Service Marketing

The service sector has grown because of rising incomes and living standards, urbanisation, and more working women and dual-income families that buy services such as childcare and food. Other reasons are an ageing population needing health care, growing demand for education, banking, insurance and communication, tourism, outsourcing of non-core activities by firms, advances in information technology, and government liberalisation and privatisation.

Customer perception is the way a customer views, interprets and judges a service after selecting and organising the information received through experience, advertising and word of mouth. It reflects what the customer believes about the quality and value of the service, which may differ from the actual service delivered. It influences satisfaction and repeat purchase.

The molecular model, developed by Lynn Shostack, describes a market entity as a "molecule" made up of tangible and intangible elements. Its essences are:

• It shows the service and goods elements together, with intangible service elements at the centre and tangible ones around them.
• It makes the structure of the offering visible, so each component and its link to the others can be analysed.
• It helps position the offering: the more intangible the dominant elements, the more service-like the offering.
• It is a tool to design new services, change existing ones, and reposition them by adding, removing or rearranging elements.

The main factors affecting the choice of distribution channels are:

• Nature of the service: intangibility, perishability and customisation limit the number of intermediaries.
• Target market: size, location and buying habits of customers.
• Company factors: financial strength, size, image and desired control over delivery.
• Intermediary factors: availability, skill and cost of intermediaries.
• Competition: channels used by rivals.
• Technology and environment: availability of internet and ICT, and legal and economic conditions.
• Cost: the cost of each channel against the returns it brings.

The process of segmenting a service market has these steps:

1. Define the market and the service to be segmented.
2. Select the segmentation bases (geographic, demographic, psychographic, behavioural, benefits sought).
3. Collect data and group customers with similar needs into segments.
4. Profile and evaluate each segment for size, growth, profitability, accessibility and measurability.
5. Select the target segment(s).
6. Position the service in the minds of the chosen segment and develop a suitable marketing mix.

The outcomes of customer satisfaction are customer loyalty and repeat purchase, positive word-of-mouth and referrals, higher market share and profit, lower marketing and acquisition costs, reduced price sensitivity, cross-selling of other services, a better company image, and fewer complaints and switching.

A service product has the following nature:

• Intangibility: it cannot be seen, touched or tasted before purchase.
• Inseparability: production and consumption occur at the same time.
• Heterogeneity: quality varies with who provides it, and when and where.
• Perishability: it cannot be stored or kept in inventory.
• Lack of ownership: the customer gets only the right to use or access it.
• Customer participation: the customer is often involved in producing the service.

Emerging service pricing strategies include:

• Satisfaction-based pricing: service guarantees, benefit-driven pricing and flat-rate pricing that reduce customers' uncertainty.
• Relationship pricing: long-term contracts, loyalty discounts and price bundling.
• Efficiency pricing: the firm shares its cost savings with customers.
• Yield (revenue) management and dynamic pricing: prices change with demand, season or time, as with airlines and hotels.
• Penetration and value-based pricing: low entry prices, or prices set by the value customers perceive.
• Online and subscription pricing: pay-per-use and freemium models.

Customer expectations are the beliefs customers hold about what a service should deliver. They are influenced by the following factors.

• Desired service: the level a customer hopes to receive, a mix of what "can be" and "should be" delivered.
• Adequate service: the minimum level the customer will accept.
• Zone of tolerance: the gap between desired and adequate service. It varies among customers and between service dimensions.
• Explicit service promises: advertising, personal selling, contracts and other communication by the firm.
• Implicit service promises: price, tangibles and facilities that hint at the quality to expect.
• Word of mouth: recommendations from friends, family and experts, especially important for intangible services.
• Past experience: earlier experience with this or similar providers.
• Personal needs and beliefs: individual needs, philosophy of service and culture.
• Situational factors: emergencies, weather, a bad day and other temporary conditions.
• Perceived service alternatives and self-perceived role: more alternatives raise expectations, and a customer who feels responsible for the outcome expects less from the provider.

Managing these factors helps a firm avoid over-promising and meet expectations.

Services marketing is important for the following reasons.

• Economic contribution: services account for a large and growing share of GDP, employment and foreign exchange (tourism, banking, telecom, remittance services).
• Meets customer needs: it designs and delivers services such as education, health and finance that fit customers' needs.
• Competitive advantage: service quality and the customer experience differentiate firms when products are alike.
• Customer satisfaction and loyalty: managing intangibility, inseparability and variability builds trust and repeat business.
• Profitability: satisfied customers stay longer and spend more, and retention costs less than acquisition.
• Employment generation: the service sector creates many jobs.
• Supports other sectors: transport, finance and communication services support manufacturing and trade.
• Adaptation to change: it helps firms respond to technology, urbanisation and rising incomes.

Positioning is the act of designing a firm's offering and image so that it occupies a distinct and valued place in the minds of the target customers relative to competitors.

