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Service Concept

Traditional Retail Model

The Old Way: Kirana Stores

20 years ago, retail was predominantly conducted through Kirana stores or mom-and-pop stores. Customers would visit these stores with a list of items they needed. The shopkeeper would then:

  • Select the items
  • Weigh and pack them
  • Prepare a bill

This process was labor-intensive, with a strong service element, as customers relied on the shopkeeper to handle all the aspects of shopping.

Evolution of Retail Services

Home Delivery Service

As time went on, the retail experience started evolving. A new type of shopkeeper introduced the concept of home delivery. Instead of customers visiting the store:

  • They could simply send a list to the shopkeeper, often through a call or a message (such as WhatsApp).
  • The shopkeeper would deliver the items to the customer’s home, adding a layer of convenience and service.

Credit Service in Small Retail Stores

Even small retail businesses like tea stalls, vegetable vendors, and street food sellers in India began offering credit or Khata:

  • Customers could purchase items on credit throughout the month.
  • At the end of the month or the beginning of the next, the total amount would be calculated, and the customer would clear the bill.

Online Retail: Expanding Service Offerings

With the advent of online retail platforms such as Amazon, Flipkart, and BigBasket, the concept of service further evolved. Customers now had access to:

  • A much larger variety of products.
  • The ability to apply filters (e.g., brand, price, customer feedback) to narrow down their choices.

Quick Commerce: The New Era of Service

In metro cities, a new retail trend emerged: quick commerce. This took the service concept to the next level:

  • Instead of a scheduled delivery window, orders were fulfilled within minutes (typically 10 minutes).
  • Customers could receive their products quickly, enhancing convenience and immediacy.

Retailer’s Dilemma: Variety vs. Speed

Retailers face a decision:

  • Should they focus on providing a large variety of products, which would typically be available in large retail formats?
  • Or should they differentiate by offering fast delivery (i.e., quick commerce) to meet customer demand for speed?

6.5.3 Defining Services

In marketing, both products and services are defined as anything that satisfies the needs and wants of the customer. These two concepts, while related, are often viewed as opposite ends of a continuum. The key difference between the two lies in the level of service and product components they involve.

Products and Services as a Continuum

  • Pure Product: At one end of the continuum, you have a pure product where the service component is minimal. For example, a simple wooden chair may require little to no service after purchase. Its primary function is to provide seating, and it doesn’t need complex maintenance beyond occasional polishing.
  • Pure Service: On the other end, there is a pure service, where the product component is minimal or non-existent. For instance, consulting services or medical consultations are services where no physical product is involved in the transaction.

Between these two extremes, most offerings include a blend of both product and service components, with the importance of each varying based on the product’s complexity and features.

Example: Wooden Chair vs. Recliner

Consider the example of a wooden chair versus a recliner:

  • A wooden chair is a simple product that doesn’t require much service. It serves its primary function of providing seating with minimal maintenance.
  • A recliner, on the other hand, is a more complex product. It includes features like massage functions, remote controls, and adjustable settings. Given these complexities, a recliner requires significant service for maintenance, repairs, and warranty support.

Examples of Services

Services can be found in many industries, such as:

  • Healthcare: Hospitals and medical consultations.
  • Education: Schools and universities offering courses and training.
  • Banking: Services like loans and account management.

Definition of Services

American Marketing Association (AMA) Definition (1988)

The American Marketing Association defines services as:

"Products such as bank loans, home security that are tangible, intangible, or at least substantially so, those are the things that are called services. If totally intangible, they are exchanged directly from the producer to the user. They cannot be transported or stored and are almost instantly perishable."

This definition highlights key characteristics of services:

  • Intangibility: Services are significantly intangible.
  • Direct Exchange: They are exchanged directly from the producer to the user without being stored or transported.
  • Perishability: Services cannot be stored for later use; they are consumed as they are produced.

Characteristics of Services

  • Intangibility: Unlike products (e.g., an apple), services cannot be touched or seen before they are consumed. For example, you cannot see the quality of a haircut until it is done.
  • Simultaneous Production and Consumption: Services are often produced and consumed simultaneously. A haircut or a medical consultation is only realized once it is performed.
  • Customer Participation: Many services require active customer participation. For example, a doctor’s consultation involves not just the doctor’s action but the patient’s interaction and feedback.
  • No Ownership Transfer: Unlike physical products, services do not involve the transfer of ownership. For instance, when you buy a TV, ownership passes from the seller to you. However, when you take a flight, you don’t own the service; you simply pay for the right to experience it.

Philip Kotler's Definition of Service

Philip Kotler defines service as:

"Any act or performance that one party can offer to another that is essentially intangible and does not result in ownership of anything. The production may or may not be tied to a physical product."

This definition emphasizes:

  • Intangibility: The service itself doesn’t have a physical presence.
  • No Ownership: Consumers do not own the service; they only experience it.
  • Potential for Physical Product Ties: Services may or may not be associated with a physical product (e.g., hotel stay includes both service and accommodation).

