75 Service Marketing
75.1 What is a Service?
A service is “any act or performance one party can offer to another that is essentially intangible and does not result in the ownership of anything” — Kotler (kotler2021?). Services now constitute over half of GDP in most economies and a similar share in India.
75.2 Characteristics of Services — The Four I’s
Services differ from goods on four classical attributes:
| Characteristic | Working content | Marketing implication |
|---|---|---|
| Intangibility | Cannot be touched, tasted, smelled before purchase | Use tangible cues — branding, atmosphere, certifications |
| Inseparability | Production and consumption are simultaneous | Provider and customer interact directly |
| Inconsistency / Heterogeneity / Variability | Quality varies with provider, customer, time | Standardisation, training, quality controls |
| Perishability / Inventory | Cannot be stored | Manage demand and capacity carefully |
A fifth characteristic — non-ownership — is sometimes added.
75.3 Goods vs Services
| Dimension | Goods | Services |
|---|---|---|
| Tangibility | Tangible | Intangible |
| Production-consumption | Separable | Inseparable |
| Standardisation | Easy | Hard |
| Storage | Possible | Not possible |
| Ownership | Transferred | Not transferred |
| Transport | Yes | Generally no |
| Customer involvement | Low | High |
75.4 Classification of Services
| Basis | Categories |
|---|---|
| By target | Tangible actions on people (haircuts), tangible actions on things (laundry), intangible actions on people (education), intangible actions on things (banking) |
| By customer interaction | High-contact (consulting) vs Low-contact (online) |
| By customer type | Business-to-Consumer (B2C) vs Business-to-Business (B2B) |
| By industry | Financial, hospitality, healthcare, education, transport, IT |
| By degree of customisation | Standardised vs Customised |
75.5 The 7 Ps of Services Marketing
Services have four extra Ps added to the standard 4 Ps (Booms & Bitner 1981):
| P | Working content |
|---|---|
| Product | Service offering, features, brand |
| Price | List, discounts, terms |
| Place | Channels, location, online |
| Promotion | Advertising, PR, digital |
| People | Front-line staff, customers themselves |
| Process | Service-delivery flow |
| Physical evidence | Tangible cues — premises, branding, packaging |
75.6 Service-Quality Models
75.6.1 SERVQUAL — Five Dimensions
Parasuraman, Zeithaml and Berry (1985, 1988) developed SERVQUAL — a model that measures service quality across five dimensions (parasuraman1988?):
| Dimension | Working content |
|---|---|
| Reliability | Ability to perform the promised service dependably and accurately |
| Assurance | Knowledge and courtesy of employees and ability to convey trust |
| Tangibles | Physical facilities, equipment, appearance |
| Empathy | Caring, individualised attention |
| Responsiveness | Willingness to help and provide prompt service |
The SERVQUAL gap model identifies five gaps between expectation and perception:
| Gap | Source |
|---|---|
| Gap 1 — Knowledge gap | Difference between customer expectations and management perception |
| Gap 2 — Standards gap | Management perception vs service-quality specifications |
| Gap 3 — Delivery gap | Service quality specs vs actual delivery |
| Gap 4 — Communication gap | Actual delivery vs external communications |
| Gap 5 — Service gap | Customer expectations vs perceived service (the overall gap) |
75.7 Service Triangle
The Services Marketing Triangle (Kotler, Bowen, Makens) integrates three sets of marketing activities:
| Type | Between | Working content |
|---|---|---|
| External marketing | Company → Customer | Setting expectations |
| Internal marketing | Company → Employees | Training, motivating, empowering |
| Interactive marketing | Employees → Customers | The “moments of truth” |
75.8 Service Encounter — Moment of Truth
Jan Carlzon (1987), then CEO of SAS Airlines, popularised the Moment of Truth — every interaction between a customer and the service organisation is a moment in which the customer judges service quality. Carlzon estimated SAS had 50,000 such moments daily.
75.9 Customer Relationship Management (CRM) in Services
CRM in services aims to retain customers through relationship building. Key concepts:
| Concept | Working content |
|---|---|
| Customer Lifetime Value (CLV) | Net PV of all profits from a customer over the relationship |
| Customer acquisition cost (CAC) | Cost to acquire a new customer |
| Net Promoter Score (NPS) | Likelihood to recommend, on 0–10 scale |
| Churn rate | % of customers who leave per period |
| Loyalty programmes | Rewards for repeated purchase |
| Service-recovery paradox | Successful recovery from a service failure can build more loyalty than no failure |
75.10 Importance of Services in India
The services sector contributes more than 50 % of India’s GDP. Major sub-sectors: IT and IT-enabled services, banking and finance, trade, hospitality and tourism, transport, health, education, telecom, real estate, professional services. India is among the world’s top services exporters — particularly in IT and BPO.
