be summarized as follows:

· Customer gap: The difference between customer expectations and perceptions – the
service quality gap.
· Gap 1: The difference between what customers expected and what management
perceived about the expectation of customers.
· Gap 2: The difference between management’s perceptions of customer expectations
and the translation of those perceptions into service quality specifications and
designs.
· Gap 3: The difference between specifications or standards of service qualityand the
actual service delivered to customers.
· Gap 4: The difference between the service delivered to customers and the promise of
the firm to customers about its service quality
Applications of the Gaps Model
First of all the model clearly determines the two different types of gaps in service marketing,
namely the customer gap and the provider gaps. The latter is considered as internal gaps within a
service firm. This model really views the services as a structured, integrated model which
connects external customers to internal services between the different functions in a service
organization. Important applications of the model are as follows:
Fig: The Integrated Gaps Model of Service Quality

Fig. 2: The 10 determinants of service quality

1. The gaps model of service quality gives insights and propositions regarding customers’
perceptions of service quality.
2. Customers always use 10 dimensions to form the expectation and perceptions of service
quality (Fig. 2).
3. The model helps predict, generate and identify key factors that cause the gap to be
unfavourable to the service firm in meeting customer expectations.

The model provides a conceptual framework for academic and business researchers to study the
service quality in marketing.
Q.3 What are the bases for segmenting in services marketing? Explain with examples. (10
marks) FALL 2010
Sol.
Bases for Segmentation
Market segments are formed by grouping customers who share common characteristics that are
in some way meaningful to the design, delivery, promotion, or pricing of the service. Common
segmentation bases for customer markets are demographic segmentation, geographic
segmentation, psychographic segmentation and behavioural segmentation. Segments may be
identified on the basis of one of these characteristics or a combination.