6.5.4 Product - Service Mix

Just like the marketing mix, which involves the combination of product, price, place, and promotion, the service mix is a concept that focuses on the various components of a service offering. The service mix refers to the range of service elements that a company combines to satisfy customer needs and enhance their overall experience. It includes five different types of offerings, each representing a distinct combination of product and service elements.

Five Types of Offerings in the Service Mix

1. Pure Tangible Good

At one end of the service mix continuum, we have pure tangible goods. These are products that have no significant service component accompanying them. Examples include routine purchases like rice, pulses, toothpaste, soap, and other FMCG products. These items are sold and consumed with little to no additional service involvement.

However, as markets evolve, even pure tangible goods are increasingly paired with service components. For example:

  • In large format retail stores, displays, point-of-sale arrangements, and visual merchandising play a significant role.
  • When these products are available online, filters (brand, price, customer feedback) and other services like delivery options become part of the offering.

Thus, while the core of a pure tangible good offering has no service, businesses increasingly find ways to integrate service elements to enhance the customer experience.

2. Tangible Good with Accompanying Service

Next on the continuum, we have tangible goods with accompanying service. Here, products are the primary focus, but they come with essential service components. These offerings typically involve technologically sophisticated products such as cars, white goods (washing machines, refrigerators), and computers.

In this case, the service components might include:

  • Display rooms for product viewing.
  • Delivery and installation services.
  • Repair and maintenance services.
  • Warranty and training on product usage.

For example, a car cannot be easily purchased without the service of having a nearby service center or spare parts availability. Without these services, sales would likely decline. This highlights how the service component plays a critical role in the customer’s decision-making process.

3. Hybrid Offering

The hybrid offering strikes a balance, giving equal importance to both the product and service components. A classic example is a restaurant, where the food is the primary product, but the ambience, service quality, and personalized experience are equally important.

In such a hybrid offering, both the tangible product (food) and the service elements (staff interaction, ambiance, etc.) contribute to the overall customer experience. Both are essential for delivering value, and a deficiency in one can significantly affect the perceived quality of the offering.

4. Service Major with Accompanying Goods

On the other side of the continuum, there are offerings where service is the major component and the goods or physical products are secondary. Examples include airlines, rail travel, and insurance policies.

  • Airlines: The core offering is the transportation service, but the service may also include complementary goods such as refreshments, the ambience of the flight, or even the hygiene of restrooms.
  • Insurance: The core service is the coverage provided by the policy, but the paperwork associated with it becomes a minor product aspect. The convenience of a paperless process is often a key factor in customer preference.

Here, the service is dominant, and the goods or physical products (like tickets or insurance documents) serve as minor supporting elements. The overall customer experience is heavily influenced by the quality of the service rather than the product.

5. Pure Service

At the extreme end of the continuum, we have pure services, where no significant product is involved. These are offerings where the service is the core value, and there is little to no physical product. Examples include:

  • Consulting services
  • Clinical psychology
  • Babysitting
  • Massage therapies

In these cases, the service is completely intangible. There is no ownership of a physical product; customers pay for the experience or expertise provided by the service. The focus is entirely on the delivery of the service itself, with little to no tangible component involved.

6.5.5 Characteristics of Service

In the world of services, there are four significant characteristics that differentiate services from tangible products. These characteristics also help in developing service strategies to enhance customer experience and satisfaction. Let's delve into each of these characteristics:

1. Intangibility

What is Intangibility?

Intangibility refers to the fact that services cannot be physically touched, seen, or experienced through the sensory organs (eyes, ears, nose, tongue, skin) before the purchase. This is different from tangible products, where customers can touch and feel the product before deciding to buy it. Examples of intangible services include:

  • Haircuts
  • Massage therapy
  • Consulting
  • Medical services

Implications:

Because services are intangible, customers face a perceived risk as they cannot evaluate the service beforehand. To mitigate this risk, businesses need to develop strategies to make the service more tangible:

  • Testimonials: Success stories and feedback from past customers can help build confidence.
  • Employee Expertise: Highlighting the qualifications or training of the service providers, like hairstylists or doctors.
  • Brand Presence: Strong brand associations (e.g., a reputable brand like Walmart or Tesco) can provide assurance of quality.

2. Inseparability

What is Inseparability?

Inseparability means that services are produced and consumed at the same time. Unlike physical products, where production and consumption are separate processes (manufacture, inventory, and then sale), services are produced and consumed simultaneously. This means that:

  • The service provider and the customer interaction are essential elements of the service experience.
  • The process of production, the person providing the service, and the equipment used all play an important role in the service delivery.

Implications:

Since services cannot be separated from their production and consumption, businesses need to focus on ensuring that the process is smooth and consistent. For example:

  • Personalized service: The experience largely depends on the service provider (e.g., hairstylists, doctors, teachers).
  • Service environment: The setting, ambiance, and quality of interaction are key to customer satisfaction.

In industries like entertainment (movies, concerts), customers cannot know the quality of the service (movie or performance) until after consumption, which makes the service provider’s reputation even more important.

3. Variability

What is Variability?

Variability refers to the fact that the quality of a service can vary greatly depending on:

  • Who provides it (e.g., different hairdressers, doctors, or hotel staff)
  • When it is provided (e.g., peak vs. off-peak times)
  • Where it is provided (e.g., location differences)

Since service delivery is often influenced by human elements, it is highly susceptible to fluctuations. Even within established brands, variability can occur due to differences in how services are performed.