Service positioning strategies:

• Attribute or benefit positioning: emphasise a key feature or benefit, such as speed, convenience or safety.
• Quality and price positioning: premium quality at a higher price, or a low-cost, value-for-money offer.
• Use or application positioning: position the service for a particular use, such as business travel or student banking.
• User positioning: target a specific group, such as women, senior citizens or youth.
• Competitor positioning: compare directly with, or differentiate from, a named rival.
• Product class positioning: position against a different class of service, such as online banking against branch banking.
• Cultural symbol or image positioning: use a symbol, brand personality or national identity.
• Repositioning: change the existing position when the market or competition changes.

A good position is clear, distinctive, credible and consistently communicated through the service mix.

Relationship marketing aims to attract, retain and enhance long-term relationships with customers rather than make one-time sales. Its effects on buyer behaviour are:

• Greater trust and commitment: repeated positive interaction builds confidence in the provider and reduces perceived risk.
• Brand and firm loyalty: customers repurchase and avoid switching.
• Lower search and decision effort: buyers go back to the known provider instead of comparing alternatives.
• More spending and cross-buying: satisfied customers buy more and try other services of the firm.
• Positive word of mouth: loyal customers recommend the firm to others.
• Greater tolerance of mistakes: committed customers are more willing to forgive occasional service failure and give feedback.
• Reduced price sensitivity: they accept reasonable prices because of social and special treatment benefits.
• Sense of belonging: loyalty programmes, personal attention and customised service create emotional bonds.

Overall, buyer behaviour moves from transactional to relational, which improves retention and profitability.

The promotion mix for a service product includes the following.

• Advertising: TV, radio, print, outdoor and online media create awareness and build the image. Because services are intangible, ads should use tangible cues, testimonials and a clear promise.
• Personal selling: the most effective tool for services such as insurance, banking and consultancy, as it builds relationships and explains complex offers.
• Sales promotion: discounts, free trials, coupons, bonus and loyalty rewards that induce trial and off-peak use.
• Public relations and publicity: news, sponsorship, CSR and events build credibility and trust.
• Direct and digital marketing: email, SMS, social media and websites give personalised communication and two-way interaction.
• Word of mouth: referral encouragement and managing reviews, since customers rely on others' experience.

In addition, the physical evidence, process and people elements communicate the service. The aim is to make the service tangible, build trust and manage expectations.

Emerging service sectors in Nepal:

• Tourism, hospitality and adventure services
• Banking, insurance, fintech and digital payments
• Information technology, BPO and software outsourcing
• Telecommunications and internet services
• Education and training
• Health care and medical tourism
• Hydropower consulting and energy services
• Transport and logistics, including aviation
• Entertainment, media and e-commerce

Ongoing issues in the tourism sector:

• Weak infrastructure: poor roads, airports and limited international flights.
• Safety and quality concerns, including aviation safety and trekking accidents.
• Seasonal demand and heavy dependence on a few destinations.
• Inadequate promotion and branding in international markets.
• Political instability and policy inconsistency.
• Shortage of skilled human resources and weak service quality.
• Environmental problems, such as waste on trekking routes and Everest, and pollution in cities.
• Limited tourism products, poor sanitation, and low yield per tourist.
• Lack of coordination among the government, private sector and local communities.

Solving these requires better infrastructure, safer aviation, product diversification, and strong destination marketing.

(a) Yes. When there is a low supply of services and demand is strong, a firm could charge a high price. Sparkle chose a middle price range, aimed at the common person, with a large and well-ventilated facility in a high-traffic area. This was appropriate for several reasons.

• It attracted a wide segment, and membership exceeded expectations (500 members, 80 to 100 visitors a day).
• It built a loyal base and goodwill before competitors came in.
• A middle price with a differentiated facility gave good value, so customers readily accepted it.

It may have left some profit unearned, since low competition and high demand could have supported a higher price.

(b) Because supply is limited and entry is difficult (permits and the cost of a 1,800 sq. ft. facility), the club has pricing power. It can:

• keep prices stable or raise them gradually, as demand is inelastic;
• use differentiated or tiered pricing, such as premium packages for body builders and basic ones for others;
• use peak and off-peak pricing, because 80 to 100 people come on a given day, and offer discounts for longer memberships;
• bundle services (trainer, diet, classes) to raise revenue per member.

It should avoid excessive prices that attract competitors or create resentment.

(c) More supply increases competition and gives customers more choice, so demand becomes more price-sensitive. The club may:

• hold or reduce prices, offer promotional discounts, and give long-term membership or family packages;
• shift from price competition to value, by improving quality, equipment and trainer service;
• use loyalty rewards and referral offers to retain members;
• avoid a price war, which can damage the margin and the image.

Because the club is already in the middle range, it should defend its position by differentiating rather than by deep price cuts.

(d) In my opinion the strategy will not sustain in the long run if it relies only on its large space, low competition and mid-range price.

• Barriers to entry will not last, and new gyms with modern equipment will appear.
• Services are intangible and heterogeneous, so quality has to be maintained through trained trainers, hygiene, equipment upkeep and crowd management.
• With 500 members and up to 100 visitors a day, overcrowding can reduce service quality.

The strategy will last only if the club invests in service quality, uses member feedback, builds relationships and loyalty, and keeps innovating with new programmes and technology. Otherwise members will switch to competitors.