Figure 3.2
Demographics and Socio-economic Segmentation
Demographic segmentation includes a number of factors including sex, age, family size etc.
Socio-economic variables may also be considered here including income, education, social class
and ethnic origins. Many retail stores target different customer groups.
An interesting example of market segmentation is seen in the banking patterns of consumers
based on the lifecycle of the household. Whilst other factors such as socio-economic level are
also important, the age and family composition of the lifecycle concept are particularly valuable
predictors of a household’s propensity to either save or borrow.
An analysis of the stages within the customer lifecycle determines what kinds of banking
relationship are needed to meet the demands of the household. These needs change significantly
from a bachelor who wants easy credit facilities and convenient transactions, young married
requiring higher levels of credit facilities, through to older families at the peak of their earning
and spending potential, and then older families at the peak of their earning and spending
potential, and then older people without children at home who have a higher propensity to save.
A financial institution can therefore, direct various service offerings to individuals based on their
stage within the lifecycle model.
Psychographic Segmentation
This form of segmentation cannot be explained in clearly defined quantitative measures. It is
concerned with people’s behaviour and ways of living. Psychographic segmentation is concerned
with analyzing lifestyle characteristics, attitudes and personality. Often these elements are
examined in conjunction with demographic variables. Service companies are increasingly
starting to look at Psychographic segmentation.
Geographic Segmentation
Geographic segmentation divides customers according to where they live or work and correlates
this with other variables. This is appropriate where customers’ needs vary in different areas, or
where local and regional trends favor particular types of services offerings.
As geographic analysis is a relatively simple means of segmenting a market, it is frequently one
of the first segmentation variables to be considered by a service firm. Geographic segmentation
dimensions are typically grouped into market scope factors and geographic market measures.
1. Market Scope Factors: include a consideration of where the markets to be served are located:
this maybe local, national, regional or global. To be a major player in some service businesses
requires a regional or global presence for example, airlines wishing to be significant players are
recognizing this. Many airlines are seeking increased scale of operations through mergers and
strategic alliances.
2. Geographic Market Measures: include examination of population density, climate-related
factors, and standardized market areas. Geographic measures are especially important in the
selection of specialized mass communications media. Most mass circulation media profile
geographic coverage of standardized market areas in detail as well as providing media
circulation by type of reader and other variables. Geographic market measures are used to
determine relative sales potential in different geographic areas.
Benefit Segmentation
The segmentation variables listed above focus on the personal attribute of the customer.
Segmentation can also be carried out on the basis of the customer’s response.
Benefit segmentation assumes that the benefit that people are seeking from a given product or
service is the basic reasons why they buy the product. This differs from psychographic
segmentation which focuses on who will buy product. Identifying segments seeking a common
benefit permits the service provider to develop a relevant offering. For example, various benefits
are sought within offer of a full range of service for varying needs. Another segment looks for
advantageous loans that can be borrowed easily at low interest. A third segment may seek high
savings interest with quick service and a personal banking relationship. A fourth segment might
seek a one-stop bank with a wide variety of service, convenient hours and quick service. A bank
can direct its service to satisfying one or more of these segments and gain a reputation for
offering a distinct package.
Benefit segmentation is applicable to almost all services as it focuses on the underlying reasons
for purchasing them. For example, within the education market, consumers can be analyzed
based on the primary benefits they seek from the education experience. An example of benefit
segments used for categorizing prospective MBAs can be identified from a survey of candidates.
Usage Segmentation
Usage segmentation focuses on the type and usage patterns. Consumers are typically divided into
heavy users, medium users, occasional users or non-users of the service being considered. Many
services marketers are concerned with focusing on the heavy user segment, who may consume
many times more of the service than occasional user. This is the basis of many fast food
restaurants which cater for high volume usage by providing speedy, low-cost food.
Banks and building societies are concerned with heavy, medium, light and non-users of their
services. They wish to understand the nature, behaviour and identity of heavy users and attract
them to their bank.
Promotional Response Segmentation
Promotional response segmentation considers how customers respond to a particular form of
promotional activity. This may include response to advertising, sales promotions, in-store
displays and exhibitions. Users of mail order catalogues tend to be good users of credit cards and
will have a higher response rate to other direct mail offerings. This information can be used by
service companies to ensure that this segment receives frequent communication by direct mail,
thus building a relationship with the customer as well as obtaining a high response rate to
promotions.
With loyalty segmentation, customers are categorized according to the extent of the loyalty they