Implications:

To reduce the negative effects of variability and maintain consistent quality, businesses focus on:

  • Hiring the right people: The service employees should be well-trained and capable of delivering the desired level of service.
  • Standardizing processes: Developing Standard Operating Procedures (SOPs) or service blueprints helps in ensuring consistency in delivery.
  • Customer feedback: Continuously monitoring customer satisfaction and acting on their feedback helps improve and standardize the service over time.

4. Perishability

What is Perishability?

Perishability refers to the fact that services cannot be stored for later use. Unlike physical products, which can be produced, stored in inventory, and sold when needed, services are consumed as they are produced. This characteristic creates a challenge in managing supply and demand. If there are too many service resources (like employees or capacity) during certain periods and not enough during others, businesses face either:

  • Underutilization (too few customers during certain periods)
  • Overutilization (too many customers and not enough capacity to serve them)

Implications:

Because services cannot be stored, managing fluctuating demand becomes a key challenge. To address this, companies employ various strategies:

  • Demand-side strategies:
    • Differential pricing: Charge higher prices during peak hours and offer discounts during off-peak times to encourage demand during quieter periods.
    • Advanced reservations: Systems like hotel bookings or doctor appointments help in managing demand by guaranteeing a set number of customers at a specific time.
  • Supply-side strategies:
    • Part-time staff during peak hours: This helps in managing demand during busy times.
    • Efficiency routines: Training employees to handle peak periods effectively ensures better service delivery.
    • Customer participation: In models like IKEA, customers assemble their own furniture, thus reducing the company's service time and increasing customer engagement.

6.5.6 Service strategy

In this section, we will explore service strategy, beginning with an important classification of services based on consumer purchase behavior. Understanding this classification is crucial for developing a robust service strategy.

Classification of Services Based on Consumer Purchase Behavior

1. High Search Quality Services

  • Characteristics: Easier to evaluate before purchase with low perceived risk.
  • Examples: Clothing, jewelry, furniture, houses, automobiles.
  • Implication: Since these services have a strong product component and are easier to evaluate beforehand, media marketing and promotional positioning play a significant role. The consumer can make a decision based on readily available information such as product descriptions, reviews, and advertisements.

2. High Experience Quality Services

  • Characteristics: Evaluation is possible only after consumption, with medium perceived risk.
  • Examples: Restaurants, vacations, haircuts, saloons, childcare, babysitting.
  • Implication: Here, consumers cannot fully evaluate the service before consumption. To reduce post-purchase dissonance, strategies like satisfied customer testimonials, customer feedback, and the use of the 7 P’s (People, Process, Physical Evidence, Product, Price, Place, Promotion) are essential for building trust and loyalty.

3. High Credence Quality Services

  • Characteristics: Difficult to evaluate even after consumption, leading to high perceived risk.
  • Examples: Legal services, repair of technical instruments, medical services, consulting.
  • Implication: For these services, word of mouth, customer advocacy, and satisfied customer testimonials become crucial. Since results are not immediately apparent (e.g., in consulting or medical services), customers rely on long-term outcomes and personal experiences. Developing customer communities and encouraging positive word-of-mouth recommendations are key strategies.

Key Elements in Service Strategy

When developing a service strategy, it is essential to focus on the following three aspects:

1. Differentiation

  • How do you differentiate your service from competitors? This could be through unique offerings, superior customer service, or exclusive features.

2. Service Quality

  • Ensuring consistent service quality is vital. Frameworks like the SERVQUAL model by Parasuraman, Zeithaml, and Berry can help in assessing and improving service quality. Quality control and maintaining a high standard of service every time are critical for customer satisfaction and retention.

3. Productivity

  • How do you increase productivity without compromising service quality? This could involve streamlining processes, investing in technology, or improving employee efficiency.

Service Positioning

Service positioning is similar to product positioning, but the techniques of application differ. Here are some key points about service positioning:

1. Promotion

  • Product promotion is more visual, engaging the right brain with images, videos, and ads. On the other hand, service promotion is more verbal and relies heavily on communication to explain intangible aspects.
  • For services, newspapers, magazines, blogs, or websites are more commonly used as they provide detailed information that helps the consumer evaluate the service.

2. Service Distribution

  • Unlike products, services are employee- or equipment-dependent. Therefore, the service provider (staff) becomes an essential part of the service experience. Choosing the right distribution channels—whether through franchises, exclusive outlets, or own stores—ensures quality consistency across locations.

3. Pricing

  • Pricing decisions play a significant role in service positioning. The trade-off between price competition and superior service expectations needs to be considered. Some services can be a differentiator by themselves. For example, offering free home delivery in retail can differentiate a store without affecting the price of the product itself. However, if delivery is charged, it introduces a price-related decision into the equation.

4. Service as a Differentiator

  • Services themselves can be differentiators. For instance, home delivery can become a unique selling proposition (USP) in a competitive retail environment. If one retailer offers free delivery while others charge, the retailer offering free delivery stands out.
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