75.11 Exam-Pattern MCQs
Q1. Which of the following is not a characteristic of services?
A. Intangibility B. Inseparability C. Storability for inventory D. Variability
Answer: C. Services are perishable — they cannot be stored.
Q2. Match each of the 4 I’s of services with an example:
| Characteristic | Example | ||
|---|---|---|---|
| (i) | Intangibility | (a) | Doctor must be present when patient is treated |
| (ii) | Inseparability | (b) | An empty seat on a flight is lost forever |
| (iii) | Inconsistency | (c) | A service cannot be touched before purchase |
| (iv) | Perishability | (d) | Two haircuts by the same barber differ in quality |
A. (i)-(c), (ii)-(a), (iii)-(d), (iv)-(b) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(b), (iv)-(c)
Answer: A.
Q3. The 7 Ps of services marketing add the following three Ps to the original 4 Ps:
A. People, Process, Physical evidence B. Profit, Productivity, Performance C. Place, Price, Promotion D. Privacy, Performance, Pricing
Answer: A. People, Process, Physical evidence (Booms and Bitner 1981).
Q4. Match each SERVQUAL dimension with its content:
| Dimension | Content | ||
|---|---|---|---|
| (i) | Reliability | (a) | Knowledge and courtesy of employees |
| (ii) | Assurance | (b) | Caring, individualised attention |
| (iii) | Empathy | (c) | Willingness to help and provide prompt service |
| (iv) | Responsiveness | (d) | Performing the service dependably and accurately |
A. (i)-(d), (ii)-(a), (iii)-(b), (iv)-(c) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(a), (iv)-(b) D. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a)
Answer: A.
Q5. The Service-Marketing Triangle identifies three types of marketing — external, internal and:
A. Cultural marketing B. Interactive marketing C. Inbound marketing D. Comparative marketing
Answer: B. Interactive marketing — the moments of truth between employees and customers.
Q6. Moment of Truth was popularised by:
A. Philip Kotler B. Jan Carlzon C. Theodore Levitt D. Christopher Lovelock
Answer: B. Jan Carlzon, CEO of SAS Airlines, in his 1987 book Moments of Truth.
Q7. Match each CRM concept with its description:
| Concept | Description | ||
|---|---|---|---|
| (i) | Customer Lifetime Value | (a) | % of customers who leave |
| (ii) | NPS | (b) | Net PV of profits over relationship |
| (iii) | Churn rate | (c) | Likelihood to recommend, 0–10 |
| (iv) | Service-recovery paradox | (d) | Recovered service failure builds more loyalty |
A. (i)-(b), (ii)-(c), (iii)-(a), (iv)-(d) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
Answer: A.
Q8. Match each SERVQUAL gap with its source:
| Gap | Source | ||
|---|---|---|---|
| (i) | Gap 1 | (a) | Service quality specs vs actual delivery |
| (ii) | Gap 2 | (b) | Customer expectation vs management perception |
| (iii) | Gap 3 | (c) | Management perception vs specifications |
| (iv) | Gap 5 | (d) | Customer expectation vs perceived service |
A. (i)-(b), (ii)-(c), (iii)-(a), (iv)-(d) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
Answer: A.
- Service — intangible act / performance; no transfer of ownership.
- Four characteristics: Intangibility, Inseparability, Inconsistency, Perishability (sometimes a fifth: non-ownership).
- 7 Ps of services: 4 Ps + People, Process, Physical evidence (Booms & Bitner 1981).
- SERVQUAL (Parasuraman, Zeithaml, Berry, 1988): RATER — Reliability, Assurance, Tangibles, Empathy, Responsiveness.
- 5 SERVQUAL gaps: knowledge, standards, delivery, communication, service.
- Services Marketing Triangle: External, Internal, Interactive marketing.
- Moment of Truth — Jan Carlzon (SAS, 1987).
- CRM concepts: CLV, CAC, NPS, churn rate, loyalty programmes, service-recovery paradox.
- India: services sector > 50 % of GDP; IT, BPO, banking, hospitality dominant.