exhibit to the particular product or service being offered. Customers can be characterized
according to their degree of loyalty in the channels of distribution or outlets.
Some customers are very loyal to the services organization.
They are currently with the service provider even if they are not happy with the service they are
receiving. Customers are sometimes divided into four categories according to consumer loyalty
patterns, ‘hard-core loyals’ (consumers who buy their brand all the time); ‘soft-core loyals’ (who
are loyal to two or three brands); ‘shifting loyals’ (who shift from favouring one brand to
another); and ‘switchers’ (who show little sustainable loyalty to one brand). The underlying
reasons for these different behaviour patterns need further analysis.
Segmentation by Service
One area which has received relatively little attention is the consideration of how customers
respond to varying service offerings. This may be considered a subset of benefit segmentation,
but it is of sufficient importance to be addressed separately. The various elements of customer
service that can be offered, and possible differentiation in terms of service levels within these
elements, represent a considerable opportunity to design service packages appropriate to
different market segments.
Segmenting markets by service involves addressing the following issues:
· Can groupings of customers be identified with similar service requirements?
· Can we differentiate our service offering?
· Do all our products require the same level of service?
The types of segmentation outlined above are illustrative of the main forms of segmentation used
by services companies. They are, however, by no means exhaustive. To a large extent the
identification of segmentation bases involves the element of creativity and those marketing
services should constantly be considering alternative ways of segmenting the market and seeking
ways in which they can alternative advantage over their competitors. This stage of the
segmentation process should result in the selection of the best bases(s) for segmentation.
The segmentation process should result in one of the four basis decisions being reached:
1. The service firm may decide to target one segment of the market.
2. The service firm may decide to target several segments and so will develop different
marketing mix plans for each segment.
3. Management may decide not to segment the market but to offer the service to the mass
market. This may be appropriate if the market is very small and single portion would not be
profitable.
4. Analysis may show that there is no viable market niche for the service offering.
The relevance of market segmentation is now being increasingly recognized in the service sector.
A number of studies have pointed to the importance of market segmentation. One study ranked
‘problems in recognizing, defining, understanding and segmenting markets’ as the most
important problem facing the senior executives surveyed. Another survey ranked the
segmentation as the third most important marketing tool. However, despite the recognition of the
importance of market segmentation methodology, some service firms are still basing their
marketing strategies methodology, some service firms are still basing their marketing strategies
and tactics on either aboard approach to the market, or a relatively unsophisticated approach to
segmentation. Many service firms need to be more disciplined in their focus on their
marketplace.
Segmentation is at the heart of marketing strategy and is concerned with the development of a
market position that minimizes competitor’s strengths and maximizes the strength of the service
provide. Segmentation and the associated steps of positioning provide the opportunity to tailor
the service offered to better meet the needs of specific segments.
 Master Of Business Administration-MBA Semester 4
ML0006 – Services Marketing and Customer Relationship
Management
Assignment Set- 2
Note: Each question carries 10 Marks. Answer all the questions.
Q.1 a. Explain briefly the six categories of service innovation. (8 marks)
Sol. Christopher Lovelock has suggested six categories of service innovation including the
following.
1. Major Innovations: These innovations represent major new marketing Examples: Cellular
telephones and Open University (Distance education). The risk and reward profile of such major
innovations is typically large.
2. Startup Businesses: There are new and innovative ways of addressing current needs of
customers and increasing the range of choices available to them. Examples: Video Cassette hires.
Some innovations could fit into either of the above two categories.
3. New Products for the Market Currently Served: This allows the service provider to use the
customer base to the best advantage and cross-sell other products. For example, the Automobile
Association established a core range of products related to car breakdown services. The customer
base is now offered to a range of other car-related services, including car insurance, travel
insurance and map books. The technological change has increased the range of opportunities for
innovation and creativity, and is also responsible for creating a market for products and service
which consumers may not have considered that they require. For example, automated teller
machines, electronic mail and desk-top publishing have each resulted from technological
development and crated consumer demands which previously did not exist.
4. Product Line Extensions: These offer customers greater variety of choices within existing
service lines. This is typical of a business in maturity, which already has a core market segment
which the service provider seeks to maintain.
5. Product Improvements: This usually consists of altering or improving the features of existing
service products.
6. Style Changes: These involve cosmetic alternations or enhancement of tangible elements of
the service product. The development of a new corporate image or the introduction of uniforms
for bank counter staffs is examples of style changes.

b. What is relationship marketing? (2 marks)

Sol.
Relationship Marketing Programme
Given the many benefits of long term customer relationships, it would seem that a company
would not want to refuse or terminate a relationship with any customer. In some cases, it may be
preferably for the firm and the customer not to continue their relationship.
Q.2 Give a detail note on customer relationship marketing. (10 marks)
Sol.
CRM (Customer relationship management) which means “The relationship management of a
customer by an organization”
CRM means “The Goal of keeping the customers for the long term benefit of an organization”
CRM means “Acquiring, Developing and retaining satisfied royal customer, achieving profitable
growth and creating economic value in company’s brand”.
Finally CRM means “the establishing, the developing, the strengthening, and the trusting of good
values among the customer for company’s brand.
CRM is not a new concept but an age old practice, which is on the rise because of the benefits it
offers, especially in the present market scenario.
So, CRM today is a discipline as well as set of discreet software and technologies which focuses
on automating and improving business process associated with managing Customer Relationship
in the areas of sales, marketing, customer service and support. It helps the companies understand,
establish and nurture long term relationships with clients as well as help in retaining current
customers.
The most important step that an organization has to take in the direction of CRM is to create an
interdisciplinary team to review how the organization interacts with each customer and
determines how to extend and improve the relationship.

Emerging concepts in CRM

· Increase in customer partnering
· Expansion of customer base
· Reduction in advertisement and other sales promotion expenses
· Generation of more and more loyal customers
· Easy introduction of new products
· Reduction in customer recruitment cost
· Increase in customer partnering
· Increase in the number of profitable customer
Another emerging concept in CRM is maintaining and creating a relationship with the existing
customers and new customers.
Customer problems solving and timely attention of their grievances and the politeness for the
acceptance of the mistakes are caused by the company. Many managers believe that customers
are the key to profitability considering the traditional organization. Moreover the customer’s
timely help in their problems and product based descriptions will be present trend in the
customers. The customers are the main focal point for the organizations to sort out the problems
of the products, its growth, and its competition and so on. Hence the customer is the deciders of
the growth of the company.

Benefits of CRM to firm and customer

Benefits to firm
1. The firm takes a chance of retaining the value for the products
2. They do get a chance of retaining the value among the customers.
3. Firm plays role on the development of themselves
4. Firm takes an opportunity to bring the best products and competitiveness among them.
5. Firm stands as whole when the customer values are maintained well.
6. Firm provides a wide scope for the customers in this regard.
Benefits to Customers
1. Customers have variety of choices of the company based on the best play made by a firm
regard to CRM.
2. Customers have a lot of companies to choose among themselves.
3. Customer get a large amount of products list from the renowned firms
4. Firms are very much keen on customers, so customers are highly valued.
5. Companies have choices of products to be displayed for the customer’s knowledge, so
customers have own preferences.
6. Products shall be negotiated at the large price deductions on the products.
Q.3 Advise a newly started tourism agency to expand its business at the same time develop
its service marketing expertise. (10 marks)
Sol.
Whenever a newly started tourism agency wants to grow, there are a lot of things to consider
which are all as listed below:
The following points emerge regarding tourism marketing:
· Tourism marketing is a process of creating a product or providing a service.
· Tourism marketing comprises fact finding, data gathering, analyzing (marketing research),
communication to inform and promote (promotion), ensuring and facilitating sales, selection of
marketing planning ( distribution), coordination, control and evaluation (marketing planning and
auditing), developing professionally sound personnel (people).
· Tourism marketing is an integral effort to satisfy tourist and more so, it is a device to transform
the potential tourists into the actual tourists.
· Tourism marketing is the safest way to generate demand, expand market and increase the
market share.
· Tourism marketing is a managerial process to promote business.
Through market planning, segmentation and marketing research, a tourism marketing mix can be
developed to achieve the tourism origination goals through strategic marketing.
This apart a tourism agency also has to take care of the price mix, promotion mix.
In the promotion mix, one can bring the attention of the customers by means of advertisements
and by improving public relations.
Sales promotions through brochures, point of sale displays and videos play an important role. In
a tourism industry one can offer their clients some compliments in the form of bags, and others
that will surely increase the public interest in our agency.
The hotels offer a number of facilities like shoe shine clothes, first aid sewing kits and shampoo,
further, the clients also get fruits and flowers in their rooms. There is no double that almost all
the promotional measures generates goodwill and add value to the product.
Personal selling: The travel and hotel business depend considerably on the personal selling. The
developing of travel and tourism has been possible due to well educated and trained sales
personnel.
People: The tourism industry depends substantially on the management of human resources. The
travel agents and travel guides plays an important role and therefore the management of people
helps in developing their credentials to deliver goods to the tourist organizations.
Tactical pricing is found instrumental in promoting the hotel business. There are number of ways
for practicing this tool:
i) Seasonal discounts: to charge lower prices, especially during off season.
ii) Trade discounts: This is offered to tour operators and travel agents.
iii) Special discounts: special function room rates for overnight conventions.
This apart there are lots of other strategies one can use to develop a tourism company.